<PAGE>
As Filed With the Securities and Exchange Commission on November 13, 2000
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------------
PICK COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Nevada 4813 75-2107261
---------------------- --------------------- ------------------
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
5225-55 N.W. 87th Avenue, First Floor
Miami, FL 33178
(305) 717-1500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------
Helge Bornmann, Chief Executive Officer
5225-55 N.W. 87th Avenue, First Floor
Miami, FL 33178
(305) 717-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
Copies to:
Elliot H. Lutzker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
(212) 687-3860
Facsimile: (212) 949-7052
----------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
-----------------------------------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. |_|
-----------------------------------
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Each Class Amount Maximum Maximum Amount of
of Securities to be Offering Aggregate Registration
to be Registered Registered Price Per Share Offering Price Fee
---------------- ---------- --------------- -------------- ---
<S> <C> <C> <C> <C>
common stock, par
value $0.01 per share 150,000 (1) $ 1.00 (2) $ 150,000 $ 39.60
common stock, par
value $0.01 per share 200,000 (3) $ 0.437 (4) $ 87,400 $ 23.07
----------- -------------- ------------- ------------
Total........................ 350,000 -- $ 237,400 $ 59.67
=========== ============ ===========
</TABLE>
----------------------
(1) Represents shares of common stock, par value $.01 per share (the
"Common Stock"), of Pick Communications Corp. (the "Company"). issuable
to Snow Becker Krauss P.C., counsel to the Company, underlying 150,000
options issued in satisfaction of indebtedness.
(2) Pursuant to Rule 457(c) the proposed maximum offering price per share has
been calculated based on the price the options may be exercised.
(3) Represents shares of common stock issued as follows: (1) 100,000 shares of
common stock issued to Mohammed Al Hussaini; (ii) 50,000 shares of common
stock issued to Ali Sahms Aldean Najdi; and (iii) 50,000 shares of common
sotck issued to Al Jandool Brides Jewellery Corporation, in satisfaction of
advisory fees to the Company.
(4) Pursuant to Rule 457(c), the proposed maximum offering price per share has
been calculated based on the last sale price reported for the common stock
on November 9, 2000.
-ii-
<PAGE>
The information in this prospectus is not complete and may be changed. You
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED NOVEMBER 13, 2000
PROSPECTUS
----------
PICK COMMUNICATIONS CORP.
<TABLE>
<S> <C>
The Offering:
Shares of common stock offered
by selling stockholders.......................................................................350,000
Offering Price.......................................On November 9, 2000, the last reported sale price of
PICK common stock on the Over-the-Counter Bulletin
Board (the "OTC Bulletin Board") was $0.437 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.
</TABLE>
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 ___________, 2000
-1-
<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.
2
<PAGE>
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 services.
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.
PICK Sat services include Fuego(TM), a broad-band Internet access
designed for home use through existing cable television operations, and
SkyRelay(TM), which provides bandwidth to corporate local-area networks (LANs)
and Internet service providers (ISPs).
On June 23, 1999, our Board of Directors voted to sell or discontinue
the long distance telecommunications and prepaid calling card business of PICK
US, Inc., PICK Net, Inc., and PICK Net UK PLC (alternatively, "PICK Net"). We
terminated marketing and distribution of prepaid telephone calling cards through
PICK US, Inc. On January 18, 2000, we completed the sale of all of the stock of
PICK Net which provided international long distance services to other carriers
and resellers, for nominal value, and have up to approximately $10.7 million of
their liabilities assumed. Subsequent to the closing of the sale of PICK Net,
the buyer defaulted on its payment obligation. We have demanded compliance by
the buyer and had settlement negotiations and if such efforts are unsuccessful
we will pursue all legal remedies against the buyer. See "Narrative Description
of Business."
In April 2000, a group of investors from Europe and the Middle East
committed an aggregate of $10 million to PICK Sat (the "PICK Sat Financing"), to
occur over a l2 month period. The Investors will acquire 20% ownership of PICK
Sat and will be issued equity on the basis of 1% for every $500,000 invested. As
of June 30, 2000, $1.2 million had been invested in PICK Sat and an aggregate of
approximately $7.2 million had been invested as of October 31, 2000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our principal executive offices are located at 5225-55 N.W. 87th
Avenue, First Floor, Miami FL 33178, 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):
3
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(unaudited) Years Ended December 31,
---------------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operating loss $(2,425,720) $(1,487,986) $(2,926,191) $(2,139,830) $( 399,448)
Other expense (1,011,755) (630,027) (1,824,845) ((133,000)) (9,890,284)
Loss from continuing
operations before
minority interest in
loss of consolidated
subsidiaries and
provision for (benefit)
from income taxes $(3,437,475) $(2,118,013) $(4,751,036) $(2,272,830) $(10,289,732)
Minority interest in
loss of consolidated
subsidiary 25,954 1,742 2,062 434,064
----------- ----------- ----------- ----------- ------------
Benefit for income taxes - - - - 1,808,000
----------- ----------- ----------- ----------- ------------
Loss from Continuing
Operations (3,411,521) (2,118,013) (4,749,294) (2,270,768) -
Loss from discontinued
operations (449,559) (4,364,730) (5,486,880) (14,792,541) (1,452,134)
Loss on disposal of
discontinued operations
and related costs - (47,108,711) (45,315,574) - -
----------- ----------- ----------- ----------- ------------
Estimated cost to
discontinue operations - - (1,793,137) - -
----------- ----------- ----------- ----------- ------------
Net loss $(3,861,080) $(53,591,454) $(57,344,885) $(14,792,541) $(9,499,802)
----------- ----------- ----------- ----------- ------------
Beneficial conversion
feature of preferred
stock - 25,170,000 ($25,170,000) - -
----------- ----------- ----------- ----------- ------------
Net loss applicable to
common share $(3,861,080) $(78,761,454) $(82,514,885) $(17,063,309) $( 9,499,802)
----------- ----------- ----------- ----------- ------------
Loss from continuing
operations and
beneficial conversion
feature of preferred
stock per common share -
basic and diluted ($0.34) ($6.37) ($6.30) ($.61) ($2.18)
Loss from discontinued
operations per common
share - basic and
diluted $(0.05) $(12.02) $( 11.07) $(4.01) $(.39)
=========== ============ ============ ============ ===========
Net loss per common
share - basic and
diluted $(0.39) $(18.39) $(17.37) $(4.62) $(2.57)
=========== ============ ============ ============ ===========
Weighted-average common
shares outstanding -
basic and diluted 9,977,728 4,281,860 4,750,742 3,692,356 3,695,853
=========== ============ ============ ============ ===========
</TABLE>
4
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At June 30,
(unaudited) At December 31,
---------------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Working capital
(deficiency) $ (23,323,980) $ (16,715,093) $ (19,912,739) $ (14,569,842) $ (7,405,608)
============= ============= ============= ============= ============
Total Assets $ 7,189,468 $ 7,685,842 $ 7,266,835 $ 6,791,156 $ 1,817,513
============= ============= ============= ============= ============
Current
Liabilities $ 23,555,372 $ 17,861,005 $ 20,414,414 $ 16,134,301 $ 8,027,642
============= ============= ============= ============= ============
Long-term
liabilities $ 9,880,000 $ 10,922,716 $ 10,616,586 $ 10,922,716 $ 794,905
============= ============= ============= ============= ============
Stockholders'
deficiency $ (27,509,421) $ (21,183,897) $ (23,848,441) $ (20,351,879) $ (7,093,114)
============= ============= ============= ============= ============
</TABLE>
(1) The historical financial information in this prospectus is primarily
that of the three subsidiaries whose business we terminated, 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.
5
<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 (but not its
subsidiaries) 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 agreed 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)
receive one share of common stock for every ten dollar ($10.00) principal amount
of the Amended Notes, or an aggregate of 988,000 shares of common stock. The
conversion price of the Amended Notes was adjusted in January 2000 from $10.00
to $5.00 per share, pursuant to the anti-dilution provisions of the Notes.
Commonwealth Associates and its designees ("Commonwealth"), as agent for the
Noteholders, were 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, which notes
bear interest at 10% per annum. 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, to 50% of the then average closing bid price of the
common stock.
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 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 registered 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.
6
<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:
1999 $82.6 million
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 was $14.8
million in 1998 and $5.5 million in l999. We also recorded an additional loss on
the disposal of the discontinued operations in the amount of $45.3 million
during 1999. Substantially all of this amount 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
commencing in June 1999. In January 2000, we completed the sale of PICK Net and
PICK Net UK and discontinued the operations of PICK US. However, the buyer
defaulted on its obligations and we have demanded performance.
In 1999, we discontinued both our prepaid calling card business, and
our 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 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.
In April 2000, investors committed $10 million to PICK Sat to occur over a l2
month period. PICK Sat has received approximately $4.6 million as of October 1,
2000, but unless the entire $10 million is invested, we will not be able to
sustain our operations without alternative additional funding. In the event we
are unable to obtain sufficient 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.
As of June 30, 2000, we had a working capital deficit of approximately
$23.3 million.
As of June 30, 2000, we had approximately $23.6 million of current
liabilities, which mature or are subject to payment agreements within the next
12 months.
Although we sold the assets of the Old Business for nominal value and
had approximately $10.7 million of their liabilities assumed, the buyer
defaulted in its obligations and we have substantial contingent liabilities.
Unless we are successful in enforcement of our contractual rights against the
buyer, which are foreign entities over
7
<PAGE>
which we may not have jurisdiction, nor the ability to enforce a judgment, we
may have to seek bankruptcy protection for all or part of our "Old Business."
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. We have an accumulated deficit of approximately $113.4
million at June 30, 2000. 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 auditors issued a qualified report on our
financial statements as at and for the years ended December 31, 1998 and 1999.
This report states 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.
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 1999, approximately 40%, 19% and 13% of our revenues
were from 3 customers: in 1998, approximately 72% and 10% of our revenues were
from two customers; and in l997, approximately 19% and l3% of our revenues were
from two customers. We terminated the Blackstone Agreement as of June 23, 1999,
but have not generated any revenues from our New Business. 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
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 our content and services;
o attract a larger audience;
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.
8
<PAGE>
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.
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 margin
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
9
<PAGE>
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 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 and then approximately $5.9 million in l999, 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 we accomplished. 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 whic may become
available to us in the future; and
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, managemen and technical
personnel; and
o successfully manage growth, including monitorin 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
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We depend on satellites and third-party long distance carriers
We currently depend on a limited number of satellites and ISPs to
provide our services. Although we believe that we currently have sufficient
access to satellites and transmission facilities, if we fail to obtain continued
access to such facilities and satellites 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 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 services. 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;
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<PAGE>
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.
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 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.
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<PAGE>
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
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
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<PAGE>
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
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.
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;
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<PAGE>
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. 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 our ability to hire key personnel. New
Management has been hired for PICK Sat. 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.
Our need to comply with government regulations can increase our costs and slow
our growth
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
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<PAGE>
interstate and intrastate telecommunication services. The federal law governing
regulation of interstate telecommunications are the Communications Acts of 1934
and 1996 (the "Communications Acts").
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
As of October 1, 2000, we had approximately 10.6 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 an additional approximately 1,145,000 shares on an as converted basis, and
there are approximately 6.3 million additional shares issuable underlying
options, warrants, notes and contractual obligations, or a total of
approximately 18 million shares on a fully diluted basis. 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 expected to be quoted on the National
Association of Securities Dealers, Inc.'s Electronic Bulletin Board under the
symbol "PICK" prior to the effective date of this Prospectus. 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
16
<PAGE>
special written suitability determination for the purchaser and receive the
purchaser's written agreement 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. 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 10.6 million shares of our common stock
outstanding as of October 25, 2000, approximately 3.1 million "restricted
securities," as that term is defined in the Securities Act, may be sold in
compliance with the provisions of Rule 144 or have been registered for resale
under this prospectus.
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 numbe 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.
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.
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<PAGE>
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" from
September 1996 until being delisted as of May 26, 2000. The Company's common
stock was listed on the OTC Bulletin Board again on November 8, 2000. There have
been no bid prices on our shares of common stock since May 2000, and these
prices reflect the high and low closing sales prices of our common stock for
this period.
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 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
Fourth quarter $2.56 $ .81
Fiscal Year 2000
----------------
First quarter $1.96875 $.50
Second quarter $1.00 $.375
Third quarter $ .8125 $.4375
As of October 1, 2000, we had 10,642,969 shares of common stock issued
and outstanding and approximately 446 record holders of the common stock.
On November 9, 2000, the last reported sale price of common stock
on the Over-The-Counter Bulletin Board was $.437 per share.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
and its Subsidiaries as of June 30, 2000 (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 estimated net
proceeds of $2,934,947.
<TABLE>
<CAPTION>
June 30, 2000
(unaudited)
-------------------------------
Actual As Adjusted(1)
------ --------------
<S> <C> <C>
Cash $ 164,198 $3,099,145
Debt less current portion 9,880,000 9,880,000
Stockholders' deficiency:
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 1,871,000 shares; 395,000
shares outstanding 395,000 395,000
500,000 shares designated as Series D Convertible
Preferred Stock, aggregate liquidation value
$4,660,000, issued 500,000 shares, and 184,000
shares outstanding 1,840,000 1,840,000
Common stock, par value $.01;
100,000,000 shares authorized 10,519,419 shares
issued at June 30, 2000 and 11,728,679 shares as
adjusted (1) 105,229 117,322
Additional paid-in capital 81,230,233 84,153,087
Options and Warrants 2,720,071 27,201,071
Subscription receivable (340,000) (340,000)
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated other comprehensive income 1,482 1,482
Accumulated deficit (113,449,558) (113,449,558)
Stockholders' deficiency (27,509,521) (24,574,574)
------------ ------------
Total capitalization $(17,629,521) $(14,694,574)
============ ============
</TABLE>
-------------
(1) 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, 1999 and
for the six-month periods ended June 30, 2000 and 1999. The selected financial
information for and as of the years ended December 31, 1997, 1996 and 1995 are
derived from the consolidated financial statements of the Company, which
financial statements have been audited by Durland & Company, CPAs, P.A.,
independent certified public accountants. The selected financial information for
and as of the years ended December 31, 1999 and 1998 have been audited by
Goldstein Golub Kessler LLP. The Consolidated Balance Sheets as of December 31,
1999 and 1998 and the Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 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, 2000 and 1999 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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
(unaudited)
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Operating loss $(2,425,720) $(1,487,986)
Other expenses
Loss from continuing operations
before minority interest in
loss of consolidated
subsidiaries and
discontinued operations (3,437,475) (2,118,013)
Minority interest in loss of
consolidated subsidiary 25,954 -
----------- -----------
Loss from continuing operations (3,411,521) (2,118,013)
Loss from discontinued operations (449,559) (4,364,730)
Loss on disposal of discontinued
operations and related costs - (47,108,711)
----------- -----------
Net loss (3,861,080) (53,591,454)
Beneficial conversion feature of
preferred stock - (25,170,000)
----------- -----------
Net loss applicable to common
share - basic and diluted (3,861,08) (78,761,454)
=========== ===========
Loss from continuing operations
and beneficial conversion feature of
preferred stock per common share-
basic and diluted $(0.34) $(6.37)
Loss from discontinued operations
per common share - basic and diluted $(0.05) $(12.02)
=========== ===========
Net loss per common share
- basic and diluted $(0.39) $(18.39)
=========== ===========
Weighted-average common shares
outstanding-basic and diluted 9,977,728 4,281,860
=========== ===========
</TABLE>
20
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
At June 30,
(unaudited)
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Working capital
(deficiency) $(23,323,980) $(16,715,093)
Total Assets $ 7,189,468 $ 7,685,842
Current Liabilities $23,555,372 $ 17,861,005
Long-term liabilities $ 9,880,000 $ 10,922,716
Stockholders' (deficiency) $(27,509,521) $(21,183,897)
Years Ended December 31,
------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Operating loss $(2,926,191) $ (2,139,830) $(399,448) $(607,890) $ --
Other income (expense) (1,824,845) (133,000) (9,890,284) 8,436,809 --
----------- ------------ ----------- ----------- -----------
Income (loss) from continuing
operations before minority
interest in loss of
consolidated subsidiary and
provision for (benefit) from
income taxes (4,751,036) (2,272,830) (10,289,732) 7,828,919
Minority interest in
subsidiary loss of consolidated
subsidiary 1,742 2,062 434,064 260,541 37
Benefit (provision) for
income taxes -- -- 1,808,000 (1,808,000) --
Loss from discontinued
operations (5,486,880) (14,792,541) (1,452.134) (4,645,670) (1,071,078)
Loss on disposal of discontinued
operations and related costs (45,315,574) -- -- -- --
Estimated cost to discontinue
operations (1,793,137) -- -- -- --
=========== ============ =========== =========== ===========
Net (Loss) income $(57,344,885) $(17,063,309) $(9,499,802) $1,635,790 $(1,071,041)
Beneficial conversion
feature of preferred stock (25,170,000) -0- -0- -0- -0-
----------- ------------ ----------- ----------- -----------
Net loss applicable to common
share - basic and diluted $(82,514,885) $(17,063,309) $(9,499,802) $ 1,635,790 $(1,071,041)
=========== ============ =========== =========== ===========
Loss from continuing operations
and beneficial conversion
feature of preferred stock
per common share--basic and
diluted $(6.30) $(0.61) $(2.18)
Loss from discontinued
operations per common share-
basic and diluted $(11.07) $(4.01) $(0.39)
----------- ------------ ----------- ----------- -----------
Net loss per common stock -
basic and diluted $ (17.37) $ (4.62) $ (2.57) $ 0.39 $ (0.26)
=========== ============ =========== =========== ===========
Weighted-average shares
outstanding-basic and diluted 4,750,742 3,692,356 3,695,853 4,199,150 4,044,252
=========== ============ =========== =========== ===========
</TABLE>
21
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital
(deficiency) $(19,912,739) $(14,569,847) $(7,405,608) $(3,152,216) $(1,074,159)
============ ============ =========== =========== ===========
Total Assets $ 7,266,835 $ 6,791,156 $ 1,817,513 $ 8,917,149 $ 2,449,024
============ ============ =========== =========== ===========
Current Liabilities $ 20,414,414 $ 16,134,301 $ 8,027,642 $ 6,582,429 $ 2,679,923
============ ============ =========== =========== ===========
Long-term liabilities $ 10,616,586 $ 10,922,716 $ 794,905 $ -- $ 400,000
============ ============ =========== =========== ===========
Stockholders' equity
(deficiency) $(23,848,441) $(20,351,879) $(7,093,114) $ 869,579 $ (846,407)
============ ============ =========== =========== ===========
</TABLE>
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 telecommunications portion 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. The
closing of the sale of the PICK Net subsidiaries occurred on January 18, 2000.
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.
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.
Six Months Ended June 30, 2000 Compared with June 30, 1999
Revenues:
The Company's continuing operation's, PICK Sat and PICK Online recently
commenced commercial operations and as such have not had any revenues.
Costs and Expenses:
Selling, general and administrative expenses increased to $2,330,000
for the six months ended June 30, 2000, from $1,446,000 for the six months ended
June 30, 1999, reflecting an increase of $884,000 or 61%. This increase is
primarily due to the fact that the PICK Sat is working towards commercialization
of its new product line. The Company generated significantly increased expenses
for salaries, outside consultants, accounting, marketing, trade shows, legal,
international travel and public relations in developing its business. The
Company also
22
<PAGE>
had increased expenses for preparation of public filings and the negotiation of
debt arrangements which were handled primarily by non-employees.
Loss from Operations:
The Company's loss from continuing operations increased from $2,118,000
for the six months ended June 30, 1999 to $3,412,000 for the six months ended
June 30, 2000, primarily due to the increases in aggregate salaries, outside
consultants, selling, general and administrative costs. PICK Sat is still
developing its products and offerings and is moving closer to the commercial
deployment phase. The Company was without adequate funds during the six months
ended June 30, 2000 to commercialize its PICK Sat operations, prior to the PICK
Sat Financing and therefore was operating at a reduced level. In addition, the
loss from continuing operations during the six months ended June 30, 2000 was
reduced by $293,977 due to a settlement of an old outstanding accounts payable
balance.
Discontinued Operations
On June 23, 1999, the Company formalized its plan to discontinue its
telecommunications and prepaid calling card business consisting of PICK US, PICK
Net and PICK Net UK PLC (collectively "PICK Net"). Accordingly, the
telecommunications and prepaid calling card business are accounted for as
discontinued operations in the accompanying consolidated financial statements.
