SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: December 12, 1997
OPTELECOM, INC.
(exact name of registrant as specified in its charter)
Delaware 0-8828 52-1010850
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
9300 Gaither Road, Gaithersburg, Maryland 20877
(address of principal executive offices)
Registrant's telephone number, including area code: (301) 840-2121
FORM 8-K/A-1
OPTELECOM, INC.
On December 12, 1997, Optelecom, Inc. ("Optelecom"), Paragon Audio
Visual Limited, a United Kingdom company ("Paragon"), and the beneficial owners
of the outstanding common shares of Paragon entered into a reorganization as a
result of which Paragon became an indirect, wholly-owned subsidiary of
Optelecom. A report of the transaction on Form 8-K was filed on December 23,
1997. This amendment is being filed to include the financial statements required
by Item 7 of Form 8-K.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Paragon Audio Visual Limited at August 31, 1996 and August 31,
1997 and for each of the years then ended prepared in
accordance with generally accepted accounting principles in
the United Kingdom. Note 22 to the financial statements
contains a summary of the differences between generally
accepted accounting principles in the United Kingdom and the
United States and reconciliation information.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information for Optelecom, Inc. and
Paragon Audio Visual Limited includes a balance sheet at
September 30, 1997 and income statements for the nine-month
period then ended and for the year ended December 31, 1996.
PARAGON AUDIO VISUAL LIMITED
REPORT AND FINANCIAL STATEMENTS
AUGUST 31, 1997
DELOITTE & TOUCHE
Columbia Centre
Market Street
Bracknell
Berkshire
RG12 1PA
PARAGON AUDIO VISUAL LIMITED
CONTENTS
PAGE
Statement of Directors' Responsibilities 2
Auditors' report 3
Profit and loss account 4
Balance sheet 5
Cash flow statement 6
Notes to the accounts 7
PARAGON AUDIO VISUAL LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In
preparing those financial statements, the directors are required to
(bullet) select suitable accounting policies and then apply them
consistently;
(bullet) make judgements and estimates that are reasonable and prudent;
(bullet) prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention of fraud
and other irregularities.
PARAGON AUDIO VISUAL LIMITED
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
PARAGON AUDIO VISUAL LIMITED.
We have audited the accompanying balance sheets of Paragon Audio Visual Limited
as at August 31, 1997 and 1996 and the related profit and loss accounts, cash
flow statements and reconciliation of movements in shareholders' funds for the
years then ended (all expressed in pounds sterling). 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
in the United Kingdom, which are similar to those in the United States of
America. These standards require 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 the Company at August 31, 1997
and 1996 and the results of its operations and cash flows for the years then
ended in conformity with generally accepted accounting principles in the United
Kingdom (which differ in certain material aspects from generally accepted
accounting principles in the United States of America - see note 22).
DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
BRACKNELL
ENGLAND
FEBRUARY 25, 1998
3
PARAGON AUDIO VISUAL LIMITED
PROFIT AND LOSS ACCOUNT
YEARS ENDED AUGUST 31, 1997 AND 1996
NOTE 1997 1996
(POUNDS) (POUNDS)
TURNOVER 2 2,854,204 1,905,502
Cost of sales 2,094,705 1,239,645
--------- ---------
GROSS PROFIT 759,499 665,857
Distribution costs 45,996 30,604
Administrative expenses 760,329 535,989
--------- ---------
806,325 566,593
OPERATING (LOSS)/PROFIT 4 (46,826) 99,264
Interest payable and
similar charges 5 4,203 1,479
--------- ---------
(LOSS)/PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION (51,029) 97,785
Tax on (loss)/profit on ordinary activities 6 3,727 (26,998)
--------- ---------
(LOSS)/PROFIT FOR THE FINANCIAL
YEAR AFTER TAXATION (47,302) 70,787
Dividends 7 (52,000) -
--------- ---------
RETAINED (LOSS)/PROFIT FOR THE
YEAR TRANSFERRED (FROM)/TO
RESERVES (99,302) 70,787
Retained profit brought forward 101,559 30,772
--------- ---------
RETAINED PROFIT CARRIED FORWARD 2,257 101,559
========= =======
All activities derive from continuing operations.
TOTAL RECOGNISED GAINS AND LOSSES
The company has no recognised gains or losses other than the loss for the
current year and the profit for the previous year.
