U.S. Securities and Exchange Commission
Washington, DC 20549
FORM 10KSB
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
From the Transition period from __________ to ___________
Commission File Number : 0-28398
Communications/USA, Inc.
(Name of Small Business Issuer in its charter)
Florida 65-0576171
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4175 E. Bay Drive, Suite 260, Clearwater, Florida 33426
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (813) 524-1711
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.01
(Title of class)
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months(or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes XX No ________
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form
10KSB . x
Revenues for its most recent fiscal year: $ 1,069,550
Aggregate market value of the voting stock held by non- affiliates at the price
the securities were sold.
$ 990,034
Number of shares outstanding as of March 31, 1997: 3,893,309.
<PAGE>
PART I
Item 1. Description of Business. (101)
(a) Business Development.
Communications/USA, Inc. ("Comm/USA"), a Florida corporation, was
incorporated in December, 1992. In May, 1995, Comm/USA executed a contract
to acquire all of the issued and outstanding shares of Gulf Coast
Communications, Inc. ("Gulf Coast") d/b/a Voice-Tel of West Florida, a Florida
corporation. The transaction closed on November 28, 1995. In October, 1995,
Comm/USA assigned all of its right, title and interest in the Gulf Coast
contract to CommTel/USA, Inc. ("Comm/Tel"), a Florida corporation, Comm/USA's
wholly owned subsidiary. Gulf Coast was organized in June, 1989 and Comm/Tel
was organized in August, 1995. In October, 1995, Comm/Tel executed an
agreement to acquire all of the assets of Feiman & Holliday, Inc., a Florida
corporation d/b/a Voice-Tel of Southwest Florida ("Voice-Tel SWF") and closed
on the transaction on November 28, 1995. Additionally, in October, 1995,
Comm/Tel executed a contract with the owner of forty-five percent (45%) of the
common shares of Holt & Feiman, Inc., d/b/a Voice-Tel of Tallahassee, Inc.
("Voice-Tel TAL"), a Florida corporation, to purchase forty-five percent (45%)
of Voice-Tel TAL. The latter was later rescinded, and no new negotiations have
taken place at the date of the Form 10KSB.
Comm/USA acquired 100% of the issued and outstanding shares of common
stock of Gulf Coast on November 28, 1995, pursuant to a stock purchase
agreement dated May 24, 1995, between Comm/USA and the two stockholders of
record of Gulf Coast. In October 1995, Comm/USA assigned all of its rights,
title and interest in the Gulf Coast stock purchase agreement to Comm/Tel.
The agreement, as amended, provides for a purchase price of $550,000, with
(i) $325,000 in cash payable on or before November 29, 1995; (ii) a $75,000
promissory note payable on or before February 27, 1996; and (iii) a $150,000
promissory note payable on February 27, 2001, with a holder's option for a
balloon payment of the entire amount on February 27, 1998. The $325,000 cash
payment was made at Closing and the $75,000 note was paid on February 27,
1996. In addition to the above-mentioned promissory notes, the former Gulf
Coast Stockholders have the right to receive an aggregate of 125,000 shares of
Comm/USA's common stock, par value $.01 ("Common Stock") or 2.5% of
Comm/USA's then issued and outstanding shares of Common Stock, whichever is
greater, upon completion of their first year of employment, and an additional
125,000 shares of Common Stock or 2.5% of Comm/USA's then issued and
outstanding Common Stock, whichever is greater, upon completion of their
second year of employment.
Comm/Tel acquired the assets of Voice-Tel SWF pursuant to an asset
purchase agreement dated October 23, 1995, between Comm/Tel and Voice-Tel SWF.
The asset purchase agreement provides for Comm/Tel's acquisition of certain
assets of Voice-Tel SWF, including Voice-Tel SWF's rights under its franchise
agreement with Voice-Tel Enterprises, Inc. ("Voice-Tel"), telecommunications
equipment, and a rebate of certain telecommunications cost from Voice-Tel in
the amount of $6,000. In exchange, Comm/Tel (i) assumed approximately
$235,000 of Voice-Tel SWF's liabilities, (ii) transferred $30,000 in cash to
certain stockholders of Voice-Tel SWF, and (iii) transferred 312,500 shares
of Common Stock to the shareholders of Voice-Tel SWF.
The term "the Company" that is used throughout this section includes
Comm/USA, Comm/Tel, Gulf Coast, and Voice-Tel SWF. Other than the fact that
Gulf Coast and Voice-Tel SWF held franchise agreements from Voice-Tel that
were material to their acquisition as described above, there has been no prior
affiliation between Voice-Tel, Gulf Coast, Voice-Tel SWF and/or the Company.
<PAGE>
(b) Business of the Company
The Company owns and operates interactive voice messaging franchises in
the Voice-Tel system. Voice-Tel is the most widespread interactive voice
messaging company in the United States, operating a digital telecommunications
network through independently owned franchisees. The network covers the
greatest geographic area in the industry, and includes approximately 3,500
cities. The system operates on proprietary software which was created by
Centigram Communications Corporation. According to Centigram, the Voice-Tel
system accounted for less than 10% of Centigram's revenues since 1993. The
Voice-Tel system operates through a "network" which connects all of the
Voice-Tel franchises together and permits messaging among all of the customers
of all of the franchisees. This network, which connects approximately 3,500
cities, interconnects approximately 400,000 customers who use Voice-Tel
messaging to communicate. Although Centigram provides messaging equipment to
companies other than Voice-Tel, none of its other customers interconnects as
many individuals and cities as Voice-Tel. Other than the contractual
agreements between Centigram and Voice-Tel for provision of hardware and
software, the Company is not aware of any other affiliation between Centigram
and Voice-Tel.
The Company operates in the following sales territories: (i) the cities
of Tampa, St. Petersburg, Clearwater, Largo, Bradenton, and Sarasota; and (ii)
the Metropolitan Statistical Areas of Lakeland-Winter Haven,
Melbourne-Titusville-Palm Bay, Fort Pierce, Fort Myers-Cape Coral, and Naples.
The Company was originally formed for the purpose of becoming an
equipment leasing company. The original concept was abandoned and the
controlling shareholder thereafter sought additional business opportunities
for the Company, which culminated with the execution of the agreements to
acquire Voice-Tel franchises.
History of the Voice Mail/Voice Messaging Industry
Voice mail began in 1964 as a result of the Carterphone decision giving
residential and business customers the right to own and maintain telephone
equipment, The Carterphone decision gave rise to the computer premises
equipment "CPE" interconnect industry, including telephone sets, telephone
answering devices (TADs), key and hybrid systems, PBXs and, ultimately, voice
mail systems.
The high acceptance of TADs indicated that individuals wanted their
telephone answered when they were unable to answer a call personally. The
early TADs were not particularly reliable, being essentially simple tape
recorders that reused the same tape until it jammed or tore. The voice
quality was generally raspy, attributable to the reuse of the tape. The early
machines did not offer remote pickup or toll savers, nor the ability to change
the greeting remotely. Sales continued to demonstrate the public's desire
to have their calls answered automatically despite the mediocre quality of the
early TADS.
In 1979-1980, prior to divestiture, AT&T attempted to conduct a voice
mail service trial in what was then Pennsylvania Bell. The Federal
Communications Commission (FCC), however, blocked the voice mail trial on the
grounds that voice mail was to be considered "data processing."
The early voice mail manufacturers directed their late 1970s/early 1980s
products and sales efforts to the business marketplace. The PBX manufacturers
began to offer voice mail as an option, also addressing the business segment.
Both the voice mail and PBX vendors were targeting large customers since early
voice mail platforms and PBX voice mail options were expensive. While the
residential market clearly wanted their calls answered, many businesses were
leery of offending their callers because of real and/or perceived bias against
"talking to a machine." A second generation of voice mail manufacturers
entered the market in the early 1980s, offering smaller, more affordable
systems for the small to mid-size business marketplace.
