FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-27604
PICK Communications Corp.
(Exact name of the registrant as specified in its charter)
NEVADA 75-2107261
(State or other jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
155 Route 46, West, Third Floor
Wayne Interchange Plaza II
Wayne, NJ 07470
(Address of principal executive offices) (Zip code)
Registrant's Telephone number, including area code: (201) 812-7425
Indicate by check mark whether the registrant (1) has filed reports to be filed
by Section 13 or 15(d) of the securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
Common Stock, $.002 Par Value 43,192,516
(See Index to Sections of this Document on Page 2)
1
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PICK Communications Corp.
Index to Form 10Q
Part I Financial Statements
Item 1: Financial Statements ............................................. 3
F-6
thru
F-11
Consolidated Balance Sheets
as of June 30, 1996 and June 30, 1995.....................F-2
Consolidated Statements of Operations - Three months and six months
Ended June 30, 1996 and June 30, 1995......................F-3
Consolidated Statements of Stockholders' Equity - six months
as of June 30, 1996 and June 30, 1995 .....................F-4
Statements of Cash Flows - Three months and six months
Ended June 30, 1996 and June 30, 1995 .....................F-5
Notes to the Financial Statements...................................F-6
thru
F-11
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................. 4
Part II Other Information:
Items 1-6 Other Information........................................ 8
Signatures ........................................................10
2
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Part I - Financial Information
Item 1 - Financial Statements:
Financial Information
Financial statements for the three and six months ended June 30, 1996 and
June 30, 1996 are derived from the consolidation of the PICK Communications
Corp, (the "Company") Public Info/CommKiosk, Inc., ("PICK"), and P.C.T. Prepaid
Telephone, Inc. ("PCT") in accordance with generally accepted accounting
principles. (See Notes to the Financial Statements for accounting policies.)
On April 16, 1996, the Company established PICKNET, Inc., a wholly owned
subsidiary to serve as the operating company for the resale of international
long distance service. Service began for a third party customer in May, 1996.
The Consolidated Financial Statements of the Company are included in the
following pages labeled schedules F-1 through F-11.
3
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INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Balance Sheets .............................................. F-2
Consolidated Statements of Operations .................................... F-3
Consolidated Statement of Stockholders' Equity ........................... F-4
Consolidated Statements of Cash Flows .................................... F-5
Notes to Consolidated Financial Statements ............................... F-6
F-1
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<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Balance Sheets
December 31, 1995 and June 30, 1996
<S> <C> <C>
ASSETS ................................................... 1995 1996
CURRENT ASSETS ..................................................... (Unaudited)
Cash ........................................................... $ 110,715 278,976
Accounts receivable, net (note 1g) ............................. 824,463 1,265,420
Prepaid telephone card inventory (note 1d) ..................... 167,091 127,279
Prepaid advertising (notes 11, 12) ............................. 0 3,120,000
Prepaid expenses and other current assets ...................... 503,495 203,888
Total Current Assets ........................................ 1,605,764 4,995,563
PROPERTY AND EQUIPMENT
Furniture and equipment, net (note 1e) ......................... 114,135 136,836
Total Property and Equipment ................................ 114,135 136,836
OTHER ASSETS
Pre-paid cellular patent and rights, net (note 8) .............. 712,500 641,250
Investment in marketable equity securities, net (note 6) ....... 16,625 5,866,875
Total Other Assets .......................................... 729,125 6,508,125
Total Assets ....................................................... $ 2,449,024 11,640,524
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (note 5) ...................................... $ 191,891 747,396
Direct cost telephone time accrual (note 5) .................... 1,084,201 981,095
Pre-paid telephone time liability (note 4) ..................... 378,000 0
Accrued expenses and other current payables (note 1h) .......... 145,448 684,463
Customer deposits .............................................. 0 250,000
Advances from stockholders (note 4) ............................ 0 50,000
Deferred revenue ............................................... 805,383 1,112,320
Current income taxes payable (note 1j) ......................... 0 0
Short-term portion of long-term debt ........................... 75,000 100,000
Total Current Liabilities ................................... 2,679,923 3,925,274
LONG-TERM LIABILITIES
Deferred income tax liability (note 1j) ........................ 0 0
Due to The Next Edge, Inc. (notes 4 & 8) ....................... 400,000 325,000
Total Long-Term Liabilities ................................. 400,000 325,000
Total Liabilities .................................................. 3,079,923 4,250,274
Minority interest in consolidated subsidiary ....................... 215,508 1,649,498
STOCKHOLDERS' EQUITY
Common stock, no par; Authorized 50,000,000 shares; issued and
outstanding 40,542,516 at December 31, 1995 and 43,192,516 at
June 30, 1996 (note 2) ...................................... 81,085 86,385
Additional paid in capital in excess of par (note 2) ........... 2,018,780 6,238,480
Stock subscription receivable (note 2) ......................... (800,000) (650,000)
Treasury stock (notes 2 & 14a) ................................. 0 (29,500)
Marketable equity securities valuation reserve (note 6) ........ 0 (2,850,750)
Retained earnings (deficit) .................................... (2,146,272) 2,946,137
Total Stockholders' Equity ......................................... (846,407) 5,740,752
Total Liabilities and Stockholders' Equity ......................... $ 2,449,024 11,640,524
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
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<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Operations
(UNAUDITED)
<S> <C> <C> <C> <C>
3 months ended June 30, 6 months ended June 30,
1995 1996 1995 1996
Revenue
Sales - debit cards to related parties (note 5) .................$ 79,992 436,117 170,233 485,898
Sales - debit cards to others ................................... 297,676 228,047 516,181 689,095
Sales - long distance services .................................. 5,911 553,387 11,084 555,224
Total sales ................................................. 383,579 1,217,551 697,498 1,730,217
Cost of sales - related parties (note 5) ........................ 248,085 36,517 454,460 105,207
Other cost of sales ............................................. 197,504 1,377,871 237,235 1,907,843
Total cost of sales .......................................... 445,589 1,414,388 691,695 2,013,050
Gross profit (loss) .......................................... (62,010) (196,837) 5,803 (282,833)
Sales - prepaid cellular licenses (note 10) ..................... 0 50,000 0 3,650,000
Operating Expenses
Sales and marketing - related party (note 5) .................... 0 42,336 3,400 42,336
Sales and marketing - other ..................................... 32,225 89,155 68,179 145,538
Total sales and marketing .................................... 32,225 131,491 71,579 187,874
General and administrative ...................................... 91,321 395,403 250,572 897,529
Depreciation .................................................... 6,072 8,556 12,144 16,582
Amortization .................................................... 0 35,625 0 71,250
Bad debt ........................................................ 2,409 81,485 5,061 86,678
Total operating expenses ..................................... 132,027 652,560 339,356 1,259,913
Income (loss) from operations ................................... (194,037) (799,397) (333,553) 2,107,254
Interest expense ................................................ 9,587 (340) 17,753 9,990
Income (loss) before taxes, minority interest in
subsidiary loss and gain on sale of marketable
equity securities ............................................. (203,624) (799,057) (351,306) 2,097,264
Gain (loss) on sale of mkt equity securit (note 6) .............. 0 0 0 4,784,000
Income (loss) before taxes and minority interest
in subsidiary loss ........................................... (203,624) (799,057) (351,306) 6,881,264
Minority interest in subsidiary loss ............................ 12,491 0 19,145
Provision for def income tax (benefit)(note 1j) ................. 0 0 0 1,808,000
Provision for curr income tax (benefit)(note 1j) ................ 0 (346,000) 0 0
Net income (loss) ...............................................$ (203,624) (440,656) (351,306) 5,092,409
Primary net income (loss) per share .............................$ -- (0.01) -- 0.12
Weighted average number of shares outstanding ................... -- 42,755,713 -- 42,755,713
Fully diluted net income (loss) per share .......................$ -- -- -- 0.11
Weighted average number of shares outstanding ................... -- -- -- 45,294,165
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
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<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statement of Stockholders' Equity
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Additional Stock Mkt Sec Retained Total
Common Paid in Subscrip Valuation Treasury Earnings/ Stockholders'
Stock Capital Receivable Reserve Stock (Deficit) Equity
BALANCE, January
1, 1996 $ 81,085 2,018,780 (800,000) 0 0 (2,146,272) (846,407)
Capital transactions:
A) 500 249,500 (125,000) 0 0 0 125,000
B) 2,300 2,697,700 0 0 0 0 2,700,000
C) 2,500 1,272,500 0 0 0 0 1,275,000
D) 0 0 0 0 (29,500) 0 (29,500)
E) 0 0 275,000 0 0 0 275,000
Marketable equity
securities valuation
reserve - net 0 0 0 (2,850,750) 0 0 (2,850,750)
Net income (loss) 0 0 0 0 0 5,092,409 5,092,409
BALANCE, June
30, 1996 $ 86,385 6,238,480 (650,000) (2,850,750) (29,500) 2,946,137 5,740,752
A) January 1996; 250,000 shares of common stock; $125,000 in cash and $125,000 in stock subscription receivable
(note 2)
B) January 1996; 1,150,000 shares of common stock; $3 million in prepaid advertising valued on the Company's books
at $2,700,000. (notes 2 & 12)
C) January 1996; 1,250,000 shares of common stock; 500,000 shares of Ultimistics Inc. restricted common stock which
had a bid price of $8.50 per share, discounted 70%. (note 2)
D) March 1996; 230,000 shares of common stock; agreement to acquire as treasury stock. (note 2 & 14a)
E) Two quarters 1996; 0 shares of common stock; stock subscriptions received in cash
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
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<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Cash Flows
6 months ended June 30,
(UNAUDITED)
<S> <C> <C>
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ (351,306) 5,092,409
Adjustments to reconcile net loss to net cash used for operating activities:
Non-cash revenues - prepaid cellular license revenue ..................... 0 (3,650,000)
Non-cash gain on sale of marketable equity securities .................... 0 (4,784,000)
Depreciation ............................................................. 12,144 16,582
Amortization ............................................................. 0 71,250
Bad debt expense ......................................................... 5,061 86,678
Stock issued for services ................................................ 2,420 0
Provision for deferred income taxes ...................................... 0 1,808,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................... (80,047) (527,635)
(Increase) decrease in prepaid telephone card inventory .................. (28,338) 39,812
(Increase) decrease in prepaid and other assets .......................... (11,868) (121,017)
Increase (decrease) in accounts payable (note 5) ......................... (30,480) 555,505
Increase (decrease) in direct cost telephone time accrual (note 5) ....... 170,946 (103,106)
Increase (decrease) in deferred revenue .................................. 245,402 306,937
Increase (decrease) in prepaid telephone time liability .................. 0 (378,000)
Increase (decrease) in customer deposits ................................. 0 250,000
Increase (decrease) in current income taxes payable ...................... 0 0
Increase (decrease) in deferred income taxes payable ..................... 0 0
Increase (decrease) in accrued expenses (note 1h) ........................ 65,122 539,015
Net cash (used) provided by operating activities ........................... (944) (797,570)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ................................................... (6,144) (36,169)
Net cash (used) provided by investing activities ........................... (6,144) (36,169)
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash ............................................... 0 250,000
Common stock issued for cash by subsidiary ................................. 0 602,000
Payments received on stock subscriptions receivable ........................ 0 150,000
Payments on stockholder advances ........................................... (3,035) 0
Payments on third-party debt ............................................... 0 (50,000)
Funds advanced by stockholder .............................................. 0 50,000
Net cash provided (used) by financing activities ........................... (3,035) 1,002,000
Net increase (decrease) in cash ............................................ (10,123) 168,261
CASH, beginning of period .................................................. 17,659 110,715
CASH, end of period ........................................................ $ 7,536 278,976
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Stock issued for investment in marketable equity securities ........... $ 0 2,075,000
Stock issued to acquire prepaid advertising ........................... $ 0 2,700,000
Stock issued for subscription receivable .............................. $ 0 125,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
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PICK Communications Corp.