4
PARAGON AUDIO VISUAL LIMITED
BALANCE SHEET
YEARS ENDED AUGUST 31, 1997 AND 1996
NOTE 1997 1996
(POUNDS) (POUNDS)
FIXED ASSETS
Tangible assets 8 46,059 28,158
CURRENT ASSETS
Stocks 9 100,348 129,873
Debtors 10 482,354 341,289
Cash at bank and in hand 27,013 57,065
--------- ---------
609,715 528,227
CREDITORS: AMOUNTS FALLING DUE WITHIN
ONE YEAR 11 649,348 444,106
--------- ---------
NET CURRENT (LIABILITIES)/ASSETS (39,633) 84,121
TOTAL ASSETS LESS CURRENT
LIABILITIES 6,426 112,279
CREDITORS: AMOUNTS FALLING DUE AFTER
MORE THAN ONE YEAR 12 3,171 9,722
--------- ---------
3,255 102,557
========= =======
CAPITAL AND RESERVES
Called up share capital 16 998 998
Profit and loss account 2,257 101,559
--------- ---------
Equity shareholders' Funds 18 3,255 102,557
========= =======
5
PARAGON AUDIO VISUAL LIMITED
CASH FLOW STATEMENT
YEARS ENDED AUGUST 31, 1997 AND 1996
NOTE 1997 1996
(POUNDS) (POUNDS)
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES 19 136,360 (83,781)
RETURNS ON INVESTMENTS AND SERVICING OF
FINANCE
Interest paid (3,159) (1,479)
Interest element of finance lease rental payments (684) -
------- -------
NET CASH OUTFLOW FROM SERVICING OF FINANCE (4,203) (1,479)
TAXATION
Corporation tax (12,661) -
CAPITAL EXPENDITURE
Payments to acquire tangible fixed assets (23,319) (11,909)
------- -------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE (23,319) (11,909)
EQUITY DIVIDENDS PAID (52,000) -
------- -------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 44,177 (97,169)
FINANCING
Debt due within one year
Bank loans (7,588) 8,333
Other loans 474 (5,000)
Factor loans (64,274) 137,444
Capital element of finance lease rentals (2,841) 13,957
Debt due beyond one year
Bank loans - 9,722
------- -------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (74,229) 136,642
------- -------
(DECREASE)/INCREASE IN CASH 20 (30,052) 39,473
======= =======
6
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
1. ACCOUNTING POLICIES
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
These financial statements are prepared in conformity with generally accepted
accounting principles in the United Kingdom, ("UK GAAP"), which differ in
certain material respects from generally accepted accounting principles in
the United States of America ("US GAAP") - see note 22.
ACCOUNTING CONVENTION
The financial statements have been prepared under the historical cost
convention, on the going concern basis, which assumes that the company
will continue in operational existence for the foreseeable future.
ACCOUNTING ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Accounting estimates have been employed in
these financial statements to determine reported amounts, including
realisability of debtors and other assets and the useful lives of fixed
assets. Actual results could differ from these estimates.
TURNOVER
Turnover represents net invoiced sales of goods, excluding value added tax.
TANGIBLE FIXED ASSETS
Depreciation is provided at the following annual rates in order to write off
each asset over its estimated useful life or, if held under a finance
lease, over the lease term, whichever is the shorter.
Leasehold property - 10% on cost
Plant and machinery - 15% on cost
Fixtures and fittings - 15% on cost
Motor vehicles - 25% on cost
STOCKS
Stocks are stated at the lower of cost and net realisable value, after making
due allowance for obsolete and slow moving items.
DEFERRED TAXATION
Deferred tax is provided on timing differences, arising from the different
treatment of items for accounts and taxation purposes, which are expected
to reverse in the future, calculated at rates at which it is expected that
tax will arise.
LEASE COMMITMENTS
Assets obtained under finance leases are capitalised in the balance sheet and
depreciated over their estimated useful lives or the lease term, whichever
is shorter. The interest element of these obligations is charged to the
profit and loss account over the relevant period. The capital element of
the future payments is treated as a liability. Rentals paid under the
operating leases are charged to the profit and loss account as incurred.
2. TURNOVER
The turnover is attributable to the one principal activity of the company.
