<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ______________ TO ________________
COMMISSION FILE NUMBER: 0-27067
COMMUNITRONICS OF AMERICA, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS
SPECIFIED IN ITS CHARTER)
UTAH 87-0285684
---- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
27955 HWY. 98, SUITE WW, DAPHNE, ALABAMA 36526
----------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(334) 626-7650
--------------
(ISSUER'S TELEPHONE NUMBER)
NOT APPLICABLE
----------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE 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. YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON EQUITY, AS OF THE LAST PRACTICABLE DATE: 7,860,236
SHARES.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Consolidated Balance Sheets 3-4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Consolidated Statements of Stockholders' Equity 7
Part 1
Item 1. Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or
Plan of Operations 8-18
Part II - Other Information 19
Signature 20
Exhibit 27 21
</TABLE>
<PAGE>
COMMUNITRONICS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
(Unaudited) (Audited)
------------ -----------
Assets
<S> <C> <C>
Current assets
Cash $ - $ 31,865
Accounts receivable - trade, less allowance
for doubtful accounts of $1,045 for 1998 (note 2) 117,531 130,778
Inventory 108,238 70,524
Prepaid expenses 303,750 -
Due from stockholder 5,574 45,857
------------ -----------
Total current assets 535,093 279,024
Property and equipment, at cost, net of
accumulated depreciation (note 3) 743,340 661,069
Acquisition earnest deposits 336,305 -
Deposits 4,054 4,054
------------ -----------
$ 1,618,792 $ 944,147
============ ===========
Liabilities and Stockholders' Equity
Current liabilities
Bank overdraft $ 10,191 $ -
Current maturities of long-term debt (note 5) 91,864 53,942
Accounts payable - trade 116,921 42,796
Payroll and sales taxes payable 5,236 9,790
Acquisition purchase price liability - 15,000
Due to officer - 7,500
------------ -----------
Total current liabilities 224,212 129,028
Long-term debt, less current maturities (note 5) 235,070 37,473
Note payable to stockholder 266,676 -
------------ -----------
Total liabilities 725,958 166,501
------------ -----------
</TABLE>
Commitments and contingencies (notes 5,6 and 12)
(continued)
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<PAGE>
COMMUNITRONICS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
(Unaudited) (Audited)
------------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity (continued)
$00,000,000 $00,000,000
Stockholders' equity
Common stock, $.01 par value; 50,000,000 shares
authorized, 7,860,236 shares issued and outstanding at
September 30, 1999 and 6,987,936 shares issued and
outstanding at December 31, 1998 78,602 69,879
Common stock subscribed, $.01 par value; 717,300
shares pending issuance - 7,173
Additional paid-in capital 1,399,394 1,074,694
Accumulated deficit (deficit) (note 7) (585,162) (374,100)
Total stockholders' equity 892,834 777,646
----------- -----------
$ 1,618,792 $ 944,147
=========== ===========
</TABLE>
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<PAGE>
COMMUNITRONICS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Services, rent and maintenance
revenues $ 151,387 $ 190,495 $ 569,375 $ 571,485
Product sales 86,199 98,688 302,741 296,063
---------- ---------- ---------- ----------
Total revenues 237,586 289,183 872,116 867,548
Less cost of product sales 136,797 64,198 225,671 192,593
---------- ---------- ---------- ----------
Net revenues 100,789 224,985 646,445 674,955
---------- ---------- ---------- ----------
Operating expenses
Services, rent and maintenance 73,719 63,161 223,392 189,482
General and administrative 50,169 102,482 404,738 307,445
Depreciation 32,169 15,505 76,026 46,514
---------- ---------- ---------- ----------
Total operating expenses 156,057 181,148 704,156 543,441
---------- ---------- ---------- ----------
Operating income (loss) (55,268) 43,837 (57,711) 131,514
---------- ---------- ---------- ----------
Other expenses
Non-recurring charges (note 9) 89,998 50,089 132,705 150,266
Interest expense 17,167 1,093 20,646 3,279
---------- ---------- ---------- ----------
Total other expenses 107,165 51,182 153,351 153,545
---------- ---------- ---------- ----------
Net loss $ (162,433) $ (7,345) $ (211,062) $ (22,031)
========== ========== ========== ==========
Net loss per share (note 10) $ (0.02) $ (0.01) $ (0.03) $ (0.01)
========== ========== ========== ==========
</TABLE>
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<PAGE>
COMMUNITRONICS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
1999 1998
---------- ----------
<S> <C> <C>
Operating activities
Net loss $ (211,062) $ (22,031)
---------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 76,026 46,514
Issuance of common stock for services 311,250 -
(Increase) decrease in
Accounts receivable 13,247 (98,084)
Inventory (37,714) (52,893)
Prepaid expenses (303,750) -
Increase (decrease) in
Bank overdraft 10,191 -
Accounts payable 74,125 (48,549)
Accrued expenses (4,554) 7,343
---------- ----------
Total adjustments 138,821 (145,669)
---------- ----------
Net cash used in operating activities (72,241) (167,700)
