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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED];
For the transition period from _____________________ to
_____________________;
COMMISSION FILE NUMBER: 0-26684
GLOBAL INTELLICOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 13-3797104
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or
organization)
747 THIRD AVENUE,
NEW YORK, NEW YORK 10017
(Address of principal (Zip Code)
executive offices)
</TABLE>
Registrant's telephone number, including area code: (212) 750-3772
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. Yes ___ No ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of April 19, 1998 was approximately $11,003,750 (based on the
average between the closing bid and asked prices of Common Stock on such date),
which value, solely for the purposes of this calculation, excludes shares held
by Registrant's officers and directors. Such exclusion should not be deemed a
determination by Registrant that all such individuals are, in fact, affiliates
of the Registrant.
As of April 10, 1998 there were outstanding 7,952,345 shares of the
Registrant's common stock, par value $.01 per share (the "Common Stock").
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PART I
ITEM 1. BUSINESS
GENERAL
Global Intellicom, Inc. (together with its subsidiaries, "Global" or the
"Company") provides system integration and information technology services and
assembles and supplies build-to-suit computer equipment for a wide range of
customers, including corporate clients, governmental entities, institutions,
professional users and resellers.
The Company's subsidiaries and operations have been organized into two
distinct groups, a systems integration division consolidated under the Company's
Vircom Technologies Group, Inc. subsidiary ("Vircom TG"), and a production
division which assembles and markets custom-built servers, workstations and
personal computers.
Vircom TG is a value-added reseller which provides a range of information
technology consulting services, including cabling, systems integration, internal
and external linking of networks, installation of new applications, assistance
with non-compatible operating systems and architectures, and design and support
services for enterprise-wide client server computer systems. The Company's
production division ("Global-InSync") assembles, supplies and supports
state-of-the-art, custom-built network products, including servers, workstations
and personal computers, and markets them primarily to U.S. government, state
educational and school system customers and to value-added resellers.
COMPANY HISTORY
Global was incorporated in September, 1994, and became a publicly-owned
company through a distribution of its shares under a registration statement
declared effective by the Securities and Exchange Commission on September 1,
1995. The Company's shares were listed for trading on the Nasdaq SmallCap Market
in May, 1996.
The Company has grown both through acquisitions, including Nevcor (1994),
Natcom (1995), Global In-Sync and Speech Solutions (1996) and ASDI (1997), and
through internal expansion. The aggregator operations of the Company's Nevcor
subsidiary were discontinued in 1997, but the Company's distribution of
brand-name products as a value-added reseller continues in Vircom TG. The
consolidation of Global's operations into two divisions recognizes that a
narrower focus in products, services and markets is a necessary basis for an
increase in sales and profit margins, and is expected to prove more beneficial
to the Company in the long term than pursuing the wholesale distribution of
computer products at every market level.
VIRCOM TG
Vircom TG offers a wide range of systems integration services, including
state-of-the-art cabling installation for both local and wide area networks.
Vircom TG provides analysis of needs, system configuration, installation of
fiber optic, wireless or conventional network circuitry, network integration,
software loading, testing of system components, training of network personnel
and system maintenance. As a value-added reseller, Vircom TG also supplies
computer hardware and software and other peripheral equipment to basic computer
system components furnished for the corporate, government, education, and
professional end-user, and can offer products from major brand-name suppliers
such as Compaq, IBM, Digital, Hewlett Packard, NCR, Sun MicroSystems, Microsoft
and Novell under distributor or reseller agreements.
By furnishing such a range of services, the Company believes it can combine
the elements needed to offer a complete system or, in the Company's view, a
"total solution" to meet client needs. Global's
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management believes that selling complete systems rather than separate
components can generate repeat business and more loyal customers, and is more
likely to yield higher margins. Moreover, the ability to provide cabling
installation and diversified systems integration services is expected to
position the Company to meet additional information system needs of larger
multi-divisional organizations.
Vircom TG has a professional service placement bureau that has developed,
from its client base and various professional contacts, a database of potential
information technology candidates for full and part-time placement. The Company
intends to offer its clients fee-based access to this database.
Vircom TG's information technology, systems integration and cabling services
are sold to a diversified customer base which includes large corporate and
governmental users of such services, such as Lockheed Martin, Lucent
Technologies, PNC Bank, Smith Barney, Westinghouse, IKEA, Saturn, Widener
University, Avis and the U.S. Coast Guard.
GLOBAL-INSYNC
Through Global-InSync, the Company assembles and markets its own
state-of-the art, Pentium-Registered Trademark--class, customized servers,
workstations and personal computers, built to individual customer specifications
in the Company's facilities in Springfield, Virginia. Custom-built Global-InSync
products are particularly suited for situations where standard models of
name-brand equipment are either not cost-effective, are not flexible enough to
fill a particular client need, or are not available in quantity on an agreed
delivery schedule.
The Company's workstations are configured on either
Pentium-Registered Trademark-or Pentium-Pro-Registered Trademark- processors,
and file servers are based on both Pentium Pro and multi-processor components.
InSync product offerings include ISA, EISA and PCI architecture, desk-top,
mid-tower or full-tower cases, enhanced IDE and SCSI hard drive platforms,
CD-Rom drives, RAID array subsystems and Energy Star compliant monitors. Global-
InSync's workstations and file-servers are certified for use with Novell network
software, Windows 95 and Windows NT, and Global-InSync is a certified
build-to-order supplier of workstation products for the General Services
Administration.
Global-InSync products and associated warranty and repair services are
distributed primarily through third-party value-added resellers and systems
integrators who, in turn, sell the products and various services to commercial
enterprises and governmental users.
In connection with consolidating operations of its various units and seeking
to increase overall profit margins, the Company is considering various
alternatives for expanding production capacity and improving operating margins
at Global-InSync, including the possible outsourcing and subcontracting of
certain production runs where cost-effectiveness is established.
MARKETING, SALES AND CUSTOMERS
Global markets products and services to approximately 1,000 customers,
including corporations, government agencies, educational and other institutions,
professional users, value-added resellers and value-added dealers. Although
products and services are marketed nationwide, the majority of sales are to
customers located in the eastern half of the United States.
A major customer of the Company, particularly of its Global-InSync division,
is Lockheed Martin, sales to which accounted for more than 20.8% of the
Company's revenues in 1996 and 22.0% of revenues from continuing operations in
1997. A significant reduction in sales to such customer or a loss of the
customer account would have a materially adverse effect on the Company's
business and results of operations, unless the Company were able to replace such
sales and account, as to which there can be no assurance.
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At the end of 1997, the Company had a purchase order backlog, reasonably
believed to be firm, of approximately $1.7 million.
The Company's marketing and sales staff consisted of approximately 75
employees as of March 31, 1998. Marketing and sales efforts emphasize product
quality and diversity, prompt delivery, competitive pricing and a high level of
product support, for which Global's technical support staff is utilized.
Training of sales personnel includes product seminars conducted by manufacturers
and certification by certain manufacturers of individual sales representatives
as being qualified to market specific equipment.
In addition to servicing and furnishing post-sale support to existing
customers, the Company's sales force solicits new business by pursuing leads
from manufacturers with whom Global has distribution relationships, by
contacting prospects identified through other industry sources, by direct mail,
by telephone campaigns, by participation in trade shows, and by advertising in
trade publications.
SUPPLY OF PRODUCTS OF OTHER MANUFACTURERS
Except for equipment produced by the Company's Global-InSync division, the
Company purchases products directly from distributors or manufacturers. In
seeking suppliers, the Company considers product demand, availability and
performance, technical sophistication and profit margin potential.
Until the Company discontinued its aggregator business in the summer of
1997, the Company purchased, and carried in inventory, a substantial amount of
computer products and accessories directly from various manufacturers such as
NEC and NCR, under a number of vendor agreements containing customary industry
terms and conditions, such as minimum purchase requirements, stock rotation,
price protection and product updating and obsolescense provisions. Since
discontinuing the aggregator business, the Company has purchased much of its
product inventory from distributors, although it continues to have reduced
vendor relationships with certain manufacturers.
While computer information system equipment is generally available on a
continuous basis, the demand for certain products sold by the Company
occasionally exceeds the supply available from a specific distributor or
manufacturer. In such cases, the distributor or manufacturer may attempt to
allocate the affected product equitably among their customers, including the
Company. Global's management is aware that the Company's ability to compete
effectively has been and may be periodically affected by such occasional product
shortages, and management accordingly seeks constantly to expand the base of
distributors and other vendors from whom it obtains products.
The Company receives quarterly credits on the purchase of certain vendors'
products. The amount of each vendor's credits depends upon the quantity of
products purchased or the Company's cost of products shipped. Such credits are
reflected in the Company's financial statements as a reduction of product
inventory cost when earned.
COMPETITION
Competition in the integration of computer systems and the supply of
computer system equipment remains intense. The Company's competitors in systems
integration services include national, regional and local distributors,
resellers and integrators, most of which are privately held, and, accordingly,
information on their size and business is not readily available although the
Company believes there are a significant number of competitors having
substantially greater resources than Global. Competitors of Global-InSync in the
production of custom-built servers, workstations and personal computers include
Compaq, Comp USA, Dell, Gateway and Hewlett Packard, all of which are vastly
larger than the Company in revenues and in financial, sales and other resources.
Key competitive factors in the supply of systems integration services and
computer network workstations and accessories include availability of technical
support personnel, competence in and familiarity with a variety of computer
equipment and software, prompt response times, product selection and price.
While
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a number of national and regional integrators and suppliers of computer systems
have substantially greater financial resources and larger staffs than the
Company, the Company views its emphasis on service and technical support, and
its offering of total systems and total solutions for customers, as a
competitive strength.
FLOORPLAN FINANCING ARRANGEMENTS
In addition to selling products against immediate payment, Global extends
payment terms to customers with approved credit, based upon their financial
profile and credit history, and to purchasers who have qualified for certain
floorplan financing when available. During 1997, to facilitate sales to certain
customers, the Company had floorplanning agreements with certain financial
institutions. Such floorplanning agreements transfer responsibility for payment
from a customer of Global to the floorplan finance company, which pays Global,
generally within 3 to 15 days of shipment. The Company is typically required to
pay the finance company a range of floorplan "points" based on the invoice price
of the products purchased.
Until September, 1997, the Company had an active floorplan financing
arrangement with an industry floorplanner, which was used primarily for
purchasing inventory for the Company's aggregator operations. As previously
reported, the Company has discontinued such operations and has not been using
the floorplanning facility. Balances owed to the floorplanner are being reduced
on a periodic basis.
FINANCING OF ACCOUNTS RECEIVABLE; CUSTOMER CREDIT
The Company has a factoring facility with a financial institution (the
"Lender"), under which the Lender purchases receivables from the Company on a
recourse basis. Global views its relationship with the Lender to be important
and beneficial, and the loss of such relationship, if not replaced, could have a
materially adverse effect on the Company's business, financial condition and
results of operations. While the Company believes it could obtain a replacement
factoring facility if necessary, there is no assurance it will be able to do so
within a specific time period or on terms which would be satisfactory.
The Company uses a Credit Committee composed of Global officers and
employees to monitor and control its credit exposure on customer receivables.
The Credit Committee undertakes background credit checks for all proposed
customers. Assuming credit is acceptable, the Credit Committee establishes
limits on the amount of outstanding receivables which a customer can incur.
Orders in excess of this limit may only be authorized by the Credit Committee.
Customers who fail to adhere to agreed credit terms are contacted, and the
Company ordinarily discontinues shipments until acceptable credit standing is
reestablished.
RECENT EQUITY FINANCING
As of February 20, 1998, the Company had completed the sale of 2,200 shares
of Series 6 Convertible Preferred Stock of which 1,200 shares were sold in 1997
and 1,425 shares of Series 7 Convertible Preferred Stock to investors in private
placement transactions, receiving aggregate net proceeds of $3,255,500 from the
financing. Such financing proceeds have been used for the carrying of inventory
and receivables and for reduction of accounts payable, increasing the Company's
working capital base.
As provided in the Certificates of Designation for the Series 6 and Series 7
Convertible Preferred Stock, such shares have a liquidation preference of $1,000
each, are non-voting, and carry a dividend of $50.00 per year, payable
semi-annually. At the election of the Company, dividends may be paid in shares
of Common Stock, priced at the five-day average closing bid price of Common
Stock prior to the dividend record date. Shares of Series 6 and Series 7
Preferred Stock are convertible into Common Stock at a conversion price equal to
75% of the five-day average closing bid price per share of Common Stock
immediately prior to conversion. The Company may call such shares for redemption
at a price equal to 133% of the liquidation preference of the shares. The
Company is obligated to register for public sale the
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shares of Common Stock issuable to holders of Series 6 and Series 7 Convertible
Preferred Stock, and has filed with the Securities and Exchange Commission a
pending registration statement in which such shares, along with other
securities, are included.
The Company has filed a Certificate of Designation authorizing the future
private sale of up to 1,500 shares of Series 8 Convertible Preferred Stock,
which, at a price of $1,000 per share, could generate gross proceeds of up to
$1,500,000 for the Company. To date, the Company has received subscriptions for
the purchase of 325 shares.
Series 8 Preferred shares are non-voting, have a liquidation preference of
$1,000 each, and will carry a 5% dividend payable in cash or in shares of Common
Stock at the election of the Company. Shares of Series 8 Preferred Stock are
convertible into Common Stock at a 25% discount to the five-day average closing
bid price per share. Series 8 shares are callable at the option of the Company
at a redemption price equal to 133% of their liquidation preference. Holders of
Series 8 Preferred shares will have registration rights similar to those granted
to holders of Series 6 and Series 7 Convertible Preferred Stock.
EMPLOYEES
As of December 31, 1997, the Company had 204 full-time employees, including
75 persons employed in sales and marketing functions, 66 persons in production
and assembly, nine persons involved in technical support roles, ten persons
involved in purchasing and warehouse functions, and 44 persons involved in
executive, administrative, and finance functions. Global considers its relations
with its employees to be good.
CERTAIN TRANSACTIONS
In January, 1998, the Company's Board of Directors voted $676,382.80
additional compensation to the Company's Chairman and Chief Executive Officer N.
Norman Muller attributable to 1997. Of that additional compensation, $359,216.03
was in consideration for Mr. Muller extending his personal guarantee for some of
the Company's indebtedness. The additional compensation was offset against loans
owed by Mr. Muller to the Company.
The Company's Executive Vice-President, Howard Maidenbaum, has also extended
personal guarantees of all the same indebtedness of the Company as that
guaranteed by Mr. Muller. Both Mr. Muller and Mr. Maidenbaum are also directors
of the Company. Another of the Company's directors, Thomas W. Smith, has
personally guaranteed one of the obligations also guaranteed by Mr. Muller and
Mr. Maidenbaum. The Company's Board of Directors has not as yet determined what
consideration, if any, will be given to Mr. Maidenbaum and Mr. Smith for their
guarantees.
Additionally, Mr. Muller has informed the Company that he has become the
Manager of a limited liability corporation (the "LLC") formed for the purpose of
acquiring control of a public corporation other than the Company. The target of
the LLC's efforts is in an industry different from and unrelated to the
Company's business. The LLC has acquired greater than 5% of the voting stock of
its target, and has commenced litigation against the management of its target.
