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THIS DOCUMENT IS A COPY OF THE 10-K FILED ON 4/16/97 PURSUANT TO A RULE 201
TEMPORARY HARDSHIP EXEMPTION
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-27604
PICK COMMUNICATIONS CORP.
(Exact Name of Registrant as Specified in its Charter)
Nevada 75-2107261
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
155 Route 46 West, Wayne, New Jersey 07470
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 812-7425
- --------------------------------------------------- --------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained herein, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.|_|
The issuer's revenues for its most recent fiscal year were $9,519,682.
The aggregate market value of the 14,544,477 shares of voting stock held by
non-affiliates of the Registrant, as of March 31 , 1997 was $4,654,233 (assuming
solely for purposes of this calculation that all directors, officers and greater
than 5% stockholders of the Registrant are "affiliates").
The number of shares outstanding of the Registrant's Common Stock, par value
$.001 per share, as of March 31, 1997, was 35,867,016.
Documents Incorporated by Reference: Not Applicable.
Exhibit Index is located on page ____
<PAGE>
Item 1: Business
(a) General Development of Business
PICK Communications Corp. was incorporated in April 1984 under
the laws of Utah as S.T.V., Inc.("STV).
In February 1986, the Company changed its name to Adolphus
Companies,Inc. and to Prime International Products,Inc. ("PRIME") in May,
1988. PRIME ceased operations in late 1990.
In July 1995, PRIME changed its state of organization from Utah to
Nevada. On September 12, 1995, PRIME executed a Stock Purchase Agreement to
exchange 16,500,000 shares of PRIME's Common Stock for all of the outstanding
shares of common stock and warrants of Public Info/Comm Kiosk, Inc. ("PICK"),
which made PICK a subsidiary of PRIME. PICK was incorporated under the laws of
the State of New Jersey in August 1992. PRIME changed its name to PICK
Communications Corp. in December 1995. Unless otherwise indicated, all
references to "the Company" hereinafter include the business and operations of
PICK prior to the September 12, 1995 transaction, and the combined companies
thereafter. The transaction was a reverse acquisition accounted for as a
re-capitalization of PICK. In April, 1996, the Company formed PICKNET, Inc.
("PICKNET"), a wholly owned subsidiary to resell International Long Distance
Services on a wholesale basis to other carriers and resellers. The financial
statements contained herein represent the operations of PICK prior to September
12, 1995, and the consolidated operations of the Company thereafter.
The Company is engaged in the design, development, manufacture or
retooling and marketing of various telecommunications products. To date, the
Company's operations have been concentrated primarily in the areas of Prepaid
Telephone Calling Cards ("Telephone Debit Cards" or "Calling Cards") and
International Long Distance Services on a wholesale (carrier to carrier) basis.
The Company's Telephone Debit Cards provide users with convenient and
cost effective access to local calls, long distance domestic calls, and
international calls through the Company's switching facilities and long distance
network arrangements. The major portion of the Company's operations from January
1, 1994 to May 1, 1996 revolved around the issuance, distribution and sale of
Telephone Debit Cards. The Company's International Long Distance Services
division, through PICKNET, became a significant business division in May, 1996.
In October 1995, the Company entered into an agreement whereby it
purchased the exclusive worldwide rights
to market, distribute and sell a prepaid cellular telephone system.
In December 1996, the Company entered into a non-exclusive,
unrestricted, worldwide agreement with ISED Corp. to sell and distribute that
Company's secured encryption device (SED) point-of-sale (POS) terminal.
<PAGE>
(b) Financial Information About Industry Segments
The Company operates on multiple tiers within one industry --
telecommunications. PICK is engaged in the design, development, manufacture or
retooling, distribution and sale of tele-communications products, with the
prepaid venue as its primary target.
(c) Narrative Description of Business
Telephone Debit Card Market Overview
The telephone debit card was developed in Italy in 1976, and became
readily available throughout Europe in the mid-1980's. In 1987, the concept was
introduced in the United States where it has continued to gain widespread
consumer acceptance as both a retail and a promotional telecommunications tool.
The Company acquired a working knowledge of the technology available in
the public domain regarding this rapidly growing product. Accordingly, the
Company utilizes the current, industry standard technology but does not own it.
In December 1993, the Company started production with an initial market test of
a Telephone Debit Card. The card proved to be a technical success and the
Company further improved its product, developing the COMMUNICASH card in 1994.
The market for telephone Calling Cards consists of distributor
customers, retail customers, chain store customers, promotional customers and
the ultimate card user, as well as collectors. Distributors serve as
facilitators and brokers, selling to retail outlets and small chain stores.
Retailers and larger chain stores sell directly to the ultimate card user. The
Promotional Market is comprised of corporate customers who use telephone debit
cards as an exciting new marketing option to enhance sales of their own products
or services. Many companies are offering consumers free telephone time, via
telephone debit cards containing their corporate or brand name or logo, as an
incentive to purchase a product or as a "thank you" after a purchase has been
made.
There is also a significant Collector Market throughout the world.
Individuals from all age, gender, and geographic groups collect calling cards
with pictures of sports/entertainment celebrities or commemorating a particular
event. Purchasers of such cards do not expect to use the telephone time
associated with the Debit Cards, but rather save the cards in "mint" condition
for potential sale to other collectors at appreciated values in the future.
The Company has been geared primarily toward the Retail Market with its
trademarked line of "COMMUNICASH"(R) and "las Americas"(R) Telephone Debit
Cards, and toward the Promotional Market with cobranded and private label cards.
To date, the Company has entered the Collector Market only on a very limited
basis.
<PAGE>
The Company's Telephone Debit Cards
COMMUNICASH
The Company brought its first prepaid Telephone Debit Card, Communicard
Phone Money, to market in December 1993 in controlled distribution. During a
seven-month trial period in 1994, the Company accumulated a great deal of
information concerning the product category, the needs of the distribution chain
in the retail environment and the retail market itself, which led to the
development and introduction of the current COMMUNICASH card in August 1994. The
Company has taken a comprehensive approach with regard to research, development,
market analysis, production and distribution for its products which the Company
believes is evident in both the product and the point of sale materials.
COMMUNICASH cards are currently non-rechargeable, disposable prepaid
Calling Cards specifically designed for the retail sales environment. The
Company issues these cards in denominations of $5, $10, $20, $50 and $100 which
can be used for local, long distance and international calling from any
touch-tone phone in the United States at
any time.
An 800 number printed on the back of the COMMUNICASH card provides the consumer
with network access and a Personal Identification Number ("PIN"), also printed
on the back of the card, allows the computerized switch to identify and track
card usage. Printed instructions and voice prompts in English and Spanish
provide the consumer with step by step instructions for card use, information
regarding the amount of money remaining on the card and the number of minutes
the consumer can talk to the destination number dialed. Calls in a series can be
made without hanging up and re-dialing. To assist the consumer further, the
Company has contracted with Telecommunications Service Center, Inc. and
Innovative Telecom Corp., the organizations which provide telephone switching
services to the Company, to provide 24-hour customer assistance.
las Americas(R)
The Company identified certain ethnic or niche markets where retail
sales are most profitable. The first such market pursued by the Company has been
the Hispanic community. To properly respond to the needs of this market, the
Company introduced the las Americas card in November 1995. This Spanish-language
version of COMMUNICASH featured a revamped package design and Point-of-Sale
materials specifically geared toward the Hispanic market, as well as preferred
international rates to countries frequently called, such as Dominican Republic,
Cuba, Colombia, Guatemala, Mexico, etc. The las Americas card is issued in $5,
$10, $20 and $25 denominations and, to date, the Company has focused marketing
efforts primarily on specific areas in New York, New Jersey, Texas, California
and Florida.
The las Americas card was re-packaged again in mid-1996 to keep current
with successful market trends. This card is now a brightly colored skin-pack
design which affords greater fraud protection and increased security for the
PIN number.
<PAGE>
COMMUNICASH Co-Branded
COMMUNICASH Co-Branded was designed to address the prepaid Calling Card
needs of the corporate clients in the Promotional Market. Promotional clients
have included Webcraft Technologies and Value Line. Co-branded cards can also
be sold in a retail environment through existing outlets of a corporate sponsor
such as Kwik Trip, Inc.
This product features the logo of the corporate sponsor and/or its product(s),
as well as the COMMUNICASH logo. Management believes co-branding also provides
reinforcement to the consumer of the COMMUNICASH retail product since the
Co-Branded product includes the name "COMMUNICASH" both on the packaging and on
the card
itself.
Private Label Calling Cards
The Company learned that huge national and international corporations
often prefer to stand alone on the card front and packaging materials. In these
instances, the Company relinquishes all references to COMMUNICASH, however, the
card back always "belongs" to the Company. Information required by the FCC and
other governmental agencies is set forth on the card backs as well as the name
of the responsible telecommunications carrier (the Company).
Sales and Marketing of Telephone Debit Cards
The Company targets sales to retail outlets through large wholesale
distributors. These distributors typically have relationships with a great many
retailers because they sell candy, chewing gum, tobacco, household items and
assorted sundries to them. Because of the existing rapport between the
distributor and its retail clients, a new product can be readily introduced into
the sales channel. With this method, the Company also benefits from having only
one account receivable with each distributor rather than thousands of accounts
receivable for individual retail customers. This strategy also obviates the need
for a large in-house sales force capable of personally servicing each of the
retail locations in various parts of the country. Two officers of the Company,
the President and the Vice President of Operations, are directly involved in the
sales efforts and the continued success of these distributors.
Current Market Changes
The market for telephone debit cards is beginning to shift toward a
"Point of Sale" design and activation technology with a recharge function. The
Company's distribution agreement with ISED offers the ability to incorporate
these features into the Company's entire product line. These added features will
afford greater flexibility to both the Company and the retailers, will insure
greater retail security (no "live" cards on premises to be lost or stolen), will
reduce printing costs and should allow a significant expansion of the existing
distribution network.
<PAGE>
Manufacturing/Production of COMMUNICASH Cards
The COMMUNICASH, las Americas and COMMUNICASH Co-Branded Telephone
Debit Cards to date have been designed by Roland Gebhardt Design in New York
City. The original cards and several subsequent print runs were printed by
Webcraft Technologies, Inc.("Webcraft"). Webcraft, a paper printer, has over
35 press lines in five states capable of unique formatting and product design
capabilities for the production of prepaid telephone calling cards. Webcraft
also provides the highest level of plant and press security along with waste
destruction and finished product security. The Company procures card print
runs on a purchase order basis. No formal contract exists between the
Company and Webcraft.
The most recent release of the las Americas card, because of its new
"skin pack" design for additional PIN protection and to provide the consumer
with the packaging they are now looking for, was printed by Serenity Press in
Norcross, GA. Serenity Press has had prior printing experience with the skin
pack design and packaging and, like Webcraft, provides the highest level of
plant and press security along with waste destruction and finished product
security. The Company procures card print runs on a purchase order basis. No
formal contract exists between the Company and Serenity Press.
The printer most frequently utilized for plastic (rather than paper)
calling cards produced by the Company in the past, and for projects currently
quoted to three separate companies, is Brilliant Color Card. This company,
located in San Rafael, CA is one of the oldest, most respected plastic card
printers in the country. They also provide the highest level of security as
detailed above. No formal contract exists between the Company and Brilliant
Color Cards, Inc.; cards are printed on a purchase order basis.
Secure PINs are obtained from the Company's selected switching facility
and are directly transmitted by appropriate electronic media to the specified
printer prior to press date. The necessary art work is also submitted to the
printer in the required format. During a web press run, a designated Webcraft
sales account manager and art/design representative are present to insure smooth
and effective production. Print runs other than on a web press are significantly
less complex and more automated, requiring only print staff in attendance.
Fulfillment
The Company has an agreement with Players Computer, Inc. ("Players"),
located in Hauppauge, NY for the fulfillment of all orders for the COMMUNICASH
and las Americas products. Players provides 100% secure storage for all of the
cards and handles the activation process with the switch so that the cards can
be used. Players also receives shipments directly from the printer following the
press run, ships all orders to the Company's customers, performs accounts
receivable functions and provides the Company with weekly reports.
<PAGE>
Acquisition Of Telephone Time
The Company has entered into interconnect agreements with a variety of
major carriers in the telecommunications field to purchase 800 (inbound) service
and (outbound) domestic and international long distance services for the
Company's Telephone Debit Cards and International Long Distance Services
divisions. Under such interconnect agreements, the Company is allowed to direct
domestic, long distance and international calls over the networks of these
carriers, and is granted special destination and rate discounts based on
anticipated volume. Calls are routed through the Company's own switching
facility (located in Tampa, Florida and managed by Telecommunications Service
Center Inc.), and, since April 1996, through a dedicated switch in New York City
which is owned and managed by Innovative Telecom Corporation. These
interconnect agreements were initially pursued in relation to the Company's
International Long Distance Services division due to volume requirements.
However, the lower costs involved here benefit the Company's Telephone Debit
Card business as well because the Company becomes, in effect, its own customer.
The Company aggregates minutes from all its customers to increase its
total minute volume and obtain increasingly more favorable rates. The Company
utilizes Least Cost Routing (LCR) of its outgoing traffic to maximize benefits
and profitability. These reduced costs positively influence the rates for all
other related businesses of the
Company.
International Long Distance Services
In response to the opening of competitive long distance service
associated with the goals of the 1984 divestiture of AT&T and the 1996
Telecommunications Act passed by Congress, the Company entered into the
International Long Distance Services business in May of 1996. As stated, the
Company established interconnect agreements with a variety of major carriers for
800 service (inbound) and for outbound domestic and international long distance
service in order to resell it to other carriers and resellers, and to benefit
directly from reduced per minute rates. The Company resells International Long
Distance Services through PICKNET.
The traffic from this division is processed and reported through the
Company's contracted switch facility in New York City (through Innovative
Telecom Corp.). The traffic is billed to the Company's wholesale customers on a
weekly basis through the Company's billing agent, Intertech Management Group,
Inc., in Chesterfield, MO.
<PAGE>
Government Regulations
Long distance telecommunication services are subject to regulation by
the FCC and by state regulatory authorities. Among other things, these
regulatory authorities impose regulations governing the rates, terms and
conditions for interstate and intrastate telecommunication services. The federal
laws governing regulation of interstate telecommunications are the
Communications Acts of 1934 and 1996 (the "Communications Acts"), which apply to
all "common carriers," including AT&T, MCI and Sprint, as well as entities, such
as the Company, which resell the transmission services provided through the
facilities of other common carriers. In general, under the Communications Acts,
common carriers are required to charge reasonable rates and are prohibited from
engaging in unreasonable practices in the provision of their services. Common
carriers are also prohibited from engaging in unreasonable discrimination in
their rates, charges and practices.
The Communications Acts require each common carrier to file tariffs
with the FCC. A tariff is a list of services offered, the terms under which the
services are offered, and the rates, or range of rates, charged for services.
Upon filing a tariff, the service provider is required to provide the services
at the rates and under the terms and conditions specified in the tariff. Failure
to file a tariff could result in fines and penalties. The Company believes it
has filed, or is in the process of filing, all required tariffs with the FCC.
In addition to federal regulation, resellers of long distance services
may be subject to regulation by the various state regulatory authorities. The
scope of such regulation is in constant flux and varies from state to state,
with certain states requiring the filing and regulatory approval of various
certifications and state tariffs. As the Company expands the geographic scope of
its long distance operations, it intends to obtain operating authority as may be
required to provide these services.
The Company believes that it is in substantial compliance with all
material laws, rules and regulations governing its operations and has obtained,
or is in the process of obtaining, all licenses, tariffs and approvals necessary
to conduct its business. In the future, the Company will continue to attempt to
comply with any new legislation enacted by Congress, court decisions relating to
the telecommunications industry, or regulatory actions taken by the FCC or the
states.
Future Directions
The Company plans to maintain and expand its Telephone Debit Card
business and its International Long Distance Services while simultaneously
developing the Prepaid Cellular Telephone and the Secured Encryption Device
systems.
<PAGE>
Prepaid Cellular Telephone
In October 1995, the Company entered into an agreement with The Next Edge, Inc.
