SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10\A - No.3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12 (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
PICK COMMUNICATIONS CORP.
(Exact name of the registrant as specified in its charter)
0-27604
(SEC Registration Number)
NEVADA 75-2107261
(State or other jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
155 Route 46 West, Third Floor
Wayne, NJ 07470
(Address of principal executive offices) (Zip code)
Registrant's Telephone number, including area code (201) 812-7425
------------------------
Securities to be registered pursuant to Section 12(b)
of the Act:
Title of each class Names of each exchange on which
to be so registered each class is to be registered
None N/A
Securities to be registered pursuant to Section 12(g)
of the Act:
Common Stock, $.002 Par Value
(Title of Class)
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Item 1: Business
(a) General Development of Business
Pick Communications Corp. was incorporated in April 1984 under the laws of
Utah as S.T.V., Inc. ("STV"). STV was formed by Fred L. Sumner, Steven P. Todd,
and Stephen H. Harkness to develop videos for golf instruction and instruction
in other sports skills. In February 1986, STV changed its name to Adolphus
Companies, Inc. ("Adolphus"). Adolphus was engaged in marketing and distributing
various wholesale food products. On December 31, 1987, Adolphus acquired
American Italian Food Processing Co., in a stock for stock exchange. In May
1988, Adolphus changed its name to Prime International Products, Inc. ("Prime").
Prime ceased operations in late 1990.
In July 1995, Prime changed its state of organization from Utah to
Nevada. On September 12, 1995, Prime executed a Stock Purchase Agreement to
exchange 16,500,000 shares of Prime's Common Stock for all of the outstanding
shares of common stock and warrants of Public Info/Comm Kiosk, Inc. ("Pick"),
which made Pick a subsidiary of Prime. Pick was incorporated under the laws of
the State of New Jersey in August 1992. Prime changed its name to Pick
Communications Corp. in December 1995. Unless otherwise indicated, all
references to the "Company" hereinafter include the business and operations of
Pick prior to the September 12, 1995 transaction, and the combined companies
thereafter. The transaction was a reverse acquisition accounted for as a
recapitalization of Pick. The financial statements contained herein represent
the operations of Pick prior to September 12, 1995 and the consolidated
operations of the Company thereafter.
The Company is engaged in the design, development and marketing of
various telecommunications products. To date, the Company's operations have
primarily consisted of sales of prepaid telephone debit cards ("Debit Cards").
Telephone Debit Cards provide users with access to local calls and to long
distance domestic as well as international service through switching facilities
and long distance network arrangements. The major portion of the Company's
operations since January 1, 1994 have involved the issuance and sale of
telephone Debit Cards. In October 1995, the Company purchased the worldwide
rights to a prepaid cellular telephone technology and has since entered into
various marketing arrangements for this telephone technology, as described
below. The Company plans to expand operations into the related areas of resale
of long distance service to carriers and prepaid cellular phone production and
licensing for sales.
(b) Financial Information About Industry Segments
The Company operates in one business segment, the design, development
and sale of telecommunications products.
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(c) Narrative Description of Business
Telephone Debit Card Market Overview
The telephone Debit Card was developed in Italy in 1976, and became
readily available throughout Europe in the mid-1980's. In 1987, the concept was
introduced in the United States where it continues to gain consumer acceptance.
The Company commenced business as a long distance sales agency where it
sold long distance phone service on a commission basis. In 1993, the Company
recognized that the telephone Debit Card concept was a viable product to market
to the many Americans that use public telephones. The Company tested this
concept by issuing a limited number of Communicards, as described below, early
in the year. To commercialize the telephone Debit Card concept, the Company
acquired a working knowledge of the technology available in the public domain.
Accordingly, the Company utilizes such technology and does not own it. The
Company brought the concept to reality in December 1993 with an initial run of a
telephone Debit Card. The card proved to be a technical success and the Company
improved its debit card by developing the COMMUNICASH card which was introduced
in August 1994. The development of the COMMUNICASH card provided a single
product which allowed for a cohesive and targeted marketing program.
The market for telephone Debit Cards (also known as "calling cards")
consists of retail customers, distributor customers, promotional customers and
the collector market. Retailers sell directly to the ultimate consumers, while
distributors serve as middle-men and brokers which sell to chain stores or other
retail sellers. The promotional market consists primarily of corporate customers
who use telephone Debit Cards as premiums to enhance sales of their own products
through more recognition. Many companies are offering consumers free long
distance (through telephone Debit Cards which contain their corporate names) if
they try or purchase a certain product (or amount of products) made by that
company. The collector market consists of cards containing pictures of sports or
entertainment celebrities or commemorating a particular event. Customers of such
cards do not expect to use the telephone time associated with the telephone
Debit Cards, but rather save the telephone Debit Cards for potential sales at
appreciated values to other collectors at future dates.
The Company serves the retail, distributor and promotional markets
through the use of its trademarked line of "COMMUNICASH" and "las Americas"
telephone Debit Cards, as well as with co-branded promotional cards. The Company
has entered the collector market on a very limited basis.
COMMUNICASH
The Company brought its first prepaid telephone Debit Card, Communicard
Phone Money, to market in December 1993 in controlled distribution. During a
seven-month trial period in 1994, the Company learned much information
concerning the product category, the needs of the distribution chain in the
retail environment and the retail market itself, which led to the development
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and introduction of the current COMMUNICASH telephone Debit Card in August 1994.
The Company has taken a comprehensive approach with regard to research,
development, market analysis, production and distribution for its products which
the Company believes is evident in both the product and the point of sale
materials.
COMMUNICASH cards are non-rechargeable, disposable prepaid telephone
Debit Cards (also known as prepaid telephone calling cards) specifically
designed for the retail sales environment. The Company issues COMMUNICASH in
denominations of $5, $10, $20, $50 and $100 which can be used for local, long
distance and international calling from any touch-tone phone in the United
States at any time. An 800 number printed on the back of the COMMUNICASH card
provides the consumer with network access and a Personal Identification Number
("PIN"), also printed on the back of the card, allows the computerized switch to
identify and track card usage. Printed instructions and voice prompts in English
and Spanish provide the consumer with step by step instructions for card use,
information regarding the amount of money remaining on the card and the number
of minutes the consumer can talk to the destination number dialed. Calls in a
series can be made without hanging up and re-dialing, simply by pressing the
pound sign (#) at the conclusion of each call. To assist the consumer further,
the Company has contracted with Telecommunications Service Center, Inc. and
Innovative Telecom Corp., the companies which provide telephone switching
services to the Company, to provide a 24-hour customer service line.
las Americas
The Company's comprehensive approach to research, development and
market analysis for its products has led to the identification of certain ethnic
or niche markets where retail sales are most profitable. The first niche market
targeted is the Hispanic consumer, and to access this market, the Company has
recently introduced the las Americas card. This Spanish-language version of
COMMUNICASH features especially attractive international rates to countries in
Central and South America as well as the Caribbean. The las Americas card is
issued by the Company in $10 and $25 denominations for distribution primarily in
New York, New Jersey, California and Florida.
COMMUNICASH Co-Branded
COMMUNICASH Co-Branded is designed to address the promotional segment
of the market with prepaid calling cards for such clients as Webcraft
Technologies and Value Line. Co-branded cards can also be sold in a retail
environment such as through existing outlets of a corporate sponsor. This
product features the logo of the corporate sponsor or its product(s), as well as
the COMMUNICASH logo. Management believes co-branding also provides
reinforcement to the consumer of the COMMUNICASH retail product since the
Co-Branded product includes the name "COMMUNICASH", both on the packaging and on
the card itself.
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Acquisition of Telephone Time
The Company has entered into interconnect agreements with AT&T, Com
Tech International Corp., and National Telecom Corp., among others, to purchase
800 and long distance services for use with all COMMUNICASH, las Americas, and
COMMUNICASH Co-Branded telephone Debit Cards. These agreements allow the Company
to direct domestic, long distance and international calls over the networks of
these carriers. Calls are routed through the Company's own switching facility
(located in Tampa, Florida and managed by Telecommunications Service Center
Inc.), and as of April 1996, through a switch located in New York City, owned
and managed by Innovative Telecom Corporation. The distribution of time
purchased is determined by the destination of calls placed and based upon the
most favorable rate to each destination.
Sales and Marketing of Telephone Debit Cards
The Company targets sales to retail outlets in two principal ways: by
further developing an experienced direct sales force that is familiar with the
outlets which have the clients that use the Company's telephone Debit Cards and,
by using wholesale distributors that have relationships with many retail outlets
(for a wide variety of products). Two employees of the Company (the President
and the Vice President of Operations) are directly involved in the sales effort
and the management of the brokers, agents and independent contractors who sell
the Company's telephone debit card products, primarily in Florida, New York, New
Jersey, Oklahoma, Texas, Ohio and California. The Company's outside sales force
is comprised of approximately 50 brokers, agents and independent contractors on
both an exclusive and non-exclusive basis. Certain of the Company's
non-exclusive distibutors may market the products of the Company's competitors.
The Company's retail cards are sold in more than 30 retail locations at
Miami International Airport through an arrangement with Sirgany International,
Inc. Other retail outlets include approximately 50 SSP-Circle K stores in
Oklahoma and Texas pursuant to an arrangement with the Southguard Corp. and more
than 2,000 outlets serviced by Blackstone Calling Card Inc. in Florida.
The Company targets large distributors that also provide candy, chewing
gum, tobacco and other sundries to retail outlets. The Company believes that
there has been a decline in recent years in distributors' sales in the cigarette
market, and the Company hopes to take advantage of such distributors' lost sales
by providing an alternate product. Distributors generally possess a relationship
with a large number of retailers and can readily introduce a new product. By
employing a small number of large distributors, the Company is able to deliver
its products into many retail stores, with only one account receivable for each
distributor, rather than thousands for individual retail customers. However, the
loss of any one distributor would be expected to have an adverse impact on the
Company's revenues. During the year ended December 31, 1995, Best Telecom, Inc.
accounted for 39% of the Company's revenues.
The Company mainly sells to large distributors that have an established
network of independent retail outlets such as candy stores and bodegas (Spanish
grocery stores). The
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Company's distributors include Anpesil International Corporation, which has more
than 5,000 customers, primarily bodegas in New York City and New Jersey; North &
South Distributors, which distributes to more than 1,000 stores in South Florida
(Miami), Jetro Cash & Carry Enterprises, Inc., whose customers are approximately
40,000 "mom & pop" small retail stores in New York City (Manhattan, Brooklyn and
Bronx locations), Jersey City, Philadelphia, Miami and Los Angeles and Best
Telecom, Inc., which distributes to 600 locations in New York, New Jersey,
Florida and California.
The Company's COMMUNICASH is also represented by sales organizations
which broker brand name products primarily to large chain grocers and
supermarkets, chain drug and mass merchandisers. The Company has signed
brokerage agreements with two brokers, Hynes Sales Company, Inc. and Pankow
Associates, Inc., to sell COMMUNICASH on an exclusive basis to their existing
retail chain customers on a commission basis.
In January 1996, the Company entered into an agreement with
International Executive Services for the procurement of advertising through
various media. Under the agreement the Company exchanged $420,000 of pre-paid
telephone time for $2,000,000 in advertising. This agreement superseded an
agreement that the Company entered into with an individual whereby the Company
would pay $420,000 for 5,137,000 minutes of United States domestic telephone
time. Under this exchange agreement, the Company continues to pay for the
telephone time at the rate of $35,000 per month. The Company expects to pay for
these minutes out of operating cash flows during 1996.
Manufacturing/Production of COMMUNICASH Cards
All COMMUNICASH, las Americas and COMMUNICASH Co-Branded telephone
Debit Cards have been designed by Roland Gebhardt Design in New York City and
are printed by Webcraft Technologies, Inc. Webcraft has over 35 press lines in
five states capable of unique formatting and product design capabilities for the
production of prepaid telephone calling cards. Webcraft also provides the
highest level of plant and press security along with waste destruction and
finished product security. The Company procures card print runs on a purchase
order basis. No formal contract exists between the Company and Webcraft
Technologies, Inc.
Secure PINs are transmitted by tape from the Company's selected
interconnect carrier to Webcraft prior to press date, and design information is
submitted by Roland Gebhardt Design ("Roland"). During a press run, the
Company's designated Webcraft sales account manager as well as representatives
from the Company and Roland Gebhardt are present in the plant to insure smooth
and effective production.
The Company's collector cards are printed in plastic and manufactured
by Brilliant Color Cards, Inc. in San Rafael, California. Art design and PIN
Submission are the same as with a Webcraft press run. The Company procures card
print runs on a purchase order basis. No formal contract exists between the
Company and Brilliant Color Cards, Inc.
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The Company has an agreement with Players Computer, Inc. ("Players"),
located in New York, for the fulfillment of all orders for the COMMUNICASH and
las Americas products. Players provides a 100% secure storage for all of the
cards and handles the activation process with the switch so that the cards can
be used, receives and ships all orders to customers, performs accounts
receivable functions and provides the Company with weekly reports.
Prepaid Cellular Telephone
In October 1995, the Company entered into an agreement with The Next Edge,
Inc. ("TNE") whereby the Company purchased the worldwide rights to market,
distribute, sell and develop a delivery system to support a prepaid cellular
telephone system. This agreement has an initial term of five years with an
option for an additional five years. The agreement requires the Company to pay
TNE a total of $500,000, payable at a rate of $25,000 per quarter for a period
of five years beginning on January 1, 1996. To date the Company has paid $75,000
to TNE under this agreement. These payments are to be secured by an irrevocable
letter of credit. The Company is also required to issue a total of 100,000
shares of its common stock to TNE in increments of 20,000 shares each year for
five years beginning on January 1, 1996. The agreement also requires the Company
to purchase the circuit chips for the system from TNE, at TNE's cost. The
agreement stipulates that the Company will be recorded as co-owner of the final
United States patent issued relating to this technology for which an application
is pending. The agreement requires the Company to implement the international
patent applications.
The Company's prepaid cellular telephone resulted from the explosion of
the use of cellular telephones on a worldwide basis. Not everyone is
sufficiently credit-worthy to own or lease a cellular telephone. Once a person
has a cellular phone activated, that consumer has an unlimited line of credit.
The Company believes that approximately one-third of all applicants for cellular
service are rejected by the cellular carriers as a result of enforcing stringent
credit requirements. Other consumers whose credit is "borderline" by these
standards are required to pay exorbitant deposits to secure a line.