---------- ----------
Investing activities
Purchase of property and equipment (158,297) (28,025)
Acquisition liability (15,000) 15,000
Repayments (loans) of stockholder loans 40,283 (34,393)
---------- ----------
Net cash used in investing activities (133,014) (47,418)
---------- ----------
Financing activities
Proceeds (repayments) from stockholder loans 259,176 5,625
Proceeds from sale of common stock 15,000 183,604
Acquisition earnest deposits (336,305) -
Borrowing of long-term debt 254,707 61,199
Repayments of long-term debt (19,188) (7,664)
---------- ----------
Net cash provided by financing activities 173,390 242,764
---------- ----------
Increase (decrease) in cash (31,865) 27,646
Cash
Beginning of period 31,865 -
---------- ----------
End of period $ - $ 27,646
========== ==========
</TABLE>
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<PAGE>
COMMUNITRONICS OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1997 THROUGH SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Additional
Common Stock Paid-in Accum. Stockholders'
Stock Subscribed Capital (Deficit) Equity
-------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 1,844 $ - $ 205,356 $(307,009) $ (99,809)
Issuance of 3,000,000 shares of
common stock 30,000 - - - 30,000
Net loss for the year ended
December 31, 1997 - - - (37,719) (37,719)
-------- -------- ---------- --------- ----------
Balance, December 31, 1997 $ 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 - 7,173 240,282 - 247,455
Net loss for the year ended
December 31, 1998 - - - (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 155,000 shares of
common stock 1,550 - 324,700 - 326,250
Net loss for the nine months
ended September 30, 1999 - - - (211,062) (211,062)
-------- -------- ---------- --------- ----------
Balance, September 30, 1999 $ 78,602 $ - $1,399,394 $(585,162) $ 892,834
======== ======== ========== ========= ==========
</TABLE>
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<PAGE>
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION:
In the opinion of management, the accompanying financial statements contain
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the balance sheets of Communitronics of America, Inc. and
subsidiaries as of September 30, 1999, and the results of their operations and
their cash flows for the nine months ended September 30, 1999 and 1998,
respectively. The financial statements are consolidated to include the
accounts of Communitronics of America, Inc. and its subsidiary companies
(together "the Company").
The accounting policies followed by the Company are set forth in Note 1 to the
Company's consolidated financial statements as stated in its registration
statement on Form 10-SB for the year ended December 31, 1998.
NOTE 2. INCOME (LOSS) PER COMMON SHARE:
Income (loss) per common share is based on the weighted average number of
common shares are outstanding during the period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
You should read the following discussion and analysis of financial condition
and results of operations of Communitronics together with the financial
statements and the notes to the financial statements which appear elsewhere in
this quarterly report and Communitronics's registration statement on Form
10-SB for the year ended December 31, 1998.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB includes forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject
to risks, uncertainties and assumptions, which include, among other things:
- our need for substantial capital;
- our ability to service debt;
- our history of net operating losses;
- the amortization of our intangible assets;
- our ability to integrate our various acquisitions;
- the risks associated with our ability to implement
our business strategies;
- the impact of competition and technological
developments;
- subscriber turnover;
- litigation and regulatory changes;
- dependence on key suppliers; and
- reliance on key personnel.
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<PAGE>
Other matters set forth in this Quarterly Report on Form 10-QSB may also cause
actual results to differ materially from those described in the
forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this Quarterly Report on Form 10-QSB
may not occur.
OVERVIEW
The Company is a 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 4,500
subscribers to its message paging and information delivery services at
September 30, 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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30,
1999
The Company's total revenues have decreased by approximately 17.8% to $238,000
for the three month period ended September 30, 1999 compared to $289,000 for
the three month period ended September 30, 1998. The Company's total revenues
have increased by approximately 1.0% to $872,000 for the nine month period
ended September 30, 1999 compared to $868,000 for the nine month period ended
September 30, 1998. Overall, subscribers have decreased by approximately 500
or approximately 10% to 4,300 at September 30, 1999 from 4,800 at September
30, 1998. The decrease in the subscriber base was attributable to normal
attrition which was not 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.