("TNE") whereby the Company purchased the exclusive worldwide rights to market,
distribute and sell a prepaid cellular telephone system. The Company will also
need to develop the infrastructure and computer system to support this product.
The agreement, subsequently assigned by TNE to The Phone Store, Inc. (TPSI) in
July, 1996, has an initial term of five years with an option for five additional
five year periods, at the Company's sole option, at a cost of $100,000 per year.
Funds for subsequent five year periods are expected to be generated from the
Company's cash flow. In the event the contract is not renewed, the Company would
be entitled to royalties on the residual sales made, prior to cancellation of
the TPSI contract.
The initial agreement required the Company to pay TPSI a total of
$500,000, at a rate of $25,000 per quarter for a period of five years beginning
on January 1, 1996. This requirement was funded and put into escrow in July,
1996.
The Company was required to issue a total of 100,000 shares of its common stock
to TPSI in increments of 20,000 shares each year for five years beginning on
January 1, 1996. These shares were also put into escrow for TPSI in 1996. The
agreement further requires the Company to purchase the circuit chips for the
system from TPSI, at TPSI's cost. The agreement stipulates that the Company will
be recorded as co-owner of the final United States patent issued relating to
this technology (for which an application is pending) and requires the Company
to implement the international patent applications.
The Company's prepaid cellular telephone resulted from the explosion of
the use of cellular telephones on a worldwide basis and the percentage of
individuals who were turned down for "traditional" cellular access. Not everyone
is sufficiently credit-worthy to own or lease a cellular telephone because once
a person has a cellular phone activated, that consumer has an unlimited, open
line of credit. Industry reports suggest that approximately one-third of all
applicants for cellular service are rejected by the cellular carriers as a
result of enforcing stringent credit requirements. Other consumers, whose credit
is "borderline" by these standards, are required to pay significant cash
deposits to secure a line.
The Company's prepaid cellular telephone brings prepaid debit technology to
cellular phone users and makes it available to practically everyone who would
like to use it. The system works by allowing the phone to operate when the
prepaid time is installed, and by automatically shutting off the programmed
cellular telephone when the subscriber has reached the limit of prepaid
air-time. Although this system can be used with a variety of cellular
telephones, the Company has chosen only Motorola phones to commence
commercialization.
There are other prepaid cellular telephones available on the market today which
are either switch-based or so-called "smart phones". Each of these systems
perform as prepaid but not in the same manner as "traditional" cellular phones.
Calls may be limited to outbound only, and a special 800 number (sometimes
pre-programmed into the phone) must be dialed before the destination number can
be accessed. The systems which allow incoming calls, can only do so by having
the caller dial an 800 number which has been assigned to a specific phone and
then entering a PIN or code number assigned to that phone. There is also a
significant amount of room for error in these systems in that consumers often
have to "program" information into the phone via the numerical key pad allowing
for "fat fingering" or number transpositions which render the phone inoperable.
The Company's prepaid cellular telephone is the first integrated system
consisting of a cellular phone with an internal programmable computer chip that
allows the phone to operate only for a prepaid amount of time. Because the phone
itself is in control of the on/off processes and tracking the minutes used, the
Company believes the technology is superior to the switchbased and "smart"
prepaid cellular phones already on the market. This tamper resistant security
technology provides the highest degree of protection from fraudulent
charges and eliminates consumer entry errors.
To date, approximately 500 units of the TNE technology prepaid cellular
telephones have been produced and successfully tested in both the United States
and in South America. There is little behavioral difference between the
Company's system and a "traditional" cellular phone, but the Company's system
can also be made available for use outside the United States because this
specific technology can interface with any cellular network without
modification. In many locations around the world, where the use of credit cards
is less common than it is in the United States and
<PAGE>
currency is the more accepted manner of payment, this system provides an
attractive means for cellular access.
In 1996, the Company entered into exclusive foreign license agreements
with Firenze Ltd. ("Firenze") and Yakimoto Investment, Ltd. ("Yakimoto").
These companies subsequently failed to demonstrate the ability or financial
strength necessary to commercially capitalize on the Company's technology in
the markets they chose, thus, the Company revoked these licenses in the first
quarter of 1997.
The Company anticipates reselling specific foreign territory licenses during
1997.
In the last quarter of 1995, the Company granted an exclusive license to market
and sell its prepaid cellular telephone in the United States and Canada to
P.C.T. Prepaid Telephone, Inc. ("PCT"), which recently commenced limited
operations. The Company holds approximately 79% of PCT's outstanding common
stock as of March 31, 1997.
PCT has agreed to purchase the licensed technology and equipment from the
Company on the basis of cost plus ten percent (10%), and to pay a royalty
fee to the Company of 5% of all gross sales derived from equipment and air time
on a monthly basis.
The Company has entered into contracts for AT&T Wireless Services in the New
York Metropolitan area and in Florida for air time. These contracts provide for
the Company to pay AT&T Wireless on a time plus basis, with the Company having
the ability to assign individual telephone numbers from equipment in its Wayne,
NJ headquarters office. The Company is currently seeking agreements with
wireless service providers in other parts of the United States in order to lay
the groundwork for expansion into other regions as well.
<PAGE>
Secured Encryption Device Transactions
The Company has acquired unrestricted distribution rights to a patented Secured
Encryption Device (SED) under a SED System Operator License Agreement. This
device which performs certain functions similar to a VeriFone, utilizes a
different technology and is less costly. The Company plans to market this
Secured Encryption Device for a retail cost significantly less than the
competitive products (VeriFone, Hypercom and USW which range from $500 to
$1,400). The Company is ready for immediate release of this new product. The
device is expected to have a positive impact on Company revenues in several
ways.
First, in the prepaid Telephone Debit Card market, for example, sales to date
have been somewhat suppressed due to the retailers' concerns regarding the costs
and security issues involved in carrying "live" inventory. With the
SED
machine, the Company will be able to introduce a Point of Sale activation system
to allow the Company to ship inactive, non-denominational and re-chargeable
cards for POS activation at the retail location, thus eliminating these
concerns. It is anticipated that this will increase the Company's distribution
locations, stimulate sales and lower accounts receivable.
Second, it is anticipated that the Company will benefit from reduced printing
costs for Telephone Debit Cards because all card faces in a print run will be
identical. Prior to the availability of Point of Sale activation of
non-denominational cards, each print run contained multiple card classifications
resulting in additional print charges for plate and color changes.
Another consideration for both the Company and the retailers which will be
eliminated by the SED unit, is the need to calculate the number of each
denomination card necessary to meet consumer demand. With the SED activation
capabilities, cards will be activated for whatever dollar value the particular
user demands. The Company believes the point of sale activation will also open
up additional channels of distribution for the Company and will provide
increased cash flow due to faster electronic payment for card sales.
Competition
The Company faces intense competition in the marketing and sale of its prepaid
telephone Calling Cards. The Company's Telephone Debit Cards compete for
consumer recognition with other prepaid phone cards at both ends of the
spectrum. Many small, unreliable companies have entered the telephone debit card
market by advertising impossibly low calling prices which are extremely
attractive to the buying public. Unfortunately for the entire industry, many of
these companies have already failed and consumers have felt the pain of having a
card that is no longer valid. Many other cards are marketed by companies which
are well-established and have significantly greater financial, marketing,
distribution, personnel and other resources than the Company. These large
companies can implement extensive advertising and promotional campaigns although
marketing a retail product to the consumer is not their strength, especially in
<PAGE>
the niche markets. Certain of these competitors, including AT&T, MCI, Sprint and
the "Baby Bells," such as Bell Atlantic and Bell South, have dominated the
telecommunications industry in the past but the entire industry in presently
undergoing a significant shift and these "giants" are now facing strong
competition from smaller, more agile and less bureaucratic organizations, such
as the Company. Many of these large telephone companies, as well as retailers,
such as Southland Corp., and companies engaged in the marketing of collectibles,
have also entered or have announced their intention to enter into the telephone
debit card sector of the industry.
The International Long Distance Services business is also highly competitive and
is affected by rapidly changing per minute rates to key international cities and
countries. The Company's future success will depend upon its ability to compete
with other similar-sized carriers, many of which have considerably greater
financial and other resources than the Company. The ability of the Company to
compete effectively will depend on its ability to provide high quality service
at competitive prices, and to fund the cost of acquiring the use of effective
switching facilities. Both of these factors are essential elements for success.
The prepaid cellular telephone business is another highly competitive one in
which the ability to succeed depends on the quality of the product, the ease of
its use and the resources available to market and continually improve it.
Again,
"known" companies and companies which have been able to enter the market already
are perceived as having a strong advantage over their competitors. This,
however, might not be the only issue. Recent prepaid cellular conferences and
industry articles have indicated consumer dissatisfaction with the constraints
of switch-based services available.
The telecommunications industry is characterized by frequent introduction of new
products and services, and is subject to changing consumer preferences and
industry trends. The markets for telecommunications products and services are
also characterized by rapidly changing technology and evolving industry
standards.
The Company is not presently aware of any competitor offering the same
chip-controlled prepaid cellular telephone technology. Although the product has
a patent pending, larger, more established entities with greater financial and
personnel resources than those of the Company may continue to enter into direct
competition with the Company. However, the Company reasonably believes it has a
superior product offering and will be able to capture a significant market
share.
The competition for the Secured Encryption Device Transactions is, as stated
previously, the existing similar devices such as VeriFone, Hypercom and USW. The
Company believes it's advantage in this market is its already existing
penetration of a specific niche which currently does not have, or has very
limited access, to other means of electronic
credit and/or debit transactions because of the prohibitive costs involved.
<PAGE>
Trademarks
The Company has obtained trademark registrations for "Communicard by PICK(R)",
"PICK(R)", "COMMUNICASH(R)", "las Americas(R)," and "Love Call(R) ."
Patents
The Company is a co-owner of a pending patent (together with The Phone Store,
Inc.) on the technology for a chipcontrolled prepaid cellular telephone system
and expects to implement international patent filings and/or registrations
pertaining to such pending patent during 1997.
Employees
The Company employs a full-time staff of ten and considers its relations with
its employees to be satisfactory.
Item 2: Properties
The Company leases office space at Wayne Interchange Plaza II, 155 Route 46
West, Third Floor, Wayne, New Jersey 07470 on a 63 month lease at a current
monthly rental of $8,620, which ends on September 30, 2001.
Item 3: Legal Proceedings
In February 1997, the Company commenced legal proceedings against American
Telephone and Telegraph Company ("AT&T") seeking $10 million for breach of
contract, fraudulent inducement and malicious conduct under the Carrier
Agreement entered into in February 1996. The Company contracted with AT&T under
the Carrier Agreement for inbound 800 service and outbound domestic and
international long distance service in order to resell it to other carriers and
resellers, and to directly benefit from reduced per minute rates. The Company
claims that AT&T reneged on its commitments to provide the Company with lower
international rates and the Company relied on AT&T's promises and sustained
substantial damages. Nevertheless, AT&T billed the Company for higher rates and
claimed the Company owes it approximately $1,000,000. The Company has reserved
for this contingency although it believes that AT&T does not have a meritorious
claim.
Item 4: Submission Of Matters To A Vote Of Security Holders
None
<PAGE>
<PAGE>
PART II
Item 5: Market Price of, and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The Company's Common stock has been traded on the over-the-counter market
and reported on the OTC Bulletin Board, under the symbol "PICK" since September,
1996. The Company's Common Stock had been traded in the over-the-counter market
and reported on the OTC Bulletin Board, under the symbol "PRMF" from August 17,
1995 through September 23, 1996. The following table sets forth the high and low
bid prices of the Company's Common Stock as reported on the over-the-counter
market for the periods indicated. The prices represent inter-dealer quotations,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
<S> <C> <C>
Period ........................................ High Low
Calendar Year 1995
Third Quarter ............................... $ 6.625 $ 1.00
(August 17, 1995 to
September 30, 1995)
Fourth Quarter .............................. $ 6.25 $ 2.00
Calendar Year 1996
$ 4.50 $ 2.00
First Quarter ............................... $ 4.00 $ 2.44
Second Quarter .............................. $ 3.50 $ 1.00
Third Quarter ............................... $ 1.13 $ 0.19
Fourth Quarter
First Quarter, 1997 ........................... $ 0.94 $ 0.17
</TABLE>
As of March 31, 1997, there were approximately 195 record shareholders
of the Company's Common Stock. The Company reasonably believes there are in
excess of 300 beneficial owners of its common stock.
The Company has never paid any cash dividends on its Common Stock and
has no intention to do so at this time. The Company intends to retain all of its
earnings for use in its business.
<PAGE>
Item 6: Selected Financial Data
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Report. The selected data presented for, and as of the end of the years
ended December 31, 1993, 1994, 1995 and 1996 are derived from the consolidated
financial statements of the Company, which financial statements have been
audited by Durland & Company CPAs, P.A., independent certified public
accountants. The consolidated balance sheet as of December 31, 1994, 1995 and
1996 and the consolidated statement of operations for the years ended December
31, 1994, 1995 and 1996 and the accountants' reports thereon, are included
elsewhere in this Report.
Statement of Operations Data:
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C> <C> <C>
1993 1994 1995 1996
----------- ----------- ----------- -----------
Net sales ............ $ 23,301 $ 529,913 $ 1,565,039 $ 5,869,682
Cost of sales,
excluding provision
for contingency ...... $ 10,067 $ 753,346 $ 1,387,459 $6,401,231 (1)
Gross profit/(loss),
before cellular
license sales and .... $ 13,234 ($ 223,433) $ 177,580 ($ 531,549)
contingency
Provision for ........ $ 0 $ 0 $ 0 $ 1,749,563 (1)
contingency (1)
Gross margin before
cellular license sales
$ 13,234 ($ 223,433) $ 177,580 ($2,281,112)
Cellular license ..... $ 0 $ 0 $ 0 $ 3,650,000
sales
Gross margin and
cellular license
sales .............. $ 13,234 ($ 223,433) $ 177,580 $ 1,368,888
Operating expenses ... $ 171,340 $ 1,027,147 $ 1,203,625 $ 2,952,646
Net Profit/(Loss) .... ($ 158,106) ($1,250,580) ($1,071,041) $ 1,635,790
Net Profit/(Loss) - - ($0.03) $.04
per Share
Weighted average - - 40,442,516 45,251,776
number of
shares
outstanding (2)
</TABLE>
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
as of December 31,
<S> <C> <C> <C>
1994 1995 1996
----------- ----------- --------------
Cash .............. $ 17,659 $ 110,715 $ 87, 712
Working Capital ... ($1,127,590) ($1,074,159) ($3,152,216)
Total Assets ...... $ 319,835 $ 2,449,024 $ 8,917,149
Total Liabilities . $ 1,341,521 $ 3,079,923 $ 6,582,429
Minority Interest . -- $ 215,508 $ 1,465,141
Shareholders Equity ($1,021,686) ($ 630,899) $ 2,334,720
<FN>
The Total cost of sales ($8,150,794) includes a provision for contingent
costs of $1,749,563. Net of the provision for contingent costs, the
cost of sales is $6,401,231.
(2) Public Info/Comm Kiosk, Inc. (Kiosk) was incorporated in August 1992,
and commenced operations in January 1993. The shares of the Company
are expressed on a fully diluted basis.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
The following should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this Report.
The Company was incorporated in April 1984 under the laws of Utah as
S.T.V., Inc. ("STV").
All activities are presented, based on the actual operations of Kiosk
for periods prior to September 12, 1995. Pick Communications Corp., (f/k/a Prime
International Products, Inc.), had no operations prior to September 12, 1995.
PCT was incorporated in October 1995, and had no operations through December 31,
1995. As of December 31, 1995, the Consolidated Financial Statements include the
Company, Kiosk, and PCT. In April 1996, the Company formed PICKNET, Inc.
("PICKNET"), a wholly owned subsidiary to resell International Long Distance
Services on a wholesale basis to other carriers and resellers. The Company
currently holds approximately 79% of PCT's outstanding common stock, thereby
having control of all of these companies. Accordingly, Kiosk, PICKNET and PCT
are included in the Consolidated Financial Statements of the Company as of
December 31, 1996.
