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PROSPECTUS
[LOGO]
700,000 UNITS, CONSISTING OF 1,400,000 SHARES OF COMMON STOCK
AND 1,400,000 REDEEMABLE CLASS A WARRANTS
All Communications Corporation (the 'Company') hereby offers 700,000 units
('Units'), each Unit consisting of two shares of Common Stock, no par value per
share ('Common Stock'), and two redeemable Class A Common Stock Purchase
Warrants ('Warrants'). Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $4.25 per share, subject to
adjustment, for four years commencing one year from the date of this Prospectus.
The Common Stock and Warrants comprising the Units will be separately
transferable immediately upon issuance. The Company may redeem the Warrants
commencing October 28, 1998 (18 months from the date of the Prospectus), or
earlier with the consent of Monroe Parker Securities, Inc. (the 'Underwriter'),
at a price of $.10 per Warrant, on not less than 30 days' prior written notice,
if the last sale price of the Common Stock has been at least 250% ($10.63 per
share) of the current Warrant exercise price, subject to adjustment, for at
least 20 consecutive trading days ending within three days prior to the date on
which notice of redemption is given. See 'Description of Securities.'
(Cover continued on following page)
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD BE CONSIDERED ONLY BY
INVESTORS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. SEE 'RISK
FACTORS' ON PAGE 7 AND 'DILUTION' ON PAGE 14.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAVE THEY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) THE COMPANY(2)
<S> <C> <C> <C>
Per Unit..................................................... $7.00 $.70 $6.30
Total(3)................................................ $4,900,000 $490,000 $4,410,000
</TABLE>
(1) Excludes additional compensation to be received by the Underwriter in the
form of (i) options (the 'Underwriter's Options') to purchase 70,000 Units,
exercisable over a period of four years commencing one year from the date of
this Prospectus, at an exercise price equal to 120% of the public offering
price of the Units being offered hereby; and (ii) a 3% non-accountable
expense allowance of $147,000 (or $169,050 if the over-allotment option is
exercised in full). The Company has agreed under certain circumstances to
pay the Underwriter a warrant solicitation fee of 5% of the exercise price
received for each warrant exercised. In addition, the Company and the
Underwriter have agreed to indemnify each other against certain liabilities
under the Securities Act of 1933 (the 'Securities Act'). See 'Underwriting.'
(2) Before deducting expenses, including the Underwriter's non-accountable
expense allowance payable by the Company, estimated at $396,000 (or $418,050
if the over-allotment option is exercised in full).
(3) The Company has granted to the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
105,000 Units on the same terms solely to cover over-allotments, if any. If
the over-allotment option is exercised in full, the Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Company would be
$5,635,000, $563,500 and $5,071,500 respectively.
------------------------
MONROE PARKER SECURITIES, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 28, 1997
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(cover continued)
Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. The offering price of the Units and the exercise price
and the terms of the Warrants have been determined by negotiations between the
Company and the Underwriter, and are not necessarily related to net asset value,
projected earnings or other established criteria of value. The Company has been
approved for listing of the Units, Common Stock and Warrants on the Boston Stock
Exchange ('BSE') under the symbols 'CMNU,' 'CMN' and 'CMNW,' respectively and
for quotation in the over-the-counter market on the National Association of
Securities Dealers, Inc.'s ('NASD') OTC Electronic Bulletin Board under the
symbols 'ACUCU,' 'ACUC' and 'ACUCW,' respectively. There can be no assurance
that an active trading market in the Company's securities will develop after the
completion of this offering, or be sustained. See 'Underwriting.'
The Registration Statement of which this Prospectus forms a part also
registers up to 25,000 shares of Common Stock on behalf of the President of the
Company (the 'Selling Stockholder'), which may be sold by him for his account
from time to time in open market transactions. The Common Stock to be sold by
the Selling Stockholder is referred to herein as the 'Registered Common Stock.'
The Registered Common Stock offered by the Selling Stockholder is not part of
the underwritten public offering. The Selling Stockholder may not sell the
Registered Common Stock prior to three years from the date of this Prospectus
without the prior consent of the Underwriter.
The Units are being offered on a 'firm commitment' basis by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted by
the Underwriter, and subject to the Underwriter's right to reject orders in
whole or in part, and to the approval of certain legal matters by counsel and
certain other conditions. It is expected that delivery of certificates
representing the Units will be made against payment therefor on or about May 5,
1997.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
public accountants after the end of each fiscal year, commencing with its fiscal
year ending December 31, 1997, and will make available such other periodic
reports as the Company may deem to be appropriate or as may be required by law.
The Company has registered the Units, the Common Stock and the Warrants under
the Securities Exchange Act of 1934 (the 'Exchange Act') and, commencing on the
date of this Prospectus, will be subject to the reporting requirements of the
Exchange Act and will file all required information with the Securities and
Exchange Commission (the 'Commission').
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following discussion summarizes certain information contained in this
Prospectus. It does not purport to be complete and is qualified in its entirety
by reference to more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share and per share information in this Prospectus (i) gives
effect to the conversion of $600,000 principal amount of 12% Convertible
Subordinated Notes (the 'Bridge Notes') by certain note holders of the Company
(the 'Bridge Unitholders') into 300,000 Bridge Units (the 'Bridge Units'), each
consisting of one share of Common Stock and one Warrant, prior to the completion
of this offering; and (ii) assumes no exercise of (a) the Underwriter's
over-allotment option; (b) the Warrants; (c) the Bridge Unitholders' Warrants;
(d) the Underwriter's Options; (e) outstanding options issued under the
Company's stock option plan; and (f) other outstanding options. See
'Management,' 'Interim Financing,' 'Description of Securities' and
'Underwriting.'
THE COMPANY
All Communications Corporation (the 'Company' or 'ACC') is engaged in the
business of selling, installing and servicing voice and videoconferencing
communications systems, concentrating on the commercial and industrial
marketplace. The Company's voice communications products are intended
principally for small to medium-sized business use; its videoconferencing
communications products are intended for use by all business, governmental,
educational and medical entities. In connection with the sale and service of its
products, the Company also markets peripheral data and telecommunications
products obtained from others. Through its headquarters office in Mountainside,
New Jersey and nationwide subcontractors, the Company sells, installs and
upgrades its communication and information distribution products and services.
VOICE COMMUNICATIONS. ACC is a major reseller of Panasonic Communications
and Systems Company's ('Panasonic') digital telephone systems, voice processing
systems and computer telephone integration solutions in the United States. The
Company's principal voice communications products are multi-featured, fully
electronic, digitally controlled key systems and hybrid telephone systems, voice
processing products with computer telephone integration hardware and software
and related business products and services for commercial distribution. A key
telephone system provides each telephone with direct access to multiple outside
trunk lines and internal communications through intercom lines. A PABX (private
automatic branch exchange) system, through a central switching system, permits
the connection of internal and external lines. A hybrid switching system
provides, in a single system, both key telephone and PABX features. Key
telephone equipment may be used with PABX equipment. Voice processing products
include voice-mail and interactive voice response systems, which allow via a
single line instrument, access to computerized information. All of the Company's
systems are software-based and fully digital. This enables the Company to
readily incorporate a variety of additional features as well as the ability to
expand a system's capability through software enhancements.
The Company sells, installs and services Panasonic telecommunications
products throughout the United States both through employees of the Company and
subcontractors. During the fiscal years ended December 31, 1996 and 1995, one
customer, Coldwell Banker'r', a brand of HFS Incorporated, accounted for
approximately 26% and approximately 28%, respectively, of the Company's total
sales. The Company's current business strategy is to focus on sales,
installation and service operations. In connection with implementing its
business strategy, the Company is seeking to expand its business by offering
customers and potential customers a broader range of products.
VIDEOCONFERENCING. The Company began selling Sony Electronics Inc.'s (a
division of Sony Corporation) ('Sony') videoconferencing products in the third
quarter of 1994, and is currently one of Sony's largest United States Sony
Authorized Videoconferencing Resellers (SAVR). Videoconferencing communications
systems, utilizing advanced technology, enable users at separate locations to
engage in face-to-face discussions. In addition to the use of video conferences
as a corporate communications tool, use of videoconferencing communications
systems is expanding into numerous additional applications, including (i)
teachers providing lectures to students at multiple locations, (ii) physicians
engaging in
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consultations utilizing x-rays and other photographic material, (iii) conducting
multi-location staff training programs and (iv) engineers in separate design
facilities coordinating the joint development of products. Sony's
videoconferencing systems incorporate superior audio and data sharing
capabilities. The systems expand the user's ability to conduct business in
person while substantially reducing or eliminating travel costs and
non-productive travel time. ACC offers what it believes to be the only system
with the built in ability to connect with four locations without the use of an
external bridge. Videoconferencing communication is generally considered to be
more effective than audio communication, as information retention is improved
when presented visually.
Through a non-exclusive agreement with Sprint North Supply ('SNS'), the
exclusive United States distributor of Sony videoconferencing communications
equipment, ACC provides videoconferencing systems for United States customers on
a global basis, with a concentration in the Northeastern United States. The
Company (i) provides its customers with components produced by Sony, a leading
worldwide manufacturer of room based videoconferencing equipment, and several
other manufacturers of ancillary equipment, (ii) selects and integrates those
components into complete systems designed to suit each customer's particular
communications requirements and (iii) provides training and other continuing
services designed to insure that its customers fully and efficiently utilize
their systems. Sony does not sell its videoconferencing products on a direct
basis.
To accommodate ACC's growth in the videoconferencing market sector, the
Company recently opened offices and demonstration facilities in New York City
and Washington, D.C. The Company has assembled a team of industry experts with
substantial videoconferencing communications expertise and, over the past 18
months, has provided over 35 videoconferencing systems on a national and
international basis. Customers of the Company in this area include Fedders,
Waterford Crystal, Deutche Bank, Shearman & Sterling, The British Ministry of
Defense, St. Johns University, Banco de Columbia and Tetra Pak.
During the fiscal years ended December 31, 1996 and 1995, approximately 72%
and 70%, respectively, of the Company's total sales were attributable to the
sale of voice communications equipment manufactured by Panasonic, and
approximately 27% and 27%, respectively, of the Company's total sales were
attributable to the sale of videoconferencing communications equipment
manufactured by Sony. See 'Business -- Sales and Marketing.'
ACC was organized as a New Jersey corporation on August 16, 1991. Its
executive offices are located at 1450 Route 22 West, Mountainside, New Jersey
07092 and its telephone number is (908) 789-8800.
THE OFFERING
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Securities Offered........................... 700,000 Units, each Unit consisting of two shares of Common Stock
and two redeemable Class A Common Stock Purchase Warrants (the
'Warrants'). The Common Stock and Warrants comprising the Units
will be separately transferable immediately upon issuance. See
'Description of Securities.'
Description of Warrants:
Exercise of Warrants....................... Subject to redemption by the Company, the Warrants may be
exercised at any time during the four-year period commencing one
year from the date of this Prospectus at an exercise price of
$4.25 per share, subject to adjustment.
Redemption of Warrants..................... The Warrants are redeemable by the Company commencing 18 months
from the date of the Prospectus, or earlier with the consent of
the Underwriter, at $.10 per Warrant, on not less than 30 days'
prior written notice, provided that the last sale price of the
Common Stock is at least 250% ($10.63 per share) of the current
Warrant exercise price,
</TABLE>
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subject to adjustment, for at least 20 consecutive trading days
ending within three days prior to the date on which notice of
redemption is given. See 'Description of Securities.'
Common Stock Outstanding Prior to 3,300,000 shares(1)
Offering(1)................................
Common Stock Outstanding After Offering(1)... 4,700,000 shares(1)
Use of Proceeds.............................. The Company intends to utilize the net proceeds from this
offering, estimated at approximately $4,014,000, for telephone
systems inventory, videoconferencing equipment inventory,
leasing new corporate headquarters and leasehold improvements,
hiring additional employees, the purchase of computer equipment
and associated software, marketing and working capital. See 'Use
of Proceeds.'
Boston Stock Exchange Symbols (2):
Units...................................... CMNU
Common Stock............................... CMN
Warrants................................... CMNW
NASD's Electronic Bulletin Board Symbols (2):
Units...................................... ACUCU
Common Stock............................... ACUC
Warrants................................... ACUCW
Risk Factors................................. The securities offered hereby are speculative, involve a high
degree of risk and immediate substantial dilution, and should be
considered only by investors who can afford to sustain a loss of
their entire investment. See 'Risk Factors' and 'Dilution.'
</TABLE>
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(1) Includes 300,000 shares of Common Stock included in the Bridge Units,
assuming the conversion of $600,000 principal amount of Bridge Notes into
300,000 Bridge Units. Does not include an aggregate of 3,412,500 shares
which may be issued upon exercise of (i) the Warrants included in the Units
offered hereby; (ii) the Underwriter's Options and underlying Warrants;
(iii) the Underwriter's over-allotment option and underlying Warrants; (iv)
the shares underlying the Warrants included in the Bridge Units; (v)
outstanding options issued under the Company's stock option plan; and (vi)
other outstanding options. See 'Management,' 'Interim Financing,'
'Description of Securities' and 'Underwriting.'
(2) Notwithstanding listing on the Boston Stock Exchange and trading on the
NASD's Electronic Bulletin Board, there can be no assurance that an active
trading market for the Company's securities will develop or, if developed,
will be sustained.
5
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SUMMARY FINANCIAL INFORMATION
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<CAPTION>
YEARS ENDED DECEMBER 31,
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1996 1995
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Statement of Income Data:
Net revenues........................................................... $3,884,700 $2,641,331
Gross margin........................................................... 1,383,627 859,612
Income from operations................................................. 119,235 48,936
Income before income taxes............................................. 90,209 17,249
Income taxes........................................................... 38,606 8,029
Net income.................................................................. 51,603 9,220
Net income per share...................................................... $.03 $.01
Weighted average number of common shares outstanding........................ 1,977,518 1,884,002
</TABLE>
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<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------- -----------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
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Balance Sheet Data:
Working capital................................. $ 748,250 $4,612,250 $ 52,286
Total assets.................................... 2,458,392 $5,931,986 754,640
Total liabilities............................... 1,912,994 1,162,994 673,345
Retained earnings (Accumulated deficit)......... 80,398 (310,008) 28,795
Stockholders' equity............................ 545,398 $4,768,992 81,295
</TABLE>
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(1) Gives effect to the subsequent conversion of $600,000 principal amount of
Bridge Notes by the Bridge Unitholders into 300,000 Bridge Units, the
repayment of $150,000 Bridge Notes principal, and the sale of the 700,000
Units offered hereby. See 'Use of Proceeds,' 'Interim Financing' and
'Description of Securities.'
6
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RISK FACTORS
The securities offered hereby are speculative in nature and involve a high
degree of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider, along with other matters
referred to herein, the following risk factors.
LIMITED HISTORY OF PROFITABLE OPERATIONS. The Company has operated only
since August 1991, and generated net income of $51,603 and $9,220 for the fiscal
years ended December 31, 1996 and 1995, respectively. Although the Company has
achieved revenue growth and profitability during the past two fiscal years,
there can be no assurance that such growth can be sustained or that the Company
will remain profitable. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.' The Company may experience significant
fluctuations in future operating results as a result of a number of factors,
including delays in product enhancements and new product introductions by its
suppliers, market acceptance of new products, and reduction in demand for
existing products as a result of new product introductions by competitors of the
Company's suppliers. Any of these factors could cause quarterly operating
results to vary significantly from prior periods. In addition, the Company's
gross profit percentage may vary significantly depending on the mix of products
and services contributing to revenues in any period.
DEPENDENCE UPON MAJOR CUSTOMER. During the fiscal years ended December 31,
1996 and 1995, one customer, Coldwell Banker'r', a real estate brokerage
franchisor with approximately 2,800 franchise offices and a brand of HFS
Incorporated ('HFS'), accounted for approximately 26% and approximately 28%,
respectively, of the Company's total sales. In December 1996, the Company signed
a non-exclusive Preferred Vendor Agreement ('Agreement') with HFS for a term of
four years expiring December 8, 2000, for the Company to provide telephone and
voice processing systems to the real estate brokerage franchise systems of
Century 21'r', ERA'r' and Coldwell Banker'r', with an aggregate of approximately
9,000 United States franchise offices. The Company expects to continue to sell
its telephone and voice processing systems to Coldwell Banker franchisees as
well as to franchisees of Century 21 and ERA pursuant to the Agreement. It is
expected that sales to Coldwell Banker will continue to be substantial; however,
in view of the Agreement and the anticipated expansion of the Company's
business, it is expected that sales to Coldwell Banker as a percentage of total
sales will decrease. It is, however, anticipated that sales to HFS franchisees,
including Century 21, ERA and Coldwell Banker, will, in the foreseeable future,
account for a substantial portion of the Company's total sales. Any significant
reductions in sales to Coldwell Banker franchisees, or the failure to generate
significant sales to Century 21 and/or ERA franchisees would have an adverse
impact on the Company's total revenues and profitability in the future. See
'Business -- Customers.'
DEPENDENCE ON SUPPLIERS. During the fiscal years ended December 31, 1996
and 1995, approximately 72% and 70%, respectively, of the Company's total sales
were attributable to the sale of voice communications equipment manufactured by
Panasonic Communications & System Company ('Panasonic'), and approximately 27%
and 27%, respectively, of the Company's total sales were attributable to the
sale of videoconferencing communications equipment manufactured by Sony
Electronics Inc. ('Sony'). Termination or change of the Company's ability to
obtain Panasonic and/or Sony products, disruption of supply, their failure to
remain competitive in quality, function or price, or the determination of either
Panasonic or Sony to reduce reliance on independent resellers such as the
Company could have a material adverse effect on the Company. See
'Business -- Sales and Marketing.'
The Company has an agreement with Panasonic authorizing the Company to
serve as its non-exclusive reseller in the United States. The agreement with
Panasonic expires on December 31, 1997 and is automatically renewable for
successive one-year terms unless terminated by either party upon at least 30
days' prior written notice. Sony has recently determined to eliminate all direct
reseller agreements for its videoconferencing products and has designated Sprint
North Supply ('SNS') as its exclusive United States distribution partner for
such products. On February 21, 1997, the Company signed a non-exclusive reseller
agreement with SNS wherein SNS agreed to provide ACC with Sony videoconferencing
equipment through January 31, 1998, on terms which are more favorable than those
on which the Company previously purchased such equipment directly from Sony.
While there are other suppliers of voice and videoconferencing communications
equipment who provide products similar to those which the Company purchases from
Panasonic and SNS, respectively, termination of the
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Company's relationship with either or both of these suppliers could have a
material adverse effect on the Company. See 'Business -- Reseller Agreements.'
DEPENDENCE ON PROCEEDS OF THIS OFFERING; POSSIBLE NEED FOR ADDITIONAL
FINANCING. The Company is dependent on the proceeds of this offering to generate
cash for the expansion of its product lines and marketing efforts. The Company
anticipates, based on its proposed plans, that the proceeds of this offering,
together with funds generated from operations, will be sufficient to satisfy its
anticipated cash requirements for approximately two years following the
completion of this offering. In the event that the costs involved in the
development of its expanded operations prove to be greater than anticipated,
additional financing may be required. The Company expects to satisfy any
additional capital requirements with proceeds, if any, from the exercise of
Warrants, or through debt and/or equity financing. The Company has no current
arrangement with respect to such additional financing and there can be no
assurance that such financing, if available, will be on terms acceptable to the
Company. See 'Use of Proceeds' and 'Business.'
