U.S. Securities and Exchange Commission
Washington, DC 20549
AMENDMENT NO. 2 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Communications/USA, Inc.
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(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
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(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 to be so
registered which each class is to be registered
..........................................................
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.01
..........................................................
(Title of class)
.........................................................
(Title of class)
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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 contrac
t 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 The latter was later rescinded, and no new negotiations have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 10SB.
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.
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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.
(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 telepho
ne 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
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"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.
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 mesaging 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
(ie: 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.
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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
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 owenership in Voice-tel. One of the major
advantages of the relationship is the 'built-in" customer base when a new 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.
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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.
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.
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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,
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 geographicly 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
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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.
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
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and customers in order to capture their network messaging such as the Ford
Dealerships.
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
<PAGE>
telcos and other resellers would benefit from a universal network by opening
new applications and sales possibilities.
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,
<PAGE>
there can be no assurance that the Company will be able to continue to
effectively compete with its many competitors.
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 independant 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.
Employees
The Company employs a total of eight (8) employees, all of which are full
time.
Item 2. Management's Discussion and Analysis
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 $1,609,550 and $804,759 for the years ended
December 31, 1996 and 1995 respectively from messaging 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
accelarating 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
<PAGE>
a substantial reduction in telecommunications costs for 1996, this amounted to
approximately $140,000 during 1996.
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 terms 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
industr, 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.
Since the Company acquired its operating entities late in 1995, pro forma
results of operations giving effect to the transaction as if it had occurred
at the beginning of the year ended 12/31/95 have been included in the
Company's financial statements section (See "Part F/S"). These pro forma
results of operations include revenues of approximately $805,000 for the
period, and costs of sales of approximately $244,000. Due to start up costs of
the parent Company prior to the acquisitions of the franchise territories, the
Company shows a pro Forma Loss of approximately $141,000.
Item 3. 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 Meyers, 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 4. Security Ownership of Certain Beneficial Owners and Management.
<PAGE>
The following table sets forth the number of shares of the Company's common
stock, beneficially owned as of the date of this registration statement, by
the officers and directors and 5% shareholders of the Company:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Position Percent of
Beneficial Owner Ownership
(1)(4)
<S> <C> <C> <C>
Raul E. Balsera 1,225,000 President 32.4%
4175 E. Bay Dr., Suite 260
Clearwater, FL 34624-6965(2)
Robert B. Feiman 1,780,000 Exec. V.P. 47.1%
4175 East Bay Dr., Suite 260
Clearwater, FL 34624-6965(3)
James B. Holliday 187,500 V.P. Ops 5.0%
4175 East Bay Dr., Suite 260
Clearwater, FL 34624-6965(4)
All officers and directors 3,292,500 87.2%
as a group(4).
____________________________
</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) All 1,225,000 shares are owned jointly with Mr. Balsera's wife, Georgia
Balsera
(3) All 1,780,000 shares are owned jointly with Mr. Feiman's wife, Roberta
Feiman.
(4) Does not include 125,000 shares to be issued jointly to Mr. and Mrs.
Holliday as joint tenants with rights of survivorship in connection with the
Gulf Coast acquisition. 125,000 shares are issuable on December 1, 1997. The
acquisition agreement provides for a total issuance of 250,000 shares or 5% of
the issued and outstanding shares, whichever is greater.
Directors and Officers
The following table sets forth certain information with respect to the current
director and officers of Item 5. Directors, Executive officers, Promoters, and
Control Persons.
Communications/USA, Inc.:
<TABLE>
<CAPTION>
Name Age Position Held
<S> <C> <C>
Raul E. Balsera 47 President and Director
Robert B. Feiman 50 Vice President and Director
David B. Runyan 45 Director
<PAGE>
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 will not only oversee all financial matters for
the operating subsidiaries, but will be a key member of the acquisition team.
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
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 Assisstant
United States Attorney for the Middle District of Florida, and Asst. State
Attorney for Pinellas County, Florida. He received his J.D. from Stetson
University Law School in 1977.
Item. 6. 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 on in August, 2001.
The Company has entered into Employment Agreements with James B. Holliday
(Chief Operating Officer of ComTel/USA, Inc.) and Ruth A. Holliday (Vice
President-Operations of ComTel/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.
<PAGE>
Compensation of Director
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.
Item 7. 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.
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 8. Description of Securities.
The following descriptions of the Common Stock and the Preferred Stock
are based on the Company's Articles of Incorporation and all amendments
thereto, the Bylaws and applicable Florida law.
Common Stock
The Company's Articles of Incorporation authorize the issuance of 6,000,000
shares of common stock with a par value of $.01 per share ("Common Stock"). As
of the date of this registration statement, there were 3,990,809 shares of
Common Stock issued and outstanding. Each record holder of Common Stock is
entitled to one vote for each share held on all matters properly submitted to
the shareholders for their vote.
Holders of outstanding shares of Common Stock are entitled to those dividends
declared by the Board of Directors out of legally available funds; and, in the
event of liquidation, dissolution or winding up of the affairs of the Company,
holders are entitled to receive ratably the net assets of the Company
available to holders of Common Stock. Holders of outstanding shares of Common
Stock have no preemptive, conversion or redemptive rights. All of the issued
and outstanding shares of Common Stock are duly authorized, validly issued,
fully paid and non-assessable. To the extent that additional shares of the
Company's Common Stock are issued, the relative interests of then existing
shareholders may be diluted.
Non-Cumulative Voting
The holders of shares of Common Stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares can
elect all of the directors of the Company.
Dividends
<PAGE>
The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board of Directors and will depend, among other things,
upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends since its inception and does not intend to pay any dividends in the
immediate future, but intends to retain all earnings, if any, for use in its
business operations.
14% Convertible Preferred Stock
The Company's Articles of Incorporation authorize the issuance of
5,000,000 shares of 14% Convertible Preferred Stock, par value $3.75 per
share. As of the date of this registration statement, there were 23,750
shares of 14% Convertible Preferred Stock issued and outstanding.
Dividends
The holders of shares of 14% Convertible Preferred Stock shall be
entitled to receive, out of any assets at the time legally available therefor
and when and as declared by the Board of Directors, dividends at the rate of
fourteen percent (14%) per share per annum, and no more, payable in cash
quarterly commencing on the first fiscal quarter after the 14% Convertible
Preferred Stock preferred shareholders shares are issued, and thereafter on
the last day of March, June, September, and December of each year that any 14%
Convertible Preferred Stock shall be outstanding. Such dividends are prior
and in preference to any declaration or payment of any distribution on the
Common Stock of this Company.