The Company's prepaid cellular phone brings prepaid debit technology to
cellular phone users and makes it available to practically everyone. The system
works by automatically shutting off a programmed cellular telephone when the
subscriber has reached the limit of prepaid air-time. Additionally, this system
can be used with a variety of cellular telephones.
There are other cellular systems available which promote themselves as
prepaid because the consumer has to actually purchase time with a credit card
prior to using the phone. In these instances, however, access is still limited
to consumers with a level of credit-worthiness which allows them to have a
credit card, calls are limited to outbound only and a special 800 number
(sometimes pre-programmed into the phone) must be dialed before the destination
number can be accessed.
The Company's system is the first integrated system consisting of a
cellular phone with an internal programmable computer chip that allows the phone
to operate only for a prepaid amount of
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time. This tamper resistant security technology provides the highest degree of
protection from fraudulent charges. To date, 500 units have been produced and
successfully tested in both the United States and in South America. Further, the
Company's system allows the consumer to receive calls as well as to place them
and the destination number can be directly dialed. There is no behavioral
difference between the Company's system and a standard cellular phone, but the
Company's system will be available to virtually any consumer who desires
cellular technology anywhere in the world.
A consumer will be able to obtain one of the Company's specially
equipped cellular phones at a convenient retail location by completing a simple
registration form and purchasing a fixed amount of air-time which is loaded into
the phone. When the air-time reaches its limit, the customer can return to any
authorized retail location and buy more. Additionally, the consumer does not
purchase the phone itself so there is no equipment obsolescence; the phone is
essentially disposable. The Company's system also provides the consumer with the
ability to place international calls -- a feature not available in standard
cellular systems -- by using one of the Company's telephone debit cards with the
phone.
In order to commercialize the Company's prepaid cellular telephone
technology, the Company will first be required to extensively test market the
product and develop and test the supporting systems to distribute, bill, collect
and monitor equipment, software and air-time. Once the testing has been
successfully completed, the Company will likely require additional working
capital to bring the product to market. Assuming such capital is available, the
Company expects to begin marketing the product in the latter part of 1996. In
anticipation of bringing the product to market, the Company has entered into
agreements to license the rights to market and distribute the technology on a
worldwide basis.
The Company has granted an exclusive license to market and sell its
prepaid cellular telephone in the United States and Canada to P.C.T. Prepaid
Telephone, Inc. ("PCT"), which recently commenced operations. Upon the full
capitalization of PCT, the Company will maintain a majority ownership of PCT's
stock with the remainder to be owned by Firenze, Ltd. ("Firenze"), as described
below, and other private investors. PCT will purchase the licensed technology
and equipment from the Company on the basis of cost plus ten percent (10%). The
Company and PCT are currently engaged in contract negotiations with AT&T
Wireless Services with regard to the use of that particular cellular telephone
company's network by PCT's end users.
The Company's prepaid cellular telephone system will also be available
for use outside the United States because the Company's technology can interface
with any cellular network without modification. In European cities, where the
use of credit cards is less common than it is in the United States and currency
is the more accepted manner of payment, this system provides an attractive means
for cellular access. The Company has granted exclusive licenses to Firenze,
located in New York, to market and sell its prepaid cellular telephone in
various countries in Europe and to Yakimoto Investment, Ltd. ("Yakimoto"),
located in Nassau, Bahamas, to market and sell its prepaid cellular telephone in
various countries in Europe, as well as, all of Asia, Australia and Africa. On
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October 24, 1995, the Company exchanged 5,000,000 restricted shares of Common
Stock of the Company for 5,000,000 restricted shares of Common Stock of Firenze,
giving the Company a ten percent (10%) ownership in Firenze.
In addition, both Yakimoto and Firenze agreed to purchase the licensed
technology and equipment from the Company on the basis of cost plus ten percent
(10%). They also agreed to pay the Company, on a monthly basis, a royalty fee of
five percent (5%) of all gross sales revenues from equipment and air-time. The
Company has not finalized any long term contracts for the manufacture of the
various components and the assembly of same.
The Company has retained the exclusive rights to market and sell the
prepaid cellular telephones in Mexico, Central America and the Caribbean. The
Company will compete with numerous other companies engaged in the sale and/or
rental of cellular telephones including regional cellular telephone companies.
The Company expects to finance its agreement with The Next Edge, Inc.,
through the use of a letter of credit, initially to be provided by its agreement
with Yakimoto, which provides for a $475,000 letter of credit in exchange for
its license to market the product in South America, and subsequently, out of
operating cash flows. After the initial five-year term of the contract, at the
Company's sole option, the Company may extend the agreement for five additional
periods of five years each, at a cost of $100,000 per year. If the product
proves itself to be commercially viable, the Company will extend the agreement
and make those payments out of operating cash flows. In the event the contract
is not renewed, the Company would be entitled to royalties on the residual sales
made, prior to cancellation of The Next Edge, Inc., contract.
The various companies joining forces to bring the pre-paid cellular
concept to market in the Company include PCT, Firenze, and Yakimoto. The
relationships between these companies are as follows: PCT, is a majority owned
(50.4% ) subsidiary of the Company, which was established as the Company's
licensee for the United States and Canada. Firenze, is a marketing company which
expected to acquire Fonlem, in France, and be able to support the marketing
effort for the prepaid cellular product in Europe, Africa, Asia and Australia.
The Company believes that Firenze voluntarily withdrew the Fonlem transaction
from consideration by the French Treasury, which made it apparent to the Company
that Firenze, would not be able to raise funds to support the cellular product
marketing in accordance with its license. In an effort to engage a licensee with
more potential to market the product, a material portion of the licensed
territories were transferred to Yakimoto, in exchange for 500,000 restricted
shares of Ultimistics, Inc. ("Ultimistics"). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for information
regarding the Company's interest in Ultimistics. As a result, Firenze, retained
only the right to market, sell and distribute the product in Germany, Italy,
Great Britian, Spain, France, Switzerland, Belgium and Luxembourg. The remainder
of Europe, and all of Africa, Asia and Australia were transferred to Yakimoto.
Yakimoto, in a separate agreement with the Company, obtained the license for
South America. No relationship exists between the Next Edge, Inc. and Firenze,
Yakimoto, PCT or Ultimistics, other than as described above.
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Government Regulations
Long distance telecommunication services are subject to regulation by
the FCC and by state regulatory authorities. Among other things, these
regulatory authorities impose regulations governing the rates, terms and
conditions for interstate and intrastate telecommunication services. The federal
law governing regulation of interstate telecommunications are the Communications
Acts of 1934 and 1996 (the "Communications Acts"), which applies to all "common
carriers," including AT&T, MCI and Sprint, as well as entities, such as the
Company, which resell the transmission services provided through the facilities
of other common carriers. In general, under the Communications Acts, common
carriers are required to charge reasonable rates and are prohibited from
engaging in unreasonable practices in the provision of their services. Common
carriers are also prohibited from engaging in unreasonable discrimination in
their rates, charges and practices.
The Communications Acts require each common carrier to file tariffs
with the FCC. A tariff is a list of services offered, the terms under which the
services are offered, and the rates, or range of rates, charged for services.
Upon filing a tariff, the service provider is required to provide the services
at the rates and under the terms and conditions specified in the tariff. Failure
to file a tariff could result in fines and penalties. The Company believes it
has filed all required tariffs with the FCC.
In addition to federal regulation, resellers of long distance services
may be subject to regulation by the various state regulatory authorities. The
scope of such regulation varies from state to state, with certain states
requiring the filing and regulatory approval of various certifications and state
tariffs. As the Company expands the geographic scope of its long distance
operations, it intends to obtain operating authority as may be required to
provide long distance service.
The Company believes that it is in substantial compliance with all
material laws, rules and regulations governing its operations and has obtained
or is in the process of obtaining all licenses, tariffs and approvals necessary
for the conduct of its business. In the future, legislation enacted by Congress,
court decisions relating to the telecommunications industry, or regulatory
actions taken by the FCC or the states in which the Company operates could
adversely impact the Company's business. Changes in existing laws and
regulations, particularly currently proposed relaxation of existing regulations
resulting in significantly increased price competition, may have a significant
impact on the Company's activities and on the Company's operating results.
Adoption of new statutes and regulations and the Company's expansion into new
geographic markets could require the Company to alter its methods of operations,
at costs which could be substantial, or otherwise limit the types of services
offered by the Company. There can be no assurance that the Company will be able
to comply with additional applicable laws, regulations and licensing
requirements.
Competition
The Company faces intense competition in the marketing and sale of its
prepaid telephone calling card products and services. The Company's telephone
Debit Cards and long distance services
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compete for consumer recognition with other prepaid phone cards, credit calling
cards and long distance telephone services which have achieved significant
international, national and regional consumer loyalty. Many of these products
and services are marketed by companies which are well-established, have
reputations for success in the development and sale of products and services and
have significantly greater financial, marketing, distribution, personnel and
other resources than the Company, thereby permitting such companies to implement
extensive advertising and promotional campaigns, both general and in response to
efforts by additional competitors to enter into new markets and introduce new
products and services. Certain of these competitors, including AT&T, MCI, Sprint
and the "Baby Bells," such as Bell Atlantic and Bell South, dominate the
telecommunications industry and have the financial resources to enable them to
withstand substantial price competition, which is expected to increase
significantly. These and other large telephone companies, as well as retailers,
such as Southland Corp., and companies engaged in the marketing of collectibles,
have also entered or have announced their intention to enter into the telephone
Debit Card segment of the industry. In addition, because the prepaid phone card
segment of the industry has no substantial barriers to entry, competition from
smaller competitors in the Company's target markets is also expected to continue
to increase significantly.
The telecommunications industry is characterized by frequent
introduction of new products and services, and is subject to changing consumer
preferences and industry trends, which may adversely affect the Company's
ability to plan for future design, development and marketing of its products and
services. The markets for telecommunications products and services are also
characterized by rapidly changing technology and evolving industry standards,
often resulting in product obsolescence or short product life cycles. The
proliferation of new telecommunications technologies, including personal
communication services, cellular telephone products and services and telephone
Debit Cards employing alternative technologies, may reduce demand for telephone
Debit Cards generally.
The Company is not presently aware of any competitor offering the same
prepaid cellular telephone technology. Although the product has a patent
pending, larger, more established entities with greater financial and personnel
resources than those of the Company may nevertheless enter into direct
competition with the Company. However, the Company reasonably expects it has a
one or two year lead and will be able to capture a significant market share.
Despite the foregoing, there can be no assurance that the Company will be able
to capture such market share and/or compete effectively.
The Company believes that it competes on the basis of price and
service. The Company's success will depend on the Company's ability to
anticipate and respond to rapid changes in consumer preferences and the
introduction of new products. There can be no assurance that the Company will be
able to compete successfully in its markets.
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Trademarks
The Company has obtained a trademark registration for its "Communicard
by Pick" trademark. The Company has filed the following additional trademark
applications for use in connection with the following telephone Debit Cards:
COMMUNICASH, las Americas and Love Call.
Patents
The Company is a co-owner of a patent (together with The Next Edge,
Inc.) that is pending concerning the technology for a prepaid cellular telephone
system and expects to implement international patent filings and/or
registrations pertaining to such patent during 1996.
Employees
The Company employs a full-time staff of nine, one person on a
part-time basis, and has made arrangements with independent contractors for
various purposes, including selling the Company's telephone Debit Cards on a
commission basis. The Company considers its relations with its employees to be
satisfactory.
Item 2: Financial Information
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Registration Statement. The selected data presented for, and as of the
end of, the years ended December 31, 1993, 1994 and 1995 are derived from the
consolidated financial statements of the Company, which financial statements
have been audited by Durland & Company CPAs, P.A., independent certified public
accountants. The consolidated balance sheet as of December 31, 1993, 1994 and
1995, and the consolidated statement of operations for the years ended December
31, 1993 1994 and 1995 and the accountants' reports thereon, are included
elsewhere in this Registration Statement.
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Selected Financial Data:
Statement of Operations Data (1):
Years Ended December 31
1993 1994 1995
---- ---- ----
Net sales ................... $ 23,301 $ 529,913 $ 1,565,039
Product cost of sales ....... $ 10,067 $ 753,346 $ 1,387,459
Gross profit/(loss) ......... $ 13,234 ($ 223,433) $ 177,580
Operating expenses .......... $ 171,340 $ 1,027,147 $ 1,200,918
Net Profit/(Loss) ........... ($ 158,106) ($ 1,250,580) ($ 1,068,371)
Net Profit/(Loss) per ....... -- -- ($ 0.03)
Share
Weighted average ............ -- -- ($40,130,516)
number of shares
outstanding(2)
Cash ........................ $ 6,453 $ 17,659 $ 110,715
Working Capital ............. ($ 47,129) ($ 1,127,590) ($ 1,074,159)
Total Assets ................ $ 27,492 $ 319,835 $ 2,661,524
Total Liabilities ........... $ 59,598 $ 1,341,521 $ 3,079,923
Minority Interest ........... -- -- $ 215,508
Shareholders Equity ......... ($ 158,106) ($ 1,021,686) ($ 633,907)
(1) - PICK was incorporation in August 1992, and commenced operations in
January 1993.
(2) - Shares are expressed on a fully diluted basis , as of September 12, 1995,
the date of the Company's recapitalization.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Report.
Pick Communications Corp. was incorporated in April 1984 under the laws of
Utah as S.T.V., Inc. ("STV"). STV was formed by Fred L. Sumner, Steven P. Todd,
and Stephen H. Harkness to develop videos for golf instruction and instruction
in other sports skills. In February 1986, STV changed its name to Adolphus
Companies, Inc. ("Adolphus"). Adolphus was engaged in marketing and distributing
various wholesale food products. On December 31, 1987, Adolphus acquired
American Italian Food Processing Co., in a stock for stock exchange. In May
1988, Adolphus changed its name to Prime International Products, Inc. ("Prime").
Prime ceased operations in late 1990.
In July 1995, Prime changed its state of incorporation from Utah to
Nevada. On September 12, 1995, Prime executed a Stock Purchase Agreement to
exchange 16,500,000 shares of the Company's Common Stock for all of the
outstanding shares of common stock and warrants of Public Info/Comm Kiosk, Inc.
("Pick"), which made Pick a subsidiary of Prime. The transaction was a reverse
acquisition accounted for as a recapitalization of Pick, since the management of
Pick retained control of Prime subsequent to the merger. As such, no goodwill
was recognized in the transaction. Prime changed its name to Pick Communications
Corp. (the "Company") in December 1995.