DILUTION. A purchaser of Common Stock in this offering will experience an
immediate and substantial dilution of $2.50 (72%) per share between the pro
forma net tangible book value per share after the offering and the public
offering price of $3.50 per share (assuming no value is attributed to the
Warrants). See 'Dilution.'
SALES OF COMMON STOCK AT BELOW OFFERING PRICE; SALE OF COMMON STOCK BY
PRESIDENT. On December 13, 1996, the Company's Chairman of the Board and
President, two of its Vice Presidents and a Director acquired, upon exercise of
options, an aggregate of 1,010,000 shares of Common Stock, at a purchase price
of $.03 per share, or an aggregate purchase price of $30,300. See 'Dilution.'
CONTINUED CONTROL BY MANAGEMENT. Upon completion of this offering (assuming
the conversion of $600,000 principal amount of Bridge Notes into 300,000 Bridge
Units), the officers and directors of the Company will beneficially own
approximately 65.1% of the Company's outstanding Common Stock. The Company's
stockholders do not have the right to cumulative voting in the election of
directors. Accordingly, such individuals will be in a position to effectively
control the Company, including the election of all of the directors of the
Company. See 'Management' and 'Principal Stockholders.'
STAGGERED BOARD OF DIRECTORS. In December 1996, the stockholders of the
Company approved an amendment to the Company's By-Laws dividing the Board of
Directors into three classes, each of which shall serve for a staggered term of
three years. Such division of the Company's Board of Directors could have the
effect of impeding an attempt to take over the Company or change or remove
management, since only one class will be elected annually. Thus, only
approximately one-third of the existing Board of Directors could be replaced at
any election of directors. See 'Management.'
IMPACT ON EARNINGS RESULTING FROM ISSUANCE OF BRIDGE UNITS. In December
1996, the Company completed a bridge financing (the 'Bridge Financing'),
pursuant to which it issued to the Bridge Unitholders an aggregate of $750,000
principal amount of 12% Convertible Subordinated Notes ('Bridge Notes'). The
Bridge Notes are convertible, at the option of the holders, commencing on the
effective date and prior to the date of the completion of this offering, into
Bridge Units, and the Company will issue to each note holder one Bridge Unit for
each $2.00 principal amount of Bridge Notes presented for conversion. As a
result of the issuance of the Bridge Notes, the Company incurred a total charge
of $390,406 of deferred financing costs at the time of such issuance, reflecting
the value of such securities, and its net income will be reduced or its net loss
will increase by such amount during the fiscal year ending December 31, 1997.
See 'Interim Financing' and 'Financial Statements.'
COMPETITION. The audio and videoconferencing communications industries have
been characterized by pricing pressures and business consolidations. The Company
competes with other manufacturers and distributors of voice communications and
videoconferencing systems, many of which are larger, have greater recognition in
the industry, a longer operating history and greater financial resources than
the Company. The Company's competitors in the voice communications sector
include Lucent Technologies, Inc., Northern Telecom and Toshiba. ACC's
competitors in the video communications sector include Picturetel Corporation,
Compression Labs, Incorporated and VTEL Corporation. Existing competitors may
continue to broaden their product lines and expand their retail operations, and
potential competitors may enter into or increase their focus on the audio and/or
videoconferencing communica-
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tions market, resulting in greater competition for the Company. In particular,
management believes that as the demand for videoconferencing communications
systems continues to increase, additional competitors, many of which also will
have greater resources than the Company, will enter the videoconferencing
market. Consequently, there can be no assurance that the Company can
successfully compete with established and better capitalized companies. See
'Business -- Competition.'
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the
experience of its management in the continuing development of its retail
operations. The loss of the services of certain of these individuals,
particularly Richard Reiss, Chairman of the Board, Chief Executive Officer and
President of the Company, would have a material adverse effect on the Company's
business. The Company has entered into employment agreements with Mr. Reiss,
Joseph Scotti, Vice President - Sales and Marketing of Voice Products and Leo
Flotron, Vice President - Sales and Marketing of Videoconferencing Products of
the Company. Mr. Reiss' agreement expires on December 31, 2002, and Messrs.
Scotti and Flotron's agreements expire on December 31, 1999. Each of such
agreements may be terminated by the employee upon 90 days' prior written notice
without penalty, subject to a one year non-compete clause. The Company is in the
process of obtaining key-man life insurance in the amount of $1,000,000 on the
life of Mr. Reiss, with the Company as the named beneficiary. The future success
of the Company will also depend upon its ability to attract and retain
additional marketing and sales personnel for its expansion. The Company has set
aside approximately $600,000 from the net proceeds of the offering for such
purpose. The Company faces intense competition for such highly qualified
personnel from other manufacturers and distributors of voice communications and
videoconferencing systems. There can be no assurance that such individuals can
be hired or retained. The failure to recruit additional key personnel could have
a material adverse effect on the Company's business, financial condition and
results of operations. See 'Use of Proceeds' and 'Management.'
BROAD DISCRETION IN APPLICATION OF PROCEEDS BY MANAGEMENT; CHANGE IN USE OF
PROCEEDS. Approximately $1,247,835 (31.1%) of the estimated net proceeds of this
offering has been allocated to working capital. Additionally, in the event that
the Underwriter's over-allotment option is exercised or to the extent that the
Warrants are exercised, the Company will realize additional net proceeds, which
will be added to working capital. Accordingly, the Company's management will
have broad discretion as to the application of such proceeds. Notwithstanding
its plan to develop its business as described in this Prospectus, future events,
including the problems, expenses, difficulties, complications and delays
frequently encountered by businesses, as well as changes in the economic climate
or changes in government regulations, may make the reallocation of funds
necessary or desirable. Any such reallocation will be at the discretion of the
Board of Directors. See 'Use of Proceeds.'
NO PUBLIC MARKET. Prior to this offering, there has been no public market
for the Units, Common Stock or Warrants. Accordingly, there can be no assurance
that an active trading market in any of such securities will develop and be
sustained upon the completion of this offering or that the market price of such
securities will not decline below the initial public offering price.
ARBITRARY OFFERING PRICE. The initial public offering price of the Units
and the exercise price and terms of the Warrants have been determined by
negotiations between the Company and the Underwriter. See 'Underwriting' for a
discussion of the factors considered in determining the initial public offering
price. Regulatory developments and economic and other external factors, as well
as period-to-period fluctuations in financial results, may also have a
significant impact on the market price of such securities.
POSSIBLE RESTRICTIONS ON MARKET-MAKING ACTIVITIES IN COMPANY'S SECURITIES.
The Underwriter has advised the Company that it intends to make a market in the
Company's securities. Regulation M, which was recently adopted to replace Rule
10b-6 and certain other rules promulgated under the Securities Exchange Act of
1934, as amended (the 'Exchange Act'), may prohibit the Underwriter from
engaging in any market-making activities with regard to the Company's securities
for the period from five business days (or such other applicable period as
Regulation M may provide) prior to any solicitation by the Underwriter of the
exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that the
Underwriter may have to receive a fee for the exercise of Warrants following
such solicitation. As a result, the Underwriter may be unable to provide a
market for the Company's securities during certain periods
9
<PAGE>
<PAGE>
while the Warrants are exercisable. In addition, under applicable rules and
regulations under the Exchange Act, any person engaged in the distribution of
the Selling Stockholder's securities may not simultaneously engage in
market-making activities with respect to any securities of the Company for the
applicable 'cooling off' period prior to the commencement of such distribution.
Accordingly, in the event the Underwriter is engaged in a distribution of the
Selling Stockholder's securities, it will not be able to make a market in the
Company's securities during the applicable restrictive period. Any temporary
cessation of such market-making activities could have an adverse effect on the
market price of the Company's securities. See 'Underwriting.'
UNDERWRITER'S OPTIONS. The Company has agreed to sell to the Underwriter,
at an aggregate price of $70, the right to purchase up to an aggregate of 70,000
Units (the 'Underwriter's Options'). Such Options will be exercisable for a
four-year period commencing one year after the date of the Prospectus, at a per
Unit exercise price equal to 120% of the initial per Unit public offering price
of the Units being offered hereby. For the life of such Options, the holders
thereof are given the opportunity to profit from a rise in the market price of
the Common Stock or Warrants, which may result in a dilution of the interests of
other stockholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for its business while such
Options are outstanding. See 'Underwriting.'
EFFECT OF ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS; POSSIBLE
ISSUANCE OF ADDITIONAL OPTIONS. Immediately after the completion of this
offering, assuming full exercise of the Underwriter's over-allotment option and
the conversion of $600,000 principal amount of Bridge Notes into 300,000 Bridge
Units, the Company will have outstanding warrants to purchase an aggregate of up
to 2,050,000 shares of Common Stock, including the shares issuable upon exercise
of the Warrants offered hereby, the Warrants underlying the Bridge Units and the
Warrants underlying the Underwriter's Options. There is also an outstanding
option, which was granted to the President of the Company pursuant to his
employment agreement with the Company, to purchase 750,000 shares of Common
Stock. In addition, up to 500,000 shares of Common Stock have been reserved for
issuance pursuant to the Company's stock option plan, of which options to
purchase an aggregate of 262,500 shares have been granted to date. Unless
registered for sale, any shares of Common Stock acquired upon the exercise of
such warrants or options would be 'restricted securities' for purposes of Rule
144, subject to the two-year holding period (one year, commencing April 29,
1997) (which commences when shares are issued upon exercise of a warrant or
option), volume and other resale restrictions of Rule 144. The Company has
agreed to use its best efforts to file and maintain, so long as the Warrants are
exercisable, a current registration statement with the Commission relating to
the Warrants and the shares of Common Stock underlying the Warrants. In
addition, the Underwriter has certain demand and 'piggyback' registration rights
with respect to the securities underlying the Underwriter's Options.
The exercise of such warrants or options and the sale of the underlying
shares of Common Stock (or even the potential exercise or sale) may have a
depressive effect on the market price of the Company's securities. The exercise
of the warrants and options also may dilute the interest of investors in this
offering. Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected because the holders of the
outstanding warrants and options can be expected to exercise them, to the extent
they are able to, at a time when the Company would, in all likelihood, be able
to obtain any needed capital on terms more favorable to the Company than those
provided in the warrants and options. See 'Management -- Employment
Agreements -- Stock Option Plan,' 'Description of Securities -- Class A
Warrants' and 'Underwriting.'
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF THE WARRANTS. The Warrants may be
redeemed by the Company commencing 18 months from the date of this Prospectus,
or earlier with the consent of the Underwriter, at a redemption price of $.10
per Warrant upon not less than 30 days' prior written notice provided the last
sale price of the Common Stock on Nasdaq (or another national securities
exchange), for 20 consecutive trading days ending within three days of the
notice of redemption, equals or exceeds 250% ($10.63 per share) of the current
Warrant exercise price, subject to adjustment. Redemption of the Warrants could
force the holders to exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, sell the Warrants at
the then current market price when they might otherwise wish to hold the
Warrants, or to accept the redemption price, which is likely
10
<PAGE>
<PAGE>
to be substantially less than the market value of the Warrants at the time of
redemption. See 'Description of Securities -- Class A Warrants.'
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE. The Underwriter has been
actively engaged in the securities brokerage and investment banking business
since 1994. However, the Underwriter has engaged in only limited underwriting
activities, and this offering is only the sixth public offering in which the
Underwriter has acted as the sole or managing Underwriter. There can be no
assurance that the Underwriter's limited experience as an underwriter of public
offerings will not adversely affect the proposed public offering of the Units,
Common Stock and Warrants, the subsequent development of a trading market, if
any, or the market for and liquidity of the Company's securities. Therefore,
purchasers of the securities offered hereby may suffer a lack of liquidity in
their investment or a material diminution of the value of their investment.
UNDERWRITER'S INFLUENCE ON THE MARKET. A significant amount of the Units
offered may be sold to customers of the Underwriter. Such customers subsequently
may engage in transactions for the sale or purchase of such Units and may
otherwise effect transactions in such securities. If they participate in the
market, the Underwriter may exert substantial influence on the market, if one
develops, for the Units, Common Stock and Warrants. Such market-making activity
may be discontinued at any time. The price and liquidity of the Units, Common
Stock and Warrants may be significantly affected by the degree, if any, of the
Underwriter's participation in such market. See 'Underwriting.'
RISKS OF LOW-PRICED STOCKS. The Company has applied to list the Units,
Common Stock and Warrants on the Boston Stock Exchange ('BSE'), and it is
anticipated that such securities will also be traded on the NASD's Electronic
Bulletin Board. If the Company's securities were delisted from the BSE, they
could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and 'accredited
investors' (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in this offering to sell in
the secondary market any of the securities acquired hereby.
POSSIBLE ADVERSE EFFECT OF 'PENNY STOCK' RULES IN LIQUIDITY FOR THE
COMPANY'S SECURITIES. Commission regulations define a 'penny stock' to be any
non-Nasdaq equity security that has a market price (as therein defined) of less
than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on the Nasdaq Stock Market,
or listed or approved for listing on a national securities exchange, such as the
BSE, and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average revenue
criteria. There can be no assurance that the Company's securities will qualify
for exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules on penny stock, the market liquidity for the Company's
securities could be severely adversely affected. In such event, the regulations
on penny stocks could limit the ability of broker-dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market.
11
<PAGE>
<PAGE>
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS.
The Warrants are being registered pursuant to a Registration Statement filed
with the Securities and Exchange Commission ('Commission') under the Securities
Act of 1933 (the 'Securities Act'), of which this Prospectus is a part, and
after its effectiveness the Warrants may be traded, and upon exercise, their
underlying shares of Common Stock may be sold, in the public market that may
develop for the securities for approximately one year thereafter. However,
unless such Registration Statement is kept current by the Company and measures
to qualify or keep qualified such securities in certain states are taken,
investors purchasing the Warrants in this offering, although exercisable, will
not be able to exercise the Warrants or sell its underlying shares of Common
Stock issuable upon exercise of the Warrants in the public market. The Company
has agreed to use its best efforts to qualify and maintain a current
registration statement covering such shares of Common Stock. There can be no
assurance, however, that the Company will be able to maintain a current
registration statement or to effect appropriate qualifications under applicable
state securities laws, the failure of which may result in the exercise of the
Warrants and the resale or other disposition of Common Stock issued, upon such
exercise, being unlawful. See 'Description of Securities -- Class A Warrants.'
POTENTIAL ADVERSE IMPACT OF PREFERRED STOCK ON RIGHTS OF HOLDERS OF COMMON
STOCK. The Company's Certificate of Incorporation authorizes the issuance of up
to 1,000,000 shares of preferred stock with the Board of Directors having the
right to determine the designations, rights, preferences and privileges of the
holders of one or more series of preferred stock. Accordingly, the Board of
Directors is empowered, without shareholder approval, to issue preferred stock
with voting, dividend, conversion, liquidation or other rights which could
adversely affect the voting power and equity interest of the holders of Common
Stock. The preferred stock, which could be issued with the right to more than
one vote per share, could be utilized as a method of discouraging, delaying or
preventing a change of control of the Company. The possible impact on takeover
attempts could adversely affect the price of the Company's Common Stock. The
Company has no current plans to issue any shares of preferred stock. In
addition, for a period of three years from the date of this Prospectus, the
issuance of any shares of preferred stock is subject to the Underwriter's prior
consent. See 'Description of Securities -- Preferred Stock.'
LACK OF DIVIDENDS. To date, the Company has not paid any dividends on its
Common Stock, and intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future. See
'Dividend Policy.'
SHARES ELIGIBLE FOR FUTURE SALE. Upon the completion of this offering, the
Company will have 4,700,000 shares of Common Stock outstanding (assuming an
aggregate of $600,000 principal amount of Bridge Notes are converted into
300,000 Bridge Units), including 1,400,000 shares included in the 700,000 Units
offered hereby by the Company, and 25,000 shares of Registered Common Stock
which are included in the Registration Statement of which this Prospectus forms
a part. The remaining 2,975,000 shares of Common Stock currently outstanding are
'restricted securities' as that term is defined in Rule 144 under the Securities
Act, and may not be sold unless such sale is registered under the Securities Act
or is made pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. Such shares will be eligible for
sale in the public market pursuant to Rule 144 at various times beginning 90
days after the date of this Prospectus, subject to the three-year lock-up
described below. The 300,000 shares of Common Stock and the 300,000 shares
underlying the 300,000 Warrants comprising the Bridge Units may not be sold
until two years following the date of this Prospectus, during the first year,
unconditionally, and during the second year, without the prior consent of the
Underwriter. The holders of all of the 3,000,000 shares of the Company's Common
Stock currently outstanding (including the 25,000 shares of Registered Common
Stock held by the President) have agreed that, for a period of three years from
the date of this Prospectus, they will not sell any of their shares, or any
shares issuable upon exercise of warrants or options exercisable into shares of
Common Stock, without the prior consent of the Underwriter. Certain officers,
directors, employees and other individuals holding an aggregate amount of
1,250,000 shares of the Company's Common Stock currently outstanding have
agreed, unconditionally, that for a period of three years from the date of this
Prospectus, they will not sell any of their shares. The Company is unable to
predict the effect that sales made under Rule 144 or otherwise may have on the
market price of the Common Stock. However, the possibility that substantial
amounts of Common Stock may be sold in the public
12
<PAGE>
<PAGE>
market may have an adverse effect on the market price for the Company's Common
Stock. See 'Description of Securities,' 'Shares Eligible for Future Sale' and
'Underwriting.'
INDEMNIFICATION OF DIRECTORS UNDER NEW JERSEY LAW. Pursuant to both the
Company's Certificate of Incorporation and New Jersey law, the Company's
officers and directors are indemnified by the Company for monetary damages for
breach of fiduciary duty, except for liability which arises in connection with
(i) a breach of duty or loyalty, (ii) acts or omissions not made in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
dividend payments or stock repurchases illegal under New Jersey law, or (iv) any
transaction in which the officer or director derived an improper personal
benefit. The Company's Certificate of Incorporation does not have any effect on
the availability of equitable remedies (such as an injunction or rescissions)
for breach of fiduciary duty. However, as a practical matter, equitable remedies
may not be available in particular circumstances. See 'Management -- Director
and Officer Liability.'
13
<PAGE>
<PAGE>
DILUTION
For purposes of the following discussion of dilution and tables, no value
is attributed to the Warrants included in the Units. After giving effect to the
subsequent conversion of $600,000 principal amount of Bridge Notes by the Bridge
Unitholders into 300,000 Bridge Units, the pro forma net tangible book value of
the Company as of December 31, 1996 was $672,492 or $.20 per share. Pro forma
net tangible book value per share is determined by dividing the tangible net
worth of the Company, consisting of tangible assets (exclusive of capitalized
public offering expenses) less total liabilities, by the number of shares of
Common Stock outstanding. After giving effect to the sale by the Company of the
1,400,000 shares of Common Stock included in the 700,000 Units offered pursuant
to this Prospectus at the initial public offering price of $3.50, and the
receipt of the net proceeds therefrom the pro forma net tangible book value of
the Company at December 31, 1996 would be $4,686,492 or $1.00 per share,
representing an immediate increase in net tangible book value of $.80 per share
to present stockholders and an immediate dilution of $2.50 per share or
approximately 72%, to public investors. 'Dilution' means the difference between
the public offering price per share and the pro forma net tangible book value
per share after giving effect to the offering. The following table illustrates
the dilution of a new investor's equity as of December 31, 1996.
