U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 16, 2000
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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
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(State or other jurisdiction (I.R.S. Employer
of incorporation 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
Item 2. Acquisition or Disposition of Assets
Effective March 16, 2000, the Company through its wholly owned subsidiary,
CommWorld Acquisition Corporation, purchased certain assets and assumed certain
liabilities of Telecom Systems ("Telecom") a wholly owned business unit of
Allstar Systems, Inc. Telecom provides communications solutions to businesses in
the Houston metropolitan area.
The Company acquired inventory of approximately $50,000, and the ongoing
business operations of Telecom. The Company intends to continue to use the asset
acquired in providing communications solutions to businesses.
The Company made a cash payment of $250,000. In addition the Company agreed to
provide warranty services to Telecom's customers of up to a maximum of $30,000.
The Company will issue shares of its common stock with a value of up to $300,000
based on the performance of the acquired operations for the six month period
after closing. The Company used internal funds for the acquisition, which were
derived primarily from a recent private offering of notes and warrants.
Prior to the acquisition, there was no material relationship between the Company
and Telecom.
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
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Telecom Systems
(A Wholly Owned
Business Unit of Allstar
Systems, Inc.)
Statement of Assets Acquired as of December 31,
1999 and the Related Statements of Direct Revenues
and Direct Operating Expenses for Each of the Two
Years in the Period Ended December 31, 1999 and
Independent Auditors' Report
3
INDEPENDENT AUDITORS' REPORT
To Allstar Systems, Inc.:
We have audited the accompanying statement of assets acquired of Telecom Systems
("Telecom"), a wholly owned business unit of Allstar Systems, Inc. as of
December 31, 1999 pursuant to the Asset Purchase Agreement by and among
Commworld Acquisition Corporation, Communications World International, Inc. and
Allstar Systems, Inc., dated as of March 16, 2000 (the "Agreement"), and the
related statement of direct revenues and direct operating expenses for each of
the two years in the period ended December 31, 1999. These statements are the
responsibility of Allstar Systems, Inc.'s management. Our responsibility is to
express an opinion on the 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying statements were prepared to present the assets and operations
of Telecom to be acquired pursuant to the Agreement described in Note 1 and are
not intended to be a complete presentation of the assets or operations of
Telecom.
In our opinion, such statements present fairly, in all material respects, the
assets acquired as of December 31, 1999 and the direct revenues and direct
operating expenses for each of the two years in the period ended December 31,
1999 of Telecom, pursuant to the Agreement referred to above, and as described
in Note 1 to the statements in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche
March 17, 2000
TELECOM SYSTEMS
(A Wholly Owned Business Unit Allstar Systems, Inc.)
STATEMENT OF ASSETS ACQUIRED (Note 1)
AS OF DECEMBER 31, 1999 (In Thousands)
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ASSETS ACQUIRED - Inventory $1,267
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See notes financial statements.
TELECOM SYSTEMS
(A Wholly Owned Business Unit Allstar Systems, Inc.)
STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES (Note 1)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 (In Thousands)
- --------------------------------------------------------------------------------
1999 1998
DIRECT REVENUE $ 4,069 $ 7,499
COST OF GOODS SOLD 3,461 5,173
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Gross profit 608 2,326
DIRECT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,461 2,763
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DIRECT OPERATING LOSS $(1,853) $ (437)
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See notes financial statements
TELECOM SYSTEMS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998 (In Thousands)
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1. ORGANIZATION AND BASIS OF PRESENTATION
Telecom Systems ("Telecom") is a wholly owned business unit of Allstar
Systems, Inc. ("Allstar"). Telecom markets, installs and services business
telephone systems, along with a variety of related products including
hardware and software for data and voice integration, wide area
connectivity and telephone system networking, wireless communications and
video conferencing primarily in Texas.
On March 16, 2000, the inventory and ongoing operations of Telecom were
sold to Commworld Acquisition Corporation. ("Commworld"). Under terms of
the sale, Allstar received $250 cash and the ability to obtain restricted
stock in Communications World International, Inc., Commworld's parent,
contingent upon the performance of the acquired operations during the six
month period subsequent the closing date. Additionally, Commworld has
agreed to provide all of Telecom's telephone equipment warranty obligations
up to a maximum of $30. Any excess warranty costs incurred by Commworld
will be billed to Allstar at an agreed upon rate.
The accompanying statement of assets acquired represents the assets of
Telecom at their historical cost. The statement of direct revenue and
direct operating expenses include only those amounts related to the
operations of Telecom. Allstar manages its various business units under
the shared services concept whereby accounting, corporate, distribution and
MIS department personnel perform services directly for each business unit.