All activities are presented, based on the actual operations of Pick, Inc.,
for periods prior to September 12, 1995. PICK Communications Corp., (f/k/a Prime
International Products, Inc.), had no operations 1995 prior to September 12,
1995. PCT was incorporated in October 1995, and very limited operations from
founding through December 31, 1995. As of December 31, 1995, the Consolidated
Financial Statements include the Company, Pick and PCT. The Company owns all of
Pick, Inc. and 50.4% of PCT. Accordingly, Pick and PCT are included in the
Consolidated Financial Statements of the Company.
Results of Operations
Pick generates revenues from sales of prepaid telecommunications,
primarily in the form of prepaid phone cards, otherwise referred to as telephone
Debit Cards. Despite having achieved steadily increasing levels of revenues
since inception, the Company's expenses have exceeded revenues, resulting in
losses of $158,106, $1,250,580, and $1,068,371 for the years ended December 31,
1993, 1994 and 1995 on a consolidated basis, respectively. Losses incurred since
inception have been primarily attributable to start-up costs, costs incurred in
connection with the development and promotion of the Company's products and the
hiring of additional personnel to support the Company's operations. The
Company's primary costs are incurred in connection with telephone air-time and
the design, printing, distribution, sales commissions and advertising expenses
relating to telephone Debit Cards.
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Generally Accepted Accounting Principles requires the Company to recognize
telephone Debit Card revenue based on air time useage. For Debit Card sales, the
Company recognizes revenue at the time it provides the telephone services
associated with its cards. It defers revenue until then, based on customer
patterns of usage, and recognizes the carrier telephone traffic cost based on
the minutes used, which are also recognized in revenue. All other direct costs,
(non-traffic costs representing design royalties, printing, fulfillment, sales
commissions, etc.), are recognized as up-front costs when the initial sales are
made to distributors. The Company anticipates that substantially all of the
telephone time associated with the Debit Cards will be used by its customers.
At the time actual usage is billed and paid to long distance carriers,
accrued liabilities are relieved. The Company plans to recognize revenue for the
value of unused calling time remaining upon each card's expiration (generally 12
- - 18 months after issuance). At such date, subject to the applicability, if any,
of escheat laws, that recognition will take place, although no such entries have
been recorded, to date.
The Company's revenues were primarily derived from the sale of
telephone Debit Cards for immediate consumption by the ultimate consumers.
Accordingly, Management does not expect a significant amount of unused time
(breakage) to accrue to the Company as a result of card expiration.
The Company depends on its switches to track the time activated on each
card and to properly decrease the amounts assigned to customer calls, based on
the termination points. The Company periodically tests the open balances to
determine if the switches are accurately tracking the appropriate rates and
times, by destination. If shipments of activated cards are lost or stolen prior
to sale to consumers, the Company has the ability to deactivate those cards by
notifying the switch managers and thereby limiting fraudulent use. To the extent
that a customer gives card PIN's (Personal Identification Numbers) to others,
the customers are responsible for unauthorized or fraudulent use of the cards.
Inasmuch as the cards are of relatively small value, normally $25 or less,
management does not consider this to be a major exposure.
The Company acts as a commission based agent for a provider of long
distance telephone services. To the extent that the Company sells such services,
the provider pays the Company a commission for realized sales. The Company
recognizes commission income as reported and paid by the carrier. Concurrently,
the Company accrues sales commission expenses payable to the Company's sales
agents.
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Years ended December 31, 1995 and December 31, 1994:
On a consolidated basis, the Company generated revenues of $1,565,039
and $529,913 for the years ended December 31, 1995 and 1994, respectively. These
revenues (and related costs) primarily represent the activity of Pick, inasmuch
as the parent company Pick Communications Corp., was inactive until the reverse
acquisition on September 12, 1995 and PCT, was established on October 24, 1995
and had no operations in 1995.
The increase in revenues of $1,035,126, or 195.3%, was primarily the
result of an expansion in the Company's customer base. The Company believes that
the growth in its customer base is attributable to the growing acceptance of
telephone debit cards in the United States. The gross profit margin of,
$177,580, was 11.3% of net sales for the year ended December 31, 1995, compared
to a gross margin loss of $223,443 for the year ended December 31, 1994. The
gross margin reflects the deferral of revenues until services are expected to be
rendered and front-loading of all expenses except time, as described previously.
As a result, the 1995 gross margin percentage is 11.3%, while it resulted in a
negative 42.2% in 1994. The improvement in 1995 over 1994 occurred primarily
because significant one-time development expenses associated with the
development of the telephone Debit Card product was charged to cost of sales in
1994. The vast proportion of the sales activity (98.8% in 1995 and 95.7% in
1994) relates to telephone Debit Card sales, and the Company believes the 11%
gross margin rate can be achieved, on a going forward basis. The 44.2% loss rate
in 1994 was attributable to the incurrence of disproportionate start-up costs.
To the extent that the same sales mix continues into the future, the Company
believes the aggregate gross margin rate could remain at the 11% level. The
gross margin rate could change in the future, however, to the extent the long
distance reseller business (which typically produces a slightly lower gross
margin rate) increased in proportion to telephone Debit Card sales, the margin
rate would be expected to be lower. To the extent the cellular licensing,
royalties and sales (which are expected to generate a higher gross margin rate)
increase proportionate to the telephone Debit Card and Long Distance sales, the
margin rate would be expected to rise.
Operating expenses were $1,200,918 (net of minority interest of $37)
and $1,027,147 for the years ended December 31, 1995 and 1994, respectively,
representing an increase of $173,771, or 16.9%. This increase is due to higher
administrative expenses of $443,878, or 104.1%, associated with the
establishment of a staff ($254,135), travel expenses ($99,189) and facility and
communications ($47,215), off-set by reduced sales and marketing expenses of
$316,237, or 55.2%. Sales and marketing expenses were reduced, at the direction
of management, to conserve cash and establish the administrative support. In
connection with the Company's recapitalization in September 1995, the Company
received additional working capital which it used to increase its level of
business activity. As a result, general and administrative expenses increased
substantially in the fourth quarter of 1995.
Operating expenses include depreciation of $30,475 and $11,967 for the
years ending December 31, 1995 and 1994, respectively. They include provisions
for bad debts or $42,650, and $15,028 for the years ended December 31, 1995 and
1994, respectively. The interest expense
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<PAGE>
represents an accrual of interest relating to a dispute with a vendor, which was
not settled as of December 31, 1995. The Company expects to settle this matter
in 1996.
For the reasons itemized above, the Company incurred net operating
losses of $1,068,371 for the year ended December 31, 1995, compared to
$1,250,580 for the year ended December 31, 1994, representing an improvement of
$182,209 or 14.6%.
The Company expects that the development of the long distance reseller
business and the prepaid cellular telephone business can generate enough
revenues to provide break-even operations based on sales of $13,400,000,
supported by indirect expenses of $2,000,000, although there can be no assurance
that the Company will, in fact, achieve such results.
This Registration Statement contains certain forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this document. The Assumptions of break-even could differ
materially from those stated above if recognized revenues vary from the
$13,400,000 projection, if the actual gross margin rate differs from the 15%
projection, or if indirect expenses vary from the $2,000,000 projection.
Years ended December 31, 1994 and December 31, 1993 on a consolidated basis:
The Company generated sales of $529,913 for the year ended December 31,
1994, compared to $23,301 for the year ended December 31, 1993, an increase of
$506,612. This significant increase reflects a general development of the
customer base and the introduction of the COMMUNICASH cards in August 1994. A
limited number of cards were available for sale in 1993.
The gross margin loss of $223,433, decreased to 42.2% of net sales for
the year ended December 31, 1994, compared to $13,234 (or 56.8%) for the year
ended December 31, 1993. The gross margin percentage decrease is due to the
switch in emphasis from commission revenue earned long distance sales (with a
higher gross margin), to the telephone Debit Card with significant start-up
costs associated with the product roll-out in August 1994 being charged directly
to the product.
While sales have increased, expenses have exceeded sales, resulting in
losses of $1,250,580 and $158,106 for the years ended December 31, 1994 and
1993, respectively.
Selling and marketing expenses were $573,724 for the year ended
December 31, 1994, compared to $4,903 for 1993 representing an increase of
$568,821 (or 11,601%). This variance is due primarily to the extensive placement
of advertising and promotional expenses in the fourth quarter of 1994 to support
the August 1994 product roll-out and the increase in sales commissions which
vary directly with sales activity. In 1994, the major portion of the operating
expenses were made in the last part of the year, principally, in support of a
major customer that has since developed its own telephone Debit Card.
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<PAGE>
Operating expenses include depreciation of $11,967 and $1,669 for the
years ended December 31, 1994 and 1993, respectively. They include provisions
for bad debts of $15,028, and $0 for the years ending December 31, 1994 and
1993, respectively.
For the reasons itemized above, the Company, in a start-up phase,
incurred net operating losses of $1,250,580 for the year ended December 31, 1994
and $158,106 for the year ended December 31, 1993, representing an increase of
$1,092,474, or 691.0%.
The Company acquired 4,700,000 shares of Common Stock of Ultimistics., Inc.,
subsequent to December 31, 1995, which represents approximately 16.5% of
Ultimistics' outstanding shares. The shares are restricted securities under Rule
144 of the Securities Act of 1933, as amended, and cannot be sold in the open
market until 1997. At December 31, 1995, the Company also holds 5,000,000 shares
of Firenze, Ltd., which also are restricted securities under Rule 144 and cannot
be traded in the open market until 1998. The Firenze shares are valued at
$10,000 on the balance sheet of the Company. Please see the discussion of
investment in marketable equity securities in "Liquidity and Capital Resources,"
for further information. The Company owns 22,750,000 shares or (50.4%) PCT which
was established in October 1995 to market and distribute the Company's prepaid
cellular technology in the United States and Canada. The Company intends to hold
its investment in PCT Prepaid Telephone, Inc., as an operating subsidiary for
that purpose. No other significant investment activity has occurred.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock
Based Compensation". The Company will have to implement SFAS 123 for the fiscal
year ending December 31, 1996. The Company has not yet had sufficient time to
evaluate the impact, if any, of the provisions of SFAS 123.
Liquidity and Capital Resources
The Company has generated a deficit of $2,143,602 since inception of its
telecommunications activities in 1993. During the current year, it generated a
cash increase $93,056, which resulted primarily from the sale of stock
($1,015,400), offset by the net loss from operations of $1,068,371. The
increases in the Company's operating activities causing revenues and expenses to
rise in tandem, have also increased the associated current assets and
liabilities. Accounts receivable increased by $693,856, prepaid telephone card
inventory increased by $136,991, and the inventory of prepaid telephone time
increased by $485,697, requiring uses of cash. Increases in accruals for direct
cost telephone time of $634,547 and deferred revenue of $479,786 contributed to
cash. In addition, $250,000 was provided by the receipt of third-party debt. The
Company anticipates operating cash flows will primarily arise from the resale of
long distance telephone time to carriers, while cash flows from the telephone
Debit Card business will be marginal, due to heavy competition. In support of
these businesses, additional monthly fixed costs of $25,000 - $75,000 will be
required to increase capacity, but they are expected to be more than off-set by
increased gross margins, once volumes build to expected levels. With respect to
the Company's plans to implement the prepaid cellular telephone business, the
Company will likely require additional working capital
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<PAGE>
to bring this product to market. The Company intends to raise this capital
through a combination of prepaid sales, acceptance of cash or letters of credit
as deposits toward equipment purchases and productive expenses, co-ventures
and/or the possible public or private sale of the Company's debt of equity
securities, for none of which does the Company have any agreement, understanding
or commitment.
In April 1996, the Company arranged for the use of an alternate switch
through which it resells telephone time to other carriers. In this connection,
the Company intends to aggregate volumes necessary to obtain more favorable
air-time rates, which will apply to all of its lines of business. The Company
will seek to expand its existing telephone debit card business to selected
target markets which can provide the greatest return on investment.
The Company intends to implement arrangements for the production,
licensing for sale and distribution of prepaid cellular telephones, pursuant to
its agreement with The Next Edge ("TNE"). This is expected to cost $925,000 over
the next five years ($500,000 in cash at $25,000 per quarter, and $425,000 in
stock at the rate of 20,000 shares per year, equal to the bid price at October
24, 1995 of $4.25 multiplied by 100,000 restricted shares of Prime) TNE for the
commercialization of its prepaid cellular telephone control system technology.
In this connection, it intends to solidify initial licensing agreements, obtain
financing and distribute to selected market segments on a controlled basis.
In October 1995, the Company obtained co-ownership in the patent
pending from TNE, for the technology for a prepaid cellular telephone system and
the exclusive rights to manufacture, market, sell and distribute the system
worldwide. To develop the prepaid cellular telephone system, the Company will be
required to procure software, microchips and cellular telephones and establish
the necessary assembly plant and distribution and marketing networks. In this
regard, the Company is the process of, or has:
(a) finalizing the patents, copyrights and trademarks for the prepaid
cellular product;
(b) licensed the rights to market and sell the prepaid telephone in the US
and Canada to PCT for a majority ownership of PCT.
(c) licensing the rights to market and sell the prepaid cellular telephone
in various countries in Europe, as well as all of Asia, Africa and Australia to
Firenze, a non-affiliated company for a 5% royalty on gross sales (micro-chips,
software and air time). In addition, the company, to provide micro-chips and
software to Firenze at 10% over the company's cost of procurement. In the first
quarter of 1996, the company was determined that firenze would not be able to
finance the marketing of the product to its territory. Therefore, a significant
portion of the licensed territories were transferred to Yakimoto, a
non-affiliated company, for the same 5% royalty rate and 10% mark-up over cost.
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<PAGE>
(d) licensing the rights to market and sell the prepaid cellular telephone
in South America to Yakimoto, for a 5% royalty fee based on gross sales of
micro-chips, software and air time. In addition, the agreement requires the
Company to provide micro-chips software and air time to Yakimoto, at 10% over
the Company's cost of procurement; and
(e) retain or license exclusive rights to distribute the prepaid cellular
phones in Mexico, Central America, and the Caribbean.
The Company expects to finance the letter of credit in support of the
$500,000 cash payments to TNE, out of operating cash flows. Subsequent to the
initial five-year period, at the Company's sole option, it may extend the
agreement for five additional periods of five years each, at a cost of $100,000
per year. If the product proves to be commercially viable, the Company will
extend the agreement and make those payments out of operating cash flows.
