U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB/A (Amendment No. 1)
[X ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Calender year ended December 31, 1999 .
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to _________.
Commission File Number: 0-27067
COMMUNITRONICS OF AMERICA, INC.
(Name of Small Business Issuer in its charter)
Utah 87-0285684
(State or Other Jurisdiction of (IRS Employer ID Number)
Incorporation or Organization)
27955 Highway 98, Suite WW, Daphne, Alabama 36526
(Address of Principal Executive Offices and Zip Code)
Issuer's telephone number: (334) 626-7650
Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered: Not Applicable
Name of each exchange on which each class is to be registered: Not Applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $ .01
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [x] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's total revenues for the year ended December 31, 1999 were
$ 1,088,090 .
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock, as of
December 31, 1999, was $797,471 based on an estimated 1,812,436 shares held by
non-affiliates.
The number of shares outstanding of the Company's common stock ($ .01
par value), as of December 31, 1999, was 7,922,936 shares.
Total Number of Pages: 39
List of Exhibits is Located on Page: 16
<PAGE>
INDEX TO FORM 10-KSB
of
COMMUNITRONICS OF AMERICA, INC.
Item Number and Caption Page
PART I
Item 1. Description of Business. . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property. . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6. Selected financial data. . . . . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . . . . 10
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . 13
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act. . . . . . . . 13
Item 11. Executive Compensation . .. . . . . . . . . . . . . . . . . . . . 15
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 15
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
Statements contained or incorporated by reference in this document that are
not based on historical fact are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by use of forward-looking
terminology such as "may", "will", "expect", "estimate", "anticipate",
"continue", or similar terms, variations of those terms or the negative of
those terms. Forward-looking statements are based upon numerous assumptions
about future conditions that could prove not to be accurate. Actual events,
transactions and results may differ materially from the anticipated events,
transactions and results described in such statements. The Company's ability
to consummate such transactions and achieve such events or results is subject
to certain risks and uncertainties.
PART I
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Item 1. Description of Business
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General
Communitronics of America, Inc. (the "Company") was incorporated under the
laws of the State of Utah in September 1970 and is headquartered in Daphne,
Alabama. Communitronics of America, Inc., or one of its predecessors, has
operated paging, two-way mobile communications services, and telemessaging
services in South Alabama for over 25 years. References to Communitronics or
the Company as used throughout this document means Communitronics of America,
Inc. or Communitronics of America, Inc. and its subsidiaries, as the context
requires.
Communitronics provides wireless messaging such as conventional paging and
other telecommunications services in non-major metropolitan areas and
communities. Currently the Company provides services in Alabama, Florida,
Louisiana, and Mississippi. The Company has 6 sales offices in those states.
Through inter-carrier arrangements, Communitronics also provides nationwide
and expanded regional coverage.
Communitronics overall business strategy is to continue growing in its
existing markets as well as to enter similar, adjacent markets by opening new
sales offices or acquiring other regional paging companies. The Company would
consider acquisitions of paging companies that cover larger metropolitan areas
provided that those companies also service markets that are strategically
located near the Company's existing markets. Communitronics believes its
current markets continue to offer significant growth potential for paging and
other wireless services. During the next two years, the Company intends to
focus most of its expansion efforts on opening new sales offices in targeted
market areas already serviced by its existing paging system and broadening its
range of products sold. By reducing overhead costs, expanding sales and
marketing efforts, and focusing on customer service, the Company believes that
it can improve its operating margins while achieving continued pager unit and
revenue growth. Additionally, if the opportunity to acquire other regional
paging companies arises, the Company believes it can achieve better operating
results than those achieved by the businesses separately by consolidating
administrative functions, taking advantage of economies of scale, and sharing
common frequencies to offer existing customers a wider area of paging
coverage.
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Paging Industry Background
In 1949 the Federal Communications Commission ("FCC") allocated a group of
radio frequencies for use in providing one-way and two-way mobile
communications services, effectively creating the paging industry. Since then
the paging industry has been characterized by consolidation, substantial
growth, and technological change. In the early years, the paging industry was
highly fragmented, with a large number of small, local operators. Many of the
firms that entered the paging business during the first two decades of the
industry did so as a complement to their existing telephone answering service
or two-way radio communications sales and service businesses. The industry
grew slowly as the quality and reliability of equipment gradually improved and
consumers began to perceive the benefits of mobile communications. Further
improvements in equipment reliability and cost-effective technological
innovations accelerated the use of paging services in the 1970's.
Some of the paging industry's most significant technological developments
occurred in the 1980's. The digital display (numeric) pager was introduced and
quickly replaced tone and voice pagers as the most popular paging product. In
1982 the FCC allocated additional frequencies, which expanded coverage areas
and introduced competition into the market. More significant technological
developments have also occurred in the 1990's, including the advent of two-way
paging capabilities that do not require the use of traditional or cellular
telephones to return a page and cellular telephones that incorporate paging
capability.
Although the one-way paging industry's growth rate is difficult to determine
precisely, sources estimate that pagers in service have grown at an annual
rate of between 20% and 30% for much of the early 1990's. At the end of 1996,
approximately 42 million pagers were in service in the United States and
approximately 6 million net new subscribers were added during 1997, resulting
in a growth rate of a much lower 14%. As the industry continues to mature,
these growth rates are expected to decline further with the number of pagers
in service peaking as early as 2002. Factors contributing to the industry's
growth include: (i) the increased mobility of the general population; (ii) a
continued movement towards a service-based economy; (iii) an increased
awareness of the benefits of mobile communications; (iv) the relatively high
costs of other mobile communications services such as cellular telephone
service; and (v) technological advances in paging equipment and services. In
addition to the projected general industry growth, there is opportunity for
Communitronics to gain greater market share by offering quality products and
services at competitive prices with outstanding customer service.
Three types of carriers have emerged in the paging industry: (i) large,
national paging companies; (ii) regional carriers, including Communitronics,
that operate in regional markets in the U.S. that can also offer service
outside of their home regions through a network of interconnections between
their own systems, a national firm, and/or other regional providers; and (iii)
small, single market operators.
The Company's Products and Markets
Paging Operations
The Company owns 100% of each of its frequency licenses. In its coastal
markets, the Company's systems cover large contiguous geographic areas with
multiple Paging Sites, incorporating cost efficient technology.
The Company's experience is that several inherent attributes of such markets
are attractive. Such attributes include high subscriber growth rates,
population
2
<PAGE>
bases of customers with substantial needs for wireless communications, the
ability to cover larger geographic areas with fewer Paging Sites than is
possible in urban areas, less intense competitive environments and less
vulnerability to competition.
The Company presently owns approximately 60 FCC-licensed frequencies of
which 34 are presently operated by the Company, for its wireless message
paging services in the southeast and Gulf Coastal areas of the United States.
The Company intends to focus on the national frequency of 152.630. However, it
also uses several other frequencies wherever necessary in Alabama, Florida,
Louisiana and Mississippi. The 152.630 frequency is a nationally licensed
frequency. The Company intends to expand its operations in these and other
states, and to install new state-of-the-art paging equipment with e-mail
capabilities. The Company recently purchased equipment with e-mail
capabilities at a cost of approximately $150,000 which is being deployed in
its New Orleans and Baton Rouge, Louisiana markets.
The Company also has traffic passing agreements with other paging companies
that own the 152.630 license for Tennessee, and for parts of Alabama and
Mississippi not owned by the Company.
Communitronics' paging network provides a one-way communications link to its
subscribers within a specified coverage area. Each subscriber is assigned a
distinct telephone number or personal identification number that a caller
dials to activate the subscriber's pager. When one of the Company's paging
terminals receives a telephone call for a subscriber, a radio signal is
transmitted to the subscriber's pager that then causes the pager to emit a
tone, a vibration, or a voice signal to alert the subscriber. Depending on the
type of pager used, the subscriber may respond directly to the caller using
information displayed on the pager or by calling a designated location or
voice mail system to retrieve the message. The advantage of paging over
conventional telephone service is that a pager's reception is not restricted
to a single location. The advantage over cellular telephones is that pagers
are smaller, have a longer battery life, and are substantially less expensive
to use. Some cellular subscribers use a pager along with their cellular
telephone to screen incoming calls and to lower the expense of their cellular
telephone service.