The Company's growth, whether internal or through acquisitions, requires
significant capital investment for paging equipment and technical
infrastructure. During the three and nine month periods ended September 30,
1999, capital expenditures totaled approximately $5,000 and $158,000,
respectively. For the nine months ended September 30, 1999, capital
expenditures were funded through a combination of cash generated from
operations and borrowings.
For the remainder of 1999 and throughout the year 2000, the Company's business
strategy will be focused on increasing stockholder value by expanding the
subscriber base and increasing revenues, cost efficiencies and operating cash
flow. This focus will include the following:
- Managing capital requirements and increasing free cash flow
by:
-9-
<PAGE>
-- increasing revenues and cash flows through sales of
value-added advanced messaging and information
services which generate higher average monthly
revenue per unit (ARPU) than standard messaging or
paging services; and
-- further increasing the utilization of the southeast
network to serve more customers per frequency and
expand presence in existing markets with minimal
capital outlay.
- Managing and lowering operating costs through cost
containment initiatives;
- Maximizing internal growth potential by continuing to broaden
the Company's distribution network and expanding target
markets to capitalize on the growing appeal of messaging and
other wireless products; and
- Completing the integration of the operations of its
acquisitions.
The Company may also continue to expand its operations and subscriber base
through additional industry consolidation. While there are no current
outstanding commitments, potential future consolidation opportunities would be
evaluated on several key operating and financial elements including:
geographic presence and FCC regulatory licenses held; overall valuation of
potential target, including subscriber base and potential synergies;
consideration to be given; potential increase to net income and operating cash
flow; and availability of financing and the ability to reduce the combined
companies long-term debt. Such potential transactions may result in
substantial capital requirements for which additional financing may be
required. No assurance can be given that such additional financing would be
available on terms satisfactory to the Company.
RESULTS OF OPERATIONS
The following table sets forth certain operating information regarding the
Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- ----------------------------
1999 1998 1999 1998
-------------- -------------- -------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 237,586 $ 289,183 $ 872,116 $ 867,548
Cost of goods sold . . . . . . . . . . . . . . 210,516 127,359 449,063 382,075
General and administrative expenses . . . . . 140,167 152,571 537,443 457,711
Depreciation . . . . . . . . . . . . . . . . 32,169 15,505 76,026 46,514
Interest . . . . . . . . . . . . . . . . . . 17,167 1,093 20,646 3,279
-------------- -------------- -------------- -------------
Net income (loss) . . . . . . . . . . . . . . $ (162,433) $ (7,345) $ (211,062) $ (22,031)
============== ============== ============== =============
Net income (loss) per share. . . . . . . . . $ (.02) $ (.001) $ (.03) $ (.003)
</TABLE>
The definitions below will be helpful in understanding the discussion of the
Company's results of operations.
- Service, rent and maintenance revenues include primarily
monthly, quarterly, semi-annually and annually billed
recurring revenue, not generally dependent on usage, charged
to subscribers for paging and related services such as voice
mail and pager repair and replacement.
-10-
<PAGE>
- ARPU means average monthly paging revenue per unit. ARPU is
calculated by dividing (a) service, rent and maintenance
revenues for the period by (b) the average number of units in
service for the period.
- Net revenues include service, rent and maintenance revenues
and sales of pagers less cost of products sold.
- Service, rent and maintenance expenses include costs related
to the management, operation and maintenance of the Company's
network systems and customer support centers.
- General and administrative expenses include executive
management, accounting, office telephone, repairs and
maintenance, management information systems, salaries and
employee benefits.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH 1998
Total revenues decreased approximately $52,000, or approximately 17.8%, from
$289,000 for the three months ended September 30, 1998 ("1998") to $238,000
for the three months ended September 30, 1999 ("1999"). Net revenues decreased
approximately $124,000, or 55.2%, from $225,000 in 1998 to $101,000 in 1999.
The decrease in net revenues was primarily the result of an increase in the
cost of product sales due to an inventory adjustment made at September 30,
1999 which resulted from an inventory count at that time. The total number of
subscribers decreased by 500 since September 30, 1998. This decrease was due
to normal attrition which was not 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 the Company's
paging services decreased $0.33 from $13.23 per unit in 1998 to $12.90 per
unit. This decrease was primarily the result of customers declining the high
premium, value-added services as opposed to the previous period. Factors that
may adversely affect ARPU in future periods include distribution mix of new
subscribers, competition and new technologies, among others.