Redemption
At any time after December 31, 1996, the Company may, at the option of
the Board of Directors, redeem all or part of the outstanding shares of the
14% Convertible Preferred Stock at the redemption price. The 14% Convertible
Preferred Stock may be redeemed at a cash price equal to four dollars and
fifty cents ($4.50) per share, together with all declared and unpaid dividends
to and including the redemption date (the Redemption Price); provided,
however, that payment of the Redemption Price shall be made from any funds of
the Company legally available therefor.
Preferences on Liquidation
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the holders of shares of the Class A Preferred
Stock then outstanding shall be entitled to be paid, out of the assets of the
Company available for distribution to its stockholders, whether from capital,
surplus or earnings, before any payment shall be made in respect of the
Company's Common Stock, an amount equal to Three Dollars Seventy Five Cents
($3.75) per share, plus all declared and unpaid dividends thereon to the date
fixed for distribution. After setting apart or paying in full the
preferential amounts due the holders of the 14% Convertible Preferred Stock
the remaining assets of the Company available for distribution to
stockholders, if any, shall be distributed exclusively to the holders of
Common Stock, each such issued and outstanding share of Common Stock entitling
the holder thereof to receive an equal proportion of said remaining assets.
If upon liquidation, dissolution, or winding up of the Company, the assets of
the Company available for distribution to its shareholders shall be
insufficient to pay the holders of the 14% Convertible Preferred Stock the
full amounts to which they respectively are entitled, then they shall share
ratably in any distribution of assets according to the respective amounts
which would be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were
paid in full. The merger or consolidation of the Company into or with another
corporation in which this Company shall not survive and the shareholders of
this Company shall own less than 50% of the voting securities of the surviving
corporation or the sale, transfer or lease (but not including a transfer or
lease by pledge or mortgage to a bona fide lender) of all or substantially all
of the assets of the Company shall be deemed to be a liquidation, dissolution
or winding up of the corporation.
<PAGE>
Voting Rights
The shares of 14% Convertible Preferred Stock shall have no voting rights
with regard to the election of directors or as to other matters except those
affecting the class. The Company may not take any of the following actions
without first obtaining the approval by vote or written consent, in the manner
provided by law, of the holders of at least a majority of the total number of
shares of 14% Convertible Preferred Stock outstanding, voting separately as a
class, to (i) alter or change any of the powers, preferences, privileges, or
rights of the 14% Convertible Preferred Stock; (ii) amend the provisions of
the Company's Articles of Incorporation granting the rights herein; or (ii)
create any new class or series of shares having preferences prior to or being
on a parity with the 14% Convertible Preferred Stock as to dividends or
assets.
Conversion Rights
Each share of 14% Convertible Preferred Stock shall be convertible, at
the option of the holder thereof, at any time and on or prior to the fifth
(5th) day prior to a Redemption Date into fully paid and nonassessable shares
of Common Stock of the Company. Each share of 14% Convertible Preferred Stock
shall automatically be converted into fully paid and nonassessable shares of
Common Stock of the Company one hundred eighty days after the first date on
which the Company's Common Stock becomes publicly traded. For purposes of this
section, publicly traded shall mean the initiation of quotations or the
publication or submission by a securities broker or dealer of a quotation in
any quotation medium or interdealer quotation system.
The Conversion Ratio per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of 14% Convertible Preferred
Stock shall be one for one, subject to adjustment in the event that the
Company shall at any time subdivide the outstanding shares of Common Stock, or
shall issue a stock dividend on its outstanding Common Stock, then the
Conversion Ratio in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately increased, and in case the
Company shall at any time combine the outstanding shares of Common Stock, the
Conversion Ratio in effect immediately prior to such combination shall be
proportionately decreased.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER'S MATTERS.
The Company's Common Stock is not presently traded on any market or
markets. The Company's Common Stock is subject to the following:
a. 5,000,000 shares of 14% Convertible Preferred Stock, par value
$3.75 per share are presently authorized for issuance pursuant to the
Company's Articles of Incorporation. As of the date of this registration
statement, 23,750 shares of 14% Convertible Preferred Stock are issued and
outstanding.
The conversion ratio per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of 14% Convertible Preferred
Stock shall be one for one, subject to adjustment in the event that the
Company shall at any time subdivide the outstanding shares of Common Stock, or
shall issue a stock dividend on its outstanding Common Stock, then the
conversion ratio in effect immediately prior to such subdivision or the
issuance of such dividend shall be proportionately increased, and in case the
Company shall at any time combine the outstanding shares of Common Stock, the
conversion ratio in effect immediately prior to such combination shall be
proportionately decreased. See "Description of Securities - 14% Convertible
Preferred Stock."
<PAGE>
As of the date of this registration statement, approximately 3,990,809
shares of Common Stock will be outstanding, of which 3,905,009 shares are
"restricted" securities, as such term is defined under the Securities Act of
1933, as amended ("Securities Act"). The Company has not agreed to register
under the Securities Act any shares of any class of its stock for any of its
security holders.
In general, Rule 144 (as presently in effect), promulgated under the
Securities Act, permits a shareholder of the Company who has beneficially
owned restricted shares of Common Stock for at least two years to sell without
registration, within any three-month period, such number of shares not
exceeding the greater of 1% of the then outstanding shares of Common Stock or,
if the Common Stock is quoted on Nasdaq, the average weekly trading volume
over a defined period of time, assuming compliance by the Company with certain
reporting requirements of the Securities Exchange Act of 1934, as amended.
Furthermore, if the restricted shares of Common Stock are held for at least
three years by a person not affiliated with the Company (in general, a person
who is not an executive officer, director or principal shareholder of the
Company during the three-month period prior to resale), such restricted shares
can be sold without any volume limitation.
As of the date hereof, 600,000 shares of the Company's Common Stock
currently outstanding will have been deemed held by non-affiliates of the
Company for at least three years, and consequently are available for resale
under Rule 144. Additionally, the Company sold 85,800 shares of Common Stock
in a private offering pursuant to Rule 504 of Regulation D promulgated under
the Securities Act, and such shares are "not restricted" securities, and
consequently are available for resale. See "Recent Sales of Unregistered
Securities." As of the date of this registration statement, no shares of the
Company's Common Stock is being or is proposed to be publicly offered.
The Company has not paid any dividends since its inception. The Company
does not intend to pay any dividends in the immediate future, but intends to
retain all earnings, if any, for use in its business operations.
ITEM 2. 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 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not, during its two most recent fiscal years, changed or
has had any disagreement with is principal independent accountant. The
independent accountant did not rely on any other accountant's work or report.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In August, 1995, the Comm/USA issued a Private Placement Memorandum to
raise capital by offering up to 1,500,000 shares of its 14% Convertible
Preferred Stock. Comm/USA sold 23,750 shares of 14% Convertible Preferred
Stock to private individuals and trusts raising $89,062. The Company relied
upon Rule 505 of Regulation D promulgated under the Securities Act, in
addition to other applicable exemptions, for this transaction.
