UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
COMMUNICATIONS RESEARCH, INC.
(Name of small business issuer in our charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
7373 22-2991753
(Primary standard industrial (I.R.S. Employer
classification code number) Identification No.)
69 Wesley Street
South Hackensack, NJ 07606
(201) 457-1011
(Address and telephone number of principal executive offices)
Farber & Klein
Attn: Andrew Farber or Jeffrey Klein
23123 State Road 7, Suite 350-B
Boca Raton, Florida 33428
(561) 470-9010
(Name, address and telephone of agent for service)
Approximate date of
commencement of proposed sale to the public: As soon as practicable after the
effective date of this Registration Statement.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
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CALCULATION OF REGISTRATION FEE
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Title of class of Proposed maximum Amount of
securities to be registered aggregate offering price (1) Registration Fee (1)
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Class A Common Stock,
Par value $0.001 per share $ 9,744.36 $ 100.00
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(1) Calculated pursuant to Regulation 457(f)(2) promulgated under Section of the
Securities Act of 1933, for purposes of determining the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY OUR EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (SEC) NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SALE OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Preliminary Prospectus Dated September__, 2000
PROSPECTUS
COMMUNICATIONS RESEARCH, INC.
The Registration Statement of which this Prospectus is a part relates to the
securities of Communications Research, Inc., a Nevada corporation (the
"Company"), that had been distributed to the shareholders of the Company's
former parent company, Visual Telephone International Inc, a Delaware
corporation ("VTI") pursuant to VTI's reorganization in May of 1999. The Company
is registering one-half of its 9,233,364, $0.001 par value Class A common shares
(the "Class A Shares") that had been issued and outstanding as of May 21, 1999.
The Company is also registering an additional 20 million of its Class A Shares.
These shares may be used to fund future acquisitions or as compensation to
employees and consultants. See, "THE OFFERING" and "DESCRIPTION OF SECURITIES".
Neither the shares registered hereby nor any other securities of the Company are
currently traded on any exchange nor have they ever traded in a public market.
No assurance can be given that a public market will develop once the Class A
Shares are registered.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS September __, 2000.
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TABLE OF CONTENTS
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1. Summary Information..................................................................................... 3
2. Risk Factors............................................................................................ 4
3. Use of Proceeds.........................................................................................14
5. Determination of Offering Price ........................................................................15
6. Dilution ...............................................................................................15
7. Selling Security Holders................................................................................15
8. Plan of Distribution....................................................................................16
9. Legal Proceedings.......................................................................................17
10. Directors, Executive Officers, Promoters and Control Management.........................................18
11. Security Ownership of Certain Beneficial Owners and Management..........................................19
12. Description of Securities ..............................................................................20
13. Experts ................................................................................................22
14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................................................................23
15. Description of Business.................................................................................24
16. Management's Discussion and Analysis ...................................................................37
17. Description of Property ................................................................................38
18. Certain Relationships and Related Transactions..........................................................39
19. Market for Common Equity and Related Stockholder Matters................................................39
20. Executive Compensation .................................................................................40
21. Index to Financial Statements ..........................................................................F-2
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SUMMARY INFORMATION
References in this document to "us," "we," or "the Company" refer to
Communications Research, Inc.
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING INFORMATION IS SELECTIVE AND QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION (INCLUDING FINANCIAL INFORMATION AND NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY OF CERTAIN PROVISIONS OF THE
PROSPECTUS IS INTENDED ONLY FOR CONVENIENT REFERENCE AND DOES NOT PURPORT TO BE
COMPLETE. THE ENTIRE PROSPECTUS SHOULD BE READ AND CAREFULLY CONSIDERED BY
PROSPECTIVE INVESTORS BEFORE MAKING A DECISION TO PURCHASE COMMON STOCK.
Our Company. Our Company consists of two primary business units operating
under one corporation. Our Systems Integration Division
designs, develops, installs and supports sophisticated
communications systems that process and/or transmit data,
voice and full motion video to suit the unique needs of our
customers. Additionally, our Visual Products Division
manufactures and sells fully integrated, PC based, H.320
International Standards compliant, digitally compressed full
motion video conferencing systems.
Our capitalization consists of 40,000,000 shares of class A
$0.001 par value common stock and 700,000 shares of Class B
$0.001 par value Common stock of which 12,483,364 and 400,000
shares are issued and outstanding, respectively.
Prior to May 21, 1999, we had been operating as a wholly owned
subsidiary of Visual Telephone International Inc., a Delaware
corporation ("VTI"). On May 21, 1999 VTI distributed all
9,233,364 shares of the Company's class A common stock to its
shareholders and issued 400,000 shares of CRI class B shares
pursuant to a plan of reorganization. We subsequently issued
an additional 3,250,000 of our Class A shares to certain of
our employees. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS". We are registering one half of the Class A
common shares that had been distributed to the VTI
shareholders of record as of May 21, 1999 as well as an
additional 20 million shares of Class A that we intend to use
for future acquisitions and other purposes. See "THE OFFERING"
and "DESCRIPTION OF SECURITIES".
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The Offering. From July 17, 1996 to May 21, 1999, we had been a wholly owned
subsidiary of VTI, our former parent company. As of May 21,
1999, we had 9,233,364 shares of our Class A Common Stock
outstanding. These shares were distributed to the shareholders
of VTI as of May 21, 1999 on a pro-rata basis. We will be
registering one half of the Class A Shares that had been
distributed to each of the VTI shareholders as of May 21,
1999. We have agreed to pay all expenses of such offering. We
will not receive any proceeds from this offering. In addition,
we intend to register an additional 20,000,000 Class A Shares.
We intend to use the proceeds these shares to fund future
acquisitions and as compensation for employees, directors
and/or consultants. We cannot estimate the amount, if any, of
the proceeds we may receive from either the subsequent sale of
these securities or, the use of these securities to fund
future acquisitions.
FINANCIAL SUMMARY INFORMATION.
The information set forth below has been selected from our financial statements.
This information should be read in conjunction with, and is qualified in its
entirety by reference to the financial statements, including the notes thereto,
included elsewhere in this registration statement.
Results of Operations.
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Year Ended Year Ended
12/31/99 12/31/98
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Revenues ......................... $ 106,838.00 $ 48,745.00
Gross Profit ..................... $ 59,441.00 $ (1,473.00)
Operating Expenses ............... $ 306,629.00 $ 360,709.00
Income (Loss) From Operations .... $ (247,188.00) $ (362,182.00)
Total Current Assets ............. $ 54,726.00 $ 64,021.00
Total Assets ..................... $ 118,194.00 $ 104,304.00
Total Current Liabilities ........ $ 33,235.00 $ 694,708.00
Total Liabilities ................ $ 192,875.00 $ 694,708.00
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RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. THERE CAN BE NO ASSURANCE THAT WE WILL HAVE SUBSTANTIAL PRODUCT
SALES OR REVENUES, OR THAT WE WILL BE ABLE TO SELL OUR PRODUCTS OR SERVICES AT A
PROFIT. OTHER RISK FACTORS INCLUDE OUR RELIANCE ON THIRD-PARTY INDEPENDENT
DISTRIBUTORS AND WHOLESALERS FOR PRODUCT AND SERVICE SALES.
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Limited Operating History
We were founded in 1989, but have conducted only limited operations to
date. For the last two fiscal years ending 1998 and 1999 our gross operating
revenues have been $48,745.00 and $106,838.00 respectively. For the year ending
December 31, 1998 our net loss was $362,182.00. During 1999, our net income was
$515,723. This included a onetime foregiveness of debt of $785,143 from our
former parent company. Without this item our net loss for the year ending
December 31, 1999 would have been $269,420. Our success will be dependent on our
ability to significantly expand our business operations. We must be able to
compete effectively with other companies providing similar services, many of
which are much better capitalized than we are today. We cannot be certain that
our management team will be able to successfully manage our business affairs and
adapt to technological changes. If we are unable to successfully integrate all
phases of our business operations, our business, financial condition and results
of operations could be materially and adversely affected.
Limited Cash Flow
For the calendar years ending 1999 and 1998, we incurred operating
losses of $247,188 and $362,182.00. We are dependent upon continuing loans from
the Company's president to remain in business and will continue to be so
dependent until we can significantly increase our operations. Our liquidity
needs may be further taxed by litigation with our former parent company and the
costs that may be associated with the relocation of our executive offices. No
assurances can be given that Mr. Ceragno will continue to fund our operations or
that our revenues will be sufficient to do so. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS", "LEGAL MATTERS" and "FINANCIAL STATEMENTS".
Our current liabilities include loans made to the Company by Carl R.
Ceragno, the Company's president. These loans were $140,830.00.00 and
$114,170.00 for the years ending December 31, 1999 and December 31, 1998,
respectively. These loans had been due upon the demand of Mr. Ceragno. Mr.
Ceragno has agreed to defer the due date of said loans to December 31, 2001. We
do not currently have sufficient resources to repay these loans. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".
There are Risks Related to Our Operating and Internal Growth Strategies
A key element of our strategy to increase profitability and revenues is to let
our management team make the key decisions necessary to implement our business
plan and service our clients. We
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believe that this strategy will result in projects being completed on a more
timely basis and with increased client satisfaction. However, if we do not
implement appropriate checks and balances, this decentralized operating strategy
could result in inconsistent operating and financial practices and our overall
profitability could be adversely affected. Another key element of our strategy
is our ability to generate internal growth which will be affected by, among
other factors, our ability to:
Expand the range of service we offer to customers
Attract new customers
Strategically align ourselves with larger business partners
Increase the number of projects performed for existing customers
Hire and retain employees
Open additional facilities
Reduce operating and overhead expenses.
Many of the factors affecting our ability to generate internal growth
may be beyond our control and we cannot be certain that our strategies will be
successful or that we will be able to generate cash flow sufficient to fund
ouroperations and to support internal growth. Our inability to achieve internal
growth could have a material adverse effect on our business, financial condition
and results of operation.
Most of Our Contracts Can Be Canceled on Short Notice
A substantial number of our contracts can be canceled upon short
notice. Accordingly, we cannot give assurance that our future revenues will
approximate our historical performance. If any canceled contracts are not
replaced with contracts from other customers, our business, financial condition
and results of operations will be materially and adversely affected.
We May Be Unable to Adjust to Changes in Technology
The telecommunication field, professional video, video conferencing and
systems networking industries are subject to rapid changes in technology.
Systems used for the transmission of video, voice and data as well as the
hardware which carries these systems, is subject to rapid changes in technology.
In the future, our customers may be able to receive enhanced services without a
significant upgrade of the existing telecom infrastructure or information
technology data base. Greater pressure may be exerted by our competition to
provide systems solutions that will minimize the need for the type of services
that we provide. Moreover, the expertise developed by our key personnel may no
longer be applicable to subsequent advancements in technology.
We May Not Be Able to Successfully Compete With Other Companies in The Industry
Our industry is highly competitive and is served by numerous small,
owner operated private companies, several public companies and several large
regional companies. There are no substantial barriers to entry in our industry
and we expect that competition will intensify in the future.
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Competition in the industry depends upon a number of factors, including price.
Certain of our competitors may have lower overhead cost structures and may,
therefore, be able to provide their services at lower rates than we can provide
such services. Certain of our competitors have greater market presence,
engineering depth and marketing capabilities, and financial, technological and
personnel resources than those available to us. As a result, they may be able to
develop and expand their customer base more quickly, adapt more swiftly to new
or emerging technologies and changes in customer requirements, take advantage of
acquisition and other opportunities more readily, and devote greater resources
to the marketing and sale of their products and services than we can. We cannot
give any assurance that we will be able to maintain or enhance our competitive
position. We also face competition from in-house service departments of our
prospective and existing customer base and cannot be certain that our existing
or prospective customers will continue to outsource services in the future.
Current and potential competitors have established or may establish
cooperative relationships among themselves or directly with vendors to obtain
exclusive or semi-exclusive sources of products. Accordingly, it is possible
that new competitors or alliances among competitors and vendors may emerge and
rapidly acquire market share. In addition, manufacturers might elect to
liquidate their products directly. Increased competition is likely to result in
reduced operating margins, loss of market share and a diminished brand
franchise, any one of which could materially adversely affect our business,
results of operations and financial condition. Many of our current and potential
competitors have significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to secure products from
vendors on more favorable terms than us, and they may be able to respond more
quickly to changes in customer preferences or to devote greater resources to the
development, promotion and sale of their products than can we.
We Are Subject to Laws Governing Intellectual Property and Proprietary Rights
As the number of products in the telecommunication, teleconferencing
and professional video industries increases and the functionality of these
products further overlaps, companies may increasingly become subject to claims
of infringement or misappropriation of the intellectual property or proprietary
rights of others. There can be no assurance that third parties will not assert
infringement or misappropriation claims against us in the future with respect to
current or future products, or that any such assertion will not require us to
enter into royalty arrangements or litigation that would be costly to us. Any
claims or litigation, with or without merit, could result in a diversion of
management's attention and our financial resources, which could have a material
adverse effect on our business, financial condition and results of operations.
Adverse determinations in such claims or litigation could have a material
adverse effect on our business, financial condition and results of operations.