Notes to Consolidated Financial Statements
(UNAUDITED)
(1) Summary of Significant Accounting Principles Organization PICK
Communications Corp., (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
and to PICK Communications Corp. in December 1995. 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
conducts business from its headquarters in Wayne, 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 the operations of the Company. PICK operated in 1993, as
an agent for the sale of long distance services. In August 1994, PICK began
selling its own brand of prepaid calling card. 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
financial statements for the six months ended June 30, 1995 and 1996 include all
adjustments which in the opinion of management are necessary for fair
presentation. 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 revenue
at the time it provides the telephone services associated with its cards. It
defers revenues 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 revenues. All other direct costs, (non-traffic costs
representing design royalty, printing, fulfillment, shipping, sales
commissions, etc.), are recognized as up-front costs when the initial sales are
made to the distributors. The Company anticipates that substantially all 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 fulfillment 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 $12,144 and $16,582 for the six months ended June 30, 1995 and 1996.
f) Concentration of credit risk Two customers accounted for approximately
10.0% and 5.6% of net sales and approximately 28.8% and 22.6% of accounts
receivable at June 30, 1995. Three customers accounted for
F-6
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PICK Communications Corp.
Notes to Consolidated Financial Statements
(1) Summary of significant accounting principles, continued
f) Concentration of credit risk, continued approximately 22.4%, 20.1% and
10.9% of net sales and approximately 6.4%, 17.4% and 61.2% of accounts
receivable at June 30, 1996. 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 8.6% of
outstanding accounts receivable or 6.9% of sales. The reserve amounts at June
30, 1995 and 1996 were $20,089 and $119,356. Bad debt expense was $5,061 and
$36,678 for the six months ended June 30, 1995 and 1996 respectively.
h) Accrued compensation Accrued compensation of $141,472 and $0 at June 30,
1995 and 1996 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 is amortizing
the prepaid cellular asset over the initial 60 month term of the contract.
Amortization expense was $0 and $71,250 for the six months ended June 30, 1995
and 1996.
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, August 1, 1994. The Company had a deferred tax
liability of $0 and $0 and a current tax liability of $0 and $0 at June 30, 1995
and 1996. The deferred tax liability is composed of the tax effects resulting
from the exchange of the Foxwedge shares and Firenze shares it held for shares
of Ultimistics Inc. At the dates of these exchanges the Company recorded gains
for book purposes totalling $4,784,000 with deferred income tax effects of
$1,674,400 for federal and $430,600 for state. At June 30, 1996, the current
market value of all the shares of Ultimistics received during the period, net of
discount, would reflect a loss of $4,106,250, with deferred tax asset effects of
$1,674,400 for federal and $430,600 for state. At June 30, 1996, the Company has
established a valuation allowance of its deferred tax liability for this
combined difference of $1,808,000, giving a net deferred tax liability at June
30, 1996, of $0 federal and $0 state, for a total of $0. The valuation allowance
reduced the marketable equity securities valuation reserve, as reflected in the
Stockholders' Equity section of the consolidated balance sheet at June 30, 1996.
The current income tax liability is adjusted by the benefit of net operating
loss carryforwards totaling $2,110,496 at December 31, 1995. The tax benefit was
comprised of approximately $717,600 in federal tax benefit and $126,400 in state
tax benefit at December 31, 1995. The net current income tax liability is
composed of $0 federal and $0 for state. Any income tax benefits related to the
differences between methods of depreciation is de minimis.
k) Net income (loss) per share Primary income (loss) per share is computed
by dividing the net income(loss) by the weighted average number of common shares
outstanding during the period. Fully-diluted income (loss) per share is computed
by dividing the net income (loss) by the weighted average number of common
Stock and common share equivalents, assuming the equivalents had been shares
outstanding, during the period.
(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.
F-7
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PICK Communications Corp.
Notes to Consolidated Financial Statements
(2) Stockholders' equity, continued PICK has authorized 1,000,000 shares of
no par common stock. In January 1993, 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 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 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 June 1995, PICK sold 25,000 shares to an
independent consultant for $250 in cash.
On September 12, 1995, the Company completed the acquisition of PICK, (see
note 1a). 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, 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 1,000,000 shares to an unrelated third party in
exchange for $200,000 cash and a note receivable for $800,000 to be paid during
1996.
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.
Also in January 1996, the Company entered into an agreement with International
Executive Services, (IES), a barter exchange company, to exchange 1,000,000
shares to IES and 150,000 shares to Richard Maranon, a director of the Company,
of the Company's common stock for $3,000,000 of prepaid advertising. The Company
has recorded these shares at $2,700,000, or $2.35 per share. 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 oral approval for a three year
extension. In January 1996, the Company exchanged 1,250,000 shares of its common
stock for 500,000 shares of Ultimistics Inc. common stock with an unrelated
third party individual. The Company recorded this transaction at $1,275,000,
which was a 70% discount from the then current market value of $4,250,000 for
the Ultimistics stock.
In June 1996, the Company settled a dispute with a former officer. This
former officer had the right to exchange the individuals' 20,000 shares of PICK,
Inc. into 330,000 shares of the Company and also owned a warrant for 5,000
shares of PICK, Inc. with an exercise price of $5 per share, which the board of
directors has amended to a warrant for 82,500 shares of the Company with an
exercise price of $0.30 per share. These shares were part of the reorganization
discussed in note 2 above. The Company repurchased 230,000 of the 330,000 shares
and the warrant for $29,500 in cash. This settlement finalized the September
1995, recapitalization of the Company.
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 exercise price of $5 per share, and was converted into
warrants to purchase 82,500 shares per warrant, totalling 247,500 shares, at an
exercise price of $0.30 per share expiring on December 31, 1996.
In January 1996, the Company issued stock options to seven officers and
directors of the Company. Each of these options was for 500,000 shares, for a
total of 3,500,000 shares, at an exercise price of $2.75 per share
F-8
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PICK Communications Corp.
Notes to Consolidated Financial Statements
(2) Stockholders' equity, continued and expire on January 25, 1999. The
exercise price was 10% above the market price of the shares on the date of the
grant. The Company has reserved an additional 1,500,000 shares for potential
future use in granting options for valued employees.
(3) Commitments The Company entered into a 63 month operating lease for the
Company's facilities in June 1996. This lease provides for three months free
rent and a renewal option for five additional years. Future minimum lease
payments under this operating lease in effect at June 30, 1996 are $8,620 per
month, or $103,441 per year. Rent expense for the six months ended June 30, 1995
and 1996 was $3,070 and $7,710, 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 $0 and $50,000
in 1995 and 1996. PICK repaid $3,035 in 1995 and $0 in 1996. 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, and the April 1,
1996, payment in March 1996. This note is not collateralized nor does it carry
interest. The Company cannot impute a discount for this note until such time as
it obtains the collateral required to secure this note, therefore the Company
did not recognize any interest expense in the six months ended June 30, 1996.
The Company will impute an appropriate discount rate upon supplying acceptable
collateral for the note payable, which the Company expects to acquire in the
near future.
(5) Related party transactions The Company purchased advertising services
of $3,400 and $4,875 in the six month periods ended June 30, 1995 and 1996, from
an entity controlled by an individual who is a stockholder of the Company and a
member of the Board of Directors. This individual also received 150,000 shares
of the Company's common stock, (see notes 2 and 12), for his and his staff's
efforts to develop and oversee the implementation of the advertising/marketing
programs to be instituted by the Company to use the $5,000,000 in prepaid
advertising. The Company purchased substantially all of its telephone network
services in 1995, from a vendor which also owns approximately 1% of the
Company's common stock. The Company had sales of $170,233 in 1995, to 2
stockholders and $485,898 in 1996, to 3 stockholders.
(6) Investment in marketable equity securities The Company exchanged
1,000,000 shares of common stock of Foxwedge, Inc. it held for 500,000 shares of
Ultimistics Inc. common stock with a stockholder of Ultimistics in January 1996.
The Company recorded a $1,194,000 gain as a result of this transaction. The
market value of the Ultimistics stock received was $4,000,000 at the date of the
transaction, which the Company discounted by 70% to $1,200,000, based on the
size of the Company's holdings of Ultimistics and the restrictions on resale. In
January 1996, the Company entered into two transactions with Yakimoto Ltd.
whereby the Company sold the prepaid cellular marketing rights for South America
to Yakimoto for 1,000,000 shares of Ultimistics stock, and the rights to Asia,
Australia, Africa and most of Europe to Yakimoto for 500,000 shares of
Ultimistics. The current market value of the Ultimistics stock at the time of
the transactions was $12,000,000 total, which the Company discounted by 70% to
$3,600,000, based on the size of the Company's holdings of Ultimistics and the
restrictions on resale. The Company recorded licensing revenue for these
transactions.
In March 1996, the Company exchanged 5,000,000 shares of common stock of
Firenze, Ltd. it held for 2,000,000 shares of Ultimistics Inc. common stock with
a stockholder of Ultimistics. The Company recorded a $3,590,000 gain as a result
of this transaction. The market value of the Ultimistics stock received was
$12,000,000 at the date of the transaction, which the Company discounted by 70%
to $3,600,000, based on the size of the Company's holdings of Ultimistics and
the restrictions on resale. In January 1996, P.C.T. Prepaid Telephone, Inc.
(PCT), a consolidated subsidiary of the Company, entered into an agreement with
several unrelated individuals to issue 10,000,000 shares of PCT common stock to
the unrelated parties and 10,000,000 shares to the Company in exchange for
200,000 shares of Ultimistics common stock, valued by
F-9
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(6) Investment in marketable equity securities, continued PCT at $480,000.
In June 1996, the Company entered into a licensing agreement with the
Internet Channel, Inc. whereby the Company sold the commercialization rights for
its prepaid cellular microchip for use in accessing the Internet, (or World Wide
Web). The Company received 500,000 shares of Internet Channel, Inc. Rule 144
restricted common stock in exchange for this license. The Company has valued
this stock at $0.10 per share, for a total of $50,000.
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. At June 30,
1996, the Company holds 4,700,000 shares of Ultimistics with a current market
value of $19,387,500, which when discounted 70% equals $5,816,250. The Company
has established a valuation reserve of $4,658,750 for this investment. The
valuation reserve as reflected in the Stockholders' Equity section of the
consolidated balance sheet is net of the $1,808,000 deferred income tax effects,
giving a net of $2,850,750. The Company believes that the decline in market
value of the Ultimistics stock is temporary in nature. At June 30, 1996, there
is no market for the shares of Internet Channel, Inc.
(7) Statement of Financial Accounting Standards not yet evaluated 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 has
adopted SFAS 121 effective January 1, 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 has adopted SFAS 123 effective January 1, 1996.
The Company has not yet had sufficient time to evaluate the impact, if any, of
the provisions of SFAS 123.
(8) Debit cellular telephone technology agreement In October 1995, the
Company entered into an agreement with The Next Edge, Inc. (TNE), whereby the
Company acquired 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. 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 agreement 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 bid quote of the Company's stock,
less a 50% discount. The letter of credit has not yet been issued, (see note 4).
(9) Firenze, Ltd. licensing agreement On October 24, 1995, the Company
granted Firenze Ltd., (FRNZ), an exclusive
F-10
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(9) Firenze, Ltd. licensing agreement, continued license for marketing and
sales of the debit cellular telephone technology (see note 8) in Europe, Asia,
Australia and Africa. This agreement called for the Company and FRNZ to exchange
5,000,000 shares of common stock between the companies. 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 June 30, 1996, therefore
no royalties were received by the Company. As a direct result of Firenze not
being able to consummate its planned acquisition of Fonlem Industries, the
Company believed that Firenze would not be able to fully commercialize its
license. In January 1996, it withdrew the rights Firenze received under this
agreement except for several European countries.
(10) Yakimoto Investment, Ltd. licensing agreements In January and February
1996, the Company entered into two licensing agreements with Yakimoto
Investment, Ltd. (Yakimoto). The first granted Yakimoto an exclusive license for
marketing and sales of the debit cellular telephone technology (see note 8) in
South America. This agreement requires Yakimoto to pay the Company 1,000,000
shares of common stock of Ultimistics, Inc. 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, which 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 was 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 8 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 9) 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 was recorded at
$1,050,000. Yakimoto had not yet begun to commercialize this license at June 30,
1996, therefore no royalties were received by the Company.
(11) 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, although it 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. None of the
advertising had been used at June 30, 1996, however at that date the Company had
finalized the initial usage of this advertising which was to begin July 1, 1996.
(12) 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 restricted common
stock in exchange for $3,000,000 of prepaid advertising. The advertising to be
provided is the same as in note 11 above. The original agreement calls for the
Company to use this advertising within two years, however the Company has
received oral approval for a three year extension. The Company valued this
transaction at $2.35 per share, or $2,700,000, allowing for a 10% discount for
any advertising usage availability the Company may not use. None of the
advertising had been used at June 30, 1996.