In September, 1995, the Comm/USA issued a Private Placement Memorandum to
raise capital by offering up to 130,000 shares of its Common Stock. Comm/USA
sold 85,800 shares of its Common Stock to individuals raising $643,500.
Comm/USA relied upon Rule 504 of Regulation D promulgated under the Securities
Act, in addition to other applicable exemptions, for this transaction.
<PAGE>
In June, 1995, Comm/USA entered into agreements with two Florida
partnerships whereby the Company issued a total of 218,364 shares of Common
Stock to the said partnerships in exchange for all of the assets of said
partnerships. The principal business of the partnerships consisted of
acquiring licenses from the Federal Communications Commission to provide
interactive video and data services to the public. The total consideration in
this transaction aggregated $349,382. The Comm/USA relied upon Section 4(2)
promulgated under the Securities Act after considering the following factors:
(i) the number of offerees in the transaction was limited to two persons; (ii)
the size of the offering was small aggregating only $349,382; (iii) no
investment banker or other public distribution facilities were used to make
offers; (iv) restrictive legends were placed on the securities indicating that
such securities fall within the purview of Rule 144 under the Securities Act;
and (v) a former relationship existed between Comm/USA and the partnerships.
In October, 1995, Comm/USA issued 312,500 shares of its Common Stock and
paid cash in connection with an asset purchase/assumption of liability
agreement between COMM/TEL and Voice-Tel of SWF. The Comm/USA relied upon
Section 4(2) promulgated under the Securities Act for this transaction after
considering the following factors: (i) the number of offerees in the
transaction was limited to one person; and (ii) the size of the offering was
small, aggregating $3,125, (iii) no investment banker or other public
distribution facilities were used to make offers; and (iv) restrictive legends
were placed on the securities indicating that such securities fall within the
purview of Rule 144 under the Securities Act.
In May, 1995, Comm/USA entered into an agreement with James B. and Ruth
A. Holiday, who are all of the shareholders of Gulf Coast whereby the Comm/USA
would acquire all of the shares of Gulf Coast in exchange for James B. and
Ruth A. Hollidays' collective right to receive 250,000 shares of its Common
Stock over a period of two years upon the completion of certain events. The
transaction closed in November, 1995. Comm/USA relied upon Section 4(2)
promulgated under the Securities Act for this transaction after considering
the following factors: (i) the number of offerees in the transaction was
limited to two persons; and (ii) the size of the offering was small,
aggregating $2,500; (iii) no investment banker or other public distribution
facilities were used to make offers; and (iv) restrictive legends were placed
on the securities indicating that such securities fall within the purview of
Rule 144 under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's bylaws contain the broadest form of indemnification for its
officers and directors and former officers and directors permitted under
Florida law, including provisions to indemnify the Company's directors,
officers, employees, and other agents against judgments, fines, amounts paid
in settlement, and other expenses in connection with threatened, pending or
completed suits, or proceedings against such persons by reason of serving or
having served as directors, officers, employees or agents of the Company,
except in relation to matters with respect to which they are determined to
have not acted in good faith, or in a manner which they did not believe was in
the best interest of the Company.
In addition, Florida law presently limits the personal liability of a
corporate director for monetary damages, except where the director (i)
breaches his or her fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain unlawful distributions
or certain other reckless, wanton or willful acts or misconduct.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
<PAGE>
PART F/S
SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
Communications/USA, Inc.
.............................................................................
(Registrant)
Date.........................................................................
By/s/Raul E. Balsera........................................................
(Signature)
Raul E. Balsera
President
<PAGE>
COMMUNICATIONS/USA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
<PAGE>
COMMUNICATIONS/USA, Inc.
(A Development Stage Company)
TABLE OF CONTENTS
For the Period May 10, 1995 (Date of Inception)
to December 31, 1995
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.
Boynton Beach, Florida
I have audited the accompanying consolidated balance sheet of
Communications/USA, Inc. and Subsidiaries (a development stage company) as of
December 31, 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the period May 10, 1995 (date of
inception) to December 31, 1995 then ended. 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
Communications/USA, Inc. and Subsidiaries as of December 31, 1995 and the
results of its operations and cash flows for the period May 10, 1995 (date of
inception) to December 31, 1995 then ended in conformity with generally
accepted accounting principles.
/s/Richard C. Gates
Richard C. Gates, CPA
April 23, 1996
West Palm Beach, Florida
<PAGE>
This page intentionally left blank.
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 94,120
Accounts receivable 94,942
Other current assets 1,400
Total current assets 190,462
PROPERTY AND EQUIPMENT - Net 225,667
INTANGIBLE ASSETS - Net 875,641
$1,291,770
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt - banks $ 24,804
Obligations under capital leases - current 33,020
Current portion of long-term debt - shareholders 136,025
Accounts payable 26,164
Accrued expenses 28,528
Total current liabilities 248,541
LONG-TERM LIABILITIES
Long-term debt, less current portion 325,544
Obligations under capital leases, less current portion 79,962
Loans payable - shareholders, less current portion 150,615
Total long-term debt 556,121
Total liabilities 804,662
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
Common stock - $.01 par value, 50,000,000 authorized,
4,601,131 issued and outstanding 46,011
Additional paid-in capital 504,702
Retained deficit accumulated during the development stage (152,667)
487,108
$1,291,770
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period May 10, 1995 (date of inception) to December 31, 1995
OPERATING REVENUES $ 65,137
OPERATING EXPENSES 32,528
GROSS PROFIT 32,609
GENERAL and ADMINISTRATIVE EXPENSES 118,884
OTHER OPERATING EXPENSES
Depreciation 2,752
Amortization 10,049
OPERATING LOSS (99,076)
OTHER INCOME (EXPENSE)
Interest income 291
Interest expense (37,723)
Loss on disposal of asset (11,074)
(48,506)
NET LOSS - accumulated during the development stage (147,582)
Preferred stock dividends (5,085)
Net loss applicable to common stock ($152,667)
Number of shares used per common share computation 3,898,837
Earnings (Loss) per common share: ($0.04)
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
For the Period May 10, 1995 (date of inception) to December 31, 1995
</TABLE>