This Report includes forward-looking statements that involve risks and
uncertainties, including the timely development and acceptance of new products
in a constantly evolving telecommunications industry, the impact of competitive
products and pricing, government regulations and the other risks detailed from
time to time in the Company's SEC reports.
Results of Operations
The Company generates revenues from the sale of telecommunication
products and services, including prepaid Telephone Debit Cards to distributors
for resale to retail outlets, International Long Distance Services to other
carriers and resellers, and marketing and sale of licenses for Prepaid Cellular
Telephones in both domestic and international markets.
While the Company has achieved steadily increasing levels of revenues
since inception, the Company's operating expenses have exceeded revenues,
resulting in operating losses of $1,250,580 and $1,071,041 for the years ended
December 31, 1994 and 1995 on a consolidated basis, respectively. The losses
incurred through 1995 were primarily attributable to start-up costs, costs
incurred in connection with the development and promotion of the Company's
products and the hiring of additional personnel to support the Company's
operations. In 1996, the Company realized a net profit of $1,635,790. Although
the Company incurred operating losses relating to the building of its
telecommunications infrastructure, these were more than offset by gains on the
exchange of securities and the sale of prepaid cellular telephone licenses.
<PAGE>
The Company's primary costs of sales are the costs of telephone
services for both Telephone Debit Cards and for the International Long Distance
Services. The cost of sales also includes the production of the Telephone Debit
Cards - their printing, fulfillment and distribution, as well as the fixed costs
associated with International Long Distance Services.
Generally Accepted Accounting Principles for Debit Card revenues
require the Company to recognize:
- revenue only at the time the Company actually provides the
service to the consumer (based on switch reporting of actual
usage). The unused portion of the Telephone Debit Card sales
remains in deferred revenue until it is used.
- the carrier costs for service based on switch reporting of
actual usage (which is also recognized in revenue).
- all other direct costs (non-traffic costs for design
royalties, printing, fulfillment, sales commissions, etc.) at
the time of initial sales made ("up front" costs).
The Company anticipates that substantially all of the telephone time
associated with the Telephone Debit Cards will be used by its customers since
these cards are primarily issued for immediate consumption by the ultimate
consumer.
Year ended December 31, 1996 compared with the Year Ended December 31, 1995:
On a consolidated basis, the Company generated revenues of $5,869,682
and $1,565,039 for the years ended December 31, 1996 and 1995, respectively.
These revenues (and related costs) primarily represent the activity of PICKNET
for International Long Distance Services amounting to $4,441,342, and Kiosk for
Telephone Debit Card usage amounting to $1,425,340. The Company also sold
licenses for the international marketing and sale of Prepaid Cellular Telephones
and services in 1996, amounting to $3,650,000. PCT was established on October
24, 1995, had no operations in 1995 and no sales in 1996.
The increase in revenues of $4,304,643, or 275.1%, was primarily the
result of the Company's expansion, via PICKNET, into the International Long
Distance Services business. There were only nominal commission revenues for long
distance activity in 1995. The Company's Debit Card revenues were $ 1,425,340,
compared to $1,565,039 in 1995. While the Company believes the market for
Telephone Debit Cards continues to gain acceptance and growth, the Company held
back on the marketing of these cards in 1996 (due to switching facility
shortcomings) until pending upgrades were completed in late 1996.
The gross margin loss (excluding the $1,749,563 provision for
contingency) of $531,549, was 9.1% of net sales for the year ended December 31,
1996, compared to a gross margin of $177,580 (or 11.3%) for the year ended
December 31, 1995. The gross margin
<PAGE>
reflects the deferral of revenues until services are rendered and front-loading
of all expenses except airtime for Telephone Debit Cards, as described above.
All costs for International Long Distance Services activity is recognized in the
period incurred. The gross margin loss in 1996 compared to 1995 is primarily
attributable to the incurrence of disproportionate start-up costs relating to
the International Long Distance Services and the continued low volumes
associated with both Telephone Debit Cards and International Long Distance
Services. The vast proportion of the sales activity (75.7%) in 1996 related to
International Long Distance Services activity compared to 0% in 1995, while
98.6% of sales in 1995 related to Telephone Debit Card activity compared to
24.3% in 1996.
The Company sold prepaid cellular telephone licenses in the first
quarter of 1996, in exchange for 1,500,000 restricted shares of common stock in
Ultimistics, Inc. valued at $3,600,000 after a 70% discount to market. In the
second quarter, the Company exchanged a special developmental license related to
use of the prepaid chip technology with the Internet. The Company received
500,000 restricted shares of common stock in The Internet Channel Inc. which
were valued at $0.10 per share. In 1995, there were no such sales activities.
The Company realized a gross profit margin of $3,118,451, including the
sale of the prepaid cellular licenses and excluding the provision for contingent
costs of $1,749,563 in 1996, compared to a gross margin of $177,580 for 1995.
The Company incurred a gross margin loss of $531,549 in 1996 compared to a gross
margin of $177,580 in 1995, an unfavorable variance of 709,129 (or 399%).
Total operating expenses were $2,952,646 and $1,203,625 for the years
ended December 31, 1996 and 1995, respectively, representing an increase of
$1,749,021, or 145.3%. Selling and marketing expenses for 1996 amounted to
$1,077,766 compared to $257,487 in 1995, an increase of $820,279 or 319%. These
expenses are primarily attributable to the expansion of total revenue activities
and the establishment of a distribution network to support the Company's planned
pre-paid products. As a result, marketing expenses were 18.4% of total revenues
for the year ended December 31, 1996, compared to 16.5% of revenues for the year
ended December 31, 1995.
General and administrative expenses of $1,473,376 for the year ended
December 31, 1996 were higher than those of the prior year by $600,363, or
68.8%, primarily associated with the establishment of a staff ($512,479),
facility ($28,796) and office expense ($43,178) to support higher levels of
operations. In connection with the Company's recapitalization in September 1995,
the Company received additional working capital which it used to increase its
level of business activity in 1996. As a result, these expenses increased
substantially in 1996, compared to 1995, as planned.
Operating expenses include depreciation of $39,258 and $30,475 for the
years ending December 31, 1996 and 1995, respectively, as well as amortization
expense of $142,500 in 1996 relating to the prepaid cellular patent procured
late in 1995. No amortization was appropriate in
<PAGE>
1995. The interest expense represents an accrual of interest relating to a bank
loan in 1996; the 1995 interest expense relates to a disputed vendor charge,
which was subsequently settled in 1996 in the Company's favor.
<PAGE>
The Company realized a net operating profit of $1,635, 790 in 1996,
including extraordinary items shown in the consolidated financial statements in
a separate section of this document, compared to a net operating loss of
$1,071,041 in 1995, an improvement of $2,706,905.
The Company expects to make the following improvements:
- To the Telephone Debit Card service - by instituting a
point-of-sale activation process and a rechargeability feature
via the SED terminal
- By increasing the International Long Distance Services
business through the acquisition of new and upgraded
switching facilities
- By developing the prepaid cellular telephone business
The Company owned 4,500,000 restricted shares of Common Stock of
Ultimistics, Inc., and an additional 200,000 shares of Common Stock of
Ultimistics, Inc., through PCT, as of December 31, 1996, which represented
approximately 16.5% of Ultimistics' outstanding shares at that time. The shares
were restricted securities under Rule 144 of the Securities Act of 1933, as
amended, and could not be publicly sold until 1997. The Ultimistics shares were
valued at $4,762,035 on the balance sheet of the Company at December 31, 1996.
At December 31, 1996, the Company, through PCT, also held 5,000,000
shares of Firenze, Ltd., which also are restricted securities under Rule 144 and
could not be publicly sold until 1997. The Firenze shares were valued at $625.
In June 1996, the Company acquired 500,000 shares of The Internet
Channel Inc. in exchange for a special developmental license. The Internet
shares were valued at $50,000.
Stock and Marketable Security Transactions Subsequent to 1996
In February, 1997 the Company exchanged $2,550,000 face amount of the
prepaid advertising with IES for the remaining 750,000 shares of its common
stock issued into escrow for IES.
In February, 1997 the Company agreed to cancel the remaining 600,000
shares of the Company's common stock held in escrow for the minor stockholder
and the balance remaining of the subscription receivable. The Company and this
stockholder were unable to re-negotiate this subscription of shares.
In March, 1997, the Company exchanged 5,000,000 of its shares in
Firenze and reacquired 5,000,000 restricted shares of PICK Communications Corp.
common stock, as well as 6,250,000 restricted shares of P.C.T. Prepaid
Telephone Inc. common stock from Firenze Ltd.
<PAGE>
In March, 1997, the Company exchanged 1,000,000 of its shares in
Ultimistics, Inc. and reacquired 1,000,000 restricted shares of PICK
Communications Corp. common stock, as well as 1,000,000 restricted shares of
P.C.T. Prepaid Telephone Inc. common stock from New Century Media Inc.
In March, 1997, the Company exchanged a total of 300,000 restricted
shares of Ultimistics Inc. common stock and $420,000 book value in prepaid
advertising from the International Barter Group for 5,000,000 restricted shares
of P.C.T. Prepaid Telephone Inc.
common stock from an individual.
In March, 1997, the Company exchanged 1,500,000 of its restricted
shares in Ultimistics Inc. for 4,000,000 restricted shares of P.C.T. Prepaid
Telephone Inc. common stock from Yakimoto Investment Ltd.
In March, 1997, the Company exchanged 1,900,000 of its restricted
shares in Ultimistics Inc. with Fairbanks for 380,000 restricted shares of
Fairbanks, Inc. common stock.
As a result of the above-described transactions, the Company obtained a
total of 7,350,000 shares of its own common stock in 1997 in exchange for
various marketable securities and assets held as of December 31, 1996. In
addition, the Company obtained the 16,250,000 share of common stock of PCT,
resulting in a total ownership of 39,000,000 shares or 79.0% of PCT's common
stock.
Please see the discussion of investment in marketable equity securities
in "Liquidity and Capital Resources," for further information.
Stock Options and Warrants
In 1994, Pick, Inc. issued warrants for 5,000 shares of common stock
each to three individuals. The merger agreement between the Company and Pick
Inc. recognized these warrants and converted them to warrants in the Company of
82,500 shares of the Company's common stock to each of the three individuals.
These warrants expired unexercised at December 31, 1996.
In February, 1996, the Company adopted the "1996 Stock Option Plan,"
which provides the authority to grant up to 5,000,000 shares of the Company's
common stock to the Company's directors, officers and / or employees. There were
no options outstanding at the beginning of 1996. Under the plan, the Company
granted options for 500,000 shares each to the directors and officers of the
Company, aggregating grants of 3,500,000 shares. Please see Item 11: Executive
Compensation. In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting
for Stock Based
<PAGE>
Compensation". SFAS No. 123 requires that companies that continue to account for
employer stock options under APB No. 25 disclose pro-forma net income and
earnings per share as if statement 123 had been applied. Pursuant to this
requirement, net income as reported is $1,635,790 and would have been
$1,295,415. Primary and fully diluted earnings per share are $.04 per share and
$.04 per share, and would have been $0.03 per share and $.03 per share.
<PAGE>
Year ended December 31, 1995 compared with the Year Ended December 31, 1994:
On a consolidated basis, the Company generated revenues of $1,565,039
and $529,913 for the years ended December 31, 1995 and 1994, respectively. These
revenues (and related costs) primarily represent the activity of Kiosk, inasmuch
as the Company was inactive until the reverse acquisition on September 12, 1995.
PCT was established on October 24, 1995, and had no operations in 1995.
The increase in revenues of $1,035,126, or 195.3%, was primarily the
result of an expansion in the Company's customer base. The Company believes that
the growth in its customer base is attributable to the growing acceptance of
telephone debit cards in the United States and the Company's expanding
distribution network. The gross profit margin of $177,580, was 11.3% of net
sales for 1995, compared to a gross margin loss of $223,443, or 42.2% of net
sales, for 1994. The gross margin reflects the deferral of revenues until
services are expected to be rendered and front-loading of all expenses except
time, as described previously. The improvement in 1995 over 1994 occurred
primarily because significant one-time development expenses associated with the
Telephone Debit Card product was charged to cost of sales in 1994. The vast
proportion of the sales activity (98.6% in 1995 and 95.7% in 1994) relates to
Telephone Debit Card sales.
Operating expenses were $1,203,588 (net of minority interest of $37)
and $1,027,147 for 1995 and 1994, respectively, representing an increase of
$176,441, or 17.2%. This increase is due to higher administrative expenses of
$443,878, or 104.1%, associated with the establishment of a staff ($254,135),
travel expenses ($99,189) and facility and communications ($47,215), offset by
reduced sales and marketing expenses of $316,237, or 55.2%. Sales and marketing
expenses were reduced, at the direction of management, to conserve cash and
establish the administrative support. In connection with the Company's
recapitalization in September 1995, the Company received additional working
capital which it used to increase its level of business activity. As a result,
general and administrative expenses increased substantially in the fourth
quarter of 1995.
Operating expenses include depreciation of $30,475 and $11,967 for 1995
and 1994, respectively and provisions for bad debts of $42,650, and $15,028 for
1995 and 1994, respectively.
For the reasons itemized above, the Company incurred net operating
losses of $1,071,041 for 1995, compared to $1,250,580 for the year ended
December 31, 1994, representing an improvement of $179,539, or 14.4%.
<PAGE>
Liquidity and Capital Resources
The Company has an accumulated deficit of $510,482 as of December 31,
1996. During the year, it had a net decrease in cash of $23,003.
Operating activities used $1,218,381 and were primarily composed of a
net profit of $1,635,790, which included the sale of cellular licenses of
$3,650,000 and a gain on the exchange of securities amounting to $4,784,000.
They also included a provision for deferred income taxes on the exchange of
those securities amounting to $1,808,000 and a provision for contingent expenses
amounting to $1,749,563 (See Item 3: "Legal Proceedings"). Amortization and
depreciation contributed a positive cash flow of $142,500 and $39,258,
respectively. Decreases in current assets, primarily net accounts receivable,
prepaid advertising expense and prepaid debit card inventory provided $488,816,
while increases in current liabilities, primarily deferred revenues, customer
deposits and accrued expenses, provided $1,452,701.
Investing activities required the use of $437,886. The Company paid its
debt to The Phone Store, Inc., using $371,920, to fully fund its commitment for
rights to the prepaid cellular telephone technology over the next four years.
Capital expenditures of $65,966 were primarily used for the purchase of office
furniture and computer equipment.
Financing activities provided $1,633,264, primarily through the sale of
stock and incurrence of short term bank debt. The Company received $125,000 for
the sale of its stock and $325,000 in payment of stock subscriptions. The
Company paid down its debt to The Phone Store, Inc. in the amount of $75,000,
and also, through a short term credit facility with Banco Popular FSB, obtained
a bank loan for $750,000. In addition, funds were advanced by stockholders
amounting to $75,152, of which $50,000 was repaid.
The Company anticipates operating cash flow will increase from the
resale of wholesale International Long Distance Services, pending the financing
of upgraded international switching equipment, and from the upgraded
point-of-sale and rechargeable Telephone Debit Card sales, once the upgrades are
in place. In support of these businesses, additional monthly fixed costs of
$25,000 - $75,000 will be required to increase capacity, but they are expected
to be more than off-set by increased gross margins. With respect to the
Company's plans to implement the prepaid cellular telephone business, the
Company will require additional capital to bring this product to market. The
Company intends to raise this capital through a combination of prepaid sales,
acceptance of cash or letters of credit as deposits toward equipment purchases
and coventures and/or the possible public or private sale of the Company's
equity and/or debt securities. The Company has agreements with two investment
banking firms to raise up to $10,000,000 on a best efforts basis. With these
funds, the Company expects to develop the Prepaid Cellular Telephone and its
Point-of-Sale Debit Card process, and expand its International Long Distance
Services switching capacity. There are no other contracts currently in place to
raise capital.
<PAGE>
The Company has no significant commitments for real estate purchases.
