U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 29, 1999
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COMMUNICATIONS WORLD INTERNATIONAL, INC.
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(Exact Name of Registrant as Specified in Charter)
Commission file number: 0-30220
Colorado 84-0917382
- --------------------------------------------- ----------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
7315 South Revere Parkway, Unit 602, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
(303) 721-8200
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Registrant's telephone number, including area code
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
Communications World International, Inc. on November 11, 1999 solely to add the
financial statements of the business acquired as required by Item7 (a) and the
pro forma financial information as required by Item 7 (b).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The required financial statements of the business acquired are set
forth below.
2
West-Tech Communications Corp.
Financial Statements
December 31, 1998
Table of Contents
Independent Auditors' Report 4
Balance Sheet 5
Statement of Operations and Retained Earnings 6
Statement of Cash Flows 7
Notes to Financial Statements 8-11
3
Independent Auditors' Report
----------------------------
Stockholder
West-Tech Communications Corp.
Golden, Colorado:
We have audited the accompanying balance sheet of West-Tech Communications
Corp., as of December 31, 1998, and the related statement of operations and
retained earnings, and cash flow for the year then ended. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of West-Tech Communications Corp.,
as of December 31, 1998, and the results of its operations and cash flow for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Levine, Hughes, & Mithuen, Inc.
Englewood, Colorado
November 12, 1999
4
West-Tech Communications Corp.
Balance Sheet
December 31, 1998
Assets
------
Current assets:
Cash and cash equivalents $ 5,580
Trade accounts receivable 188,255
Inventory 13,325
Other current assets 30,698
---------
Total current assets 237,858
Property and equipment, net 36,408
Other assets 3,130
---------
$ 277,396
=========
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 103,369
Notes payable, maturing within one year 7,213
Accrued expenses, deposits and other liabilities 10,554
---------
Total current liabilities 121,136
Long-term liabilities:
Notes payable, net of current maturities 51,392
---------
172,528
---------
Commitments and contingencies (notes 4, 5 and 6)
Stockholder's equity:
Common stock, no par value, 100 shares authorized,
issued and outstanding 2,000
Retained earnings 102,868
---------
Total stockholder's equity 104,868
---------
$ 277,396
=========
See accountants' audit report and notes to the financial statements.
5
West-Tech Communications Corp.
Statement of Operations and Retained Earnings
For the Year Ended December 31, 1998
Revenue:
Direct equipment, installation and service sales $ 1,560,051
Maintenance contract revenue 64,583
Other income 25,671
------------
1,650,305
------------
Costs and expenses:
Cost of direct equipment, installation and service sales 1,116,007
Selling, general and administrative 400,721
Provision for bad debts 17,440
------------
1,534,168
------------
Net income $ 116,137
============
Net income $ 116,137
Accumulated deficit beginning of year (7,769)
Shareholder distributions (5,500)
------------
Retained earnings end of year $ 102,868
============
Pro forma information (unaudited): (Note 7)
Net income as reported 116,137
Pro forma charge in lieu of income taxes 28,543
------------
Pro forma net income $ 87,594
============
See accountants' audit report and notes to the financial statements.
6
West-Tech Communications Corp.
Statement of Cash Flows
For the Year Ended December 31, 1998
Cash flows from operating activities:
Net income $ 116,137
Adjustments to reconcile to net cash provided by
(used in) operating activities, net of effect of acquisitions:
Depreciation and amortization 11,197
Provision for bad debts 17,440
Gain on disposal of fixed assets (22,000)
Changes in operating assets and liabilities:
Trade accounts receivable (92,211)
Other assets (33,828)
Trade accounts payable (82,633)
Accrued expenses, deposits and other liabilities (4,245)
----------
Net cash provided by operating activities (90,143)
----------
Cash flows from investing activities:
Cash received from disposal of fixed assets 22,000
Capital expenditures (29,952)
----------
Net cash used in investing activities (7,952)
----------
Cash flows from financing activities:
Shareholder distributions (5,500)
Advances from notes payable 61,700
Payments on notes payable (3,095)
----------
Net cash used financing activities 53,105
----------
Net decrease in cash (44,990)
Cash at beginning of the year 50,570
----------
Cash at end of the year $ 5,580
==========
Supplemental disclosures of cash flow information:
Interest paid $ 825
See accountants' audit report and notes to the financial statements.