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Consumer (or residential) customers continued to have only one option,
the telephone answering devices, although the TADs were gradually improving in
quality and reliability. By the late 1980s, "talking to a machine" had become
routine in both the residential and business communities.
Until this point, the vast majority of voice mail systems were being
used for automated call answering, although interoffice messaging was
available to the corporate users. Many companies found their employees
continued to walk down the hall to talk in person instead of using their voice
mail platform to message back and forth. Human behavior, like taking a work
break to walk down the hall, will likely continue, but having employees accept
the value of messaging is essential to effective implementations.
In 1980, a new option was introduced to the American business market. A
voice messaging service using proprietary software on a modified Digital
Equipment Corporation (DEC) platform was introduced. Large multi-location
accounts like Dow Jones, Procter and Gamble, TWA and other airlines used the
system.
As an alternative to CPE, voice messaging services began to be
introduced. Tigon in 1983, (now Octel Network Services), VoiceCom in 1984 and
Voice-Tel in 1990 offered interLATA national (and international) voice
messaging.
In certain cases, these services can be used as call answering, but the
primary advantage is the ability to exchange messages with field personnel,
customers, vendors, and others. The secondary advantage is that the
maintenance of the voice mail platforms is performed by the service providers.
Outsourcing became a growing trend, with very large corporate users
having the service providers maintain the customers' CPE equipment at
headquarters. Providers also offered service for smaller field branches and
offsite personnel where the cost of CPE voice mail platforms could not be cost
justified.
The most common way for a user to access a Tigon or VoiceCom mailbox is
to dial an 800 number. The cost of the 800 usage adds significantly to the
monthly cost of the mailbox. By 1991, VoiceTel offered local access in most
US major metropolitan areas. Voice-Tel franchisee offer local access by
acquiring direct inward dialing (DID) numbers from local telephone companies
(i.e.: companies that offer local telephone service in their specific
locations). A DID number is simply a seven digit telephone number. These DIDs
are purchased by the Voice-Tel franchisee in bulk and then issued to each
"voice mailbox" which is assigned to an end user. By having Centigram
equipment connected to the local telephone service provider, Voice-Tel
franchisees can offer local service. Companies like Tigon and VoiceCom would
need to have telecommunications equipment in numerous locations to be able to
offer local access. Companies such as these can save money by having equipment
in only one or a small number of locations, and can then offer service through
an 800 number. The Company is not presently aware on any initiative by either
Tigon or VoiceCom to offer local access.
During post-divestiture in the mid-1980s, the Regional Bell Operating
Companies (RBOCs) began to explore opportunities to offer voice mail service.
In the late 1980s, several trials were underway. By 1990, four of the RBOCs
were in the voice mail service business, with the other three joining in by
1992.
Six of the RBOCs have had greater success with the residential market
than the business market, averaging 80% residential to 20% business. The
Pacific Bell RBOC is the exception, with more than 60% business mailboxes at
year-end 1994.
The TADs continued to improve in quality and were being incorporated
into telephone sets, along with enhanced features such as speed dialing,
redial, and conference calling. In the early 1990s, digital answering devices
<PAGE>
were introduced with greatly enhanced quality, capacity and features and a
higher price tag.
The Voice-Tel System
The Company owns franchises granted by Voice-Tel Enterprises, Inc.
("Voice-Tel or VTE"). VTE is a privately-owned company and was incorporated in
1986. VTE started operations as a franchise organization in the Ohio area.
The franchisees, using Centigram platforms, operated local area voice mail
service bureaus selling mailboxes to business accounts. The organization grew
in the eastern states, reaching about 30 locations by 1990.
By early 1990, Voice-Tel wanted to expand its coverage to include the
western states. Voice-Tel acquired Amvox in 1990. At that time, Amvox had a
presence in over 50 major metropolitan cities; over 100 cities including
suburban coverage. Amvox had begun construction on a digital network and had
about 15 cities linked together, allowing customers to exchange messages from
one city to another.
Management believes that the acquisition of Amvox was attractive to
Voice-Tel for many reasons including (i) Amvox used Centigram platforms
exclusively; (ii) Amvox had significant coverage in the western two thirds of
the country; (iii) Amvox locations tripled VoiceTel's city coverage; and (iv)
Amvox had a business alliance with Amway Corporation. The Company believes
that the business alliance with Amway was significant for three reasons: (i)
Amway had a significant investment in Amvox; (ii) Amway distributors bought
Amvox mailboxes for their own use; and (iii) Amway distributors sold Amvox
mailboxes.
The Amway affiliation has continued with Voice-Tel. Amway distributors
represent more than a third of Voice-Tel's total customer base; Amway
Corporation also has a 20 percent ownership in Voice-tel. One of the major
advantages of the relationship is the 'built-in" customer base when a new
location is opened. The Amway distributors are given advance knowledge of the
new service and are ready to sign-up. Amway distributors communicate with
their superior and subordinate distributors (multi-level marketing) via voice
messaging. Originally, Amway distributors exchanged messages locally (on the
same platform), and as the digital network gradually expanded, messaging
became nationwide. Amway distributors have a greater presence in suburban and
rural areas than in most major metropolitan cities. Amway distributors are
also encouraged to sell Amvox voice mailboxes. The digital network was
completed in 1991, allowing nationwide messaging on the Centigram platforms.
Unlike Voice-Tel, Octel Network Services and VoiceCom (see "Competition")
market principally to large, multi-location corporate accounts. To highlight
some of the differences, Voice-Tel service offers: (i) Simplicity; (ii)
Inexpensive and competitive services in comparison with RBOC services; (iii)
Direct inward dial (DID); (iv) Local access - no need for 800 usage charges;
Toll savers; (v) Local sales and local customer support; (vi) Nationwide
and international messaging with local access available; and (vii) Many
individual accounts. Options include: Pager activation; Outdial message
notification; 800 service for customers who feel they need it for their
customers; and Revert to operator.
From the beginning, Voice-Tel has marketed a service that is simple to
learn and use, and is free of complicated and expensive "bells and whistles."
Voice-Tel, (and Amway/Amvox) mailboxes are DID numbers. The customer is
assigned a seven-digit local DID telephone number. The customer can have a
white page listing in their name even though Voice-Tel is the customer of record
for a DID number. This is possible under the provisions of the RBOC joint
user group tariffs.
The mailboxes can provide: (i) Voice messaging; (ii) Call answering;
(iii) Alternate telephone numbers; (iii) Menu boxes (directing callers to
appropriate mailbox); (iv) Broadcasting; and (v) Audiotex.
<PAGE>
Unlike users of the RBOCs' voice mail services, Voice-Tel customer are
classified neither as residential nor business accounts because the DID
mailboxes are not associated with the customers' existing telephone numbers.
The Amway distributors can be considered hybrid customers in that they
typically work from their homes on residential lines. The Voice-Tel corporate
accounts more closely resemble RBOC business customers, except that Voice-Tel
customers need to receive and send messages to other locations.
Historically, the Voice-Tel franchisees have had the greatest success
selling to small and medium-size service accounts, such as real estate offices
and financial services. The sales emphasis is on network-based messaging
rather than simple call answering.
The Voice-Tel franchisees have targeted small to mid-size accounts
because of the need to sell within their territory. At year-end 1994,
Voice-Tel had local access in 3,485 cities in the US (46 states), and 15
cities in Puerto Rico, Canada, Australia and New Zealand.
Voice-Tel currently has local access in approximately 3,500 domestic cities.
In these terms, Voicetel is the closest to having an ubiquitous network.
However, by using Centigram platforms exclusively, a caller using a different
platform cannot now message with a Voicetel customer, or vice versa.
