UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A-1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 [Fee Required]
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ [No Fee Required]
Commission File Number 0-19664
TIANRONG BUILDING MATERIAL HOLDINGS, LTD. (F/K/A COMCENTRAL CORPORATION)
(Name of small business issuer in its charter)
Utah 59-2729321
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
82-66 Austin Street, Kew Gardens, New York 11415
(Address of principal executive offices)
718-445-7736
(Issuers telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Common Stock ($0.02 par value) None
(Title of class) (Name of each exchange on which registered
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes No X
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to the Form 10-KSB. [X]
The issuer's total revenues for the year ended December 31, 1994 were
$4,625,765.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 24, 1995, was.$1,225,000
The number of shares outstanding of the issuer's common stock as of
December 31, 1994 was 4,377,887.
<PAGE>
The undersigned registrant hereby amends the following item and financial
statements of its 1994 annual report of Form 10-KSB for the fiscal year ended
December 31, 1994.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion sets forth the results of operations of the
Company. The results of operations reflect periods during which the Company
directly provided operator services and periods during which the Company acted
as an agent for other companies that provide operator services.
The Company closed the National Communications transaction after waiving
the requirement of settling the Anderson litigation described in Item 3, Legal
Proceedings. The Company cannot estimate what impact this uncertainty may have
on its future operations, if any. Among the risks the Company operates under is
that the Southnet portion of the National Communications transaction could be
reversed by the courts. Were such an event to occur, the Company still believes
it could foreclose against Southnet for all assets acquired due to amounts owned
by Southnet to the Company. In addition, the Company may potentially be liable
for unspecified amounts arising from an unsuccessful attempt to register shares
using Form S-8 in November, 1993. Again, no estimate can be made of what impact
this uncertainty may have on the financial condition and future operations of
the Company.
One of the Company's main businesses, long distance operator services, is
under regulatory review, which, in 1995, eliminated the Company's ability to
stay in the operator services business, and may eliminate the Company's ability
to stay in the telecommunications business. Management is unsure what the
ultimate outcome of such a regulatory review may be, and cannot give any
assurance that its operations will not be materially affected. However, the
Company is striving to restructure itself and find new avenues of business
operations. See "Outlook" for a detailed discussion of the Company's plans.
Results of Operations
Fiscal Years 1994 and 1993 Comparison
Below is an analysis of results of operations for 1993 and 1994. The
Company does not believe this is necessarily indicative of future operations,
due to restructuring and disposition of assets which occurred in 1995.
It is, in the management's opinion, premature to assess the impact of these
changes. The trend to restructure towards the "information superhighway" is
expected to be successful for may companies, but no assurance exists that the
Company will be successful in its transition.
Revenues during 1994 totaled $4,625,765, an increase of approximately 30%
from the $3,440,889 of revenues generated in 1993. The increase was primarily
the result of businesses purchased as part of the National Communications
acquisition. See "BUSINESS OF THE COMPANY - General." During 1993, the Company
entered into a new line of the business, issuing telephone calling cards, known
as Travel Line. The Company entered into several contracts related to Travel
Line, but did not realize any significant revenue from this activity in 1993 or
1994. Travel Line did not realize its potential in 1994 due to lack of
financing.
Gross profits were $1,351,056 in 1994, an increase of 47% from the $918,787
reported in 1993. This increase is also primarily a result of increased sales.
General and administration costs increased to $2,338,757 in 1994, a 27%
increase over the $1,838,183 of general and administrative expenses recorded in
1993. This increase is due primarily to expenses associated with the acquisition
of Southnet's operator service center and sales and administration office,
including the attendant increase in personnel costs. This increase also
partially resulted from additional legal expenses from the various lawsuits
arising from termination of customer relationships and costs resulting from the
acquisition of certain assets of National Communications.
<PAGE>
In 1994, the Company reported a loss from operations of $987,701, an
increase of 7% from a loss of $919,396 in 1993. The Company had incurred losses
in both years due, in part, to significant legal bills, related party fees and
additional personnel hired as part of the consolidation of the Companies.
The Company reported a loss of $146,833 arising from transactions with
related parties compared to $926,848 written off in the previous years. The
Company realized a loss of $123,750 from the sale of investment securities in
1994, compared to a gain of $57,089 in 1993.
The Company also reported a loss of $110,000 in 1993 arising out of the
settlement of a lawsuit with a former customer. The Company wrote down
$1,000,000 of assets in 1994 as part of a planned disposition and wrote off
$435,950 of expenses incurred as part of a planned offering of the Company's
stock that was never declared effective.
The Company's interest expense increased to $268,389 for 1994 as compared
to $216,853 for 1993. The increased interest expense reflects the increased
rates due to the defaults of certain obligations.
On a consolidated basis, the Company reported a net loss in 1994 of
$2,953,878, compared to a net loss of $2,116,008 for 1993, before preferred
dividend requirements.
No negative tax provisions were necessary, as the Company is in a net
operating loss carry-forward position.
Liquidity and Capital Resources
Operating activities provided positive cash flow of $129,549 in 1994,
compared to a negative flow of $322,469 in 1993, chiefly due to increased sales
and improved gross margin from 27% to 29%. Investing activities, primarily the
sale of surplus assets, generated a positive cash flow of $87,901 in 1994,
compared to a negative flow of $767,858 in 1993. Cash was required for financing
activities in the amount of $242,253 for repayment of debt in 1994, compared to
a $982,992 in-flow of capital in 1993.