7
West-Tech Communications Corp.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Organization and Nature of Operations
The financial statements presented are those of West-Tech Communications
Corp., (the Company). The Company was incorporated under Colorado law in
1986. Its principal executive offices are located at 17301 West Colfax
Avenue, Golden, Colorado 80401. The Company is engaged in sales,
installation and maintenance of telephone interconnect equipment throughout
the metro Denver area.
Revenue Recognition
Revenue from direct equipment, installation and service sales is generally
recognized upon completion of the installation or upon completion of the
service provided by the Company for telephone systems, voice processing
products and related peripherals, since most contracts are completed as of
a period end. For significant projects not complete as of a period end, a
percentage of revenue and expense for the entire project is recognized
based on the estimated percentage of completion.
Use of Estimates
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventory
Inventory is valued at the lower of cost (first-in, first-out method) or
estimated market value and includes used and replacement stock items.
Property and Equipment
Property and equipment are reported at cost. Depreciation is computed over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes. Depreciation and amortization expense at
December 31, 1998 was $11,197.
Upon the disposition of assets, the related cost and accumulated
depreciation are removed from the books and the resulting gain or loss is
recognized in the year of disposition.
Allowance for Doubtful Accounts
Bad debts are provided for using the allowance method based on historical
experience and ongoing evaluation of outstanding accounts receivable. Based
on the Company's collection experience, management determined no allowance
for bad debt was necessary for the year ended December 31, 1998.
8
West-Tech Communications Corp.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies (continued)
Long-lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets based upon the estimated future cash flows from the related asset.
Impairment would be recognized in operations if permanent diminution in
value occurs.
Income Taxes
The Company has elected under the provisions of the Internal Revenue Code
to be an S corporation. Accordingly, in lieu of corporation income taxes
the shareholders of an S corporation are taxed on their proportionate share
of the Company's taxable income. Therefore, the Company has made no such
tax provision or recognized a liability for income taxes in the financial
statements.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less
cash equivalents.
(2) Property and Equipment
Property and equipment consists of the following at December 31, 1998:
Estimated
useful life
-----------
Furniture, fixtures and equipment 3-10 $ 55,659
Vehicles 5 13,985
---------
69,644
Accumulated depreciation 33,236
---------
Property and equipment, net $ 36,408
=========
(3) Notes Payable
Note payable to bank; interest at 8% per annum;
principal and interest payments of $605 due monthly
through November, 2003 and all unpaid interest and
principal due at maturity; scheduled maturity date
December 2003; collateralized by deed of trust on the
Shareholder's residence. $ 49,829
Note payable to bank; interest at 9.49% per annum;
principal and interest payments of $375 due monthly;
scheduled maturity date February, 2001; collateralized
by vehicles. 8,776
----------
58,605
Less current portion 7,213
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$ 51,392
==========
9
West-Tech Communications Corp.
Notes to Financial Statements
(3) Notes Payable (continued)
Maturities of long-term debt as of December 31, 1998 are as follows:
Years ending December 31,
-------------------------
1999 $ 7,213
2000 7,875
2001 4,700
2002 4,296
2003 34,521
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$ 58,605
==========
(4) Revolving Line of Credit
The Company entered into a revolving line of credit agreement with a bank
in December, 1998. The revolving line of credit permits the Company to
borrow up to $20,000. Interest, at the bank's reference rate plus 1.0% per
annum, is due monthly (8.75% at December 31, 1998). The revolving line of
credit is collateralized by chattel paper, accounts and general intangibles
of the Company and matures in May, 2000. At December 31, 1998 there were no
outstanding borrowings on the line of credit.
(5) Commitments
Operating Leases
The Company leases its primary office facilities, certain office equipment
and a vehicle under non-cancelable operating leases. The facilities lease
expires in October, 2001, the equipment lease expires in December, 2002 and
the vehicle lease expires in March, 2000. Future minimum lease payments for
these operating leases at December 31, 1998 are as follows:
Years ending December 31,
-------------------------
1999 $ 37,750
2000 33,200
2001 27,250
2002 2,905
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$ 101,105
==========
Aggregate rental expense was $20,140 for fiscal 1998.