A universal network, with ubiquitous access and inter-machine
operability, would offer a powerful asset for securing national accounts and
augmenting the Amway individual mailbox sales and messaging revenues.
Voice-Tel has concentrated on expansion for the past several years both
domestically and internationally. It is unknown whether or not Voice-Tel will
invest in the research and development of the necessary software to implement
inter-machine functionality.
Products, Services and Markets
Interactive Voice Messaging
Interactive voice messaging is a service which allows users to talk back
and forth to each other and to send messages to one or hundreds of people with
just one telephone call. The messages can be saved and/or forwarded to other
users. Voice messaging services are accessed world-wide, wherever touch-tone
telephone service is available. The service has flexible interactive answering
and broadcast capabilities that management believes makes the system more
accessible than e-mail, more personal and powerful than voice mail machines,
and more detailed and informative than pagers. As a result, the Company
believes that the system is more practical and user-friendly for the
increasingly mobile executive who relies more and more on voice messaging
services.
Users of voice messaging include multilevel marketing companies, such as
Amway Corporation and Excel Telecommunications, and corporations or
individuals who desire interactive voice messaging, e.g. local real estate
brokers who desire to be able to communicate with their agents, and companies
with field sales and service forces.
Long Distance Telephone Service
Debit cards enable a caller to make long distance toll charge calls from
any touch tone telephone at lower rates than many alternatives, and assists
users in budgeting their telephone usage. Additionally, debit cards have
instructions in various languages, and loss or theft amount is limited to the
value remaining on the debit card.
Traditional users of debit cards include military personnel, college
students and their parents, foreign exchange students, foreign visitors,
tourists, Inner-city residents, Ship employees-crew members, sales personnel,
<PAGE>
hospital employees and patients, migrant workers, truck drivers, nursing home
patients, and business travelers.
In the United States, this segment of the industry is in its infancy and
is growing rapidly. Industry sources estimate that more than 500 companies are
making and selling debit cards, including companies such as MCI and Sprint.
Sales of the cards was approximately $65 million in 1993 and $325 million in
1994. By the first quarter of 1996, industry experts expected sales to reach
the annual rate of at least $1 billion. In 1994, the international debit card
business was estimated at $4 billion. The Japanese telephone debit card
business was estimated to be $2.5 billion in 1994.
Other Services
Presently, the Company offers paging services of a third party vendor
that it resells to its customers. The pagers are connected to the customer's
voice mailbox, so that when messages are deposited in a customer's box, they
are routed to the pager and their pager alerts them to call their voice
mailbox.
Distribution Methods
Voice Messaging
The Company distributes its voice messaging services through Voice-Tel,
which is the most geographically diverse interactive voice messaging company
in the United States. Voice-Tel operates a digital telecommunications network
through independently owned franchisees. The Voice-Tel network covers the
greatest geographic area in the industry, and includes over 3,500 cities. The
system operates on proprietary software which was created by Centigram
Communications Corporation. The Company distributes its services through two
primary types of accounts, national accounts and corporate/retail accounts.
Approximately 60% of the Company's revenue is derived from Voice-Tel's
national accounts. One of the largest user groups of Voice-Tel services is
the Amway Corporation ("Amway") through its independent distributors.
Voice-Tel messaging service is marketed under the name "Amvox" to Amway
distributors. In addition, more than one million Amway distributors are
authorized to resell Voice-Tel services to their customer bases. Any
compensation paid to the Amway distributors for resale of Voice-Tel services
is paid by Amway. Amway pays the Company the same rate for its services
whether they are sold to Amway distributors or to end users by Amway
distributors. Voice-Tel also has a national account agreement with Century 21
Real Estate to provide voice messaging services to real estate brokers across
the nation that are affiliated with Century 21. Additionally, Voice-Tel has
national account agreements with other large companies including Mailboxes,
Etc., Primerica Financial Services, Discovery Toys, Norwest Mortgage,
Centigram Communications Corporation, Val Pak, Inc., National Safety
Associates ("NSA"), Traveler's Insurance Company, and Excel
Telecommunications, Inc.
Approximately 40% of the Company's revenue is derived from
corporate/retail accounts. The corporate accounts are corporations or
individuals who desire interactive messaging. Typically, these accounts
consist of local business persons such as real estate brokers or other
professionals who desire to communicate with their agents through this
medium. Primary targets for the service include companies with field sales
and service forces.
The Company believes that in certain areas various industries tend to
become interdependent on the Voice-Tel system, which causes related parties to
join the system. For example, many Realtors use the system. The addition of
local mortgage brokers, banks, real estate lawyers, title companies, surveyors
and local zoning agencies could enhance the business of all of these
customers.
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Debit Cards
The Company is presently investigating the potential for distributing
debit cards to the public through contracts with national common carriers,
whereby the Company would purchase long distance telephone time at high volume
usage wholesale rates and resell this time to its customers at its own
discounted retail rates (which are believed to be 10% to 60% below the AT&T
tariffed rates). This plan of distribution benefits customers because the
Company can eliminate the surcharges typically imposed by the major long
distance carriers. The Company is presently negotiating with a number of
providers of telephone switching equipment in order to be able to produce,
issue and sell telephone debit cards.
Competition
General
The voice messaging market, which includes voice mail and other voice
processing services, and the debit card market is fragmented, but highly
competitive due principally to the number of providers of telecommunications
services, certain of which have greater financial resources and more
experience than the Company. The costs and features of voice processing
equipment vary widely and the Company believes that the primary factor
governing the acceptance of a system is the ease of use or "user friendliness"
of the system.
Competition among National Network-Based Voice Message Service Providers
The Company views the voice processing industry as presently divided into
two segments. The first segment consists of companies that are voice
processing service providers of national and international network based voice
messaging services. The second segment consists of the Regional Bell Operating
Companies voice mail (call coverage) services. The first segment is considered
by the Company as its primary competition at the present time.
The Company views three entities as the national voice messaging service
providers, Octel (ONS), Voicecom, and Voice-Tel Enterprises, Inc. (VTE). ONS
and VoiceCom have historically targeted multi-location business accounts.
Many, if not most, of their customers have a CPE voice mail platform (or a CPE
PBX with a voice mail option) at their headquarters. These size companies use
their CPE voice mail for call answering, intra-office messaging and, perhaps,
use automated attendant features. VTE's customer base does not fit the above
description in that it has many single mailbox customers in addition to
corporate accounts. Voice-Tel has not historically targeted the very large,
multi-location accounts as have the other nationals.
The nationals' typical business customer has branch offices and/or field
personnel. The cost to purchase a voice mail platform can not easily be cost
justified for small branch offices. Cost aside, local branch voice mail
systems do not permit voice messaging with the home office. The nationals have
sold to large users as well as smaller to mid-size accounts. A smaller account
may not have branch offices but, rather field personnel dispersed around the
country. Some or many of the field personnel may work from their homes.
The convenience of 800 access is apparent to field sales, service and
work-at-home personnel, and traveling executives. Local access (with Telco
local calling charges) is generally less expensive than 800 usage, but
requires change at public pay phones, calling cards and/or increased charges
on phone bills in areas that do not offer flat charge calling programs. The
disadvantage of 800 access is additional cost and variable monthly usage
charges.
The Company believes that the power of the network-based message services
is the ability to message and exchange information from one location to
another regardless of time zones and other field conditions. Sales personnel
can determine inventory availability, report sales, or inquire if an order has
been shipped. Service personnel can report service problems, or request
replacement parts. Executives can receive and dispense important and timely
information with a single call.
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The nationals' service offerings can be used as call answering by
forwarding callers on "busy" or "no answer" conditions from small offices or
home numbers. As for the alternative, local RBOC voice mail can be used for
simple call answering. The shortcoming of using RBOC call answering for the
mid-size to large customer is the inability to pass an important message to
headquarters for follow-up; a simple task on a network-based message service.