Product sales, which consist primarily of sales of paging equipment, decreased
approximately $12,500 or 13.0% from $98,700 in 1998 to $86,200 in 1999 and
increased as a percentage of net revenues from 43.9% in 1998 to 74.4% in 1999.
The cost of product sales increased approximately $72,600 or 113.1% from
$64,000 in 1998 to $137,000 in 1999 principally due to the adjustment made
from the inventory count performed at September 30, 1999. Pagers are
classified as inventory when purchased and the cost is included in cost of
product sales when the unit is sold.
Average monthly operating costs per unit in service (operating expenses per
unit before depreciation and amortization) increased by $1.02 per unit in 1999
from $14.98 per unit in 1998 to $16.00 per unit in 1999. Each operating
expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $11,000 from
$63,000 in 1998 to $74,000 in 1999 and increased as a percentage of net
revenues from 28.1% in 1998 to 63.6% in 1999. This increase was attributable
to increases in personnel costs and tower site rents offset by a reduction in
telecommunications expenses. Monthly service, rent and maintenance expense per
unit increased $1.32 from $4.39 per unit in 1998 to $5.71 per unit in 1999
primarily as a result of the additional expenses incurred associated with the
operations of acquisitions and the addition of three new antenna sites. 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 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 decreased approximately $13,000 from
$153,000 in 1998 to $140,000
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<PAGE>
in 1999, and increased as a percentage of net revenues from 67.8% in 1998 to
139.0% in 1999. The decrease in general and administrative expenses is
attributable to consolidating some of the separate functions used in 1998 for
repairs and administration. The increase as a percentage of net revenues is
due to the decrease in revenues for the three months ended September 30, 1999
due to a decrease in number of customers as discussed previously. Monthly
general and administrative expenses per unit decreased by $0.32 from $10.60
per unit in 1998 to $10.28 per unit in 1999 as a result of these events.
Depreciation expense increased approximately $16,000 from $16,000 in 1998 to
$32,000 in 1999. The increase in depreciation expense resulted primarily from
depreciation expense on subscriber equipment and other capitalized assets
acquired in 1999 through financing.
Interest expense increased approximately $16,000 from $1,000 in 1998 to
$17,000 in 1999. Interest expense increased due to higher average debt
balances outstanding during 1999. Average debt balances were $502,000 greater
in 1999 than in 1998 as a result of debt incurred related to capital
expenditures and working capital requirements.
The Company's net loss increased approximately $155,000 from $7,000 in 1998 to
$162,000 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 means earnings before interest, taxes, depreciation and amortization.
While not a measure under generally accepted accounting principles (GAAP),
EBITDA is a standard measure of financial performance in the paging industry.
EBITDA may not be comparable to similarly titled measures reported by other
companies since all companies do not calculate EBITDA in the same manner.
EBITDA should not be considered in isolation or as an alternative to net
income (loss), income (loss) from operations, cash flows from operating
activities, or any other measure of performance under GAAP. EBITDA as defined
by the Company is used in its acquisition efforts. EBITDA decreased
approximately $122,000 from $9,000 in 1998 to $(113,000). As a percentage of
net revenues, EBITDA decreased from 4.1% in 1998 to 0.0% in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH 1998
Total revenues increased approximately $4,000, or approximately 1.0%, from
$868,000 for the nine months ended September 30, 1998 ("1998") to $872,000 for
the nine months ended September 30, 1999 ("1999"). Net revenues decreased
approximately $29,000, or 4.2%, from $675,000 in 1998 to $646,000 in 1999. The
decrease in net revenues was primarily the result of an increase in the cost
of product sales due to an inventory adjustment made at September 30, 1999
which resulted from an inventory count at that time. The total number of
subscribers decreased by 500 since September 30, 1998. This decrease was due
to normal attrition which was not 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 increased $1.87 per unit from $13.23 in 1998 to $15.10 per
unit in 1999. The increase in ARPU was primarily attributable to customers
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. There can be no assurance that ARPU will not decline in future periods.
Product sales, which consist primarily of sales of paging equipment, increased
approximately $7,000 or 2.3% from $296,000 in 1998 to $303,000 in 1999 and
increased as a percentage of net revenues from 43.8% in 1998 to 45.8% in 1999.
The cost of product sales increased approximately $33,000 or 17.2% from
$193,000 in 1998 to $226,000 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
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<PAGE>
unit is sold.