<TABLE>
<CAPTION>
Additonal Nature of non-cash
Paid-In Cash Retained consideration and
Preferred Stock Common Stock Capital Received Deficit Total basis for assigning
Shares Amount Shares Amount the amounts
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
05/31/95 Issuance of common stk 0 $ 0 $3,519,000 $35,190 $(35,190) $ 0 $ 0 $ 0
06/30/95 Preferred stock
issued from a 506 PPM 8,750 32,812 0 0 0 32,812 0 32,812
07/05/95 Orion I Partnership
aquisition 0 0 191,777 1,918 304,925 0 0 306,843 Increased additional
paid-in capital
based on stk value
07/21/95 Preferred stock of $1.60 per share
issued from a 506 PPM 3,750 14,063 0 0 0 14,063 0 14,063
07/28/95 Orion II Partnership
acquisition 0 0 26,587 266 42,273 0 0 42,539 Increased additional
paid-in capital
based on stk value
08/31/95 Preferred stock of $1.60 per share
issued from a 506 PPM 5,000 18,750 0 0 0 18,750 0 18,750
10/02/95 Preferred stock
issued from a 506 PPM 2,500 9,375 0 0 0 9,375 0 9,375
10/11/95 Preferred stock
issued from a 506 PPM 1,250 4,687 0 0 0 4,687 0 4,687
10/15/95 Preferred stock
issued from a 506 PPM 2,500 9,375 0 0 0 9,375 0 9,375
10/31/95 Common stock issued
common stocks as
advance on purchase
of SW Florida 0 0 500,000 5,000 0 0 0 5,000 Common stock valued
11/15/95 Common stock issued at $.01 per share
from a 504 PPM 0 0 31,567 315 222,714 223,030 0 23,029 Common stock valued
11/28/95 Common stock issued at $7.05
from a 504 PPM 0 0 3,700 37 25,530 25,567 0 25,567 Common Stock valued
11/29/95 Acquired Gulf Coast at $7.05
Communications, Inc. 0 0 250,000 2,500 0 0 0 2,500
11/29/95 Acquired Voice-Tel of
Southwest Florida, Inc. 0 0 62,500 625 0 0 0 625
12/07/95 Common stock issued
from a 504 PPM 0 0 1,500 15 10,218 10,233 0 10,233
12/14/95 Common stock issued
from a 504 PPM 0 0 3,100 31 21,620 21,651 0 21,651
12/29/95 Common stock issued
from a 504 PPM 0 0 11,400 114 82,052 82,166 0 82,166
12/31/95 Capitalized costs of
stock and private
placement issues 0 0 0 0 (169,440) 0 0 (169,440)
12/31/95 Net loss for period-
accumulated during the
development stage 0 0 0 0 0 0 (147,582) (147,582)
12/31/95 Preferred stock
dividend 14% 0 0 0 0 0 0 (5,085) (5,085)
23,750 $89,062 $4,601,131 $46,011 $504,702 $560,909 ($152,667) $487,108
</TABLE>
See accompanying notes and accountant's report.
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period May 10, 1995 (date of inception) to December 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($147,582)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation 2,752
Amortization 10,049
Accrued interest expense 5,000
Change in noncash current assets and liabilities, net of
effects of businesses acquired and noncash transactions:
Accounts receivable (66,325)
Other current assets (1,400)
Accounts payable and accrued expenses 33,355
Net cash used for operating activities (164,151)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (3,883)
Payment for businesses acquired, net of cash
acquired and including other cash payments associated
with the acquisitions (35,602)
Net cash used for investing activities (39,485)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan 200,000
Repay bank debt (1,401)
Repay debt to shareholder (345,000)
Repay lease obligations (2,467)
Proceeds from issuance of preferred and common stock 89,062
Cash received from private placement memoranda 362,647
Preferred stock dividends paid (5,085)
Net cash provided by financing activities 297,756
Net change in cash 94,120
Cash at beginning of year 0
Cash at end of year $94,120
SUPPLEMENTAL DISCLOSURES:
Cash flow information
Cash paid during the year for interest: $32,432
Non-cash financing transactions
Capital lease obligations & debt incurred
for use of equipment 224,536
Fair value of assets acquired 1,138,843
Treasury stock issued 357,507
Liabilities assumed 915,174
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose - Communications/USA, Inc. (the "Company") was
organized under the laws of the State of Florida in 1992. It was dormant
until May of 1995 when it began to market its stock and negotiate to purchase
interactive voice messaging franchises and related companies.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries, 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 on an
unsecured basis in the normal course of business. One company, 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 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. FAS 121 is required
to be adopted in 1996. The impact of FAS 121 has not been fully determined
but is not expected to have a material impact on the Company's results of
operations and financial position.
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.
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 by one of the Company's subsidiaries to
operate a franchise of Voice-Tel in the Tampa/St. Petersburg/Clearwater area
and also Southwest Florida, goodwill, customer lists and various other
intangibles acquired in connection with the acquisition of various voice
messaging concerns. They are being amortized over their estimated useful
lives ranging from 15 to 20 years.
<PAGE>
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.
B - DEVELOPMENT STAGE OPERATIONS
The Company is considered in its development stage as it has had no
significant income from operations as of the statement date. To date, the
efforts of management have been devoted to raising capital, and negotiating
the purchase of various operating companies.
C - ACQUISITIONS
On June 5, 1995, the Company acquired all of the assets of two Florida
Partnerships. These partnerships were in the business of acquiring licenses
from the Federal Communications Commission (FCC) to purchase air time to
provide interactive video and data services to the public.
The company exchanged 218,364 shares of its $.01 par value common stock for
all of the assets the partnerships. The total consideration aggregated
$341,843.
During 1995, the Company entered into an agreement to exchange, for an
aggregate price of $552,500 ($550,000 in cash or notes and 250,000 common
shares), all of the outstanding stock of Gulf Coast Communications, Inc., a
Florida Corporation ("GCC"). GCC was formed in 1989 to operate a Voice Tel
franchise in the Tampa/St. Petersburg/Clearwater area. The transaction has
been accounted for as a purchase. The transaction closed November 29, 1995
and only one month's operations were included in these financial statements.
For the first eleven months of 1995, GCC, a S corporation, had revenues of
$739,622 and net income before taxes of $70,573.
On December 23, 1995, the Company executed an asset purchase agreement between
Feiman and Holliday, Inc. (d/b/a Voice Tel of Southwest Florida). The assets
acquired include the franchise rights to Southwest Florida, related
telecommunications equipment, office equipment, and a real estate lease. In
exchange for assets valued at $234,014, the Company assumed approximately
$232,000 in debt and issued 562,500 shares of stock valued at $.01 per share.
At the time of purchase Voice Tel of Southwest Florida had not begun
operations.
<PAGE>
D - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following:
Computers furniture and equipment $ 92,996
Voice messaging equipment - leased 135,423
228,419
less accumulated depreciation 2,752
$ 225,667
Depreciation expense for the period ended December 31, 1995 was $2,752.