7
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
3. STAFF COSTS
1997 1996
(POUNDS) (POUNDS)
Wages and salaries 313,195 237,933
Social Security costs 29,016 22,177
------- -------
342,211 260,110
======= =======
The average monthly number of employees during the year was as follows:
1997 1996
(POUNDS) (POUNDS)
Sales and distribution 10 7
Administration 6 5
------- -------
16 12
======= =======
4. OPERATING (LOSS)/PROFIT
The operating loss (1996 - operating profit) is stated after charging:
1997 1996
(POUNDS) (POUNDS)
Depreciation - owned assets 6,163 2,666
Depreciation - assets on hire purchase contracts 7,425 4,954
Rentals under operating leases 15,802 15,802
======= =======
Directors' emoluments 73,131 59,508
======= =======
5. INTEREST PAYABLE AND SIMILAR CHARGES
1997 1996
(POUNDS) (POUNDS)
Corporation tax interest 1,000 -
Hire purchase interest 684 -
Bank loan 2,519 1,479
------- -------
4,203 1,479
======= =======
8
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
6. TAXATION
The tax (credit)/charge on the loss/profit on ordinary activities for the year
was as follows:
1997 1996
(POUNDS) (POUNDS)
UK Corporation Tax (3,727) 26,998
======= =======
UK Corporation Tax has been charged at 24% (1996 - 25%).
The tax credit for the year is disproportionately low due to the incidence of
permanently disallowable expenses for tax purposes.
7. DIVIDENDS
1997 1996
(POUNDS) (POUNDS)
Equity shares:
Final - ordinary (pounds)1 shares 52,000 -
======= =======
8. TANGIBLE FIXED ASSETS
LEASEHOLD PLANT AND FIXTURES & MOTOR
PROPERTY MACHINERY FITTINGS VEHICLES TOTALS
(POUNDS) (POUNDS) (POUNDS) (POUNDS) (POUNDS)
COST
At September 31 1995 - 1,725 5,510 19,816 27,051
Additions 4,130 - 7,779 - 11,909
----- ----- ------ ------ ------
At August 31 1996 4,130 1,725 13,289 19,816 38,960
Additions - - 23,319 8,170 31,489
----- ----- ------ ------ ------
At August 31 1997 4,130 1,725 36,608 27,986 70,449
----- ----- ------ ------ ------
DEPRECIATION
At September 1 1995 - 173 367 2,642 3,182
Charge for year 413 259 1,994 4,954 7,620
----- ----- ------ ------ ------
At August 31 1996 413 432 2,361 7,596 10,802
Charge for year 413 259 5,491 7,425 13,588
----- ----- ------ ------ ------
At August 31 1997 826 691 7,852 15,021 24,390
----- ----- ------ ------ ------
NET BOOK VALUE
At August 31 1997 3,304 1,034 28,756 12,965 46,059
===== ===== ====== ====== ======
At August 31 1996 3,717 1,293 10,928 12,220 28,158
===== ===== ====== ====== ======
Included in the above are motor vehicles held under finance leases with a net
book value of (pounds)12,965 (1996 - (pounds)12,220).
9
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
9. STOCKS
1997 1996
(POUNDS) (POUNDS)
Stocks 100,348 129,873
======= =======
10. DEBTORS
1997 1996
DUE WITHIN ONE YEAR (POUNDS) (POUNDS)
Trade debtors 461,266 312,855
V.A.T 8,088 10,466
Other debtors - 17,988
ACT recoverable 13,000 -
------- -------
482,354 341,289
======= =======
11. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1997 1996
(POUNDS) (POUNDS)
Bank loans and overdrafts (see note 13) 10,067 8,333
Hire purchase contracts (see note 14) 2,558 -
Trade creditors 393,191 167,997
Other creditors 3,905 3,431
Amount due to factors 151,944 216,218
Social security & other taxes 35,396 6,815
Taxation 20,662 37,050
ACT payable 13,000 -
Accrued expenses and deferred income 18,625 4,262
------- -------
649,348 444,106
======= =======
12. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1997 1996
(POUNDS) (POUNDS)
Bank loans (see note 13) 400 9,722
Finance lease creditors (see note 14) 2,771 -
------- -------
3,171 9,722
======= =======
10
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
13. LOANS AND OVERDRAFTS
An analysis of the maturity of loans and overdrafts is given below
1997 1996
(POUNDS) (POUNDS)
Amounts falling due within one year or on demand:
Bank Loans 10,067 8,333
====== ======
Amounts falling due between one and two years:
Bank Loans 400 9,722
====== ======
14. FINANCE LEASE COMMITMENTS
At August 31, 1997 the Company had the following net obligations under finance
leases.
