<PAGE>
PROSPECTUS Filed Pursuant to Rule 424(b)(3)
- ---------- Registration Statement No. 333-85205
PICK COMMUNICATIONS CORP.
The Offering:
Shares of common stock offered
by selling stockholders...................... 10,154,083
Offering Price................. On November 12, 1999, the closing sale price of
PICK common stock on the OTC Bulletin Board was
$1.375 per share. The selling stockholders may
offer the shares for sale at the market price at
the time of the sale, at a price related to the
market price or at a negotiated price. We expect
that a significant number of shares of common
stock will be sold pursuant to Rule 144 prior to
the effective date of this prospectus and will
be removed from this prospectus.
Investing in the common stock involves a high degree of risk. See
"Risks Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is November 15, 1999
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any document we file at the SEC's public
reference room at the following locations:
- Main Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
- Regional Public Reference Room
75 Park Place, 14th Floor
New York, New York 10007
- Regional Public Reference Room
Northwestern Atrium Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's public
reference rooms by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically.
You can access the electronic versions of these filings on the Internet at the
SEC's Web site, located at http://www.sec.gov.
We have included this prospectus in our registration statement that we
filed with the SEC (the "Registration Statement"). The Registration Statement
provides additional information that we are not required to include in the
prospectus. You can receive a copy of the entire Registration Statement as
described above. Please note that the Registration Statement also includes
complete copies of the documents described in the prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934 and are subject
to the safe harbor created thereby. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as the Company or we "believe," "anticipate," "estimate,"
"expect" or words of similar import as they relate to the Company or the
Company's management. Similarly, statements that describe the Company's future
plans, objectives or goals are forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties, including those
described in the section captioned "Risk Factors" below.
These factors are not exhaustive, and should be read in conjunction
with other cautionary statements that are included in this prospectus. The
forward-looking statements made herein are only made as of the date of this
report and we are not obligated to publicly update forward- looking statements
to reflect subsequent events or circumstances.
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PROSPECTUS SUMMARY
As used in this prospectus, unless the context otherwise requires, the
terms "we," "us" or "Company" mean PICK Communications Corp. and its
subsidiaries. This summary highlights information contained elsewhere in this
prospectus, and is not complete and may not contain all the information you
should consider before investing in the common stock. You should read the entire
prospectus carefully. All share and per share data in this prospectus give
retroactive effect to the one-for-ten reverse split to holders of record on July
23, 1999.
The Company
The Company currently has two active subsidiaries, PICK Sat, Inc. and
PICK Online.Com Inc. PICK Sat and PICK Online are both developing companies. Our
current focus is our PICK Sat subsidiary which has just begun commercial
operations. PICK Sat has developed satellite-based, broadband Internet access
and delivery services. One of these services makes it easier and more cost
efficient to send video and large multimedia files to Internet users. We are
marketing our services to media companies, large corporations, cable companies,
Internet Service Providers ("ISPs") and end-users. We are focusing our initial
marketing efforts in certain areas of the United States and Latin America, where
PICK Sat's services have a greater cost advantage due to the higher costs of
terrestrial Internet service in those areas.
We have entered into our first contract for this service. The customer,
Cadena Latinoamericana de Television, Inc. ("CLT"), is an owner and distributor
of Spanish-language video programming. CLT will utilize PICK Sat services to
transmit video content in Internet Protocol format to cable networks and
broadcast television stations in Latin America. CLT is currently using courier
services to send more than 20,000 Betacam cassettes a year to its affiliates.
CLT, using the PICK Sat service, will now transmit video files to affiliate
stations who will receive the files via satellite dish, store them on a server,
and decode them into Betacam format as needed for local playout. The agreement
provides for up-front fees with continuing revenues thereafter. The agreement is
for three years and if successfully completed would provide us with
approximately $2.1 million in revenues.
We have also established two beta sites for other PICK Sat services,
one with a wireless cable operator in Mexico, and another with a educational
institution in the United States. These beta tests of PICK Sat service include
testing with both the customer, and end-users.
Once PICK Sat's service are more mature, and provided we receive
substantial additional financing, we intend to begin marketing our PICK
Online.Com services, which includes multimedia portal services that host radio,
TV and Web-based events.
On June 23, 1999, our Board of Directors voted to sell or discontinue
the long distance telephone service portion of its business to focus on the
Internet services portion of its business.
We have terminated marketing and distribution of prepaid telephone
calling cards through PICK US, Inc. We have entered into a definitive agreement
to sell the stock of PICK Net Inc. and PICK Net UK PLC, both of which provide
international long distance services to other carriers and resellers, for
nominal value, and have up to approximately $10 million of their liabilities
assumed. As of October 31, 1999, approximately $1,500,000 of indebtedness of
PICK Net had been paid by a lender.
We are in need of immediate financing for working capital to finance
our PICK Sat and PICK Online subsidiaries. Neither entity has generated any
revenues to date. We entered into an option agreement with Atlantic
Tele-Network, Inc. ("ATN") to sell them up to a majority of the common stock of
PICK Sat, however, they have advised us that they do not intend to exercise the
option. The repayment of the $1.5 million of PICK Net debt, as well as
approximately $500,000 advanced to PICK Sat for operating expenses in connection
with the option has been guaranteed by PICK Sat. In the event that this
transaction is not completed and we are unable to repay the loans, with third
party funding for which we have no commitments, the assets of PICK Sat may be
foreclosed upon.
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<PAGE>
Should we be unable to obtain interim financing in the near term we will be
forced to cutback or suspend operations and/or seek protection under the
bankruptcy laws. Although we are in discussions with several sources of
financing, there can be no assurance we will obtain such financing.
We recently relocated our principal executive offices to 8401 N.W. 53rd
Terrace, Suite 119,Miami FL 33166, and our telephone number is (305) 717-1500.
Risk Factors
An investment in common stock involves certain risks that a potential
investor should carefully evaluate prior to making an investment. A discussion
of certain factors to be considered in evaluating the Company, its business and
an investment in common stock is included in the section titled "Risk Factors"
immediately following this Summary.
Summary Historical Consolidated Financial and Operating Data
Statement of Operations Data (1):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited) Years Ended December 31,
--------------------------- -----------------------------------------
1999 1998 1998 1997 1996
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cost and expenses $2,118,013 $468,410 $2,139,830 $ 399,448 $ 607,890
Other income (expense) -- -- (133,000) (9,890,284) 8,436,809
--------- --------- ---------- ---------- ----------
Income (loss) before
minority interest in
subsidiary loss,
income taxes and
discontinued operations (2,118,013) (468,410) (2,272,830) (10,289,732) 7,828,919
</TABLE>
(Continued on following page)
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<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited) Years Ended December 31,
--------------------------- -----------------------------------------
1999 1998 1998 1997 1996
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Minority interest in
subsidiary loss - 914 2,062 434,064 260,541
Benefit (provision) for
income taxes (880) 1,808,000 (1,808,000)
Loss from discontinued
operations (4,364,730) (2,308,451) (14,792,541) (1,452,134) (4,645,670)
Loss on disposal (47,108,711) - - - -
------------ ----------- ------------ ----------- -----------
Net income (loss) $(53,591,454) $(2,776,827) $(17,063,309) $(9,499,802) $ 1,635,790
============ =========== ============ ========== ===========
Beneficial conversion
feature of preferred stock (25,170,000) - - - -
------------ ----------- ------------ ----------- -----------
Net income (loss) applicable
to common stock $(78,761,454) $(2,776,827) $(17,063,309) $(9,499,802) $ 1,635,790
============ =========== ============ =========== ===========
Net income (loss) per
common share - basic $ (18.39) $ (.76) $ (4.62) $ (2.57) $ .39
============ =========== ============ =========== ===========
Weighted-average shares
outstanding - basic 4,281,860 3,633,975 3,692,356 3,695,853 4,199,150
============ =========== ============ =========== ===========
Balance Sheet Data:
At June 30,
(unaudited) At December 31,
------------------------------ -------------------------------------------
1999 1998 1998 1997 1996
------------ ----------- ------------ ----------- -----------
Working capital
(deficiency) $(16,715,093) $(9,895,211) $(14,677,342) $(7,405,608) $(3,152,216)
============ =========== ============ =========== ===========
Total Assets $ 7,685,842 $ 2,522,592 $ 6,791,156 $ 1,817,513 $ 8,917,149
============ =========== ============ =========== ===========
Current Liabilities $ 17,861,005 $10,805,819 $ 16,241,801 $ 8,027,642 $ 6,582,429
============ =========== ============ =========== ===========
Long-term liabilities $ 10,922,716 $ 1,182,609 $ 10,815,216 $ 794,905 -
============ =========== ============ =========== ===========
Stockholders' equity
(deficiency) $(21,183,897) $(9,553,002) $(20,351,879) $(7,093,114) $ 869,579
============ =========== ============ =========== ===========
</TABLE>
(1) The historical financial information in this prospectus is primarily that of
the three subsidiaries whose business we are terminating, as PICK Sat and
PICK Online.Com have had limited operations to date and have not generated
any revenues. On June 23, 1999, the Company formalized its plan to
discontinue its long distance telephone service and prepaid calling card
business consisting of PICK US, PICK Net and PICK Net UK. Accordingly, the
long distance telephone service and prepaid calling card business are
accounted for as a discontinued operation in the accompanying consolidated
financial statements.
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<PAGE>
NOTE RESTRUCTURING
Between July 29 and September 8, 1998, the Company sold an aggregate of
99 Units in a bridge loan (the "July Bridge Loan") and 9,900,000 warrants to
purchase 990,000 shares of the Company's common stock at $5.00 per share for
five years, for gross proceeds of $9,900,000. The Company allocated $8,587,066
of the gross sale proceeds to the debt and $1,312,934 to the warrants. The
$1,312,934 discount was amortized as interest expense over the original 120-day
life of the July Bridge Note. A security interest in the Company's assets was
filed on behalf of the investors in the July Bridge Loan. In November 1998, the
interest rate of the July Bridge Loan was increased retroactively to 18% and the
maturity date of the promissory notes evidencing the loan (the "Notes") was
extended to April 27, 1999. The Noteholders had the option to either foreclose
and seek repayment of the Notes or convert their Notes into common stock at
$2.50 per share, or 50% of market if lower, following a default in repayment by
the Company.
On April 27, 1999, $9,880,000 of the $9,900,000 in principal amount of
the Noteholders consented to a restructuring (the "Restructuring") to amend
their Notes (the "Amended Notes"), which had been conditioned on at least 80%
approval. The Noteholders have agreed for a two-year period to (a) exchange
988,000 shares of common stock registered under this registration statement for
the warrants issued in connection with the original issuance of the Notes,
245,750 shares for the warrants issued in connection with an extension of the
July Bridge Loan and 388,040 shares pursuant to the anti-dilution provisions of
the warrants, and (b) either receive one share of common stock for every ten
dollar ($10.00) principal amount of the Amended Notes, or alternatively elect to
have the conversion price of the Amended Notes reset from $10.00 to $5.00 per
share, subject to further adjustment. Commonwealth Associates and its designees
("Commonwealth"), as agent for the Noteholders, was paid 200,000 shares, plus
warrants to purchase 50,000 shares exercisable at $13.75 per share, with the
exercise price of warrants previously issued to Commonwealth reduced to $1.00
per share.
The maturity date of the Amended Notes is April 27, 2002. Each Amended
Note is convertible at any time at the option of the holder thereof into shares
of common stock at $10.00 per share. The conversion price of the Amended Notes
will be reset to not lower than $5.00 per share in the event the Company issues
securities (with certain exceptions) for less than $10.00 per share, prior to
April 27, 2000, the first anniversary date of the Restructuring. In addition,
the Company has the option to extend the maturity date for one additional year,
in which event the Conversion Price shall be subject to adjustment.
The Amended Notes shall be automatically converted into shares of
common stock in the event that the closing bid price for the common stock has
exceeded $15.00 per share for 20 consecutive trading days. Commonwealth is
entitled to designate one nominee to the Board and the Noteholders shall have
the right to nominate one person to a reconstructed Board consisting of a
majority of independent Directors. Neither right to designate a nominee has been
exercised.
The Company has agreed to register all of the above described shares of
common stock issued or issuable to the Noteholders, Commonwealth and Liberty
Capital, co-placement agent for the July Bridge Loan as part of this
registration statement.
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<PAGE>
RISK FACTORS
This offering involves a high degree of risk. Before you invest in our
common stock, you should be aware that there are various risks, including those
described below, that may affect our business, financial condition and results
of operations. We caution you, however, that this list of risk factors may not
be all inclusive. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In this case,
the trading price of our common stock could decline, and you may lose all or
part of your investment.
We have a history of significant and continuing losses and cannot
guarantee that we will be profitable.
We have experienced significant operating losses since we commenced
full operations in 1994. Our net losses for each fiscal year since 1994 were:
1998 $17.1 million
1997 $9.5 million
1995 $1.1 million
1994 $1.3 million
Although we had net income of approximately $1,636,000 in 1996, this
resulted from non-cash, non-operating income, which was offset in 1997 by
non-cash non-operating losses. Our loss from discontinued operations increased
from $2,308,451 for the six months ended June 30, 1998 to $4,364,730 for the six
months ended June 30, 1999. We also recorded an additional loss on the disposal
of the discontinued operations in the amount of $47,108,711. Of this amount,
$46,033,711 is attributable to the writing off of the deferred interest and debt
placement charges of the restructured notes which amounts are related to the
discontinued operations and therefore will provide no future benefit.
On June 23, 1999, we formalized a plan to discontinue our long distance
telephone service and prepaid calling card business consisting of PICK US, PICK
Net and PICK Net UK. Accordingly, the Old Business is accounted for as a
discontinued operation in the accompanying consolidated financial statements. We
are in the process of completing the sale of PICK Net and PICK Net UK and the
discontinuance of the operation of PICK US.
We significantly curtailed our operations during 1998, while we
installed and tested two new switches. Our total revenues, which all arose from
our discontinued operations, amounted to $9,822,903 for the twelve months ended
December 31, 1998, compared to $9,015,903 for the comparable period last year.
Of this amount, however, prepaid telephone calling card revenues were $7,844,462
for 1998, compared to $1,346,660 for 1997. However, our cost of telephone time
purchased increased by a greater amount than our sales and caused us to continue
to lose money. Therefore, we have since shifted the focus of our business away
from the prepaid calling card business, as well as from the resale of long
distance telephone services (collectively, the "Old Business"). We have only
recently started offering our new services. Therefore, we do not expect to be
able to achieve our prior level of sales in the foreseeable future.
Nevertheless, we will continue to have a high level of operating expenses. We
need to incur significant up-front expenses, including capital expenditures, in
connection with the development and marketing of our new services (collectively,
the "New Business"). This
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<PAGE>
includes substantial increases in executive, marketing, sales, finance and other
personnel. We expect to incur additional losses during the foreseeable future
until we are able to generate significant revenues to finance our operations and
the costs of our new services. We cannot guarantee that we will be able to
generate such revenues and operate profitably.
We have an immediate need for additional financing.
We do not have sufficient cash on hand to meet our current obligations.
We recently received interim loans of approximately $500,000 from ATN and are
seeking additional interim financing. Between March and July 1999, we issued
1,871,000 shares of Series B preferred stock convertible at $1.00 per share for
$1,871,000, and 500,000 shares of Series D preferred stock convertible at $4.20
per share for $5,000,000, subject to adjustment under certain circumstances.
However, we will not be able to sustain our operations without additional
funding. In the event we are unable to obtain interim financing, we will be
forced to cutback or suspend our operations. We are attempting to raise
substantial additional funds. We need additional funding immediately to:
o pay our outstanding past due payables;
o meet our immediate payroll obligations; and
o finance our New Business.
At June 30, 1999, we had a working capital deficit of approximately
$16.8 million.
As of June 30, 1999, we had approximately $17.9 million of current
liabilities, which mature or is subject to payment agreements before the end of
1999.
In April 1999, we were successful in converting all but $20,000 (which
we repaid) of the $9.9 Million of the July 1998 Bridge Loan into three-year
obligations. We have also entered into a binding contract to sell the assets of
the Old Business for nominal value and have a substantial portion of their
liabilities assumed. We are attempting to convert the majority of our trade
payables, a portion for which we will be contingently liable, into long-term
obligations, but there can be no assurance we will be successful. We may have to
seek bankruptcy protection for all or part of our "Old Business," if the sale of
the Old Business is not completed. However, unless we are able to obtain
immediate additional financing for the Company, certain of our largest creditors
can declare a default and force us to declare bankruptcy to protect ourselves.
In such event, you may lose your entire investment.
We have no firm arrangements with respect to additional financing. We
cannot guarantee that additional financing will be available to us on
commercially reasonable or acceptable terms or on terms which would not be
substantially dilutive to stockholders, if at all. If we fail to secure
necessary financing we expect it would have a material adverse impact on
business.
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<PAGE>
Our financial statements are qualified and based on obtaining financing and
attaining successful operations.
We have incurred operating losses and negative cash flow from our
operations since 1995 and we have an accumulated deficit of approximately $106
million at June 30, 1999. Our operating losses and negative cash flow are
expected to continue until such time, if ever, that our New Business begins to
produce sufficient revenues to cover our expenses. In addition, substantially
all of our debts are short term. Our former accountants issued a qualified
report on the Company's financial statements as at and for the year ended
December 31, 1997. Our current auditors issued a qualified report on our
financial statements as at and for the year ended December 31, 1998. These two
reports state that if we do not:
o extend payout terms;
o obtain additional long-term financing arrangements and raise
additional funds; and
o increase revenues and/or decrease expenses,
we may be unable to continue as a going concern for a reasonable period of time.
We restated our financial statements in 1998.
Our financial statements as of March 31, 1997 were restated in June
1998. We initially did not report any gains or losses on the disposition of
marketable equity securities for transactions consummated in the first quarter
of 1997. We believed that it was not appropriate to recognize losses on the
acquisition of our and our subsidiary's common stock or on the exchange of one
investment in marketable equity securities for a similar investment. While we
believed our initial reporting was correct when made, we subsequently determined
that it would have been preferable to record these transactions based upon the
fair value of the assets exchanged, resulting in the recognition of
approximately $9,400,000 in non-cash, non-operating losses. The effect of the
restatement for the quarter ended March 31, 1997, was to reduce net income of
$948,711 to a net loss of $7,626,903. These transactions do not have a cash or
operating effect on our results of operations, and, to date, have not adversely
affected the price of our common stock.
We depend on a limited number of clients.
Our prepaid telephone calling card business, which we are no longer
marketing, largely depended upon our relationship with Blackstone Calling Card,
Inc. ("Blackstone"). In 1998, approximately 72% and 10% of our revenues were
from Blackstone and IDT Corp., respectively. We have terminated the
Blackstone Agreement, which can be terminated by either party without cause
after the first year. Nevertheless, we expect to initially depend on a limited
number of clients for the New Business until these businesses become
established.
Our limited history of operations may not be a reliable basis for evaluating our
prospects.
Because the New Business are developing companies, we have no operating
and financial data to give to you to evaluate our future performance and
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<PAGE>
prospects concerning these entities. Our prospects must be considered in light
of the risks, expenses, delays, problems and difficulties frequently encountered
in the establishment of a new business in the Internet industry, which is an
evolving industry characterized by intense competition. You must consider the
risks, expenses and uncertainties that an early stage business like ours faces.
These risks include our ability to:
o establish awareness of our services;
o expand the content and services on our network;
o attract a larger audience to our network;
o attract a large number of advertisers from a variety of industries;
o maintain our current, strategic relationships with Microsoft,
Philips and Harmonic Data Systems and develop new relationships;
o respond effectively to competitive pressures; and
o continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks, our business,
financial condition and results of operations will be materially and adversely
affected.
Significant competition in providing Internet services could reduce the demand
for and profitability of our services.
The Internet services business is highly competitive and there are few
significant barriers to entry. Currently, we compete with a number of national
and local Internet Service Providers ("ISPs"). In addition, a number of
multinational corporations, including giant communications carriers such as
AT&T, MCI/Worldcom, Sprint and some of the regional Bell operating companies,
are offering, or have announced plans to offer, Internet access or on-line
services. We also face significant competition from Internet access
consolidators and from on-line service firms such as America Online ("AOL"),
CompuServe, and Prodigy.
Our competitors also include Broadcast.com, the largest aggregator of
Internet audio and Real Networks, an audio streaming software maker. We believe
that new competitors, which may include computer software and services,
telephone, media, publishing, cable television and other companies, are likely
to enter the on-line services market. There are many companies that provide
Internet services targeted to Latin Americans and Spanish and Portuguese
speaking people in general. Competition for visitors, advertisers and electronic
commerce partners is intense and is expected to increase significantly in the
future because there are no substantial barriers to entry in our market.
In addition, we believe that the Internet service and on-line service
businesses will further consolidate in the future. We believe this could result
in increased price and other competition in the industry and adversely impact
us. In the last year, a number of on-line services have lowered their monthly
service fees. This may cause us to lower our fees in order to compete.
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<PAGE>
Many of our Internet service competitors possess financial resources
significantly greater than what we might expect to have and, accordingly, could
initiate and support prolonged price competition to gain market share. Many
competitive products and services are marketed by companies which:
o are well established;
o have reputations for success in the development and sale of product
and services; and
o have significantly greater financial, marketing, distribution,
personnel and other resources, thereby permitting them to implement
extensive advertising and promotional campaigns, both general and in
response to efforts by additional competitors to enter into new
markets and introduce new products and services.
We believe that the primary competitive factors among Internet access providers
are:
o price, both in prices charged and profit margins
o quality
o customer support and loyalty
o technical expertise
o speed of service provided
o local presence in a market
o ease of use
o variety of value-added services
o reliability
We believe we will be able to compete favorably in these areas. However
increased competition in any one of these areas could materially adversely
affect our business, financial condition and results of operations. Our success
in the high-speed direct market will depend heavily upon our ability to provide
high quality Internet connectivity and value-added Internet services targeted in
select target markets. Other factors that will affect our success in these
markets include our continued ability to attract additional experienced
marketing, sales and management talent, and the expansion of support, training
and field service capabilities.
We believe that we compete on the basis of price and service. Our
success will depend on our ability to anticipate and respond to rapid changes in
consumer preferences and the introduction of new services, as well as our
ability to retain our favorable gross margins. We cannot assure you that we will
be able to compete successfully in our markets.
In addition, our competitors may develop content that is better than
ours or that achieves greater market acceptance. It is also possible that new
competitors may emerge and acquire significant market share. A loss of users
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<PAGE>
to our competitors may have a material and adverse effect on our business,
financial condition and results of operations.
The Internet industry is characterized by frequent introduction of new
products and services, and is subject to changing consumer preferences and
industry trends, which may adversely affect our ability to plan for future
design, development and marketing of our products and services. The markets for
Internet products and services are also characterized by rapidly changing
technology and evolving industry standards, often resulting in product
obsolescence or short product life cycles.
We are uncertain of our products being accepted by the market.
Achieving market acceptance for our products and services requires
substantial marketing efforts and the expenditure of significant funds, which we
don=t currently have, to create both awareness and demand.
Our success depends, in large part, on our ability to attract large
corporations, media companies, cable companies and ISPs to use our services, as
well as the level of acceptance and usage by end-users. Because demand by our
customers may be interrelated, any lack or lessening of demand by any one of
these parties could have a negative affect on our products and services overall
market acceptance. We can not assure you that markets will develop for our New
Business, nor can we assure you that we will be able to meet our current
marketing objectives or succeed in positioning ourselves as a key player in the
Internet industry.
If we do not effectively implement our marketing strategy and effectively manage
our operations, our business could suffer.
We grew from approximately $1.6 million of net sales from the Old
Business in 1995 to approximately $9.8 million of net sales from the Old
Business in 1998 before we discontinued the Old Business. This placed demands on
our management, employees, operations and physical resources. We were forced to
curtail our unprofitable operations, terminate employees and restructure our
short-term indebtedness and seek to terminate, divest, or reorganize all or a
portion of our Old Business, all of which are currently being carried out.
Implementation of our new business plan will depend on, among other things, the
following:
o our ability to establish contractual arrangements targeting several
market segments for our New Business; and
o hire and retain skilled management, financial, marketing, sales and
other personnel.
Our marketing strategy and plans are subject to change as a result of a number
of factors, including, but not limited to, progress or delays in:
o our marketing efforts;
o changes in market conditions, including the emergence of significant
supplementary markets;
o the nature of possible strategic alliances which may become
available to us in the future; and
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<PAGE>
o competitive factors.
We cannot assure you that we will be able to implement successfully our business
plan for our New Business or otherwise continue our operations.
In order to implement our business plan for our New Business, we will
be required to:
o improve our operating systems;
o attract and retain skilled executive, management and technical
personnel; and
o successfully manage growth, including monitoring operations,
controlling costs and maintaining effective quality, and service
controls.
If we are unable to effectively manage our growth, our business, operating
results and financial condition could suffer.
We depend on satellites and third-party long distance carriers
We currently depend on a limited number of satellites, domestic and
international long distance carriers and Internet Service Providers to provide
our services. Although we believe that we currently have sufficient access to
transmission facilities, satellites and long distance networks, if we fail to
obtain continued access to such facilities, satellites and networks it could
also have a negative impact on our New Business.
We may derive a portion of our revenues from reciprocal advertising agreements,
which do not generate cash revenue
We may derive a portion of our revenues from reciprocal advertising
arrangements under which we will exchange advertising space on our network
predominantly for advertising space on television and radio stations, rather
than cash payments. In the event that revenues from reciprocal advertising
arrangements account for a portion of our revenues in the foreseeable future, we
will be giving up cash revenues.
Joint ventures, acquisitions or strategic alliances may not be available
We do not know if we will be able to identify any future joint
ventures, acquisitions or strategic alliances or that we will be able to
successfully finance these transactions. A failure to identify or finance future
transactions may impair our growth. In addition, to finance these transactions,
it may be necessary for us to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may impact our
operations and, in the case of equity financings, may result in substantial
dilution to existing stockholders.
In the future we will depend on the developing market of the Internet.
Our ability to derive revenues by providing online commerce and
Internet services will depend, in part, upon a developed and robust industry and
the infrastructure for providing Internet access and carrying Internet traffic.
We cannot assure you that the necessary infrastructure, such as a reliable
network backbone, or complementary products, such as lower cost high speed
-13-
<PAGE>
cable modems, will be developed or that the Internet will become a viable
commercial marketplace in those segments we target. Critical issues concerning
the commercial use of the Internet, including:
o security
o ease of use and access
o reliability
o quality of service
o cost
remain unresolved and may impact the growth of Internet use. In the event that
the necessary infrastructure or complementary products are not developed or the
Internet does not become a viable commercial marketplace, our future business,
operating results and financial condition could be negatively affected if we
were to expend significant proceeds for the development of Internet services.
The Internet radio and television market is new and rapidly evolving,
particularly in Latin America. As a result, we cannot measure its effectiveness
or long term market acceptance as compared with traditional media.
Radio and television stations must direct a portion of their budgets to
the Internet and, specifically, to our network. Many of our current or potential
customers have limited experience using the Internet.
No standards exist for the acceptance of the Internet as a medium for
broadcasting radio and television
No standards have been widely accepted for the measurement of the
effectiveness of radio and television broadcasting over the Internet. Standards
may not develop sufficiently to support the Internet as an effective broadcast
medium. If these standards do not develop, broadcast stations may choose not to
use our network. This would have a material adverse effect on our business,
financial condition and results of operations.
Latin American Risks
Our operating results may also fluctuate due to seasonal factors
If we are successful in initially marketing our services in Latin
America, the level of use on our network may be seasonal. This may cause
fluctuations in our revenues and operating results. Visitor traffic on our
network may be significantly lower during the first calendar quarter of the year
because:
o it is the summer months in much of Latin America;
o our target audience tends to take extended vacations during these
months; and
o schools and universities are generally closed.
As a result, advertisers have historically spent less in the first and
second calendar quarters. We believe that these seasonal trends will affect our
results of operations.
-14-
<PAGE>
Social and political conditions in Latin America may cause volatility in our
operations and adversely affect our business
We hope to derive a substantial portion of our initial revenues from
the Latin American markets. Social and political conditions in Latin America are
volatile and may cause our operations to fluctuate. This volatility could make
it difficult for us to effect our business plan, which could have an adverse
effect on our business. Historically, volatility has been caused by:
o significant governmental influence over many aspects of local
economies;
o political instability; unexpected changes in regulatory
requirements;
o social unrest;
o slow or negative growth;
o imposition of trade barriers; and
o wage and price controls.
We have no control over these matters. Volatility resulting from these
matters may decrease Internet availability, create uncertainty regarding our
operating climate and adversely affect our customers' budgets, all of which may
adversely impact our business.
Currency fluctuations and general economic conditions in Latin America may
adversely affect our business
The currencies of many countries in Latin America, including Brazil and
Argentina, have experienced substantial depreciation and volatility. The
currency fluctuations, as well as high interest rates, inflation and high
unemployment, have materially and adversely affected the economies of these
countries. Poor general economic conditions in Latin American countries may
cause our customers to reduce their spending on Internet services , which could
adversely impact our business.
We may suffer currency exchange losses if local Latin American currencies
depreciate relative to the U.S. dollar
Our reporting currency is the U.S. dollar. In a number of cases,
however, customers in Latin America may be billed in local currencies. Our
accounts receivable from these customers will decline in value if the local
currencies depreciate relative to the U.S. dollar. Although we may enter into
hedging transactions in the future, we may not be able to do so successfully. In
addition, our currency exchange losses may be magnified if we become subject to
exchange control regulations restricting our ability to convert local currencies
into U.S. dollars.
If Internet use in Latin America does not grow, our business will suffer
The Latin American Internet market is in an early stage of development.
Our near term prospects depends on the continued growth of the Internet in Latin
America. Our business, financial condition and results of operations will be
materially and adversely affected if Internet usage in Latin America
-15-
<PAGE>
does not continue to grow or grows more slowly than we anticipate. Internet
usage in Latin America may be inhibited for a number of reasons, including:
o the cost of Internet access;
o concerns about security, reliability, and privacy;
o limited amount of content in Spanish or Portugese;
o ease of use; and
o quality of service.
Underdeveloped telecommunications infrastructure may limit the growth of the
Internet in Latin America and adversely affect our business
Access to the Internet requires a relatively advanced
telecommunications infrastructure for which we will be relying on a satellite
communications network. The telecommunications infrastructure in many parts of
Latin America is not as well-developed as in the United States. The quality and
continued development of the telecommunications infrastructure in Latin America
may have a substantial impact on our ability to deliver our services and on the
market acceptance of the Internet in Latin America in general. If further
improvements to the Latin American telecommunications infrastructure are not
made, the Internet will not gain broad market acceptance in Latin America. If
access to the Internet in Latin America does not continue to grow or grows more
slowly than we anticipate, our business, financial condition and results of
operations will be materially and adversely affected.
High cost of Internet access may limit the growth of the Internet in Latin
America and impede our growth
Each country in Latin America has its own telephone rate structure
which, if too expensive, may cause consumers to be less likely to access and
transact business over the Internet. Although rates charged by ISPs and local
telephone companies have been reduced recently in some countries, we do not know
whether this trend will continue. Unfavorable rate developments could decrease
our visitor traffic and our ability to derive revenues from transactions over
the Internet. This could have a material adverse effect on our business,
financial condition and results of operations.
Other Business Risks
We may not be able to develop the PICK Sat and PICK Online.Com names
and attract users to our network
Maintaining the PICK Sat and PICK Online.Com names is critical to our
ability to expand our user base and our revenues. We believe that the importance
of brand recognition will increase as the number of Internet sites in Latin
America grows. In order to attract and retain Internet users, advertisers and
electronic commerce partners, we intend to increase substantially our
expenditures for creating and maintaining brand loyalty.
Our success in promoting and enhancing the PICK Sat and PICK Online.Com
names will also depend on our success in providing high quality content,
features and functionality. If we fail to promote our name successfully or if
visitors to our network or advertisers do not perceive our services to be of
-16-
<PAGE>
high quality, the value of the names could be diminished. This could have a
material and adverse effect on the business, financial condition and results of
operations.
We will not be able to attract broadcasters if we do not continually enhance and
develop the content and features of our network
To remain competitive, we must continue to enhance and improve our
content. In addition, we must:
o continually improve the responsiveness, functionality and features
of our network; and
o develop other products and services that are attractive to users and
advertisers.
We may not succeed in developing or introducing features, functions,
products and services that users and advertisers find attractive in a timely
manner. This would likely reduce our visitor traffic and materially and
adversely affect our business, financial condition and results of operations.