While we believe that our success will depend principally upon our
ability to develop products and effectively market our products and services,
our ability to compete is also dependent in part upon our proprietary technology
and intellectual property rights. We have not filed for any federal patents or
trademarks to protect our proprietary software, documentation and other
proprietary
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information. There can be no assurances given that common law intellectual
property rights will be sufficient to protect our interests. Moreover, there can
be no assurance that the confidentiality agreements and other methods on which
we rely to protect our trade secrets and proprietary information and rights will
be adequate to prevent competitors from developing similar technology. Moreover,
in the absence of patent protection, our business may be adversely affected by
competitors that develop functionally equivalent technology. Furthermore, we may
be subject to additional risk if we enter into transactions in countries where
intellectual property laws are not well developed or enforced effectively. Legal
protection of our rights may be ineffective in such countries, and technology
developed or used in such countries may not be protectable in jurisdictions
where protection is ordinarily available. Litigation to defend and enforce our
intellectual property rights, regardless of the final outcome of such
litigation, could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, financial condition and
results of operation. There can be no assurance that our trade secrets or
non-disclosure agreements will provide meaningful protection of our proprietary
information. Our inability to protect out proprietary rights would have a
material adverse effect on our business, our financial condition and results of
operations.
The Departure of Key Personnel and Lack of Qualified Installation Staff Could
Disrupt Our Business
We depend upon the continued services of our senior management team,
which includes Carl R. Ceragno and Bertram Hennion, Jr. Neither Mr. Ceragno nor
Mr. Hennion are employed by the Company pursuant to the terms of an employment
contract. The loss of the services of either of these key employees could have a
material and adverse effect on our business, financial condition and results of
operations. In addition, we do not carry key-person life insurance policies on
these individuals. We do however intend to purchase such insurance in the
future. However, whether funds will be available for such purposes cannot be
assured and will depend upon our future budgeting needs. Even if insurance
benefits are received there can be no assurance that replacement personnel could
be found or if found, available at affordable rates.
Our Systems Integration Division relies heavily upon the availability
of highly qualified and trained installation subcontractors for the systems that
it designs and installs. See "BUSINESS- EMPLOYEES". The competition for the
services of these individuals is intense. There can be no assurance that we will
be successful in attracting and retaining additional skilled installation
personnel as needed. Failure to attract said personnel could have a material
adverse effect on our business, financial condition and results of operation.
Control of Company
Carl R. Ceragno, the Company's president, will continue to own Class B
common shares of the Company giving him voting control over the Company. Since
the Company's common shares do not have cumulative voting rights, current
management, and Mr. Ceragno in particular, will be able to continue to determine
and direct our affairs and policies. See "SECURITY OWNERSHIP
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OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "RECENT SALES OF UNREGISTERED
SECURITIES". Mr. Carl Ceragno beneficially owns all 400,000 of the issued and
outstanding shares of the Company's Class B common shares and 2,750,000 shares
of the Company's Class A common shares. As a result, he will effectively control
virtually all matters requiring approval by our stockholders, including:
amendments of the Articles of Incorporation;
the approval of mergers or similar transactions; and
election of directors.
Moreover, Mr. Ceragno is owed over $140,530.00 by the Company for loans
that he had made to the Company over the last several years. The demand for
repayment of said loans could force the Company to seek protection under the
U.S. bankruptcy or similar laws. See "CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS".
Substantial Near Term Needs; Uncertainty of Additional Funding;
Dilution
We currently estimate that we will require between $ 300,000.00 and
$350,000.00 in operating capital over the next 12 months including capital
expenditures. We expect to obtain this funding through our operations. However,
no assurance is given that we will be able to do so. Our capital requirements
will depend largely on how aggressive we are in expanding our respective
business divisions and manage our costs of operations. If additional equity
and/or convertible debt securities are issued in connection with future
acquisitions, the compensation of employees and consultants, or otherwise, the
percentage ownership of our current shareholders will be reduced. Moreover,
there can be no assurance that additional capital will be available on terms
favorable to us or our shareholders, if at all. If adequate funds are not
available, we may be required to curtail operations significantly or to obtain
funds through entering into collaboration agreements on unattractive terms that
may require us to relinquish certain rights, including intellectural property
rights. Our inability to raise capital would have a material adverse effect on
the business, financial condition, and results of operations. See "FINANCIAL
STATEMENTS".
Substantial Long-Term Capital Needs; Uncertainty of Additional Funding;
Dilution.
Substantial expenditures will be required to enable us to pursue future
research and development activities, expand our services, further develop our
proprietary software, and to market our products. The level of expenditures
required for these activities will depend in part upon changes in technology and
whether we develop and market our products and services independently or with
other companies through collaborative arrangements. Our future capital
requirements will also depend on one or more of the following factors: market
acceptance of our products; the extent and progress of our research and
development programs; the costs involved in filing, protecting and enforcing
patent and other intellectual property claims; competing technological and
market developments; and the costs of commercializing our products. There can be
no assurance that funding to carry on these activities will be available at all
or on favorable terms to permit successful commercialization of our products.
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In addition, we have limited credit facilities or other committed
sources of capital, and there can be no assurance that we will be able to
establish or maintain such arrangements on satisfactory terms, if at all. To the
extent that capital resources are insufficient to meet future capital
requirements, we will have to raise additional funds to continue development of
our technologies and products and otherwise support our operations. There can be
no assurance that such funds will be available on favorable terms, or at all.
To the extent that additional capital is raised through the sale of
equity and/or convertible debt securities, the issuance of such securities could
result in dilution to our shareholders. If adequate funds are not available, we
may be required to curtail operations significantly or to obtain funds through
entering into collaboration agreements on unattractive terms that may require us
to relinquish certain technology or product rights, including intellectual
property rights. Our inability to raise capital would have a material adverse
effect on our business, financial condition, results of operations and
relationships with our corporate partners.
We Are Dependent Upon Certain Major Customers
We are dependent upon a small number of our customers as well as a
small number of systems sales for a substantial portion of our revenues. For the
fiscal year ending December 31, 1997, sales of integration services to three
clients accounted for 85% of our revenues. For the fiscal year ending December
31, 1998, sales of integration services to three clients accounted for 87% of
our revenues. For the fiscal year ending December 31, 1999, sales of integration
services to 3 clients accounted for 85% of our revenues excluding invoices
billed to our prior parent company. The loss of any one of these customers or a
diminution in sales to any one of them could materially and adversely affect our
business, financial condition and results of operations. Many of our system
integration projects are one time projects designed to meet a specific need and
have a long usable life expectancy. Such projects do not promote long term,
repeat business.
Forward Looking Statements
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The words "anticipate", "believe", "estimate", "expect",
"will", "could", "may," and similar words are intended to identify
forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described above and elsewhere in this Prospectus.
Current Prospectus and State Blue Sky Registration Required.
The purchasers of any securities registered hereby will be able to
resell such securities in the public market only if the securities are qualified
for sale or exempt from qualification under applicable state securities laws of
the jurisdictions in which the proposed purchasers reside.
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Although we intend to seek to qualify for sale of the securities registered
hereby in those states in which the securities may be offered, no assurance can
be given that such qualifications will occur. The securities may be deprived of
any value and the market for the securities may be limited if the securities are
not qualified or exempt from qualification in the jurisdictions in which any
prospective purchaser of the securities then reside.
Managing Development
We are currently experiencing a period of development and expansion
which has placed, and could continue to place, a significant strain on our
management, customer service and support operations, sales and administrative
personnel and other resources. In order to serve the needs of our existing and
future customers, we have substantially increased and will continue to increase
our workforce, which requires us to attract, train, motivate and manage
qualified employees. Our ability to manage our planned growth requires us to
continue to expand our operating, management, information and financial systems,
all of which may significantly increase our operating expenses. If we fail to
achieve our growth as planned or are unsuccessful in managing our anticipated
growth, there could be a material adverse effect on our company. In addition,
the loss of a significant customer or a number of customers, or a significant
reduction in purchase volume by or financial difficulty of such customers, for
any reason, could have a material adverse effect on our company.
No Market For Shares: Limited Liquidity; Absence of Dividends.
At the present time there is no public market for the common stock
offered hereby and there can be no assurance that a trading market can or will
be developed and sustained in the future. Our common stock is not traded on any
exchange. As a result, holders of our common stock may face difficulty in the
event that they wish to liquidate their investment. Nor can there be any
assurance that our common stock will ever be listed on an exchange. You must be
prepared to bear the economic risk of your investment for an indefinite period
of time, even assuming that the Company is successful in listing its shares for
trading in the National Quotation Bureau "Pink Sheets" or on the NASD
Over-the-counter Bulletin Board ("OTCBB"). Even if we are successful in having
our shares listed for trading in the Pink Sheets or on the OTCBB, securities of
companies traded on the OTCBB and Pink Sheets are generally more difficult to
dispose of and to obtain accurate quotations as to price than securities of
companies that are traded on the NASDAQ National Market, the NASDAQ SmallCap
Market or the major stock exchanges. The shares may be transferred in the states
in which the securities have been registered, but may not be transferred
elsewhere without strict compliance with Federal and State securities laws and
regulations.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Such exceptions include any
equity security listed on NASDAQ or a national securities exchange and any
equity security issued by an issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has
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been in continuous operation for three years, (ii) net tangible assets of at
least $5,000,000, if such issuer has been in continuous operation for less than
three years, or (iii) average annual revenue of at least $6,000,000, if such
issuer has been in continuous operation for less than three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
The impact of the regulations applicable to penny stocks on such
securities is a reduction in the market liquidity of such securities by limiting
the ability of broker/dealers to trade such securities and the ability of
purchasers of such securities to sell their securities in the secondary market.
The low price of our common stock also has a negative effect on the amount and
percentage of transaction costs paid by individual shareholders and our
potential ability to raise additional capital by issuing additional shares. The
primary reasons for these effects include the internal policies of certain
institutional investors that prohibit the purchase of low-priced stocks, the
fact that many brokerage houses do not permit low-priced stocks to be used as
collateral for margin accounts or to be purchased on margin and certain
brokerage house policies and practices that tend to discourage individual
brokers from dealing in low-priced stocks. In addition, since broker's
commissions on low-priced stocks represent a higher percentage of the stock
price than commissions on higher priced stocks, the current low share price of
the common stock results in individual shareholders paying transaction costs
that are a higher percentage of their total share value than would be the case
if our share price were substantially higher.
Shares Eligible for Future Sale
Future sales of substantial amounts of common stock in the public
market could adversely affect market prices of our common stock. Upon the
issuance of the maximum number of shares being registered hereunder, there will
be approximately 32,483,364 Class A Shares. The 24,616,662 Class A Shares of
common stock registered hereunder will be freely tradeable without restriction
or further registration under the Securities Act, unless held by our "affiliate"
as that term is defined in Rule 144 promulgated under the Securities Act ("Rule
144"), which shares will be subject to the resale limitations of Rule 144. Of
the Class A Shares registered hereunder, 7,866,545 of said shares will be deemed
"restricted securities" under Rule 144 and may not be sold unless they are
registered under the Securities Act or unless an exemption from registration,
such as the exemption provided by Rule 144, is available.
No prediction can be made as to the effect, if any, that future sales,
or the availability of 144 stock for future sales, will have on the market price
of our stock from time to time. Sales of substantial amounts of 144 stock by us
or by stockholders who hold restricted securities, or the perception that such
sales may occur, could adversely affect market prices for our stock.
Issuance of Future Shares May Dilute Present Investors' Per Share Value Having a
Par Value of $0.001 Per Share.
Our Certificate of Incorporation authorizes the issuance of 40,000,000
Class A Shares of common stock having a par value of $ 0.001 per share and
700,000 shares of Class B Common
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Shares (the "Class B Shares") having a par value of $0.001 per share.
As of December 31, 1999, there were 12,283,091 Class A Shares issued and
outstanding and 400,000 Class B Shares issued and outstanding. The authority
of our Board to issue such stock without shareholder consent may have a
depressive effect on the market price of our securities even prior to any such
designation or issuance of additional securities.
Potential Anti-Takeover Effect Upon Issuance of Class B Shares
Our Board of Directors has the authority, without further approval of
our stockholders, to issue Class B Shares. Holders of Class A Shares are
entitled to one vote for every Class A Share held. Holders of Class B Shares are
entitled to 100 votes for every one share held, thereby giving Class B
Shareholders voting control of the Company. This voting control could have the
effect of delaying or preventing a change in control of the Company or other
take-over attempt and could adversely materially affect the rights of holders of
shares of Class A Shares.
Risks of Future Acquisitions
One of our business strategies is to pursue acquisition opportunities
that complement our existing products, expand our distribution channel or are
compatible with our business philosophy and strategic goals. Future acquisitions
could be financed by internally generated funds, bank borrowings, public
offerings or private placements of equity or debt securities, or a combination
of the foregoing. There can be no assurance that we will be able to make
acquisitions on terms favorable to us and that funds to finance an acquisition
will be available or permitted under our financing instruments. If we complete
acquisitions, we will encounter various associated risks, including the possible
inability to integrate an acquired business into our operations, potentially
increased goodwill amortization, diversion of management's attention and
unanticipated problems or liabilities, some or all of which could have a
material adverse effect on our results of operations and financial condition. In
addition, such acquisitions could result in substantial equity dilution to
existing stockholders.
Lack of a Majority of Independent Directors
Upon completion of this offering, our Board of Directors will not have
any independent directors. As such, upon completion of the offering of the
shares, the majority of our directors will be either our officers, persons
related to our officers, or persons who provide consulting or advisory services
to us in exchange for remuneration.
USE OF PROCEEDS
Not Applicable. We will not receive any proceeds from the sale of the
Securities by the Selling Security Holders.
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DETERMINATION OF OFFERING PRICE
Not Applicable. The Selling Security Holders will be able to determine
the price at which they sell their Securities.
DILUTION
As we are not presently selling Class A Shares, there will be no
immediate dilution to public investors. However, we may sell or issue Class A
Shares in the future. As we cannot know at this time the price or terms under
which said Class A Shares might be sold, the dilution to existing shareholders
cannot be determined at this time.
SELLING SECURITY HOLDERS
Once registered, the Class A Shares may be sold by their respective
holders, subject to certain limitations imposed upon affiliates of the Company.