See Item 2:
"Properties" for a description of the Company's office lease.
<PAGE>
The Company plans to spend between $800,000 and $900,000 in capital expenditures
over the next twelve months. These expenditures will be made in support of the
growth of all lines of business, in the form of long distance switching
equipment, computer equipment, software, furniture and office equipment.
In 1995, the Company entered into commitments to obtain blocks of
telephone time at favorable rates (amounting to $420,000) over the succeeding
year. In 1996, the Company exchanged that telephone air time for $2,000,000 in
advertising for use over the subsequent two years. In March 1997, the Company
exchanged it rights to this prepaid advertising and 300,000 shares of
Ultimistics common stock to an individual in exchange for 5,000,000 shares of
PCT.
In January 1996, the Company entered into an agreement to obtain
$3,000,000 of prepaid advertising in exchange for 1,150,000 shares of its stock.
This prepaid advertising was available for use for any of the Company's
marketing efforts, including the prepaid cellular business. The Company used a
portion of this advertising in 1996. In 1997, the Company exchanged all of the
remaining book value of this asset ($2,038,155) with International Executive
Services, Inc., a non-affiliated entity, to reacquire 750,000 shares of the
Company's outstanding common stock for its treasury.
The Company expected to receive the proceeds from the sale of 1,250,000
shares of Common Stock of the Company through subscriptions to two
non-affiliated investors. The Company received $650,000 at $1.00 per share of
those subscriptions, with the remaining $600,000 subscriptions unpaid at
December 31, 1996. In February, 1997, the Company entered into an agreement with
the subscriber to rescind the remainder of the subscription, returning 600,000
shares to the Company's treasury.
At December 31, 1996, the Company directly owned 4,500,000 shares of
common stock of Ultimistics, and an additional 200,000 shares through its
subsidiary, PCT. Ultimistics owns commercial/residential real estate in France.
On March 25, 1997, the bid price was $0.03 and the asked price was $0.12 for
Ultimistics stock.
In accordance with FAS 115, the Company has discounted those shares by
70% when it valued the various transactions by which it received Ultimistics
stock in 1996. As of December 31, 1996, the shares were valued at the net book
value of Ultimistics Inc., as of June 30, 1996, the latest statements available,
amounting to $1.05 per share. A substantial portion of the Ultimistics shares
have been exchanged with others to re-acquire the Company's own common stock,
the common stock of PCT, and restricted shares of common stock in Fairbanks,
Inc. Accordingly, the Company has not reduced the values of the original
acquisitions of Ultimistics Inc. restricted stock which include:
<PAGE>
(a) Exchange of 1,000,000 shares of Foxwedge, Inc., for 500,000 shares of
Ultimistics. As of December 31, 1995, the Company owned 1,000,000
shares of Foxwedge, Inc., which it acquired on September 12, 1995 in
exchange for 3,000,000 shares of the Company's Common Stock. The
Company valued those shares nominally, at $6,000, the par value
of the Company's shares issued, due to concerns by the Company about
the Foxwedge operations and viability. As of December 23, 1995, the
Company entered into an agreement to exchange the 1,000,000 shares of
Foxwedge, Inc., for 500,000 shares of Ultimistics, which exchange
occurred on January 12, 1996.
(b) Exchange of 1,250,000 shares of the Company's Common Stock for 500,000
shares of Ultimistics. The Company's Board of Directors authorized this
transaction on January 25, 1996.
(c) Sale of a license to market and distribute the prepaid cellular
telephone technology in various countries in South America to Yakimoto,
in exchange for 1,000,000 shares of Ultimistics. The Company's Board of
Directors authorized this transaction on January 25, 1996. In 1997, the
license was revoked due to the non-performance of the licensee.
(d) Transfer of a license to market and distribute the prepaid cellular
telephone technology in Asia, Africa, Australia and various countries
in Europe, from Firenze, to Yakimoto, in exchange for 500,000 shares of
Ultimistics. The Company's Board of Directors authorized this
transaction on January 25, 1996. In 1997, this license was also revoked
due to non-performance.
(e) Exchange of 5,000,000 shares of Firenze, with an officer of Firenze,
for 2,000,000 shares of Ultimistics. In 1995 the Company acquired the
5,000,000 shares of Firenze, for 5,000,000 shares of the Company's
Common Stock and granted a license to Firenze to market the prepaid
cellular phone technology in Europe, Asia, Africa and Australia. The
Company valued the Firenze shares nominally at $10,000, the par value
of the Company's shares issued. On March 22, 1996, the Company
exchanged 5,000,000 shares of Firenze, for 2,000,000 shares of
Ultimistics, after the Company became concerned about Firenze's
ability to perform under its agreement.
<PAGE>
The Company's 4,500,000 shares of Ultimistics common stock and the
200,000 shares acquired by PCT in 1996, bear the restrictive legend under Rule
144 of the Securities Act of 1933, as amended. As of December 31, 1996 this
holding represented approximately 16.5% of the outstanding shares. Accordingly,
these shares were discounted by 70%. On a consolidated basis, Ultimistics
transactions were nil for the years preceding 1995. The Company believed that
the Ultimistics shares received in the transactions described above represented
the best options for the Company at the time of the transactions. Since the
Company made its investment in Ultimistics, the bid price of Ultimistics has
dropped as low as $.06 from a dollar weighted average acquisition price of
$7.17.
The Company believes that by obtaining its own shares and additional
shares in PCT in exchange for shares of Ultimistics as set forth above, the
Company received significant value.
Item 8: Financial Statements and Supplementary Data.
The Company's financial statements are included in a separate Section
of this Report following Item 14.
Item 9: Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On November 1, 1995, the Company dismissed the accounting firm of
Jones, Jensen, Orton & Company (the "Former Accountant") as the Company's
principal accountants.
The Former Accountant's report on the financial statements for the
fiscal years ended December 31, 1993 and 1994 did not contain an adverse opinion
or a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles.
The decision to change accountants was approved by the Board of
Directors.
During the Company's last two fiscal years and the subsequent interim
period preceding the Former Accountant's dismissal, there were no disputes with
the Former Accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
Durland & Company, CPAs, P.A., was engaged as the Company's principal
accountant to audit the Company's financial statements for the fiscal year ended
December 31, 1995, and was approved by the Board of Directors to perform the
1996 audit.
<PAGE>
PART III
Item 10: Directors and Executive Officers
Set forth below are the names of all directors and executive officers
of the Company along with certain information relating to the business
experience of each of the listed officers.
<TABLE>
<S> <C> <C>
Name Age Position
Diego Leiva ......................................................... 46 President, Chief Executive Officer and Chairman
Karl R. Petersson ................................................... 51 Vice President and Chief Financial Officer
Raymond M. Brennan .................................................. 59 Vice President, Secretary and Director
Karen M. Quinn ...................................................... 49 Vice President of Operations and Corporate
Communications
Robert R. Sams ...................................................... 58 Director
Ricardo Maranon ..................................................... 52 Director
Greg Manning ........................................................ 50 Former Director
</TABLE>
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers serve
at the discretion of the Board of Directors subject to any contracts of
employment. On March 10, 1997, Greg Manning resigned from the Board of Directors
for personal reasons.
Diego Leiva has been Chief Executive Officer, President and Chairman of
the Company since September 1995. Mr. Leiva founded Pick in August, 1992, and
has been its President, Chief Executive Officer and Chairman since its
inception. From 1989 to July 1992, he was Director of Sales for Apertus
Technologies, Inc., a computer telecommunications sales firm. Prior thereto, he
was Vice president of Marketing and Sales for Market Makers, Inc., Chief
Operating Officer of Silo, Inc., and President of Astroglow Lamps Company.
Karl R. Petersson has been Vice President and Chief Financial Officer
of the Company since September 1995. Since September 1994, Mr. Petersson has
served as Vice President and Chief Financial Officer of Pick. From June 1994 to
August 1995, Mr. Petersson was employed by United Jewish Appeal - Federation of
Jewish Philanthropies of New York, a charitable organization, as its Director of
Internal Audit. From November 1991 to May 1994, Mr. Petersson served as Vice
President of Finance and Administration of the Telecommunications Cooperative
Network of New York, Inc. From August 1981 to October 1991, Mr. Petersson served
as Vice President of Finance and Controller of Radio City Music Hall
Productions, Inc., where he administered both the Accounting and Finance
Departments.
<PAGE>
Raymond M. Brennan has been Vice President, Secretary and a Director of
the Company since September 1995. Since May 1994, Mr. Brennan has served as Vice
President, Secretary, and General Counsel of Pick. From April 1990 to April
1994, Mr. Brennan served as Executive Vice President and General Counsel of EOL,
Inc., a full service event production and marketing company. From January 1982
to March 1990, Mr. Brennan served as Vice President of Business Affairs for
Radio City Music Hall Productions, Inc., where he administered both the
Purchasing and Legal Departments.
Karen M. Quinn has been Vice President of Operations and Corporate
Communications of the Company since September 1995. Since December 1992, Ms.
Quinn has been employed at Pick, and was appointed Vice President of Operations
in May 1994. Prior to joining the Company, Ms. Quinn served in various
administrative and managerial positions at New York Medical College for
twenty-two years and as Business Manager for George M. Glassman, M.D., P.C. from
September 1989 to April 1995.
Robert R. Sams has been a Director of the Company since September 1995.
Mr. Sams formed Saicol Limited in 1983, where he engages in merchant banking,
corporate finance, acquisitions and financial advisory services.
Ricardo Maranon has been a Director of the Company since September
1995. He has served as President of the Florida-based advertising agency,
Maranon & Associates Advertising, since founding that company in 1986.
Mr. Maranon is also President of All Florida Advertising, Inc.
Greg Manning had been a Director of the Company from September 1995,
until he resigned as of March 10, 1997. He is Chairman of Greg Manning
Auctions, Inc. ("Auctions").
Pursuant to Section 16 of the Exchange Act, the Company's Directors and
executive officers and beneficial owners of more than 10% of the Company's
common stock, par value $0.001 ("Common Stock") or warrants are required to file
certain reports, within specified time periods, indicating their holdings of and
transactions in the Common Stock and derivative securities. Based solely on a
review of such reports provided to the Company and written representation from
such persons regarding the necessity to file such reports, the Company is not
aware of any failures to file reports or report transactions in a timely manner
during the Company's fiscal year ended December 31, 1996.
<PAGE>
Item 11: Executive Compensation
The following table sets forth all compensation awarded to, earned by,
or paid for all services rendered to the Company by the Company's Chief
Executive Officer. No other executive officer of the Company received total
compensation in excess of $100,000 during the last three years.
<TABLE>
Annual Compensation Long Term Compensation
Payouts Awards
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Long-
term
Name Other Restrict- incen-
and Compen- Stock Options Plan Other
Principal sation Award(s) SARs Payouts Com-
Position Year Salary ($) Bonus ($) ($) ($) (#) ($) pensation
- --------- ---- ---------- --------- --- --------- ----- ---------- -----------
Diego Leiva, 1996 $ 150,000) $ 0 $0 $ 0 $ 0 $ 0 $ 0
Chief Executive 1995 $ 93,750 (1) $ 0 0 0 0 0 0
Officer and 1994 $ 76,523 (1) $ 0 0 0 0 0 0
Chairman of the
Board of Directors
- -----------------------------
<FN>
(1) Mr. Leiva was entitled to compensation of $150,000. The Company has
paid the balances owed from 1995 and 1994 in 1996.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
The table below includes the number of stock options granted to the
executive officers with compensation in excess of $100,000 named in the Summary
Compensation Table during the year ended December 31, 1996 and exercise
information.
<TABLE>
<S> <C> <C> <C> <C>
Individual Grants
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year Price($/sh) Date
Diego Leiva 103,896 5.2% $0.9625 Sept. 29, 1999
Diego Leiva 396,104 19.8% $0.8750 Sept. 29, 1999
</TABLE>
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and FY End Option Values
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the
executive officers named in the Summary Compensation Table during the year ended
December 31, 1996.
<TABLE>
<S> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options Options
Acquired at FY-End(#) at FY-End($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized($) Unexercisable Unexercisable
None exercised.
Diego Leiva 0 0 500,000/0 0 (1)
</TABLE>
As of December 31, 1996, the market value of the shares was $0.21 cents
compared to the option exercise prices of $0.875 and $0.9625 per share.
Therefore, no "in-the-money" options existed at December 31, 1996.
Compensation of Directors
No compensation is paid by the Company to any of its Directors, who
are not employees of the Company. However, each Director is entitled to receive
reimbursement for travel expenses for attendance at meetings of the Board.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee
of the Company or of any of its subsidiaries during the prior year or was
formerly an officer of the Company or of any of its subsidiaries. None of the
Executive Officers of the Company has served on the Compensation Committee
during the last fiscal year of any other entity, any of whose officers served on
the Compensation Committee of the Company.
<PAGE>
Item 12: Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this Report, the
number of shares of the Company's outstanding Common Stock, $.001 par value,
beneficially owned (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) by each director of the Company, by each named executive
officer of the Company, by each beneficial owner of more than 5% of the
Company's Common Stock and by all of the Company's officers and directors as a
group.
<TABLE>
<S> <C> <C>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Beneficial Ownership (1) of Class (2)
- ------------------- ------------------------ ------------
Diego Leiva 12,466,500 34.3%
155 Route 46 West, 3rd Floor
Wayne, NJ 07470
Robert Sams 665,000 1.8%
Woodmans Farm
Perrymans Lane
Burwash
East Sussex, TN19 7ND
England
Ricardo Maranon 826,000 (5) 2.3%
1400 Stillwater Drive
Miami Beach, FL 33141
Raymond M. Brennan 1,011,500 (6) 2.8%
155 Route 46 West, 3rd Floor
Wayne, NJ 07470
Karen M. Quinn 871,250 2.4%
155 Route 46 West, 3rd Floor
Wayne, NJ 07470
Karl R. Petersson 870,000 (7) 2.4%
155 Route 46 West, 3rd Floor
Wayne, NJ 07470
Greg Manning 4,612,289 (8) 12.7%
775 Passaic Avenue
West Caldwell, NJ 07006
All Officers and directors as a group(6 persons) 16,710,250 (9) 43.0%
<FN>
(1) Unless otherwise noted, all shares are beneficially owned and the sole voting and
<PAGE>
investment power is held by the person indicated.
(2) Based on 35,867,016 shares outstanding as of the date of this
filing, each beneficial owner's percentage ownership is determined
by assuming that options or warrants that are held by such person
and which are convertible or exercisable within sixty (60) days of
the date hereof (pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934) have been converted or exercised.
(3) Includes 4,290,000 shares beneficially owned by Mr. Leiva's wife,
792,000 shares beneficially owned by a trust for Mr. Leiva's son
for which Mr. Leiva serves as trustee and 792,000 shares
beneficially owned by a trust for Mr. Leiva's daughter for which
Mr. Leiva serves as trustee.
(4) Includes options to purchase 500,000 shares of the Company's Common
Stock at a price of $0.875, except that for Mr. Leiva, 103,896 of
the 500,000 shares granted to him have an option price of $0.9625.
(5) Includes 37,250 shares of the Company's Common Stock beneficially
owned by Mr. Maranon's daughter.
(6) Includes 250,000 shares beneficially owned by Mr. Brennan's wife.
(7) Includes 40,000 shares of the Company's Common Stock beneficially
owned by Mr. Petersson's wife and 10,000 shares of Common Stock
owned by each of Mr. Petersson's three children, or an aggregate of
30,000 shares of Common Stock.
(8) These shares are held by Greg Manning Auctions, Inc., a
company controlled by Greg Manning, a former director of the
Company.
(9) Includes an aggregate of 3,500,000 options held by the Company's
directors, a former director and officers to purchase a like
number of shares of the Company's Common Stock at a price of
$0.875 per share, except that for Mr.Leiva, 103,896 of the 500,000
shares granted to him have an option price of $0.9625.