ITEM 2. PROPERTIES
COMPANY FACILITIES
The Company's facility for the assembly of the network products of
Global-InSync consists of a 52,000 square foot plant in Springfield, Virginia,
and is occupied under a lease expiring in 2001. As a result of a change to
just-in-time inventory, management of the InSync Subsidiary is considering
replacing its current premises with a smaller facility. InSync is currently in
arrears on its rental payments and has commenced negotiations to resolve these
lease issues. Vircom TG's principal office and warehouse is located in Exton,
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Pennsylvania, under a lease expiring in 2004, and the Company also maintains
office facilities in Florida, Indiana, New Jersey and New York. The Company's
corporate and executive offices are at 747 Third Avenue, New York, New York
10017, and are occupied under a lease expiring in 2005.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in the following legal proceedings:
1. An action pending in the Supreme Court of the State of New York, entitled
SUNCOAST CAPITAL CORP. V. GLOBAL INTELLICOM, INC., ET AL., commenced on or about
September 18, 1997 against the Company and three of its officers and directors
by a holder of a warrant issued by the Company for claimed damages of
$1,000,000, alleging that the Company breached the terms of the warrant by
failing to register for public sale shares of Common Stock issuable on exercise
of the warrant. The Company has included these shares in its presently pending
registration statement on Form S-3, has asserted as an affirmative defense that
the transaction in connection with which the warrant was issued was void under
New York's usury law, and has counterclaimed for $29,666.57. The Company has
moved for summary judgment dismissing the complaint and intends to continue to
defend the action vigorously.
2. An action pending in the Pennsylvania Court of Common Pleas, Delaware
County, entitled SCOTT ARCH AND ELLEN ARCH V. AMCOM BUSINESS CENTERS CORP., ET
AL., commenced on or about October 30, 1996 by the former owners of the
Company's Nevcor subsidiary against the subsidiary and two of the Company's
directors as guarantors, claiming $93,449 in tax reimbursements alleged to be
due under the Nevcor acquisition agreement and a subsequent modification
thereof. The Company believes that Plaintiffs' calculations are in error and
that Plaintiffs have been paid in full. The Company has provided Plaintiffs with
accounting computations supporting the Company's position and is awaiting
Plaintiff's response thereto.
3. An action pending in the Pennsylvania Court of Common Pleas, Delaware
County, entitled GROVE AVENUE CORP. F/K/A AMCOM BUSINESS CENTERS CORP. V. GLOBAL
INTELLICOM, ET AL., commenced on or about September 30, 1997 by the corporate
entity which sold the assets from which the Nevcor and Vircom subsidiaries were
created, against the Company and certain of its subsidiaries for unspecified
damages claimed to be in excess of $50,000, for payments alleged to be due
pursuant to the acquisition agreement and a subsequent modification thereof.
Required payments were to be calculated as a percentage of the gross sales of
AmCom and Vircom. The complaint alleges that payments based on actual AmCom and
Vircom sales are due and owing, and that the Company diverted sales from AmCom
and Vircom to other subsidiaries to avoid payment. The Company vigorously
disputes that any sales were diverted, and, although conceding that some
payments are due, disputes the amounts claimed by Plaintiff. The Company is
actively attempting to resolve this dispute.
4. An action pending in the Pennsylvania Court of Common Pleas, Montgomery
County, entitled LAWRENCE FOX V. GLOBAL INTELLICOM, INC., ET AL., commenced on
or about August 21, 1997 for unspecified damages in excess of $50,000 for
alleged breach of a brokerage contract for a corporate acquisition, as well as
claims for unspecified further actual and punitive damages for fraud and other
allegedly tortious conduct. The Company filed preliminary objections to all
except the breach of contract claims, and the Company's preliminary objections
were sustained so that all claims except for the alleged breach of contract were
dismissed. The Company contends that the corporate acquisition in question was
never consummated so that no brokerage commission is owed. The Company is
vigorously defending this action.
5. An action pending in the United States District Court for the District of
New Jersey, entitled GREEN TREE VENDOR V. GLOBAL INTELLICOM, INC. ET AL.,
commenced on or about April 14, 1998, alleging payments due in the amount of
approximately $260,000 for leased equipment. Company counsel has not yet
reviewed the complaint in this action, but has been advised by Global that the
claimed amount is not due and that
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Global's records reflect that the amount owed, if any, is far less than the
amount demanded. The Company intends to defend this action vigorously.
6. An action pending in the Supreme Court of the State of New York, County
of New York, entitled FAWCETTE TECHNICAL PUBLICATIONS CO. D/B/A VISUAL BASIC
PROGRAMMER'S JOURNAL V. GLOBAL INTELLICOM INC., ET AL., claiming $48,599.90 due
for printing services rendered for one of the Company's subsidiaries which has
discontinued its operations. The Company denies that this amount is due and its
records reflect that the amount owed, if any, is far less than that demanded.
The Company is vigorously defending this action.
7. On or about April 15, 1998, Bell Micro Products, a supplier of the
Company's Global-InSync subsidiary, commenced an action in the United States
District Court for the Eastern District of Virginia against the Company and
Global-InSync, alleging payments due to Bell Micro in the amount of $784,556.43.
The Company has not yet had the opportunity to evaluate the merits of Bell
Micro's claim.
In addition to the foregoing, the Company's Board of Directors previously
voted to indemnify certain of the Company's officers and directors ("the
Indemnitees") who were former officers and/or directors of Global's former
parent company, Communications and Entertainment Corp. ("ComEnt"), for claims
against the Indemnitees arising out of their prior service on behalf of ComEnt,
in the event that ComEnt failed to honor an obligation it previously undertook
to indemnify the Indemnitees with respect to any such claims. Two claims within
the scope of ComEnt's indemnification obligation have been asserted against
certain of the Indemnitees, but ComEnt has declined to honor its obligations
under its indemnification. Pursuant to the action of the Company's directors in
authorizing such indemnification, the Company has paid certain legal fees and
related expenses in connection with the defense of such claims. The pending
claims against certain of the Indemnitees, and the status thereof, are:
A. An action in the United States District Court for the Central
District of California entitled DIANA PFANNEBECKER, INDIVIDUALLY AND
ON BEHALF OF ALL OTHER SIMILARLY SITUATED PLAINTIFFS V. N. NORMAN
MULLER, ET AL. From information made available to the Company, it
appears that this action has been dismissed by the District Court,
and an appeal to the United States Court of Appeals for the Ninth
Circuit from the dismissal is presently pending.
B. An action pending in the California Superior Court, Los Angeles
County, entitled KRISHNA SHAH V. N. NORMAN MULLER, ET AL. The Company
has been advised that a tentative settlement agreement has been
reached and the parties are in the process of preparing the necessary
documentation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Common Stock of Global is listed on the NASDAQ Small Cap Market under
the symbol GBIT. The following table sets forth the high and low bid prices of
Common Stock as reported on NASDAQ for each calendar quarter during the year
ended December 31, 1997 and for the period from May 16, 1996 (when Global's
Common Stock was first listed on NASDAQ) to December 31, 1996:
<TABLE>
<CAPTION>
BID
--------------------
1997 HIGH LOW
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January 1 through March 31................................................... $ 3.25 $ 1.81
April 1 through June 30...................................................... 2.88 1.72
July 1 through September 30.................................................. 3.13 2.16
October 1 through December 31................................................ 2.69 1.41
</TABLE>
<TABLE>
<CAPTION>
BID
--------------------
1996 HIGH LOW
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<S> <C> <C>
May 16 to June 30, 1996......................................................... 6.88 4.00
July 1 to September 30, 1996.................................................... 6.00 2.75
October 1 to December 31, 1996.................................................. 6.00 1.88
</TABLE>
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From November 13, 1995 to May 16, 1996, Global's Common Stock was listed on
the OTC Bulletin Board under the symbol "GBIT." The high and low bid quotations
for the Common Stock from November 13 to December 31, 1995, as reported on the
OTC Bulletin Board, were $3.25 and $1.00, respectively. The high and low bid
quotations on the OTC Bulletin Board for the first quarter of 1996 were $7.38
and $3.00, respectively.
The bid quotations represent inter-dealer prices and do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
No dividends have been declared or paid with respect to the Common Stock.
As of April 10, 1998, there were approximately 3,657 record holders of the
Company's Common Stock and 7,952,345 shares of Common Stock outstanding.
ISSUANCE OF SECURITIES NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
The following unregistered securities were issued by the Company in 1997:
(a) In January, 1997, the Company issued an aggregate of 589,439 shares
of Common Stock in conversion of shares of Series 1 and Series 4 Convertible
Preferred Stock previously sold by the Company in 1996 private placement
financing transactions under Regulation S. The Regulation S financing
transactions were described in quarterly reports filed by the Company in
1996.
(b) In May, 1997, the Company issued an aggregate of 24,326 shares of
Common Stock to Avonwood Capital Corp. in lieu of payment of consulting fees
in the amount of $60,000 and in consideration of the early termination of a
consulting agreement.
(c) In September, 1997, in connection with the Company's acquisition by
merger of the shares of Automated Systems Development of Indiana, Inc.
("ASDI"), the Company issued a total of 785 shares of Series 5 Convertible
Preferred Stock, having a liquidation preference of $1,000 per share and
convertible into Common Stock at a ratio of one share of Common Stock for
each $10.00 of liquidation value. The Series 5 Convertible Preferred shares
were issued in payment of a portion of the purchase price paid for ASDI.
(d) In September, 1997, the Company issued an aggregate of 15,000 shares
of Common Stock to nine former stockholders of Natcom in lieu of a payment
of $48,000 due under the terms of the Company's September, 1995 acquisition
of Natcom.
(e) In December, 1997, the Company issued a total of 1,200 shares of
Series 6 Convertible Preferred Stock to two institutional investors in
connection with a private placement financing. See "Recent Equity Financing"
in Item 1, above.
All of the securities described in paragraphs (b) through (e) above were
issued with standard restrictive legends, and stop transfer instructions were
filed with the Company's transfer agent in connection therewith. Such issuances
represented private transactions, and no underwriter or public offering was
involved. By reason of the foregoing facts, the Company claims exemption for
such issuances as private transactions pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
With respect to the issuances of shares of Common Stock upon conversion of
Series 1 and Series 4 Convertible Preferred Stock referred to in paragraph (a)
above, such shares were issued without restrictive legend pursuant to the
provisions of Regulation S and after (i) the expiration of holding periods
required by Regulation S and (ii) the receipt of legal opinions from attorneys
for the purchasers of Series 1 and 4 Preferred Stock.
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
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COMPANY PREDECESSOR COMPANY
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YEAR YEAR YEAR JANUARY 1 YEAR
ENDED ENDED ENDED 1994 TO ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1995 1994(1) 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $51,235,126 $28,054,341 $8,769,599 6,411,975 7,462,184
Income (loss) from
Continuing operations.................... (2,302,808) (706,493) 203,332 97,943 225,343
Discontinued operations.................. (7,133,152) (378,895) 66,851 251,854 611,059
Income (loss) per share from
Continuing operations.................... (0.34) (0.22) 0.07 N/A N/A
Discontinued operations.................. (0.95) (0.11) 0.02 N/A N/A
Pro forma net income (2)................... N/A N/A N/A 58,825 135,633
Pro forma net income per share............. N/A N/A N/A N/A N/A
Shares used in computing net income (loss)
per share................................ 7,481,307 3,527,053 2,927,170 N/A N/A
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Working capital (deficit).................. $(6,783,555) $ 3,930,788 $(1,106,451) 516,965 765,762
Total assets............................... 18,934,967 22,822,892 11,313,831 5,988,568 5,936,352
Due to financial institutions.............. 3,269,418 1,711,429 4,994,135 4,546,657 4,793,856
Stockholders' equity....................... 1,892,299 9,625,172 2,329,524 903,199 853,402
</TABLE>
- ------------------------
(1) The Company was incorporated on September 1, 1994. The Company purchased the
net assets of the Predecessor Company on December 8, 1994 and commenced
operations on that date.
(2) Pro forma net income has been presented to show results of operations
assuming the Predecessor Company filed its income tax return as a C
corporation.
(3) See Notes 2 and 20 of Notes to the Consolidated Financial Statements for an
explanation of the calculation of shares used in computing net income (loss)
per share.
(4) The Predecessor Company's continuing operations for 1994 and 1993 represent
its non-aggregator activities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
BACKGROUND
In December, 1994, Global acquired the assets and business of a predecessor
company. Effective September 1, 1995, pursuant to a registration statement filed
with the Securities and Exchange Commission, a public distribution of 850,000
shares of Global's Common Stock was made to shareholders of another publicly
held entity, as a result of which Global became a reporting public company.
10
<PAGE>
On September 28, 1995, the Company acquired Natcom, and, effective September
1, 1996, the Company purchased the business now operated through Global- InSync.
Effective July 1, 1997, the Company discontinued its Nevcor aggregator
operations as a result of a decision by NEC, which accounted for more than 90%
of Nevcor's business, to cease distributions through the aggregator channel.
Effective August 1, 1997, the Company discontinued its Speech Solutions
operations as a result of management's decision that the ratio of capital
requirements to revenue for a software developer such as Speech Solutions was
incompatible with the overall focus of the Company and its subsidiaries.
With respect to the Company's continuing operations, the following
discussion and analysis compares: (i) the operating results of the Company for
the year ended December 31, 1997 with the operating results of the Company for
1996 (which includes the operating results of Global InSync from September 1,
1996 to December 31, 1996; (ii) the Company's operating results for 1996 as
compared with the operating results of the Company for 1995 and; (iii) due to
discontinued operation of Nevcor, no comparison is possible with the operating
results of the Company for the year 1995 with the operating results of the
Company for the period from Global's inception on September 1, 1994 through
December 31, 1994. All comparison information reflects restatement of financials
as a result of the discontinued operations.
Also included is a discussion and analysis of the Company's financial
condition and liquidity as of December 31, 1997. The following text should be
read in conjunction with the Company's Consolidated Financial Statements
contained in this report.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 AS COMPARED WITH RESULTS FOR
THE YEAR ENDED DECEMBER 31, 1996
NET SALES
Net Sales increased to $51,235,126 for the year ended 1997 from $28,054,341
for the year ended 1996, an 83% increase. The increase in Global's net sales for
1997 was due to increased sales efforts.
GROSS PROFIT
As a result of increased sales, the Company's gross profit for 1997 rose to
$6,567,644 from $4,275,166 for 1996, an increase of $2,292,475. Overall gross
profit for the two years as a percentage of sales amounted to 12.8% in 1997 and
15.2% in 1996. The decrease in gross profit percentages is mainly as a result of
increased sales at the InSync subsidiary, which traditionally sells at lower
margins.
OPERATING EXPENSES
Operating expenses for 1997 rose significantly to $7,822,729 from 1996's
level of $5,202,193, a 50% increase. The increase is primarily due to expenses
associated with additional sales, marketing and technical support personnel,
along with expenditures in integrating acquired operations.
OTHER EXPENSES
Other expenses rose to $1,557,852 for 1997 from $238,803 for 1996, a
$1,319,049 increase. The increase was primarily due to a reserve being carried
as a result of an indemnitor refusing to honor an indemnification agreement for
which the Company has agreed to act as secondary indemnitor. See discussion
under Item 3, "Legal proceedings."
11
<PAGE>
PROVISION FOR INCOME TAX CREDITS
The 1997 benefit for income taxes was $510,129, compared with a benefit of
$459,337 for 1996. The deferred tax benefits are based on deferred tax assets.