The Company hopes to maintain and expand its telephone Debit Card
business, while simultaneously developing and expanding into the resale of long
distance to other carriers, and prepaid cellular telephone businesses. As a
strategic matter, the Company believes that it is advantageous to operate in
three related lines of business to spread its risk. The Company will direct
resources to those segments, as available, to build the strongest base to
support the Company's long term growth objectives. At this time, while the
Company cannot currently project which segment will take precedence, it sees
potential for growth in all areas.
The Company has entered into commitments to obtain blocks of telephone
air time at favorable rates (amounting to $420,000) over the next twelve months.
Subsequent to year end, the Company exchanged that telephone air time for
$2,000,000 in advertising time that may be used over the next two years. The use
of this advertising will reduce the cash out-flow requirements in the periods
used. In 1996, based upon the actual usage of the advertising time, the Company
expects to recognize income for the advertising time earned, to the extent it
exceeds the cost of the air time given up. The gross value of barter advertising
will be charged to advertising expense in the period, as used.
In January 1996, the Company entered into an agreement to obtain
$3,000,000 of prepaid advertising in exchange for 1,150,000 shares of its stock.
This prepaid advertising may be used for any of the Company's marketing efforts,
including the prepaid cellular business. The Company plans to use the prepaid
advertising extensively, to support both the telephone Debit Card and the
prepaid cellular telephone activities.
During 1995, the Company retained a consultant who received the right to
purchase 1,500,000 shares of the Company's stock as of September 12, 1995 at
$.055 per share. The consultant declined to exercise that right, and because the
Company was in need of additional cash, the Company's President was willing and
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<PAGE>
able to provide the operating cash to the Company, the consultant
transferred his rights to the President and the Company's Board of Directors
authorized subsequently the transfer of the right from the consultant to the
President and for the President to purchase those shares from the Company.
The Company has no significant commitments for real estate or equipment
purchases. See Item 3: "Properties" for a description of the Company's office
lease.
The Company is dependent upon receiving the proceeds from the sale of
1,250,000 shares of Common Stock of the Company to two non-affiliated investors.
To date, the Company has received $525,000 and the remaining $725,000 is
expected to be paid during the following twelve months. Such monies are expected
to be used to implement the proposed expansion of the long distance reseller
business. If and when implemented, these products (telephone Debit Cards and
resale of long distance to carriers business) will aggregate to significant
volumes of traffic by which the Company expects to obtain more favorable costs
across those lines of business. In addition, if the Company's telephone Debit
Card is used in conjunction with the prepaid cellular phones, to make
international calls, that traffic will also add to the aggregate minutes of
traffic for volume discount purposes.
The Company plans to spend between $700,000 and $900,000 in capital
expenditures over the next twelve months. These expenditures will be made in
support of the growth of all three lines of business, in the form of computer
equipment and communications, as well as for expanded office space, furniture
and office equipment.
The Company owns 4,700,000 shares of Common Stock of Ultimistics.
Ultimistics is a commercial/residential real estate company in France. On June
28, 1996 the bid price was $4.125 and the ask price was $5.125 for Ultimistics
stock.
In accordance with FAS 115, Management anticipates discounting those
shares by 70% when it values the various transactions by which it receives
Ultimistics, stock in 1996. They include:
(a) Exchange of 1,000,000 shares of Foxwedge, Inc., for 500,000 shares of
Ultimistics. As of December 31, 1995, the Company owned 1,000,000 shares of
Foxwedge, Inc., which it acquired at the time on September 12, 1995 in exchange
for 3,000,000 shares of the Company's Common Stock. The Company has valued those
shares nominally, at $6,000, the par value of the Company's shares issued, due
to concerns by the Company about the Foxwedge operations and viability. As of
December 23, 1995, the Company entered into an agreement to exchange the
1,000,000 shares of Foxwedge, Inc., for 500,000 shares of Ultimistics, which
occurred on January 12, 1996. The Company expects to record a book gain of
$1,194,000 on this exchange. This transaction is expected to be recorded as a
non-taxable exchange of like-kind assets in 1996 for tax purposes.
(b) Exchange of 1,250,000 shares of the Company's Common Stock for 500,000
shares of Ultimistics. The Company's Board of Directors authorized this
transaction on January 25, 1996. This transaction will be treated as a
contribution of capital.
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(c) Sale of license to market and distribute the prepaid cellular telephone
technology in various countries in South America to Yakimoto, in exchange for
1,000,000 shares of Ultimistics. The Company's Board of Directors authorized
this transaction on January 25, 1996. This transaction is expected to be treated
as a taxable sale of licenses.
(d) Transfer of license to market and distribute the prepaid cellular
telephone technology in Asia, Africa, Australia and various countries in Europe,
from Firenze, to Yakimoto, in exchange for 500,000 shares of Ultimistics. The
Company's Board of Directors authorized this transaction on January 25, 1996.
This transaction will be treated as a taxable sale of licenses.
(e) Exchange of 5,000,000 shares of Firenze, with an officer of Firenze,
for 2,000,000 shares of Ultimistics. The Company acquired the 5,000,000 shares
of Firenze, for 5,000,000 shares of the Company's Common Stock and granted a
license to Firenze to market the prepaid cellular phone technology in Europe,
Asia, Africa and Australia. The Company has valued the Firenze shares nominally
at $10,000, the par value of the Company's shares issued. As of March 22, 1996,
the Company exchanged 5,000,000 shares of Firenze, for 2,000,000 shares of
Ultimistics, after the Company became concerned about Firenze's ability to
perform under its agreement. The transaction occurred in April 1996. This
transaction is expected to be recorded as a non-taxable exchange of like-kind
assets in 1996.
The Company has acquired a total of 4,700,000 shares of Ultimistics in
1996. Its valuation of those shares, which have a $4.125 bid price and a $5.125
ask price as of June 28, 1996, bear the restrictive legend under Rule 144 of the
Securities Act of 1933, as amended, are thinly traded, and currently represent
approximately 16.5% of the outstanding shares. Accordingly, these shares will be
discounted by 70%. On a consolidated basis, Ultimistics transactions were nil
for the years preceding 1995. The Company believes that the Ultimistics shares
received in the transactictions described above represented the best options for
the Company at the time of the transactions. Since the Company made its
investment in Ultimistics, the bid price of Ultimistics has dropped to $4.125
from a dollar weighted average acquisition price of $7.17, or 42.5%. To the
extent this trend continues,it may have an effect on the Company's total assets.
The Company believes that it is in its best interest to hold these shares for
the foreseeable future, in the hope that they will appreciate in value and
become more liquid over time, allowing for the possibility of the Company
liquidating a portion of the shares, as liquidity needs arise and the ability to
liquidate them may occur.
All bid/ask price quotes within this document are from the OTC Bulletin
Board System, where all these equity securities currently are listed.
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Statement of Operations Data for Ultimistics, Inc.
Since a substantial portion of the Company's assets include shares of
Ultimistics, the following table sets forth selected financial data of
Ultimistics, derived from its audited financial statements, and are in US
Dollars.
Year Ended
December 31
1995
Total Revenues ........................................... $ 3,384,436
Operating Expenses ....................................... 2,556,527
Income/(Loss) from Operations ............................ 827,909
Interest expense ......................................... 836,791
Loss Before Taxes, Minority Interest &
Pre-Acquisition Costs ............................. (96,031)
Minority Interests in Subsidiary Loss..................... 1,538
Pre-Acquisition Loss ..................................... 54,326
Income taxes ............................................. -0-
Net Loss ................................................. (40,122)
Weighted average number of
shares outstanding ................................ 24,613,915
Cash ..................................................... 524,089
Working Capital .......................................... 1,578,595
Total Assets ............................................. 44,260,267
Total Liabilities ........................................ 11,632,651
Minority Interest ........................................ 823,125
Shareholders' Equity ..................................... 31,804,491
The Company anticipates, based on its current plans and assumptions
relating to its operations, that its cash balances, together with projected cash
flows from operations, will be sufficient to satisfy the Company's contemplated
cash requirements for the next 12 months. In the event that the Company's plans
change, its assumptions change or prove to be inaccurate or cash flows otherwise
prove to be insufficient to fund operations, the Company may be required to seek
financing or curtail its proposed expansion. The Company has no current
arrangements with respect to, or sources of, additional financing, and it is not
anticipated that existing stockholders will provide any portion of the Company's
future financing requirements. There can be no assurance that additional
financing will be available to the Company on commercially reasonable terms, if
at all.
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Item 3: Properties
The Company leases office space in Wayne, New Jersey on a 63 month
lease at a current monthly rental of $8,620.
Item 4: Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this filing, the
number of shares of the Company's outstanding Common Stock, $.002 par value,
beneficially owned (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) by each director of the Company, by each named executive
officer of the Company, by each beneficial owner of more than 5% of the
Company's Common Stock and by all of the Company's officers and directors as a
group.
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
- ------------------- ------------------------ ------------
Diego Leiva ......................... 12,181,500 27.9%
115 Route 46 West, Suite A-2
Mountain Lakes, NJ 07046
Robert Sams ......................... 665,000 1.5%
The Lodge - South Park
Penshurst, Tonbridge
Kent, TN11 8EA
England
Ricardo Maranon ..................... 938,750(4) 2.1%
1400 Stillwater Drive
Miami Beach, FL 33141
Greg Manning ........................ 5,000,000 11.4%
775 Passaic Avenue
West Caldwell, NJ 07006
Raymond M. Brennan .................. 1,011,500 2.3%
115 Route 46 West, Suite A-2
Mountain Lakes, NJ 07046
Karen M. Quinn ...................... 871,250 2.0%
115 Route 46 West, Suite A-2
Mountain Lakes, NJ 07046
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Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
- ------------------- ------------------------ ------------
Karl R. Petersson ................... 871,250 2.0%
115 Route 46 West, Suite A-2
Mountain Lakes, NJ 07046
Firenze, Ltd. ....................... 5,000,000 11.5%
230 Park Avenue, Suite 1000
New York, NY 10022
All officers and directors as a ..... 21,539,250 46.1%
group (7 persons)
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(2) Based on 43,192,516 shares outstanding as of the date of this filing. Each
beneficial owner's percentage ownership is determined by assuming that
options or warrants that are held by such person and which are convertible
or exercisable within sixty (60) days of the date hereof (pursuant to Rule
13d-3 under the Securities Exchange Act of 1934) have been converted or
exercised.
(3) Includes 4,290,000 shares beneficially owned by Mr. Leiva's wife, 792,000
shares beneficially owned by a trust for Mr. Leiva's son for which Mr.
Leiva serves as trustee and 792,000 shares beneficially owned by a trust
for Mr. Leiva's daughter for which Mr. Leiva serves as trustee.
(4) Includes options to purchase 500,000 shares of the Company's Common Stock
at a price of $2.75.
(5) Includes 150,000 shares owned by All Florida Advertising, Inc., a company
of which Mr. Maranon is an officer.
(6) These shares are held by Greg Manning Auctions, Inc., a company controlled
by Greg Manning, a director of the Company.
(7) Includes 250,000 shares beneficially owned by Mr. Brennan's wife.
(8) Includes an aggregate of 3,500,000 options held by the Company's directors
and officers to purchase a like number of shares of the Company's Common
Stock at a price of $2.75 per share.
25
<PAGE>
Item 5: Directors and Executive Officers
Set forth below are the names of all directors and executive officers
of the Company along with certain information relating to the business
experience of each of the listed officers.
Name Age Position
Diego Leiva 45 President, Chief Executive Officer and Chairman
Karl R. Petersson 50 Vice President and Chief Financial Officer
Raymond M. Brennan 58 Vice President, Secretary and Director
Karen M. Quinn 48 Vice President of Corporate Communications and
Operations
Robert R. Sams 57 Director
Ricardo Maranon 51 Director
Greg Manning 49 Director
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers serve
at the discretion of the Board of Directors subject to any contracts of
employment.
Diego Leiva has been Chief Executive Officer, President and Chairman of
the Company since September 1995. Mr. Leiva founded Pick in August, 1992, and
has been its President, Chief Executive Officer and Chairman since its
inception. From 1989 to July 1992, he was Director of Sales for Apertus
Technologies, Inc., a computer telecommunications sales firm. Prior thereto, he
was Vice president of Marketing and Sales for Market Makers, Inc., Chief
Operating Officer of Silo, Inc., and President of Astroglow Lamps Company.
Karl R. Petersson has been Vice President and Chief Financial Officer of
the Company since September 1995. Since September 1994, Mr. Petersson has served
as Vice President and Chief Financial Officer of Pick. From June 1994 to August
1995, Mr. Petersson was employed by United Jewish Appeals Federation of Jewish
Philanthropies of New York, a charitable organization, as its Director of
Internal Audit. From November 1991 to May 1994, Mr. Petersson served as Vice
President of Finance and Administration of the Telecommunications Cooperative
Network of New York, Inc. From August 1981 to October 1991, Mr. Petersson served
as Vice President of Finance and Controller of Radio City Music Hall
Productions, Inc., where he administered both the Accounting and Finance
Departments.
Raymond M. Brennan has been Vice President, Secretary and a Director of the
Company since September 1995. Since May 1994, Mr. Brennan has served as Vice
President, Secretary, and General Counsel of Pick. From April 1990 to April
1994, Mr. Brennan served as Executive Vice President and General Counsel of EOL,
Inc., a full service event production and marketing
26
<PAGE>
company. From January 1982 to March 1990, Mr. Brennan served as Vice President
of Business Affairs for Radio City Music Hall Productions, Inc., where he
administered both the Purchasing and Legal Departments.
Karen M. Quinn has been Vice President of Corporate Communications and
Operations of the Company since September 1995. Since December 1992, Ms. Quinn
has been employed at Pick, and was appointed Vice President of Operations in May
1994. From September 1989 to April 1995, Ms. Quinn served as Business Manager
for George M. Glassman, M.D., P.C.
Robert R. Sams has been a Director of the Company since September 1995. Mr.
Sams formed Saicol Limited in 1983, where he engages in merchant banking,
corporate finance, acquisitions and financial advisory services.
Ricardo Maranon has been a Director of the Company since September
1995. Mr. Maranon founded Maranon & Associates Advertising., an advertising
agency based in Miami, Florida, in 1985, and has served as its President since
its inception.
