8-K/A 1 lecstar8ka_102302.txt LECSTAR 8-K/A (2ND) 10/23/02 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Amendment No. 2 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 January 25, 2001 (Date of earliest event reported) October 23, 2002 (Date of amended Current Report on Form 8-K) (Commission File Number) 33-95796 LECSTAR CORPORATION (Exact name of Registrant as specified in charter) Texas 076-0406417 (State or other jurisdiction of incorporation)(IRS Employer Identification No.) 4501 Circle 75 Parkway, Building D-4210, Atlanta, Georgia 30339-3025 (Address of principal executive offices, including zip code) (404) 659-9500 (Registrant's telephone number, including area code) ================================================================================ 1 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements. The audited financial statements for LecStar Communications Corporation regarding its past two fiscal years ending December 31, 2000 and 1999, are filed as Exhibit 99.6 to this amended Current Report on Form 8-K. (b) Pro Forma Financial Information. The unaudited pro forma combined financial statements of Corzon, Inc. and LecStar Communications Corporation for the fiscal year ended December 31, 2000, are filed as Exhibit 99.7 to this amended Current Report on Form 8-K. (c) Exhibits. The following materials are filed as exhibits to this amended Current Report on Form 8-K/A. Exhibit No. Description ----------- ----------- 99.6 LecStar Communications Corporation audited financial statements regarding its past two fiscal years ending December 31, 2000 and 1999. 99.7 The unaudited pro forma combined financial statements of Corzon, Inc. and LecStar Communications Corporation for the fiscal year ended December 31, 2000. ================================================================================ SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended Current Report on Form 8-K to be signed on its behalf by the undersigned, hereunto duly authorized. LECSTAR CORPORATION By: /s/ W. Dale Smith ---------------------------------- W. Dale Smith President Dated: October 23, 2002 ================================================================================ EXHIBIT INDEX Exhibit No. Description ----------- ----------- 99.6 LecStar Communications Corporation audited financial statements regarding its past two fiscal years ending December 31, 2000 and 1999. 99.7 The unaudited pro forma condensed combined financial statements of Corzon, Inc. and LecStar Communications Corporation for the fiscal year ended December 31, 2000. ================================================================================ EXHIBIT 99.6 LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) AUDITED FINANCIAL STATEMENTS Years ended December 31, 2000 and 1999 CONTENTS Report of Independent Auditors............................................99.6-2 Audited Financial Statements Balance Sheets............................................................99.6-3 Statements of Operations..................................................99.6-5 Statements of Stockholders' Equity........................................99.6-6 Statements of Cash Flows..................................................99.6-7 Notes to Financial Statements.............................................99.6-8 99.6-1 ================================================================================ REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders LecStar Communications Corporation (formerly d/b/a Empire Technology Corporation) We have audited the accompanying balance sheets of LecStar Communications Corporation (formerly d/b/a Empire Technology Corporation) as of December 31, 2000 and 1999, and the related statements of operations, stockholders' equity and cash flows for the years 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those 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 LecStar Communications Corporation (formerly d/b/a Empire Technology Corporation) at December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The Company has restated its December 31, 1999 balance sheet as further discussed in Note 2. /s/Ernst & Young L.L.P. Ernst & Young L.L.P. March 21, 2001 Atlanta, Georgia 99.6-2 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) BALANCE SHEETS

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) BALANCE SHEETS

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) STATEMENTS OF OPERATIONS

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) STATEMENTS OF STOCKHOLDERS' EQUITY

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) STATEMENTS OF CASH FLOWS