(13) Working capital deficiency The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern which contemplates the realization of assets and the
F-11
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(13) Working capital deficiency, continued satisfaction of liabilities in
the normal course of business. As shown in the previously filed consolidated
financial statements, the Company incurred net losses for the years ended
December 31, 1993, 1994 and 1995. For the six months ended June 30, 1996, the
Company recorded $5,092,409 net income. This profit was generated principally as
a result of non-cash revenue and gains. The Company has a working capital excess
of $1,070,289 at June 30, 1996.
During the six months ended June 30, 1996, the Company raised $1,002,000
net in cash from financing activities. This amount plus its cash on hand at the
beginning of the period exceeded its cash flows used by operations and investing
activities by $168,261, which resulted in and reflects an increase of cash. At
June 30, 1996, the Company had one note receivable, accounted for as stock
subscriptions receivable, in the amount of $650,000, to be paid over the
remainder of 1996. The Company's plans also include controlling its cash
expenses, such that this inflow of capital may continue to cover a cash
shortfall over the next twelve months.
Substantially all of the assets received relating to the profits generated
include common stock of Ultimistics Inc. (see notes 6, 9 and 10). The Company
believes that it is in the its best interest to hold this asset for the
foreseeable future, in the hope for capital appreciation over the value recorded
at June 30, 1996, and increased liquidity over time.
In January 1996, the Company entered into agreements to exchange the
prepaid telephone time it owned and common stock of the Company for a total of
$5,000,000 of prepaid advertising, (see notes 11 and 12). The Company entered
into these transactions 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 a concurrent cash expenditure,
will be beneficial to its cash flows from operations. The Company had not
utilized any of this advertising during the three months ended June 30, 1996, as
it needed to prepare its suppliers and delivery systems for the additional cards
and telephone time usage increases this advertising would bring. Time was also
needed to develop the advertising/ marketing program to most effectively utilize
the prepaid advertising, however the Company had finalized the initial usage of
this advertising which is to begin July 1, 1996.
The Company also has negotiated lower telephone time rates in conjunction
with higher usage volumes. The higher usage volumes are expected to occur when
the advertising/marketing programs now under development are instituted.
The Company is also seeking to raise additional funds, either through debt
or equity offerings, or a combination of both. Any funds raised would be
employed to further increase its prepaid telephone card business, and to develop
its prepaid cellular telephone business. There are no assurances that the
Company will be able to successfully 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. The above statements discussed in this Report
include forward looking statements that involve risks and uncertainties,
including the timely delivery and acceptance of the Company's products and the
other risks detailed from time to time in the Company's SEC reports.
(14) Subsequent events
a) Note payable to The Next Edge In July 1996, the Company acquired 12 zero
coupon US Treasury securities with a total maturity amount of $425,000 and
various maturity dates over the remaining term of the note payable to The Next
Edge. The Company placed these securities in an irrevocable trust for the
benefit of The Next Edge. This has created a in-substance defeasance, whereby
the Company will record a gain of $52,520 on the extinguishment of this debt,
pursuant to SFAS 76, paragraphs 3c, 4a, 4b and 27.
F-12
<PAGE>
Item 2 - Management's Discussion and Analysis of Operations:
Results of Operations:
The Company generates revenues from the sale of telecommunications
services. The net profit was $5,092,409 for the six months ended June 30, 1996,
includes a loss of $440,566 for the three months ended June 30, 1996, compared
to the loss of $351,306 for the six months ended June 30, 1995 which included a
loss of $203,624 for the three months ended June 30, 1995. This reflects an
improvement for the six month period of $5,443,715. Six month profits were
primarily the result of selling prepaid cellular telephone licenses throughout
the world, while the 1995 loss was primarily attributable to Debit Card
activities in the start-up phase and expenses incurred in developing and
promoting the Company's products. The Company incurred losses in developing its
long distance operations and expanding its debit card business.
The Company's primary costs of sales are the cost of telephone services,
for both Debit Cards and for the resale of international long distance service.
In addition the cost of sales includes the production of the Debit Cards, their
printing, fulfillment and distribution, and fixed costs associated with
international long distance switching and communications.
For Debit Card sales, the Company recognizes revenues at the time it
provides the telephone services associated with its cards. It defers revenues
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 revenues. All other direct costs (non-traffic costs representing design
royalties, printing, fulfillment, shipping, sales commissions, etc.) are
recognized as up-front costs as 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. For the resale of international
long distance, the Company recognizes revenues as the traffic is used by its
customers. For the sale of prepaid cellular telephone licenses, the Company
recognizes revenues as the licenses are sold, based on the value received for
them. In this connection, the Company received substantially all of its
consideration for those licenses in the form of restricted Ultimistics, Inc.
("Ultimistics") common stock. The revenues were recognized based on discounted
values of the shares as of the dates of the transactions.
Six Months Ended June 30, 1996 and June 30, 1995:
The Company sold territory licenses to market and distribute prepaid
cellular telephones for the majority of the world's area to Yakimoto Investment
LTD ("Yakimoto") for $3,600,000 and a $50,000 prepaid cellular license fee
pertaining to the use of that technology with The Internet Channel. This
significant profit will not recur; instead, the Company expects to develop the
cellular system and generate revenues from the sale of the prepaid cellular
telephones and the air time associated with their use over the next few years.
In addition, the Company generated $1,730,217 in revenues from the sale of
telecommunications services ($1,174,993 in Debit Card revenues and $555,224 in
long distance revenues) for the six months ended June 30, 1996, compared to
total Debit Card revenues of $686,414 for the six months ended June 30, 1995.
4
<PAGE>
This represents an increase of $1,032,719 or 148.1%. This significant
increase reflects the general development of the customer base and the continued
general acceptance of Debit Cards in the United States as well as the expansion
into the resale of long distance service. Although revenues from operations have
increased, expenses have exceeded those revenues for the non-prepaid cellular
telecommunications segments of the Company's business, resulting in a negative
gross margin of $282,833 in 1996, compared to a gross profit of $5,803 for the
first six months of 1995, an unfavorable variance of $288,636. The Company
continues to build the infrastructure necessary to support growth in both Debit
Cards and the resale of international long distance traffic segments of its
business. The loss results from the Company not yet achieving sufficient revenue
volumes and pricing increases in these businesses to off-set fixed costs
necessary to build capacity and produce operating profits. The long distance
costs incurred, in the second quarter; reflect significant fixed costs related
to establishing communications and an additional switching source, and are
included in the cost of sales.
Sales and marketing expenses were $187,874 for the six months ended June
30, 1996, compared to $71,579 for the six months ended June 30, 1995, reflecting
an increase of $116,295 or 162.5%. This increase is primarily attributable to an
increase in sales commissions as a result of increased sales, and additional
costs incurred to promote the Company's products, including advertising,
attendance at trade shows, and production of marketing brochures.
General and administrative expenses were $897,529 for the six months ended
June 30, 1996, compared to $250,572 for the six months ended June 30, 1995,
reflecting an increase of $646,957 or 258.2%. This increase is primarily
attributable to salaries for additional personnel hired to support the Company's
growth and an increase in general office expenses attributable to the increase
in personnel.
Amortization of $71,250 was attributable to the pre-paid cellular telephone
technology license which is being expensed over five years. Depreciation is
based upon lives of 3, 5, 7 or 10 years, depending on the asset classification.
Net interest expense of $9,990 is primarily attributable to the outstanding
balance due to a vendor.
The provision for current income tax expense of $0 takes into account
amounts expected to be owed for estimated state and federal liabilities, based
on current earnings, off-set by the aggregate tax loss carry-forwards and the
current operating loss. The provision for deferred income taxes of $1,808,000
takes into account the non-taxable profit on the exchange of marketable
securities. The deferred tax liability will not have to be paid until the time
the securities are sold.
For the reasons listed above, the Company realized a net profit of
$5,092,409 (or $.12 per share) for the six months ended June 30 compared to a
net loss of $351,306 for the six months ended June 30 of the prior year, an
improvement of $5,443,715.
Three Months Ended June 30, 1996 and June 30, 1995:
5
<PAGE>
For the three months ended June 30, 1996, the Company generated debit card
revenues of $664,164 compared to $377,668 for the three months ended June 30,
1995. This represents an increase of $286,496 or 75.9%. This significant
increase reflects the general development of the customer base and the continued
general acceptance of Debit Cards in the United States. In addition, the Company
generated $353,387 in revenues from the sale of long distance services,
substantially all of which resulted from the start-up of PICKNET, Inc. for the
three months ended June 30, 1996, compared to $5,911 for the three months ended
June 30, 1995. This represents an increase of $547,476. Although revenues for
both lines of business have increased, expenses have exceeded those revenues,
resulting in a negative gross margin of $196,837 in 1996, compared to a negative
gross margin of $62,010 in 1995, an unfavorable variance of $134,827 (or
217.4%). The Company continues to build the infrastructure necessary to support
growth in both Debit Cards and the resale of international long distance traffic
segments of its business. The loss results from the Company not yet achieving
sufficient revenue volumes in these businesses to off-set fixed costs necessary
to build capacity and produce operating profits.
The Company sold territory licenses to market and distribute prepaid
cellular telephone technology in conjunction with The Internet Channel, Inc. in
exchange for 500,000 shares of restricted stock in the Internet Channel Inc.
These shares were valued at $50,000, or $.10 per share, the cash price they were
recently sold for in private placement. This profit will not recur; instead, the
Company expects to develop the prepaid cellular system and generate revenues
from the sale of air time associated with its use.
Selling and marketing expenses were $131,491 for the three months ended
June 30, 1996, compared to $32,225 for the three months ended June 30, 1995,
reflecting an increase of $99,266 or 308%. This increase is primarily
attributable to an increase in sales commissions as a result of increased sales,
and additional costs incurred to promote the Company's products, including
advertising, promotions, attendance at trade shows, and production of marketing
materials.
General and administrative expenses were $395,403 for the three months
ended June 30, 1996, compared to $91,321 for the three months ended June 30,
1995, reflecting an increase of $304,082 or 333%. This increase is primarily
attributable to salaries for additional personnel hired to support the Company's
growth and an increase in general office expenses attributable to the increase
in personnel.
Amortization of $35,625 was attributable to the pre-paid cellular telephone
technology license which is being expensed over five years; no amortization
occurred in 1995. Depreciation is based upon lives of 3, 5, 7 or 10 years,
depending on the asset classification. Interest income of $340 is attributable
to earnings on short term marketable securities.
The provision for bad debts was $81,485 for the three months ended June 30,
1996 compared to $2,409 for the three months ended June 30, 1995. This increase
of $79,076 is attributable to higher debit card sales volumes and slow payment
of a customer which has experienced slow payment from its small retail outlets.
6
<PAGE>
The reversal of the provision for current income tax expense of $346,000
takes into account, amounts expected to be owed for estimated state and federal
liabilities, based on current quarter's loss, in addition to aggregate tax loss
carry-forwards. No provision for deferred income taxes took place. The deferred
tax liability will not have to be paid until the time the securities which give
rise to the liabilitiy are sold.
For the reasons listed above, the Company realized a loss of $440,566 (or
$.01 per share) for the three months ended June 30, 1996 compared to a net loss
of $203,624 for the three months ended June 30, 1995, an increase of $236,942 or
116.4%.
Liquidity and Capital Resources:
The Company had working capital of $1,070,289 as of June 30, 1996 compared
to a deficit of $1,074,159 as of December 31, 1995. The working capital ratio
was 1.27:1 at June 30, 1996 compared to .60:1 at December 31, 1995.
Cash used in operating activities during the six months ended June 30, 1996
of $797,570 primarily reflect net profit generated from operations of
$5,092,409, the increase in deferred tax liabilities of $1,808,000 and
depreciation and amortization of $87,832. These sources were more than off-set
by uses of $3,650,000 for non-cash revenues relating to the sale of prepaid
cellar licenses and $4,784,000 for the non-cash gain on the sale of marketable
securities. The remaining increase of $648,189 reflects net increases of current
liabilities (accruals and deferred revenues), which exceed increases in
receivables and prepaid expenses, all of which are necessary to support the
increase in operating activities. Increases in accounts receivable, card
inventory, accounts payable and accrued expenses are the result of increased
volume. Accounts receivable are primarily generated from sales to distributors
which are obliged to pay for the cards within thirty days of receipt. The
increase in deferred revenues results from cards sold to distributors for which
revenues have not yet been recognized. The Company expects to recognize this
revenue in future periods, as customers use the Debit Cards, or as the cards
expire.