If we fail to establish and maintain strategic relationships with content
providers, electronic commerce merchants and technology providers, we may not be
able to attract and retain users
Our business depends on establishing relationships with leading content
providers, electronic commerce merchants, and technology and infrastructure
providers. Because most of our agreements with these third parties including,
Microsoft and Philips, are not exclusive, our competitors may seek to use the
same partners as we do and attempt to adversely impact our relationships with
our partners. We might not be able to maintain these relationships or replace
them on financially attractive terms. If the parties with which we have these
relationships do not adequately perform their obligations, reduce their
activities with us, choose to compete with us or provide their services to a
competitor, we may have more difficulty attracting and maintaining visitors to
our network and our business, financial condition and results of operations
could be materially and adversely affected. Also, we intend to actively seek
additional relationships in the future. Our efforts in this regard may not be
successful.
Unexpected network interruptions caused by system failures may result in reduced
visitor traffic, reduced revenue and harm to our reputation
The Internet has been subject to:
o system disruptions;
o inaccessibility of networks;
o long response times;
o impaired quality; and
o loss of important reporting data.
Although we will continue to improve our network, we may not be
successful in avoiding the above disruptions. If we experience delays and
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<PAGE>
interruptions, visitor traffic may decrease and our name could be adversely
affected.
While we have designed our new network operating center in Miami,
Florida, which is still under construction, to safeguard our systems against
damage from fire, hurricanes (which are common where we are based), power loss,
telecommunications failure, break-ins or other events, such events could have a
material adverse effect on our business, financial condition and results of
operations.
Concerns about security of electronic commerce transactions and confidentiality
of information on the Internet may reduce the use of our network and impede our
growth
A significant barrier to electronic commerce and confidential
communications over the Internet has been the need for security. Internet usage
could decline if any well-publicized compromise of security occurred. We may
incur significant costs to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Unauthorized persons could attempt
to penetrate our network security. If successful, they could misappropriate
proprietary information or cause interruptions in our services. As a result, we
may be required to expend capital and resources to protect against or to
alleviate these problems. Security breaches could have a material adverse effect
on our business, financial condition and results of operations.
Computer viruses may cause our systems to incur delays or interruptions and may
adversely affect our business
Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses
could expose us to a material risk of loss or litigation and possible liability.
Moreover, if a computer virus affecting our system is highly publicized, our
reputation could be materially damaged and our visitor traffic may decrease.
Year 2000 problems may disrupt our internal operations
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Therefore, the year 2000
will appear as "00", which the system might consider to be the year 1900 rather
than the year 2000. This could result in system failures, delays or
miscalculations causing disruptions to our operations. Our failure to correct a
material Year 2000 problem could have a material adverse effect on our business,
financial condition and results of operations.
We have reviewed our software and current operating systems and believe
that they are Year 2000 compliant. We are currently conducting an inventory, and
developing testing procedures, for all software and other systems that we
believe might be affected by Year 2000 issues. Since third parties developed and
currently support many of the systems that we use, a significant part of this
effort will be to ensure that these third-party systems are Year 2000 compliant.
We plan to confirm this compliance through a combination of the representation
by these third parties of their products' Year 2000 compliance, as well as
specific testing of these systems.
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<PAGE>
We may become subject to burdensome government regulations and legal
uncertainties affecting the Internet which could adversely affect our business
To date, governmental regulations have not materially restricted use of
the Internet in our markets. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. Uncertainty and new
regulations could increase our costs of doing business and prevent us from
delivering our products and services over the Internet. The growth of the
Internet may also be significantly slowed. This could delay growth in demand for
our network and limit the growth of our revenues.
In addition to new laws and regulations being adopted, existing laws
may be applied to the Internet. New and existing laws may cover issues which
include:
o sales and other taxes;
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
o libel and defamation;
o copyright, trademark and patent infringement;
o pornography; and
o other claims based on the nature and content of Internet materials.
We may become subject to claims regarding foreign laws and regulations which may
be expensive, time consuming and distracting
Because we have employees, property and business operations in the
United States and eventually throughout Latin America, we are subject to the
laws and the court systems of many jurisdictions. We may become subject to
claims based on foreign jurisdictions for violations of their laws. In addition,
these laws may be changed or new laws may be enacted in the future.
International litigation is often expensive, time consuming and distracting.
Accordingly, any of the foregoing could have a material adverse effect on our
business, financial condition and results of operations.
Unauthorized use of our intellectual property by third parties may adversely
affect our business
We regard our copyrights, service marks, trademarks, trade secrets and
other intellectual property as critical to our success. Unauthorized use of our
intellectual property by third parties may adversely affect our business and our
reputation. We rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our intellectual property rights.
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<PAGE>
Despite our precautions, it may be possible for third parties to obtain and use
our intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries are uncertain or do not protect intellectual property rights
to the same extent as do the laws of the United States.
We may be subject to claims based on the content we provide over our network
The laws in the United States and in Latin American countries relating
to the liability of companies which provide online services, like ours, for
activities of their visitors are currently unsettled. Claims have been made
against online service providers and networks in the past for defamation,
negligence, copyright or trademark infringement, obscenity, personal injury or
other theories based on the nature and content of information that was posted
online by their visitors. We could be subject to similar claims and incur
significant costs in their defense.
We may be subject to claims based on products sold on our network
We expect to enter into arrangements to offer third-party products and
services on our network under which we may be entitled to receive a share of
revenues generated from these transactions. These arrangements may subject us to
additional claims including product liability or personal injury from the
products and services, even if we do not ourselves provide the products or
services. These claims may require us to incur significant expenses in their
defense or satisfaction. While our agreements with these parties often provide
that we will be indemnified against such liabilities, such indemnification may
not be adequate.
Although we carry general liability insurance, our insurance may not
cover all potential claims to which we are exposed or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance coverage could
have a material adverse effect on our business, financial condition and results
of operations or could result in the imposition of criminal penalties. In
addition, the increased attention focused on liability issues as a result of
these lawsuits and legislative proposals could impact the overall growth of
Internet use.
Our success depends on key personnel and we may not be able to replace key
personnel who leave
The development of new Internet products and services or improvements
of our existing products depends on the efforts of our Chairman, Diego Leiva, as
well as certain other officers. If we lose any of these person's services for
any reason we expect it would have a material adverse effect on us. We have
obtained a $1 million key-man life insurance policy on Mr. Leiva's life. Our
future success is dependent on, among other factors, the successful recruitment
and retention of key personnel for sales, marketing, finance and operations.
Competition for skilled and technical talent is intense. We cannot assure you
that we will be successful in attracting and retaining such personnel. If we
fail to retain existing key employees or hire new employees when necessary we
could potentially be adversely effected.
-20-
<PAGE>
Our need to comply with government regulations can increase our costs and slow
our growth
Long distance telecommunication services are subject to regulation by
the Federal Communications Commission (the "FCC") and by state regulatory
authorities. Among other things, these regulatory authorities impose regulations
governing the rates, terms and conditions for interstate and intrastate
telecommunication services. The federal law governing regulation of interstate
telecommunications are the Communications Acts of 1934 and 1996 (the
"Communications Acts"), which applies to all "common carriers," including AT&T,
Worldcom/MCI and Sprint, as well as ourselves, 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. We believe we have filed
all required tariffs with the FCC.
In addition to federal regulation, resellers of long distance services
may be subject to regulation by the various state regulatory authorities. The
scope of such regulation varies from state to state, with certain states
requiring the filing and regulatory approval of various certifications and state
tariffs.
We believe that we are in substantial compliance with all material
laws, rules and regulations governing our operations and have obtained or are in
the process of obtaining all licenses, tariffs and approvals necessary for the
conduct of our business. In the future, legislation enacted by Congress, court
decisions relating to the telecommunications industry, or regulatory actions
taken by the FCC or the states in which we operate could have a negative impact
on our business. Changes in existing laws and regulations, particularly
relaxation of existing regulations resulting in significantly increased price
competition, may have a significant impact on our activities and on our
operating results. Adoption of new statutes and regulations and our expansion
into new geographic markets could require us to alter our methods of operations,
at costs which could be substantial, or otherwise limit the types of services we
offer. We cannot assure you that we will be able to comply with additional
applicable laws, regulations and licensing requirements.
Risks Involving Our Stock
Investors will not be able to exert control over us
We currently have approximately 5.3 million shares of Common Stock
outstanding. The holders of our Series B and Series D Convertible Stock, which
includes directors and affiliates of the Company, are entitled to vote
approximately 3 million shares on an as converted basis, and there are
approximately 7-8 million additional shares issuable on a fully diluted basis.
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<PAGE>
We are attempting to raise additional funds at prices significantly lower than
our current fair market value. Therefore, our preferred stockholders are
expected to have the ability to elect all of our directors and to control the
outcome of all other issues submitted to our stockholders.
You may have difficulty trading and obtaining quotations for our common stock.
Our common stock is currently traded in the over-the-counter market in
the so-called "pink sheets," and is quoted on the National Association of
Securities Dealers, Inc.'s Electronic Bulletin Board under the symbol "PICK." As
a result of trading in this over-the-counter market, you will likely find it
more difficult to dispose of, or to obtain quotations as to the price of our
common stock.
Our quarterly operating results are not an indication of our future results
because they are subject to significant fluctuations
Our future revenues and results of operations may vary significantly
due to a combination of factors, any of which are outside of our control.
Accordingly, you should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of our future performance. It is possible
that in future periods our results of operations may be below the expectations
of public market analysts, if any, and investors. This could cause the trading
price of our common stock to decline.
Our stock price is likely to be highly volatile and could drop unexpectedly
Following this offering, the price at which our common stock will trade
is likely to be highly volatile and may fluctuate substantially.
In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for the securities of technology companies, particularly Internet companies. As
a result, investors in our common stock may experience a decrease in the value
of their common stock regardless of our operating performance or prospects.
If our stock price is volatile, we may become subject to securities litigation
which is expensive and could result in a diversion of resources
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations.
Our common stock is subject to penny stock regulation
The trading of our common stock is currently subject to SEC rules for
non-Nasdaq and non-exchange listed securities. Under such rules, brokers-dealers
who recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement
-22-
<PAGE>
to a transaction prior to sale. Securities are exempt from these rules if the
market price is at least $5.00 per share.
The SEC has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share subject to certain exceptions.
Such exceptions include equity securities listed on Nasdaq and equity securities
issued by an issuer that has (i) net tangible assets of at least $2,000,000, if
such issuer has been in continuous operation for more than three years, or (ii)
net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average annual revenue
of at least $6,000,000 for the preceding three years, the latter of which tests
we meet. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a risk disclosure schedule
explaining the penny stock market and the risks associated with the penny stock
market.
There are outstanding shares of our common stock eligible for future sale
Of the approximately 5.5 million shares of our common stock outstanding
as of November 1, 1999, approximately 3.4 million are "restricted securities,"
as that term is defined in the Securities Act, and may be sold in compliance
with the provisions of Rule 144.
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors".
This prospectus contains market data related to the Internet. This
market data includes projections that are based on a number of assumptions. The
assumptions include that:
o no catastrophic failure of the Internet will occur;
o the number of people online and the total number of hours spent
online will increase significantly over the next five years;
o the demand for download speed of content will increase dramatically;
and
o Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions turns out to be
incorrect, actual results may differ from the projections based on these
assumptions. The Internet-related markets may not grow over the next three to
four years at the rates projected by these market data, or at all. The failure
of these markets to grow at these projected rates may have a material adverse
effect on our business, results of operations and financial condition, and the
market price of our common stock.
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<PAGE>
The forward-looking statements made in this prospectus relate only to
events as of the date on which the statements are made.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders. If all the warrants and options are
exercised (on a non-cashless exercise basis), we will receive gross cash
proceeds of $3,134,947 less offering expenses of approximately $200,000. No net
offering proceeds will be paid to NASD members, affiliates, associated persons
or related persons. The proceeds may be used to repay indebtedness and for
working capital purposes.
DIVIDEND POLICY
We have no present intention of paying any dividends on our common
stock. We expect that we will retain our earnings, if any, to finance
operations.
The declaration and payment of future dividends to holders of our
common stock will be at the discretion of the Company's Board of Directors and
will depend upon many factors, including the Company's financial condition,
earnings, the capital requirements of its operating subsidiaries, legal
requirements and such other factors as the Board of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
The Company's common stock has been traded in the over-the-counter
market and reported on the OTC Bulletin Board under the symbol "PICK" since
September 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
last two completed fiscal years and the current fiscal year. These prices give
retroactive effect to a one-for-ten reverse split authorized by the Board of
Directors on July 6, 1999, to stockholders of record on July 23, 1999. The
prices represent inter-dealer quotations, without retail mark-up, mark down or
commission, and may not represent actual transactions.
Bid Prices
-----------------------------------
Period High Low
------ ---- ---
Fiscal Year 1997
----------------
First quarter $7.80 $1.60
Second quarter 3.30 1.20
Third quarter 2.70 0.50
Fourth quarter 5.10 1.50
Period High Low
------ ---- ---
Fiscal Year 1998
----------------
First quarter $5.10 $1.90
Second quarter 10.50 4.10
Third quarter 8.80 4.20
Fourth quarter 9.30 3.90
Fiscal Year 1999
----------------
First quarter $15.20 $3.60
Second quarter $28.75 $7.30
Third quarter $8.20 $1.625
As of October 31, 1999 we had 5,250,000 shares of common stock issued
and outstanding and approximately 450 record holders of the common stock.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its Subsidiaries as of June 30, 1999 (unaudited), and as adjusted, giving
effect to the exercise of all warrants and options pursuant to which the common
stock offered hereby will be issued and the Company's receipt of net proceeds of
approximately $2,934,947.
<TABLE>
<CAPTION>
June 30, 1999
(unaudited)
----------------------------------
Actual As Adjusted(1)
--------- -----------
<S> <C> <C>
Cash $ 465,915 $3,400,862
========= ==========
Debt obligations:
Long-term Liabilities from discontinued operations 1,042,716 1,042,716
18% Senior Secured Notes 9,880,000 52,990(2)
10% Senior Secured Amended Notes
with interest -0- 10,439,022(2)
Stockholders' (deficit):
Preferred Stock, par value $.001; authorized 10,000,000 shares:
2,000,000 shares designated as Series B Convertible Preferred Stock,
aggregate liquidation value $1,871,000, issued and outstanding 1,871,000
shares, and 1,871,000 shares on a pro forma basis 1,871,000 1,871,000
500,000 shares designated as Series D Convertible Preferred Stock,
aggregate liquidation value $5,000,000, issued and outstanding, 466,000,
and 500,000 shares on a pro forma basis 4,660,000 4,660,000
Common stock, par value $.01;
40,000,000 shares authorized, actual and as adjusted,
respectively; 4,402,698 shares issued and outstanding at June 30, 1999 and
5,611,958 shares, as adjusted (2) 44,062 56,119
Additional paid-in capital 75,367,972 78,220,879
Options and Warrants 2,720,071 2,720,071
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated deficit (105,835,024) (105,835,024)
------------ -----------
Stockholders' deficiency (21,183,897) (18,248,950)
------------ -----------
Total capitalization $(10,261,181) $(6,714,222)
============ ===========
</TABLE>
- -------------
(1) As adjusted gives effect to the exchange of $9,830,000 of l8% Senior Secured
Notes for 10% Senior Secured Amended Notes and the 200,000 shares of common
stock issued as placement cost for that transaction.
(2) Includes accrued interest of $612,012 reclassified as non-current for the
"as adjusted" amount. Includes an aggregate of 709,260 shares of common
stock upon exercise of all warrants and 500,000 shares of common stock upon
exercise of all options offered hereby. Does not include any shares issuable
upon exercise of warrants or stock options outstanding as of the date of
this prospectus.
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth the selected historical financial data
of the Company for each of the preceding five years ended December 31, 1998 and
for the six-month periods ended June 30, 1999 and 1998. The selected financial
information for and as of the years ended December 31, 1997, 1996, 1995 and 1994
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 selected financial information for
and as of the year ended December 31, 1998 have been audited by Goldstein Golub
Kessler LLP. The Consolidated Balance Sheets as of December 31, 1998 and 1997
and the Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996 and the accountants' reports thereon are included elsewhere
in this Report. The selected historical data for each of the six-month periods
ended June 30, 1999 and 1998 are derived from the unaudited interim consolidated
financial statements of the Company. In the opinion of management, the interim
consolidated financial statements reflect all adjustments (consisting only of
normal and recurring adjustments necessary to fairly present the information
presented for such periods). The interim consolidated financial statements are
not necessarily indicative of the results to be expected for the full year. The
selected historical financial data presented herein are qualified in their
entirety by, and should be read in conjunction with, the Company's Consolidated
Financial Statements and Notes thereto included herein.
Six Months Ended June 30,
(unaudited)
----------------------------
1999 1998
---- ----
Cost and expenses $ 2,118,013 $ 468,410
------------ -------------
Loss before minority
interest in subsidiary loss,
income taxes and discontinued
operations (2,118,013) (468,410
------------ ------------
Minority interest in
subsidiary loss -- 914
Provision for
income taxes -- (880)
Loss from discontinued
operations (4,364,730) (2,308,451)
Loss on disposal (47,108,711) --
------------ ------------
Net loss $(53,591,454) $ (2,776,827)
============ ============
Beneficial conversion
feature of preferred stock (25,170,000) --
------------ ------------
Net loss applicable to
common stock $(78,761,454) $ (2,226,827)
============ ============
Net loss per common share - basic $ (18.39) $ (.76)
============ ============
Weighted-average shares
outstanding-basic 4,281,860 3,633,975
============ ============
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<PAGE>
Balance Sheet Data:
At June 30,
------------
(unaudited)
1999 1998
------------ ------------
Working capital
(deficiency) $(16,715,093) $ (9,895,211)
============ ============
Total Assets $ 7,685,842 $ 2,522,592
============ ============
Current Liabilities $ 17,801,005 $ 10,805,819
============ ============
Long-term liabilities $ 10,922,716 $ 1,182,609
============ ============
Stockholders' deficiency $(21,183,897) $ (9,553,002)
============ ============
-27-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cost and expenses $ 2,139,830 $ 399,448 $ 607,890 $ -- $ --
Other income (expense) (133,000) (9,890,284) 8,436,809 -- --
------------ ------------ ----------- ----------- -----------
Income (loss) before minority
interest in subsidiary loss,
income taxes and discontinued
operations (2,272,830) (10,289,732) 7,828,919
Minority interest in
subsidiary loss 2,062 434,064 260,541 37 --
Benefit (provision) for
deferred income taxes -- 1,808,000 (1,808,000) -- --
Loss from discontinued operations (14,792,541) (1,452,134) (4,645,670) (1,071,078) (1,250,580)
------------ ------------ ----------- ----------- -----------
Net loss $(17,063,309) $ (9,499,802) $ 1,635,790 $ (1,071,041) $(1,250,580)
=========== ============ =========== ============ ===========
Net income (loss) per
common share - basic $ (4.62) $ (2.57) $ 0.39 $ (0.26) --
============ ============ =========== ============ ===========
Weighted-average shares
outstanding-basic 3,692,356 3,695,853 4,199,150 4,044,252 --
============ ============ =========== ============ ===========
Balance Sheet Data:
At December 31,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
Working capital
(deficiency) $(14,677,342) $ (7,405,608) $(3,152,216) $(1,074,159) $(1,127,590)
============ ============ =========== =========== ===========
Total Assets $ 6,791,156 $ 1,817,513 $ 8,917,149 $ 2,449,024 $ 319,835
============ ============ =========== =========== ===========
Current Liabilities $ 16,241,801 $ 8,027,642 $ 6,582,429 2,679,923 $ 1,341,521
============ ============ =========== =========== ===========
Long-term liabilities $ 10,815,216 $ 794,905 $ -- $ 400,000 $ --
============ ============ =========== =========== ===========
Stockholders' equity
(deficiency) $(20,351,879) $ (7,093,114) $ 869,579 $ (846,407) $(1,021,686)
============ ============ =========== =========== ===========
</TABLE>
-28-
<PAGE>
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.
Material Changes in Results of Operations
On June 23, 1999, the Company's Board of Directors voted to sell or
discontinue the long distance telephone service and prepaid calling card
business portions of its business in order to focus on the Internet services
portion of its business conducted through its PICKSat, Inc. ("PICK Sat") and
PICK Online.Com, Inc. ("PICK Online") subsidiaries. Accordingly, the financial
statements reflect the discontinuance of the Company's PICK US, Inc., PICK Net
Inc., and PICK Net UK PLC. subsidiaries.
In 1999, the Company, through its wholly owned subsidiary, PICK Sat
commenced development of a system to multicast the delivery of Internet Protocol
multi-media content via satellite. Also in March 1999, the Company formed PICK
Online to provide broadband Internet content to users. PICK Sat and PICK Online
are in the development stage and have not generated any revenues to date.
For PICK Sat business, the Company will charge its customers monthly
recurring fees based on type of usage and bandwidth contracted for and may
charge an additional amount per reception location. PICK Online expects to
charge a per subscriber or per site fee to its customers in order for them to
receive the broadband content.
The discontinued subsidiaries generated revenues from the sale of
telecommunication services. These included international long distance service
to carriers and resellers, and revenues derived from prepaid telephone calling
cards to distributors for resale to retail outlets.
The Company's costs of sales for the discontinued operations primarily
consist of the cost of telephone services, for both the resale of international
long distance services and for prepaid telephone calling cards.
For the resale of international long distance, the Company recognized
revenues from discontinued operations as its customers used the traffic. For
prepaid telephone calling cards sales, the Company recognized revenues from
discontinued operations at the time it provided the telephone services
associated with its cards and recognized the cost from discontinued operations
of the carrier telephone traffic based on the minutes used in the same periods
that the Company recognized revenues from discontinued operations.
Six Months Ended June 30, 1999 Compared with June 30, 1998
Revenues From Discontinued Operations:
The Company's continuing operation's, PICK Sat and PICK Online have yet
to commence commercial operations and as such have not had any revenues.
Costs and Expenses:
Selling, general and administrative expenses increased to $2,075,703
for the six months ended June 30, 1999 from $455,217 for the six months ended
June 30, 1998. PICKSat was in the organizational phase through the end of the
second quarter of 1998 and as such had nominal expenditures in the six months
ended June 30, 1998. Approximately $900,000 of the increase is
attributable to the newly formed subsidiaries, PICK Sat and PICK Online's
start-up and development expenses. The Company also had a significant increase
in salaries, outside consultants, accounting, legal, travel and public relations
expense. Contemporaneous with the Board's decision to sell or discontinue its
telecommunications operations, and layoff or fire the associated personnel, it
needed to retain outside professional services on an interim basis to handle the
functions previously performed by salaried employees. Preparation of public
filings and the negotiation of debt arrangements gave rise to the majority of
the increase in expenses.
-29-
<PAGE>
On September 17, 1999, the Company agreed to sell its PICK Net
operations to Lebow Investments Ltd., a recently formed corporation ("Lebow").
Lebow agreed to be financially responsible for the PICK Net operations which
have begun to receive funding to continue operations. The closing of this
transaction is scheduled to occur in November 1999 subject to obtaining
necessary approvals and consents, however, there can be no assurance this
transaction will be completed. See "Liquidity and Capital Reserves" below.
Discontinued Operations
Total revenues amounted to approximately $5,380,000 for the six months
ended June 30, 1999, compared to approximately $2,277,000 for the six months
ended June 30, 1998, an increase of approximately $3,103,000 prior to the
discontinuance of operations. (See Note 9 of Notes to Consolidated Financial
Statements for operating results of the discontinued operations.) The Company
significantly curtailed its operations during the first half of 1998, while it
installed and tested two, leased Siemens Digital Central Office Switches. These
switches replaced switching services previously purchased from third party
vendors. Consequently, the Company decided to curtail its marketing efforts for
the sale of international long distance services until it completed this
installation and until it had the capability to deliver traffic through Gulfsat.
Therefore, for the six months ended June 30, 1999, the Company generated
international long distance revenue of $3,164,030, compared with $963,018 for
the six months ended June 30, 1998. Prepaid telephone calling card revenues were
$2,215,485 for the six months ended June 30, 1999, compared to $1,313,495 for
the six months ended June 30, 1998. This latter increase is attributable to
sales to Blackstone Calling Card, Inc. ("Blackstone") under the Company's
agreement with Blackstone, a major marketer and distributor of prepaid telephone
calling cards.
In the discontinued operations, the cost of telephone time purchased
increased from $3,148,694 to $6,835,866. Due to Gulfsat's inability to provide
countries as originally anticipated, these costs increased by a greater amount
than the sales generated by the Company due primarily to the Company's inability
to obtain preferential rates from the common carriers. Additional increases
resulted primarily from the processing costs arising from the increased prepaid
telephone calling card activity sold through Blackstone and long-distance
services.
Loss from Operations:
The Company's loss from continuing operations increased from $468,410
to $2,118,013 primarily due to the increases in aggregate salaries, selling,
general and administrative costs as PICK Sat and PICK Online continued the
development of their products and offerings and as PICK Sat began to move into
the commercial deployment phase and other expenses as discussed under "Costs and
Expenses" above.
Loss from discontinued operations increased from $2,308,451 for the six
months ended June 30, 1998 to $4,364,730 for the six months ended June 30, 1999,
primarily due to the increase in costs discussed above. The Company also
recorded an additional loss on the disposal of the discontinued operations in
the amount of $47,108,711. Of this amount, $46,033,711 is attributable to the
writing off of the deferred interest and debt placement charges of the
restructured notes which amounts are related to the discontinued operations and
therefore will provide no future benefit. See Note 5 of Notes to Consolidated
Financial Statements.
Year Ended December 31, 1998 as Compared with Year Ended December 31, 1997
Total revenues from discontinued operations amounted to $9,822,903 for
the twelve months ended December 31, 1998 ("1998") compared to $9,015,903 for
the twelve months ended December 31, 1997 ("1997"). The Company significantly
curtailed its operations during the first half of 1998, while it installed and
tested two leased Siemens Digital Central Office Switches. Consequently, the
Company decided to curtail its marketing efforts for the sale of international
long distance services until the switches were installed and enough countries
were hooked into the Gulfsat network to give the Company the capability to
deliver competitively priced traffic through Gulfsat. For 1998, the Company
generated international long distance revenue from discontinued operations of
$1,978,441, compared with $7,669,243 for 1997, a decrease of $5,690,802 or 74%.
Prepaid telephone calling card revenues from discontinued operations were
$7,844,462 for 1998, compared to $1,346,660
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<PAGE>
for 1997. This represents an increase of $6,497,802, or 483%. This increase
reflects beginning of the Blackstone Agreement, even at lower than anticipated
levels.
The cost of telephone time purchased from discontinued operations
increased from $8,326,318 to $13,322,978, an increase of $4,996,660. These costs
increased by 60%, even though revenues declined by 74%, primarily due to the
costs of long distance arising from the usage of prepaid telephone calling cards
sold through Blackstone. Other cost of sales from discontinued operations
increased from $762,431 to $3,069,566 primarily due to the fixed costs
associated with the Company's newly developed network and processing costs
arising from the increased prepaid telephone calling card activity. In 1997, the
cost of sales from discontinued operations benefitted from the reversal of
$649,563, representing a portion of a previous provision for contingent costs.
The Company's selling, general and administrative expenses from
continuing and discontinued operations were $3,880,100 for 1998, compared to
$1,836,829 for 1997, reflecting an increase of $2,043,271, or 111%. This
increase is primarily due to increases in staffing.
The interest and debt placement expenses from discontinued operations
increased significantly from the prior year due to the substantial increase in
the amount of short-term debt placed in 1998.
Year Ended December 31, 1997 as Compared with Year Ended December 31, 1996
Total revenues from discontinued operations amounted to $9,015,903 for
the twelve months ended December 31, 1997 ("1997") compared to $5,869,682 for
the twelve months ended December 31, 1996 ("1996"). This represents an increase
of $3,146,221, or 54%. For 1997, the Company generated international long
distance revenue from discontinued operations of $7,669,243 compared to
$4,444,342 for 1996; the international long distance business began in May of
1996. Prepaid telephone calling card revenues from discontinued operations were
$1,346,660 for 1997, compared to $1,425,340 for 1996. This represents a decrease
of $78,680, or 5.5%. This decrease reflects reductions in the Company's
advertising and market changes which have resulted in product returns and
reductions in repeat sales of calling cards.
The direct costs from discontinued operations of international long
distance and calling card services amounted to $9,088,749 (which excludes a
$649,563 credit arising from reversal of a portion of the previously-provided
contingency reserve related to billing disputes with AT&T - see Note 13 of Notes
to the Consolidated Financial Statements) for 1997 compared to $6,401,231 (which
excludes a $1,749,563 provision for contingent costs provided related to billing
disputes with AT&T) for 1996. As a result, the gross margin was negative 0.8% of
revenues for 1997, compared to a negative gross margin of 9.1% in 1996.
Including the adjustments to the contingency reserve, gross margin would be 6.4%
for 1997 and negative 38.9% for 1996.
The decrease in selling and marketing expenses were a direct result of
a reduction in product advertising, largely due to market changes. The general
and administrative costs increased primarily due to a need for increased outside
professional assistance. In addition, there was a modest increase in personnel
cost. Bad debt expense increased primarily because of the bankruptcy of one of
the Company's international long distance customers.
The Company's loss from continuing operations and discontinued
operations improved from $5,233,758 for 1996 to $1,693,913 for 1997. The primary
reasons for this improvement are (i) improvement in gross margin (other than
changes to the contingency reserve) of approximately $460,000, (ii) changes in
amounts charged to the contingency reserve of approximately $2,400,000 and (iii)
reductions in advertising expenses of approximately $1,040,000, offset by
increases in general and administrative expenses (primarily rent, salaries and
professional fees) of approximately $350,000. Absent changes in charges to the
contingency reserve, the Company's operating loss would have improved by
approximately $1,140,000.
The Company recognized approximately $9,900,000 in non-cash,
non-operating losses in 1997 from losses from disposition of marketable equity
securities and a write-off of
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<PAGE>
the Company's investment in prepaid cellular telephone technology. The Company
recognized approximately $8,400,000 in non-cash, non-operating income in 1996
from gains on disposition of marketable equity securities and a one-time license
fee related to the Company's prepaid cellular telephone technology.
The Company initially did not report any gains or losses on the
disposition of the marketable equity securities referred to above, as the
Company believed that it was not appropriate to recognize losses on the
acquisition of its and its subsidiary's common stock or on exchange of one
investment in marketable equity securities for another. The Company subsequently
determined that it would have been preferable to record these transactions based
upon the fair value of the assets exchanged, resulting in the recognition of
approximately $9,500,000 in losses.
Liquidity and Capital Resources
Material Changes in Financial Condition from December 31, 1998 to June 30, 1999
We are in need of immediate financing for working capital to finance
its PICK Sat and PICK Online subsidiaries. Neither unit have generated any
revenues to date.
We entered into an option agreement with Atlantic Tele-Network, Inc.
(ATN) to sell them up to a majority of the common stock of PICK Sat, however,
they have advised us that they do not intend to exercise the option. PICK Sat
has obtained interim loans in the amount of approximately $500,000 from ATN for
the Company and its newly formed subsidiaries' operating expenses. The repayment
of this debt, as well as approximately $1,500,000 advanced to PICK Net for
operating expenses in connection with the sale of such business described below
has been guaranteed by PICK Sat. In the event that this transaction is not
completed and we are unable to repay the loans, with third party funding for
which we have no commitments, the assets of PICK Sat may be foreclosed upon.
Should we be unable to obtain interim financing in the near term we will be
forced to cutback or suspend operations and/or seek protection under the
bankruptcy 1aws. Although the Company is in discussions with several sources of
financing, there can be no assurance we will obtain such financing.
Due to the losses discussed above, the Company's working capital
deficit increased from approximately $14,570,000 as of December 31, 1998, to
approximately $16,715,000 as of June 30, 1999, an increase of approximately
$2,145,000, and the stockholders' deficiency changed from approximately
$(20,352,000) at December 31, 1998 to approximately $(21,184,000) at June
30, 1999, an increase in negative net worth of approximately $832,000.
Current assets decreased by approximately $419,000 primarily due to a
decrease in current assets from discontinued operations. Cash increased by
$448,863. This is the remaining cash from the proceeds of the Company's issuance
of Preferred Stock during the second quarter of 1999. Current liabilities
increased by approximately $1,727,000. This increase is largely due to net
increases in accounts payable and accrued expenses as a result of increased
business activity in the newly formed subsidiaries, funding of continued losses
and greater sales volume, and an increase in current liabilities from
discontinued operations offset, in part, by a decrease in deferred revenue for
pre-paid calling cards and a decrease in the current portion of long term debt
of $20,000.