On September 13, 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 received funding to
continue operations commencing in September 1999 through the closing of this
transaction. On January 18, 2000, the Company completed the sale of all of the
stock of PICK Net for nominal value, and had up to approximately $10 million of
PICK Net's liabilities assumed. Simultaneously with the closing, Gulfsat
Communications Company, a Kuwaiti company ("Gulfsat"), purchased all of the
common stock of Lebow. Gulfsat was a principal vendor of services to the PICK
Net companies which was owed approximately $1,555,000 as of October 31, 1999,
primarily under a reciprocal telecommunications agreement and payment of which
amount had been assumed by Lebow. In February 2000, Gulfsat defaulted under its
agreements and discontinued operating PICK Net. The Company has made demand on
Lebow and Gulfsat to satisfy its obligations, or it will pursue all legal
remedies, but is attempting to negotiate a settlement. In any event, however, in
addition to the direct obligations of the Company described hereinafter, the
Company retains substantial contingent liabilities on its discontinued
operations if those liabilities are not paid and has retained all such
liabilities on its financial statements.
Loss from discontinued operations decreased from $51,473,000 for the
six months ended June 30, 1999 to $450,000 for the six months ended June 30,
2000. The Company only operated its subsidiaries for 18 days during the six
months ended June 30, 2000 before selling the operations, although it had
certain ongoing obligations in view of its contingent liabilities which
necessitated certain payments.
For the six months ended June 30, 2000, the Company generated
international long distance revenue of $168,598, compared with $3,164,000 for
the six months ended June 30, 1999. The Company had no prepaid telephone calling
card revenues for the six months ended June 30, 2000, compared to $2,215,000 for
the six months ended June 30, 1999. The cost of sales decreased from $6,835,866
for the six months ended June 30, 1999 to $328,864 for the six months ended June
30, 2000, as operations were wound down.
Year Ended December 31, 1999 as Compared with Year Ended December 31, 1998
Revenues:
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 approximately
$2,826,000 for the year ended December 31, 1999 ("1999") from $2,094,000 for the
year ended December 31, 1998 ("1998"). PICK Sat was in the organizational phase
through the end of 1998 and as such had nominal expenditures in 1998, therefore,
a substantial portion 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.
On September 13, 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
received funding to continue operations commencing in September 1999 through the
closing of this transaction which occurred on January 18, 2000. Simultaneously
with the closing, Gulfsat Communications Company, a Kuwaiti company ("Gulfsat"),
purchased all of the common stock of Lebow. Gulfsat was a principal vendor of
23
<PAGE>
services to the PICK Net companies which was owed approximately $1,555,000 as of
October 31, 1999, primarily under a reciprocal telecommunications agreement and
payment of which amount had been assumed by Lebow. In February 2000, Gulfsat
defaulted under its agreements and discontinued operating PICK Net. The Company
has made demand on Lebow and Gulfsat to satisfy its obligations. In any event,
however, in addition to the direct obligations of the Company described
hereinafter, the Company retains substantial contingent liabilities on its
discontinued operations if those liabilities are not paid.
Discontinued Operations
Total revenues amounted to approximately $5,930,000 for 1999, compared
to $9,823,000 for 1998, a decrease of approximately $3,893,000 prior to the
discontinuance of operations. (See Note 12 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.
For 1999, the Company generated international long distance revenue of
approximately $2,567,000, as compared with $1,978,000 for 1998. Prepaid
telephone calling card revenues were approximately $3,363,000 for 1999, compared
to $7,844,000 for 1998. This latter decrease is attributable to discontinuance
of sales to Blackstone Calling Card, Inc. ("Blackstone") under the Company's
agreement with Blackstone, a major marketer and distributor of prepaid telephone
calling cards, which had its first full year of sales with PICK Sat in 1998.
In the discontinued operations, the cost of telephone time purchased
decreased from approximately $16,393,000 in 1998 to $7,860,000 in 1999, as
operations were being wound down.
Loss from Operations:
The Company's loss from continuing operations increased from
approximately $2,271,000 in l998 to approximately $4,749,000 in 1999, primarily
due to the increases in aggregate salaries, selling, general and administrative
costs and interest expense primarily on private placement debt outstanding for
the full year of 1999, and without the receipt of revenues, 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.
Total loss from discontinued operations increased from $14,793,000 for
1998 to approximately $52,596,000 for 1999. Included in the loss for 1999 is a
loss on the disposal of the discontinued operations in the aggregate amount of
approximately $45,316,000. This amount 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.
As a result of the foregoing, the Company incurred a net loss of
approximately $57,345,000 in l999 as compared to a net loss of approximately
$17,063,000 in l998. In addition, the Company recorded a charge of $25,170,000
in l999 for the beneficial conversion feature of the preferred stock it sold in
l999, whereas, no similar charges were previously recorded.
Year Ended December 31, 1998 as Compared with Year Ended December 31, 1997
Total revenues 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 of $1,978,441, compared with $7,669,243 for 1997, a decrease of
$5,690,802 or 74%. Prepaid telephone calling card revenues were $7,844,462 for
1998, compared to $1,346,660 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 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 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. 1997 cost of sales benefitted from the reversal of $649,563,
representing a portion of a previous provision for contingent costs.
24
<PAGE>
Selling, general and administrative expenses were $2,094,025 for 1998,
compared to $218,917 for 1997, reflecting an increase of $1,875,108, or 857%.
This increase is primarily due to increases in staffing.
The Company's loss from continuing operations before other income
(expense) decreased from $8,047,668 for 1997 to $2,270,768 for 1998 primarily
due to a $9,449,079 loss on marketable securities in l997 set off, in part, by
the increases in cost of sales and general and administrative expenses discussed
above.
Interest and debt placement expenses increased significantly from the
prior year due to the substantial increase in the amount of short-term debt
placed in 1998.
Liquidity and Capital Resources
Due to the losses discussed above, the Company's working capital
deficit increased from $19,912,739 as of December 31, 1999, to $23,323,980 as of
June 30, 2000, an increase in the working capital deficit of $3,411,241, and the
stockholders' deficiency increased from $23,848,441 at December 31, 1999 to
$27,509,521 at June 30, 2000, an increase in stockholders' deficiency of
$3,661,080.
Current assets decreased by $270,283 primarily due to a decrease in
current assets from discontinued operations at June 30, 2000. Current
liabilities increased by $3,140,958. This increase is largely due to increases
in the current portion of debt, in accounts payable and accrued expenses and
current liabilities from discontinued operations. However, a substantial portion
of current liabilities from discontinued operations were assumed by Lebow and
Gulfsat on January 18, 2000, but in February 2000, they defaulted under their
agreements.
A significant portion of the liabilities of the Company mature or are
subject to payment agreements calling for payment before the end of 2000. The
Company has had discussions with several of its largest unsecured creditors,
including, but not limited to, AT&T and IDT. The Company is attempting to reach
an approved out of court "standby agreement" with all of its creditors. If the
standby agreement is acceptable to the Company's creditors, then as long as the
Company complies with its terms, the Company's creditors will not exercise their
legal rights and remedies. If the proposed settlement with creditors is
successful, the Company have no direct obligation to any of its unsecured
creditors because their claims will be satisfied from the future earnings of
PICK Sat and/or other affiliates. There can be no assurance that the Company's
effort's to resolve the claims of its unsecured creditors will be successful.
The Company is in need of immediate financing for working capital. In
April 2000, a group of investors from Europe and the Middle East committed an
aggregate of $10 million to PICK Sat (the "PICK Sat Financing"), to occur over a
12-month period. The investors will acquire 20% ownership of PICK Sat and will
be issued equity on the basis of 1% for every $500,000 invested. As of June 30,
2000 and October 31, 2000, $1,205,295, and approximately $7.2 million,
respectively, has been invested in PICKSat. The initial $500,000 was made as a
convertible loan on a pari passu basis with the Atlantic Tele-Network Inc.
("ATN") indebtedness described below.
In September, 1999 PICK entered into an option agreement with Atlantic
Tele-Network, Inc. ("ATN") to sell them up to 19.9% of the common stock of PICK
Sat for $8 million, with an option to acquire an additional 31.1% for an
additional $15 million payable in 500,000 shares of ATN common stock or $15
million in cash or ATN common stock, whichever produces the higher value at the
time of exercise of the option was exercised in full. PICK Sat obtained interim
loans in the principal amount of $476,000 from ATN for the Company and PICK
Sat's operating expenses. ATN chose not to exercise the option. In addition,
under a credit facility, as of June 30, 2000, one of PICK's former subsidiaries,
PICK Net USA, had debt, amounting to $2,119,424 plus accrued interest, which
includes the $476,000 principal amount plus accrued interest assumed from PICK
Sat's balance by PICK Net's buyer on the date of sale, January 18, 2000. In
accordance with the terms of the above loans from ATN, the $476,000 borrowed by
PICK Sat and the $1,589,664 borrowed by PICK Net USA, all become due and payable
on February 4, 2000 and has not been paid. On January 4, 2000, in consideration
with the completion of the sale of the Company's PICK Net subsidiaries to Lebow
and Gulfsat, as well as the termination of the PICK Sat option, ATN received
five-year warrants to purchase 1 million shares of PICK Common Stock exercisable
at $2.00 per share.
On November 3, 1999, PICK Sat obtained a 120 day revolver for $500,000
(the "Revolver") from Tri-Links Investment Trust ("Tri-Links"). PICK Sat
borrowed$412,000 under the Revolver which bears interest at 13% per annum,
increasing to l5% per annum upon default and payment of which is guaranteed by
PICK. Tri-Links was granted a security interest in substantially all of PICK
Sat's assets which was initially subordinated to ATN and then made pari passu
and equal in priority. The Revolver came due on March 3, 2000 and was extended
until May 3, 2000. In addition, on January 26, 2000, Tri-Links, PICK, PICK Sat
and Group Technology for Scientific Equipment and Supplies and Salah Khalid Al
Fulaij ("Fulaij") entered into an Amendment Agreement which was amended again in
March and April 2000, whereby the commitment under the Revolver was increased.
The loan payable balance at June 30, 2000 amounted to $1,447,430. As of August
30, 2000, the parties agreed in principle to a Third Amendment and Extension
25
<PAGE>
Agreement under which repayment of $1,150,000 principal amount will be extended
to April 1, 2001 and $100,000 will be converted into equity of PICK Sat by
Fulaij. The interest rate was reduced from 13% to 10% per annum. Repayment of
the loan will be made on a monthly basis until repaid in full on April 1, 2001.
Until the loans are repaid, PICK and PICK Sat agreed to certain negative
covenants including the payment of dividends to PICK cannot exceed $200,000 in
the aggregate; not greater than l5% of PICK Sat's projected debt may be paid or
incurred; and the companies cannot enter into certain mergers or sales of
assets. The lenders were granted the right to elect either two members of PICK
Sat's Board of Directors or two observers to the Board. Subject to a proposed
recapitalization of PICK Sat, the lenders were granted warrants to purchase an
aggregate of 15,000 shares of PICK Sat's common stock at the lesser of $5.00 per
share or 50% of the price paid by new investors at the time of PICK Sat's
initial public offering on or before March 1, 2001.
In March 1999, the board of directors authorized the issuance of
2,000,000 shares of Series B convertible preferred stock. The Series B
convertible preferred stock has a stated par value of $.001 per share and
1,871,000 shares were issued, convertible into 1,871,000 shares of the Company's
common stock at the rate of $1.00 per share. As of June 30, 2000, 1,476,000
shares of Series B convertible preferred stock had been converted into common
stock.
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 was initially
convertible into 1,190,500 shares of the Company's common stock at the rate of
$4.20 per share. As of December 31, 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 $459,750 of preferred stock placement costs. In 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 July
15, 1999, the Company sold 34,000 shares of Series D convertible preferred stock
for $340,000 to Diego Leiva, then chairman of the board. The purchase is
evidenced by a recourse promissory note secured by a pledge of the securities.
Mr. Leiva has agreed to return the 34,000 shares of Series D Preferred Stock and
accompanying warrants to the Company for cancellation. In January 2000, the
conversion rate was adjusted so that the preferred stock converts into common
stock at $2.00 per share. As of June 30, 2000, $3,160,000 principal amount of
Series D Convertible Preferred Stock had been converted into 952,738 shares of
common stock. The remaining $1,500,000 principal amount (exclusive of Mr.
Leiva's $340,000 of preferred stock) of Series D Convertible Preferred Stock, is
convertible into 750,000 shares of Common Stock, subject to adjustment.
At December 31, 1999, we also recorded a beneficial dividend of
$25,170,000 associated with the issuance of preferred stock. This charge did not
use any cash of the Company.
Material Changes in Cash Flows
Cash increased during the six months ended June 30, 2000, by $164,198.
This increase is attributable to a decrease in net cash used in operating
activities of $1,385,930 and investing activities of $194,404. This is offset by
increases in cash provided by financing activities of $1,744,532.
Cash Flows from Operating Activities
Operating activities used $1,385,930 in cash for the six months ended
June 30 2000, compared with a use of $4,718,729 for the six months ended June
30, 1999. Cash flows from operating activities consists primarily of a net loss
of $3,861,080 for the six months ended June 30, 2000, compared with a net loss
of $53,591,454 for the six months ended June 30, 1999. Net cash flow from
operating activities also reflected a $736,586 decrease in long-term liabilities
for discontinued operations and a $873,525 increase in current liabilities from
discontinued operations, whereas there were no discontinued operations during
the six months ended June 30, 1999.
Cash Flows from Investing Activities
The Company's capital expenditures of $194,404 for the six months ended
June 30, 2000 decreased from the six months ended June 30, 1999 of $1,213,408.
This decrease is attributable primarily to the Company's development of the
satellite-based Internet access, interactive multimedia structures for its PICK
Sat subsidiary during 1999.
Cash Flows from Financing Activities
During the six months ended June 30, 2000, the Company had net cash
provided by financing activities of approximately $1,744,500, as compared to
$6,381,000 for the six months ended June 30, 1999. The proceeds are primarily
from the issuance of PICK Sat's equity and funds advanced on third-party debt
during the six months ended June 30, 2000 for $1,205,295 and $559,430,
respectively. The proceeds were primarily from the issuance of the Series B and
Series D preferred stock and funds advanced on third-party debt during the six
months ended June 30, 1999.
26
<PAGE>
Year 2000 Compliance
There have been no material changes since the Company's disclosure in
its Annual Report on Form 10-K for December 31, 1999. The Company identified and
prepared for all significant internal Y2K issues that could adversely affect its
business operations. The cost of resolving such issues did not have a material
impact on the Company's financial position, results of operations or liquidity.
At December 31, 1999
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 $19,913,000 as of December 31, 1999, an increase of approximately
$5,343,000 and the stockholders' deficiency changed from approximately a
negative $20,352,000 at December 31, 1998 to approximately $23,848,000 at
December 31, 1999, an increase in negative net worth of approximately
$3,496,000.
Current assets decreased by approximately $1,063,000 primarily due to a
decrease in current assets from discontinued operations. The Company had no cash
on hand and was overdrawn by approximately $20,000 at December 31, 1999. Current
liabilities increased by approximately $4,280,000. 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 lower sales volume and a decrease in current liabilities
from discontinued operations offset, in part, by a decrease in deferred revenue
for pre-paid calling cards. However, a substantial portion of current
liabilities from discontinued operations were assumed by Lebow and Gulfsat on
January 18, 2000, as described under "Discontinued Operations."
In April 2000, a group of investors from Europe and the Middle East
committed an aggregate of $10 million to PICK Sat (the "PICK Sat Financing"), to
occur over a l2 month period. The Investors will acquire 20% ownership of PICK
Sat and will be issued equity on the basis of 1% for every $500,000 invested. As
of June 30, 2000, $1.2 million had been invested in PICK Sat.
In September, 1999, PICK entered into an option agreement with Atlantic
Tele-Network, Inc. ("ATN") to sell them up to 19.9% of the common stock of PICK
Sat for $8 million, with an option to acquire an additional 31.1% for an
additional $15 million payable in 500,000 shares of ATN common stock or $15
million in cash or ATN common stock, whichever produces the higher value at the
time of exercise of the option if exercised in full. PICK Sat obtained interim
loans in the amount of $476,000 from ATN for the Company and PICK Sat's
operating expenses. ATN chose not to exercise the option. In addition, under a
credit facility, one of PICK's former subsidiaries, PICK Net USA, has debt to
ATN, including principal and interest accrued as of December 31, 1999 in the
aggregate of $1,589,663. In accordance with the terms of the above loans from
ATN, the $476,000 borrowed by PICK Sat and the $1,589,663 borrowed by PICK Net
USA, all become due and payable on February 4, 2000 and has not been paid. On
January 4, 2000, in consideration of the then pending completion of the sale of
the Company's PICK Net subsidiaries to Lebow and Gulfsat, as well as the
termination of the PICK Sat option, ATN received five-year warrants to purchase
1 million shares of PICK Common Stock exercisable at $2.00 per share.
On November 3, 1999, PICK Sat obtained a 120 day revolver for $412,000
(the "Revolver") from Tri-Links Investment Trust ("Tri-Links"). PICK Sat
borrowed the entire $500,000 under the Revolver which bears interest at 13% per
annum, increasing to l5% per annum upon default and payment of which is
guaranteed by PICK. Tri-Links was granted a security interest in substantially
all of PICK Sat's assets which was initially subordinated to ATN and then made
pari passu and equal in priority. The Revolver came due on March 3, 2000.
On January 26, 2000, Tri-Links, PICK and PICK Sat entered into an
Amendment Agreement which was amended again in March and April 2000, whereby the
commitment under the Revolver was eventually increased to $l,400,000, all of
which has been loaned to PICK Sat. Tri-Links has entered into a Participation
Agreement with Group Technology for Scientific Equipment and Supplies ("Group
Technology") for a $500,000 portion of the commitment and Salah Khalid Al
Fulaij, the Company's current Chairman of the Board, for an aggregate of
$400,000. In connection with the Revolver, PICK agreed to use its best efforts
to cause four designees of Tri-Links to be elected to the PICK Board of
Directors. Tri-Links was issued warrants to purchase 2.5% of the issued and
outstanding common stock of PICK Sat on a fully diluted basis.
Group Technology was assigned Tri-Links's right to elect two of the four
Directors and its assignee was given warrants to purchase 2.5% of the issued and
outstanding common stock of PICK Sat on a fully diluted basis.
On March 3, 2000, in consideration of the above extension and
Tri-Links' efforts to obtain additional funding for PICK Sat, Tri-Links and
Group Technology were each granted warrants to purchase an additional one
percent (1%) of the issued and outstanding common stock of PICK Sat. The loan is
past due and the parties are currently negotiating the restructuring of the
terms of the Revolver, as well as negotiation the terms of repayment of
indebtedness to ATN.
In early 1999, Management negotiated with the largest trade creditors
to restructure a substantial portion of the Company's short-term debt. The
Company 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. However, the Company has been unable to
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meet its monetary obligations under the revised agreements. See Notes 7, 9(a)
and 10 of Notes to Consolidated Financial Statements.
PICK was able to obtain net equity investments totaling $6,481,000
during 1999. Of the total investments, $1,050,000 was recorded during the first
quarter of 1999 and $5,431,000 was recorded in the second quarter, as follows.
In March 1999, the board of directors authorized the issuance of 2,000,000
shares of Series B convertible preferred stock. The Series B convertible
preferred stock has a stated par value of $.001 per share and 1,871,000 shares
were issued, convertible into 1,871,000 shares of the Company's common stock at
the rate of $1.00 per share. As of December 31, 1999 and March 31, 2000, 941,000
and 1,188,000 shares of Series B convertible preferred stock had been converted
into common stock. The remaining 683,000 shares of Series B convertible
preferred stock are convertible into 683,000 shares of Common Stock.
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 was initially
convertible into 1,190,500 shares of the Company's common stock at the rate of
$4.20 per share. As of December 31, 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 $459,750 of preferred stock placement costs. In addition, the
Company issued an aggregate of 700,000 common stock purchase warrants in
connection with the sale of Series D convertible preferred stock. The Warrants,
as adjusted, are exercisable at $6.30 per share of common stock for a two-year
period for an aggregate of 70,000 shares. On July 15, 1999, the Company sold
34,000 shares of Series D convertible preferred stock for $340,000 to Diego
Leiva, then Chairman of the Board. The purchase is evidenced by a recourse
promissory note secured by a pledge of the securities. In January 2000, the
conversion rate was adjusted so that the preferred stock converts into common
stock at $2.00 per share. As of December 31, 1999 and May 12, 2000, $2,395,000
and $3,095,000 principal amount of Series D Convertible Preferred Stock,
respectively, had been converted into common stock. The remaining $1,905,000
principal amount of Series D Convertible Preferred Stock is convertible into
952,500 shares of common stock.
Due to the restructuring of the $9,900,000 short term notes the Company
recorded an increase in additional paid-in-capital of $45,054,337 during 1999.
We also recorded a charge on the beneficial conversion feature of the preferred
stock of $25,170,000 associated with the issuance of preferred stock. Neither of
these latter two charges used any cash of the Company.