Communitronics currently provides four basic types of paging services:
numeric, alphanumeric, tone-only, and tone-plus-voice. Subscribers carry a
pocket-sized radio receiver (a pager) that is preset to monitor a designated
radio frequency and is activated by radio signals emitted from a transmitter
when a call is received. Numeric pagers display a caller's message that may
consist of an area code and telephone number or up to 12 digits of other
numeric information. Alphanumeric pagers allow subscribers to receive and
store messages consisting of both numbers and letters. With tone-only service,
the subscriber's pager produces an audible "beep" or vibration when activated,
and tone-plus-voice service causes a subscriber's pager to beep and then play
a brief voice message. Subscribers may be paged using traditional or cellular
telephones, computer software, alpha entry devices, or over the Internet from
the Company's web page. Communitronics is licensed by the FCC to transmit
numeric, alphanumeric, tone, and voice messages to pagers it either sells or
leases to customers.
Numeric and alphanumeric paging services have almost completely replaced
Communitronics' tone-only or tone-plus-voice services. Today over half of the
Company's pagers in service are numeric pagers. Alphanumeric pagers, which
were introduced in the mid-1980's, constitute a smaller but increasing
percentage of the Company's subscriber base.
Communitronics also offers its paging subscribers voice mail messaging.
When a subscriber uses voice mail in conjunction with paging service and a
caller leaves the subscriber a recorded message, the subscriber is
automatically paged.
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<PAGE>
Voice mail employs sophisticated computer technology that
allows a subscriber to retrieve these digitally recorded voice messages 24
hours a day from any location by accessing the voice mail system using a
touch-tone telephone. The Company's voice mail systems provide complete
message privacy, allow for personalized message greetings, and enable voice
messages to be sent to a large group of people simultaneously.
Paging companies have traditionally distributed their services through
direct marketing and sales activities. In recent years, though, additional
distribution channels have evolved. These channels include (i)
carrier-operated stores; (ii) resellers, who purchase paging services on a
wholesale basis from carriers and resell those services on a retail basis to
their own customers; (iii) agents who solicit customers for carriers and are
compensated on a commission basis; and (iv) retail outlets that often sell a
variety of merchandise, including pagers and other telecommunications
equipment. Historically, most paging subscribers have been business users.
However, pager use among retail consumers has increased significantly in
recent years. In addition, paging subscribers have increasingly chosen to
purchase rather than lease their pagers as equipment costs have declined. The
Company expects such trends to continue.
Communitronics' paging customers include various-sized companies with field
sales and service operations, individuals in occupations requiring substantial
mobility and the need to receive timely information, and a rapidly expanding
base of individual consumers who use pagers to stay in touch with friends and
family. Some of the Company's customers even use pagers rather than home
telephones as their primary means of communication. These customers respond to
pages using pay phones or the telephones of friends and family. Communitronics
is not dependent upon any single or small group of customers for a material
part of its overall business.
Communitronics' sales strategy is to concentrate on business accounts and on
individuals who value continuity, quality, and personal service. Historically,
the Company has emphasized pager sales over rentals. Communitronics offers its
subscribers a high level of technical support and provides a full range of
dependable communications devices and services.
The Company now markets all its products and services under the
Communitronics name. In order to access the broadest possible market, the
Company uses multiple paging distribution channels. These channels include (i)
Company-operated sales offices, including mall and other shopping center
locations, that sell pagers to the consumer market; (ii) a direct sales staff
that concentrates on business accounts; (iii) resellers, who purchase pagers
and paging services in bulk and resell them to their own subscribers; and (iv)
the resale of other paging carriers' services when customers require coverage
outside Communitronics coverage areas.
Specialized Mobile Radio LTR Trunking
Specialized mobile radio (SMR) transmissions are broadcast over either 400
MHZ, 800 MHZ or 900 MHZ frequencies. These frequencies have limited spectrum
which means a limited number of customers can be served using the available
frequencies. Because a majority of the 800 MHZ channels in New Orleans,
Louisiana have been acquired by Nextel, Nextel is in a unique position to
control the SMR market and telephone interconnect because of the limited
nature of the remaining frequencies. This limits the number of customers that
can be served by the Company.
During 1998, Nextel announced the discontinuance of providing analog
transmission (5 KHz). For their customers who currently use analog equipment,
this decision will require them to purchase new digital equipment at a
substantial cost and will raise their monthly recurring fee.
4
<PAGE>
The Company has recently acquired eleven 800 MHZ channels. These channels
will allow the Company to provide the best quality in dispatch and telephone
interconnect communications to commercial and industrial users. The advantage
of the 800 MHZ over the newly granted 900 MHZ spectrum is full 5 KHz deviation
versus 2.5 KHz. The difference equates to the quality of the audio signal
being twice as efficient for the 800 MHZ which translates into better quality
and increased range. These eleven channels can support approximately 2000 to
2500 users with many options not available in conventional dispatch systems.
In addition to the 800 MHZ channels, the Company controls eight UHF (450
MHZ) dispatch channels. These channels are presently conventional, which means
they are push-to-talk and release-to-hear and they are first come, first serve
for that channel. If two customers were trying to use radios on the same
channel at the same time, one customer would get through and the other one
would receive a busy signal and have to wait to use the channel when it is
clear. Over the next 3 to 4 months, the Company will convert these channels
into LTR trunking format which means that if two customers try to use the same
channel at the same time both of them would be successful in using the radio
due to the fact that one of them would be moved automatically to an unused
channel. The conversion will allow the Company to provide existing as well as
future customers with the best quality communication available today.
The Company plans to exploit these channels in New Orleans by offering to
customers the choice of continuing analog transmission. These customers'
equipment can easily be re-fitted to operate on the Company's channels thereby
eliminating the need to replace equipment. Because of limited spectrum, these
channels become more valuable as time passes.
The principal customers of the Company for its SMR transmission services are
small businesses such as taxi companies, delivery companies, trade contractors
and service companies that have fleets of vehicles.
Two-way Radio Sales and Service
The Company is an authorized dealer for Kenwood, ICOM, and Yeasu/Standard.
As a dealer, the Company is authorized to sell and service these manufacturers
two-way radios. The Company targets organizations that have their own
frequencies, such as governmental agencies, hospitals, etc., for two-way radio
sales. In addition, the Company has a fully-staffed service department that
repairs and maintains equipment sold.
Financial Information about Industry Segments
Communitronics operates in the wireless telecommunications industry,
providing paging and messaging, cellular, and two-way radio services to a
diversified customer base. As of and for the years ending December 31, 1999
and 1998, the Company had no foreign operations.
Communitronics' two-way radio operations represent less than 10%
individually and in the aggregate of revenue, operating income, and assets of
the Company.
Sources of System Equipment and Inventory
Communitronics does not manufacture its paging network equipment, including
but not limited to antennas, transmitters, and paging terminals, nor does it
manufacture any of the pagers, cellular telephones, or two-way radios it
sells. This equipment is available for purchase from multiple sources, and the
Company anticipates that such equipment will continue to be available in the
foreseeable future, consistent with normal manufacturing and delivery lead
times. Because of the high degree of compatibility among different models of
transmitters, computers and other paging and voice mail equipment manufactured
by its
5
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suppliers, Communitronics' paging network is not dependent upon any
single source of such equipment. The Company currently purchases pagers and
transmitters from several competing sources and its paging terminals from
Glenayre and Motorolla, both leading manufacturers of mobile communications
equipment. Two-way radios are also available from several sources.
Communitronics continually evaluates potential products to offer in its
sales offices since those offices primarily target the consumer market, and
consumers have consistently requested other telecommunication products in
addition to paging, voice mail, two-way radio services and radio dispatch
services. Services such as internet access, long distance, and local telephone
service are currently being investigated. Communitronics plans to continue
introducing new products and services to its customers as viable ones are
identified.