Potential selling security holders consist of shareholders of record of our
Class A common stock as of May 21, 1999, with respect to a maximum of 4,616,546
Class A Shares. However, any or all of the Securities being registered on behalf
of the shareholders may be retained by any of the Selling Security Holders, and
therefore no accurate forecast can be made as to the number of Securities that
will be held by the Selling Security Holders upon termination of this offering.
The following table describes the number of our shares owned as of
March 1, 2000 by those beneficially owning more than 5% of our Class A shares
who could conceivably be selling shareholders. We believe that the Selling
Security Holders listed in the table below have sole voting and investment
powers with respect to the Securities indicated. There are no other shareholders
who beneficially own more than 5% of our Class A shares. We will not receive any
proceeds from the sale of securities by Selling Security Holders.
AMOUNT
RELATIONSHIP BENEFICIALLY PERCENTAGE
NAME WITH ISSUER (1) OWNED OWNED (2)(3)
--------------------------------------------------------------------------------
Carl Ceragno President, Director 2,750,000 22.03%
Barry Kobrin Shareholder 788,392 6.32%
(1) Any material relationship which the Selling Security Holder has had
within the past three years with the Company or any of its predecessors
and/or affiliates.
(2) Assumes that none of the 20,000,000 additional shares registered
pursuant to this offering are sold
(3) Does not include 400,000 Class B shares owned by Carl Ceragno
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<PAGE>
PLAN OF DISTRIBUTION
The Securities offered by this Prospectus may be sold from time to time
by the Selling Security Holders or by transferees thereof. To our best
knowledge, no underwriting arrangements have been entered into by the Selling
Security Holders. We have no current plans to issue or sell the 20,000,000
shares registered pursuant to this Registration Statement other than a minimum
of 37,500 Class A shares to be issued to Farber and Klein. See, "Experts". The
distribution of the Securities by the Selling Security Holders may be effected
in one or more transactions that may take place in the over- the-counter market,
including ordinary broker's transactions, privately negotiated transactions or
through sales to one or more dealers for resale of such Securities as
principals, at prevailing market prices at the time of sale, prices related to
prevailing market prices or negotiated prices.
The Selling Security Holders may pledge all or a portion of the
Securities owned as collateral for margin accounts or in loan transactions, and
the Securities may be resold pursuant to the terms of such pledges, accounts or
loan transactions. Upon default by such Selling Security Holders, the pledgee in
such loan transaction would have the same rights of sale as the Selling Security
Holders under this Prospectus. The Selling Security Holders may also transfer
Securities owned in other ways not involving market makers or established
trading markets, including directly by gift, distribution, or other transfer
without consideration, and upon any such transfer the transferee would have the
same rights of sale as such Selling Security Holders under this Prospectus.
In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144
rather than pursuant to this Prospectus. (See "Selling Security Holders" above.)
Without limiting the foregoing, brokers may act as dealers by purchasing any or
all of the Securities either as agents for others or as principals for their own
accounts and reselling such shares pursuant to this Prospectus. Such brokers
will receive compensation from the Selling Security Holders in the form of
commissions or discounts and may receive compensation from purchasers of the
Securities for whom they may act as agent or to whom they may sell as principal
in the form of commissions or discounts.
Finally, the Selling Security Holders and any brokers and dealers
through whom sales of the Securities are made may be deemed to be "underwriters"
within the meaning of the Securities Act, and the commissions or discounts and
other compensation paid to such persons may be regarded as underwriters'
compensation.
There can be no assurances that the Selling Security Holders will sell
any or all of the Securities. In order to comply with certain state securities
laws, if applicable, the Securities will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In certain states, the
Securities may not be sold unless such Securities have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. Under applicable rules and
regulations of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), any person engaged in a distribution of the Securities may not
simultaneously engage in market-making activities with respect to such
Securities for a period of one or five business days prior to the commencement
of such distribution.
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In addition to, and without limiting, the foregoing, each of the
Selling Security Holders and any other person participating in a distribution
will be subject to the applicable provisions of the Exchange Act and the rules
and regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of any of the Securities
by the Selling Security Holders or any such other person.
All of the foregoing may affect the marketability of the Securities.
Pursuant to the various agreements we have with the Selling Securities Holders,
we will pay all the fees and expenses incident to the registration of the
Securities (other than the Selling Security Holders' pro rata share of
underwriting discounts and commissions, if any, which is to be paid by the
Selling Security Holders).
LEGAL PROCEEDINGS
There are no pending or threatened legal or governmental claims,
actions or proceedings against or relating to the Company which could,
individually or in the aggregate, have a materially adverse effect on the
Company.
Under the terms of the reorganization of VTI, which led to the
distribution of our shares to the shareholders of VTI, VTI has assigned to the
Company all of its rights to that certain lawsuit captioned Visual Telephone
International v. Michael O'Brien Pickens and the Pickens Venture Group, Case No.
97-2969(JWB) and filed in the United States District Court in and for the
District of New Jersey. This lawsuit seeks monetary damages against Mr. Pickens,
The Pickens Venture Group, Inc. and The Pickens Group (collectively "Pickens").
An order entering a default against the defendants in this case was executed on
August 26, 1999. No assurance can be given that the defendants in this case
would be able to satisfy any award of damages.
We have incurred over $47,000.00 in legal fees and costs in connection
with this matter. However, we believe that most of the legal fees and costs to
be incurred in connection with this matter are behind us and that we have
sufficient capital to bring this matter to a conclusion. We further believe that
the costs therefor will not have a material effect on our operations or
liquidity. See "Managements Discussion and Analysis". However, no assurances can
be given in this regard. No assurances are given that any award of damages will
be granted to the Company.
We have recently filed a lawsuit against our former parent company,
alleging constructive eviction, trespass, breach of contract, conversion,
interference with economic relations and quantum meruit. If we do not prevail,
we may be forced to find a new location for our operations. While we do not
believe that we will have any difficulty finding new operating space, the costs
associated with relocation and pursuing this legal action may have a material
and adverse effect upon our operations.
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<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The following table sets forth certain information regarding the
executive officers, directors and control persons of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carl R. Ceragno (1)(2) 53 Director, President and Treasurer
Bertram Hennion, Jr.(2) 54 Director and Vice President
Larry S. Hartman(1) 34 Director and Vice President
Almajean O'Connor(2) 50 Secretary
</TABLE>
(1) The directors named above will serve until the next annual meeting of our
shareholders to be held within six (6) months of the close of our fiscal year or
until their successors shall have been elected and accepted their positions.
Directors are elected for one-year terms.
(2) Executive Officer
CARL R. CERAGNO. Carl R. Ceragno co-founded the Company in August 1989
and has served as its president and chief executive officer since its inception.
His principal responsibilities include system design engineering, project
management, sales and technical proposal preparation. From July 1969 through
June of 1992, Mr. Ceragno served as a studio engineer, project engineer, chief
engineer, and ultimately vice president of engineering for Tele-Measurements,
Inc., an A/V systems integration business located in Clifton, New Jersey.
Mr. Ceragno received a bachelor of sciences degree in May of 1969 from
Emerson College, Boston, MA. At graduation, he was honored by receiving the
departmental award for excellence and service to the Emerson College
broadcasting department.
Mr. Ceragno has given numerous network design and video conferencing
lectures, has taught technical classes at Emerson College and has authored
numerous lectures regarding telecommunications technology and integration.
Since 1998, Mr. Ceragno has served as trustee and president of the New
York Susquehanna & Western Technical and Historical Society, is a delegate to
the United Railroad Historical Society of New Jersey and is active in railroad
equipment restoration and preservation.
BERTRAM HENNION, JR. Bertram Hennion, Jr. has served as Vice President,
Operations of the Company since September of 1994. His technical
responsibilities include project management and electronics systems integration,
during the course of which he oversees systems installations and is responsible
for the Company's daily operations of technical support. From July of 1980 to
September of 1994, Mr. Hennion served as senior technician for
Tele-Measurements, Inc. an A/V systems and integration business located in
Clifton, New Jersey. While at Tele-Measurements, Inc., Mr. Hennion installed,
serviced and repaired the systems that Tele-Measurements, Inc. had designed and
installed
Mr. Hennion attended Salem County Technical Institute but has received
no formal degree. His formal education was interrupted by his military service,
where he received extensive training in electronics and radar and computer
electronics.
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<PAGE>
LAWRENCE S. HARTMAN. Lawrence S. Hartman has served as Vice
President-Corporate Counsel of the Company since May of 1999. Mr. Hartman does
not devote his full time efforts to the affairs of the Company. Rather, he
provides his time to the Company on an "as needed" basis. From June of 1999 to
the present, Mr. Hartman has served as president, secretary and treasurer of
AngelCiti International Film & Music Market, which conducts film and music
festivals. From May of 1998 to June of 1999, Mr. Hartman had served as a senior
manager of the Ocwen Federal Bank, where his responsibilities were devoted
towards real estate asset management. From January 1996 to May of 1998, Mr.
Hartman served as Vice President, secretary and general counsel with Terragon
Realty Advisors, a real estate investment trust. From January of 1994 until
January of 1996, Mr. Hartman was employed as an associate attorney with the law
firm of Coudert Brothers, where his area of practice was limited to real estate
law.
Mr. Hartman earned a Bachelor of Arts degree from Albany University in
May of 1987. He earned his Juris Doctor degree from Columbia Law School in May
of 1990. Mr. Hartman is currently licensed to practice law in the State of New
York.
ALMAJEAN M. O'CONNOR. Almajean M. O'Connor has served as the Company's
corporate secretary since May of 1999. She has been employed by the Company as
its office manager since November of 1996. From November of 1987 to November of
1996, Ms. O.'Connor had been employed as a legal secretary and legal assistant
with the law firm of Hannoch Weisman, Roseland, New Jersey. While Ms. O'Connor
has not earned a four year degree, she has attended Atlantic County Community
College, Mays Landing, New Jersey, where she had taken computer science classes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of March 1, 2000, of
our common stock (i) by each person known by us to be the beneficial owner of
more than 5% of our outstanding common stock, (ii) by each of our directors,
(iii) by certain related stockholders, and (iv) by all executive officers and
our directors as a group. All persons named have sole voting and investment
power with respect to such shares, subject to community property laws, and
except as otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL SHARES
TITLE OF NO. OF Before Issuance of After Issuance of
CLASS NAME & ADDRESS SHARES 20,000,000 Shares 20,000,000 Shares
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Toby Investments 788,392 6.32% 2.43%
Class A Common Lawrence S. Hartman 550,000 4.41% 1.69%
Class A Common Bertram Hennion, Jr. 548,750 4.40% 1.69%
Class A Common Almajean O'Connor 255,000 2.04% 0.79%
Class A Common Carl R. Ceragno(1) 2,750,000 22.03% 8.47%
Class B Common Carl R. Ceragno(2) 400,000 100.0% 100.00%
-------------------------------------------------------------------------------------------------------------
All Officers and Directors as a Group(3)
(4 Individuals) 4,103,750 32.87% 12.63%
</TABLE>
19
<PAGE>
(1) Excludes 150,000 shares of Class A common shares owned by Christopher
Ceragno, son of Carl R. Ceragno, of which Carl R. Ceragno disclaims beneficial
ownership.
(2) The Class B shares entitle the holder thereof to 100 votes per share owned
at all meetings at which shareholders are entitled to vote. This would give Carl
R. Ceragno effective voting control of the Company.
(3) Excludes the Class B shares owned by Carl R. Ceragno
Changes in Control.
There are currently no arrangements which would result in a change in control of
our Company.
DESCRIPTION OF SECURITIES
The following description is a summary and is qualified in its entirety
by the provisions of our Articles of Incorporation and Bylaws, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK.
General. We are authorized to issue up to 40,000,000 Class A Shares
which have a par value of $ 0.001 per share. As of December 31, 1999, there were
12,283,091 Class A Shares issued and outstanding. We are authorized to issue up
to 700,000 Class B Shares which have a par value of $0.001 per share. As of
December 31, 1999, there were 400,000 Class B Shares issued and outstanding. All
shares of common stock outstanding are validly issued, fully paid and
non-assessable.
Voting Rights. Each share of Class A common stock entitles the holder
thereof to one vote, either in person or by proxy, at meetings of shareholders.
The holders of Class A Shares are not permitted to vote their shares
cumulatively. Each share of Class B common stock entitles the holder thereof to
one hundred votes, either in person or by proxy, at meetings of shareholders.
The holders of Class B Shares are not permitted to vote their shares
cumulatively. Accordingly, assuming all shares to be registered hereby are
issued and outstanding, the holders of 162,416 Class B Shares can elect all of
our directors and, in such event, the holders of the remaining minority shares
will not be able to elect any of such directors. Assuming all authorized Class A
and Class B common shares are issued and outstanding,
20
<PAGE>
holders of 202,001 Class B shares can elect all of our directors and in such
event, holders of the remaining minority shares will not be able to elect any
directors. The vote of the holders of a majority of the issued and outstanding
shares of common stock entitled to vote thereon is sufficient to authorize,
affirm, ratify or consent to such act or action, except as otherwise provided by
law.
Dividend Policy. All Class A Shares are entitled to participate ratably
in dividends when and as declared by our Board of Directors out of the funds
legally available therefore. Any such dividends may be paid in cash, property or
additional shares of common stock. Class B Shares are not entitled to receive
dividends. We have not paid any dividends since our inception and presently
anticipate that all earnings, if any, will be retained for development of our
business, and that no dividends on the shares of common stock will be declared
in the foreseeable future. Any future dividends will be subject to the
discretion of our Board of Directors and will depend upon, among other things,
our future earnings, operating and financial condition, our capital
requirements, general business conditions and other pertinent facts. Therefore,
there can be no assurance that any dividends on the common stock will be paid in
the future.