INCOME (LOSS) FROM CONTINUING AND DISCONTINUED OPERATIONS
For 1997 the Company generated a loss of ($2,302,808) after operating and
other expenses, compared to loss of (706,493) after operating and other expenses
in 1996. The increase in the loss was caused primarily by a decrease in the
gross profit margins and an increase in expenses as mentioned above. In 1997,
the Company discontinued the Nevcor and Speech Solutions businesses. Of the
Company's aggregate 1997 loss of $9,435,960, the loss from discontinued business
was $7,133,152. The loss from these discontinued businesses was $378,895 in 1996
and $111,418 in 1995.
NET INCOME (LOSS) PER SHARE
As a result of the factors discussed above, the net loss for 1997 was
($9,435,960) and the net loss per share was ($1.29), as compared to a net loss
of ($1,085,388) and a net loss per share of ($.33) in 1996. The per share
calculation is based on the weighted average number of shares outstanding.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1995
(CONTINUING OPERATIONS)
NET SALES
Net sales increased to $28,054,341 for the year ended 1996 from $8,769,599
for the year ended 1995, a 220% increase. Net sales of InSync from the effective
date of its acquisition on September 1, 1996 to December 31, 1996 were
$13,985,710. Net sales of NATCOM for the full 1996 year were $5,315,711 compared
to $2,356,670 from the date of its acquisition on September 28, 1995 to December
31, 1995. The increase in Global's aggregate net sales for 1996 were primarily
due to the InSync and NATCOM acquisitions.
GROSS PROFIT
The Company's gross profit for 1996 rose to $4,275,166 from $680,215 for
1995, with the gain of $3,594,951 representing contributions from a full year of
operations of NATCOM and four months of operations of InSync in 1996. Overall
gross profit for the two years as a percentage of net sales amounted to 15.2% in
1996 and 7.7% in 1995, although these amounts are not representative of a
comparison based on consistent full-year results because of the timing of the
NATCOM and InSync acquisitions.
OPERATING EXPENSES
Operating expenses for 1996 rose substantially, to $5,202,193 from 1995's
level of $720,969, a 622% increase. Of the $4,481,224 increase, $2,338,916
represents incremental operating expense resulting from the inclusion of a full
year of operations of NATCOM and four months of operations of InSync in 1996,
and the remaining $2,142,308 represents additional investment in sales,
marketing and administrative personnel, along with expenditures in integrating
acquired operations.
OTHER EXPENSES
Other expenses, principally interest expense, rose to $238,803 for 1996 from
other income of $13,778 for 1995, or a $252,581 increase. The increase in 1996
interest expense was primarily due to higher costs associated with short-term
bridge loans earlier in the year, as well as to an increase in indebtedness to
the Company's factor and financial institution because of higher operating
levels.
12
<PAGE>
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAX CREDITS
For 1996, the Company generated a loss of ($1,165,830) after operating and
other expenses, compared to a loss before tax credits of ($26,976) in 1995, as
the gains in gross profit from the full-year of operations of NATCOM and from
the four-month contribution of InSync were more than offset by the increases in
such expenses as noted above.
PROVISION FOR INCOME TAX CREDITS
The 1996 benefit for income taxes was $459,337 compared with a benefit of
$230,308 for 1995. The deferred tax benefits are based on deferred tax assets
which are considered realizable.
NET INCOME (LOSS) PER SHARE
As a result of the factors discussed above, the net loss for 1996 was
($1,085,388) and net loss per share was ($.33), as compared to net income of
$270,183 and net income per share of $.09 for 1995. The per share calculation is
based on the weighted average number of shares outstanding.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash balance at year-end was $138,469 and it had a working
capital deficit of ($6,783,555), compared to cash of $1,516,072 and working
capital of $3,930,788 at the end of 1996. Cash used in operations was
$2,970,785, compared to a cash flow of $1,048,307 in 1996.
The Company has a factoring agreement under which it factors trade
receivables. The maximum aggregate amount available under the factoring facility
is $9,000,000, receivables are handled on a recourse basis. The Company's
obligations under the factoring arrangement are personally guaranteed by two of
the Company's directors.
Since inception, the Company has been actively engaged in making
acquisitions of related businesses. Under existing acquisition agreements, the
Company has a variety of commitments, as described below.
In accordance with the agreements relating to the acquisition of NEVCOR, the
Company is required to pay a contingent payment based upon 1/2% of NEVCOR's net
sales which was due quarterly during 1996, and monthly after January 1, 1997
thereafter. The Company believes that no payments are required subsequent to the
discontinuance of NEVCOR.
13
<PAGE>
The acquisition and related employment agreements pursuant to which the
Company acquired Natcom in 1995 required the Company to make various installment
payments. Effective as of December 31, 1997, the Company negotiated the
termination of such agreements and accepted the resignation of Natcom's
President. The termination arrangements provide for a total payment to the
former Natcom shareholders of $177,000, which payment may be made by the
issuance of an aggregate of 85,500 shares of the Company's Common Stock. The
Company may also issue an aggregate of 150,000 shares of Common Stock to certain
former Natcom officers in consideration of such officer's entering into binding
non-compete agreements. The non-compete shares vest over a two-year period and
the non-competition agreements expire December 31, 1999. After considering and
evaluating a possible discontinuance of certain Natcom operations, the Company
has determined that Natcom's operations should not be discontinued and should
instead be organized and consolidated in the Vircom TG division.
Future commitments for the Company's acquisition of the InSync business
include a promissory note, guaranteed by the Company, for $1,486,084, (the
"First Note") bearing interest at 9% per annum and a second promissory note,
guaranteed by the Company, for $470,000 ("the Second Note"). Under the terms of
the First Note, interest starts to accrue on March 16, 1997. Payments under the
First Note are to be made 45 days after the close of each fiscal quarter,
commencing with the quarter ended June 30, 1997, in the amount of 2% of InSync's
net sales. If, at the end of each subsequent 12-month period beginning with the
12 months ending June 30, 1998, the sum of the quarterly Note payments is less
than the interest accrued over the previous four quarters, plus 10% of the
original principal amount, an adjustment payment will be made to cover any
shortfall. The Second Note contains substantially the same terms as the First
Note, except that payments do not commence until the earlier of December 31,
2001, or upon payment in full of the First Note.
The Company experienced a loss of approximately $9,435,960, of which
$7,133,152 was from discontinued operations. The Company has a working capital
deficit of $6,784,000 at December 31, 1997. The Company has restructured its
operations including discontinuing unprofitable businesses and reducing overhead
in the others. Overhead reduction measures include: (a) the consolidation of the
Natcom operations under Vircom TG; (b) the closing of two of the Company's
offices; (c) a reduction in the Company's workforce of approximately 40 people;
(d) the relocation of the Vircom TG subsidiary to smaller and more cost
effective space in Exton, PA; and (e) the election of new health and life
insurance benefits which will result in significant savings to the Company. In
addition, the Company has raised additional capital through the sale of
preferred stock and is attempting to raise capital through a pending offering.
In order to increase its working capital and to sustain present operating
levels, the Company will require financing in addition to recent equity
financing (see "Recent Equity Financing" above). No assurance can be given that
such financing will be available on commercially acceptable terms. All of the
above represent the Company's efforts to achieve profitable operations and
continuation of the business, which is dependent on the Company's ability to
achieve sufficient cash flow and to meet its current obligations.
INFLATION.
The impact of inflation on the Company's operations has not been significant
to date. There can be no assurance that a high rate of inflation in the future
would not have an adverse effect on the Company's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this report
commencing on page F-1.
14
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Pursuant to General Instruction G-3, and in response to the items contained
in this Part III, the Registrant is incorporating by reference the information
which will be included in Registrant's definitive proxy statement to be filed
within 120 days after December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS
The response to this portion of Item 14 is submitted as a separate
section of this report commencing on page F-1.
2. FINANCIAL STATEMENTS SCHEDULES
The Financial Statement Schedules are appended following the
Financial Statements.
3. EXHIBITS
The following is a description of exhibits required to be filed with this
report (item numbers are those assigned in the Exhibits Table of Item 601,
Regulation S-K), and the incorporation-by-reference codes following each item
are explained at the end of the listing:
<TABLE>
<S> <C>
(3.1) Restated Articles of Incorporation and Certificate of Change.(*)
(3.2) Amended and Restated By-Laws.(*)
(3.3) Form of Certificate of Designation for Series 6 Convertible Preferred Stock.
(3.4) Form of Certificate of Designation for Series 7 Convertible Preferred Stock.
(3.5) Form of Certificate of Designation for Series 8 Convertible Preferred Stock.
(4.1) Form of Common Stock Certificate.(*)
(4.2) Escrow Agreement, dated as of February 24, 1995, among Communications and
Entertainment Corp., Continental Stock Transfer & Trust Company and Global
Intellicom, Inc. ("Global")(*)
(4.3) Lock-Up Agreement dated May 26, 1995.(*)
(4.4) Form of Regulation S Securities Subscription Agreement, pursuant to which the
Company sold 330,000 shares of Series 1 Convertible Preferred Stock.(++)
(4.5) Form of Offshore Securities Subscription Agreement, pursuant to which the Company
sold 825 shares of Series 2 Convertible Preferred Stock.(++)
(4.6) Form of Regulation S Securities Subscription Agreement, pursuant to which the
Company sold 25,000 shares of Series 4 Convertible Preferred Stock.(++)
(5) Form of Opinion of Goodkind Labaton Rudoff & Sucharow LLP.(**)
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
(10.1) Asset Purchase Agreement, dated as of October 28, 1994, between Tech Acquisition
Corp. and AMCom Business Centers Corp. (*)
(10.2) Assignment and Assumption dated as of December 8, 1994 between Tech Acquisition
Corp. and Global.(*)
(10.3) Global Stock Option Plan.(*)
(10.4) Additional Benefit Plan of Global.(*)
(10.5) Employment Agreement, dated as of January 1, 1995, between Global and Anthony R.
Cucchi.(*)
(10.6) Loan and Security Agreement, dated December 8, 1994, among Finova Capital
Corporation ("Financial Institution") (f/k/a Greyhound Financial Corporation) and
Global's subsidiaries.(*)
(10.7) First Amendment to Loan and Security Agreement dated May 26, 1995, among the
Financial Institution, Global's subsidiaries and certain guarantors.(*)
(10.8) Floorplan Credit Line Replacement Note, dated May 26, 1995, payable to the
Financial Institution by Global's subsidiaries.(*)
(10.9) Letter Agreement dated May 26, 1995 between VirCom, Inc. ("VIRCOM") and Century
Business Credit Corporation. ("Century")(*)
(10.10) Letter Agreement, dated May 26, 1995, between AMCom Business Centers Corp.
("AMCOM") and Century.(*)
(10.11) Corporate Guaranty Unlimited executed by Global to Century, dated May 26, 1995,
with respect to AMCOM.(*)
(10.12) Intercreditor Agreement, dated May 26, 1995, among AMCOM, VIRCOM, the Financial
Institution and Century.(*)
(10.13) Distribution Agreement, dated April 11, 1991, between Claren, Inc. and Texas
Instruments, Inc. and Assignment Agreement from Claren, Inc. to AMCOM.(*)
(10.14) Nectech Authorized Major Reseller Agreement dated April 12, 1990.(*)
(10.15) Dealer Agreement, dated December 1995, between AT&T Global Information Solutions
(f/k/a NCR Corporation) and AMCOM.(*)
(10.16) Lease Agreement, dated March 20, 1995, between AMCOM and Warehouse Associates for
Global's West Chester, Pennsylvania facilities.(*)
(10.17) Stock Purchase Agreement dated September 28, 1995 by and between Global and the
Sellers named therein(***)
(10.18) Warrant Agreement dated March 20, 1996 by and between Global and N. Norman Muller,
Howard Maidenbaum, Anthony R. Cucchi, Thomas W. Smith, Wayne M. Rogers and David A.
Mortman (each a Director)(++++)
(10.19) Letter Agreement dated as of January 1, 1995 between Global and Perry Scheer.(++++)
(10.20) Letter Agreement dated January 1, 1996 between Global and Wayne M. Rogers.(++++)
(10.21) Warrant Agreement dated March 5, 1996 by and between Global and Pacific Consulting
Group.(++++)
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
(10.22) Warrant Agreement dated March 20, 1996 by and between Global and Wharton
Associates.(++++)
(10.23) Warrant Agreement dated March 5, 1996 by and between Global and MWW/Strategic
Communications, Inc.(++++)
(10.24) Letter Agreement dated as March 27, 1996 by and between Global, AMCOM and Warehouse
Associates.(++++)
(10.25) Amendment Agreement dated as of March 28, 1996 by and between Global and the
Sellers named therein.(++++)
(10.26) Employment Agreement dated September 28, 1995 between National Computer Resources,
Inc. ("NATCOM"), Global as guarantor and Frederick Smith.(++++)
(10.27) Employment Agreement dated September 28, 1995 between NATCOM, Global as guarantor
and Richard Dilts.(++++)
(10.28) Consulting Agreement dated September 28, 1995 between NATCOM, Global as guarantor
and Stephen T. Barry.(++++)
(10.29) Letter Agreement dated December 31, 1995 by and between Global and Messrs.
Maidenbaum and Muller.(++++)
(10.30) Warrant Agreement dated March 20, 1996 by and between Global and Perry
Scheer.(++++)
(10.31) Settlement Agreement and Mutual Release dated March 28, 1996 by and between Grove
Avenue Corp. and AMCOM, VIRCOM and Global.(++++)
(10.32) Assignment & Assumption Agreement dated December 8, 1994 between Tech Acquisition
Corp. and AMCom Business Centers Corp.(**)
(10.33) Employment Agreement, dated January 1, 1994 between Thomas Vetterani and AMCom.(**)
(10.34) Stock Purchase Agreement by and between Global Intellicom, Inc. and the Sellers
named therein.(***)
(10.35) Asset Purchase Agreement dated as of September 16, 1996, pursuant to which the
Company's wholly owned subsidiary Global-Insync, Inc. purchased substantially all
of the assets of ManTech Solutions Corporation ("MSOL"), by and between the
Company, Insync, MSOL, and MSOL's parent, ManTech International Corporation
("ManTech").(+)
(10.36) Asset Purchase Agreement dated as of October 18, 1996 by and between Pro Notes
Acquisition Corporation and the Company on the one hand and Pro Notes Inc. and Alan
Costilo on the other, by which the Company purchased the assets of Pro Notes,
Inc.(++)
(10.37) Agreement dated January 22, 1997 between Global and Century Business Credit
Corporation.(++++)
(10.38) Promissory Note dated February 1, 1996 between Global as borrower and Triangle
Bridge Group, LP.(++++)
(10.39) Extension Agreement dated November 22, 1996 between Global and Triangle Bridge
Group, LP.(++++)
(10.40) Letter Agreement dated February 16, 1996 between Global and Goodkind Labaton Rudoff
& Sucharow LLP.(++++)
(10.41) Stock Purchase Agreement dated February 16, 1996 between Goodkind Labaton Rudoff &
Sucharow LLP and various Purchasers.(++++)
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
(10.42) Letter Agreement dated August 21, 1996 between Global and World Capital Funding,
Inc.(++++)
(10.43) Lead/Corporate Relations Agreement dated August 15, 1996 between Global and
Corporate Relations Group, Inc.(++++)
(11) Statement re: Computation of Per Share Earnings, attached as Exhibit 11 to the
Financial Statements.
(21) List of the Company's Subsidiaries.