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS LecStar Communications Corporation (formerly d/b/a Empire Technology Corporation) (the "Company") was incorporated on May 18, 1998 in the state of Delaware for the purpose of becoming a Competitive Local Exchange Carrier (CLEC) which markets on a region-wide basis, a full scope of advanced telecommunications services that include local access dial tone, national and international long distance, enhanced subscriber services, high-speed data and Internet services and network management. In late November of 1999, the Company entered into an agreement to purchase a prepaid telecommunications business which accelerated its entry into the CLEC market. Simultaneously, the Company entered into a management agreement that provided the Company the ability to operate network and management systems which allowed the Company to begin offering subscriber services in late 1999. In September of 2000, the Company closed on the purchase of the business. See Note 2. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION The Company's revenues are derived principally from activation and monthly service fees to customers for usage of their telecommunications services. Activation fees are deferred and amortized over the estimated customer life. The service fees are charged to customers at a fixed rate per month. Service fees are billed one month in advance but recognized when earned. Revenues are recognized in the period in which the service is provided. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company's cash and cash equivalents consist primarily of an operating checking account and certificate of deposit. The carrying amount reported in the balance sheet approximates fair value. 99.6-8 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) RESTRICTED CASH At December 31, 1999, $55,000 of cash was pledged as collateral on an outstanding letter of credit related to a guarantee required by the Company's payroll processing service. At December 31, 2000, $45,000 of cash was pledged as collateral on an outstanding letter of credit related to a guarantee required in conjunction with the Company's telephone equipment operating lease. The amounts are classified as restricted cash on the balance sheets. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at original cost. Depreciation is computed on a straight-line basis for financial reporting purposes over the following estimated useful lives. Depreciation expense includes depreciation of assets recorded under capital leases. Furniture 7 years Leasehold improvements Term of lease Network equipment and software 3-5 years ADVERTISING COSTS The Company accounts for advertising costs in accordance with the American Institute of Certified Public Accountants Statement of Position No. 93-7, Reporting on Advertising Costs. The cost of print and other advertising is expensed when such costs are incurred. Advertising expenses amounted to approximately $58,000 and $12,000 for the years ended December 31, 2000 and 1999, respectively. STOCK BASED COMPENSATION The Company grants stock options generally for a fixed number of shares to certain employees and non-employees with an exercise price equal to or greater than the fair value of the shares at the grant date. In some instances, the Company grants stock options with an exercise price less than the fair value of the shares at the date of grant. The Company accounts for stock option grants to employees in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations and, accordingly, recognizes no compensation expense for stock options with fixed terms and exercise prices equal to or greater than fair value at the date of grant. 99.6-9 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which provides an alternative to APB 25 in accounting for stock options issued to employees. However, the Company continues to account for stock options issued to employees in accordance with APB 25. The Company accounts for stock warrant grants to non-employees in accordance with the fair value method of SFAS 123. In addition, the Company issues and accounts for convertible debt with stock purchase warrants in accordance with APB Opinion No.14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants". FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK The Company's financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, accounts payable, accrued expenses, notes payable and capital lease obligations. As of December 31, 2000, the fair value of these instruments approximated their financial statement carrying amount. INTANGIBLE ASSET The intangible asset represents deferred compensation expense for an individual, which is being amortized over a two-year employment agreement. The amortization expense of the deferred compensation is included as a component of selling, general and administrative expenses. As of December 31, 2000 and 1999, accumulated amortization of the intangible asset was $1,706,676 and $73,399, respectively. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), which provides for an asset and liability approach to accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for future tax effects of temporary differences between the financial reporting and tax basis of assets and liabilities, and are measured using current tax rates and laws that are expected to be in effect when the underlying assets or liabilities are anticipated to be recovered or settled. NET LOSS PER COMMON SHARE Basic net loss per common share and diluted net loss per common share are presented in conformity with SFAS No. 128, "Earnings Per Share," for all periods presented. In accordance with SFAS No. 128, basic net loss per common share has been computed using the weighted-average number of shares of common stock outstanding during the period. 99.6-10 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) NET LOSS PER COMMON SHARE (CONTINUED) The following table presents the calculation of basic and diluted net loss per common share:

The Company has excluded all convertible preferred stock, warrants, and outstanding stock options from the calculation of diluted loss per common share because all such securities are anti-dilutive for all periods presented. The total number of shares excluded from the calculation of diluted loss per share was 5,679,500 in 2000, and 4,537,000 in 1999. SEGMENT INFORMATION Statement of Financial Accounting Standard No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("FAS No. 131") establishes standards for reporting information about operating segments in annual financial statements of public business enterprises and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of an enterprise about which separate financial information is available and regularly evaluated by the chief operating decision maker(s) of an enterprise. The Company is principally engaged in providing advanced telecommunications services. The Company's chief operating decision maker reviews financial information presented on a consolidated basis, therefore the Company considers itself to be in a single industry segment. The Company evaluates the performance of its products based on revenues only. The Company does not assess the performance of its products on other measures of income or expense, such as operating income or net income. The Company does not produce reports for, or measure the performance of, its products based on any asset-based metrics. 99.6-11 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued) RECLASSIFICATIONS Certain reclassifications have been made to the financial statements to conform with the current year presentation. These reclassifications had no effect on previously reported financial position or results of operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company is required to adopt SFAS No. 133, as amended on January 1, 2001. SFAS No. 133 establishes methods of accounting for derivative financial instruments and hedging activities related to those instruments as well as other hedging activities. Derivatives that are not designated as part of a hedging relationship must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, the effective portion of the hedge's change in fair value is either (i) offset against the change in fair value of the hedged asset, liability of firm commitment through income or (ii) held in equity until the hedged item is recognized in income. The ineffective portion of a hedge's change in fair value is immediately recognized in income. Adoption of SFAS No. 133 did not to have a material impact on the financial condition or results of operations. 2. SIGNIFICANT TRANSACTIONS On November 22, 1999, the Company entered into a Stock Redemption Agreement (the "Agreement") to acquire the CLEC prepaid telephone service business including telecommunications equipment and a customer base from ILD Telecommunications. Simultaneously, the Company entered into a Stock Purchase Agreement (the "Purchase") with an ILD shareholder to temporarily acquire his 4,700 shares of ILD common stock to be held to secure the proposed transaction with ILD. In connection with the Purchase, the Company issued to the shareholder $500,000 cash, a $2.5 million note payable and 2,000,000 shares of its common stock valued at $1.00 per share. Pursuant to the Purchase, an additional 200,000 shares were placed in an escrow account and are contingent upon a two-year employment arrangement with the former shareholder of ILD. The fair value of these escrowed shares is recorded as deferred compensation expense and is being amortized over the two-year employment agreement. In addition, the Company entered into a Management Agreement with ILD for the use of the telecommunications assets until the anticipated transaction closing date on December 15, 1999. The Agreement contemplated that the 4,700 shares of ILD stock would transfer back to ILD at closing, subject to certain management representations and warranties. 