As of June 30, 1999, approximately $17,861,000 of the liabilities of
the Company mature or are subject to payment agreements calling for payment
before the end of 1999. Management is in the process of negotiating with the
largest trade creditors to restructure a substantial portion of this short-term
debt. The Company has reached certain agreements to make a down payment and
convert the balance of the Company's obligation into long-term indebtedness
and/or equity securities of the Company. See Notes 7, 9(a) and 10 of Notes to
Consolidated Financial Statements.
We were able to obtain equity investments totaling $6,481,000 during
the six months ended June 30, 1999. Of the total investments, $1,050,000 was
recorded during the first quarter of 1999 and $5,431,000 was record in the
second quarter of 1999.
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<PAGE>
Due to the restructuring of the $9,900,000 short term notes we recorded
an increase in additional paid in capital of $41,636,097. We also recorded a
beneficial dividend of $25,170,000 associated with the issuance of preferred
stock. Neither of these latter two charges used any cash of the Company.
The Company is pursuing sources of capital in order to repay short-term
indebtedness and to commence operations of its new businesses. While the Company
believes it will be able to continue as a going concern, there can be no
assurance that the Company will be successful.
The Company has elected to divest or terminate its long distance
telephone services subsidiaries. We have recorded a charge to retained earnings
of $47,108,711, as the loss on the discontinuance of the long distance telephone
services and prepaid calling card business. This charge did not affect cash.
The Company has entered into an agreement to divest itself of PICK Net, Inc. and
PICK Net UK, PLC, both of which provide international long distance services to
other carriers and resellers. The Company has terminated marketing and
distributing of prepaid telephone calling cards through PICK US Inc. It plans to
dissolve its PICK US, Inc. unit upon the termination of the liability due to the
outstanding prepaid calling cards. We have entered into a definitive agreement
to sell the stock of the two PICK Net subsidiaries for nominal value and have a
substantial portion of their liabilities assumed, but there can be no assurance
such sale will be concluded. As of November 1, 1999, an aggregate of
approximately $1,500,000 of indebtedness of PICK Net had been paid by a lender.
The Company will transfer operating personnel and its office to the buyer of the
PICK Net subsidiaries. Upon the completion of this sale the operations of the
Company will then be those of PICK Sat and PICK Online.
Material Changes in Cash Flows
Cash increased during the six months ended June 30, 1999, by
approximately $449,000. This increase is attributable to use of cash in
operating activities and investing activities of approximately $4,719,000 and
$1,213,408, respectively, offset by cash provided by financing activities of
approximately $6,381,000 as described below.
Cash Flows from Operating Activities
Operating activities used approximately $4,719,000 in cash for the six
months ended June 30, 1999, compared with cash provided of approximately
$386,000 for the six months ended June 30, 1998. For the six months ended June
30, 1999, the Company incurred a net loss of approximately $53,591,000, as
compared to approximately $2,777,000 for the six months ended June 30, 1998. The
net loss for the six months ended June 30, 1999 included a loss on disposal of
discontinued operations of approximately $47,109,000. This loss of disposal
included a non-cash debt restructuring charge of approximately $41,636,000 (See
Note 5 of Notes to Consolidated Financial Statements) that related to the
businesses being discontinued; the issuance of stock, options and warrants
issued for services in the amount of approximately $4,722,000; none of which
included a cash expense. The increased use of cash in operations also resulted
from the Company's increased sales from discontinued operations in the prepaid
calling card business under the Blackstone Agreement and sales from discontinued
operations of long distance services, which was partially offset by an increase
in accounts payable and accrued expenses.
Cash Flows from Investing Activities
The Company's capital expenditures of approximately $1,213,000 for the
six months ended June 30, 1999 increased over the six months ended June 30, 1998
by $10,133. This increase is attributable primarily to the Company's continued
development of the satellite-based Internet access, interactive multimedia
structures for its PICK Sat and PICK Online subsidiaries.
Cash Flows from Financing Activities
During the six months ended June 30, 1999, the Company had net cash
provided by financing of approximately $6,381,000, as compared to repayments of
approximately $345,000 for the six months ended June 30, 1998. The proceeds are
from the issuance of the Series
-33-
<PAGE>
B and Series D preferred stock during the six months ended June 30, 1999
compared to the repayments of various debts to third parties and shareholders
for the six months ended June 30, 1998. The 1999 amounts were offset by loan
repayments and cost attributable to the issuance the preferred stock.
At December 31, 1998
The Company's 1998 net loss of $17,063,309 generated negative cash
flow from operations of $5,073,495 for 1998, compared with negative cash flow
from operations of $419,672 and $1,218,381 for 1997 and 1996, respectively.
Due to the losses discussed above, the Company's working capital
deficiency increased from $7,405,608 at December 31, 1997 to $14,677,342 at
December 31, 1998 (an increase in the working capital deficiency of $7,271,734.
The Company's net worth changed from a negative $7,093,114 at December 31, 1997
to a negative $20,351,879 at December 31, 1998 (an increase in negative net
worth of $13,258,765).
Current assets increased by $942,425 from December 31, 1997 to 1998,
primarily due to increases in cash, accounts receivable, and prepaid expenses
and other current assets. Current liabilities increased by $8,214,159 largely
due to net increases in debt, accounts payable, deferred revenue and other
current liabilities.
As of December 31, 1998, the Company had committed approximately
$690,000 to license computer software, payments for which will be due in 1999.
The Company significantly increased its' capital spending in property
and equipment to $3,817,153 in 1998 from $6,510 in 1997. These expenditures were
to support the development of the Company's international long distance
telephone and high speed broadband Internet service businesses.
Between July 29 and September 8, 1998, the Company sold an aggregate of
99 Units in a bridge loan (the "July Bridge Loan") for gross proceeds of
$9,900,000. A portion of the net proceeds of the July Bridge Loan was used to
repay a $1,000,000 unsecured bridge loan incurred in April 1998 and a $575,000
bank loan which bore interest at 8% above the bank's prime rate. Upon repayment
of the Bank Loan, the Bank released its security interest and a security
interest on the Company's assets was filed on behalf of the investors in the
July Bridge Loan. In November 1998, the interest rate of the July Bridge Loan
was increased retroactively to 18% and the maturity date of the promissory notes
evidencing the loan (the "Notes") was extended to April 27, 1999.
All but $20,000 of the Noteholders consented to a restructuring (the
"Restructuring") to amend their Notes (the "Amended Note"), for which the
Company has agreed for a two-year period to allow each consenting Noteholder to
(a) exchange one-tenth of a share of common stock for each warrant issued in
connection with the original issuance of the Notes, and (b) either receive one
share of common stock for every ten dollars principal amount of Notes amended,
or alternatively elect to have the conversion price of the Amended Note reset to
$5.00 per share. Commonwealth, and/or its designees, as agent for the
Noteholders was paid 200,000 shares, plus warrants exercisable at $13.75 per
share to purchase 50,000 shares, and the exercise price of warrants previously
issued to Commonwealth was reduced from $5.00 to $1.00 per share.
The maturity date of the Amended Notes is April 27, 2002. Each Amended
Note is convertible at any time at the option of the holder thereof into shares
of common stock at $10.00 per share, subject to adjustment under certain
circumstances at the first anniversary date of the Restructuring. In addition,
the Company shall have the option to extend the maturity date for one additional
year, in which event the Conversion Price shall be subject to adjustment.
The Amended Notes shall be automatically converted into shares of
common stock in the event that the closing bid price for the common stock has
exceeded $15.00 per share for 20 consecutive trading days. Commonwealth shall be
entitled to designate one nominee to the Board and the Noteholders shall have
the right to nominate one person to a reconstructed Board consisting of a
majority of independent directors.
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<PAGE>
During March 1999, the Company authorized the issuance of Series B and
Series D convertible preferred stock totaling 2,500,000 shares. The Series B
Convertible Preferred Stock has a liquidation preference of $1.00 per share and
is convertible into shares of common stock at the rate of $1.00 per share.
During March and April 1999, the Company sold $1,871,000 of Series B Convertible
Preferred Stock convertible into 1,871,000 shares of common stock. The Series D
Convertible Preferred Stock has a liquidation preference of $10.00 per share and
is convertible into shares of common stock at the rate of $4.20 per share.
Commencing in April 1999, the Company sold $5,000,000 of Series D Convertible
Preferred Stock convertible into 1,190,489 shares of common stock along with
warrants to purchase 70,000 shares of Common Stock. Both of these offerings have
been completed.
Year 2000 Compliance
Many older computer software programs recognize only the last two
digits of the year and date (e.g.: "98 for "1998"). These programs were designed
and developed without considering the impact of the upcoming change in century.
If the software is not reprogrammed or replaced, many computer applications
could fail or create erroneous results by or at the Year 2000. The Year 2000
("Y2K") issue refers to possible events resulting directly or indirectly from
the inability of digital computer equipment or software to accurately and
without interruption handle dates both before and after January 1, 2000.
The Company has reviewed its software and current operating systems and
believes that they are Y2K compliant. The Company primarily utilizes operating
systems obtained from Microsoft, which the Company believes, based on
information provided by Microsoft, are Y2K compliant. The Company believes that
none of its equipment is date sensitive or otherwise uses imbedded computer
chips. Accordingly, the Company does not believe that imbedded chip technology
will present any Y2K issues. The Company is, however, checking its equipment to
verify this as part of its overall Y2K program. The Company expects that the
costs of achieving internal Y2K compliance will not have a material adverse
impact on results of operations, liquidity or capital resources.
The risk to the Company resulting from the failure of suppliers,
customers and other third parties to attain Y2K readiness is the same as other
companies in its industry or other business enterprises generally. The Company
has initiated a program of formally contacting its suppliers and customers to
identify any potential disruption due to Y2K. The Company expects to resolve any
significant Y2K issues before the occurrence of any business disruptions,
although the Company has limited or no control over the actions of its suppliers
and customers.
The Company expects to identify and adequately prepare for all
significant internal Y2K issues that could adversely affect its business
operations. The Company does not expect the cost of resolving such issues will
have a material impact on its financial position, results of operations or
liquidity. The Company does not believe that it is possible, with complete
certainty, to identify all potential Y2K issues that may affect the Company, its
suppliers and its customers. While the Company believes that its overall efforts
are adequate to address the Y2K issues, there can by no guarantee that all
internal systems as well as those of third parties on which the Company relies,
will converted on a timely basis. These unknown or unresolved Y2K issues may
have a materially adverse affect on the Company's business, financial condition,
cash flows and operations.
CHANGE IN ACCOUNTANTS
Effective September 17, 1998, Goldstein Golub Kessler LLP ("GGK") were
engaged as the Company's independent accountants for the 1998 fiscal year. The
change in the independent accountants has been approved by the Company's Board
of Directors. Upon the engagement of GGK, the Company dismissed Durland &
Company, CPAs, P.A. (the "Former Accountants"), its independent accountant for
the years ended December 31, 1996 and 1997. The Company had no disagreements
with its current and former accountants on accounting and financial disclosures.
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BUSINESS
PICK Communications Corp. ("PICK" or the "Company") was incorporated in
April 1984 under the laws of the State of Utah as S.T.V., Inc. 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 l2, 1995, Prime executed a Stock Purchase Agreement to
exchange 16,500,000 shares of Prime's common stock for all of the common stock
and warrants of Public Info/Comm. Kiosk, Inc. ("Kiosk"), which made Kiosk a
subsidiary of Prime. Kiosk was incorporated under the laws 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" or "PICK"
hereinafter include the business and operations of Kiosk prior to the September
12, 1995 transaction and the combined companies thereafter. The transaction was
a reverse acquisition accounted for as a re-organization of Kiosk. On July 6,
1999, the Board of Directors authorized a one-for-ten reverse split to holders
of record on July 23, 1999.
The Company's subsidiary, PICK US Inc., has terminated the marketing
and distribution of prepaid telephone calling cards, its primary business. We
have entered into a definitive agreement to sell the stock of PICK Net Inc. and
PICK Net UK PLC, both of which provide international long distance services to
other carriers and resellers, for nominal value, thereby having up to
approximately $10 million of their liabilities assumed. As of October 31, 1999,
approximately $1,500,000 of indebtedness of PICK Sat had been paid by the buyer.
Although we expect to close this transaction in November 1999, there can be no
assurance we will be successful.
Satellite Delivered Internet Services
PICK Sat has developed an Internet delivery platform that leverages the
inherent benefits of satellite transmission. The PICK Sat platform is an
open-platform capable of transmitting unicast and multicast Internet data.
Unicast data transmission is used to rapidly deploy broadband Internet services
at cost effective prices. Multicast Internet Protocol data is used for the
transmission of: streaming media including radio and video; music, software
downloads; and other asymmetric "streams" of data to multiple locations on the
Internet.
PICK Sat's technologies, which were achieved in collaboration with
Microsoft, Phillips, Harmonic Data, and other partners, also allows for the
delivery of data via satellite directly to routers on the Internet, instead of
moving the data over terrestrial links that exist between these routers.
PICK will market PICK Sat services initially in certain areas in the
United States and Latin America. The initial primary market penetration will be
to cable, both coaxial and wireless, and TV operators who wish to deploy
broadband Internet access to their customers as a value added product. Future
marketing efforts will target backbone Internet service to network Internet
Service Providers ("ISPs"), corporations, telephone companies and other users of
Internet services. The Company has targeted Latin America and certain exurban
areas of the United States because Internet connectivity can be delivered via
satellite at a lower cast than terrestrial Internet service. Further, there is
also a shortage of adequate backbone facilities in Latin America. This results
in slow speeds, poor transmission quality and high prices to end users. PICK
will collect per subscriber fees or fixed monthly site charges from cable
companies, ISPs and other network services companies who use PICK Sat for
Internet service.
PICK Sat multicast services are well suited for distance learning
applications, intra-company video events and large file transfers for
enterprises with multiple sites or remote customers. These applications are
designed to leverage the inherent advantages that satellites bring to the
simultaneous transmission of a message or images to a geographically dispersed
audience. PICK Sat will charge one-time and recurring monthly charges to
commercial distance learning customers and file-transfer customers.
The Company will be unable to complete its' Network Operating Center
("NOC") without additional funding. PICK Sat is operating out of temporary
facilities in Miami, Florida and will be headquartered in a 13,000 sq. ft.
facility in Miami, FL at Koger Park, where an advanced NOC is currently under
construction and is expected to be completed
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during the fall of 1999. This facility will provide ample room for expansion and
anticipated customer transmission requirements. Additionally, a satellite
broadcast dish farm may be constructed next to the building.
In September 1998, Mario J. Pino was appointed as President of this new
subsidiary. Mr. Pino was former General Manager of ZakSat General Trading
Company W.L.L., a corporation formed under the laws of Kuwait to deliver global
direct television, cable television and broadband interactive services, which
was a similar, but closed content provider and delivery system.
The Company is negotiating for satellite transmission arrangements with
satellite operators including New Skies and the Sat Mex subsidiary of Loral and
others. There can be no assurance it will be successful in its efforts.
PICK Sat presently offers customers three different types of service:
broadband Internet service, asymetric Internet backbone services, data delivery
services, and video broadcast services. Broadband Internet service allows cable
TV operators to deploy high speed Internet service to their customers on a cost
effective, turnkey, basis. Internet backbone services allow users requiring
commercial amounts of bandwidth who are located in geographic regions of high
Internet connectivity cost, a cost effective alternative for additional
bandwidth requirements. Data delivery services allow for the simultaneous
distribution of data, video, audio and multimedia files, to single users or
groups of users over a geographically dispersed area. Broadcast delivery
services allow for the delivery of real time audio and video feeds to single
users or groups of users also over a geographically dispersed area.
The PICK Sat system provides real time multicast file delivery via
satellite and has accomplished its intended near term goal of true wide band
broadcast satellite distribution ability. As such, our first customer, Cadena
Latinoamericana de Television, Inc. ("CLT"), is an owner and distributor of
Spanish-language video programming. CLT will utilize a PICK Sat service to
transmit video content in Internet Protocol (IP) format to cable networks and
broadcast television stations in Latin America. CLT is currently using courier
services to send more than 20,000 Betacam cassettes a year to its affiliates.
CLT, using the PICK Sat service, will now transmit video files to affiliate
stations who will receive the files via satellite dish, store them on a server,
and decode them into Betacam format as needed for local playout. The agreement
provides for up-front fees with continuing revenues thereafter. The agreement is
for three years and if successfully completed would provide us with
approximately $2.1 million in revenues.
In addition to the services previously described, PICK Sat has
identified business models which includes: institutional and corporate distance
learning; push technology hosting; newsgroup caching; web page caching; and
secured corporate data file distribution and replication. All of these products
can utilize the same operating platform, personal and technology as PICK Sat's
currently deployed products. Deployment of these products would be subject to
the refinement of the technology, the development of implementation procedures,
the establishment of product pricing and the raising of additional funds to
launch marketing efforts.
Demand for multicast services that can be provided by the PICK Sat
platform continues to grow as margin conscious distributors and media content
companies search for cost effective solutions to deliver the bandwidth hungry
data. PICK Sat is well positioned to begin servicing content providers including
its sister company, PICK Online.Com.
In June 1998, PICK Sat entered into agreements for hardware with
Philips and software with Microsoft for the above-described broadband
interactive service. Pursuant to the Company's strategic agreement with Philips,
the Company obtained the right to use the Philips Clevercast(TM) end-to-end data
broadcasting system and the Philips PC-DVB Digital Receiver Cards designed to be
installed into all modern multimedia PCs and to be integrated into PC software
via the Windows 95, 98 and NT features. This will allow PC desktop users to
receive satellite transmissions of digital data, television audio, high speed
Internet, E-commerce and other multimedia applications. Microsoft provided
software solutions to support PICK Sat's services. This is expected to be among
the first satellite interactive platforms that will use the complete range of
Microsoft's server software solutions. The Company's Commitment to Cooperate
with Microsoft provides for Microsoft
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to license certain equipment and provide technical support, consulting services,
know-how and training to the Company for three years in exchange for a license
fee with an initial platform license fee and monthly fees based on usage.
Microsoft may terminate the commitment to cooperate if the Company does not have
a certain amount of subscribers after two years of commercial operation.
PICK Online.Com
PICK Online.Com, a recently formed subsidiary, is an aggregator and
delivery provider of audio and video streaming content (broadcasts). Utilizing
the PICK Sat platform, PICK Online intends to deliver its content to the "Edge
of the Internet". PICK Sat will provide the satellite-based platform for PICK
Online.Com and will contract for, assemble and broadcast live streams of audio
and video from broadcast radio stations, broadcast TV stations and other
streaming content from anywhere in the world. PICK intends to concentrate
corporate resources first on PICK Sat when funds become available and then PICK
Online.Com. only if substantial additional funding is obtained.
The Company's initial goal will be to offer radio and later TV
stations, the ability to reach an audience as IP Multicasting was intended to,
but in a more effective and economical way. Multicasting is a method of
disseminating an audio or video Internet media stream that is normally made
available from a source to a single end user and instead making it available to
an unlimited number of end users.
Through the use of the PICK Sat platform, PICK Online.Com intends to
present a common sense solution to bringing audio and video streaming to ISPs
and broadband networks such as Cable Modem and Asynchronous Digital Service Line
(ADSL) service providers. Later goals are to further utilize the PICK Sat
platform to provide Internet access and other IP services direct to office and
to home.
Microsoft has been a critical resource in the development of the PICK
Sat platform and PICK Online.Com. Contributions have included migration of
Microsoft Windows NT Server, Microsoft Commercial Internet Server (MCIS) and the
Windows Media Technology onto the PICK Sat platform.
PICK Online.Com will have the ability to deliver IP data directly to
ISPs, LANs, Broadband networks and any other IP end user "node" at the Edge of
the Internet. PICK Online.Com will be the portal for end users to access
multicast radio and TV streaming content. The service will use Microsoft Media
Server to encode signals and multicast them efficiently to Internet Edge points.
End users will be able to listen to or watch a stream via their ISP or Broadband
provided through their Microsoft browser not knowing that the stream is
multicast and delivered via satellite.
Terrestrial technology using increasing quantities of the Internet
backbone has been available for some time, but has only been implemented in a
relatively small number of locations. To work properly, terrestrial multicasting
requires Internet-wide implementation which is both costly and time consuming.
PICK Online.Com "leapfrogs" the Internet infrastructure and delivers streaming
content directly to the Edge of the Internet. This not only gets the streams
there with higher quality, but also without using any of the provider's
expensive and limited backbone bandwidth.
International Long Distance Services
PICK Net Inc. and PICK Net UK PLC (collectively, "PICK Net") are two
separate subsidiaries both providing international long distance services to
other carriers and resellers. Each of these companies is a facilities based,
switched carrier, with wholesale digital licenses.
The Company's subsidiary, PICK US Inc., has terminated the marketing
and distribution of prepaid telephone calling cards, its primary business. We
have entered into a definitive agreement to sell the stock of PICK Net Inc. and
PICK Net UK PLC, both of which provide international long distance services to
other carriers and resellers. for nominal value, thereby having up to
approximately $10 million of their liabilities assumed. Although we expect to
close this transaction in November 1999, there can be no assurance we will be
successful.
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To gain rapid market entry without investment in major capital
expenditures or a technical staff, PICK initially elected to contract for
services with an experienced switch service provider. In 1997 and 1998 PICK
leased and installed two Siemens Telecom Networks Digital Central Office
switches in Jersey City, New Jersey and Miami, Florida as international
gateways. PICK established a technical staff to bring this segment of its
business under direct Company control rather than relying on third party
providers.
PICK Net has organized and developed dedicated networks combining
transatlantic fiber and internationally based transponder facilities with
digital satellite delivery into the Gulf, Central and East Asian and North and
Central African regions in association (see agreement below) with Gulfsat
Communications Company ("Gulfsat"), a Kuwait based satellite telecommunications
firm primarily engaged in providing VSAT (Very Small Aperture Terminal)
solutions world wide. Gulfsat teamed with PICK to transform itself from a closed
network corporate communications provider, to a satellite based, international
long distance voice, data, and multimedia services provider. PICK Net agreed
with Gulfsat, to deploy and implement switches internationally, and for PICK Net
to deploy switches in the United States.
In late 1997, the Company entered into a reciprocal telecommunications
agreement (the "Gulfsat Contract") for international traffic termination in
Africa, the Middle East and Asia, via satellite, with Gulfsat, which agreement,
as amended in March 1998, terminates on February 28, 2003. Under the agreement,
the Company is entitled to terminate up to approximately 70 million minutes per
month in telecommunications services from the United States and Europe into the
above regions, at the most favorable price per minute rates charged by Gulfsat.
Management believed, based on its knowledge of the industry, that these rates
were lower than those currently available to its competitors. However, in the
second half of 1998, the Company became aware of newer, state-of-the-art
technology that would facilitate the transmission of not only voice traffic but
also data and Internet traffic. In order to capitalize on this technology and
maximize the benefit the Company could derive from the Gulfsat Contract, it
became necessary to defer installation. The Company first had to investigate the
companies offering the appropriate asynchronous transmission mode (ATM)
equipment and then, in concert with Gulfsat, select a strategic vendor in this
global effort. The Company and Gulfsat then had to purchase and install the
appropriate telephone switching and compression equipment for the Jersey City,
New Jersey, hub, the United Kingdom and the first of the several destination
countries. To begin installation, the Company required a portion of the proceeds
from the short-term debt financing obtained in the third quarter of 1998 to
purchase this equipment in late 1998. During 1998, the Company was only able to
terminate traffic into one country in the Middle East via Gulfsat and was unable
to satisfy the requirements of its existing customers. The Company believed it
had better long-term prospects in forming PICK Sat and PICK Online.Com and
decided to de-emphasize its PICK Net Services and seek a partner or terminate
those services.
On July 20, 1998, the Company signed an agreement (the "Nortel
Agreement") with Northern Telecom Inc. ("Nortel") pursuant to which the Company
may purchase Nortel equipment. The equipment purchased from Nortel was expected
to significantly increase the capacity of the Company's network and enable the
Company to transition from a traditional, voice-only network to a network which
supports multimedia services and the Internet protocol. The Nortel Agreement
requires that Nortel and Gulfsat, as a network partner of Nortel, refer to the
Company purchasers of Nortel switches who intend to connect to the Gulfsat
system to connect through the Company's switch network. The Company required
additional financing to increase the Company's ability to capitalize on the
Gulfsat agreement and the Company believed there were better opportunities
available for the New Business.
In September 1998, PICK Net UK PLC commenced operations in London to
work in tandem with PICK Net, Inc. to grow PICK's international network
infrastructure. PICK Net UK PLC has been granted an International Simple Voice
Reseller Standard License from the United Kingdom to operate as a reseller of
international telephone traffic. PICK Net UK PLC also provides uplink
capabilities to numerous satellites terminating in Africa, Asia, Europe and the
Middle East.
In late 1996, the Company entered into a reciprocal telecommunications
agreement with IDT Corporation ("IDT"), one of the Company's customers/carriers.
Under the
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agreement, IDT agreed to purchase certain telecommunication services from the
Company, and the Company agreed to purchase certain telecommunications services
from IDT for one year, renewable with the consent of both parties. In February
1998, the Company amended its agreement with IDT to provide IDT with a preferred
purchasing arrangement for 16 months from February 1998. In return, the Company
agreed to allow IDT to purchase telecommunications services to specified
countries (up to a maximum of 10 million minutes per month) at a preferred rate
per minute and additional capacity available at the same rate charged to the
Company's other customers. Pursuant to the amendment, IDT loaned the Company
$2,000,000 in working capital financing for one year, which matured on February
9, 1999.
The Company and IDT have reached an agreement to execute a new
six-month note in the principal amount of $2,350,000. The Company has agreed to
issue to IDT 40,000 shares of PICK's common stock in exchange for IDT's warrants
to purchase 40,000 shares of PICK's common stock, which shall be canceled upon
such delivery, plus a restructuring fee of 50,000 shares of PICK common stock.
The Company also agreed to pay $250,000 upon the earlier to occur of 30 days
from the date of execution of the agreement or the completion of additional
financing for at least $5 million for PICK and shall make six monthly principal
payments of $25,000 each on the last business day of each month following the
issue date of this Note, beginning on December 31, 1999. In the event PICK
elects to exercise its option to extend the maturity date of the Note from six
months to three years, it shall deliver to IDT $375,000, payable in immediately
available funds or, at the option of PICK, 37,500 shares of PICK's Common Stock.
Thereafter, PICK agrees to pay IDT in addition to the initial six payments of
$25,000 each, $100,000 per month for 6 months, and six payments of $200,000 each
in months 13-18 and the final payment of principal and interest in the 19th
month. Interest is payable monthly at 9% per annum and the Note will be pre-paid
pro rata in the event the Company prepays any indebtedness over $2 million
including the July 1998 Bridge Notes, as amended. The Note will automatically
convert into common stock at $10.00 per share if the average price of the
Company's common stock exceeds $15.00 per share for at least 20 consecutive
days. All shares of common stock issued or issuable to IDT will be included in
this registration statement.
Prepaid Telephone Calling Cards
PICK US Inc. is a pre-paid services company currently providing
domestic and international pre-paid calling card services through its dedicated
pre-paid network switching facility. The Company has suspended operations of
this subsidiary and intends to cease doing business in this sector exclusive of
its obligations to existing card holders. PICK provided a prepaid platform,
including a voice response unit, inbound 800 service, data base and customer
service, through a contract with a third-party provider (Innovative Telecom
Corp.) and supplies all domestic and international call termination through its
own switches.
PICK entered the prepaid telephone calling card business in 1993
utilizing its own branded cards. In February 1998, the Company entered into an
agreement with Blackstone Calling Card, Inc. ("Blackstone"), a major marketer
and distributor of prepaid telephone calling cards (the "Blackstone Agreement")
expiring in April 2000. Under the terms of the Blackstone Agreement, as amended,
after a six month phase-in period ending October 27, 1998, Blackstone was to
purchase prepaid telephone calling cards with a minimum retail face value of
$5,000,000 per month from the Company, which was expected to result in net
revenues of approximately $3,000,000 per month to the Company. These calls
originate in the United States and are directed for termination primarily to
parts of Africa and Asia. The Company and Blackstone are negotiating a
termination agreement whereby the Company will continue to support cards
previously activated until their expiration dates, and payments between the
parties will be reconciled. In consideration of the early termination and mutual
releases the Company has agreed to grant Blackstone a one-year warrant to
purchase 30,000 shares at $7.50 per share.
Customers, Sales and Marketing
The Company commenced marketing efforts in March 1999 concerning the
New Business. PICK Sat is marketing to companies that transmit large amounts of
data (including video) to multiple locations, including television broadcasters
and programmers, corporations and other institutions, and to ISPs and cable
television
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companies with existing subscriber bases for the delivery of "customer specific
content" to such customer's end users. PICK Sat believes that this strategy will
enable it to market to a broader base of clients and gain subscribers without
the high costs of direct sales, while retaining its primary focus, service
delivery. As such, a necessary client base will include content providers whose
products can be bundled for distribution through PICK Sat's ISP and cable
television clients or directly to offices and homes. This approach enables PICK
Sat to negotiate with clients on a global basis. For example, European content
providers wishing to deliver content to South and Central America, can do so
through PICK Sat's contracts with South and Central American ISPs and cable
television companies. Both clients benefit since the content provider broadens
its base of distribution and the cable company enhances the quality and volume
of end user choices. In addition, PICK Sat will market to corporations looking
to broadcast presentations and training courses to their locations worldwide.
PICK Online.Com intends to market its service first to radio stations
already hosted on the Internet. Full marketing activities will not commence,
however, until after PICK Sat has available sufficient funds for marketing and
sales. There will initially be no charge for them to participate. For ISPs, an
initial number of reception cards and dishes will be given away with no charge
for service until a predetermined number of radio stations becomes available.
Media-rich banner advertising opportunities on the Internet will exist
for both PICK Online.Com and its affiliate broadcasters and IP service
providers. Banners for local ads will alternate with national ads at both the
PICK Online.Com home page, as well as www.pickradio.com radio station page.
Banner space on the PICK Online.Com home page will be allocated for
local area ISP sales while radio station (destination) banners will be allocated
for radio station ad sales. Advertising space will be made available on
consignment with a share of the revenue going to PICK Online.Com The Company
will sell banner space on both pages and charge for creation and insertion of
banners.
Once there is an established network of Internet Edge providers, PICK
Online.Com will be able to offer one-to-many closed circuit broadcasts of audio
and video for teleconferencing distant education, pay-per-view events or other
multicast applications.
In addition to aggregating radio stations and later TV stations for
broadcasting through its Web site portal, PICK Online.Com seeks to partner with
other important content providers to have them see the benefit of making their
content available on PICK Online.Com Microsoft has recognized the potential of
PICK Online.Com as a link to its new Internet Explorer 5.0 browser. Microsoft
Windows Media Server and Player are integral parts of PICK Online.Com services.
The Company did not perform any meaningful sales or marketing efforts
of its own during 1998, primarily because (a) Blackstone and others marketed the
Company's prepaid telephone calling card products, and (b) the Company has
commitments for most of its capacity for international long distance carrier
services and needs additional funding prior to being able to expand its customer
base. PICK's primary customers for its international long distance carrier
services are carriers and resellers such as ComTech International, IDT
Corporation, World Access Telecommunications Group, Inc. and Teleglobe USA Inc.
Carrier customers require little on-going maintenance, and the carrier segment
of the business shares certain costs with the prepaid telephone calling card
segment. In 1998, approximately 72% and 10% of the Company's revenues were from
two customers, Blackstone and IDT Corporation. In 1997, approximately 19% and
13% of the Company's revenues were derived from two customers, Trescom and DC
Communications Corp. and in 1996, 36% and 25% were from two customers.
Competition
The Internet services business is highly competitive and there are few
significant barriers to entry. Currently, the Company competes with a number of
national and local ISPs. In addition, a number of multinational corporations,
including giant communications carriers such as AT&T, MCI/Worldcom, Sprint and
some of the regional Bell operating companies, are offering, or have announced
plans to offer, Internet access or
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on-line services. The Company also faces significant competition from Internet
access consolidators and from on-line service firms such as America Online
(AOL), CompuServe, and Prodigy. The Company believes that new competitors which
may include computer software and services, telephone, media, publishing, cable
television and other companies, are likely to enter the on-line services market.
In addition, the Company believes that the Internet service and on-line
service businesses will further consolidate in the future, which could result in
increased price and other competition in the industry and adversely impact the
Company. In the last year, a number of on-line services have lowered their
monthly service fees, which may cause the Company to lower its monthly fees in
order to compete.