In June 1999, the Company elected to divest or terminate its long
distance telephone services subsidiaries. PICK recorded a charge to retained
earnings of $45,315,574, as the loss on the discontinuance and disposal of the
long distance telephone services and prepaid calling card business. These
charges did not affect cash. The Company entered into an agreement in September
1999 to divest itself of PICK Net, Inc. and PICK Net UK, PLC, both of which
provided 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. On January 18, 2000, the Company completed the sale of the stock of the
two PICK Net subsidiaries for nominal value and had a substantial portion of
their liabilities assumed. However, in February 2000, the buyer of PICK Net
defaulted on the payment obligations for which the Company has demanded payment.
The operations of the Company are currently those of PICK Sat and PICK Online.
Material Changes in Cash Flows
Cash decreased during 1999, by approximately $17,000. This decrease is
attributable primarily to a decrease in cash used in operating activities of
approximately $63,000 from $5,305,000 in l998 to $5,242,000 in l999, a decrease
in cash provided by financing activities of approximately $2,532,000 from
approximately $9,095,000 to $6,563,000, as described below, as well as a
decrease in cash used in investing activity of approximately $2,477,000.
Cash Flows from Operating Activities
Operating activities used approximately $5,242,000 in cash during 1999,
compared with cash provided of approximately $5,305,000 for 1998. For 1999, the
Company incurred a net loss of approximately $57,345,000, as compared to
approximately $17,063,000 for 1998. The net loss for 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
$45,316,000 (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 $3,680,000, none of
which included a cash expense. The increased use of cash in operations in l999
also resulted from the Company's decreased sales in the prepaid calling card
business under the Blackstone Agreement and sales 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 $1,340,000 for 1999
decreased from $3,817,000 in 1998. This decrease is attributable primarily to
the Company's delay in the
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development of the satellite-based Internet access, interactive multimedia
structures for its PICK Sat and PICK Online subsidiaries.
Cash Flows from Financing Activities
During 1999, the Company had net cash provided by financing activities
of approximately $6,563,000, as compared to net cash provided by financing of
approximately $9,095,000 for 1998. The proceeds are from the issuance of the
Series B and Series D preferred stock and funds advanced on third party debt
during 1999. The 1999 amounts were offset by loan repayments and costs
attributable to the issuance of the preferred stock. Cash provided during l998
was primarily from funds advanced from third party debt, less debt repayments.
At December 31, 1998
The Company's 1998 net loss of $17,063,309 generated negative cash flow
from operations of $5,304,994 for 1998, compared with negative cash flow from
operations of $419,672 for 1997.
Due to the losses discussed above, the Company's working capital
deficiency increased from $7,405,608 at December 31, 1997 to $14,569,842 at
December 31, 1998 (an increase in the working capital deficiency of $7,164,234.
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 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. The
conversion price of the Amended Notes was adjusted in January 2000 from $10.00
to $5.00 per share. Commonwealth, and/or its designees, as agent for the
Noteholders, were 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. 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, to 50% of the then
average closing bid price of the Common Stock.
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 have the
right to nominate one person to a reconstructed Board consisting of a majority
of independent directors.
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
was initially convertible into shares of common stock at the rate of $4.20 per
share and is currently convertible at $2.00 per share. Commencing in April 1999,
the Company sold $5,000,000 of Series D Convertible Preferred Stock convertible
along with warrants to purchase 70,000 shares of Common Stock.
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CHANGE IN ACCOUNTANTS
Effective September 17, 1998, Goldstein Golub Kessler LLP ("GGK") were
engaged as the Company's independent accountants for the 1998 and 1999 fiscal
years. 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.
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-capitalization 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 currently has two active subsidiaries, PICK Sat, Inc.,
incorporated under the laws of Florida in December 1997 and PICK Online.Com
Inc., incorporated under the laws of Florida in March 1999. PICK Sat and PICK
Online are both developing companies. The Company's current focus is our PICK
Sat subsidiary which has just begun commercial operations. PICK Sat has
developed satellite-based, broadband Internet services. PICK Sat is marketing
its services to media companies, large corporations, cable companies, Internet
Service Providers ("ISPs") and end-users. PICK Sat is focusing its 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.
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 Internet traffic direct to a single user and is the
traditional Internet transmission methodology. PICK Sat combines it with a
satellite broadcast to rapidly deploy broadband Internet services at cost
effective prices. Multicast transmission is Internet traffic that can be
received by more than one user at the same time. This makes it well suited for
the delivery of streaming media including radio and video, music, and software
downloads.
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 Sat will market PICK Sat services initially in certain areas in
Latin America, as well as certain ex-urban areas of the United States. PICK Sat
services include Fuego(TM), a broad-based Internet access designed for home use
through existing cable television operations. 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. Sky Relay(TM) services will provide bandwidth Internet services to
local-area networks (LANS), Internet Service Providers ("ISPs"), corporations,
telephone companies and other users of Internet services. PICK Sat's SkyRelay
service was first demonstrated live in the GlobalXchange/Telia booth at Comdex
'99 in Miami last September. SkyRelay is a cost-effective, satellite-delivered,
high-speed Internet solution. GlobalXchange was PICK Sat's first reseller of the
SkyRelay product, which is targeted to ISPs, corporations, government agencies,
schools, hotels and other users throughout Latin America and the Caribbean, and
users in the United States where land lines for high-speed Internet access are
either costly or unavailable. 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 Sat 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.
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Until the completion of funding in May 2000, PICK Sat was unable to
complete its' Network Operating Center ("NOC"). PICK Sat is operating out of
temporary facilities in Miami, Florida and is expected to be headquartered in a
13,000 sq. ft. facility in Miami, FL at Koger Park, where an advanced NOC is
currently under construction. 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 connection with the commitment for the $10 million PICK Sat
financing in May 2000, an independent Board of Directors and new management were
hired by PICK Sat. The financing is to commercialize PICK Sat's operations which
the Company was unable to fund previously. See "Management".
PICK Sat presently offers customers four different types of service:
broadband Internet service, asymmetric 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.
Initial Customers
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, PICK Sat's 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. An agreement
between the parties has been terminated and the parties are negotiating a new
contract.
Between August and October and October 1999, PICK Sat entered into
Internet Distribution Agreements with four cable television companies located in
Mexico. These Mexican cable contracts are for PICK Sat to provide its Fuego
broad-band Internet access on an exclusive basis to the cable companies'
facilities which will permit the cable companies to provide Internet access to
their end-user customers. PICK Sat is to provide Internet access by means of the
PICK Sat Internet Protocol satellite delivery platform or substantially equal or
better Internet access.
PICK Sat and the cable companies have been testing the equipment and
making installations, however, PICK Sat was without adequate funds to implement
the contracts on a larger scale. PICK Sat has started receiving the necessary
funds to be able to commercialize its services and expects to invoice its first
customers in or about August 2000. The agreements are for five years with
renewal provisions.
In addition to the services previously described, PICK Sat has
identified business models which includes: institutional and corporate distance
learning; push technology hosting; news group 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 greater amounts of
bandwidth data. Based on Management's knowledge of the industry, PICK Sat
believes it will be able to begin servicing content providers including PICK
Online.Com.
In June 1998, PICK Sat entered into agreements for hardware with
Philips Digital Video Systems Company ("Philips") and software with Microsoft
Corporation ("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
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software solutions. The Company's Commitment to Cooperate with Microsoft
provides for Microsoft 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
as the Company is in default of payments to Microsoft and if the Company does
not have a certain amount of subscribers after two years of commercial
operation.
PICK Online.Com
PICK Online.Com, a wholly-owned subsidiary, is a multi-media content
aggregator and delivery provider of audio and video streaming content
(broadcasts) for ISPs and broadband networks. PICK Online.Com's primary service
is PICK Radio with more than 850 radio stations worldwide. 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. The Company intends to concentrate
corporate resources first on PICK Sat as funds become available and then fund
the operations of PICK Online.Com.
PICK Online.Com's initial goal is 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
("DSL) 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 is intended to 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.
Customers, Sales and Marketing
PICK Sat commenced its marketing efforts in March 1999 on a limited
basis, however, it was without funds to continue until the Spring of 2000. 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 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. PICK Online.Com does not initially charge radio stations for them to
participate. For ISPs, an initial number of reception cards and
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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. It is expected
that PICK Online.Com 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.
Through December 31, 1999, all of the Company's sales were derived from
its international long distance telecommunications services. In 1999,
approximately 40%, 19% and 13% of the Company's sales were from three customers,
Blackstone Calling Card, Inc., IDT Corporation and World Access. Blackstone and
IDT accounted for approximately 72% and 10% of the Company's sales in 1998. In
1997, approximately 19% and 13% of the Company's sales were derived from two
customers, Trescom and DC Communications Corp.
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 Internet access or
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, PICK Sat 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 PICK
Sat. A number of on-line services have lowered their monthly service fees, which
may cause PICK Sat to lower its monthly fees in order to compete.
PICK Sat 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. PICK Sat believes it will be able to compete favorably in these
areas. PICK Sat'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
PICK Sat's success in these markets include PICK Sat'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. The Company 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 800
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
33
<PAGE>
Edge of the Internet sites and the ability to roll out quickly are all factors
in how PICK Online.Com will compete against 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.
Patents and Trademarks
The Company has obtained or applied for trademark registrations for the
name PICK and of each of its subsidiaries. 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
The Company is 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.
Discontinued Operations
On June 23, 1999, the Company's 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. The Company terminated
marketing and distribution of prepaid telephone calling cards through PICK US,
Inc. The Company entered into a definitive agreement on September 13, 1999, as
described below, to sell the stock of PICK Net Inc. and PICK Net UK PLC
(collectively "PICK Net"), both of which provided international long distance
services to other carriers and resellers, for nominal value, and have up to
approximately $10.7 million of their liabilities assumed including capitalized
leases. The sale of PICK Net occurred on January 18, 2000. In February 2000, the
buyer defaulted under the agreements and discontinued operating PICK NET. The
Company still has contingent liabilities of approximately $4.6 million of
indebtedness which was assumed as part of the sale of PICK Net. The contingent
liabilities described below primarily include: (a) a promissory note in the
principal amount of $2,000,000 payable to IDT Corporation by May 2001 and (b)
approximately $2.1 million of indebtedness to Atlantic Tele-Network Inc.
incurred by PICK Sat and PICK Net. The Company retained the contingent
liabilities of its discontinued operations on its financial statements. As of
December 31, 1999, the Company had approximately an additional $19 million of
indebtedness of its own, plus accrued interest at 12% per annum including $9.9
of Senior Secured Notes due April 2002 and exclusive of discontinued operations.
On September 17, 1999, PICK agreed to sell PICK Net Inc. and PICK Net
UK PLC (collectively, ("PICK Net"), both wholly-owned subsidiaries of the
Registrant, to Lebow Investments Ltd. ("Lebow"), pursuant to a Stock Purchase
Agreement (the "SPA") dated as of September 13, 1999. Pursuant to the SPA, Lebow
agreed to purchase all of the outstanding capital stock of PICK Net from the
Registrant for $2.00 in cash and assume up to approximately $10.6 million in
liabilities owed to vendors and creditors of PICK Net, plus up to $95,000 in
potential liabilities to AT&T as a result of arbitration proceedings. Lebow
agreed to be financially responsible for PICK Net. PICK Net borrowed an
aggregate principal amount of $1,548,000 with interest thereon to continue
operations. The loans are evidenced by a promissory note dated September 13,
1999, in the aggregate amount of $5,000,000 pursuant to a Discretionary Credit
Agreement between PICK Net and Atlantic Tele-Network Inc. ("ATN"). This
indebtedness was guaranteed by PICK Sat and secured by certain assets of PICK
Sat. Subject to closing under the SPA, Lebow granted to ATN the PICK Net Option
to purchase from Lebow all of the outstanding capital stock of PICK Net.
On September 17, 1999, PICK, PICK Sat, and ATN entered into a PICK Sat
Option Agreement (the "Option Agreement") dated as of September 13, 1999.
Pursuant to the Option Agreement, PICK Sat granted to ATN an option to sell them
up to 19.9% of the common stock of PICK Sat for $8 million, with an option to
acquire an additional 31.1% for an additional $15 million payable either in (i)
500,000 shares of ATN common stock or (ii) a combination of $15 million in cash
and ATN common stock, whichever produces the higher value at the time of
exercise of the option. PICK Sat obtained interim loans in the amount of
$476,000 from ATN for its operating expenses.
On November 4, 1999, ATN notified the Company of its intention not to
exercise its option to purchase PICK Net and demanded repayment of loans to PICK
Net and PICK Sat in the amount of approximately $2.1 million by February 5,
2000. ATN also indicated that it would not exercise its option to acquire PICK
Sat at the time when it told the Company it would not acquire PICK Net. The
parties entered into a standstill agreement which expired on May 3, 2000. The
loans have not been repaid and the Company is continuing negotiations with ATN
as to the terms of their repayment.
34
<PAGE>
In late 1997, the Company entered into a reciprocal telecommunications
agreement for international long distance multimedia telecommunication in
Africa, the Middle East and Asia, via satellite, with Gulfsat Communications
Company ("Gulfsat"), a Kuwait based satellite telecommunications firm primarily
engaged in providing VSAT (Very Small Aperture Terminal) solutions world wide,
which agreement, as amended in March 1998, terminates on February 28, 2003.
However, the Company required additional financing, which was not then
available, to increase its ability to capitalize on the Gulfsat agreement and
the Company believed there were better opportunities available for PICK Sat.
On January 18, 2000, the SPA was amended to reduce the aggregate
liabilities assumed by Lebow to approximately $10.7 million including
capitalized leases. Included in these liabilities was all of the above-disclosed
indebtedness of PICK Net and PICK Sat to ATN in the aggregate amount of
approximately $2.1 million. Simultaneously, Gulfsat purchased all of the Common
Stock of Lebow, a British Virgin Islands corporation, for nominal consideration.
ATN terminated its PICK Sat Option and received five year warrants to purchase
one million shares of PICK at $2.00 per share. Gulfsat was granted five-year
warrants to purchase 2% of the issued and outstanding Common Stock of PICK Sat
plus all then outstanding derivative securities of PICK Sat. These warrants are
exercisable at 50% of the initial public offering price or private placement
resulting in a change of control of PICK Sat if such event occurs on or before
December 31, 2000, or otherwise for an aggregate purchase price of $370,000.
Following the closing of the sale of PICK Net on January 18, 2000,
Gulfsat continued to fund the operations of PICK Net. Gulfsat paid approximately
$225,000 and $283,000 in cash to PICK Net as of December 31, 1999 and February
29, 2000, respectively, to pay indebtedness and working capital of PICK Net.
Gulfsat also made circuits available to customers of PICK Net with a value of
approximately $630,000. Gulfsat subsequently advised PICK that it will no longer
fund the obligations of PICK Net. In May 2000, PICK demanded compliance by Lebow
and Gulfsat of their obligations under the SPA, has attempted to negotiate a
settlement and will pursue appropriate legal action if these demands are not
satisfied.
In late 1996, the Company entered into a reciprocal telecommunications
agreement with IDT Corporation ("IDT"), one of the Company's customers/carriers.
Under the agreement, IDT agreed to purchase certain telecommunication services
from the Company, and the Company agreed to purchase certain telecommunications
services from IDT. Pursuant to the agreement, IDT loaned the Company $2,000,000
in working capital financing for one year, which matured on February 9, 1999.
The Company and IDT reached an agreement to execute a new six-month note
executed by PICK Net in the principal amount of $2,000,000 plus accrued interest
and guaranteed by PICK. The Company 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 agreed 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 have been registered with the SEC. IDT notified PICK
Net of its alleged default under the Note and on January 18, 2000, a
Modification Agreement was signed whereby the maturity date of the Note was
extended until May 15, 2001. IDT refrained from commencing a lawsuit to seek
repayment as long as PICK Net complied with the obligations under the letter
agreement and no materially adverse event covering PICK Net occurred. The
failure of Lebow to continue to fund PICK Net's obligations may be deemed to be
a material adverse event, however no action has been taken. The principal amount
due to IDT was reduced by $114,000 and an additional $76,000 as of December 31,
1999 and January 31, 2000, respectively, for time purchased by PICK Net from
IDT.
Employees
As of October 25, 2000, the Company had one full-time employee, Helge
Bornmann, its President, Chief Executive Officer and Chief Financial Officer.
Its subsidiaries, PICK Online and PICK Sat, employed 21 full-time employees and
also employed independent contractors for various purposes. As of December 31,
1999, the Company had employed a total of 27 full-time employees. See
"Management - Executive Compensation." The employees are not represented by a
labor union, and the Company believes that its employee relations are excellent.
35
<PAGE>
Properties
PICK Sat has signed a lease for its new facilities at 5255 N.W. 87th
Avenue, First Floor, 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 from
March 1, 2002 to February 28, 2003; $18,683 per month from March 1, 2003 to
February 28, 2004.
PICK Sat currently occupies approximately 2,000 square feet of office
space at 5225-55 N.W. 87th Avenue, First Floor, Miami, Florida 33178. It
occupies this space under a sublease from a non-affiliated tenant at a monthly
rental of $5,325 at December 31, 1999. PICK Sat and its subsidiary is expected
to move into its new facility described in the prior paragraph.
In July, 2000, Pick Sat signed a lease for office space at 191
Post Road, Westport, Connecticut 06880. The lease is for approximately 200
square feet of office space at a monthly rental of $1,000. The lease expires
December 31, 2000.
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. On November 5, 1997, the Company filed
for arbitration proceedings against AT&T and sued for $5 million. 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 the discontinued operations which the
Company sold in January 2000. However, the Company remains contingently liable
for the judgment and is without the funds to satisfy the judgment. AT&T
converted the arbitration award into a judgment and attempted to enforce the
judgment and seize assets of the Company. Unless the Company 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
alleged that the Company failed to pay for telecommunications services provided.
On April 15, 1999, as amended on July 27, 1999, The Company and Worldcom entered
into a Settlement Agreement, under which 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, 2001, as extended, and
for Worldcom to discontinue, without prejudice, the legal proceedings until such
date. The Company agreed to pay Worldcom a 100,000 share restructuring fee which
shares have been registered with the SEC as part of this registration statement.
In July 1999, L.D. Exchange.com, Inc., a vendor of PICK Net, commenced
arbitration proceedings against PICK Net before the American Arbitration
Association ("AAA") in San Diego, California, alleging breach of contract. These
proceedings involve the alleged nonpayment of between $250,000 and $500,000. At
December 3, 1999, the Company's current liabilities included approximately
$266,000 payable to L.D. Exchange. com, Inc. at the time PICK Net was sold. The
Company notified its AAA that the matter did not involve its Company. By letter
dated August 14, 2000, the Company has been notified that arbitration had been
withdrawn.
On March 27, 2000, Telecom Management Resources, Inc. (as successor to
International Career Information, Inc.), a vendor of PICK Net, commenced a
lawsuit against the Company and PICK Net in the Superior Court of New Jersey,
Law Division, Hudson County. The complaint involved the alleged non-payment of
$58,220 under a Facilities Management Service Agreement and $50,400 for
additional payments under an acceleration provision plus interest. The Company
answered and denied the charges and raised affirmative defenses including the
fact that the liability was assigned to PICK Net with the consent of the
plaintiff and then PICK Net was sold. The parties reached an agreement which
had been properly recorded for at June 30, 2000, to settle the lawsuit.
MANAGEMENT
The following table sets forth the names, ages and positions
with the Company as of date of this prospectus of all of the executive officers
of the Company and its principal subsidiaries and the sole director of the
Company. Also set forth below is information as to the principal occupation and
background for each named person in the table.
36
<PAGE>
Name Age Position
---- --- --------
Helge Bornmann 44 Chairman of the Board, President and Chief
of PICK Sat
Wolkgang Wacker 53 President and Chief Executive Officer of
PICK Sat
Helge Bornmann has served as Chairman of the Board, CEO and President
of the Company since September 1, 2000. From January 1997 to May 2000, Mr.
Bornmann was involved in the restructuring of the Ukrainian pipe industry, and
then being appointed Managing Director of the responsible company SEPCO GmbH in
February 1998 until May 2000. Prior to that he founded TubiTec in November 1989,
which assisted marketing United States Steel tubulars on a worldwide basis. Mr.
Bornmann began his professional career in 1976 with Salzgitter GmbH, a German
industrial group in the steel industry, working in Mexico from 1977 to 1982. He
was then employed by Sairex GmbH commencing in May 1983, a German based pipe
company, managing offices in the United States, Switzerland and Singapore until
October 1989.
Wolfgang Wacker has served as President and Chief Executive Officer of
PICK Sat since May 23, 2000 and as Interim CEO from March 14, 2000 until May 23,
2000. He is also serving as a director of PICK Sat since May 16, 2000. Since
1996, Mr. Wacker has been a consultant under SEPCO GmbH, Germany, to restructure
the Ukrainian pipe industry and was responsible for setting up an international
sales and marketing organization. From 1992 to 1996, Mr. Wacker was a consultant
for United States Steel Corp. in charge of international marketing and sales of
tubular pipes, and also served as Managing Director of Metallia Tubulars.