The ability to create a message and have it delivered to many people at
several locations, and to answer a message (perhaps attaching additional
comments to it and passing it on to other users on the network) are not
possible on today's RBOC call answering voice mail services. Prior to the new
Telecom law, the RBOCs were prohibited from message transport outside of their
local service area.
The recently passed Telecom legislation in Congress will allow the RBOCs
into long-distance services. The Company expects the RBOCs, either through
the landline networks or through their wireless ventures to initiate
nationwide messaging services.
ONS, (previously Tigon), and VoiceCom have added many features and
capabilities to enhance the value of the basic voice mail services offered to
businesses. Voice-Tel has taken a different approach by offering a no frills,
easy to use, voice mail network with local access in all major metropolitan
areas throughout the contiguous United States. Voice-Tel is also the
exception to the other nationals in that the company has many single mailbox
customers. In RBOC terms, these single mailbox customers would be called
residential customers. A large percentage of Voice-Tel's customers are Amwav
distributors who commonly work from their homes. Amway distributors can sell a
voice mail product called Amvox through a distribution agreement between
VoiceTel and Amway. VoiceTel also has many multi-location business accounts
sold by the local franchisees such as the Company.
Limitations on Today's Voice Messaging Systems
The existing voice mail message networks all have limited access.
Voice-Tel currently has the greatest local access coverage with approximately
3500 cities in the United States. However, what remains to be developed is a
truly ubiquitous network. This would include two key elements, as is the case
with fax machines: (1)Local access from any telephone number (to avoid costly
800 usage); and (2) The ability to exchange messages from one voice mail
platform to any other voice mail platform.
Specific Competitors
Octel Network Services
Octel Network Services (ONS) is the successor to Tigon. Tigon was founded
in 1983 as a spin-off of VMX. VMX had originally used a service approach to
give prospective CPE customers an opportunity to become familiar with voice
mail before committing to a large capital investment.
Historically, Tigon's expertise was in the sale of voice message
networking applications to Fortune 1000, multiple-site accounts. Its flagship
accounts included Bank of America, Ford Motor Company and Ford Dealerships,
Kodak, Kraft and Texas Instruments. These accounts represented 75% of its
total number of mailboxes.
Tigon practiced a non-vertical marketing approach. It considers any
large, multi-location company, especially with international needs, to be a
prime target. Tigon had sales success in approaching its accounts' vendors
and customers in order to capture their network messaging such as the Ford
Dealerships.
<PAGE>
Ameritech purchased Tigon in October 1988 for an amount believed to be
$40 million. Tigon operated as a separate subsidiary during its time with
Ameritech and was subject to the regulatory restraints imposed on the RBOCs.
Ameritech concentrated its residential voice mail efforts in Chicago and
Indianapolis. It should be noted that Tigon's positive sales results with
business accounts did not offer any value in selling to residential
customers. After three years, Ameritech reported a total of 10,000
residential voice mailboxes.
In September 1992, Octel purchased Tigon from Ameritech for less than
book value, reportedly $12 million. Tigon's annual revenue at the time was
approximately $20 million. Under the terms of purchase, Tigon was to continue
to provide Ameritech with residential voice mail and business voice processing
services using Octel Sierra central office (CO) hardware. Tigon was also to
continue to provide customer service and customer support for Ameritech's
business and residential accounts. Under the terms of the agreement between
Octel and Ameritech, the Tigon business accounts stayed with Tigon, a
wholly-owned subsidiary of Octel Communications. The 10,000 residential
mailboxes remained with Ameritech. Tigon continued to support customers on
the Octel Sierra platforms and on the original VMX5000 platforms.
Tigon, now known as Octel Network Services (ONS), continues to support
the Ameritech customers and its existing business customers, including several
state and local governments. In addition to its corporate accounts, ONS has
25 distributors that resell its services, including telcos, InterExchange
Carriers (IXCs), and Telemanagement companies, under private brand names.
Domestic sales activity represents 99% of total sales revenue. However,
business alliances, originally formed by Tigon, remain in place in Japan,
Australia, Canada, and UK/Europe.
New ONS sales activity is being handled by the Octel national sales force
seeking new corporate accounts and/or to upgrade existing accounts. ONS
continues to seek new distributor agreements with telcos, IXCs and other types
of resellers. ONS has local access available in 24 US cities and 12
countries.
As a result of recent strategic acquisitions, many industry analysts
believe that Octel will remain the dominant player in the field. AT&T, Nortel
and Centigram all have significant success in the sale of CPE voice mail
platforms, but do not have a voice mail network in place.
Octel has a range of small to very large platforms for CPE and CO sales.
With the acquisition of Tigon, Octel gained considerable expertise in network
management, facilities management and outsourcing services. Octel is in an
excellent position, being the only major voice mail manufacturer with an
implemented message network in place with an embedded customer base.
Octel, should it choose, has the in-house intelligence and financial
resources to develop and market a truly universal message network. AT&T
certainly has the capability and resources to implement a network, but may
lack the motivation to do so, fearing potential loss of long-distance revenue.
The critical step in implementing a universal network will be the
development of software to facilitate inter-machine operability with all the
major voice mail platforms. The audio messaging interchange specification
(AMIS) analog, a standard for networking voice mail systems, is within easy
reach, but would lack feature-rich functionality expected in the business
marketplace. A digital solution would be ideal, as it could provide greater
functionality and quality.
A universal network developed by Octel, or another vendor, will open new
revenue streams, just as facsimile compatibility did many years ago. The
opportunities include businesses, affinity groups and consumers with extended
families. In addition to direct sales, Octel's distribution channels such as
telcos and other resellers would benefit from a universal network by opening
new applications and sales possibilities.
<PAGE>
VoiceCom Systems, Inc.
VoiceCom is a privately-held company founded in 1984. In January 1991,
VoiceCom acquired Wang Information Services. In September 1992, they bought
Async from MCI. For several years, VoiceCom was the e exclusive sales agent
for AT&T's voice mail services. VoiceCom marketed and supported AT&T Audix
customers that preferred a service solution to the purchase of CPE voice mail.
The relationship ended in 1993. The AT&T CPE sales force may have found it
difficult selling against their own product.
In its early days, VoiceCom's services and marketing strategy closely
resembled Tigon's. They targeted multiple-site accounts with a need for voice
mail and messaging. VoiceCom had success with medium-size companies with
dispersed personnel and about a dozen large accounts.
As a result of the merger activity, VoiceCom found itself with a number
of different platforms (none of which were integrated, although all were
capable of AMIS analog) including Audix, VMX, Centigram and Octel Maxxum.
In recent years, with the acquisition of Async in late 1992, the Company
believes that VoiceCom has positioned itself to be an enhanced voice mail
service provider with AccessOne. The service allows the user to dial a single
800 number. From that point on, using menu options, the caller can complete a
number of actions including Voice messaging; Fax and information services;
Custom calling; Multiple long-distance calls; International calls - outbound,
inbound and callback; and Conference calls.
Management believes that VoiceCom now targets companies with field
personnel. Armed with private, public or cellular touch tone phones, personal
digital assistants (PDAS) and laptops, the mobile professional can work from
an automobile and/or home, eliminating the necessity for small regional branch
offices. The cost of PDAs and laptop computers can be easily cost justified if
a company can lower overhead by shutting down expensive field sites.
For corporate headquarters, VoiceCom offers AccessOne Premise, which
involves installing equipment on the customers' premises. This product
appears to appeal primarily to low-end and high-end users, assuming the
mid-size company can cost-justify and maintain CPE voice mail.
VoiceCom customers use 800 access in the US and international access in
50 countries.