Cash used for investing activities for the three months ended June 30, 1996
of $36,169 reflects capital expenditures. The Company has no material
commitments for capital expenditures as of June 30, 1996.
Cash provided from financing activities for the six months ended June 30,
1996 amounted to $1,002,000, primarily reflecting the receipt of cash against
stock sales and stock subscribed, compared to a negative $3,035 for the three
months ended June 30, 1995, which reflected the repayment of an advance from a
stockholder.
As of June 30, 1996, the Company had cash and cash equivalents amounting to
$278,976, compared to $110,715 as of December 31, 1995.
7
<PAGE>
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 search for additional financing or curtail its proposed growth. The
Company currently has no arrangements in place with respect to additional
financing.
Part II - Other Information
Item 1 - Legal Proceedings:
None to report
Item 2 - Changes in Securities:
None to report
Item 3 - Defaults upon senior securities:
None to report
Item 4 - Submission of matters to a vote of security holders:
None to report
Item 5 - Other information:
As of July 1, 1996, , the Company entered into a 66 month lease for office
space in Wayne, New Jersey, to replace the existing lease for its Mountain
Lakes, New Jersey location, which expired on April 30, 1996. The lease will
require a minimum annual payment of approximately $103,441, including fixed
utilities. The lease is anticipated to provide for an option to renew the lease
for an additional five year period as of January 1, 2002.
On April 16, the Company established PICKNET, Inc., a wholly owned
subsidiary to serve as the operating company for the resale of international
long distance service. Service began for a third party customer in May, 1996.
In June, 1996, the Company received confirmation that a dispute with a
former officer has been settled. All expenses associated with this dispute were
taken into account in the March 31, 1996 financial statements.
8
<PAGE>
In June, 1996, the Company received funding to support the execution of its
contract with The Next Edge, Inc. ("TNE"), from which it has acquired the
worldwide marketing and distribution rights to the prepaid cellular telephone
technology and one half of the patent. All funds required by this contract were
put into a trust account in full payment of this agreement in July, 1996.
Simultaneously, with the funding of the agreement, on July 3, 1996, the Company
entered into an agreement with The Phone Store, Inc. whereby all rights provided
for in the contract between the Company and TNE were transferred to The Phone
Store, Inc.
Item 6 - Exhibits and reports on Form 8-K:
10. Major Contracts:
10.1 The Phone Store, Inc. dated July 3, 1996.
10.2 Assignment dated July 3, 1996.
10.3 The Internet Channel, dated June 26, 1996.
10.4 Escrow dated July 3, 1996.
9
<PAGE>
Signatures:
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PICK Communications Corp.
Date: August 20, 1996 By: /s/ Diego Leiva
Diego Leiva
President and Chief Executive Officer
Date: August 20, 1996 By: /s/ Karl R. Petersson
Karl R. Petersson
Vice President and Chief Financial
Officer (Principal Accounting Officer)
10
AGREEMENT FOR TIME CONTROL SYSTEM FOR CELLULAR TELEPHONE
AGREEMENT made as of the day of, 1996 between:
THE PHONE STORE, INC., a Florida Corporation
having a place of business at
1415-A S.W. 107th Avenue
Miami, Florida 33174
hereinafter referred to as "SELLER"; and
PICK COMMUNICATIONS CORP. formerly known as
Prime International Products, Inc.
a Nevada Corporation
having its principal place of business at
Wayne Interchange Plaza II
155 Route 46 West, Third Floor
Wayne, New Jersey 07470
hereinafter referred to as "PURCHASER".
WITNESSETH:
WHEREAS, SELLER is the owner of the entire right, title and interest in and to a
Time Control System for a Cellular Telephone, developed by Andy Martinez as
Inventor, including a pending application for Letters Patent of the United
States ("THE PATENT RIGHTS") and associated Technical Information and Know-how;
and
WHEREAS, PURCHASER desires to obtain the exclusive rights and license to
manufacture, market, sell and distribute, and to have manufactured, sold,
marketed and distributed, the SYSTEM in the TERRITORY: and
WHEREAS, SELLER is willing to extend to PURCHASER the requested right and
license subject to the terms and conditions as hereafter set forth.
NOW, THEREFORE, in consideration of moneys previously paid and to be paid herein
by PURCHASER to SELLER, the mutual covenants and conditions as contained herein
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
Page 2
ARTICLE I - DEFINITIONS
1.1 SYSTEM shall mean a debit cellular telephone system which includes a
circuit chip that is incorporated into or attached to a particular cellular
telephone, to enable the cellular telephone to be progammably controllable as to
time that such telephone may be operational; as well as the trade identification
SMART TRACKER SYSTEM.
1.2 PATENT RIGHTS shall mean United States Patent Application Serial No.
08/556,487, filed December 27, 1995, in the name of Andy Martinez as Inventor
for "TIME CONTROL SYSTEM FOR CELLULAR TELEPHONE", subsequently assigned to
SELLER, covering the SYSTEM, the inventions described and claimed therein, and
any divisions, continuations, continuations-in-part, patents issuing thereon or
reissues thereof; and any and all foreign patents and patent applications
corresponding thereto; which will be automatically incorporated in and added to
this Agreement and shall periodically be added to Appendix A attached to this
Agreement and made a part thereof.
1.3 TECHNICAL INFORMATION and KNOW HOW shall mean information whether
proprietary or not, owned by SELLER and held by SELLER regarding the
manufacture, operation or repair of the SYSTEM and its components, and any
improvements or modifications to the SYSTEM or its components that exist or that
may be developed and held by SELLER during the TERM of this Agreement.
1.4 TERRITORY shall mean all of the countries of the world.
ARTICLES II - GRANTS
2.1 SELLER hereby grants to PURCHASER the exclusive right and license under
SELLER's ownership rights in the SYSTEM, to manufacture, market, distribute and
sell the SYSTEM throughout the TERRITORY. Unless sooner terminated by the
parties in accordance with the terms of this Agreement, the grant made herein
shall extend for an initial period of Five (5) Years, after which the grant may
be extended for further periods of Five (5) Years each as set forth in Article
III, below.
2.2 SELLER agrees that upon the execution of this Agreement, SELLER will
execute an assignment of rights in the PATENT RIGHTS jointly in favor of SELLER
and PURCHASER, in the form set forth in Appendix A and such Assignment shall be
recorded at the U.S. Patent and Trademark Office so as to appear on the face of
any issued patent covering the PATENT RIGHTS. Should PURCHASER terminate this
Agreement at any time prior to the expiration of the initial term, the U.S.
Treasury Instrument Escrow Agreement (the "Escrow Agreement") shall not be
effected, or otherwise permit the lapse of its rights hereunder during the
initial term of five (5) years or any extended period as specified herein,
PURCHASER agrees to execute an Assignment in favor of SELLER, to grant to SELLER
all of PURCHASER's rights
<PAGE>
Page 3
held under the joint Assignment for nominal consideration of ten ($10.00)
Dollars. In the event that PURCHASER fails to execute and deliver an Assignment
in favor of SELLER within thirty (30) days of the termination of this Agreement,
evidenced by SELLER sending a written demand for said Assignment to PURCHASER,
then with the filing of an affidavit with the U.S. Patent Office the patent
and/or patent application shall revert back to SELLER. PURCHASER, or its
licensees or assigns shall not market, sell, distribute or manufacture any
SYSTEMS or exercise any other rights under this Agreement after the termination
or lapse of this Agreement.
2.3 The grants made by SELLER herein include later developments, upgrades
or improvements to the SYSTEM or its component parts, whether made by or
acquired by SELLER. Any such other late developments or improvements of the
SYSTEM are within the scope of this Agreement, and shall be offered to
PURCHASER, the specific terms of such purchase and sale to be negotiated by the
parties on a per project/item basis at the time of offer and to be memorialized
in a written agreement. SELLER specifically agrees that it will not engage with
any third party to develop or provide technology competing with the SYSTEM
during the term of this Agreement.
ARTICLE III - PAYMENTS
3.1 In consideration of the rights granted herein, PURCHASER shall tender
and pay to SELLER upon execution of this Agreement the following funds and
assets:
A. PURCHASER shall pay SELLER the sum of FIVE HUNDRED THOUSAND (U.S.
$500,000.00), such sum to be paid in accordance with the following schedule:
(i) TWENTY-FIVE THOUSAND ($25,000.00) DOLLARS due and payable on each and
every of the following calendar dates: January 1; April 1; July 2; and October
3, for the calendar year 1996 and, thereafter, as follows:
FIFTY THOUSAND ($50,000.00) DOLLARS due and payable on each of the
following dates in 1997, 1998, 1999 and 2000: February 15 and August 15.
(ii) The parties hereby acknowledge that, as of the date of the execution
of this Agreement, the first three payments hereunder that were due on January
1, 1996, April 1, 1996 and July 2, 1996 have already been tendered by PURCHASER
and received by SELLER.
(iii) The final payment hereunder shall be due and payable on August 15,
2000.
B. PURCHASER shall deliver to SELLER a total of ONE HUNDRED THOUSAND
(100,000) SHARES of common, restricted stock of PURCHASER, in accordance with
the following schedule:
<PAGE>
Page 4
(i) Five annual installment transfers of TWENTY THOUSAND (20,000) SHARES
each to be delivered on January 1 for the years of 1996, 1997, 1998, 1999 and
2000.
(ii) The parties hereby acknowledge that, as of the date of execution of
this Agreement, the first installment transfer of TWENTY THOUSAND (20,000)
SHARES hereunder that was due on January 1, 1996, has already been tendered to
PURCHASER and received by SELLER.
3.2 As security for the payments of moneys from PURCHASER to SELLER in
Paragraph 3.1.A above, PURCHASER will purchase U. S. Treasury instruments in the
gross amount of $425,000 in PURCHASER's account at Merrill Lynch in White
Plains, New York, with maturity dates as set forth in Exhibit A attached hereto
and hereby made a part of this Agreement. PURCHASER shall thereupon transfer the
U.S. Treasury instruments into the Trust Account of SELLER's attorney (Matthew
Hamilton Richardson, Esq., P.O. Box 6173, Ft. Lauderdale, FL 3310) at Prudential
Securities in Hollywood, Florida. It is understood that Mr. Richardson will act
as the Escrow Agent pursuant to the Escrow Agreement between Mr. Richardson and
the parties hereto. PURCHASER hereby represents to SELLER that PURCHASER has
commenced buying the U.S. Treasury instruments and will complete such purchases
by the date this Agreement is signed or in a reasonable time thereafter.
ARTICLE IV - COMMITMENT TO PURCHASE AND MANUFACTURE
4.1 PURCHASER agrees to purchase from SELLER all of PURCHASER's
requirements for the circuit chip that is installed and used in the SYSTEM, for
the duration of this Agreement, the purchase price to be SELLER's cost.
PURCHASER agrees that SELLER shall serve as PURCHASER's sole and exclusive
source for all of PURCHASER's requirements for said circuit chip, and SELLER
agrees to maintain PURCHASER as its sole and exclusive customer for said circuit
chip, for the duration of this Agreement and any extension thereof. SELLER,
however, agrees that it will procure the circuit chips at the lowest possible
price and will provide copies of quotations and other information on sources of
supply as may be required by PURCHASER during the term hereof.
4.2 Orders for said circuit chip shall be entered by the preparation and
delivery of a written purchase order by PURCHASER delivered to SELLER, the
procedures for taking orders and/or ordering such products conventionally
employed by the parties in the ordinary course of their business or by PURCHASER
directly with SELLER's vendor with a copy to the SELLER. The written purchase
orders can be transmitted in any conventional manner, including telex, facsimile
transmission, mail or other commercially accepted means.
<PAGE>
Page 5
4.3 The details required in each such purchase order as to the price, time
and place of delivery, and warranties or other commercial provisions shall be
upon mutual agreement between the parties in the ordinary course of business,
except where subject to the conditions set forth herein.
4.4 Should SELLER or its subcontractor, if any, be unable for any reason to
supply PURCHASER's requirements for circuit chips or if PURCHASER obtains a
lower price from another supplier for such chips, PURCHASER shall be free to
purchase such circuit chips from a third party manufacturer to satisfy its
requirements and/or take advantage of such lower pricing provided, however, that
such third party's quality control and manufacturing facilities and procedures
are preapproved by SELLER; SELLER agrees that such approval will not be
unreasonably withheld. PURCHASER shall continue to purchase from such third
party manufacturer until notified by SELLER in writing in accordance with
Article IX hereof that SELLER is again able to meet PURCHASER's requirements
and/or meet PURCHASER's pricing from such third party.