The Company believes that the primary competitive factors among
Internet access providers are price, customer support, technical expertise,
local presence in a market, ease of use, variety of value-added services and
reliability. The Company believes it will be able to compete favorably in these
areas. The Company's success in the high-speed Internet market will depend
heavily upon its ability to provide high quality Internet connectivity and
value-added Internet services targeted in select markets. Other factors that
will affect the Company's success in these markets include the Company's
continued ability to attract additional experienced marketing, sales and
management talent, and the expansion of support, training and field service
capabilities.
PICK Online.Com expects to be able to market its services to radio and
TV stations who want to reach large Internet audiences and by IP service
providers who are experiencing backbone bandwidth limitation and are not able to
deliver good quality streaming due to increased usage by their subscribers to
streaming media services. PICK is not aware of any other company today that can
offer streaming services to any ISPs and, in turn, to end users in the same
manner as PICK Online.Com. The company that has been the most successful in
providing streaming services is Broadcast.com. This operator has well over 300
radio and TV streams available through its Web site and uses terrestrial IP
multicasting over the Internet. However, Broadcast.com multicasts to only a
limited number of member ISPs and through private land line connections. Part of
Broadcast.com's strength has been in using its private terrestrial
infrastructure to sell other specialized high margin services such as
teleconferencing, pay-per view and other types of Web events. Another strength
is its signing of hundreds of exclusive content agreements with broadcasters,
sports teams and a number of music and audio CDs.
PICK Online.Com's major strength is its ability to send its multicast
signal to an unlimited number of ISPs almost immediately and at a low cost.
There are hundreds of radio and TV stations that are not on Broadcast.com or
even on the Internet at all. More streams to more Edge of the Internet sites and
the ability to roll out quickly are all factors in how the Company will compete
against Broadcast.com. As the Company gains content and as it expands it
presence at the Edge of the Internet, it is expected to become a more effective
competitor to Broadcast.com. Many of the Company's competitors possess financial
resources significantly greater than those of the Company and, accordingly,
could initiate and support prolonged price competition to gain market share. If
significant price competition were to develop, the Company might be forced to
lower its prices, possibly for a protracted period, which would have a material
adverse effect on its financial condition and results of operations and could
threaten its economic viability.
The international long distance services business is highly competitive
and is characterized by rapidly changing per minute rates, particularly to key
international cities and countries. The Company has not been able to compete
with other carriers, providing high quality service at competitive prices.
PICK's competitors in the sale of international long distance services include
AT&T, MCI/Worldcom and Sprint, as well as British Telecom and other first tier
carriers in deregulated European countries. However, AT&T, MCI/Worldcom and
Sprint are regulated carriers. This means they were the originally deployed long
distance carriers permitted to terminate traffic where government controlled
Post Telephone and Telegraph (PTT's) administrations existed. As such their
rates were and still are significantly higher than those available to the new,
deregulated carriers.
Patents and Trademarks
The Company has obtained or applied for trademark registrations for the
name PICK and of each of its subsidiaries and has obtained trademark
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registrations for the names "Communicard by PICK(R)", "LOVE CALL(R)",
"COMMUNICASH(R)", and "las Americas(R)." The Company and a non-affiliate are
joint owners of a patent on the technology for a microprocessor-controlled
prepaid cellular telephone system, which has not been marketed by the Company.
Government Regulation
Long distance telecommunication services are subject to regulation by
the FCC and by state regulatory authorities. Among other things, these
regulatory authorities impose regulations governing the rates, terms and
conditions for interstate and intrastate telecommunication services. The federal
law governing regulation of interstate telecommunications are the Communications
Acts of 1934 and 1996 (the "Communications Acts"), which apply to all "common
carriers," including AT&T, MCI/Worldcom and Sprint, as well as entities, such as
the Company, which resell the transmission services provided through the
facilities of other common carriers. In general, under the Communications Acts,
common carriers are required to charge reasonable rates and are prohibited from
engaging in unreasonable practices in the provision of their services. Common
carriers are also prohibited from engaging in unreasonable discrimination in
their rates, charges and practices.
The Communications Acts require each common carrier to file tariffs
with the FCC. A tariff is a list of services offered, the terms under which the
services are offered, and the rates, or range of rates, charged for services.
Upon filing a tariff, the service provider is required to provide the services
at the rates and under the terms and conditions specified in the tariff. Failure
to file a tariff could result in fines and penalties. The Company believes it
has filed all required tariffs with the FCC.
In addition to federal regulation, resellers of long distance services
may be subject to regulation by the various state regulatory authorities. The
scope of such regulation varies from state to state, with certain states
requiring the filing and regulatory approval of various certifications and state
tariffs. As the Company expands the geographic scope of its long distance
operations, it intends to obtain operating authority as may be required to
provide long distance service.
The Company is also subject to regulations administered by the
Occupational Safety and Health Administration, various state agencies and county
and local authorities acting in cooperation with federal and state authorities.
The extensive regulatory framework imposes significant compliance burdens and
risks on the Company. Governmental authorities have the power to enforce
compliance with these regulations and to obtain injunctions or impose civil and
criminal fines in the case of violations.
Employees
As of November 1, 1999, the Company had one full-time employee,
Diego Leiva, its Chairman of the Board. Its subsidiaries PICK Online and
PICK Sat employed 6 and 17 full-time employees, respectively and also employed
independent contractors for various purposes. The employees are not represented
by a labor union.
Properties
The Company leases office space at Wayne Interchange Plaza II, 155
Route 46 West, Third Floor, Wayne, New Jersey 07470, under a lease that expires
on September 30, 2001, with a monthly rental of $8,000. In addition, the Company
leases space where its digital central office telephone switching equipment is
located in Jersey City, New Jersey (which expires September 1, 2000) and Miami,
Florida (which expires July 1, 2000). On September 13, 1999, the Company
contracted to sell its PICK Net subsidiaries and assign all of the above leases
to the purchaser.
PICK Sat has signed a lease for its new facilities at 5255 N.W. 87th
Avenue, Miami, FL 33178. The lease as amended, is for approximately 13,280
square feet and expires on February 28, 2004. The rent is as follows: $6,441 per
month from November 1, 1998 to November 30, 1998; $12,883 per month from
December 1, 1998 to December 31, 1999; $16,600 per month from January 1, 2000 to
February 28, 2000; $17,098 per month from March 1, 2000 to February 28, 2001;
$17,611 from March 1, 2001 to February 28, 2002; $18,139 per month
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<PAGE>
from March 1, 2002 to February 28, 2003; $18,683 per month from March 1, 2003 to
February 28, 2004.
Legal Proceedings
Other than the following lawsuits, the Company is not a party to any
material legal proceedings. In February 1997, the Company commenced a mediation
action against AT&T seeking $10 million in damages for breach of contract and
fraudulent inducement and malicious conduct under a carrier agreement (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. The Company claims that AT&T reneged on
certain commitments to provide the Company with lower international rates than
the Company was invoiced by AT&T. AT&T has claimed that the Company owes it in
excess of $1,000,000. In 1996, the Company provided for a non-cash reserve of
$1,750,000, which was reduced to $1,100,000 in the third quarter of 1997 and is
a part of the Company's working capital deficiency and is included in other
current liabilities in the Company's consolidated financial statements. After
two mediation sessions, AT&T indicated that it intended to withdraw from the
mediation. Accordingly, on November 5, 1997, the Company filed for arbitration
proceedings against AT&T and reduced its claim to $5 million. The trial began on
April 19, 1999 and ended on April 22, 1999. In October 1999, the arbitrator
found that AT&T was entitled to the gross claim of $1,776,000 minus credits
found in the Company's favor of $399,000 for a net amount of $1,376,447 plus 9%
interest per annum since January 31, 1997. A liability of $1,100,000 is included
in discontinued operations which the Company has contracted to sell. However,
the Company remains contingently liable for the judgment and is without the
funds to satisfy the judgment. Unless it is able to negotiate payment over an
extended period of time this amount could force the Company into curtailing its
operations or seeking protection under the bankruptcy laws.
On or about March 15, 1999, Worldcom Network Services, Inc., d/b/a
Wiltel, commenced a lawsuit against the Company in the United States District
Court, Southern District of New York demanding a judgment in the amount of
$1,177,734 and interest at 18% per annum plus costs and expenses. The plaintiff
alleges that the Company failed to pay for telecommunications services provided.
The Company and Worldcom have executed a Settlement Agreement. Under the terms
of the Settlement Agreement, the Company agreed to pay Worldcom $1,256,622 (the
"Settlement") in exchange for a full and complete settlement of Worldcom's
lawsuit against the Company. The Company agreed to pay the Settlement with
interest at 16% per annum on or before January 16, 2000 and for Worldcom to
discontinue, without prejudice, the legal proceedings until such date, although
the Company has the option to extend the forbearance through January 16, 2001.
The Company agreed to pay Worldcom a 100,000 share restructuring fee which
shares have been registered as part of this Registration Statement. If the
Company repays the Settlement by January 16, 2000 it shall be entitled to redeem
one-half of the shares for $1.00.
MANAGEMENT
The following table set forth the names, ages and positions with the
Company as of the date of this prospectus of all of the executive officers of
the Company and its principal subsidiaries and directors of the Company. Also
set forth below is information as to the principal occupation and background for
each named person in the table.
Name Age Position
- ---- --- --------
Diego Leiva 48 Chairman of the Board and Director
Henry Ewen 44 Acting Chief Financial Officer
Mario Pino 36 President of PICK Sat Inc.
Robert R. Sams (1) 60 Director
John Tydeman (1) 51 Director
- ----------------
(1) Member of audit committee and compensation committee.
Diego Leiva founded Public Info/Comm Kiosk, Inc. ("Kiosk"), a New
Jersey corporation, which is currently a wholly-owned subsidiary of the Company,
in August 1992, and has served as the Company's Chairman of the Board, a
Director and President since that time and as Chief Executive Officer until
April 1999. From 1989 through July 1992, Mr.
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<PAGE>
Leiva served as Director of Sales for Apertus Technologies, Inc., a computer
telecommunications sales firm.
Henry Ewen is a certified public accountant. He has served as Acting
Chief Financial Officer of the Company since June 1999 and as Comptroller of
Pick Sat since April 1999. He has operated a financial and information
technology consulting practice for the last thirteen years. He has assisted
clients in mergers, acquisitions, private placements, initial public offerings,
development of information systems, and other information technology consulting.
During this period he managed offshore banks and mutual funds on behalf of
client companies. He has acted as CFO/CIO for a variety of companies as part of
the consulting practice including: Prepaid Solutions, Goldleaf Technologies,
Capital International Securities Group and others.
Mario Pino has served as President of PICK Sat Inc. since October 1998.
Prior thereto, Mr. Pino was a division manager of Zaid Al Kazemi Trading from
1995 to 1998. From 1993 to 1995, he was general manager of American Cable
Trading.
Robert R. Sams has served as a director of the Company since September
1995 and of Kiosk since November 1994. He has been engaged in merchant banking,
corporate finance, acquisitions and financial advisory services since founding
Saicol Limited in 1983.
John Tydeman has served as a director of the Company since November
1998. He has been a strategic advisor since 1985 to a number of pay television
and satellite ventures worldwide. His expertise is in the commercial design,
restructuring and implementation of such ventures. His positions with these
entities include: SES, operator of ASTRA satellite system; Dolphin Group, a
privately held Middle East multi-business enterprise; CEO of ATL (News
Corporation and Zee Telefilm Joint Venture); CEO Showtime (Kipco/Viacom JV) and
advisor to Kipco; advisor to Zaksat; advisor to TVNZ; Advisor to Shinawatra
Group; advisor to Regional Television Operators (Australia); advisor to Jamison,
a merchant banking organization; advisor to Optus, Australia telco. Dr. Tydeman
holds a PhD in systems engineering and serves on the Board of Directors of
Nostrad Telecommunications, Asia Today Limited and Asia Television Limited and
as advisor to the Dolphin Group.
Pursuant to the terms of the April 1999 Restructuring Agreement with
Commonwealth Associates, the Board of Directors of the Company is to be
restructured to consist of a majority of independent directors. The proposed
board will be Diego Leiva, Chairman of the Board, two existing independent
directors, a new Chief Executive Officer, one designee of Commonwealth
Associates, one designee of the July 1998 Bridge Loan Noteholders and one other
independent director. Subsequently, Tri-Links Investment Trust purchased Series
D Convertible Stock from the Company and obtained the right to designate a
nominee to the Board or an observer who has the right to attend and observe at
all Board Meetings prior to his actually joining the Board. To date, none of
these persons have joined the Board of Directors.
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 $0.01 ("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 representations 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, 1998, other than one late
Form 4 filing by both Robert R. Sams and Ricardo Maranon.
Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by,
or paid to the executive officers named therein for all services rendered to the
Company during the three fiscal years ending December 31, 1998. No other
executive officer of the Company received total compensation in excess of
$100,000 during any of the last three years:
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<PAGE>
Annual Compensation
<TABLE>
<CAPTION>
Shares
Underlying
Name and Positions Year Salary($) Bonus $ Stock Options
- ------------------ ---- --------- ------- -------------
<S> <C> <C> <C> <C>
Diego Leiva, President, Chief 1998 $162,500(1) $15,201 275,000
Executive Officer and Chairman 1997 150,000 -- 75,000(1)
of the Board of Directors 1996 150,000 -- --(1)
Robert Bingham, Vice President 1998 $111,500 -- 5,000(2)
and Chief Financial Officer 1997 34,417 -- 50,000(3)
1996 -- -- --
Shares
Underlying
Name and Positions Year Salary($) Bonus $ Stock Options
- ------------------ ---- --------- ------- -------------
Raymond Brennan, Vice President 1998 $138,340 -- 25,000(4)
and Secretary 1997 88,419 -- 75,000(5)
1996 85,365 -- --
Karen M. Quinn 1998 $100,179 -- 30,000(6)
President PICK US Inc. 1997 85,164 -- 75,000(5)
1996 85,153 -- --
</TABLE>
- ------------------
(1) Includes options to purchase 50,000 shares granted in 1996, at prices
varying from $8.75 to $9.625 per share which were canceled and re-issued in
1997 at $1.90 per share and 25,000 options granted in 1997 at $3.00 per
share.
(2) Exercisable at $3.70 per share.
(3) Includes options to purchase 25,000 shares at $2.50 per share and options to
purchase 25,000 shares at $5.00 per share.
(4) Includes options to purchase 15,000 shares at $3.70 per share and options to
purchase 10,000 shares at $5.50 per share.
(5) Includes options to purchase 25,000 shares at $2.70 per share and options to
purchase 50,000 shares at $1.70 per share.
(6) Includes options to purchase 15,000 shares at $3.70 per share and options to
purchase 15,000 shares at $5.50 per share.
The Company maintained a $250,000 term life insurance policy for Diego
Leiva for his benefit, for which the Company paid $1,377, $1,257 and $1,186 in
1998, 1997 and 1996, respectively. In addition, the Company maintains a
$1,000,000 key man life insurance policy for Mr. Leiva.
Employment Agreement
In September 1998, the Company entered into a five-year employment
agreement with Diego Leiva, as President and Chief Executive Officer, which
commenced on January 1, 1999 (the "Commencement Date"). The Agreement is
automatically renewable for additional one-year periods unless terminated on 90
days' prior written notice. Mr. Leiva will be paid $300,000 per annum beginning
on the Commencement Date, increasing by $50,000 increments on January 1, in each
of the four following years and by $75,000 per year in each year after the fifth
anniversary date if the Agreement is automatically extended. The agreement
provided that Mr. Leiva would continue to receive his then current base salary
until the Company's Senior Secured Notes are repaid. Mr. Leiva is entitled to a
monthly car allowance of $1,600 per month for automobiles in Florida and New
Jersey and shall also be reimbursed for reasonable living expenses in the
location which is not his principal residence. Mr. Leiva's agreement precludes
him from soliciting employees of the Company or interfering with PICK's
relationships with other employees for 18 months after termination of
employment. Mr. Leiva is also prohibited from competing with the Company during
the period following termination of employment for which PICK is liable to pay
him his base salary or for one year, whichever is longer.
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<PAGE>
In April 1999, Mr. Leiva's employment agreement was amended to provide
he would continue solely as Chairman of the Board and a Director. Mr. Leiva
agreed to vote his shares of common stock in favor of Management's nominees,
provided he is a nominee for the Board.
Directors Compensation
Directors currently receive no cash compensation for serving on the
Board of Directors or any Committee of the Board, other than reimbursement of
travel expenses incurred by them and their spouses in attending Board meetings
held outside the New York Metropolitan area. One of the directors is an employee
of the Company. Each of the Directors has received stock options from the
Company. See "Certain Relationships and Related Transactions."
Option Grants in Last Fiscal Year
The table below contains certain information concerning stock options
granted to the Named Executive Officers, named in the Summary Compensation
Table, during the year ended December 31, 1998:
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of Stock Price
Securities Options Appreciation for Option Term
Underlying Granted to Exercise ---------------------------------------------
Options Employees in Price Expiration 5% 10%
Name Granted Fiscal year ($/Share) Date ($) ($)
- ---- ----------- ---------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Diego Leiva 250,000 60% $5.50 11/2/03 $343,750 $687,500
15,000 3.6% 4.10 2/19/01 $9,225 $18,450
10,000 2.4% 6.10 11/4/01 $9,150 $18,300
Robert Bingham 5,000 1.2% $3.70 (1) (1) (1)
Raymond Brennan 15,000 3.6% $3.70 (2) $8,325 $16,650
10,000 2.4% 5.50 (2) $8,250 $16,500
Karen M. Quinn 15,000 3.6% $3.70 (2) $8,325 $16,650
15,000 3.6% 5.50 (2) $12,375 $24,750
</TABLE>
- ----------------
(1) Forfeited following Mr. Bingham's resignation on February 10, 1999.
(2) Mr. Brennan and Ms. Quinn's employment were terminated on May 28, 1999 and
these options will terminate 90 days thereafter.
Option Grants in 1999
In March 1999, the Company granted an aggregate of 1,150,500 options,
587,000 of which were subsequently forfeited by employees and consultants, all
are currently exercisable at $1.81 per share and vesting over a three-year
period, except Mr. Malone's option vesting over a four-year period. In July
1999, the Company granted an aggregate of 68,000 options to 8 employees of PICK
Sat, none of whom are executive officers of the Company. Included were the
following grants to officers and/or directors: Thomas Malone, Former Chief
Executive Officer (500,000 shares) and Mario Pino, President of PICK Sat
(250,000 shares).
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the Named
Executive Officers named in the Summary Compensation Table during the year ended
December 31, 1998:
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<PAGE>
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Shares Options Options
Acquired at FY-End(#) at FY-End (S)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable(1)
- ---- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Diego Leiva 25,000 $95,000 122,500/202,500 $345,750/$321,750
Robert Bingham 0 0 30,000/25,000 $120,500/$45,000
Raymond Brennan 25,000 $102,500 75,000/0 $307,000/0
Karen M. Quinn 25,000 $102,500 80,000/0 $321,000/0
</TABLE>
- -------------------------------
(1) As of December 31, 1998, the market value of the shares was $6.80.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of
the Company or 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.
Employee Benefit Plans
Other than stock options, the Company does not currently have, nor
during the 1998 fiscal year did it have, any other long-term incentive plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Management-Executive Compensation" for terms and conditions of
employment agreements entered into between the Company and Diego Leiva and
options granted to the Company's Executive Officers and Directors.
On March 3, 1999, the Company, Diego Leiva ("Leiva"), the Company's
Chairman of the Board, and Commonwealth Associates L.P. ("Commonwealth") the
placement agent for the holders of the Company's outstanding 18% senior secured
notes, entered into an Agreement by which Commonwealth and its designees,
including J.P. Turner & Company, L.L.C. ("Turner") and management of the
Company, would purchase up to $2,000,000 of preferred stock of the Company (the
"Series B Preferred Stock") at a purchase price of $1.00 per share. On March 12,
1999, the Company filed a Certificate of Designation, as later amended, relating
to the Series B Preferred Stock (the "Series B Certificate") with the Secretary
of State for the State of Nevada. The Series B Certificate authorized 2,000,000
shares of Series B Preferred Stock convertible by the holders thereof into the
Company's common stock at $1.00 per share. In addition, the Series B Preferred
Stock has a liquidation preference of $1.00 per share. As of April 22, 1999, the
Company had received $1,871,000 (including part of Mr. Malone's signing bonus)
for 1,871,100 shares of Series B Preferred Stock from Commonwealth, Turner and
officers and directors of the Company convertible into 1,871,000 shares of
common stock. The following officers, directors and former officers and
directors have purchased the respective amounts of Series B Preferred Stock:
Robert R. Sams $160,000
Alberto M. Delgado 315,000
Ricardo Maranon 21,000
John Tydeman 60,000
Thomas M. Malone 50,000
--------
Total $606,000
On March 3, 1999, the Board of Directors granted to corporations
controlled by each of the Company's then four independent directors, Robert
Sams, Ricardo Maranon, Alberto M. Delgado and John Tydeman, with each abstaining
as to themselves, options to purchase 50,000 shares of common stock at $5.00 per
share (repriced at $1.81 per share
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<PAGE>
on October 1, 1999) in consideration of their substantial efforts in assisting
the Company in obtaining financing and other valuable consideration rendered to
the Company. These options shall be fully vested on March 3, 2000. Upon the
resignation from the Board of Directors on May 17, 1999, Messrs. Delgado and
Maranon entered into Advisory Agreements with the Company and these options, as
well as all other previously granted options, remained in place as long as they
remain consultants to the Company.
Effective April 1, 1999, Thomas M. Malone became Chief Executive
Officer of the Company. He resigned as of July 8, 1999, to pursue other business
opportunities. Pursuant to the terms of a Confidential Separation Agreement and
Release of all Claims (the "Separation Agreement"), Mr. Malone is to receive six
(6) months severance pay at his pro rated salary of $250,000 per annum; retained
$50,000 of Series B Convertible Preferred Stock which was one-half of his
signing bonus with the other $50,000 being forfeited; and he retained stock
options to purchase 100,000 shares of common stock, which had vested and shall
be exercisable until July 8, 2000, at $5.00 per share. Mr. Malone also entered
into a 12 month consulting agreement with the Company pursuant to which he
retained stock options to purchase 50,000 shares of common stock at $5.00 per
share, until July 8, 2001.
In July 1999, the Company entered into an Advisory and Management
Services Agreement (the "Advisory Agreement") with Saicol Limited, a corporation
controlled by Robert R. Sams. Pursuant to the terms of the Advisory Agreement,
Saicol is performing services and providing office space for PICK Net UK PLC.
Saicol is to be paid $1,500 and expenses per day retroactive to February 1, 1998
including payment of $25,000 and the provision for cashless option exercises for
retroactive services rendered.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 9, 1999, the number of
shares of the Company's outstanding common stock, giving retroactive effect to a
one-for-ten reverse split declared by the Board on July 6, 1999, to holders of
record on July 23, 1999, beneficially owned by (i) each director of the Company,
(ii) each Named Executive Officer named above, (iii) each beneficial owner of
more than 5% of the Company's common stock and (iv) all of the Company's
executive officers and directors as a group:
Name and Address Amount and Nature of
of Beneficial Owner(1) Beneficial Ownership(2) Percentage(3)
- ----------------------- ------------------------ --------------
Diego Leiva 1,617,578(4)(5) 27.5%
Henry Ewen 13,000(6) *
Mario Pino 55,000(7) *
Robert R. Sams 263,368(8) 4.7%
John Tydeman 75,500(9)(10) 1.3%
Robert Bingham 2,500 *
Raymond Brennan 144,968(11) 2.6%
Karen M. Quinn 137,943(12) 2.5%
All executive officers and directors
as a group (8 persons) 2,309,857(14) 41.6%
- --------------------------------
* Less than 1% of the total issued and outstanding shares of Common Stock.
(1) The address of all officers and directors is c/o the Company, 155 Route 46
West, 3rd Floor, Wayne, New Jersey 07470.
(2) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(3) Based on 5,522,128 shares outstanding as of November 9, 1999. 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 such date pursuant to Rule 13d-3
under the Exchange Act have been converted or exercised.
(4) Includes 429,000 shares beneficially owned by Mr. Leiva's wife.
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<PAGE>
(5) Includes an aggregate of 275,000 shares of common stock issuable upon
exercise of incentive stock options to purchase up to 15,000 shares at
$4.10 per share, 6,300 shares at $6.10 per share, and non-qualified stock
options to purchase up to 3,700 shares at $6.10 per share under the Plan;
and non-qualified stock options to purchase 250,000 shares at $5.50 per
share outside of the Plan. Also includes 80,953 shares of common stock
issuable upon conversion of 340,000 shares of Series D Convertible
Preferred Stock at $4.20 per share and warrants to purchase an additional
6,800 shares of Common Stock at $6.30 per share.
(6) Includes 3,000 shares of common stock currently issuable upon exercise of
stock options at $1.81 per share and 10,000 shares currently issuable upon
exercise of stock options at $2.00 per share. Excludes 53,500 shares of
common stock issuable upon exercise of stock options which are not
currently exercisable.
(7) Includes 5,000 shares of common stock issuable upon exercise of stock
options at $5.50 per share and 50,000 shares of common stock issuable upon
exercise of stock options at $5.00 per share. Excludes 215,000 shares of
common stock issuable upon exercise of stock options which are not
currently exercisable.
(8) Includes 160,000 shares of common stock issuable upon conversion of 160,000
shares of Series B Convertible Preferred Stock. Excludes 9,600 shares owned
by Vulcan Petroleum of which Mr. Sams is a director and minority
shareholder and 50,000 shares of common stock issuable upon exercise of
non-qualified stock options at $5.10 per share. See "Certain
Relationships and Related Transactions."
(9) Includes 12,500 shares of common stock issuable upon exercise of stock
options at $5.50 per share. Excludes an aggregate of 62,500 shares of
common stock issuable upon exercise of stock options which are not
currently exercisable.
(10) Includes 60,000 shares of common stock issuable upon conversion of 60,000
shares of Series B Preferred Stock. See "Certain Relationships and Related
Transactions."
(11) Includes 34,000 shares beneficially owned by Mr. Brennan's wife. Also
includes an aggregate of 75,001 shares of common stock issuable upon
exercise of stock options, including incentive stock options to purchase up
to 19,118 shares at $1.70 per share, 15,000 shares at $3.70 per share,
8,000 shares at $5.50 per share, non-qualified stock options to purchase
30,883 shares at $1.70 per share and 2,000 shares at $5.50 per share
pursuant to the Plan.
(12) Includes an aggregate of 81,950 shares of common stock issuable upon
exercise of stock options, including incentive stock options to purchase up
to 19,118 shares at $1.70 per share, 15,000 shares at $3.70 per share,
8,000 shares at $5.50 per share, and non-qualified stock options to
purchase 30,883 shares at $1.70 per share, 70,000 shares at $5.50 per share
and 1,950 shares at $5.00 per share pursuant to the Plan.
(13) Includes non-qualified stock options and incentive stock options to
purchase up to 512,451 shares by the named executive officers and directors
above and shares of Series B and D Preferred Stock and Series D warrants to
purchase up to 307,753 shares of Common Stock at the prices per share
stated in footnotes (5) - (12), but excludes options to purchase shares
which are not currently exercisable.
SELLING STOCKHOLDERS
The following table sets forth the number of shares of common stock
owned and the total number of shares assuming the conversion, exercise or
exchange of all the derivative securities (the "derivative securities") owned by
each of the Selling Shareholders and registered hereunder.
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<PAGE>
All share data gives retroactive effect to a one-for-ten reverse split
declared by the Board of Directors on July 6, 1999 to Stockholders of record on
July 23, 1999.
As described above under "Note Restructuring" each of the 9,900,000
warrants issued in connection with the July 1998 Bridge Loan ("Bridge Warrants")
plus an additional 2,475,050 of such warrants issued in connection with an
extension of the Bridge Loan ("Note Extension Warrants" and, together with the
Bridge Warrants, the "Warrants") immediately exchangeable on a one-for-ten basis
for 1,237,505 shares of common stock, plus 390,867 shares issuable upon exercise
of the Warrants pursuant to anti-dilution provisions of the Warrants and are
included under the column "Number of Shares Offered Hereby," together with
1,871,000 shares of common stock on a one-for-one basis for shares of Series B
Preferred Stock, 1,190,489 shares of Common Stock on a one-for-ten basis for
shares of Series D Preferred Stock plus 70,000 shares issuable in connection
with warrants issued to the Series D shareholders, and shares held by other
Selling Stockholders. Also included under "Number of Shares Offered Hereby" are
174,310 shares of Common Stock issuable upon exercise of 1,394,366 Warrants
issued to Commonwealth Associates, as placement agent for the July 1998 Bridge
Loan, now exercisable at $1.00 per share; an aggregate of 69,728 Placement Agent
Shares issued to Commonwealth and its designees in connection with the July 1998
Bridge Loan; an aggregate of 418,350 shares issued or issuable upon conversion
of warrants held by Liberty Capital and its designees, as co-placement agent for
the July 1998 Bridge Loan; an aggregate of 1,976,000 shares consisting of
988,000 shares issuable upon conversion of the $9,880,000 principal amount of
Amended Notes issued in connection with the Note Restructuring at the current
conversion price of $10.00 per share, plus 988,000 additional shares issuable
for no additional consideration as part of the Note Restructuring, or
alternatively, 1,976,000 shares issuable upon conversion of the notes at $5.00
per share; in the event that the conversion price is reduced to $5.00 per share
as per the anti-dilution provisions, the noteholders will receive an additional
988,000 shares which the Company has registered as part of this Registration
Statement which shares are included in the following table for the selling
stockholders who are noteholders under the headings Amount and Nature of
Ownership Before and After Offering, but not under Number of Shares Offered
Hereby. Also included in this prospectus are 200,000 shares of common stock
issued and 50,000 shares of common stock issuable to Commonwealth and its
designees upon exercise of warrants at $13.75 per share received as compensation
for the Note Restructuring; 50,000 shares issued to Commonwealth and its
designees in connection with a note extension; and shares issued or issuable
upon conversion of options and warrants held by vendors, directors and counsel
to the Company.
Because the selling stockholders may offer all or part of the shares
of common stock received upon conversion or exercise of the derivative
securities (the "Shares"), which they hold pursuant to the offering contemplated
by this prospectus, no estimate can be given as to the amount of the derivative
securities that will be held upon termination of this offering. The Shares
offered by this prospectus may be offered from time to time by the selling
stockholders named below.