Greg Manning has been a Director of the Company since September 1995. Mr.
Manning has been Chairman of Greg Manning Auctions, Inc. ("Auctions"), since its
inception in 1981 and Chief Executive Officer since December, 1992. Mr. Manning
served as Auctions' President from 1981 until August 1993. Mr. Manning has been
President and Chairman of CRM, formerly Greg Manning Company, Inc. since its
inception in 1961.
Item 6: Executive Compensation
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company by the Company's Chief
Executive Officer. No other executive officer of the Company received total
compensation in excess of $100,000 during the last three years.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Payouts Awards
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-
term
Other Restrict- incen-
Name Annual ed tive All
and Compen- Stock Options/ Plan Other
Principal sation Award(s) SARs Payouts Com-
Position Year Salary ($) Bonus ($) ($) ($) (#) ($) pensation
- --------- ---- ---------- --------- ------- --------- ----- ------- ---------
Diego Leiva, 1995 $ 93,750 (1) $ 0 0 0 0 0 0
Chief Executive 1994 $ 76,523 (1) $ 0 0 0 0 0 0
Officer and 1993 $ 0 (2) $ 0 0 0 0 0 0
Chairman of the
Board of Directors
</TABLE>
27
<PAGE>
- --------------------------------
(1) Mr. Leiva was entitled to compensation of $150,000. The Company has been
accruing for the amounts not paid to Mr. Leiva.
(2) Mr. Leiva was entitled to compensation of $125,000, all of which was waived
by Mr. Leiva.
Compensation of Directors
No compensation is paid by the Company to any of its Directors, who
are not employees of the Company. However, each Director is entitled to receive
reimbursement for travel expenses for attendance at meetings of the Board.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee
of the Company or of any of its subsidiaries during the prior year or was
formerly an officer of the Company or of any of its subsidiaries. None of the
Executive Officers of the Company has served on the Compensation Committee
during the last fiscal year of any other entity, any of whose officers served on
the Compensation Committee of the Company.
Item 7: Certain Relationships and Related Transactions
On September 12, 1995, Diego Leiva, the Company's President and
Chief Executive Officer, and certain members of Mr. Leiva's family entered into
an Agreement and Plan of Reorganization (the "Agreement") with the Company
pursuant to which Mr. Leiva and his family members exchanged an aggregate of
701,000 shares of the Common Stock of Pick owned by them for 11,566,500 shares
of the Company's Common Stock. The Agreement further provided that the Company
would undertake to cause the remaining shareholders of Pick to exchange each of
their shares of Pick Common Stock for 16.5 shares of the Company (the "Pick
Exchange"). The Pick Exchange commenced in October 1995 and as of May 1996 all
former stockholders of Pick had exchanged their shares, except for one.
In connection with the Pick Exchange: (1) Diego Levia received
11,566,500 shares of Common Stock of the Company, including 4,290,000 shares
beneficially owned by Mr. Leiva's wife, 792,000 shares beneficially owned by a
trust for Mr. Leiva's son for which Mr. Leiva serves as trustee and 792,000
shares beneficially owned by a trust for Mr. Leiva's daughter for which Mr.
Leiva serves as trustee; (2) Karl R. Petersson, Vice President and Chief
Financial Officer of the Company, received 371,250 shares of Common Stock of the
Company; (3) Raymond M. Brennan, Vice President, Secretary and a Director of the
Company, received
28
<PAGE>
511,500 shares of Common Stock of the Company, including 250,000 shares
beneficially owned by Mr. Brennan's wife; and (4) Karen M. Quinn, Vice President
of Corporate Communications and Operations of the Company, received 371,250
shares of Common Stock of the Company.
Robert R. Sams, a Director of the Company, received 165,000 shares
of Common Stock of the Company in the Pick Exchange. Ricardo Maranon, a Director
of the Company, received 288,750 shares of Common Stock of the Company in the
Pick Exchange.
On September 12, 1995, in accordance with the Agreement, Greg
Manning Auctions, Inc., a company controlled by Greg Manning, a Director of the
Company, acquired 4,500,000 shares of Common Stock of the Company in exchange
for $250,000. The purchase price for the foregoing shares was determined as a
result of arm's length negotiations between the Company and Greg Manning
Auctions.
During the years ended December 31, 1993 and December 31, 1994,
Diego Leiva, the Company's President and Chief Executive Officer, advanced the
Company $52,035 and $114,500, respectively. The Company repaid $9,500 in 1994
and $3,035 in 1995. During 1994, the Company issued 623,000 shares of common
stock to Mr. Leiva in exchange for $161,000 of this note payable.
Mr. Leiva, the Company's President, was entitled to receive a salary of
$150,000 and $125,000 for 1994 and 1993, respectively. He waived the 1993 salary
in total.
The Company purchased advertising services (approximately $144,000
in 1994 and $10,500 in 1995) from an entity controlled by Ricardo Maranon, who
became a stockholder of the Company and a member of its Board of Directors in
1995.
On January 31, 1996, the Company issued 150,000 shares to All Florida
Advertising, Inc., a company for which Richard Maranon, a Director of the
Company, serves as an officer, at a price of $2.35 per share as part of the
1,150,000 shares issued for the acquisition of $3.0 million prepaid advertising
services.
On January 25, 1996, the Company's Board of Directors approved the
reservation of 5,000,000 shares of the Company's Common Stock for the granting
of the stock options to the Company's directors, officers and employees, as an
incentive. The Company granted 500,000 shares each to Messrs. Leiva, Maranon,
Manning, Sams, Brennan, and Petersson, and Ms. Quinn, accounting for 3,500,000
of the authorized 5,000,000 shares set aside for this purpose. Each grantee has
the right to purchase shares at $2.75 each, (10% over the market value on
January 25, 1996), and may exercise these grants within the three-year period
ending January 25, 1999.
29
<PAGE>
Item 8: Legal Proceedings
The Company is not currently subject to any legal proceedings.
Item 9: Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The Company's Common Stock has been traded in the over-the-market
and reported on the NASD electronic bulletin board, under the symbol "PRMF"
since August 17, 1995. Prior to that date, the Company's Common Stock had been
traded in the National Quotation Bureau "pink sheets" under the symbol "PRIT";
however, no trading was reported prior to such date. The following table sets
forth the high and low bid prices of the Company's Common Stock as reported on
the over-the-counter market for the periods indicated. The prices represent
inter-dealer quotations, without retail mark-up, mark-down or commission, and
may not necessarily represent actual transactions.
Bid Prices
Period High Low
Calendar Year 1995
Third Quarter $6.625 $1.00
(August 17, 1995 to
September 30, 1995)
Fourth Quarter $6.25 $2.00
Calendar Year 1996
First Quarter $4.50 $3.00
As of May 13, 1996, there were approximately 177 record holders of the
Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock and
has no present intention to do so. The Company intends to retain all of its
earnings for use in its business.
Item 10: Recent Sales of Unregistered Securities
During the past three years, the Company has sold securities to a
limited number of persons, as described below. There were no underwriters
involved in the transactions and there were no underwriting discounts or
commissions paid in connection therewith, except as disclosed below. The
issuances of these securities were considered to be exempt from registration. As
to
30
<PAGE>
all issuances after September 12, 1995, when there was a change in control of
the Company, Management believes that such issuances were exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Act"), and the regulations promulgated thereunder. The purchasers of securities
in each such transaction represented their intention to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the certificates
for the securities issued in such transactions. All purchasers of securities in
each such transaction had adequate access to information about the Company.
On January 25, 1994, the Company issued 106,952 shares of Common Stock
to R. Blair Lund in consideration for services valued at $40,544.
On March 1, 1994, the Company issued 6,685 shares of Common Stock to
Polycorp Industries, Inc. in consideration for the cancellation of a note
payable in the amount of $62,500.
On March 1, 1995, the Company issued 10,157 shares of Common Stock to
John Lund in consideration for services valued at $3,798.
On August 8, 1995, the Company issued 10,000 shares of Common Stock to
Michel Ladovitch in consideration for services valued at $10,464. Also, on
August 8, 1995, the Company sold in a private placement, an aggregate of
8,000,000 shares of Common Stock in consideration for $240,000 to a group of 20
investors.
On September 12, 1995, the Company issued 11,566,500 shares of Common
Stock to Diego Leiva, including 4,290,000 shares beneficially owned by Mr.
Leiva's wife, 792,000 shares beneficially owned by a trust for Mr. Leiva's son
for which Mr. Leiva serves as trustee and 792,000 shares beneficially owned by a
trust for Mr. Leiva's daughter for which Mr. Leiva serves as trustee, in
consideration for 701,000 shares of Common Stock of Pick. Also, on September 12,
1995, the Company issued 4,686,000 shares of Common Stock to Snow Becker Krauss
P.C., as escrow agent for the Pick stockholders participating in the Pick
Exchange; 4,500,000 shares of Common Stock to Greg Manning Auctions, Inc. in
consideration for $250,000; and 500,000 shares of Common Stock to Vienex
Holdings, Ltd. in consideration for the conversion of a $250,000 loan previously
made to Pick.
On September 12, 1995, the Company issued to Howard Silverman, a
consultant, the right to purchase 1,500,000 shares at an aggregate cost of
$82,500. Mr. Silverman declined to pay for these shares. The right to acquire
these shares was subsequently transferred to Diego Leiva by the Company's Board
of Directors, and Mr. Leiva paid the Company for these shares.
On October 30, 1995, the Company issued 5,000,000 shares of Common
Stock to Firenze, Ltd. ("Firenze") and granted Firenze an exclusive license to
market and sell the Company's prepaid cellular telephone in various countries in
Europe, Asia, Australia and Africa in
31
<PAGE>
consideration for 5,000,000 shares of Common Stock of Firenze. See "Item 1:
Business - Prepaid Cellular Telephone."
In connection with a contract dated November 21, 1995, the Company has
issued an aggregate of 350,000 shares of Common Stock to Sergio Pino in
consideration for $350,000 in accordance with the following schedule: November
24, 1995 -- 100,000 shares; November 27, 1995 -- 50,000 shares; December 29,
1995 -- 50,000 shares; January 4, 1996 -- 100,000 shares; February 12, 1996 --
25,000 shares; and February 20, 1996 -- 25,000 shares.
On December 11, 1995, the Company agreed to issue 412,500 shares of Common
Stock to Howard Silverman which were the subject of an amendment to a May 1995
consulting agreement and an amendment to the September 1995 merger agreement.
Mr. Silverman tendered his $250 check in June 1995 for payment in full of those
shares. See note 14f of Notes to Consolidated Financial Statements. These shares
were issued in January 1996.
On January 4, 1996, the Escrow Agent issued 20,000 shares of Common Stock
to The Next Edge, Inc. in connection with an agreement to obtain prepaid
Cellular technology. The Company issued 100,000 shares to the Escrow Agent in
October 1995. See "Item 1: Business - Prepaid Cellular Telephone" and "Note 9
of Notes to Consolidated Financial Statements."
In connection with a contract dated January 4, 1996, the Company sold
250,000 shares to Blackstone Calling Card, Inc. at a price of $1.00 per share.
Blackstone paid $100,000 for such shares on January 19, 1996, $25,000 on
February 23, 1996, 50,000 on April 16, 1996 and $75,000 on May 6, 1996.
In connection with a contract dated January 31, 1996, the Company issued
1,000,000 shares to International Executive Services at a price of $2.35 per
share in exchange for prepaid advertising services.
On January 31, 1996, the Company issued 150,000 shares to All Florida
Advertising, Inc., a company for which Richard Maranon, a Director of the
Company, serves as an officer, at a price of $.547 per share in connection with
the acquisition of prepaid advertising services.
On January 25, 1996, the Company issued 1,250,000 shares to Ultimistics,
Inc. in exchange for 500,000 shares of Ultimistics, Inc. common stock.
Item 11: Description of Registrant's Securities to be Registered.
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, par value, $.002 per share. As of January 16, 1996, 43,192,516 shares of
Common Stock were issued and outstanding.
Each share of Common Stock is entitled to one vote per outstanding
share held on each matter submitted to a vote at a meeting of shareholders. Each
shareholder may exercise such vote
32
<PAGE>
either in person or by proxy. Shareholders are not entitled to cumulate their
votes for the election of Directors. There are no preemptive or other
preferential rights to purchase additional shares of Common Stock. Upon
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to receive, pro rata, the assets of the Company which are
legally available for distribution to shareholders subject to the prior rights
on liquidation of creditors and the holders of shares of Preferred Stock, if
any. All of the issued and outstanding shares of Common Stock are validly
authorized, fully paid and non-assessable.
Dividends
The Company has not paid any cash dividends on its Common Stock. The
present policy of the Board of Directors is to retain earnings to finance the
operations and development of the Company's business. Accordingly, it is
anticipated that no cash dividends will be paid in the foreseeable future.
Transfer Agent
The transfer agent for the Common Stock is Interwest Transfer Co.,
Inc. 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117. Reports to
Stockholders The Company, by filing this Registration Statement, is
registering its Common Stock under the provisions of Section 12(g) of the
Securities Exchange Act of 1934, as amended. Such registration requires the
Company to comply with periodic reporting, proxy solicitation and certain other
requirements of the Securities Exchange Act of 1934, as amended. Item 12:
Indemnification of Directors and Officers.
The Company's By-laws provide for indemnification of officers and
directors to the fullest extent permitted by Nevada law. In addition, under the
Company's By-laws, no director shall be liable personally to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided that the Certificate of Incorporation does not eliminate the liability
of directors for (i) any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) any transaction from which such director derives improper
personal benefit.
33
<PAGE>
Item 13: Financial Statements and Supplementary Data.
The Company's financial statements are included in a separate Section
of this Report following Item 15.
Item 14: Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On November 1, 1995, the Company dismissed the accounting firm of
Jones, Jensen, Orton & Company (the "Former Accountant") as the Company's
principal accountants.
The Former Accountant's report on the financial statements for the
fiscal years ended December 31, 1993 and 1994 did not contain an adverse opinion
or a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles.
The decision to change accountants was approved by the Board of
Directors.
During the Company's last two fiscal years and the subsequent interim
period preceding the Former Accountant's dismissal, there were no disputes with
the Former Accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
Durland & Company, CPAs, P.A., Pick's previous auditor, was engaged as the
Company's principal accountant to audit the Company's financial statements for
the fiscal year ended December 31, 1995.
Item 15: Financial Statements and Exhibits.