In the past, it is Management's opinion that industry analysts believed
VoiceCom lacked focus because of its merger activity, multiple platforms and
products, and effort to be all things to all market niches. The company's
recent emphasis on AccessOne, embracing the old Async product, could give
VoiceCom the focus that has been missing. VoiceCom's service is distinctly
different from ONS and Voice-Tel. With the shifting economy forcing companies
to operate more efficiently, and given the increasing acceptance of
telecommuting, the "onecall" AccessOne enhanced voice mail service could prove
to be more successful now and in the near future than when Async originally
introduced it in 1984.
According to industry sources, in mid-1994 VoiceCom had 150,000 mail
boxes and Tigon had 180,000 mail boxes, while Voice-Tel had 300,000. At the
end of 1995, Voice-Tel had approximately 450,000.
The Company believes that the most significant difference between its
system versus that of its competitors is that the Company's service operates
through local access numbers and provides the ability to connect its voice
mail boxes to a customers home phone, car phone, office phone or local beeper
while offering the extensive networking services such as broadcast messaging,
which enables a message to be sent to many recipients with one call. However,
there can be no assurance that the Company will be able to continue to
effectively compete with its many competitors.
<PAGE>
Dependence on few major customers
The Company's revenues are primarily derived from two types of voice
messaging accounts, Voice-Tel national accounts, and corporate/retail
accounts. The national accounts comprise approximately 60% of the Company's
revenues, and consists primarily of independent distributors for multilevel
marketing companies, such as Amway. Amway accounts for approximately 60% of
the Company's total revenues. Corporate/retail accounts comprise
approximately 40% of the Company's total revenues, and are typically made up
of a number of different corporations or individuals who desire interactive
voice messaging. There is no individual corporate/retail account that
represents in excess of 10% of the revenues of the Company. See "Management's
Discussion and Analysis."
Trademarks
The Company has filed for federal trademark protection of the name and
logo of "Communications/USA, Inc." and is preparing to file for various
calling card names for its debit cards.
Item 2. Description of Property.
The Company's corporate offices as well as its principal operating
subsidiary is located at 4175 East Bay Dr., Suite 260, Clearwater, FL
34624-6965, where the Company leases approximately 1,210 square feet of office
space at prevailing market rates, pursuant to a three year lease which
commenced on June 6, 1994, and terminates on May 31, 1997.
The Company operates an equipment site at 2701 Cleveland Ave., Unit 11,
Fort Myers, FL. This space is leased at prevailing market rates pursuant to a
five year lease which commenced on August 15, 1995, and terminates on August
14, 2000.
The Company operates a sales office and equipment site at 1717 Second
Street, Suite E, Second Floor, Sarasota, FL 34236, where it leases
approximately 800 square feet of space at prevailing market rates, pursuant to
a five year lease which commenced on July 1, 1992, and terminates on June 30,
1997.
The Company presently operates an equipment site, and intends to operate
a sales office, at 12807 Hillsborough Avenue, Tampa, FL 33615, where it leases
approximately 660 square feet of space at prevailing market rates, pursuant to
a five year lease which commenced on July 14, 1994, and terminates on July 13,
1999.
Operation of an equipment site means that the Company operates
telecommunications equipment, such as Centigram equipment or telephone trunks
and lines, at different locations. The Company does not resell telephone or
computer equipment, but uses this equipment to provide its services.
Item 3. Legal Proceedings.
Presently, the Company is not a party to, and does not anticipate being
named as a party to, any pending legal proceeding, nor is any of its property
the subject of a pending legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders:
None
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters. (201)
(a) Presently there is no public trading market for the company's common
stock.
(b) As of the date of this report there are 183 holders of record of the
company's common stock.
(c) The company has not paid any dividends on its common stock for the
last two fiscal years. There are no restrictions on the ability to pay
dividends, if the operations are profitable.
Item 6. Management's Discussion and Analysis:
Any discussion of 1995 results of operations assumes the entire fiscal
year. The purchase of the company's subsidiaries did not take place until late
in 1995 and as such only one month of the combined operations of the company
are shown on the financial statements. Management felt that it would be more
meaningful to the reader if the comparisons made were to like periods.
Presently, the Company's source of income is from the sale of Voice-Tel
services, with a small amount of income generated by the sale of pagers. The
national accounts comprise approximately 60% of the Company's revenues. A
typical account in this category is a multilevel marketing company. The
largest national account, Amway, purchases a block of telephone numbers from
the Company and then re-sells them to its independent distributors. All the
incidentals of billing and collections are handled by Amway, with the Company
receiving its revenues on a monthly basis. Service issues are handled by the
Company. The other national accounts are handled in the same manner as the
Company's corporate/retail accounts, which means that the Company bills the
end user, collects from the end user and provides customer service to the end
user.
The Company's business is primarily derived from two types of voice
messaging accounts, Voice-Tel national accounts, and corporate/retail
accounts. The Company sold $1,069,550 and $804,759 for the years ended
December 31, 1996 and 1995 respectively from messaging accounts. The growth
was primarily attributed to opening new territories, and heavy emphasis on new
National Accounts.
The corporate/retail accounts typically comprise of corporations or
individuals who desire interactive voice messaging. An example would be a
local real estate broker who desires to be able to communicate with his/her
agents through this medium. The other major target market is for companies
with a field sales and service force.
During 1995, Company raised approximately $650,000 through the sale of
securities, the proceeds of which were used to pay the costs of the offering,
and to purchase the stock of Gulf Coast Communications, Inc. The Company
presently has no credit facilities. Accounts Receivable exceeded the revenues
for the reported period because due to the inclusion of short term advances to
a shareholder. These advances have been recovered in the subsequent periods.
The Company collects its Accounts receivable in less than 30 days. Also, a
portion of the sales are made through bank drafts and/or credit cards, thus
accelerating the cash flow.
In February 1996, the Company obtained a rate adjustment from its local
telephone provider to more closely match the rates enjoyed by paging companies.
Due to this favorable rate adjustment, the Company will experience a
substantial reduction in telecommunications costs for 1996, this amounted to
approximately $140,000 during 1996.
<PAGE>
Presently, the Company's cash flow is adequate to meet its operating
expenditures for the next 12 months and management expects that the reduced
telecommunications costs will make a positive significant impact on the
Company's cash position over the next twelve months.
During 1996, the Company spent approximately $152,000 in capital
expenditures. This was necessary due to the growth of customers, as well as
to take full advantage of reduced telecommunication expenses, and expanded
territories. The Company does not expect to spend at this level during fiscal
1997. Capital expenditures, specifically speech hours, are a necessity in this
industry, as customers increase.
In order to accomplish its sales goals, the Company will be required to
add sales employees. Management anticipates approximately two new sales
positions to be created during the next fiscal year. The company presently has
eight full time employees.
On March 24, 1997, the Company entered into a non-binding letter of
intent with Premier Technologies, Inc. The purpose of the letter is to
investigate the possible merger of the Company with Premier. The transaction
would be accomplished through the exchange of common stock. The transaction is
expected to be finalized by the end of the second quarter of 1997.
Item 7. Financial Statements.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Company has not, during its two most recent fiscal years, changed or
has had any disagreement with is principal independent accountant.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with section 16(a) of the
Exchange Act.
The following table summarizes the Officers and Directors of the
Company.
<TABLE>
<CAPTION>
Name Age Position Held
<S> <C> <C>
Raul E. Balsera 47 President and Director
Robert B. Feiman 50 Vice President & Director
David B. Runyan 45 Director
</TABLE>
The following is a brief account of the business experience and the
educational background of the officers and director of the Company:
Raul E. Balsera, 47, has been the President of the Company since August
12, 1996, Chief Financial Officer of the Company since April, 1995, and has
served as President of the Company's subsidiary, CommTel/USA, Inc. since
September 1995. Mr. Balsera has been a Certified Public Accountant since 1973,
starting his career with the big six accounting firm of Arthur Andersen & Co.