SEP Plan
The Company maintains a Simplified Employee Pension Plan (SEP) covering
substantially all employees who have completed two years of service. The
Company may make discretionary contributions not to exceed 15% of the
employee's compensation. The Company made contributions $5,415 to the SEP
during fiscal 1998.
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West-Tech Communications Corp.
Notes to Financial Statements
(6) Certain Risks and Concentrations
The Company's product sales and services are concentrated in the metro
Denver area and the telephone interconnect industry, which is highly
competitive and rapidly changing. Significant technological changes in the
industry could affect operating results adversely. The Company's
inventories include spare parts and components, which are specialized in
nature and subject to technological obsolescence.
At December 31, 1998, one customer accounted for approximately 22% of the
Company's total revenue. The Company does not believe the loss of this
customer in the near term would have a severe, material impact on the
Company's operations.
At December 31, 1998, one supplier accounted for approximately 54% of the
Company's total materials purchases. The Company does not believe the loss
of this supplier in the near term would have a severe, material impact on
the Company's operations.
(7) Subsequent Events
In October, 1999 certain assets of the Company, including the name West-
Tech, were sold and certain liabilities were transferred to IAC Acquisition
Corporation, a wholly-owned subsidiary of Communications World
International, Inc. (CommWorld). The Company received $559,000 in cash and
a promissory note in the amount of $370,000. In addition, the Company
received 270,000 shares of CommWorld's common stock.
Pro Forma Change in Lieu of Income Taxes
Prior to the sale of certain assets of the Company, West-Tech elected S
Corporation status for U.S. federal income tax purposes. The tax liability
associated with the Company's income during 1998 was the responsibility of
its shareholder. To reflect earnings on an after-tax basis, an unaudited
pro forma charge in lieu of income taxes has been included in the
accompanying Statement of Operations. The provision was computed as if the
Company was a C Corporation and responsible for its federal and state
income taxes. If the pro forma charge had been included in the provision
for income taxes in the accompanying financial statements, the resulting
effective rate would approximate the statutory rate in fiscal 1998.
11
(b) Pro Forma Financial Information (unaudited)
The following pro forma summary financial information has been prepared giving
effect to the acquisition of West-Tech Communications Corp. as if the
transaction had taken place at December 31, 1998 for the pro forma condensed
consolidated balance sheet and January 1, 1998 for the pro forma condensed
consolidated income statements for the year ended December 31, 1998.
The acquisition has been accounted for as a purchase. The carrying values of
assets acquired have been estimated to approximate fair market value.
Accordingly, no pro forma adjustments to these amounts were made to reflect an
allocation of the purchase price.
The pro forma financial information is not necessarily indicative of the results
of operations or the financial position which would have been attained had the
acquisition been consummated at the foregoing date or which may be attained in
the future. The pro forma financial information should be read in conjunction
with the historical consolidated financial statements Communications World
International, Inc. (CommWorld), is presented for informational purposes only
and does not purport to be indicative of the financial condition that actually
would have resulted if the acquisition had occurred at December 31, 1998.
12
Communications World International, Inc.
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
April 30, 1999
(in thousands)
Historical Financial
Statements
------------------------------ Pro Forma
April 30, December 31, Consolidated
1999 1998 Pro Forma Financial
CommWorld West-Tech Adjustments Statement
--------- ------------ ----------- ------------
ASSETS
- ------
Current assets:
Cash $ 57 $ 6 $ (6) (a) $ 57
Trade accounts and current portion of
notes receivable 1,353 188 (19) (a) 1,523
Inventories 332 13 345
Other current assets 46 31 (31) (a) 46
------- ----- -------
Total current assets 1,788 238 1,971
Property and equipment, net 264 36 300
Deposits and other assets 74 3 (3) (a) 74
Deferred tax asset 1,006 1,006
Intangible assets, net 1,687 - 1,082 (c) 2,769
------- ----- -------
Total $ 4,819 $ 277 $ 6,120
======= ===== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 1,817 $ 103 $ - $ 1,920
Revolving line of credit 497 497
Current portion of notes payable 766 7 773
Accrued expenses and other 375 11 (11) (a) 375
------- ----- -------
Total current liabilities 3,455 121 3,565
Notes payable and other 428 51 (51) (a) 1.357
- - 929 (b) -
------- ----- -------
Total liabilities 3,883 172 4,922
------- ----- -------
Stockholders' equity:
Convertible preferred stock 586 586
Common stock 7,121 2 (2) (a) 7,383
262 (b)
Additional paid-in capital 551 551
Retained earnings (Accumulated deficit) (7,322) 103 (103) (a) (7,322)
------- ----- -------
Total stockholders' equity 936 105 1,198
------- ----- -------
$ 4,819 $ 277 $ 6,120
======= ===== =======
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
13
Communications World International, Inc.