1997 1996
(POUNDS) (POUNDS)
Within one year 2,558 -
Between two and five years 2,771 -
------ ------
5,239 -
====== ======
15. OPERATING LEASE COMMITMENTS
At August 31, 1997 the Company was committed to making the following payments
during the next year in respect of operating leases:
1997 1996
(POUNDS) (POUNDS)
Expiring:
Within one year 15,156 -
Between two and five years - 15,156
------ ------
15,156 15,156
====== ======
11
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
16. CALLED UP SHARE CAPITAL
1997 1996
(POUNDS) (POUNDS)
Authorised 1,000 ordinary shares of (pounds)1 each 1,000 1,000
====== ======
1997 1996
(POUNDS) (POUNDS)
Allotted, called up and fully paid
998 ordinary shares of (pounds)1 each 998 998
====== ======
17. RELATED PARTY DISCLOSURES
The Company is related to Active Communication Limited as it shares common
ownership. During the year the Company sold services of (pounds)30,000,
and a balance of (pounds)30,000 is included in trade debtors at August
31, 1997. The Company is related to Paragon Securities & Communications
Limited as it shares common ownership. During the year the Company sold
services of (pounds)1,200, and a balance of (pounds)1,200 is included in
trade debtors at August 31, 1997. The Company is related to Adwood
Research & Development as it shares common ownership. During the year the
Company sold services of (pounds)1,200 and a balance of (pounds)1,200 is
included in trade debtors at August 31, 1997.
18. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1997 1996
(POUNDS) (POUNDS)
(Loss)/profit for the financial year (47,302) 70,787
Dividends (52,000) -
NET (REDUCTION)/ADDITION TO
SHAREHOLDERS' FUNDS (99,302) 70,787
Opening shareholders' funds 102,557 31,770
-------- -------
CLOSING SHAREHOLDERS' FUNDS 3,255 102,557
======== =======
Equity interests 3,255 102,557
======== =======
12
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
19. RECONCILIATION OF OPERATING (LOSS)/PROFIT TO NET CASH FLOW FROM OPERATING
ACTIVITIES
1997 1996
(POUNDS) (POUNDS)
Operating (loss)/profit (46,826) 99,264
Depreciation of owned assets 13,588 7,620
Decrease/(increase) in stocks 29,525 (71,159)
Increase in debtors (128,065) (171,747)
Increase in creditors 268,138 52,241
-------- --------
NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES 136,360 (83,781)
======== ========
20. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
1997 1997 1996 1996
(POUNDS) (POUNDS) (POUNDS) (POUNDS)
(DECREASE)/INCREASE IN CASH IN THE PERIOD (30,052) 39,473
Cash inflow/(outflow) from increase in debt
and lease financing 74,229 (136,642)
------- --------
CHANGE IN NET DEBT RESULTING FROM CASH FLOWS 44,177 (97,169)
New finance leases (8,170) -
MOVEMENT IN NET DEBT IN THE PERIOD 36,007 (97,169)
NET DEBT AT START OF YEAR (180,639) (83,470)
-------- --------
NET DEBT AT END OF YEAR (144,632) (180,639)
======== ========
21. ANALYSIS OF NET DEBT
SEPTEMBER 1 CASH FLOW OTHER NON-CASH AUGUST 31
1996 CHANGES 1997
(POUNDS) (POUNDS) (POUNDS) (POUNDS)
Cash at bank in hand 57,065 (30,052) 27,013
Debt due after one year (9,722) 7,588 1,734 (400)
Debt due within one year (227,982) 63,800 (1,734) (165,916)
Finance leases - 2,841 (8,170) (5,329)
-------- ------- ------ --------
TOTAL (180,639) 44,177 (8,170) (144,632)
======== ======= ====== ========
13
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
22. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED KINGDOM AND THE UNITED STATES
The financial statements are prepared in accordance with generally accepted
accounting principles in the United Kingdom ("UK GAAP"), which differ in
certain material respects from those generally accepted in the United
States ("US GAAP"). The differences that are significant to Paragon Audio
Visual Limited relate to the following items.
DEFERRED TAXATION
Under UK GAAP deferred taxation is provided at the same rates at which taxation
is expected to become payable. No provision is made for amounts which are
not expected to become payable in the foreseeable future and no account
is taken of deferred tax assets in accordance with Statement of Standard
Accounting Practice 15.