</FN>
</TABLE>
<PAGE>
Item 13. Certain Relationships and Related Transactions
On January 31, 1996, the Company issued 150,000 shares to All Florida
Advertising, Inc., a company for which Richard Maranon, a Director of the
Company, serves as an officer, at a price of $.235 per share as part of the
1,150,000 shares issued for the acquisition of $3.0 million of prepaid
advertising services.
On January 25, 1996, the Company's Board of Directors approved the
reservation of 5,000,000 shares of the Company's Common Stock for the granting
of the stock options to the Company's directors, officers and employees, as an
incentive. The Company granted 500,000 shares each to Messrs. Leiva, Maranon,
Manning, Sams, Brennan, and Petersson, and Ms. Quinn, accounting for 3,500,000
of the authorized 5,000,000 shares set aside for this purpose. Each grantee has
the right to purchase shares at $0.875 each, except that for Mr. Leiva, 103,896
of the 500,000 shares granted to him have an option price of $0.9625.(10% over
the market value on September 29, 1996), and may exercise these grants within
the three-year period ending September 29, 1999.
In December, 1996, the Company issued 400,000 shares of common stock to
Diego Leiva, President and CEO of the Company, in exchange for $100,000 of
salary accrued but not paid.
<TABLE>
<CAPTION>
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
<S> <C>
Index to Financial Statements and Exhibits Page
Independent Auditors' Report.............................................................. F-1
Balance Sheets as of December 31, 1994, 1995 and 1996..................................... F-2
Statement of Operations for the years ended December 31, 1994,
1995 and 1996...................................................................... F-3
Statement of Stockholders' Equity for the years ended December 31,
1994, 1995 and 1996................................................................ F-4
Statement of Cash Flows for the years ended December 31, 1994, 1995
and 1996........................................................................... F-5
Notes to the Financial Statements......................................................... F-6
</TABLE>
<PAGE>
Exhibits
3.1 Amended Articles of Incorporation
11 Statement of Computation of Earnings Per Share and Common Stock
Equivalents.
21 Subsidiaries of the Registrant. PICKNET INC., P.C.T. PREPAID
TELEPHONE, INC., PUBLIC INFO/COMM KIOSK, INC.
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
PICK COMMUNICATIONS CORP.
By:
/s/Diego Leiva
President
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates stated:
<TABLE>
<S> <C> <C>
Signature Title Date
/s/Diego Leiva
- ------------------
Diego Leiva President, CEO (Principal April _15__, 1997
Executive Officer and Chairman)
/s/Karl K. Petersson
- ------------------
Karl K. Petersson Vice President and April _15__, 1997
Chief Financial Officer
(Principal Financial Officer)
/s/Raymond M. Brennan
- ------------------
Raymond M. Brennan Vice President, Secretary April _15__, 1997
and Director
/s/Karen M. Quinn
- ------------------
Karen M. Quinn Vice President, Operations April __15__, 1997
/s/Robert R. Sams
- ------------------
Robert R. Sams Director April __15__, 1997
/s/Ricardo Maranon
- ------------------
Ricardo Maranon Director April _15___, 1997
</TABLE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors......................................... F-1
Consolidated Balance Sheets........................................ F-2
Consolidated Statements of Operations............................ F-3
Consolidated Statements of Stockholders' Equity................... F-4
Consolidated Statements of Cash Flows................................ F-5
Notes to Consolidated Financial Statements.......................... F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To: The Board of Directors
PICK Communications Corp.
Mountain Lakes, New Jersey
We have audited the accompanying balance sheets of PICK Communications Corp.,
(the "Company") as of December 31, 1994, 1995 and 1996 and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PICK Communications Corp. at
December 31, 1994, 1995 and 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted
accounting principles.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
March 7, 1997, except to Note 17, as to which the date is March 30, 1997.
F-1
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Balance Sheets
December 31,
ASSETS 1994 1995 1996
<S> <C> <C> <C>
CURRENT ASSETS
Cash ...................................................... $ 17,659 110,715 87,712
Accounts receivable, net (note 1g) ........................ 148,374 824,463 778,180
Prepaid telephone card inventory (note 1d) ................ 47,898 167,091 23,914
Prepaid telephone time (note 12) .......................... 0 420,000 45,000
Prepaid advertising (note 12) ............................. 0 0 2,458,155
Prepaid expenses and other current assets ................. 0 83,495 37,252
Total Current Assets ................................... 213,931 1,605,764 3,430,213
------------ ------------ ------------
PROPERTY AND EQUIPMENT
Furniture and equipment, net (note 1e) .................... 105,904 114,135 90,571
Total Property and Equipment ........................... 105,9044,135 90,571
OTHER ASSETS
Pre-paid cellular patent and rights (note 8) .............. 0 712,500 583,705
Investment in marketable equity securities (note 6) ....... 0 16,625 4,812,660
------------ ------------ ------------
Total Other Assets ........................................ 0 729,125 5,396,365
------------ ------------ ------------
Total Assets .......................................... $ 319,835 2,449,024 8,917,149
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (note 5) ................................. $ 486,885 191,891 1,072,052
Direct cost telephone time accrual (note 5) ............... 449,654 1,084,201 316,215
Pre-paid telephone time liability ......................... 0 378,000 0
Accrued expenses and other current payables ............... 0 0 658,361
Advances from stockholders ................................ 3,035 0 25,152
Accrued compensation (note 1h) ............................ 76,350 145,448 43,698
Customer deposits (note 1f) ............................... 0 0 300,000
Reserve for contingent liability (note 14) ................ 0 0 1,749,563
Deferred revenue .......................................... 325,597 805,383 1,667,388
Line of credit (note 4) ................................... 0 0 750,000
Current portion of long-term debt ......................... 0 75,000 0
------------ ------------ ------------
Total Current Liabilities ............................... 1,341,521 2,679,923 6,582,429
------------ ------------ ------------
LONG-TERM LIABILITIES
Due to The Phone Store, Inc. (notes 4, 8) ................. 0 400,000 0
------------ ------------ ------------
Total Long-Term Liabilities ............................ 0 400,000 0
------------ ------------ ------------
Total Liabilities ............................................. 1,341,521 3,079,923 6,582,429
------------ ------------ ------------
Minority interest in consolidated subsidiary (note 7) ......... 0 215,508 1,465,141
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value; Authorized 1,000,000
shares; issued and outstanding 743,000 at
December 31, 1994: par value $.002; Authorized
50,000,000 shares; issued 40,542,516
at December 31, 1995, 43,697,516 issued and 43,217,516 out-
standing at December 31, 1996 (note 2) .................... 53,545 81,085 87,395
Additional paid in capital in excess of par (note 2) ...... 0 2,018,780 6,399,720
Stock subscription receivable (note 2) .................... 0 (800,000) (600,000)
Less: Treasury stock (note 2) ............................. 0 0 (602,089)
Marketable equity securities valuation reserve (note 6) ... 0 0 (3,904,965)
Retained earnings (deficit) ............................... (1,075,231) (2,146,272) (510,482)
------------ ------------ ------------
Total Stockholders' Equity .................................... (1,021,686) (846,407) 869,579
------------ ------------ ------------
Total Liabilities and Stockholders' Equity .................... $ 319,835 2,449,024 8,917,149
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Operations
Year ended December 31,
<S> <C> <C> <C>
1994 1995 1996
----------- ----------- -----------
REVENUES
Sales to related parties (note 5) ..................... $ 116,924 361,077 924,839
Sales to others ....................................... 412,989 1,203,962 500,501
Sales of long distance services ....................... 0 0 4,342
----------- ----------- -----------
Total revenues .................................... 529,913 1,565,039 5,869,682
COST OF SALES
Cost of sales - related parties (note 5) .............. 542,417 896,264 168,756
Provision for contingent costs (note 14) .............. 0 0 1,749,563
Other cost of sales ................................... 210,929 491,195 6,232,475
----------- ----------- -----------
Total cost of sales ................................ 753,346 1,387,459 8,150,794
----------- ----------- -----------
Gross margin ....................................... (223,433) 177,580 (2,281,112)
Sales- prepaid cellular licenses .................... 0 0 3,650,000
OPERATING EXPENSES
Sales and marketing - related party (note 5) .......... 144,118 10,541 123,837
Sales and marketing - other ........................... 429,606 246,946 953,929
----------- ----------- -----------
Total sales and marketing .......................... 573,724 257,487 1,077,766
General and administrative ............................ 426,428 873,013 1,473,376
Depreciation .......................................... 11,967 30,475 39,258
Amortization .......................................... 0 0 142,500
Bad debt .............................................. 15,028 42,650 219,746
----------- ----------- -----------
Total operating expenses ........................... 1,027,147 1,203,625 2,952,646
----------- ----------- -----------
Loss from operations .................................. (1,250,580) (1,026,045) (1,583,758)
Interest expense ...................................... 0 45,033 19,802
----------- ----------- -----------
Loss before taxes, minority interest in subsidiary loss
and gain on sale of marketable equity securities ..... (1,250,580) (1,071,078) (1,603,560)
Gain on in-substance defeasance (note 4) .............. 0 0 53,080
Minority interest in subsidiary loss .................. 0 37 260,541
Gain/(loss) on disposal of fixed assets ............... 0 0 (50,271)
Gain/(loss) on sale of marketable equity securities ... 0 0 4,784,000
Provision for deferred income tax/(benefit) ........... 0 0 1,808,000
Provision for current income tax/(benefit) ............ 0 0 0
Net income/(loss) ..................................... $(1,250,580) (1,071,041) 1,635,790
=========== =========== ===========
Net income/(loss) per share - primary ................. $ -- (0.03) 0.04
=========== =========== ===========
Weighted average shares outstanding (note 1k) ......... -- 40,442,516 41,991,502
Net income/(loss) per share - fully diluted ........... $ -- (0.03) 0.04
=========== =========== ===========
Weighted average shares outstanding (note 1k) ......... -- 40,442,516 45,251,776
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statement of Stockholders' Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Additional Stock Mkt Sec Retained Total
Common Paid in Subscrip Valuation Treasury Earning Stockholders
Stock Capital Receivable Reserve Stock /(Deficit) Equity
BALANCE, Jan 1, 1994 ................$ 126,000 0 0 0 0 (158,106) (32,106)
Capital transactions: A) ............ 161,000 0 0 0 0 0 161,000
B) ............ (333,455) 0 0 0 333,455 0 0
C) ............ 100,000 0 0 0 0 0 100,000
Net income/(loss) ................... 0 0 0 0 0 (1,250,580) (1,250,580)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, Dec 31, 1994 ............... 53,545 0 0 0 0 (1,075,231) (1,021,686)
Capital transactions: D) ............ 2,420 0 0 0 0 0 2,420
E) ............ (6,080) 238,980 0 0 0 0 232,900
F) ............ 6,000 0 0 0 0 6,000
G) ............ 9,000 241,000 0 0 0 0 250,000
H) ............ 1,000 249,000 0 0 0 0 250,000
I) ............ 3,000 79,500 0 0 0 0 82,500
J) ............ 200 212,300 0 0 0 0 212,500
K) ............ 10,000 0 0 0 0 0 10,000
L) ............ 2,000 998,000 (800,000) 0 0 0 200,000
Net income/(loss) ................... 0 0 0 0 0 (1,071,041) (1,071,041)
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, Dec 31, 1995 ............... 81,085 2,018,780 (800,000) 0 0 (2,146,272) (846,407)
M) ............ 500 249,500 (125,000) 0 0 0 125,000
N) ............ 2,300 2,697,700 0 0 0 0 2,700,000
O) ............ 2,500 1,272,500 0 0 0 0 1,275,000
P) ............ 0 0 0 0 (29,500) 0 (29,500)
Q) ............ 0 0 0 0 (572,589) 0 (572,589)
R) ............ 100 49,900 0 0 0 0 50,000
S) ............ 0 0 325,000 0 0 0 325,000
T) ............ 910 111,340 0 0 0 0 112,250
Mkt eqty sec valuation allow ........ 0 0 0 (3,904,965) 0 0 (3,904,965)
Net income/(loss) ................... 0 0 0 0 0 1,635,790 1,635,790
---------- ---------- ---------- ---------- ---------- ---------- ----------
BALANCE, Dec 31, 1996 $ ............. 87,395 6,399,720 (600,000) (3,904,965) (602,089) (510,482) 869,579
<FN>
A) Throughout 1994; 623,000 shares of common stock; conversion of debt by stockholder to equity.
B) August 1994; 0 shares of common stock; capitalization of undistributed loss at conversion from S corp to C corp.
C) August 1994; 20,000 shares of common stock; telephone switch equipment and tariffs valued at $100,000.
D) January 1995 through July 1995; 242,000 shares of common stock; services valued at $0.01 per share, totalling
$2,420.
E) September 12, 1995; 16,665,000 shares of common stock exchanged for 100% of the issued and outstanding common
stock of Public
Info/Comm Kiosk, Inc, accounted for as a reorganization of PICK, Inc., also reflects 8,277,516 shares outstanding
of PICK Communications
Corp. common stock at time of reorganization. The Company had 24,942,516 shares outstanding subsequent to
this reorganization.
F) September 12, 1995; 3,000,000 shares of common stock, 1,000,000 shares of Foxwedge, Inc. common stock.
G) September 12, 1995; 4,500,000 shares of common stock, $250,000 in cash, with a formerly unrelated party, which
subsequently became
related through a common director.
H) September 12, 1995; 500,000 shares of common stock, conversion of note payable exchanged for $250,000 cash,
pursuant to the original
terms of the note payable.
I) September 12, 1995; 1,500,000 shares of common stock, $82,500 cash received from officer.
J) October 20, 1995; 100,000 shares of common stock, prepaid cellular patent and rights valued at $212,500.
K) October 1995; 5,000,000 shares of common stock, 5,000,000 shares of Firenze, Ltd. restricted common stock.
L) Nov 1995 through Dec 1995; 1,000,000 shares of common stock, $200,000 cash, $800,000 in subscriptions
receivable.
M) January 1996; 250,000 shares of common stock; $125,000 in cash and $125,000 in stock subscription receivable.
N) January 1996; 1,150,000 shares of common stock; $3 million in prepaid advertising valued at $2,700,000.
O) Jan 1996; 1,250,000 shares of common stk; 500,000 shares of Ultimistics Inc. common stk valued at $1,275,000.
P) June 1996; 230,000 shares of common stock; acquired for $29,500 as treasury stock.
Q) July 1996; 250,000 shares of common stock; treasury stock in exchange for $15,000, prepaid advertising and
calling cards.
R) July 1996; 50,000 shares of common stock; converted $50,000 owed for legal services.
S) Throughout 1996; 0 shares of common stock; receipt of stock subscriptions receivable.