<TABLE>
<S> <C> <C>
Public offering price per share......................................................... $3.50
Pro forma net tangible book value per share before offering........................ $.20
Increase per share attributable to public investors................................ .80
----
Pro Forma net tangible book value per share after offering.............................. 1.00
-----
Dilution to public investors............................................................ $2.50
-----
-----
</TABLE>
The following table summarizes, (i) as of the date of this Prospectus, the
number of shares of Common Stock purchased by investors in the Company; (ii) the
300,000 shares of Common Stock included in the 300,000 Bridge Units to be issued
to the Bridge Unitholders upon the conversion of $600,000 principal amount of
Bridge Notes prior to the completion of this offering; (iii) the total cash
consideration and the average price per share paid to the Company for the Common
Stock outstanding prior to the completion of this offering; and (iv) the number
of shares and consideration to be paid by the public investors for the 1,400,000
shares of Common Stock included in the 700,000 Units to be sold in this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................... 3,000,000(1) 63.8% $ 90,000 1.6% $ .03
---------
---------
Bridge Unitholders...................... 300,000(2) 7.9 600,000 10.7 $2.00
---------
---------
Public Investors........................ 1,400,000 29.3 4,900,000 87.7 $3.50
--------- ------- ---------- ------- ---------
---------
Total(1)...................... 4,700,000 100.0% $5,590,000 100.0%
--------- ------- ---------- -------
--------- ------- ---------- -------
</TABLE>
- ------------
(1) Excludes (i) up to 1,400,000 shares of Common Stock issuable upon exercise
of Warrants to be issued to public investors; (ii) up to 280,000 shares of
Common Stock issuable upon exercise of the Underwriter's Options and
underlying Warrants; (iii) up to 420,000 shares of Common Stock issuable
upon exercise of the Underwriter's over-allotment option and underlying
Warrants; (iv) up to 500,000 shares of Common Stock reserved for issuance
upon exercise of options granted pursuant to the Company's stock option
plan, of which options to purchase 262,500 shares have been granted to date;
and (v) up to 750,000 shares issuable upon exercise of an option granted to
the President of the Company pursuant to his employment agreement. See
'Management -- Employment Agreements -- Stock Option Plan,' 'Interim
Financing,' 'Description of Securities' and 'Underwriting.'
(2) Excludes up to 300,000 shares of Common Stock issuable upon exercise of the
Bridge Unitholders' Warrants. See 'Interim Financing' and 'Concurrent
Offering.'
14
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 700,000 Units offered
hereby, after deducting underwriting discounts and commissions and other
expenses of this offering, are estimated to be $4,014,000 ($4,653,450 if the
Underwriter's over-allotment option is exercised in full). The Company intends
to utilize the net proceeds of this offering over the next 24 months
substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
APPLICATION AMOUNT PERCENTAGE
- --------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Telephone Systems Inventory(1)............................................. $ 635,000 15.8%
Videoconferencing Equipment Inventory(2)................................... 510,000 12.7
Leasing New Corporate Headquarters and Leasehold Improvements(3)........... 240,000 6.0
Hiring Additional Employees(4)............................................. 600,000 14.9
Purchase of Computer Systems and Associated Software(5).................... 175,000 4.4
Marketing(6)............................................................... 450,000 11.2
Repayment of Bridge Notes(7)............................................... 156,165 3.9
Working Capital(8)......................................................... 1,247,835 31.1
----------- -----------
$4,014,000 100.0%
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) Includes telephone common equipment ($250,000); telephone sets ($300,000);
and voice mail ($85,000).
(2) Includes video codecs ($240,000); monitors ($145,000); and peripheral
equipment, including cameras and audio systems ($125,000).
(3) Includes costs in connection with moving the Company's headquarters office
to larger facilities in the first half of 1997. It is estimated that such
facilities will contain approximately 10,000 square feet of space to be
utilized for executive, administrative and sales functions and for
demonstration of the Company's voice and video communications systems. An
additional approximately 5,000 square feet of space will be utilized for
warehousing of the Company's inventory. See 'Business -- Facilities.'
(4) Includes costs associated with the planned hiring and retention over the
next two years of two branch sales managers for the Company's voice
products, who will report directly to the Company's Vice President -- Sales
and Marketing of Voice Products; nine voice sales representatives, who will
report directly to the voice branch sales managers; and eight
videoconferencing sales representatives, who will report directly to the
Company's Vice President -- Sales and Marketing of Videoconferencing
Products. See 'Business -- Sales and Marketing.'
(5) Includes costs in connection with upgrading both the hardware and software
of the Company's computer systems, software and local area network (LAN).
The new system will encompass service order entry, inventory management,
billing, accounting, word processing and administrative software. Also
includes consulting fees for project design and implementation.
(6) Includes costs in connection with exhibiting the Company's products at trade
shows ($150,000), costs associated with a direct mail campaign directed to
the approximately 9,000 franchisees of CENTURY 21'r', ERA'r' and Coldwell
Banker'r' ($150,000), as required under the Company's Preferred Vendor
Agreement with HFS Incorporated, and costs of telemarketing the Company's
videoconferencing products to end-users accounts ($150,000). See
'Business -- Sales and Marketing.'
(7) In December 1996, the Company completed a bridge Financing pursuant to which
it issued an aggregate of $750,000 principal amount of 12% Convertible
Subordinated Notes (the 'Bridge Notes'). The Bridge Notes bear interest at
the rate of 12% per annum, payable annually on December 31. As described in
'INTERIM FINANCING', the holders of an aggregate of $600,000 principal
amount of the Bridge Notes have agreed to convert their notes into
securities of the Company. Accordingly, the Company intends to use a portion
of the proceeds of this offering to repay the principal and interest due on
the remaining $150,000 principal amount of the Bridge
(footnotes continued on next page)
15
<PAGE>
<PAGE>
(footnotes continued from previous page)
Notes. The $156,165 allocated for this purpose assumes repayment of the
Bridge Notes on May 1, 1997.
(8) Working capital will be used to pay general and administrative expenses for
general corporate purposes including, but not limited to, paying down any
existing bank credit line and obtaining letters of credit for international
installation projects, as well as for the possible acquisition of other
voice and video communications systems resellers.
------------------------
The foregoing allocations are estimates only and are subject to revision
from time to time to meet the Company's requirements; any excess will be added
to working capital and any shortage will be deducted from working capital.
Furthermore, allocations may be changed in response to unanticipated
developments in the Company's business. The Company may re-allocate such amounts
from time to time among the categories shown above or to new categories if it
believes such to be in its best interest. In the event that the Underwriter's
over-allotment option is exercised or to the extent that the Warrants are
exercised, including the Warrants underlying the Bridge Units, the Company will
realize additional net proceeds, which will be added to working capital. Pending
full utilization of the net proceeds of this offering, the Company intends to
make temporary investments in United States government or federally insured
securities. The Company believes that the net proceeds from this offering, plus
working capital from operations and other sources of funds will be adequate to
sustain operations for at least the next two years.
16
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1996; (i) on an historical basis; (ii) on a pro forma basis, giving
effect to the conversion of $600,000 principal amount of Bridge Notes by the
Bridge Unitholders into 300,000 Bridge Units and the recognition of a total
charge of $390,406 of deferred financing costs relating to the Bridge Units
issued in December 1996; and (iii) on such pro forma basis, after giving effect
to the issuance and sale of 700,000 Units offered hereby and the repayment of
$150,000 principal amount of Bridge Notes and accrued interest thereon. This
table should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
---------- --------- -----------
<S> <C> <C> <C>
Long term debt........................................................ $ 816,152(1) $216,152 $ 66,152
---------- --------- -----------
Stockholders' equity(2)
Common Stock, no par value, 100,000,000 shares authorized;
3,000,000 shares issued and outstanding, actual; 3,300,000
shares issued and outstanding, pro forma; 4,700,000 shares
issued and outstanding, pro forma as adjusted.................. 90,000 690,000 4,704,000
Additional paid-in capital....................................... 375,000 375,000 375,000
Retained earnings (Accumulated deficit).......................... 80,398 (310,008) (310,008)
---------- --------- -----------
Total stockholders' equity............................. 545,398 754,992 4,768,992
---------- --------- -----------
Total capitalization................................... $1,361,550 $971,144 $4,835,144
---------- --------- -----------
---------- --------- -----------
</TABLE>
- ------------
(1) Includes an aggregate of $750,000 principal amount of 12% Convertible
Subordinated Notes ('Bridge Notes') which were issued by the Company in the
Bridge Financing which was completed in December 1996. See 'Interim
Financing.'
(2) Does not include (i) up to 1,400,000 shares of Common Stock issuable upon
exercise of Warrants to be issued to public investors; (ii) up to 300,000
shares of Common Stock issuable upon exercise of the Bridge Unitholders'
Warrants; (iii) up to 280,000 shares of Common Stock issuable upon exercise
of the Underwriter's Options and underlying Warrants; (iv) up to 420,000
shares of Common Stock issuable upon exercise of the Underwriter's
over-allotment option and underlying Warrants; (v) up to 500,000 shares of
Common Stock reserved for issuance upon exercise of options granted pursuant
to the Company's stock option plan, of which options to purchase 262,500
shares have been granted to date; and (vi) up to 750,000 shares issuable
upon exercise of an option granted to the President of the Company pursuant
to his employment agreement. See 'Management -- Employment
Agreements -- Stock Option Plan,' 'Interim Financing,' 'Description of
Securities,' and 'Underwriting.'
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and it is
currently the intention of the Company not to pay cash dividends on its Common
Stock in the foreseeable future. Management intends to reinvest earnings, if
any, in the expansion of the Company's business. Any future declaration of cash
dividends will be at the discretion of the Board of Directors and will depend
upon the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors.
17
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data and other
operation information of the Company. The selected historical financial data in
the table for the years ended December 31, 1996 and 1995 is derived from the
audited financial statements of the Company. The selected financial data set
forth below should be read in conjunction with the Company's financial
statements and notes thereto and with the section entitled 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Statement of Income Data:
Net revenues..................................................................... $3,884,700 $2,641,331
Gross margin..................................................................... 1,383,627 859,612
Income from operations........................................................... 119,235 48,936
Income before income taxes....................................................... 90,209 17,249
Income taxes..................................................................... 38,606 8,029
Net income....................................................................... 51,603 9,220
Net income per share............................................................. $.03 $.01
Weighted average number of common shares outstanding............................. 1,977,518 1,884,002
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------- DECEMBER 31,
ACTUAL PRO FORMA(1) 1995
---------- ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital................................................. $ 748,250 $ 748,250 $ 52,286
Total assets.................................................... 2,458,392 2,067,986 754,640
Total liabilities............................................... 1,912,994 1,312,994 673,345
Retained earnings (Accumulated deficit)......................... 80,398 (310,008) 28,795
Stockholders' equity............................................ 545,398 754,992 81,295
</TABLE>
- ------------
(1) Gives effect to the subsequent conversion of $600,000 principal amount of
Bridge Notes by the Bridge Unitholders into 300,000 Bridge Units. See 'Use
of Proceeds,' 'Interim Financing' and 'Description of Securities.'
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 ('FISCAL 1996') COMPARED TO YEAR ENDED DECEMBER 31,
1995 ('FISCAL 1995')
NET REVENUES. Since 1995, the Company's revenues have consisted primarily
of sales of Panasonic digital telephone and voice processing systems, and Sony
videoconferencing products. The Panasonic systems are most suited for small to
medium-sized businesses, particularly professional offices. The Company's
videoconferencing revenues to date have been derived principally from the sale
of the Sony Trinicom 5000 model, which is targeted to the large commercial and
institutional user.
Operating revenue for fiscal 1996 was $3,884,700, an increase of
$1,243,369, or 47% over fiscal 1995 revenue of $2,641,331. Sales of telephone
and voice processing equipment increased in 1996 by 53% to $2,807,170 over
fiscal 1995 revenue of $1,837,930. The increase was due in part to the hiring of
additional sales personnel in 1995 and into 1996, including a vice president in
charge of sales and marketing of voice products in the third quarter of 1995. In
1995, the Company also began marketing Panasonic products to the Coldwell Banker
real estate brokerage network. In January 1996, the Company and Coldwell Banker
Corporation ('CBC'), owner of the Coldwell Banker brand at the time, entered
into a formal agreement in which the Company provided trade discounts and
favorable terms for an exclusive dealership to sell Panasonic telecommunications
systems to CBC's corporate-owned offices. In December 1996, this agreement was
superseded by the signing of a non-exclusive four-year Preferred Vendor
Agreement with the new owner of the Coldwell Banker brand, HFS Incorporated
('HFS'), to provide Panasonic products to the HFS-owned brands, Century 21, ERA,
and Coldwell Banker real estate brokerage franchise systems. The Company has
paid HFS a $50,000 access fee for marketing rights and will pay HFS commissions
ranging from 2% to 13% of gross sales, depending on the products and services
sold. The agreement obligates the Company to provide various sales and marketing
services, and to commit to a fixed price schedule over the four-year term.
Significant increases in Panasonic equipment prices during the HFS contract
period could have a material adverse impact on the Company's results of
operations in the event the Company is not able to pass along the increases to
HFS franchisees. Sales to Coldwell Banker offices accounted for 26% and 28% of
net revenues in fiscal 1996 and 1995, respectively. The Company expects revenues
generated under the HFS agreement to represent a significant portion of total
operating revenues during fiscal 1997.
Sales of videoconferencing systems increased in 1996 by 48% to $1,039,026
over fiscal 1995 revenue of $704,343. The Company's videoconferencing sales
program began in earnest in the fourth quarter of 1995 with the hiring of a
former Sony executive to serve as vice president in charge of sales and
marketing for videoconferencing and network products. The Company currently has
videoconferencing demonstration facilities in New York City and Washington, D.C.
in addition to its corporate headquarters in New Jersey, and anticipates hiring
additional sales personnel for both videoconferencing and voice communications
products during the first quarter of fiscal 1997.
COST OF REVENUES. Cost of revenues in fiscal 1996 was $2,501,073, or 64% of
net revenues, as compared to $1,781,719, or 67% of net revenues in fiscal 1995.
Cost of revenues consists primarily of net product, installation and customer
training costs. Higher margin sales in fiscal 1996 offset increases in warranty,
depreciation, and compensation costs, to account for the 3% improvement in cost
of revenues as a percentage of net revenues.
Most of the products sold by the Company are purchased under non-exclusive
reseller agreements with Panasonic and SNS. Both agreements specify, among other
things, sales territories, payment terms, purchase quotas and reseller prices.
The Panasonic agreement renews automatically for one-year
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periods, but may be terminated with or without cause by either party upon 30
days' written notice. The Company recently signed a non-exclusive reseller
agreement with SNS wherein SNS has agreed to provide ACC with Sony
videoconferencing equipment through January 31, 1998. The termination of either
agreement, or their renewal on less favorable terms than currently in effect,
could have a material adverse impact on the Company's business.
GROSS MARGIN. Gross margins increased to $1,383,627, or 36% of net revenues
in fiscal 1996, as compared to $859,612, or 33% of net revenues in fiscal 1995.
The improvement was due primarily to a decrease in lower margin Coldwell Banker
sales as a percentage of total net revenues, from 28% in fiscal 1995 to 26% in
fiscal 1996, although the dollar volume of Coldwell Banker sales actually
increased in 1996.
SELLING. Selling expenses, which include sales salaries, commissions, sales
overhead, and marketing costs, increased to $664,786, or 17% of net revenues in
fiscal 1996, as compared to $482,470, or 18% of net revenues in fiscal 1995. The
increase in dollar terms was due primarily to higher compensation costs, which
related to the hiring of new sales executives in the latter part of 1995, and to
the increase in 1996 sales volume. Due to the anticipated increase in sales
executive and staff salaries, as well as higher marketing costs associated with
the HFS contract, the Company expects selling expenses as a percentage of net
revenues to increase at least through the first half of fiscal 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $599,606, or 15% of net revenues in fiscal 1996, as compared to $328,206, or
12% of net revenues in fiscal 1995. The increase was due primarily to higher
administrative salaries and fringe benefits, depreciation, and telephone
expenses related to the growth in the Company's operations. The Company is
planning a relocation of its headquarters in 1997 to accommodate its growing
sales staffing, overhead, and inventory storage requirements. Accordingly,
general and administrative expenses, to the extent associated with the
relocation, are expected to increase in fiscal 1997. A new employment agreement
with the Company's president, effective January 1, 1997, will also result in
higher compensation costs (see Notes to Financial Statements).
INCOME TAXES. The Company's provision for income taxes was $38,606, or 43%
of fiscal 1996 income before taxes, as compared to $8,029, or 47% of fiscal 1995
income before income taxes. The exceptionally high income tax rates are due
primarily to the partial nondeductibility of certain marketing costs, which have
caused the Company's income to be taxed at higher than expected marginal rates,
as well as high flat tax rates at the state level.
NET INCOME. The Company generated net income of $51,603, or $.03 per share
and $9,220, or $.01 per share for the fiscal years ended December 31, 1996 and
1995, respectively. The increase in fiscal 1996 was primarily the result of
revenue growth and a slight shift in the Company's revenue mix, which produced
higher gross margins. The shift in the Company's revenue mix relates to an
increase in videoconferencing system sales as a percentage of total revenues in
1996. The Company anticipates that videoconferencing product sales will
represent an increasingly greater percentage of total revenues for at least the
next twelve months.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $748,250,
including $645,614 in cash and cash equivalents. Net cash used by operating
activities for the year ended December 31, 1996 was $461,287. Increases in
accounts receivable due to revenue growth in 1996, as well as increases in
inventories to fill the increasing volume of orders on a timely basis, more than
offset cash flows provided by net income, depreciation, and higher accounts
payable and accrued expense levels.
Net cash used by investing activities for fiscal 1996 was $119,846,
consisting of purchases of furniture and equipment totaling $67,346, and the
$50,000 access fee required under the HFS contract.
Net cash provided by financing activities for fiscal 1996 was $1,072,841,
consisting of $750,000 gross proceeds from a private placement of 12%
Convertible Subordinated Notes ('Bridge Notes') in December 1996, borrowings of
$562,071 under a new bank line of credit and term loan, and proceeds of $37,500
from the exercise of Common Stock options, offset by repayments of outstanding
borrowings under a refinanced credit facility, and principal amortization of
long-term debt, totaling $228,824. The
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Company also paid deferred financing costs of $15,406 in connection with its
private placement, and $32,500 in costs associated with its proposed public
offering.
In May 1996, the Company replaced its $150,000 bank line of credit and
equipment term loans totaling $92,700 with a new credit facility from another
bank for a $600,000 working capital line of credit and an $85,000 term loan.
Advances under the line of credit bear interest at the rate 1% above the bank's
Alternate Base Rate (ABR), and are due on demand. The term loan provides for
monthly principal payments of $1,770.83 plus interest at the bank's ABR plus
1.25%. Outstanding borrowings are secured by a first lien on the Company's
assets, a $100,000 United States Treasury Bill hypothecated by the Company's
President, and his unconditional personal guarantee. Panasonic has also
subordinated to the bank its security interest in the Company's inventory
purchases.
As of December 1996, borrowings under the line of credit totaled $447,071,
and the balance of the term loan was $72,604. The bank line of credit is
renewable annually. The Company currently expects that it will be able to renew
the line of credit under similar terms upon its maturity.
The Bridge Notes become due and payable together with accrued interest to
the extent not converted, at the earlier of December 31, 1999 or the date the
Company completes an initial public offering of its securities. The Bridge Notes
are convertible into Bridge Units at the rate of one Bridge Unit per $2.00 of
principal amount of Bridge Notes. Each Bridge Unit will consist of one share of
the Company's Common Stock and one Warrant. The terms of the Warrants will be
identical to any Warrants sold in this offering. The holders of an aggregate of
$600,000 principal amount of the Bridge Notes have agreed to convert their
Bridge Notes into Bridge Units. The $150,000 balance of the Bridge Note
principal will be repaid from the proceeds of this offering.