(27) Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
On October 1, 1996, the Company filed a current report on Form 8-K,
describing the Company's purchase of substantially all the assets of ManTech
Solutions Corporation, followed by an amendment containing the required
financial statements.
(c) See (a)(3) above.
(d) See Schedule II included at the end of the Financial Statements.
- ------------------------
<TABLE>
<CAPTION>
(*) Designates document incorporated herein by reference to Global's Registration
Statement on Form S-1, File No. 33-93098.
<C> <S>
(**) Designates document incorporated by reference to Amendment No. 1 to Global's
Registration Statement on Form S-1, File No. 33-93098.
(***) Designates document incorporated herein by reference to Global's Report on Form 8-K
dated October 12, 1995, File No. 0-26684, as amended by Amendment No.1 to Report on
Form 8-K dated December 8, 1995.
(+) Designates document incorporated herein by reference to Global's Report on Form 8-K
dated September 16, 1996, File No. 0-26684.
(++) Designates document incorporated herein by reference to Global's Report on Form
10-Q dated June 30, 1996, File No. 0-26684.
(++) Designates document incorporated herein by reference to Global's Report on Form
10-Q dated September 30, 1996, File No. 0-26684.
(++++) Designates document incorporated herein by reference to Global's Report on Form
10-K dated March 30, 1996.
(+++++) Designates document incorporated herein by reference to Global's Report on Form
10-K dated March 31, 1997.
</TABLE>
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLOBAL INTELLICOM, INC.
Dated: April , 1998
By: /s/ N. NORMAN MULLER
-----------------------------------------
N. Norman Muller
(CHIEF EXECUTIVE OFFICER)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Howard Maidenbaum and David Mortman his true and
lawful attorney-in-fact, each acting alone, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ N. NORMAN MULLER Chairman of the Board and
- ------------------------------ Chief Executive Officer April , 1998
N. Norman Muller (Class III Director)
/s/ DAVID A. MORTMAN President and Chief
- ------------------------------ Operating Officer and April , 1998
David A. Mortman Class I Director
/s/ HOWARD MAIDENBAUM Executive Vice President
- ------------------------------ and Class III April , 1998
Howard Maidenbaum
/s/ THOMAS W. SMITH Class I Director
- ------------------------------ April , 1998
Thomas W. Smith
/s/ WAYNE M. ROGERS Class II Director
- ------------------------------ April , 1998
Wayne M. Rogers
/s/ ROBERT L. OLSON Vice-President, Finance
- ------------------------------ Chief Accounting Officer April , 1998
Robert L. Olson
19
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
F-1
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED BALANCE SHEETS F-4 - F-5
CONSOLIDATED STATEMENTS OF OPERATIONS F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8 - F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-11 - F-44
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE F-45
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Global Intellicom, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Global
Intellicom, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1997, 1996
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements of the Company referred to
above present fairly, in all material respects, the financial position as of
December 31, 1997 and 1996 and the results of their operations and their cash
flows for the periods presented in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements as at and for the year
ended December 31, 1997 have been prepared assuming that the Company will
continue as a going concern. As discussed in Note 1, the Company has suffered
recurring losses from operations and has a working capital deficiency. These
conditions raise substantial doubt about the Company's ability to continue as
a going concern. Management's plan in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We have also audited Exhibit 11 of the Company for the years
ended December 31, 1997 and 1996 included in the 1997 annual report of the
Company on Form 10-K. In our opinion, Exhibit 11 presents fairly
the information required to be set forth therein.
MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
April 14, 1998
New York, New York
F-3
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 138,469 $ 1,516,072
Accounts receivable - trade, less allowance for
doubtful accounts of $24,392 and $40,000
respectively 3,684,106 4,337,942
Accounts receivable - non-trade 268,815 262,688
Other receivables 206,770 250,409
Inventories 3,001,519 3,275,166
Notes receivable - officer and stockholder -- 457,979
Note and loans receivable - other 40,113 61,788
Prepaid expenses and other current assets 624,322 148,797
Deferred income taxes 630,000 690,476
Current assets of discontinued operations 32,884 3,828,701
------------- -------------
Total current assets 8,626,998 14,830,018
------------- -------------
PROPERTY AND EQUIPMENT - net of accumulated
depreciation and amortization 1,326,058 723,999
------------- -------------
INTANGIBLE ASSETS - net of accumulated
amortization 5,542,385 3,281,440
------------- -------------
OTHER ASSETS:
Deferred income taxes 2,645,000 493,832
Deferred costs 707,106 25,465
Other assets 34,058 11,113
Other assets of discontinued operations 53,362 3,395,014
Software development costs -- 62,011
------------- -------------
3,439,526 3,987,435
------------- -------------
$ 18,934,967 $ 22,822,892
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-4
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Due to financial institution $ 3,269,418 $ 1,711,429
Due to factor 884,227 236,432
Note payable - bank 50,000 --
Accounts payable - trade 7,883,413 3,837,898
Accounts and note payable - related party 81,778
Customer deposits 21,578 881,100
Notes payable - officers and stockholders 132,677 216,076
Acquisition indebtedness - current portion 581,823 693,942
Capital lease obligations - current portion 147,615 5,182
Income taxes payable 238,534 240,901
Accrued expenses and other current liabilities 1,976,510 1,307,016
Current liabilities of discontinued operations 224,758 1,687,476
------------- -------------
Total current liabilities 15,410,553 10,899,230
------------- -------------
LONG-TERM LIABILITIES:
Acquisition indebtedness - net of current portion 1,545,261 2,109,886
Capital lease obligations 86,854 11,831
Other liabilities of discontinued operations -- 176,773
------------- -------------
1,632,115 2,298,490
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value
(liquidating value ranging from $10 to $1,000 per share
amounting to $5,771,250 and $6,886,350, respectively
including dividends in arrears):
Authorized - 10,000,000 shares
Issued and outstanding - 351,985 shares - 1997
- 378,500 shares - 1996 3,520 3,785
Common stock - $.01 par value:
Authorized - 20,000,000 shares
Issued - 7,497,345 shares - 1997
- 6,880,830 shares - 1996 74,973 68,808
Common stock to be issued 417,188 95,873
Additional paid-in capital 12,003,524 10,438,979
Accumulated deficit (10,598,022) (973,389)
Treasury stock, at cost (8,884) (8,884)
------------- -------------
Total stockholders' equity 1,892,299 9,625,172
------------- -------------
$ 18,934,967 $ 22,822,892
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-5
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 51,235,126 $ 28,054,341 $ 8,769,599
COST OF GOODS SOLD 44,667,482 23,779,175 8,089,384
-------------- ------------- -------------
GROSS PROFIT 6,567,644 4,275,166 680,215
-------------- ------------- -------------
OPERATING EXPENSES:
Selling, shipping and general and
administrative expenses 7,261,496 4,966,644 682,413
Depreciation and amortization 250,231 78,465 16,965
Amortization of intangibles 311,002 157,084 21,591
-------------- ------------- -------------
7,822,729 5,202,193 720,969
-------------- ------------- -------------
OPERATING LOSS (1,255,085) (927,027) (40,754)
OTHER INCOME (EXPENSES) (includes interest
expense to related parties of $12,091,
$34,391 and $-0-, respectively (1,557,852) (238,803) 13,778
-------------- ------------- -------------
LOSS BEFORE PROVISION
FOR INCOME TAX CREDITS (2,812,937) (1,165,830) (26,976)
PROVISION FOR INCOME TAX
CREDITS (510,129) (459,337) (230,308)
-------------- ------------- -------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (2,302,808) (706,493) 203,332
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations,
net of income taxes (tax benefits) of
$(1,580,563), $(247,202) and $44,567 (7,133,152) (378,895) 66,851
-------------- ------------- -------------
NET INCOME (LOSS) $ (9,435,960) $ (1,085,388) $ 270,183
============== ============= =============
BASIC INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ (.34) $ (.22) $ .07
Discontinued operations (.95) (.11) .02
-------------- ------------- -------------
$ (1.29) $ (.33) $ .09
============== ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,481,307 3,527,053 2,927,170
========= ========= =========
DIVIDENDS $188,673 None None
======== ==== ====
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-6
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 -- $ -- 5,000,000 $ 50,000
Reverse stock split -- -- (2,500,000) (25,000)
Capital contributions -- -- 643,203 6,432
Deferred offering costs in connection
with registration of common stock -- -- -- --
Common stock to be issued for services
rendered or to be rendered -- -- -- --
Repurchase of fractional shares -- -- -- --
Net income for the year ended December 31, 1995 -- -- -- --
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 -- -- 3,143,203 31,432
Sale of securities under Regulation S 355,825 3,558 140,000 1,400
Offering costs in connection with sale of securities -- -- -- --
Preferred and common stock issued in connection with
acquisition of net assets of ManTech Solutions Corp. 350,000 3,500 72,001 720
Common stock issued for services rendered -- -- 69,504 695
Common stock to be issued for services rendered -- -- -- --
Reversal of shares authorized in 1995
for services rendered -- -- -- --
Conversion of preferred stock into common stock (327,325) (3,273) 3,456,122 34,561
Net loss for the year ended December 31, 1996 -- -- -- --
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 378,500 3,785 6,880,830 68,808
Sale of securities 1,200 12 -- --
Offering costs in connection with sale of securities -- -- -- --
Preferred stock issued in connection with merger of
Automated Systems Development of Indiana, Inc. 785 8 -- --
Common stock issued for services rendered -- -- 39,326 393
Common stock to be issued for services rendered -- -- -- --
Conversion of preferred stock into common stock (28,500) (285) 589,439 5,894
Other adjustments -- -- (12,250) (122)
Net loss for year ended December 31, 1997 -- -- -- --
------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 351,985 $ 3,520 7,497,345 $ 74,973
============ ============ ============ ============
<CAPTION>
RETAINED
COMMON ADDITIONAL EARNINGS TOTAL
STOCK TO BE PAID-IN (ACCUMULATED TREASURY STOCKHOLDERS'
ISSUED CAPITAL DEFICIT) STOCK EQUITY
------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ -- $ 1,850,000 $ (158,184) $ -- $ 1,741,816
Reverse stock split -- 25,000 -- -- --
Capital contributions -- 337,068 -- -- 343,500
Deferred offering costs in connection
with registration of common stock -- (198,844) -- -- (198,844)
Common stock to be issued for services
rendered or to be rendered 181,753 -- -- -- 181,753
Repurchase of fractional shares -- -- -- (8,884) (8,884)
Net income for the year ended December 31, 1995 -- -- 270,183 -- 270,183
------------ ------------ ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1995 181,753 2,013,224 111,999 (8,884) 2,329,524
Sale of securities under Regulation S -- 6,966,542 -- -- 6,971,500
Offering costs in connection with sale of securities -- (2,677,371) -- -- (2,677,371)
Preferred and common stock issued in connection with
acquisition of net assets of ManTech Solutions Corp. -- 3,900,780 -- -- 3,905,000
Common stock issued for services rendered (45,000) 267,092 -- -- 222,787
Common stock to be issued for services rendered 95,873 -- -- -- 95,873
Reversal of shares authorized in 1995
for services rendered (136,753) -- -- -- (136,753)
Conversion of preferred stock into common stock -- (31,288) -- -- --
Net loss for the year ended December 31, 1996 -- -- (1,085,388) -- (1,085,388)
------------ ------------ ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1996 95,873 10,438,979 (973,389) (8,884) 9,625,172
Sale of securities -- 1,199,988 -- -- 1,200,000
Offering costs in connection with sale of securities -- (510,428) -- -- (510,428)
Preferred stock issued in connection with merger of
Automated Systems Development of Indiana, Inc. -- 784,992 -- -- 785,000
Common stock issued for services rendered (95,873) 95,480 -- -- --
Common stock to be issued for services rendered 417,188 -- -- -- 417,188
Conversion of preferred stock into common stock -- (5,609) -- -- --
Other adjustments -- 122 -- -- --
Dividends -- -- (188,673) -- (188,673)
Net loss for year ended December 31, 1997 -- -- (9,435,960) -- (9,435,960)
------------ ------------ ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1997 $ 417,188 $ 12,003,524 $(10,598,022) $ (8,884) $ 1,892,299
============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-7
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(9,435,960) $(1,085,388) $ 270,183
Adjustments to reconcile net income (loss) to net
cash provided by (used in) continuing operations:
Loss (income) from discontinued operations 7,133,152 378,895 (203,332)
* Depreciation and amortization 250,231 78,465 16,965
* Amortization of intangibles 311,002 157,084 21,591
* Deferred income taxes (510,129) (488,129) (224,567)
Imputed interest on ManTech acquisition 29,340 58,683 -
Write-off of intangible assets 895,388 - -
Reversal of shares authorized - (136,753) -
Loss on disposition of property and equipment - - 5,983
Changes in assets and liabilities:
* Accounts receivable - trade 703,520 (1,037,342) 294,391
* Accounts receivable - non-trade (6,127) (252,140) (10,548)
* Inventories 273,647 (222,396) (40,865)
* Other receivables 43,639 (157,471) (92,938)
* Notes and loan receivable - other 21,675 (50,056) (11,148)
* Prepaid expenses and other (358,336) (63,403) (50,136)
* Other assets (22,554) 37,023 220
* Accounts payable - trade 4,014,805 2,020,383 (354,830)
* Accounts and note payable - related party (81,778) (363,922) (66,392)
* Customer deposits (859,522) 797,303 -
* Income taxes payable (2,367) 98,398 142,503
* Accrued expenses and other 653,378 464,072 264,340
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS 3,053,004 233,306 (38,580)
----------- ----------- -----------
Net cash provided (used in) by discontinued operations:
Income (loss) from discontinued operations (7,133,152) (378,895) 203,332
* Depreciation and amortization 82,549 182,914 91,456
Amortization of intangibles 144,301 144,786 187,763
* Deferred income taxes (1,580,563) (247,202) 44,567
Discontinued operations - net 2,463,076 1,113,398 508,688
----------- ----------- -----------
(6,023,789) 815,001 1,035,806
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (2,970,785) 1,048,307 997,226
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-8
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipt of cash from asset purchase $ 11,732 $ - $ 482,012
Purchases of assets pursuant to agreement (20,000) - (100,000)
Reductions in note receivable - officer
and stockholder 457,979 177,601 -
Other intangibles (838,411) (333,712) (484,649)
Purchases of property and equipment (407,916) (144,000) (182,796)
Software development costs 62,011 (62,011) -
Other deferred costs (681,641) (25,465) (29,103)
Discontinued operations - net 510,865 (1,047,124) (743,899)
Loans to stockholders - (215,900) (419,680)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (905,381) (1,650,611) (1,478,115)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 1,200,000 6,971,500 368,500
Deferred offering costs (510,428) (2,281,195) (324,233)
Due from factor 647,795 466,299 (229,867)
Due to financial institution - net 1,557,989 (3,282,706) 1,036,278
Proceeds from (payments to) notes payable - officers
and stockholders (83,399) 216,076 -
Payments on capitalized lease obligations (110,971) (4,270) (436)
Payments on due on acquisitions - (338,017) -
Purchases of treasury stock - - (8,884)
Proceeds from note payable - bank 5,000 - -
Discontinued operations - net (18,750) (125,933) 99,886
Dividends (188,673) - -
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,498,563 1,621,754 941,244
----------- ----------- -----------
NET CHANGE IN CASH (1,377,603) 1,019,450 460,355
CASH - beginning 1,516,072 496,622 36,267
----------- ----------- -----------
CASH - ending $ 138,469 $ 1,516,072 $ 496,622
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-9
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
SCHEDULES OF NON-CASH ACTIVITIES:
Acquisitions $ 785,000 $ 5,681,000 $ -
Settlement of acquisition debt 706,084 - -
Common stock to be issued for
non-competition agreement 300,000 - -
Common stock to be issued for services
rendered 117,188 47,873 -
Purchase of property and equipment by
capital leases 40,427 19,319 338,033
Deferred offering costs - 125,389 -
Issuance of note to vendor - 665,950 -
Increase in Natcom purchase price - 359,435 -
Offset of note receivable from purchase
of business - - 36,748
Common stock to be issued for services to be
rendered - - 156,753
Payments due on purchase of business - - 850,310
Issuance of note to related party as part of
settlement of accounts payable - - 295,700
Reverse stock split - - 25,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 968,052 $ 640,082 $ 334,327
Cash paid for income taxes - 5,259 6,540
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
F-10
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company experienced a loss of approximately $9,436,000 and has a
working capital deficit of approximately $6,784,000 at December 31,
1997. These matters, among others, raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plan includes the restructuring of its operations
including discontinuing unprofitable businesses and reducing overhead
in the others. In addition, the Company has raised additional capital
through the sale of preferred stock. The Company also has plans to
enter into an agreement to secure a $4,000,000-equity line of credit
utilizing subordinated convertible debentures. The unaudited pro forma
effect of the sale of preferred stock is presented in Note 27.