Average monthly operating costs per unit in increased by $4.49 per unit in
1999 from $14.98 per unit in 1998 to $19.47 per unit in 1999. Each operating
expense is discussed separately below.
Service, rent and maintenance expenses increased approximately $34,000 from
$189,000 in 1998 to $223,000 in 1999 and increased as a percentage of net
revenues from 28.1% in 1998 to 33.8% in 1999. This increase was attributable
to increases in personnel costs and tower site rents offset by a reduction in
telecommunications expenses. Monthly service, rent and maintenance expense per
unit increased $1.24 from $4.53 per unit in 1998 to $5.77 per unit in 1999
primarily as a result of the additional expenses incurred associated with the
operations of acquisitions and the addition of three new antenna sites. 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 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 increased approximately $79,000 from
$458,000 in 1998 to $537,000 in 1999, and increased as a percentage of net
revenues from 67.8% in 1998 to 83.1% 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. Monthly general and administrative expenses per unit
increased by $3.09 from $10.60 per unit in 1998 to $13.69 per unit in 1999 as
a result of these events.
Depreciation expense increased approximately $30,000 from $46,000 in 1998 to
$76,000 in 1999. The increase in depreciation expense resulted primarily from
depreciation expense on subscriber equipment and other capitalized assets
acquired in 1999 through financing.
Interest expense increased approximately $17,000 from $3,000 in 1998 to
$20,000 in 1999. Interest expense increased due to higher average debt
balances outstanding during 1999. Average debt balances were $502,000 greater
in 1999 than in 1998 as a result of debt incurred related to capital
expenditures and working capital requirements.
The Company's net loss increased approximately $189,000 from $22,000 in 1998
to $211,000 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 means earnings before interest, taxes, depreciation and amortization.
While not a measure under generally accepted accounting principles (GAAP),
EBITDA is a standard measure of financial performance in the paging industry.
EBITDA may not be comparable to similarly titled measures reported by other
companies since all companies do not calculate EBITDA in the same manner.
EBITDA should not be considered in isolation or as an alternative to net
income (loss), income (loss) from operations, cash flows from operating
activities, or any other measure of performance under GAAP. EBITDA as defined
by the Company is used in its acquisition efforts. EBITDA decreased
approximately $142,000 from $28,000 in 1998 to $(114,000). As a percentage of
net revenues, EBITDA decreased from 4.1% in 1998 to 0.0% in 1999.
-13-
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
The following summary table (unaudited) presents comparative cash flows of the
Company for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Net cash used in operating activities $ (72,241) $ (167,700)
Net cash used in investing activities (133,014) (47,418)
Net cash provided by financing activities 173,390 242,764
</TABLE>
For the nine months ended September 30, 1999, the Company's cash used in
operating activities decreased by approximately $96,000 from $168,000 for the
nine months ended September 30, 1998 to $72,000 for the nine months ended
September 30, 1999. The decrease in cash used by operating activities was
primarily the result of a net increase in accounts payable and accrued
expenses as of September 30, 1999 compared to September 30, 1998, which net
increase was a result of higher operating expenses between periods. This
increase in accounts payable and accrued expenses was offset by an increase in
accounts receivable as of September 30, 1999 compared to September 30, 1998,
which was the result of higher revenues between periods.
Net cash used in investing activities increased approximately $86,000 from
$47,000 for the nine months ended September 30, 1998 to $133,000 for the nine
months ended September 30, 1999. The increase in net cash used for investing
activities was primarily the result of an increase in purchases of property
and equipment. Capital expenditures were approximately $28,000 and $158,000
for the nine months ended September 30, 1998 and 1999, respectively. Capital
expenditures for the nine months ended September 30, 1999 included
approximately $133,000 for transmitter and switch equipment. 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.
Net cash provided by financing activities decreased approximately $70,000 from
$243,000 for the nine months ended September 30, 1998 to $173,000 for the nine
months ended September 30, 1999. The decrease was primarily the result of
investment options purchased on possible future acquisitions.
WORKING CAPITAL
At September 30, 1999, the Company's working capital had decreased by $143,000
to approximately $7,000 from December 31, 1998. The Company has experienced
such decreases in prior periods and believes such decreased are likely to
continue. The Company attempts, whenever possible, to finance its growth
through
-14-
<PAGE>
operating cash flow and available cash balances rather than incurring
additional indebtedness. As a result, purchases of noncurrent assets,
including pagers and other network and transmission equipment, may be financed
with current liabilities (e.g., accounts payable), causing a deficit in
working capital.