The Company entered into a letter of intent for a $4.9 million firm
commitment public offering of 700,000 Units, each unit to consist of two shares
of Common Stock and two Class A Redeemable Common Stock Purchase Warrants. The
primary purpose of the offering is to provide funds for the relocation and
expansion of the Company's facilities, the hiring of new employees, the purchase
of additional inventory, and other working capital needs.
Management believes the Company's operations and existing financing sources
will generate sufficient cash flow to satisfy the needs of its current
operations for the next twelve months. However, alternative sources of capital
will be necessary in order for the Company to finance its proposed expansion
plans.
IMPACT OF INFLATION
Inflation has had no material effect on the Company's operations or
financial condition.
SEASONALITY
The Company's results of operations are not significantly affected by
seasonal factors.
BUSINESS
GENERAL
All Communications Corporation (the 'Company' or 'ACC') is engaged in the
business of selling, installing and servicing voice and videoconferencing
communications systems, concentrating on the commercial and industrial
marketplace. The Company's voice communications products are intended
principally for small to medium-sized business use; its videoconferencing
communications products are intended for use by all business, governmental,
educational and medical entities. In connection with the sale and service of its
products, the Company also markets peripheral data and telecommunications
products obtained from others. Through its headquarters office in Mountainside,
New Jersey and nationwide subcontractors, the Company sells, installs and
upgrades its communication and information distribution products and services.
VOICE COMMUNICATIONS. ACC is a major reseller of Panasonic Communications
and Systems Company's ('Panasonic') digital telephone systems, voice processing
systems and computer telephone integration solutions in the United States. The
Company's principal voice communications products are
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multi-featured, fully electronic, digitally controlled key systems and hybrid
telephone systems, voice processing products with computer telephone integration
hardware and software and related business products and services for commercial
distribution. A key telephone system provides each telephone with direct access
to multiple outside trunk lines and internal communications through intercom
lines. A PABX (private automatic branch exchange) system, through a central
switching system, permits the connection of internal and external lines. A
hybrid switching system provides, in a single system, both key telephone and
PABX features. Key telephone equipment may be used with PABX equipment. Voice
processing products include voice-mail and interactive voice response systems,
which allow via a single line instrument, access to computerized information.
All of the Company's systems are software-based and fully digital. This enables
the Company to readily incorporate a variety of additional features as well as
the ability to expand a system's capability through software enhancements.
The Company sells, installs and services Panasonic telecommunications
products throughout the United States both through employees of the Company and
subcontractors. During the fiscal years ended December 31, 1996 and 1995, one
customer, Coldwell Banker'r', a brand of HFS Incorporated, accounted for
approximately 26% and approximately 28%, respectively, of the Company's total
sales. The Company's current business strategy is to focus on sales,
installation and service operations. In connection with implementing its
business strategy, the Company is seeking to expand its business by offering
customers and potential customers a broader range of products.
VIDEOCONFERENCING. The Company began selling Sony Electronics Inc.'s (a
division of Sony Corporation) ('Sony') videoconferencing products in the third
quarter of 1994, and is currently one of Sony's largest United States Sony
Authorized Videoconferencing Resellers (SAVR). Videoconferencing communications
systems, utilizing advanced technology, enable users at separate locations to
engage in face-to-face discussions. In addition to the use of video conferences
as a corporate communications tool, use of videoconferencing communications
systems is expanding into numerous additional applications, including (i)
teachers providing lectures to students at multiple locations, (ii) physicians
engaging in consultations utilizing x-rays and other photographic material,
(iii) conducting multi-location staff training programs and (iv) engineers in
separate design facilities coordinating the joint development of products.
Sony's videoconferencing systems incorporate superior audio and data sharing
capabilities. The systems expand the user's ability to conduct business in
person while substantially reducing or eliminating travel costs and
non-productive travel time. ACC offers what it believes to be the only system
with the built in ability to connect with four locations without the use of an
external bridge. Video communication is generally considered to be more
effective than audio communication, as information retention is improved when
presented visually.
Through a non-exclusive agreement with Sprint North Supply ('SNS'), the
exclusive United States distributor of Sony videoconferencing communications
equipment, ACC provides videoconferencing systems for United States customers on
a global basis, with a concentration in the Northeastern United States. The
Company (i) provides its customers with components produced by Sony, a leading
worldwide manufacturer of room based videoconferencing equipment, and several
other manufacturers of ancillary equipment, (ii) selects and integrates those
components into complete systems designed to suit each customer's particular
communications requirements and (iii) provides training and other continuing
services designed to insure that its customers fully and efficiently utilize
their systems. Sony does not sell its videoconferencing products on a direct
basis.
To accommodate ACC's growth in the videoconferencing market sector, the
Company recently opened offices and demonstration facilities in New York City
and Washington, D.C. The Company has assembled a team of industry experts with
substantial videoconferencing communications expertise and, over the past 18
months, has provided over 35 videoconferencing systems on a national and
international basis. Customers of the Company in this area include Fedders,
Waterford Crystal, Deutche Bank, Shearman & Sterling, The British Ministry of
Defense, St. Johns University, Banco de Columbia and Tetra Pak.
INDUSTRY OVERVIEW
VOICE COMMUNICATIONS. Advances in telecommunications technologies have
facilitated the development of increasingly sophisticated telephone systems and
applications. Telecommunications
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systems have evolved from simple analog telephones to sophisticated digital
systems and applications. Users increasingly rely upon a variety of
applications, including conference calling, speakerphones, voice processing and
automated attendant, to improve communications within their organizations and
with customers and vendors. Digital technology has facilitated the integration
of computing and telecommunications technologies, which has made possible a
number of new applications that further enhance productivity. Examples of these
applications include caller I.D., where a caller's telephone number is displayed
on the telephone, call accounting, which permits accounting for telephone usage
and toll calls, electronic data interchange between customers and vendors and
the use of automatic number identification coupled with 'database look-up,'
where customer information is retrieved automatically from a computerized
database when the customer calls.
Historically, advanced technologies and applications have been initially
introduced in large telecommunications systems. However, small to medium size
businesses and other organizations, as well as small to medium size facilities
of larger organizations, are increasingly requiring and seeking out
telecommunication systems with advanced features and applications at a more
effective price-performance point, in order to improve efficiency and enhance
competitiveness.
As businesses' telecommunications requirements have become more advanced,
the integration of the different parts of a system has become increasingly
difficult. The system integration, service and support capabilities of
telecommunications suppliers have become significant competitive factors. In
order to meet the needs of end users, suppliers have been increasingly required
to develop close relationships with end users.
VIDEOCONFERENCING. Videoconferencing communications entails the
transmission of video and audio signals and computerized data between two or
more locations through a digital telecommunication network. Videoconferencing
communications systems were first introduced in the late 1970s in the form of
specialized dedicated conference rooms outfitted with expensive electronic
equipment and requiring trained operators. Signals were transmitted over
dedicated transmission lines established between fixed locations. Market
acceptance of early systems was limited because of the low quality of the video
output, as well as the high hardware and transmission costs and limited
availability of transmission facilities.
Technological developments in the 1980's resulted in a dramatic increase in
the quality of video communications, as well as a substantial reduction in its
cost. The proliferation of switched digital networks, which transmit digital, as
opposed to analog signals, eliminated the requirement of dedicated transmission
lines. Advances in data compression and decompression technology, and the
introduction of devices for separating and distributing digital signals over
several channels simultaneously and recombining them after transmission,
resulted in products with substantially improved video and audio quality and
further reduced hardware costs. Competition among telecommunications carriers
during the past decade, together with the expanded use of fiber optic technology
and the development of integrated switched digital networks ('ISDN') have
further contributed to reduced transmission costs.
STRATEGY
The Company resells to end user customers a number of the telecommunication
industry's leading voice-communication and videoconferencing systems and
products through non-exclusive reseller agreements with Panasonic and SNS,
respectively, and is positioned to provide its customers with the installation
and/or integration of the systems and products as well as continued maintenance
and service. The Company believes that continued technological advances in both
the voice communication and videoconferencing industry will result in systems
and products that are readily useful as well as cost effective to a larger
segment of end users. Neither Sony nor Panasonic have developed internal
departments for the direct sale of telecommunication systems, and instead have
chosen to engage resellers such as the Company for the purpose of sales,
marketing, installation and maintenance of their systems and products. The
Company intends to broaden its marketing focus to industries that it believes
will achieve significant benefits through utilization of both voice
communication and videoconferencing systems, and the Company will hold monthly
seminars to introduce the voice communication and videoconferencing systems to
prospective customers. The Company intends to expand its sales activities into
additional geographic markets through the acquisition and establishment of
regional reseller offices
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and the hiring of additional sales personnel. The Company also seeks to enhance
the sales and services provided to end user customers in a more efficient and
cost effective manner by maintaining an inventory of readily available voice
communication and videoconferencing systems, and upgrading the Company's
internal computerized management system. See 'Use of Proceeds.'
PRODUCTS
The Company is a reseller of voice communications products manufactured by
Panasonic Communications and Systems Company's ('Panasonic') Business Telephone
System Division and videoconferencing products manufactured by Sony Electronics
Inc. ('Sony'). The Company has agreements with both Panasonic and Sony
authorizing the Company to serve as their non-exclusive reseller in the United
States and the Company sells, installs and maintains the full line of voice and
videoconferencing products manufactured by these companies.
VOICE COMMUNICATIONS. Panasonic currently manufactures digital key and
hybrid telephone systems under its Digital Business System (DBS) product line
with a maximum capacity of 192 ports. The systems can be configured to have a
maximum of either 64 central office (C.O.) telephone lines and 128 telephone
sets, 56 C.O. telephone lines and 136 telephone sets, or 48 C.O. telephone lines
and 144 telephone sets. The telephone sets can have up to 24 C.O. telephone line
appearances. The telephone sets contain a speaker and microphone in each set for
handsfree intercom conversation and for an optional price of approximately $50
contain a full speakerphone for handsfree conversation on outside lines as well
as intercom. The telephone sets can also have a built-in interactive display for
internal messaging, to measure the length of time of a telephone conversation,
to display the number dialed, or to display the telephone number of the
individual calling into the system where caller identification is part of the
telephone service provided on the lines by the local line service provider.
Panasonic has announced that it intends to release a new system with a
maximum capacity of 576 ports in the fourth quarter of 1997. This new system
will not replace the current DBS product line; it will be positioned as an
enhanced version of the current product line with additional features and
greater capacity.
Panasonic also has manufactured for it, on an original equipment
manufacturer basis, a fully integrated voice processing system. The system
ranges from two to eight voice ports and 30 hours of message storage. The system
has automated attendant features which allow for incoming calls to be answered
electronically and distributed to specific extensions without the use of a
switchboard operator. The system can be interactive with display telephone sets,
which display the number of new messages along with the number of old messages
and allow for one touch commands rather than multiple digit codes to perform
functions of the voice processing system.
The DBS supports several open architecture interfaces that allow external
computers to interact and control the DBS through industry standard interfaces.
The DBS supports an RS-232 system level interface, an RS-232 Hayes based desktop
interface and a Windows Dynamic Data Exchanges (DDE) interface. The Company has
Developer Toolkits available that include the detailed interface specifications,
application notes and development tools to assist third party software
developers to develop vertical market applications for the DBS products. DBS
applications include database look-up (which utilizes caller-ID information to
retrieve customer information automatically from a computerized database),
automated attendant, interactive voice response and call accounting (which
permits the monitoring of telephone usage and toll cost). The Company recently
announced support of the Microsoft Telephone Application Programming Interface
(TAPI) in DBS version 8.0 and support of the Novell Telephony Services
Applications Programming Interface (TSAPI). The DBS is managed through a
Windows-based interface on a PC to facilitate installation, system configuration
and programming.
The Company also sells, installs, and maintains peripheral equipment not
manufactured by Panasonic. The peripheral equipment installed by the Company is
readily available through multiple manufacturers and suppliers.
VIDEOCONFERENCING. Sony manufactures both the Trinicom 5000
videoconferencing system, and the Trinicom 4000 videoconferencing system. Both
systems offer a rollabout design which can be placed into operation quickly and
allows for convenient movement from one conference room to another.
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Alternatively, the systems can be installed as permanent fixtures in
custom-built conference rooms designed for specific applications, or distance
learning classrooms which are designed for teachers to provide lectures to
students at multiple locations outfitted with similar videoconferencing
equipment. Both systems generally contain the following components:
Monitor
The monitor is a television set that is used at each participating
location for viewing persons and objects involved in the communication. The
screen of the monitor generally includes a window or inset, that may be
used to duplicate the image shown by a monitor located at another site, or
to view documents or other graphic images related to the discussion. Some
systems include dual or multiple monitors, providing full-sized
simultaneous views of both graphic images and meeting participants.
Video Camera
The video camera is similar to a camcorder and is generally located on
top of the monitor. The video cameras included in the Company's systems
record full-color images and have pan, tilt, and zoom capabilities. Some
systems include auxiliary video cameras to provide additional camera angles
or to view various locations within a room.
Codec
The coding-decoding device, known as the 'codec,' is the heart of a
video communications system. Because video images have high information
content, their transmission requires significantly greater bandwidth
(capacity) than is required to transmit audio signals or computer data. One
codec converts analog signals into digital signals and compresses the
digital signals, enabling them to be transmitted over conventional and
ubiquitous data networks, while a second codec decompresses and
reconstitutes the signals into their analog form at the receiving location.
The signals transmitted by codecs are bi-directional, enabling each codec
simultaneously to send and receive signals. The compression-decompression
process is accomplished using algorithms, or mathematical formulae, that
are embedded in the codec.
Inverse Multiplexer
Because video signals (even after digital compression) require greater
bandwidth than is available in most telephone lines, an inverse multiplexer
is used to distribute the signals to several lines prior to transmission.
The distributed signals are then simultaneously transmitted over the
different lines, and a receiving inverse multiplexer recombines them to
their original format.
Multi-point Control Unit
A multi-point control unit, known as an 'MCU' or 'bridge,' is a device
that enables more than two videoconferencing locations to participate
simultaneously in a meeting. The Sony Trinicom 5000 has a built-in MCU for
more than two locations and up to four locations. This built-in MCU feature
is exclusive to the Sony Trinicom 5000.
Document Camera
The document camera may be used to display documents, photographs and
small three-dimensional objects in color. Because the document camera
produces 'freeze-frame' images, enhanced resolution of the recorded item is
possible.
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Videoscan Converter
The videoscan converter facilitates the transmission of computerized
data.
Keypad
The keypad, one of which is required at each participating location,
is the device used to control the video cameras, monitors and other aspects
of the system.
Audio Unit
Each participating site has an audio unit which provides
near-high-fidelity audio communications. Up to three audio units can be
installed per site.
The components listed above included in the Company's systems are
purchased from Sony. The Company also purchases ancillary equipment from
other manufacturers and suppliers for specific custom-built conference
rooms and distance learning classrooms.
RESELLER AGREEMENTS
The Company has an agreement with Panasonic authorizing the Company to
serve as its non-exclusive reseller in the United States. The agreement with
Panasonic expires on December 31, 1997 and is automatically renewable for
successive one-year terms unless terminated by either party upon at least 30
days' prior notice, or immediately by Panasonic upon written notice to the
Company if ACC is in default in the performance of its obligations under the
agreement, or upon the bankruptcy or insolvency of ACC. Sony has recently
determined to eliminate all direct reseller agreements for its videoconferencing
products and has designated SNS as its exclusive United States distribution
partner for such products. On February 21, 1997, the Company signed a
non-exclusive reseller agreement with SNS wherein SNS agreed to provide ACC with
Sony videoconferencing equipment through January 31, 1998, on terms which are
more favorable than those on which the Company purchased such equipment directly
from Sony. The agreement may be terminated by SNS in the event ACC represents
Sony's products in an unfavorable or unprofessional manner. In addition, SNS may
terminate the agreement upon 60 days' written notice if ACC does not promote the
purchase of Sony's products to the best of its abilities, or support or
represent Sony products in a way deemed acceptable to SNS. The agreement may be
terminated by either party upon 60 days' prior notice.
CUSTOMERS
During the fiscal years ended December 31, 1996 and 1995, one customer,
Coldwell Banker'r', a real estate brokerage franchisor with approximately 2,800
franchise offices and a brand of HFS Incorporated ('HFS'), accounted for
approximately 26% and approximately 28%, respectively, of the Company's total
sales. In December 1996, the Company signed a non-exclusive Preferred Vendor
Agreement ('Agreement') with HFS for a term of four years expiring December 8,
2000, for the Company to provide telephone and voice processing systems to the
real estate brokerage franchise systems of Century 21'r', ERA'r' and Coldwell
Banker'r' (the 'Franchisees'), with an aggregate of approximately 9,000 United
States franchise offices. Pursuant to the Agreement, HFS has agreed to promote
the Company and its telephone and voice processing products to the Franchisees
and make available to ACC a list containing the names, business addresses and
contact telephone numbers of the Franchisees. The Company will offer its
products, including installation and maintenance service contracts, to the
Franchisees. The sum of $50,000 was paid to HFS in return for HFS providing
access to the Franchisees. HFS is to receive commissions ranging from 2% to 13%
of gross sales, depending on the products and services sold. The Agreement may
not be terminated by either party except for a material breach in the terms of
the Agreement by either party. The breaching party shall be given notice of the
breach and the opportunity to cure such breach within 30 days of the date of
notice (10 days in the case of a default in payment). HFS can also terminate the
Agreement in the event it receives a bona fide written offer from a supplier for
the services provided by ACC under the Agreement at pricing that is at least 5%
less than the pricing provided in the Agreement. Within 15 days of notice of
such offer, ACC may offer HFS the
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same prices and services offered by such suppliers. If ACC does not make such
offer within 15 days, HFS may terminate the Agreement upon 30 days notice to the
Company.
The Company expects to continue to sell its telephone and voice processing
systems to Coldwell Banker franchisees as well as to franchisees of Century 21
and ERA pursuant to the Agreement. It is expected that sales to Coldwell Banker
will continue to be substantial; however, in view of the Agreement and the
anticipated expansion of the Company's business, it is expected that sales to
Coldwell Banker as a percentage of total sales will decrease. It is, however,
anticipated that sales to the Franchisees will, in the foreseeable future,
account for a substantial portion of the Company's total sales.
To accommodate ACC's growth in the videoconferencing market sector, the
Company recently opened offices and demonstration facilities in New York City
and Washington, D.C. The Company has assembled a team of industry experts with
substantial videoconferencing communications expertise and, over the past 18
months, has provided over 35 videoconferencing systems on a national and
international basis. Customers of the Company in this area include Fedders,
Waterford Crystal, Deutche Bank, Shearman & Sterling, The British Ministry of
Defense, St. Johns University, Banco de Columbia and Tetra Pak.
SALES AND MARKETING
The Company maintains a sales and marketing organization supported by
sales, technical and training personnel versed in the specifications and
features of the voice communications and videoconferencing systems sold to
end-user customers. The Company markets both voice communications and
videoconferencing systems through its direct sales force. The Company also
provides training to its sales force to maintain the expertise necessary to
effectively market and promote the systems.