4.5 PURCHASER agrees that it will bear all of the costs attendant to the
manufacture of the SYSTEM, and specifically, capital, labor and/or
subcontractor's related costs, whether directly or indirectly associated with
the manufacture, assembly and delivery of the SYSTEM. PURCHASER shall pay all
costs attendant to the manufacture of the SYSTEM within thirty (30) days from
receipt of the relevant invoice from SELLER or its subcontractor, if any.
4.6 SELLER agrees to provide the personal services of Mr. Andy Martinez to
PURCHASER to act as Director of Research and Development of the division or
subsidiary corporation of PURCHASER that will engage in the manufacture,
marketing, distribution and sale of the SYSTEM. SELLER's duties shall include
set-up, de-bugging, training, and if necessary, supervision of the manufacturing
and assembly personnel involved with the production of the SYSTEM. SELLER agrees
to have Mr. Andy Martinez sign a loan out agreement with PURCHASER upon the
execution of this Agreement for the services of Mr. Martinez but for no
additional compensation.
ARTICLE V - CONFIDENTIALITY
5.1 All TECHNICAL INFORMATION and KNOW-HOW or other confidential
information which is held by either party or received by either party from the
other during this Agreement shall be maintained in confidence by the recipient
and shall not be disclosed to any other person, firm, or agency, governmental or
private, without the prior written consent of the disclosing party, except to
the extent that the information:
<PAGE>
Page 6
(a) is known at the time of its receipt to the recipient and is documented
in written records, or
(b) is properly in the public domain, or
(c) is subsequently disclosed to the recipient by a third party who may
lawfully do so, or
(d) is required to be disclosed to an agency such as the S.E.C. in order to
satisfy any requirements imposed on PURCHASER, for example, pursuant to its
status as a public corporation.
5.2 The obligations imposed by Paragraph 5.1 with respect to the protection
of the confidential information shall continue during the life of this Agreement
and for a period of five (5) years after its termination, or lapse.
ARTICLE VI - THE PATENTS
6.1 SELLER and PURCHASER shall hold title to the PATENT RIGHTS and to any
improvements that may develop and be included in the SYSTEM pursuant to
Paragraph 2.2 hereof.
6.2 PURCHASER shall have the right to inspect the files relating to the
United States Patent Application presently on file, and SELLER agrees to provide
copies of all correspondence received in respect to said Patent Application from
the U.S. Patent and Trademark Office, directed to patent counsel of PURCHASER's
choosing, for review and comments as to the prosecution thereof.
6.3 PURCHASER agrees to assume responsibility for expenses associated with
the filing and prosecution of patent applications throughout the TERRITORY
covering the SYSTEM, as well as the maintenance of patents and patent
applications during the term of this Agreement. PURCHASER and SELLER shall agree
on patent counsel to conduct such filing and prosecution.
ARTICLE VII - INFRINGEMENT
7.1 PURCHASER agrees to assume the responsibility for the protection of the
PATENT RIGHTS from infringement and prosecute infringers at its own expense when
in its sole judgment such action may be reasonably necessary, proper and
justified.
<PAGE>
Page 7
7.2 If SELLER shall have supplied PURCHASER with written evidence
demonstrating to PURCHASER's satisfaction prima facie infringement of a claim of
PATENT RIGHTS by a third party selling products in competition with PURCHASER,
SELLER may by notice request PURCHASER to take steps to protect the PATENT
RIGHTS. Unless PURCHASER shall within three months of the receipt of such notice
either (i) cause such infringement to terminate or (ii) initiate legal
proceedings against the infringer, SELLER may, upon notice to PURCHASER initiate
legal proceedings against the infringer at SELLER's expense and PURCHASER shall
reimburse SELLER therefor.
7.3 In the event one party shall initiate or carry on legal proceedings to
enforce any PATENT RIGHTS against an alleged infringer, the other party shall
use its best efforts to fully cooperate with and shall supply all assistance
reasonably requested by the party initiating or carrying on such proceedings.
The party which institutes any proceedings to protect or enforce the PATENT
RIGHTS shall have sole control of that proceeding.
ARTICLE VIII - TERM AND TERMINATION
8.1 Unless sooner terminated as herein provided, this Agreement shall
continue in full force and effect for an initial period and term of five (5)
years, commencing from January 1, 1996, or until December 31, 2000. Such initial
period may be extended thereafter for five (5) additional periods of five (5)
years each upon notice given by PURCHASER to SELLER within sixty (60) days
preceding the expiration of the initial period and subsequent periods. In each
such event, PURCHASER, shall tender to SELLER further consideration of $100,000
per year payable annually in advance. No other considerations shall be due
SELLER apart from that expressly recited in this Paragraph.
8.2 Either party shall have the right to terminate this Agreement in the
event of any material breach or default in the performance of any terms or
conditions of this Agreement by one party by giving said party thirty (30) days
notice in writing setting forth the nature of the breach or default; provided,
however, that if said party shall within such thirty (30) day period remedy the
breach or default upon which the notice is based, such notice shall not become
effective and this Agreement shall continue in full force and effect. However,
systems sold by PURCHASER under this Agreement shall remain in use and no
further compensation shall be due SELLER but PURCHASER, or its licensees or
assigns, shall not market, sell, distribute or manufacture any SYSTEMS or
exercise any other rights under this Agreement after the termination or lapse of
this Agreement. In addition, if PURCHASER breaches this Agreement such breach
shall not effect the payments to be made under the Escrow Agreement.
8.3 Should PURCHASER materially breach this Agreement or otherwise choose
for whatever reason to terminate this Agreement, PURCHASER agrees to assign to
SELLER its portion of the entire right, title and interest in and to the PATENT
RIGHTS, so that SELLER shall be and become the sole owner thereof.
<PAGE>
Page 8
8.4 This Agreement shall be automatically canceled and all rights and
privileges shall be terminated except the Escrow Agreement which shall remain in
full force and effect in the event that PURCHASER discontinues its business
through insolvency, dissolution proceedings, bankruptcy, receivership or the
like commercial conditions. However, this Agreement and the Escrow Agreement
shall be canceled and all rights and privileges shall be terminated in the event
that SELLER discontinues its business through insolvency, dissolution
proceedings, bankruptcy, receivership or the like commercial conditions and on
such effective date and upon receipt of PURCHASER's written demand the remaining
U.S. Treasury Instruments being held in escrow will be returned to PURCHASER.
SELLER hereby agrees that in the event that SELLER wishes to sell its business
or its half ownership in the PATENT RIGHTS during the term hereof, it will first
offer same to and negotiate in good faith only with PURCHASER. If there is any
conflict between this Agreement and the Escrow Agreement, the terms of the
Escrow Agreement shall take precedence.
ARTICLE IX - GENERAL PROVISIONS
9.1 SELLER represents and warrants that the entire right, title and
interest in the patent applications or patents comprising the PATENT RIGHTS and
the TECHNICAL INFORMATION and KNOW HOW are owned and have been or may be
assigned to SELLER, and that SELLER has the authority to issue licenses under
said PATENT RIGHTS. In addition, SELLER represents and warrants that it is
wholly owned by Mr. Andy Martinez and that Mr. Andy Martinez is the President
and Chief Executive and Operating Officer of SELLER.
9.2 This Agreement shall be binding upon the successors, legal
representatives and assignees of SELLER and PURCHASER. PURCHASER shall have the
right to license its rights hereunder to anyone in any TERRITORY.
9.3 All notices to be sent under the terms and provisions of this Agreement
by either of the parties to the other shall be in writing and shall be sent
first class, registered mail, to the address stated herein or to any later
address notice of which was given to one party by the other and the time of said
notice shall start with the official date stamp of such notice with copies to
counsel: to SELLER, Matthew H. Richardson, Esq., P.O. Box 6173, Ft. Lauderdale,
FL 33310; to PURCHASER, David A. Jackson, Esq., Klauber and Jackson, 411
Hackensack Ave., Hackensack, NJ 07601.
9.4 The laws of the State of Florida shall govern this Agreement as to all
matters including specifically, but not exclusively, matters of interpretation,
performance and remedies insofar as such law is existent or applicable and can
or will be applied in the jurisdiction in which either party may seek an
adjudication of any such matter. Venue shall be laid in Dade County.
<PAGE>
Page 9
9.5 This Agreement sets forth the entire Agreement and understanding
between the parties as to the subject matter hereof and merges all prior
discussions between them, and neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein, except
for those set forth in the Loan Out Agreement, the Assignment or the Escrow
Agreement. If there is a conflict between this Agreement and the terms of either
the Loan Out Agreement, the Assignment or Escrow Agreement, the terms of such
Loan Out Agreement, Assignment or Escrow Agreement shall take precedence over
the terms set forth herein. This Agreement may not be modified orally; no
waiver, amendment or modification shall be binding or effective unless in
writing and signed by both parties.
9.6 If any provision of this Agreement is deemed to be invalid or
unenforceable or is prohibited by the laws of the state or country where it is
to be performed, this Agreement shall be considered divisible as to such
provision and such provision shall be inoperative only in such state or country
and shall not be part of the consideration moving from either party to the
other. The remaining provisions of this Agreement, however, shall be valid and
binding as though such provision were not included herein.
9.7 In the event that it is required to take action to enforce the terms of
this Agreement, the prevailing party shall be entitled to recover its reasonable
attorney's fees and costs which are incurred at both the trail and appellate
level.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the respective date above indicated and such agreement to become
effective as of the date first above written.
WITNESS: THE PHONE STORE, INC.
BY: /s/ Andy Martinez
ANDY MARTINEZ, President
WITNESS: PICK COMMUNICATIONS CORP. formerly known
as PRIME INTERNATIONAL PRODUCTS, INC.
BY: /s/ Diego Leiva
DIEGO LEIVA, President
<PAGE>
LOAN OUT AGREEMENT
This Loan Out Agreement is made and entered into on this of , 1996, by and
between The Phone Store, Inc. (hereinafter referred to as the "STORE") and PICK
Communications Corp. (hereinafter referred to as "PICK") (hereinafter STORE and
PICK shall be collectively referred to as the "PARTIES").
WITNESSETH:
WHEREAS, STORE holds the patent application rights for a Time Control
System for Cellular Telephone (herein referred to as the "SYSTEM");
WHEREAS, STORE's President, Andy Martinez (hereinafter referred to as
"MARTINEZ" ), has valuable and specialized knowledge and experience concerning
the SYSTEM;
WHEREAS, The PARTIES have on this date also entered into an Agreement for
Time Control System for Cellular Telephone (hereinafter referred to as the
"PRIMARY AGREEMENT");
WHEREAS, PICK desires to have STORE supply the personal services of
MARTINEZ (as set forth hereinafter) and the valuable and specialized knowledge
and experience MARTINEZ has concerning the SYSTEM on an as needed basis pursuant
to the PRIMARY AGREEMENT; and
NOW THEREFORE, in consideration of TEN AND 00/100THS ($10.00) U.S. DOLLARS,
the mutual covenants and conditions as contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the PARTIES hereto agree as follows:
1. The recitals set forth hereinabove are true and correct and incorporated
by reference.
<PAGE>
Page 2
2. STORE, pursuant to the PRIMARY AGREEMENT, agrees to provide the personal
services of MARTINEZ to PICK as set forth herein and MARTINEZ's valuable and
specialized knowledge and experience concerning the SYSTEM, or other individual
(s) under his supervision and control. MARTINEZ will act as Director of Research
and Development of the division or subsidiary corporation of PICK that will
engage in the manufacture, marketing , distribution and sale of the SYSTEM.
STORE shall supply MARTINEZ, or other individual (s) under his supervision and
control, to set-up, debug, train, and if necessary, supervise the manufacturing
and assembly personnel involved with the production of the SYSTEM. MARTINEZ
shall interface directly with the President of PICK but at all times hereunder
MARTINEZ shall be an employee of STORE.
3. The term of this Agreement shall run concurrently with the term, and any
extensions of the term, of the PRIMARY AGREEMENT. This Agreement shall terminate
upon any termination, breach, lapse or any other non-performance of the PRIMARY
AGREEMENT.
4. MARTINEZ shall render his services to PICK under the PRIMARY AGREEMENT
at the premises of the STORE. However, STORE agrees to have MARTINEZ travel on
temporary trips to such other places as may be reasonably required from time to
time to perform, upon reasonable notice, his services and duties for PICK. PICK
hereby agrees to either prepay or reimburse STORE or MARTINEZ for travel and
entertainment expenses actually incurred by MARTINEZ when PICK requests MARTINEZ
travel on its behalf.