Index to Financial Statements and Exhibits Page
Independent Auditors' Report ..................................... F-1
Balance Sheets as of December 31, 1993, 1994 and
1995 ...................................................... F-2
Statement of Operations for the years ended December 31, 1993,
1994 and 1995 ............................................. F-3
Statement of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995 ....................................... F-4
34
<PAGE>
Statement of Cash Flows for the years ended December 31, 1993, 1994
and 1995 ................................................... F-5
Notes to the Financial Statements ................................. F-6
Exhibits
2 Agreement and Plan or Reorganization by and among the Company,
Pick, Diego and Sylvia Leiva. (1)
3.1 Articles of Incorporation of PRIME (Utah) dated April 30, 1984.
(1)
3.2 Certificate of Merger by and between PRIME (Utah) and PRIME
(Nevada).(1)
3.3 Articles of Incorporation of PRIME (Nevada).(1)
3.4 By-laws of PRIME (Nevada).(1)
3.5 Certificate of Amendment to Certificate of Incorporation. (1)
10.1 Lease for the Company's offices dated March 30, 1995.(1)
10.2 Agreement between Pick and Telecommunications Service Center,
Inc. dated June 1, 1994.(1)
10.3 Agreement between Pick and Com Tech International Corporation
dated September 5, 1995.(1)
10.4 Agreement between Pick and Innovative Holding Corporation dated
November 17, 1995.(1)
10.5 Agreement between Pick and Roland Gebhardt Design dated January
1, 1994.(1)
10.6 Agreement between Pick and Players Computer, Inc. dated October
1, 1994.(1)
10.7 Form of Distributor Agreement.(1)
10.8 Agreement between the Company and Philippe Hababou dated October
3, 1995.(1)
10.9 Agreement between the Company and The Next Edge, Inc. dated
October 20, 1995.(1)
35
<PAGE>
10.10 Agreement between Pick and Hynes Sales Company, Inc. dated
December 1, 1994.(1)
10.11 Agreement between Pick and Pankow Associates, Inc. dated
December 15, 1994.(1)
10.12 Agreement between Trescom USA Inc. and Pick Inc. dated April 10,
1996.(1)
10.13 Agreement between P.C.T. Prepaid Telephone Inc. and Prime
International Products, Inc. dated October 24, 1995.(1)
10.14 Agreement between Firenze Ltd. and Prime International Products,
Inc. dated October 24, 1995.(1)
10.15 Agreement between Yakimoto Ltd. and Prime International Products,
Inc. dated January 6, 1996.(1)
10.16 Agreement between Yakimoto Investment Ltd. and Prime
International Products, Inc. dated January 25, 1996.(1)
10.17 Agreement between AT&T Corp. and Pick Communications Corp. dated
February 26, 1996. (1)
10.18 Agreement between Cherry Communications, Inc. and Pick, Inc.
dated April 12, 1996. (1)
10.19 Agreement between Star Vending Inc. and Pick, Inc. dated
March 18, 1996. (1)
10.20 Agreement between Worldstar Communications Cop. and Pick, Inc.
dated April 2, 1996. (1)
10.21 Agreement between Cellular Telephone Company and Pick
Communications Corp. dated March 11, 1996. (1)
11 Statement of Computation of Earnings Per Share and Common Stock
Equivalents. (1)
16 Former Accountant's Letter. (1)
21 Subsidiaries of the Registrant. (1)
27 Financial Data Schedule.(1)
- ----------------------
(1) Filed as part of previous filing of this Report.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
PICK COMMUNICATIONS CORP..
(Registrant)
Date: July 15, 1996 By: /s/ Diego Leiva
---------------
Diego Leiva, Chief Executive Officer
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
PICK Communications Corp.
Mountain Lakes, New Jersey
We have audited the accompanying balance sheets of PICK Communications Corp.,
(f/k/a Prime International Products, Inc.), (the "Company") as of December 31,
1995, 1994 and 1993 and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PICK Communications Corp. at
December 31, 1995, 1994 and 1993 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
/S/Durland & Company, CPAs, P.A.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
February 16, 1996; except to notes 13, 14f and 14g, as to which the date is
June 20, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Balance Sheets
December 31,
<S> <C> <C> <C>
1993 1994 1995
ASSETS ----------- ----------- -----------
CURRENT ASSETS
Cash .......................................... $ 6,453 17,659 110,715
Accounts receivable, net (note 1g) ............ 6,016 148,374 824,463
Prepaid telephone card inventory (note 1d)..... 0 47,898 167,091
Prepaid telephone time (note 11)............... 0 0 420,000
Prepaid expenses and other current assets ..... 0 0 83,495
----------- ----------- -----------
Total Current Assets ....................... 12,469 213,931 1,605,764
----------- ----------- -----------
PROPERTY AND EQUIPMENT (note 1e)
Furniture and equipment ....................... 16,692 119,540 158,246
Less - Accumulated depreciation ............... (1,669) (13,636) (44,111)
----------- ----------- -----------
Total Property and Equipment ............... 15,023 105,904 114,135
----------- ----------- -----------
OTHER ASSETS
Pre-paid cellular patent and rights (note 9)... 0 0 712,500
Investment in mkt equity securities (note 6) .. 0 0 16,625
----------- ----------- -----------
Total Other Assets ......................... 0 0 729,125
----------- ----------- -----------
Total Assets ...................................... $ 27,492 319,835 2,449,024
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (note 5)...................... $ 0 486,885 191,891
Direct cost telephone time accrual (note 5).... 0 449,654 1,084,201
Pre-paid telephone time liability (note 11) ... 0 0 378,000
Accrued expenses and other current payables ... 7,563 0 0
Advances from stockholders .................... 52,035 3,035 0
Accrued compensation (note 1h)................. 0 76,350 145,448
Deferred revenue .............................. 0 325,597 805,383
Short-term portion of long-term debt .......... 0 0 75,000
----------- ----------- -----------
Total Current Liabilities .................. 59,598 1,341,521 2,679,923
----------- ----------- -----------
LONG-TERM LIABILITIES
Due to The Next Edge, Inc. (note 9) ........... 0 0 400,000
----------- ----------- -----------
Total Long-Term Liabilities ................ 0 0 400,000
----------- ----------- -----------
Total Liabilities ................................. 59,598 1,341,521 3,079,923
----------- ----------- -----------
Minority interest in consolidated subsidiary(note 7) 0 0 215,508
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value; Authorized 1,000,000 shares;
issued and outstanding 743,000 and 100,000 at December
31, 1994 and 1993: par value $0.002; Authorized
50,000,000 shares; issued and outstanding 40,542,516
at December 31, 1995 note 2).................... 126,000 53,545 81,085
Add'l paid in capital in excess of par (note 2) 0 0 2,018,780
Stock subscription receivable (note 2) ........ 0 0 (800,000)
Mkt equity securities valuation reserve (note 6) 0 0 0
Retained earnings (deficit) ................... (158,106) (1,075,231) (2,146,272)
----------- ----------- -----------
Total Stockholders' Equity ........................ (32,106) (1,021,686) (846,407)
----------- ----------- -----------
Total Liabilities and Stockholders' Equity ........ $ 27,492 319,835 2,449,024
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Operations
Year ended December 31,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales to related parties (note 5) .......... $ 0 116,924 361,077
Sales to others ............................ 23,301 412,989 1,203,962
---------- ---------- ----------
Total sales ............................ 23,301 529,913 1,565,039
Cost of sales - related parties (note 5) ... 0 542,417 896,264
Other cost of sales ........................ 10,067 210,929 491,495
---------- ---------- ----------
Total cost of sales ..................... 10,067 753,346 1,387,459
---------- ---------- ----------
Gross profit/loss ....................... 13,234 (223,433) 177,580
Operating Expenses
Sales and marketing - related party (note 5) 0 144,118 10,541
Sales and marketing - other ................ 4,903 429,606 246,946
---------- ---------- ----------
Total sales and marketing ............... 4,903 573,724 257,487
General and administrative ................. 164,768 426,428 873,013
Depreciation ............................... 1,669 11,967 30,475
Bad debt ................................... 0 15,028 42,650
---------- ---------- ----------
Total operating expenses ................ 171,340 1,027,147 1,203,625
---------- ---------- ----------
Loss from operations ....................... (158,106) (1,250,580) (1,026,045)
Interest expense ........................... 0 0 45,033
---------- ---------- ----------
Loss before taxes and minority interest
in subsidiary loss ....................... (158,106) (1,250,580) (1,071,078)
Minority interest in subsidiary loss ....... 0 0 37
Provision for income tax benefit (note 1i) . 0 0 0
---------- ---------- ----------
Net loss ................................... $ (158,106) (1,250,580) (1,071,041)
========== ========== ==========
Net loss per share ......................... $ -- -- (0.03)
========== ========== ==========
Shares outstanding ......................... -- -- 40,442,516
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statement of Stockholders' Equity
<S> <C><C> <C> <C> <C> <C> <C>
Additional Stock Mkt Sec Retained Total
Common Paid in Subscrip Valuation Earnings/ Stockholders'
Stock Capital Receivable Reserve (Deficit) Equity
BALANCE, January 1, 1993 $ 0 0 0 0 0 0
Capital transactions: A) 1,000 0 0 0 0 1,000
B) 125,000 0 0 0 0 125,000
Net income (loss) 0 0 0 0 (158,106) (158,106)
-------- --------- ------- ------- --------- ---------
BALANCE, Dec 31, 1993 126,000 0 0 0 (158,106) (32,106)
Capital transactions: C) 161,000 0 0 0 0 161,000
D)(333,455) 0 0 0 333,455 0
E) 100,000 0 0 0 0 100,000
Net (loss) 0 0 0 0 (1,250,580) (1,250,580)
--------- --------- ------- ------- --------- ---------
BALANCE, Dec 31, 1994 53,545 0 0 0 (1,075,231) (1,021,686)
Capital transactions: F) 2,420 0 0 0 0 2,420
G) (6,080) 238,980 0 0 0 232,900
H) 6,000 0 0 0 0 6,000
I) 9,000 241,000 0 0 0 250,000
J) 1,000 249,000 0 0 0 250,000
K) 3,000 79,500 (82,500) 0 0 0
L) 200 212,300 0 0 0 212,500
M) 10,000 0 0 0 0 10,000
N) 0 0 82,500 0 0 82,500
O) 2,000 998,000 (800,000) 0 0 200,000
Net (loss) 0 0 0 0 (1,071,041) 1,071,041)
--------- --------- ------- ------ --------- ---------
BALANCE, Dec 31, 1995 $ 81,085 2,018,780 (800,000) 0 (2,146,272) (846,407)
========= ========= ======= ====== ========= =========
<FN>
A) January 1993; 100,000 shares of common stock; $1,000 in cash.
B) Throughout 1993; 0 shares of common stock; contribution of President's
salary not paid in cash valued at $125,000.
C) Throughout 1994; 623,000 shares of common stock; conversion of debt by
stockholder to equity.
D) August 1, 1994; 0 shares of common stock; capitalization of undistributed
loss at conversion from S corp to C corp.
E) August 1994; 20,000 shares of common stock; telephone switch equipment and
tariffs valued at $100,000.
F) January 1995 through July 1995; 242,000 shares of common stock; services
valued at $0.01 per share, for a total value of $2,420.
G) September 12, 1995; 16,665,000 shares of common stock exchanged for 100% of
the issued and outstanding common stock of Public Info/Comm Kiosk, Inc,
accounted for as a reorganization of PICK, Inc., also reflects 8,277,516
shares outstanding of PICK Communications Corp. common stock at time of
reorganization. The Company had 24,942,516 shares outstanding subsequent
to this reorganization.
H) September 12, 1995; 3,000,000 shares of common stock, 1,000,000 shares of
Foxwedge, Inc. common stock.
I) September 12, 1995; 4,500,000 shares of common stock, $250,000 in cash,
with a formerly unrelated party, which subsequently became related through
a common director.
J) September 12, 1995; 500,000 shares of common stock, conversion of then
existing note payable exchanged for $250,000 cash.
K) September 12, 1995; 1,500,000 shares of common stock, $82,500 subscription
receivable.
L) October 20, 1995; 100,000 shares of common stock, prepaid cellular patent
and rights valued at $212,500.
M) October 24, 1995; 5,000,000 shares of common stock, 5,000,000 shares of
Firenze, Ltd. restricted common stock.
N) November 8, 1995; cash received from officer for subscription receivable.
O) November 21, 1995 through December 29, 1995; 1,000,000 shares of common
stock, $1,000,000 cash, $200,000 of which was paid in 1995, and the
$800,000 balance to be paid in 1996.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Cash Flows
Year ended December 31,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) .............................................. $ (158,106) (1,250,580) (1,071,041)
Adjustments to reconcile net loss to net cash used for operating activities:
Compensation contributed by President ........................ 125,000 0 0
Stock issued for services .................................... 0 0 2,420
Depreciation ................................................. 1,669 11,967 30,475
Bad debt expense ............................................. 0 15,028 42,650
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ................... (6,016) (157,386) (693,856)
(Increase) in prepaid telephone card inventory ............... 0 (47,898) (119,193)
(Increase) in prepaid and other current assets ............... 0 0 (503,495)
Increase (decrease) in accounts payable (note 5).............. 0 486,885 (294,994)
Increase (decrease) in direct cost telephone time accrual (note 5) 0 449,654 634,547
Increase (decrease) in prepaid telephone time liability (note 5) 0 0 378,000
Increase (decrease) in accrued compensation (note 1h)......... 0 76,350 69,098
Increase (decrease) in deferred revenue ...................... 0 325,597 479,786
Increase (decrease) in accrued expenses ...................... 7,563 (7,563) 0
---------- ---------- ----------
Net cash (used) provided by operating activities ............... (29,890) (97,946) (1,045,603)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ....................................... (16,692) (2,848) (38,706)
---------- ---------- ----------
Net cash (used) provided by investing activities ............... (16,692) (2,848) (38,706)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash ................................... 1,000 0 1,015,400
Funds advanced on third-party debt ............................. 0 0 250,000
Payments on stockholder advances ............................... 0 (2,500) (3,035)
Payments on third-party debt ................................... 0 0 (85,000)
Funds advanced by stockholder .................................. 52,035 114,500 0
---------- ---------- ----------
Net cash provided (used) by financing activities ............... 53,035 112,000 1,177,115
---------- ---------- ----------
Net increase (decrease) in cash ................................ 6,453 11,206 93,056
---------- ---------- ----------
CASH, beginning of period ...................................... 0 6,453 17,659
---------- ---------- ----------
CASH, end of period ............................................ $ 6,453 17,659 110,715
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Stock issued for investment in marketable equity securities $ 0 0 16,000
========== ========== ==========
Stock issued to retire note payable ....................... $ 0 161,000 250,000
========== ========== ==========
Stock issued to acquire fixed assets ...................... $ 0 100,000 0
========== ========== ==========
Stock issued to acquire intangible assets ................. $ 0 0 212,500
========== ========== ==========
Stock issued for subscription receivable .................. $ 0 0 882,500
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Principles
Organization - PICK Communications Corp., (f/k/a Prime International Products,
Inc.), (the Company) was incorporated in the State of Utah on April 30, 1984, as
S.T.V., Inc., changing its name to Adolphus Companies, Inc., in February 1986,
and then to Prime International Products, Inc., in May 1988. In December 1987,
the Company acquired American Italian Food Processing Co., Inc. in a stock for
stock exchange. All operations ceased in 1990. On September 12, 1995, the
Company acquired Public Info/Comm Kiosk, Inc. (PICK) in a stock for stock
exchange and currently conducts business from its headquarters in Mountain
Lakes, NJ.