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Amount and Nature Number Amount and
of Ownership of Shares Nature of Percentage
Name and Address of Beneficial Owner Before Offering(1) Offered Hereby Ownership of Class
------------------------------------ ------------------ -------------- --------- ----------
<S> <C> <C> <C> <C>
Abraham, Dean 8,805(2) 6,930 1,875 *
Abrams, Jodi 4,696(3) 3,696 1,000 *
Abrams, Richard 21,130(4) 16,630 4,500 *
Abrams, Rodney 21,130(4) 16,630 4,500 *
Acks, Shannon P. 23,477(5) 18,477 5,000 *
Adametz, James Revocable Trust 7,044(6) 5,544 1,500 *
Adkins, Daryl-Joy 14,087(7) 11,087 3,000 *
A'hearn, Michael F. & Maxine C., JTWROS 9,392(8) 7,392 2,000 *
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Anderson, Ferdinand, Jr. 11,739(9) 9,239 2,500 *
Anzalone, Joseph 238(10) 238 0 *
Appelbaum, Michael 4,033(11) 4,033 0 *
Apploff, Evelyn 238(10) 238 0 *
Aukstuolis, Jim 46,954(12) 36,954 10,000 *
Ballin, Scott J. 11,739(9) 9,239 2,500 *
Beck, Roderick 8,850(13) 8,850 0 *
Bergholic, Patricia 263(14) 263 0 *
Berglund, Don, Dr. 4,696(3) 3,696 1,000 *
Berman, Marc G. 9,392(8) 7,392 2,000 *
Bernstein, Howard Dr. 23,477(5) 18,477 5,000 *
Better Homes Plastics Corp. 234,764(15) 184,764 50,00 1.18%
Birchtree Investments 11,739(9) 9,239 2,500 *
BNB Associates Investments, L.P. 108,692(16) 96,192 12,500 *
Black, Lincoln Edward 18,782(17) 14,782 4,000 *
Blank, Gerald 9,392(8) 7,392 2,000 *
Blonmstedt, Jeffrey & Susan LaScala, JTROS 11,739(9) 9,239 2,500 *
Boatright, Mody K. 9,392(8) 7,392 2,000 *
Bodner, Hans C. 117,382(18) 92,382 25,000 *
Bolognue, Joseph T. 11,739(9) 9,239 2,500 *
Bradley, Charles E., Jr. 11,739(9) 9,239 2,500 *
The Burr Family Trust 23,477(5) 18,477 5,000 *
Campos, Felix & Joyce, JTROS 9,392(8) 7,392 2,000 *
Cardoso, Manuel 7,044(6) 5,544 1,500 *
Cardwell, James A. Jr. 11,739(9) 9,239 2,500 *
Carroll, Brewster B. 11,739(9) 9,239 2,500 *
Chestler, Daniel 23,477(5) 18,477 5,000 *
Chestler, Herbert 23,477(5) 18,477 5,000 *
Chestler, Steven 23,477(5) 18,477 5,000 *
</TABLE>
-52-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Childhood Resource Corp. 9,392(8) 7,392 2,000 *
Clariden Bank 93,907(19) 73,907 20,000 *
Clark, Oliver T. & Sharon L., JTROS 4,696(3) 3,696 1,000 *
Cohen, David 46,954(12) 36,954 10,000 *
Cohen, Jonathan & Nancy, JTWROS 9,392(8) 7,392 2,000 *
Cole, Julia R. 46,954(12) 36,954 10,000 *
Commonwealth Associates 676,523(20) 651,498 25,025 3.35%
Corbin, Bruce 4,696(3) 3,696 1,000 *
Corbin Family Dental Arts 4,696(3) 3,696 1,000 *
Corbin, Dr. Richard 11,739(9) 9,239 2,500 *
Corbin, Richard & Robyn, JTROS 4,696(3) 3,696 1,000 *
Cramer Taos Partners 70,430(21) 55,430 15,000 *
Cummings, Orman F. 23,477(5) 18,477 5,000 *
Dacey, Karen 755(22) 755 0 *
D'Avanzo, Marie E. IRA BSSC cust. for 7,044(6) 5,544 1,500 *
Davenport, James A & Rebecca C., JTROS 23,477(5) 18,477 5,000 *
Davidow, Peter C. 4,696(3) 3,696 1,000 *
DeAtkine, Jr., David 16,434(23) 12,934 3,500 *
Defini, Joseph 363(24) 363 0 *
Dellaquilla, Peter 38(25) 38 0 *
Dercher, David J. 23,477(5) 18,477 5,000 *
Sidney Deutsch Revocable Trust 46,954(12) 36,954 10,000 *
Dickey, David L. 9,392(8) 7,392 2,000 *
Dold, Richard J. 23,477(5) 18,477 5,000 *
Donahue, Heather 540(26) 540 0 *
Downe, Edward R. Jr. 23,477(5) 18,477 5,000 *
Dreyfuss, Jerome 9,392(8) 7,392 2,000 *
DW Trustees (B.V.I.) Limited as Trustee of 23,477(5) 18,477 5,000 *
Rectory Farm Settlement Main Fund
</TABLE>
-53-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
DW Trustees (B.V.I.) Limited as Trustee of 11,739(9) 9,239 2,500 *
Rectory Farm Settlement Children's Fund
Eldridge, Cornelia 2,439(27) 2,439 0 *
Elliott, Seth 1,200(28) 1,200 0 *
Falk, Else 238(10) 238 0 *
Falk, Michael S. 187,564(29) 172,564 15,000 1.00%
Faxon, David P., Jr. 5,871(30) 4,621 1,250 *
Feldman, Richard 46,954(12) 36,954 10,000 *
Fennikoh, Donna 630(31) 630 0 *
Fischhoff, Brian (Baruch) & Andrea JTROS 7,044(6) 5,544 1,500 *
Fleming, William K. 4,696(3) 3,696 1,000 *
FM Grandchildren's Trust 46,954(12) 36,954 10,000 *
Fox, Karen A. 9,392(8) 7,392 2,000 *
Friedman, Richard 93,907(19) 73,907 20,000 *
Fulton, Peter 4,223(50) 4,223 0 *
Gaba, Ilya & Alice, JTROS 4,696(3) 3,696 1,000 *
Gajeski, Donald K. 9,392(8) 7,392 2,000 *
Gaylord, Gregg M. 4,696(3) 3,696 1,000 *
Glashow, Jonathan 35,215(33) 27,715 7,500 *
Glazier, Edwin M. 9,392(8) 7,392 2,000 *
Goldberg, Ira 9,392(8) 7,392 2,000 *
Goldberg, Mark & Joanna, JTROS 14,087(7) 11,087 3,000 *
Goldman, Fred 4,696(3) 3,696 1,000 *
Gonchar, Andrew 11,739(9) 9,239 2,500 *
Graves, Eugene H. 46,954(12) 36,954 10,000 *
Steven B. Greenman, IRA, Bear Stearns 11,739(9) 9,239 2,500 *
Securities Corp. as Custodian for
Gruenwald, Thomas J. 23,477(5) 18,477 5,000 *
Hammer, Robert 11,739(9) 9,239 2,500 *
Hart, Steven 1,085(34) 1,085 0 *
</TABLE>
-54-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Hatten, Mark 46,954(12) 36,954 10,000 *
Herrmann, Timothy 3,762(35) 3,762 0 *
Hoffman, Susan 630(36) 630 0 *
Ianazzai, Jeanine 275(37) 275 0 *
Intercontinental Associates, Inc. 11,739(9) 9,239 2,500 *
Isbell, Charles E. 4,696(3) 3,696 1,000 *
Jackson, Kevin L. 5,871(30) 4,621 1,250 *
Jeffers, Robert G. & Theresa W., JTROS 7,513(38) 5,913 1,600 *
Jensen, Eric & Julia JTWROS 46,954(12) 36,954 10,000 *
Jhunjhnuwala, Chatri & Lourdes, JTROS 46,954(12) 36,954 10,000 *
Jhunjhnuwala, Chatri & Lourdes, JTROS 1,879(39) 1,479 400 *
Custodian for Nadia Jhunjhnuwala
Jhunjhnuwala, Chatri & Lourdes, JTROS 2,349(40) 1,849 500 *
Custodian for Giselle Jhunjhnuwala
Jhunjhnuwala, Chatri & Lourdes, JTROS 2,818(41) 2,218 600 *
Custodian for Jasmine Jhunjhnuwala
Jhunjhnuwala, Ramesh 9,392(8) 7,392 2,000 *
Jimenez, Audrey 175(42) 175 0 *
Johnson, L. Wayne 23,477(5) 18,477 5,000 *
Jordan, Bette Plink 5,871(30) 4,621 1,250 *
Joos-Vandewalle, John 11,739(9) 9,239 2,500 *
Jordan, Edward C. 4,696(3) 3,696 1,000 *
Jordan, Peggy 46,954(12) 36,954 10,000 *
K & K Development 11,739(9) 9,239 2,500 *
Kabuki Partners ADD GP 23,477(5) 18,477 5,000 *
Karraker, Valerie L. 11,739(9) 9,239 2,500 *
Keating, Patrick N. 11,739(9) 9,239 2,500 *
Kennett, David R. & Joyce A., JTROS 5,871(30) 4,621 1,250 *
Khulpateea, Neekianund, M.D. 11,739(9) 9,239 2,500 *
Layne, Marlene 300(43) 300 0 *
</TABLE>
-55-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Lawless, Stephen & Nina, JTWROS 11,739(9) 9,239 2,500 *
Leppla, Craig 1,810(44) 1,810 0 *
Lerner, Brian 4,696(3) 3,696 1,000 *
The Lenox Trust 4,696(3) 3,696 1,000 *
Liebel, C. William & Roberta, JTROS 7,044(6) 5,544 1,500 *
Lim, Cassandra 475(45) 475 0 *
Maerki, Baumann & Co. AG 46,954(12) 36,954 10,000 *
Mallis, Stephen 11,739(9) 9,239 2,500 *
Malone, Zach 339(46) 339 0 *
Mansfield, Gary 350(47) 350 0 *
Marcus, Jed S. 4,696(3) 3,696 1,000 *
Mark, Laurel Lester 11,739(9) 9,239 2,500 *
Markowitz, Jeffery 46,954(12) 36,954 10,000 *
Martin, John R. & Victoria, JTROS 11,739(9) 9,239 2,500 *
Mazzacchi, Leo F., M.D. & Nancy, JTWROS 23,477(5) 18,477 5,000 *
McCleary, Robert A. 23,477(5) 18,477 5,000 *
McKone, Fiona 350(47) 350 0 *
Meinershagen, Alan J. 23,477(5) 18,477 5,000 *
Messana, Jerry 2,798(61) 2,798 0 *
Monie, Vijaykumar S. 11,739(9) 9,239 2,500 *
Morfesis, F.A. & Gail, JTWROS 46,954(12) 36,954 10,000 *
Morley, David 7,044(6) 5,544 1,500 *
David Mulkey II Limited Partnership 139,685(91) 109,935 29,750 *
Nelson, David R. & Donna L., JTWROS 11,739(9) 9,239 2,500 *
Notowitz, Allen 46,954(12) 36,954 10,000 *
Norman, Gregory P. 46,954(12) 36,954 10,000 *
Nussbaum, Samuel R. 46,954(12) 36,954 10,000 *
Ocepek, David B., Ret. Plan 5,871(30) 4,621 1,250 *
Orden, Jeremy F. 11,270(94) 8,870 2,400 *
</TABLE>
-56-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
O'Toole, Diana 363(62) 363 0 *
Pallini, Larry H. 23,477(5) 18,477 5,000 *
Pallotta, Joseph 350(47) 350 0 *
Palmer, Richard & Lynne Marie, JTROS 11,739(9) 9,239 2,500 *
Palmieri, Peter 2,499(48) 2,499 0 *
Pamela Equities 46,954(12) 36,954 10,000 *
Pannu, Jaswant & Debra, JTROS 9,392(8) 7,392 2,000 *
Partoyan, Garo A. 23,477(5) 18,477 5,000 *
Pepe, Danielle 175(42) 175 0 *
Perreira, Richard 238(10) 238 0 *
Piccolo, August 7,044(6) 5,544 1,500 *
Piccolo, John 23,477(5) 18,477 5,000 *
Pocisk, George Roth IRA 11,739(9) 9,239 2,500 *
Polyviou, P. Tony 11,739(9) 9,239 2,500 *
Poujol, Albert C. 11,739(9) 9,239 2,500 *
Poujol, Michael & Angela, JTROS 23,477(5) 18,477 5,000 *
Priddy, Robert 304,762(49) 254,762 50,000 1.18%
Primo, Joseph C. 11,739(9) 9,239 2,500 *
Progressive Footcare 23,477(5) 18,477 5,000 *
Rand, Eric 1,999(51) 1,999 0 *
Rion, James H. 7,044(6) 5,544 1,500 *
Roberts, Cindy D. 46,954(12) 36,954 10,000 *
Rosenfield, Laurence & Janet, JTROS 11,739(9) 9,239 2,500 *
Royal Bank of Canada Trust 117,382(18) 92,382 25,000 *
Rubenstein, Eric 16,633(52) 15,633 1,000 *
Salas, Alexandra 510(53) 510 0 *
Salmon, Robert M. & Margaret, TIC 7,513(38) 5,913 1,600 *
Saltzberg, Darren 681(54) 681 0 *
Sandhu, Avtar S. 11,739(9) 9,239 2,500 *
</TABLE>
-57-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Scaglione, Domenick G. & Josephine, JTROS 5,871(30) 4,621 1,250 *
Schoen, William R. & Barbara J. JTROS 11,739(9) 9,239 2,500 *
Schorlemmer, Vikki K. 23,477(5) 18,477 5,000 *
Schriver, James E. & Jayne A., JTROS 4,696(3) 3,696 1,000 *
Schroeder, Charles F.A. 5,871(30) 4,621 1,250 *
Schultz, Gary D. & Barbara A., JTROS 23,477(5) 18,477 5,000 *
Stellway, David L 23,477(5) 18,477 5,000 *
Shea, Edmund 8,643(55) 8,643 0 *
JF Shea & Co., Inc. 351,719(56) 291,719 60,000 1.42%
Sheppard, Matthew P. 4,696(3) 3,696 1,000 *
Simon Asset Management LLC 46,954(12) 36,954 10,000 *
Singer, Michael A. 46,954(12) 36,954 10,000 *
Skoly, Stephen T., Dr. 11,739(9) 9,239 2,500 *
Spencer, Robert J. 11,739(9) 9,239 2,500 *
Stahnke, Ronald 11,739(9) 9,239 2,500 *
Stein, David 2,349(57) 2,349 0 *
Stern, Theodore & Eliabeth, JTROS 46,954(12) 36,954 10,000 *
Stollwerk, David & Ida, JTROS 11,739(9) 9,239 2,500 *
Stollwerk, David & Susan JTROS 11,739(9) 9,239 2,500 *
Swiatek, Nicole 275(58) 275 0 *
Tachibana, Rick Glen 9,392(8) 7,392 2,000 *
Tsamutalis, George 3,409(59) 3,409 0 *
Toombs, Walter F. 46,954(12) 36,954 10,000 *
TriYar Capital 11,739(9) 9,239 2,500 *
Turbee, Mederic 263(14) 263 0 *
Vainberg, Vladik 6,073(95) 5,573 500 *
Syd Verbin & Helen Verbin Trustee under 4,696(3) 3,696 1,000 *
Trust Agreement dated 12/20/88 FBO Syd
Verbbin
Verdino, Lorraine 275(58) 175 100 *
</TABLE>
-58-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
Voight, Bryon & Jacelyn, JTROS 23,477(5) 18,477 5,000 *
Voight, Kevin & Cindy JTROS 23,477(5) 18,477 5,000 *
Ward, Gary 11,739(9) 9,239 2,500 *
Wasserstrum, Seymour 11,739(9) 9,239 2,500 *
Wilkins, Charles P. 11,739(9) 9,239 2,500 *
Winchester Fiduciary Services FBO Conzett 93,907(19) 73,907 20,000 *
Europa Investment
Wisseman, Charles L. III 11,739(9) 9,239 2,500 *
Ashley Cooper 170,000(60) 170,000 0 *
John R. Clarke 139,000(60) 139,000 0 *
Dean A. Vernoia 15,000(60) 15,000 0 *
Craig Blitz 1,840(63) 1,840 0 *
Craig Blitz and Annette Blitz JTWROS 7,696(64) 6,696 1,000 *
Harold Blue 16,739(65) 14,239 2,500 *
Saicol Limited (66) 313,368 210,000(107) 103,368 2.2%
Anthony S. Mowrer 20,000(60) 20,000 0 *
Timothy Moore 10,000(60) 10,000 0 *
William L. Mello 10,000(60) 10,000 0 *
Brian Megenity 10,000(60) 10,000 0 *
Mark Danieli 6,000(67) 6,000 0 *
Anthony J. Giardina 3,810(68) 3,810 0 *
P.A.M.D. Investors, Inc. (69) 371,250 365,000 6,250 *
Andrea Becker 100,000(60) 100,000 0 *
Tim McAfee 10,000(60) 10,000 0 *
Bruce Glaser 10,470(70) 10,470 0 *
Carl Kleidman (71) 17,500(72) 17,500 0 *
Beth Lipman 6,736(73) 6,736 0 *
Ron Moschetta 64,625(74) 64,625 0 *
Robert O'Sullivan 8,192(75) 8,192 0 *
Robert A. O'Sullivan Family Trust 5,000(60) 5,000 0 *
</TABLE>
-59-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
A.G. Rappaport 50,000(60) 50,000 0 *
Richard Rosenblatt 16,739(65) 14,239 2,500 *
Keith M. Rosenbloom 18,823(76) 18,823 0 *
Inder Tallur 10,725(77) 10,725 0 *
Joseph P. Wynne (71) 14,814(78) 14,814 0 *
Richard A. Campanella 3,810(79) 3,810 0 *
Basil Asciutto 4,856(80) 4,856 0 *
Basil Asciutto Retirement Plan 5,000(60) 5,000 0 *
Dolphin Media Group Inc. (81) 119,250 110,000(105) 9,250 *
Ricardo Maranon (82) 200,468 50,000(106) 150,468 3.3%
Douglas E. Miller 10,000(60) 10,000 0 *
Dawn Becker 5,000(60) 5,000 0 *
Truxton K. Mann and Nancy W. Mann 5,000(60) 5,000 0 *
JTWROS
Ron Bloom 5,000(60) 5,000 0 *
Thomas Malone (83) 150,000 50,000(60) 100,000 2.26%
Michael Bollag 143,907(84) 123,907 20,000 *
Robert Beuret 2,536(85) 2,536 0 *
J.P. Turner 10,000(60) 10,000 0 *
John La Porta 1,000(60) 1,000 0 *
Liberty Capital, Ltd. (86) 418,350 418,350 0 *
Innovative Telecom Corp. (87) 516,826 516,826 0 *
Michael Binder (88) 20,000 20,000 0 *
The Dilenschneider Group, Inc. (89) 20,000 20,000 0 *
AFG Resources Partnership 127,758(90)(97) 127,758 0 *
Salahkhalid Al-Fulaij 148,858(90)(98) 148,858 0 *
Al Jandool Brides Jewellery 99,239(90)(99) 99,239 0 *
Saqer A. Almousherji 238,096(90) 238,096 0 *
E-Cash Card Services Inc. 25,810(90)(100) 25,810 0 *
</TABLE>
-60-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
After Offering
-------------------------
Number Amount and
Amount and Nature of Shares Nature of Percentage
Name and Address of Beneficial Owner of Ownership(1) Offered Hereby Ownership of Class
------------------------------------ ---------------- -------------- --------- ----------
<S> <C> <C> <C> <C>
James Season 16,777(90)(101) 16,777 0 *
Yaseen Tabtabei 129,048(90)(102) 129,048 0 *
Diego Leiva 1,617,578(96)(103) 87,753 1,529,825 30%
Martin Gangel Trust 23,477 18,477(92) 5,000 *
Arthur Chase 83,391 83,391(93) 0 *
Tri-Links Investment Trust 387,150(90)(104) 387,150 0 *
Jose Garcia 9,500 9,500(109) 0 *
Felix Lopez 9,500 9,500(109) 0 *
Pedro Rivero 2,000 2,000(109) 0 *
Snow Becker Krauss P.C. 355,000(108) 300,000 55,000 *
Brian Coventry 560 (110) 560 0 *
John Gruber 560 (110) 560 0 *
Katelyn LoBue 125 (111) 125 0 *
Linda Rodriguez 125 (111) 125 0 *
Gulfsat Communications Company 100,000 (112) 100,000 0 *
WorldCom Network Services, Inc. 100,000 (113) 100,000 0 *
IDT Corporation 127,500 (114) 127,5000 0 *
</TABLE>
* Less than one percent of the issued and outstanding common stock
- ----------------
(1) Based on 5,103,233 shares of common stock issued and outstanding as of
October 11, 1999. Unless otherwise noted, we believe that all persons named
in the table have sole investment power with respect to all shares of common
stock beneficially owned by them. Under the Federal securities laws, a
person is deemed to be the beneficial owner of securities that can be
acquired by that person within 60 days from the date hereof upon the
conversion of convertible securities or the exercise of warrants or options.
We have assumed for each person that any exercisable and convertible
securities that are held by that person (but not those held by any other
person) and that are exercisable or convertible within 60 days from the date
hereof have been exercised or converted and that after the offering, all
underlying shares set forth under "Number of Shares Offered Hereby" have
been sold. Except where noted, none of the selling stockholders has had any
position, office or other material relationship with the Company other than
as a shareholder during the past three years.
(2) Includes 6,930 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,875 Bridge Warrants, 469 Note Extension
Warrants, 741
-61-
<PAGE>
shares issued pursuant to the Warrants' anti-dilution provisions, 95 shares
of common stock received in connection with the Note Extension and 3,750
shares issuable to this person upon conversion of the Amended Note. Also
includes an additional 1,875 shares issuable to this person as a result of
the Note Restructuring,
(3) Includes 3,696 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,000 Bridge Warrants, 250 Note Extension
Warrants, 395 shares issued pursuant to the Warrants' anti-dilution
provisions, 51 shares of common stock received in connection with the Note
Extension and 2,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 1,000 shares issuable to this
person as a result of the Note Restructuring,
(4) Includes 16,630 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 4,500 Bridge Warrants, 1,125 Note Extension
Warrants, 1,777 shares issued pursuant to the Warrants' anti-dilution
provisions, 228 shares of common stock received in connection with the Note
Extension and 9,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 4,500 shares issuable to this
person as a result of the Note Restructuring,
(5) Includes 18,477 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 5,000 Bridge Warrants, 1,250 Note Extension
Warrants, 1,974 shares issued pursuant to the Warrants' anti-dilution
provisions, 253 shares of common stock received in connection with the Note
Extension and 10,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 5,000 shares issuable to this
person as a result of the Note Restructuring,
(6) Includes 5,544 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,500 Bridge Warrants, 375 Note Extension
Warrants, 593 shares issued pursuant to the Warrants' anti-dilution
provisions, 76 shares of common stock received in connection with the Note
Extension and 3,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 1,500 shares issuable to this
person as a result of the Note Restructuring,
(7) Includes 11,087 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 3,000 Bridge Warrants, 750 Note Extension
Warrants, 1,185 shares issued pursuant to the Warrants' anti-dilution
provisions, 152 shares of common stock received in connection with the Note
Extension and 6,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 3,000 shares issuable to this
person as a result of the Note Restructuring,
(8) Includes 7,392 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 2,000 Bridge Warrants, 500 Note Extension
Warrants, 790 shares issued pursuant to the Warrants' anti-dilution
provisions, 102 shares of common stock received in connection with the Note
Extension and 4,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 2,000 shares issuable to this
person as a result of the Note Restructuring,
(9) Includes 9,239 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 2,500 Bridge Warrants, 625 Note Extension
Warrants, 987
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shares of common stock issued pursuant to the Warrants' anti-dilution
provisions, 127 shares of common stock received in connection with the Note
Extension and 5,000 shares issuable to this person upon conversion of the
Amended Note. Also includes an additional 2,500 shares of common stock
issuable to this person as a result of the Note Restructuring,
(10) Includes 238 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 125 Placement Agent's Warrants, 50
Placement Agent's Shares, 50 shares of common stock issuable to this person
as part of the Note Restructuring Agent's Shares and 13 shares of common
stock issuable to this person upon the exercise of five-year warrants
issued in connection with a debt restructuring (the "Restructuring
Warrants").
(11) Includes 4,033 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 979 Placement Agent's Warrants, 391
Placement Agent's Shares, 533 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 2,130 shares of
common stock issuable as part of the Note Restructuring Agent's Shares.
(12) Includes 36,954 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 10,000 Bridge Warrants, 2,500 Note
Extension Warrants, 3,948 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 506 shares of common stock received in
connection with the Note Extension and 20,000 shares issuable to this
person upon conversion of the Amended Note. Also includes an additional
10,000 shares of common stock issuable to this person as a result of the
Note Restructuring,
(13) Includes 8,850 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 2,750 Placement Agent's Warrants, 1,100
Placement Agent's Shares, 1,000 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 4,000 shares of
common stock issuable to this person as part of the Note Restructuring
Agent's Shares.
(14) Includes 188 Placement Agent's Warrants plus 75 Placement Agent's Shares.
(15) Includes 184,764 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 50,000 Bridge Warrants, 12,500 Note
Extension Warrants, 19,738 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 2,526 shares of common stock received
in connection with the Note Extension and 100,000 shares issuable to this
person upon conversion of the Amended Note. Also includes an additional
50,000 shares of common stock issuable to this person as a result of the
Note Restructuring,
(16) Includes 96,192 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 12,500 Bridge Warrants, 3,125 Note
Extension Warrants, 4,9335 shares issued pursuant to the Warrants'
anti-dilution provisions, 50,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 632 shares of
common stock received in connection with the Note Extension and 25,000
shares issuable to this person upon conversion of the Amended Note. Also
includes an additional 12,500 shares issuable to this person as a result of
the Note Restructuring.
(17) Includes 14,782 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 4,000 Bridge Warrants, 1,000 Note
Extension Warrants, 1,579 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 203 shares of common stock received in
connection with
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the Note Extension and 8,000 shares issuable to this person upon conversion
of the Amended Note. Also includes an additional 4,000 shares of common
stock issuable to this person as a result of the Note Restructuring.
(18) Includes 92,382 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 25,000 Bridge Warrants, 6,250 Note
Extension Warrants, 9,869 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 1,263 shares of common stock received
in connection with the Note Extension and 50,000 shares issuable to this
person upon conversion of the Amended Note. Also includes an additional
25,000 shares of common stock issuable to this person as a result of the
Note Restructuring.
(19) Includes 73,907 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 20,000 Bridge Warrants, 5,000 Note
Extension Warrants, 7,896 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 1,011 shares of common stock received
in connection with the Note Extension and 40,000 shares issuable to this
person upon conversion of the Amended Note. Also includes an additional
20,000 shares of common stock issuable to this person as a result of the
Note Restructuring.
(20) Includes 651,197 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 25,025 Bridge Warrants, 6,257 Note
Extension Warrants, 9,878 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 83,899 Placement Agent's Warrants,
34,634 Placement Agent's Shares, 318,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share, 1,264
shares of common stock received in connection with the Note Extension,
50,050 shares issuable to this person upon conversion of the Amended Note,
24,438 shares of common stock issuable upon the exercise of the
Restructuring Warrants and 97,752 shares of common stock issuable to this
company as part of the Note Restructuring Agent's Shares. Also includes an
additional 25,025 shares issuable to this company as a result of the Note
Restructuring.
(21) Includes 55,430 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 15,000 Bridge Warrants, 3,750 Note
Extension Warrants, 5,922 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 758 shares of common stock received in
connection with the Note Extension and 30,000 shares issuable to this
person upon conversion of the Amended Note. Also includes an additional
15,000 shares of common stock issuable to this person as a result of the
Note Restructuring,
(22) Includes 755 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 450 Placement Agent's Warrants, plus 180
Placement Agent's Shares, 25 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 100 shares of common
stock issuable as part of the Note Restructuring Agent's Shares.
(23) Includes 12,934 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 3,500 Bridge Warrants, 875 Note
Extension Warrants, 1,382 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 177 shares of common stock received in
connection with the Note Extension and 7,000 shares issuable to this person
upon conversion of the Amended Note. Also includes an additional 3,500
shares of common stock issuable to this person as a result of the Note
Restructuring.
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(24) Includes 363 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 188 Placement Agent's Warrants, plus 75
Placement Agent's Shares, 20 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 80 shares of common
stock issuable as part of the Note Restructuring Agent's Shares.
(25) Includes 27 Placement Agent's Warrants, plus 11 Placement Agent's Shares.
(26) Includes 450 Placement Agent's Warrants, plus 90 Placement Agent Shares.
(27) Includes 1,743 Placement Agent's Warrants, plus 696 Placement Agent's
Shares.
(28) Includes 1,000 Placement Agent's Warrants, plus 200 Placement Agent's
Shares.
(29) Includes 172,564 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 15,000 Bridge Warrants, 3,750 Note
Extension Warrants, 30,000 shares issuable to this person upon conversion
of the Amended Note, 5,922 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 13,068 Placement Agent's Warrants,
70,000 shares of common stock issuable upon conversion of Series B
Preferred Stock, at $1.00 per share, 5,205 Placement Agent's Shares, 758
shares of common stock received in connection with the note extension,
5,608 shares of common stock issuable upon the exercise of the
Restructuring Warrants and 23,253 shares of common stock issuable as part
of the Note Restructuring Agent's Shares. Also includes an additional
15,000 shares of common stock issuable to this person as a result of the
Note Restructuring.
(30) Includes 4,621 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,250 Bridge Warrants, 313 Note Extension
Warrants, 494 shares of common stock issued pursuant to the Warrants'
anti-dilution provisions, 64 shares of common stock received in connection
with the Note Extension and 2,500 shares issuable to this person upon
conversion of the Amended Note. Also includes an additional 1,250 shares of
common stock issuable to this person as a result of the Note Restructuring.
(31) Includes 450 Placement Agent's Warrants, plus 180 Placement Agent's Shares.
(32) Includes 1,130 Placement Agent's Warrants, plus 451 Placement Agent's
Shares.
(33) Includes 27,715 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 7,500 Bridge Warrants, 1,875 Note
Extension Warrants, 2,961 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 379 shares of common stock received in
connection with the Note Extension and 15,000 shares of common stock
issuable to this person upon conversion of the Amended Note. Also includes
an additional 7,500 shares of common stock issuable to this person as a
result of the Note Restructuring.
(34) Includes 1,085 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 375 Placement Agent's Warrants, plus 150
Placement Agent's Shares, 110 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 450 shares of
common stock issuable as part of the Note Restructuring Agent's Shares.
(35) Includes 3,762 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,007 Placement Agent's Warrants, plus 402
Placement Agent's Shares, 471 shares of common stock issuable to this
person upon the
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exercise of the Restructuring Warrants and 1,882 shares issuable as part of
the Note Restructuring Agent's Shares.
(36) Includes 450 Placement Agent's Warrants, plus 180 Placement Agent's Shares.
(37) Includes 275 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 125 Placement Agent's Warrants, plus 50
Placement Agent's Shares, 20 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 80 shares issuable as
part of the Note Restructuring Agent's Shares.
(38) Includes 5,913 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,600 Bridge Warrants, 400 Note Extension
Warrants, 632 shares of common stock issued pursuant to the Warrants'
anti-dilution provisions, 81 shares of common stock received in connection
with the Note Extension and 3,200 shares of common stock issuable to this
person upon conversion of the Amended Note. Also includes an additional
1,600 shares of common stock issuable to this person as a result of the
Note Restructuring.
(39) Includes 1,479 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 400 Bridge Warrants, 100 Note Extension
Warrants, 158 shares of common stock issued pursuant to the Warrants'
anti-dilution provisions, 21 shares of common stock received in connection
with the Note Extension and 800 shares of common stock issuable to this
person upon conversion of the Amended Note. Also includes an additional 400
shares of common stock issuable to this person as a result of the Note
Restructuring.
(40) Includes 1,849 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 500 Bridge Warrants, 125 Note Extension
Warrants, 198 shares of common stock issued pursuant to the Warrants'
anti-dilution provisions, 26 shares of common stock received in connection
with the note extension and 1,000 shares of common stock issuable to this
person upon conversion of the Amended Note. Also includes an additional 500
shares of common stock issuable to this person as a result of the Note
Restructuring.
(41) Includes 2,218 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 600 Bridge Warrants, 150 Note Extension
Warrants, 237 shares of common stock issued pursuant to the Warrants'
anti-dilution provisions, 31 shares of common stock received in connection
with the note extension and 1,200 shares of common stock issuable to this
person upon conversion of the Amended Note. Also includes an additional 600
shares of common stock issuable to this person as a result of the Note
Restructuring.
(42) Includes 125 Placement Agent's Warrants, plus 50 Placement Agent's Shares.
(43) Includes 300 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 125 Placement Agent's Warrants, plus 50
Placement Agent's Shares, 25 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 100 shares issuable as
part of the Note Restructuring Agent's Shares.
(44) Includes 1,810 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 936 Placement Agent's Warrants, plus 374
Placement Agent's Shares, 100 shares of common stock issuable to this
person upon the exercise of the
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Restructuring Warrants and 400 shares issuable as part of the Note
Restructuring Agent's Shares.
(45) Includes 475 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 250 Placement Agent's Warrants, plus 100
Placement Agent's Shares, 25 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 100 shares issuable as
part of the Note Restructuring Agent's Shares.
(46) Includes 339 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 125 Placement Agent's Warrants, plus 50
Placement Agent's Shares, 34 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 130 shares issuable as
part of the Note Restructuring Agent's Shares.
(47) Includes 250 Placement Agent's Warrants plus 100 Placement Agent's Shares.
(48) Includes 2,499 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 669 Placement Agent's Warrants, plus 267
Placement Agent's Shares, 313 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 1,250 shares
issuable as part of the Note Restructuring Agent's Shares.
(49) Includes 254,762 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 50,000 Bridge Warrants, 12,500 Note
Extension Warrants, 19,736 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 70,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share, 2,526
shares of common stock received in connection with the Note Extension and
100,000 shares of common stock issuable to this person upon conversion of
the Amended Note. Also includes an additional 50,000 shares issuable to
this person as a result of the Note Restructuring.
(50) Includes 4,223 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,130 Placement Agent's Warrants, plus 451
Placement Agent's Shares, 529 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 2,113 shares
issuable as part of the Note Restructuring Agent's Shares.
(51) Includes 1,999 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 535 Placement Agent's Warrants, plus 214
Placement Agent's Shares, 250 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 1,000 shares
issuable as part of the Note Restructuring Agent's Shares.