5. If PICK requests MARTINEZ to perform duties outside the scope of the
PRIMARY AGREEMENT, PICK agrees to negotiate a separate compensation arrangement
to be paid to the STORE for MARTINEZ performance of such additional duties and
such arrangement shall be set forth in and added hereto as an amendment to this
Agreement.
6. This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Florida, and venue shall lie in Dade County, Florida,
for all purposes including, but not limited to, construing and/or enforcing the
terms of this Agreement.
7. The prevailing party shall be entitled to recover its reasonable
attorney's fees and costs which it incurs in the event that it is required to
take any action to enforce the terms of this Agreement, whether or not suit be
brought, at both the trial and appellate levels.
8. This Agreement cannot be modified except in writing by the PARTIES
hereto. This Agreement shall bind the PARTIES hereto, their representatives,
executors, administrators, and assigns.
<PAGE>
Page 3
9. The PARTIES agree that the covenants and conditions set out in this
Agreement are several and separate, and the unenforceability of any specific
covenants and conditions shall not affect the validity of any other covenant or
condition.
IN WITNESS WHEREOF, the PARTIES have hereunto set their hands the day and year
first written above.
Signed and delivered in the presence of:
THE PHONE STORE, INC.,
A Florida Corporation
By: /s/ Andy Martinez
Witness ANDY MARTINEZ,
As President
Witness
Signed and delivered in the presence of:
PICK COMMUNICATIONS CORP.,
a Nevada Corporation
By: /s/ Diego Leiva
Witness DIEGO LEIVA,
As President
Witness
<PAGE>
EXHIBIT A
AMOUNT DATE INSTRUMENT
$25,000 October 3, 1996 U.S. Treasury Bill
$50,000 February 15, 1997
$50,000 August 15, 1997
$50,000 February 15, 1998 Zero Coupon U.S.
Treasury Bond
$50,000 August 15, 1998 Instruments
$50,000 February 15, 1999
$50,000 August 15, 1999
$50,000 February 15, 2000
$50,000 August 15, 2000
<PAGE>
APPENDIX A
A S S I G N M E N T
WHEREAS,
THE PHONE STORE, INC., a Florida Corporation
having a place of business at
1415-A S.W. 107th Avenue
Miami, Florida 33174;
ASSIGNOR, owns an invention with certain new and useful improvements in
TIME CONTROL SYSTEM FOR CELLULAR TELEPHONE
for which an Application was filed for Letters Patent in the United States on
December 27, 1995, bearing Serial No. 08/556,487; and
and WHEREAS,
PICK COMMUNICATIONS CORP.,
a Nevada Corporation
with offices at:
Wayne Interchange Plaza II
155 Route 46 West, Third Floor
Wayne, New Jersey 07470
ASSIGNEE, is desirous of obtaining fifty (50%) percent of the entire right,
title and interest in, to and under the said improvements and the said
application pursuant to the terms of the Agreement between The Phone Store, Inc.
and PICK Communications Corp. dated July 3, 1996.
NOW, THEREFORE, for other good and valuable consideration, the receipt of
which is hereby acknowledged, the said
<PAGE>
ASSIGNOR
have sold, assigned, transferred and set over, and by these presents do hereby
sell, assign, transfer and set over, to the said
ASSIGNEE
its successors, legal representatives and assigns fifty (50%) percent of, the
entire right, title and interest in, to and under the said improvements, and the
said application and all divisions, renewals, and continuations thereof, and
fifty (50%) percent of all Letters Patent of the United States which may be
granted thereon and all reissues and extensions thereof, and fifty (50%) percent
of all applications for Letters Patent which may hereafter be filed for said
improvements in any country or countries foreign to the United States, including
the right to claim priority under the terms of any appropriate International
Convention based upon said application for Letters Patent of the United States,
and fifty (50%) percent of all Letters Patent which may be granted for said
improvements in any country or countries foreign to the United States and
extensions, renewals and reissues thereof; and I hereby authorize and request
the Commissioner of Patents and Trademarks of the United States and any official
of any country or countries foreign to the United States, whose duty it is to
issue patents on applications as aforesaid, to issue fifty (50%) percent of all
Letters Patent for said improvements to the said
ASSIGNEE
its successors, legal representatives and assigns, in accordance with the terms
of this instrument.
AND I HEREBY covenant that I have full right to convey the interest herein
assigned in the manner hereinabove set forth, and that I have not executed, and
will not execute, any agreement in conflict herewith.
AND I HEREBY further covenant and agree that I will communicate to the said
ASSIGNEE
its successors, legal representatives and assigns, any fact known to me
respecting said improvements, and testify in any legal proceeding, sign all
lawful papers, execute all divisions, continuing and reissue applications, make
all rightful oaths and generally do everything possible to aid the said
<PAGE>
ASSIGNEE
its successors, legal representatives and assigns, to obtain and enforce proper
Patent Protection for said improvements in the United States.
THE PHONE STORE, INC.
Date: July 3, 1996 By: /s/ Andy Martinez, L.S.
ANDY MARTINEZ, President
State of Florida :
: ss.
County of Dade :
Before me this 3rd day of July 1996, personally appeared ANDY MARTINEZ, to
me personally known to be the person who is described in and who executed the
above instrument, and acknowledged to me that he executed the same of his own
free will for the purposes therein set forth.
(Affix Seal Here) _________________________________
Notary Public
Nancy:agrements\assign.doc
<PAGE>
AGREEMENT made this 26th day of June 1996 between PICK COMMUNICATIONS CORP., 155
Route 46 West, Third Floor, Wayne, New Jersey, 07470 (hereinafter referred to as
"Licensor") and INTERNET CHANNEL INC., 293 East Bay Street, Suite 300,
Charleston, South Carolina, 29401 (hereinafter referred to as "Licensee).
WHEREAS, Licensor has developed and owns the rights in and to a prepaid cellular
phone access microchip (referred to in this Agreement as the "Chip"); and
WHEREAS, Licensee is in a position to provide research and development,
marketing, sales, and distribution incorporating the Chip into products
including, but not limited to, a prepaid system for remote access to the
Internet (referred to in this Agreement as the "Product") throughout all
countries of the world (hereinafter referred to as the "Territory");
NOW, THEREFORE, in consideration of the foregoing and of mutual covenants and
promises hereinafter set forth, it is agreed:
1. (a) Research and Development of Product Licensee hereby agrees to
expeditiously research and develop the technology for the application of prepaid
remote access to the Internet using Licensor's Chip via either wireless or
telephone or cellular telephone or cable modems. Licensor will give its
attention to supply the Licensee with the estimated costs of supplying Chips and
any required modifications to said Chips for inclusion into the Product.
Licensor will also provide Licensee with time estimates to supply the Chips in
the required quantities and with any required modifications for the Products.
Licensee shall pay Licensor for the research and development costs, if any, to
make any required modifications to the Chip for inclusion into the Product and,
once the Product is ready for production, the parties will true up the actual
cost; if such cost exceeds the estimate, Licensee will pay the Licensor the
difference; but if such costs are lower than the estimate, the Licensor shall
reimburse the Licensee the difference. Licensee agrees that Licensor shall
solely own the Chip and any modifications to the Chip for inclusion into the
Product and shall have the sole right to file patents to protect the technology
for the Chip as modified for and used in the Product in the Licensor's name.
Licensor agrees that Licensee shall solely own such Product and shall have the
sole tight to file patents to protect the technology for the Product (exclusive
of the Chip)in Licensee's name. To this end, Licensor and Licensee hereby agree
to mutually respect each others technology and hereby agree to cooperate with
each other and not to disclose same to any third party. Accordingly, the
research and all information regarding the Product and any products developed
and owned by the Licensee shall be maintained by both parties in strict
confidence.
It is understood that all research and information given by one party to
the other shall be proprietary and confidential and shall not be used for any
purpose other than as set forth in this Agreement or transmitted or discussed
with persons or entities other than a party's authorized business associates and
advisors, and both the Licensor and Licensee hereby represent to each other that
they will require their authorized business associates and advisors to maintain
the same confidentiality. Licensee hereby also agrees that the research
information provided by the Licensor shall not be reproduced or distributed
without Licensor's written consent.
<PAGE>
Page 2
Licensor likewise agrees that the research information provided by the
Licensee shall not be reproduced or distributed without Licensee's written
consent. if Licensee decides not to go forward after Licensee receives the
expedited research and development estimates from Licensor, Licensee
nevertheless shall pay the Licensor's costs to produce such estimates and return
all research and information that was provided by the Licensor; however, in such
event, Licensor shall be entitled to keep the 500,000 shares of the Licensee's
common stock being provided under Paragraph 5 (b) hereof due to the expediting
of the research and development of any modifications to the Chip required for
inclusion into the Product to be provided for Licensee by Licensor hereunder.
(b). License of Chip
Licensor hereby licenses to Licensee, and Licensee hereby accepts from
Licensor the exclusive right to use the Chip (and any modification to the Chip
hereinafter collectively called the "Chip") in the Product and to market,
distribute and sell the Product containing the Chip in the Territory during the
"Term" and the "Sell-off Period" (as those terms are defined below). Except as
provided for in this Agreement, all rights of any nature whatsoever in the Chip
are owned by and reserved entirely by Licensor. Licensee undertakes to use all
reasonable efforts, skill and ability in its marketing, distribution and sale of
the Product hereunder. Licensor represents and warrants that at the time of
delivery to Licensee of the Chip hereunder, Licensor will own or control all
rights herein granted to Licensee hereunder
2. Rights Granted
Licensor hereby grants to Licensee the following rights:
(a) The right to use the Chip in the Product and to market, distribute,
sell and advertise the Product containing the Chip in the Territory, it being
understood that such right to market, distribute, sell and advertise shall be
exclusive during the Term and non-exclusive during the Sell-off Period.
(b) Licensee's right to release the Product at less than full "Top-line"
retail prices (e.g., as any so-called "budget" products, as any so-called
"premium" products, as any so-called "mid-line" or any other discounted Product)
in connection with any merchandising schemes or commercial tie-up arrangements,
or through any direct mail or mail order method of distribution or other similar
merchandising methods, shall not be exercised without the prior written consent
of Licensor. Further, Licensee shall not be permitted to assign or sub-license
the use of the Chip, this Agreement or any of its rights hereunder in whole or
in part, without Licensor's prior written consent.
Licensor warrants and represents that it has not granted to any third
parties any rights in the Territory during the Term which are inconsistent with
the rights granted to Licensee hereunder.
<PAGE>
Page 3
3. Term
The "Term" of this Agreement shall commence as of the date hereof and shall
continue for a period of five (5) years. If Licensee is not selling the Product
in any country in the Territory by the end of the aforementioned 5 year period,
Licensor shall have the right to revoke the license granted hereunder to that
particular country of the Territory. Licensor hereby irrevocably grants Licensee
five (5) consecutive options to extend the Term for additional periods of five
(5) years for the Territory each under the terms and conditions of this
Agreement. Each such option shall be exercised by Licensee, if at all, by
Licensee giving Licensor written notice thereof no later than ninety (90) days
prior to the date that the then-current option would otherwise expire; provided,
however, if Licensee has failed to give such notice to Licensor within such
period, Licensor shall notify Licensee of such failure and Licensee shall have
an additional period of thirty (30) days from Licensee's receipt of such notice
within which to exercise such option(s).
4. Delivery of Chip
Licensor shall deliver the Chip (as ordered by Licensee no less than thirty
(30) days prior to the delivery date) at Licensor's cost price plus ten percent
(10%), F.O.B. Licensor's plant. Title to the Chip passes to Licensee at F.O.B.
point of shipment. Licensee shall pay Licensor for the cost of such Chip plus
ten percent (10%) as well as packaging, shipping, insurance, customs fees and
duties (if any), and any other expenses actually incurred by Licensor relating
to the shipment to Licensee of all Chips ordered. It is expected that Licensor
shall deliver such Chip to Licensee's export locations as specified by Licensee.
All amounts due Licensor under this paragraph shall be paid promptly by wire
transfer as set forth in Paragraph 6 hereof or by irrevocable letter of credit
if prior approved by Licensor, but not later than ten (10) days after the
receipt by Licensee of any invoice therefor. Licensee shall have the right, upon
reasonable notice to Licensor during normal business hours at Licensor's offices
and not more than once a year, to audit Licensor's financial books and records
solely as the same pertain to Licensor's aforesaid costs and expenses in
connection with the Chip.