From 1980 until 1984 he was the Manager of General Accounting and Contract
Administration at Sensormatic Electronics Corporation, a Florida based public
company. For two years he served as Chief Financial Officer of Bio-Analytic
<PAGE>
Laboratories, another publicly held Florida company. Mr. Balsera spent three
additional years at Sensormatic as Director of Marketing Administration, where
he was responsible for the administrative and financial functions of the Sales
and Marketing departments. Since 1991 he has been practicing public
accounting, concentrating on corporate taxation and Securities & Exchange
Commission financial regulatory consulting. Mr. Balsera is a member of the
National Association of Tax Professionals, the Florida Institute of Certified
Public Accountants and the American Institute of Certified Public Accountants.
Mr. Balsera obtained his Bachelor of Business Administration degree in
Accounting and Management from Florida Atlantic University.
Robert B. Feiman, 50, has served as Executive Vice President of the
Company's subsidiary, CommTel/USA, Inc. since September 1995. Mr. Feiman's
experience in the interactive voice messaging market includes opening the
Tallahassee market. In Tallahassee, he designed, developed, introduced, and
implemented niche market programs directed towards the unique market of
Florida's capital city. His duties include the opening of the Company's new
territories that have never had Voice-Tel service available, as well as
assisting in the assimilation of acquired operating territories. In addition,
he is in charge of managing sales for the national account segment of the
Company's business. From 1985 until 1994 he was the President and Chief
Operating Officer of Potomac Crane Corporation, a construction equipment sales
and leasing service company. Mr. Feiman served in the United States Air Force
as a Fighter Intercept Director and thereafter obtained his Bachelor of
Science degree in Finance from Florida State University.
David H. Runyan has been a partner in the Law Firm of Gibbs and Runyan
P.A. for the past five years. Mr. Runyan specializes in contract as well as
criminal law. Prior to going into private practice Mr. Runyan was Assistant
United States Attorney for the Middle District of Florida, and Asst. State
Attorney for Pinellas County, Florida. He received his JD from Stetson
University Law School in 1977.
Item. 10. Executive Compensation.
Compensation paid or accrued by the Company for services rendered during
the last fiscal year by the Company's President Raul E. Balsera equaled
$50,000. No other executive officer's total annual salary and bonus exceeded
$100,000.
Employment Agreement
The Company has employment agreements with Mr. Balsera and Mr. Feiman, which
call for annual compensation of $60,000, and performance based bonuses which
shall be made at the discretion of the Board of Directors. The agreements
expire in August and November 2001, respectively.
The Company has entered into Employment Agreements with James B. Holliday
(Chief Operating Officer of CommTel/USA, Inc.) and Ruth A. Holliday (Vice
President-Operations of CommTel/USA, Inc.). Each of these contracts is for a
term of two years, commencing on November 28, 1995, and provide for (i) a
minimum base salary of $60,000, with annual upward adjustments to their base
salaries commensurate with their cost of living increases; (ii) health
insurance; (iii) use of a company car; and (iv) performance based bonuses
which shall be made at the discretion of the Board of Directors of the
Company.
Compensation of Directors
The directors of the Company serve without compensation for their
services as directors. The directors reimbursed by the Company for all
out-of-pocket expenses reasonably incurred by them in the discharge of their
duties as directors, including out-of-pocket expenses incurred.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth the number of shares of the Company's common
stock, beneficially owned as of the date of this Form 10KSB, by the officers
and directors and 5% shareholders of the Company:
<TABLE>
<CAPTION>
Name & Address of Number of Shares Position Percent of
Beneficial Owner Ownership
<S> <C> <C> <C> (1)
Raul E. Balsera 1,300,000 President 33.2%
4175 E. Bay Dr., Suite 260
Clearwater, FL 34624-6965(2)
Robert B. Feiman 1,855,000 Exec. V.P. 47.4%
4175 East Bay Dr., Suite 260
Clearwater, FL 34624-6965(3)
James B. Holliday 312,500 V.P. Ops 8.0%
4175 East Bay Dr., Suite 260
Clearwater, FL 34624-6965
All officers and directors 3,567,500 91.2%
as a group. ____________________________
</TABLE>
(1) Assumes full conversion of all 23,750 shares of outstanding 14%
Convertible Preferred Stock into common stock, on the basis of one share of
common stock for one share of preferred stock. Does not assume the issuance of
additional shares in potential acquisitions.
(2) 855,000 shares are owned jointly with Mr. Balsera's wife, Georgia
Balsera, 370,000 shares are in the name of Palm Capital, Inc., a corporation
owned jointly by Mr. Feiman and Mr. Balsera, 75,000 shares are owned by Mr.
Balsera's son and daughter. Mr. Balsera has voting power over all the shares.
(3) 900,000 shares are owned jointly with Mr. Feiman's wife, Roberta Feiman,
880,000 shares are in the name of Palm Capital, Inc., a corporation owned
jointly by Mr. Feiman and Mr. Balsera. 75,000 shares are owned by Mr. Feiman's
daughters. Mr. Feiman has voting power over all the shares.
Item 12. Certain Relationships and Related Transactions.
Transactions with Officers and Beneficial Owners
James Holliday and Ruth Holliday, have received payments in the amounts
of $325,000 and $75,000 and have received a promissory note in the amount of
$150,000, bearing interest at 7% per annum from the Company in connection with
the Company's acquisition of Gulf Coast. The $325,000 was paid on November
28, 1995, the $75,000 was paid on February 27, 1996. The $150,000 note is due
on February 27, 1998 with a holder's option for a balloon payment of the
entire amount on February 27, 2001. Additionally, the former Gulf Coast
stockholders have the right to receive an aggregate of approximately 125,000
shares of Comm/USA Common Stock upon completion of their first year of
employment with the Company, and approximately 125,000 shares of Common Stock
upon completion of their second year of employment with the Company. Mr. and
Mrs. Holliday also received 62,500 shares of Comm/USA Common Stock pursuant to
the Asset Purchase Agreement dated October 23, 1995, between Comm/Tel and
Voice-Tel SWF.
<PAGE>
Robert B. Feiman and his wife, Roberta Feiman, received 250,000 shares of
Comm/USA Common Stock and the sum of $30,000 in connection with the Asset
Purchase Agreement dated October 23, 1995, as amended, between Comm/Tel and
Voice-Tel SWF.
Item 13. Exhibits and Reports on Form 8-K
There were no 8-K reports filed during the year ended December 31,
1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Communications/USA, Inc.
(Registrant)
Date: April 9, 1997
By: /s/Raul E. Balsera
(Signature)
Raul E. Balsera
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
By:/s/Robert B. Feiman Date: April 9, 1997
Robert B. Feiman, Executive V.P. & Director
By:/s/David H. Runyan Date: April 9, 1997
David H. Runyan, Director
COMMUNICATIONS/USA, INC.
FINANCIAL STATEMENTS
<PAGE>
COMMUNICATIONS/USA, Inc.
TABLE OF CONTENTS
Year Ended December 31, 1996
and
For the Period May 10, 1995 (Date of Inception)
to December 31, 1996
INDEPENDENT AUDITOR'S REPORT Front
FINANCIAL STATEMENTS
Consolidated Balance Sheet 1
Consolidated Statement of Operations 2
Consolidated Statement of Shareholders' Equity 3
Consolidated Statement of Cash Flows 4
Notes to Financial Statements 5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Communications/USA, Inc.
Clearwater, Florida
I have audited the accompanying consolidated balance sheets of Communications/
USA, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for the year ended December 31, 1996 and for the period May 10, 1995 (date of
inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Commuications/USA, Inc. and Subsidiaries as of December 31, 1996 and 1995
and the results of its operations and cash flows for the year ended 1996
and for the period May 10, 1995 (date of inception) then ended in
conformity with generally accepted accounting principles.