Competition
Competition for subscribers is based primarily on the price and quality of
services offered and the geographic area covered. Communitronics has one or
more direct competitors in all its markets, some of whom have greater
financial resources than Communitronics. The Company believes, however, that
the price and quality of its services and its geographic coverage areas within
its markets compare favorably with those of its competitors.
Although some competitors are small, privately owned companies serving only
one market area, others are subsidiaries or divisions of larger companies,
such as telephone companies, which provide paging and other telecommunications
services in multiple market areas. Among the Company's competitors are
Teletouch Communications, Inc., Arch Paging, Beepers Unlimited, Metrocall and
PageNet.
Companies offering wireless two-way communications services, including
cellular, PCS, and specialized mobile radio services ("SMR"), also compete to
a certain extent with Communitronics' paging services. Cellular and PCS
service is generally more expensive than paging services and where price is a
consideration or access to fixed wire communications (such as ordinary
telephones) is available, paging can compete successfully with or be an
adjunct to cellular and PCS systems. Future technological advances and
associated regulatory changes in the industry could also create new products
and services that would either put Communitronics at a competitive advantage
or disadvantage with other companies.
Regulation
The FCC regulates Communitronics' paging operations under the Communications
Act of 1934, as amended (the "Communications Act") by granting the Company
licenses to use radio frequencies. These licenses also set forth the technical
parameters, such as location, maximum power, and antenna height, under which
the Company is permitted to use those frequencies.
In 1996, the FCC implemented rules that revised the classification of most
private-carrier paging licensees. Traditionally, the FCC has classified
licenses as either Radio Common Carrier licenses ("RCC") or Private Carrier
Paging ("PCP") licenses. Now all licenses are classified either as Commercial
Mobile Radio Service ("CMRS") or Private Mobile Radio Service ("PMRS").
Carriers like Communitronics and its competitors, who make service available
to the public on a for-profit basis through interconnections with the public
switched telephone network, are classified as CMRS licensees. Until recently,
Communitronics' RCC licenses were subject to rate and entry regulations in
states that chose to impose tariff and certification obligations, whereas PCP
licenses were not subject to such regulations. As a result of Congressional
legislation, the state regulatory differences between RCCs and PCPs have been
eliminated.
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The FCC has also adopted rules that license paging channels in the exclusive
UHF and VHF bands, as well as in the exclusive 929 and 931 MHZ bands, on a
geographic area basis. These geographic area licenses are awarded through
auctions. The 929 and 931 MHZ bands were auctioned in 1998 and lower bands
will be auctioned in the fourth quarter of 1999. Incumbent licensees, such as
Communitronics, will retain their exclusivity under the FCC's new rules. The
Company also operates paging systems utilizing shared, non-exclusive
frequencies below 929 MHZ. The FCC has indicated that these shared frequencies
will not be subject to these upcoming auctions.
The FCC grants radio licenses for varying terms of up to 10 years, and
renewal applications must be approved by the FCC. In the past, FCC renewal
applications have been more or less routinely granted. Although there can be
no assurance the FCC will approve or act upon Communitronics' future
applications in a timely manner, the Company believes that such applications
will continue to be approved with minimal difficulties.
Under current FCC guidelines, the Company can expand its coverage and add
additional sites only on frequencies formerly classified as PCP frequencies
below 929 MHZ. All other paging frequencies on which Communitronics holds
licenses are frozen in a status quo condition pending the final announcement
and implementation of geographic area licensing auctions. The Communications
Act also requires prior FCC approval for the Company's acquisitions of radio
licenses held by other companies, as well as transfers of controlling
interests of any entities that hold radio licenses. Although there can be no
assurance the FCC will approve or act upon Communitronics' future applications
in a timely manner, the Company knows of no reason to believe such
applications would not be approved or granted. The FCC has also determined
that all major modification and expansion applications will be subject to
competitive bidding ("auction") procedures. Communitronics cannot predict the
impact of these procedures on its licensing practices.
The Communications Act requires the FCC to limit foreign ownership of
licenses. These foreign ownership restrictions limit the percentage of company
stock that may be owned or voted, directly or indirectly, by aliens or their
representatives, a foreign government or its representatives, or a foreign
corporation. The FCC also has the authority to restrict the operation of
licensed radio facilities or to revoke or modify such licenses. The FCC may
adopt changes to its radio licensing rules at any time, subject to following
certain administrative procedures. The FCC may also impose fines for
violations of its rules. Under certain circumstances, Communitronics' license
applications may be deemed "mutually exclusive" with those of other paging
companies, in which case the FCC would select between the mutually exclusive
applicants. The FCC has previously used lottery procedures to select between
mutually exclusive paging applications; however, in response to a
Congressional mandate, the FCC adopted rules to grant mutually exclusive CMRS
paging applications through the auction process.
The FCC could change its rules or policies in a manner that could have a
material adverse effect on the Company's business. Such actions could affect
the scope and manner of Communitronics' services, or could lead to increased
competition in the paging industry. Beginning in 1994, the FCC was ordered by
Congress to hold auctions to award licenses for new personal communications
services. These and other new mobile services could compete directly or
indirectly with the Company. In addition, from time to time, federal and state
legislators propose legislation that could affect the Company's business
either beneficially or adversely. Communitronics cannot predict the impact of
such legislative actions on its operations.
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The foregoing description of certain regulatory factors does not purport to
be a complete summary of all the present and proposed legislation and
regulations pertaining to the Company's operations.
Employees
At December 31, 1999, Communitronics employed 15 people, of which 13 were
full-time. Most of these individuals were in sales, operations support, and
clerical roles. The Company considers its relationships with its employees to
be satisfactory and is not a party to any collective bargaining agreement.
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Item 2. Description of Property
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Communitronics owns a transmitter site, along with the broadcast tower on
that site. In addition, the Company currently leases 6 retail and office
locations in its market areas, including its executive offices in Daphne,
Alabama. Communitronics also leases transmitter sites on commercial towers,
buildings, and other fixed structures in approximately 16 locations. The
Company's leases are for various terms and provide for monthly rental payments
at various rates. Communitronics is obligated to make total lease payments of
approximately $185,000 under its office facility and tower site leases for
year ending December 31, 2000. See Note 9 in the Notes to Consolidated
Financial Statements.
The Company believes that its facilities are adequate for its current needs
and that it will be able to obtain additional space as needed at reasonable
cost.
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Item 3. Legal Proceedings
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The Company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
No director, officer or affiliate of the Company, and no owner of record or
beneficial owner of more than 5.0% of the securities of the Company, or any
associate of any such director, officer or security holder is a party adverse
to the Company or has a material interest adverse to the Company in reference
to any litigation.
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Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during the fourth
quarter of calendar year 1999.
PART II
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Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
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On November 6, 1998, Communitronics' securities began trading on The OTC
NASDAQ Small Cap Market(TM) ("NASDAQ") under the symbol BEEP.
8
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The following table presents, for the periods indicated, the reported high
and low transaction prices for Communitronics Common Stock for the periods
such securities were traded on OTC NASDAQ as noted above. Such prices reflect
inter-dealer prices, but do not include retail mark-ups, markdowns, or
commissions and may not necessarily represent actual transactions.
Year Ended December 31, 1998 High Low
---------------------------- ---- ---
3rd Quarter Unpriced Unpriced
4th Quarter $ 3.0625 $ 2.00
Year Ended December 31, 1999 High Low
---------------------------- ---- ---
1st Quarter $ 3.00 $ 1.50
2nd Quarter 2.75 .8125
3rd Quarter 1.875 .125
4th Quarter .75 .125
As of December 31, 1999, 7,922,936 shares of common stock were outstanding.
Also as of December 31, 1999, there were 494 holders of record of the Common
Stock based upon information furnished by Progressive Transfer Company, Salt
Lake City, Utah, the transfer agent for the Common Stock.
Communitronics has never paid and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
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Item 6. Selected Financial Data
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The following table presents certain items from the Company's consolidated
statements of operations and certain other information for the periods
indicated.