5. Consideration
In consideration for this Agreement and the expedited research and the
rights licensed hereunder:
(a) Licensee shall pay Licensor a royalty equal to five (5%) percent of the
amount of monies representing the access time to be debited that is put into the
Chip (originally and by continual recharge) of the Product in each country of
the Territory during the term of this Agreement and any extension thereof.
(b) Licensee shall provide Licensor with five hundred thousand (500,000)
restricted shares of its common stock promptly (but not later than thirty [30]
days) after the full execution of this Agreement. It is understood between the
parties that this stock can not be registered for a two year period. Licensee,
however, respectively warrants that its respective shares of such stock shall be
free and clear of any encumbrances whatsoever and that Licensee will execute and
deliver to Licensor simultaneously with such stock all other documents or
instruments which may be reasonably necessary or reasonably required to
effectuate such transfer.
<PAGE>
Page 4
6. Accounting and Payment of Royalties
Within fourteen (14) days following the end of each calendar month of each
year, Licensee shall send to Licensor a statement setting forth in detail the
computation of royalties for the prior monthly period, setting forth for each
country in the Territory the amount of access time that was to be debited that
was put into each Chip (originally and by recharge) and the royalties earned for
access time sold in regard to each Product and the royalties payable to Licensor
hereunder. Each such statement shall be accompanied by payment in United States
Dollars of all royalty amounts payable to Licensor. All payments hereunder shall
be by bank wire transfer in United States funds to Licensor as follows:
Bank: Chemical Bank New Jersey NA
Address: 57 Diamond Spring Road
Denville, NJ 07834
Account #: 6002 004149
Routing #: 021 202 337
7. Books and Records
Licensee shall keep true and correct accounts of the sale and other
distribution of Licensor's Product and the amount of access time sold
(originally as well as recharged) for each country in the Territory. Licensor or
its representative shall have the right from time to time to appoint an
independent duly qualified accountant or auditor to inspect and make extracts of
the books and records of Licensee, wherever same may be, insofar as said books
and records pertain to the royalties to be paid to Licensor hereunder. Such
inspections shall be made on reasonable prior written notice, by such
accountants or auditors as are chosen by Licensor, during normal business hours
on normal business days, and shall be at Licensor's expense unless it is found
by the accountants or auditors that the amount of the total payments made to
Licensor prior to the date of such inspection is less than ninety (90%) percent
of the total payments which ought to have been made, in which event Licensee
shall pay Licensor an amount equal to all costs and expenses incurred by
Licensor in connection with such inspection and audit.
8. Licensor's Intellectual Property Rights
(a) Licensee agrees and acknowledges that it shall not acquire any rights
of ownership in the copyright(s), the renewal of copyright(s), the trademark(s)
and/or patent(s) (hereinafter individually and/or collectively referred to as
"Intellectual Property Rights") in and to the Chip(or any component thereof) as
a result of Licensee's use of Licensor's Intellectual Property Rights in and to
the Chip and that all such uses of any and all Intellectual Property Rights in
and to the Chip by Licensee shall, as between Licensee and Licensor, inure to
the benefit of Licensor and be limited solely to the Licensee's use of the Chip
in the Product and Licensee's marketing, distribution, sales and advertising of
the Product. Licensee shall not, directly or indirectly, during the term of this
Agreement or thereafter, do anything to interfere with Licensor's ownership of
the Chip or attack the ownership by or control of Licensor in and to any and all
of Licensor's Intellectual Property Rights with respect to the Chip or attack
the validity of the license herein granted to it. Licensee will perform all acts
necessary to vest and maintain Licensor's Intellectual Property Rights in all
jurisdictions in which the Licensee is doing business, including providing
Licensor with reasonably necessary or required documentation Licensor may need
and the signing of reasonably necessary papers Licensor may need. Without
limiting the generality of the provisions of this paragraph, except as set forth
in this Agreement, Licensee shall at no time use or authorize the use of any
<PAGE>
Page 5
trademark, "logo", trade name or other designation identical with or confusingly
similar to any of the trademarks, "logo", trade name or other designation
(individually and/or collectively referred to as "Trademarks") used by Licensor.
Licensee shall notify Licensor of any adverse use of a trademark or other
designation similar to any of the Trademarks of which Licensee is or becomes
aware. Licensee shall not at any time apply for any registration of any
copyright, trademark or "logo" or other designation which includes any of the
Trademarks used by Licensor, in whole or in part, and shall not file any
document with any government authority or take any other action which would
affect Licensor's ownership or control of any of Licensor's Intellectual
Property Rights in and to the Chip including, without limitation, any of the
Trademarks.
(b) Licensor agrees and acknowledges that it shall not acquire any rights
of ownership In the copyright(s), the renewal of copyright(s), the trademark(s)
and/or patent(s) (hereinafter individually and/or collectively referred to as
"Intellectual Property Rights") in and to the Product as a result of Licensee's
use of Licensor's Chip in Licensee's Product and all such uses of any and all
Intellectual Property Rights in and to the Product shall inure solely to the
benefit of Licensee for the Product and the marketing, distribution, sales and
advertising of the Product. Licensor shall not directly or indirectly, during
the term of this Agreement or thereafter, do anything to interfere with
Licensee's ownership of the Product or attack the ownership by or control of
Licensee in and to any and all of Licensee's Intellectual Property rights with
respect to the Product. Without limiting the generality of the provisions of
this paragraph, except as set forth in this Agreement, Licensor shall at no time
use or authorize the use of any trademark, "logo", trade name or other
designation identical with or confusingly similar to any of the trademarks,
"logo", trade name or other designation (individually and/or collectively
referred to as "Trademarks") used by Licensee. Licensor shall notify Licensee of
any adverse use of a trademark or other designation similar to any of the
trademarks of which Licensor is or becomes aware. Licensor shall not at any time
apply for any registration of any copyright, trademark or "logo" or other
designation which includes any of the Trademarks used by Licensee, in whole or
in part, and shall not file any document with any government authority or take
any other action which would affect Licensee's ownership or control of any of
Licensee's Intellectual Property Rights in and to the Product including, without
limitation, any of the Trademarks.
(c) The Licensor hereby authorizes, empowers and vests in the Licensee the
right, subject to Licensor's prior written approval, to enforce and protect all
rights to the Chip used in the Product and the Licensor's Intellectual Property
Rights therein in the Territory, whether standing in the name of the Licensor or
otherwise and subject to Licensor's prior written approval and in the reasonable
judgment of the Licensor, to join Licensor and such others as Licensor may deem
advisable as parties in any suits or proceedings in the name of the Licensor or
in the name of any other parties as Licensor may deem advisable and, subject to
Licensor's prior written approval, to proceed with or dispose of the same in the
same manner and to the same extent as could Licensor acting alone. In the event
of any recovery, fifty percent (50%) of the net proceeds therefrom (i.e.,
resulting after deducting from the gross proceeds therefrom any expenses of
litigation or other applicable costs which have been pre-approved in writing by
Licensor, including reasonable attorney's fees and court costs) shall be paid by
Licensee to Licensor and fifty percent (50%) of such net proceeds may be
retained by Licensee. Notwithstanding the foregoing, Licensor shall have the
right, exercisable at any time, to institute any action, suit or proceeding in
its own name and at its own expense, in which case one hundred percent (100%) of
the recovery shall be retained by Licensor. In this regard, Licensee shall
immediately notify Licensor of : (1) any situation(s) or circumstance(s) which
might reasonable warrant the commencement by Licensor or Licensee hereunder of
any such action, suit or proceeding against any third parties; and/or (2) the
institution by any third party(ies) of any action, suit or proceeding against
Licensee or otherwise pertaining to the Chip and/or Licensor's Intellectual
Property Rights therein.
<PAGE>
Page 6
9. Export Control
Licensee acknowledges that any Chips, software and technical information
(including, but not limited to Chips used in the Product, and, if applicable,
any services and training) shall be subject to United States export laws and
regulations and any use or transfer of such Chips, software and technical
information must be authorized under those regulations. Licensee agrees that it
will not use, distribute, transfer or transmit the Chips, software or technical
information (even if incorporated into the Product) except in compliance with
United State export regulations. Licensee also agrees to give notice to Licensor
and sign those export-related documents which may be required for Licensor to
comply with United States export regulations and to indemnify and hold Licensor
harmless from any losses, costs, expenses, fines or penalties assessed against
Licensor for failure to comply with such laws and regulations. Notwithstanding
anything expressed in or implied by this Agreement, Licensee agrees that it
shall be Licensee's sole responsibility at its sole cost and expense to comply
with any and all such Export Regulations or other applicable laws or
regulations.
10. Tax Provisions
As between Licensor and Licensee, Licensee is obligated to pay all taxes,
duties and other similar charges in connection with the sale of the Product
hereunder. In the event Licensee shall be obligated by the laws of any country
of the territory to deduct and withhold income or other similar tax from
royalties payable to Licensor hereunder, Licensee shall promptly supply
Licensor, if required, a certificate setting forth the amount of tax which shall
have been withheld, the rate of tax and any other necessary information which
shall assist Licensor, upon presentation of such certificate, to obtain income
tax credit from the United States Internal Revenue Service for the tax so
withheld.
11. Warranties and Indemnities
(a) Licensee warrants and represents that (1) it has the right to enter
into this Agreement and to fully perform all of its obligations hereunder; (2)
it shall not at any time use or disclose or permit the use or disclosure of,
directly or indirectly, any trade secrets, confidential or proprietary
information and/or all other knowledge, information, documents or other
materials, owned, developed or possessed by Licensor, whether in tangible or
intangible form, and which pertain to the subject matter of this Agreement.
Licensee agrees to defend, indemnify and hold Licensor harmless against any and
all liability, loss, damage, cost or expense including court costs and
reasonable attorney's fees, paid or incurred by reason of any breach of any of
Licensee's covenants, warranties or representations hereunder which are reduced
to final judgment or settled with Licensee's prior written consent (not to be
reasonable withhold) and not due to any violation or breach by Licensor of
Licensor's covenants, warranties or representations hereunder. Licensee shall
reimburse Licensor, on demand, for any payment required to be made by Licensor
at any time with respect to the foregoing indemnity.
<PAGE>
Page 7
(b) Licensor represents and warrants that (1) it possesses the full right,
power and authority to enter into and to perform this Agreement; (2) it shall
not at any time use or disclose or permit the use or disclosure of, directly or
indirectly, any trade secrets, confidential or proprietary information and/or
all other knowledge, information, documents or other materials, owned, developed
or possessed by Licensee, whether in tangible or intangible form, and which
pertain to the subject matter of this Agreement. Licensor agrees to defend,
indemnify and hold Licensee harmless against any and all liability, loss,
damage, cost or expense including court costs and reasonable attorneys' fees,
paid or incurred by reason of any breach or claim of breach of any of Licensor's
covenants, warranties or representations hereunder which are reduced to final
judgment or settled with Licensor's prior written consent (not to be
unreasonably withheld) and not due to any violation or breach by Licensee of
Licensee's covenants, warranties or representations hereunder. Licensor shall
reimburse Licensee, on demand, for any payment required to be made by Licensee
at any time with respect to the foregoing indemnity. NOTWITHSTANDING ANYTHING TO
THE CONTRARY EXPRESSED IN OR IMPLIED BY THIS AGREEMENT, LICENSEE ACKNOWLEDGES
AND AGREES THAT THERE ARE NO WARRANTIES, GUARANTEES, CONDITIONS, COVENANTS OR
REPRESENTATIONS BY LICENSOR WITH RESPECT TO THE CHIP AS TO MARKETABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OTHER ATTRIBUTES, WHETHER EXPRESS OR IMPLIED
(IN LAW OR IN FACT), ORAL OR WRITTEN.
12. Rights of Termination of Licensor
In the event:
(a) Licensee shall fail to perform any of its obligations required to its
hereunder (except as set forth in subparagraphs (b) and (c) below), and Licensor
shall have notified Licensee in writing of such failure and Licensee shall not
have cured such failure within thirty (30) days after such written notification;
or
(b) Licensee shall fail to account and make purchase payments to Licensor
in a timely manner hereunder; or
(c) Licensee (by itself or through any third party including without
limitation, known exporters) causes or knowingly allows the Product hereunder
(or any component thereof) to be manufactured, distributed, sold, shipped,
trans-shipped, exported or exploited in any manner whatsoever, outside of the
Territory or otherwise in violation of applicable US. Export Administration
Regulations or other applicable laws, treaties or regulations or otherwise;
then and in any such events, Licensor may, in addition to all of its other
rights and remedies at law or otherwise, at its option, terminate this Agreement
to provide Chips hereunder immediately upon giving written notice to Licensee
without prejudice to any rights or claims which Licensor may have but Licensee's
obligation to pay royalties to Licensor shall continue as long as Products using
Licensor's Chips are in use throughout the Territory.