(52) Includes 15,633 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 1,000 Bridge Warrants, 250 Note
Extension Warrants, 395 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 3,464 Placement Agent's Warrants, 691
Placement Agent's Shares, 51 shares of common stock received in connection
with the Note Extension, 1,557 shares of common stock issuable upon the
exercise of the Restructuring Warrants, 6,225 shares issuable as part of
the Note Restructuring Agent's Shares and 2,000 shares of common stock
issuable to this person upon conversion of the Amended Note. Also includes
an additional 1,000 shares issuable to this person as a result of the Note
Restructuring.
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(53) Includes 510 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 125 Placement Agent's Warrants, plus 50
Placement Agent's Shares, 70 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 265 shares issuable as
part of the Note Restructuring Agent's Shares.
(54) Includes 681 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 308 Placement Agent's Warrants, plus 123
Placement Agent's Shares, 50 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 200 shares issuable as
part of the Note Restructuring Agent's Shares.
(55) Includes 8,643 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 3,051 Placement Agent's Warrants, plus
1,217 Placement Agent's Shares, 875 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 3,500 shares
issuable as part of the Note Restructuring Agent's Shares.
(56) Includes 291,719 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 60,000 Bridge Warrants, 15,000 Note
Extension Warrants, 23,688 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 70,000 shares of common stock issuable
upon conversion of Series B Preferred Stock, at $1.00 per share, 3,031
shares of common stock received in connection with the Note Extension and
120,000 shares of common stock issuable to this person upon conversion of
the Amended Note. Also includes an additional 60,000 shares issuable to
this person as a result of the Note Restructuring.
(57) Includes 2,349 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 629 Placement Agent's Warrants, plus 251
Placement Agent's Shares, 294 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 1,175 shares
issuable as part of the Note Restructuring Agent's Shares.
(58) Includes 275 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 125 Placement Agent's Warrants, plus 50
Placement Agent's Shares, 20 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 80 shares issuable as
part of the Note Restructuring Agent's Shares.
(59) Includes 3,409 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 913 Placement Agent's Warrants, plus 364
Placement Agent's Shares, 427 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 1,705 shares
issuable as part of the Note Restructuring Agent's Shares.
(60) Consists of shares of Common Stock issuable upon conversion of Series B
Preferred Stock, at $1.00 per share.
(61) Includes 2,798 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 749 Placement Agent's Warrants, plus 299
Placement Agent's Shares, 350 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 1,400 shares
issuable as part of the Note Restructuring Agent's Shares.
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(62) Includes 363 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 188 Placement Agent's Warrants, plus 75
Placement Agent's Shares, 20 shares of common stock issuable to this person
upon the exercise of the Restructuring Warrants and 80 shares issuable as
part of the Note Restructuring Agent's Shares.
(63) Includes 1,840 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 493 Placement Agent's Warrants, plus 197
Placement Agent's Shares, 230 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 920 shares
issuable as part of the Note Restructuring Agent's Shares.
(64) Includes 6,696 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 1,000 Bridge Warrants, 250 Note Extension
Warrants, 395 shares issued pursuant to the Warrants' anti-dilution
provisions, 3,000 shares of common stock issuable upon conversion of Series
B Preferred Stock, at $1.00 per share, 51 shares of common stock received
in connection with the Note Extension and 2,000 shares of common stock
issuable to this person upon conversion of the Amended Note. Also includes
an additional 1,000 shares issuable to this person as a result of the Note
Restructuring.
(65) Includes 14,239 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,500 Bridge Warrants, 625 Note
Extension Warrants, 987 shares issued pursuant to the Warrants'
anti-dilution provisions, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 127 shares of
common stock received in connection with the Note Extension and 5,000
shares of common stock issuable to this person upon conversion of the
Amended Note. Also includes an additional 2,500 shares issuable to this
person as a result of the Note Restructuring.
(66) This entity is controlled by Robert R. Sams, a member of PICK's Board of
Directors. This selling stockholder's beneficial ownership includes shares
owned by Mr. Sams, but excludes 9,600 shares owned by Vulcan Petroleum of
which Mr. Sams is a director and minority shareholder. See "Certain
Relationships and Related Transactions."
(67) Includes 6,000 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 268 Placement Agent's Warrants, 107
Placement Agent's Shares, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 125 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 500 shares issuable as part of the Note Restructuring Agent's
Shares.
(68) Includes 3,810 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 936 Placement Agent's Warrants, 374
Placement Agent's Shares, 2,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 100 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 400 shares issuable as part of the Note Restructuring Agent's
Shares.
(69) This entity is controlled by Pastor Alberto Delgado, an advisor to the
Company and a former member of the Board of Directors. This selling
shareholder's beneficial ownership includes Pastor Delgado's non-qualified
stock options to purchase up to 6,250 shares at $5.50 per share, 315,000
shares of Common stock issuable upon conversion of Series B Preferred Stock
and 50,000 shares of Common stock issuable upon exercise of non-qualified
stock options which vest on March 3, 2000. Excludes
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non-qualified stock options to purchase up to 18,750 shares at $5.50 per
share, vesting on November 2, 1999. See "Certain Relationships and Related
Transactions."
(70) Includes 10,470 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,122 Placement Agent's Warrants,
848 Placement Agent's Shares, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 500 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 2,000 shares issuable as part of the Note Restructuring
Agent's Shares.
(71) This person is an officer of Commonwealth, however his shareholdings
excludes all shares owned by Commonwealth. See footnote (20) above.
(72) Includes 17,500 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon conversion of Series B Preferred Stock, at
$1.00 per share, 2,500 shares of common stock issuable to this person upon
the exercise of the Restructuring Warrants and 10,000 shares issuable as
part of the Note Restructuring Agent's Shares.
(73) Includes 6,736 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 450 Placement Agent's Warrants, 180
Placement Agent's Shares, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 275 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 831 shares issuable as part of the Note Restructuring Agent's
Shares.
(74) Includes 64,625 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 28,960 Placement Agent's Warrants,
11,555 Placement Agent's Shares, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 3,822 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 15,288 shares issuable as part of the Note Restructuring
Agent's Shares.
(75) Includes 8,192 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 2,742 Placement Agent's Warrants plus
1,094 Placement Agent's Shares, 1,032 shares of common stock issuable to
this person upon the exercise of the Restructuring Warrants and 3,324
shares issuable as part of the Note Restructuring Agent's Shares.
(76) Includes 18,823 shares currently issuable listed under "Number of Shares
Offered Hereby" upon exchange of 3,984 Placement Agent's Warrants, 5,000
shares of common stock issuable upon conversion of Series B Preferred
Stock, at $1.00 per share, 1,587 Placement Agent's Shares, 1,604 shares of
common stock issuable upon the exercise of the Restructuring Warrants and
6,648 shares of common stock issuable as part of the Note Restructuring
Agent's Shares. Does not include 626,172 shares of common stock
beneficially owned by Commonwealth Associates, listed above. Mr. Rosenbloom
is an employee director and shareholder of Commonwealth. When combined with
his shares, Mr. Rosenbloom would be deemed the beneficial owner of 14.59%
of the Company's outstanding securities prior to the offering.
(77) Includes 10,725 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,750 Placement Agent's Warrants,
1,100 Placement Agent's Shares, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 375 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 1,500 shares issuable as part of the Note Restructuring
Agent's Shares.
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(78) Includes 14,814 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,993 Placement Agent's Warrants,
1,196 Placement Agent's Shares, 5,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 1,125 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 4,500 shares issuable as part of the Note Restructuring
Agent's Shares.
(79) Includes 3,810 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 936 Placement Agent's Warrants, 374
Placement Agent's Shares, 2,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 100 shares of
common stock issuable to this person upon the exercise of the Restructuring
Warrants and 400 shares issuable as part of the Note Restructuring Agent's
Shares.
(80) Includes 4,856 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 2,583 Placement Agent's Warrants plus
1,023 Placement Agent's Shares, 250 shares of common stock issuable to this
person upon the exercise of the Restructuring Warrants and 1,000 shares
issuable as part of the Note Restructuring Agent's Shares.
(81) This entity is controlled by John Tydeman, a member of the Company's Board
of Directors. This selling stockholder's beneficial ownership includes
non-qualified stock options to purchase up to 6,250 shares at $5.50 per
share and 60,000 shares of common stock issuable upon conversion of Series
B Preferred Stock. Excludes non-qualified stock options to purchase up to
18,750 shares at $5.50 per share, vesting on November 2, 1999, and 50,000
shares of common stock issuable upon exercise of non-qualified stock
options which vest on March 3, 2000. See "Certain Relationships and Related
Transactions."
(82) Mr. Maranon is an advisor to the Company and a former member of the Board
of Directors. This selling stockholders's beneficial ownership includes
non-qualified stock options to purchase 25,000 shares of the Company's
common stock, 15,000 shares at $3.70 per share and 10,000 shares at $5.50
per share pursuant to the Plan and 50,000 shares of common stock issuable
upon exercise of non-qualified stock options which vest on March 3, 2000
and 3,725 shares of the Company's common stock beneficially owned by Mr.
Maranon's daughter. See "Certain Relationships and Related Transactions."
(83) Mr. Malone is Chief Executive Officer of the Company. He received these
shares as part of his signing bonus. Includes non-qualified stock options
to purchase up to 100,000 shares of the Company's Common stock exercisable
at $5.00 per share, and 50,000 shares of Common stock issuable upon
conversion of 50,000 shares of Series B Convertible Preferred Stock issued
to Mr. Malone as a signing bonus. Excludes 400,000 shares of Common stock
issuable upon exercise of options which vest from April 1, 2000 through
April, 2003.
(84) Includes 123,907 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 20,000 Bridge Warrants, 5,000 Note
Extension Warrants, 7,896 shares issued pursuant to the Warrants'
anti-dilution provisions, 50,000 shares of common stock issuable upon
conversion of Series B Preferred Stock, at $1.00 per share, 1,011 shares of
common stock received in connection with the note extension and 40,000
shares of common stock issuable to this person upon conversion of the
Amended Note. Also includes an additional 20,000 shares issuable to this
person as a result of the Note Restructuring.
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<PAGE>
(85) Includes 2,536 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exercise of 1,811 Placement Agent's Warrants plus 725
Placement Agent's Shares. Does not include 626,172 shares of common stock
beneficially owned by Commonwealth Associates, listed above. Mr. Beuret is
an employee, director and shareholder of Commonwealth. When combined with
his shares, Mr. Beuret would be deemed the beneficial owner of 14.22% of
the Company's outstanding securities prior to the offering.
(86) Includes 283,400 shares issuable upon the exercise of warrants at $1.00 per
share, 111,550 shares issuable upon exercise of warrants at $5.00 per share
issued in connection with the July 1998 Bridge Loan, as well as 23,400
shares issued to Liberty Capital pursuant to a March 1998, as amended,
Consulting Agreement.
(87) Includes shares issuable in connection with the satisfaction of
indebtedness, subject to adjustment for additional shares registered
hereby.
(88) Includes 10,000 shares of common stock issued to Michael Binder and 10,000
shares of common stock underlying warrants issued to Michael Binder.
(89) Includes shares of common stock issued to The Dilenschneider Group Inc.
(90) Consists of Common Stock issuable upon conversion of Series D Preferred
Stock, at $4.20 per share.
(91) Includes 109,935 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 29,750 Bridge Warrants, 7,438 Note
Extension Warrants, 11,744 shares issued pursuant to the Warrants'
anti-dilution provisions, 1,503 shares of common stock received in
connection with the Note Extension and 59,500 shares of common stock
issuable to this person upon conversion of the Amended Note. Also includes
an additional 29,750 shares issuable to this person as a result of the Note
Restructuring.
(92) Includes 18,477 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 5,000 Bridge Warrants, 1,250 Note
Extension Warrants, 1,974 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 253 shares of common stock received in
connection with the Note Extension and 10,000 shares of common stock
issuable to this person upon conversion of the Amended Note. Also includes
an additional 5,000 shares of common stock issuable to this person as a
result of the Note Restructuring.
(93) Includes 83,391 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 2,000 Bridge Warrants, 500 Note
Extension Warrants, 790 shares of common stock issued pursuant to the
Warrants' anti-dilution provisions, 80,000 shares of common stock issued
upon conversion of Bridge Notes issued in the July 1998 Bridge Loan which
were not exchanged for Amended Notes in April 1999 and 101 shares of common
stock received in connection with the Note Extension.
(94) Includes 8,870 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 2,400 Bridge Warrants, 600 Note Extension
Warrants, 948 shares of common stock issued pursuant to the Warrants'
anti-dilution provisions, 122 shares of common stock received in connection
with the Note Extension and 4,800 shares of common stock issuable to this
person upon conversion of the Amended Note. Also includes an additional
2,400 shares of common stock issuable to this person as a result of the
Note Restructuring.
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<PAGE>
(95) Includes 5,573 shares currently issuable and listed under "Number of
Shares Offered Hereby" upon exchange of 500 Bridge Warrants, 125 Note
Extension Warrants, 198 shares issuable pursuant to the Warrants'
anti-dilution provisions, 997 Placement Agent's Warrants, 398 Placement
Agent's Shares, 26 shares of common stock received in connection with the
Note Extension, 1,000 shares of common stock issuable to this person upon
conversion of the Amended Note, 466 shares of common stock issuable upon
the exercise of the Restructuring Warrants and 1,863 shares of common
stock issuable as part of the Note Restructuring Agent's Shares. Also
includes an additional 500 shares issuable to this person as a result of
the Note Restructuring.
(96) Includes an aggregate of 275,000 stock options consisting of incentive
stock options to purchase up to 15,000 shares at $4.10 per share, 6,300
shares at $6.10 per share, 3,700 shares at $6.10 per share under the Plan;
and non-qualified stock options to purchase 250,000 shares at $5.50 per
share outside of the Plan. Also includes 80,953 shares of common stock
issuable upon conversion of 340,000 shares of Series D Convertible
Preferred Stock at $4.20 per shares and warrants to purchase an additional
6,800 shares of Common Stock at $6.30 per share.
(97) Includes 9,900 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(98) Includes 6,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(99) Includes 4,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(100) Includes 2,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(101) Includes 1,300 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(102) Includes 10,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(103) Includes 6,800 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(104) Includes 30,000 shares issuable upon exercise of Series D Common Stock
Purchase Warrants.
(105) Includes 60,000 shares of common stock issuable upon conversion of Series
B Preferred Stock at $1.00 per share and 50,000 shares issuable upon
exercise of stock options at $1.81 per share, but does not include any
other shares owned by John Tydeman, a director of the Company, who
controls this entity.
(106) Includes 50,000 shares issuable upon exercise of stock options at $1.81
per share held by Mother of Three, Inc., a company controlled by Ricardo
Maranon, an advisor to the Board of Directors.
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<PAGE>
(107) Includes 160,000 shares of common stock issuable upon conversion of Series
B Preferred Stock at $1.00 per share and 50,000 shares issuable upon
exercise of stock options at $1.81 per share, but does not include any
other shares owned by Robert R. Sams, a director of the Company, who
controls this entity. See note (66) above.
(108) This entity is counsel to the Company and its shares include 50,000 shares
issuable upon exercise of non-qualified stock options to purchase 50,000
shares at $5.00 per share held by SBK Investment Partners, an affiliated
partnership, and 300,000 shares of common stock issuable upon exercise of
non-qualified stock options in exchange for legal fees owed to such
entity.
(109) Represents shares of common stock issued upon conversion of Series B
Preferred Stock.
(110) Includes 560 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 110 shares of common stock issuable to
this person upon the exercise of the Restructuring Warrants and 450 shares
of common stock issuable as part of the Note Restructuring Agent's Shares.
(111) Includes 125 shares currently issuable and listed under "Number of Shares
Offered Hereby" upon exchange of 25 shares of common stock issuable to
this person upon the exercise of the Restructuring Warrants and 100 shares
of common stock issuable as part of the Note Restructuring Agent's Shares.
(112) Shares purchased by Gulfsat Communications Company, a vendor of the
Company, upon conversion of a loan made to the Company at the rate of
$10.00 per share.
(113) Shares issued to Worldcom Network Services, Inc., a vendor of the Company,
in connection with the settlement of a lawsuit.
(114) Consists of 50,000 shares of common stock issued to IDT Corporation as a
restructuring fee; 40,000 shares issuable in exchange for 400,000 warrants
currently outstanding and 37,500 shares issuable in the event that a
short-term note of the Company is extended by the Company into a long-term
obligation
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED
The Company's authorized capital stock consists of 100,000,000 shares
of common stock, $.01 par value, and 10,000,000 shares of preferred stock, $.001
par value.
COMMON STOCK
We are authorized to issue 100,000,000 shares of our common stock, $.01
par value per share, of which 5,522,128 shares were issued and outstanding as of
November 9, 1999. All of the outstanding shares of our common stock and those
issuable upon completion of this offering, are and will be, duly authorized,
validly issued, fully paid and non-assessable. Holders of shares of our common
stock are entitled to one vote for each share held of record on all matters to
be voted by shareholders. There are no preemptive, subscription, conversion or
redemption rights pertaining to our common stock. Holders of shares of our
common stock are entitled to receive dividends as they are declared on common
stock by the Board of Directors out of funds legally available therefor and to
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share ratably in the assets available upon liquidation subject to rights of
creditors and any shares of preferred stock.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred
stock, $.001 par value per share.
The preferred stock may be divided by the Board of Directors from time
to time into one or more series. The Board of Directors is authorized to
determine the rights, preferences, privileges and restrictions, including the
dividend rights, conversion rights, voting rights, terms of redemption
(including sinking fund provisions, if any) and liquidation preferences, of any
series of preferred stock and to fix the number of shares of any series without
any further vote or action by stockholders. The Company has no present plans,
proposals, commitments or arrangements to issue any additional shares of
Preferred Stock except in connection with raising additional funds. The
Company's Certificate of Incorporation authorizes the issuance of Preferred
Stock with such designations, rights, and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without shareholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the common stock. The Preferred
Stock may be used for any lawful purpose, and under certain circumstances it may
be deemed to be an anti-takeover device that could be utilized as a method of
discouraging, delaying or preventing a change in control of the Company without
approval of the Company's stockholders.
The Board of Directors of the Company authorized seventy thousand
(70,000) of the ten million (10,000,000) shares of Preferred Stock of the
Company be designated Series A Convertible Preferred Stock, $.001 par value per
share, none of which shares have been issued.
The Board of Directors of the Company authorized two million
(2,000,000) of the ten million (10,000,000) authorized shares of Preferred Stock
of the Company shall be designated Series B Convertible Preferred Stock, $.001
par value per share, of which 1,871,000 shares have been issued. The shares of
Series B Convertible Preferred Stock are convertible into 1,871,000 shares of
common stock at the rate of $1.00 per share. The shares of Series B Convertible
Preferred Stock have a $1.00 per share liquidation preference or an aggregate of
$1,871,000.
The Board of Directors of the Company authorized five hundred thousand
(500,000) of the ten million (10,000,000) authorized shares of Preferred Stock
of the Company shall be designated Series D Convertible Preferred Stock, $.001
par value per share, of which 500,000 shares have been issued. The 500,000
shares of Series D Convertible Preferred Stock are convertible into 1,190,476
shares of common stock at the rate of $4.20 per share. The shares of Series D
Convertible Preferred Stock have a $10.00 per share liquidation preference or an
aggregate of $5,000,000.
The holders of Series B and Series D Convertible Preferred Stock
("Holders") shall be entitled to receive, when, as and if declared by the Board
of Directors of the Company, out of the funds of the Company legally available
therefor, dividends ratably with any declaration or payment of any dividend with
holders of the common stock or other junior securities of the Company, when, as
and if declared by the Board of Directors, based on the number of shares of
common stock into which each share of Series B and Series D Preferred Stock is
then convertible.
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In addition to any other rights provided for herein or by law, the
holders of Series B and Series D Convertible Preferred Stock shall be entitled
to vote, together with the holders of common stock as one class, on all matters
as to which holders of common stock shall be entitled to vote, in the same
manner and with the same effect as such common stock holders. In any such vote,
each share of Series B and Series D Convertible Preferred Stock shall entitle
the holder thereof to the number of votes per share that equals the number of
whole shares of common stock into which each such share of Series B and Series D
Convertible Preferred Stock is then convertible, calculated to the nearest
share.
So long as at least twenty percent (20%) of either the Series B or
Series D Convertible Preferred Stock remains outstanding, the consent of the
holders of two-thirds of the then outstanding Series B or Series D Convertible
Preferred Stock, each voting as one class, either expressed in writing or at a
meeting called for that purpose, shall be necessary to permit effect or validate
the creation and issuance of any series of preferred stock or other security of
the Company which is senior as to distributions to either the Series B or Series
D Convertible Preferred Stock.
So long as at least twenty percent (20%) of either the Series B or
Series D Convertible Preferred Stock remains outstanding, the consent of
two-thirds of the holders of the then outstanding Series B or Series D
Convertible Preferred Stock, each voting as one class, either expressed in
writing or at a meeting called for that purpose, shall be necessary to repeal,
amend or otherwise change the Company's Certificate of Designation or the
Articles of Incorporation, as amended, in a manner which would alter or change
the powers, preferences, rights, privileges, restrictions and conditions of the
Series B or Series D Convertible Preferred Stock so as to adversely affect
either the Series B or Series D Convertible Preferred Stock.
PLAN OF DISTRIBUTION
The selling stockholders shares may be sold from time to time by the
selling stockholders in one or more transactions in the over-the-counter market,
in negotiated transactions or a combination of those methods of sale at market
prices prevailing at the time of sale, at prices related to such market prices
or at negotiated prices. The selling stockholders may also receive shares
without restrictive legend upon exercise or conversion of outstanding
convertible securities.
The selling stockholders shares may be sold from time to time directly
to purchasers by the selling stockholders and/or by their assignees,
transferees, pledgees or other successors for their own accounts and not for the
account of the Company. Alternatively, the selling stockholders may from time to
time offer the selling stockholder shares through underwriters, dealers or
agents. The distribution of the selling stockholder shares by the selling
stockholders may be effected from time to time in one or more transactions or a
combination of such methods of sale, that may take place in the over-the-counter
market including:
o ordinary broker's transactions and transactions in which the broker
solicits purchasers;
o privately negotiated transactions or pledges;
o through sales to one or more broker/dealers for resale of these
shares for their own account as principals, pursuant to this
prospectus;
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<PAGE>
o in a block trade in which the broker or dealer so engaged will
attempt to sell the securities as agent, but may position and resell
a portion of the block as principal to facilitate the transaction; or
o in exchange distributions and/or secondary distributions, at market
prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by these holders in connection with the sales. In any
event however, the maximum compensation (commission, discount or solicitation
fee) to be received by any underwriter, broker-dealer and/or agent will not be
greater than eight (8) percent for sale of any shares and/or warrants.
In connection with distributions of the selling stockholder shares or
otherwise, the selling stockholders may enter into hedging transactions with
broker-dealers. In connection with these transactions, broker-dealers may engage
in short sales of the selling stockholder shares in the course of hedging the
positions they assume with selling stockholders. The selling stockholders also
may sell selling stockholder shares short and deliver the selling stockholder
shares to close out short positions. The selling stockholders also may enter
into option or other transactions with broker-dealers which require the delivery
to the broker-dealer of the selling stockholder shares, which the broker-dealer
may resell pursuant to this prospectus. The selling stockholders also may pledge
the selling stockholder shares to a broker or dealer and upon a default, the
broker or dealer may effect sales of the pledged selling stockholder shares
pursuant to this prospectus.
The selling stockholders and/or their assignees, transferees,
intermediaries, donees, pledgees or other successors in interest through whom
the selling stockholder shares are sold may be deemed "underwriters" within the
meaning of section 2(11) of the Securities Act, with respect to the selling
stockholder shares offered and any profits realized or commissions received may
be deemed to be underwriting compensation. Any broker-dealers that participate
in the distribution of the selling stockholder shares also may be deemed to be
"underwriters," as defined in the Securities Act, and any commissions,
discounts, concessions or other payments made to them, or any profits realized
by them upon the resale of any selling stockholder shares purchased by them as
principals, may be deemed to be underwriting commissions or discounts under the
Securities Act. The selling stockholders have advised us that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of selling stockholder shares by the selling stockholders.
Under states' securities laws, the selling stockholder shares may be
sold only through registered or licensed brokers or dealers. In addition, the
selling stockholder shares may not be sold unless the selling stockholder shares
have been registered or qualified for sale in various states or an exemption
from registration or qualification is available and is complied with.
Registration of the selling stockholder shares is being made pursuant
to the individual securities purchase agreements between us and each of the
selling stockholders. Pursuant to the terms of these agreements, we will pay all
expenses incident to the offering and sale of the selling stockholder shares to
the public except as described hereinafter. We will not pay, among other
expenses, commissions and discounts of underwriters, dealers or agents or the
fees and expenses of counsel for the selling stockholders. In some cases, we
have agreed to indemnify the selling stockholders and may indemnify any
broker-dealer that participates in transactions involving the sale of selling
stockholder shares against various liabilities, including liabilities under the
Securities Act.
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There can be no assurance that we or any of the selling stockholders
will sell any or all of the selling stockholder shares offered by them
hereunder.
The sale of the selling stockholder shares is subject to the prospectus
delivery and other requirements of the Securities Act. To the extent required,
we will use our best efforts to file and distribute, during any period in which
offers or sales are being made, one or more amendments or supplements to this
prospectus or a new registration statement with respect to the selling
stockholder shares to describe any material information with respect to the plan
of distribution not previously disclosed in this prospectus, including, but not
limited to, the number of shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, if any, the
purchase price paid by the underwriter for selling stockholder shares purchased
from a selling stockholder, and any discounts, commissions or concessions
allowed or reallowed or paid to dealers and the proposed selling price to the
public, and other facts material to the transaction. In addition, upon the
Company being notified by a selling stockholder that a donee or pledgee intends
to sell more than 500 shares, a supplement to this prospectus will be filed.
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the selling stockholder shares offered by this
prospectus may not simultaneously engage in market-making activities with
respect to our common stock during the applicable "cooling off" period five
business days prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Regulation M, in connection with
transactions in the shares, which provisions may limit the timing of purchases
and sales of selling stockholder shares by the selling stockholders.
Selling stockholders also may resell all or a portion of the selling
stockholder shares in open market transactions in reliance upon Section 4(l) of
the Securities Act or Rule 144 promulgated thereunder, provided they meet the
criteria and conform to the requirements of such rules.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1998 appearing in this prospectus and Registration Statement have been audited
by Goldstein Golub Kessler LLP, independent auditors, as indicated in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1997 appearing in this prospectus and Registration Statement have been audited
by Durland & Company, CPAs, P.A., independent auditors, as indicated in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
Effective September 17, 1998, Goldstein Golub Kessler LLP were engaged
as the Company's independent accountants for the 1998 fiscal year. The change in
the independent accountants had been approved by the Company's Board of
Directors. Upon the engagement of Goldstein Golub Kessler LLP, the Company
dismissed Durland & Company, CPA's, P.A., its independent accountant for the
years ended December 31, 1996 and 1997. The Company has no disagreements with
its current and former accountants on accounting and financial disclosures.
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LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of the
common stock offered hereby will be passed upon for the Company by Snow Becker
Krauss P.C., New York, New York. Snow Becker Krauss P.C. owns an option to
purchase 300,000 shares of common stock of the Company. SBK Investment Partners,
a partnership consisting of members of Snow Becker Krauss P.C. owns 5,000 shares
of common stock and an option to purchase 50,000 shares of common stock of the
Company.
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PICK COMMUNICATIONS CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
Independent Auditor's Report F-2
Independent Auditor's Report F-3
Consolidated Financial Statements:
Balance Sheet F-4
Statement of Operations F-5
Statement of Stockholders' Deficiency F-6 - F-7
Statement of Cash Flows F-8 - F-9
Notes to Financial Statements F-10 - F-21
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
PICK Communications Corp.
We have audited the accompanying consolidated balance sheet of PICK
Communications Corp. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year then ended. 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PICK Communications
Corp. and Subsidiaries as of December 31, 1998, and the results of their
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 16 to
the consolidated financial statements, the Company has incurred substantial
recurring losses from operations, has a net capital deficiency and has a working
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 16. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 5, 1999, except for portions of
Notes 13 and 17 as to which the
date is March 26, 1999, Notes 6 and 16
as to which the date is April 28, 1999
and except for the last two paragraphs of
Note 17 as to which the dates are
June 23, 1999 and July 23, 1999
F-2
<PAGE>
Report of Certified Public Accountants
To: The Board of Directors
PICK Communications Corp.
Wayne, New Jersey
We have audited the accompanying consolidated balance sheets of PICK
Communications Corp. and its Subsidiaries (the "Company") as of December 31,
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended December 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of PICK
Communications Corp. and its Subsidiaries as of December 31, 1997 and the
results of its operations and its cash flows for the years ended December 31,
1997 and 1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 14 to
the consolidated financial statements, the Company has experienced significant
losses, resulting in a deficit equity position. The Company's financial position
and operating results raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 14. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Durland & Company, CPAs, P.A.