Miscellaneous Rights and Provisions. Holders of common stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of our dissolution, whether voluntary or
involuntary, each Class A Share is entitled to share ratably in any assets
available for distribution to holders of our equity after satisfaction of all
liabilities. Class B Shares are not entitled to any distribution upon
liquidation of the Company.
Under Nevada law, stockholders may take certain actions without the
holding of a meeting by a written consent or consents signed by the holders of a
majority of the outstanding shares of the capital stock of the company entitled
to vote thereon. Prompt notice of the taking of any action without a meeting by
less than unanimous consent of the stockholders will be given to those
stockholders who do not consent in writing to the action. The purposes of this
provision are to facilitate action by stockholders and to reduce corporate
expense associated with annual special meetings of the shareholders. If
shareholder action is taken by written consent, we will be required to send each
shareholder entitled to vote on the applicable matter, but whose consent was not
solicited, an information statement containing information about the action
taken.
Shares Eligible For Future Sale. Upon the effectiveness of the
Registration Statement of which this Prospectus is a part, we will have
outstanding approximately 12,283,091 shares of Class A common stock. The
4,616,682 shares of currently issued and outstanding Class A common stock
registered pursuant to this offering will be freely tradable without
restrictions under the Securities Act, except for any shares held by our
"affiliates", which will be subject to the resale limitations of Rule 144 under
the Securities Act.
A significant portion of the shares of our common stock currently
outstanding are "restricted securities" within the meaning of Rule 144
promulgated under the Securities Act, and may not be sold except in compliance
with the registration requirements of the Securities Act or an applicable
exemption under the Securities Act, including an exemption pursuant to Rule 144
thereunder.
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<PAGE>
In general, under Rule 144 as currently in effect, any of our
affiliates and any person (or persons whose sales are aggregated) who has
beneficially owned his or her restricted shares for at least one year, may be
entitled to sell in the open market within any three-month period a number of
shares of common stock that does not exceed the greater of (i) 1% of the then
outstanding shares of our common stock, or (ii) the average weekly trading
volume in the common stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain limitations on manner of sale,
notice requirements, and availability of current public information about us.
Non-affiliates who have held their restricted shares for one year may be
entitled to sell their shares under Rule 144 without regard to any of the above
limitations, provided they have not been affiliates for the three months
preceding such sale.
Further, Rule 144A as currently in effect, in general, permits
unlimited resales of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100 million in securities or is a registered broker-dealer that owns
and invests $10 million in securities. Rule 144A allows our existing
stockholders to sell their shares of common stock to such institutions and
registered broker-dealers without regard to any volume or other restrictions.
Unlike under Rule 144, restricted securities sold under Rule 144A to
non-affiliates do not lose their status as restricted securities.
As a result of the provisions of Rule 144, all of the restricted
securities could be available for sale in the public market beginning 90 days
after the date of this Prospectus. The availability for sale of substantial
amounts of common stock under Rule 144 could adversely affect prevailing market
prices for our securities.
Transfer Agent. Fidelity Transfer Company has been appointed the
transfer agent of our common stock and preferred stock.
EXPERTS
Our Financial Statements for the years ending December 31, 1998 and
December 31, 1999 have been included in this Prospectus in reliance upon the
report appearing elsewhere herein, of Bierwolf, Crouch & Chisholm, independent
certified public accountants, and upon the authority of said independent
Certified Public Accountants as experts in accounting and auditing.
Andrew Farber and Jeffrey Klein, partners in the firm of Farber and
Klein, are to be issued a minimum of 37,500 Class A shares of common stock of
the Issuer, which are part of this Registration Statement. Farber and Klein have
provided legal services in connection with this offering and have rendered the
legal opinion as to the validity of shares being registered on this Registration
Statement. The exact number of shares to be issued will be based upon the bid
price for the Company's common shares on the 30th day after this registration
statement is declared effective.
22
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Section 78.7502, Nevada Revised Statutes ("NRS"), provides that Nevada
corporations may limit, through indemnification, the personal liability of their
directors or officers in actions, claims or proceedings brought against such
person by reason of that person's current or former status as an officer or
director of the corporation. Indemnification of directors or officers is
available if the person acted in good faith and in a manner the person
reasonably believed was, at least, not opposed to the best interests of the
corporation. In the event of a criminal action or proceeding, indemnification is
not available if the person had reasonable cause to believe their action was
unlawful.
Further, in an action brought by the corporation or in the right of the
corporation, if the person, after exhaustion of all appeals, is found to be
liable to the corporation, or if the person makes payment to the corporation in
settlement of the action, indemnification is available only to the extent a
court of competent jurisdiction determines the person is fairly and reasonably
entitled to indemnification. Such discretionary indemnification is available
only as authorized on a case-by-case basis by: (1) the stockholders; (2) a
majority of a quorum of the Board of Directors consisting of members of the
Board who were not parties to the action, suit or proceeding; (3) if a majority
of a quorum of the Board of Directors consisting of members of the board who
were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or (4) if a quorum of the Board of Directors
consisting of members of the Board who were not parties to the action cannot be
obtained, by independent legal counsel in a written opinion.
To the extent that a director or officer of a corporation is successful
in defending against an action, suit or proceeding brought against that person
as a result of their current or former status as an officer or director, the
corporation must indemnify the person against all expenses actually and
reasonably incurred by the person in connection with their defense. Nevada law
also allows Nevada corporations to advance expenses of officers and directors
incurred in defending a civil or criminal action as they are incurred, upon
receipt of an undertaking by or on behalf of the director or officer to repay
such expenses if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be indemnified by
the corporation because such officer or director did not act in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation.
Section 78.751(3) of the Nevada Revised Statutes provides that any
indemnification provided for by the Company (by court order or otherwise) shall
not be deemed exclusive of any other rights to which the indemnified party may
be entitled and that the scope of indemnification shall continue as to directors
or officers who have ceased to hold such positions and to their heirs, executors
and administrators.
Section 78.752 of the Nevada Revised Statutes allows corporations to
provide insurance, or other financial arrangements such as a program of
self-insurance, for their directors or officers. Such insurance may provide
coverage for any liability asserted against the person and liability and
23
<PAGE>
expenses incurred by the person in their capacity as a director or officer or
arising out of their status as such, whether or not the corporation has the
authority to indemnify the person against such liability and expenses. However,
no financial arrangement made under this Section may provide protection for a
person adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable for intentional misconduct, fraud or a knowing
violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
Our By-laws provide for the indemnification of our directors and
officers to the maximum extent provided by law. It is the position of the
Securities and Exchange Commission and certain state securities administrators
that any attempt to limit the liability of persons controlling an issuer under
the federal securities laws or state securities laws is contrary to public
policy and therefore unenforceable.
DESCRIPTION OF BUSINESS
OVERVIEW
Our Company was incorporated in New Jersey on August 11, 1989. We
became a wholly owned subsidiary of Visual Telephone of New Jersey, Inc., a
publicly traded Delaware corporation ("Visual of New Jersey") on July 17, 1996.
Visual of New Jersey changed its name to Visual Telephone International, Inc.
("VTI") in September of 1996. We operated as a wholly owned subsidiary of VTI
until May 19, 1999 when our shares were distributed to the shareholders of VTI
pursuant to an Agreement and Plan of Reorganization dated May 14, 1999 (the
"Reorganization Agreement") by and among the Company, VTI and International
Voice Technologies, Corp., a privately held Delaware corporation ("IVT").
Pursuant to the Reorganization Agreement: i) IVT merged with and into VTI; ii)
the Company was to change its state of incorporation from New Jersey to Nevada;
iii) the Company authorized the issuance of two classes of common stock and
vesting of voting control thereof with the Company's President, Carl R. Ceragno
through the issuance of Class B Shares; and iv) ownership of the Company's Class
A Shares was spun off to the shareholders of VTI. Since May 21, 1999, the
Company has operated as a separate and autonomous entity. On July 15, 1999, the
Company completed a change of domicile merger pursuant to which its state of
domicile was changed from New Jersey to Nevada. See "DESCRIPTION OF SECURITIES"
and "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION".
We design, develop, install and support sophisticated communications
systems that process and/or transmit data, voice and video to suit the unique
needs of our customers. Additionally, we manufacture and sell fully integrated,
PC based, full motion video conferencing systems. We have established two
autonomous internal divisions. The Systems Integration Division, our core
business, designs, develops and installs sophisticated data, voice and/or video
networks. Our Visual Products Division develops, manufactures and sells desktop
full motion video conferencing products.
We specialize in the design and development of networked video
conferencing systems, distance learning systems, security/surveillance systems,
and sophisticated campus distribution systems, within local area networks or
wide area networks. A network is the integration of two or
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more computers and their components into a system that allows multiple users to
share the same information, communicate with the mainframe (a computer with
large capacity used primarily for massive data storage and processing) or
central networking system and all other computers and peripheral equipment. The
networked systems that we design can be employed to operate within an enterprise
or from one enterprise to another, and are comprised, for the most part, of
hardware supplied and manufactured by other equipment manufacturers ("OEMs"). It
has been our goal to develop and design systems that combine data, voice and
full motion video transmission in an efficient and cost effective manner.
Our line of desktop video conferencing products are PC based video
conference systems with direct ISDN connectivity to the public switched network.
They provide simultaneous dual display of full frame video presence and graphics
in a portable package. Our line of video conferencing products features the
Company's proprietary Visual-EZ custom operating interface which provides
simplified video, audio and graphic collaboration for conference system
operation.
The following table sets forth a breakdown by industry segment of our
sales revenues to unaffiliated entities, sales to related entities, operating
profit or loss and identifiable assets:
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS AND
CLASSES OF PRODUCTS OR SERVICES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Year Ending December 31
-----------------------
1998 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Sales to Unaffiliated Customers:
Systems Integration Division $ 36,960.00 $ 106,838.00
Visual Products Division $ 11,785.00 $ 0
Inter-segment Sales
Systems Integration Division $ 0 $ 0
Visual Products Division $ 0 $ 0
Operating Profit or Loss
Systems Integration Division $ (362,182.00) $ 247,188.00)
Visual Products Division $ 0 $ 0
Identifiable Assets
Systems Integration Division $ 104,304.00 $ 118,194.00
Visual Products Division $ 0 $ 0
</TABLE>
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INDUSTRY BACKGROUND
Communication systems play a pivotal role in how industry utilizes
corporate information to satisfy its strategic goals. Network resources allow
corporate management to transmit and track financial information.
Telecommunication connectivity is the backbone that allows the transport of this
information, in the form of data, voice and/or video between employees,
management and even customers. Multimedia presentations which utilize data,
voice and full motion video transmission have become an effective means for
communicating ideas, statistics and information at costs significantly lower
than those that had been associated with the long distance personal
presentations.
Communication technology has evolved in great leaps over the last
several years, yielding high quality full motion video conferencing capabilities
at reduced costs. Reduced costs have led to an increase in options for users.
Increased options lead to user confusion and the need to provide guidance and
expertise. The Company believes that the trends of advancing technology and
decreasing costs will continue, yielding improved productivity and profitability
for those businesses that have planned their communications strategies
carefully, and has positioned itself to provide the knowledge and expertise
necessary for the deployment of this ever advancing technology and utilization
of the same to help its clients realize their strategic goals.
Industry sources have determined the video communications industry to
generate over 4 billion dollars in sales during 1999. Worldwide sales of desktop
video capabilities in the home have been projected to grow from 20,000 units in
1995 to 3,000,000 units in 2001, creating an excess of 1.2 billion dollars in
sales of units alone. Business usage has grown from 71,000 units in 1995 to over
1,780,000 units in 1998. Declines in equipment and transmission costs as well as
increased video image quality should lead to the continuation of these trends.
DESCRIPTION OF THE COMPANY'S BUSINESS SEGMENTS
Systems Integration Division. The outsourcing of computer services is a
rapidly growing trend whereby a client obtains all or a portion of its data
processing requirements from a systems integrator, such as the Company, that
specializes in the computer service, product or application required by the
client. The Company believes that it is generally more cost-effective and
efficient for its clients to purchase outsourcing services from the Company than
for them to provide equivalent services by hiring their own service and support
personnel.
We, through our Systems Integration Division, provide our clients with
sophisticated communications solutions designed to fulfill their strategic
corporate goals. We provide the knowledge and experience necessary for the
deployment of digital, voice and video technology. We have been providing the
development, design and integration and support of large scale security,
surveillance, audio/visual, professional video and computer/network systems
since 1989. The Systems Integration Division accounts for approximately 90% of
our business. This division has no foreign operations and no material foreign
sales.
Project Analysis and Design. We offer research and planning insight and
options at all levels of information flow. We offer an array of connectivity
services, including LAN and WAN system
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design configuration, video conferencing consulting, user training, installation
and support. Our Systems Integration operations begin with a discussion with the
client's management team to review the client's current communication systems
and assess its current and future needs. Current systems are tested and
documented to aid in the diagnosis of problems and potential problem areas and
to determine whether they can be incorporated into the client's new design. A
functional design and implementation plan is established based upon the current
and projected needs and budget of the client.
Supplies, materials and testing equipment used by our System
Integration Division are supplied by various manufacturers and sources. We
believe that the various components, parts and equipment used by our Systems
Integration Division are readily available from a diverse assortment of
suppliers. This eliminates the need for us to maintain an excessive level of
inventory. The elimination of any one supplier would not have a material effect
on our ability to design and install systems.
Project Design Segments Served. We have offered our system integration
and design services in connection with large scale security, surveillance,
audio/visual, professional video and computer/network projects. Our systems have
been geared towards the following applications:
Video Conferencing/Distance Learning Systems. We believe that
traditional on-campus educational programs do not adequately address the needs
and preferences of many working adults. Burdened by the competing time demands
of work and family, many adults want to attend courses that are convenient to
their homes or places of work. The emphasis on locational convenience, together
with the availability of tuition reimbursement incentives offered by employers,
have contributed to an increase in demand for higher education and training
at-off campus locations.