<PAGE>
Page 8
13. Insolvency
In the event Licensee shall make any assignment for the benefit of
creditors or make any compromises with creditors, or any action or proceeding
under any bankruptcy or insolvency law is taken by or against Licensee, which is
not discharged within thirty (30) days after it is commenced, then in any such
events the Licensor may, in addition to all of its other rights and remedies at
law or otherwise, its option, terminate this Agreement to provide Chips
hereunder upon giving Licensee not less than ten (10) days' written notice.
However, Licensee shall remain liable to continue to pay royalties to Licensor
for as long as Products using Licensor's Chips are in use throughout the
Territory.
14. Effect of Expiration or Termination
(a) Upon the expiration or termination of this Agreement all sales or
distribution of the Chips by Licensee shall cease. All Chips in Licensee's
possession or control shall promptly, at the option of Licensor and upon its
written instructions, either:
(i) Be transferred by Licensee or Licensor's designee at Licensee's actual
direct cost, plus shipment charges; or
(ii) be destroyed by Licensee under the supervision of Licensor or
Licensor's designee, or at Licensor's written request, destroyed by Licensee
without such supervision provided Licensee provides Licensor with an affidavit
or such fact, sworn to by a principal officer of Licensee.
(b) Licensee shall submit to Licensor not later than thirty (30) days after
the expiration of this Agreement a written inventory of all the then remaining
Chips hereunder. Licensor or its designee shall have the option, upon giving the
Licensee written notice of its election to do so not later than three (3) months
after its receipt of such written inventory, to purchase such Chips which remain
unsold at the time Licensor makes such election, for an amount equal to
Licensee's actual direct cost of such Chips. If Licensor or its designee elects
to purchase such remaining Chips, Licensee shall promptly ship the same, at
Licensee's cost, to Licensor or its designee, or shall make them available at
Licensee's place of business for Licensor or its designee to take possession
thereof.
(c) Subject to subparagraph (b) above, upon the expiration of this
Agreement, by reason of passage of time and not by reason of any termination by
Licensor , and provided further that Licensee submits the aforesaid written
inventory to Licensor within ten (10) days after such expiration, Licensee shall
continue to have the right to sell the then remaining Chips on a non-exclusive
basis only for an additional "Sell-off Period" of six (6)months. Licensee agrees
that it shall not order quantities of Chips hereunder in excess of reasonably
anticipated market demand during the last six (6) months of the Term of this
Agreement.
<PAGE>
Page 9
(d) All sales of access time by Licensee subsequent to the expiration of
this Agreement shall, except as otherwise provided herein, be in accordance with
the terms and provisions hereof applicable to the sale of access time during the
term hereof and Licensee shall continue to pay Licensor its royalties for as
long as Products using Licensor's Chips are in use throughout the Territory.
Without limiting the generality of the foregoing, such sales shall be in
Licensee's normal course of business and at prices not less than the normal
retail prices of such access time during the Term hereof. Such sales shall be
subject to the payment of royalties by Licensee under the terms of this
Agreement. Upon the expiration of the six (6) month period referred to in
subparagraph (c) above, and at Licensor's sole direction in writing, Licensee
agrees to either transfer the then remaining Chips to Licensor or Licensor's
designee or destroy all the then remaining Chips under the supervision of
Licensor or Licensor's designee or, at Licensor's written request, Licensee
shall destroy said Chips without such supervision provided that Licensee
provides Licensor with an affidavit of such fact, sworn to by a principal
officer of Licensee.
15. Notices
All statements and all notices to Licensor shall be addressed to Licensor
at the address set forth above or any other address hereinafter designated by
written notice by Licensor. All notices to Licensee shall be addressed to
Licensee at the address set forth above, or any other address hereinafter
designated by written notice by Licensee. All notices to be given to either
party hereto shall be in writing and shall be delivered either personally to an
officer of the addressee or by certified mail, return receipt requested, postage
prepaid, or by overnight express (charges prepaid) or via facsimile (with a
"hard" copy delivered in any of the manners set forth in this sentence). Any
notice which is mailed, sent via overnight express or sent via facsimile shall
be conclusively deemed to have been given on the date of mailing or on the date
of delivery to the overnight express company or upon transmission by facsimile;
provided notice of change of address shall be deemed given when actually
received.
16. Miscellaneous
(a) The covenants hereunder are subject to applicable laws and treaties.
This Agreement , its validity, construction and effect shall be governed and
construed under the laws of the State of New York applicable to contracts
executed therein and wholly to be performed therein. Any disputes arising from
this Agreement shall be subject to the exclusive jurisdiction of the state or
federal courts located in the City, County, and State of New York, U.S.A.
(b) If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not effect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate, this Agreement upon giving not less than ten (10)
days' written notice to Licensee.
(c) Except as provided for in this Agreement, all rights of any nature in
the Chips licensed hereunder are reserved by Licensor and all rights of any
nature in the Product are reserved by Licensee.
(d) This Agreement may not be modified orally; no waiver, amendment or
modification shall be binding effective unless in writing and signed by both
parties.
(e) Paragraph headings used herein are for convenience only and are nor
part of this Agreement and shall not be used in construing it.
<PAGE>
Page 10
(f) This Agreement shall inure to the benefit of and be binding upon
Licensor and its successors and assigns and Licensee and any permitted
successors or assigns.
(g) In the event any payments due Licensor are delayed or prohibited by
currency restrictions or other governmental regulations, Licensor shall be
entitled to designate a local depository in the country, in which Licensee, at
the direction of Licensor, shall deposit such monies to the credit of Licensor
subject to the laws of the country.
(h) In the event of any action, suit or proceeding hereunder the prevailing
party shall be entitled to recover reasonable attorneys' fees in addition to the
costs of said actions, suit or proceeding.
(i) Licensee agrees to comply with local law and, if required by Licensor,
register for copyright, trademark and/or patent protection as applicable, on
behalf of Licensor (or as Licensor otherwise directs) in the Territory for the
Chips used in the Product which is subject to this Agreement.
(j) This Agreement does not (and shall not be construed to) create a
partnership or joint venture between the parties.
(k) This Agreement constitutes the entire understanding between the
parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first set forth above.
PICK COMMUNICATIONS CORP.
By: /s/ Diego Leiva
Diego Leiva
Title: President
ACCEPTED & AGREED:
INTERNET CHANNEL INC.
By: /s/ James Sims
Title: President
ESCROW AGREEMENT
ESCROW AGREEMENT made as of July 3 , 1996 by and between PICK COMMUNICATIONS
CORP. ("PICK"),Wayne Interchange Plaza II, 155 Route 46 West, Third Floor,
Wayne, NJ 07470; THE PHONE STORE, INC. ("PHONE STORE"), 1415A S.W. 107th Avenue,
Miami, Florida 33174; and MATTHEW HAMILTON RICHARDSON, ESQ., P.O. Box 6173, Fort
Lauderdale, Florida 33310, as Escrow Agent.
WITNESSETH:
WHEREAS, PICK will purchase U.S. Treasury instruments in the gross amount of
$425,000 in PICK's account in Merrill Lynch in White Plains, New York, as
security for PHONE STORE pursuant to a separate agreement dated July 3 , 1996
between PICK and PHONE STORE; and
WHEREAS, both PICK and PHONE STORE desire to have MATTHEW HAMILTON
RICHARDSON, ESQ. act as the Escrow Agent for said security;
NOW, THEREFORE, the parties hereto agree as follows:
1. PICK shall have $425,000 gross amount of U.S. Treasury instruments
purchased in its account at Merrill Lynch in White Plains, New York, with
maturity dates as set forth in Exhibit A attached hereto and hereby made a part
of this Agreement. PICK will forward the list of said U. S. Treasury instruments
by description and security number to PHONE STORE c/o MATTHEW HAMILTON
RICHARDSON, ESQ. at the above address and by facsimile to him at (954) 925-4486
as PICK purchases same.
2. MATTHEW HAMILTON RICHARDSON, ESQ. will thereupon notify PICK of his
Trust Account information at Prudential Securities in Hollywood, Florida and
PICK will have the U.S. Treasury instruments transferred from its Merrill Lynch
account into the Prudential Securities Trust Account of MATTHEW HAMILTON
RICHARDSON, ESQ.
<PAGE>
Page 2
3. MATTHEW HAMILTON RICHARDSON, ESQ. agrees to act as Escrow Agent for
PHONE STORE and PICK and to hold the U.S. Treasury instruments in escrow in his
Prudential Securities Trust Account and release the monies to PHONE STORE as
each instrument matures. Notwithstanding the foregoing, PHONE STORE agrees and
MATTHEW HAMILTON RICHARDSON, ESQ. agrees to release the remainder of any U.S.
Treasury instruments being held by him as Escrow Agent to PICK pursuant to a
valid judgment being obtained against PHONE STORE by PICK for breach of the July
3, 1996 agreement between PICK or PHONE STORE or the discontinuing of business
by PHONE STORE, at any time during the period of this Escrow Agreement, through
insolvency, dissolution proceedings, bankruptcy, receivership or the like
commercial conditions. It is understood that the amount of the U.S. Treasury
instruments shall not exceed the aforesaid judgment amount or the instruments
remaining on the effective date PHONE STORE discontinues business as set forth
in this paragraph and PICK will notify MATTHEW HAMILTON RICHARDSON, ESQ., by
certified mail of same in either event.
4. The duties and obligations of the Escrow Agent, MATTHEW HAMILTON
RICHARDSON, ESQ., shall be limited to and determined solely by the express
provisions of this Escrow Agreement.
5. The Escrow Agent, MATTHEW HAMILTON RICHARDSON, ESQ., hereby waives any
fee or other remuneration from PICK for his services hereunder.
6. The Escrow Agent, MATTHEW HAMILTON RICHARDSON, ESQ., shall not be liable
for any act or omission hereunder while acting in good faith, unless caused by
or arising from his own gross negligence or willful misconduct. Accordingly,
PICK and PHONE STORE agree to indemnify and hold the Escrow Agent harmless from
and against any liabilities, causes of action, claims, damages, costs and
expenses that may arise out of this good faith acceptance of or performance of
his duties and obligations under this Escrow Agreement, including, but not
limited to, fees for brokerage.
IN WITNESS WHEREOF, the parties have set their hands the day and year first
written above.
THE PHONE STORE, INC.
By: /s/ Andy Martinez
Andy Martinez, President
PICK COMMUNICATIONS CORP. MATTHEW HAMILTON RICHARDSON, ESQ
By: /s/ Diego Leiva
Diego Leiva, President
<PAGE>
EXHIBIT A
AMOUNT DATE INSTRUMENT
$25,000 October 3, 1996 U.S. Treasury Bill
$50,000 February 15, 1997
$50,000 August 15, 1997
$50,000 February 15, 1998 Zero Coupon U.S.
Treasury Bond
$50,000 August 15, 1998 Instruments
$50,000 February 15, 1999
$50,000 August 15, 1999
$50,000 February 15, 2000
$50,000 August 15, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF PICK COMMUNICATIONS CORP. FOR JUNE 30, 1996
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>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 278,976
<SECURITIES> 5,866,875
<RECEIVABLES> 1,265,420
<ALLOWANCES> 119,356
<INVENTORY> 127,279
<CURRENT-ASSETS> 4,995,563
<PP&E> 136,836
<DEPRECIATION> 16,582
<TOTAL-ASSETS> 11,640,524
<CURRENT-LIABILITIES> 3,925,274
<BONDS> 0
0
0
<COMMON> 86,385
<OTHER-SE> 5,654,367
<TOTAL-LIABILITY-AND-EQUITY> 11,640,524
<SALES> 1,730,217
<TOTAL-REVENUES> 10,164,217
<CGS> 2,013,050
<TOTAL-COSTS> 3,272,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,990
<INCOME-PRETAX> 6,900,409
<INCOME-TAX> 1,808,000
<INCOME-CONTINUING> 3,367,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,092,409
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