Palm Beach, Florida
April 29, 1998
F-3
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 248,551 $ 44,400
Accounts receivable, less allowance for doubtful accounts of
$351,838 and $326,497, respectively 740,886 451,818
Prepaid expenses and other current assets 575,022 125,816
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 1,564,459 622,034
- ----------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation
and amortization of $428,199 and $68,488, respectively 5,048,551 1,000,083
- ----------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 178,146 24,396
Investment in marketable equity securities - 171,000
Deferred income tax asset, net of valuation allowance of $11,000,000
and 4,800,000 respectively - -
- ----------------------------------------------------------------------------------------------------------------------
Total other assets 178,146 195,396
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 6,791,156 $ 1,817,513
======================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of debt $ 2,127,500 $ 1,000,000
Current portion of capital leases 271,676 146,128
Accounts payable and accrued expenses 7,690,978 4,876,336
Deferred revenue - prepaid calling cards 2,183,806 681,653
Other current liabilities 3,967,841 1,323,525
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 16,241,801 8,027,642
Capital Leases, less current portion 1,042,716 794,905
Short term debt expected to be refinanced, less current portion 9,772,500 -
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 27,057,017 8,822,547
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Consolidated Subsidiary 86,018 88,080
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency:
Common stock - $.01 par value; authorized 10,000,000 shares at December 31,
1998 and 7,500,000 shares at December 31, 1997; 3,820,188 issued and
3,816,638 outstanding at December 31, 1998;
4,332,532 issued and 3,605,982 outstanding at December 31, 1997 38,202 43,325
Additional paid-in capital 4,008,029 5,886,825
Options and warrants 2,687,461 21,242
Treasury stock, at cost, 3,550 and 726,550 shares at
December 31, 1998 and 1997, respectively (11,978) (3,072,222)
Accumulated other comprehensive income - 38,000
Accumulated deficit (27,073,593) (10,010,284)
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (20,351,879) (7,093,114)
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 6,791,156 $ 1,817,513
======================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-4
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs and expenses:
Selling, general and administrative $ 2,094,025 $ 218,917 $ 603,840
Depreciation and amortization 45,805 180,531 4,050
- ----------------------------------------------------------------------------------------------------------------------
Loss before other income (expense) (2,139,830) (399,448) (607,890)
- ----------------------------------------------------------------------------------------------------------------------
Other income (expense):
Gain on in-substance defeasance - - 53,080
License fees - - 3,650,000
Loss on disposal of fixed assets - - (50,271)
Write-off of intangible asset - (441,205) -
Net gains (losses) on marketable equity securities (133,000) (9,449,079) 4,784,000
- ----------------------------------------------------------------------------------------------------------------------
Total other income (expense) (133,000) (9,890,284) 8,436,809
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest in subsidiary
loss, income taxes and discontinued operations (2,272,830) (10,289,732) 7,828,919
Minority interest in subsidiary loss 2,062 434,064 260,541
Benefit (provision) for income taxes - 1,808,000 (1,808,000)
Loss from discontinued operations (14,792,541) (1,452,134) (4,645,670)
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $(17,063,309) $ (9,499,802) $ 1,635,790
======================================================================================================================
Net income (loss) per common share - basic $ (4.62) $ (2.57) $ .39
======================================================================================================================
Weighted average shares outstanding - basic 3,692,356 3,695,853 4,199,150
======================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-5
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Options
Number Paid-in and Stock Treasury
of Shares Amount Capital Warrants Subscription Stock
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 40,542,516 $81,085 $2,018,780 - $(800,000) -
one for ten reverse stock split
(See Note 17) (36,488,264) - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,054,252 81,085 2,018,780 (800,000)
Issuance of common stock for cash
and reduction of receivable 25,000 500 249,500 - (125,000) -
Issuance of common stock
for prepaid advertising 115,000 2,300 2,697,700 - - -
Issuance of common stock for
500,000 shares of Ultimistics, Inc. 125,000 2,500 1,272,500 - - -
Reacquisition of shares for cash (23,000) - - - - $ (29,500)
Reacquisition of shares for cash,
prepaid calling cards and unused
advertising (25,000) - - - - (572,589)
Issuance of common stock for
compensation and services 50,500 1,010 161,240 - - -
Collections of subscription
receivable - - - - 325,000 -
Accumulated other comprehensive
income (loss) - - - - - -
Net income - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,321,752 87,395 6,399,720 - (600,000) (602,089)
Reduction of $.02 to $.01
par value - (43,697) 43,697 - - -
Cancellation of 60,000 shares
subscribed (60,000) (600) (599,400) - 600,000 -
Reacquisition of shares for cash (3,550) - - - - (11,978)
Reacquisition of shares for
unused prepaid advertising, with
a book value of $2,038,155 (75,000) - - - - (2,038,155)
<CAPTION>
Accumulated Total
Other Stockholders'
Comprehensive Accumulated Equity
Income (Loss) Deficit (Deficiency)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 - $(2,146,272) $(846,407)
one for ten reverse stock split
(See Note 17) - - -
- --------------------------------------------------------------------------------------
Balance at December 31, 1995 - (2,146,272) (846,407)
Issuance of common stock for cash
and reduction of receivable - - 125,000
Issuance of common stock
for prepaid advertising - - 2,700,000
Issuance of common stock for
500,000 shares of Ultimistics, Inc. - - 1,275,000
Reacquisition of shares for cash - - (29,500)
Reacquisition of shares for cash,
prepaid calling cards and unused
advertising - - (572,589)
Issuance of common stock for
compensation and services - - 162,250
Collections of subscription
receivable - - 325,000
Accumulated other comprehensive
income (loss) $(3,904,965) - (3,904,965)
Net income - 1,635,790 1,635,790
- ------------------------------------------------------------------------------------
Balance at December 31, 1996 (3,904,965) (510,482) 869,579
Reduction of $.02 to $.01
par value - - -
Cancellation of 60,000 shares
subscribed - - -
Reacquisition of shares for cash - - (11,978)
Reacquisition of shares for
unused prepaid advertising, with
a book value of $2,038,155 - - (2,038,155)
(continued)
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-6
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Options
Number Paid-in and Stock Treasury
of Shares Amount Capital Warrants Subscription Stock
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reacquisition of shares for
Firenze, Ltd. and Ultimistics, Inc. (600,000) - - - - $ (420,000)
Issuance of common stock for
services 22,700 $ 227 $ 42,808 - - -
Issuance of warrants in connection
with short-term debt - - - $ 21,242 - -
Accumulated other comprehensive
income (loss) - - - - - -
Net loss - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,605,902 43,325 5,886,825 21,242 - (3,072,222)
Issuance of common stock for
compensation 66,299 663 296,363 - - -
Issuance of common stock in
connection with private placement 139,437 1,394 864,405 - - -
Issuance of common stock upon - - -
exercise of warrants by director 5,000 50 13,450 - - -
Issuance of warrants in connection
with short-term debt - - - 2,359,940 - -
Issuance of options for compensation - - - 306,279 - -
Cancellation of 723,000
shares of treasury stock - (7,230) (3,053,014) - - 3,060,244
Accumulated other comprehensive
income (loss) - - - - - -
Net loss - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,816,638 $38,202 $ 4,008,029 $2,687,461 $-0- $ (11,978)
================================================================================================================================
<CAPTION>
Accumulated Total
Other Stockholders'
Comprehensive Accumulated Equity
Income (Loss) Deficit (Deficiency)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reacquisition of shares for
Firenze, Ltd. and Ultimistics, Inc. - - $ (420,000)
Issuance of common stock for
services - - 43,035
Issuance of warrants in connection
with short-term debt - - 21,242
Accumulated other comprehensive
income (loss) $3,942,965 - 3,942,965
Net loss - $ (9,499,802) (9,499,802)
- --------------------------------------------------------------------------------------
Balance at December 31, 1997 38,000 (10,010,284) (7,093,114)
Issuance of common stock for
compensation - - 297,026
Issuance of common stock in
connection with private placement - - 865,799
Issuance of common stock upon - -
exercise of warrants by director - - 13,500
Issuance of warrants in connection
with short-term debt - - 2,359,940
Issuance of options for compensation - - 306,279
Cancellation of 723,000
shares of treasury stock - - -
Accumulated other comprehensive
income (loss) (38,000) - (38,000)
Net loss - (17,063,309) (17,063,309)
- --------------------------------------------------------------------------------------
Balance at December 31, 1998 $ -0- $(27,073,593) $(20,351,879)
======================================================================================
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-7
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(17,063,309) $(9,499,802) $ 1,635,790
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Loss (gain) on marketable securities 133,000 9,449,079 (4,784,000)
Revenue from license fees - - (3,650,000)
Gain on in-substance defeasance - - (53,080)
Advertising expense - - 256,845
Stock, options and warrants issued for compensation
or services 603,305 64,277 162,250
Amortization of debt discounts and placement expenses 4,656,773 - -
Depreciation and amortization 359,711 180,531 181,758
Write-off of intangible asset - 441,205 -
Loss on abandonment of property and equipment - - 50,271
Minority interest in subsidiary loss (2,062) (434,064) (260,541)
Bad debt expense 125,740 253,270 219,746
Adjustment to provision for contingent liabilities - (649,563) 1,749,563
Provision (benefit) for deferred income taxes - (1,808,000) 1,808,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (414,808) 73,092 (163,490)
Decrease (increase) in other operating assets (602,956) (44,046) 175,716
Increase in accounts payable and accrued expenses 2,814,642 3,408,763 880,161
Increase (decrease) in deferred revenue 1,502,153 (985,735) 862,005
Increase (decrease) in other operating liabilities 2,814,316 (868,679) (289,375)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,073,495) (419,672) (1,218,381)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in debt securities - - (371,920)
Purchase of property and equipment (3,817,153) (6,510) (65,966)
- ----------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (3,817,153) (6,510) (437,886)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Common stock issued for cash 13,500 - 250,000
Common stock issued for cash by subsidiary - - 527,612
Acquisition of treasury stock for cash - (11,978) (44,500)
Proceeds from stock subscriptions receivable - - 200,000
Principal paid on capital leases (217,667) - -
Proceeds from third-party debt 11,468,966 250,000 750,000
Payments on third-party debt (2,000,000) - (75,000)
Funds advanced by stockholder 15,000 170,000 75,152
Payments on stockholder advances (185,000) (25,152) (50,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,094,799 382,870 1,633,264
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 204,151 (43,312) (23,003)
Cash at beginning of year 44,400 87,712 110,715
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 248,551 $ 44,400 $ 87,712
======================================================================================================================
(continued)
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-8
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $1,167,716 $ 75,877 $ 8,271
==================================================================================================================
Supplemental schedule of noncash investing and
financing activities:
Assets acquired under capital leases $ 591,026 $ 941,033 -
==================================================================================================================
Discount on short-term debt $1,312,934 - -
==================================================================================================================
Book value of marketable equity securities exchanged
for common stock of the Company and its subsidiary - $6,390,625 -
==================================================================================================================
Book value of marketable equity securities exchanged
for other marketable equity securities - $4,085,000 -
==================================================================================================================
Book value of prepaid advertising and telephone cards
exchanged for common stock of the Company and
its subsidiary - $2,458,155 $ 557,589
==================================================================================================================
Stock issued for investment in marketable equity securities - - $1,275,000
==================================================================================================================
Stock issued for suscriptions receivable - - $ 125,000
==================================================================================================================
Stock issued to acquire prepaid advertising - - $2,700,000
==================================================================================================================
In-substance defeasance - - $ 425,000
==================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-9
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PRINCIPAL PICK Communications Corp. and Subsidiaries acted as a
BUSINESS wholesaler of long-distance telephone services and sold
ACTIVITY AND prepaid telephone calling cards through distributors.
SUMMARY OF Currently, the Company intends to provide satellite-based
SIGNIFICANT Internet access and interactive multimedia services to end
ACCOUNTING user service providers. Subsequent to the year end, the
POLICIES: Company discontinued the operations of its long distance
telephone service and prepaid calling card business
consisting of PICK US, PICK Net and PICK Net UK. (See note
17). The Company is headquartered in Wayne, New Jersey, and
also leases facilities and telephone switching equipment in
Jersey City, New Jersey, and Miami, Florida.
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned
subsidiaries: PICK US Inc. f/k/a PICK Inc. ("PICK US"); PICK
Net Inc. ("PICK Net"); PICK Net UK PLC; PICK Sat Inc. and
P.C.T. Prepaid Telephone, Inc. ("PCT"), a majority-owned
subsidiary (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated.
Subsequent to year-end, the Company formed a new subsidiary,
PICK Online.Com Inc., a media content aggregator using a
satellite-based multicast delivery system for Internet
Service Providers and Broadband Networks.
Minority interest represents the minority shareholders'
proportionate share of the equity and loss of PCT.
For comparability, certain 1997 and 1996 amounts have been
reclassified, where appropriate, to conform to the
consolidated financial statement presentation used in 1998.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated 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 consolidated balance sheet and revenue and expenses for
the periods then ended. Actual results could differ from
those estimates.
Sales from discontinued operations of long-distance time are
recognized at the time that service is provided, as reported
by the electronic switching devices. The Company defers
revenue from discontinued operations related to prepaid
calling cards (which is recorded net of distributor
discounts) and recognizes revenue from discontinued
operations as the card is used.
Basic net loss per share is computed by dividing the net loss
by the weighted-average number of common shares outstanding
during the year. Diluted net loss per share is not presented
because the inclusion of common share equivalents would be
antidilutive.
The Company does not believe that any recently issued but not
yet effective accounting standards will have a material
effect on the Company's consolidated financial position,
results of operations or cash flows.
In 1998, approximately 72% and 10% of revenue from
discontinued operations were from two customers; in 1997,
approximately 19% and 13% of revenue from discontinued
operations were from two customers; and in 1996,
approximately 36% and 25% of revenue from discontinued
operations were from two customers. The Company performs
periodic credit evaluations of its customers, and may, under
certain circumstances, require deposits or prepayments where
deemed appropriate.
F-10
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Two customers comprised approximately 65% and 11%
of gross accounts receivable from discontinued
operations, respectively, at December 31, 1998.
Five customers comprised approximately 35%, 20%,
16%, 13% and 10% of gross accounts receivable from
discontinued operations, respectively, at December
31, 1997. The Company also purchases
telecommunications services from many of its
customers. Frequently, accounts receivable from
discontinued operations are settled by set-offs
against liabilities with the same party.
Depreciation of property and equipment is provided
for by the straight-line method over the estimated
useful lives of the related assets.
The Company's intangible assets (patent and
related rights for prepaid cellular technology)
were valued at cost and amortized over their
estimated useful lives of five years. Since, among
other factors, this technology generated no
revenue during 1997, the Company elected to write
off the unamortized balance at December 31, 1997.
The Company accounts for income taxes in
accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income
Taxes. The Company recorded a deferred tax asset
for the tax effect of net operating loss
carryforwards and temporary differences. In
recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be
derived, the Company has recorded a full valuation
allowance.
2. PREPAID Prepaid expense and other current assets consist
EXPENSES AND of the following:
OTHER CURRENT
ASSETS:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment for resale $100,624 $ 2,054
Prepaid expenses 99,722 27,699
Advances and other current assets 225,020 -
Deposits 149,656 96,063
----------------------------------------------------------------------------------------
$575,022 $125,816
========================================================================================
</TABLE>
F-11
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. PROPERTY AND Property and equipment, at cost, consists of the
EQUIPMENT: following:
<TABLE>
<CAPTION>
Estimated
December 31, 1998 1997 Useful Life
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property, equipment and software $1,186,464 $ 127,538 3 and 5 years
Telephone switching equipment 1,532,059 941,033 5 years
Asset development/installation
in process 2,758,227 -
----------------------------------------------------------------------------------------
5,476,750 1,068,571
Less accumulated depreciation and
amortization 428,199 68,488
----------------------------------------------------------------------------------------
$5,048,551 $1,000,083
========================================================================================
</TABLE>
Telephone switching equipment was acquired under
capital leases costing $1,252,271 and $941,033 at
December 31, 1998 and 1997, respectively, net of
accumulated depreciation of approximately $280,000
at December 31, 1998.
Asset development/installation in process consists
of (i) hardware and software costs related to the
Company's high-speed Internet business, which is
under development, and (ii) costs of
telecommunication equipment being installed.
Depreciation will commence when the development
and/or installation is complete and the assets are
fully operational.
4. PREPAID In October 1995, the Company acquired the
CELLULAR worldwide rights to market, distribute, sell and
TELEPHONE manufacture a prepaid cellular telephone
TECHNOLOGY technology for $712,500, of which $212,500 was
AND WRITE-OFF paid by the issuance of 10,000 shares of the
OF INTANGIBLE Company's stock. Although the Company believes
ASSET: this technology may prove to have value, the
technology generated no revenue in 1997 and the
Company elected to write off its remaining
investment ($441,205) as of December 31, 1997.
5. INVESTMENT IN In 1996, the Company acquired 4,700,000 restricted
MARKETABLE shares of the common stock of Ultimistics, Inc.
EQUITY ("Ultimistics"). During the first quarter of 1997,
SECURITIES: the Company, in four separate transactions,
disposed of all of its shares of Ultimistics,
along with $420,000 of prepaid advertising, in
return for (i) 100,000 shares of the Company's
common stock, (ii) 10,000,000 shares of PCT, and
(iii) 380,000 restricted shares of the common
stock of Fairbanks, Inc. (which subsequently
changed its name to Jet Vacations, Inc. and then
Precom Tech Inc.). The Company recorded losses of
$9,399,079 on these transactions. During 1998, the
balance of $133,000 was written off.
F-12
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
6. SHORT-TERM DEBT Debt consists of the following:
EXPECTED TO BE
REFINANCED:
<TABLE>
<CAPTION>
December 31, 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings from bank - $ 750,000(a)
Loan from customer/supplier $ 2,000,000(c) -
Private placement debt 9,900,000(d) 250,000(b)
-----------------------------------------------------------------------------------------------
11,900,000 1,000,000
Less current portion of debt 2,127,500 1,000,000
-----------------------------------------------------------------------------------------------
Short-term debt expected to be refinanced, less current portion $ 9,772,500 $ -
===============================================================================================
</TABLE>
(a) The bank borrowing was repaid on July
29,1998 from a portion of the proceeds of
the borrowing discussed below (d).
(b) The $250,000 short-term loan outstanding at
December 31, 1997 was repaid in April 1998
from the borrowing discussed in the
following paragraph. As additional
compensation for lending the Company funds,
the individual was initially granted
warrants (exercisable over three years) to
purchase 25,000 shares of the Company's
common stock at $5.00 per share. In return
for extending the maturity date of the loan
from March 9, 1998 to April 13, 1998, the
individual was granted warrants for an
additional 12,500 shares on the same terms.
Management estimates the value of these
additional warrants reflected in interest
expense in 1998 at $5,750.
(c) In February 1998, the Company amended its
existing telecommunications agreement with
IDT Corporation ("IDT"), one of its long
distance vendors/customers. Under the terms
of the amendment, the Company agreed to sell
IDT up to 10,000,000 minutes per month of
long distance traffic, through June 9, 1999,
at favorable rates and IDT agreed to lend
the Company $2,000,000. Of this amount,
$500,000 was funded when the transaction was
signed, $1,000,000 was funded in April 1998
and the remaining $500,000 was advanced in
June 1998. Concurrently, the Company has
issued 100,000 warrants with an exercise
price of $2.40 per share to purchase 10,000
shares of common stock, 200,000 warrants
with an exercise price of $10.00 per share
to purchase 20,000 share of common stock
and 100,000 warrants with an exercise price
of $5.60 per share to purchase 10,000
shares of common stock. The warrants are
exercisable for a period of one year from
the respective dates of grant. Management
estimates the value of these warrants
reflected in interest expense in 1998 at
$30,879. The loan bears interest at 9% per
annum and matured on February 9, 1999. In
April 1999 the Company and IDT agreed in
principal to a new note (the "New Note") due
in six months with a principal amount of
$2,060,000 at 12% interest per annum. The
Company is required to make a payment of
$500,000 on May 31, 1999, half of which
shall be applied to the New Note and the
balance against accounts receivable due to
IDT. Thereafter, the Company has agreed to
pay IDT $50,000 per month against the New
Note. In connection with the New Note, the
Company has granted additional shares of
common stock and warrants as defined in the
agreement.
<PAGE>
In April 1998, the Company borrowed
$1,000,000 from unaffiliated investors. The
loan was unsecured, bore interest at 10% per
annum and matured July 1, 1998. In
consideration for advancing the funds, the
lenders received warrants to purchase
100,000 shares of the Company's common
stock at $3.50 per share, which are
exercisable on or before April 1, 2001. The
$175,000 value assigned to these warrants is
reflected in interest expense. The placement
agent for this loan received $75,000 and
warrants to purchase 25,000 shares of the
Company's common stock at $3.50 per share.
The $43,750 value assigned to these warrants
is included in debt placement expenses. This
borrowing was repaid on July 31, 1998 from a
portion of the proceeds of the borrowing
discussed below. Because the borrowing was
repaid after the maturity date, the interest
rate was increased, effective July 1, 1998,
to 18% and the lenders and the placement
agent were granted warrants to purchase
125,000 shares of the Company's common
stock, exercisable through August 14, 2001,
at $2.50 per share. Management estimates the
value of these warrants reflected in
interest and debt placement expense at
$326,900 and $81,725, respectively.
F-13
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(d) Between July 29, 1998 and September 8, 1998,
the Company, through Commonwealth Associates
("Commonwealth") placed $9,900,000 (face
amount) of 10%, 120-day Senior Secured Notes
(the "Original Notes") and 9,900,000 warrants
to purchase 990,000 shares of the Company's
common stock at $5.00 per share for five
years (the "Placement"). The Notes are
secured by all of the assets of PICK
Communications Corp. The Company allocated
$8,587,066 of the gross sale proceeds to the
debt and $1,312,934 to the warrants. The
$1,312,934 discount was amortized as interest
expense over the original 120-day life of the
Notes. In November and December 1998, the
Company exercised its right to extend the
maturity date of the Notes for 60 days. Under
the terms of the Notes, the interest rate of
the Notes was increased to 18% per annum,
retroactive to the issuance of the Notes. In
January, February and March 1999, the holders
of the Notes agreed to extend the maturity of
the Notes until April 27, 1999. In return for
the extensions, the Company agreed to issue
50,000 shares of its common stock and
warrants to purchase 247,500 shares of the
Company's common stock for five years at
$5.00 per share to the holders of the Notes.
On April 27, 1999, the holders of the
Original Notes, who control in excess of 90%
of the principal which was due on April 27,
1999, consented to restructure their Original
Notes (the "Restructured Notes") and extend
the maturity date until April 27, 2002. In
return, the Company has agreed, for a two
year period, to allow each of the holders of
the Restructured Notes certain rights
regarding the purchase or exchange of the
Company's common stock or warrants as
defined in the agreement.
For the Placement of the Original Notes, the
Company paid Commonwealth and Liberty Capital (the
Company's co-financial advisor) $1,099,000 in
cash, issued 139,437 shares of common stock
(valued at $865,799) and warrants to purchase
250,986 shares of common stock at $5.00 per
share for five years (valued at $383,002). The
costs related to the Placement were being deferred
and amortized as debt placement expenses over the
term of the debt. At December 31, 1998, all debt
placement expenses were amortized and included in
the consolidated statement of operations.
7. ACCOUNTS Accounts payable and accrued expenses consist of
PAYABLE AND the following.
ACCRUED
EXPENSES:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 31, 1998 1997
----------------------------------------------------------------------------------------
Accounts payable - operating $5,530,511 $4,480,815
Accrued expenses - operating 510,467 395,521
Accrued expenses - for equipment 1,650,000 -
----------------------------------------------------------------------------------------
$7,690,978 $4,876,336
========================================================================================
</TABLE>
Accounts payable at December 31, 1998 include
$1,120,544 payable to WorldCom Network Services,
Inc., which was payable in monthly installments of
between $350,000 and $385,544, plus interest at
18% per annum, through December 1998. The Company
is in the process of renegotiating payment terms
(see Note 13).
F-14
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
8. OTHER CURRENT Other current liabilities consist of the following:
LIABILITIES:
<TABLE>
<CAPTION>
December 31, 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve for contingent liability $1,100,000 $1,100,000
Advance from customer 1,000,000 -
Provision for loss on deferred revenue -
prepaid calling cards 1,580,000 -
Customer deposits 287,841 -
Advances from stockholder - 170,000
Accrued compensation due to stockholders - 53,525
----------------------------------------------------------------------------------------
$3,967,841 $1,323,525
========================================================================================
</TABLE>
9. CAPITAL LEASE The Company leases telephone switching equipment
OBLIGATIONS: under capital leases which expire during 2002. The
leases require monthly payments of principal and
interest imputed at 12% per annum.
Future minimum lease payments under capital leases
are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C> <C>
1999 $ 414,783
2000 414,783
2001 414,783
2002 414,783
----------------------------------------------------------------------------------------
1,659,132
Less amount representing interest 344,740
----------------------------------------------------------------------------------------
1,314,392
Less current portion 271,676
----------------------------------------------------------------------------------------
Capital leases, less current portion $1,042,716
========================================================================================
</TABLE>
10. COMMITMENTS: The Company leases facilities under noncancelable
operating leases expiring from July 2000 through
October 2003. The future minimum payments due
under such leases as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
<S> <C> <C>
1999 $ 482,483
2000 400,744
2001 251,425
2002 169,769
2003 144,994
----------------------------------------------------------------------------------------
Total payments $1,449,415
========================================================================================
</TABLE>
F-15
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Rental expense under operating leases was
$356,718, $106,586 and $45,315 for the years ended
December 31, 1998, 1997 and 1996, respectively.
The Company has the right to renew its operating
leases for terms of between three and five years.
At December 1998, the Company has outstanding
commitments for the purchase of telecommunications
and computer equipment and for the license of
computer software of approximately $690,000.
In September 1998, the Company entered into an
employment agreement with a key executive. This
agreement commenced January 1, 1999. The agreement
provides for annual base salaries of $300,000,
$350,000, $400,000, $450,000 and $500,000 for the
next five years. In addition, the agreement
provides for additional compensation, as defined
in the agreement.
11. INCOME TAXES: The Company's deferred tax assets at December 31,
1998 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Federal $ 9,300,000
State 1,700,000
----------------------------------------------------------------------------------------
11,000,000
Less valuation allowance (11,000,000)
----------------------------------------------------------------------------------------
Net deferred tax assets $ - 0 -
========================================================================================
</TABLE>
The deferred tax assets are comprised of the tax
benefit of net operating loss carryforwards and
capital loss carryforwards of approximately
$20,000,000 and $8,300,000, respectively, at
December 31, 1998. These losses are available to
offset future taxable income through the years
2018 and 2003, respectively.
12. CONTRACT WITH In February 1998, the Company entered into a
BLACKSTONE two-year agreement with Blackstone Calling Card,
CALLING CARD, Inc. ("Blackstone" and the "Blackstone
INC.: Agreement"), a major distributor of prepaid
telephone calling cards. Under the terms of the
Blackstone Agreement, as amended, after a
six-month phase-in period commencing April 27,
1998, Blackstone would purchase prepaid calling
cards with a minimum retail value of $5,000,000
per month from the Company, which was expected to
result in net revenue of approximately $3,000,000
per month to the Company. While Blackstone's
purchases from the Company had increased
significantly during the first nine months of the
contract, it is anticipated that the Blackstone
Agreement will have to be amended to raise the per
minute rates charged to users of the prepaid
telephone calling cards sold through Blackstone
and lower the purchase minimum amount and the
corresponding revenue to the Company. The
Blackstone Agreement is also subject to
termination by either party without cause at the
end of any year upon 60 days' prior notice, or by
Blackstone if the Company fails to maintain
overall network quality.
Other current liabilities includes a provision of
$1,580,000 for anticipated losses from providing
future service on prepaid telephone calling cards
sold prior to December 31, 1998.
F-16
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
13. LITIGATION AND The Company is, from time to time, party to
RESERVE FOR litigation that arises in the ordinary course of
CONTINGENT its business operations. Except as described
LIABILITY: below, the Company is not presently a party to any
litigation that it believes would have a material
adverse effect on its business.
In February 1997, the Company commenced a
mediation action against American Telephone &
Telegraph ("AT&T") seeking $10,000,000 in damages
for breach of contract and fraudulent inducement
and malicious conduct under a carrier agreement
(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. The Company claims that AT&T reneged on
certain commitments to provide the Company with
lower international rates than the Company was
invoiced by AT&T. AT&T has claimed that the
Company owes it in excess of $1,000,000. In 1996,
the Company provided for a noncash reserve of
$1,750,000, which was reduced to $1,100,000 in the
third quarter of 1997. The reserve is included in
other current liabilities in the accompanying
consolidated financial statements. After two
mediation sessions, AT&T indicated that it
intended to withdraw from the mediation. On
November 5, 1997, the Company filed for
arbitration proceedings against AT&T and reduced
its claim to $5,000,000. The trial began on April
19, 1999 and ended on April 22, 1999. There can be
no assurance that the Company will be able to
prevail in this arbitration. Any adverse judgement
or settlement could have a material impact on the
Company's financial condition.
During March of 1999, Worldcom Network Services,
Inc., d/b/a Wiltel, (Worldcom) commenced a lawsuit
against the Company in the United States District
Court, Southern District of New York demanding a
judgment in the amount of $1,256,622 which
includes interest of 18% per annum plus costs and
expenses. The plaintiff had previously sued the
Company for failure to pay for telecommunications
services provided and the parties reached
agreement on a settlement. However, the Company
has not made the required payments. On April 15,
1999 the Company and Worldcom agreed to a 90-day
extension of monies due at an interest rate of 16%
per annum payable by June 30, 1999. Accounts
payable and accrued expenses includes a liability
of $1,137,352 for this settlement at December 31,
1998.
F-17
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. STOCK OPTIONS:
In February 1996, the Company adopted an incentive
stock option plan for employees, directors,
independent contractors and consultants of the
Company which provides for the grant of stock
options and stock appreciation rights. Options may
be granted at prices not less than fair market
value of the Company's common stock at the date of
grant and may not be exercised more than 10 years
after the date granted. Unless otherwise provided,
options vest at a rate of 20% a year commencing
with the date of grant. Pursuant to this plan an
aggregate of 750,000 shares of common stock have
been reserved for issuance. Of the total number of
shares of common stock as of December 31, 1998,
395,500 shares of common stock relate to options
issued outside of the incentive stock option plan.
Transactions related to stock options are as
follows:
<TABLE>
<CAPTION>
Number of Weighted-average
Shares Price per share
----------------------------------------------------------------------------------------
<S> <C> <C>
Granted during 1996 350,000 $ 8.80
----------------------------------------------------------------------------------------
Balance at December 31, 1996 350,000 8.80
Granted 450,000 2.30
Expired/canceled (350,000) (8.80)
----------------------------------------------------------------------------------------
Balance at December 31, 1997 450,000 2.30
Granted 680,000 5.20
Exercised (5,000) (2.70)
----------------------------------------------------------------------------------------
Balance at December 31, 1998 1,125,000 $ 4.10
========================================================================================
</TABLE>
The weighted-average fair value per share of
options granted during the years ended December
31, 1998, 1997 and 1996 amounted to $1.30, $6.40
and $1.00, respectively.
Approximately $306,000 is reflected in selling,
general and administrative expenses for the year
ended December 31, 1998 relating to options
granted to nonemployees.
The Company has elected, in accordance with the
provisions of SFAS No. 123, "Accounting for Stock
Based Compensation" to apply the current
accounting rules under Accounting Principles Board
Opinion No. 25 and related interpretations in
accounting for its stock options and, accordingly,
has presented the disclosure-only information as
required by SFAS No. 123. If the Company had
elected to recognize compensation cost based on
the fair value of the options granted at the grant
date as prescribed by SFAS No. 123, the Company's
net income (loss) and net income (loss) per common
share for the years ended December 31, 1998, 1997
and 1996 would approximate the pro forma amounts
indicated in the table below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $(17,063,309) $ (9,499,802) $1,635,790
Net income (loss) - pro forma $(17,253,914) $(10,138,680) $1,295,676
Diluted net income (loss) per
common share - as reported $(4.62) $(2.57) $ .39
Diluted net income (loss) per
common share - pro forma $(4.67) $(2.74) $ .31
----------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated
on the date of grant using the Black-Scholes
option-pricing model with the following
weighted-average assumptions used for the years
ended December 31, 1998, 1997 and 1996,
F-18
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
respectively; expected volatility of 18%, 134% and
68%, respectively; risk-free interest rates of
6.01%, 6.00% and 6.26%, respectively; no
annualized dividends paid with respect to a share
of common stock at the date of grant, and options
have expected lives of between two and five years.
The following table summarizes information about
fixed stock options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
------------------------------------------------------------------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Range of Exercise Prices 1998 Life (Years) Price 1998 Price
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 - $1.70-$2.70 395,000 0.6 $2.10 395,000 $2.10
2 - $3.00-$4.10 135,000 1.8 $3.60 135,000 $3.70
3 - $5.00-$5.50 575,000 4.2 $5.40 270,375 $5.40
4 - $6.10-$9.90 20,000 3.8 $8.00 20,000 $8.00
------------------------------------------------------------------------------------------
Total 112,500 2.6 $4.10 820,375 $5.40
==========================================================================================
</TABLE>
15. COMPREHENSIVE Comprehensive income, as defined in SFAS No. 130,
INCOME(LOSS): "Reporting Comprehensive Income", includes all
changes in equity during a period from nonowner
sources. An example of items included in
comprehensive income that are excluded from net
income are unrealized gains or losses on
marketable equity securities. For the years ended
December 31, 1998, and 1997, changes in
accumulated other comprehensive income (loss) were
($38,000) and $3,942,965, respectively and
relates to unrealized gains or losses on
marketable equity securities.
16. GOING CONCERN The accompanying consolidated financial statements
MATTERS: have been prepared assuming 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. The
Company has incurred substantial recurring losses
from operations, has a net capital deficiency
in the amount of $20,351,879 and has a working
capital deficiency of $14,677,342 that raise
substantial doubt about its ability to continue as
a going concern. In addition, the Company had
negative cash flow from operations in the years
ended December 31, 1998, 1997 and 1996.
Significant short-term obligations exist including
the payment of a settlement with Wiltel in the
amount of $1,256,622 payable by June 30, 1999 (See
Note 13); an agreement with IDT which requires a
payment of $500,000 by May 31, 1999 (See Note
(6c)) and normal cash flows from operations.
Without the Company's ability to extend the
pay-out terms of the aforementioned liabilities or
obtain additional long-term financing, as well as
increasing revenue and/or decreasing expenses, the
F-19
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Company will be unable to continue as a going
concern. The financial statements do not include
any adjustments relating to the recoverability of
assets or the classification of liabilities should
the Company be unable to continue as a going
concern.
The Company is negotiating with several potential
investors to raise additional funds through
private placement of debt and/or equity. The
Company believes that these plans, if successfully
implemented, will enable it to continue as a going
concern. However, there can be no assurance that
the Company will be successful in either
generating positive operating income or raising
additional funds in the immediate future in
amounts sufficient to allow it to continue as a
going concern.
17. SUBSEQUENT During March 1999, the Company authorized the
EVENTS: issuance of Series B and Series D Convertible
Preferred Stock totaling 2,500,000 shares of
convertible preferred stock. The Series B
Convertible Preferred Stock has a stated par value
of $.001 per share and is convertible into
2,000,000 shares of the Company's common stock.
The Series D Convertible Preferred Stock has a
stated par value of $.001 per share and is
convertible into 1,190,500 shares of the
Company's common stock.
During early 1999, the Company formed a 100% -
owned subsidiary, PICK Online.Com, Inc. to provide
audio and video broadcasting from radio and
television stations to be sent over the Internet.
This company is in its development stage and
management anticipates operations to commence
during 1999.
On March 3, 1999, the Board of Directors granted
each of the four independent directors three year
options to purchase 50,000 shares of common stock
at $5.10 per share. These options shall be fully
vested on March 3, 2000.
The Company intends to increase its authorized
shares of common stock from 10,000,000 to
40,000,000.