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For The Year Ended April, 30 1999
(in thousands except earnings per share information)
Historical Financial
Statements
------------------------------ Pro Forma
April 30, December 31, Consolidated
1999 1998 Pro forma Financial
CommWorld West-Tech Adjustments Statements
------------ ------------- ----------- ------------
Revenue:
Franchise equipment sales $ 5,362 $ - $ 5,362
Direct equipment and service sales 3,505 1,625 5,130
Other revenue 283 25 308
---------- ------ ----------
Total revenue 9,150 1,650 10,800
---------- ------ ----------
Costs and expenses:
Cost of franchise equipment sales 4,759 - 4,759
Cost of direct equipment and service 2,325 1,116 3,441
sales
Selling, general and administrative 2,992 401 3,393
Interest Expense 254 - $ 71 (e) 325
Other expense 171 17 54 (d) 242
---------- ------ ----------
10,501 1,534 12,160
---------- ------ ----------
Income (loss) from continuing operations (1,351) 116 (1,360)
Loss from discontinued operations (429) - (429)
---------- ------ ----------
Net income (loss) (1,780) 116 (1,789)
Cumulative dividend on preferred stock 48 - 48
---------- ------ ----------
Net income (loss) applicable to common
stock $ (1,828) $ 116 $ (1,837)
========== ====== ==========
Loss per share:
Loss from continuing operations $(.56) $(.51)
====== ======
Net Loss $(.76) $(.69)
====== ======
Weighted average number of common shares
outstanding 2,409,816 270,000 (f) 2,679,816
The accompanying notes are an integral part of these unaudited pro forma
condensed combined financial statements.
14
Communications World International, Inc.
Notes to Pro Forma Condensed Financial Statements (unaudited)
April, 30 1999
On October 29, 1999 Communications World International, Inc. (CommWorld)
acquired the operations of West-Tech Communications Corp. (West-Tech) and
certain assets net of liabilities assumed for $1,190,523. The purchase price
was comprised of cash of $558,947, notes from CommWorld of $370,000 and 270,000
shares of CommWorld common stock. Included in the cash portion of the purchase
price was $138,947 representing the difference between accounts receivable
purchased and accounts payable assumed.
(a) Reduction for cash, receivables, other assets and liabilities not acquired.
(b) Recording the stock issued and the notes issued in connection with the
acquisition.
(c) Recognition of the excess of the purchase price over the net assets
acquired (goodwill).
(d) Amortization of goodwill over a period of 20 years.
(e) Accrued interest on acquisition debt.
(f) Common share issued as part of the acquisition are assumed to be issued and
outstanding at the beginning of the pro forma period presented. The fully
diluted weighted average common shares outstanding and the fully diluted
loss per share are not presented, as the effect would be anti-dilutive.
15
(b) Pro Forma Financial Information (unaudited), continued:
The following pro forma summary financial information has been prepared giving
effect to the acquisition of West-Tech Communications Corp. as if the
transaction had taken place at May 1, 1998 for the pro forma condensed
consolidated income statements for the twelve months ended April 30, 1999.
The pro forma financial information is not necessarily indicative of the results
of operations which would have been attained had the acquisition been
consummated at the foregoing date or which may be attained in the future.
16
Communications World International, Inc.