Intangible assets consisted of the following
<TABLE>
<CAPTION>
Amortization
Life
<S> <C> <C>
Franchise costs 20 years $ 291,736
Customer lists 20 years 352,626
Goodwill 2- years 241,328
885,690
Less accumulated amortization 10,049
$ 875,641
</TABLE>
Amortization expense for the period ended December 31, 1995 was $13,945.
E - LONG-TERM DEBT
The Company's long-term debt consisted of the following:
1. Commerce Atlantic, Inc. $ 205,000
2. Sun Trust of Florida, Inc. 69,448
3. V-T Franchise, Inc. 75,900
350,348
Less current portion of long-term debt 24,804
$ 325,544
1. Commerce Atlantic, Inc. - The loan is a bridge loan which is
secured by the Company's receivables and inventories. The loan carries an
interest rate of 6% per annum. The loan matures on the earlier of completion
of a public offering, completion of a private placement in excess of $500,000,
or July 31, 1999.
<PAGE>
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 beginning December,
1995.
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 beginning December,
1995.
Interest expense for the period ending December 31, 1995 was $22,900. There
are no debt discount nor debt issue costs.
Annual principal payments of long-term debt subsequent to December 31, 1995
are: 1996 $24,804; 1997 $31,027; 1998 $34,579; 1999 $243,542; 2000
$16,396.
F - RELATED PARTIES TRANSACTIONS
The Company owes $286,640 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,
1995 are: 1996 $136,025; 1997 $38,032; and 1998 $112,583.
G - 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%. The book value of lease equipment is
$133,166 at December 31, 1995.
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, 1995.
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1996 . . . . . . . . . . . . . $ 29,585 $ 53,264
1997 . . . . . . . . . . . . . 19,403 53,564
1998 . . . . . . . . . . . . . 10,695 43,047
1999 . . . . . . . . . . . . . 8,291 2,252
2000 . . . . . . . . . . . . . 4,400 -
Thereafter . . . . . . . . . . - -
$ 72,374 152,127
Less amount representing
interest and executory costs 39,145
Present value of net minimum
lease payments 112,982
Less current portion 33,020
$ 79,962
</TABLE>
Interest expense for the obligations under capital lease in 1995 was $1,983.
Franchise Commitments - In addition to the initial franchise cost of
$75,000, 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.
H - LOSS ON DISPOSAL OF ASSET
The Company bought certain assets, which did not comprise a business unit,
from Orion Partnership (See Note C). Of the assets purchased, $31,000 was
allocated to fixed assets. Subsequently, it was determined these assets were
not useful to the Company's operations and they were sold for $20,000
resulting in a loss of $11,000. The consideration was a note receivable.
Subsequent to December 31, 1995, the note was paid in full.
I - EMPLOYEE STOCK OPTION PLAN
The 1995 Employee Stock Option Plan (the "1995 ESOP") was adopted by the Board
of Directors of the Company on May 4, 1995 and was approved by the
shareholders on May 10, 1995. The 1995 ESOP provides for the granting of
options to purchase an aggregate of 250,000 shares of Communications/USA
common stock to officers and other employees of the Company. The 1995 ESOP is
to be administered by either the Company's Board of Directors or a committee
of disinterested directors appointed by the Board of Directors. As of
December 31, 1995, no stock options had been granted by the Company.
I - INCOME TAXES
At December 31, 1995, the Company recorded deferred tax assets resulting from
net operating losses of $115,449 less a valuation allowance of $115,449. The
losses can be carried forward 15 years to the year 2010.
<PAGE>
GULF COAST COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
Year Ended December 31, 1994
<PAGE>
GULF COAST COMMUNICATIONS, INC.
TABLE OF CONTENTS
Years Ended December 31, 1994 and 1993
Pages
INDEPENDENT AUDITOR'S REPORT Front
FINANCIAL STATEMENTS
Balance Sheets 1
Statements of Operations and Retained Deficit 2
Statements of Cash Flows 3
Notes to Financial Statements 4
<PAGE>
RICHARD C. GATES
Certified Public Accountant
Independent Auditor's Report
The Board of Directors
Gulf Coast Communications Inc.
Boynton Beach, Florida
I have audited the accompanying balances sheets of Gulf Coast Communications
Inc. as of December 31, 1994 and 1993, and the related statements of
operations, retained deficit, and cash flows for the years then ended. 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 financial position of Gulf Coast Communications
Inc. as of December 31, 1994 and 1993, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/Richard C. Gates
Richard C. Gates, CPA
January 4, 1996
West Palm Beach, Florida
<PAGE>
GULF COAST COMMUNICATIONS, INC.
BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
ASSETS
Current assets
Cash $ 4,861 $ 635
Accounts receivable 18,072 13,558
Other current assets 3,388 678
Total current assets 26,321 14,871
Property and equipment, net 206,250 221,221
.
Intangible assets, net 78,613 84,155
$311,184 $320,247
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 28,676 $ 32,339
Current portion of capital leases 22,850 17,613
Accounts payable 6,003 977
Accrued expenses 2,360 2,266
Total current liabilities 59,889 53,195
Long-term liabilities
Loans payable, less current portion 74,387 103,063
Obligations under capital leases, less current portion 133,140 136,406
Loans payable - shareholders 145,664 164,044
Total long-term debt 353,191 403,513
Total liabilities 413,080 456,708
Commitments and contingencies
Shareholders' deficit
Common stock 1,000 1,000
Additional paid-in capital 30,635 30,635
Retained deficit (133,531) (168,096)
(101,896) (136,461)
$311,184 $320,247
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
GULF COAST COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
<S> <C> <C> 1994 1993
Operating income
Sales income $581,214 $407,187
Less cost of sales 185,187 152,634
Gross Profit 396,027 254,553
Operating expenses
Selling expenses 73,255 49,997
General and administrative 173,720 132,145
246,975 182,142
Income from operations 149,052 72,411
Other income (expense)
Interest expense ( 49,532) ( 44,730)
Depreciation and amortization ( 56,941) ( 34,419)
(106,473) ( 79,149)
Net income (loss) $ 42,579 ($ 6,738)
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
GULF COAST COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
Years Ended December 31, 1994 and 1993
Shareholders' deficit at January 1, 1993 ($118,174)
Activity for 1993
Net loss for year (6,738)
S Corporation distributions to shareholders (11,549)
Shareholders' deficit at December 31, 1993 (136,461)
Activity for 1994
Net income 42,579
S Corporation distributions to shareholders (8,014)
Shareholders' deficit at December 31, 1993 ($101,896)
See accompanying notes and accountant's report.