At its own cost and expense, Panasonic furnishes the Company with sales,
advertising and promotional materials for the voice communication and voice
processing systems, which the Company in turn furnishes to its existing
customers and prospective customers in conjunction with sales promotion programs
of Panasonic. The Company maintains up to date systems for demonstration and
promotion to end-user customers and potential end-user customers. The technical
and training personnel attend sales and service training sessions offered by
Panasonic from time to time to enhance their knowledge and expertise in the
sale, installation and maintenance of the systems.
The Company also has a number of programs in place for promoting the
videoconferencing systems manufactured by Sony. Company personnel including
members of the sales and technical departments attend video communications trade
shows. The Company hosts seminars for the purposes of demonstrating
videoconferencing systems to its customers and prospective customers, and to
provide customers the opportunity to learn more about the Company's products and
services. In order to facilitate enhanced marketing and promotion of the
videoconferencing systems the Company has recently opened offices in Washington,
D.C. and New York City. These locations provide the Company with additional
direct sales forces as well as fully functional demonstration facilities to
customers and potential customers.
During the fiscal years ended December 31, 1996 and 1995, approximately 72%
and 70%, respectively, of the Company's total sales were attributable to the
sale of voice communications equipment manufactured by Panasonic, and
approximately 27% and 27%, respectively, of the Company's total sales were
attributable to the sale of videoconferencing communications equipment
manufactured by Sony.
CUSTOMER SERVICE AND SUPPORT
The Company believes that the service and support it provides to customers
is an important factor in the success of its business. The technical expertise
and experience of the Company's management and employees enables it to provide
its customers with a single source for a variety of systems consulting and
maintenance services.
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The Company provides customers of both voice communication and video
conferencing systems with a full compliment of services to ensure customer
satisfaction and optimal utilization of the systems. As a preliminary component
of a sale to a customer or prospective customer, the Company provides consulting
services in order to assess the customer's needs and specifications and to
determine the most effective method to achieve those needs. Upon delivery of the
system, Company employees install and test the equipment to make sure the
systems are fully functional. In situations where a customer is located at a
great distance from the Company's offices, the Company, on an as-needed basis,
will engage the services of an installation subcontractor located in close
geographic proximity to the customer, for the installation and testing of
equipment sold by the Company to the customer. The retention of an installation
subcontractor located in close proximity to a customer benefits the customer
through quick and cost-effective installation of the system. After the equipment
is functional, the Company provides training to all levels of the customer's
organization. Training includes instruction in systems operation and, with
respect to videoconferencing systems, planning and administration of meetings.
Panasonic provides a one year warranty on defects in materials, design and
workmanship. Sony provides a limited warranty card with its systems and
equipment for a one year warranty on parts-replacement. The Company maintains a
24 hour toll-free technical support hotline that customers may call. The Company
also provides onsite support and maintenance which includes the repair and/or
replacement of equipment.
BACKLOG
At December 31, 1996, order backlog amounted to approximately $693,000,
compared with approximately $140,500 at December 31, 1995. The Company's backlog
consists of firm purchase orders by customers for delivery within the next 90
days.
EMPLOYEES, CONSULTANTS AND SUBCONTRACTORS
As of March 1, 1997, the Company employed 25 full-time employees, as well
as a network of approximately 50 consultants and installation subcontractors who
are available on an as-needed basis for marketing support and to provide
contract installation. Twelve of the Company's employees are engaged in
marketing and sales, eight in installation service and customer support and five
in finance and administration. None of the Company's employees are represented
by a labor union. The Company believes that its employee relations are good.
COMPETITION
The audio and videoconferencing communications industries have been
characterized by pricing pressures and business consolidations. The Company
competes with other manufacturers and distributors of voice communications and
videoconferencing systems, many of which are larger, have greater recognition in
the industry, a longer operating history and greater financial resources than
the Company. The Company's competitors in the voice communications sector
include Lucent Technologies, Inc., Northern Telecom and Toshiba. ACC's
competitors in the video communications sector include Picturetel Corporation,
Compression Labs, Incorporated and VTEL Corporation. Existing competitors may
continue to broaden their product lines and expand their retail operations, and
potential competitors may enter into or increase their focus on the audio and/or
videoconferencing communications market, resulting in greater competition for
the Company. In particular, management believes that as the demand for
videoconferencing communications systems continues to increase, additional
competitors, many of which also will have greater resources than the Company,
will enter the videoconferencing market. Consequently, there can be no assurance
that the Company can successfully compete with established and better
capitalized companies.
FACILITIES
The Company's headquarters office is located at 1450 Route 22 West,
Mountainside, New Jersey 07092. The approximately 4,200 square feet of office
and warehouse space is leased for a term of five years expiring March 31, 2000.
The total base rental for the premises is $54,360 per annum through
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May 31, 1997 and, thereafter, $62,280 per annum through May 31, 2000. The
Company has the option to renew the lease for an additional term of three years,
at a base rental of $75,774 per annum, provided the Company is not in default
thereof. The Company is obligated thereunder to pay its proportionate share of
escalations in real estate taxes and cost escalations of operational services as
well as its proportionate share of the cost of electrical consumption.
The Company leases demonstration facilities located at 1130 Connecticut
Avenue, N.W., Washington, D.C. 20036, on a month-to-month basis at a monthly
rental of $2,500. The lease expires on June 30, 1997. The Company also occupies
demonstration facilities at 521 Fifth Avenue, New York, New York 10175 on a
month-to-month basis, at the rate of $1,000 per month.
On March 20, 1997, the Company entered into a five year lease of
approximately 7,200 square feet of office space and approximately 1,600 square
feet of warehouse space, with the term of the lease to commence on the earlier
of the date on which (i) the premises are completed or (ii) the Company occupies
the facility. The Company has the option to renew the lease for an additional
term of five years, provided the Company is not in default thereof. The
premises, which are located at 225 Long Avenue, Hillside, New Jersey 07205, when
occupied, will serve as the Company's new headquarters office, to be utilized
for executive, administrative and sales functions, the demonstration of the
Company's voice and videoconferencing systems and warehousing of the Company's
inventory. The base rental for the premises during the term of the lease shall
be $63,680 per annum. The Company is also obligated under the lease to pay its
proportionate share of the lessor's operating expenses, i.e., those costs or
expenses incurred by the lessor in connection with the ownership, operation,
management, maintenance, repair and replacement of the premises (including,
among other things, the costs of common area electricity, operational services
and real estate taxes).
INSURANCE
The Company believes that it maintains adequate liability and property
insurance coverage. There can be no assurance that the coverage will be
sufficient for all future claims or that insurance will continue to be available
in adequate amounts at reasonable rates.
LITIGATION
Other than as described below, there are no pending material legal
proceedings to which the Company or any of its properties is subject.
The Company is the subject of a civil action filed by Samantha M. Figeuroa
on July 23, 1996 in the Superior Court of New Jersey, Middlesex County, arising
from an automobile accident involving a vehicle driven by Ms. Figeuroa and one
of the Company's vans. The Company van was driven by an employee of the Company
who has since left ACC. The ex-employee is also named as a party to the action.
Ms. Figeuroa alleges personal injuries due to the negligence of the named
parties and seeks damages of $5,000,000. The liability insurance carrier is
defending the action on behalf of ACC. The Company believes that its liability
insurance is sufficient to cover any potential loss resulting from an adverse
decision.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Richard Reiss(1)(2).......................... 40 Chairman of the Board, Chief Executive Officer and President
Peter Barrett................................ 38 Vice President -- Operations
Joseph Scotti................................ 35 Vice President -- Sales and Marketing of Voice Products
Leo Flotron.................................. 36 Vice President -- Sales and Marketing of Videoconferencing
Products
Scott Tansey................................. 33 Vice President -- Finance
Robert B. Kroner(1)(2)....................... 67 Director
Eric Friedman(1)............................. 48 Director
Peter N. Maluso(2)........................... 42 Director
Andrea Grasso................................ 36 Secretary and Director
</TABLE>
- ------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
In December 1996, the stockholders of the Company approved an amendment to
the Company's By-Laws dividing the Board of Directors into three classes as
nearly equal as possible, with the members of each class being elected to serve
for a staggered term of three years, and one class being elected annually. The
Class I director, Richard Reiss, serves for a term expiring at the 1997 Annual
Meeting of Stockholders. The Class II directors, Robert B. Kroner and Andrea
Grasso, serve for terms expiring at the 1998 Annual Meeting of Stockholders. The
Class III directors, Eric Friedman and Peter N. Maluso, serve for three year
terms expiring at the 1999 Annual Meeting of Stockholders.
Directors are elected at the Company's annual meeting of shareholders and
serve until the conclusion of the terms, at which time their successors are duly
elected by the shareholders. Vacancies and newly created directorships resulting
from any increase in the number of directors or by a resignation of a director
may be filled by a majority vote of directors then remaining in office. Officers
are elected by and serve at the pleasure of the Board of Directors. The Board of
Directors has established an audit committee.
Richard Reiss has been Chairman of the Board, Chief Executive Officer and
President of the Company since its formation in August 1991. From February 1990
to July 1991, he was self employed as an independent telecommunications
consultant. Prior thereto, from 1987 to 1990, Mr. Reiss was Vice
President -- Sales and Marketing of NyCom Information Services, Inc., an
operator's services company. From 1984 through 1987, Mr. Reiss served as the
Chairman and Chief Executive Officer of TeleDigital Corporation, a New Jersey
based interconnect company which, in 1986, was acquired by Standard
Telecommunications Corporation which, in turn, was acquired by JWP Information
Services. Prior thereto, from 1982 to 1984, he was a founder and employed as
Executive Vice President of TeleSolutions, a New Jersey based interconnect
company.
Peter Barrett has been Vice President -- Operations of the Company since
its formation in August 1991, responsible for ACC's operations, installations
and technical aspects. From 1988 to 1991, Mr. Barrett served as a supervisor for
GTE/Fujitsu, responsible for the installation and maintenance of 2800 lines and
related telecommunications equipment at IBM in Franklin Lakes, New Jersey. Prior
thereto, from 1984 through 1987, Mr. Barrett was employed by TeleDigital
Corporation as Vice President -- Operations.
Joseph Scotti joined the Company in August 1995 as Vice President -- Sales
and Marketing, dealing in all aspects of voice communications. From 1990 to
1995, Mr. Scotti held numerous sales and sales management positions with
Northern Telecom. Prior thereto, from 1987 to 1990, he served as a sales
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manager at Cortel Business Systems in New York City. From 1985 to 1987, Mr.
Scotti was employed as an account executive for TeleDigital Corporation. Mr.
Scotti received a B.S. degree in Marketing from St. Peters College.
Leo Flotron joined the Company in October 1995 as Vice President -- Sales
and Marketing, in charge of sales and marketing for videoconferencing and
network products. From 1988 to 1995, Mr. Flotron held numerous positions with
Sony Electronics, Inc., and serves as the Company's liaison with Sony as a
turnkey provider of videoconferencing equipment throughout the United States.
Prior thereto, from 1985 to 1988, Mr. Flotron was Director of Business
Development for Gaynor and Company, a biotechnology company located in New York
City. Mr. Flotron holds a B.S. degree in Business from The University of
Massachusetts in Amherst, and an M.S. degree in Finance from Louisiana State
University.
Scott Tansey joined the Company as Vice President -- Finance in December
1996. From 1992 until he joined the Company, Mr. Tansey served as Director,
Finance and Administration, of Data Transmission Services, Inc., a closely held
long distance wire data communications provider, where he was a member of a
senior management team involved in strategic planning and general business
operating decisions. Prior thereto, from 1989 to 1992, he was employed as
Accounting Manager for Industrial Innovation Management, Inc., a closely held
division of a venture capital firm, where he was responsible for all areas of
finance, accounting and administration. From 1985 to 1989, he was a Senior
Accountant for J.H. Cohn & Company, Accountants, a public accounting firm. Mr.
Tansey received a B.S. degree in Accounting from Rider College, Lawrenceville,
New Jersey, and an M.B.A. degree in Finance from Fairleigh Dickinson University,
Madison, New Jersey. He is a certified public accountant.
Robert B. Kroner has been a director of the Company since its formation in
August 1991. Mr. Kroner is a practicing attorney licensed in the State of New
Jersey, having been engaged in the general practice of law for over the past 40
years. Mr. Kroner received his LLB. degree from Harvard Law School and holds an
LLM. degree from New York University's Graduate School of Law.
Eric Friedman has been a director of the Company since December 1996. He
has served as Vice President and Treasurer of Chem International, Inc., a
publicly held company, since June 1996. From June 1978 through May 1996, he was
a partner in Shachat and Simson, a certified public accounting firm. Mr.
Friedman received a B.S. degree from the University of Bridgeport and is a
certified public accountant.
Peter N. Maluso has been a director of the Company since December 1996.
Since 1995, Mr. Maluso has been employed as a Principal at International
Business Machines, Inc. ('IBM'), responsible for IBM's Global Services Legacy
Transformation Consulting practice in the Northeastern United States. The
practice area concentrates on strategic systems planning, systems assessments,
business process redesign and year 2000 transformations. Prior thereto, from
1988 to 1995, he was a Senior Manager for KPMG Peat Marwick's strategic services
practice in New Jersey. From 1986 to 1988, Mr. Maluso served as a
Principal -- Financial Services Group, at American Management Systems. Prior
thereto, from 1982 to 1986, he was employed by Chase Manhattan Bank as Second
Vice President -- Data Systems Development. Mr. Maluso received his B.A. degree
in Economics from Muhlenberg College and holds an M.B.A. degree in Finance from
Lehigh University. He is a certified public accountant.
Andrea Grasso has been the Secretary of the Company since August 1995, and
a director since December 1996. Ms. Grasso has served as the Company's Office
Administrator since August 1991, responsible for accounts receivable, accounts
payable, payroll, sales reports and bank reports. Prior to joining the Company,
Ms. Grasso operated her own telecommunications business.
BOARD COMMITTEES AND DESIGNATED DIRECTORS
The Board of Directors has an Audit Committee which reviews the results and
scope of the audit and other accounting related matters. The Board of Directors
also has a Compensation Committee which makes recommendations to the Board
concerning salaries and incentive compensation for officers and employees of the
Company and may administer the Company's stock option plan. See
'Management -- Stock Option Plan.'
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The Company has agreed, if requested by the Underwriter, to nominate a
designee of the Underwriter to the Company's Board of Directors for a period of
two years from the date of this Prospectus. The Underwriter has not designated a
nominee as of the date of this Prospectus. See 'Underwriting.'
DIRECTORS' COMPENSATION
Members of the Board of Directors who are not employees of the Company have
not, to date, received any compensation. However, beginning with the next Board
of Directors meeting, the Company expects to pay outside directors $250 for each
meeting of the Board of Directors and any of its committee meetings attended by
such director, and also are entitled to reimbursement of reasonable expenses
incurred in attending such meetings. Additionally, non-employee directors may
receive options under the stock option plan.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation of the Company's chief executive officer and
its two other executive officers (the 'Named Executive Officers') whose total
annual salary and bonus exceeded $100,000 in any of the last three fiscal years
ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------- COMPENSATION
SALARY BONUS ------------
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#)
- ------------------------------------------------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Richard Reiss, President and Chief Executive Officer............... 1996 $ 108,000 $ 50,000 --
1995 100,000 31,500 --
1994 272,800 -- 560,000
Joseph Scotti, Vice President...................................... 1996 68,640 31,760 --
Leo Flotron, Vice President........................................ 1996 68,640 32,360 --
</TABLE>
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock during the fiscal year ended
December 31, 1996, and the unexercised options, if any, and the value thereof at
that date, for each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
SHARES NUMBER OF UNEXERCISED IN-
ACQUIRED ON VALUE UNEXERCISED THE-MONEY
EXERCISE REALIZED OPTIONS AT OPTIONS AT FY-
NAME (#) ($) FY-END (#) END ($)
- ----------------------------------------------------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Richard Reiss........................................ 560,000 0 0 0
Joseph Scotti........................................ 200,000 0 0 0
Leo Flotron.......................................... 200,000 0 0 0
</TABLE>
EMPLOYMENT AGREEMENTS
Effective January 1, 1997, the Company entered into an employment agreement
with Richard Reiss, President of the Company. The agreement was to expire
December 31, 2001 and provided for Mr. Reiss to receive an annual base salary as
follows: $138,000 for the fiscal year ending December 31, 1997; $175,000 for the
fiscal year ending December 31, 1998; and $210,000 for the fiscal year ending
December 31, 1999. The annual base salary for Mr. Reiss for the fourth and fifth
years of the employment agreement was to be for amounts recommended by the
Compensation Committee of the Board of Directors, but in no event less than
$210,000 per annum. Effective March 21, 1997, the
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employment agreement with Mr. Reiss was amended. In consideration for Mr. Reiss
agreeing to extend the term of the agreement for an additional year, through
December 31, 2002, and to a reduction of his salary, the Company granted Mr.
Reiss an option outside of the Company's stock option plan to purchase up to
750,000 shares of Common Stock, exercisable at any time through March 20, 2002,
at a price of $5.00 per share. The employment agreement, as amended, provides
for Mr. Reiss to receive an annual base salary as follows: $133,000 for the
fiscal year ending December 31, 1997; $170,000 for the fiscal year ending
December 31, 1998; and $205,000 for the fiscal year ending December 31, 1999.
The annual base salary for Mr. Reiss for the fourth, fifth and sixth years of
the employment agreement shall be for amounts recommended by the Compensation
Committee, but in no event less than $205,000 per annum.
Effective January 1, 1997, the Company entered into employment agreements
with Joseph Scotti, Vice President-Sales and Marketing of Voice Products and Leo
Flotron, Vice President-Sales and Marketing of Videoconferencing Products of the
Company. The agreements expire on December 31, 1999 and each provide for the
following annual base salary: $104,000 for the fiscal year ending December 31,
1997; $114,000 for the fiscal year ending December 31, 1998; and $124,000 for
the fiscal year ending December 31, 1999. Additionally, Messrs. Scotti and
Flotron are each to receive one-half of 1% of net sales of the Company, paid
bi-annually, during the term of their employment agreements.
Messrs. Reiss, Scotti and Flotron have agreed to devote their full business
time to the affairs of the Company. The Company has agreed to secure, and pay
the premiums on, a life insurance policy on the life of Mr. Reiss, in the amount
of $1,000,000, with the benefits payable to his estate or designated
beneficiary. The Company has also agreed to provide Mr. Reiss with the use of an
automobile. Mr. Reiss' employment agreement entitles him to participate in all
Company pension and profit-sharing plans and to receive an option to purchase an
aggregate of up to 100,000 shares of Common Stock under the Company's stock
option plan. The Company has agreed to provide each of Messrs. Scotti and
Flotron with an automobile allowance of $400 per month.
The Company has the right to terminate the aforementioned employment
agreements for 'cause' as defined in the employment agreements. The Company has
the right to terminate Mr. Reiss without cause, upon not less than 90 days'
prior written notice in the event that Mr. Reiss is unable to perform his
required duties for a period of 120 consecutive days due to 'total and permanent
disability,' as defined in the employment agreement. In such event, Mr. Reiss
shall be entitled to receive compensation for the remainder of the term of the
employment agreement. The Company may terminate the employment agreements of
Messrs. Scotti and Flotron without cause, upon not less than ten days' prior
written notice in the event that either Mr. Scotti or Mr. Flotron are unable to
perform their required duties for a period of 90 consecutive days due to 'total
and permanent disability.' In such event the employee shall be entitled to
compensation for the 90-day disability period. Each of the aforementioned
employees may terminate his employment with the Company at any time upon 90
days' prior written notice. In such event, the employee shall only be entitled
to the compensation due through the date of termination. Such employees have
also agreed not to disclose any confidential information of the Company during
the term of employment or thereafter. In addition, these employees have agreed
not to compete with the Company during the term of their employment and for a
period of one year after the date of the termination of their employment with
the Company.