1999 1998
------------ ------------
Revenues . . . . . . . . . . . . . . . . . . . $ 1,046,342 $ 1,156,731
Cost of goods sold . . . . . . . . . . . . . . 620,065 509,432
General and administrative expenses. . . . . . 591,431 409,926
Depreciation . . . . . . . . . . . . . . . . . 102,928 62,019
Non-recurring charges. . . . . . . . . . . . . 188,848 200,354
Interest . . . . . . . . . . . . . . . . . . . 29,417 4,372
------------ ------------
Net income (loss). . . . . . . . . . . . . . . $ (486,347) $ (29,372)
============ ============
Net income (loss) per share. . . . . . . . . . $ (.06) $ (.01)
============ ============
EBITDA (1) . . . . . . . . . . . . . . . . . . $ (165,154) $ 237,373
============ ============
Pagers in service at end of year . . . . . . . 4,300 4,800
============ ============
Average revenue per unit ("ARPU"). . . . . . . $ 10.91 $ 13.23
============ ============
9
<PAGE>
Total assets . . . . . . . . . . . . . . . . . $ 1,515,213 $ 944,147
============ ============
Long-term debt . . . . . . . . . . . . . . . . $ 613,827 $ 91,415
============ ============
__________________________
(1) EBITDA represents earnings before interest, taxes, depreciation, and
amortization (and certain non-recurring income and expenses). EBITDA is
a standard measure of financial performance in the paging industry.
However, EBITDA is not a measure defined in generally accepted
accounting principles ("GAAP") and should not be construed as an
alternative to operating income or cash flows from operating activities
as determined in accordance with GAAP. BITDA may not be comparable to
similarly titled measures reported by other companies.
------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Operations or Plan of
Operations.
------------------------------------------------------------------------------
Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. The Company's ability to
consummate such transactions and achieve such events or results is subject to
certain risks and uncertainties. Such risks and uncertainties include, but are
not limited to, the existence of demand for and acceptance of the Company's
products and services, regulatory approvals and developments, economic
conditions, the impact of competition and pricing, results of financing
efforts and other factors affecting the Company's business that are beyond the
Company's control. The Company undertakes no obligation and does not intend to
update, revise, or otherwise publicly release the results of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
report.
Overview
Communitronics is a leading provider of wireless message paging and
information delivery services. Wireless message paging is comprised of
numeric paging that permits a pager to register the telephone number of the
caller to the customer. Information delivery systems is comprised of both
numeric paging and text messaging services.
The Company has a network of 14 radio towers (one tower is owned by the
Company and 13 towers are leased) to deliver wireless messaging services in
the coastal regions of Alabama, Louisiana, Mississippi and the Florida
panhandle. The Company owns seven Certificates of Public Convenience and
Necessity issued by the Alabama Public Service Commission and 34 frequencies
licensed by the Federal Communications Commission. These certificates and
licenses allow the Company to provide wireless messaging services in these
geographic areas.
The Company supports its operations from its executive offices in Daphne,
Alabama, and from its operation offices located in Foley, Alabama; Metairie,
Louisiana; Gulfport, Mississippi; and Pascagoula, Mississippi.
The geographic areas served by the Company covers approximately 10,000,000
persons. In its markets, the Company presently serves approximately 4,300
10
<PAGE>
subscribers to its message paging and information delivery services at
December 31, 1999.
The Company derives the majority of its revenues from fixed, periodic
(usually monthly) fees, generally not dependent on usage, charged to
subscribers for paging services. While a subscriber continues to use the
Company's services, operating results benefit from this recurring revenue
stream with minimal requirements for incremental selling expenses or other
fixed costs.
Acquisitions and Disposals
None
Results of Operations for the years ended December 31, 1999 and 1998
Total revenue: Total revenues decreased approximately $110,000, or
approximately 9.0%, from $1,157,000 for the year ended December 31, 1998
("1998") to $1,046,000 for the year ended December 31, 1999 ("1999"). Net
revenues decreased approximately $199,000, or 22.1%, from $900,000 in 1998 to
$701,000 in 1999. The decrease in net revenues was primarily the result of a
decrease in the gross profit on product sales and normal attrition of paging
customers. The total number of subscribers decreased by 500 since December 31,
1998. This decrease was due to normal attrition which was not entirely offset
with new pager sales due to a lack of inventory in 1999 and management's
efforts were concentrated on new acquisition possibilities at that time. The
lack of inventory in 1999 was attributable to a delivery problem with a new
vendor. ARPU for Communitronic's paging services decreased $2.32 per unit
from $13.23 in 1998 to $10.91 per unit in 1999. The decrease in ARPU was
primarily attributable to customers not requesting high premium, value added
services as opposed to the previous period and selected rate increases
partially offset by internal growth in the Company's reseller and strategic
alliance indirect distribution channels, which generate lower ARPU sales and
lower operating costs per unit for the Company. Factors that may adversely
affect ARPU in future periods include distribution mix of new subscribers,
competition and new technologies, among others.
Product Sales: Product sales, which consist primarily of sales of paging
equipment, increased approximately $88,000 or 34.6% from $257,000 in 1998 to
$346,000 in 1999 and increased as a percentage of net revenues from 43.8% in
1998 to 69.0% in 1999. The increase is due to the fact that product sales for
1998 only include the sales of one major acquisition for four months and
another major acquisition for one month. The year 1999 product sales includes
all subsidiaries for a full year and 1998 only includes partial year
information for two subsidiaries. The cost of product sales increased
approximately $89,000 or 35.0% from $257,000 in 1998 to $346,000 in 1999
principally due to the increase in product sales and an increase in unit
costs. Pagers are classified as inventory when purchased and the cost is
included in cost of product sales when the unit is sold.
Service, Rent and Maintenance Expenses: Service, rent and maintenance
expenses increased approximately $22,000 from $253,000 in 1998 to $275,000 in
1999 and increased as a percentage of net revenues from 28.1% in 1998 to 39.2%
in 1999. This increase was attributable to increases in personnel costs,
tower site rents and telecommunications expenses. The Company expects its
service, rent and maintenance expenses to decrease as a percentage of revenues
and per subscriber unit in future periods as it continues to renegotiate
certain of its telecommunications and third party services contracts and
decommissions redundant transmitter and tower sites. The Company expects such
expense savings to be
11
<PAGE>
partially offset by an increase in rental costs for other transmitter and
tower sites as the Company enhances its presence in the Southeastern United
States.
General and Administrative Expenses: General and administrative expenses
increased approximately $182,000 from $410,000 in 1998 to $592,000 in 1999,
and increased as a percentage of net revenues from 45.6% in 1998 to 84.4% in
1999. The increase in general and administrative expenses is attributable to
costs associated with acquisitions and additional reporting requirements which
require additional personnel costs and professional fees.
Depreciation Expense: Depreciation expense increased approximately $41,000
from $62,000 in 1998 to $103,000 in 1999. The increase in depreciation expense
resulted primarily from depreciation expense on transmission equipment and
other capitalized assets acquired in 1999 through financing.
Interest Expense: Interest expense increased approximately $25,000 from
$4,000 in 1998 to $29,000 in 1999. Interest expense increased due to higher
average debt balances outstanding during 1999. Average debt balances were
$306,000 greater in 1999 than in 1998 as a result of debt incurred related to
capital expenditures and working capital requirements.
Net Loss: The Company's net loss increased approximately $457,000 from
$29,000 in 1998 to $486,000 in 1999. The increase in net loss was primarily
the result of the decrease in subscribers as discussed above and the increase
in costs associated with pursuing and consummating these acquisitions and
additional reporting requirements incurred. The Company expects net losses to
decrease in future periods.
EBITDA: EBITDA decreased to $(165,000), 0% of total revenue, in fiscal year
1999 as compared to $237,000, 21% of total revenue, in fiscal year 1998. As a
percentage of total revenue, EBITDA did not increase in fiscal 1999 because
new retail store openings, increased tower lease expenses, and administrative
and consulting costs associated with new reporting requirements (see (1) on
page 10).