T) December 1996; 455,000 shares of common stock; conversion of $100,000 salary payable to officer and$12,250
other employees services.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Cash Flows
Year ended December 31,
<S> <C> <C> <C>
1994 1995 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ..............................................................$(1,250,580) (1,071,041) 1,635,790
Adjustments to reconcile net loss to net cash used for operating activities:
Non-cash revenues-prepaid cellar license revenue .............................. 0 0 (3,650,000)
Non-cash gain on sale marketable securities ................................... 0 0 (4,784,000)
Non-cash gain on in-substance defeasance ...................................... 0 0 (53,080)
Non-cash expenses - prepaid advertising ....................................... 0 0 256,845
Stock issued for services ..................................................... 0 2,420 62,250
Stock issued for accrued salary ............................................... 0 0 100,000
Depreciation and amortization ................................................. 11,967 30,475 181,758
Write off of fixed assets at book value ....................................... 0 0 50,271
Minority interest in subsidiary income/(loss) ................................. 0 0 (260,541)
Provision for deferred income taxes ........................................... 0 0 1,808,000
Bad debt expense .............................................................. 15,028 42,650 219,746
Provision for contingent liabilities .......................................... 0 0 1,749,563
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable ................................... (157,386) (693,856) (163,490)
(Increase)/decrease in prepaid telephone card inventory ...................... (47,898) (119,193) 143,177
(Increase)/decrease in prepaid and other current assets ...................... 0 (503,495) 32,539
Increase/(decrease) in accounts payable (note 5) ............................ 486,885 (294,994) 880,161
Increase/(decrease) in direct cost telephone time accrual (note 5) .......... 449,654 634,547 (767,986)
Increase/(decrease) in prepaid telephone time liability ..................... 0 378,000 (378,000)
Increase/(decrease) in accrued expenses ..................................... (7,563) 69,098 556,611
Increase/(decrease) in accrued compensation (note 1h) ....................... 76,350 0 1,750
Increase/(decrease) in customer deposits .................................... 0 0 300,000
Increase/(decrease) in deferred revenue ..................................... 325,597 479,786 862,005
----------- ----------- -----------
Net cash (used)/provided by operating activities ............................... (97,946) (1,045,603) (1,218,381)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in debt securities .................................................. 0 0 (371,920)
Purchase of fixed assets ....................................................... (2,848) (38,706) (65,966)
----------- ----------- -----------
Net cash (used)/provided by investing activities ............................... (2,848) (38,706) (437,886)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash ................................................... 0 1,015,400 250,000
Common stock issued for cash by subsidiary ..................................... 0 0 527,612
Acquisition of treasury stock .................................................. 0 0 (44,500)
Payments received on stock subscriptions receivable ............................ 0 0 200,000
Funds advanced on third-party debt ............................................. 0 250,000 750,000
Payments on third-party debt ................................................... 0 (85,000) (75,000)
Payments on stockholder advances ............................................... (2,500) (3,035) (50,000)
Funds advanced by stockholder .................................................. 114,500 0 75,152
Net cash provided/(used) by financing activities ............................... 112,000 1,177,365 1,633,264
----------- ----------- -----------
Net increase/(decrease) in cash ................................................ 11,206 93,056 (23,003)
CASH, beginning of period ...................................................... 6,453 17,659 110,715
CASH, end of period ............................................................$ 17,659 110,715 87,712
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Consolidated Statements of Cash Flows, continued
Year ended December 31,
<S> <C> <C> <C>
1994 1995 1996
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Noncash financing activities:
Stock issued for investment in marketable equity securities $ 0 16,000 1,275,000
========= ========= ==========
Stock issued to retire note payable ....................... $ 161,000 250,000 0
========= ========= ==========
Stock issued to acquire fixed assets ...................... $ 100,000 0 0
========= ========= ==========
Stock issued to acquire intangible assets ................. $ 0 212,500 0
========= ========= ==========
Stock issued for subscription receivable .................. $ 0 882,500 125,000
========= ========= ==========
Stock issued to acquire prepaid advertising ............... $ 0 0 2,700,000
========= ========= ==========
Prepaid advertising and telephone cards exchanged for
treasury stock ....................................... $ 0 0 557,589
========= ========= ==========
Insubstance defeasance .................................... $ 0 0 425,000
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(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, then to Prime International Products, Inc., in May
1988, and then to PICK Communications Corp. In 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 currently conducts business from its
headquarters in Wayne, NJ.
PICK was incorporated in the State of New Jersey on August 6, 1992. It
was inactive until January 1993, when the founder began funding the
operations of the Company. PICK operated in 1993, as an agent for the
sale of long distance services. In 1994, the founder investigated the
pre-paid telephone card industry and discovered a potential niche
market. PICK began selling its own brand of card in August 1994. PICK's
target market is primarily Hispanics located in New York, New Jersey,
South Florida, California and Texas.
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
dates of the statements of financial condition and revenues and
expenses for the years then ended. The following summarize the more
significant accounting and reporting policies and practices of the
Company:
a) Basis of presentation The financial statements reflect the
financial position and results of operations of PICK,
Inc., prior to the acquisition by the Company, and on a consolidated
basis subsequent to the acquisition. The acquisition has been accounted
for as a recapitalization of Public Info/Comm Kiosk, 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. ("PCT").
Intercompany transactions have been eliminated.
c) Revenue recognition For debit cards sales, the Company
recognizes revenues at the time it provides the telephone
services associated with its cards. It defers revenue until then, based
on customer patterns of usage, and recognizes the cost of the carrier
telephone traffic based on minutes used, which are also recognized in
revenue. All other direct costs, (non-traffic costs representing design
royaties, printing, fullfillment, sales commissions, etc.), are
recognized as upfront costs when the initial sales are made to
distributors. The Company anticipates that substantially all of the
telephone time associated with the debit cards will be used by its
customers. The Company does not have a written returns policy, but
consider sales returns on a case by case basis.
For bulk long distance time sales, the Company recognizes revenue and
the related expenses at the time the service is provided as reported by
the switch.
d) Prepaid telephone card inventory Card inventory is composed
of costs to provide unactivated cards to the
fulfillment company, which include printing and freight, and is valued
at the lower of cost or market. Inventory is relieved, and charged to
cost of sales, when activated cards are shipped from the fullfillment
company to the wholesale purchaser.
e) Fixed assets Fixed assets 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 $11,967, $30,475 and
$39,258 for the years ended December 31, 1994, 1995 and 1996.
f) Concentration of credit risk In 1994, one customer accounted
for approximately 6% of sales and approximately
3% of accounts receivable at December 31, 1994. In
1995, one customer accounted for approximately 35%
F-7
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(1) Summary of significant accounting principles, continued
f) Concentration of credit risk, continued of gross sales and
approximately 74% of accounts receivable at December
31, 1995. Approximately 75% of the sales to this customer came in
December 1995. Two other customers accounted for approximately 5% and
15% of gross sales in 1995, and approximately 8.5% and 2.5% of accounts
receivable at December 31, 1995. In 1996, four customers accounted for
25.4%, 9%, 3.1% and 1.5%
of sales and 13.1%, 8.2%, 6.8% and 8.3% of accounts receivable. One
other customer accounted for 36% of sales and 29.5% of accounts
receivable, against which the Company holds a deposit from this
customer equalling 82% of the receivable. 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
date of these statements, the Company has established a reserve for
doubtful accounts of approximately 24.5% of outstanding accounts
receivable, or 4.3% of sales. The reserve amounts at December 31, 1994,
1995 and 1996 were $15,028 , $42,650 and $252,424. Bad debt expense was
$15,028, $42,650 and $219,746 for the years ended December 31, 1994,
1995 and 1996, respectively.
h) Accrued compensation Accrued compensation at December 31,
1994 and 1995 is composed of compensation
accrued, but not yet paid to the President of the Company. Accrued
compensation at December 31, 1996 is composed of compensation accrued,
but not yet paid to several other officers of the Company.
i) Valuation of intangibles Intangible assets are valued at cost
and amortized over their estimated remaining useful
lives. The Company did not amortize the pre-paid cellular patent and
rights in 1995, as the intangible was acquired near the end of the
year, and the Company was not in a position to begin commercialization
development until the beginning of 1996. The Company is amortizing this
intangible over five years. Amortization expense was $142,500 in 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. 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 on August 1, 1994. Accordingly, PICK's operating losses prior to
this termination were passed through to its stockholders. The Company
had a deferred tax asset of $417,000, $844,000 and $1,484,000 at
December 31, 1994, 1995 and 1996. The Company has established a
valuation reserve in the amount of $417,000, $844,000 and $1,484,000 at
December 31, 1994, 1995 and 1996. This deferred tax asset is composed
of the tax benefit of net operating loss carryforwards totaling
$1,042,125, $2,110,746 and $3,711,497 at December 31, 1994, 1995 and
1996, which expire $1,042,125 in 2009, $1,068,621 in 2010 and
$1,600,751 in 2011. The tax benefit is comprised of approximately
$354,000, $717,600 and $1,261,900 in federal tax benefit and $63,000,
$126,400 and $222,100 in state tax benefit at December 31, 1994, 1995
and 1996. Any income tax benefits related to the differences between
methods of depreciation is de minimis.
k) Net income/(loss) per share Income/(loss) per share is
computed by dividing the net income/(loss) by the
weighted average number of common shares outstanding during the period,
less the 80,000 shares in escrow for TPSI and the 600,000 shares in
escrow for the subscription receivable.
(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-8
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(2) Stockholders' equity, continued PICK had authorized 1,000,000
shares of no par common stock. In January 1995,
PICK issued 100,000 shares in exchange for $1,000. At the end
of 1993, the President of PICK contributed his compensation to
PICK, by way of waiving the compensation accrued. During
1994, the President had loaned $161,000 to PICK, which he
exchanged for 623,000 shares of common stock. In August
1994, PICK issued 20,000 shares to a then unrelated third-party in
exchange for a telephone switch and the tariffs required to operate the
switch, valued at $100,000. From January through July 1995, PICK issued
242,000 shares to various parties for services provided, valued at
$0.01 per share, for a total value of $2,420. These shares were
valued at this level because at the time of issuance, there was no
assurance that PICK would be able to stay in business and it had
negative book value. In August 1995, PICK sold 25,000 shares to an
independent consultant for $250, (see note 13).
On September 12, 1995, the Company completed the acquisition of PICK,
(see notes 1a and 7). The change in par value recorded on the face of
the financial statements relates to this merger. Pursuant to the
agreement to effect this transaction, the Company issued 3,000,000
shares in exchange for 1,000,000 shares of Foxwedge, Inc., 4,500,000
shares in exchange for $250,000 in cash with a formerly unrelated
party, which subsequently became related through a common director,
500,000 shares in exchange for an outstanding note payable of $250,000,
which was pursuant to the original terms of the note payable, 1,500,000
shares in exchange for an $82,500 subscription receivable and
16,665,000 shares in exchange for 100% of the issued and outstanding
shares of PICK.
In October 1995, the Company issued 100,000 shares in partial exchange
for co-ownership of the prepaid cellular patent and exclusive
commercialization rights, valued at $212,500, (see note 8). In October
1995, the Company issued 5,000,000 shares in exchange for 5,000,000
shares of Firenze, Ltd. common stock, valued at $10,000. On November
21, 1995, the Company issued to an unrelated third party 1,000,000
shares in exchange for $200,000 cash and a note receivable for
$800,000, (see note 17d).
In January 1996, the Company sold 250,000 shares of its common stock to
an unrelated third party for $250,000 in cash. In January 1996, the
Company entered into an agreement with IES to issue 1,000,000 shares to
IES, and 150,000 shares to Richard Maranon, a director of the Company,
of the Company's common stock in exchange for $3,000,000 of prepaid
advertising. The advertising to be provided is to be composed of print,
television, radio and outdoor media. The original agreement calls for
the Company to use this advertising within two years, however the
Company has received verbal approval for a four year extension. The
Company recorded this stock issuance at $2,700,000, allowing for a 10%
discount for any advertising usage availablity the Company may not use.
In June 1996, the Company settled a dispute with a former officer. This
former officer had the right to exchange 20,000 shares of PICK, Inc.
into 330,000 shares of the Company and owned a warrant for 5,000 shares
of PICK, Inc. with an excercise price of $5 per share, which the board
of directors had amended to a warrant for 82,500 shares of the Company
with an excercise price of $0.30 per share. 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 July 1996, the Company issued 50,000 shares to Snow Becker Krauss,
P.C., the Company's legal counsel in lieu of cash payment for prior
services rendered. In July 1996, the Company reacquired 250,000 shares
from IES, previously issued in January 1996. In December 1996, the
Company issued 400,000 shares to the President of the Company in
exchange for $100,000 of salary accrued but not yet paid. In December
1996, the Company issued 55,000 shares to several non-officer employees
of the Company in recognition of the outstanding work performed by
these indivduals on behalf of the Company.
(3) Commitments The Company entered into a 63 month operating
lease for the Company's facilities beginning in July
F-9
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(3) Commitments, continued 1996. Future minimum lease payments
under this operating lease in effect at December
31, 1996 are $8,620 per month, or $103,441 per year. Rent expense for
the years ended December 31, 1994, 1995 and 1996 was $0, $10,280 and
$45,315, 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 $114,500
in 1994 and $75,152 in 1996. PICK repaid $9,500 in 1994, and
$3,035 in 1995. During 1994, the stockholder
converted $154,000 of these advances into equity.
In 1995, the Company acquired co-ownership of the prepaid cellular
patent and exclusive commercialization rights for stock and a $500,000
note payable to The Next Edge, Inc., which was assigned by TNE to The
Phone Store, Inc. (TPSI). This note is to be paid at a rate of $25,000
per quarter for five years. The Company made the January 1, 1996,
payment in December 1995. This note was not collateralized nor did it
carry interest. In July 1996, the Company acquired US Treasury Notes
with a maturity amount of $425,000 with scheduled maturity dates which
coincide with the scheduled payment due dates on the then remaining
balance of the note payable to TPSI. The Company placed these UST Notes
in an irrevocable trust which has as its trustee a Miami law firm. The
trust is to collect the maturity amounts of the UST Notes and remit the
correct amount to TPSI on such scheduled payment dates. The UST Notes
were acquired for $371,920 in cash. As the Company retains no legal
interest in the trust, this transaction has been accounted for as an
in-substance defeasence, whereby the Company recognized a gain of
$53,080 and removed the asset and liability from its books and records.
In November 1996, the Company received a $750,000 line of credit from
Banco Popular, which the Company had drawn down completely at year end.
This line of credit is payable on demand and carries an interest rate
of prime rate plus 2%. This line of credit is collateralized with 1
million shares of Ultimistics Inc. common stock which the Company owns
and accounts receivable.
(5) Related party transactions The Company purchased advertising
services of $144,118, $10,541 and $123,837 in
1994, 1995 and 1996 from an entity controlled by an individual who is a
stockholder and director of the Company. The accounts payable balance
to this stockholder was $144,118 and $0 at December 31, 1994 and 1995.
The Company purchased substantially all of its telephone network
services in 1994 and 1995, from a vendor which also owns approximately
0.8% of the Company's common stock. The accounts payable balance to
this stockholder was $276,669; $385,255 and $33,888 at December 31,
1994, 1995 and 1996. The Company also purchased services which amounted
to $88,064, $126,552 and $168,756 in 1994, 1995 and 1996, from 2 other
minority stockholders. The accounts payable balances to these
stockholders were $31,821, $28,706 and $9,332 at December 31, 1994,
1995 and 1996. The Company had gross sales of $116,924 in 1994, to 2
minority stockholders and $361,077 and $924,839 in 1995 and 1996, to 5
minority stockholders.
150,000 shares of the Company's common stock were issued to a director
of the Company and were part and parcel to the IES contract, and are
for the time the director and his staff were to spend to develop and
oversee the implementation of the advertising/marketing programs to be
instituted by the Company.
(See note 12).
(6) Investment in marketable equity securities The Company
acquired 1million shares of Foxwedge Inc. common
stock in the agreement to purchase PICK. The Company issued 3million
shares of its common stock to effect this part of the acquisition. As
the Company recognized that there was some concern as to the continued
viability of Foxwedge the Company valued this transaction based on the
par value of the consideration given up - $6,000. In December 1995, the
Company entered into an agreement with a stockholder of Ultimistics,
Inc. to exchange its 1million shares of Foxwedge for 500,000 shares of
Ultimistics restricted common stock, which represented approximately
1.6% of the issued and outstanding common stock of Ultimistics. When
the agreement was entered into, Foxwedge was $4.00 bid, $5.25 ask and
Ultimistics was $11.00 bid, $12.50 ask. This exchange was consummated
in January 1996 and the Company recorded a $1,194,000 gain.
F-10
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(6) Investment in marketable equity securities,continued
In October 1995, the Company entered into a licensing
agreement with Firenze, Ltd. (FRNZ) This agreement called for the
Company and FRNZ to exchange 5,000,000 shares of common stock between
the companies. These shares bear a restrictive legend under Rule 144 of
the Securities Act of 1933, as amended. The Company recognized that
there was some concern as to the continued viability of Firenze,
therefore, the Company valued this transaction based on the par value
of the consideration given up, its stock, or $10,000. In March 1996,
the Company exchanged these shares of Firenze, Ltd. it held for
2,000,000 shares of Ultimistics Inc. common stock, with a stockholder
of Ultimistics. The Company recorded a gain of $3,590,000 from this
transaction.