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 was to be Diego Leiva, then 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
("Tri-Links") 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.
Tri-Links subsequently received the right to nominate four additional directors
pursuant to the terms of its November 1999 Bridge Loan, two of which nominees
Tri-Links assigned to its co- lenders. See "Certain Relationships and Related
Transactions."
Compliance with Section 16 of the Exchange Act
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 aware
of the following failures to file reports, or report transactions in a timely
manner, during the Company's fiscal year ended December 31, 1999.
On May 18, 1999, Alberto M. Delgado, a former Director of the Company,
filed a Form 4 relating to the purchase of the Company's Series B Convertible
Preferred Stock by P.A.M.D. Investors, of which he is a principal, in April
1999. Also in May 1999, Mr. Delgado filed a Form 4 for the grant of 50,000
options to purchase the Company's Common Stock to Final Age Corp., of which he
is a principal, in March 1999.
In August 1999, Henry Ewen, a former officer of the Company, filed a
Form 4 relating to the grant to him of 15,000 options to purchase the Company's
Common Stock in June 1999. In December 1999, Mr. Ewen filed a Form 4 relating to
the grant of 16,500 replacement options to purchase the Company's Common Stock
in September 1999.
In December 1999, Diego Leiva, the former Chairman of the Board of the
Company, filed a Form 4 relating to the grant of 250,000 options to purchase the
Company's Common Stock in January 1999.
On May 18, 1999, Ricardo Maranon, a former Director of the Company,
filed a Form 4 relating to the purchase of the Company's Series B Convertible
Preferred Stock in April 1999. Also in May 1999, Mr. Maranon filed a From 4 for
the grant of 50,000 options to purchase the Company's Common Stock to Mother of
Three, Inc., of which he is a principal, in March 1999.
In November 1999, Mario Pino, former president of PICK Sat, Inc., filed
a Form 4 relating to the Company's reverse stock split effective in September
1999.
In August 1999, Robert R. Sams filed a Form 4 relating to his exercise
of Options to purchase Common Stock of the Company. On May 18, 1999, Mr. Sams
filed a Form 4 relating to the purchase of the Company's Series B Convertible
Preferred Stock by Saicol Limited, of which he is a principal, in April 1999.
Also in May 1999, Mr. Sams filed a Form 4 for the grant of 50,000 options to
purchase the Company's Common Stock to Saicol Limited.
37
<PAGE>
On May 20, 1999, John Tydeman, a former director of the Company, filed
a Form 4 relating to the purchase of the Company's Series B Convertible
Preferred Stock by Dolphin Media Group, of which he is a principal, in April
1999. Also in May 1999, Mr. Tydeman filed a Form 4 for the grant of 50,000
options to purchase the Company's Common Stock to Dolphin Media Group.
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, 1999. No other
executive officers of the company received total compensation in excess of
$100,000 during any of the last three years:
<TABLE>
<CAPTION>
Annual Compensation
-------------------- Shares
Name and Underlying
Positions Year Salary ($) Bonus Stock Options
--------- ---- ---------- ----- -------------
<S> <C> <C> <C> <C>
Diego Leiva 1999 $ 278,000 (1) -0- -0-
Chief Executive Officer 1998 162,500 15,201 275,000
and Chairman 1997 150,000 -0- 75,000 (2)
of the Board of Directors(1)
Thomas M. Malone 1999 $ 83,333 (3) -0- (3) 500,000 (4)
Chief Executive Officer
Robert Bingham, 1999 $ 31,300 (5) $ -0- -0-
Vice President 1998 111,500 -0- 5,000 (6)
and Chief Financial Officer 1997 34,417 -0- 50,000 (7)
Raymond Brennan, 1999 $ 53,904 (8) $ -0- -0-
Vice President and 1998 138,340 -0- 25,000 (9)
Secretary 1997 88,419 -0- 75,000 (10)
Karen Quinn 1999 $ 66,477 (8) -0- -0-
Vice President 1998 100,179 -0- 30,000 (11)
1997 85,164 -0- 75,000 (10)
</TABLE>
(1) Mr. Leiva resigned from all positions with the Company on May 8, 2000 and
remains an officer and director of PICK Sat.
(2) Includes options to purchase 50,000 shares granted in 1996, at prices
varying from $8.75 to $9.625 per share were canceled and re-issued in 1997
at $1.90 per share and 25,000 options granted in 1997 at $3.00 per share.
(3) Mr. Malone served as Chief Executive Officer of the Company from April 1,
1999 until he resigned on July 8, 1999 to pursue other business
opportunities. Mr. Malone was being paid at the rate of $250,000 per annum
and the $83,333 included in the table consists only of salary paid to Mr.
Malone. 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 which has not been paid. He also retained $50,000 of Series B
Convertible Preferred Stock which was one-half of his signing bonus with
the other $50,000 being forfeited.
(4) Pursuant to the Separation Agreement described note (3), Mr. Malone
retained stock options to purchase 100,000 shares of common stock, which
had vested and were exercisable until July 8, 2000, at $5.00 per share.
He had been granted options to purchase an aggregate of 500,000 shares 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 an additional 50,000 shares of common stock at $5.00 per share,
until July 8, 2001. The remaining 350,000 options were forfeited by Mr.
Malone following his termination on July 8, 1999.
(5) Mr. Bingham resigned from all positions with the Company on February 10,
1999.
(6) Exercisable at $3.70 per share which terminated on May 10, 1999.
(7) Includes options to purchase 25,000 shares at $2.50 per share and options
to purchase 25,000 shares at $5.00 per share which terminated on May 10,
1999.
38
<PAGE>
(8) Mr. Brennan's and Ms. Quinn's employment was terminated on May 10, 1999.
(9) Includes options to purchase 15,000 shares at $3.70 per share and options
to purchase 10,000 shares at $5.50 per share which terminated on August 28,
1999.
(10) Includes options to purchase 25,000 shares at $2.70 per share and options
to purchase 50,000 shares at $1.70 per share which terminated on August 28,
1999.
(11) Includes options to purchase 15,000 shares at $3.70 per share and options
to purchase 15,000 shares at $5.50 per share which terminated on August 28,
1999.
The Company maintains a $250,000 term life insurance policy for Diego Leiva, for
which the Company paid $1,494, $1,377 and $1,257 in 1999, 1998 and 1997,
respectively. In addition, during 1999 the Company maintained a $1,000,000 key
man life insurance policy on Mr. Leiva's life.
Employment and Consulting Agreement
In September 1998, the Company entered into a five-year employment
agreement with Diego Leiva, as President and Chief Executive Officer, commencing
on the Initial Closing Date of a financing (the "Commencement Date"). The
Agreement is automatically renewable for additional one-year periods unless
terminated on 90 days' prior written notice. Mr. Leiva was to be paid $300,000
per annum beginning on the Commencement Date, increasing by $50,000 increments
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 was
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.
In April 1999, Mr. Leiva's employment agreement was amended to provide
he would continue solely as Chairman of the Board of Directors and to receive
his salary at the rate of $300,000 per annum. Mr. Leiva agreed to vote his
shares of common stock in favor of Management's nominees, provided he is a
nominee for the Board. As of May 8, 2000, Mr. Leiva resigned from all positions
with the Company and his employment agreement is being terminated. Mr. Leiva
remains Vice Chairman and Executive Vice President of Sales and Marketing of
PICK Sat.
On March 14, 2000, Wolfgang Wacker entered into an engagement letter
pursuant to which he was appointed Interim Chief Executive Officer of PICK Sat.
This engagement is for a six-month period. Mr. Wacker did not receive a salary
and his sole compensation was warrants to purchase 5% of the outstanding stock
of PICK Sat on a fully diluted basis for nominal value. One-half of the warrants
were issued upon his appointment and the other one-half will be issued upon
completion of permanent financing currently being conducted.
On August 6, 2000, Mr. Wacker entered into an employment agreement to
become the President and Chief Executive Officer of PICK Sat effective January
1, 2001. The term of the agreement is until June 1, 2003, but is renewable for
additional two-year periods at the option of PICK Sat upon the notification of
Mr. Wacker in writing at least 30 days prior to the end of the then current
term. The agreement provides for Mr. Wacker to be paid
o $300,000 per annum,
o a year-end bonus of a minimum of $100,000 per annum in quarterly
installments of at least $25,000 within ten business days after the
end of each quarter and
o $100,000 bonus if PICK Sat attains $5,000,000 net collected sales
during a term year during the second and third year of the term of
the employment agreement.
39
<PAGE>
In addition, Mr. Wacker shall be granted
o 250,000 shares of PICK Sat common stock upon the execution of the
agreement; and
o options to purchase 250,000 shares of PICK Sat common stock at an
exercise price equal to 40% of the price of (a) the last exempt sale
of PICK Sat common stock or exercise of options or (b) the sale of
PICK Sat common stock to the public as of December 31, 2000, if the
stock is sold to the public at that time, whichever is later.
Moreover, Mr. Wacker is entitled to receive sales based compensation as follows:
o for up to $100,000,000 net collected sales, Mr. Wacker will receive
(a) cash equal to two percent (2%) of the net collected annual
sales, and (b) options to purchase PICK Sat common stock equal in
value to two percent (2%) of the net collected annual sales at an
exercise price equal to 40% of the price of (x) the last exempt sale
of PICK Sat common stock or exercise of options or (y) the sale of
PICK Sat common stock to the public as of December 31, 2000, if the
stock is sold to the public at that time, whichever is later;
o for over $100,000,000 and up to $200,000,000 net collected sales,
Mr. Wacker will receive (a) cash equal to one percent (1%) of the
net collected annual sales, and (b) options to purchase PICK Sat
common stock equal in value to one percent (1%) of the net collected
annual sales at an exercise price equal to 40% of the price of (x)
the last exempt sale of PICK Sat common stock or exercise of options
or (y) the sale of PICK Sat common stock to the public as of
December 31, 2000, if the stock is sold to the public at that time,
whichever is later;
o for net over $200,000,000 net collected sales, Mr. Wacker will
receive (a) cash equal to one-half of one percent (1/2%) of the net
collected annual sales, and (b) options to purchase PICK Sat common
stock equal in value to one-half of one percent (1/2%) of the net
collected annual sales at an exercise price equal to 40% of the
price of (x) the last exempt sale of PICK Sat common stock or
exercise of options or (y) the sale of PICK Sat common stock to the
public as of December 31, 2000, if the stock is sold to the public
at that time, whichever is later.
Mr. Wacker will also receive PICK Sat common stock for any investment
in PICK Sat by an investor originated by Mr. Wacker equal to two percent (2%) of
such investment at a figurative price per share equal to 40% of the investment
price per share and cash and/or stock upon the sale of all or substantially all
of the business and/or assets of PICK Sat, depending on the consideration
received, equal to the two and one-half percent (2 1/2%) of the sale price. Mr.
Wacker is entitled to a monthly car allowance of $800 per month. Mr. Wacker's
employment by PICK Sat is contingent upon his signing a non-solicitation,
confidentiality and non-disclosure agreement with PICK Sat.
The Company and Helge Bornmann entered into an agreement on September
7, 2000, entitling Mr. Bornmann to 150,000 shares of common stock upon the
execution of the agreement and an additional 50,000 shares of common stock every
year he serves as a director, President and Chief Executive Officer of the
Company.
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. Each Director during 1999 received
restricted stock and/or stock options from the Company. "See Certain
Relationships of Related Transactions."
Robert R. Sams, the Former Chairman of the Board, Chief Executive
Officer, Chief Financial Officer and President of the Company until September
2000, through Saicol Limited ("Saicol"), performed advisory and other services
on behalf of the Company while he was a non-officer director of the Company.
These services were primarily for PICK Net and PICK Net UK Plc, the Company's
long distance telecommunications subsidiaries which were sold in January 2000.
During the period from January 1, 1998 through June 30, 1999, Saicol was
entitled to receive $25,000 plus expenses and have 75,000 options vested and
exercised on a cashless basis (which Saicol effected) for services rendered to
the Company.
The Company and Saicol entered into a Management Service Agreement on
May 4, 2000, retroactive to June 30, 1999, and to continue until the sale of
PICK Net is complete. This agreement concerns Saicol's retention to provide
management services to PICK Net UK Plc. Mr. Sams, pursuant to the Management
Service Agreement, has to be compensated at the rate of $15,000 per month plus
expenses. His responsibilities included the sale of the PICK Net companies to
Atlantic Tele-Network; the provision of office space in the United Kingdom;
accounting maintenance and supervision of auditors, licensing and U.K.
government filings and registration and management of agreements for the
provision of fibre and satellite unlinking stations. This agreement was
terminated in July, 2000.
40
<PAGE>
Option Grants in Last Fiscal Year
The table below contains certain information concerning stock options
granted to the Named Executive Officers, named in the Summary Compensation
Table, during the year ended December 31, 1999:
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Percent of Total Assumed Annual Rates of Stock Price
Securities Options Appreciation for Option Term
Underlying Granted to Exercise ----------------------------
Options Employees in Price Expiration 5% 10%
Name Granted Fiscal year ($/Share) Date ($) ($)
---- ------- ------------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Thomas M. Malone 500,000 40% $5.00 7/8/01(1) $50,625 $102,500
</TABLE>
(1) Following Mr. Malone's resignation on July 8, 1999, 350,000 of these
options were forfeited and options to purchase 100,000 shares remained
exercisable until July 8, 2000 and options to purchase 50,000 shares are
exercisable until July 8, 2001.
Option Grants in 1999
During 1999, the Company granted an aggregate of 1,237,500 options to
employees and consultants, generally exercisable at $5.00 per share and vesting
over a three-year period, except Mr. Malone's option vesting over a four-year
period. In March 1999, the Company granted to each of the then four non-officer
members of the Board of Directors, options to purchase 50,000 shares at $5.00
which were vested on March 3, 2000 and were repriced at $1.81 per share on
October 1, 1999 and again at $1.47 per share on January 12, 2000. The employees'
options were also vested and repriced on October 1, 1999 and January 12, 2000.
Also included were the following grants to now former officers and/or directors,
all of which have resigned: Thomas Malone, Chief Executive Officer (500,000
shares); Mario Pino, President of PICK Sat (250,000 shares); James H. Season,
Chief Financial Officer (50,000 shares); Niles Ring, Vice President (50,000
shares); and Karen Quinn, President of PICK US Inc. (15,000 shares).
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
The table below includes information regarding the value realized on
option exercises and the market value of unexercised options held by the Named
Executive Officers named in the Summary Compensation Table during the year ended
December 31, 1999:
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Shares Options Options
Acquired at FY-End(#) at FY-End (S)
on Value Exercisable/ Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable(1)
---- ------------ ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Diego Leiva 75,000 (2) 0 275,000/0 0/0
Thomas M. Malone 0 0 150,000/0 0/0
Raymond Brennan 27,500 $21,994 0/0 0/0
Karen Quinn 50,000 (3) $19,000 0/0 0/0
</TABLE>
-------------
(1) As of December 31, 1999, the market value of the shares was $1 5/32 which
was below the exercise price of all outstanding options in the table.
(2) These options were exercised on a cashless basis.
(3) Upon Ms. Quinn's resignation from the Company and her entering into a
release, she received 50,000 shares of Common Stock representing 50,000
options previously granted to her.
41
<PAGE>
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 during the last fiscal year of another entity, any of
whose officers 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 1999 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 an
amendment to an employment agreement entered into between the Company and Diego
Leiva; agreement between the Company and Helge Bornmann, as CEO; an agreement
between PICK Sat and Wolfgang Wacker, as CEO of PICK Sat; options granted to
each of the Company's then Executive Officers and Directors; and the terms of a
Separation Agreement between the Company and Thomas Malone, the Company's former
Chief Executive Officer; and a Management Services Agreement between the Company
and Robert R. Sams, Chief Executive Officer of the Company.
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, as adjusted for the subsequent
reverse split. In addition, the Series B Preferred Stock has a liquidation
preference of $1.00 per share. The Company received $1,871,000 (including
$50,000 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/or 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 each of the
Company's then four independent directors (or their nominees), 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 $1.47 per share on January 12, 2000) in consideration of their
substantial efforts in assisting the Company in obtaining financing and for
other valuable consideration rendered to the Company. These options became fully
vested on March 3, 2000.
As part of the April 1999 Restructuring Agreement with Commonwealth
Associates and the restructuring of the Company's Board of Directors, Alberto M.
Delgado and Ricardo Maranon resigned from the Board on May l7, 1999. They
entered into Advisory Agreements to render corporate finance advice on a
non-exclusive basis. All of the advisor's options were vested and remain in full
force and effect. The advisors are to receive the same sales compensation as all
other independent contractors of the Company.
In April 1999, the board of directors authorized the issuance of
500,000 shares of Series D convertible preferred stock. As of September 30,
1999, the Company had sold an aggregate of 466,000 shares of Series D
convertible preferred stock for $4,660,000. In addition, the Company issued an
aggregate of 700,000 common stock purchase warrants exercisable at $6.30 per
42
<PAGE>
share for a two year period for an aggregate of 70,000 shares, as adjusted. On
July 15, 1999, the Company sold 34,000 shares of Series D convertible preferred
stock for $340,000 to Diego Leiva, then Chairman of the Board. The purchase is
evidenced by a recourse promissory note secured by a pledge of the securities.
Tri-Links Investment Trust ("Tri-Links") purchased $1,500,000 principal amount
of Series D convertible preferred stock and became a 5% or greater stockholder
of the Company. In January 2000, the conversion rate was adjusted so that the
preferred stock converts into common stock at $2.00 per share.
The Company has granted warrants to purchase common stock of its
wholly-owned subsidiary, PICK Sat to various persons and entities in the
aggregate amount of 19% of PICK Sat common stock on a fully-diluted basis.
Included in this amount is 3.5% warrants granted to Tri-Links, a holder of in
excess of 5% beneficial ownership of the Company's securities. Of this amount,
2.5% was issued on November 3, 1999 in connection with the bridge loan by
Tri-Links to PICK Sat and 1% was issued as of March 3, 2000 in connection with
the extension of the bridge loan. The loan is past due and the parties are
currently negotiating the restructuring of all terms of the loan. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for a description of the Tri-Links
Bridge Loan. An additional 3.5% warrants were issued to an unaffiliated third
party who is not an officer, director or 5% or greater shareholder. These
warrants are exercisable until December 31, 2004 at 50% of PICK Sat's initial
public offering price, or the lower of 50% of a private sale price or book value
on the date of grant.
On November 3, 1999, the Company awarded to Robert R. Sams, Diego Leiva
and John Tydeman, the then three directors of the Company, warrants to each
purchase 1.67% of the outstanding common stock of PICK Sat on a fully diluted
basis exercisable for nominal value until December 31, 2004. The Warrants were
issued for services rendered in attempting to fund PICK Sat and/or merge the
Company and also for restructuring PICK's operations. Upon his appointment as
acting CEO of PICK Sat in March 2000, Wolfgang Wacker was awarded similar
Warrants. He has the right to purchase for nominal value until December 31,
2004, 2.5% of the issued and outstanding common stock of PICK Sat and an
additional 2.5% upon the completion of the pending financing described
under"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
On August 6, 1999, PICK Net Inc. borrowed $250,000 on demand from
Atlantic Tele-Network Inc. ("ATN") and on April 27, 1999, PICK Sat Inc. borrowed
an additional $274,000 on demand from ATN. Both of these obligations were
previously guaranteed by Diego Leiva, then Chairman of the Board, on an
unconditional basis. In September 1999, these demand loans were replaced by
credit facilities and Mr. Leiva's personal guarantees were removed.
In May 1999, Niles Ring, James Season, Karen Quinn and Raymond Brennan,
employment of all officers of the Company, were terminated by the Company. These
terminations were part of the Company's discontinuing its long distance
telecommunications services and relocating its headquarters to Florida. As a
result of their terminations, both Niles Ring and James Season received two
weeks severance pay totaling $3,846 and $4,808, respectively, 15,000 stock
options representing accelerated vesting of 15% of their stock options that
would have vested on September 1, 1999 and one month of health insurance
premium. As a result of the termination of Karen Quinn and Raymond Brennan, each
received four weeks of severance pay totaling $10,384 and $7,692, respectively,
19,500 stock options representing accelerated vesting of 65% of their stock
options that would have vested on September 1, 1999 and three months of health
insurance premium.
On August 12, 1999, Karen Quinn entered into a Release of All Claims
with the Company, releasing the Company and its subsidiaries from all
employment-related claims in exchange for 50,000 shares of the Company's Common
Stock, representing 50,000 stock options previously issued to her, the
continuation of her health insurance coverage for 18 months from the date of her
termination, $4,091 in cash, less withholdings, for unused vacation days, and
the extension of the exercise period for 30,000 stock options previously issued
to her until the original expiration date.