99.6-12 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 2. SIGNIFICANT TRANSACTIONS (CONTINUED) The Company originally recorded the business combination on December 1, 1999 as the consideration was paid and the transaction was valued as of the announcement date, in accordance with EITF No. 95-19, "Determination of the Measurement Date for the Market Price of Securities Issued in a Purchase Business Combination". The originally contemplated transaction closing date was postponed due to ILD's unsuccessful transfer of title to the Company related to the telecommunications equipment. The transaction closed on September 21, 2000 after clear title to the assets was obtained. In anticipation of the closing, the two parties revised the Agreement whereby the Company was required to exchange 1,500 of the original 4,700 shares of ILD stock for the CLEC prepaid telephone service business. As the transaction did not close until September 21, 2000, the Company has restated the December 31, 1999 balance sheet to record the fair market value of the ILD common stock received and an intangible asset related to deferred compensation for the employment of the former shareholder. In addition, the Company recorded a management agreement asset to reflect the use of the telecommunications equipment from December 1, 1999 to September 21, 2000. The management agreement was amortized over the ten month period ending September 21, 2000. On September 21, 2000, the Company exchanged 1,500 shares of ILD common stock with a fair market value of $375,000, based on management's estimates, for the purchase of the CLEC prepaid telecommunication service business. As a result, the purchase price was allocated to the telecommunications equipment and is depreciated over its three-year economic useful life. 3. STOCKHOLDERS' EQUITY In September 1998, the Company issued 2,618,692 shares of its common stock to certain investors. In return, the investors assigned to the Company their creditor's claim in the amount of $2,618,692 in an entity currently in bankruptcy proceedings. The estimated fair value of this bankruptcy claim receivable of $269,877 has been recorded as a contra-equity. As of December 31, 2000, the entity was still in bankruptcy. The Company had 7,377,000 and 4,537,000 shares of common stock reserved for future issuance to holders of stock options and warrants at December 31, 2000 and 1999, respectively. SERIES A CONVERTIBLE PREFERRED STOCK The Company is authorized to issue 25,000 shares of Series A Convertible Preferred Stock ("Preferred Stock"). As of December 31, 2000 there were 850 shares of Preferred Stock, $.01 par value per share, issued and outstanding. 99.6-13 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 3. STOCKHOLDERS' EQUITY (CONTINUED) SERIES A CONVERTIBLE PREFERRED STOCK (CONTINUED) Holders of Preferred Stock have the right to convert all or a portion of their shares into shares of common stock for each share of Preferred Stock at a conversion rate of 250 shares of common stock per preferred share. At December 31, 2000, the Company has reserved 212,500 shares of unissued common stock in the event the outstanding preferred shares are converted. The Preferred Stock is subject to automatic conversion in the event of an initial public offering and sale of the common stock of the Company in which the Company is valued on a post initial public offering valuation of $20,000,000 or more (the "IPO Triggering Event"). So long as any shares of Preferred Stock shall be outstanding, the Company will not declare or pay any dividends on any common or Preferred Stock whatsoever. STOCK OPTIONS During 2000, the Company granted 2,840,000 options and warrants for shares of its common stock. The options and warrants granted in 2000 have varying vesting schedules, but typically vest either immediately or over a six-year period. The options and warrants granted during 2000 expire in the year 2005 or 2010. A summary of employee stock option activity for 2000 and 1999 follows:

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 3. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) The following table summarizes information regarding options and warrants outstanding and exercisable at December 31, 2000: WEIGHTED AVERAGE EXERCISE NUMBER REMAINING CONTRACTUAL NUMBER PRICE OUTSTANDING LIFE (IN YEARS) EXERCISABLE --------- ----------- --------------------- ----------- $1.00 4,647,000 3.71 4,647,000 2.50 665,000 4.41 665,000 3.00 1,300,000 9.39 100,000 3.22 760,000 9.20 50,000 4.00 5,000 4.44 5,000 --------- --------- 7,377,000 5,467,000 In 2000, the Company issued warrants to acquire 500,000 shares of common stock in conjunction with the issuance of $5,000,000 of convertible debentures. The Company determined the fair value of these warrants using the Black-Scholes valuation model. The fair value of the warrants of $650,000 was recognized as interest expense for the year ended December 31, 2000. In 2000, the Company granted a restricted stock award to a member of its board of directors for 174,555 shares of common stock. The restricted shares vest over a two-year period. The intrinsic value of the restricted stock is $436,388. The Company recognized $96,975 of compensation expense for the year ended December 31, 2000. The remaining $339,413 is recorded as deferred compensation at December 31, 2000 and amortized over the remaining three-year restricted period. The Company has elected to follow APB 25 and related interpretations in accounting for its stock options issued to employees rather than the alternative fair value accounting provided for under SFAS 123. Under APB 25, when the exercise price of the Company's stock options granted to employees equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. For the year ended December 31, 1999, the Company recognized no compensation expense for employee stock options. 