In October 1995, P.C.T. Prepaid Telephone, Inc. (PCT), a subsidiary of
the Company, entered into an agreement with FNRZ to exchange 6,250,000
shares of PCT common stock for 5,000,000 shares of FNRZ common stock
and $250,000 in cash. These shares, (PCT and FRNZ), bear a restrictive
legend under Rule 144 of the Securities Act of 1933, as amended. PCT
has valued the FNRZ agreement at $250,625. The valuation is comprised
of the $250,000 cash plus the 5,000,000 shares of FNRZ common stock
valued at $625 on the same basis of valuation of FNRZ stock above,
PCT's par value.
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 micochip 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 for this
license. The Company has valued this stock at $0.10 per share, for a
total of $50,000.
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 December 31, 1996, the Company held 4.7
million shares of Ultimistics, or approximately 18% of the issued and
outstanding, with a current market value of approximately $1 million.
The Company believes that the depressed market price of the Ultimistics
stock is temporary in nature. The Company has chosen to adjust its
valuation reserve to approximate the Ultimistics book value of these
shares, (or $1.05 per share). The Company was in negotiations with
several parties at year end to complete a variety of exchanges using
the Ultimistics stock. The valuation reserve as established at December
31, 1996, of $3,904,965 is net of the $1,808,000 deferred income tax
effects. At December 31, 1996, there is no market for the shares of
Internet Channel, Inc.
(7) Aquisition of subsidiaries On September 12, 1995, the
Company acquired 100% of the issued and outstanding
common stock of Public Info/Comm Kiosk, Inc. (PICK) in a
stock for stock exchange accounted for as a recapitalization of
PICK.
In October 1995, the Company granted P.C.T. Prepaid Telephone, Inc.,
(PCT), an exclusive license to market and sell the debit cellular
telephone technology (see note 8) in the United States and Canada in
exchange for 12,750,000 shares of PCT common stock, which bear a
restrictive legend under Rule 144 of the Securities Act of 1933, as
amended. These shares are 63.4% and 46.1% of the issued and outstanding
shares of PCT at December 31, 1995 and 1996, giving the Company control
of PCT. Although the Company did not own control of PCT at December 31,
1996, the Company has fully consolidated PCT because the Company
averaged 54.8% ownership throughout 1996, and subsequent to year end,
acquired sufficient shares from third party holders which increase its
holdings to 79%. During the entire year the Company controlled PCT via
common officers. The Company also considered the effects of the FASB
Exposure Draft on consolidations.
In April 1996, the Company established PICKNET, Inc. as a wholly owned
susidiary for the bulk sale of international long distance telephone
service.
F-11
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(8) Debit cellular telephone technology agreement In October 1995, the Company
entered into an agreement with
The Next Edge, Inc. (TNE), whereby the Company purchased the worldwide
rights to market, distribute, sell and manufacture TNE's Smart Tracker
System (a debit cellular telephone system, with a patent pending). TNE
subsequently assigned this agreement to The Phone Store Inc. (TPSI).
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 required the Company to pay TPSI a total of $500,000, payable
at a rate of $25,000 quarterly over five years beginning on January 1,
1996. The Company is also required to issue a total of 100,000 shares
of its restricted common stock to TPSI at the rate of 20,000 shares
each year for five years beginning January 1, 1996. These shares have
been issued into escrow. The agreement also requires the Company to
purchase the circuit chips for the system from TPSI, at TPSI's cost.
The agreement stipulates that the Company will be recorded as co-owner
of the US patent relating to this technology. The agreement requires
the Company to implement the international patent applications. The
Company has valued this purchase ageement at $712,500, which is
comprised of the $500,000 cash plus the 100,000 shares of common stock
valued at $212,500 based on the $4.25 bid quote of the Company's stock,
less a 50% discount. The Company made three of the cash payments
required under this agreement and in July 1996, purchased US Treasury
Notes in a face amount to satisfy this obligation and placed them in an
irrevocable trust, (see note 4).
(9) Firenze, Ltd. licensing agreement On October 24, 1995,
the Company granted FRNZ an exclusive license for
marketing and sales of the debit cellular telephone technology in
Europe, Asia, Australia and Africa. This agreement called for the
Company and FRNZ to exchange 5 million shares of common stock between
the companies. These shares bear a restrictive legend under Rule 144 of
the Securities Act of 1933, as amended.
The agreement required FNRZ to purchase the microchip, cellular
equipment and software from the Company at the Company's cost plus 10%.
The agreement called for FNRZ to pay the Company a 5% royalty monthly
on FNRZ's gross revenue from the technology under license. As FRNZ had
not yet begun to commercialize this license at January 31, 1996, the
Company withdrew the licensed rights from Firenze.
(10) Yakimoto Investment, Ltd. licensing agreements In January
and February 1996, the Company entered into two
licensing agreement with Yakimoto Investment, Ltd. (Yakimoto). The
first granted Yakimoto an an exclusive license for marketing and sales
of the debit cellular telephone technology in South America. This
agreement required Yakimoto to pay the Company 1 million shares of
common stock of Ultimistics, Inc. as consideration for this license
which bear a restrictive legend under Rule 144 of the Securities Act of
1933, as amended. When this agreement was entered into, Ultimistics was
$8.50 bid, which valued these shares at $8,500,000. The Company
determined that it should discount the fair market value of the shares
approximately 70%. This investment was recorded at $2,550,000. Yakimoto
was also to provide the Company with a $475,000 declining balance
Irrevocable Letter of Credit, which the Company expected to use to
secure the TPSI agreement. This letter of credit was not issued. The
agreement also required Yakimoto to purchase the microchip, cellular
equipment and software from the Company at the Company's cost plus 10%.
The agreement called 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 to
Yakimoto in exchange for 500,000 shares of Ultimistics stock. When this
agreement was entered into, Ultimistics was trading at $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.
(11) World Tel Saver, Inc. agreement In October 1995, the Company
entered into an agreement with an individual
to purchase $1,000,000 worth of prepaid telephone time, (consisting of
3,448,276 minutes at $0.29 per minute for domestic use), for $300,000
total at a rate of $25,000 per month commencing on November 1, 1995. In
November 1995, the Company entered into an additional agreement with
the same individual to purchase an additional $490,000 worth of
telephone time (consisting of 1,689,654 minutes at $0.29 per minute for
domestic use), for $120,000 at a rate of $10,000 per month commencing
on December 1, 1995. All of this time is to be provided by World Tel
Saver, Inc., (WTS). Both the individual and WTS are unrelated parties
to the Company.
F-12
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(12) Telephone time exchange for prepaid advertising In January 1996, the
Company entered into an agreement with
International Executive Services (IES), an unrelated party to the
Company, but is a related party with respect to World Tel Saver, to
exchange all of its prepaid telephone time, (consisting of 5,137,930
minutes), for $2,000,000 of prepaid advertising. The advertising to be
provided is to be composed of print, television, radio and outdoor
media. The original agreement calls for the Company to use this
advertising within two years, however the Company has received verbal
approval for a three year extension. The Company recorded a $1,580,000
gain on this exchange, which is being amortized into income as the
advertising is used.
In July 1996, the Company entered into an agreement with IES whereby
the Company returned $450,000 of the prepaid advertising, $235,000 face
amount of prepaid telephone cards, $50,000 face amount of PIN numbers
for prepaid telephone time and $15,000 in cash in exchange for 250,000
shares of the Company's common stock held by IES.
(13) Correction of accounting error In June 1995, PICK, Inc. sold
25,000 shares of its common stock to a third party
consultant for $250, or $0.01 per share. At the time the consultant
tendered his check, the amount was inadvertantly credited to consultant
expense, rather than to common stock. This partially occurred because
at the time, the actual issuance of these shares would have resulted in
PICK issuing more shares than were authorized. The agreement at the
time of this sale was that the consultant would actually be issued
shares in the public shell company that PICK hoped to merge into,
instead of PICK shares. The agreement further stated that should such
merger not occur, the consultant would be issued shares of PICK, Inc.,
as soon as practicable after PICK increased its authorized shares. As
the merger, then under consideration, did occur, the shares to be
issued were converted to shares of the Company at the same rate, (16.5
to 1), and 412,500 shares of the Company were issued in January 1996.
(14) Reserve for contingent liability In February 1996, the Company entered into
a long term contract with AT&T
to purchase long distance telephone time from AT&T in bulk at favorable
rates. Under the terms of the contract the international rate schedule
was to be added as an attachment and made a part thereto of the
contract. Based on the rate schedule provided to the Company during the
negotiations, the Company began selling bulk time through PICKNET at
prices slightly above its cost. This introductory pricing by the
Company was implemented in order to gain market share. Upon receipt of
the first bills from AT&T for actual usage, the pricing was
significantly higher than the schedule provided to the Company by AT&T.
The pricing difference is currently under negotiation between the
Company and AT&T, and is expected to be resolved in 1997.
(15) Stock option plan In February 1996, the Company adopted the "1996 Stock
Option Plan." This plan allows the
Company to grant options to acquire up to 5 million shares of the
Company's common stock by employees, directors, independent contractors
and consultants of the Company. The options so granted can be Qualified
Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs),
Stock Appreciation Rights (SARs) or combinations of the three types
of options.
In September 1996, the Company granted the following options to
directors and officers of the Company:
<TABLE>
<S> <C> <C>
Name & Relationship Incentive options/exercise price Non-Qualifing Options/exercise price
------------------- -------------------------------- ------------------------------------
D.Leiva,CEO,Chairman 103,896/$0.963 396,104/$0.875
R.Brennan,VP&Director 114,285/$0.875 385,715/$0.875
K.Quinn,VP 114,285/$0.875 385,715/$0.875
K.Petersson,VP 114,285/$0.875 385,715/$0.875
R.Sams,Director 0 / 0 500,000/$0.875
R.Maranon,Director 0 / 0 500,000/$0.875
G.Manning,Director 0 / 0 500,000/$0.875
</TABLE>
F-13
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(15) Stock option plan, continued There were no options outstanding
at the beginning of the year,and no options had
been exercised at December 31, 1996. In 1994 PICK Inc. issued warrants
for 5,000 shares common stock each to three individuals. The merger
agreement between the Company and PICK Inc. recognized these warrants
and converted them to warrants for 82,500 shares of the Company's
common stock to each of the three individuals. These warrants expired
unexercised at December 31, 1996.
SFAS No. 123 requires that companies that continue to account for stock
options under APB No. 25 disclose pro forma net income and earnings per
share as if Statement 123 had been applied. Net income as reported is
$1,635,790 and would have been $1,295,676. Primary and fully diluted
earnings per share are $0.04 per share and $0.04 per share and would
have been $0.03 per share and $0.03 per share.
The fair value of the option grant was estimated using the
Black-Scholes option pricing model with the following model assumptions
for 1996: risk free rate of 6.26%; no dividend yield for all years;
expected life of three years and volatility of 68.16%.
(16) Working capital deficiency The accompanying consolidated
financial statements have been prepared asuuming
that the Company will continue as a going concern which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. As shown in the accompanying consolidated
financial statements, the Company incurred net losses for the years
ended December 31, 1994 and 1995, and a net operating loss for the year
ended December 31, 1996. Additionally, the Company has a working
capital deficiency of $3,152,216 at December 31, 1996.
In 1995 and 1996, the Company raised $1,265,000 and $1,803,000 in cash
through sales of common stock and incurring additional debt. These
amounts exceeded its operating cash flows used by $93,000 and
($23,000). The Company's plans include controlling its cash expenses,
such that this inflow of capital may cover a cash flow shortfall in
1997.
In January 1996, the Company also entered into an agreement to exchange
the prepaid telephone time it acquired in October 1995, for advertising
valued at $2 million. The Company entered into this transaction, and
another January 1996, transaction in which it exchanged common stock
for an additional $3 million of advertising, because, advertising
expenditures are at the beginning of the Company's revenue generating
process. The Company believes it can generate a significant increase in
cash flow revenue, whether recognized or deferred, by increasing its
advertising presence in select target markets. The Company believes
that to increase its advertising without expending cash, will be
beneficial to its cash flows from operations. The Company utilized
$256,845 of this advertising during the second half of 1996.
The Company is also negotiating with several investment banking firms
to consider raising additional funds, either through debt or equity
offerings, or a combination. Any funds raised would be employed to
further increase its international long distance service, prepaid
telephone card business, and to develop its prepaid cellular telephone
business. There are no assurances that the Company will be able to
sucessfully raise additional funds in this manner.
The Company believes that these plans will enable it to continue as a
going concern. However, there can be no assurances that the Company
will be able to successfully implement such plans. If such plans are
not successfully implemented, the Company could be required to seek
additional financing from sources not currently anticipated.
(17) Subsequent events
a) Articles of Incorporation amendments At the January 1997,
annual stockholders meeting four amendments to
the Company's Articles of Incorporation were approved.
1) The total number of authorized shares of common
F-14
<PAGE>
PICK Communications Corp.
Notes to Consolidated Financial Statements
(17) Subsequent events, continued
a) Articles of Incorporation amendments, continued stock was
increased from 50 million to 75 million. 2) The
common stock par value per share was decreased from
$0.002 to $0.001 per share. 3) The prohibition on
cumulative voting of the common stock was eliminated.
4) The Company is now authorized to issue up to 10
million shares of no par "blank check" preferred stock.
b) Best efforts underwriting In January 1997, the Company
signed a best efforts underwriting agreement with
Interbank Capital of New York City to raise up to $10 million for the
Company, either in equity or debt. This contract calls for compensation
of: 1) for the first $2 million raised: 200,000 shares of the Company's
common stock, $200,000 in cash, and rights/warrants for 10% of the
stock issued to raise the funds at an exercise price equal to that of
the offering; 2) for the second $8 million: a cash fee equal to 10% of
the amount raised plus a non-accountable fee of 3% of the amount raised
plus warrants equal to 10% of the stock issued to effect the
investment.
c) Revocation of prepaid cellular marketing rights In February
1997, the Company revoked all the prepaid cellular
marketing licenses previously granted to Firenze Ltd. and
Yakamoto Investments Ltd. (See notes 9 and 10).
d) Stock subscription receivable In February 1997, the Company
agreed to cancel the remaining 600,000 shares
of the Company's common stock held in trust for the minority
stockholder and the balance remaining of the subscription receivable.
The Company and the stockholder were unable to renegotiate the stock
subscription.
e) Statement of Financial Accounting Standards not yet
adopted In February 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," and 129, "Disclosure of
Information about Capital Structure." The Company will have to
implement SFAS 128 and 129 by the fiscal year ending December 31, 1997.
The provisions of SFAS 128 change the presentation and computation of
earnings per share. The Company has not yet had sufficient time to
evaluate the impact, if any, of the provisions of SFAS 128 and 129.
f) Repurchase of common stock In February 1997, the
Company exchanged $2,550,000 face amount of the prepaid
advertising with IES for the remaining 750,000 shares of its common
stock issued into escrow for IES. In February 1997, the Company
exchanged to Firenze Ltd. 5 million shares of Firenze common stock for
5 million shares of the Company's common stock and 6.25 million shares
of PCT common stock. In February 1997, the Company exchanged with New
Century Media Inc. 1 million shares of Ultimistics Inc. common stock
for 1 million shares of the Company's common stock and 1 million shares
of PCT common stock. In March 1997, the Company exchanged with Yakimoto
Investment Ltd. 1.5 million shares of Ultimistics Inc. common stock for
4 million shares of PCT common stock. In March 1997, the Company
exchanged with an unaffiliated third party 300,000 shares of
Ultimistics Inc. common stock and the balance of the Company's prepaid
advertising for 5 million shares of PCT common stock. In March 1997,
the Company exchanged with Fairbanks Inc. 1.9 million shares of
Ultimistics Inc. common stock for 380,000 shares of Fairbanks Inc.
common stock. Fairbanks has acquired over 75% of the issued and
outstanding common stock of Ultimistics Inc., and has entered into a
letter of intent to acquire an existing operating US based company. The
Company believes that by completing this exchange it will eventually
realize the value in the underlying Ultimistics common stock, which as
a minority shareholder might not have been possible. In March 1997, the
Company repurchased 35,500 shares of its common stock in open market
purchases at an average price of $0.337 per share, or a total of
$11,978.