<PAGE>
GULF COAST COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 42,579 ($ 6,738)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 56,941 43,591
Loss on disposal of intangible assets 0 54,500
Change in assets and liabilities
Accounts receivable (4,514) 3,827
Other current assets (2,710) (169)
Accounts payable 5,026 1,878
Accrued expenses 94 (1,146)
Net cash provided by operating activities 97,416 95,743
Cash flows from investing activities
Acquisition of equipment (16,844) (63,019)
Cash flows from financing activities
Debt reduction - banks (32,339) (23,660)
Reduction in capital lease obligations (17,613) 0
Proceeds from advance by related parties 10,000 5,538
Debt reduction - related parties (28,380) (14,460)
Distributions to shareholders (8,014) (11,549)
Net cash used by financing activities (76,346) (44,131)
Net increase (decrease) in cash 4,226 (11,407)
Cash at beginning of year 635 12,042
Cash at end of year $ 4,861 $ 635
SUPPLEMENTAL DISCLOSURES:
Cash flow information
Cash paid during the year for interest: $ 49,532 $ 48,944
Non-cash financing activities
Non-cash addition to debt $ 19,584 $ 91,254
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
GULF COAST COMMUNICATIONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purposes - Gulf Coast Communications, Inc. (the "Company")
was organized under the laws of the State of Florida in 1989 to operate a
Voice Tel Franchise. The operations of the company include interactive
messaging, and remote paging capabilities, as well as selling personal pagers.
Accounts Receivable - The Company extends credit to its customers, generally
located in Western Florida, and performs ongoing credit evaluations. All
receivables are considered collectible and no allowance for bad debts is
provided.
Property and Equipment and Intangible Assets - Represents primarily the
telephone equipment necessary to operate the business of the Company and is
recorded at cost. Some of this equipment is leased under a capital lease.
The Company has properly recorded the asset value and the corresponding
liability on its books in accordance with generally accepted accounting
principles.
Depreciation on these assets is computed over their useful lives. There are
no differences between tax and book depreciation.
Intangible assets consisted of a franchise fee paid by the Company for the
right to its present territory. The original fee was $75,000. The franchise
agreement is for 20 years and automatically renews for another like period of
time. The agreement is being amortized over the original length of the
agreement. The other intangibles consist primarily of a customer list
purchased by the corporation. The original cost was approximately $27,000,
and it is being amortized over 15 years.
Impairment of Loans - In May 1993, the Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" (FAS 114) which addresses
the accounting for certain loans which may be deemed to be impaired. FAS 114,
as amended, is required to be adopted in 1995. The impact of FAS 114 has not
been fully determined but is not expected to have a material impact on the
Company's results of operations or financial position.
Impairment of Long Lived Assets - In March 1995, the 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
identifiable intangibles and goodwill when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. FAS 121
is required to be adopted in 1996. The impact of FAS 121 has not been fully
determined but is not expected to have a material impact on the Company's
results of operations and financial position.
<PAGE>
Income taxes - The Company has elected to be taxed as an S-Corporation under
the provisions of the Internal Revenue Code. Under such provisions, the
Company does not generally pay federal or state corporate income taxes.
Therefore, no provisions for income taxes have been made. Each individual
shareholder is to report their respective share of the Company's taxable
income on their personal federal income tax return.
Description of leasing arrangements - The Company conducts a major part of
its operations from leased facilities which include its office and 2
facilities housing messaging and remote paging equipment. The lease terms
expire over the next five years. In addition, the Company leases vehicles and
data processing equipment under operating leases expiring during the next
three years. In most cases, the Company believes that, in the normal course
of business, leases will be renewed or replaced by other leases.
B - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Office equipment $ 159,348 $ 147,748
Computers 2,083 1,050
Leasehold improvements - 1,330
Furniture and fixtures 5,232 2,351
Equipment under capital lease 170,844 151,260
337,507 303,739
less accumulated depreciation 131,257 82,518
$ 206,250 $ 221,221
</TABLE>
Depreciation and amortization charged to income was $50,069 and $27,127 in
1994 and 1993 respectively.
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Franchise fees $ 75,000 $ 75,000
Customer lists 26,885 26,885
101,885 101,885
less accumulated amortization 23,272 17,730
$ 78,613 $ 84,155
</TABLE>
Amortization charged to income was $6,872 and $7,292 in 1994 and 1993
respectively
<PAGE>
<PAGE>C - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
1. Bank loan $ 103,063 $ 135,402
2. Related party loan 145,664 164,044
248,727 299,446
less current amounts due 28,676 32,339
$ 220,051 $ 267,107
</TABLE>
1. Bank loan: The shareholders of the company obtained a Small Business
Administration loan in October 1989 to provide working capital as well as capita
l to purchase equipment. The loan is collateralized by equipment and
receivables of the company as well as personally guaranteed by its
shareholders. As a subsequent event, the bank loan was paid in full from the
proceeds received in the merger with Communications/USA, Inc. as further
explained in Note E.
2. Related party loan: This represent advances (primarily for working
capital) from the company's primary shareholder. There is no maturity or
stated interest rate. This loan is the Company's only related party
transaction.
Interest expense for 1994 and 1993 was $ 10,059 and $6,631 respectively. The
following is a schedule of principal maturities of long-term debt as of
December 31, 1994:
Year ending December 31:
1995 $ 28,676
1996 31,288
1997 34,138
1998 8,961
1999 0
Thereafter 145,664
$ 248,727
D - 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%.
<PAGE>
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, 1994.
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
Year ending December 31:
1995 $ 36,744 $ 53,264
1996 36,389 53,264
1997 31,999 53,264
1998 9,389 35,652
1999 3,491 2,252
$ 118,012 197,696
Less interest and executory costs 41,706
Present value of net minimum
lease payments 155,990
Less current principal obligations 22,850
Long-term principal obligations $ 133,140
</TABLE>
Interest expense for the obligations under capital lease in 1994 and 1993 was
$33,432 and $11,105 respectively.
E - LOSS ON DISPOSAL OF INTANGIBLE ASSETS
In 1993, the Company had some prepaid advertising recorded as a deferred
charge. On a review of the expected recoverability of this item, management
decided it was of little or no value and was written off to expense. No
revenue was realized from this expense.
F - FRANCHISE AGREEMENTS
The Company has a franchise agreement with Voice Enterprises, Inc. Under this
agreement, the Company has the right to offer voice messaging and other
communication capabilities over telephone lines and receive national
advertising from the franchisor. The obligation to the Company is to pay a
monthly royalty of gross revenues ranging from 6% to 10%.
G - SUBSEQUENT EVENTS
On May 24, 1995, the Company entered into an agreement to exchange its issued
and outstanding common stock, in a tax free merger, for $550,000 in cash and
notes and 250,000 shares of common stock of Communications/USA, Inc. The
merger was consummated in November, 1995. It is to be accounted for as a
purchase.
<PAGE>
Communications/USA, Inc.