STOCK OPTION PLAN
The Company's Board of Directors and shareholders have adopted a stock
option plan (the 'Stock Option Plan') that provides for the grant to employees,
officers, directors, and consultants of the Company of options to purchase up to
500,000 shares of Common Stock.
Options under the Stock Option Plan may be either 'incentive stock options'
within the meaning of Section 422 of the United States Internal Revenue Code of
1986, as amended (the 'Code'), or non-qualified options. Incentive stock options
may be granted only to employees and consultants of the Company.
The per share exercise price of the Common Stock subject to incentive stock
options granted pursuant to the Stock Option Plan may not be less than the fair
market value of the Common Stock on
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the date the option is granted. Under the Stock Option Plan, the aggregate fair
market value (determined as of the date the option is granted) of the Common
Stock that first became exercisable by any employee in any one calendar year
pursuant to the exercise of incentive stock options may not exceed $100,000. No
person who owns, directly or indirectly, at the time of the granting of an
incentive stock option to him, 10% or more of the total combined voting power of
all classes of stock of the Company (a '10% Stockholder'), shall be eligible to
receive any incentive stock options under the Stock Option Plan unless the
option price is at least 110% of the fair market value of the Common Stock
subject to the option, determined on the date of grant. Non-qualified options
are not subject to this limitation. The Company, however, has agreed with the
Underwriter that it will not grant options to purchase Common Stock under the
plan for thirty-six (36) months after the date of this Prospectus at an exercise
price which is less than the fair market value on the date of grant.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. Pursuant to the
terms of the Stock Option Plan, unless otherwise provided in any option grant,
in the event of termination of employment, other than by death or permanent
total disability, the optionee will have three months after such termination to
exercise the option. The Stock Option Plan provides that upon termination of
employment of an optionee by reason of death or permanent total disability, an
option remains exercisable for one year thereafter to the extent it was
exercisable on the date of such termination.
Options under the Stock Option Plan must be granted within 10 years from
the effective date thereof. Incentive stock options granted under the Stock
Option Plan cannot be exercised more than 10 years from the date of grant,
except that incentive stock options issued to a 10% Stockholder are limited to
five year terms. Any unexercised options under the Stock Option Plan that expire
or that terminate upon an employee's ceasing to be employed with the Company
become available once again for issuance.
On January 15, 1997, incentive stock options to purchase a total of 85,974
shares of Common Stock were granted under the Stock Option Plan, including an
aggregate of 60,974 to executive officers of the Company (Mr. Reiss, 25,974; and
Mr. Tansey, 35,000), and non-qualified stock options to purchase a total of
81,526 shares of Common Stock were granted under the Stock Option Plan,
including 74,026 to an executive officer (Mr. Reiss). All of such options are
exercisable at a price of $3.50 per share, except for Mr. Reiss' incentive stock
option, which is exercisable at $3.85 per share. The options are fully
exercisable beginning January 15, 1998, except for Mr. Tansey's option, which
vests in 20% increments over a period of five years on each annual anniversary
date of his employment. These options expire on January 15, 2007, except for Mr.
Reiss' incentive stock option, which expires on January 15, 2002.
On March 12, 1997, incentive stock options to purchase a total of 95,000
shares of Common Stock were granted under the Stock Option Plan, including an
aggregate of 40,000 to executive officers of the Company (Mr. Flotron, 20,000;
and Mr. Scotti, 20,000). All of such options are exercisable at a price of $3.50
per share, and vest in 20% increments over a period of five years. These options
expire on March 12, 2002.
To date, options to purchase an aggregate of 262,500 shares of Common Stock
had been granted under the Stock Option Plan, including incentive stock options
to purchase an aggregate of 180,974 shares and non-qualified stock options to
purchase an aggregate of 81,526 shares. Future grants of stock options are in
the discretion of the Board of Directors and, thus, the amount and terms of such
grants, if any, are not presently determinable.
DIRECTOR AND OFFICER LIABILITY
New Jersey's Business Corporation Act permits New Jersey corporations to
include in their certificates of incorporation a provision eliminating or
limiting the personal liability of directors and officers of the corporation for
damages arising from certain breaches of fiduciary duty. The Company's
Certificate of Incorporation includes a provision eliminating the personal
liability of directors and officers to the Company and its stockholders for
damages to the maximum extent permitted by New Jersey law, including exculpation
for acts of omissions in violation of directors' and officers' fiduciary duties
of care. Under current New Jersey law, liability is not eliminated in the case
of a breach of a
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director's or officer's duty of loyalty (i.e., the duty to refrain from
transactions involving improper conflicts of interest) to the Company or its
stockholders, the failure to act in good faith, the knowing violation of law or
the obtainment of an improper personal benefit. The Company's Certificate of
Incorporation does not have any effect on the availability of equitable remedies
(such as an injunction or rescissions) for breach of fiduciary duty. However, as
a practical matter, equitable remedies may not be available in particular
circumstances.
CERTAIN TRANSACTIONS
On March 26, 1994, the Company granted an option to Richard Reiss, Chairman
of the Board and President of the Company, to purchase 560,000 shares of Common
Stock at an exercise price of $.03 per share, expiring on March 26, 1997. On
December 18, 1996, Mr. Reiss exercised his option, acquiring 560,000 shares of
Common Stock for an aggregate price of $16,800. On October 1, 1995, the Company
granted to Leo Flotron, a Vice President of the Company, an option to purchase
200,000 shares of Common Stock at an exercise price of $.03 per share, expiring
on the date of the termination of his employment with the Company. On December
13, 1996, Mr. Flotron exercised his options, acquiring 200,000 shares of Common
Stock for an aggregate price of $6,000. On August 1, 1995, the Company granted
to Joseph Scotti, a Vice President of the Company, an option to purchase 200,000
shares of Common Stock at an exercise price of $.03 per share, expiring on the
date of the termination of his employment with the Company. On December 13,
1996, Mr. Scotti exercised his options, acquiring 200,000 shares of Common Stock
for an aggregate price of $6,000. On September 25, 1995, the Company granted to
Robert Kroner, a director of and general counsel to the Company, an option to
purchase 50,000 shares of Common Stock at an exercise price of $.03 per share,
expiring on September 25, 2000. On December 13, 1996, Mr. Kroner exercised his
option, acquiring 50,000 shares of Common Stock for an aggregate price of
$1,500.
On May 22, 1996, the Company obtained a balance term loan in the amount of
$85,000 ('Loan') from the Bank of New York (NJ) (the 'Bank'). The per annum
interest rate on the Loan is 1.25% above the Bank's Alternate Base Rate. The
Loan is set to mature on May 22, 2000. Additionally, on May 22, 1996, the
Company obtained from the Bank an annually renewable working capital line of
credit ('Credit Line') in the amount of $600,000. The per annum interest rate on
the Credit Line is 1% above the Bank's Alternate Base Rate. The Loan and Credit
Line have been personally guaranteed by Richard Reiss, and are secured by the
accounts receivable, inventory, equipment and vehicles, and general intangibles
of the Company pursuant to a security agreement between the Company and the
Bank, dated May 22, 1996. As additional security for the Loan and Credit Line,
the Company has pledged to the Bank a $100,000 United States Treasury Bill,
which Treasury Bill is owned by Richard Reiss and for which Richard Reiss has
given consent to hypothecate and has authorized the Company to pledge as secured
collateral.
Additionally, on May 22, 1996, the Bank entered into a Subordination
Agreement with Panasonic whereby Panasonic agreed to subordinate its security
interest in the inventory of goods and merchandise supplied by Panasonic to the
Company, to the security interest of the Bank in such inventory. Such inventory
is part of the security underlying the Loan and Credit Line from the Bank.
On January 4, 1995, Richard Reiss, the President of the Company, loaned the
Company $25,000, at an interest rate of 9% per annum, which loan was repaid on
August 8, 1995. On October 30, 1995, Mr. Reiss borrowed $25,000 from the
Company, without interest, which loan was repaid on November 10, 1995. On April
12, 1996, Mr. Reiss loaned the Company $55,000, without interest, which loan was
repaid on May 13, 1996.
In October 1994, the Company loaned $25,000 to Public Switch Corporation, a
privately held company of which Mr. Reiss was a stockholder and a member of the
Board of Directors. The loan was written off in 1995, when the borrower filed
for bankruptcy.
On March 20, 1997, the Company entered into a five year lease with a
limited liability company, of which Eric Friedman, a director of the Company, is
a member, for the premises which will serve as the Company's new headquarters
office. See 'Business -- Facilities.'
See 'Management -- Employment Agreements' for a description of the
employment agreements between the Company and its executive officers.
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The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions, including loans, between the Company and its officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will continue to
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and be made for bona fide business purposes.
INTERIM FINANCING
In December 1996, the Company completed a bridge financing (the 'Bridge
Financing'), pursuant to which it issued to seven accredited investors (the
'Bridge Unitholders') an aggregate of $750,000 principal amount of 12%
Convertible Subordinated Notes ('Bridge Notes'). The Bridge Notes bear interest
at the rate of 12% per annum, payable annually on December 31. To the extent not
converted, the principal amount of the Bridge Notes, together with interest
accrued thereon, is due and payable on the earlier of (i) December 31, 1999, or
(ii) the date of the completion of an initial public offering ('IPO') of the
Company's securities (the 'Maturity Date'). Principal and interest on the Bridge
Notes are subordinate to all existing indebtedness of the Company and any future
institutional indebtedness. Commencing on the effective date of an IPO prior to
the Maturity Date, the Bridge Notes are convertible, at the option of the
holders, into an aggregate of up to 375,000 Bridge Units (as hereinafter
defined) and the Company will issue to each note holder one Bridge Unit for each
$2.00 principal amount of Bridge Notes presented for conversion. Each Bridge
Unit shall consist of one share of Common Stock and one Warrant, such Warrant
being identical in all respects to the Warrant comprising a portion of the Units
offered by the Company in the IPO. Upon conversion, all interest accrued on the
Bridge Notes shall be waived. The holders of an aggregate of $600,000 principal
amount of the Bridge Notes have agreed to convert their notes into Bridge Units.
The $150,000 balance of Bridge Note principal will be repaid from the proceeds
of this offering. The Bridge Units and/or the Common Stock and Warrants
comprising the Bridge Units may not be sold prior to two years from the date of
this Prospectus, during the first year, unconditionally, and during the second
year, without the prior consent of the Underwriter. See 'Use of Proceeds' and
'Description of Securities-Bridge Units.'
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by (i) each person who is known by the
Company to be the beneficial owner of 5% or more of the Company's outstanding
Common Stock; (ii) each director of the Company; (iii) each executive officer of
the Company named in the Summary Compensation Table; and (iv) all executive
officers and directors as a group, as of the date of this Prospectus and after
the sale of 700,000 Units by the Company in this offering. Except as otherwise
indicated in the footnotes below, the Company believes that each of the
beneficial owners of the Common Stock listed in the table, based on information
furnished by such owner, has sole investment and voting power with respect to
such shares.
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<TABLE>
<CAPTION>
PERCENTAGE
--------------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING(2) OFFERING(2)
- -------------------------------------------------------------------- ------------------ ----------- -----------
<S> <C> <C> <C>
Richard Reiss....................................................... 2,810,000(3) 69.4% 51.6%
Peter Barrett....................................................... 150,000 4.5% 3.2%
Joseph Scotti....................................................... 200,000 6.1% 4.3%
Leo Flotron......................................................... 200,000 6.1% 4.3%
Andrea Grasso....................................................... 25,000 0.8% 0.5%
Scott Tansey........................................................ -- -- --
Robert B. Kroner ................................................... 150,000 4.5% 3.2%
111 Northfield Avenue
West Orange, NJ 07052
Eric Friedman ...................................................... 12,500 0.4% 0.3%
9 Settlers Lane
Westfield, NJ 07090
Peter N. Maluso .................................................... -- -- --
193 Westgate Drive
Edison, NJ 08820
All executive officers and directors as a group (nine persons)...... 3,547,500(3) 87.6% 65.1%
</TABLE>
- ------------
(1) Unless otherwise indicated, the address of such individual is c/o All
Communications Corporation, 1450 Route 22 West, Mountainside, NJ 07092.
(2) Includes 300,000 shares of Common Stock issuable in the event of the
conversion of $600,000 principal amount of Bridge Notes into 300,000 Bridge
Units prior to the completion of this offering. See 'Interim Financing.'
(3) Includes 750,000 shares issuable upon exercise of an option granted to Mr.
Reiss pursuant to his employment agreement with the Company. See
'Management -- Employment Agreements.'
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DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable New Jersey law and to
the provisions of the Company's Certificate of Incorporation and By-Laws, the
Warrant Agreement among the Company and American Stock Transfer & Trust Company,
as warrant agent, pursuant to which the Warrants will be issued and the
Underwriting Agreement between the Company and the Underwriter, copies of all
which have been filed with the Commission as Exhibits to the Registration
Statement of which this Prospectus is a part.
UNITS
Each Unit consists of two shares of Common Stock, no par value per share
('Common Stock'), and two redeemable Class A Common Stock Purchase Warrants
('Warrants'), each Warrant entitling the holder thereof to purchase one share of
Common Stock. The Common Stock and Warrants comprising the Units are separately
transferable immediately upon issuance.
GENERAL
The Company's authorized capital stock, as set forth in its Certificate of
Incorporation, consists of 100,000,000 shares of Common Stock, no par value per
share, and 1,000,000 shares of preferred stock, no par value per share.
COMMON STOCK
There are currently 3,300,000 shares of Common Stock outstanding (including
300,000 shares of Common Stock comprising a part of the 300,000 Bridge Units
issuable upon conversion of $600,000 principal amount of Bridge Notes prior to
the completion of this offering). Holders of Common Stock have the right to cast
one vote for each share held of record on all matters submitted to a vote of
holders of Common Stock, including the election of directors. There is no right
to cumulate votes for the election of directors. Stockholders holding a majority
of the voting power of the capital stock issued and outstanding and entitled to
vote, represented in person or by proxy, are necessary to constitute a quorum at
any meeting of the Company's stockholders, and the vote by the holders of a
majority of such outstanding shares is required to effect certain fundamental
corporate changes such as liquidation, merger or amendment of the Company's
Certificate of Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata based on
the number of shares held, when as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding preferred stock. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding preferred stock, shall be distributed,
pro rata, among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive or subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and non-assessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
1,000,000 shares of preferred stock, none of which are currently outstanding,
with the Board of Directors having the right to determine the designations,
rights, preferences and privileges of the holders of one or more series of
preferred stock. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue preferred stock with voting, dividend,
conversion, liquidation or other rights which could adversely affect the voting
power and equity interest of the holders of Common Stock. The preferred stock,
which could be issued with the right to more than one vote per share, could be
utilized as a method of discouraging, delaying or preventing a change of control
of the Company. The possible impact on takeover attempts could adversely affect
the price of the Company's Common Stock. The Company has
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no current plans to issue any shares of preferred stock. In addition, for a
period of three years from the date of this Prospectus, the issuance of any
shares of preferred stock is subject to the Underwriter's prior consent.
CLASS A WARRANTS
The Company has authorized the issuance of five year redeemable Class A
Common Stock Purchase Warrants ('Warrants') to purchase an aggregate of
1,400,000 shares of Common Stock (exclusive of up to 375,000 Warrants included
in the Bridge Units, 210,000 Warrants issuable upon exercise of the
Underwriter's over-allotment option and 140,000 Warrants underlying the
Underwriter's Options), and has reserved an equivalent number of shares for
issuance upon exercise of such Warrants. Each Warrant entitles the registered
holder thereof to purchase one share of Common Stock at a price of $4.25,
subject to adjustment, for four years commencing one year from the date of this
Prospectus. After expiration, the Warrants will be void and of no value. The
Warrants underlying the Underwriter's Options have the same terms and conditions
as the Warrants to be sold to the public, except that they are subject to
redemption by the Company at any time after the Underwriter's Options have been
exercised and the underlying Warrants are outstanding.
The Company may redeem the Warrants commencing October 28, 1998 (18 months
from the date of the Prospectus), or earlier with the consent of the
Underwriter, at a price of $.10 per Warrant, on not less than 30 days' prior
written notice, if the closing bid price of the Common Stock (if the Common
Stock is then traded in the over-the-counter market) or the last sale price of
the Common Stock (if the Common Stock is then traded on a national securities
exchange or the Nasdaq National Market or SmallCap System) has been at least
250% ($10.63 per share) of the current Warrant exercise price, subject to
adjustment, for at least 20 consecutive trading days ending within three days
prior to the date on which notice of redemption is given.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price and number of shares issuable upon
exercise, on the occurrence of certain events, such as stock dividends or
certain other changes in the number of outstanding shares except for shares
issued pursuant to any Company stock option plans for the benefit of its
employees, directors and agents, the Warrants offered hereby, the Underwriter's
Options, the Underwriter's over-allotment option, and any equity securities for
which adequate consideration is received. The Company is not required to issue
fractional shares. In lieu of the issuance of such fractional shares, the
Company will pay cash to such holders of the Warrants. In computing the cash
payable to such holders, a share of Common Stock will be valued at its price
immediately prior to the close of business on the expiration date. The holder of
a Warrant will not possess any rights as a shareholder of the Company unless he
exercises his Warrant.
BRIDGE UNITS
In December 1996, the Company completed a bridge financing (the 'Bridge
Financing'), pursuant to which it issued to the Bridge Unitholders an aggregate
of 750,000 principal amount of 12% Convertible Subordinated Notes (the 'Bridge
Notes'), which bear interest at the rate of 12% per annum and are due and
payable, to the extent not converted, on the earlier of the completion of this
offering or December 31, 1999. Commencing on the date of this Prospectus, the
Bridge Notes are convertible, at the option of the holders, into Bridge Units,
each consisting of one share of Common Stock and one Warrant, and the Company
will issue to each note holder one Bridge Unit for each $2.00 principal amount
of Bridge Notes presented for conversion. The holders of $600,000 principal
amount of the Bridge Notes have agreed to convert their notes into Bridge Units.
The Bridge Units and/or the Common Stock and Warrants comprising the Bridge
Units may not be sold prior to two years from the date of this Prospectus,
during the first year, unconditionally, and during the second year, without the
prior consent of the Underwriter. See 'Interim Financing.'
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have 4,700,000
shares of Common Stock outstanding (assuming an aggregate of $600,000 principal
amount of Bridge Notes are converted into 300,000 Bridge Units), including
1,400,000 shares included in the 700,000 Units offered hereby by the Company,
and 25,000 shares of Registered Common Stock which are included in the
Registration Statement of which this Prospectus forms a part. The remaining
2,975,000 shares of Common Stock currently outstanding are 'restricted
securities' as that term is defined in Rule 144 under the Securities Act, and
may not be sold unless such sale is registered under the Securities Act or is
made pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. Such shares will be eligible for
sale in the public market pursuant to Rule 144 at various times beginning 90
days after the date of this Prospectus, subject to the three-year lock-up
described below. The 300,000 shares of Common Stock and the 300,000 shares
underlying the 300,000 Warrants comprising the Bridge Units may not be sold
until two years following the date of this Prospectus, during the first year,
unconditionally, and during the second year, without the prior consent of the
Underwriter. The holders of all of the 3,000,000 shares of the Company's Common
Stock currently outstanding (including the 25,000 shares of Registered Common
Stock held by the President) have agreed that, for a period of three years from
the date of this Prospectus, they will not sell any of their shares, or any
shares issuable upon exercise of warrants or options exercisable into shares of
Common Stock, without the prior consent of the Underwriter. Certain officers,
directors, employees and other individuals holding an aggregate amount of
1,250,000 shares of the Company's Common Stock currently outstanding have
agreed, unconditionally, that for a period of three years from the date of this
Prospectus, they will not sell any of their shares. The Company is unable to
predict the effect that sales made under Rule 144 or otherwise may have on the
market price of the Common Stock. However, the possibility that substantial
amounts of Common Stock may be sold in the public market may have an adverse
effect on the market price for the Company's Common Stock.