As a direct result of the compicated and potentially confusing nature
of all the above transactions, the Company has included a Proforma
Condensed Consolidated Balance Sheet below which reflects the effects
of these transactions as if they had occurred prior to
December 31, 1996.
F-15
<PAGE>
<TABLE>
<CAPTION>
PICK Communications Corp.
Proforma Condensed Consolidated Balance Sheet
December 31, 1996
ASSETS
<S> <C> <C> <C> <C>
Actual Adjustments Pro-forma
CURRENT ASSETS
Current assets $ 972,058 8) (11,978) 960,080
Prepaid advertising 2,458,155 1) (2,038,155)
2) (420,000) 0
-------------- ------------- -------------
Total Current Assets 3,430,213 (2,470,133) 960,080
-------------- ------------- -------------
PROPERTY AND EQUIPMENT
Total Property and
Equipment 90,571 90,571
OTHER ASSETS
Other assets 583,705 583,705
Investment in marketable
equity securities 4,812,660 2) (293,781)
3) (625)
4) (979,270)
5) (1,468,905)
9) 601,925 2,672,004
-------------- ------------- -----------
Total Other Assets 5,396,365 (2,140,656) 3,255,709
-------------- ------------- -----------
Total Assets $ 8,917,149 (4,610,789) 4,306,360
============== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Total Current Liabilities $ 6,582,429 6,582,429
Total Liabilities 6,582,429 6,582,429
Minority interest in
consolidated subsidiary 1,465,141 2,3,4) (1,348,614) 116,527
STOCKHOLDERS' EQUITY
Common stock, par value $0.001;
Authorized 75,000,000 shares;
43,097,516 issued and
35,832,016 outstanding at
December 31,1996 87,395 6) (43,697)
7) (600) 43,098
Additional paid in capital
in excess of par 6,399,720 6) 43,697
7) (599,400) 5,844,017
Stock subscription receivable (600,000) 7) 600,000 0
Less: Treasury stock (602,089) 1) (2,038,155)
3) (313)
4) (4,112,562)
8) (11,978) (6,765,097)
Marketable equity securities
valuation reserve (3,904,965) 2) 916,211
4) 1,090,170
5) 1,635,255
9) (315,716) (579,045)
Retained earnings (deficit) (510,482) 2,3,4) (425,087) (935,569)
---------- ------------- ------------
Total Stockholders' Equity 869,579 (4,339,279) (2,392,596)
Total Liabilities and
Stockholders' Equity $ 8,917,149 (4,610,789) 4,306,360
=========== ============ =========
<FN>
1) $2,550,000 face amount, $2,038,155 book amount of prepaid advertising exchanged for 750,000 shares of PICK.
2) $420,000 book amount of prepaid advertising and 300,000 shares of ULTS exchanged for 5,000,000 shares of PCT.
3) 5 million shares of FRNZ exchanged for 6.25 million shares of PCT and 5 million shares of PICK.
4) 1 million shares of ULTS exchanged for 1 million shares of PCT and 1 million shares of PICK.
5) 1.5 million shares of ULTS exchanged for 4 million shares of PCT.
6) Reduction in par value from $0.002 to $0.001 per share.
7) Cancellation of 600,000 shares of stock subscribed.
8) Open market purchases of 35,500 shares of PICK for $11,978 in cash.
9) 1.9 million shares of ULTS exchanged for 380,000 shares of Fairbanks, Inc.
</FN>
</TABLE>
F-16
<PAGE>
Exhibits
2 Agreement and Plan or Reorganization by and among the Company,
Pick, Diego and Sylvia Leiva. (1)
*3.1 Articles of Incorporation of PRIME (Utah) dated April 30, 1984
as amended. (1)
3.2 Certificate of Merger by and between PRIME (Utah) and PRIME
(Nevada). (1)
3.3 Articles of Incorporation of PRIME (Nevada). (1)
3.4 By-laws of PRIME (Nevada). (1)
3.5 Certificate of Amendment to Certificate of Incorporation. (1)
10.1 Lease for the Company's offices dated March 30, 1995.(1)
10.2 Agreement between Pick and Telecommunications Service Center,
Inc. dated June 1, 1994.(1)
10.3 Agreement between Pick and Com Tech International Corporation
dated September 5, 1995.(1)
10.4 Agreement between Pick and Innovative Holding Corporation dated
November 17, 1995.(1)
10.5 Agreement between Pick and Roland Gebhardt Design dated
January 1, 1994.(1)
10.6 Agreement between Pick and Players Computer, Inc. dated
October 1, 1994.(1)
10.7 Form of Distributor Agreement.(1)
10.8 Agreement between the Company and Philippe Hababou dated
October 3, 1995.(1)
10.9 Agreement between Trescom USA Inc. and Pick Inc. dated
April 10, 1996. (1)
* Filed with report
<PAGE>
10.10 Agreement between P.C.T. Prepaid Telephone Inc. and Prime
International Products, Inc. dated October 24, 1995. (1)
10.11 Agreement between AT&T Corp. and Pick Communications Corp. dated
February 26, 1996. (2)
10.12 Agreement between Cherry Communications Inc. and Pick Inc. dated
April 12, 1996. (1)
10.13 Agreement between Star Vending Inc. and Pick Inc. dated
March 18, 1996.(1)
10.14 Agreement between Cellular Telephone Company and Pick
Communications Corp. dated March 11, 1996. (1)
*11 Statement of Computation of Earnings Per Share and Common Stock
Equivalents. (1)
16 Former Accountant's Letter. (1)
*21 Subsidiaries of the Registrant.(1)
*27 Financial Data Schedule
- ----------------------
(1) Incorporated by reference to the Company's Registration Statement on
Form10
(2) Pursuant to Rule 24b-2 of The Securities Exchange Act of 1934, confidential
treatment has been requested by the Company with respect to specific portions of
the document and such portions have been omitted and filed separately with the
Commission.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PICK COMMUNICATIONS CORP.
Pursuant to the provision of Nevada Revised Statues, Title 7, Chapter
78, the undersigned officers of PICK Communications Corp., a Nevada corporation,
(the "Corporation") do hereby certify:
FIRST: The name of the Corporation is:
PICK Communications Corp.
SECOND: The Board of Directors of the Corporation duly adopted the following
resolutions on November 12, 1996:
RESOLVED, that is advisable, in the judgment of the Board of Directors
of the Corporation, for the Company to: ( i) increase the number of shares of
common stock that the Board of Directors of the Corporation is authorized to
issue from fifty million (50,000,000) to seventy-five million (75,000,000); (ii)
change the par value of shares of common stock from $.002 to $.001 per share;
(iii) authorize the Board of Directors of the Corporation to issue up to ten
million (10,000,000) shares of "blank check" preferred stock, $.001 par value
per share; (iv) add the denial of preemptive rights to the preferred stock as
well as the common stock, and (v) in order to accomplish the foregoing changes
and amend Articles IV and VIII thereof to read in their entirety, respectively,
as follows:
ARTICLE IV. Capitalization.
"(a) The Corporation shall have authority to issue up to
eighty-five million (85,000,000) shares, consisting of seventy-five million
(75,000,000) shares of common stock, par value $.001 per share (the "Common
Stock"), and ten million (10,000,000) shares of preferred stock, par value $.001
per share (the "Preferred Stock").
<PAGE>
" (b ) The Preferred Stock shall be issued from time to time
in one or more series, with such distinctive serial designations, preferences,
limitations, and relative rights, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such shares from time to
time adopted by the Board of Directors; and in such resolution or resolutions
providing for the issue of shares of each particular series the Board of
Directors is expressly authorized to fix; the annual rate or rates of dividends
for the particular series; the dividend payment date for the particular series
and the date, if any, from which dividends on all shares of such series issued
prior to the record date for the first dividend payment date shall be
cumulative; the redemption price or prices, if any, and the term and the terms
and condition of redemption for the particulars series; sinking fund provision,
if any, for the particular series; the voting rights, if any for the particular
series; the rights if any, of holders of the shares of the particular series to
convert or exchange the same into shares of any other series or class or other
securities of the Corporation or of any other corporation, with any provisions
for the subsequent adjustment or such conversion rights; the preference for the
particular series in the event of voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, and to classify or reclassify any
unissued Preferred Stock by fixing or altering from time to time any of the
foregoing rights, privileges and qualifications.
" (c) All shares of Preferred Stock of any one series shall be
identical with all other shares in such series in all respects, except that the
shares of any one series issued at different times may differ as to the dates
from which dividends thereon shall be cumulative. Except as to the particulars
may be fixed by the Board as hereinabove provided or as provided in the
description of any series of Preferred Stock, all Preferred Stock shall
otherwise be of equal rank, regardless of series, and shall be identical in all
respects."
"ARTICLE VIII. No Preemptive Rights. No holder of any of the shares of any class
of Common Stock or Preferred Stock of the Corporation shall be entitled as of
right to subscribe for, purchase, or otherwise acquire any shares of any class
of stock of the Corporation which the Corporation proposes to issue for the
purchase of shares of any class of the Corporation or for the purchase of any
shares, bonds, securities, or obligations of the Corporation which are
convertible into or exchangeable for, or which carry any rights, to subscribe
for, purchase, or otherwise acquire shares of any class of the Corporation; and
any and all of such shares, bonds, securities, or obligations of the
Corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued or transferred if the same have been reacquired and have
treasury status, and any and all of such rights and options may be granted by
the Board of Directors to such persons, firms, corporations, and associations,
and for such lawful consideration, and on such terms, as the Board of Directors
in it discretion may determine, without first offering the same, or any thereof,
to any said holder."
-2-
<PAGE>
FURTHER RESOLVED, that it is advisable, in the judgment of the Board of
Directors of the Corporation, that Article IX of the Articles of Incorporation,
relating to voting rights of the Common Stock be deleted in its entirety, and
that the subsequent Articles be renumbered accordingly, in order to eliminate
any confusion with the amended provisions of Article IV of the Articles of
Incorporation set forth herein above and to eliminate the prohibition contained
in said Article IX cumulative voting of shares.
FURTHER RESOLVED, that an annual meeting of stockholders having voting
power be and it is hereby called and that notice be given in the manner
prescribed by the By-laws of the Corporation and by Nevada Revised Statutes,
Title 7, Chapter 78, unless the said stockholders shall waive the notice of
meeting in writing or unless all of said stockholders shall dispense with the
holding of a meeting and shall take action upon the proposed amendments by a
consent in writing signed by them; and
FURTHER RESOLVED, that in the event that the said stockholders shall
adopt the aforesaid proposed amendments by a vote in favor thereof by at least a
majority of the shares present and voting or by a written consent in favor
thereof signed by all of them without a meeting, the Corporation is hereby
authorized to make by the hands of its President or a Vice President and by its
Secretary or an Assistant Secretary a certificate setting forth said amendment
and to cause the same to be filed pursuant to the provision of Nevada Revised
Statues, Title 7, Chapter 78.
THIRD: The total number of outstanding shares having voting power of the
Corporation is 42,162,516 shares of the Common Stock, and the total number of
votes entitled to be cast by the holders of all of said outstanding shares is
42,162,516 shares of Common Stock. In connection with decreasing the par value
and increasing the authorized shares of the Corporation's Common Stock, there
are currently 42,162,516 shares of Common Stock outstanding and 7,837,484 shares
of Common Stock unissued. As a result of the amendments and changes to the
Certificate of Incorporation herein provided for, the 42,162,516 outstanding
shares, $.002 par value, will be changed into 42,162,516 shares of common stock,
$.001 par value, and the 7,837,484 unissued shares, $.002 par value, will be
increased and changed into 32,837,484 shares of common stock, $.001 par value.
-3-
<PAGE>
The holders of a majority of the aforesaid total number of shares
having voting power, to wit, 42,162,516 shares, adopted the amendments herein
certified by holding and voting at a meeting of stockholders in accordance with
the provisions of Nevada Revised Statues, Title 7, Section 78,320.
Signed on January 21, 1997
PICK Communications Corp.
By: _______/s/___________
Diego Leiva, President
_______/s/___________
Raymond M. Brennan
Secretary
-4-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On January 21, 1997, personally appeared before me, a Notary Public,
for the State and County aforesaid, Diego Leiva and Raymond M. Brennan, as
President and Secretary, respectively, of PICK Communications Corp. who
acknowledged that they executed the above instrument.
_______/s/___________________
Notary Public
Philip Magri
Notary Public State of New York
-5-
<PAGE>
Exhibit 11
Pick Communications Corp.
Statement of Computation of Earnings per Share
1994 1995 1996
Net Income(Loss) $ (1,250,580) $ (1,071,041) $ 1,635,790
Primary
Weighted Average
outstanding shares
for the year - 40,442,516 (1) 41,991,502
Earnings (Loss) per share - (0.03) 0.04
Fully Diluted
Weighted Average
outstanding shares
for the year - 40,442,516 45,251,776 (2)
Earnings (Loss) per share - (0.03) 0.04
(1) Expressed subsequent to the recapitalization on September 12, 1995.
(2) Expressed on a fully diluted basis, subsequent to the recapitalization on
September 12, 1995, taking into account 3,500,000 stock options that were
granted in 1996, but were unexercised as of December 31, 1996.
<PAGE>
EXHIBIT 21
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
NAME ADDRESS
1. PICKNET, INC. 155 Route 46 West, 3rd Floor
Wayne, NJ 07470
(201) 812-7425
2. P. C. T. PREPAID TELEPHONE INC. 155 Route 46 West, 3rd Floor
Wayne, NJ 07470
(201) 812-7425
3. PUBLIC INFO/COMM KIOSK, INC. 155 Route 46 West, 3rd Floor
Wayne, NJ 07470
(201) 812-7425
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PICK COMMUNICATIONS CORP. FOR DECEMBER 31, 1993, 1994,
1995 AND 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> <C> <C> <C>
<PERIOD-TYPE> Year Year Year Year
<FISCAL-YEAR-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1993 JAN-01-1994 JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1993 DEC-31-1994 DEC-31-1995 DEC-31-1996
<EXCHANGE-RATE> 1 1 1 1
<CASH> 6,453 17,659 110,715 87,712
<SECURITIES> 0 0 16,625 4,812,660
<RECEIVABLES> 6,016 148,374 824,463 778,180
<ALLOWANCES> 0 15,028 42,650 252,424
<INVENTORY> 0 47,898 167,091 23,914
<CURRENT-ASSETS> 12,469 213,931 1,605,764 3,430,213
<PP&E> 16,692 119,540 158,246 124,212
<DEPRECIATION> 1,669 13,636 44,111 33,641
<TOTAL-ASSETS> 27,492 319,835 2,661,524 8,917,149
<CURRENT-LIABILITIES> 59,598 1,341,521 2,679,923 6,582,429
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 126,000 53,545 81,085 87,395
<OTHER-SE> (158,106) (1,075,231) (927,492) 782,184
<TOTAL-LIABILITY-AND-EQUITY> 27,492 319,835 2,661,524 8,917,149
<SALES> 23,301 529,913 1,565,039 5,869,682
<TOTAL-REVENUES> 23,301 529,913 1,565,039 9,519,682
<CGS> 10,067 753,346 1,387,459 8,150,794
<TOTAL-COSTS> 14,970 1,327,070 1,644,946 9,228,560
<OTHER-EXPENSES> 164,768 426,428 872,726 1,472,816
<LOSS-PROVISION> 0 15,028 42,650 219,746
<INTEREST-EXPENSE> 0 0 45,033 19,802
<INCOME-PRETAX> (158,106) (1,250,580) (1,071,041) 3,443,790
<INCOME-TAX> 0 0 0 1,808,000
<INCOME-CONTINUING> (158,106) (1,250,580) (1,071,041) (1,342,459)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 4,786,249
<CHANGES> 0 0 0 0
<NET-INCOME> (158,106) (1,250,580) (1,071,791) 1,635,790
<EPS-PRIMARY> 0 0 (0.03) 0.04
<EPS-DILUTED> 0 0 (0.03) 0.04
</TABLE>