Pro-Forma Statement of Earnings
Giving effect to the acquisition of Gulf Coast Communications, Inc(.only
entity acquired that had operations during 1995),
as if it had occurred at the beginning of the year ended December 31, 1995.
<TABLE>
<CAPTION>
Pro Forma
Adustments
As if
GCC CUSA DR. CR Balance
<S> <C> <C> <C> <C> <C>
Net Sales 739,622 65,137 0 0 804,759
Cost of Sales 211,387 32,528 0 0 243,915
Gross Margin 528,235 32,609 0 0 560,844
Gen. $ Adm. Expenses 441,915 118,884 0 0 560,799
Depreciation Expense 0 2,752 29,879 (i) 32,631
Amortization Expenses 0 10,049 34,236 (ii) 44,285
Operating Expenses 441,915 131,685 64,115 637,715
Operating Income(Loss) 86,320 (99,076) 0 0 (76,871)
Interest Expense/Other-Net 15,747 48,506 0 0 64,253
Net Income(Loss) 70,573 (147,582) 64,115 0 (141,124)
Weighted no. of shares outstanding during the period (iii) 4,544,877
Earning(Loss) Per Share (0.03)
</TABLE>
Adjustments made to give effect to the transaction as of 1/1/95
(i)) Depreciation Expense was computed for a full 12 months.
(ii) Amortization of Intangibles was computed for a full 12 months.
(iii) Weighted number of sahres was computed as if all the shares issued in
connection with the acquisitions had been issued as of January 1, 1995.
<PAGE>
FINANCIAL STATEMENTS
COMMUNICATIONS/USA, INC.
CONSOLIDATED BALANCE SHEETS
Dec. 31, 96
(Unaudited)
Assets:
Current Assets:
Cash and Cash Equivalents 52,751
Accounts Receivable $ 39,686
Other Current Assets 19,276
Total Current Assets 111,713
Property and Equipment-Net 335,288
Intangible Assets-Net 835,377
$1,282,378
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable and Accrued Expenses $ 75,384
Obligation under capital leases 99,050
Long Term Debt 116,850
Notes Payable to Shareholders 166,891
Total Liabilities 458,175
Preferred Stock: 14%cumulative,convertible
$3.75 par value,5,000,000 authorized, 23,750
shares issued and outstanding 89,062
Common Stock: $.01 par value, 6,000,000
authorized, 3,990,809 shares issued and
oustanding 39,908
Additional paid-in-Capital 738,872
Retained Earnings(Loss) (43,639)
Total Shareholders'Equity 824,203
Total Liabilities and Equity $1,282,378
See Notes to consolidated Financial Statements
<PAGE>
FINANCIAL STATEMENTS-CONTINUED
COMMUNICATIONS/USA, INC.
STATEMENT OF INCOME
For the Year
Ended
Dec. 31, 1996
(Unaudited)
Net Sales $1,069,550
Cost of Sales 104,205
Gross Margin 965,345
General and Administrative Expenses 718,123
Depreciation Expense 42,341
Amortization of Intangibles 40,264
Operating Income(Loss) 164,617
Other Income(Expense) Net 76,690
Interest Expense 119,944
Net Income before Preferred Stock Dividend $ 121,363
Preferred Stock Dividend 12,337
Net Income applicable to Common Stock $ 109,026
Primary Earnings Per Share $ 0.024
Fully Diluted Earnings Per Share $ 0.024
Weighted Average number of Shares used in the
computation for:
Primary Earnings Per Share 4,548,927
Fully Diluted Earnings Per Share 4,622,677
See Notes to Consolidated Financial Statements
<PAGE>
FINANCIAL STATEMENTS-CONTINUED
COMMUNICATIONS/USA, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
Cash Flows from Operating Activities
Net Income(Loss) $ 121,363
Adjustments to Reconcile net loss to net cash
(used for ) provided by operating activities:
Depreciation 42,341
Amortizations 40,264
Change in operating assets and liabilities
Decrease in Accounts receivable 55,256
(Increase) in Other Current Assets (17,876)
Increase in Accounts Payable and Accrued Expenses 20,692
Net cash provided(used)by operations 262,040
Cash Flows from Investing Activities
Equipment Purchases (151,962)
Cash Flows from Financing activities
Payments of Long Term Debt-Net (233,498)
Payment of Shareholders Notes (119,659)
Payment of Capital Lease Obligations-Net (13,932)
Proceeds from sale of common stock-net 215,642
Net cash provided(used) by financing activities (151,447)
Net Change in cash (41,369)
Cash at beginning of Period 94,120
Cash at end of Period $ 52,751
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 83,654
<PAGE>
COMMUNICATIONS/USA, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
For the Year Ended December 31, 1996 and
For the Period May 10, 1995 (date of of inception) to December 31, 1995
<TABLE>
<CAPTION>
Additonal Nature of non-cash
Paid-In Cash Retained consideration and
Preferred Stock Common Stock Capital Received Deficit Total basis for assigning
Shares Amount Shares Amount the amounts
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the Period May 10, 1995 (date
of inception) to December 31, 1995
05/31/95 Issuance of common stk 0 $ 0 $3,519,000 $35,190 $(35,190) $ 0 $ 0 $ 0
06/30/95 Preferred stock
issued from a 506 PPM 8,750 32,812 0 0 0 32,812 0 32,812
07/05/95 Orion I Partnership
aquisition 0 0 191,777 1,918 304,925 0 0 306,843 Increased additional
paid-in capital
based on stk value
07/21/95 Preferred stock of $1.60 per share
issued from a 506 PPM 3,750 14,063 0 0 0 14,063 0 14,063
07/28/95 Orion II Partnership
acquisition 0 0 26,587 266 42,273 0 0 42,539 Increased additional
paid-in capital
based on stk value
08/31/95 Preferred stock of $1.60 per share
issued from a 506 PPM 5,000 18,750 0 0 0 18,750 0 18,750
10/02/95 Preferred stock
issued from a 506 PPM 2,500 9,375 0 0 0 9,375 0 9,375
10/11/95 Preferred stock
issued from a 506 PPM 1,250 4,687 0 0 0 4,687 0 4,687
10/15/95 Preferred stock
issued from a 506 PPM 2,500 9,375 0 0 0 9,375 0 9,375
10/31/95 Common stock issued
common stocks as
advance on purchase
of SW Florida 0 0 500,000 5,000 0 0 0 5,000 Common stock valued
11/15/95 Common stock issued at $.01 per share
from a 504 PPM 0 0 31,567 315 222,714 223,030 0 223,029 Common stock valued
11/28/95 Common stock issued at $7.05
from a 504 PPM 0 0 3,700 37 25,530 25,567 0 25,567 Common stock valued
11/29/95 Acquired Gulf Coast at $7.05
Communications, Inc. 0 0 250,000 2,500 0 0 0 2,500
11/29/95 Acquired Voice-Tel of
Southwest Florida, Inc. 0 0 62,500 625 0 0 0 625
12/07/95 Common stock issued
from a 504 PPM 0 0 1,500 15 10,218 10,233 10,233 10,233
12/14/95 Common stock issued
from a 504 PPM 0 0 3,100 31 21,620 21,651 0 21,651
12/29/95 Common stock issued
from a 504 PPM 0 0 11,400 114 82,052 82,166 0 82,166
12/31/95 Capitalized costs of
stock and private
placement issues 0 0 0 0 (169,440) 0 0 (169,440)
12/31/95 Net loss for period-
accumulated during the
development stage 0 0 0 0 0 0 (147,582) (147,582)