Public Info/Comm Kiosk, Inc. (PICK) was incorporated in the state of New Jersey
on August 6, 1992. It was inactive from incorporation until January 1993, when
the founder began funding the operations of the Company. PICK operated in 1993,
as an agent for the sale of long distance services. In 1994, the founder
investigated the pre-paid telephone card industry and discovered a potential
niche market. PICK began selling its own brand of card in August 1994. PICK's
target market is primarily Hispanics located in New York, New Jersey, South
Florida and Texas. Pick expanded into California in 1995.
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the statements of
financial condition and revenues and expenses for the years then ended. The
following summarize the more significant accounting and reporting policies and
practices of the Company:
a) Basis of presentation - The financial statements reflect the financial
position and results of operations of PICK, Inc., prior to the acquisition by
the Company, and on a consolidated basis subsequent to the acquisition. The
acquisition has been accounted for as a recapitalization by PICK, Inc.
b) Basis of consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. Minority interest represents
minority shareholders' proportionate share of the equity and earnings/loss of
PCT Prepaid Telephone, Inc. Intercompany transactions have been eliminated.
c) Revenue recognition - For debit card sales, the Company recognizes revenues
at the time it provides the telephone services associated with its cards. It
defers revenue until then, based on customer patterns of usage, and recognizes
the cost of the carrier telephone traffic based on the minutes used, which are
also recognized in revenue. All other direct costs, (non-traffic costs
representing design royalties, printing, fulfillment, sales commissions, etc.),
are recognized as upfront costs when the initial sales are made to distributors.
The Company anticipates that substantially all of the telephone time associated
with the debit cards will be used by its customers. The Company does not have a
written returns policy, but considers sales returns on a case by case basis.
d) Prepaid telephone card inventory - Card inventory is composed of costs to
provide unactivated cards to the fulfillment company, which include printing and
freight, and is valued at the lower of cost or market. Inventory is relieved,
and charged to cost of sales, when activated cards are shipped from the
fullfillment company to the wholesale purchaser.
e) Fixed assets - Fixed assets, principally telephone equipment, are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally 3, 5 and 7 years. Depreciation expense was
$1,669, $11,967 and $30,475 for the years ended December 31, 1993, 1994 and
1995.
f) Concentration of credit risk - In 1993 there were no concentrations of credit
risk. In 1994, one customer accounted for approximately 6% of sales and
approximately
F-6
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(1) Summary of significant accounting principles, continued
f) Concentration of credit risk, continued - 3% of accounts receivable at
December 31, 1994. In 1995, one customer accounted for approximately 35% of
gross sales and approximately 74% of accounts receivable at December 31, 1995.
Approximately 75% of the sales to this customer came in December 1995. Two other
customers, one new and one existing, accounted for approximately 5% and 15% of
gross sales in 1995, and approximately 8.5% and 2.5% of accounts receivable at
December 31, 1995. The Company performs periodic credit evaluations of its
customers, but generally does not require collateral.
g) Accounts receivable - The Company provides credit for open accounts in the
normal course of business. As of the dates of these statements, the Company has
established a reserve for doubtful accounts at a rate of approximately 5.2% of
outstanding accounts receivable or 2.73% of sales. The reserve amounts at
December 31, 1993, 1994 and 1995 were $0, $15,028 and $42,650. Bad debt expense
was $0, $15,028 and $42,650 for the years ended December 31, 1993, 1994 and
1995, respectively.
h) Accrued compensation - Accrued compensation at December 31, 1994 and 1995 is
composed of compensation accrued, but not yet paid to the President of the
Company.
i) Valuation of intangibles - Intangible assets are valued at cost and amortized
over their estimated remaining useful lives. The Company did not amortize the
pre-paid cellular patent and rights in 1995, as the intangible was acquired near
the end of the year, and the Company was not in a position to begin
commercialization development until the beginning of 1996. The Company expects
to amortize this intangible over five years.
j) Income taxes - Deferred income taxes are provided on elements of income that
are recognized for income tax purposes in periods different than such items are
recognized for financial accounting purposes. In February 1992, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
number 109 (SFAS 109) relating to the method of accounting for income taxes.
SFAS 109 requires companies to take into account changes in tax rates when
valuing the deferred income tax amounts carried on their Balance Sheets (the
"Liability Method"). The Company adopted SFAS 109 effective with the conversion
from Sub-S status. Through August 1, 1994, PICK had elected to be taxed under
Subchapter S of the Internal Revenue Code, when this election was terminated.
Accordingly, PICK's operating losses prior to this termination were passed
through to its stockholders. The Company had a deferred tax asset of $417,000
and $844,000 at December 31, 1994 and 1995. The Company has established a
valuation reserve in the amount of $417,000 and $844,000 at December 31, 1994
and 1995. This deferred tax asset is composed of the tax benefit of net
operating loss carryforwards totaling $1,042,125 and $2,110,746 at December 31,
1994 and 1995, which expire $1,042,125 in 2009 and $1,068,621 in 2010. The tax
benefit is comprised of approximately $354,000 and $717,600 in federal tax
benefit and $63,000 and $126,400 in state tax benefit at December 31, 1994 and
1995. Any income tax benefits related to the differences between methods of
depreciation is de minimus.
k) Net loss per share - Loss per share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the period, less
the 100,000 shares placed in escrow for TNE (see note 9).
(2) Stockholders' equity - The Company has authorized 50,000,000 shares of
$0.002 par value common stock. In August 1995, the Company had 277,516 shares
outstanding. In August 1995, the Company completed a Regulation D Rule 504
private offering in which the Company issued 8,000,000 shares in exchange for
$232,650 in cash, net of offering expenses of $7,350.
PICK had authorized 1,000,000 shares of no par common stock. In January 1995,
PICK issued 100,000 shares in exchange for $1,000. At the end of 1993, the
President of PICK contributed his compensation to PICK, by way of waiving the
compensation accrued. During 1994, the President had loaned $161,000 to PICK,
which he exchanged for 623,000 shares of common stock. In August 1994, PICK
issued 20,000 shares to a then
F-7
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(2) Stockholders' equity, continued - unrelated third-party in exchange for a
telephone switch and the tariffs required to operate the switch, valued at
$100,000. From January through July 1995, PICK issued 242,000 shares to various
parties for services provided, valued at $0.01 per share, for a total value of
$2,420. These shares were valued at this level because at the time of issuance,
there was no assurance that PICK would be able to stay in business and it had
negative book value. In August 1995, PICK sold 25,000 shares to an independent
consultant for $250, (see note 14g).
On September 12, 1995, the Company completed the acquisition of PICK, (see notes
1a and 7). The change in par value recorded on the face of the financial
statements relates to this merger. Pursuant to the agreement to effect this
transaction, the Company issued 3,000,000 shares in exchange for 1,000,000
shares of Foxwedge, Inc., 4,500,000 shares in exchange for $250,000 in cash with
a formerly unrelated party, which subsequently became related through a common
director, 500,000 shares in exchange for an outstanding note payable of
$250,000, which was pursuant to the original terms of the note payable,
1,500,000 shares in exchange for an $82,500 subscription receivable and
16,665,000 shares in exchange for 100% of the issued and outstanding shares of
PICK.
In October 1995, the Company issued 100,000 shares in partial exchange for
co-ownership of the prepaid cellular patent and exclusive commercialization
rights, valued at $212,500. In October 1995, the Company issued 5,000,000 shares
in exchange for 5,000,000 shares of Firenze, Ltd. common stock, valued at
$10,000. On November 21, 1995, the Company issued to an unrelated third party
1,000,000 shares in exchange for $200,000 cash and a note receivable for
$800,000 to be paid during 1996.
In 1994, PICK issued warrants for common stock to three individuals. The merger
agreement recognizes these PICK warrants and exchanges them for warrants for
common stock of the Company. Each of the warrants was for 5,000 shares of PICK
common stock at an excercise price of $5 per share, converted to 82,500 shares
per warrant, totalling 247,500 shares, at an excercise price of $0.30 per share
expiring on December 31, 1996.
(3) Commitments - The Company entered into an operating lease with a one year
term for the Company's facilities beginning in May 1995. Future minimum lease
payments under this operating lease in effect at December 31, 1995 are $1,285
per month, or $5,140 for the remaining lease term. Rent expense for the years
ended December 31, 1993, 1994 and 1995 was $0, $0 and $10,280, respectively.
(4) Notes payable - Short-term debt was made up entirely of advances to PICK by
the principal stockholder, which were not collateralized. These advances carried
no interest nor a stated maturity. The advances totalled $52,035 in 1993, and
$114,500 in 1994. PICK repaid $9,500 in 1994, and $3,035 in 1995. During 1994,
the stockholder converted $154,000 of these advances into equity. In 1995, the
Company acquired co-ownership of the prepaid cellular patent and exclusive
commercialization rights for stock and a $500,000 note payable to The Next Edge,
Inc. This note is to be paid at a rate of $25,000 per quarter for five years.
The Company made the January 1, 1996, payment in December 1995. This note is not
collateralized nor does it carry interest. The Company has not imputed a
discount for this note, as all the terms of the agreement have not been
completed, specificly, the collateral for the note payable, therefore the
Company did not recognize an interest expense in 1995. The Company expects to
impute an appropriate discount rate upon supplying acceptable collateral for the
note payable.
(5) Related party transactions - The Company's President, also its principal
stockholder, was entitled to receive a compensation of $125,000 for 1993, which
he waived in total. The Company purchased advertising services of $144,118 and
$10,541 in 1994 and 1995, from an entity controlled by an individual who is a
stockholder of the Company and a member of the Board of Directors. The accounts
payable balance to this stockholder was $144,118 and $0 at December 31, 1994 and
1995. The Company purchased substantially all of its telephone network services
in 1994 and 1995, from a vendor which also owns approximately 0.8% of the
Company's
F-8
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(5) Related party transactions, continued - common stock. The accounts payable
balance to this stockholder was $276,669 and $385,255 at December 31, 1994 and
1995. The Company also purchased services which amounted to $88,064 and $126,552
in 1994 and 1995, from 2 other minor stockholders. The accounts payable balances
to these stockholders were $31,821 and $28,706 at December 31, 1994 and 1995.
The Company had gross sales of $116,924 in 1994, to 2 minor stockholders and
$289,255 in 1995, to 3 minor stockholders. The Company recorded gross sales of
$0 and $71,822 in 1994 and 1995, to the November 21, 1995 and January 1996, new
stockholders, (see notes 2 and 14a).
(6) Investment in marketable equity securities - The Company acquired 1,000,000
shares of common stock of Foxwedge, Inc. in the agreement to purchase PICK. The
Company issued 3,000,000 shares of its common stock to effect this portion of
the acquisition. The Company recognized that there was some concern as to the
continued viability of Foxwedge, therefore, the Company valued this transaction
based on the par value of the consideration given up, its stock, or $6,000. At
December 31, 1995, the fair market value of the Foxwedge stock was $3,250,000,
based on a $3.25 bid of the Foxwedge stock. Using a 70% discount due to
restrictions on resale of the Foxwedge stock, the market value is $975,000. In
December 1995, the Company entered into an agreement with a stockholder of
Ultimistics, Inc. (Ultimistics) to exchange its 1,000,000 shares of Foxwedge for
500,000 shares of Ultimistics restricted common stock. This agreement was not
consummated until January 1996.
In October 1995, the Company entered into a licensing agreement with Firenze,
Ltd. (FRNZ) This agreement called for the Company and FRNZ to exchange 5,000,000
shares of common stock between the companies. These shares bear a restrictive
legend under Rule 144 of the Securities Act of 1933, as amended. The Company
recognized that there was some concern as to the continued viability of Firenze,
therefore, the Company valued this transaction based on the par value of the
consideration given up, its stock, or $10,000. These concerns were related to
FRNZ's ability to consumate its acquisition of Fonlem Industries of France. The
fair market value of the FRNZ stock at December 31, 1995. is $27,500,000, based
on a $5.50 bid of the FRNZ stock. Using the same 70% discount, the market value
is $8,250,000.
In October 1995, P.C.T. Prepaid Telephone, Inc. (PCT), a subsidiary of the
Company, entered into an agreement with FNRZ to exchange 6,250,000 shares of PCT
common stock for 5,000,000 shares of FNRZ common stock and $250,000 in cash.
These shares, (PCT and FRNZ), bear a restrictive legend under Rule 144 of the
Securities Act of 1933, as amended. PCT has valued the FNRZ agreement at
$250,625. The valuation is comprised of the $250,000 cash plus the 5,000,000
shares of FNRZ common stock valued at $625 on the same basis of valuation of
FNRZ stock above, PCT's par value. The fair market value of the FRNZ stock at
December 31, 1995 is $27,500,000, based on a $5.50 bid of the FRNZ stock. Using
the same 70% discount, the market value is $8,250,000.
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting number 115 (SFAS 115) relating to the method of accounting
for certain investments in debt and equity securities. Although SFAS 115 does
not apply to the investments held by the Company as they are all restricted by
Rule 144 of the Securities Act of 1933, as amended, the Company has decided to
incorporate the disclosure requirements of SFAS 115.