In 1998, the Company has raised approximately $2,174,000 of additional
capital through the sale of preferred stock. However, continuation of the
business thereafter is dependent on the Company's ability to achieve -
profitable operations and sufficient cash flow to meet its current
obligations.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of assets
and liabilities that might be necessary should the Company be unable to
continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Global Intellicom, Inc. (the "Company") was incorporated in the state of
Nevada on September 1, 1994.
Business
The Company, through its wholly-owned subsidiaries listed below, conducts
the following business:
1. VIRCOM TECHNOLOGIES GROUP, INC. ("VIRCOM TG") - Value-added reseller
and provides a wide range of information technology services,
including systems integration, applications, internal and external
network testing and support services. VIRCOM TG began operations on
July 2, 1997. Cable Co, Inc. - A wholly-owned subsidiary of Vircom
TG. was incorporated on March 9, 1998 to provide cable and fiber
optic wiring services.
2. NEVCOR TECHNOLOGIES GROUP, INC. ("NEVCOR") (formerly known as AMCOM)
- aggregator/distributor of computers, wireless communications
products, peripherals and software, and sells to customers
throughout the United States. On July 1, 1997 the Company
discontinued its aggregator portion of its NEVCOR business.
3. VIRCOM, INC. ("VIRCOM") - reseller of microcomputers, peripherals,
software and wireless communication products, and sells to corporate
and other professional end-users throughout the United States.
4. NATIONAL COMPUTER RESOURCES, INC. ("NATCOM") - Value-added reseller
of computer systems consisting primarily of high-end servers and
distributes to corporations, school districts and state governmental
agencies throughout the United States.
5. GLOBAL-INSYNC, INC. ("INSYNC") - Manufacturer of made-to-order
computer servers and workstations and serves customers in the United
States.
6. SPEECH SOLUTIONS, INC. ("SPEECH SOLUTIONS") - Provider of voice
recognition tools and interfaces for speech-activated computer
programs and sells to customers in the United States . SPEECH
SOLUTIONS was discontinued on August 1, 1997.
7. NATCOM AUTOMATED SOLUTIONS, INC. ("NASI") - A wholly-owned
subsidiary of NATCOM, is a full service integrator, providing
modular products (hardware and software) that can be customized
under a building block concept according to its customers' needs.
In addition to installation, NASI provides full product support,
training and maintenance.
F-11
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these
estimates.
Revenue Recognition
Revenue is recognized upon the shipment of products or performance of
services.
Service revenue is recognized only when all significant obligations have
been performed.
Sales Returns and Warranties
The Company does not provide an accrual for sales returns on damaged
merchandise as such costs are borne by the Company's vendors. The Company
provides for an amount it estimates will be needed to cover future
warranty obligations.
Sales Incentive Program
Sales incentive program rebates are amounts received from vendors for
promotional programs, price protection programs and cooperative
advertising programs, and are recognized as income in the period earned.
Amounts receivable from vendors under such programs are classified either
as accounts receivable - non-trade or have been offset against amounts due
to financial institutions.
F-12
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of Credit Risk
Accounts Receivable - Trade
Accounts receivable consist of open trade accounts with various
companies. The Company performs ongoing credit evaluations of its
customers and believes that adequate allowances for any
uncollectible receivables are maintained.
In 1995, VIRCOM TG, VIRCOM and NATCOM entered into factoring
agreements with Century Business Credit Corp. ("Century"). INSYNC
entered into a factoring agreement with Century in January 1997.
At December 31, 1997, there were no major accounts receivable. One
customer accounted for 42% of accounts receivable at December 31,
1996.
One customer accounted for 22%, 21% and 11% of net sales for 1997,
1996 and 1995, respectively.
Cash
The Company maintains cash balances in its banks which at times may
exceed the limits of the Federal Deposit Insurance Corp.
Inventories
INSYNC values its inventory on an identified cost basis at the lower of
cost or market. The other subsidiaries value their inventory at the lower
of cost (first-in, first-out) or market.
F-13
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets as
follows:
Machinery and equipment - 2 - 5 years
Furniture and fixtures - 2 - 7 years
Vehicles - 2 years
Leasehold improvements - Life of lease
Expenditures for repairs and maintenance are charged to expense as
incurred.
Intangible Assets
The excess of the purchase cost over the fair value of net assets
acquired in the acquisitions is included in intangible assets and is
being amortized over fifteen years on a straight-line basis in
accordance with Statement of Financial Accounting Standards No. 121
(SFAS No. 121), "Accounting for the Impairment of Long-lived Assets and
For Long-lived Assets to Be Disposed Of." The Company periodically
reviews goodwill to assess recoverability based upon undiscounted
expected future cash flows for each subsidiary. Testing for such
recoverability in each reporting period may not be cost effective or
even possible and in such cases, the Company will test assets for
impairment if a triggering event occurs (events or changes in
circumstances such that the carrying amount of the assets may not be
recoverable). Impairments would be recognized if a permanent diminution
in value were to occur.
In 1997, the Company discontinued its NEVCOR and SPEECH SOLUTIONS
businesses and $895,388 of goodwill was charged to discontinued
operations.
Computer Software
The costs incurred for the development of computer software that will be
sold, leased or otherwise marketed were capitalized when technological
feasibility was established. These capitalized costs were subject to an
ongoing assessment of recoverability based upon anticipated future
revenues and changes in hardware and software technologies. Costs that
were capitalized included labor and related overhead.
Amortization of capitalized software development costs began in March 1997
when the product was available for general release. Amortization was
provided on a product-by-product basis using the straight-line method over
three years.
F-14
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Computer Software (Continued)
At December 31, 1996, unamortized capitalized software development costs
were $220,347.
In 1997, the Company discontinued its SPEECH SOLUTIONS business and all
remaining unamortized software costs totalling approximately $457,316 were
charged to discontinued operations.
Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," which
requires the use of the liability method of accounting for income taxes.
The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. The resulting deferred tax assets or
liabilities are adjusted to reflect changes in tax laws as they occur.
Advertising Costs
Advertising costs are charged to operations when incurred.
Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share" which establishes
new standards for computing and presenting earnings per share. The
statement also requires restatement of all prior period earnings per share
data presented.
Net loss per common share is based on the weighted average number of
common shares outstanding during the period. Common stock equivalents
have not been included as their effect would be antidilutive.
Recently Issued Pronouncements
SFAS No. 130. "Reporting Comprehensive Income," requires an entity to
report comprehensive income and its components in a full set of
financial statements and is effective for fiscal years beginning after
December 15, 1997. Comprehensive income is the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from nonowner sources. The Company has elected to
adopt SFAS No. 130 in 1998.
American Institute of Certified Public Accountants Statement of Position
No. 96-1, "Environmental Remediation Liabilities," establishes specific
criteria for the recognition and measurement of environmental remediation
liabilities. The adoption of the statement in 1997 did not have a
significant effect on the Company's financial condition or results of
operations.
F-15
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS
AMCOM Business Centers Corp.
On October 28, 1994, the Company purchased certain net assets of AMCOM
subject to certain liabilities and obligations. This transaction was
accounted for as a purchase. On December 8, 1994, AMCOM began operations
as a wholly-owned subsidiary of the Company. In March 1997, AMCOM changed
its name to NEVCOR.
F-16
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS (CONTINUED)
The asset purchase agreement required the Company to reimburse the Sellers
for all income taxes incurred by them with respect to their distributive
share of AMCOM's taxable income for the period January 1, 1994 through the
closing date. Management estimated that the aggregate amount of this
obligation was $120,000 at December 8, 1994. This amount was reflected in
goodwill. A non-competition agreement for a period of three years ending
December 8, 1997 was entered into between the Sellers and the Company, and
$10,000 of the purchase price was allocated to the covenant.
NEVCOR's business was discontinued on July 1, 1997.
National Computer Resources, Inc.
On September 28, 1995, the Company purchased all of the issued and
outstanding stock of NATCOM. The transaction was pursuant to a stock
purchase agreement between the Company and the individual stockholders
of NATCOM and was accounted for as a purchase. The total purchase price
was $933,000.
F-17
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS (CONTINUED)
On December 31, 1997, the stock purchase agreement as well as the
employment and consulting agreements with NATCOM's former officers were
terminated. The Company agreed to pay $171,000 in full consideration of
all obligations accrued under the above stated agreements ("NATCOM
Settlement Agreement"). The amount will be paid in six monthly
installments in 1998 and can be made either in cash or by the issuance
of the Company's common stock to be valued at the closing bid price of
such shares on the dates prior to the payment. In addition, the Company
agreed to issue 150,000 shares of common stock to the former officers
in consideration for the continuation of their respective
non-competition agreements. The shares vest over a two year period and
the non-competition agreements expire on December 31, 1999.
ManTech Solutions Corp.
On September 16, 1996, INSYNC entered into a contract with ManTech
Solutions Corp. ("MSOL"), a wholly-owned subsidiary of ManTech
International Corp. (ManTech) to purchase substantially all of its assets,
subject to certain liabilities. The acquisition was effective on September
1, 1996 and was accounted for as a purchase.
The purchase price was $5,736,084 and was paid as follows:
1. The issuance of 350,000 shares of Series 3 Cumulative Preferred
Stock, with a 6% annual dividend, convertible at a value of $10 per
share to restricted shares of common stock. Such preferred stock was
valued at $3,500,000.
2. The issuance of a 9% promissory note for $1,486,084.
3. The issuance of a 9% promissory note for $470,000.
4. The issuance of 49,778 restricted shares of common stock, valued at
$280,000.
F-18
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS (CONTINUED)
ManTech Solutions Corp. (Continued)
The following condensed balance sheet reflects the purchase of the net
assets of MSOL on September 16, 1996:
Current assets $ 6,242,898
Property and equipment 468,448
Excess cost of acquisition over
net tangible assets acquired 1,637,996
Other assets 19,761
Liabilities assumed (2,633,019)
------------
$ 5,736,084
============
Pro Notes, Inc.
On October 18, 1996, SPEECH SOLUTIONS entered into a contract with Pro
Notes, Inc. ("Pro Notes") to purchase certain of its assets. This
transaction was accounted for as a purchase.
The purchase price consists of the following:
1. $200,000 paid at closing.
2. Four quarterly payments of $31,250 on January 15, 1997, April 15,
1997, July 15, 1997 and October 15, 1997. At December 31, 1997,
$95,000 is owed.
F-19
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS (CONTINUED)
Pro Notes, Inc. (Continued)
The following condensed balance sheet reflects the purchase of the certain
assets of Pro Notes, Inc. on October 18, 1996:
Intangible assets, including excess
cost of acquisition over net tangible
assets acquired $ 365,000
==========
SPEECH SOLUTIONS' business was discontinued on August 1, 1997 and the
intangible assets were charged to discontinued operations.
Automated Systems Development of Indiana, Inc.
On July 1, 1997, Automated Systems Development of Indiana, Inc. (ASDI)
merged into the Company's NASI subsidiary. The merger was accounted for as
a purchase.
The total purchase price of $805,000 consists of:
1. $20,000 in cash at closing.
2. The issuance of 785 shares of Series 5 Cumulative Preferred Stock,
with a 6% annual dividend, convertible at a value of $10 per common
share. Such preferred stock was valued at its liquidation
preference of $1,000 per share for a total of $785,000.
Under the merger agreement, for the five years ended July 1, 2002, NASI is
to make semi-annual contingent payments to the former shareholder of ASDI
based on its gross profit (as defined in the plan of merger) as follows:
4% of the gross profit on the first $1.5 million of sales
3% of the gross profit on the next $1.5 million of sales
2% of the gross profit on sales in excess of $3 million
Such payments will be limited to aggregate earnings before interest and
taxes (EBIT). As such, if the making of a payment reduces EBIT to zero or
below, the payment will be limited only to that portion which would bring
EBIT to zero and the balance would be deferred until the date of the next
payment. In the event that the aggregate amount of payments is less than
$600,000, the term of the agreement would be extended up to the earlier
of three years or to the time that the payments would equal the sum of
$600,000. At December 31, 1997, the contingent payment owed to the
stockholders of ASDI was deemed not material and is not reflected in the
financial statements.
F-20
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS (CONTINUED)
Automated Systems Development of Indiana, Inc. (Continued)
The following condensed balance sheet reflects the merger of ASDI on July
1, 1997:
Current assets $ 61,417
Property and equipment 561
Excess cost of aqcuisition over net
tangible assets acquired 834,457
Other assets 390
Liabilities assumed (91,825)
----------
$ 805,000
==========
Acquisition indebtedness
Acquisition indebtedness at December 31, consists of the following:
1997 1996
---------- ----------
9% promissory note for $1,486,084 payable
to MSOL ("First Note"). The note is
guaranteed by the Company. Interest began
accruing on March 16, 1997. Interest was
imputed at 9% for the period September 16,
1996 (date of issuance) to March 15, 1997.
Payments are to be made forty-five days
after each fiscal quarter, commencing with
the quarter ended June 30, 1997. The
payments are calculated as follows:
1. 2% of net sales (gross sales less
sales discounts, returns and
allowances) of INSYNC.
2. If at the end of four quarters ended
June 30th (commencing in 1998), the
sum of the quarterly payments is less
than the interest accrued over the
previous four quarters plus ten
percent (10%) of the original
principal of the note ($148,608), an
adjustment payment will be made to
cover such shortfall.