A number of national, economic, demographic and social trends,
including: i) employer and employee recognition of the need to have employees
advance their skills; ii) the shift from unskilled jobs to skilled jobs in the
United States due to the shift from an industrial to a knowledge-based economy;
iii)improvement in the student's financial prospects; and iv) the need for
colleges to increase their revenue base, are contributing to the growing demand
for career oriented education.
We design and network interactive video conferencing systems for
education institutions, private sector employers and governmental agencies. Our
marketing objectives for these systems are achieved by:
*Targeting major corporations, federal, state and local
governmental agencies and other organizations that reimburse
or pay for a significant portion of tuition costs, have
policies to encourage their employees to pursue higher
education or additional job related training, or otherwise
have a need to implement training to personnel at diverse
locations.
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*Making alliances with colleges, universities, entrance exam
test preparation providers and primary education school boards
to provide higher education and exam training for adults and
to create a centralized network for school districts.
*Making alliances with equipment vendors and
telecommunications services providers to gain access to the
latest technology capable of providing quality, cost-effective
interactive video conferencing systems.
Security/Surveillance Systems. The use of video surveillance has aided
the automation of the security industry. Closed Circuit Television ("CCTV")
surveillance is being relied upon more heavily today to protect lives and
property as an adjunct to classical security alarm measures. Larger corporate,
institutional and governmental agencies require CCTV systems that utilize high
quality industrial grade video, elaborate control of cameras with pan/tilt/zoom
capability, video matrix switching of sources and video taping for audit trails
or submittal as legal evidence.
Competition in the small and medium surveillance system market is
intense as the levels of technical expertise and financial resources needed are
minimal. Large security system design and integration requires a high degree of
technical knowledge in a number of electronic systems areas. These systems are
usually distributed in a wide area making the need for muliplexing video and
control mandatory. Fiber optics are generally needed to support the wide
bandwidth multiplexing for transmittal of signals over greater distances than
copper cable will allow without equalization. Control of different pan/tilt/zoom
devices needed to meet various specifications must be designed for remote single
or multiple control. Video from multiple camera sources must be processed and
switched among numerous monitors and monitor locations.
We have successfully designed and implemented many high level
security/surveillance systems for museums, casinos and high security military
installations. Our services have been sought after and provided to end users as
well as large scale contractors.
Computer Networks. We provide special system design, installation and
support for local area networks ("LAN's") to support connecting user input and
display devices with host computers and shared resources. Over the last ten
years, we have seen LAN technology change many times, as the need to transmit
more data, voice and video at faster rates increases. Data systems with
fiber/ATM backbones running at gigabit speeds are becoming state of the art. A
properly designed and carefully installed system will require low maintenance
and provide reliable operation over the system's service life. Since our
inception, we have successfully designed and installed such systems.
Documentation and Quality Assurance. Truly effective communications
systems require easy and inexpensive maintenance. Maintenance costs are reduced
by employing accurate and easy to use documentation. We identify, track, and map
all cable runs and devices utilized in a system. Cable test results and
certification runs are compiled and documented to provide quality assurance. We
provide complete sets of prints reflecting cable runs, equipment location and
functional interconnect details for all systems that it engineers and installs.
The CAD documentation becomes
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a most useful maintenance tool. Documentation is supplied on floppy disks that
can be readily modified. When clients are unable to provide digitized floor
plans of their facility, we will scan and digitize any floor plan on an AutoCad
file for an additional fee. We believe that our documentation and quality
assurance strategies will permit our clients to avoid the costly dependence on
highly skilled personnel necessary for service provisioning and maintenance of
the systems that we design, engineer and install.
We own and maintain an inventory of test and measurement equipment for
the daily requirements of our business. Additional testing equipment is acquired
to support special project requirements on a case by case basis. All such
testing and measurement equipment is re-calibrated every six months to traceable
National Bureau of Standards sources. There are no anticipated plans for any
material purchase of additional equipment.
Government Business. We are qualified and registered to do business
with all branches of the federal government. Additionally, we are located in
South Hackensack, New Jersey, a New Jersey Economic Development Agency
economically targeted enterprise zone, which provides us with certain strategic
advantages when bidding on projects for federal, state and local governments.
In June of 1999, we were awarded a New Jersey State contract for
telecommunications consulting and technical services with a per project cap of
$500,000.00. This is an annual contract, renewable upon review of performance
and negotiation of rates. As of this date, we have been awarded six projects for
engineering and technical services under this contract. During 1999, the
aggregate revenues under these projects provided us with revenues of
approximately $105,000.00. No assurances can be given that any additional
projects will be awarded to us pursuant to this contract.
We are a qualified contractor for bidding in the Commonwealth of
Pennsylvania for video conferencing, distant learning, audio/visual, multimedia,
audio, graphic and image display system projects. This qualification is renewed
annually and is not subject to review or re-negotiation. This work is highly
competitive and requires installation and other personnel to be residents of
Pennsylvania.
Our Visual Products Division is listed as an authorized subcontractor
pursuant to a Government Services Administration contract with Lockheed Martin
Federal Systems to sell our proprietary Visual-EZ products and accessories. This
contract allows us to sell our line of Visual-EZ products to the federal
government at negotiated prices without going through a bidding process. This
contract is renegotiated annually and may be amended during the course of any
year to add or delete products. To date no products have been sold under this
program and no assurances are given that we will ever do so. Our Systems
Integration Division is currently working on the following governmental or
public projects:
US Army Armor Center, Fort Knox, KY
Ramapo College of New Jersey, Mahwah, NJ
University of Pennsylvania, Edenborough, PA
Rice Schools, Girard, PA
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Current government and public projects represent approximately 40
percent of our revenues. However, one large system order in either the public or
private sector could dramatically change this percentage.
Marketing and Sales Strategy. We focus our sales and marketing efforts
on developing strategic alliances with OEMs and other service providers, that
permit us to act as a vendor for the OEM or other service provider and a
sub-contractor offering engineering, integration and installation of the OEM's
products or other service provider's services. We rely on the sales efforts of
the sales professionals employed by our business affiliates. This philosophy
allows us to function without the added burden of a large direct sales force.
Additionally, we directly market our services to Fortune 500 companies, federal,
state and local governments, including the military and department of defense,
as well as to education institutions.
We have enjoyed business relationships with the following equipment
manufacturers and service suppliers:
Ameritech, Hoffman Estates, IL
BTNA, Herndon, VA
Centech Group, Arlington, VA
HBOC, Atlanta, GA
Panasonic ESD, Secaucus, NJ
While we strive to maintain such relationships, no assurances are given
that it will be able to do so or whether it will be able to develop new
relationships with other manufacturers and suppliers.
We do not believe that the business generated by our Systems
Integration Division is seasonal. While our Systems Integration Division does a
significant amount of business with agencies of federal, state and local
governments, we are not dependent upon the business of one or a few customers,
the loss of any one or more of which would have a material adverse effect upon
our operations. No single customer of our Systems Integration Division is
responsible for 10% or more of our aggregate sales. While our Systems
Integration Division employs pricing and payment terms that our management
considers competitive, we do not employ extended payment terms or liberal
return policies that could have a materially adverse effect on our operations.
This division's sales varies with the timing and scope of the projects booked.
In most cases backlog varies between two weeks and two months. Currently, this
division has no orders on backlog.
Research and Development. It is not anticipated that the Systems
Integration Division will incur material research and development expenses and
we have not made any budgeting provisions in connection therewith. While some of
this division's research and development costs are funded from our operating
revenues, much of our research and development costs are paid for by our
clients.
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In such event, we own the rights to the fruits of such research and development
and our clients have the unlimited but non-exclusive use of the technology or
design that we have developed.
Competition. The data, voice and video networking industry is highly
competitive and price sensitive. Moreover, this industry is not capital
intensive and there are no significant financial barriers to entry. While the
market for video electronic products and the market for design and integration
of systems solutions regarding the same have increased substantially in recent
years, competition in such markets has increased substantially as well. We face
competition from many large and small companies, both public and private. Many
of the competitive companies possess greater financial and personnel resources
than we do and have greater leverage in acquiring prospects, hiring personnel
and marketing. A high degree of competition in these areas is expected to
continue. No assurance is given that our revenues will not be adversely affected
by these factors.
Visual Telephone Products Division. We, through our Visual Products
Division, develop, manufacture and sell desktop full motion video conferencing
products. Our line of desktop video conferencing products are PC based video
conference systems that feature H.320 international standards compliance with
direct ISDN connectivity to the public switched network. They provide
simultaneous dual display of full frame video presence and graphics in a
portable package. Our line of video conferencing products features the Company's
proprietary Visual-EZ operating interface which provides simplified video
conference system operation.
Hardware for the our line of video conferencing products are supplied
by various manufacturers and sources. We believe that the various components for
our products are readily available from a diverse assortment of suppliers. As a
result, there is no need for us to maintain excessive levels of inventory The
elimination of any one supplier would not have a material effect on our ability
to manufacture our line of video conferencing products. The Visual Products
Division accounts for approximately 15% of the our business. This division has
no foreign operations and no material foreign sales.
Our Visual Telephone Products Division owns no copyrights, patents or
trademarks.
Projected Market for Desktop Video Conferencing Products. According to
Dataquest, Sales of desktop PC video conferencing systems was approximately
$136,000,000 in 1995. With decreased equipment and transmission costs coupled
with improvements in video image quality, sales of desktop PC video conferencing
systems are expected to be $1.6 billion by the end of the year 2000. The number
of desktop PC video conference systems in use at the end of the year 2000 is
forecast to be between 2.5 million and 5 million units, compared to
approximately 50,000 units at the end of 1995.
Product Description
Visual 1000A Series. The Visual-1000A series is a PC based
desktop video conferencing system for direct connection to the public ISDN or
private digital branch exchange network. The system is based upon a multi-media
ready 586-266 MHz CPU platform with 64Mb
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RAM audio echo cancellation processor and 15 inch high resolution (1280x1024, 72
Hz) display monitor. Except for the OEM Series that requires a client furnished
PC and monitor, all units are built on the same PC platform. All models feature
direct ISDN interfaces that support ISDN rates of 128kB (2B) with one ISDN BRI,
384kB (6B) with 3 ISDN BRI, 512 (8B) with four ISDN BRI, and RS-449/V.35 for
special systems applications.
Visual 1010 Series. The Visual 1010 series of products is
identical to the 1000A series, except it is presented in a high performance
workstation meeting Federal VTC-1 system specification requirements. These
systems incorporate the Five bay desktop case of the 1000A series with a Pentium
II/MMX 233 Energy Compliant PC, 17" XVGA Display, 2Gb hard drive, 24x CD- ROM
Drive and Type I, II, III and IV card Reader.
Visual 1050 Series. The Visual 1050 series is an OEM package
comprised of a modular kit to be installed in client furnished PC's. This series
does not include a PC or display. However, this system includes a fixed camera,
CODEC card, interface cables and the Company's proprietary Visual EZII operating
system software.
Visual 100 Series. The Visual 100 series is designed for the
educational and small office/home office. The system meets all H.320 standards
for a Desktop Video Conference System, complete with camera, mini pack with PCA
bus, AMD 266 CPU and 32 MB Ram, Type I, II, III, and IV card Reader. No display
or graphics are included in this configuration.
Visual 2000 Series. The Visual 2000 series supports data rates
from 384 kB and higher. The system allows continuous full frame presence and
graphics on two video displays mounted on a portable roll-out cabinet. The base
configuration is provided with a 27" video picture monitor data display.
Optional monitor configurations for large group use include dual 33" and dual
37" displays. The system is flexible in configuration allowing end users to add
full room echo cancellation, graphic stand, slide to video converters,
pan/tilt-zoom cameras with local and remote control, and other performance
options. It was specifically designed to the needs of Distant Learning,
Corporate Conference and Tele-Medical applications, but is also competitively
priced when used in medium to large group conferencing.
As an option to the 1000 and 2000 series, the Company offers
high resolution video graphics with 640x480 image capture and display. The
Visual 2000 series is further enhanced with the availability to access the
optional pan/tilt-zoom camera, either locally or remotely, using the system's
mouse or tablet for preset acquisition and movement.
Visual-EZII Operating System Software. The Visual-EZII
operating system software is the custom operating interface for the Visual
series of products, replacing the standard Windows GUI (Graphics User
Interface). The principal feature of the Visual-EZII operating system is the
industry's powerful white boarding, graphics and collaboration package, which
utilize the TeleWriter- AGS software system as its graphics engine. This
collaboration software was developed by Optel Communications, Inc., Syosset, NY
("Optel"). We recently acquired the TeleWriter-AGS system software for
$150,000.00 in cash and convertible secured promissory notes ($15,000.00 cash
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and $135,000.00 of notes) and will need to retain the services of one or more
programmers to further develop the software to make it commercially feasible for
us to license it to others. This software was assigned by us to a wholly owned
subsidiary that we formed in exchange for all of the common stock in the
subsidiary as well as a perpetual license to use the software as we deem
appropriate. No assurances can be given that this software can be developed by
us to the point that it is commercially viable as a product that we can license
to others, that we will have sufficient financial resources to develop it to the
point that it can be marketed to others or that we possess the marketing ability
to sell it once it has been fully developed. See "CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS".