Such expenses performed for Telecom and included in selling, general and
administrative expenses were approximately $483 and $429 for the years
ended December 31, 1998 and 1999, respectively.
These statements are not necessarily indicative of the financial condition
or results of operations that would have resulted had Telecom been operated
as a stand-alone entity. Additionally, the distinct and separate accounts
necessary to present an individual balance sheet as of December 31, 1999
and the related statements of operations and cash flows for the each of the
two years in the period ended December 31, 1999 in accordance with
generally accepted accounting principles have not been maintained and,
therefore, are not presented.
2. SIGNIFICANT ACCOUNTING POLICIES
Inventory - Inventory consists primarily of telephone systems, cabling and
replacement parts and is valued at the lower of cost or market with cost
determined on the first-in first-out method.
Property and Equipment - Expenditures for repairs and maintenance are
charged to expense when incurred, while expenditures for betterments are
capitalized. Disposals are removed at cost less accumulated depreciation
with the resulting gain or loss reflected in operations in the year of
disposal. For the years ended December 31, 1998 and 1999 losses of $0 and
$161, respectively, were recognized by Telecom and are reflected in cost of
goods sold in the statement of direct revenues and direct operating
expenses. Depreciation expense for the years ended December 31, 1998 and
1999 was approximately $133 and $117, respectively.
Impairment of Long-Lived Assets - Telecom records impairment losses on
long-lived assets used in operations when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of those
assets. For the years ended December 31, 1998 and 1999 no impairment
losses were recorded.
Revenue Recognition - Revenue from the sale of products is recognized when
the product is shipped. Service income is recognized ratably over the
service contract life. Bad debt expense for the years ended December 31,
1998 and 1999 were $45 and $163, respectively.
Revenues resulting from installations of equipment for which duration is in
excess of three months are recognized using the percentage-of-completion
method. The percentage of revenue recognized on each contract is based on
the most recent cost estimate available. Revisions of estimates are
reflected in the period in which facts necessitating the revision become
known; when a contract indicates a loss, a provision is made for the total
anticipated loss. At December 31, 1998, Telecom had $3,248 of such
contracts in progress and $1,322 of revenue had not been recognized along
with $736 of costs related to those revenues. At December 31, 1999,
Telecom had $1,357 of such contracts in progress and $628 of revenue had
not been recognized along with $372 of costs related to those revenues.
Use of Estimates - The preparation of the 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 amount
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
******
(b) Pro Forma Financial Information (unaudited)
The following pro forma summary financial information has been prepared giving
effect to the acquisition of Telecom Systems ("Telecom"), a wholly owned
business unit of Allstar Systems, Inc. ("Allstar") as if the transaction had
taken place at April 30, 1999 for the pro forma condensed consolidated balance
sheet and May 1, 1998 for the pro forma condensed consolidated income statements
for the year ended April 30, 1999. The financial information provided for
Telecom for the Results of Operations for the Year Ended April 30, 1999 has been
adjusted by adding subsequent interim period results to the Statement of Direct
Revenues and Direct Expenses for the year ended December 31, 1998 and deducting
the comparable preceding year interim period results.
The acquisition has been accounted for as a purchase. The carrying value of the
asset acquired has been adjusted to reflect the estimated fair market value at
the date of acquisition.
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 April 30, 1999.
Communications World International, Inc.
Pro Forma Condensed Consolidated Balance Sheet (unaudited)
April 30, 1999
(in thousands)
Historical Financial
Statements
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April 30, December 31, Pro Forma
1999 1999 Pro forma Consolidated
Telecom --------- Financial
CommWorld Systems Adjustments Statements
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ASSETS
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Current assets:
Cash $ 57 $ 57
Trade accounts and current portion of
notes receivable 1,353 1,353
Inventories 332 $1,267 $(1,217) (a) 382
Other current assets 46 46
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Total current assets 1,788 1,838
Property and equipment, net 264 264
Deposits and other assets 74 74
Deferred tax asset 1,006 1,006
Intangible assets, net 1,687 230 (a) 1,917
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Total $4,819 $5,099
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Trade accounts payable $1,817 $ 1,817
Revolving line of credit 497 497
Current portion of notes payable 766 766
Accrued expenses and other 375 30 (a) 405
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Total current liabilities 3,455 3,485
Notes payable and other 428 250 (a) 678
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Total liabilities 3,883 4,163
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Stockholders' equity:
Convertible preferred stock 586 586
Common stock 7,121 7,121
Additional paid-in capital 551 551
Retained earnings (Accumulated deficit) (7,322) (7,322)
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Total stockholders' equity 936 936
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$ 4,819 $ 5,099
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See following notes to Pro Forma adjustments.