99.6-15 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 3. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) Pro forma information regarding net income is required by SFAS 123, which also requires that the information be determined as if the Company had accounted for its employee stock options granted under the fair value method. The effects of applying SFAS 123 for providing pro forma information is not likely to be representative of the effects on reported net income for future periods. If the Company had elected to account for its employee stock options under the fair value method of SFAS 123, the Company's net loss would have increased to the pro forma amount below: DECEMBER 31 -------------------------------------- 2000 1999 -------------- ---------------- As reported $ (13,662,141) $ (1,775,691) Pro forma $ (4,290,991) $ (2,452,291) The fair value of these options was estimated at the date of grant using the Black-Scholes Method with the following weighted-average assumptions for 2000: risk-free interest rate of 6.43%, no dividend yield; a .728 volatility factor; and a weighted-average expected life of the options of 3 years. The weighted average fair value of the employee stock options granted during the year ended December 31, 2000 and 1999 is $1.56 and $0.17 per share, respectively. 4. INCOME TAXES At December 31, 2000 and 1999, the Company had net operating loss carryforwards for federal income tax purposes of approximately $6,963,000 and $291,000, respectively, which begin to expire in 2019. The Company's net operating loss carryforwards may be subject to certain limitations on annual utilization in the event of changes in ownership of the Company. These limitations could significantly reduce the amount of the net operating loss carryforwards available to the Company in the future. 99.6-16 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 4. INCOME TAXES (CONTINUED) A reconciliation of the provision for income taxes (benefit) to the federal statutory rate is as follows: 2000 1999 ----------- ------------ Tax at statutory rate $(4,645,128) $ (603,735) State taxes (546,486) (71,028) Non-cash interest expense 1,790,702 - Other (94,423) 3,032 Valuation allowance 3,495,335 671,731 ----------- ------------ $ - $ - =========== ============ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 4. INCOME TAXES (CONTINUED) The temporary differences and carryforwards, which give rise to significant portions of the Company's deferred income tax assets, relate primarily to start-up costs and amortization of intangible assets. The Company has elected under IRC Section 195(d) to capitalize its start-up costs for income tax purposes. All capitalized start-up costs will be amortized over a 60-month period commencing with the date business begins. Business began in late November 1999. For financial reporting purposes, the Company has recorded a valuation allowance against deferred tax assets as management has determined that it is not more likely than not that the deferred tax assets for which the allowance has been established will materialize. 5. LEASE COMMITMENTS Property and equipment includes the following amounts for leases that have been capitalized: DECEMBER 31 ---------------------------------- 2000 1999 ------------ ---------- Network equipment $2,028,959 $1,275,138 Less accumulated amortization (493,603) (121,911) ------------ ---------- $1,555,459 $1,153,227 ============ ========== Future minimum lease payments under capital leases consist of the following: DECEMBER 31 -------------------------------- 2000 1999 ---------- ---------- 2001 $ 946,142 $ 508,635 2002 941,946 597,070 2003 178,518 414,710 ---------- ---------- Total minimum lease payments 2,066,606 1,520,415 Less amounts representing interest (418,022) (245,277) ---------- ---------- Present value of net minimum lease payments 1,648,584 1,275,138 Less current portion (650,960) (368,405) ---------- ---------- $ 997,624 $ 906,733 ========== ========== 99.6-18 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 5. LEASE COMMITMENTS (CONTINUED) Total rent expense for all operating leases was $181,925 and $33,000 during the years ended December 31, 2000 and 1999, respectively. Future minimum lease payments under the non-cancelable operating leases as of December 31, 2000, with initial lease terms of at least one year at the time of inception, are as follows: 2001 $ 383,755 2002 400,217 2003 366,637 2004 333,442 2005 60,672 Thereafter - ---------- Total $1,544,723 ========== 6. LONG-TERM DEBT AND LINE OF CREDIT AGREEMENTS Long-term debt consists of the following:

99.6-19 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 DECEMBER 31 ------------------------- 2000 1999 --------- ---------- Revolving line of credit: Maximum aggregate principal amount not to exceed $3,500,000 bearing interest at 24% per annum, due June 30, 2002 250,000 - --------- ---------- 395,605 2,525,000 Less: current portion of long-term debt (106,956) (2,525,000) --------- ---------- Total long-term debt $ 288,649 $ - ========= ========== On November 22, 1999, the Company issued a $2,500,000 note payable to the former shareholder of ILD, who is now an officer of the Company, in conjunction with the acquisition of 4,700 shares of ILD stock. The Company repaid this liability in 2000. On December 26, 2000, the Company borrowed $250,000 on a credit line with Sherman LLC. The remaining amount of credit available is $3,250,000. The note bears interest at 24% per annum and is due on June 30, 2002. In July 2000, the Company executed a Securities Purchase Agreement (the "Agreement") which provides for the issuance of an aggregate principal amount of $5,000,000 of the Company's 7% Convertible Debentures due July 31, 2002. The debentures are convertible into the Company's common stock at a rate of $1.50 per share. In addition, the Agreement provides for the issuance of warrants for the Company's common stock in the amount of 10% of the principal amount of debentures purchased. Beginning on March 31, 2000 through December 8, 2000, the Company issued $5,000,000 of convertible debentures (convertible at $1.50 per share) and 500,000 warrants (at a strike price of $2.50 per share) to three third-party lenders. The fair market value of the Company's stock on the dates of grant was $2.50 per share. The Company recorded the fair value of the warrants at each issuance based on the Black-Scholes option pricing model resulting in a debt discount of $650,000. On December 31, 2000, the Company converted the outstanding $5 million in principal and $136,305 of accrued interest at a rate of $1.50 per share, resulting in the issuance of 3,424,203 shares of common stock to the holders of the convertible debentures. 99.6-20 ================================================================================ LECSTAR COMMUNICATIONS CORPORATION (FORMERLY D/B/A EMPIRE TECHNOLOGY CORPORATION) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 6. LONG-TERM DEBT AND LINE OF CREDIT AGREEMENTS At the conversion date, December 31, 2000, the Company recorded $3,966,670 of interest expense to recognize the intrinsic value of the benefical converstion feature and the entire amortization of such feature. In addition, the Company issued 90,870 shares of common stock based on accrued interest of $136,305 at an annual rate of 7% on the outstanding $5 million debenture. As the shares were issued at a conversion rate of $1.50 per share while the fair market value of the Company's common stock at the date of conversion was $2.50, this resulted in additional interest expense of $90,870. Scheduled maturities of long-term debt as of December 31, 2000 are as follows: 2001 $ 106,956 2002 288,649 2003 - 2004 - 2005 - Thereafter - Less current portion (106,956) --------- Total long term notes payable $ 288,649 ========== 7. SUBSEQUENT EVENTS On January 25, 2001, Corzon, Inc., a Texas corporation ("Corzon"), completed its acquisition by merger (the "Acquisition") of the Company, according to the terms of an Agreement and Plan of Merger that was executed on January 5, 2001. The Company is now a wholly-owned subsidiary of Corzon. The Company was acquired by Corzon in a stock-for-stock transaction in which the former shareholders of the Company now own approximately 89% of Corzon's outstanding common stock assuming the conversion of the outstanding convertible securities of each Company. The transaction will be accounted for as a reverse acquisition. In connection with the Acquisition, Corzon's Board of Directors (the "Board") voted to change its name to LecStar Corporation. In addition, the Board approved a 1-for-60 reverse split of the outstanding common stock of Corzon. In connection with the Acquisition, Corzon entered into an equity line financing agreement whereby an institutional investor has committed to purchase, up to $25,000,000 in Corzon stock, upon the registration of the stock, over a thirty-six month period, at the sole discretion of Corzon. Additionally, Corzon entered into a separate credit agreement that will provide, upon fulfillment of certain conditions, up to $3,500,000 in revolving credit to Corzon. The credit facility also provides for the issuance of warrants in an amount equal to 10% of the amount drawn from the credit facility. Beginning in January 2001, the Company drew $2,600,000 on its revolving line of credit. Additionally, the Company issued 313,531 warrants valued at $285,000. 