/s/Richard C. Gates
Richard C. Gates, CPA
April 3, 1997
West Palm Beach, Florida
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS/USA, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 52,752 $ 94,120
Accounts receivable 39,685 94,942
Other current assets 19,276 1,400
Total current assets 111,713 190,462
Property and equipment - net 335,288 225,667
Intangible assets - net 835,376 875,641
$1,282,377 $1,291,770
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt - banks $ 27,333 24,804
Obligations under capital leases - current 44,346 33,020
Current portion of long-term debt - shareholders 48,198 136,025
Accounts payable 15,978 26,163
Accrued expenses 59,538 28,528
Total current liabilities 195,393 248,540
Long-term liabilities
Long-term debt, less current portion 89,517 325,544
Obligations under capital leases, less current portion 54,703 79,962
Loans payable - shareholders, less current portion 118,693 150,615
Total long-term debt 262,913 556,121
Total liabilities 458,306 804,661
Commitments
Stockholders' equity
Preferred stock - 14% cumulative, convertible preferred
stock, $3.75 par value, 5,000,000 authorized, 23,750
issued and outstanding 89,062 89,062
Common stock - $.01 par value, 6,000,000 authorized,
shares issued and outstanding 3,990,809 in 1996 and
4,601,131 in 1995 39,908 46,011
Additional paid-in capital 958,872 504,702
Retained deficit (263,771) (152,666)
824,071 487,109
$1,282,377 $1,291,770
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
<TABLE>
<CAPTION>
COMMUNICATIONS/USA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year ended December 31, 1996 and For the Period
May 10, 1995 (date of inception) to December 31, 1995
1996 1995
<S> <C> <C>
Operating revenues $1,069,550 65,137
Cost of operating revenues 130,151 32,528
Gross profit 939,399 32,609
General and administrative expenses 835,486 118,883
Other operating expenses
Depreciation 42,341 2,752
Amortization 40,264 10,049
918,091 131,684
Operating income (loss) 21,308 (99,075)
Other income (expense)
Interest income 0 291
Interest expense (119,944) (37,723)
Loss on disposal of asset 0 (11,074)
(119,944) (48,506)
Net loss - accumulated during the development stage 0 (147,581)
Net income - accumulated subsequent to the
development stage (98,636)
Preferred stock dividends (12,469) (5,085)
Net loss applicable to common stock ($111,105) ($152,666)
Number of shares used per common share computation 4,548,927 3,898,837
Earnings (Loss) per common share: ($0.02) ($0.04)
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1996 and
For the Period May 10, 1995 (date of inception) to December 31, 1995
Additional COMMUNICATIONS/USA, INC.
<TABLE>
<CAPTION>
Additional
Paid-In Cash Retained
Preferred Stock Common Stock Capital Received Deficit Total
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period May 10, 1995 (date of inception)
to December 31, 1995
Issuance of common stock 0 $ 0 3,519,000 $ 35,190 ($ 35,190) $ 0 $ 0
Preferred & common stock issued
from a private placement memoranda 21,250 89,062 51,267 512 362,134 451,709 451,708
Orion I Partnership acquisition 0 0 191,777 1,918 304,925 95,900 306,843
Orion II Partnership acquisition 0 0 26,587 266 42,273 13,300 42,539
Issued common stock as advance on
purchase of SW Florida 0 0 500,000 5,000 0 0 5,000
Acquired Gulf Coast Communications, Inc. 0 0 250,000 2,500 0 0 2,500
Acquired Voice-Tel of Southwest
Florida, Inc. 0 0 62,500 625 0 0 625
Capitalized costs of stock and private
placement issues 0 0 0 0 (169,440) 0 (169,440)
Net loss for period - accumulating during
development stage 0 0 0 0 0 0 (147,581) (147,481)
Preferred stock dividend 14% 0 0 0 0 0 0 (5,085) (5,085)
21,250 89,062 4,601,131 46,011 504,702 560,909 (152,666) 487,109
For the Year Ended December 31, 1996 and
Common stock issued from a 504 private
placement memorandum 0 0 33,733 337 230,730 231,067 231,067
Stock canceled 0 0 (644,055) 6,440 3,440 (3,000) (3,000)
Capital contribution to cancel debt 0 0 0 0 220,000 220,000
Net income for period - accumulated
subsequent to the development stage 0 0 (98,636) (98,636)
Preferred stock dividend 14% 0 0 0 0 0 0 (12,469) (12,469)
0 0 (610,322) (6,103) 454,170 228,067 (111,105) 336,962
21,250 $89,062 3,990,809 $ 39,908 $958,872 $788,976 ($263,771) $824,071
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1996 and For the Period
May 10, 1995 (date of inception) to December 31, 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss ($ 98,636) ($ 147,581)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation 42,341 2,752
Amortization 40,264 10,049
Accrued interest expense 15,000 5,000
Change in noncash current assets and liabilities, net of
effects of businesses acquired and noncash transactions:
Accounts receivable 55,257 (66,325)
Other current assets (17,876) (1,400)
Accounts payable and accrued expenses 20,826 33,355
Net cash provided (used) for operating activities 57,176 (164,150)
Cash flows from investing activities
Acquisition of equipment (114,721) (3,883)
Payment for businesses acquired, net of cash acquired and including
other cash payments associated with the acquisitions 0 (35,602)
Net cash used for investing activities (114,721) (39,485)
Cash flows from financing activities
Proceeds from bank loan 0 200,000
Proceeds from loan from shareholder 160,000 0
Repay bank debt (28,498) (1,401)
Repay debt to shareholder (295,179) (345,000)
Repay lease obligations (35,744) (2,467)
Proceeds from issuance of preferred and common stock 0 89,062
Cash received from private placement memoranda 231,067 362,647
Stock cancelled (3,000) 0
Preferred stock dividends paid (12,469) (5,085)
Net cash provided for financing activities 16,177 297,756
Net change in cash (41,368) 94,121
Cash at beginning of year 94,121 0
Cash at end of year $52,753 $94,121
Supplemental disclosures:
Cash flow information
Cash paid during the year for interest: $86,374 $32,432
Non-cash financing transactions
Capital lease obligations & debt incurred fo
use of equipment 37,241 224,536
Fair value of assets acquired 0 1,138,843
Treasury stock issued 0 357,507
Liabilities assumed 0 915,174
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose - Communications/USA, Inc. (the "Company"),
formally Eagle South Company, Inc., was organized under the laws of the State
of Florida in 1992. It was dormant until June 5, 1995, when the Company
acquired all assets of two Florida partnerships organized to purchase airtime
to provide interactive video and data services to the public. On November 29,
1995, Gulf Coast Communications, Inc. ("GCC"), a Voice-Tel franchisee, was
purchased by the Company. On December 23, 1995, the assets of another
Voice-Tel franchise operating across central Florida from Melbourne to Fort
Myers were purchased.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiary, Com/Tel, Inc.
and its subsidiary, Gulf Coast Communications, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents - Represents actual balances in banks or invested
in liquid short term investments with maturities of three months or less when
purchased. All of the balances are owned by the Company and are not
encumbered in any manner.
Concentration of Credit Risk - The Company extends credit to customers,
generally located in Central and South Florida, on an unsecured basis in the
normal course of business. One concern, Amway, Inc., Ada, Michigan,
represents a little over 50% of the income of the operating subsidiaries of
the Company. The Company has policies governing the extension of credit and
collection of amounts due from customers.
Impairment of Long Lived Assets - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of (FAS 121)." FAS 121 addresses the accounting for the
impairment of long-lived assets, certain intangibles and goodwill when events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. On an ongoing basis, management evaluates the
recoverability of the net carrying value of property, equipment and intangible
assets by reference to the Company's anticipated net future cash flows
generated by those assets and comparison of carrying value to management's
estimates of fair value, generally determined by using certain accepted
industry measures of value.