On December 31, 1999, Niles Ring entered into a Release of All Claims
with the Company, releasing the Company and its subsidiaries from all
employment-related claims, in exchange for 31,500 shares of the Company's Common
Stock.
On December 31, 1999, James Season entered into a Release of All Claims
with the Company, releasing the Company and its subsidiaries from all
employment-related claims, in exchange for 100,000 vested five-year stock
options to purchase the Company's Common Stock at $1.25 per share.
43
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 1, 2000, the number of
shares of the Company's outstanding Common Stock 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:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (1) Percentage (2)
------------------- ------------------------ --------------
<S> <C> <C>
Diego Leiva 1,756,625 (3) 16.1%
13635 Deering Bay Drive, #293
Coral Gables, FL 33158
Helge Bornmann 356,000 (4) 3.3%
c/o PICK Sat, Inc.
5225-55 N.W. 87th Avenue
First Floor
Miami, FL 33178
Tri-Links Investment Trust 780,000 (5) 6.9%
Two World Financial Center
17th Floor
New York, NY 10281
Atlantic TeleNetwork, Inc. 1,000,000 (6) 8.7%
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
All executive officers and directors 394,957 (7) 3.6%
as a group (2 persons)
</TABLE>
(1) Unlessotherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(2) Based on 10,642,969 shares outstanding as of October 1, 2000. 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 l3d-3
under the Exchange Act have been converted or exercised.
(3) Includes 429,000 shares beneficially owned by Mr. Leiva's wife. Also
includes an aggregate of 275,000 stock options, consisting of incentive
options to purchase up to 15,000 shares at $1.47 per share which expire on
February 19, 2001 and 6,300 shares at $1.47 per share which expire on
November 4, 2001, non-qualified stock options to purchase up to 3,700
shares at $1.47 per share under the Plan which expire on November 4, 2001
and non-qualified stock options to purchase 250,000 shares at $1.47 per
share outside of the Plan which expire on November 2, 2003. Also includes
170,000 shares of common stock issuable upon conversion of 34,000 shares of
Series D Convertible Preferred Stock at $2.00 per share which shares are
being held in escrow until paid by Mr. Leiva, plus warrants to purchase an
additional 6,800 shares of Common Stock at $6.30 per share, all of which
Mr. Levia has agreed to forfeit.
(4) Includes 196,000 shares of Common Stock owned by Mr. Bornmann and an
additional 160,000 shares which will vest over time, provided Mr. Bornmann
is still employed by the Company.
(5) Consents of 750,000 shares of Common Stock issuable upon conversion of
$1,500,000 principal amount of Series D Preferred Stock, at $2.00 per
share, plus 30,000 shares of Common Stock issuable upon exercise of Series
D Common Stock Purchase Warrants.
(6) Includes five year warrants to purchase 1,000,000 shares at $2.00 per
share.
(7) Includes 356,000 shares beneficially owned by the sole named executive
officer and director, Helge Bornmann, and 38,957 shares beneficially owned
by Wolfgang Wacker, a current executive officer not listed in the table.
44
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the number of shares of common stock owned
and the total number of shares assuming the exercise of all options to purchase
common stock (the "options") owned by each of the Selling Shareholders and
registered hereunder.
The shares owned by each Selling Shareholder and percentage of common stock
is based on 10,642,969 shares issued and outstanding as of October 1, 2000.
Because the selling stockholders may offer all or part of the shares of
common stock received upon exercise of the options(the "Shares"), which they
hold pursuant to the offering contemplated by this prospectus, no estimate can
be given as to the amount of the options 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>
After
Shares Beneficially Owned Offering
------------------------- --------
Number
Amount and of Shares Amount and
Name and Address of Nature of Offered Nature of Percentage
Beneficial Owner Ownership(1) Hereby Ownership of Class
---------------- ------------ ------ --------- --------
<S> <C> <C> <C> <C>
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158 205,000(2) 150,000 55,000 *
Mohammed Al Hussaini
c/o PickSat, Inc.
5255-55 Northwest 87th Avenue
First Floor
Miami, FL 33178 100,000(3) 100,000 0 *
Ali Sahms Aldean Najdi
c/o PickSat, Inc.
5255-55 Northwest 87th Avenue
First Floor
Miami, FL 33178 50,000(4) 50,000 0 *
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
After
Shares Beneficially Owned Offering
------------------------- --------
Number
Amount and of Shares Amount and
Name and Address of Nature of Offered Nature of Percentage
Beneficial Owner Ownership(1) Hereby Ownership of Class
---------------- ------------ ------ --------- --------
<S> <C> <C> <C> <C>
Al Jandool Brides Jewelry Corporation
P.O. Box 9770
Salmiyah Post 22098
Kuwait 50,000(4) 50,000 0 *
</TABLE>
* Less than one percent of the issued and outstanding common stock
----------------
(1) Based on 10,642,969 shares of common stock issued and outstanding as of
October 1, 2000. 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.
(2) This entity is counsel to the Company and its shares include 150,000 shares
issuable upon exercise of non-qualified stock options to purchase 150,000
shares at $1.00 per share in exchange for legal fees owed to such entity.
(3) Includes 100,000 shares issued and listed under "Number of Shares Offered
Hereby" in satisfaction of advisory fees to the Company.
(4) Includes 50,000 shares issued and listed under "Number of Shares Offered
Hereby" in satisfaction of advisory fees to the Company.
46
<PAGE>
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, $.01
par value.
COMMON STOCK
We are authorized to issue 100,000,000 shares of our common stock, $.01
par value per share, of which 10,642,969 shares were issued and outstanding as
of October 1, 2000. 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
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, $.01 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.
47
<PAGE>
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 and 395,000 were
issued and outstanding as of October 1, 2000. 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 and 150,000 were
issued and outstanding as of October 1,2000. The remaining 150,000 shares of
Series D Convertible Preferred Stock are convertible into 750,000 shares of
common stock at the rate of $2.00 per share, subject to adjustment. 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.
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.
48
<PAGE>
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 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;
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.
49
<PAGE>
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.
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.
50
<PAGE>
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,
1999 and 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 and 1999 fiscal years. 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.
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 150,000 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.
51
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 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-8
Statement of Cash Flows F-9 - F-10
Notes to Consolidated Financial Statements F-11 - F-25
For the Three-Month and Six-Month Periods Ended
June 30, 2000 and 1999
(UNAUDITED)
Consolidated Balance Sheet at June 30, 2000
(Unaudited) and December 31, 1999................................ F-26
Consolidated Statement of Operations for the
three-month and six-month periods ended June 30, 2000
and 1999 (Unaudited)............................................. F-27
Consolidated Statement of Stockholders' Deficiency
for the six-month period ended June 30, 2000 (Unaudited)......... F-28
Consolidated Statement of Cash Flows for the
six-month periods ended June 30, 2000 and 1999 (Unaudited)....... F-29
Notes to Consolidated Financial Statements (Unaudited)........... F-30 - F-39
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
PICK Communications Corp.
We have audited the accompanying consolidated balance sheets of PICK
Communications Corp. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for the two years then ended. 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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, 1999 and 1998, and the results of
their operations and cash flows for the two years 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 15 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 15. 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
June 14, 2000
F-2
<PAGE>
DURLAND & COMPANY
---------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
PICK Communications Corp.
Wayne, New Jersey
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficiency) and cash flows of PICK Communications Corp.,
for the year ended December 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion of 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 financial statements are free of financial
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and their cash
flows for the year then ended of PICK Communications Corp., in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
consolidated financial statements, the Company incurred a significant losses,
resulting in a deficit equity position. These conditions 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 15. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Durland & Company, CPAs, P.A.
-----------------------------
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, 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 17,052
Prepaid expenses and other current assets $ 176,455 278,352
Current assets from discontinued operations 325,220 1,269,055
-------------------------------------------------------------------------------------------------------------------------------
Total current assets 501,675 1,564,459
-------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation and
amortization of $214,527 and $114,293, respectively 4,434,970 3,195,169
-------------------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 261,796 161,796
Deferred income tax asset, net of valuation allowance of $30,509,000
and $11,000,000, respectively - -
Long-term assets from discontinued operations 2,068,394 1,869,732
-------------------------------------------------------------------------------------------------------------------------------
Total other assets 2,330,190 2,031,528
-------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,266,835 $ 6,791,156
===============================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Cash overdraft $ 20,193
Current portion of debt 888,000 $ 20,000
Accounts payable and accrued expenses 8,540,607 2,797,133
Other current liabilities - 1,000,000
Current liabilities from discontinued operations 10,965,614 12,317,168
-------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 20,414,414 16,134,301
Debt, less current portion 9,880,000 9,880,000
Long-term Liabilities from Discontinued Operations 736,586 1,042,716
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities 31,031,000 27,057,017
-------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Consolidated Subsidiary 84,276 86,018
-------------------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency:
Convertible preferred stock - $.001 par value; authorized 10,000,000
shares
Designated as Series B - 2,000,000 shares; issued 1,871,000 shares; 930,000
shares outstanding; aggregate liquidation value
$1,871,000 930,000 -
Designated as Series D - 500,000 shares; issued 500,000 shares;
260,500 shares outstanding; aggregate liquidation value $4,660,000 2,605,000 -
Common stock - $.01 par value; authorized 100,000,000 shares and
10,000,000 shares, respectively; issued and outstanding 8,919,881
and 3,816,638 shares, respectively 89,234 38,202
Additional paid-in capital 79,746,228 4,008,029
Options and warrants 2,720,071 2,687,461
Subscriptions receivable (340,000) -
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated other comprehensive income 1,482 -
Accumulated deficit (109,588,478) (27,073,593)
-------------------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (23,848,441) (20,351,879)
-------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 7,266,835 $ 6,791,156
===============================================================================================================================
</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, 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs and expenses:
Selling, general and administrative expenses $ 2,825,957 $ 2,094,025 $ 218,917
Depreciation and amortization 100,234 45,805 180,531
-------------------------------------------------------------------------------------------------------------------------------
Operating loss 2,926,191 2,139,830 399,448
-------------------------------------------------------------------------------------------------------------------------------
Other expense:
Interest expense 1,824,845 - -
Write-off of intangible asset - - 441,205
Net loss on marketable equity securities - 133,000 9,449,079
-------------------------------------------------------------------------------------------------------------------------------
Total other expenses 1,824,845 133,000 9,890,284
-------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before minority interest in
loss of consolidated subsidiary, and benefit from income taxes 4,751,036 2,272,830 10,289,732
Minority interest in loss of consolidated subsidiary 1,742 2,062 434,064
-------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before benefit from income
taxes 4,749,294 2,270,768 9,855,668
Benefit from income taxes - - (1,808,000)
-------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations 4,749,294 2,270,768 8,047,668
-------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from discontinued operations 5,486,880 14,792,541 1,452,134
Loss on disposal of discontinued operations and related costs 45,315,574 - -
Estimated cost to discontinue operations 1,793,137 - -
-------------------------------------------------------------------------------------------------------------------------------
Total loss from discontinued operations 52,595,591 14,792,541 1,452,134
-------------------------------------------------------------------------------------------------------------------------------
Net loss 57,344,885 17,063,309 9,499,802
Beneficial conversion feature of preferred stock 25,170,000 - -
-------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $82,514,885 $17,063,309 $ 9,499,802
===============================================================================================================================
Loss from continuing operations and beneficial conversion
feature of preferred stock per common share - basic $ 6.30 $ .61 $ 2.18
===============================================================================================================================
Loss from discontinued operations per common
share - basic $ 11.07 $ 4.01 $ .39
===============================================================================================================================
Net loss applicable to common share - basic $ 17.37 $ 4.62 $ 2.57
===============================================================================================================================
Weighted-average common shares outstanding - basic 4,750,742 3,692,356 3,695,853
===============================================================================================================================
</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>
Year ended December 31, 1999
----------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock Series D Preferred Stock Common Stock
------------------------ ------------------------ -----------------------
Number Number Number
of Shares Amount of Shares Amount of Shares Amount
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 - - - - 4,321,752 $ 87,395
Reduction of $.02 to $.01 par value - - - - - (43,697)
Cancellation of 60,000 shares subscribed - - - - (60,000) (600)
Reacquisition of shares for cash - - - - (3,550) -
Reacquisition of shares for unused prepaid
advertising, with a book value of $2,038,155 - - - - (75,000) -
Reacquisition of share for Firenze, Ltd.
and Ultimistics, Inc. - - - - (600,000) -
Issuance of common stock for services - - - - 22,700 227
Issuance of warrants in connection with
short-term debt - - - - - -
Accumulated other comprehensive income - - - - - -
Net loss - - - - - -
-----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 - - - - 3,605,902 43,325
Issuance of common stock for compensation - - - - 66,299 663
Issuance of common stock in connection
with private placement - - - - 139,437 1,394
Issuance of common stock upon exercise of
warrants by director - - - - 5,000 50
Issuance of warrants in connection with
short-term debt - - - - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
---------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Options Subscriptions Other
Paid-in and and Notes Treasury Comprehensive
Capital Warrants Receivable Stock Income (Loss)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 6,399,720 - $(600,000) $ (602,089) $(3,904,965)
Reduction of $.02 to $.01 par value 43,697 - - - -
Cancellation of 60,000 shares subscribed (599,400) - 600,000 - -
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) -
Reacquisition of share for Firenze, Ltd.
and Ultimistics, Inc. - - - (420,000) -
Issuance of common stock for services 42,808 - - - -
Issuance of warrants in connection with
short-term debt - $ 21,242 - - -
Accumulated other comprehensive income - - - - 3,942,965
Net loss - - - - -
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 5,886,825 21,242 - (3,072,222) 38,000
Issuance of common stock for compensation 296,363 - - - -
Issuance of common stock in connection
with private placement 864,405 - - - -
Issuance of common stock upon exercise of
warrants by director 13,450 - - - -
Issuance of warrants in connection with
short-term debt - 2,359,940 - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
-------------------------------------------------------------------------------
Accumulated Stockholders'
Deficit Deficiency
-------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1, 1997 $ (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)
Reacquisition of share 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 - 3,942,965
Net loss (9,499,802) (9,499,802)
-------------------------------------------------------------------------------
Balance at December 31, 1997 (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
</TABLE>
(continued)
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>
Year ended December 31, 1999
------------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock Series D Preferred Stock Common Stock
------------------------ ------------------------ ----------------------
Number Number Number
of Shares Amount of Shares Amount of Shares Amount
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of options for compensation - - - - - -
Cancellation of 723,000 shares of treasury stock - - - - - $ (7,230)
Accumulated other comprehensive loss - - - - - -
Net loss - - - - - -
------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - - - - 3,816,638 38,202
Issuance of preferred stock 1,821,000 $1,821,000 466,000 $ 4,660,000 - -
Issuance of preferred stock for services 50,000 50,000 - - - -
Preferred stock issuance cost - Series B and D - - - - - -
Issuance of common stock for services - - - - 854,005 8,540
Conversion of preferred stock to common stock (941,000) (941,000) (239,500) (2,395,000) 1,511,238 15,112
Issuance of preferred stock as subscriptions
receivable - - 34,000 340,000 - -
Expiration of options and warrants - - - - - -
Issuance of common stock upon exercise of
options for cash - - - - 24,500 245
Issuance of common stock for old debt - - - - 100,000 1,000
Issuance of common stock upon exercise of
options and warrants for services - - - - 437,500 4,375
Issuance of common stock and warrants
to the restructured debt and fees - - - - 2,176,000 21,760
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
---------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Options Subscriptions Other
Paid-in and and Notes Treasury Comprehensive
Capital Warrants Receivable Stock Income (Loss)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of options for compensation - $ 306,279 - - -
Cancellation of 723,000 shares of treasury stock $(3,053,014) - - $ 3,060,244 -
Accumulated other comprehensive loss - - - - $ (38,000)
Net loss - - - - -
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,008,029 2,687,461 - (11,978) -
Issuance of preferred stock - - - - -
Issuance of preferred stock for services - - - - -
Preferred stock issuance cost - Series B and D (544,750) - - - -
Issuance of common stock for services 965,031 - - - -
Conversion of preferred stock to common stock 3,320,888 - - - -
Issuance of preferred stock as subscriptions
receivable - - $(340,000) - -
Expiration of options and warrants 89,743 (89,743) - - -
Issuance of common stock upon exercise of
options for cash 44,705 - - - -
Issuance of common stock for old debt 999,000 - - - -
Issuance of common stock upon exercise of
options and warrants for services 639,245 (643,620) - - -
Issuance of common stock and warrants
to the restructured debt and fees 45,054,337 239,477 - - -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------------------------------------
Accumulated Stockholders'
Deficit Deficiency
----------------------------------------------------------------------------------
<S> <C> <C>
Issuance of options for compensation - $ 306,279
Cancellation of 723,000 shares of treasury stock - -
Accumulated other comprehensive loss - (38,000)
Net loss $ (17,063,309) (17,063,309)
----------------------------------------------------------------------------------
Balance at December 31, 1998 (27,073,593) (20,351,879)
Issuance of preferred stock - 6,481,000
Issuance of preferred stock for services - 50,000
Preferred stock issuance cost - Series B and D - (544,750)
Issuance of common stock for services - 973,571
Conversion of preferred stock to common stock - -
Issuance of preferred stock as subscriptions
receivable - -
Expiration of options and warrants - -
Issuance of common stock upon exercise of
options for cash - 44,950
Issuance of common stock for old debt - 1,000,000
Issuance of common stock upon exercise of
options and warrants for services - -
Issuance of common stock and warrants
to the restructured debt and fees - 45,315,574
</TABLE>
(continued)
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 STOCKHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1999
------------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock Series D Preferred Stock Common Stock
------------------------ ------------------------ ----------------------
Number Number Number
of Shares Amount of Shares Amount of Shares Amount
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of warrants for services - - - - - -
Issuance of options for services - - - - - -
Beneficial conversion feature
of preferred stock - - - - - -
Foreign currency translation adjustments - - - - - -
Net loss - - - - - -
------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 930,000 $ 930,000 260,500 $ 2,605,000 8,919,881 $ 89,234
==============================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
---------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Options Subscriptions Other
Paid-in and and Notes Treasury Comprehensive
Capital Warrants Receivable Stock Income (Loss)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of warrants for services - $ 494,996 - - -
Issuance of options for services - 31,500 - - -
Beneficial conversion feature
of preferred stock $25,170,000 - - - -
Foreign currency translation adjustments - - - - $ 1,482
Net loss - - - - -
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $79,746,228 $2,720,071 $(340,000) $ (11,978) $ 1,482
======================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1999
----------------------------------------------------------------------------------
Accumulated Stockholders'
Deficit Deficiency
----------------------------------------------------------------------------------
<S> <C> <C>
Issuance of warrants for services - $ 494,996
Issuance of options for services - 31,500
Beneficial conversion feature
of preferred stock $ (25,170,000) -
Foreign currency translation adjustments - 1,482
Net loss (57,344,885) (57,344,885)
-----------------------------------------------------------------------------------
Balance at December 31, 1999 $(109,588,478) $(23,848,441)
===================================================================================
</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, 1999 1998 1997
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(57,344,885) $(17,063,309) $(9,499,802)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on marketable securities - 133,000 9,449,079
Stock, options and warrants issued for compensation or services 1,550,067 603,305 64,277
Loss on disposal of discontinued operations and related costs 45,315,574 - -
Amortization of debt discount and debt placement expenses - 4,656,773 -
Depreciation and amortization 100,234 359,711 180,531
Write-off of intangible asset - - 441,205
Minority interest in subsidiary loss (1,742) (2,062) (434,064)
Bad debt expense - 125,740 253,270
Adjustments to provision for contingent liabilities - - (649,563)
Benefit for deferred income taxes - - (1,808,000)
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and other current assets 101,897 (602,956) (44,046)
Increase in accounts receivable - (414,808) 73,092
Decrease (increase) in current assets from discontinued operations 943,835 (231,499) -
Increase in security deposits (100,000) - -
Increase in long-term assets from discontinued operations (198,662) - -
Increase in accounts payable and accrued expenses 5,393,474 2,814,642 3,408,763
Increase (decrease) in deferred revenue - 1,502,153 (985,735)
Increase (decrease) in other current liabilities - 2,814,316 (868,679)
Decrease in current liabilities from discontinued operations (1,001,554) - -
------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,241,762) (5,304,994) (419,672)
------------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activity - purchase of property and equipment (1,340,035) (3,817,153) (6,510)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Funds advanced on third-party debt, net of cash placement costs 888,000 11,468,966 250,000
Proceeds from issuance of common stock for cash 44,950 13,500 -
Acquisition of treasury stock for cash - - (11,978)
Proceeds from issuance of Series B preferred stock 1,821,000 - -
Proceeds from issuance of Series D preferred stock 4,660,000 - -
Payment of preferred stock issuance cost (544,750) - -
Decrease in long-term liabilities from discontinued operations (306,130) - -
Payments on debt (20,000) (2,217,667) -
Increase in bank overdraft 20,193 - -
Funds advanced by stockholder - 15,000 170,000
Payments of stockholder advances - (185,000) (25,152)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,563,263 9,094,799 382,870
------------------------------------------------------------------------------------------------------------------------------
Effect of foreign translation on cash 1,482 - -
------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (17,052) (27,348) (43,312)
Cash at beginning of year 17,052 44,400 87,712
------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ - 0 - $ 17,052 $ 44,400
==============================================================================================================================
</TABLE>
(continued)
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
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C?