99.6-21 ================================================================================ EXHIBIT 99.7 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The following Unaudited Pro Forma Combined Financial Statements of LecStar Corporation (formerly Corzon, Inc.) ("LecStar") and LecStar Communications Corporation ("LecStar Communications") give effect to the merger between LecStar and LecStar Communications under the purchase method of accounting prescribed by Accounting Principles Board Opinion No. 16, Business Combinations. These pro forma statements are presented for illustrative purposes only. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable. The Unaudited Pro Forma Combined Financial Statements do not purport to represent what the results of operations or financial position of LecStar would actually have been if the merger had in fact occurred on January 1, 2000, nor do they purport to project the results of operations or financial position of LecStar for any future period or as of any date, respectively. Under the purchase method of accounting, tangible and identifiable intangible assets acquired and liabilities assumed are recorded at their estimated fair values. The estimated fair values and useful lives of assets acquired and liabilities assumed are based on a preliminary valuation and are subject to final valuation adjustments. These Unaudited Pro Forma Combined Financial Statements do not give effect to any restructuring costs or to any potential cost savings or other operating efficiencies that could result from the merger between LecStar and LecStar Communications. The consolidated financial statements of LecStar for the year ended December 31, 2000, are derived from audited consolidated financial statements and are included in Form 10-KSB as filed by LecStar on April 2, 2001, with the Securities and Exchange Commission. The historical financial statements of LecStar Communications for the year ended December 31, 2000, are derived from certain audited financial statements contained in this amended Current Report on Form 8-K. You should read the financial information in this section along with LecStar's and LecStar Communications' historical consolidated financial statements and accompanying notes in prior Securities and Exchange Commission filings and in this amended Current Report on Form 8-K. 99.7-1 ================================================================================ LECSTAR CORPORATION (FORMERLY CORZON, INC.) UNAUDITED PRO FORMA COMBINED BALANCE SHEET WITH LECSTAR COMMUNICATIONS CORPORATION DECEMBER 31, 2000

================================================================================

================================================================================ LECSTAR CORPORATION (FORMERLY CORZON, INC.) NOTES TO THE UNAUDITED PRO FORMA COMBINED WITH LECSTAR COMMUNICATIONS CORPORATION FINANCIAL INFORMATION On January 25, 2001, LecStar Corporation (formerly Corzon, Inc.) ("LecStar") completed its acquisition of LecStar Communications Corporation (the "Company"). The Company was acquired in a stock-for-stock transaction in which the former shareholders of the Company now own approximately 89% of LecStar's common stock, assuming the conversion of the outstanding preferred securities. The transaction has been accounted for as a reverse acquisition whereby the total purchase price of the merger has been allocated on a preliminary basis to LecStar's assets and liabilities based on management's estimate of their fair values. Accordingly, total assets in the amount of $241,919 and total liabilities of $7,149,501 were recorded by the Company. The excess of the purchase price over the fair value of the net assets acquired, $12,165,101, has been allocated to goodwill. The adjustments to the unaudited pro forma combined financial statements for the year ended December 31, 2000 assume the merger occurred as of January 1, 2000 and are as follows: (1) To reflect the goodwill resulting from the merger. The goodwill is being amortized over two years. (2) Basic and diluted net loss per share have been adjusted to include LecStar Corporation's (formerly Corzon, Inc.) common stock as if the shares issued in the merger had been outstanding for the entire period presented. Stock options and warrants assumed in the mergers have not been included as their inclusion would be anti-dilutive. (3) The merger of LecStar Corporation (formerly Corzon, Inc.) and LecStar Communications Corporation has been accounted for as a reverse merger. These entries are made to record the issuance of the shares and to record the equity of the combined companies. (4) To reflect the amortization of the goodwill resulting from the merger, over a two-year period. (5) The basic and diluted net loss per share has been stated to include the effects of the 1:60 reverse stock split effective with the closing of the merger. The amounts previously reported in LecStar Corporation's (formerly Corzon, Inc.) Form 10-K were a basic and diluted net loss per share of $.09 with a weighted average number of shares outstanding of 64,735,630. 99.7-4

LECSTAR CORP 8-K/A