(1)$1,486,084 $1,463,794
F-21
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 3 - ACQUISITIONS (CONTINUED)
Acquisition indebtedness (Continued)
1997 1996
---------- ----------
9% promissory note for $470,000 payable to MSOL
with substantially the same terms as the First
Note, except that payments do not commence until
the earlier of December 31, 2001 or upon the
payment of the First Note. Interest began
accruing on March 16, 1997. Interest was imputed
at 9% for the period September 16, 1996 (date of
issuance) to March 15, 1997. The note is
guaranteed by the Company. 470,000 $ 462,950
NATCOM Settlement Agreement 171,000 --
Installment payments due to prior NATCOM
stockholders with interest imputed at 10% -- 877,084
---------- ----------
2,127,084 2,803,828
Less: Current portion 581,823 693,942
---------- ----------
$1,545,261 $2,109,886
========== ==========
(1) Amounts owed for the quarters ended June 30, 1997, September 30,
1997 and December 31, 1997 totalling $262,215 will be paid as
follows:
April 3, 1998 $ 25,000
April 17, 1998 25,000
April 30, 1998 25,000
On or before April 30, 1998 187,215
----------
$ 262,215
==========
Future minimum maturities of notes payable - acquisition are as follows:
1998 $ 581,823
1999 148,608
2000 148,608
2001 778,045
2002 47,000
Thereafter 423,000
----------
$2,127,084
==========
Imputed interest on the MSOL notes and NATCOM installment payments
amounted to $29,340 and $143,168 in 1997 and 1996, respectively.
F-22
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 4 - DUE FROM FACTOR
VIRCOM TG, VIRCOM, NATCOM and INSYNC collectively entered into factoring
agreements whereby the companies sell their trade receivables without
recourse if a customer's credit is approved. Certain dollar limitations
may be established for a customer. Receivables sold without credit
approval or in excess of a specified credit limit are subject to recourse
in the event of non-payment by the customer.
On April 1, 1997, VIRCOM TG, VIRCOM, NATCOM and INSYNC collectively
signed an amendment to the factoring agreements whereby the companies
sell their trade receivables with recourse.
Other terms of these amended agreements are as follows:
1. The aggregate amount of advances shall not exceed the lesser of -
a. $9,000,000 or
b. 90% of the eligible receivables of NEVCOR, VIRCOM and NATCOM
plus 85% of the eligible receivables of INSYNC less any
reserves deemed proper and necessary by the factor.
2. Factoring commissions are four tenths of one percent (.4%) of sales.
Interest on advances will be charged at 1% above prime.
3. The factor has been granted a first priority security interest in, a
general lien on and/or a right of set-off of trade receivables and
general intangibles of VIRCOM TG, VIRCOM, NATCOM and INSYNC. In
addition, the factor has received a security interest in inventory
and tangible assets of the Company's subsidiaries. Such additional
security interest will be subordinate to the one granted to the
financial institution with which the Company's subsidiaries have
loan and security agreements.
4. The factor has received cross-corporate guarantees of the Company
and VIRCOM TG, VIRCOM, NATCOM and INSYNC as well as the personal
guarantees of certain officers and directors of the Company.
5. The agreement may be terminated by either party on sixty days
notice.
In addition, the Company granted the factor options to purchase 100,000
shares of the Company's common stock at an option price of $3.00 per
share. The options expire in April 2000.
At December 31, 1997 and 1996, the financial statements reflect a
provision for customers' open credits and chargebacks subsequent to the
balance sheet date in the amount of $110,495 and $-0-, respectively.
These amounts have been reflected as an increase in the amounts due to
factor.
In 1997 and 1996, the Company factored $60,863,117 and $14,852,730 of its
gross sales, respectively. At December 31, 1997 and 1996, outstanding
receivables amounted to $6,925,833 and $2,376,953, respectively.
The Companies have a tri-party agreement with the factor and a financial
institution wherein Century, on behalf of the Companies, can wire funds to
the financial institution for payment of vendors' invoices relating to
floorplanned inventory.
F-23
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 5 - INVENTORIES
Inventories at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Finished goods $ 2,010,616 $ 1,288,313
Work-in-process 328,881 500,858
Raw materials 662,022 1,485,995
------------ ------------
$ 3,001,519 $ 3,275,166
============ ============
</TABLE>
NOTE 6 - NOTES RECEIVABLE - OFFICER AND STOCKHOLDER
Notes receivable - officer and stockholder at December 31, consists of
the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Note receivable from an officer/stockholder
bearing interest at 1% over prime,
principal and accrued interest to be paid
on December 31, 1997. $ -- $ 457,979
--------- ---------
$ -- $ 457,979
========= =========
</TABLE>
In 1997, the note was not repaid and the officer/stockholder borrowed
an additional $218,404.
In 1998, the Company granted the officer/stockholder additional
salaries of $317,167 as well as compensation of $359,216 for the
officer's personal guarantee of the inventory floorplanning credit line
of NEVCOR (a discontinued operation) for the last three years.
Such amounts were offset against the balance owed by the
officer. $359,216 of such balance was charged to discontinued
operations. Two other officers and/or directors of the Company also gave
personal guarantees for the same indebtedness. The Company's Board of
Directors has not as yet determined what consideration, if any, will be
given to such officers and/or directors.
Interest income amounted to $-0-, $43,492 and $-0- for 1997, 1996 and
1995, respectively.
NOTE 7 - OTHER RECEIVABLES
The Company has indemnified certain of its officers and directors (the
"Indemnitees") who were previously officers, stockholders and/or
directors of another corporation for actions against the Indemnitees
arising out of their service to that corporation. In the event that
the corporation fails to honor its obligation it undertook to indemnify
the Indemnitees on such claims, the Company would then indemnify such
Indemnitees. The corporation has declined to honor its obligations
under its indemnification. As such, the Company has paid certain legal
fees and related expenses in the amount of approximately $828,000 in
connection with the defense of such claims. Such amount have been
included in other receivables, net of an indemnification charge of
$621,000.
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Machinery and equipment $ 799,807 $ 337,862
Furniture and fixtures 549,448 394,604
Vehicles 13,773 -
Leasehold improvements 442,621 76,017
Property and equipment under capital
lease 217,645 19,319
---------- ---------
2,023,294 827,802
Less: Accumulated depreciation and
amortization 697,236 103,803
---------- ---------
$1,326,058 $ 723,999
========== =========
</TABLE>
Increases and decreases of property and equipment reflect purchases,
increases due to the acquisition of ASDI, as well as reclassifications
as required to properly reflect discontinued operations.
Depreciation and amortization amounted to $250,231, $78,465 and $16,965
for 1997, 1996 and 1995, respectively.
F-24
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 9 - INTANGIBLE ASSETS
Intangible assets at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Goodwill $6,125,262 $3,459,388
Non-compete agreement 300,000 -
---------- ----------
6,425,262 3,459,388
Less: Accumulated amortization 882,877 177,948
---------- ----------
$5,542,385 $3,281,440
========== ==========
</TABLE>
Increases and decreases of intangible assets reflect the acquisition of
ASDI as well as the charges and reclassifications required to properly
reflect discontinued operations.
Amortization amounted to $311,002, $157,084 and $20,863 for 1997, 1996 and
1995, respectively.
NOTE 10 - DUE TO FINANCIAL INSTITUTIONS
The Company has a loan and security agreement with a financial
institution providing for an inventory floorplanning credit line of
$8,000,000 on its discontinued NEVCOR business. The line is
collateralized by the assets of VIRCOM TG, VIRCOM, NATCOM and INSYNC.
The agreement expires on December 8, 1998 and is automatically renewed
from year to year unless terminated by either party. The financial
institution has received the personal guarantees of certain officers
and directors of the Company.
In 1998, the Company entered into a financing agreement with a
financial institution providing for an inventory credit line of
$250,000. The agreement is collateralized by the assets of VIRCOM TG.
The financial institution has received the personal guarantees of
certain officers and directors of the company.
At December 31, the line of credit included the following:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Due to financial institution $ 4,441,673 $ 3,061,728
Less: Claims receivable from
vendors for credits due 1,172,255 1,350,299
------------ -------------
$ 3,269,418 $ 1,711,429
============ =============
</TABLE>
F-25
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 11 - OBLIGATIONS UNDER CAPITALIZED LEASES
Minimum future lease payments under capitalized leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
-----------------------
<S> <C>
1998 $ 191,548
1999 44,708
2000 27,329
2001 1,283
----------
Total minimum lease payments 264,868
Less: Interest (30,399)
----------
Present value of net minimum
lease payments $ 234,469
==========
</TABLE>
The capitalized leases have effective interest rates of 9.2% to 15.3%.
Interest expense amounted to $34,286, $2,914 and $-0- for 1997, 1996 and
1995, respectively.
NOTE 12 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at December 31, consist of:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Sales taxes payable $ 610,186 $ 415,531
Accrued payroll 271,739 135,666
Accrued professional fees 205,773 132,388
Other accrued expenses 228,335 45,483
Deferred revenue 275,432 11,718
Others 385,045 566,230
------------ ----------
$1,976,510 $1,307,016
============ ==========
</TABLE>
F-26
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 13 - NOTES PAYABLE
In June 1996, the Company borrowed $500,000 through the issuance of a
convertible subordinated promissory note bearing interest at 24% per
annum. Interest on the note totalled $29,667 in 1996. The note was repaid
in September 1996.
As a result of the merger with ASDI, the Company has a $50,000 line of
credit with a bank. The note taken under the line is due on demand and
bears interest at 2% above prime. Interest on the note amounted to $2,924
in 1997.
NOTE 14 - NOTES PAYABLE - OFFICERS AND STOCKHOLDERS
Notes payable - officers and stockholders at December 31, consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note payable to an officer/stockholder bearing
interest at 1% over prime, principal and accrued
interest to be paid on December 31, 1998. $ 67,677 $ -
Note payable to an officer/stockholder bearing
interest at 1% over prime, principal and accrued
interest to be paid on December 31, 1997. The
balance owed at December 31, 1997 was rolled
into a new note (see above). - 126,076
10% promissory notes payable to two directors
and one stockholder to be paid as follows: $65,000
in April 1997 and $25,000 in May 1997. The
balance owed at December 31, 1997 is now
due on demand. 65,000 90,000
-------- --------
$132,677 $216,076
======== ========
</TABLE>
Interest amounted to $12,091 and $16,319 in 1997 and 1996, respectively.
Accrued interest on three-year notes amounted to $18,309 and $6,218 at
December 31, 1997 and 1996, respectively.
F-27
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 15 - INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
The components of the provision
for income tax credits by taxing
jurisdiction are as follows:
Federal:
Current $ -- $ -- $ --
Deferred (413,204) (395,152) (181,792)
----------- --------- ---------
(413,204) (395,152) (181,792)
----------- --------- ---------
States:
Current -- 28,792 (5,741)
Deferred (96,925) (92,977) (42,775)
----------- --------- ---------
(96,925) (64,185) (48,516)
----------- --------- ---------
Net tax (benefit) to discontinued operations (1,580,563) (247,202) 44,567
----------- --------- ---------
$(2,090,692) $(706,539) $(185,741)
=========== ========= =========
</TABLE>
The major components of deferred tax assets at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net operating loss carryforwards $5,985,568 $ 988,641
Allowance for doubtful accounts 317,472 61,637
Inventory reserve 246,960 91,030
Warranty reserve -- 43,000
Valuation allowance (3,275,000) --
---------- ----------
$3,275,000 $1,184,308
========== ==========
</TABLE>
At December 31, 1997 and 1996, the current portion of deferred taxes
amounted to $630,000 and $-0-, respectively. The long-term portion of
deferred taxes at December 31, 1997 and 1996 amounted to $2,645,000 and
$493,832, respectively.
At December 31, 1997, a 50% valuation allowance is provided as it is
uncertain if the deferred tax assets will be fully utilized.
F-28
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 15 - INCOME TAXES (CONTINUED)
A reconciliation of the Company's income tax expense computed at the U.S.
federal statutory tax rate of 34% and the provision for income taxes are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense at statutory rate $(3,931,000) $ (609,255) $ 29,555
Net operating loss carryforwards 3,931,000 609,255 -
State income taxes (tax credits) - 28,792 (5,741)
Deferred income tax credits (2,090,692) (735,331) (180,000)
Financial/tax adjustments - NATCOM - cash basis - - (29,555)
----------- ----------- -----------
Provision for income tax credits $(2,090,692) $ (706,539) $ (185,741)
=========== =========== ===========
</TABLE>
At December 31, 1997, for income tax purposes, the Company has unused net
operating loss carryforwards of approximately $14,200,000 expiring in 2009
and 2012.
Income taxes payable include NATCOM's 1995 federal and New Jersey
liabilities, including penalties and interest, are as follows:
<TABLE>
<S> <C>
Federal $ 201,953
New Jersey 38,948
----------
$ 240,901
==========
</TABLE>
NOTE 16 - ECONOMIC DEPENDENCE
At December 31, 1997, the Company is no longer dependent on any one
vendor. In 1996 and 1995, the Company purchased 53% and 84%,
respectively, of its inventory from two vendors.
F-29
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 17 - OTHER INCOME (EXPENSES)
Other income (expenses) consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Interest expense $ (957,207) $ (211,633) $ (6,606)
Interest income 20,355 62,424 20,384
Deferred financing costs - (89,594) -
Indemnification charge (621,000) - -
----------- ---------- ---------
$(1,557,852) $ (238,803) $ 13,778
=========== ========== =========
</TABLE>
NOTE 18 - COMMITMENTS AND CONTINGENCIES
Leases
The Company rents real property under leases expiring through August 2005.
Certain of the leases stipulate payments of operating expenses.
Future minimum rental payments required are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 $ 787,387
1999 782,083
2000 777,786
2001 464,746
2002 368,918
Thereafter 765,699
----------
$3,946,619
==========
</TABLE>
The Company has deposited with a landlord, pursuant to the terms of
its lease, a stand-by letter of credit for $100,000 (issued by the
Company's bank) in addition to a security deposit. The terms of the
lease require the posting of an additional $100,000, which the
landlord has requested.
Rent expense amounted to $865,026, $314,142 and $61,591 for 1997, 1996 and
1995, respectively.
Purchase Commitments
The Company had outstanding purchase commitments to its major vendors
which were guaranteed under its floorplanning credit line by one of the
financing companies. Such commitments represented approved orders for the
purchase of inventory and were not in excess of normal business
requirements. Such commitments amounted to approximately $-0- and
$2,510,000 at December 31, 1997 and 1996, respectively.
F-30
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 18 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements
Company
In January 1994, the Company entered into an employment contract
with one of its officers for the period January 1, 1995 through
December 31, 1997. Compensation under the agreement is as follows:
<TABLE>
<S> <C>
1995 $ 175,000
1996 190,000
1997 210,000
</TABLE>
In addition, the agreement provides for perquisites including
various insurance coverages, an automobile, expense reimbursements,
etc.
Compensation under the agreement amounted to $194,000, $190,000 and
$173,872 for 1997, 1996 and 1995, respectively.
Nevcor
In May 1995, the Company entered into an employment agreement with
another of its officers for calendar year 1995 at a salary of
$137,000.
Compensation under this agreement amounted to $137,000 for 1995.
Natcom
In conjunction with the purchase of the stock of NATCOM, the Company
entered into employment agreements with two of NATCOM's key
employees and a consulting agreement with a former key employee of
NATCOM. The agreements were terminated in 1997. Compensation
amounted to $329,166 for 1996.
F-31
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 18 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Speech Solutions
In conjunction with the purchase of certain assets of Pro Notes,
Inc. the Company entered into an employment agreement with a key
employee of SPEECH SOLUTIONS for the period October 18, 1996 to
October 17, 2001. Compensation under the agreement is as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1 $ 100,000
2 110,000
3 120,000
4 130,000
5 140,000
</TABLE>
In addition, for the five years ended December 31, 2001, SPEECH
SOLUTIONS is to make quarterly contingent payments equal to 2% of
its gross sales. Such payments will be limited to actual
cumulative income before interest and taxes as well as by the
contingent payments to Pro Notes, Inc.