The principal feature of the Visual-EZII operating system is
its powerful white boarding, graphics and collaboration package, which utilize
the TeleWriter-AGS software system as its graphics engine. The system provides
true 30 frames per second of voice, data and video over a single ISDN line. It
allows for full size or scalable primary motion received image on a display
monitor, eliminating image shrinkage to fit inside a windows interface. The
Visual-EZII platform is fully compliant with ITU/TSS H.320, T.120 and H.243
standards, providing H.261 full CIF video teleconferencing standards. This
platform is also fully compliant with the new VTC-1 compliance requirements for
desktop video conference systems used by federal agencies to ensure
compatibility and high performance collaboration capability.
The standard Visual-EZ system provides ten screen buttons with
pull up menus. The capability to white board, exchange graphics and annotate
using a standard mouse or optional pen tablet is bundled into the software. The
current Visual-EZII operating system has a life expectancy of at least three
years. Future versions for the current software include capability for H.323
video over packet networks, ADSL interface, and expanded T.120 graphics and
collaboration support.
Our video conferencing products use smaller amounts of
bandwidth to provide superior picture quality, audio and collaborative graphics
than its competitors. Most video conferencing systems use 768 kbps to realize a
Itelevision quality video session with collaboration. Our products provide for
superior image and motion quality using half the bandwidth. This provides an
immediate cost savings of up to 50% per minute for inter-lata and intra-lata
video calls.
During the fiscal years ending December 31, 1998, December 31,
1997 and December 31, 1996, revenues from this division accounted for 9%, 9% and
5% of our revenues, respectively.
Marketing Our video conferencing products are marketed through
OEM's and independent professional sales representatives around the country and
as part of video telecommunications systems designed and installed by our
Systems Integration Division. Additionally, our video products will be marketed
and serviced worldwide by iVoice.com, (formerly IVT), our former parent company,
pursuant to the terms of a Marketing and Manufacturing Agreement dated May 21,
1999 (the "Marketing Agreement"). Pursuant to the terms of the Marketing
Agreement, IVT will have the non-exclusive worldwide rights to market and
service the Visual-EZII series of products manufactured by us and limited
exclusive marketing and servicing right with respect to the sale and servicing
of such products under certain circumstances that we do
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not consider to be significant or material. The Marketing Agreement provides us
with certain reciprocal non-exclusive worldwide rights to market IVT's products,
which we do not deem to be significant or material. The term of the respective
licenses granted under the Marketing Agreement expire ten years from the date of
the Marketing Agreement. To date, IVT has not sold any equipment or services
pursuant to the Marketing Agreement.
Due to concerns regarding competition in the video
conferencing industry in general, short product cycles of video conferencing
hardware and anticipated research and development costs, we have de-emphasized
the sale of our Visual-EZII operating system software and related software and
accessory-only systems. De-emphasis of the sales of systems with hardware also
lessen our need to maintain costly inventory. We do not believe that the
business generated by our Visual Products Division is seasonal. While our Visual
Products Division does a significant amount of business with agencies of
federal, state and local governments, it is not dependent upon the business of
one or a few customers, the loss of any one or more of which would have a
material adverse effect upon our operations. No single customer of our Visual
Products Division is responsible for 10% or more of our aggregate sales. Our
Visual Products Division does not employ extended payment terms or liberal
return policies that could have a materially adverse effect on our operations.
This division does not have any orders on backlog.
Competition
The video conferencing industry is highly competitive.
Additionally, this industry is highly price sensitive with respect to product
acquisition costs as well as ongoing costs of operation and maintenance. While
the market for video conferencing products has increased substantially in recent
years, competition in such markets has increased substantially as well. We face
competition from large numbers of large and small companies, both public and
private. Our most significant competitors are Vcon, PictureTel, Polycom,
Tandburg and Sony. Many of the companies competing with us with respect to our
video products division possess greater financial and personnel resources than
we possess and have greater leverage in acquiring prospects, hiring personnel
and marketing. A high degree of competition in these areas is expected to
continue. No assurance is given that our will not be adversely affected by these
factors.
Competing technologies, emerging definitions of the current
international standard and the development of new industry standards may render
some of our video conferencing products non- competitive or obsolete. The
competitive nature of this industry mandates higher research and development
budgets that lead to rapidly evolving standards and features, short product life
cycles and downward pricing trends. While, decreasing PC hardware costs and
increased capabilities may make desktop video conferencing systems more
affordable, maintenance and support of existing video conferencing systems may
become more complicated as replacement items may have different foot prints,
mounting configurations or electrical requirements. In recognition of the
foregoing concerns, we will emphasize the sale of our Visual-EZII operating
system software which is less capital intensive than production of full video
teleconferencing systems and less susceptible to the aforementioned risks.
Research and Development. In light of a reduced emphasis upon
the sale of the hardware components of our video conferencing systems, we will
be devoting our research and
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development budget and efforts to further enhancement of our Visual-EZII
operating system hardware. It is anticipated that future advancements to the
software will lead to capability for H.323 video over packet networks, ADSL
interface, and expanded T.120 graphics and collaborative support.
EMPLOYEES
As of December 31, 1999, we had 5 full-time employees, none of whom are
employed pursuant to the terms of an employment agreement. We also engage
independent contractors on an as-needed basis for the installation of the
systems that we design and engineer. The number of independent contracts
utilized by us for the installation of our systems is directly proportionate to
the amount of business that our Systems Integration Division is conducting. We
do not anticipate any material change to the number of our permanent employees.
None of our employees or independent contractors are covered by a collective
bargaining agreement. We believe that our relationship with our employees is
satisfactory.
PROPERTIES
We currently share 4,000 square feet of space at 69 Wesley Street,
South Hackensack, New Jersey for our corporate and administrative offices under
a lease expiring on October 31, 2001 and requiring $4,660.00 monthly rent
subject to annual escalations. Pursuant to the terms of the Reorganization
Agreement, we sublease the space from IVT until the expiration of the lease on
October 31, 2001 and share the monthly lease expense equally with IVT. We
believe that our current space is suitable for our current and projected needs
over the next twenty-four month period and that additional space would be
readily available should we need it. There are no current plans to lease
additional space. Upon termination of the lease, we will not continue to share
space or otherwise sublease space from IVT.
CASH REQUIREMENTS
We are not raising capital in connection with the filing of this
Registration Statement. It is anticipated that we will require expenditures for
salaries, professional fees, office and facility lease payments and general
operating expenses over the next six months, which in the aggregate should not
exceed $200,000.00. We believe that we will be able to satisfy our cash
requirements, for both working capital and product development purposes, during
the next six months from funds generated from our operations. However, no
assurance is given that we will not be required to raise additional funds to
satisfy our working capital and other needs either privately or in a subsequent
public offering of our securities. See "RISK FACTORS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS".
When pricing a particular project, we usually require an advance
payment of 33% to 50% of the project's purchase price. Client's generally make
negotiated progress payments thereafter. Advance payments and ensuing progress
payments may not be sufficient to continuously fund our
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operations during the course of certain larger system integration projects,
resulting in gaps in the cash flow necessary to complete the project. Internally
generated cash flow from our other projects may not be sufficient to fill these
gaps. To insure adequate cash flow and the ability to pursue larger projects, we
have entered into an asset based loan agreement with a commercial lender that
permits us to draw up to 80% of a client's purchase order up to $1,000,000.00.
We cannot undertake large system integration projects without this loan
facility. While we believe that we can continue to rely upon the availability of
this loan facility, we cannot give any assurances that this loan facility will
be available to us in the future or whether we will be able to replace it if it
is terminated.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form
SB-2 under the Securities Act of 1933 with respect to the common stock offered
hereby. This prospectus, which constitutes a part of the registration statement,
does not contain all of the information set forth in the registration statement
and the exhibits and schedules thereto. Descriptions contained in this
prospectus relating to any contract or other document are not necessarily
complete, and each such description is qualified in all respects by reference to
the full text of such contract or document.
The registration statement and the exhibits and schedules
thereto, may be inspected and copies at the principal offices of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC at Seven World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part thereof may be obtained at prescribed rates from the
SEC's Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20545
or by calling the SEC at 1-800 SEC- 0330. The SEC also maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
Following this offering, we will be subject to the reporting
and other requirements of the Securities Exchange Act of 1934 and intends to
furnish to its stockholders annual reports containing audited financial
statements and may furnish such interim reports to its stockholders as it deems
appropriate.
When we qualify statements in this prospectus with the word
"believe", unless otherwise indicated, we are basing our belief on the knowledge
and experience of our personnel and advisors. Statistical information included
in this prospectus has been obtained by us from publications we deem reliable
and with which we have no relationship.
REPORTS TO SECURITY HOLDERS.
We will send a copy of our Annual Report on Form 10-KSB to security
holders in conjunction with the filing of its Form 10-KSB with the Commission at
the close of our current fiscal year.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL
CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE
NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION CONTAINED IN THIS PROSPECTUS
CONTAINS "FORWARD-LOOKING STATEMENTS" THAT INVOLVE RISK AND UNCERTAINTIES. THESE
STATEMENTS MAY BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD" OR "ANTICIPATES" OR THE NEGATIVE
THEREOF OR SIMILAR EXPRESSIONS OR BY DISCUSSIONS OF STRATEGY. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL
RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. OUR
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS.
IMPORTANT FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE
THOSE DISCUSSED UNDER THE CAPTION ENTITLED "RISK FACTORS," AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
Results of Operations.
We have not been profitable as a wholly owned subsidiary of our former
parent company, VTI. As a wholly owned subsidiary, we had devoted a substantial
amount of our efforts towards the development of our Visual products division.
Our president, Carl R. Ceragno, has been loaning the Company funds to finance
its losses over the last several years. We have suffered operating losses of
$362,182.00 and $247,188.00 for the years ending December 31, 1998 and December
31, 1999, respectively. Total revenues of $106,838.00 (without reflecting
related party foregiveness of debt) for the year ending December 31, 1999
succeeded total revenues of $48,745.00 for the year ending December 31, 1998.
Operating expenses decreased approximately 15%, from $360,709 during the year
ended December 31, 1998 to $306,629.00 for the year ended December 31, 1999, as
a result of the elimination of overhead attributable to our former parent
company.
We are now principally focused upon our systems integration operations.
Management believes that our systems integration related operations had been
largely ignored, while we had been a wholly owned subsidiary of our former
parent company. Our operating revenues, excluding transactions with its former
parent company, for the year ending December 31, 1999 were $106,838.00.
$91,867.00 or 86% of these revenues were earned during the balance of the year
37
<PAGE>
following May 21, 1999 when we had become an independent entity. This increase
is attributable to our renewed focus on systems integration marketing. While
management believes that we can operate profitably as an entity independent of
our former parent company during the course of a full year of operations, no
assurances can be given in this regard. To the extent that we cannot do so, we
will require additional financing to continue our operations.
Liquidity and Capital Resources
December 31, 1998 as compared to December 31, 1999
Total cash and cash equivalents as of December 31, 1998 were $15,841.00
as compared to $3,922.00 as of December 31, 1999, a decline of approximately
75%. Accounts receivable decreased from $9,994.00 to $3,445.00 during this
period. Inventory increased from $38,186.00 to $43,539.00. Total current assets
decreased approximately 14.5% from $64,021.00 to $54,726.00.
Our current liabilities (excluding related party accounts payable)
decreased significantly from $140,841.00 to $33,235, during the years ending
December 31, 1998 and December 31, 1999. During the year ended December 31,
1999, Mr. Carl R. Ceragno, the Company's president, agreed to reclassify the
loans that the Company had made to him, in the amount of $140,530, as long term
debt.
While we believe that we will have sufficient revenues and reserves to
finance our ongoing business activities, no assurance is given that we will be
able to do so and we could require additional financing to continue our
operations.
DESCRIPTION OF PROPERTY
We currently share 4,000 square feet of space at 69 Wesley Street,
South Hackensack, New Jersey for our corporate and administrative offices under
a lease expiring on October 31, 2001 and requiring $4,660.00 monthly rent
subject to annual escalations. Pursuant to the terms of the Reorganization
Agreement, we subleases the space from IVT until the expiration of the lease on
October 31, 2001 and share the monthly lease expense equally with IVT. We
believe that our current space is suitable for our current and projected needs
over the next twenty-four month period and that additional space would be
readily available should we need it. There are no current plans to lease
additional space. Upon termination of the lease, we will not continue to share
space or otherwise sublease space from IVT.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Carl R. Ceragno, the Company's co-founder and President was a director,
executive officer and control person of VTI, our former parent company. Pursuant
to the Reorganization Agreement, we changed the state in which we had been
incorporated from New Jersey to Nevada and the Company was authorized to issue
two classes of common stock and vest voting control thereof with Mr. Ceragno.
Carl R. Ceragno, the Company's president, has been funding our ongoing
losses. Mr. Ceragno has outstanding loans to the Company in the amount of
$140,530.00. These loans are demand loans, are not evidenced by promissory notes
and may be called by Mr. Ceragno at any time. The outstanding balance does not
accrues interest. Additionally, the Company received loans of $7,050 from an
entity controlled by Mr. Ceragno during 1999.
We have been issued a line of credit in the amount of $1,000,000 by the
Brookdale Funding Group, none of which is currently drawn upon. We anticipate
that this loan facility would be used to help finance long term projects that
cannot be financed by other means. Repayment of this loan facility is personally
guarantied by the Company's President, Carl R. Ceragno. The terms of this
facility require Mr. Ceragno to exercise voting control of our common stock so
as to avoid a change in control of the Company. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS".
The following shares of common stock were acquired after May 14, 1999
by our executive officers and directors:
<TABLE>
<CAPTION>
Name Number and Class of Shares Consideration Date
<S> <C> <C> <C>
Carl R. Ceragno 2,000,000 Class A Shares $ 2,000.00 June 1, 1999
400,000 Class B Shares $ 400.00 June 1, 1999
Bertram Hennion, Jr. 500,000 Class A Shares $ 500.00 June 1, 1999
Alma Jean O'Connor 250,000 Class A Shares $ 250.00 June 1, 1999
Lawrence Hartman 500,000 Class A Shares $ 500.00 June 1, 1999
</TABLE>
Pursuant to our agreement to acquired the Optel/TeleWriter AGS
software, we paid CSTI- Outreach Technology the sum of $150,000.00 of which
$15,000.00 was advanced by Carl R. Ceragno, the Company's president and the
balance of $135,000.00 was paid in the form of a convertible promissory note.