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 amounts reported in the financial
statements and accompanying notes. Management believes that the estimates
utilized in preparing its financial statements are reasonable and prudent.
Actual results could differ from those estimates.
<PAGE>
Property and Equipment and Intangible Assets - Property and equipment are
recorded at cost. Historical net carrying value is used in the case of assets
contributed or at appraised value in the case of assets obtained through
purchase of assets. The equipment is depreciated over its estimated useful
life. Repairs and maintenance are expensed.
Intangible assets are fees paid to obtain the franchises of Voice-Tel in the
Tampa/St.Petersburg/ Clearwater area and Southwest Florida. Intangibles also
include goodwill, customer lists and various other items acquired when
purchasing various voice messaging concerns. They are being amortized over
their estimated useful lives ranging from 15 to 20 years.
Compensated Absences - Compensated absences have not been accrued as they
cannot be reasonably estimated.
Income Taxes - Income taxes are provided for the tax effects of transactions
reported in the financial statements. No differences exist between book and
tax transactions. The Company accounts for income taxes in accordance with
FASB 109.
Earnings per Common Share - Earnings (loss) per common share was computed by
dividing net income applicable to common stock by the weighted average number
of shares of common shares outstanding during the period. There are no common
stock equivalents or other dilutive securities outstanding.
2 - DEVELOPMENT STAGE OPERATIONS
The Company was considered in its development stage until December 31, 1995 as
it had no significant income from operations to that date.
3 - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Computers furniture and equipment $ 22,147 $ 92,996
Voice messaging equipment - purchased 157,234 -
Voice messaging equipment - leased 201,000 135,423
380,381 228,419
Less accumulated depreciation 45,093 2,752
$ 335,288 $225,667
</TABLE>
Depreciation expense for the 1996 and 1995 was $ 42,341 and $2,752
respectively.
<PAGE>
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Franchise costs $ 291,736 $ 291,736
Customer lists 352,626 352,626
Goodwill 241,328 241,328
885,690 885,690
Less accumulated amortization 50,314 10,049
$ 835,376 $ 875,641
</TABLE>
Amortization expense for 1996 and 1995 was $40,264 and $10,049 respectively.
4 - LONG-TERM DEBT
The Company's long-term debt consisted of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
1. Commerce Atlantic, Inc. $ - $ 205,000
2. Sun Trust of Florida, Inc. 58,068 69,448
3. V-T Franchise, Inc. 58,782 75,900
116,850 350,348
Less current portion of
long-term debt 27,333 24,804
$ 89,517 $ 325,544
</TABLE>
1. Commerce Atlantic, Inc. - The loan was a bridge loan
secured by the Company's receivables and inventories. The loan
carried an interest rate of 6% per annum. The loan was paid in
1996 by a third party who, at the time, was the Company's
controlling shareholder by contribution of additional paid-in
capital.
2. Sun Trust of Florida - The loan was assumed with the purchase
of assets of Voice Tel of Southwest Florida, Inc. secured by
voice messaging equipment. It is an installment loan with
payments of $1,583 per month including principal and interest
at 10% for 60 months to November, 2000.
3. V-T Franchise, Inc. - The loan is secured by the Voice Tel
Franchise. It is an installment loan with payments of $1,988
per month including principal and interest at 10% for 48 months
to November, 1999. The loan is secured by certain assets of
the Company.
Interest expense for 1996 and 1995 was $119,943 and $37,723 respectively.
There are no debt discount nor debt issue costs.
Annual principal payments of long-term debt subsequent to December 31, 1996
are: 1997 $27,333; 1998 $34,579; 1999 $38,542; 2000 $16,396.
<PAGE>
5 - RELATED PARTIES TRANSACTIONS
The Company owes $166,891 to various shareholders for purchase of stock of a
subsidiary and assets of a voice messaging company. The notes bear interest
ranging from 7% to 10%. Annual principal payments subsequent to December 31,
1996 are: 1997 $48,198; 1998 $46,738; 1999 $32,136; 2000 $33,930; and
2001 $5,889.
The Company has employment and consulting agreements with certain shareholders
that are also active in the management of the Company. The expense for 1996
was $ 43,500 . The commitment is as follows: 1997 - $230,000; 1998 -
$120,000; 1999 - $120,000; 20000 - $90,000. The agreements also allow for the
Company to pay reasonable business expenses and cost of living increases.
6 - LEASE COMMITMENTS
The Company leased office space and certain telephone equipment under various
noncancelable operating and capital leases. The original term of the capital
leases are for a period of no less than 60 months and no more than 66 months.
Interest rates vary between 18% and 21%. At December 31, 1996 and 1995, the
book value of lease equipment is $126,158 and $133,166 respectively.
The following is a schedule by years of future minimum lease payments under
the operating and capital leases together with the present value of the net
minimum capital lease payments as of December 31, 1996.
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1997 . . . . . . . . . . . . $ 21,951 59,836
1998 . . . . . . . . . . . . 13,610 49,619
1999 . . . . . . . . . . . . 11,591 8,824
2000 . . . . . . . . . . . . 6,610 6,571
2001 . . . . . . . . . . . . - 548
Thereafter . . . . . . . . . - -
$ 53,762 125,398
Less amount representing
interest and executory costs 26,348
Present value of net minimum
lease payments 99,050
Less current portion 44,346
$ 54,704
</TABLE>
Franchise Commitments - In addition to the initial franchise cost, the
Company is obligated to pay monthly a royalty equal to 8% of gross revenues.
The Company also pays to a marketing fund of the Franchiser 2% of its gross
revenues which the Franchiser manages and spends to advertise and promote the
Voice-Tel system.
<PAGE>
8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS No. 107 "Disclosure about Fair Value of Financial Instruments" requires
the Company to report the fair value of financial instruments, as defined.
Assets and liabilities, which are recorded at contractual amounts that
approximate market value, include cash and cash equivalents, receivables,
certain other assets and prepaid expenses, payables and short-term and
long-term debt. The market value of such items are not materially sensitive to
shifts in market interest rates because of the limited term to maturity of
these instruments and their interest rates.
9 - INCOME TAXES
At December 31, 1996, the Company recorded deferred tax assets resulting from
net operating losses of $251,302 less a valuation allowance of $251,302. The
losses can be carried forward 15 years to 2011.
10 - SUBSEQUENT EVENTS
On February 15, 1997, at a special shareholder's meeting, it was decided to
reduce the authorized capitalization from 50,000,000 common shares to
6,000,000 common shares. The Articles of Incorporation are in the process of
being amended.
On March 24, 1997, the Company signed a non-binding letter of intent with
Premier Technologies, Inc., ("Premier"), an Atlanta, Georgia based company,
whereby Premier will acquire all the stock of the Company in a stock for stock
exchange. As of the date of these financial statements, there has been no
further negotiations between the two companies.
Management expects that, if the two parties are in agreement as to the terms
of the transactions, a closing will occur by May 31, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes thereto
incorporated in Part II, Item 7 of this Form 10-KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 52,752
<SECURITIES> 0
<RECEIVABLES> 39,685
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111,713
<PP&E> 380,381
<DEPRECIATION> 45,093
<TOTAL-ASSETS> 1,282,377
<CURRENT-LIABILITIES> 195,393
<BONDS> 262,913
0
89,062
<COMMON> 39,908
<OTHER-SE> 695,101
<TOTAL-LIABILITY-AND-EQUITY> 1,282,377
<SALES> 1,069,550
<TOTAL-REVENUES> 1,069,550
<CGS> 130,151
<TOTAL-COSTS> 835,486
<OTHER-EXPENSES> 82,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,944
<INCOME-PRETAX> (98,636)
<INCOME-TAX> 0
<INCOME-CONTINUING> (98,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 12,469
<NET-INCOME> (111,105)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