Under US GAAP, deferred taxation is provided on all temporary differences under
the liability method at rates which the taxation would be payable in the
relevant future year as prescribed by Statement of Financial Accounting
Standard ("SFAS") No. 109 - "Accounting for Income Taxes".
DIVIDENDS
Under UK GAAP, dividends are included in the financial statements when
recommended by the Board of Directors to the shareholders.
Under US GAAP, dividends are not included in the financial statements until
declared by the Board of Directors.
The dividends paid in the current year were also declared by the Board of
Directors during the year, and accordingly they do not affect the
financial position as prepared under US GAAP.
CASHFLOW STATEMENTS
The cashflow statements prepared under the UK GAAP differ in certain
presentational respects from the format required under SFAS 95 -
"Statement of cash flows". Under UK GAAP, a reconciliation of profit from
operations to cash flows from operating activities is presented in a
note, and cash paid for interest and income taxes is presented separately
from cash flows from operating activities. Under SFAS - 95, cash flows
from operating activities are based on net profit, include interest and
income taxes, and are presented on the face of the statement. UK GAAP
requires cash to be presented net of overdrafts; SFAS 95 treats
overdrafts within financing activities.
14
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
22. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
The approximate effects of the differences between UK GAAP and US GAAP on net
income, shareholders equity, and fixed assets are as follows:
YEAR ENDED YEAR ENDED
AUGUST 31 AUGUST 31
1997 1996
(POUNDS) (POUNDS)
NET INCOME
(Loss)/profit for the financial year after taxation (UK GAAP) (47,302) 70,787
Recognition of deferred tax asset 2,735 -
------- -------
Net (loss)/income (US GAAP) (44,567) 70,787
======= =======
SHAREHOLDERS' EQUITY
Shareholder's funds (UK GAAP) 3,255 102,557
Recognition of deferred tax asset 2,735 -
------- -------
Shareholders' equity (US GAAP) 5,990 102,557
======= =======
TOTAL ASSETS
Total assets (UK GAAP) 655,774 556,385
Recognition of deferred tax asset 2,735 -
------- -------
Total assets (US GAAP) 657,509 556,385
======= =======
15
PARAGON AUDIO VISUAL LIMITED
NOTES TO THE ACCOUNTS
YEARS ENDED AUGUST 31, 1997 AND 1996
22. SUMMARY OF DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED KINGDOM AND THE UNITED STATES (CONTINUED)
A reconciliation between the statements of cash flows presented in accordance
with UK GAAP and US GAAP is set out below:
YEAR ENDED YEAR ENDED
AUGUST 31 AUGUST 31
1997 1996
(POUNDS) (POUNDS)
OPERATING ACTIVITIES
Net cash inflow/(outflow) from
operating activities (UK GAAP) 136,360 (83,781)
Tax paid (12,661)
Interest paid (4,203) (1,479)
-------- -------
Net cash provided by operating
activities (US GAAP) 119,496 (85,260)
======== =======
FINANCING ACTIVITIES
Net cash (outflow)/inflow from
financing activities (UK GAAP) (74,229) 136,642
Equity dividends paid (52,000) -
-------- -------
Net cash (used in)/provided by financing
activities (US GAAP) (126,229) 136,642
======== =======
16
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial statements
give effect to the December 12, 1997 reorganization as a result of which Paragon
Audio Visual Limited ("Paragon") became a wholly-owned subsidiary of Optelecom,
Inc. ("Optelecom") using the purchase method of accounting. The pro forma
consolidated condensed balance sheet gives effect to the transaction as if it
had been consummated on September 30, 1997 and the pro forma consolidated
condensed statements of income give effect to the transaction as if it had been
in effect throughout the fiscal year ended December 31, 1996 and the nine month
period ended September 30, 1997. The information should be read in conjunction
with the accompanying notes and the separate financial statements of Paragon
included herein. The pro forma information is based on assumptions and estimates
and is not necessarily indicative of the results of future operations of the
consolidated entity or the actual results that would have occurred had the
transaction been consummated during the periods indicated.