See "BUSINESS-VISUAL PRODUCTS DIVISION".
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information.
Our Class A Shares have never traded on any recognized securities
exchange, is not currently traded on the National Association of Securities
Dealers Automated Quotation System Over the
39
<PAGE>
Counter Bulletin Board("OTCBB"), in the National Quotations Bureau Pink Sheets
or on any other quote board. We hope to establish a market for said shares.
However, there can be no assurance that any recognized public market will
develop for the Company's Class A Shares. Holders of our common stock may not be
readily able to dispose of their interests in our common shares. Even if a
market develops for our shares, there can be no assurance as to the price that
our common shares will be traded.
Holders.
As of March 1, 2000, there were approximately 238 holders of record
of our common stock.
Dividends.
We have not declared any cash dividends on our common stock since our
inception and do not anticipate paying such dividends in the foreseeable future.
We plan to retain any future earnings for use in our business. Any decisions as
to future payment of dividends will depend on our earnings and financial
position and such other factors, as the Board of Directors deems relevant.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of our four (4)
officers for the last two (2) fiscal years:
<TABLE>
<CAPTION>
NAME AND ANNUAL COMPENSATION LONG TERM COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OTHER STOCK SAR's LTIP OTHER
------------------ ---- ------ ----- ----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl R. Ceragno 1998 $ 49,038.54 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
President & Treasurer 1999 $ 40,384.68 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Bertram Hennion, Jr. 1998 $ 58,846.35 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Vice President-Operation 1999 $ 51,923.25 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Lawrence S. Hartman 1998 $ NONE $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Vice President 1999 $ NONE $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Almajean O'Connor 1998 $ 40,769.19 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Secretary 1999 $ 31,538.43 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
</TABLE>
Terms of Office.
Our directors hold office until the next annual meeting of our
stockholders or until their successors are elected and duly qualified. All
officers serve at the discretion of the directors.
Directors' Compensation.
No compensation has been paid to any directors for service in such
capacity in the past, and
40
<PAGE>
no such compensation is presently payable to directors, but directors may be
reimbursed for certain expenses in connection with attendance at Board and
committee meetings. At such time as the Board of Directors deems appropriate, we
intend to adopt an appropriate policy to compensate non-employee directors, in
order to attract and retain the services of qualified non-employee directors.
FINANCIAL STATEMENTS
Statements included in this report that do not relate to present or historical
conditions are "forward-looking statements" within the meaning of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"1995 Reform Act"). Additional oral or written forward-looking statements may be
made by the Company from time to time and such statements may be included in
documents other than this Report that are filed with the SEC. Such
forward-looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this Report and
elsewhere may include, without limitation, statements relating to the Company's
plans, strategies, objectives, expectations, intentions and adequacy of
resources and are intended to be made pursuant to the Safe Harbor provisions of
the 1995 Reform Act Introduction.
Capitalization.
The following table sets forth our actual capitalization as of December 31,
1999. The table should be read in conjunction with the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
Stockholders' equity: (1)
Common Stock, Class A, $0.001 par value;
40,000,000 shares authorized;
12,483,361 shares issued or outstanding $ 4,250.00
Common Stock, Class B, $0.001 par value,
700,000 shares authorized;
400,000 shares issued and outstanding $ 400.00
Additional Paid-in Capital $ 0.00
Accumulated Deficit $(15,566.87)
Less Cost of treasury Stock $ 0.00
Total Stockholders' Equity $(10,916.87)
(1) Derived from our Financial Statements included elsewhere in this Prospectus.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE.
41
<PAGE>
Communications Research, Inc.
Financial Statements
June 30, 2000,
December 31, 1999 and 1998
F-1
<PAGE>
C O N T E N T S
Accountants' Report ...................................................... F-3
Balance Sheets ........................................................... F-4
Statements of Operations ................................................. F-6
Statements of Stockholders' Equity........................................ F-7
Statements of Cash Flows ................................................. F-8
Notes to the Financial Statements ........................................ F-9
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Communications Research, Inc.:
We have audited the accompanying balance sheet of Communications Research, Inc.
as of December 31, 1999 and 1998 and the related statements of operations,
stockholders' 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 audits 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 financial position of Communications Research, Inc. as of
December 31, 1999 and 1998 and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7, the Company's
recurring operating losses and lack of working capital raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to those matters are also described in Note 7. The financial statements do not
include any adjustments that might result from outcome of this uncertainty.
Salt Lake City, Utah
June 9, 2000
F-3
<PAGE>
Communications Research, Inc.
Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
June 30 December 31 December 31
2000 1999 1998
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 3,075 $ 3,922 $ 15,841
Accounts receivable (net of allowance
for doubtful accounts of $0 and $0,
respectively) 23,238 3,445 9,994
Inventory 36,011 43,539 38,186
Prepaid expenses 1,273 3,820 --
-------- -------- --------
Total Current Assets 63,597 54,726 64,021
-------- -------- --------
PROPERTY & EQUIPMENT (Net) (Note 2) 61,405 60,268 36,119
OTHER ASSETS
Deposits 3,200 3,200 4,164
-------- -------- --------
Total Other Assets 3,200 3,200 4,164
-------- -------- --------
TOTAL ASSETS $128,202 $118,194 $104,304
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Communications Research, Inc.
Balance Sheets continued
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
June 30 December 31 December 31
2000 1999 1998
--------- --------- ---------
CURRENT LIABILITIES (Unaudited)
<S> <C> <C> <C>
Accounts payable $ 2,813 $ 4,274 $ 12,406
Accounts payable - related party 7,050 7,050 553,867
Accrued expenses 15,266 17,697 9,379
Current portion of
long-term liabilities (Note 4) 4,432 4,214 4,886
--------- --------- ---------
Total Current Liabilities 29,561 33,235 580,538
--------- --------- ---------
LONG TERM LIABILITIES (Note 4)
Notes payable-related party 220,830 140,830 114,170
Lease buyback obligations -- -- 4,886
Notes Payable 20,969 23,024 --
Less current portion (4,432) (4,214) (4,886)
--------- --------- ---------
Total long term Liabilities 237,367 159,640 114,170
--------- --------- ---------
TOTAL LIABILITIES 266,928 192,875 694,708
--------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock, class A, 40,000,000
shares of par $.001 authorized,
12,283,091 and 9,233,092 issued and
outstanding, respectively 12,283 12,283 9,033
Common stock, class B, 700,000
shares of $.001 par authorized,
400,000 issued and outstanding -- -- --
Discount on stock (8,033) (8,033 (8,033)
Subscriptions receivable (3,250) (3,250) --
Retained earnings (139,726) (75,681) (591,404)
--------- --------- ---------
Total Stockholders' Equity (138,726) (74,681) (590,404)
--------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 128,202 $ 118,194 $ 104,304
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
Communications Research, Inc.
Statements of Operations
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30 December 31 December 31
2000 1999 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 55,940 $ 80,018 $ 106,838 $ 48,745
COST OF SALES 15,005 10,836 47,397 50,218
------------ ------------ ------------ ------------
GROSS PROFIT 40,935 69,292 59,441 (1,473)
------------ ------------ ------------ ------------
GENERAL &
ADMINISTRATIVE EXPENSES 42,755 9,023 64,854 55,332
OFFICE SALARIES 22,429 72,247 145,766 203,909
RENT 13,980 3,150 18,660 15,600
INSURANCE 6,558 2,558 6,827 19 177
TRAVEL & LODGING 5,162 21,120 32,362 27,700
PAYROLL TAXES 2,030 6,705 12,571 21,241
DEPRECIATION & AMORTIZATION 3,802 5,119 25,589 17,750
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 96,716 119,922 306,629 360,709
------------ ------------ ------------ ------------
OPERATING (LOSS) (55,781) (50,630) (247,188) (362,182)
------------ ------------ ------------ ------------
OTHER INCOME AND (EXPENSES)
Forgiveness of Debt income -- 666,831 785,143 --
Interest expense (8,264) (3,940) (22,232) --
------------ ------------ ------------ ------------
Total Other Income and (Expenses) (8,264) 662,891 762,911 --
------------ ------------ ------------ ------------
INCOME/(LOSS)
BEFORE INCOME TAXES (64,045) 612,261 515,723 (362,182)
PROVISION FOR
INCOME TAXES (Note 1) -- -- -- --
------------ ------------ ------------ ------------
NET INCOME/(LOSS) $ (64,045) $ 612,261 $ 515,723 $ (362,182)
============ ============ ============ ============
NET INCOME/(LOSS) PER SHARE $ (.006) $ .06 $ .046 $ (.039)
============ ============ ============ ============
WEIGHTED AVERAGE
OUTSTANDING SHARES 12,283,091 10,249,759 11,266,425 9,233,092
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Communications Research, Inc.
Statements of Stockholders' Equity
From December 31, 1997 through December 31, 19996
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------------- Discount Retained
Class A Class B On Earnings
Shares Amount Shares Amount Stock (Deficit)
---------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance on December 31, 1997 9,033,091 9,033 400,000 -- (8,033) (229,222)
Net loss for the year ended
December 31, 1998 -- -- -- -- -- (362,182)
---------- ---------- ---------- ----- ---------- ----------
Balance on December 31, 1998 9,033,091 9,033 400,000 -- (8,033) (591,404)
Shares issued for subscriptions
at $.001 per share 3,250,000 3,250 -- -- -- --
Net Income for the year ended
December 31, 1999 -- -- -- -- -- 515,723
---------- ---------- ---------- ----- ---------- ----------
Balance on December 31, 1999 12,283,091 12,283 400,000 -- (8,033) (75,681)
Net Loss for the six months
Ended June 30, 2000
(Unaudited) -- -- -- -- -- (64,045)
---------- ---------- ---------- ----- ---------- ----------
Balance on June 30, 2000
(Unaudited) 12,283,091 $ 12,283 400,000 $ -- $ (8,033) $ (139,726)
========== ========== ========== ===== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
Communications Research, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30 December 31 December 31
2000 1999 1999 1998
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Cash Flows From Operating Activities
<S> <C> <C> <C> <C>
Net (loss) $ (64,045) $ 612,261 $ 515,723 $(362,181)
Non-cash items:
Depreciation & amortization 3,802 5,119 25,589 17,750
Forgiveness of Debt income -- -- (785,143) --
(Increase)/decrease in current assets:
Accounts receivable (19,793) 1,374 6,549 3,556
Prepaid Expenses 2,546 -- (3,820) --
Inventory 7,528 (48,042) (5,353) 73,465
Increase/(decrease) in current liabilities:
Accounts payable (1,463) 23,183 (8,132) (11,528)
Accounts payable - related party -- (553,867) 77,280 294,876
Accrued expenses (2,429) (7,722) 8,318 (4,930)
Net Cash Provided (Used) by Operating Activities (73,854) 32,306 (168,989) 11,008
--------- --------- --------- ---------
Cash Flows from Investing Activities
Purchase of property and equipment (4,938) (5,551) (25,089) (15,117)
Cash received from other assets -- -- 964 --
Net Cash Provided (Used) by Investing Activities (4,938) (5,551) (24,125) (15,117)
--------- --------- --------- ---------
Cash Flows from Financing Activities
Cash received from debt financing 80,000 5,404 187,706 --
Principal payments on long-term debt (2,055) (4,886) (6,511) --
--------- --------- --------- ---------
0Net Cash Provided (Used) by Financing Activities 77,945 518 181,195 --
--------- --------- --------- ---------
Increase/(decrease) in Cash (847) 27,273 (11,919) (4,109)
Cash and Cash Equivalents at Beginning of Period 3,922 15,841 15,841 19,950
--------- --------- --------- ---------
Cash and Cash Equivalents at End of Period $ 3,075 $ 43,114 $ 3,922 $ 15,841
========= ========= ========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ 5,921 $ 3,940 $ 4,889 $ --
Cash paid for income taxes $ 200 $ -- $ -- $ --
Non-cash financing transaction:
Purchase of Equipment through lease $ -- $ -- $ 24,649 $ 4,886
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
Communications Research, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies
a. Organization
The financial statements presented are those of Communications
Research, Inc. (The Company). The Company was organized on August 11, 1989 in
the State of New Jersey. On July 17, 1996, the Company became a wholly owned
subsidiary of Visual Telephone International (VTI), a publicly traded Delaware
corporation. On May 21, 1999 shares of the Company were distributed to the
shareholders of VTI pursuant to an agreement and Plan of Reorganization spin
off. Effective July 15, 1999, the Company changed its domicile to the State of
Nevada through the spin off reorganization. The Company has operated as a
separate entity since that date. These financial statements are therefore
unconsolidated with the Company's parent for all dates presented. The Company is
engaged in the design and installation of sophisticated communications networks
that transmit data, voice and video leads, as well as fully integrated, PC
based, full motion video conferencing systems.
b. Recognition of Revenue
The Company recognizes income and expense on the accrual basis of
accounting. Revenue is recorded upon sale and delivery of the Company's product,
and/or the installation of the communication system.
c. Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
d. Provision for Income Taxes
No provision for income taxes has been recorded due to the net
operating losses of the Company of approximately $75,000. The NOL carryforward
will begin to expire in the year 2011. No tax benefit has been reported in the
financial statements because the Company has yet to generate taxable income from
operations, or show probability of taxable income. Some of the losses will be
limited due to the acquisition and change of control.