LONG-TERM DEBT
Borrowings and repayments from banks. During the nine months ended September
30, 1999, the Company increased its borrowings from banks by $15,000 from
December 31, 1998. However, the Company did not increase the amount of
borrowings from banks in the three months ended September 30, 1999. The
borrowings were used to purchase equipment. At September 30, 1999, $92,000 was
outstanding to various banks.
Stockholder note. During the nine months ended September 30, 1999, the Company
received a stockholder note totaling $290,000 which bears interest at 6.25%
and requires a monthly payment of $1,609 through November 2003 and a final
balloon payment of outstanding principal due in December 2003. Additional
principal payments will be made as cash flow becomes available. At September
30, 1999, there was $266,676 outstanding on this note.
Investment Company note. During the nine months ended September 30, 1999, the
Company received a note for $200,000 from an investment company which requires
an annual payment of 10% of the outstanding principal. At September 30, 1999,
there was $200,000 outstanding on this note.
ACCESS TO FUTURE CAPITAL
The Company's ability to access borrowings and generate investments in the
company and to meet its debt service and other obligations will be dependent
upon its future performance and its cash flows from operations, which will be
subject to financial, business and other factors, certain of which are beyond
the Company's control, such as prevailing economic conditions. The Company
cannot assure you that, in the event it was to require additional financing,
such additional financing would be available on terms permitted by agreements
relating to existing indebtedness or otherwise satisfactory to it. The Company
believes that funds generated by its operations, together with those available
under its credit facility, will be sufficient to finance estimated capital
expenditure requirements and to fund its existing operations for the
foreseeable future.
YEAR 2000 READINESS DISCLOSURE
The year 2000 issue generally refers to the issue of whether a company's
hardware, software or other computer technologies can correctly process,
provide and/or receive data after December 31, 1999. The Company utilizes
software and related computer technologies essential to its operations that
may be affected by the year 2000 issue. Successfully resolving the year 2000
issue is a company priority. Accordingly, the Company has implemented an
enterprise-wide program to address the year the year 2000 issue. This program
is supervised by an executive oversight committee, which is chaired by the
Company's Chief Financial Officer. The Company's plan consists of the
following phases:
I. Identification and Assessment of Potential Problem Areas
II. Remediation of Identified Problem Areas
III. Validation
IV. Implementation
-15-
<PAGE>
V. Third Party Dependencies
VI. Contingency Planning
The following describes each phase and the status of each phase in the
Company's Plan:
I. IDENTIFICATION AND ASSESSMENT OF POTENTIAL PROBLEM AREAS. The Company has
reviewed its computer hardware and software technologies and the embedded
systems contained in its plant and facilities and related infrastructure for
the year 2000 issue. The Company has identified its critical and non-critical
systems and whether or not such systems are year 2000 compliant. The Company's
critical systems include: paging devices and infrastructure, billing systems,
telephone services, financial systems and operating systems and hardware. For
each of these systems, the Company has identified the required steps that will
need to be taken for the critical systems to be year 2000 compliant. The
Company has also developed remediation and/or validation plans to address year
2000 concerns associated with each critical system.
II. REMEDIATION OF IDENTIFIED PROBLEM AREAS. The remediation phase includes
correcting identified problem areas which may include hardware and software
revisions, developing replacement systems and eliminating non-functional
applications or system components. The Company has completed a substantial
portion of the remediation efforts for its critical and non-critical systems.
III. VALIDATION. As the Company makes changes to applications and components
of its systems, it validates and tests those changes for year 2000 compliance.
The Company has performed validation and testing on a system-wide basis to
ensure that any changes made are compatible with interfacing systems. The
Company is currently undertaking this phase on many of its applications.
IV. IMPLEMENTATION. This phase involves integrating the systems changes made
in the remediation stage once they have been appropriately validated. As the
Company implements and integrates such changes, it may determine it systems
include both year 2000 compliant and non-compliant applications and
components. The Company has implemented a substantial majority of its
remediated systems and applications. It also has developed appropriate
contingency recovery plans to reduce potential impacts from non-compliant
applications. The Company expects to complete its entire implementation phase
by December 1999.