The individual is entitled to receive minimum payments totalling
$130,000 by the end of the fifth year. In the event that the
aggregate amount of payments is less than $130,000, such deficiency
must be paid. In addition, if the total amount of the contingent
payments is less than $950,000, SPEECH SOLUTIONS shall continue to
make contingent payments for an additional period, not to exceed
five years, until such time as the payments total $950,000. Such
contingent payments are subject to the same limitations as described
above.
Consulting Agreement
In January 1996, the Company entered into a letter agreement with one of
its board members whereby such board member would provide consulting
services to the Company for the period January 1, 1996 through December
31, 1999. Consulting fees under the agreement are $60,000 per year. Such
fee had been waived by the board member in 1996.
In 1998, the Company issued 100,000 shares of common stock to the board
member for consulting services provided in 1997. The shares vest over a
two year period in eight equal installments of 12,500 shares per quarter.
Additional Benefit Plan
In 1995, the Company entered into an Additional Benefit Plan (the "Plan")
providing cash and stock benefits for certain key employees
("Participants"). Such benefits were based solely on the consolidated
financial performance of NEVCOR and VIRCOM during the period from January
1, 1995 to December 31, 1997. The Plan was not renewed in 1998.
No shares were issued under the Plan in 1997, 1996 and 1995.
Legal Proceedings
An action pending in the Supreme Court of the State of New York
commenced on or about September 18, 1997 against the Company and three
of its officers and directors by a holder of a warrant issued by the
Company for claimed damages of $1,000,000, alleging that the Company
breached the terms of the warrant by failing to register for public
sale shares of common stock issuable on exercise of the warrant. The
Company has included these shares in its presently pending registration
statement on Form S-3, has asserted as an affirmative defense that the
transaction in connection with which the warrant was issued was void
under New York's usury law, and has counterclaimed for $29,667. The
Company has moved for summary judgment dismissing the complaint and
intends to continue to vigorously defend the action.
The Company is a defendant in an action brought by the sellers of AMCOM
("Sellers") seeking an additional $93,449 of income taxes incurred by
them with respect to their distributive share of AMCOM's taxable income
for the period January 1, 1994 through the closing date. The Sellers
are also seeking interest and costs. The Company has indicated that the
tax obligation to the Sellers has been paid in full. This matter is in
the discovery stage and the Company intends to vigorously defend this
matter.
An action pending in the United States District Court for the District
of New Jersey commenced on or about April 14, 1998, alleging payments due
in the amount of approximately $260,000 for leased equipment. Company
counsel have not yet reviewed the complaint in this action, but have
been advised by the Company that the claimed amount is not due and that
the Company's records reflect that the amount owed, if any, is far less
than the amount demanded. The Company intends to defend this action
vigorously.
In April, 1998, a supplier of the Company's Global-InSync subsidiary
commenced an action in the United States District Court for the Eastern
District of Virginia against the Company and Global-InSync, alleging
payments due to the Supplier in the amount of $784,556. The Company has
not yet had the opportunity to evaluate the merits of the Supplier's
claim.
The Company is involved in various other claims and actions incidental
to the business.
Indemnification
The Company has indemnified certain of its officers and directors (the
"Indemnitees") who were previously officers, stockholders and/or
directors of another corporation for actions against the Indemnitees
arising out of their service to that corporation. In the event that the
corporation fails to honor its obligation it undertook to indemnify the
Indemnitees on such claims, the Company would then indemnify such
Indemnitees. The corporation has declined to honor its obligations
under its indemnification. As such, the Company has paid certain legal
fees and related expenses in the amount of approximately $828,000 in
connection with the defense of such claims. Such amount has been
included in other receivables, net of an indemnification charge of
$621,000.
F-32
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 19 - RELATED PARTY TRANSACTIONS
Company
The Company's former outside law firm was a stockholder of the Company.
In 1995, the Company incurred legal fees of approximately $804,000. On
February 16, 1996, the Company signed a letter agreement agreeing to
pay $464,000 in full satisfaction of outstanding legal fees, unbilled
time charges and disbursements as follows:
1. $150,000 upon the signing of the agreement.
2. A $314,000 promissory note payable in four installments as follows:
$75,000 on May 25, 1996, August 25, 1996 and November 25, 1996 and
$89,000 on December 31, 1996. As the promissory note did not bear
interest, an interest rate of 10% was imputed. At December 31, 1997
and 1996, the Company owed $-0- and $81,778, respectively.
A partner of the former outside law firm to the Company who later
became an officer of the Company provided outside legal services in
1996. Fees incurred totalled $179,844.
In 1995, the Company purchased, from the Chairman of the Board, property
and equipment based upon an independent appraisal in the amount of
$73,850.
NOTE 20 - STOCKHOLDERS' EQUITY
Preferred Stock
On May 30, 1995, the Company authorized the issuance of 10,000,000 shares
of preferred stock, $.01 par value. Preferred stock consists of the
following:
Series 1 Convertible Preferred Stock (Series 1 Preferred)
Series 1 Preferred stockholders have a liquidation preference of $10
per share. Series 1 Preferred is convertible into common stock at
the election of the stockholder at a per share conversion rate equal
to the lower of seventy percent (70%) of the market price of common
stock on the day of conversion or $3.50. Series 1 Preferred has no
voting rights.
Pursuant to a subscription agreement in July 1996, 330,000 Series 1
Preferred shares were issued in connection with the sale of
securities under an exemption pursuant to Regulation S promulgated
under the Securities Act of 1933. In 1996, 307,500 shares of Series
1 Preferred were converted into 1,836,777 shares of common stock.
The balance of the Series 1 Preferred shares were converted in 1997
into 163,580 shares of common stock.
F-33
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 20 - STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock (Continued)
Series 2 Convertible Preferred Stock (Series 2 Preferred)
Series 2 Preferred stockholders have a liquidation preference of
$1,000 per share. Series 2 Preferred is convertible into common
stock at the election of the stockholder at a per share conversion
rate equal to the lower of sixty-five percent (65%) of the market
price on the day of conversion or $4.03125. Series 2 Preferred has
no voting rights.
In August 1996, 825 Series 2 Preferred shares were issued in
connection with the sale of securities under an exemption pursuant
to Regulation S. In 1996, all of the shares of Series 2 Preferred
were converted into 382,743 shares of common stock.
Series 3 Convertible Preferred Stock (Series 3 Preferred)
The Series 3 Preferred stockholders have a liquidation preference of
$10 per share and are entitled to receive, when declared by the
board of directors, cumulative dividends at an annual rate of 6% of
the liquidation preference ($.60 per share). Such dividends shall be
payable on a semi-annual basis commencing on June 30, 1997 and shall
have preference to dividends on any other class of common or
preferred stock. Series 3 Preferred has no voting rights except as
described below:
1. On each second Dividend Payment Date that quarterly dividends
on Series 3 Preferred Stock shall not have been paid in full
as required herein (a "Dividend Default"), then and in each
such event, the holder of shares of Series 3 Preferred shall
be entitled to elect such number of directors ("Special
Directors") as set forth below, hereof, at the next annual
meeting of stockholders of the Company. The holders of all
shares otherwise entitled to vote for directors, voting
separately as a class, shall be entitled to elect the
remaining members of the Board of Directors. Such special
voting right of the holders of shares of Series 3 Preferred
may be exercised until all dividends in default on the Series
3 Preferred shall have been paid in full or declared and funds
sufficient therefore set aside, and when so paid or provided
for together with one additional Dividend Payment Date shall
have passed without a Dividend Default, such special voting
right of the holders of shares of Series 3 Preferred shall
cease and any Special Directors appointed or elected shall
resign, but subject always to the same provisions for the
vesting of such special voting rights in the event of any such
future Dividend Default.
F-34
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 20 - STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock (Continued)
Series 3 Convertible Preferred Stock (Series 3 Preferred)
(Continued)
2. On September 30, 1997, in the event that by such date there
has been a Dividend Default relating to the dividend due on
June 30, 1997, the holders of Series 3 Preferred shall be
entitled to elect a number of directors sufficient to
constitute 15% of the total number of directors of the
Company. On the second subsequent Dividend Payment Date on
which there has been a Dividend Default, the holders of the
Series 3 Preferred Stock shall be entitled to elect a number
of directors sufficient to constitute an additional 15% of the
total number of directors of the Company, and, thereafter,
after each second subsequent Dividend Payment Date on which
there has been a Dividend Default, the holders of the Series 3
Preferred Stock shall be entitled to elect a number of
directors constituting an additional 15% of the Board of
Directors. In the event that the size of the Board of
Directors is increased at any time during which any Special
Director is serving thereon, such vacancies shall be filled
first by Special Directors elected by the holders of the
Series 3 Preferred Stock until the appropriate number of
Special Directors shall have been so elected.
Series 3 Preferred is convertible at the election of the stockholder
at a conversion rate equal to $10 plus all accrued but unpaid
dividends divided by the conversion price ($10).
The Company has the option to call all or part of the Series 3
Preferred at an exercise price equal to the liquidation preference
($10 per share). The Company is required to provide notice of not
less than five trading days (as defined) and such exercise will be
payable within three business days after the expiration of the five
trading day call period.
In September 1996, 350,000 Series 3 Preferred shares were issued to
ManTech in connection with the acquisition of MSOL. For the period
July 1, 1997 to December 31, 1997, cumulative undeclared dividends
amounted to $61,250.
Series 4 Convertible Preferred Stock (Series 4 Preferred)
Series 4 Preferred stockholders have a liquidation preference of
$100 per share. Series 4 Preferred is convertible into common stock
at the election of the stockholder at a per share conversion rate
equal to the lower of seventy percent (70%) of the market price on
the day of conversion or $3.50. Series 4 Preferred has no voting
rights.
In September 1996, 25,000 Series 4 Preferred shares were issued in
connection with the sale of securities under an exemption pursuant
to Regulation S. In 1996, 19,000 shares of Series 4 Preferred were
converted into 1,236,602 shares of common stock. In 1997, the
balance of the Series 4 Preferred shares were converted into 425,859
shares of common stock.
F-35
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 20 - STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock (Continued)
Series 5 Convertible Preferred Stock (Series 5 Preferred)
The Series 5 Preferred stockholders have a liquidation preference of
$1,000 per share and are entitled to receive cumulative dividends
payable in cash at an annual rate of 6% of the liquidation
preference ($60 per share). Such dividends shall be payable on a
semi-annual basis commencing on December 31, 1997 and shall have
preference to dividends on any other class of common or preferred
stock. Series 5 Preferred has no voting rights.
Series 5 Preferred is convertible at the election of the
stockholders at a conversion rate equal to $10 per share and can be
converted at any time after the earlier of:
1. One year from the date of issuance, or
2. The date of any notice of redemption of such shares.
Beginning at any time after July 1, 1998, the Company may, at its
sole option, redeem the outstanding shares of Series 5 Preferred at
any time, in whole or in part, upon notice duly given to all
stockholders. The redemption price shall be equal to the liquidation
preference ($1,000 per share) plus all unpaid dividends accrued
through the redemption date.
In July 1997, 785 Series 5 Preferred shares were issued to the
stockholders of ASDI in connection with the merger of the business.
Series 6 Convertible Preferred Stock (Series 6 Preferred)
The Series 6 Preferred stockholders have a liquidation preference of
$1,000 per share and are entitled to receive dividends at an annual
rate of 5% of the liquidation preference ($50 per share) payable as
follows:
1. In cash.
2. At the election of the Company, in shares of common stock
valued at the average closing bid prices for the five days on
which the common stock was traded immediately prior to the
record date for the payment of such dividend.
Such dividends shall be payable on a semi-annual basis commencing on
July 1, 1998 and shall have preference to dividends on any other
class of common or preferred stock. Series 6 Preferred has no voting
rights.
Beginning on the sixtieth (60) day after the issuance of the Series
6 Preferred, such shares are convertible at the election of the
stockholders at a conversion rate equal to the quotient obtained by
dividing the liquidation preference by an amount equal to 75% of the
five day average closing bid price per share of common stock
immediately prior to the date of conversion.
F-36
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 20 - STOCKHOLDERS' EQUITY (CONTINUED)
Preferred Stock (Continued)
Series 6 Convertible Preferred Stock (Series 6 Preferred)
(Continued)
Beginning on the sixtieth (60) day after the issuance of the Series
6 Preferred, the Company may, at its sole option, redeem the
outstanding shares of Series 6 Preferred at any time, in whole or in
part, upon notice duly given to all stockholders. The redemption
price shall be equal to 133% of the liquidation preference.
In December 1997, 1,200 Series 6 Preferred shares were issued in
connection with the sale of securities. In 1998, the Company issued
an additional 1,000 shares.
Series 7 Convertible Preferred Stock (Series 7 Preferred) (issued
in 1998)
The Series 7 Preferred stockholders have a liquidation preference of
$1,000 per share and are entitled to receive dividends at an annual
rate of 5% of the liquidation preference ($50 per share) payable as
follows:
1. In cash.
2. At the election of the Company, in shares of common stock
valued at the average closing bid prices for the five days on
which the common stock was traded immediately prior to the
record date for the payment of such dividend.
Such dividends shall be payable on a semi-annual basis commencing on
July 1, 1998 and shall have preference to dividends on any other
class of common or preferred stock. Series 7 Preferred has no voting
rights.
Beginning on the sixtieth (60) day after the issuance of the Series
7 Preferred, such shares are convertible at the election of the
stockholders at a conversion rate equal to the quotient obtained by
dividing the liquidation preference by an amount equal to 75% of the
five day average closing bid price per share of common stock
immediately to the date of conversion.
Beginning on the sixtieth (60) day after the issuance of the Series
7 Preferred, the Company may, at its sole option, redeem the
outstanding shares of Series 7 Preferred at any time, in whole or in
part, upon notice duly given to all stockholders. The redemption
price shall be equal to 133% of the liquidation preference.
Series 8 Convertible Preferred Stock (Series 8 Preferred)
(issued in 1998)
The Series 8 Preferred stockholders have a liquidation preference
of $1,000 per share and are entitled to receive dividends at an
annual rate of 5% of the liquidation preference ($50 per
share) payable as follows:
1. In cash
2. At the election of the Company, in shares of common stock
valued at the average closing bid prices for the five days
on which the common stock was traded immediately prior to
the record date for the payment of such dividend.
Such dividends shall be payable on semi-annual basis commencing on
July 1, 1998 and shall have preference to dividends on any other
class of common or preferred stock, other class of common or
preferred stock. Series 8 Preferred has no voting rights.
Beginning on the sixtieth (60) day after the issuance of the
Series 6 Preferred, such shares are convertible at the election of
the stockholders at a conversion rate equal to the quotient
obtained by dividing the liquidation preference by an amount equal
to 75% of the five day average closing bid price per share of
common stock immediately prior to the date of the conversion.
Beginning on the sixtieth (60) day after the issuance of the
Series 8 Preferred, the Company may, at is sole option, redeem the
outstanding shares of Series 8 Preferred at any time, in whole or
in part, upon notice duly given to all stockholders. The
redemption price shall be equal to 133% of the liquidation
preference.