On June 23, 1999, the Company formalized its plan
to discontinue its long distance telephone service
and prepaid calling card business consisting of
PICK US, Pick Net and PICK Net UK. Accordingly,
the long distance telephone service and prepaid
calling card business are accounted for as a
discontinued operation in the accompanying
consolidated financial statements. The Company is
in the process of negotiating the sale of PICK Net
and PICK Net UK and the discontinuance of the
operation of PICK US. Management expects the sale
and discontinuance will be completed during 1999
and will reduce the Company's debt and working
capital deficiency.
<PAGE>
Operating results of discontinued long distance
telephone service and prepaid calling card
business are as follows:
For the year ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
Sales of long-distance services $ 1,978,441 $ 7,669,243 $4,444,342
Sales of prepaid calling cards 7,844,462 1,346,660 1,425,340
- --------------------------------------------------------------------------------
Net sales 9,822,903 9,015,903 5,869,682
- --------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 16,392,544 8,439,186 8,150,794
Selling, general and administrative 1,786,075 1,617,912 1,947,302
Depreciation and amortization 313,906 -- 177,708
Bad debt expense 125,740 253,270 219,746
- --------------------------------------------------------------------------------
Total costs and expenses 18,618,265 10,310,368 10,495,550
- --------------------------------------------------------------------------------
Loss before amortization of
debt placement and
interest expense (8,795,362) (1,294,465) (4,625,868)
Amortization of debt placement
expenses and interest expense 5,997,179 157,669 19,802
- --------------------------------------------------------------------------------
Loss from Discontinued Operations $(14,792,541) $(1,452,134) $(4,645,670)
================================================================================
During July of 1999, the Company's Board of
Directors authorized a one for ten reverse split
of its common stock effective July 23, 1999. All
shares and per-share amounts in the accompanying
consolidated financial statements have been
restated to give effect to the reverse stock
split.
F-20
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
18. ALLOWANCE FOR Information relating to the allowance for doubtful
DOUBTFUL accounts is as follows at December 31,:
ACCOUNTS:
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Balance at
of Year Expense Deductions End of Year
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 42,650 $219,746 $ 98,233 $164,163
========================================================================================
1997 $164,163 $253,270 $ 90,936 $326,497
========================================================================================
1998 $326,497 $125,740 $100,399 $351,838
========================================================================================
</TABLE>
F-21
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the Six Months Ended
June 30, 1999
(unaudited)
And The Year ended December 31, 1998, As adjusted(1)
Consolidated Financial Statements:
Balance Sheet F-23
Statement of Operations F-24
Statement of Stockholder' Deficiency F-25
Statement of Cash Flows F-26
Notes to Financial Statements F-27 - F-37
(1) The June 30, 1999 10-Q gives effect to the discontinued operations of the
long distance telephone service and the prepaid calling card business.
Accordingly the December 31, 1998 balance sheet, statement of operations,
and statement of cash flows presentation gives effect to the discontinued
operations.
F-22
<PAGE>
<TABLE>
<CAPTION>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
=======================================================================================================================
June 30, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 465,915 $ 17,052
Prepaid expenses and other current assets 361,082 278,352
Current assets from discontinued operations 318,915 1,269,055
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 1,145,912 1,564,459
- -----------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation
of $156,603 and $114,293, respectively 4,366,267 3,195,169
- -----------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 250,000 161,796
Deferred income tax asset, net of valuation allowance of $11,000,000 - -
Long-term assets from discontinued operations 1,923,663 1,869,732
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 2,173,663 2,031,528
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,685,842 $ 6,791,156
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Current portion of debt $ - $ 20,000
Accounts payable and accrued expenses 3,921,691 2,797,133
Advance from customer 1,000,000 1,000,000
Current liabilities from discontinued operations 12,939,314 12,317,168
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,861,005 16,134,301
Debt, less current portion 9,880,000 9,880,000
Long-term Liabilities from Discontinued Operations 1,042,716 1,042,716
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 28,783,721 27,057,017
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Consolidated Subsidiary 86,018 86,018
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 10,000,000 shares at June 30,
1999;
2,000,000 shares designated as Series B convertible preferred stock,
aggregate liquidation value - $1,871,000, issued and outstanding 1,871,000 shares 1,871,000 -
500,000 shares designated as Series D convertible preferred stock, aggregate
liquidation value - $4,660,000, issued and outstanding 466,000 shares 4,660,000 -
Common stock - $.01 par value; authorized 40,000,000 and 10,000,000 shares,
respectively; issued and outstanding 4,402,698 and 3,816,638 shares, respectively 44,062 38,202
Additional paid-in capital 75,367,972 4,008,029
Options and warrants 2,720,071 2,687,461
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated deficit (105,835,024) (27,073,593)
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (21,183,897) (20,351,879)
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 7,685,842 $ 6,791,156
=======================================================================================================================
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
=======================================================================================================================
Three-month Six-month
period ended period ended
June 30, June 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Costs and expenses:
Selling, general and administrative $ 1,123,212 $ 284,118 $ 2,075,703 $ 455,217
Depreciation and amortization 27,736 6,715 42,310 13,193
- -----------------------------------------------------------------------------------------------------------------------
Loss before minority interest in subsidiary loss,
provision for income tax, and
discontinued operations (1,150,948) (290,833) (2,118,013) (468,410)
Minority interest in subsidiary loss - 457 - 914
Provision for income tax - (880) - (880)
Discontinued operations:
Loss from discontinued operations (2,015,551) (1,475,805) (4,364,730) (2,308,451)
Loss on disposal (47,108,711) - (47,108,711) -
- -----------------------------------------------------------------------------------------------------------------------
Net loss $(50,275,210) $ (1,767,061) $ (53,591,454) $ (2,776,827)
=======================================================================================================================
Beneficial conversion feature of
preferred stock (21,600,000) - (25,170,000) -
- -----------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $(71,875,210) $ (1,767,061) $ (78,761,454) $ (2,776,827)
=======================================================================================================================
Net loss per common share - basic $ (15.62) $ (.49) $ (18.39) $ (.76)
=======================================================================================================================
Weighted-average shares outstanding - basic 4,602,698 3,640,391 4,281,860 3,633,975
=======================================================================================================================
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(unaudited)
====================================================================================================================================
Series B Preferred Stock Series D Preferred Stock Common Stock Additional
Number Number Number Paid-in
of Shares Amount of Shares Amount of Shares Amount Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 -- -- -- -- 3,816,638 $38,202 $ 4,008,029
Issuance of preferred stock 1,871,000 $1,871,000 466,000 $4,660,000 -- -- --
Issuance of common stock for services -- -- -- -- 295,012 2,950 3,903,393
Issuance of options for services -- -- -- -- -- -- --
Issuance of warrants in connection with debt -- -- -- -- -- -- --
Expiration of options and warrants -- -- -- -- -- -- 89,743
Preferred stock issuance cost -- -- -- -- -- -- (85,000)
Issuance of common stock upon
exercise of options and warrants -- -- -- -- 291,048 2,910 645,710
Loss on Disposal -- -- -- -- -- -- 41,636,097
Beneficial dividend -- -- -- -- -- -- 25,170,000
Other -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 1,871,000 $1,871,000 466,000 $4,660,000 4,402,698 $44,062 $75,367,972
====================================================================================================================================
<CAPTION>
Options Subscription
and and Note Treasury Accumulated Stockholders'
Warrants Receivable Stock Deficit Deficiency
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 2,687,461 -- $ (11,978) $ (27,073,593) $ (20,351,879)
Issuance of preferred stock -- -- -- -- 6,531,000
Issuance of common stock for services -- -- -- -- 3,906,343
Issuance of options for services 31,500 -- -- -- 31,500
Issuance of warrants in connection with debt 734,473 -- -- -- 734,473
Expiration of options and warrants (89,743) -- -- -- --
Preferred stock issuance cost -- -- -- -- (85,000)
Issuance of common stock upon
exercise of options and warrants (643,620) $ (5,000) -- -- --
Loss on Disposal -- -- -- -- 41,636,097
Beneficial dividend -- -- -- (25,170,000) --
Other -- 5,000 -- 23 5,023
Net loss -- -- -- (53,591,454) (53,591,454)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 $ 2,720,071 $ -- $ (11,978) $(105,835,024) $ (21,183,897)
====================================================================================================================================
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
==================================================================================================================
Six-month period ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(53,591,454) $ (2,776,827)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Stock, options and warrants issued for compensation or services 4,722,339 344,439
Loss on Disposal 41,636,097 --
Depreciation 42,310 13,193
Minority interest in subsidiary loss -- (914)
Changes in operating assets and liabilities:
Increase in prepaid expenses and other assets (82,730) (45,310)
Decrease (increase) in current assets from discontinued operations 950,140 (212,066)
Increase in security deposits (88,204) --
(Increase) decrease in long-term assets from discontinued operations (53,931) 100,211
Increase (decrease) in accounts payable and accrued expenses 1,124,558 (132,830)
Increase in other current liabilities -- 100,284
Increase in current liabilities from discontinued operations 622,146 3,309,581
Decrease in long-term liabilities from discontinued operations -- (313,430)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (4,718,729) 386,331
- ------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activity - purchase of property and equipment (1,213,408) (10,133)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of Series B preferred stock 1,821,000 --
Proceeds from issuance of Series D preferred stock 4,660,000 --
Proceeds from stock subscription 5,000 --
Payment of preferred stock issuance cost (85,000) --
Payments on third-party debt (20,000) (175,000)
Funds advanced by stockholder -- 15,000
Payments of stockholder advances -- (185,000)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 6,381,000 (345,000)
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash 448,863 31,198
Cash at beginning of period 17,052 27,671
- ------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 465,915 $ 58,869
==================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest from discontinued operations $ 76,912 $ 325,246
==================================================================================================================
Assets from discontinued operations acquired under capital leases $ -- $ 591,026
==================================================================================================================
</TABLE>
F-26
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
1. PRINCIPAL PICK Communications Corp. and Subsidiaries (collectively the
BUSINESS "Company") provide satellite-based Internet access and
ACTIVITY AND interactive multimedia services to end user service
SUMMARY OF providers. In March 1999, the Company formed a new
SIGNIFICANT subsidiary, PICK Online.Com Inc., a media content aggregator
ACCOUNTING using a satellite-based multicast delivery system for
POLICIES: Internet Service Providers and Broadband Networks. The
Company is headquartered and leases facilities in Miami,
Florida.
The accompanying consolidated financial statements include
the accounts of PICK Communications Corp. and its wholly
owned subsidiaries, PICK US Inc. f/k/a PICK Inc. ("PICK US"),
PICK Net Inc. ("PICK Net"), PICK Net UK PLC ("PICK Net UK"),
PICK Sat Inc. ("PICK Sat"), PICK Online.Com Inc. ("POL") and
P.C.T. Prepaid Telephone Inc. ("PCT"), a majority-owned
subsidiary. All significant intercompany balances and
transactions have been eliminated.
The Company plans to discontinue the operations of its
long distance telephone service and prepaid calling card
business consisting of PICK US, PICK Net and PICK Net UK.
(See note 9).
Minority interest represents the minority stockholders'
proportionate share of the equity and loss of PCT.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated 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 consolidated balance sheet and revenue and expenses for
the periods then ended. Actual results could differ from
those estimates.
For comparability, certain 1998 amounts have been
reclassified, where appropriate, to conform to the financial
statement presentation used in 1999.
Basic net loss per share is computed by dividing the net loss
by the weighted-average number of common shares outstanding
during the period. Diluted net loss per share is not
presented because the inclusion of common share equivalents
would be antidilutive.
The Company does not believe that any recently issued but not
yet effective accounting standards will have a material
effect on the Company's consolidated financial position,
results of operation or cash flows.
Depreciation of property and equipment is provided for by the
straight-line method over the estimated useful lives of the
related assets.
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. The Company recorded a deferred
tax asset for the tax effect of net operating loss
carryforwards and temporary differences. In recognition of
the uncertainty regarding the ultimate amount of income tax
benefits to be derived, the Company has recorded a full
valuation allowance.
F-27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
==========================================================================================================
</TABLE>
2. PREPAID
EXPENSES AND
OTHER CURRENT Prepaid expenses and other current assets consist of the
ASSETS: following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------------------------------------------------------------
<S> <C> <C>
Sundry receivable $ 3,100 $ 3,100
Computer equipment for resale 48,559 92,235
Prepaid expenses 127,011 96,552
Advances and other current assets 170,616 86,465
Deposits 11,796 --
----------------------------------------------------------------------
$361,082 $278,352
======================================================================
</TABLE>
3. PROPERTY AND Property and equipment, at cost, consists of the following:
EQUIPMENT:
<TABLE>
<CAPTION>
June 30, December 31, Estimated
1999 1998 Useful Life
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property, equipment and software $1,019,291 $ 835,674 3 and 5 years
Asset development/
installation-in-process 3,503,579 2,473,788
----------------------------------------------------------------------------------------
4,522,870 3,309,462
Less accumulated depreciation 156,603 114,293
----------------------------------------------------------------------------------------
$4,366,267 $3,195,169
========================================================================================
</TABLE>
Asset development/installation-in-process consists of
hardware and software costs related to the Company's
high-speed Internet business, which is under development.
Depreciation will commence when the development and/or
installation is complete and the assets are fully
operational.
4. INVESTMENT IN In 1996, the Company acquired 4,700,000 restricted shares
MARKETABLE of the common stock of Ultimistics, Inc. ("Ultimistics").
EQUITY During the first quarter of 1997, the Company, in four
SECURITIES: separate transactions, disposed of all of its shares of
Ultimistics, along with $420,000 of prepaid advertising, in
return for (i) 100,000 shares of the Company's common
stock, (ii) 10,000,000 shares of PCT, and (iii) 380,000
restricted shares of the common stock of Fairbanks, Inc.
(which subsequently changed its name to Jet Vacations, Inc.
and then Precom Tech Inc.). The Company recorded losses of
$9,399,079 on these transactions. During 1998, the balance
of $133,000 was written off.
F-28
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
5. DEBT: Debt consists of the following:
June 30, December 31,
1999 1998
---------------------------------------------------------------------
Private placement debt (a) $9,880,000 $9,900,000
Less current portion of debt -- 20,000
---------------------------------------------------------------------
Debt, less current portion $9,880,000 $9,880,000
=====================================================================
(a) Between July 29, 1998 and September 8, 1998, the Company, through
Commonwealth Associates ("Commonwealth"), placed $9,900,000 (face
amount) of 10%, 120-day Senior Secured Notes (the "Original
Notes") and 9,900,000 warrants to purchase 990,000 shares of the
Company's common stock at $5.00 per share for five years (the
"Placement"). The Original Notes are secured by all the assets of
PICK Communications Corp. The Company allocated $8,587,066 of the
gross sales proceeds to the debt and $1,312,934 to the warrants.
The $1,312,934 discount was amortized as interest expense over
the original 120-day life of the Original Notes. In November and
December 1998, the Company exercised its rights to extend the
maturity date of the Original Notes for 60 days. Under the terms
of the Original Notes, the interest rate of the Original Notes
was increased to 18% per annum, retroactive to the issuance of
the Original Notes. In January, February and March 1999, the
holders of the Original Notes agreed to extend the maturity of
the Original Notes until April 27, 1999. In return for the
extensions, the Company agreed to issue 50,012 shares of its
common stock (valued at $265,063) and warrants (valued at
$485,100) to purchase 247,500 shares of the Company's common
stock for five years at $5.00 per share to the holders of the
Original Notes. On April 27,1999, the holders of the Original
Notes, who control in excess of 99% of the principal which was
due on April 27, 1999, consented to restructure their Original
Notes (the "Restructured Notes") and extend the maturity date
until April 27, 2002. Additionally, the Company has the option to
extend the maturity date for one additional year. Under the terms
of the restructuring, the Restructured Notes are convertible to
shares of common stock at $10.00 or less per share (valued at
$7,077,600), as defined in the terms of restructuring. The
Restructured Notes automatically convert to common stock if the
closing bid price exceeds $15.00 per share, as defined. The
Conversion Price shall be reset to a minimum of $5.00 per share
prior to April 27, 2000, if the Company issues any shares of
Common Stock or derivative securities (other than employee stock
options) for less than the Conversion Price or the average
trading price for the 15 trading days preceding April 27, 2000 is
less than the Conversion Price. In addition, if the Company
extends the maturity date for an additional year, the Conversion
Price shall be reduced to 50% of the then market price.
For the Placement of the Original Notes, the Company paid
Commonwealth and Liberty Capital (the Company's co-financial advisor)
$1,099,000 in cash, issued 139,437 shares of common stock (valued at
$865,799) and warrants to purchase 250,986 shares of common stock at
$5.00 per share for five years (valued at $383,002). The costs
related to the Placement were being deferred and amortized as debt
placement expenses over the term of the debt. At December 31, 1998,
all debt placement expenses were amortized and included in the
consolidated statement of operations.
In consideration for the restructuring, the consenting noteholders
will receive the following: the right for a two-year period to
exchange each existing warrant previously issued to the consenting
noteholders for an aggregate of 988,000 shares of the Company's
common stock (valued at $15,604,800). Additionally, the consenting
noteholders may elect the right to receive from the Company an
aggregate of 988,000 shares of the Company's common stock.
In lieu of such shares of stock, the consenting noteholders can elect
to have the conversion price, as defined, reduced to $5.00 per share
(valued at $16,907,660). The consenting noteholders shall have two
years to elect whether to receive the shares of common stock or to
reduce the conversion price.
F-29
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
In consideration of the restructuring of the notes, the
Company issued to Commonwealth 200,000 shares of common
stock (valued at $3,440,000) plus warrants to purchase
50,000 of the Company's common stock at $13.75 per share
(valued at $239,477). Additionally, warrants previously
issued to Commonwealth will be exercisable at $1.00 per
share (valued at $2,046,097).
At June 30, 1999, management believes the cost of the
restructuring has no future value. All deferred interest
and placement charges were written off and included in the
loss on disposal of discontinued operations.
6. ACCOUNTS
PAYABLE AND
ACCRUED Accounts payable and accrued expenses consist of the
EXPENSES: following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------------------------------------------------------------
<S> <C> <C>
Accounts payable - operating $1,683,053 $ 831,461
Accrued expenses - operating 1,172,638 315,672
Accrued expenses - for equipment 1,066,000 1,650,000
----------------------------------------------------------------------
$3,921,691 $ 2,797,133
======================================================================
</TABLE>
7. COMMITMENTS: The Company leases facilities under noncancelable operating
leases expiring through February 2004. The future minimum
payments due under such leases are as follows:
Six-month period ended June 30, 1999 $ 77,682
Year ending December 31,
2000 160,024
2001 164,825
2002 169,769
2003 144,994
----------------------------------------------------------
$717,294
==========================================================
Rent expense under operating leases was approximately
$78,000 and approximately $3,000 for the six-month periods
ended June 30, 1999 and 1998, respectively. The Company has
the right to renew its operating lease for terms of between
five and fifteen years.
In September 1998, the Company entered into an employment
agreement with a key executive commencing January 1, 1999.
The agreement provides for annual base salaries of
$300,000, $350,000, $400,000, $450,000 and $500,000 for the
next five years and additional compensation, as defined in
F-30
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
the agreement. In April 1999, the agreement was amended to
have the key executive continue solely as chairman of
the board.
8. INCOME TAXES: The Company's deferred tax assets at June 30, 1999 consist of
the following:
Federal $ 9,300,000
State 1,700,000
------------------------------------------------------------
11,000,000
Less valuation allowance (11,000,000)
------------------------------------------------------------
Net deferred tax assets $ - 0 -
============================================================
The deferred tax assets are comprised of the tax benefit of
net operating loss carryforwards and capital loss
carryforwards of approximately $20,000,000 and $8,300,000,
respectively, at June 30, 1999. Net operating loss
carryforwards from discontinued operations are approximately
$12,500,000 at June 30, 1999. These losses are available to
offset future taxable income through the years 2018 and 2003,
respectively.
9. DISCONTINUED On June 23, 1999, the Company formalized its plan to
OPERATIONS: discontinue its long distance telephone service and prepaid
calling card business consisting of PICK US, PICK Net and
PICK Net UK. Accordingly, the long distance telephone service
and prepaid calling card business are accounted for as a
discontinued operation in the accompanying consolidated
financial statements. The Company is in the process of
negotiating the sale of PICK Net and PICK Net UK and the
discontinuance of the operation of PICK US. Management
expects the sale and discontinuance will be completed during
1999 and will reduce the Company's debt and working captial
deficiency.
F-31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
============================================================================================================
</TABLE>
Operating results of discontinued telecommunications and prepaid
calling card business are as follows:
<TABLE>
<CAPTION>
Six-month period ended June 30, 1999 1998
-----------------------------------------------------------------------------------------
<S> <C> <C>
Sales of long-distance services $ 3,164,030 $ 963,018
Sales of prepaid calling cards 2,215,485 1,313,495
-----------------------------------------------------------------------------------------
Net sales 5,379,515 2,276,513
-----------------------------------------------------------------------------------------
Cost of sales 6,835,866 3,148,694
Selling, general and administrative expenses 896,372 649,697
Depreciation and amortization 200,496 124,156
Bad debt expense 128,298 2,072
-----------------------------------------------------------------------------------------
Total costs and expenses 8,061,032 3,924,619
-----------------------------------------------------------------------------------------
Loss before amortization of debt placement expenses
and interest expense (2,681,517) (1,648,106)
Amortization of debt placement expenses
and interest expense 1,683,213 660,345
-----------------------------------------------------------------------------------------
Loss from discontinued operations $(4,364,730) $(2,308,451)
=========================================================================================
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
=============================================================================================================
</TABLE>
Assets and liabilities of discontinued telecommunications and
prepaid calling card business are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 29,548 $ 231,499
Accounts Receivable, less allowance for
doubtful accounts of $480,136 and
$351,838, respectively 157,883 737,786
Prepaid Expenses and Other Current Assets 131,484 299,770
------------------------------------------------------------------------------------------
Current Assets from Discontinued Operations 318,915 1,269,055
------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of
accumulated depreciation and amortization
of $472,522 and $313,910, respectively 1,887,313 1,853,384
Security Deposits 36,350 16,348
------------------------------------------------------------------------------------------
Long-term Assets from Discontinued Operations 1,923,663 1,869,732
------------------------------------------------------------------------------------------
Current Liabilities:
Current portion of debt (a) 2,000,000 2,000,000
Current portion of capital leases 139,892 271,677
Accounts payable and accrued expenses 7,151,359 4,893,844
Deferred revenue - prepaid calling cards 536,930 2,183,806
Other current liabilities 3,111,133 2,967,841
------------------------------------------------------------------------------------------
Current Liabilities from Discontinued
Operations 12,939,314 12,317,168
------------------------------------------------------------------------------------------
Long-term Liabilities from Discontinued
Operations - capital leases, less current portion 1,042,716 1,042,716
------------------------------------------------------------------------------------------
Liabilities, Net of Assets of Discontinued
Operations $11,739,452 $10,221,097
==========================================================================================
</TABLE>
(a) In February 1998, the Company amended its existing
telecommunications agreement with IDT Corporation ("IDT"), one
of its long distance vendors/customers. Under the terms of the
amendment, the Company agreed to sell IDT up to 10,000,000
minutes per month of long distance traffic, through June 9,
1999, at favorable rates and IDT agreed to lend the Company
$2,000,000. Of this amount, $500,000 was funded when the
transaction was signed, $1,000,000 was funded in April 1998
and the remaining $500,000 was advanced in June 1998.
Concurrently, the Company has issued 100,000 warrants with an
exercise price of $2.40 per share to purchase 10,000 shares of
common stock, 200,000 warrants with an exercise price of
$10.00 per share to purchase 20,000 shares of common stock and
100,000 warrants with an exercise price of $5.60 per share to
purchase 10,000 shares of common stock. The warrants are
exercisable for a period of one year from the respective dates
of grant. Management estimates the value of these warrants
F-33
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
reflected in interest expense in 1998 at $30,879. The
loan bears interest at 9% per annum and matured on
February 9, 1999. The Company is currently negotiating
with IDT to extend the terms of repayment.
The Company and IDT have reached an agreement in principle
to execute a new six-month note in the principal amount of
$2,336,000. The Company has agreed to issue to IDT 40,000
shares of PICK's common stock in exchange for IDT's
warrants to purchase 40,000 shares of PICK's common stock,
which shall be canceled upon such delivery, plus a
restructuring fee of 50,000 shares of PICK common stock.
The Company also agreed to pay $250,000 upon the earlier to
occur of 60 days from the date of execution of the
agreement or the completion of additional financing for at
least $10,000,000 for PICK and shall make six monthly
principal payments of $25,000 each on the last business day
of each month following the issue date of this Note,
beginning on August 31, 1999. In the event PICK elects to
exercise its option to extend the maturity date of the Note
from six months to three years, it shall deliver to IDT
$375,000, payable in immediately available funds or, at the
option of PICK, 37,500 shares of PICK's Common Stock.
Thereafter, PICK agrees to pay IDT $25,000 per month for 12
months, including the six monthly payments described above
beginning on August 31, 1999. Interest is payable monthly
at 8% per annum and the Note will be pre-paid pro rata in
the event the Company prepays any indebtedness over
$2,000,000 including the July 1998 Bridge Notes, as
amended. The Note will automatically convert into common
stock at $10.00 per share if the average price of the
Company's common stock exceeds $15.00 per share for at
least 20 consecutive days. All shares of common stock
issued or issuable to IDT will be included in a
registration statement filed on or before October 27, 1999.
10. LITIGATION AND The Company is, from time to time, party to litigation that
RESERVE FOR arises in the ordinary course of its business operations or
CONTINGENT otherwise. Except as described below, the Company is not
LIABILITY: presently a party to any litigation that it believes would
have a material adverse effect on its business.
In February 1997, the Company commenced a mediation action
against American Telephone & Telegraph ("AT&T") seeking
$10,000,000 in damages for breach of contract and
fraudulent inducement and malicious conduct under a carrier
agreement (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. The
Company claims that AT&T reneged on certain commitments to
provide the Company with lower international rates than the
Company was invoiced by AT&T. AT&T has claimed that the
F-34
<PAGE>
Company owes it in excess of $1,000,000. In 1996, the
Company provided for a non-cash reserve of $1,750,000,
which was reduced to $1,100,000 in the third quarter of
1997 and is a part of the Company's working capital
deficiency. The reserve is included in other current
liabilities in the accompanying consolidated financial
statements. After two mediation sessions, AT&T indicated
that it intended to withdraw from the mediation.
Accordingly, on November 5, 1997, the Company filed for
arbitration proceedings against AT&T and reduced its claim
to $5,000,000. The trial began on April 19, 1999 and ended
on April 22, 1999. There can be no assurance that the
Company will be able to prevail in this arbitration. Any
adverse judgment or settlement could have a material impact
on the Company's financial condition.
During March 1999, Worldcom Network Services, Inc., d/b/a
Wiltel, ("Worldcom") commenced a lawsuit against the
Company in the United States District Court, Southern
District of New York, demanding a judgment in the amount of
$1,177,734 and interest at 18% per annum plus costs and
expenses. The plaintiff alleges that the Company failed to
pay for telecommunications services provided. On April 15,
1999, the Company and Worldcom agreed to a Settlement
Agreement. Under the terms of the Settlement Agreement, the
Company agreed to pay Worldcom $1,256,622 (the
"Settlement") in exchange for a full and complete
settlement of Worldcom's lawsuit against the Company. The
Company agreed to pay the Settlement with interest at 16%
per annum on or before January 16, 2000 and for Worldcom to
discontinue, without prejudice, the legal proceedings until
such date, although the Company has the option to extend
the forbearance through January 16, 2001. The Company
agreed to pay Worldcom a 100,000 share restructuring fee.
If the Company repays the Settlement by January 16, 2000,
it shall be entitled to redeem one-half of the shares for
$1.00.
In July 1999, L.D. Exchange.com, Inc., a vendor of PICK
Net commenced arbitration proceedings against PICK
Net before the American Arbitration Association in
San Diego, California, alleging breach of contract. These
proceedings involve the alleged nonpayment of between
$250,000 and $500,000. At June 30, 1999 the Company's
current liabilities included approximately $266,000
payable to L.D.Exchange.com,inc.
F-35
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
11. GOING CONCERN The accompanying consolidated financial statements have
MATTERS: been prepared assuming 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. The Company has incurred substantial recurring
losses from operations, has a net capital deficiency in the
amount of approximately $21,180,000 and has a working
capital deficiency of approximately $16,715,000 at June 30,
1999 that raise substantial doubt about its ability to
continue as a going concern. In addition, the Company had
negative cash flow from operations in the six-month period
ended June 30, 1999 and the years ended December 31, 1998,
1997 and 1996.
Significant short-term obligations exist including the
payment of a settlement with Worldcom in the amount of
$1,256,622 (see Note 10) and a settlement with IDT to
extend its $2,000,000 loan. (See Note 9(a)) and normal cash
flows from operations. Without the Company's ability to
extend the payout terms of the aforementioned liabilities
or obtain additional long-term financing, as well as
increasing revenue and/or decreasing expenses, the Company
will be unable to continue as a going concern. The
financial statements do not include any adjustments
relating to the recoverability of assets or the
classifications of liabilities should the Company be unable
to continue as a going concern.
Furthermore, the Company is in need of immediate financing
for working capital. If the Company is able to obtain
adequate funding it expects that its operations on a
going-forward basis will be primarily through its PICK Sat
subsidiary, which has only recently commenced operations
and has not generated any revenue to date. The Company has
granted an option to Atlantic Tele-Network, Inc. to sell it
19.9% of the common stock of PICK Sat for $8,000,000, with
an option to acquire an additional 31.1% for up to an
additional $15,000,000. The Company believes that these
plans, if successfully implemented, will enable it to
continue as a going concern. However, there can be no
assurance that the Company will be successful in either
generating positive operating income or raising additional
funds in the immediate future in amounts sufficient to
allow it to continue as a going concern.
12. OTHER MATTERS In March 1999, the board of directors authorized the
AND SUBSEQUENT issuance of 2,000,000 shares of Series B convertible
EVENTS: preferred stock. The Series B convertible preferred stock
has a stated par value of $.001 per share and is
convertible into 2,000,000 shares of the Company's common
stock at the rate of $1.00 per share.
In April 1999, the board of directors authorized the
issuance of 500,000 shares of Series D convertible
preferred stock. The Series D convertible preferred stock
has a stated par value of $.001 per share and is
convertible into 1,190,500 shares of the Company's common
stock at the rate of $4.20 per share. As of June 30, 1999,
the Company had sold an aggregate of 466,000 shares of
Series D convertible preferred stock for $4,660,000 prior
to the payment of $324,500 of preferred stock placement
costs. In
F-36
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
===============================================================================
addition, the Company issued an aggregate of 700,000 common
stock purchase warrants in connection with the sale of
Series D convertible preferred stock. Each Warrant is
exercisable at $6.30 per share of common stock for a
two-year period.
On March 3, 1999, the board of directors granted each of
the then four independent directors three-year options to
purchase 50,000 shares of common stock at $5.10 per share.
Those options shall be fully vested on March 3, 2000.
On February 26, 1999, the board of directors of the Company
authorized an increase of the Company's authorized shares
of common stock from 100,000,000 to 400,000,000 shares
which was effective on April 13, 1999.
On July 15, 1999, the Company sold 34,000 shares of Series
D convertible preferred stock for $340,000 to Diego Leiva,
chairman of the board. The purchase is evidenced by a
recourse promissory note secured by a pledge of the
securities.
During July of 1999, the Company's Board of Directors
authorized a one for ten reverse split of its common stock
effective July 23, 1999. All share and per-share amounts in
these consolidated financial statements have been restated
to give effect to the reverse stock split.
F-37
<PAGE>
================================================================================
No person has been authorized to give any information or make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having
been. This prospectus does not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the securities to which it relates
or an offer to sell or the solicitation of an offer to buy such securities in
any circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
-----------------
TABLE OF CONTENTS
Page
----
Where You Can Find More Information............. 2
Special Note Regarding
Forward-Looking Statements................... 2
Prospectus Summary.............................. 3
Note Restructuring.............................. 6
Risk Factors.................................... 7
Use of Proceeds................................. 24
Dividend Policy................................. 24
Price Range of Common Stock..................... 24
Capitalization.................................. 25
Selected Historical Consolidated
Financial Data.............................. 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 29
Change in Accountants........................... 35
Business........................................ 36
Management...................................... 44
Certain Relationships and Related
Transactions................................ 48
Security Ownership of Certain Beneficial
Owners and Management....................... 49
Selling Stockholders............................ 50
Description of Capital Stock.................... 74
Plan of Distribution............................ 76
Experts......................................... 78
Legal Matters................................... 79
Index to Financial Statements................... F-1
<PAGE>
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PICK COMMUNICATIONS CORP.
10,154,083 Shares
common stock
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PROSPECTUS
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November 15, 1999