V. THIRD PARTY DEPENDENCIES. Much of the technology employed in the Company's
critical systems was purchased from third parties. Accordingly, the Company is
dependent on those third parties to provide information to it with regard to
the impact of the year 2000 issue on the technology that they have supplied
and to take necessary corrective actions. In addition, it is possible that
many of the Company's telecommunications providers, energy suppliers and other
primary vendors will have year 2000 issues that may also affect them. The
Company has sought and will continue to seek confirmation from these parties
that they are developing and implementing plans to become year 2000 compliant
in the event that the year 2000 issue will affect them. The Company intends to
validate system processes that require interaction with vendor hardware or
software in an effort to ensure system readiness by December 31, 1999.
Information the Company has received from third parties to date indicate that
the respondents are in the process of implementing remediation plans in an
effort to bring their systems into year 2000 compliance. The Company's ability
to complete the phases in its remediation plan by the target dates and avoid
disruption of paging and other service depends on whether its suppliers can
make necessary modifications to their products by the projected delivery dates.
VI. CONTINGENCY PLANNING. The Company has developed contingency plans for each
of its critical systems if such systems are not year 2000 compliant. These
contingency plans address "likely" worst case scenarios for each critical
system and take into account, to the extent the Company believe necessary,
ways to address certain potential third party non-compliance. These plans are
subject to change as additional remediation and testing is performed to
correct and validate identified issues or as third parties provide additional
details about their year 2000 compliance.
-16-
<PAGE>
The following briefly describes each of the Company's critical systems and
their year 2000 readiness.
- PAGING DEVICES. The Company does not manufacture paging
devices and therefore depends on the manufacturers of such
paging equipment to ensure that the devices are year 2000
compliant. The Company has contacted these manufacturers to
ensure that these manufacturers are addressing year 2000
compliance issues relating to such paging equipment. Based on
the information provided by such manufacturers, the Company
believes that substantially all of the paging devices
currently in its inventory or supplied by the manufacturers
is year 2000 compliant. Certain of the pager models carried
by the Company will require manual resetting of the calendar
function on March 1, 2000, but the functionality of these
paging devices, including the ability of these devices to
receive messages through the Company's network, will not be
impacted.
- PAGING INFRASTRUCTURE. The Company has an extensive paging
infrastructure through which it provides its messaging
services. These services are provided through a network of
paging terminals, control systems, and transmitters. A
message may originate in a number of different ways. The
Public Switched Telephone Network (PSTN) is the source of
most messaging requests. The Telco Year 2000 Forum is
handling year 2000 issues with the PSTN. The Telco Year 2000
Forum is comprised of the RBOCs, major independent LECs and
interexchange carriers. In addition, the Company is also
identifying alternative means of providing service to ensure
that there is no interruption in the service provided to
customers.
- PAGING TERMINALS. The Company has identified and performed
certain year 2000 readiness assessment activities with regard
to its paging software and hardware, and is working with its
primary vendor that developed the software for its paging
terminals. In June 1999, this manufacturer certified and
released a software upgrade to address year 2000 issues that
affect the existing switch software embedded in the Company's
paging terminals. The Company has completed its internal
testing of the new software to assure that the software
elements are compliant with the Company's year 2000 network
guidelines. As of November 11, 1999, the Company had
installed this software version on 95% of its effected paging
terminals handling paging subscribers representing
approximately 92% of its subscriber base. The Company expects
to complete the installation of the switch software on all of
its remaining paging terminals by the end of November 1999.
Because the messaging switch software is a critical element
to its year 2000 readiness, the Company has developed a
contingency plans, which should enable it to continue
operating those machines that cannot be upgraded by year-end
by using the existing "older" version of this manufacturer's
paging software. The Company believes, based on its own lab
environment testing, that if it continues to use the existing
software on its paging terminals, it can continue to provide
uninterrupted or disrupted paging and messaging services to
its customers. This manufacturer has not certified this older
software version, but has performed year 2000 assessment
testing which shows that the software has no issues that
would affect paging services.
- CONTROL SYSTEMS. The control networks used by the Company in
the delivery of paging data to transmitters fall into one of
two categories, analog or digital control. The analog control
systems have no computer, clock or calendar functions
involved in their operation and therefore have no year 2000
implications. Newer, computer-based control systems are
dependent on the proper operation of their time reference and
many are referenced to the Global Positioning System. The
manufacturers of the Company's control systems have certified
that their digital control systems are year 2000 compliant
with the requisite level of software and hardware. The
Company has installed those software and hardware components.
- TRANSMITTERS. The transmitters that the Company utilizes have
passed year 2000
-17-
<PAGE>
testing performed by their manufacturers. In addition, the
satellites the Company uses have been year 2000 certified
by their manufacturers. Redundant, backup, and alternative
systems of messaging and networking have been evaluated and
remediated as necessary.