Deferred tax assets and the valuation account is as follows at December 31, 1999
and 1998.
December 31 December 31
1999 1998
---- ----
Deferred tax asset:
NOL carryforward $ 25,000 $ 200,000
Valuation allowance (25,000) (200,000)
-------- ---------
Total $ - $ -
======== ==========
F-9
<PAGE>
Communications Research, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 1 - Summary of Significant Accounting Policies (continued)
e. Cash and Cash Equivalents
The company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
f. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of assets or
convert the assets to a new use, are capitalized at cost. Expenditures for
maintenance, repairs and other renewals of items are charged to expense. When
items are disposed of, the cost and accumulated depreciation are eliminated from
the accounts, and any gain or loss is included in the results of operations.
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Depreciation expense for
the period ended December 31,1999 and 1998 is $25,589 and $17,750, respectively.
g. Inventory
Inventory is recorded at the lower of cost or market and consists
primarily of computer components and parts.
NOTE 2 - Property and Equipment
Property and Equipment consists of the following:
1999 1998
Leasehold Improvements 2,208 2,208
Promotional Equipment 25,380 --
Furniture & Equipment 44,277 78,864
Lab & test equipment 41,861 38,414
Vehicles 30,024 --
------ ------
Total 143,750 119,486
Accumulated Depreciation (83,482) (83,367)
------- -------
Net Property & Equipment 60,268 36,119
======= =======
F-10
<PAGE>
Communications Research, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 3 - Related Party Transactions
As part of being acquired by Visual Telephone International, Inc., the
Company is indebted to Carl Ceragno an officer and director of the Company. The
original balance owed was $150,000 bearing interest at 7%. The balance at
December 31, 1998 and 1999 is $114,170 and $140,830, respectively.
The Company received advances from RCP Enterprises, Inc. of $7,050
during 1999.
At December 31, 1998 the Company was indebted to its parent company for
advances received. The balance due VTI at December 31, 1998 was $553,867. The
Company received advances of $161,046 during 1999 from VTI. As part of the spin
off agreement, the debt was forgiven and the Company recorded debt forgiveness
income. As of December 31, 1999, no amount is due to its previous parent company
VTI.
NOTE 4 - Long-Term Liabilities
<TABLE>
<CAPTION>
Notes payable related party is detailed as follows: 1999 1998
----- ----
<S> <C> <C>
Note payable to a Officer & director, bears
interest at 7%, with principal due monthly
of $6,716, unsecured note $ 140,830 $ 114,170
--------- ---------
Capital lease obligations are detailed in the following schedule as of
December 31, 1998 and 1997:
Lease payable to a corporation for equipment,
lease payments due monthly of $407, through
December 1999, bears interest at 18% $ - $ 4,886
--------- ---------
Total Capital Lease Obligations - 4,886
--------- ---------
Notes Payable are as follows:
Note payable to a corporation, bears interest at 13.25%, monthly
payments due of $197 through February 2004,
secured by a vehicle 7,554 -
</TABLE>
F-11
<PAGE>
Communications Research, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
<TABLE>
<CAPTION>
NOTE 4 - Long-Term Liabilities (continued)
<S> <C> <C>
Note payable to a bank, bears interest at 8.5%, installments due
monthly of $331 through September 2004, secured
by a vehicle 15,470 --
Total Notes Payable 23,024 --
Total Long-Term Liabilities 163,854 119,056
-------- --------
Less current portion of:
Notes payable - related party -- --
Notes payable 4,214 --
Capital lease obligations -- 4,886
-------- --------
Total current portion 4,214 4,886
-------- --------
Net Long Term Liabilities $159,640 $114,170
======== ========
Future minimum principal payments on notes payable related party are as
follows:
2000 -
2001 $140,830
--------
Total notes payable-related party $140,830
========
Future principal payments on Notes payable are as follows:
2000 4,214
2001 4,663
2002 5,163
2003 5,718
2004 3,266
--------
Total $ 23,024
========
</TABLE>
NOTE 5 - Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. In these financial
statements, assets involve extensive reliance on management's estimates. Actual
results could differ from those estimates.
F-12
<PAGE>
Communications Research, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
NOTE 6 - Commitments and Contingencies
The Company is committed to a lease agreement for their office and
warehouse facilities. Monthly lease payments are due of $3,520 with $320
increases each year, through October of 2001.
Future minimum operating lease payments are as follows:
2000 50,560
2001 44,800
-------
Total $ 95,360
========
Legal Proceedings
Under the terms of the reorganization, VTI has assigned to the Company
all of its rights to a lawsuit captioned VTI vs. Michael O'Brien Pickens and the
Pickens Venture Group, Case No. 97-2969(JWB) and filed in the United States
District Court. On August 26, 1999, the Company was granted a summary judgement
against Pickens in the amount of $415,000 plus legal fees. The Company is
currently trying to locate Mr. Pickens and begin collection on the judgement,
but has had little success. The Company has therefore not recorded a receivable
in connection with the judgement due to the uncertain ability to collect.
NOTE 7 - Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has had recurring
operating losses for the past several years and is dependent upon financing to
continue operations. The financial statements do not include any adjustments
that might result from the outcome of uncertainty. It is management's plan to
raise additional funds and implement their marketing strategy to generate the
necessary revenue to support operations.
NOTE 8 - Fair Value of Financial Statements
Estimated fair values of the Company's financial instruments (all of
which are held for non-trading purposes) are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 3,922 $ 3,922 $ 15,841 $ 15,841
Long - Term Debt 163,854 163,854 119,056 119,056
</TABLE>
The carrying amount approximates fair value of cash and cash equivalents. The
fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.
F-13
<PAGE>
Communications Research, Inc.
Notes to the Financial Statements
December 31, 1999 and 1998
Note 9 - Stockholders' Equity
Pursuant to the reorganization and spin off agreement dated May 21,
1999, the Company issued 9,033,092 shares of class A common stock to the
shareholders of VTI, and 400,000 shares of class B common stock to a class B
shareholder of VTI. No value is placed on the stock issuance due to the nature
of the issuance being similar to a forward stock split. The financial statements
have been retroactively restated for the reorganization stock split as though it
occurred at inception.
Concurrent with the reorganization, the Company changed its domicile to
the State of Nevada, and changed the authorized capital of the class A common to
40,000,000 shares of $.001 par value stock. The Company also authorized the
creation of the 700,000 shares of class B common stock with no par value and 100
to 1 voting power as compared to class A common. The Company issued 400,000
shares of class B common to the Company's founder and president as part of the
reorganization.
On June 1, 1999, the Company authorized and issued 3,250,000 shares of
class A common stock at $.001 per share, to various officers and employees for
subscriptions receivable of $3,250. These subscriptions are to be paid to the
Company once the shares are registered.
Note 10 - Unaudited Presentation June 30, 2000 and 1999
The Company has elected to omit substantially all footnotes to the
financial statements for the six months ended June 30, 2000, since there have
been no material changes (other than indicated in other footnotes) to the
audited information included herein for December 31, 1999. The information
furnished was taken from the books and records of the Company without audit.
However, such information reflects all adjustments which are, in the opinion of
management, necessary to properly reflect the results of the period presented.
The information is not necessarily indicative of the results from operations
expected for the full fiscal year.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 22. Indemnification of Directors and Officers
Our Bylaws provide that we shall indemnify our officers, directors,
employees and agents and former officers, directors, employees and agents
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement arising out of his or her services on our behalf, subject to the
qualifications contained in Nevada law as it now exists. Nevada law generally
provides that a corporation shall have such power to indemnify such persons to
the extent they acted in good faith and in a manner the person reasonably
believed was, at least, not opposed to the best interests of the corporation. In
the event of a criminal action or proceeding, indemnification is not available
if the person had reasonable cause to believe their action was unlawful.
Further, in an action brought by the corporation or in the right of the
corporation, if the person, after exhaustion of all appeals, is found to be
liable to the corporation, or if the person makes payment to the corporation in
settlement of the action, indemnification is available only to the extent a
court of competent jurisdiction determines the person is fairly and reasonably
entitled to indemnification. Such discretionary indemnification is available
only as authorized on a case-by-case basis by: (1) the stockholders; (2) a
majority of a quorum of the board of directors consisting of members of the
board who were not parties to the action, suit or proceeding; (3) if a majority
of a quorum of the Board of Directors consisting of members of the Board who
were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or (4) if a quorum of the Board of Directors
consisting of members of the Board who were not parties to the action cannot be
obtained, by independent legal counsel in a written opinion.
II-1
<PAGE>
To the extent that a director or officer of ours is successful in
defending against an action, suit or proceeding brought against that person as a
result of their current or former status as an officer or director, we must
indemnify the person against all expenses actually and reasonably incurred by
the person in connection with their defense. Nevada law also allows Nevada
corporations to advance expenses of officers and directors incurred in defending
a civil or criminal action as they are incurred, upon receipt of an undertaking
by or on behalf of the director or officer to repay such expenses if it is
ultimately determined by a court of competent jurisdiction that such officer or
director is not entitled to be indemnified by the corporation because such
officer or director did not act in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation.
Any indemnification provided for by Section 78.7502, Nevada Revised
Statutes(by court order or otherwise) shall not be deemed exclusive of any other
rights to which the indemnified party may be entitled and that the scope of
indemnification shall continue as to directors or officers who have ceased to
hold such positions and to their heirs, executors and administrators.
Section 78.752, Nevada Revised Statutes allows corporations to provide
insurance, or other financial arrangements such as a program of self-insurance,
for their directors or officers. Such insurance may provide coverage for any
liability asserted against the person and liability and expenses incurred by the
person in their capacity as a director or officer or arising out of their status
as such, whether or not the corporation has the authority to indemnify the
person against such liability and expenses. However, no financial arrangement
made under Section 78.7502, Nevada Revised Statutes may provide protection for a
person adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable for intentional misconduct, fraud or a knowing
violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
It is the position of the Securities and Exchange Commission and
certain state securities administrators that any attempt to limit the liability
of persons controlling an issuer under the federal securities laws or state
securities laws is contrary to public policy and therefore unenforceable.
Item 23. Other Expenses of Issuance and Distribution
The following table is an itemization of all expenses (subject to
future contingencies) incurred or expected to be incurred by us in connection
with the issuance and distribution of the securities being offered hereby. Items
marked with an asterisk (*) represent estimated expenses. We have agreed to pay
all the costs and expenses of this offering. Selling Security Holders will pay
no offering expenses.
II-2
<PAGE>
ITEM EXPENSE
---- -------
SEC Registration Fee $ 100.00
Legal Fees and Expenses $ 41,250.00
Accounting Fees and Expenses $ 7,130.00
Miscellaneous* $ 5,000.00
===================================================
Total $ 53,480.00
* Estimated Figure
Item 24. Recent Sales of Unregistered Securities
OWNER DATE OF ISSUANCE AMOUNT
--------------------------------------------------------------------------------
Carl R. Ceragno June 1, 1999 2,000,000 Class A Shares
June 1, 1999 400,000 Class B Shares
Bertram Hennion, Jr. June 1, 1999 500,000 Class A Shares
Alma Jean O'Connor June 1, 1999 250,000 Class A Shares
Lawrence S. Hartman June 1, 1999 500,000 Class A Shares
The aforementioned issuances and sales were made in reliance upon the
exemption from the registration provisions of the Securities Act afforded by
Section 4(2) thereof and/or Regulation D promulgated thereunder, as transactions
by an issuer not involving a public offering. The purchasers of the securities
described above acquired them for their own account and not with a view to any
distribution thereof to the public. Any shares which have been issued which have
not been issued pursuant to a valid exemption from registration bear legends
stating that the securities may not be offered, sold or transferred other than
pursuant to an effective Registration Statement under the 1933 Act, or an
exemption from such registration requirements. The Registrant will place stop
transfer instructions with its transfer agent with respect to all such
securities.
Item 25. Exhibits
2. Articles of Incorporation, as amended
3. Bylaws
4. Form of Stock Certificate
5. Opinion of Farber & Klein
10.1 Agreement and Plan of Reorganization dated May 14, 1999
10.2 TeleWriter and Related Agreements
23.1 Consent of Crouch, Bierwolf & Chisholm
23.2 Consent of Farber & Klein (included in Opinion of Farber & Klein)
27. Financial Data Schedule
II-3
<PAGE>
Item 26. Undertakings
(A) Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, we
have been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
ours in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, we will, submit the matter to the Court in which liability as
found, to determine whether such indemnification by it is against public policy
as expressed by the Act and will be governed by the final adjudication of such
tribunal.
(B) We hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
i) To include a Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post effective
amendment thereto) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement,
including but not limited to any deletion or addition
of a managing underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1933, the Company certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of South Hackensack, State of New Jersey,
on the ____ day of September, 2000.
COMMUNICATIONS RESEARCH, INC.
DATE: September 15 , 2000 BY: /s/ CARL R. CERAGNO
--- -------------------------------
CARL R. CERAGNO, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Carl R. Ceragno
------------------------
Carl R. Ceragno President, Treasurer and Director September 15, 2000
/s/ Lawrence Hartman
------------------------
Lawrence Hartman Vice President, Director September 15, 2000
/s/ Bertram Hennion, Jr.
------------------------
Bertram Hennion, Jr. Vice President, Director September 15, 2000
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibits Description
-------- -----------
2. Articles of Incorporation, as amended
3. Bylaws
4. Form of Stock Certificate
5. Opinion of Farber & Klein
10.1 Agreement and Plan of Reorganization dated May 14, 1999
10.2 TeleWriter and Related Agreements
23.1 Consent of Crouch, Bierwolf & Chisholm
23.2 Consent of Farber & Klein (included in Opinion of Farber & Klein)
27. Financial Data Schedule