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Year Ended April, 30 1999
(in thousands except earnings per share information)
Historical Pro Forma
Financial Financial
Statement Statement Pro Forma
April 30, April 30, Consolidated
1999 1999 Pro forma Financial
CommWorld West-Tech Adjustments Statements
--------- --------- ----------- ----------
Revenue:
Franchise equipment sales $ 5,362 $ - $ 5,362
Direct equipment and service sales 3,505 1,617 5,122
Other revenue 283 - 283
---------- ------ ----------
Total revenue 9,150 1,617 10,767
---------- ------ ----------
Costs and expenses:
Cost of franchise equipment sales 4,759 - 4,759
Cost of direct equipment and service sales 2,325 1,162 3,487
Selling, general and administrative 2,992 360 3,352
Interest Expense 254 1 $ 71 (a) 326
Other expense 171 - 54 (b) 225
---------- ------ ----------
10,501 1,523 12,149
---------- ------ ----------
Income (loss) from continuing operations (1,351) 95 (1,382)
Loss from discontinued operations (429) - (429)
---------- ------ ----------
Net income (loss) (1,780) 95 (1,811)
Cumulative dividend on preferred stock 48 - 48
---------- ------ ----------
Net income (loss) applicable to common stock
($1,828) $ 95
========== ====== $ (1,859)
==========
Loss per share:
Loss from continuing operations $ (.56) $ (.52)
========== ==========
Net Loss $ (.76) $ (.69)
========== ==========
Weighted average number of common shares
outstanding 2,409,816 270,000 (c) 2,679,816
Pro forma adjustments:
(a) Accrued interest on acquisition debt.
(b) Amortization of goodwill over a period of 20 years.
(c) Common share issued as part of the acquisition are assumed to be issued and
outstanding at the beginning of the pro forma period presented. The fully
diluted weighted average common shares outstanding and the fully diluted
loss per share are not presented, as the effect would be anti-dilutive.
17
(b) Pro Forma Financial Information (unaudited), continued:
The following pro forma summary financial information has been prepared giving
effect to the acquisition of West-Tech Communications Corp. as if the
transaction had taken place at May 1, 1999 for the pro forma condensed
consolidated income statements for the six months ended October 31, 1999.
The pro forma financial information is not necessarily indicative of the results
of operations which would have been attained had the acquisition been
consummated at the foregoing date or which may be attained in the future.
The balance sheet effect of the acquisition has been included in the financial
statements of CommWorld for its second quarter ended October 31, 1999 in its
Form 10-QSB.
18
Communications World International, Inc.
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For The Six Months Ended October 31, 1999
(in thousands except earnings per share information)
Historical Financial
Statements Pro Forma
-----------------------------
October 31, October 31, Consolidated
1999 1999 Pro forma Financial
CommWorld West-Tech Adjustments Statements
--------- --------- ----------- ----------
Revenue:
Franchise equipment sales $ 2,622 $ - $ 2,622
Direct equipment and service sales 4,134 1,151 5,285
Other revenue 204 - 204
---------- ------ ----------
Total revenue 6,960 1,151 8,111
---------- ------ ----------
Costs and expenses:
Cost of franchise equipment sales 2,383 - 2,383
Cost of direct equipment and service sales 2,674 836 3,510
Selling, general and administrative 1,999 212 2,211
Interest Expense 124 - $ 35 (a) 159
Other expense 104 - 27 (b) 131
---------- ------ ----------
7,284 1,048 8,394
---------- ------ ----------
Income (loss) from operations (324) 103 (283)
Income tax benefit - - -
---------- ------ ----------
Net income (loss) $ (324) $ 103 $ (283)
========== ====== ==========
Loss per share:
Net Loss $ (.05) $ (.04)
========== ==========
Weighted average number of common shares
outstanding 6,734,900 270,000 (c) 7,004,900
Pro forma adjustments:
(a) Accrued interest on acquisition debt.
(b) Amortization of goodwill over a period of 20 years.
(c) Common share issued as part of the acquisition are assumed to be issued and
outstanding at the beginning of the pro forma period presented. The fully
diluted weighted average common shares outstanding and the fully diluted
loss per share are not presented, as the effect would be anti-dilutive.
19
(c) Exhibits
2.1 Merger Agreement by and among IAC Acquisition Corporation, West-Tech
Communications Corp., and Dave Clappisi filed as Exhibit 2 (g) to
Registration Statement on Form 10-SB/A (File No. 0-30220) is incorporated
herein by reference.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Communications World International, Inc.
----------------------------------------
(Registrant)
Date: January 7, 2000 /s/ James M. Ciccarelli
--------------- ----------------------------------------
James M. Ciccarelli, Chief Executive Officer
20