In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned any
restricted securities for at least two years (one year, commencing April 29,
1997) (including a shareholder who may be deemed to be an affiliate of the
Company), will be entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock (47,000 shares based on 4,700,000 shares of Common Stock
outstanding upon completion of this offering, assuming the Underwriter's
over-allotment option is not exercised) or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of such sale is given to the Commission, provided certain public
information, manner of sale and notice requirements are satisfied. A shareholder
who is deemed to be an affiliate of the Company, including members of the Board
of Directors and senior management of the Company, will still need to comply
with the restrictions and requirements of Rule 144, other than the two-year
holding period requirement, in order to sell shares of Common Stock that are not
restricted securities, unless such sale is registered under the Securities Act.
A shareholder (or shareholders whose shares are aggregated) who is deemed not to
have been an affiliate of the Company at any time during the 90 days preceding a
sale by such shareholder, and who has beneficially owned restricted shares for
at least three years (two years, commencing April 29, 1997), will be entitled to
sell such shares under Rule 144 without regard to the volume limitations
described above.
LISTING ON THE BOSTON STOCK EXCHANGE
The Company has been approved for listing of the Units, Common Stock and
Warrants on the Boston Stock Exchange under the symbols 'CMNU,' 'CMN' and
'CMNW,' respectively and for quotation in the over-the-counter market on the
NASD's OTC Electronic Bulletin Board under the symbols 'ACUCU,' 'ACUC' and
'ACUCW,' respectively.
No assurance can be given that the prices of such securities will be so
quoted or that a trading market for the Company's securities will develop or be
sustained, or at what price the securities will trade.
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TRANSFER/WARRANT AGENT AND REGISTRAR
American Stock Transfer & Trust Company, New York, New York, is the
transfer and warrant agent and registrar for the securities of the Company.
NEW JERSEY SHAREHOLDER PROTECTION ACT
The Company is subject to the New Jersey Shareholder Protection Act (the
'Protection Act') which restricts certain business combinations by the Company
with any of its 10% stockholders. Generally, the Protection Act prohibits a
resident domestic New Jersey corporation with its principal executive offices
and significant business operations in New Jersey from engaging in any business
combination (defined generally as any merger, consolidation, sale, lease,
exchange, mortgage or pledge, or any stock transfer, securities
reclassification, liquidation or dissolution, excluding certain transactions
involving assets or securities which have a market value below that specified in
the Protection Act) with an 'Interested Shareholder' (defined generally as any
person who is the beneficial owner of 10% or more of the voting power of the
outstanding shares or any affiliate of the Corporation who at any time within
the five-year period immediately prior to the date of the business combination
has been the beneficial owner of 10% or more of the voting power of the
outstanding shares) for a period of five years from the date the Interested
Shareholder became an Interested Shareholder, unless such transaction is
approved by the board of directors prior to the date the shareholder became an
interested Shareholder. In addition, the Protection Act prohibits any business
combination at any time with an Interested Shareholder other than a transaction
that (i) is approved by the board of directors of the applicable company prior
to the date the Interested Shareholder became the Interested Shareholder; or
(ii) is approved by the affirmative vote of the holders of two-thirds of the
voting shares not beneficially owned by the Interested Shareholder at a meeting
called for that purpose; or (iii) satisfies certain stringent price and terms
criteria.
Certain stockholders may consider the Protection Act to have
disadvantageous effects. Tender offers or other non-open market acquisitions of
shares by persons attempting to acquire control through market purchases may
cause the market price of the shares to reach levels that are higher than would
be otherwise the case. The Protection Act may discourage any or all of such
acquisitions, particularly those of less than all of the Company's shares, and
may thereby deprive certain holders of the Company's shares of an opportunity to
sell their shares at a temporarily higher market price.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Commission has indicated that the use of
authorized unissued shares of voting stock could have an anti-takeover effect.
In such cases, various specific disclosures to the stockholders are required.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
by and between the Company and the Underwriter (the 'Underwriting Agreement'),
the Underwriter has agreed to purchase from the Company, and the Company has
agreed to sell to the Underwriter, an aggregate of 700,000 Units, at the initial
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus.
The Underwriting Agreement provides that the obligation of the Underwriter
to pay for and accept delivery of certificates representing the Units is subject
to certain conditions precedent, and that the Underwriter will purchase all of
the Units offered hereby on a 'firm commitment' basis if any are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Units directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $.35 per Unit. After the initial public offering,
the public offering price and concession may be changed.
The Company has granted to the Underwriter an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to an
aggregate of 105,000 additional Units at the initial per
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Unit public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus. The Underwriter may exercise this
option only to cover over-allotments, if any, made in connection with the sale
of the Units offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds of this offering, including any
Units purchased pursuant to the Underwriter's over-allotment option, no portion
of which has been paid to date.
The Company and the Underwriter have agreed to indemnify each other
against, or to contribute to losses arising out of, certain civil liabilities in
connection with this offering, including liabilities under the Securities Act.
The Company and all of its current stockholders have agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or
rights to acquire shares of Common Stock without the prior written consent of
the Underwriter for a period of three years after the date of this Prospectus.
The Company has agreed to sell to the Underwriter, for an aggregate price
of $70, the right to purchase up to an aggregate of 70,000 Units (the
'Underwriter's Options'). The Underwriter's Options will be exercisable for a
four-year period commencing one year after the date of the Prospectus, at a per
Unit exercise price equal to 120% of the initial per Unit public offering price
of the Units being offered hereby. The Warrants underlying the Underwriter's
Options have the same terms and conditions as the Warrants to be sold to the
public in this offering, except that they are subject to redemption by the
Company at any time after the Underwriter's Options have been exercised and the
underlying Warrants are outstanding. The Underwriter's Options may not be sold,
assigned, transferred, pledged or hypothecated for a period of five years from
the date of the Prospectus except to the Underwriter or its officers.
The Company has agreed to file, during the four-year period beginning one
year from the date of the Prospectus, on two separate occasions (on only one
occasion at the cost of the Underwriter), at the request of the holders of a
majority of the Underwriter's Options and the underlying shares of Common Stock
and Warrants, and to use its best efforts to cause to become effective, a
post-effective amendment to the Registration Statement or a new registration
statement under the Securities Act, as required to permit the public sale of the
shares of Common Stock and Warrants issued or issuable upon exercise of the
Underwriter's Options. In addition, the Company has agreed to give advance
notice to holders of the Underwriter's Options of its intention to file certain
registration statements commencing one year and ending five years after the date
of the Prospectus, and in such case, holders of such Underwriter's Options or
underlying shares of Common Stock and Warrants shall have the right to require
the Company to include all or part of such shares of Common Stock and Warrants
underlying such Underwriter's Options in such registration statement at the
Company's expense.
For the life of the Underwriter's Options, the holders thereof are given
the opportunity to profit from a rise in the market price of the shares of
Common Stock and Warrants, which may result in a dilution of the interests of
other stockholders. As a result, the Company may find it more difficult to raise
additional equity capital if it should be needed for the business of the Company
while the Underwriter's Options are outstanding. The holders of the
Underwriter's Options might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain additional equity capital on
terms more favorable to the Company than those provided by the Underwriter's
Options. Any profit realized on the sale of the shares of Common Stock issuable
upon the exercise of the Underwriter's Options may be deemed additional
underwriting compensation.
The underwriting agreement provides for the Underwriter to receive a
finder's fee, ranging from 5% of the first $3,000,000 down to 1% of the excess
over $10,000,000 of the consideration involved in any capital business
transaction (including mergers and acquisitions) consummated by the Company in
which the Underwriter introduced the other party to the Company during the
five-year period following the completion of the offering.
The Underwriting Agreement provides that, for a period of two years from
the date of the Prospectus, the Company will nominate a person selected by the
Underwriter, and reasonably acceptable to the Company, for election to serve as
a member of the Company's Board of Directors.
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Upon the exercise of the Warrants, the Company will pay the Underwriter a
fee of 5% of the aggregate exercise price if (i) the market price of its Common
Stock on the date the Warrant is exercised is greater than the then exercise
price of the Warrants; (ii) the exercise of the Warrant was solicited by a
member of NASD and the customer states in writing that the transaction was
solicited and designates in writing the broker-dealer to receive compensation
for the exercise; (iii) the Warrant is not held in a discretionary account; (iv)
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of exercise of the Warrants; and (v) the solicitation
of exercise of the Warrant was not in violation of Regulation M promulgated
under the Exchange Act.
The Commission has recently adopted Regulation M to replace Rule 10b-6 and
certain other rules promulgated under the Exchange Act. Regulation M may
prohibit the Underwriter from engaging in any market making activities with
regard to the Company's securities for the period from five business days (or
such other applicable period as Regulation M may provide) prior to any
solicitation by the Underwriter of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, the Underwriter
may be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable.
Prior to this offering there has been no public trading market for the
Company's securities. The initial public offering price of the Units and the
exercise price and the terms of the Warrants have been determined by negotiation
between the Company and the Underwriter. Factors considered in determining the
initial public offering price, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, and assessment of the Company's management, the prospects of the
Company, its capital structure and such other factors as were deemed relevant.
The foregoing includes a summary of all of the material terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement that is on file as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Underwriter has informed the Company that no sales will be made to any
account over which the Underwriter exercises discretionary authority.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Singer Zamansky LLP, New York, New York. Certain legal matters will
be passed upon for the Underwriter by Bernstein & Wasserman, LLP, New York, New
York. Singer Zamansky LLP represents the Underwriter in other matters.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Schneider Ehrlich & Wengrover LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
CONCURRENT OFFERING
The Registration Statement, of which this Prospectus forms a part, also
covers 25,000 shares of Common Stock being offered by the Selling Stockholder
pursuant to the Selling Stockholder's Prospectus.
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ADDITIONAL INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form SB-2 under the Securities Act with
the Commission in Washington, D.C. with respect to the Units offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Units
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of such site is
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
Following the offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
44
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Report........................................................................ F-2
Balance Sheets...................................................................................... F-3
Statements of Income................................................................................ F-4
Statements of Stockholders' Equity.................................................................. F-5
Statements of Cash Flows............................................................................ F-6
Notes to Financial Statements....................................................................... F-7 - F-15
</TABLE>
F-1
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of ALL COMMUNICATIONS CORPORATION
We have audited the accompanying balance sheets of All Communications
Corporation as of December 31, 1996 and 1995, and the related statements of
income, cash flows, and stockholders' equity for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, based on our audits, the financial statements referred to
above present fairly, in all material respects, the financial position of All
Communications Corporation as of December 31, 1996 and 1995 and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
SCHNEIDER EHRLICH & WENGROVER LLP
Woodbury, New York
January 21, 1997
F-2
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................................... $ 645,614 $153,906
Accounts receivable (net of allowance for doubtful accounts of $25,000 and $10,000,
respectively)..................................................................... 681,411 346,502
Inventory.......................................................................... 497,353 145,047
Deferred income taxes.............................................................. 9,119 --
Other current assets............................................................... 11,595 8,517
---------- --------
Total current assets.......................................................... 1,845,092 653,972
Furniture, equipment and leasehold improvements -- net.................................. 128,984 91,758
Deferred financing costs................................................................ 390,406 --
Deferred stock offering costs........................................................... 32,500 --
Other assets............................................................................ 61,410 8,910
---------- --------
Total assets.................................................................. $2,458,392 $754,640
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank loan payable.................................................................. $ 447,071 $100,000
Current portion of long-term debt.................................................. 21,250 21,210
Accounts payable................................................................... 505,319 364,420
Accrued expenses................................................................... 108,259 81,437
Income taxes payable............................................................... -- 4,421
Deferred income taxes.............................................................. -- 13,871
Customer deposits.................................................................. 14,943 16,027
---------- --------
Total current liabilities..................................................... 1,096,842 601,386
---------- --------
Noncurrent liabilities
12% Convertible Subordinated Notes payable......................................... 750,000 --
Long-term debt, less current portion............................................... 51,354 65,218
Deferred income taxes.............................................................. 14,798 6,741
---------- --------
Total noncurrent liabilities....................................................... 816,152 71,959
---------- --------
Total liabilities............................................................. 1,912,994 673,345
COMMITMENTS AND CONTINGENCIES -- SEE NOTES
Stockholders' equity
Preferred stock, $.01 par value; 1,000,000 shares authorized, none issued or
outstanding....................................................................... -- --
Common Stock, no par value; 100,000,000 authorized; 3,000,000 and 1,750,000 issued
and outstanding, respectively..................................................... 90,000 52,500
Additional paid-in capital......................................................... 375,000 --
Retained earnings.................................................................. 80,398 28,795
---------- --------
Total stockholders' equity.................................................... 545,398 81,295
---------- --------
Total liabilities and stockholders' equity.................................... $2,458,392 $754,640
---------- --------
---------- --------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenues.......................................................................... $3,884,700 $2,641,331
Cost of revenues...................................................................... 2,501,073 1,781,719
---------- ----------
Gross margin.......................................................................... 1,383,627 859,612
---------- ----------
Operating expenses:
Selling.......................................................................... 664,786 482,470
General and administrative....................................................... 599,606 328,206
---------- ----------
Total operating expenses.................................................... 1,264,392 810,676
---------- ----------
Income from operations................................................................ 119,235 48,936
---------- ----------
Other (income) expenses
Loan writeoff.................................................................... -- 25,000
Interest income.................................................................. -- (634)
Interest expense................................................................. 29,026 7,321
---------- ----------
Total other (income) expenses............................................... 29,026 31,687
---------- ----------
Income before income taxes............................................................ 90,209 17,249
Provision for income taxes............................................................ 38,606 8,029
---------- ----------
Net income............................................................................ $ 51,603 $ 9,220
---------- ----------
---------- ----------
Net income per common and common equivalent share..................................... $.03 $.01
Weighted average common and common equivalent shares outstanding...................... 1,977,518 1,884,002
---------- ----------
---------- ----------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995........................... 1,666,666 $50,000 $ -- $ 19,575 $ 69,575
Issuance of common stock
for Services rendered at $.03 per share............. 83,334 2,500 -- -- 2,500
Net income for the year............................... -- -- -- 9,220 9,220
--------- ------- ---------- -------- --------
Balances at December 31, 1995......................... 1,750,000 52,500 -- 28,795 81,295
Exercise of common stock options...................... 1,250,000 37,500 -- -- 37,500
Value imputed to conversion feature of the 12%
Convertible Subordinated Notes...................... -- -- 375,000 -- 375,000
Net income for the year............................... -- -- -- 51,603 51,603
--------- ------- ---------- -------- --------
Balances at December 31, 1996......................... 3,000,000 $90,000 $375,000 $ 80,398 $545,398
--------- ------- ---------- -------- --------
--------- ------- ---------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---------- ---------
<S> <C> <C>
Cash Flows From Operating Activities
Net income........................................................................ $ 51,603 $ 9,220
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Depreciation and amortization................................................ 30,120 6,835
Loan writeoff................................................................ -- 25,000
Common stock issued for services............................................. -- 2,500
Increase (decrease) in cash attributable to changes in assets and liabilities
Accounts receivable..................................................... (334,909) (241,941)
Inventory............................................................... (352,306) (131,976)
Other current assets.................................................... (3,078) (8,517)
Accounts payable........................................................ 140,899 326,505
Accrued expenses........................................................ 26,822 69,359
Income taxes payable.................................................... (4,421) 4,421
Deferred income taxes................................................... (14,933) (3,734)
Customer deposits....................................................... (1,084) 13,077
---------- ---------
Net cash provided (used) by operating activities................... (461,287) 70,749
---------- ---------
Cash Flows From Investing Activities
Purchases of furniture, equipment and leasehold improvements...................... (67,346) (98,593)
Increase in other assets.......................................................... (52,500) (6,710)
---------- ---------
Net cash used by investing activities.............................. (119,846) (105,303)
---------- ---------
Cash Flows From Financing Activities
Proceeds from issuance of common stock............................................ 37,500 --
Deferred financing costs.......................................................... (15,406) --
Deferred stock offering costs..................................................... (32,500) --
Proceeds from long-term debt...................................................... 85,000 92,700
Payments on long-term debt........................................................ (98,824) (6,272)
Proceeds from bank loans.......................................................... 477,071 100,000
Payments on bank loans............................................................ (130,000) --
Proceeds from stockholder loan receivable......................................... -- 25,000
Repayment of stockholder loan receivable.......................................... -- (25,000)
Proceeds from stockholder loan payable............................................ 55,000 25,000
Repayment of stockholder loan payable............................................. (55,000) (25,000)
Proceeds from issuance of convertible subordinated notes.......................... 750,000 --
---------- ---------
Net cash provided by financing activities.......................... 1,072,841 186,428
---------- ---------
Increase in Cash and Cash Equivalents.................................................. 491,708 151,874
Cash at Beginning of Period............................................................ 153,906 2,032
---------- ---------
Cash and Cash Equivalents at End of Period............................................. $ 645,614 $ 153,906
---------- ---------
---------- ---------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest..................................................................... $ 29,026 $ 7,321
---------- ---------
---------- ---------
Income taxes................................................................. $ 60,807 $ 7,422
---------- ---------
---------- ---------
Supplemental Disclosure of Non-Cash Financing Activities
Value imputed to conversion feature of the 12% Convertible Subordinated Notes:
Deferred financing costs.......................................................... $ 375,000
Additional paid-in capital........................................................ (375,000)
----------
Net cash.......................................................................... $ --
----------
----------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
All Communications Corporation (the 'Company') was incorporated on August
16, 1991 under the laws of the State of New Jersey. The Company is engaged in
the business of selling, installing and servicing voice and videoconferencing
communications systems to commercial and institutional customers located
principally within the United States. The Company is headquartered in
Mountainside, New Jersey.
Most of the products sold by the Company are purchased under non-exclusive
dealer agreements with Panasonic Communications & Systems Company ('Panasonic')
for digital business telephone systems and related products, and with Sony
Electronics, Inc. ('Sony') for videoconferencing equipment. Both agreements
specify, among other things, sales territories, payment terms, purchase quotas
and reseller prices. The Panasonic agreement renews automatically for one-year
periods, but may be terminated with or without cause by either party upon thirty
days written notice. Panasonic holds a security interest in Panasonic inventory
maintained by the Company, which has been subordinated to the security interest
of the Company's lender. The Company is currently negotiating a new agreement
with Sony to succeed the current contract scheduled to expire on March 31, 1997.
The termination of either agreement, or their renewal on less favorable terms
than currently in effect, could have a material adverse impact on the Company's
business.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is valued at the lower of cost (determined on a first-in,
first-out basis), or market.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
REVENUE RECOGNITION
Revenue from the sale and installation of voice and videoconferencing
systems is recognized at the time the systems are installed, with reserves
established for the estimated future costs of service warranties. Customer
prepayments are deferred until product systems have been installed. Service
revenues are recognized at the time the services are rendered and the Company
has no significant further obligations to the customer.