Financial Condition
For the year ended December 31, 1999, the Company's cash used in operating
activities decreased by approximately $104,000 from $224,000 in 1998 to
$120,000 in 1999. The decrease in cash used in operating activities was
primarily the result of issuing stock for consulting services and a net
increase in accounts payable as of December 31, 1999 compared to December 31,
1998, which net increase was a result of higher operating expenses between
periods. This increase in accounts payable was offset by an increase in
prepaid expenses as of December 31, 1999 compared to December 31, 1998.
Net cash used in investing activities increased approximately $404,000 from
$68,000 for the year ended December 31, 1998 to $472,000 for the year ended
December 31, 1999. The increase in net cash used for investing activities was
primarily the result of an increase in purchases of property and equipment and
an investment in network equipment. Capital expenditures were approximately
$37,000 and $161,000 for the year ended December 31, 1998 and 1999,
respectively. Capital expenditures for the year ended December 31, 1999
included approximately $147,000 for transmitter and switch equipment. The
investment in network equipment totaled $336,000. The balance of capital
expenditures was primarily for network construction and development and
information systems and computer related equipment. Total capital expenditures
for fiscal year 1999 are expected to approximate $200,000. The Company expects
to finance its capital expenditures for the remainder of fiscal year 1999
through its operating cash flows. Projected capital expenditures are subject
to change based on the progress of internal growth, general business and
economic conditions and competitive pressures.
12
<PAGE>
Net cash provided by financing activities increased approximately $240,000
from $324,000 for the year ended December 31, 1998 to $564,000 for the year
ended December 31, 1999. The increase was primarily the result of new
long-term borrowing and a loan from stockholder.
Year 2000 Issues
Communitronics has developed a Year 2000 compliance plan to address the
issue of software currently in use that may have time or date sensitivity that
requires correction. If not addressed, system failures or miscalculations
could cause disruptions of operations, including, among other things, a
temporary inability to process transactions, prepare invoices, or engage in
similar normal business activities.
Communitronics has contacted its major vendors and received written
confirmation of Year 2000 compliance from them. These vendors provide the
Company with software programs that cover the transmission of paging signals,
invoicing and retention of customer activity, and the reporting of the
Company's financial and accounting transactions.
All of these programs are covered under existing maintenance agreements, and
no significant costs have been incurred with respect to Year 2000 compliance
issues.
Although Communitronics has received assurances that it will be Year 2000
compliant and expects no significant issues or expenses with respect to Year
2000, the Company is continuing to review its product offering for potential
problems. Communitronics is also in the process of developing Year 2000
contingency plans in the event of unforeseen circumstances.
------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data
------------------------------------------------------------------------------
Filed herewith are the Company's audited financial statements for the years
ended December 31, 1999 and 1998.
------------------------------------------------------------------------------
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
------------------------------------------------------------------------------
None.
PART III
------------------------------------------------------------------------------
Item 10. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act
------------------------------------------------------------------------------
The directors and executive officers currently serving on the Company are
as follows:
13
<PAGE>
NAME AGE POSITION HELD SINCE
------ ----- --------------- -------
David R. Pressler 54 Chairman of the Board, 1998
Director, Chief Executive
Officer and President
Samuel Mastrull 72 Director, Chief Financial 1998
Officer and Secretary
James H. Flanagan 70 Director 1998
Charles H. Hillman 39 Director 1998
The directors named above will serve until the next annual meeting of the
Company's stockholders. Thereafter, directors will be elected for one-year
terms at the annual stockholders' meeting. Officers will hold their positions
at the pleasure of the board of directors, absent any employment agreement, of
which none currently exists. There is no arrangement or understanding between
the directors and officers of the Company and any other person pursuant to
which any director or officer was or is to be selected as a director or
officer.
Biographical Information
Mr. Pressler became Chairman of the Board, Chief Executive Officer, and
President of the Company on October 26, 1998, following the Company's
acquisition of all of the issued and outstanding stock of Communitronics, Inc.
He founded and was the President of Communitronics, Inc. from 1975 until its
acquisition by the Company. Mr. Pressler holds an FCC Master Radio Engineer
Rating with radar endorsement. He is a certified engineer (EI-0216), and is a
senior member of the National Association of Radio and Telecommunications
Engineers.
Mr. Mastrull became a director and the Chief Financial Officer and Secretary
of the Company on October 26, 1998. From 1995 to 1997, he was a registered
representative with the securities firm of Joseph Charles Investment Bankers.
From 1987 to 1995, he was the owner and President of Compliance Technology,
Inc. which assisted companies seeking financing from lending institutions.
From 1976 to 1987, Mr. Mastrull was an ombudsman employed by the State of News
Jersey. From 1962 to 1976, Mr. Mastrull was a registered representative
employed by several securities brokerage firms. Mr. Mastrull received a
business administration degree from Drake College in 1995.
Mr. Flanagan became a director of the Company on October 26, 1998. He is
presently retired. From 1957 to 1997, he was the President and co-owner of
Pascagoula Drug Company, a pharmacy company in Pascagoula, Mississippi. Mr.
Flanagan received a pharmacy degree from the University of Mississippi in
1955.
Mr. Hillman became a director of the Company on October 26, 1998. From July
1995 to the present, he has been a partner in the law firm of Ulmer, Hilman,
Ballard and Nikolakis, P.G., in Mobile, Alabama. From 1990 to July 1995, he
was an attorney in the law firm of Brown Hudgens P.C. From 1984 to 1990, Mr.
Hillman was an attorney in the Judge Advocates General division of the U.S.
Army. Mr. Hillman graduated from Mississippi State University with a B.S.
degree in 1981, and graduated from the University of Mississippi School of Law
in 1984.
14
<PAGE>
------------------------------------------------------------------------------
Item 11. Executive Compensation
------------------------------------------------------------------------------
No executive officer or director of the Company received compensation in
excess of $100,000 during its fiscal year ended December 31, 1998. David R.
Pressler, the President of the Company, received compensation of approximately
$21,000 in 1999.
The Company does not presently have any pension plan, profit sharing plan,
or similar plans for the benefit of its officers, directors or employees.
However, the Company reserves the right to establish any such plans in the
future.
Directors of the Company who do not serve as officers thereof are not
currently compensated by the Company for meeting attendance or otherwise, but
are entitled to reimbursement for their travel expenses. The Company does not
pay additional amounts for committee participation or special assignments of
the Board of Directors.
------------------------------------------------------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------------
The following table sets forth, as of the date of this Annual Report, the
number of shares of Common Stock owned of record and beneficially by executive
officers, directors and persons who hold 5.0% or more of the outstanding
Common Stock of the Company. Also included are the shares held by all
executive officers and directors as a group.
SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OUTSTANDING
OF BENEFICIAL OWNER TITLE OF CLASS OWNED (1) COMMON STOCK
-------------------- -------------- ------------- ------------
David R. Pressler Common Stock 5,240,500 (2) 66.9%
27955 Highway 98
Suite WW-X
Daphne, Alabama 36526
Cede & Co. (3) Common Stock 997,724 12.7%
P.O. Box 222
Bowling Green Station
New York, New York 10274
----------------------------------------
(1) Except as otherwise noted, it is believed by the Company that all
persons have full voting and investment power with respect to the shares
indicated. Under the rules of the Securities and Exchange Commission, a
person (or group of persons) is deemed to be a "beneficial owner" of a
security if he or she, directly or indirectly, has or shares the power
to vote or to direct the voting of such security, or the power to
dispose of or to direct the disposition of such security. Accordingly,
more than one person may be deemed to be a beneficial owner of the same
security. A person is also deemed to be a beneficial owner of any
security which that person has the right to acquire within 60 days, such
as options or warrants to purchase the Common Stock of the Company.
(2) Includes 500,000 shares of Common Stock of the Company held by his wife
and his sons.
(3) Cede & Co. is a nominee holder of shares of Common Stock of the Company
as a depository for brokerage firms and others.