The Company systems are interconnected with numerous networks
and systems operated by third parties, including landline
telecommunications networks; long-distance networks; the
networks of other wireless service providers; and networks
operated by utilities. The ability of the Company systems to
operate, including the ability to provide paging and other
wireless tessaging services, is dependent upon these
third-party networks and systems being year 2000 compliant.
The operators of these networks are responsible for
addressing the year 2000 issue in their own systems.
The Company expects to incur approximately $1.5 million
during the fourth quarter of 1999 to support these paging
infrastructure initiatives.
- BILLING SYSTEMS. The Company currently utilizes three
different billing platforms that are used for the recordation
and processing of customer invoices. Two of these platforms
are commercial software applications. The Company has
received vendor certification with respect to these
platforms' hardware, databases and the substantial majority
of the software. The third platform was developed by the
former AT&T Wireless Services, Inc. -- Messaging Division
(AMD). Its year 2000 readiness was previously tested and
warranted by AMD's prior corporate owner. The Company has
substantially completed the scheduled upgrades to certain
operating systems to promote integration with systems that
have been remediated for year 2000 issues. In addition, it
has completed, the testing of the platforms and their
interfaces to the paging and financial systems. The Company
does not expect to incur any additional significant costs
related to year 2000 readiness of its billing systems.
- TELEPHONE SERVICES. The Company's ability to provide paging
and messaging services is directly linked to its ability to
accept and direct telephone traffic over an extended network.
In addition, its ability to sell products, administer
customer calls and communicate between offices is dependent
on its telephone network. The Company is currently in various
phases of the remediation and validation stages for its
internal telephone network. Approximately 75% of its
remediation efforts have been completed. The Company's goal
is to complete this phase by December 1999 with validation
and implementation completed by December 31, 1999. The cost
for these initiatives for the remainder of 1999 is expected
to be approximately $0.8 million. The Company is actively
contacting its external telephone service providers to
determine their level of year 2000 readiness.
- FINANCIAL SYSTEMS. The Company's financial systems, which
include its accounts payable, general ledger, fixed assets,
purchasing and inventory systems, have been vendor-certified
for year 2000 compliance, in addition the Company has
successfully completed the validation of these financial
systems for year 2000 readiness.
- OPERATING SYSTEMS AND HARDWARE. The Company has identified
and performed year 2000 assessment activities with regard to
its network operating systems. Certain of such systems are
scheduled for software upgrades that will improve their
functionality. Approximately 100% of its Netware locations,
100% of its NT Systems and 99% of its UNIX systems have been
remediated. The Company also has identified personal
computers that are not year 2000 compliant, which it intends
to replace by December 31, 1999. The Company expects the cost
of these initiatives to be under $1.0 million for the
remainder of 1999.
The Company has utilized both internal and external resources to remediate and
test its systems for year 2000 compliance. The Company continues to incur
internal labor costs as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare its systems.
Although the Company
-18-
<PAGE>
believes it is taking all reasonable steps necessary to operate successfully
through and beyond the turn of the century, there can be no assurance that the
Company's year 2000 program will be successful or that its interconnect
carriers and primary vendors will also successfully address their year 2000
issues. The Company is unable to predict the potential impact on its financial
condition and results of operations in the event its year 2000 program is not
successful.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the
Company during its quarter ended September 30, 1999.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Required by Item 601 of Regulation S-K.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
27 Financial data schedule.
(b) Reports on Form 8-K
None
-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.
MARCH 28, 2000 By: /s/ David R. Pressler
--------------------- --------------------------------------
David R. Pressler
President, Chief Executive Officer and
Principal Financial Officer
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> (10,191)
<SECURITIES> 0
<RECEIVABLES> 117,531
<ALLOWANCES> 0
<INVENTORY> 108,238
<CURRENT-ASSETS> 535,093
<PP&E> 743,340
<DEPRECIATION> 76,026
<TOTAL-ASSETS> 1,618,792
<CURRENT-LIABILITIES> 224,212
<BONDS> 0
0
0
<COMMON> 78,602
<OTHER-SE> 1,399,394
<TOTAL-LIABILITY-AND-EQUITY> 1,618,792
<SALES> 872,116
<TOTAL-REVENUES> 872,116
<CGS> 225,671
<TOTAL-COSTS> 449,063
<OTHER-EXPENSES> 537,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,646
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,062)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