12/31/95 Preferred stock
dividend 14% 0 0 0 0 0 0 (5,085) (5,085)
23,750 $ 89,062 $4,601,131 $46,011 $504,702 $560,909 ($152,667) $487,108
For the Year Ended December 31, 1996 and
01/01/96 Common stock issued Common Stock valued
from a 504 PPM 0 0 8,700 87 60,373 60,460 0 60,460 at $.01 per share
01/25/96 Common stock issued Common stock valued
from a 504 PPM 0 0 3,900 39 26,489 26,528 0 26,528 at $.01 per share
02/28/96 Common stock issued Common stock valued
from a 504 PPM 0 13,233 132 89,056 89,188 0 0 89,188 at $.01 per share
02/28/96 Common stock issued Common stock valued
from a 504 PPM 0 6,400 64 44,846 44,910 0 0 44,910 at $.01 per share
03/31/96 Common stock issued Common stock valued
from a 504 PPM 0 1,500 15 9,966 9,981 0 0 9,981 at $.01 per share
07/24/96 Refund Kevin Guyette 0 ( 400) (4) (2,966) (3,000) 0 0 (3,000)
12/31/96 Stock cancelled 0 (650,000) (6,500) 6,500 0 0 0 0
12/31/96 Adjust to stock records
book 0 6,345 63 (63) 0 0 0 0
12/31/96 Net loss for period -
accumulated during year 0 0 0 0 0 0 121,363 121,363
12/31/96 Preferred stock
dividend 14% 0 0 0 0 0 0 (12,337) (12,337)
0 0 (610,322) (6,103) 234,170 288,067 109,026 337,093
23,750 $ 89,062 3,990,809 39,908 738,872 788,976 (43,641) 824,201
</TABLE>
See accompanying notes and accountant's report.
<PAGE>
COMMUNICATIONS/USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose - Communications/USA, Inc. (the "Company") was
organized under the laws of the State of Florida in 1992. It was dormant
until May of 1995 when it began to market its stock and negotiate to purchase
interactive voice messaging franchises and related companies.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries, Comm/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 on an
unsecured basis in the normal course of business. One company, 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 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. FAS 121 is required
to be adopted in 1996. The impact of FAS 121 has not been fully determined
but is not expected to have a material impact on the Company's results of
operations and financial position.
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.
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 by one of the Company's subsidiaries to
operate a franchise of Voice-Tel in the Tampa/St. Petersburg/Clearwater area
and also Southwest Florida, goodwill, and various other intangibles acquired
in connection with the acquisition of various voice messaging concerns. They
<PAGE>
are being amortized over their estimated useful lives ranging from 15 to 20
years.
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. The only dilutive
common share equivalent(Convertible Preferred stock) was included in the
computation of fully diluted earnings per share.
C - ACQUISITIONS
On June 5, 1995, the Company acquired all of the assets of two Florida
Partnerships. These partnerships were in the business of acquiring licenses
from the Federal Communications Commission (FCC) to purchase air time to
provide interactive video and data services to the public.
The company exchanged 218,364 shares of its $.01 par value common stock for
all of the assets the partnerships. The total consideration aggregated
$349,382.
During 1995, the Company entered into an agreement to exchange, for an
aggregate price of $552,500 ($550,000 in cash or notes and 250,000 common
shares), all of the outstanding stock of Gulf Coast Communications, Inc., a
Florida Corporation ("GCC"). GCC was formed in 1989 to operate a Voice Tel
franchise in the Tampa/St. Petersburg/Clearwater area. The transaction has
been accounted for as a purchase. The transaction closed November 29, 1995
and only one month's operations were included in these financial statements.
For the first eleven months of 1995, GCC, a S corporation, had revenues of
$739,622 and net income before taxes of $70,573.
On December 23, 1995, the Company executed an asset purchase agreement between
Feiman and Holliday, Inc. (d/b/a Voice Tel of Southwest Florida). The assets
acquired include the franchise rights to Southwest Florida, related
telecommunications equipment, office equipment, and a real estate lease. In
exchange for assets valued at $234,014, the Company assumed approximately
$232,000 in debt and issued 562,500 shares of stock valued at $.01 per share.
At the time of purchase Voice Tel of Southwest Florida had not begun
operations.
<PAGE>
D - PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment consisted of the following:
Computers furniture and equipment $ 244,958
Voice messaging equipment - leased 135,423
380,381
less accumulated depreciation 45,093
$ 335,288
Depreciation expense for the period ended December 31, 1996 was $42,341.
Intangible assets consisted of the following
<TABLE>
<CAPTION>
Amortization
Life
<S> <C> <C>
Franchise costs 20 years $ 644,362
Goodwill 20 years 241,328
885,690
Less accumulated amortization 50,313
$ 875,641
</TABLE>
Amortization expense for the period ended December 31, 1996 was $40,264.
E - LONG-TERM DEBT
The Company's long-term debt consisted of the following:
1. Sun Trust of Florida, Inc. $ 58,068
2. V-T Franchise, Inc. 58,782
$ 116,850
========
1. 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 beginning December, 1995
2. 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 beginning December, 1995.
F - RELATED PARTIES TRANSACTIONS
<PAGE>
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%.
G - 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%. The book value of lease equipment is
$133,166 at December 31, 1996.
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, 199.
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1997 . . . . . . . . . . . . . 19,403 53,564
1998 . . . . . . . . . . . . . 10,695 43,047
1999 . . . . . . . . . . . . . 8,291 2,439
2000 . . . . . . . . . . . . . 4,440 -
Thereafter . . . . . . . . . . - -
72,374 99,050
</TABLE>
Franchise Commitments - In addition to the initial franchise cost of $ the
Company is obligated to pay monthly a royalty equal to 10% 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.
I - INCOME TAXES
At December 31, 1996, the Company recorded deferred tax assets resulting from
net operating losses of $26,219 less a valuation allowance of $26,219. The
losses can be carried forward 14 years to the year 2010.
<PAGE>