Communications World International, Inc.
Pro Forma Condensed 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
April 30, April 30,
1999 1999 Pro forma
Telecom Pro forma Consolidated
-------- ----------- Financial
CommWorld Systems Adjustments Statements
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Revenue:
Franchise equipment sales $ 5,362 $ - $ 5,362
Direct equipment and service sales 3,505 7,669 11,174
Other revenue 283 - 283
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Total revenue 9,150 7,669 16,819
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Costs and expenses:
Cost of franchise equipment sales 4,759 - 4,759
Cost of direct equipment and service 2,325 5,210 7,535
sales
Selling, general and administrative 2,992 2,634 $(489) (d) 5,137
Interest Expense 254 20 (b) 274
Depreciation and amortization 171 137 14 (c) 185
- - (137) (e) -
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10,501 7,981 17,890
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Income (loss) from continuing operations $ (1,351) $ (312) $ (1,071)
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Loss per share:
Loss from continuing operations $ (.56) $ (.44)
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Weighted average number of common shares
outstanding 2,409,816 2,409,816
Notes to Pro forma adjustments:
(a) To record the purchase of the inventory and ongoing operations of Telecom.
Inventory was recorded at estimated liquidation value of $50,000 at the
date of acquisition. A provision of $30,000 was provided to reflect the
agreement to provide warranty service to Telecom's customers.
(b) Accrued interest on acquisition debt.
(c) Amortization of goodwill over a period of 20 years.
(d) Adjustment to eliminate allocation of corporate overhead to Telecom Systems
from Allstar which would duplicate services included in the Company's
general and administrative expense.
(e) Adjustment to eliminate depreciation for assets which were not acquired as
part of the transaction.
(f) The diluted weighted average common shares outstanding and the diluted loss
per share are not presented, as the effect would be anti-dilutive.
(b) Pro Forma Financial Information (unaudited), continued:
The following pro forma summary financial information has been prepared giving
effect to the acquisition of Telecom Systems ("Telecom"), a wholly owned
business unit of Allstar Systems, Inc. ("Allstar"), as if the transaction had
taken place at May 1, 1999 for the pro forma condensed consolidated income
statements for the six months ended January 31, 2000.
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.
Communications World International, Inc.
Pro Forma Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended January 31, 2000
(in thousands except earnings per share information)
Historical Financial
Statements
Nine Months Ended
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January 31, December 31, Pro forma
2000 1999 Consolidated
Telecom Pro forma Financial
CommWorld Systems Adjustments Statements
---------------- ----------- ----------- -------------
Revenue:
Franchise equipment sales $ 3,950 $ - $ 3,950
Direct equipment and service sales 6,789 2,773 9,562
Other revenue 300 - 300
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Total revenue 11,039 2,773 13,812
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Costs and expenses:
Cost of franchise equipment sales 3,602 - 3,602
Cost of direct equipment and service 4,530 2,490 7,020
sales
Selling, general and administrative 3,159 1,738 $(338) (a) 4,559
Interest Expense 258 - 258
Depreciation and amortization 181 86 $ 9 (b) 190
- - (86) (c) -
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11,730 4,314 15,629
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Income (loss) from operations (691) (1,541) (1,817)
Income tax benefit - - -
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Net income (loss) $ (691) $(1,541) $ (1,817)
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Loss per share:
Net Loss $(.10) $ (.27)
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Weighted average number of common shares
outstanding 6,734,900 6,734,900
Notes to Pro forma adjustments:
(a) Adjustment to eliminate allocation of corporate overhead to Telecom Systems
from Allstar which would duplicate services included in the Company's
general and administrative expense.
(b) Amortization of goodwill over a period of 20 years.
(c) Adjustment to eliminate depreciation for assets which were not acquired
as part of the transaction.
(d) The diluted weighted average common shares outstanding and the diluted loss
per share are not presented, as the effect would be anti-dilutive.
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(c) Exhibits
2.1 Asset Purchase Agreement dated March 16, 2000 by and among CommWorld
Acquisition Corporation, and Allstar Systems, Inc.
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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.
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(Registrant)
Date: March 30, 2000 /s/ David E. Welch
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David E. Welch, Chief Financial Officer