15
<PAGE>
------------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions
------------------------------------------------------------------------------
In connection with the reorganization of the Company in October 1998 and the
acquisition of Communitronics, Inc. and its subsidiaries, David R. Pressler, a
director and President of the Company, received 4,715,500 shares of Common
Stock of the Company, valued at $1.00 per share, for 100% of his shares of
Communitronics, Inc.; and Sam Mastrull, a director and Chief Financial Officer
of the Company, received 116,500 shares of Common Stock of the Company, valued
at $1.00 per share, for 100% of his shares of Communitronics, Inc. The terms
of this transaction were at least as favorable to the Company as you would
expect to negotiate with an unaffiliated third party in a similar transaction.
In November 1998, Sam Mastrull received 183,500 shares of Common Stock,
valued at $0.10 per share, for consulting services in reliance upon Section
4(2) of the Securities Act of 1933. The terms of this transaction were at
least as favorable to the Company as you would expect to negotiate with an
unaffiliated third party in a similar transaction.
At December 31, 1999, the Company had a note payable to David R. Pressler, a
director, President and majority stockholder of the Company with a balance of
$296,386. The note bears interest at 6.25% and is due on December 31, 2003.
PART IV
------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
------------------------------------------------------------------------------
(a) Exhibits.
Exhibit
Number Title of Exhibit
------- ----------------
27 Financial Data Schedule
(b) Reports on Form 8-K.
Communitronics filed no reports on Form 8-K during the fourth quarter of
year ended December 31, 1999.
16
<PAGE>
Index to Consolidated Financial Statements
Report of Independent Auditors........................... F-2
Consolidated Balance Sheets.............................. F-3
Consolidated Statements of Operations.................... F-5
Consolidated Statements of Shareholders' Equity.......... F-6
Consolidated Statements of Cash Flows.................... F-7
Notes to Consolidated Financial Statements............... F-9
F-1
<PAGE>
Report of Garner, Prichard & Middleton, P.C., Independent Auditors
We have audited the accompanying consolidated balance sheets of Communitronics
of America, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Communitronics
of America, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ Garner, Prichard & Middleton, P.C.
Mobile, Alabama
July 16, 2000
F-2
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash $ 4,943 $ 31,865
Accounts receivable - trade, less allowance
for doubtful accounts of $1,045 for
1998 (note 2) 71,210 130,778
Inventory 40,502 70,524
Due from stockholder (note 9) 5,574 45,857
------------- -------------
Total current assets 122,229 279,024
Property and equipment, at cost, net of
accumulated depreciation (note 3) 748,875 661,069
Investment in network (note 4) 336,305 -
Prepaid expenses (note 5) 303,750 -
Deposits 4,054 4,054
------------- -------------
$ 1,515,213 $ 944,147
============= =============
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt (note 7) $ 91,083 $ 53,942
Accounts payable - trade 208,659 42,796
Payroll and sales taxes payable 10,383 9,790
Acquisition purchase price liability - 15,000
Due to officer - 7,500
------------- -------------
Total current liabilities 310,125 129,028
Long-term debt, less current maturities (note 7) 226,358 37,473
Note payable to stockholder (note 9) 296,386 -
------------- -------------
Total liabilities 832,869 166,501
------------- -------------
</TABLE>
Commitments and contingencies (notes 6,7 and 13)
(continued)
F-3
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Liabilities and Stockholders' Equity (continued)
Stockholders' equity
Common stock, $.01 par value; 50,000,000 shares
authorized, 7,922,936 shares issued and outstanding
at December 31, 1999 and 6,987,936 shares issued
and outstanding at December 31, 1998 79,229 69,879
Common stock subscribed, $.01 par value;
717,300 shares pending issuance - 7,173
Additional paid-in capital 1,463,562 1,074,694
Accumulated deficit (note 8) (860,447) (374,100)
------------- -------------
Total stockholders' equity 682,344 777,646
------------- -------------
$ 1,515,213 $ 944,147
============= =============
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
report
F-4
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Services, rent and maintenance revenues $ 562,717 $ 761,980
Product sales 483,625 394,751
------------- -------------
Total revenues 1,046,342 1,156,731
Less cost of product sales 345,664 256,790
------------- -------------
Net revenues 700,678 899,941
------------- -------------
Operating expenses
Services, rent and maintenance 274,401 252,642
General and administrative 591,431 409,926
Depreciation 102,928 62,019
------------- -------------
Total operating expenses 968,760 724,587
------------- -------------
Operating income (loss) (268,082) 175,354
------------- -------------
Other expenses
Non-recurring charges (note 10) 188,848 200,354
Interest expense 29,417 4,372
------------- -------------
Total other expenses 218,265 204,726
------------- -------------
Net loss $ (486,347) $ (29,372)
============= =============
Net loss per share (note 11) $ (0.06) $ (0.01)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
report
F-5
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Additional Retained
Common Stock Paid-in Earnings Stockholders'
Stock Subscribed Capital (Deficit) Equity
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ 31,844 $ - $ 205,356 $ (344,728) $ (107,528)
Issuance of 1,303,500 shares of
common stock 13,035 - 117,315 - 130,350
Issuance of 5,500,000 shares of
common stock in connection
with acquisitions 55,000 - 511,741 - 566,741
Cancellation of 3,000,000 shares
of common stock (30,000) - - - (30,000)
Common stock subscribed,
717,300 shares - 7,173 240,282 - 247,455
Net loss - - - (29,372) (29,372)
----------- ----------- ------------ ----------- -----------
Balance, December 31, 1998 69,879 7,173 1,074,694 (374,100) 777,646
Issuance of 717,300 shares of
common stock 7,173 (7,173) - - -
Issuance of 217,700 shares of
common stock 2,177 - 388,868 - 391,045
Net loss - - - (486,347) (486,347)
----------- ----------- ------------ ----------- -----------
Balance, December 31, 1999 $ 79,229 $ - $ 1,463,562 $ (860,447) $ 682,344
=========== =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
report
F-6
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
December 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Operating activities
Net loss $ (486,347) $ (29,372)
------------- -------------
Adjustments to reconcile net loss to net
cash provided (used) by operating activities
Depreciation 102,928 62,019
Issuance of common stock for services 311,250 -
(Increase) decrease in
Accounts receivable 59,568 (130,778)
Inventory 30,022 (70,524)
Prepaid expenses (303,750) -
Increase (decrease) in
Accounts payable 165,863 (64,732)
Accrued expenses 593 9,790
------------- -------------
Total adjustments 366,474 (194,225)
------------- -------------
Net cash provided (used) by operating
activities (119,873) (223,597)
------------- -------------
Investing activities
Purchase of property and equipment (160,734) (37,366)
Investment in network (336,305) -
Acquisition liability (15,000) 15,000
Loans from (repayments to) stockholder 40,283 (45,857)
------------- -------------
Net cash used by investing activities (471,756) (68,223)
------------- -------------
Financing activities
Proceeds (repayments) from stockholder
loans 288,886 7,500
Proceeds from sale of common stock 49,795 244,805
Borrowing of long-term debt 254,707 81,598
Repayments of long-term debt (28,681) (10,218)
------------- -------------
Net cash provided by financing
activities 564,707 323,685
------------- -------------
</TABLE>
(continued)
F-7
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year Ended
December 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Increase (decrease) in cash (26,922) 31,865
Cash
Beginning of year 31,865 -
------------- -------------
End of year $ 4,943 $ 31,865
============= =============
Supplemental disclosure of cash
flow information:
Cash paid during the year for interest $ 29,417 $ 4,372
============= =============
</TABLE>
See accompanying notes to consolidated financial statements and accountants'
report
F-8
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Note 1 - The Company and significant accounting policies
--------------------------------------------------------
Communitronics of America, Inc. (formerly Oneida General Corporation) (the
Company) is a provider of wireless messaging and information delivery
services. The Company maintains an extensive network of radio towers
positioned to deliver wireless messaging services throughout the coastal
regions of Alabama, Louisiana, Mississippi and the Florida Panhandle. The
consolidated financial statements include the accounts of all the Company's
wholly-owned subsidiaries. All intercompany transactions have been
eliminated.
Use of estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Statement of cash flows
-----------------------
The Company defines cash and cash equivalents as cash on hand, demand deposits
and short-term (three months or less) highly liquid investments.