Supplemental disclosures of cash flow information:
Cash paid during the year for interest from:
Continuing operations $ 1,519 $ - 0 - $ - 0 -
=============================================================================================================================
Discontinued operations $ 171,413 $ 1,167,716 $ 75,877
=============================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Conversion of debt to equity $ 1,000,000 $ - 0 - $ - 0 -
=============================================================================================================================
Issuance of preferred stock as subscriptions receivable $ 340,000 $ - 0 - $ - 0 -
=============================================================================================================================
Beneficial conversion feature of preferred stock $(25,170,000) $ - 0 - $ - 0 -
=============================================================================================================================
Assets from discontinued operations acquired under capital leases $ - 0 - $ 591,026 $ 941,033
=============================================================================================================================
Discounts on short-term debt $ - 0 - $ 1,312,934 $ - 0 -
=============================================================================================================================
Book value of marketable equity securities exchanged for common stock
of the Company and its subsidiary $ - 0 - $ - 0 - $ 6,390,625
=============================================================================================================================
Book value of marketable equity securities exchanged for other marketable
securities $ - 0 - $ - 0 - $ 4,085,000
=============================================================================================================================
Book value of prepaid advertising and telephone cards exchanged for
common stock of the Company and its subsidiary $ - 0 - $ - 0 - $ 2,458,155
=============================================================================================================================
</TABLE>
The accompanying notes and independent auditor's report should
be read in conjunction with the consolidated financial statements
F-10
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PICK Communications Corp. and Subsidiaries (collectively, the "Company") provide
satellite-based internet access and interactive multimedia services to end-user
service providers. In March 1999, 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. 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 has discontinued the operations of its telecommunication and prepaid
calling card business consisting of PICK US, PICK Net and PICK Net UK (see Note
12).
Minority interest represents the minority stockholders' proportionate share of
the equity and loss of PCT.
The Company maintains cash in bank deposit accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses on these
accounts.
Revenue from PICK Sat will be derived from monthly fees charged based upon the
type of usage and bandwidth contracted for, while sales from POL will be derived
from subscribers ratably over the contract period. For the year ended December
31, 1999, both PICK Sat and POL had no revenue and no customers. Revenue from
the discontinued operations are recognized at the time that the service is
provided, for long-distance time, as reported by the electronic switching
devices, and for prepaid calling cards as the card is used.
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.
F-11
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Loss from continuing operations and beneficial conversion feature of preferred
stock per common share - basic is computed by adding (i) the beneficial
conversion feature of preferred stock and (ii) the loss from continuing
operations and then dividing the result by the weighted-average common shares
outstanding - basic. The loss from discontinued operations per common share -
basic was computed by dividing total loss from discontinued operations by the
weighted-average common shares outstanding-basic.
Net loss per share applicable to common stock - basic is computed by dividing
the net loss applicable to common stock by the weighted-average common shares
outstanding-basic. Diluted net loss per share is not presented because the
inclusion of common share equivalents would be antidilutive.
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries have been translated at average
monthly rates. The aggregate effect of the translation adjustments has been
deferred and is reflected as a separate component of stockholders' deficiency
until there is a sale or liquidation of the underlying foreign investment.
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 date of the
consolidated balance sheet and revenue and expenses for the periods then ended.
Actual results could differ from those estimates.
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.
For comparability, certain 1998 and 1997 amounts have been reclassified, where
appropriate, to conform to the financial statement presentation used in 1999.
Effective July 26, 1999, the Company's board of directors authorized a 1-for-10
reverse split of its common stock . All share and per-share amounts in these
consolidated financial statements have been restated to give effect to this
reverse stock split.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
December 31, 1999 1998
--------------------------------------------------------------------------------
Sundry receivable $ 3,100 $ 3,100
Computer equipment for resale 58,159 92,235
Prepaid expenses 61,851 96,552
Advances and other current assets 53,345 86,465
--------------------------------------------------------------------------------
$176,455 $278,352
================================================================================
F-12
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
3. PPROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, 1999 1998 Useful Life
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property, equipment and software $ 567,543 $ 835,674 3 and 5 years
Asset development/
installation-in-process 4,081,954 2,473,788
------------------------------------------------------------------------------------------
4,649,497 3,309,462
Less accumulated depreciation
and amortization 214,527 114,293
------------------------------------------------------------------------------------------
$4,434,970 $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 MARKETABLE EQUITY SECURITIES:
In 1996, the Company acquired 4,700,000 restricted shares of the common stock of
Ultimistics, Inc. ("Ultimistics"). During the first quarter of 1997, 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.
5. DEBT:
Debt consists of the following:
December 31, 1999 1998
--------------------------------------------------------------------------------
Private placement debt (a) $ 9,880,000 $ 9,900,000
Note payable (b) 476,000 -
Revolver loan (c) 412,000 -
--------------------------------------------------------------------------------
10,768,000 9,900,000
Less current portion of debt 888,000 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
F-13
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
$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 included
in loss from discontinued operations in the accompanying consolidated
statement of operations) and warrants (valued at $485,100 and included in
loss from discontinued operations in the accompanying consolidated statement
of operations) to purchase 245,750 shares of the Company's common stock for
five years at $5.00 per share to the holders of the Original Notes.
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 (valued at
$383,002) for five years. 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.
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 year. Under the terms of the
restructuring, the Restructured Notes are convertible into shares of common
stock at a fixed price of $10.00 rather than fair market value (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. In addition, if the Company extends the
maturity date for one additional year, the conversion price shall be subject
to adjustment to 50% of the then average closing bid price of the common
stock, but no less than $5.00 per share.
In consideration for the restructuring, the consenting noteholders received
the following:
(i) the right for a two-year period to exchange the existing warrants for
an aggregate of 988,000 shares of the Company's common stock for no
consideration (valued at $15,604,800);
(ii) the right to receive from the Company an aggregate of 988,000 new
shares of the Company's common stock for no consideration (valued at
$16,907,600).
During 1999, 1,976,000 shares were issued to the consenting noteholders.
In consideration for the restructuring of the Original Notes, the Company
issued to Commonwealth 200,000 shares of common stock (valued at $3,440,000
and included in loss on disposal of discontinued operations in the
accompanying statement of operations) plus warrants to purchase 50,000 of
the Company's common stock at $13.75 per share (valued at $239,477 and
included in loss on disposal of discontinued operations in the accompanying
statement of operations). Additionally, warrants previously issued to
Commonwealth will be exercisable at $1.00 per share (valued at $2,046,097
and included in additional paid-in capital in the accompanying consolidated
balance sheet).
F-14
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Due to the restructuring of the $9,900,000 short-term notes, the Company
recorded an increase in stockholders' deficiency of $41,636,097 during 1999.
All deferred interest and placement charges were written off and included in
the loss on disposal of discontinued operations (see Note 12).
(b) PICK Sat obtained a promissory note from Atlantic Tele-Network Inc. ("ATN")
aggregating $476,000, which loan bears interest at prime plus 2% (10.5% at
December 31, 1999). This promissory note was entered into in connection with
PICK Sat options as described in the PICK Sat option agreement dated
September 13, 1999. ATN chose not to exercise this option and the promissory
note became due and payable on February 4, 2000 and has not been paid. On
January 4, 2000, in consideration of the then pending completion of the sale
of the Company's PICK Net subsidiaries (see Note 12(d)), as well as the
termination of the PICK Sat option, ATN received five-year warrants to
purchase 1,000,000 shares of PICK common stock exercisable at $2.00 per
share.
(c) On November 3, 1999, PICK Sat entered into a 120-day revolver for $500,000
(the "Revolver") from Tri-Links Investment Trust ("Tri-Links"). PICK Sat
borrowed $412,000 under the Revolver which bears interest at 13% per annum,
increasing to 15% per annum upon default and payment of which is guaranteed
by PICK. Tri-Links was granted a security interest in substantially all of
PICK Sat's assets which was initially subordinated to ATN and then made pari
passu and equal in priority as of April 2000. The Revolver came due on March
3, 2000 and was extended until May 3, 2000. In addition, on January 26,
2000, Tri-Links, PICK and PICK Sat entered into an Amendment Agreement which
was amended again in March and April 2000, whereby the commitment under the
Revolver was eventually increased to $1,400,000, all of which has been
loaned to PICK Sat. In connection with the Revolver, PICK agreed to use its
best efforts to cause four designees of Tri-Links to be elected to the PICK
board of directors. Tri-Links was issued warrants to purchase 2.5% to the
issued and outstanding common stock of PICK Sat on a fully diluted basis.
Group Technology was assigned Tri-Link's right to elect two of the four
directors and its assignee was given warrants to purchase 2.5% of the issued
and outstanding common stock of PICK Sat on a fully diluted basis.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
December 31, 1999 1998
-------------------------------------------------------------------------------
Accounts payable - operating $2,323,613 $ 831,461
Accrued expenses - operating 2,188,030 315,672
Accrued expenses - for equipment 1,066,000 1,650,000
Accrued expenses - settlement reserves (see Note 13) 2,962,964 -
--------------------------------------------------------------------------------
$8,540,607 $2,797,133
================================================================================
F-15
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
7. PREFERRED STOCK:
In March 1999, the board of directors authorized the issuance of 2,000,000
shares of Series B convertible preferred stock. The Series B convertible
preferred stock has a stated par value of $.001 per share and 1,821,000 shares
were issued at $1.00 per share, convertible into 1,871,000 shares of the
Company's common stock at the rate of $1.00 per share. An additional 50,000
shares were issued (valued at $50,000) for professional services provided to the
Company. There was a placement cost of $85,000 related to the issuance of Series
B and the amount was paid in full during 1999. As of December 31, 1999, 941,000
shares of Series B convertible preferred stock has been converted into 941,000
shares of common stock. Of the remaining 930,000 shares of Series B preferred
stock as of December 31, 1999, an additional 247,000 shares were converted to
common stock through March 31, 2000.
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 was initially convertible
into 1,190,500 shares of the Company's common stock at the rate of $4.20 per
share. As of December 31, 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 $459,750 of preferred stock placement costs. This $459,750 placement
costs has been recorded in the additional paid in capital account. In 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,
as adjusted, is exercisable at $6.30 per share of common stock for a two-year
period for an aggregate of 70,000 shares. 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. In January 2000, the conversion rate
was adjusted so that the preferred stock converts into common stock at $2.00 per
share. As of December 31, 1999, $2,395,000 of the principal amount of Series D
convertible preferred stock had been converted into 570,238 shares of common
stock. Of the remaining $2,605,000 of the principal amount of the Series D
preferred stock an additional $700,000 of principal amount was converted into
350,000 shares of common stock through March 31, 2000.
At the time of issuance, the Series B and Series D were convertible at prices
below the market value of the underlying common stock The beneficial conversion
feature represented by the intrinsic value is calculated as the difference
between the conversion price and the market price of the underlying common stock
multiplied by the number of shares to be issued from the conversion. The
beneficial conversion feature is recognized as a return to the preferred
stockholders. At December 31, 1999, the beneficial conversion feature amounted
to $6,361,000 and $18,809,000 for the Series B and Series D, respectively.
8. COMMON STOCK:
On February 26, 1999, the board of directors of the Company authorized an
increase of the Company's authorized shares of common stock from 10,000,000 to
40,000,000 shares, which was effective on April 13, 1999. Additionally, the
board of directors authorized an increase of the Company's authorized shares of
common stock from 40,000,000 to 100,000,000 shares, which was effective on July
26, 1999.
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 became fully vested on March 3, 2000.
F-16
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
9. 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 exercise 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. On March 19, 1999, the
board of directors increased the aggregate number of shares of common stock
reserved for issuance under the plan from 750,000 shares to 1,000,000 shares. Of
the total number of shares of common stock as of December 31, 1999, 421,500
shares of common stock relate to options issued outside of the incentive stock
option plan.
Transactions related to stock options are as follows:
Number Weighted-average
of Shares* Price per Share**
-------------------------------------------------------------------------------
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
Granted 1,237,500 3.11
Exercised (437,500) (2.06)
Canceled/forfeited (907,500) (3.78)
-------------------------------------------------------------------------------
Balance at December 31, 1999 1,017,500 $ 2.49
===============================================================================
* Adjusted to reflect the 1-for-10 reverse split of common stock effective July
26, 1999.
** Adjusted to reflect the change of common stock's par value from $.001 to
$.01.
The weighted-average fair value per share of options granted during the years
ended December 31, 1999, 1998 and 1997 amounted to $0.06, $1.30 and $6.40,
respectively.
Approximately $1,228,624 and $306,000 is reflected in selling, general and
administrative expenses for the years ended December 31, 1999 and 1998,
respectively, 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 loss
F-17
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
and loss per common share for the years ended December 31, 1999, 1998 and 1997
would approximate the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss - as reported $(57,344,885) $(17,063,309) $ (9,499,802)
Net loss - pro forma $(57,454,201) $(17,253,914) $(10,138,680)
Diluted net loss per common
share - as reported $ (12.07)* $ (4.62) $ (2.57)
Diluted net loss per common
share - pro forma $ (12.09)* $ (4.67) $ (2.74)
-------------------------------------------------------------------------------------------
</TABLE>
*This does not give effect to the beneficial conversion feature of preferred
stock.
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, 1999, 1998 and 1997,
respectively; expected volatility of 18 %, 18% and 134%, respectively; risk-free
interest rates of 5 %, 6.01% and 6.00%, 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, 1999:
<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 1999 Life (Years) Price 1999 Price
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.70 - $ 2.70 822,500 3.40 $ 1.81 325,000 $ 1.81
$ 3.00 - $ 5.00 150,000 4.25 5.00 30,000 5.00
$ 5.30 - $ 5.50 35,000 2.85 5.50 17,500 5.50
$ 9.90 10,000 2.85 9.90 5,000 9.90
-----------------------------------------------------------------------------------------
Total 1,017,500 3.37 $ 2.49 377,500 $ 2.34
=========================================================================================
</TABLE>
F-18
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
10. COMPREHENSIVE INCOME (LOSS):
Comprehensive income, as defined in SFAS No. 130, 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, 1999, 1998 and 1997, changes in accumulated other
comprehensive income (loss) were $1,482, ($38,000) and $3,942,965, respectively,
and relate to unrealized gains or losses on marketable equity securities.
11. INCOME TAXES:
The Company's deferred tax assets at December 31, 1999 consist of the following:
Federal $ 26,044,000
State 4,465,000
----------------------------------------------------------------------
30,509,000
Less valuation allowance (30,509,000)
----------------------------------------------------------------------
Net deferred tax assets $ - 0 -
======================================================================
The deferred tax assets are comprised of the tax benefit of net operating loss
carryforwards and capital loss carryforwards from continuing operations are
approximately $6,891,000 and $133,000, respectively, at December 31, 1999. Net
operating loss carryforwards from discontinued operations and loss on disposal
from discontinued operations are approximately $20,279,000 and $47,109,000,
respectively at December 31, 1999. These losses are available to offset future
taxable income through the years 2018 and 2003, respectively.
12. DISCONTINUED OPERATIONS:
On June 23, 1999, the Company formalized its plan to discontinue its
telecommunications and prepaid calling card business consisting of PICK US, PICK
Net and PICK Net UK PLC (collectively "PICK Net"). Accordingly, the
telecommunications and prepaid calling card business are accounted for as
discontinued operations in the accompanying consolidated financial statements.
The Company contracted to sell PICK Net and PICK Net UK PLC on September 13,
1999 and discontinued the operations of PICK US. On January 18, 2000, PICK
completed the sale of all of the stock of PICK Net for nominal value, and had
approximately $10,700,000 of PICK Net's liabilities assumed. The buyer provided
advances to PICK Net during 1999 to continue its operations. The Company issued
100,000 shares of common stock (valued at $1,000,000) of the old debt for
repayment. Subsequent to the closing of the sale of PICK Net, the buyer
defaulted on its payment obligation. The Company has demanded compliance by the
buyer or it will pursue all legal remedies against the buyer.
F-19
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Operating results of discontinued telecommunications and prepaid calling card
business are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales of long-distance services $ 2,566,823 $ 1,978,441 $ 7,669,243
Sales of prepaid calling cards 3,362,999 7,844,462 1,346,660
----------------------------------------------------------------------------------------
Net sales (a) 5,929,822 9,822,903 9,015,903
----------------------------------------------------------------------------------------
Cost of sales 7,859,558 16,392,544 8,439,186
Selling, general and administrative 2,332,047 1,786,075 1,617,912
Depreciation and amortization 451,116 313,906 -
Bad debt expense 47,262 125,740 253,270
----------------------------------------------------------------------------------------
Total costs and expenses 10,689,983 18,618,265 10,310,368
----------------------------------------------------------------------------------------
Loss before amortization of debt placement
expenses and interest expense 4,760,161 8,795,362 1,294,465
Amortization of debt placement expenses
and interest expense 726,719 5,997,179 157,669
----------------------------------------------------------------------------------------
Loss from discontinued operations $ 5,486,880 $14,792,541 $ 1,452,134
========================================================================================
</TABLE>
Assets and liabilities of discontinued telecommunications and prepaid calling
card business are as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 18,117 $ 231,499
Accounts Receivable, less allowance for
doubtful accounts of $482,735 and
$351,838, respectively (a) 228,885 737,786
Prepaid Expenses and Other Current Assets 78,218 299,770
----------------------------------------------------------------------------------------
Current Assets from Discontinued Operations 325,220 1,269,055
----------------------------------------------------------------------------------------
Property and Equipment - at cost, net of
accumulated depreciation and amortization
of $771,301 and $313,910, respectively 2,032,044 1,853,384
Security Deposits 36,350 16,348
----------------------------------------------------------------------------------------
Long-term Assets from Discontinued Operations 2,068,394 1,869,732
----------------------------------------------------------------------------------------
</TABLE>
(continued)
F-20
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Current portion of debt (b)(c)(d) $ 3,814,244 $ 2,000,000
Current portion of other debt 306,130 271,677
Accounts payable and accrued expenses 6,815,620 4,893,844
Deferred revenue - prepaid calling cards 29,620 2,183,806
Other current liabilities - 2,967,841
----------------------------------------------------------------------------------------
Current Liabilities from Discontinued
Operations 10,965,614 12,317,168
----------------------------------------------------------------------------------------
Long-term Liabilities from Discontinued
Operations - less current portion 736,586 1,042,716
----------------------------------------------------------------------------------------
Net Liabilities of Discontinued
Operations $ 9,308,586 $10,221,097
========================================================================================
</TABLE>
(a) In 1999, approximately 40%, 19% and 13% of revenue were from three
customers; in 1998, approximately 72% and 10% of revenue were from two
customers; and in 1997, approximately 19% and 13% of revenue 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.
Four customers comprised approximately 21%, 19%, 17% and 16% of gross
accounts receivable, respectively, at December 31, 1999. The accounts
receivable balance has been fully reserved at December 31, 1999. Two
customers comprised approximately 65% and 11% of gross accounts receivable,
respectively, at December 31, 1998.
(b) 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 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 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 renegotiated its
loan into a new six-month promissory note (the "Note"), in the amount of
$2,000,000 plus $60,000 accrued interest at 12% per annum.
Pursuant to an agreement, dated November 12, 1999, the Company extended the
Note for an additional six months in the principal amount of $2,000,000 plus
accrued interest. 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
F-21
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
execution of the agreement or the completion of additional financing for at
least $5,000,000 for PICK and shall make 6 monthly principal payments of
$25,000 each on the last business day of each month following the issue date
of this Note, beginning on November 15, 1999. In the event PICK elects to
exercise its option to extend the maturity date of the Note from 6 months to
3 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 6 monthly payments described above beginning on November 15,
1999. Interest is payable monthly at 9% per annum. This 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 during which time the daily trading volume is at least
20,000 shares. All shares of common stock issued or issuable to IDT were
included in a registration statement declared effective on November 12,
1999. PICK has been unable to make any required cash payments to IDT under
the Note.
(c) During 1999, PICK Net received $224,580 from one of the potential buyers of
PICK Net to continue its operations.