INCOME PER SHARE
Income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. In accordance with
the rules of the Securities and Exchange Commission, shares issuable upon the
conversion of the 12% Subordinated Convertible Notes Payable have been included
in the calculation of common and common equivalent shares outstanding for all
periods presented using the treasury stock method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents.
F-7
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents, and
trade accounts receivable. The Company places its cash and cash equivalents
primarily in commercial checking accounts and interest-bearing time deposits.
Balances may from time to time exceed federally insured limits.
The Company performs ongoing credit evaluations of its customers and to
date has not experienced any material losses. Revenues to one significant
customer accounted for 26% and 28% of net revenues for the years ended December
31, 1996 and 1995, respectively. At December 31, 1996, receivables from this
customer represented approximately 25% of net accounts receivable.
DEPRECIATION AND AMORTIZATION
Furniture, equipment and leasehold improvements are stated at cost.
Furniture and equipment are depreciated over the estimated useful lives of the
related assets, which range from three to five years. Leasehold improvements are
amortized over the shorter of either the asset's useful life or the related
lease term. Depreciation is computed on the straight-line method for financial
reporting purposes and on the modified accelerated cost recovery system (MACRS)
for income tax purposes.
INCOME TAXES
The Company uses the liability method to determine its income tax expense
as required under Statement of Financial Accounting Standards No. 109 (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are computed based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that all or some
portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax asset depends on the Company's ability to
generate sufficient taxable income in the future.
DEFERRED STOCK OFFERING COSTS
Costs incurred in connection with the Company's proposed public offering of
common stock and warrants will be charged to capital in the event the offering
is successful, or charged to operations if the offering is abandoned.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of', the Company
records impairment losses on long-lived assets used in operations, including
goodwill and intangible assets, when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, 'Accounting for Stock-based Compensation'. SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995, and requires that the Company
either recognize in its financial statements costs related to its employee
stock-based compensation plans, such as stock option and stock purchase plans,
or make pro forma disclosures of such costs in a footnote to the financial
statements. The Company has elected to continue to use the intrinsic value-based
method of APB Opinion No. 25, as allowed under SFAS No.
F-8
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
123, to account for all of its employee stock-based compensation plans. The
adoption of SFAS No. 123 did not have a material effect on the Company's
financial position or results of operations.
NOTE 3 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Leasehold improvements..................................................................... $ 9,768 $ 9,768
Office furniture........................................................................... 13,187 11,872
Computer equipment......................................................................... 25,024 20,253
Demonstration equipment.................................................................... 41,136 --
Vehicles................................................................................... 76,824 56,700
-------- -------
165,939 98,593
Less: Accumulated depreciation............................................................. 36,955 6,835
-------- -------
$128,984 $91,758
-------- -------
-------- -------
</TABLE>
Depreciation expense was $30,120 and $6,835 for the years ended December
31, 1996 and 1995, respectively.
NOTE 4 -- SALES AGREEMENTS
In December 1996, the Company signed a non-exclusive four-year Preferred
Vendor Agreement with HFS Incorporated ('HFS') to provide Panasonic telephone
and voice processing systems to its Century 21, ERA, and Coldwell Banker brand
real estate brokerage franchise systems. The Company has paid a $50,000 access
fee for marketing rights and will pay HFS commissions ranging from 2% to 13% of
gross sales, depending on the products and services sold. The agreement requires
the Company to establish toll-free telephone service for HFS franchisees, to
commit personnel to the handling of franchisee accounts and to defray the cost
of certain marketing activities. The Company has also agreed to a fixed price
schedule over the term of the agreement.
The access fee is included in Other Assets in the accompanying Balance
Sheet, and will be amortized on a straight-line basis over the term of the
contract.
The HFS contract supersedes a four-year agreement signed in January 1996
with Coldwell Banker Corporation ('CBC'), the previous owner of the Coldwell
Banker brand, in which the Company provided trade discounts and favorable terms
for an exclusive dealership to sell Panasonic telecommunications systems to
CBC's corporate-owned brokerage offices.
NOTE 5 -- ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Sales taxes payable.......................................... $ 35,909 $18,413
Other........................................................ 72,350 63,024
-------- -------
$108,259 $81,437
-------- -------
-------- -------
</TABLE>
F-9
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- TRANSACTIONS WITH RELATED PARTIES
In January 1995, the president of the Company loaned the Company $25,000 at
an interest rate of 9% per annum, which loan was repaid in August 1995. In
October 1995, the president borrowed $25,000 from the Company, without interest,
which loan was repaid in November 1995. In April 1996, the president loaned the
Company $55,000, without interest, which loan was repaid in May 1996.
In October 1994, the Company provided a $25,000 loan to a privately-held
entity. The Company's president was a stockholder in the entity and became a
member of its board. The loan was written off in 1995 when the entity filed for
bankruptcy.
NOTE 7 -- NOTES PAYABLE AND LONG-TERM DEBT
TERM LOANS AND LINES OF CREDIT
In 1995, the Company entered into a Loan and Security Agreement with a bank
that provided a $150,000 line of credit, bearing interest at the prime rate plus
1% per annum. The lender also provided term financing to the Company at various
dates in 1995 for the purchase of equipment in the aggregate amount of $92,700.
The loans were evidenced by four promissory notes bearing fixed rates of
interest ranging from 8.75% to 9% per annum.
In May 1996, the Company entered into a new credit facility with a bank for
a $600,000 working capital line of credit and an $85,000 term loan, and repaid
outstanding borrowings with its previous lender. Advances under the line of
credit bear interest at the rate 1% above the bank's 'Alternate Base Rate'
('ABR') (9.25% at December 31, 1996), and are due on demand. The line of credit
is renewable annually. The term loan provides for monthly principal payments of
$1,770.83 plus interest at the bank's ABR plus 1.25% (9.5% at December 31,
1996).
Substantially all of the assets of the Company are pledged as security for
the loans. The Company's principal stockholder has pledged a United States
Treasury Bill in the amount of $100,000 as additional collateral and has
provided a personal guarantee on the loans. Panasonic has also subordinated to
the bank its security interest in Panasonic inventory owned by the Company.
12% CONVERTIBLE SUBORDINATED NOTES PAYABLE
In December 1996, the Company realized net proceeds of $734,594 from a
private placement of $750,000 principal amount of 12% Convertible Subordinated
Notes (the 'Bridge Notes'). The notes bear interest at the rate of 12% per annum
and become due and payable together with accrued interest, to the extent not
converted, at the earlier of December 31, 1999 or the date the Company completes
an initial public offering (IPO) of its securities. Principal and interest are
subordinated to all existing indebtedness of the Company and to any future
institutional indebtedness.
Commencing on the effective date of an IPO prior to the maturity date, the
notes are convertible, at the option of the holder, into an aggregate of 375,000
Bridge Units at the rate of one Unit per $2.00 of principal amount of notes.
Each Bridge Unit will consist of one share of the Company's Common Stock and one
warrant. The term of the warrants will be identical to any warrants sold in the
IPO. Upon conversion, all accrued interest will be waived.
Costs incurred in connection with the private placement totaling $390,406
have been capitalized as deferred financing costs. This amount includes an
imputed value of $375,000, or $1.00 per Bridge Unit, assigned to the conversion
feature of the Bridge Notes. Deferred financing costs are being amortized on a
straight-line basis over the term of the loan.
The aggregate maturities of long-term debt for the next four years ending
December 31, are as follows: 1997 -- $21,250; 1998 -- $21,250; 1999 -- $771,250
and 2000 -- $8,854.
F-10
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCKHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK
In April 1995, the Company issued 33,334 and 50,000 shares of its Common
Stock, respectively, to an officer and the Company's attorney in consideration
of services rendered. The Company's board of directors valued these shares at
$2,500, or $.03 per share.
STOCK OPTIONS
In 1994, the Company issued 560,000 nonqualified options to its president
and principal stockholder exercisable at $.03 per share. In 1995, the Company
issued additional nonqualified options to certain of its employees and advisors
to purchase up to 725,000 shares of the Company's Common Stock for $.03 per
share, including a five-year option to purchase 50,000 shares issued to the
Company's general counsel who is also a board member. A total of 35,000 options
were canceled in 1996 when the option holders left the Company.
The Company has elected to use the intrinsic value-based method of APB
Opinion No. 25 to account for all of its employee stock-based compensation
plans. Accordingly, no compensation cost has been recognized in the accompanying
financial statements for stock options because the exercise price of each option
equals or exceeds the fair value of the underlying common stock as of the grant
date for each stock option, except for stock granted in April 1995 in which the
Company has recorded stock compensation of $2,500, as determined by the
Company's Board of Directors.
The Company has adopted the pro forma disclosure provisions of SFAS No.
123. Had compensation cost for the Company's stock-based compensation grants
been determined in a manner consistent with the fair value approach described in
SFAS No. 123, the Company's net income and net income per share as reported
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Net income
As reported......................................................... $51,603 $9,220
Adjusted pro forma.................................................. 51,507 7,630
Net income per share
As reported......................................................... .03 .01
Adjusted pro forma.................................................. .03 .01
</TABLE>
The fair value of each option is estimated on the date of grant using the
minimum value method with the following weighted average assumptions: No
dividends, an expected life of one to two years, and a risk-free interest rate
of 6.00% for the year ended December 31, 1995.
A summary of the status of the Company's options for the years ended
December 31, 1996 and 1995, is as follows:
F-11
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
FIXED EXERCISE FIXED EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..................... 560,000 $ .03 1,285,000 $ .03
Granted.............................................. 725,000 .03 -- --
Forfeited............................................ -- -- (35,000) .03
Exercised............................................ -- -- (1,250,000) .03
--------- ----------
Outstanding at end of year/period.................... 1,285,000 --
--------- ----------
--------- ----------
Options exercisable at period-end.................... 1,210,000 --
--------- ----------
--------- ----------
Weighted average fair value of options granted during
the year........................................... $ .0025 $ --
--------- ----------
--------- ----------
</TABLE>
In December 1996, the Board of Directors adopted the Company's Stock Option
Plan (the 'Plan') and has reserved up to 500,000 shares of Common Stock for
issuance thereunder. The Plan provides for the granting of options to officers,
directors, employees and advisors of the Company. The exercise of incentive
stock options ('ISOs') issued to employees who are less than 10% stockholders
shall not be less than the fair market value of the underlying shares on the
date of grant or not less than 110% of the fair market value of the shares in
the case of an employee who is a 10% stockholder. The exercise price of
restricted stock options shall not be less than the par value of the shares to
which the option relates. Options are not exercisable for a period of one year
from the date of grant. Thereafter, options may be exercised as determined by
the Board of Directors, with maximum terms of ten and five years, respectively,
for ISOs issued to employees who are less than 10% stockholders and employees
who are 10% stockholders. In addition, under the plan, no individual will be
given the opportunity to exercise ISO's valued in excess of $100,000, in any
calendar year, unless and to the extent the options have first become
exercisable in the preceding year. The maximum number of shares with respect to
which options may be granted to an individual during any twelve month period is
100,000. The Plan will terminate in 2006.
As of January 21, 1997, the Company had granted 85,974 incentive stock
options exercisable at prices ranging from $3.50 to $3.85 per share and 81,526
non-qualified options exercisable at $3.50 per share under the Plan.
PREFERRED STOCK
On December 6, 1996, the Company's stockholders approved an amendment to
the Company's Certificate of Incorporation to authorize the issuance of up to
1,000,000 shares of Preferred Stock. The rights and privileges of the Preferred
Stock have not yet been determined.
F-12
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Current:
Federal........................................................... $ 39,320 $ 7,089
State............................................................. 14,219 4,674
-------- -------
Total current................................................ 53,539 11,763
-------- -------
Deferred:
Federal........................................................... (13,589) (3,398)
State............................................................. (1,344) (336)
-------- -------
Total deferred............................................... (14,933) (3,734)
-------- -------
$ 38,606 $ 8,029
-------- -------
-------- -------
</TABLE>
The Company's effective tax rate differs from the statutory federal tax
rate as shown in the following table:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Computed 'expected' tax expense.......................................... $18,944 $2,587
State tax expenses, net of federal benefit............................... 7,495 1,320
Non-deductible items..................................................... 8,032 3,128
Other.................................................................... 4,135 994
------- ------
$38,606 $8,029
------- ------
------- ------
</TABLE>
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of 1996 and 1995 are
presented below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation....................................................... $14,799 $ 6,741
Tax basis change in accounting method.............................. 6,780 19,271
------- -------
Total deferred tax liabilities..................................... 21,579 26,012
------- -------
Deferred tax assets:
Allowance for doubtful accounts.................................... 7,950 2,700
Accrued reserves................................................... 7,950 2,700
------- -------
Total deferred tax assets.......................................... 15,900 5,400
------- -------
Net deferred tax liabilities............................................ $ 5,679 $20,612
------- -------
------- -------
</TABLE>
NOTE 10 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted SFAS No. 107, which
requires disclosing fair value to the extent practicable for financial
instruments which are recognized or unrecognized in the balance sheet. The fair
value of the financial instruments disclosed therein are not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider
F-13
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the tax consequences of realization or settlement. The following table
summarizes financial instruments by individual balance sheet accounts as of
December 31, 1996.
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Debt maturing within one year..................................... $ 468,321 $ 468,321
Long-term debt.................................................... 801,354 801,354
---------- ----------
Totals....................................................... $1,269,675 $1,269,675
---------- ----------
---------- ----------
</TABLE>
For debt classified as current, it was assumed that the carrying amount
approximated fair value for these instruments because of their short maturities.
The fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities. The carrying amount of
long-term debt approximates fair value.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company's board of directors has approved new employment agreements for
three of its officers, effective January 1, 1997. The agreement with the
Company's president has a five-year term and provides for an annual salary of
$138,000 in the first year, increasing to $175,000 and $210,000 in the second
and third years, respectively. In years four and five, the president's base
salary will be $210,000, but can be increased at the discretion of the board of
director's compensation committee. Under the agreement, the Company will secure
and pay the premiums on a $1,000,000 life insurance policy payable to the
president's designated beneficiary or his estate. The agreement further provides
for medical benefits, the use of an automobile, and grants of 25,974 incentive
stock options and 74,026 non-qualified stock options under the Company's Stock
Option Plan. This agreement was subsequently amended (see Note 13).
The other agreements have a three-year term and replace three-year
contracts currently in effect. Those contracts, which were initiated in 1995,
each provided for salaries of $62,400 per year with 10% annual increases, plus
the grant of 200,000 immediately vested options to purchase shares of the
Company's common stock at $.03 per share. The new agreements each provide for
annual salaries of $104,000 in the first year, increasing by $10,000 each year
thereafter. The agreements further provide for an incentive bonus equal to 1/2
of 1% of net sales payable twice yearly to both officers. Each employee will
also be entitled to a monthly automobile allowance.
Each of the three agreements may be terminated without cause by the
respective employee upon ninety days written notice to the Company.
CONSULTING AGREEMENT
The Company has an agreement for an indefinite term with its general
counsel to provide corporate legal services for a fee of $18,000 per year.
OPERATING LEASES
The Company leases its facilities pursuant to a non-cancelable operating
lease agreement.
Future minimum annual rentals on this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<C> <S> <C>
1997 ..................................................... $ 58,980
1998 ..................................................... 62,280
1999 ..................................................... 62,280
2000 ..................................................... 25,950
--------
$209,490
--------
--------
</TABLE>
Rent expense has been recognized on a straight-line basis to account for
fixed rental escalations during the lease term, resulting in deferred rent of
$4,572 at December 31, 1996. The Company also
F-14
<PAGE>
<PAGE>
ALL COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
leases demonstration facilities at two other locations on a month-to-month
basis. Total rent expense for the years ended December 31, 1996 and 1995 was
$73,957 and $44,300, respectively.
LAWSUIT
The Company is the subject of a civil action filed by an individual on July
23, 1996 in the Superior Court of New Jersey, Middlesex County, arising from an
automobile accident involving a vehicle driven by the plaintiff and a
Company-owned van driven by an individual employed by the Company at the time.
The plaintiff alleges personal injuries due to the negligence of the Company,
the employee, and the driver of a third vehicle involved in the accident, and
seeks damages of $5,000,000. The Company's liability insurance carrier is
defending the action. Although an evaluation of the outcome cannot be made at
the present time, the Company believes that its liability insurance is
sufficient to cover any potential loss resulting from an adverse decision, and
accordingly, has not recorded any provisions for loss in the accompanying
financial statements.
NOTE 12 -- PROPOSED PUBLIC OFFERING
In December 1996, the Company entered into a letter of intent for a $4.9
million firm commitment public offering of 700,000 Units, each unit to consist
of two shares of Common Stock and two Class A Redeemable Common Stock Purchase
Warrants.
NOTE 13 -- SUBSEQUENT EVENTS -- UNAUDITED
NEW RESELLER AGREEMENT
In February 1997, the Company entered into a non-exclusive agreement with
Sprint North Supply ('SNS'), the recently designated exclusive distributor of
Sony videoconferencing products. Under the agreement, SNS will sell Sony
videoconferencing equipment to the Company on terms which are more favorable
than those on which the Company purchased equipment under the Sony reseller
agreement. The agreement expires on January 31, 1998, but may be terminated by
either party upon 60 days' written notice.
AMENDED EMPLOYMENT AGREEMENT
In March 1997, the Company's board of directors approved changes to the
1997 employment agreement with the Company's president (see Note 11). The
amendment provides for an extension of the agreement for an additional year to
six years; a reduction in annual salary to $133,000, $170,000 and $205,000 in
the first, second and third years, respectively, and a minimum annual base
salary of $205,000 in years four through six; and the issuance of 750,000
nonqualified stock options at an exercise price of $5.00 per share.
NEW LEASE
In March 1997, the Company entered into a new five-year lease for the use
of office and warehouse space. The lease provides for annual base rent of
$63,680 plus a proportionate share of operating expenses, and includes a five
year renewal option. The lease will commence on the earlier of the date on which
the construction of the premises is completed, or the Company occupies the
facility. The building is owned by an entity in which a member of the Company's
board of directors is a part owner. The Company believes that the lease reflects
a fair rental value for the property.
F-15
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_____________________________ _____________________________
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OR PROJECTIONS OF FUTURE PERFORMANCE
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ANY SUCH OTHER INFORMATION,
PROJECTIONS OR REPRESENTATIONS, IF GIVEN OR MADE, MUST NOT BE RELIED UPON AS
HAVING BEEN SO AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS OR ANY SALE HEREUNDER
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY ANY OF THE COMMON STOCK OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................................... 3
Risk Factors............................................................................................................... 7
Dilution................................................................................................................... 14
Use of Proceeds............................................................................................................ 15
Capitalization............................................................................................................. 17
Dividend Policy............................................................................................................ 17
Selected Financial Data.................................................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 19
Business................................................................................................................... 21
Management................................................................................................................. 30
Certain Transactions....................................................................................................... 35
Interim Financings......................................................................................................... 36
Principal Stockholders..................................................................................................... 36
Selling Securityholders and Plan of Distribution...........................................................................
Description of Securities.................................................................................................. 38
Underwriting............................................................................................................... 41
Legal Matters.............................................................................................................. 43
Experts.................................................................................................................... 43
Concurrent Offering........................................................................................................ 43
Additional Information..................................................................................................... 44
Index to Financial Statements.............................................................................................. F-1
</TABLE>
------------------------
UNTIL MAY 23, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN ITS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
25,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
APRIL 28, 1997
_____________________________ _____________________________
STATEMENT OF DIFFERENCES
------------------------
The registered trademark symbol shall be expressed as....'r'
<PAGE>