Accounts receivable
-------------------
An allowance for doubtful accounts is computed based on specific receivables
deemed uncollectible by management of the Company and historical experience.
Inventory
---------
Inventory, consisting primarily of certain types and brands pagers held for
resale, is carried at the lower of cost or market.
F-9
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 1 - The Company and significant accounting policies (continued)
--------------------------------------------------------------------
Property and equipment
----------------------
Property and equipment are carried at cost. When retired or otherwise
disposed of, the related carrying value and accumulated depreciation are
removed from the respective accounts and the net difference, less any amount
realized from the disposition, is recorded as gain or loss on disposition of
assets. Maintenance and repairs are charged to operating expenses. Costs of
significant improvements and renewals are capitalized.
Depreciation
------------
Property and equipment are being depreciated over their estimated useful lives
using straight-line method. The estimated useful lives of significant assets
are as follows: radio towers, 30 years; transmission equipment, 7 years;
computer equipment, 5 years; vehicles, 5years; and, furniture and fixtures, 7
years.
Revenue reconition
------------------
Services, rent and maintenance revenues are recognized in the month the
related services are performed. Product sales are recognized upon delivery of
product to the customer.
Income taxes
------------
In accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes resulting primarily from the use of
accelerated depreciation methods for tax purposes.
Note 2 - Concentration of credit risk
-------------------------------------
The Company operates from locations in Daphne and Foley, Alabama, Metaerie
Louisiana and Gulfport and Pascagoula, Mississippi. The Company grants credit
(accounts receivable) to customers, substantially all of whom are individuals,
located in the vicinity of the operating locations. In order to reduce the
credit risk relative to subscriber services, the Company requires all
subscribers to execute a one-year service contract which allows the Company to
charge a $200 fee upon early cancellation of service.
F-10
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 3 - Property and equipment
-------------------------------
Property and equipment consists of the following:
December 31
------------------------------
1999 1998
------------- -------------
Radio towers $ 464,003 $ 464,003
Transmission equipment 840,636 808,764
Computer equipment 100,099 99,535
Vehicles 45,269 45,269
Furniture and fixtures 32,843 32,843
------------- -------------
1,482,850 1,450,414
Less accumulated depreciation 733,975 707,074
------------- -------------
Net property and equipment $ 748,875 $ 743,340
============= =============
Note 4 - Investment in network
------------------------------
In January 1999, the Company entered into an agreement with its majority
stockholder to assume certain obligations related to an investment in Beepers
Network, Inc., a Tennessee Corporation. The investment included $200,000 in
cash and the acquisition of tower equipment to be used by Beepers Network,
Inc. in the amount of $136,305. The $200,000 in cash was used by Beepers
Network, Inc. to build-out new tower locations.
The Company's investment in Beepers Network, Inc. was made in order to meet
the FCC's time requirement concerning build-out of Beepers Network, Inc.'s
additional facilities which would be of mutual benefit to both companies.
These facilities enhanced the Company's network in that Beepers and the
Company operate on the same frequency and therefore pass each others traffic
(paging customers). This investment enhanced the geographical coverage area
of both companies. Also, as a result of the investment, Beepers Network, Inc.
has granted an option to the Company to purchase Beepers Network, Inc. at a
later undecided date on terms to be mutually agreed upon in the future. As of
December 31, 1999, the option had not been exercised and the balance of the
investment totalled $336,305.
F-11
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 5 - Deferred consulting charges
------------------------------------
In January 1999, the Company entered into an agreement with a firm to provide
financial and public relations services beginning at such time as the Company
became compliant with all U. S. Securities and Exchange Commission reporting
requirements and reinstatement of the Company's stock to trading on the OTC
Bulletin Board. The Company issued 150,000 shares to the firm which at the
time of issuance were trading at $2.025. At December 31, 1999, no services
have been provided under this agreement, none of the aspects of the agreement
have expired and the balance remaining on the agreement totalled $303,750.
Note 6 - Intangible assets
--------------------------
The Company owns seven Certificates of Public Convenience and Necessity issued
by the Alabama Public Service Commission and thirty-four frequencies licensed
by the Federal Communications Commission. These certificates and licenses
allow the Company to provide wireless messaging services in certain cities in
Alabama, Florida, Mississippi, Louisiana, Georgia, Tennessee, Arkansas and
Texas.
At December 31, 1999 and 1998, the original costs of intangible assets were
fully amortized. The information relative to original costs and accumulated
amortization at December 31, 1999 and 1998, was not available. Based on
appraisals, the approximate fair market value of the certificates and licenses
is in excess of $10,000,000.
Note 7 - Long-term debt
-----------------------
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Union Planters Bank, 10%, due in equal monthly
principal and interest installments of $270 through
May 15, 2000 and a final payment of $16,496 due
June 15, 2000, secured by real property $ 17,011 $ 18,280
Union Planters Bank, 10%, due in equal monthly
principal and interest installments of $233 through
August 2000, unsecured 1,795 4,265
</TABLE>
F-12
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Note 7 - Long-term debt (continued)
-----------------------------------
<S> <C> <C>
Union Planters Bank, 7%, 180-day note, principal
and interest due January 8, 2000, secured by personal
property 20,035 20,035
Union Planters Bank, 7.8%, due in equal monthly
principal and interest installments of $708 through
December 2003, secured by vehicle 29,079 35,035
Corporation, 10%, due in annual principal payments
equal to 10% of outstanding principal balance through
June 2019, unsecured 200,000 -
Non-interest bearing note payable to a stockholder
of Crescent Radio Electronics, Inc. (the predecessor
company of Crescent Paging, Inc., a wholly-owned
subsidiary of the Company), due in equal monthly principal
installments of $600 through February 2005, unsecured 6,600 13,800
Union Planters Bank, 7.8%, due in equal monthly
principal and interest installments of $754 through
February 2001, secured by vehicle 10,062 -
Merit Leasing Corp., 38.75%, due in equal monthly
principal and interest installments of $1,801 through
April 2002, secured by equipment 32,859 -
------------- -------------
Total long-term debt 317,441 91,415
Less current maturities 91,083 53,942
------------- -------------
Long-term debt, less current maturities $ 226,358 $ 37,473
============= =============
</TABLE>
F-13
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 7 - Long-term debt (continued)
-----------------------------------
Maturities of long-term debt at December 31, 1999, are as follows:
Year ending December 31,
2000 (included in current liabilities) $ 91,083
2001 42,028
2002 30,387
2003 22,723
2004 13,122
Thereafter 118,098
------------
$ 317,441
============
Note 8 - Commitments and contingencies
--------------------------------------
The Company is committed to several operating leases of radio towers and
office facilities. Approximate future minimum lease payments of all
non-cancelable operating leases for the next five years are as follows:
For the year ending December 31,
2000 $ 47,042
2001 26,017
2002 12,750
2003 10,417
2004 6,000
Thereafter 10,800
------------
$ 113,026
============
Rental expense under these operating leases for the years ended December 31,
1999 and 1998, amounted to $ 89,553 and $ 48,809, respectively.
As part of the stock exchange agreement with Crescent Paging, Inc., the
Company guaranteed the former stockholders of Crescent Paging, Inc. that the
Company's common stock would be worth no less than $3.00 per share at the date
of sale following the required holding period pursuant to Rule
F-14
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 8 - Commitments and contingencies (continued)
--------------------------------------------------
144. The agreement also stated that in the event the shareholders of Crescent
Paging, Inc. sold their shares of stock for an amount less than $3.00 per
share, the Company would be required to pay them additional compensation
equal to the actual sales price per share and the agreed upon price of $3.00
per share. Management believes that if any additional compensation is due
relating to this agreement it can be satisfied by issuing additional shares.
The Company may be required to pay the former stockholders of Data Paging,
Inc. additional compensation up to $500,000 if the value of the Company's
common stock is selling for less than $2 per share after a one year holding
period from the date of acquisition. This additional compensation can be paid
by issuing shares of 144 stock to make up the difference between the actual
value and the agreed upon price of $2.00 per share. Management believes that
if any additional compensation is due relating to this agreement it can be
satisfied by issuing additional shares.