(d) On September 13, 1999, PICK Net entered into a promissory note with ATN in
the aggregate amount of $1,589,664, which bears interest at prime plus 2%
(10.5% at December 31, 1999). This promissory note was entered into in
connection with the sales of PICK Net as described in the stock purchase
agreement dated September 13, 1999. The promissory note became due and
payable on February 4, 2000 and has not been paid (see Note 5(b)).
13. LITIGATION SETTLEMENTS AND RESERVE FOR CONTINGENT LIABILITY:
The Company is involved in various claims and legal actions arising from the
ordinary course of business. Management is of the opinion that ultimate outcome
of these matters would not have a material adverse impact on the financial
position of the Company or the results of its operations, except as described
below.
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 claimed
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 claimed that the
Company owed 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 and is a part of the Company's working capital deficiency. The
reserve is included in accounts payable and accrued expenses 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. In
October 1999, the arbitrator found that AT&T was entitled to a net award of
$1,376,447 plus 9% interest per annum since January 31, 1997. The buyer of PICK
Net has assumed $95,000 of this settlement as defined in the purchase agreement
(see Note 12). However, the Company remains liable for the balance of the
F-22
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
judgment and is without the funds to satisfy it. 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. AT&T
has converted the arbitration award into a judgment which it is attempting to
enforce.
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 (the "Settlement
Agreement"). Under the terms of the Settlement Agreement, the Company agreed to
pay Worldcom $1,256,622 (the "Settlement Payment") in exchange for a full and
complete settlement of Worldcom's lawsuit against the Company. The Company
agreed to pay the Settlement Payment 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 paid Worldcom a 100,000 share
restructuring fee.
In July 1999, L.D. Exchange.com, Inc., a vendor of PICK Net, Inc., 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
December 31, 1999, the Company's current liabilities included approximately
$266,000 payable to L.D. Exchange.com, Inc.
14. COMMITMENTS:
The Company leases facilities under noncancelable operating leases expiring
through February 2004. The future minimum payments due under such leases are as
follows:
Year ending December 31,
2000 $ 395,000
2001 222,900
2002 229,600
2003 236,500
2004 39,700
----------------------------------------------------------------------------
$1,123,700
============================================================================
Rent expense under operating leases was $281,863, $356,781 and $106,586 for the
years ended December 31, 1999, 1998 and 1997, respectively. The Company has the
right to renew its operating leases for terms of between 5 and 15 years.
F-23
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
15. GOING CONCERN MATTERS:
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the 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
$23,848,000 and has a working capital deficiency of approximately $19,913,000 at
December 31, 1999 that raise substantial doubt about its ability to continue as
a going concern. In addition, the Company had negative cash flow from operations
for the years ended December 31, 1999, 1998 and 1997.
Significant short-term obligations exist including the payments of the
settlements with Worldcom and AT&T in the amounts of $1,256,622 and $1,376,447,
respectively (see Note 13). Additionally, a payment of a loan to IDT in the
amount of $2,350,000 (see Note 12) cannot be met through 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 consolidated 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.
Should the Company be unable to obtain interim financing in the near term the
Company will be forced to cut back or suspend operations and/or seek protection
under the bankruptcy laws. Although the Company is in discussions with several
sources of financing, there can be no assurance the Company will obtain such
financing.
16. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Information relating to the allowance for doubtful accounts is as follows for
the year ending December 31:
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Balance at
of Year Expense Deductions End of Year
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 $164,163 $253,270 $ 90,936 $326,497
=========================================================================================
1998 $326,497 $125,740 $100,399 $351,838
=========================================================================================
1999 $351,838 $ 47,262 $ (83,635) $482,735
=========================================================================================
</TABLE>
F-24
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
17. SUBSEQUENT EVENTS:
In April 2000, a group of investors from Europe and the Middle East committed an
aggregate of $10,000,000 to PICK Sat (the "PICK Sat Financing"), to occur over a
12-month period. The investors will acquire 20% ownership of PICK Sat and will
be issued equity on the basis of 1% for every $500,000 invested. As of June 5,
2000, $1,000,000 has been invested in PICK Sat. The initial $500,000 was made as
a convertible loan on a pari passu basis with the ATN indebtedness described in
Note 5(b).
F-25
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 164,198
Prepaid expenses and other current assets 30,915 $ 176,455
Current assets from discontinued operations 36,279 325,220
----------------------------------------------------------------------------------------------------------------------------------
Total current assets 231,392 501,675
----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation
of $310,643 and $214,527, respectively 4,592,709 4,434,970
----------------------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 300,857 261,796
Deferred income tax asset, net of valuation allowance of $32,092,000
and $30,509,000, respectively - -
Long-term assets from discontinued operations 2,064,510 2,068,394
----------------------------------------------------------------------------------------------------------------------------------
Total other assets 2,365,367 2,330,190
----------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,189,468 $ 7,266,835
==================================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Cash overdraft $ - $ 20,193
Current portion of debt 1,447,430 888,000
Accounts payable and accrued expenses 10,268,803 8,540,607
Current liabilities from discontinued operations 11,839,139 10,965,614
----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 23,555,372 20,414,414
Debt, less current portion 9,880,000 9,880,000
Long-term Liabilities from Discontinued Operations - 736,586
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 33,435,372 31,031,000
----------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Consolidated Subsidiaries 1,263,617 84,276
----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Deficiency:
Preferred stock - $.001 par value; authorized 10,000,000 shares;
2,000,000 shares designated as Series B convertible preferred stock, aggregate
liquidation value - $1,871,000, issued 1,871,000 shares; 395,000 shares and
930,000 shares outstanding, respectively 395,000 930,000
500,000 shares designated as Series D convertible preferred stock, aggregate
liquidation value - $4,660,000, issued 500,000 shares; 184,000 shares and
260,500 shares outstanding, respectively 1,840,000 2,605,000
Common stock - $.01 par value; authorized 100,000,000 shares,
respectively; issued 10,519,419 and 8,919,881 shares, respectively 105,229 89,234
Additional paid-in capital 81,230,233 79,746,228
Options and warrants 2,720,071 2,720,071
Subscription receivable (340,000) (340,000)
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
Accumulated Other Comprehensive Income 1,482 1,482
Accumulated deficit (113,449,558) (109,588,478)
----------------------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (27,509,521) (23,848,441)
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 7,189,468 $ 7,266,835
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-26
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
2000 1999
--------------------------------
<S> <C> <C>
Costs and expenses:
Selling, general and administrative $ 1,454,582 $ 972,608
Depreciation and amortization 47,633 27,736
--------------------------------
Operating loss 1,502,216 1,000,344
Other expense:
Interest expense 734,800 150,604
Settlement of third party debts - -
--------------------------------
Total other expense 734,800 150,604
--------------------------------
Loss from continuing operations before minority interest in loss of
consolidated subsidiaries and discontinued operations 2,237,015 1,150,948
--------------------------------
Minority interest in loss of consolidated subsidiaries (25,954) -
--------------------------------
Loss from continuing operations 2,211,061 1,150,948
--------------------------------
Discontinued operations:
Loss from discontinued operations 84,648 2,015,551
Loss on disposal of discontinued operations and related costs - 47,108,711
--------------------------------
Total loss from discontinued operations 84,648 49,124,262
--------------------------------
Net loss 2,295,709 50,275,210
Beneficial conversion feature of preferred stock - 21,600,000
--------------------------------
Net loss applicable to common stock $ 2,295,709 $71,875,210
================================
Loss from continuing operations and beneficial conversion
feature of preferred stock per common share - basic and diluted $0.21 $ 4.94
================================
Loss from discontinued operations per common share - basic and diluted $0.01 $10.67
================================
Net loss applicable to common share - basic and diluted $0.22 $15.62
================================
Weighted-average shares outstanding - basic and diluted 10,402,726 4,602,698
================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
2000 1999
----------------------------
<S> <C> <C>
Costs and expenses:
Selling, general and administrative $2,329,604 $ 1,445,676
Depreciation and amortization 96,116 42,310
----------------------------
Operating loss 2,425,720 1,487,986
Other expense:
Interest expense 1,305,732 630,027
Settlement of third party debts (293,977) -
----------------------------
Total other expense 1,011,755 630,027
----------------------------
Loss from continuing operations before minority interest in loss of
consolidated subsidiaries and discontinued operations 3,437,475 2,118,013
----------------------------
Minority interest in loss of consolidated subsidiaries (25,954) -
----------------------------
Loss from continuing operations 3,411,521 2,118,013
Discontinued operations:
Loss from discontinued operations 449,559 4,364,730
Loss on disposal of discontinued operations and related costs - 47,108,711
----------------------------
Total loss from discontinued operations 449,559 51,473,441
Net loss 3,861,080 53,591,454
Beneficial conversion feature of preferred stock - 25,170,000
----------------------------
Net loss applicable to common stock $3,861,080 $78,761,454
============================
Loss from continuing operations and beneficial conversion
feature of preferred stock per common share - basic and diluted $0.34 $ 6.37
============================
Loss from discontinued operations per common share - basic and diluted $0.05 $12.02
============================
Net loss applicable to common share - basic and diluted $0.39 $18.39
============================
Weighted-average shares outstanding - basic and diluted 9,977,728 4,281,860
============================
</TABLE>
See Notes to Consolidated Financial Statements
F-27
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
<TABLE>
<CAPTION>
Series B Preferred Stock Series D Preferred Stock
-------------------------------------------------------------
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 930,000 $930,000 260,500 $2,605,000
Issuance of common stock for services - - - -
Issuance of common stock in connection of old debt - - - -
Conversion of common stock from preferred stock (535,000) (535,000) (76,500) (765,000)
Issuance of common stock upon exercise of options and warrants
Net loss - - - -
---------------------------------------------------------------
Balance at June 30, 2000 395,000 $395,000 184,000 $1,840,000
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional Options
--------------------------- Paid-in and
Shares Amount Capital Warrants
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 8,919,881 $ 89,234 $79,746,228 $2,720,071
Issuance of common stock for services 200,000 2,000 198,000
Issuance of common stock in connection of old debt 50,000 500 (500)
Conversion of common stock from preferred stock 917,500 9,175 1,290,825
Issuance of common stock upon exercise of options and warrants 432,038 4,320 (4,320)
Net loss - - - -
-----------------------------------------------------------
Balance at June 30, 2000 10,519,419 $105,229 $81,230,233 $2,720,071
===========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Stock Treasury Comprehensive Accumulated
Subscriptions Stock Income Deficit
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $(340,000) $(11,978) $1,482 $(109,588,478)
Issuance of common stock for services
Issuance of common stock in connection of old debt
Conversion of common stock from preferred stock
Issuance of common stock upon exercise of options and warrants
Net loss - (3,861,080)
-----------------------------------------------------------------
Balance at June 30, 2000 $(340,000) $(11,978) $1,482 $(113,449,558)
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Shareholders'
Deficiency
---------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1999 $(23,848,441)
Issuance of common stock for services 200,000
Issuance of common stock in connection of old debt -
Conversion of common stock from preferred stock -
Issuance of common stock upon exercise of options and warrants -
Net loss (3,861,080)
--------------
Balance at June 30, 2000 $(27,509,521)
==============
</TABLE>
See Notes to Consolidated Financial Statements
F-28
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
Six months ended June 30, 2000 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss (3,861,080) (53,591,454)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock, options and warrants issued for compensation or services 200,000 4,722,339
Loss on disposal of discontinued operations and related costs -- 41,636,097
Depreciation and amortization 96,116 42,310
Minority interest in loss of consolidated subsidiaries (25,954) --
Bad debt expense 64,099 --
Changes in operating assets and liabilities:
Increase (decrease) in prepaid expenses and other current assets 21,990 (82,730)
Decrease in current assets from discontinued operations 288,941 950,140
Increase in security deposits (39,061) (88,204)
(Increase) decrease in long-term assets from discontinued operations 3,884 (53,931)
Increase in accounts payable and accrued expenses 1,728,196 1,124,558
Increase in current liabilities from discontinued operations 873,525 622,146
Decrease in long-term liabilities from discontinued operations (736,586) --
---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,385,930) (4,718,729)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Cash flows used in investing activity - purchase of property and equipment (194,404) (1,213,408)
---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Funds advanced on third-party debt, net of cash placement costs 559,430 --
Proceeds from subsidiary's new investor 1,205,295 --
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)
Payment on third-party debt -- (20,000)
Decrease in cash overdraft (20,193) --
---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,744,532 6,381,000
---------------------------------------------------------------------------------------------------------------
Net increase in cash 164,198 448,863
Cash at beginning of period -- 17,052
---------------------------------------------------------------------------------------------------------------
Cash at end of period $ 164,198 $ 465,915
===============================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest from:
Continuning operations $ 38,417 $ --
===============================================================================================================
Discontinued operations $ -- $ 76,912
===============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
F-29
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
PICK Communications Corp. and Subsidiaries (collectively, the "Company") provide
satellite-based Internet access and interactive multimedia services to end-user
service providers. In March 1999, 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. The
Company is headquartered and leases facilities in Miami, Florida.
The accompanying consolidated financial statements include the accounts of PICK
Communications Corp. and its majority owned subsidiaries, PICK Sat Inc. ("PICK
Sat") and P.C.T. Prepaid Telephone Inc. ("PCT"), its wholly owned subsidiary,
PICK Online.Com Inc. ("POL"), and the discontinued operations of PICK US Inc.
f/k/a PICK Inc. ("PICK US"), PICK Net Inc. ("PICK Net") and PICK Net UK PLC
("PICK Net UK"). All significant intercompany balances and transactions have
been eliminated.
The Company has discontinued the operations of its telecommunication and prepaid
calling card business consisting of PICK US, PICK Net and PICK Net UK (see Note
7).
Minority interest represents the minority stockholders' proportionate share of
the equity and loss of PICK Sat and PCT.
Revenue from PICK Sat will be derived from monthly fees charged based upon the
type of usage and bandwidth contracted for, while sales from POL will be derived
from subscribers ratably over the contract period. For the six-months ended June
30, 2000, both PICK Sat and POL had no revenue and no customers. Revenue from
the discontinued operations are recognized at the time that the service is
provided, for long-distance time, as reported by the electronic switching
devices, and for prepaid calling cards as the card is used.
For comparability, certain 1999 amounts have been reclassified, where
appropriate, to conform to the financial statement presentation used in 2000.
Effective July 26, 1999, the Company's board of directors authorized a 1-for-10
reverse split of its common stock. All share and per-share amounts in these
consolidated financial statements have been restated to give effect to this
reverse stock split.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
(Unaudited)
Sundry receivable $ 8,836 $ 3,100
Computer equipment for resale 15,669 58,159
Prepaid expenses 6,410 61,851
Advances and other current assets -- 53,345
--------------------------------------------------------------------------------
$30,915 $176,455
================================================================================
F-30
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
June 30, December 31, Estimated
2000 1999 Useful Life
-------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Property, equipment and software $ 709,963 $ 567,543 3 and 5 years
Asset development/
installation-in-process 4,193,388 4,081,954
-------------------------------------------------------------------------------------------
4,903,351 4,649,497
Less accumulated depreciation
and amortization 310,642 214,527
-------------------------------------------------------------------------------------------
$4,592,709 $4,434,970
===========================================================================================
</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. DEBT:
Debt consists of the following:
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
(Unaudited)
Private placement debt (a) $ 9,880,000 $ 9,880,000
Note payable (b) -- 476,000
Revolver loan (c) 1,447,430 412,000
--------------------------------------------------------------------------------
11,327,430 10,768,000
Less current portion of debt 1,447,430 888,000
--------------------------------------------------------------------------------
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
F-31
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
$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 included
in loss from discontinued operations in the accompanying consolidated
statement of operations) and warrants (valued at $485,100 and included in
loss from discontinued operations in the accompanying consolidated statement
of operations) to purchase 245,750 shares of the Company's common stock for
five years at $5.00 per share to the holders of the Original Notes.
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 (valued at
$383,002) for five years. The costs related to the Placement were being
deferred and amortized as debt placement expenses over the term of the debt.
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 year. Under the terms of the
restructuring, the Restructured Notes were initially convertible into shares
of common stock at a fixed price of $10.00 rather than fair market value
(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. In January 2000, as a result of
anti-dilution provision of the Restructured Notes the conversion rate was
reduced to $5.00 per share.
In consideration for the restructuring, the consenting noteholders received
the following:
(i) the right for a two-year period to exchange the existing warrants for
an aggregate of 988,000 shares of the Company's common stock for no
consideration (valued at $15,604,800);
(ii) the right to receive from the Company an aggregate of 988,000 new
shares of the Company's common stock for no consideration (valued at
$16,907,600).
During 1999, the 1,976,000 shares referred to in (i) and (ii) above were
issued to the consenting noteholders.
In consideration for the restructuring of the Original Notes, the Company
issued to Commonwealth 200,000 shares of common stock (valued at $3,440,000
and included in loss on disposal of discontinued operations in the
accompanying statement of operations), plus warrants to purchase 50,000 of
the Company's common stock at $13.75 per share (valued at $239,477 and
included in loss on disposal of discontinued operations in the accompanying
statement of operations), subject to adjustment. Additionally, warrants
previously issued to Commonwealth will be exercisable at $1.00 per share
(valued at $2,046,097 and included in additional paid-in capital in the
accompanying consolidated balance sheet).
F-32
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
Due to the restructuring of the $9,900,000 short-term notes, the Company
recorded an increase in stockholders' deficiency of $41,636,097 during 1999.
All deferred interest and placement charges were written off and included in
the loss on disposal of discontinued operations during 1999.
(b) PICK Sat obtained a promissory note from Atlantic Tele-Network Inc. ("ATN")
aggregating $476,000, which loan bears interest at prime plus 2%. This
promissory note was entered into in connection with PICK Sat options as
described in the PICK Sat option agreement dated September 13, 1999. ATN
chose not to exercise this option and the promissory note became due and
payable on February 4, 2000 and has not been paid. On January 4, 2000, in
consideration of the then pending completion of the sale of the Company's
PICK Net subsidiaries (see Note 7), as well as the termination of the PICK
Sat option, ATN received five-year warrants to purchase 1,000,000 shares of
PICK common stock exercisable at $2.00 per share. This promissory note was
assumed by PICK Net's buyer on the date of the sale of PICK Net, January 18,
2000. During the second quarter ended June 30, 2000, PICK Sat removed the
full loan balance plus accrued interest from its books and recorded the
amount on PICK Net's books.
(c) On November 3, 1999, PICK Sat entered into a 120-day revolver for $500,000
(the "Revolver") from Tri-Links Investment Trust ("Tri-Links"). At December
31, 1999, PICK Sat borrowed $412,000 under the Revolver which bears interest
at 13% per annum, increasing to 15% per annum upon default and payment of
which is guaranteed by PICK. Tri-Links was granted a security interest in
substantially all of PICK Sat's assets which was initially subordinated to
ATN and then made pari passu and equal in priority as of April 2000. The
Revolver came due on March 3, 2000 and was extended until May 3, 2000. In
addition, on January 26, 2000, Tri-Links, PICK, PICK Sat and Group
Technology for Scientific Equipment and Supplies and Salah Khalid Al Fulaij
("Fulaij") entered into an Amendment Agreement which was amended again in
March 2000, whereby the commitment under the Revolver was increased. The
loan payable balance plus accrued at June 30, 2000 amounted to $1,447,430.
As of August 30, 2000, the parties agreed in principle to a Third Amendment
and Extension Agreement under which repayment of $1,150,000 principal amount
was extended to April 1, 2001 and $100,000 will be converted into equity of
PICK Sat by Fulaij. The interest rate was reduced from 13% to 10% per annum.
Repayment of the loan will be made on a monthly basis until repaid in full
on April 1, 2001. Until the loans are repaid, PICK and PICK Sat agreed to
certain negative covenants including the payment of dividends to PICK cannot
exceed $200,000 in the aggregate; not greater than l5% of PICK Sat's
projected debt may be paid or incurred; and the companies cannot enter into
certain mergers or sales of assets. The lenders were granted the right to
elect either two members of PICK Sat's Board of Directors or two observers
to the Board. Subject to a proposed recapitalization of PICK Sat, the
lenders were granted warrants to purchase an aggregate of approximately
15,000 shares of PICK Sat's common stock at the lesser of $5.00 per share
or 50% of the price paid by new investors at the time of PICK Sat's
initial public offering on or before March 1, 2001.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
(Unaudited)
Accounts payable - operating $ 1,611,164 $2,323,613
Accrued expenses - operating 4,628,675 2,188,030
Accrued expenses - for equipment 1,066,000 1,066,000
Accrued expenses - settlement reserves 2,962,964 2,962,964
(see Note 8)
--------------------------------------------------------------------------------
10,268,803 $8,540,607
================================================================================
F-33
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
6. PREFERRED STOCK:
In March 1999, the board of directors authorized the issuance of 2,000,000
shares of Series B convertible preferred stock. The Series B convertible
preferred stock has a stated par value of $.001 per share and 1,821,000 shares
were issued at $1.00 per share, convertible into 1,821,000 shares of the
Company's common stock at the rate of $1.00 per share. An additional 50,000
shares were issued (valued at $50,000) for professional services provided to the
Company. There was a placement cost of $85,000 related to the issuance of Series
B and the amount was paid in full during 1999. Through June 30, 2000, an
aggregate of 1,476,000 shares of Series B convertible preferred stock have been
converted into 1,476,000 shares of common stock.