(7) Aquisition of subsidiaries - On September 12, 1995, the Company acquired
virtually all of the issued and outstanding common stock of Public Info/Comm
Kiosk, Inc. (PICK) in a stock for stock exchange accounted for as a
recapitalization. The Company has recorded this transaction as a 100%
acquisition even though one of the former PICK stockholders has not yet tendered
their PICK shares to the escrow agent, (see note 14e). The Company expects this
situation to be resolved within a reasonable time period.
In October 1995, the Company granted P.C.T. Prepaid Telephone, Inc., (PCT), an
exclusive license to market
F-9
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(7) Aquisition of subsidiaries, continued - and sell the debit cellular
telephone technology (see note 9) in the United States and Canada in exchange
for 12,750,000 shares of PCT common stock, which bear a restrictive legend under
Rule 144 of the Securities Act of 1933, as amended. These shares are 63.4% of
the issued and outstanding shares of PCT at December 31, 1995, giving the
Company control of PCT. PCT was incorporated on October 24, 1995, and had not
yet begun operations at December 31, 1995.
(8) Statement of Financial Accounting Standards not yet adopted - In March 1995,
the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 121, "Accounting for the impairment of long-lived
assets and for long-lived assets to be disposed of." The Company will have to
implement SFAS 121 by the fiscal year ending December 31, 1996. The provisions
will require the Company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that an impairment loss has occurred
based on expected future cash flows, then the loss should be recognized in the
income statement and certain disclosures regarding the impairment should be made
in the financial statements. The Company has not yet had sufficient time to
evaluate the impact, if any, of the provisions of SFAS 121.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for stock
based compensation." The Company will have to implement SFAS 123 by the fiscal
year ending December 31, 1996. The Company has not yet had sufficient time to
evaluate the impact, if any, of the provisions of SFAS 123.
(9) Debit cellular telephone technology agreement - In October 1995, the Company
entered into an agreement with The Next Edge, Inc. (TNE), whereby the Company
purchases the worldwide rights to market, distribute, sell and manufacture TNE's
Smart Tracker System (a debit cellular telephone system, with a patent
pending).This agreement has a term of five years with an option, at the
Company's sole discretion, for five additional five year periods.The agreement
requires the Company to pay TNE a total of $500,000, payable at a rate of
$25,000 quarterly over five years beginning on January 1, 1996. These payments
are to be secured by an Irrevocable Letter of Credit. The Company is also
required to issue a total of 100,000 shares of its restricted common stock to
TNE at the rate of 20,000 shares each year for five years beginning January 1,
1996. These shares have been issued into escrow. The agreement also requires the
Company to purchase the circuit chips for the system from TNE, at TNE's cost.
The agreement stipulates that the Company will be recorded as co-owner of the
final US patent relating to this technology. The agreement requires the Company
to implement the international patent applications. The Company has valued this
purchase ageement at $712,500. The valuation is comprised of the $500,000 cash
plus the 100,000 shares of common stock valued at $212,500 based on the $4.25
bid quote of the Company's stock, less a 50% discount. The letter of credit has
not been issued, (see note 14b).
(10) Firenze, Ltd. licensing agreement - On October 24, 1995, the Company
granted FRNZ an exclusive license for marketing and sales of the debit cellular
telephone technology (see note 9) in Europe, Asia, Australia and Africa. This
agreement calls for the Company and FRNZ to exchange 5,000,000 shares of common
stock between the companies. These shares bear a restrictive legend under Rule
144 of the Securities Act of 1933, as amended. The agreement requires FNRZ to
purchase the microchip, cellular equipment and software from the Company at the
Company's cost plus 10%. The agreement calls for FNRZ to pay the Company monthly
a 5% royalty on FNRZ's gross revenue from the technology under license. FRNZ had
not yet begun to commercialize this license at December 31, 1995, therefore no
royalties were received by the Company.
(11) World Tel Saver, Inc. agreement - In October 1995, the Company entered into
an agreement with an individual to purchase $1,000,000 worth of prepaid
telephone time, (consisting of 3,448,276 minutes at $0.29 per minute for
domestic use), for $300,000 total at a rate of $25,000 per month commencing on
November 1, 1995. In November 1995, the Company entered into an additional
agreement with the same individual to purchase an additional $490,000 worth of
telephone time (consisting of 1,689,654 minutes at $0.29 per minute for domestic
F-10
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(11) World Tel Saver, Inc. agreement, continued - use), for $120,000 at a rate
of $10,000 per month commencing on December 1, 1995. All of this time is to be
provided by World Tel Saver, Inc., (WTS). Both the individual and WTS are
unrelated parties to the Company.
(12) Foxwedge, Inc. stock exchange - In December 1995, the Company entered into
an agreement to exchange all of the 1,000,000 shares of Foxwedge, Inc. common
stock it owns for 500,000 shares of common stock of Ultimistics, Inc.
(Ultimistics) with a stockholder of Ultimistics. The 500,000 shares of
Ultimistics will represent approximately 1.6% of the issued and outstanding
common stock of Ultimistics. At the time the agreement was entered into,
Foxwedge was $4.00 bid, $5.25 ask and Ultimistics was $11.00 bid, $12.50 ask.
This exchange was consummated in January 1996.
The Company expects to record a $1,194,000 gain from this transaction.
(13) Working capital deficiency - The accompanying consolidated financial
statements have been prepared asuuming that the Company will continue as a going
concern which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company incurred net losses for the years
ended December 31, 1993, 1994 and 1995. Additionally, the Company has a working
capital deficiency of $1,074,159 and a total stockholders' deficiency of
$846,407 at December 31, 1995.
In 1995, the Company raised $1,265,000 in cash through sales of common stock and
incurring additional debt. The Company retired the debt by issuing additional
common stock. This amount raised exceeded its operating cash flows used by
$93,056. At December 31, 1995, the Company has a note receivable, accounted for
as a stock subscription receivable, in the amount of $800,000, to be paid to the
Company during 1996. In January 1996, the Company sold additional common stock
for $250,000, (see note 14a). The Company's plans include controlling its cash
expenses, such that this inflow of capital may cover a cash flow shortfall in
1996.
In January 1996, the Company also entered into an agreement to exchange the
prepaid telephone time it aqcuired in October 1995, for advertising valued at $2
million, (see notes 14c and 11). The Company entered into this transaction, and
another January 1996, transaction, (see note 14d), in which it exchanged common
stock for an additional $3 million of advertising, because, advertising
expenditures are at the beginning of the Company's revenue generating process.
The Company believes it can generate a significant increase in cash flow
revenue, whether recognized or deferred, by increasing its advertising presence
in select target markets. The Company believes that to increase its advertising
without expending cash, will be beneficial to its cash flows from operations.
The Company is also in the process of negotiating lower telephone times rates,
along with higher volumes, expected to occur when its advertising/marketing
programs are instituted.
The Company has also begun negotiating with several investment banking firms to
consider raising additional funds, either through debt or equity offerings, or a
combination. Any funds raised would be employed to further increase its prepaid
telephone card business, and to develop its prepaid cellular telephone businees.
There are no assurances that the Company will be able to sucessfully raise
additional funds in this manner.
The Company believes that these plans will enable it to continue as a going
concern. However, there can be no assurances that the Company will be able to
successfully implement such plans. If such plans are not successfully
implemented, the Company could be required to seek additional financing from
sources not currently anticipated.
(14) Subsequent events
a) Stock subscribed - In January 1996, the Company entered into an agreement to
sell 250,000 shares of its common stock to an unrelated third party for $250,000
in cash.
b) Yakimoto Investment, Ltd. licensing agreements - In January and February
1996, the Company entered into two
F-11
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(14) Subsequent events, continued
b) Yakimoto Investment, Ltd. licensing agreements, continued - licensing
agreement with Yakimoto Investment, Ltd. (Yakimoto). The first granted Yakimoto
an an exclusive license for marketing and sales of the debit cellular telephone
technology (see note 9) in South America. This agreement requires Yakimoto to
pay the Company 1,000,000 shares of common stock of Ultimistics, Inc.
(Ultimistics) as consideration for this license. These shares will bear a
restrictive legend under Rule 144 of the Securities Act of 1933, as amended. At
the time this agreement was entered into, Ultimistics was $8.50 bid. This values
these shares at $8,500,000. The Company then determined that it should discount
the fair market value of the transaction by approximately 70%. As a result this
investment will be recorded at $2,550,000. Yakimoto is also required to provide
the Company with a $475,000 declining balance Irrevocable Letter of Credit,
which the Company will use to secure the agreement discussed in note 9 above.
This letter of credit has not yet been issued. The agreement also requires
Yakimoto to purchase the microchip, cellular equipment and software from the
Company at the Company's cost plus 10%. The agreement calls for Yakimoto to pay
the Company monthly a 5% royalty on Yakimoto's gross revenue from the technology
under license. The second agreement transfers the bulk of the Firenze license
(see note 10) to Yakimoto in exchange for 500,000 shares of Ultimistics stock.
At the time this agreement was entered into, Ultimistics was $7.00 bid. This
values these shares at $3,500,000. The Company then determined that it should
discount the fair market value of the transaction by approximately 70%. As a
result this investment will be recorded at $1,050,000.
c) Telephone time exchange for prepaid advertising - In January 1996, the
Company entered into an agreement with International Executive Services (IES),
an unrelated party to the Company, but is a related party with respect to World
Tel Saver, to exchange all of its prepaid telephone time, (consisting of
5,137,930 minutes), for $2,000,000 of prepaid advertising. The advertising to be
provided is to be composed of print, television, radio and outdoor media. The
original agreement calls for the Company to use this advertising within two
years, however the Company has received verbal approval for a three year
extension. The Company will record a $1,580,000 gain on this exchange, which the
Company expects to amortize into income as the advertising is used.
d) Stock exchange for prepaid advertising - In January 1996, the Company entered
into an agreement with IES to issue 1,000,000 shares to IES, and 150,000 shares
to Richard Maranon, a director of the Company, of the Company's common stock in
exchange for $3,000,000 of prepaid advertising. The advertising to be provided
is to be composed of print, television, radio and outdoor media. The original
agreement calls for the Company to use this advertising within two years,
however the Company has received verbal approval for a four year extension. The
Company expects to record this stock issuance at $2,700,000, allowing for a 10%
discount for any advertising usage availablity the Company may not use.
e) Related party transactions - The 150,000 shares issued to Mr. Maranon, a
director, discussed in note 14d, were part and parcel to the IES contract, and
are for the time Mr. Maranon and his staff at All Florida Advertising to develop
and oversee the implementation of the advertising/marketing programs to be
instituted by the Company to use the entire $3,000,000 in prepaid advertising.
f) Former officer settlement - In early 1996, the Company began negotiating to
settle a dispute with a former officer. This former officer has the right to
exchange their 20,000 shares of PICK, Inc. into 330,000 shares of the Company
and owns a warrant for 5,000 shares of PICK, Inc. with an excercise price of $5
per share, which the board of directors has amended to a warrant for 82,500
shares of the Company with an excercise price of $0.30 per share. These shares
were part of the reorganization discussed in note 2 above.
g) Correction of accounting error - In June 1995, PICK, Inc. sold 25,000 shares
of its common stock to a third party consultant for $250, or $0.01 per share. At
the time the consultant tendered his check, the amount was inadvertantly
credited to consultant expense, rather than to common stock. This partially
occurred because at
F-12
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(14) Subsequent events, continued
g) Correction of accounting error, continued - the time the actual issuance of
these shares would have resulted in PICK issuing more shares than were
authorized. The agreement at the time of this sale was that the consultant would
actually be issued shares in the public shell company that PICK hoped to merge
into, instead of PICK shares. The agreement further stated that should such
merger not occur, the consultant would be issued shares of PICK, Inc., as soon
as practicable after PICK increased its authorized shares. As the merger, then
under consideration, did occur, the shares to be issued were converted to shares
of the Company at the same rate, (16.5 to 1), and 412,500 shares of the Company
were issued in January 1996. The error was discovered subsequently, and the
financial statements as presented reflect the effects, as if the error had not
occurred.
h) Firenze, Ltd. stock exchange - In March 1996, the Company exchanged the
5,000,000 shares of Firenze, Ltd. it held for 2,000,000 shares of Ultimistics
Inc. common stock, with a stockholder of Ultimistics. The Company expects to
record a gain of $3,590,000 as a result of this transaction.
F-13
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
Jurisdiction of
Name Incorporation
Public Info/Comm Kiosk, Inc. New Jersey
P.C.T. Prepaid Telephone, Inc. New York
PICKNET, Inc. New Jersey
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PICK COMMUNICATIONS CORP. FOR DECEMBER 31, 1993, 1994
AND 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001006282
<NAME> PICK Communications Corp.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C> <C>
<PERIOD-TYPE> Year Year Year
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994 DEC-31-1995
<PERIOD-START> JAN-01-1993 JAN-01-1994 JAN-01-1995
<PERIOD-END> DEC-31-1993 DEC-31-1994 DEC-31-1995
<EXCHANGE-RATE> 1 1 1
<CASH> 6,453 17,659 110,715
<SECURITIES> 0 0 16,625
<RECEIVABLES> 6,016 148,374 824,463
<ALLOWANCES> 0 15,028 42,650
<INVENTORY> 0 47,898 167,091
<CURRENT-ASSETS> 12,469 213,931 1,605,764
<PP&E> 16,692 119,540 158,246
<DEPRECIATION> 1,669 13,636 44,111
<TOTAL-ASSETS> 27,492 319,835 2,661,524
<CURRENT-LIABILITIES> 59,598 1,341,521 2,679,923
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 126,000 53,545 80,260
<OTHER-SE> (158,106) (1,075,231) (714,167)
<TOTAL-LIABILITY-AND-EQUITY> 27,492 319,835 2,661,524
<SALES> 23,301 529,913 1,565,039
<TOTAL-REVENUES> 23,301 529,913 1,565,039
<CGS> 10,067 753,346 1,387,459
<TOTAL-COSTS> 14,970 1,327,070 1,644,946
<OTHER-EXPENSES> 164,768 426,428 872,726
<LOSS-PROVISION> 0 15,028 42,650
<INTEREST-EXPENSE> 0 0 45,033
<INCOME-PRETAX> (158,106) (1,250,580) (1,070,828)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (158,106) (1,250,580) (1,070,791)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (158,106) (1,250,580) (1,070,791)
<EPS-PRIMARY> 0 0 (0.03)
<EPS-DILUTED> 0 0 (0.03)
</TABLE>