Note 9 - Related party transactions
-----------------------------------
At December 31, 1999 and 1998, the Company had outstanding a note due from its
majority stockholder in the amount of $5,574 and $45, 857, respectively. The
note bears interest at the rate of 10% and is due upon demand.
At December 31, 1999, the Company had a note payable to its majority
stockholder which bears interest at 6.25% and is due December 31, 2003. The
balance at December 31, 1999 totaled $296,386.
Note 10 - Retained earnings
---------------------------
On October 26, 1998, the Company merged with Communitronics, Inc. (as more
fully discussed in note 11 below). As of the date of the merger, the Company
had an accumulated deficit in the amount of $344,728 which resulted from
losses incurred during its years of active operations between 1970 and 1985.
From 1985 to the date of merger, the Company has had no material operations or
assets.
Note 11 - Income taxes
----------------------
For the years ended December 31, 1999 and 1998, the Company had no provision
or benefit for income taxes because the deferred tax liability was offset by
an increase (decrease) in the valuation
F-15
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 11 - Income taxes (continued)
----------------------------------
allowance of ($96,790) and $5,655, respectively. The change in the valuation
allowance at December 31, 1999 and 1998, had no effect on operations.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31
------------------------------
1999 1998
------------- -------------
Deferred tax asset
Net operating loss carry forwards $ 122,548 $ 17,324
Valuation allowance (36,869) -
------------- -------------
Net deferred tax asset (85,679) (17,324)
------------- -------------
Deferred tax liabilities
Depreciation (85,679) (77,245)
Valuation allowance - 59,921
------------- -------------
Net deferred tax liabilities (85,679) (17,324)
------------- -------------
$ - $ -
============= =============
At December 31, 1999 and 1998, the Company has net operating loss carry
forwards of approximately $600,000 and $87,000 that will expire in 2014 and
2013 respectively.
Note 12 - Non-recurring charges
-------------------------------
During the years ended December 31, 1999 and 1998, Communitronics, Inc., one
of the Company's wholly-owned subsidiaries, incurred significant costs (i.e.,
professional fees, travel, etc.) in connection with its "going public"
efforts. Such costs, amounting to approximately $189,000 and $200,000,
respectively, have been charged to operations in the period incurred.
Note 13 - Common stock and net loss per share
---------------------------------------------
Net loss per share amounts are computed based on the weighted-average number
of common shares outstanding. The number of shares used to compute per share
amounts for the years ended December 31, 1999 and 1998 was 7,392,736 and
3,968,615, respectively.
F-16
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 13 - Common stock and net loss per share (continued)
---------------------------------------------------------
As of December 31, 1999 and 1998, the Company has 50 million of authorized
shares, all of which are Common Stock. There are no additional rights or
privileges other than those afforded to a common stock shareholder.
Note 14 - Business combinations
-------------------------------
On September 28, 1998, the Company entered into a letter of intent for the
acquisition of 100% of the issued and outstanding shares of Communitronics,
Inc. and its wholly-owned subsidiary, Crescent Paging, Inc. (the
"Acquisition"). As part of the transaction, the Company agreed to issue to
the shareholders of the Acquisition 5,500,000 shares of its restricted common
stock. The Acquisition was accounted for under the requirements of Accounting
Principles Board Opinion No. 16, whereby the acquisition was treated as a
business combination by the purchase method. Accordingly, principles were
followed that are normally applicable under historical cost accounting to
recording acquisitions of assets and issuances of stock and to accounting for
assets and liabilities after acquisition at their fair values. The current
directors of the Company agreed to cancel an aggregate 3,000,000 shares of the
Company's restricted common stock owned by them. The acquisition became
effective October 26, 1998. At closing, the current board of directors of the
Company, consisting of Mr. Ken Kurtz, Ms. Carrie Kurtz and Ms. Tammy Gehring,
resigned and were replaced by a board consisting of Mr. David R. Pressler, Mr.
Samuel Mastrull, Mr. James H. Flanagan and Mr. Charles H. Hillman. In
addition, Mr. Kurtz has resigned as President of the Company and has been
replaced by Mr. Pressler. Ms. Kurtz has resigned as Vice-president and Ms.
Gehring has resigned as Secretary and Treasurer. Mr. Mastrull has replaced
Ms. Gehring as Secretary. The Vice-President and Treasurer positions remain
unfilled.
On December 22, 1998, the Company acquired all of the outstanding common stock
of Data Paging, Inc. in a stock-for-stock, tax free exchange. As part of the
transaction, the Company agreed to issue to the shareholders of Data Paging,
Inc. 250,000 shares of its restricted common stock. The acquisition was
accounted for under the requirements of Accounting Principles Board Opinion
No. 16, whereby the acquisition was treated as a business combination by the
purchase method. Accordingly, principles were followed that are normally
applicable under historical cost accounting to recording acquisitions of
assets and issuances of stock and to accounting for assets and liabilities
after acquisition at their fair values.
Details of the results of operations of the previously separate companies for
the year ended December 31, 1999 that are included in the current combined net
income are as follows:
F-17
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 14 - Business combinations (continued)
-------------------------------------------
<TABLE>
<CAPTION>
Crescent Data
Communitronics, Paging, Paging
Inc. Inc. Inc. Total
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 430,553 $ 333,189 $ 282,600 $ 1,046,342
Expenses 691,459 410,611 212,354 1,314,424
--------------- -------------- -------------- --------------
Operating income (loss) (260,906) (77,422) 70,246 (268,082)
Other expenses (217,332) - (933) (218,265)
--------------- -------------- -------------- --------------
Net income (loss) $ (478,238) $ (77,422) $ 69,313 $ (486,347)
=============== ============== ============== ==============
</TABLE>
Details of the results of operations of the previously separate companies for
the year ended December 31, 1998 that are included in the prior year combined
net income are as follows:
<TABLE>
<CAPTION>
Crescent Data
Communitronics, Paging, Paging
Inc. Inc. Inc. Total
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 436,516 $ 398,289 $ 321,926 $ 1,156,731
Expenses 362,854 378,070 240,453 981,377
--------------- -------------- -------------- --------------
Operating income 73,662 20,219 81,473 175,354
Other expenses (204,726) - - (204,726)
--------------- -------------- -------------- --------------
Net income (loss) $ (131,064) $ 20,219 $ 81,473 $ (29,372)
=============== ============== ============== ==============
</TABLE>
Note 15 - Segment information
-----------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). The Company has adopted SFAS
131 in its 1998 annual financial statements. SFAS 131 requires that a public
company report annual and interim financial and descriptive information about
its reportable operating segments pursuant to criteria that differ from
current accounting practice. Operating segments, as defined, are components
of an enterprise about
F-18
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
(Formerly Oneida General Corporation)
and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31, 1999 and 1998
Note 15 - Segment information (continued)
-----------------------------------------
which separate financial information is available that is evaluated regularly
by the chief operating decision-maker in deciding how to allocate resources
and in assessing performance.
The Company has determined that it +has no reportable segments. The Company's
basis for the segments relates to the types of products and services each
segment provides. The Company's core operations, which includes the
traditional one-way display and alphanumeric services, are the only reportable
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in
assessing performance.
Note 16 - Year 2000 issue
-------------------------
The year 2000 issue is the result of shortcomings in many electronic data
processing systems and other equipment that may adversely affect the Company's
operations beginning January 1, 2000. The Company has conducted an inventory
of computer systems and other equipment necessary to conducting Company
operations. Management has contacted the manufacturers of such systems and
equipment and has received assurances that the Company's systems and equipment
are year 2000 compatible.
Because of the unprecedented nature of the year 2000 issue, its effects will
not be fully determinable until the year 2000 and thereafter. Management
cannot assure that parties with whom the Company does business will be year
2000 ready.
F-19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: Communitronics of America, Inc.
October 24, 2000 By: /s/ David R. Pressler
-------------------------------
David R. Pressler
President, Chief Executive Officer and
Principal Financial Officer