Liquidating Preference and Dividends in Arrears
The value of the liquidation preferences and dividends in arrears
is as follows:
<TABLE>
<CAPTION>
Number Liquidation Total Dividend
of Preference Liquidation in Total
Shares Per Share Preference Arrears Value
--------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Series 1 22,500 $10 $ 225,000 $ -- $ 225,000
Series 2 -- -- -- -- --
Series 3 350,000 10 3,500,000 61,250 3,561,250
Series 4 -- -- -- -- --
Series 5 785 1,000 785,000 -- 785,000
Series 6 1,200 1,000 1,200,000 -- 1,200,000
---------- ------- ----------
$5,710,000 $61,250 $5,771,250
---------- ------- ----------
---------- ------- ----------
December 31, 1996
Series 1 330,000 $10 $3,300,000 $ -- $3,300,000
Series 2 -- -- -- -- --
Series 3 350,000 10 3,500,000 61,250 3,561,250
Series 4 25,000 100 25,100 -- 25,100
---------- ------- ----------
$6,825,100 $61,250 $6,886,350
---------- ------- ----------
---------- ------- ----------
</TABLE>
Dividends
In 1997, the Company declared and paid the following dividends:
<TABLE>
<CAPTION>
Number
of Dividend Total
Shares Per Share Dividend
------------------------------------------
<S> <C> <C> <C>
Series 3 350,000 $0.47 $165,123
Series 5 785 30.00 23,550
--------
$188,673
--------
--------
</TABLE>
F-37
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 20 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock
On May 26, 1995, the Company filed Restated Articles of Incorporation with
the Nevada Secretary of State pursuant to which the Company increased its
authorized common stock from 20,000,000 pre-split shares, par value $.01
per share to 40,000,000 shares, par value $.01 per share. In addition, in
July 1995, the board of directors declared a one-for-two reverse split of
its common stock. All share data and per share amounts have been adjusted
to reflect the reverse stock split on a retroactive basis.
In 1997, the Company authorized the issuance of 200,000 shares of common
stock as follows:
1. 50,000 shares at a price of $2.34 per share to a corporation for
consulting fees for the period October 14, 1997 through October 14,
1999. The shares will be issued in 1998.
2. 150,000 shares at $2.00 per share to the former officers of NATCOM
in consideration for the continuation of their respective
non-competition agreements. The shares will be issued in 1998.
In 1996, the Company authorized the issuance of 39,000 shares of common
stock as follows:
1. 24,000 shares at a price of $2.00 per share to a corporation in
connection with the sale of securities. Such amount has been offset
against additional paid-in capital in the consolidated statements of
stockholders' equity. The shares were issued in 1997.
2. 15,000 shares at a price of $3.19 per share to three prior NATCOM
stockholders relating to the payment of a portion of the purchase
price per the stock purchase agreement. The shares were issued in
1997.
In December 1995, the Company authorized the issuance of 37,792 shares of
common stock as follows:
1. 22,792 shares at a price of $6.00 per share totalling $136,753 to
the lessor of the Company's Pennsylvania warehouse facility to
prepay the rent for the period February 1996 through October 1996.
Such amount has been included as prepaid expenses and other current
assets in the consolidated balance sheets. At December 31, 1995,
such shares had not been issued and the transaction was reversed in
1996.
2. 8,333 shares at a price of $3.00 per share totalling $25,000 to two
board members in payment of director fees. Such amount was included
in operating expenses in the consolidated statements of operations.
Such shares were issued in 1996.
3. 6,667 shares at a price of $3.00 per share totalling $20,000 to two
board members to prepay 1996 director fees. Such amount was included
as prepaid expenses and other current assets in the consolidated
balance sheets at December 31, 1995. The shares were issued in 1996
and the amount is included in operating expenses in the consolidated
statements of operations in 1996.
F-38
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 20- - STOCKHOLDERS' EQUITY (CONTINUED)
Sale of Securities
In 1996, the Company sold shares of preferred and common stock under an
exemption pursuant to Regulation S. The Company raised a total of
$4,294,129, which was net of offering costs totalling $2,677,371.
NOTE 21 - STOCK OPTIONS
The Company adopted the 1995 Stock Option Plan which provides, among other
things, for the Company's board of directors to grant options to officers
and other key employees of the Company and its subsidiaries for the
purchase of up to 250,000 shares of the Company's common stock at prices,
and over exercise periods, to be determined by the board of directors at
the time the options are granted.
In January 1996, the Company granted seven-year options to various
officers and employees to purchase 107,900 shares of common stock at $3.25
per share. The options vest 25% per year on each of the first four
anniversaries of the date thereof. If the optionee ceases to be an
employee, the option shall terminate immediately if such cessation is for
cause or without consent, one year following such cessation if such
cessation is due to the optionee's death or disability, and three months
following such cessation in all other cases, but not after the date the
option would otherwise expire.
In April 1997, the Company granted the factor options to purchase 100,000
shares of common stock at $3.00 per share. The options expire in April
2000.
No options were exercised in 1996 and 1997. A summary of option activity
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Beginning balance 107,600 - -
Options issued 100,000 107,600 -
Options exercised or expired (70,600) - -
------- -------- -------
Ending balance 137,000 107,600 -
======= ======== =======
</TABLE>
F-39
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 22 - WARRANTS
The Company authorized the issuance of warrants with terms of one to five
years to various corporations and individuals in connection with the sales
of securities, loan agreements and consulting agreements. Exercise prices
range from $1.75 to $6.75 per warrant. The warrants expire at various
times from August 15, 1998 through November 14, 2002.
No warrants were exercised in 1996 and 1997. A summary of warrant activity
is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance 936,583 -- --
Warrants issued 1,218,750 936,583 --
Warrants exercised or expired (100,000) -- --
---------- ---------- ----------
Ending balance 2,055,333 936,583 --
========== ========== ==========
</TABLE>
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts at which cash, due from factor, accounts receivable, accounts
payable, due to financial institution, notes payable and accrued expenses
and other current liabilities are presented in the balance sheets
approximate their fair value due to their short maturities. The following
table presents the carrying amount and fair value at December 31, for due
on acquisitions.
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due on acquisitions $2,127,084 $1,571,835 $2,957,058 $2,223,747
========== ========== ========== ==========
</TABLE>
The fair value of due on acquisitions has been determined based on
discounted cash flow using a market rate of interest at the balance sheet
date as applicable to comparable debt.
F-40
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 24 - ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for the stock options and warrants granted. No expense was recognized in
1997 and 1996. If the Company had elected to recognize expense for the
stock options and warrants granted based on the fair value at the date of
grant consistent with the method prescribed by SFAS No. 123, net loss and
loss per share would have been changed to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------------
As Pro As Pro
Reported Forma Reported Forma
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(9,435,960) $(9,489,611) $ (1,085,388) $ (1,127,178)
Loss per share (1.29) (1.30) (.33) (.34)
</TABLE>
The fair value of the stock options and warrants used to compute pro forma
net loss and loss per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions: expected volatility of 4% (1996-47%);
various risk free interest rates of 5.8% to 6.3%; and expected holding
periods of one to four years.
NOTE 25 - DISCONTINUED OPERATIONS
In 1997, the Company discontinued its aggregator portion of the NEVCOR
business as its major vendor decided to cease distributions through the
aggregator channel. The Company also discontinued its SPEECH SOLUTIONS
business as management concluded that the ratio of capital requirements
to revenue for a software developer were incompatible with the overall
operations of the Company's integration, sales and manufacturing
businesses. Summarized results of the businesses for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 9,230,131 $ 14,084,691 $ 21,677,868
============ ============ ============
Income (loss) from operations before
income taxes (tax benefits) $ (8,713,715) $ (626,097) $ 111,418
Income taxes (tax benefits) (1,580,563) (247,202) 44,567
------------ ------------ ------------
Income (loss) from
discontinued operations $ (7,133,152) $ (378,895) $ 66,851
============ ============ ============
</TABLE>
F-41
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 25 - DISCONTINUED OPERATIONS (CONTINUED)
The net assets of the discontinued businesses are summarized as follows:
<TABLE>
<CAPTION>
1997 * 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $ 32,885 $ 3,828,701 $ 5,490,375
Property and equipment 53,362 430,512 373,578
Other assets -- 2,964,502 2,177,012
Current liabilities (224,758) (1,687,476) (1,569,802)
Long-term liabilities -- (176,773) (302,706)
----------- ----------- -----------
$(138,511) $ 5,359,466 $ 6,168,457
=========== =========== ===========
</TABLE>
* In 1997, certain assets were transferred to VIRCOM TG and are not
reflected in discontinued operations.
NOTE 26 - REGISTRATION FOR SELLING STOCKHOLDERS
In March 1998, the Company filed a registration statement on Form S-3
under the Securities Act of 1933, as amended, for the purpose of meeting
an obligation to registering certain securities for public sale on
behalf of certain selling stockholders. Included in such registration
statement are the following:
Series 6 Preferred and Series 7 Preferred
Certain warrants at exercise prices ranging generally from $1.99 to
$8.75 per share
In addition, 742,000 shares are being registered for sale. Certain shares
being registered will vest over various periods up to two years. The
Company will not receive proceeds from the sale of any of these shares.
The Company intends to include Series 8 preferred through a
post-effective amendment.
The offering is currently being reviewed by the Securities and Exchange
Commission.
NOTE 27 - UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma, condensed, consolidated balance sheet
assumes the completion of the sale of Series 6 Preferred and the sale of
Series 7 Preferred. As of December 31, 1997 (received in 1998). The
financial information presented herein does not proport to be indicative
of what would have occurred had both transactions actually been made as of
such date or of results which may occur in the future.
F-42
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 27 - UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
The unaudited pro forma condensed consolidated balance sheet of the
Company at December 31, 1997 assumes the following:
1. The sale of the balance of Series 6 Preferred net of offering costs.
2. The sale of Series 7 Preferred net of offering costs.
<TABLE>
<CAPTION>
Company
As Pro Forma
Reported Adjustments Pro Forma
----------- ----------- -----------
(Historical) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current Assets $ 8,626,998 (1) $ 900,000 $10,800,998
(2) 1,274,000
Property and equipment 1,326,058 1,326,058
Other assets 8,981,911 8,981,911
----------- ---------- -----------
$18,934,967 $2,174,000 $21,108,967
=========== ========== ===========
Current liabilities $15,410,553 $ $15,410,553
Long-term debt 1,632,115 1,632,115
(1) 900,000
Stockholders' equity 1,892,299 (2) 1,274,000 4,066,299
----------- ---------- -----------
$18,934,967 $2,174,000 $21,108,967
=========== ========== ===========
</TABLE>
(1) To record the sale of 1,000 shares of Series 6 Preferred net of
estimated offering costs of $100,000 (1,200 shares sold in 1997).
(2) To record the sale of 1,425 shares of Series 7 Preferred net of
estimated offering costs of $151,000.
F-43
<PAGE>
NOTE 28 - BUSINESS SEGMENT DATA
The Company's operations are conducted through two business segments,
Systems Integration and Production. The Production division was
acquired in September 1996 and as such, divisional information is not
shown for 1995.
<TABLE>
<CAPTION>
Years Ended
Net Sales by Division: December 31
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Systems Integration $26,324,234 $14,068,631
Production 24,910,892 13,985,710
----------- -----------
$51,235,126 $28,054,341
----------- -----------
----------- -----------
</TABLE>
Operating loss of each division is as follows:
<TABLE>
<CAPTION>
Years Ended
December 31
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Systems Integration 1,098,802 (989,462)
----------- -----------
Production (2,353,887) 62,435
----------- -----------
Other income (expenses) (1,557,852) (238,803)
----------- -----------
Income tax benefit 510,129 459,337
Discontinued operations (7,133,152) (378,895)
Net loss (9,435,960) (1,085,388)
----------- -----------
----------- -----------
</TABLE>
Identifiable assets of each division are as follows:
<TABLE>
<CAPTION>
Years Ended
December 31
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Systems Integration 9,727,087 8,931,706
Production 4,958,063 10,554,422
General corporate assets 4,249,817 3,336,764
----------- -----------
Total assets 18,934,967 22,822,892
----------- -----------
----------- -----------
</TABLE>
Identifiable assets by division are those assets that are used in the
operation of each division. General corporate assets consist primarily
of property and equipment, intangible assets and deferred income taxes.
F-44
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
BASIC INCOME PER COMMON SHARE
INCOME:
Income (loss) from continuing operations $(2,302,808) $ (706,493) $ 203,332
Less: Dividends 188,673 -- --
Less: Cumulative undeclared dividend
on Series 3 Convertible Preferred Stock 61,250 61,250 --
------------ ----------- -----------
Adjusted income (loss) from continuing operations $(2,552,731) $ (767,743) $ 203,332
------------ ------------ -----------
------------ ------------ -----------
Discontinued operations $(7,133,152) $ (378,895) $ 66,851
------------ ------------ -----------
------------ ------------ -----------
SHARES:
Weighted average number of common
shares outstanding 7,481,307 3,527,053 2,927,170
------------ ------------ -----------
------------ ------------ -----------
BASIC INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ (.34) $ (.22) $ .07
Discontinued operations (.95) (.11) .02
------------ ------------ -----------
$ (1.29) $ (.33) $ .09
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AS OF DECEMBER 31, 1997 AND STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 138,469
<SECURITIES> 0
<RECEIVABLES> 3,708,498
<ALLOWANCES> 24,392
<INVENTORY> 3,001,519
<CURRENT-ASSETS> 8,626,998
<PP&E> 2,023,294
<DEPRECIATION> 697,236
<TOTAL-ASSETS> 18,934,967
<CURRENT-LIABILITIES> 15,410,553
<BONDS> 0
0
3,520
<COMMON> 74,973
<OTHER-SE> 1,813,806
<TOTAL-LIABILITY-AND-EQUITY> 18,934,967
<SALES> 51,235,126
<TOTAL-REVENUES> 51,235,126
<CGS> 44,667,482
<TOTAL-COSTS> 44,667,482
<OTHER-EXPENSES> 7,822,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 957,207
<INCOME-PRETAX> (2,812,937)
<INCOME-TAX> (510,129)
<INCOME-CONTINUING> (2,302,808)
<DISCONTINUED> (7,133,152)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,435,960)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.29)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AS OF DECEMBER 31, 1996 AND 1995 AND STATEMENT OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 1,516,072 0
<SECURITIES> 0 0
<RECEIVABLES> 4,377,942 0
<ALLOWANCES> 40,000 0
<INVENTORY> 3,275,166 0
<CURRENT-ASSETS> 14,830,018 0
<PP&E> 827,802 0
<DEPRECIATION> 103,803 0
<TOTAL-ASSETS> 22,822,892 0
<CURRENT-LIABILITIES> 10,899,230 0
<BONDS> 0 0
0 0
3,785 0
<COMMON> 68,808 0
<OTHER-SE> 9,552,579 0
<TOTAL-LIABILITY-AND-EQUITY> 22,822,892 0
<SALES> 28,054,341 8,769,599
<TOTAL-REVENUES> 28,054,341 8,769,599
<CGS> 23,779,175 8,089,384
<TOTAL-COSTS> 23,779,175 8,089,384
<OTHER-EXPENSES> 5,202,193 720,969
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 211,633 5,740
<INCOME-PRETAX> (1,165,830) (26,976)
<INCOME-TAX> (459,337) (230,308)
<INCOME-CONTINUING> (706,493) (203,332)
<DISCONTINUED> (378,895) 66,851
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,085,388) 270,183
<EPS-PRIMARY> (.33) .09
<EPS-DILUTED> (.33) .09
</TABLE>