OPTELECOM, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
Optelecom Paragon Adjustments Total
----------------------------------------------------------------------
Cash and cash equivalents 68,615 44,018 112,633
Accounts receivable 2,894,739 867,325 3,762,064
Inventory 1,682,562 160,557 1,843,119
Prepaid expenses 407,175 26,955 434,130
Deferred Tax Asset - Current Portion 66,145 - 66,145
Current Assets 5,119,236 1,098,855 6,218,091
Property & Equipment, net 949,049 74,544 1,023,593
Deferred Tax Asset - Long Term Portion 79,676 - 79,676
Goodwill and Intangible Assets - - 4,300,000 3 4,300,000
TOTAL ASSETS 6,147,961 1,173,399 4,300,000 11,621,360
Accounts Payable 816,088 750,138 190,487 2 1,756,713
Accrued payroll and compensation 92,256 16,637 108,893
Accrued Vacation Payable 131,607 - 131,607
Other Liabilities 748,429 39,022 787,451
Demand Note Payable to Bank 300,000 15,909 315,909
Current Portion of Notes Payable - 336,206 200,000 1 536,206
Current Liabilities 2,088,380 1,157,912 390,487 3,636,779
Long Term Portion of Notes Payable - 2,300,000 1 2,300,000
Deferred Rent Liability 178,443 178,443
Total Long-Term Liabilities 178,443 - 2,300,000 2,478,443
TOTAL LIABILITIES 2,266,823 1,157,912 2,690,487 6,115,222
Stockholder's Equity 3,881,138 15,487 1,625,000 1 5,506,138
(15,487) 4
TOTAL LIABILITIES & EQUITY 6,147,961 1,173,399 4,300,000 11,621,360
See Notes to Unaudited Pro forma Consolidated Financial Statements.
OPTELECOM, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
Optelecom Paragon Adjustments Total
---------------------------------------------------------------------
Revenues 8,910,263 3,445,446 12,355,709
Direct Costs, Overhead, G&A 7,834,925 3,425,680 430,000 5 11,690,605
Operating Income 1,075,338 19,766 (430,000) 665,104
Other Expenses 43,121 3,285 237,500 6 283,906
Income Before Taxes 1,032,217 16,481 (667,500) 381,198
Provision for Taxes 310,136 4,000 (227,000) 7 87,136
Net Income 722,081 12,481 (440,500) 294,062
Net Income Per Common Share and
Common Share Equivalents 0.59 0.22
Weighted Average Number of Common
Share & Common Share Equivalents Outstanding 1,218,893 1,333,061
--------- ---------
See Notes to Unaudited Pro forma Consolidated Financial Statements.
OPTELECOM, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
Optelecom Paragon Adjustments Total
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Revenues 9,305,263 3,368,204 12,673,467
Direct Costs, Overhead, G&A 8,107,022 3,412,477 322,500 8 11,841,999
Operating Income 1,198,241 (44,273) (322,500) 831,468
Other Expenses 25,162 4,766 178,000 9 207,928
Income Before Taxes 1,173,079 (49,039) (500,500) 623,540
Provision for Taxes 393,439 (5,963) (170,000) 10 217,476
Net Income 779,640 (43,076) (330,500) 406,064
Net Income Per Common Share and
Common Share Equivalents 0.60 0.29
Weighted Average Number of Common
Share & Common Share Equivalents Outstanding 1,296,571 1,410,739
See Notes to Unaudited Pro forma Consolidated Financial Statements.
OPTELECOM, INC.
NOTES TO UNAUDITED PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The adjustments to the unaudited proforma consolidated balance sheet as
of Septemebr 30, 1997 are as follows:
(1) To reflect payment of purchase price of $4,125,000 with bank
loan of $2,500,000 and common stock of $1,625,000.
(2) To accrue transaction costs of acquisition.
(3) To record goodwill and intangible assets
(4) To eliminate the equity of Paragon.
The adjustments to the unaudited proforma consolidated statement of
operations for the year ended December 31, 1996 are as follows:
(5) To record amortization expense associated with acquired
goodwill and intangible assets.
(6) To record interest expense related to the bank financing for
the acquisition.
(7) To adjust the income tax provision
The adjustments to the unaudited proforma consolidated statement of
operations for the year ended September 30, 1997 are as follows:
(8) To record amortization expense for nine months associated
with acquired goodwill and intangible assets.
(9) To record interest expense for nine months related to the
bank financing for the acquisition.
(10) To adjust the nine month income tax provision
NOTE 2
The proforma statements of operations exclude the estimated non-recurring
merger costs of approximately $200,000.
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OPTELECOM, INC.
Date: February 25, 1998 By: /s/ Edmund D. Ludwig
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Edmund D. Ludwig
President