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 was initially convertible
into 1,190,500 shares of the Company's common stock at the rate of $4.20 per
share. As of December 31, 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 $459,750 of preferred stock placement costs. This $459,750 placement
costs has been recorded in the additional paid in capital account. In 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,
as adjusted, is exercisable at $6.30 per share of common stock for a two-year
period for an aggregate of 70,000 shares. 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. Mr. Leiva has agreed to return all
of such Series D Preferred Stock and Warrants to the Company, which will cancel
his promissory note. In January 2000, the conversion rate was adjusted so that
the preferred stock converts into common stock at $2.00 per share. Through June
30, 2000, an aggregate of $3,160,000 of the principal amount of Series D
convertible preferred stock had been converted into 952,738 shares of common
stock.
At the time of issuance, the Series B and Series D were convertible at prices
below the market value of the underlying common stock. The beneficial conversion
feature represented by the intrinsic value is calculated as the difference
between the conversion price and the market price of the underlying common stock
multiplied by the number of shares to be issued from the conversion. The
beneficial conversion feature is recognized as a return to the preferred
stockholders. At December 31, 1999, the beneficial conversion feature amounted
to $6,361,000 and $18,809,000 for the Series B and Series D, respectively.
F-34
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
7. DISCONTINUED OPERATIONS:
On June 23, 1999, the Company formalized its plan to discontinue its
telecommunications and prepaid calling card business consisting of PICK US, PICK
Net and PICK Net UK PLC (collectively "PICK Net"). Accordingly, the
telecommunications and prepaid calling card business are accounted for as
discontinued operations in the accompanying consolidated financial statements.
The Company contracted to sell PICK Net and PICK Net UK PLC on September 13,
1999 and discontinued the operations of PICK US. On January 18, 2000, PICK
completed the sale of all of the stock of PICK Net for nominal value, and had
approximately $10,700,000 of PICK Net's liabilities assumed, which, as a result
of the default of the buyer (see below), the assumed liabilities continues to
remain outstanding on the Company's financial statements. The buyer provided
advances to PICK Net during 1999 to continue its operations. The Company issued
100,000 shares of common stock (valued at $1,000,000) of the old debt for
repayment. Subsequent to the closing of the sale of PICK Net, the buyer
defaulted on its payment obligation. The Company has demanded compliance by the
buyer or it will pursue all legal remedies against the buyer.
Operating results of discontinued telecommunications and prepaid calling card
business are as follows:
Six-month period ended June 30, 2000 1999
--------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales of long-distance services $ 168,598 $ 3,164,030
Sales of prepaid calling cards -- 2,215,485
--------------------------------------------------------------------------------
Net sales 168,598 5,379,515
--------------------------------------------------------------------------------
Cost of sales 328,864 6,835,866
Selling, general and administrative 82,650 896,372
Depreciation and amortization 18,587 200,496
Bad debt expense 64,099 128,298
--------------------------------------------------------------------------------
Total costs and expenses 494,200 8,061,032
--------------------------------------------------------------------------------
Loss before amortization of debt placement
expenses and interest expense (325,602) (2,681,517)
Amortization of debt placement
expenses and interest expense 123,957 1,683,213
--------------------------------------------------------------------------------
Loss from discontinued operations $(449,559) $ (4,364,730)
================================================================================
(continued)
<PAGE>
Assets and liabilities of discontinued telecommunications and prepaid calling
card business are as follows:
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
(Unaudited)
Cash $ -- $ 18,117
Accounts Receivable, less allowance for
doubtful accounts of $231,091 and
$482,735, respectively -- 228,885
Prepaid Expenses and Other
Current Assets 36,279 78,218
--------------------------------------------------------------------------------
Current Assets from Discontinued
Operations 36,279 325,220
--------------------------------------------------------------------------------
Property and Equipment - at cost,
net of accumulated depreciation and
amortization of $723,810 and
$771,301, respectively 2,013,456 2,032,044
Security Deposits 51,054 36,350
--------------------------------------------------------------------------------
Long-term Assets from
Discontinued Operations 2,064,510 2,068,394
-------------------------------------------------------------------------------
F-35
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
June 30, December 31,
2000 1999
--------------------------------------------------------------------------------
(Unaudited)
Current Liabilities:
Current portion of debt (a)(b)(c) $ 4,626,986 $ 3,814,244
Current portion of other debt 1,018,578 306,130
Accounts payable and accrued
expenses 6,163,952 6,815,620
Deferred revenue - prepaid
calling cards 29,620 29,620
--------------------------------------------------------------------------------
Current Liabilities from
Discontinued Operations 11,839,136 10,965,614
--------------------------------------------------------------------------------
Long-term Liabilities from Discontinued
Operations - less current portion -- 736,586
--------------------------------------------------------------------------------
Net Liabilities of Discontinued
Operations $ 9,738,347 $ 9,308,586
================================================================================
(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 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 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 renegotiated its
loan into a new six-month promissory note (the "Note"), in the amount of
$2,000,000 plus $60,000 accrued interest at 12% per annum.
Pursuant to an agreement, dated November 12, 1999, the Company extended the
Note for an additional six months in the principal amount of $2,000,000 plus
accrued interest. 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
F-36
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
execution of the agreement or the completion of additional financing for at
least $5,000,000 for PICK and shall make 6 monthly principal payments of
$25,000 each on the last business day of each month following the issue
date of this Note, beginning on November 15, 1999. In the event PICK elects
to exercise its option to extend the maturity date of the Note from 6
months to 3 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 6 monthly payments described above beginning on November 15,
1999. Interest is payable monthly at 9% per annum. This 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 during which time the daily trading volume is at least
20,000 shares. All shares of common stock issued or issuable to IDT were
included in a registration statement declared effective on November 12,
1999. PICK has been unable to make any required cash payments to IDT under
the Note.
(b) As of June 30, 2000, PICK Net has received from an affiliate of the buyer
of PICK Net approximately $283,000.
(c) PICK Net has promissory notes with ATN in the aggregate amount of
$2,119,424 (including $476,000 principal amount plus accrued interest
assumed for PICK Sat's balance by PICK Net's buyer on the date of sale,
January 18, 2000) at June 30, 2000, which bear interest at prime plus 2%
(11.5% at June 30, 2000). These promissory notes were entered into in
connection with the sales of PICK Net as described in the stock purchase
agreement dated September 13, 1999. The promissory notes became due and
payable on February 4, 2000 and have not been paid (see Note 4).
8. LITIGATION SETTLEMENTS AND RESERVE FOR CONTINGENT LIABILITY:
The Company is involved in various claims and legal actions arising from the
ordinary course of business. Management is of the opinion that ultimate outcome
of these matters would not have a material adverse impact on the financial
position of the Company or the results of its operations, except as described
below.
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 claimed
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 claimed that the
Company owed 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 and is a part of the Company's working capital deficiency. The
reserve is included in accounts payable and accrued expenses 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. In
October 1999, the arbitrator found that AT&T was entitled to a net award of
$1,376,447 plus 9% interest per annum since January 31, 1997. The buyer of PICK
Net has assumed $95,000 of this settlement as defined in the purchase agreement
(see Note 7). However, the Company remains liable for the balance of the
F-37
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
judgment and is without the funds to satisfy it. 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. AT&T
has converted the arbitration award into a judgment which it is attempting to
enforce.
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 (the "Settlement
Agreement"). Under the terms of the Settlement Agreement, the Company agreed to
pay Worldcom $1,256,622 (the "Settlement Payment") in exchange for a full and
complete settlement of Worldcom's lawsuit against the Company. The Company
agreed to pay the Settlement Payment 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 extended the forbearance
through January 16, 2001. The Company paid Worldcom a 100,000 share
restructuring fee during 1999.
In July 1999, L.D. Exchange.com, Inc., a vendor of PICK Net, Inc., commenced
arbitration proceedings against PICK Net before the American Arbitration
Association (AAA) in San Diego, California, alleging breach of contract. These
proceedings involve the alleged nonpayment of between $250,000 and $500,000 by
PICK Net and not the Company. The Company notified the AAA that the matter did
not involve the ompany. By letter dated August l4, 2000, the Company was advised
that the arbitration had been withdrawn.
On March 27, 2000, Telecom Management Resources, Inc. (as successor to
International Career Information, Inc.), a vendor of PICK Net, commenced a
lawsuit against the Company and PICK Net in the Superior Court of New Jersey,
Law Division, Hudson County. The complaint involved the alleged non-payment of
$58,220 under a Facilities Management Service Agreement and $50,400 for
additional payments under an acceleration provision plus interest. The Company
answered and denied the charges and raised affirmative defenses including the
fact that the liability was assigned to PICK Net with the consent of the
plaintiff and then PICK Net was sold. The parties have reached an agreement in
principle which had been properly recorded for at June 30, 2000 to settle the
lawsuit; however no agreement has been signed to date.
F-38
<PAGE>
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
9. GOING CONCERN MATTERS:
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the 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
$27,510,000 and has a working capital deficiency of approximately $23,324,000 at
June 30, 2000 that raise substantial doubt about its ability to continue as a
going concern. In addition, the Company had negative cash flow from operations
for the six-month periods ended June 30, 2000 and 1999, and for the years ended
December 31, 1999, 1998 and 1997.
Significant short-term obligations exist including the payments of the
settlements with Worldcom and AT&T in the amounts of $1,256,622 and $1,376,447,
respectively (see Note 8) plus accrued interest. Additionally, payment of loans
to various creditors plus accrued interest at June 30, 2000 cannot be met
through 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 consolidated 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. Furthermore, PICK Sat has covenanted with its secured lenders to limit
the dividends it can pay to the Company.
The Company has had discussions with several of its largest unsecured creditors,
including, but not limited to, AT&T and IDT. The Company is attempting to reach
an approved out of court "standby agreement" with all of its creditors. If the
standby agreement is acceptable to the Company's creditors, then as long as the
Company complies with its terms, the Company's creditors will not exercise their
legal rights and remedies. If the proposed settlement with creditors is
successful, the Company have no direct obligation to any of its unsecured
creditors because their claims will be satisfied from the future earnings of
PICK Sat and/or other affiliates. There can be no assurance that the Company's
effort's to resolve the claims of its unsecured creditors will be successful.
Should the Company be unable to obtain interim financing in the near term and/or
reach an agreement with its unsecured creditors, the Company will be forced to
cut back or suspend operations and/or seek protection under the bankruptcy laws.
10. OTHER MATTERS:
In April 2000, a group of investors from Europe and the Middle East committed an
aggregate of $10,000,000 to PICK Sat (the "PICK Sat Financing"), to occur over a
12-month period. The investors will acquire 20% ownership of PICK Sat and will
be issued equity on the basis of 1% for every $500,000 invested. As of June 30,
2000, $1,205,295 had been invested in PICK Sat. The initial $500,000 was made as
a convertible loan on a pari passu basis with the ATN indebtedness described in
Note 4. Subsequent to June 30, 2000, additional investments were made totalling
approximately $3,400,000.
F-39
<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................................. 17
Dividend Policy................................. 17
Price Range of Common Stock..................... 18
Capitalization.................................. 19
Selected Historical Consolidated
Financial Data.............................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Change in Accountants........................... 30
Business........................................ 30
Management...................................... 36
Certain Relationships and Related
Transactions................................ 42
Security Ownership of Certain Beneficial
Owners and Management....................... 44
Selling Stockholders............................ 45
Description of Capital Stock.................... 47
Plan of Distribution............................ 49
Experts......................................... 51
Legal Matters................................... 51
Index to Financial Statements................... F-1
<PAGE>
--------------------------------------------------------------------------------
PICK COMMUNICATIONS CORP.
350,000 Shares
common stock
------------------------------------
PROSPECTUS
------------------------------------
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission filing fee................................. $ 59.67
Accountants' fees and expenses................................................ 10,000.00
Legal fees and expenses....................................................... 15,000.00
Miscellaneous................................................................. 940.33
-----------
Total......................................................................... $ 26,000.00
===========
</TABLE>
The foregoing costs and expenses will be paid by the Company. Other
than the Securities and Exchange Commission filing fee, all fees and expenses
are estimated.
Item 14. Indemnification of Directors and Officers.
The Nevada General Corporation Law ("GCL") provides in relevant part as
follows:
Section 78.751:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
<PAGE>
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, must be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
II-1
<PAGE>
(d) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal counsel in a
written opinion.
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 78.752:
1. A corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses.
2. The other financial arrangements made by the corporation pursuant to
subsection 1 may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting a
security interest or other lien on any assets of the corporation.
(d) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection nay provide protection
for a person adjudged by a court of competent jurisdiction, after exhaustion of
all appeals therefrom, to be liable for intentional misconduct, fraud or a
knowing violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
3. Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the board of directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
4. In the absence of fraud:
(a) The decision of the board of directors as to the propriety of the
terms and conditions of any insurance or other financial arrangement made
pursuant to this section and the choice of the person to provide the insurance
or other financial arrangement is conclusive; and
(b) The insurance or other financial arrangement:
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal
liability for his action, even if a director approving the insurance or other
financial arrangement is a beneficiary of the insurance or other financial
arrangement.
II-2
<PAGE>
5. A corporation or its subsidiary which provides self-insurance for
itself or for another affiliated corporation pursuant to this section is not
subject to the provisions of Title 57 of NRS [The Nevada Revised Statutes].
Article VI of the Registrant's Bylaws provides as follows:
Indemnification
On the terms, to the extent, and subject to the condition prescribed by
statute and by such rules and regulations, not inconsistent with statute, as the
Board of Directors may in its discretion impose in general or particular cases
or classes of cases, (a) the Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding, civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, and (b) the Corporation may pay, in advance
of final disposition of any such action or proceeding, expenses incurred by such
person in defending such action or proceeding.
On the terms, to the extent, and subject to the conditions prescribed
by statute and by such rules and regulations, not inconsistent with statute, as
the Board of Directors may in its discretion impose in general or particular
cases or classes of cases, (a) the Corporation shall indemnify any person made a
party to an action by or in the right of the Corporation to procure a judgment
in its favor, by reason of the fact that he, his testator or intestate, is or
was a director or officer of the Corporation, against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, or in connection with an appeal
therein, and (b) the Corporation may pay, in advance of final disposition of any
such action, expenses incurred by such person in defending such action or
proceeding.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
3.1 Amended Articles of Incorporation (1)
3.2 Certificate of Amendment to Articles of Incorporation
3.3 By-Laws (2)
4.1 Form of Warrant Agreement between Registrant and certain holders of
warrants (3)
4.2 Form of Note issued by the Registrant to the Noteholders in the July
1998 Bridge Loan (6)
4.3 Form of Note issued by the Registrant to the Noteholders in the July
1998 Bridge Loan, as amended (6)
4.4 Form of Warrant issued by the Registrant to the Noteholders in the July
1998 Bridge Loan (6)
4.5 Form of Warrant issued by the Registrant to the Noteholders in the July
1998 Bridge Loan, as amended (6)
4.6 Certificate of Designation, Number, Powers, Preferences and Relative
Participating, Optional and Other Special Rights, Qualifications,
Limitations, Restrictions, and Other Distinguishing Characteristics of
Series B Convertible Preferred Stock (6)
4.7 Certificate of Designation, Number, Powers, Preferences and Relative
Participating, Optional and Other Special Rights, Qualifications,
Limitations, Restrictions, and Other Distinguishing Characteristics of
Series D Convertible Preferred Stock (6)
4.8 Form of Warrant issued by the Registrant to holders of the Series D
Convertible Preferred Stock (6)
4.9 Form of Amended Note dated April 30, 1999 to the Noteholders in the
July, 1998 Bridge Loan (7)
4.10 Note dated November 10, 1999 issued by PICK Net, Inc. to IDT
Corporation.(7)
4.11 Promissory Note dated November 3, 1999 issued by PICK Sat, Inc. to
Tri-Links Investment Trust (7)
4.12 Warrant dated January 13, 2000 issued by PICK Sat, Inc. to Gulfsat
Communications Company (7)
10.1 General Security Agreement dated July 29, 1998 by and between the
Registrant and Commonwealth Associates(7)
10.2 Amendment No. 1 to General Security Agreement dated December 20, 1999
(7)
10.3 Amendment No. 2 to General Security Agreement dated March 31, 2000 (7)
10.4 Employment Agreement dated September 28, 1998 between Diego Leiva and
the Registrant (4)
10.5 Amendment dated April 22, 1999 to Employment Agreement between Diego
Leiva and the Registrant (7)
10.6 Restructuring Agreement dated April 21, 1999 by and between the
Registrant and Commonwealth Associates (7)
10.7 Agreement dated November 12, 1999 by and between IDT Corporation and
the Registrant (7)
II-3
<PAGE>
10.8 Guaranty Agreement dated November 12, 1999 by and between IDT
Corporation and the Registrant (7)
10.9 Forbearance letter dated July 27, 1999 by and among Worldcom Network
Services, Inc. the Registrant and other entities of the Registrant (7)
10.10 Consulting Agreement dated July 8, 1999 by and between Thomas M. Malone
and the Registrant (7)
10.11 Management Services Agreement dated May 4, 2000 by and between the
Registrant and SAICOL Limited (7)
10.12 Advisory Agreement dated April 27, 1999 by and between the Registrant
and Alberto M. Delgado (7)
10.13 Advisory Agreement dated April 27, 1999 by and between the Registrant
and Richard Maranon (7)
10.14 Loan Agreement dated November 3, 1999 by and among Tri-Links
Investment Trust, PICK Sat, Inc. and the Registrant (7)
10.15 Borrower Security Agreement dated November 3, 1999 by and among
Tri-Links Investment Trust, and the Registrant (7)
10.16 Parent Guarantee Agreement dated November 3, 1999 by and among
Tri-Links Investment Trust, and the Registrant (7)
10.17 Amendment Agreement dated January 26, 2000, by and among Tri-Links
Investment Trust, PICK Sat, Inc. and the Registrant (7)
10.18 Termination Agreement dated January 13, 2000 by and between the
Registrant and Lebow Investments, Ltd. (7)
10.19 Guaranty dated September 13, 1999 by and between the Registrant and
Atlantic TeleNetwork, Inc. (7)
10.20 Stock Purchase Agreement, between the Registrant and Lebow
Investments, Ltd., dated as of September 13, 1999 (5)
10.21 PICK Sat Option Agreement, among the Registrant, PICK Sat, Inc. and
Atlantic Tele-Network, Inc., dated as of September 13, 1999 (5)
10.22 Consulting Agreement, between PICK Sat and TubiTec GmbH, dated June 1,
2000(8)
10.23 Non-Qualified Stock Option Agreement, between PICK Sat and Snow Becker
Krauss P.C., dated May 8, 2000(8)
10.24 Agreement between the Registrant and Helge Bornmann, dated
September 7, 2000(8)
21.1 Subsidiaries of the Registrant (4)
*23.1 Consent of Goldstein Golub Kessler LLP
*23.2 Consent of Durland & Company, CPA, P.A.
*23.3 Consent of Snow Becker Krauss P.C.
*27.1 Financial Data Schedule
* Filed with this Registration Statement
------------
(1) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.
(2) Incorporated herein by reference from Exhibits to Registrant's Form
10.
(3) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
(4) Incorporated herein by reference from Exhibits to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998.
(5) Incorporated herein by reference from Exhibits to Registrant's Form
8-K for September 17, 1999.
(6) Incorporated herein by reference to Registrant's Registration
Statement on Form S-1 (No. 333-85205) declared effective on November
15, 1999.
(7) Incorporated herein by reference to Registrant's Annual Report on Form
10-K for December 31, 1999.
(8) Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 1 to Registration Statement on Form S-1 (No.333-
85205) filed on November 9, 2000.
(b) Financial Statement Schedules. The schedules filed herewith
are as specified on the Index to Schedules included herein.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(1) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(i) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(ii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Post-Effective Amendment to this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Miami, State of Florida, on this 13th of November,
2000.
PICK Communications Corp.
By: /s/ Helge Bornmann
---------------------------------------------
Helge Bornmann
President and Chief Executive Officer
Signature Title Date
/s/ Helge Bornmann President and Chief Executive Officer November 13, 2000
--------------------- (Principal Executive Officer and
Helge Bornmann Principal Financial Officer)
II-6
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Name
----------------
Page No.
--------
23.1 Consent of Goldstein Golub Kessler LLP
23.2 Consent of Durland & Company, CPA, P.A.
23.3 Consent of Snow Becker Krauss P.C.
II-7