The Company has financed its growth and cash needs through factoring its
accounts receivables, entering into capital leases in order to finance the
acquisition of equipment, and through the issuance of its debt and equity
securities. Net cash provided by operations was $129,549 for the twelve months
ended December 31, 1994. Although appearing positive, this reflected the
non-payment of trade creditors due to the strains of other defaulted obligations
which resulted in the loss of business and service capacity for the Company. Net
cash provided by investing activities during that same period was $87,901 which
reflects the proceeds that the Company has received from selling assets. The
Company used $242,253 to pay creditors who held judgements against the Company.
See "BUSINESS OF THE COMPANY - Financing".
The Company's working capital deficits at December 31, 1994 and December
31, 1993 were ($3,751,891) and ($2,114,677) respectively.
The Company does not have a line of credit with a bank, but rather factors
its receivables with OAN, Inc. and ZPDI, Inc. The terms of the factoring
agreements permit the Company to sell its accounts receivable for an initial
payment equal to 72% of the Company's eligible accounts receivable. The Company
receives the balance of the Company's accounts receivables as they are
collected, less servicing fees and interest charges on funds advanced to the
Company at an effective rate of approximately 20%.
<PAGE>
Outlook
The Company's financial condition continues to be extremely weak and its
ability to remain as a viable entity remains in doubt. Several creditors hold
judgments against the company. In addition, as discussed in Item 7, the Company
will be unable to raise capital through a public offering of its securities
unless it can obtain reissued auditor's reports for the two years ended December
31, 1993 and 1992. Furthermore, issues regarding the Company and the Securities
and Exchange Commission (See Item 3) may also impair future efforts to raise
capital. The consequences of these matters will be to further inhibit future
merger candidates from considering joining the Company, as well as a lack of
investment capital for potentially profitable projects and the inability to
generate sufficient cash to satisfy the judgments against the Company.
The Company's plans to resolve its financial difficulties as follows:
1. To significantly reduce operating expenses and terminate
unprofitable activities, the Company, in 1995, disposed of its
subsidiary ComCentral, Inc. This will save time and resources
which the Company is now devoting to more promising
activities, and will remove approximately $1,500,000 of
liabilities from the Company's books;
2. The Company is endeavoring to generate sufficient cash flow to
cover operating expenses and meet its obligations as well as
to generate revenues for expansion as set forth below:
a. The Company has changed its marketing approach to
using agents which are less costly, since agents are
paid strictly on the basis of gross profits
generated. It has expanded its product offering,
increasing the revenue and profit potential of each
sale. The Company has also expanded to a national
scope in its product offering, whereas in the past it
was regional in nature.
b. The Company will attempt to sell and barter its media
credits to obtain items for resale. The Company
believes that it can settle up to $700,000 of its
obligations in this manner.
c. The Company will continue attempts to settle
obligations by issuance of its Common Stock.
3. The Company will pursue additional merger opportunities in and
out of the telecommunications business. Because of the
financial condition of the Company, it is more likely that any
acquisitions will be start-up ventures, which are more risky
than established ventures.
4. The Company intends to pursue real estate operations to
produce increased cash flow from the collection of rents.
Additionally, the Company plans to become engaged in the
acquisition and development of real estate for sale as well as
for capital appreciation, including increasing occupancy of
available rentable space. Real estate holdings are also
available for sale at prices which will provide a reasonable
return to the Company. Indications are that the commercial
real estate market is continuing to improve and that there is
a good demand for commercial rental space.
There can be no assurances that the Company will succeed with these
plans, however, if it were able to successfully resolve its remaining creditor
problems, the Company believes it may be more successful in closing profitable
mergers.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 28TH day of June 1997.
TIANRONG BUILDING MATERIAL HOLDINGS, LTD
/s/ James Tilton
James Tilton, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ James Tilton President and Director June 28, 1997
- --------------------
James Tilton
/s/ Jane Zheng Director June 28, 1997
Jane Zheng
<PAGE>
COMCENTRAL CORP. AND SUBSIDIARIES
FINANCIAL STATEMENTS
FORM 10KSB
DECEMBER 31, 1994
(Amended April 22, 1997)
<PAGE>
SMITH & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
Members of:
American Institute of 10 West 100 South, Suite #700
Certified Public Accountants Salt Lake City, Utah 84101
Utah Association of Telephone: (801) 575-8297
Certified Public Accountants Facsimile: (801) 575-8306
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
ComCentral Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of ComCentral Corp.
and subsidiaries as of December 31, 1994, and the related consolidated
statements of loss, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ComCentral Corp. and
subsidiaries as of December 31, 1994, and the results of their operations and
their cash flows for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company has a working capital deficiency of $3,751,891 at
December 31, 1994, liabilities of $3,879,872 and a retained deficit of
$10,610,250. The Company has suffered recurring losses from operations which
have been discontinued and has a substantial need for working capital. This
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 12. The
accompanying consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
/s/ Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
April 28, 1995
(except for Note 15, as to which the date is May 17, 1995)
F-1
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1994
<S> <C>
Current assets
Cash and cash equivalents (Note 1) ........................... $ 6,361
Accounts receivable, net of allowance
for doubtful accounts
of $20,970 (Notes 1 and 3) ................................. 121,620
Total current assets ................................... 127,981
Property and equipment (Notes 1 and 3)
Furniture and equipment ...................................... 1,788,093
Equipment under capital lease ................................ 1,081,311
2,869,404
Less: Accumulated depreciation .............................. 2,384,858
Net property and equipment ............................ 484,546
Other assets
Deposits (Note 3) ............................................ 69,153
Inventory (Notes 1 and 3) .................................... 351,500
Media credits, net of discount of $5,565,606
(Note 3 and 11) ............................................. 3,009,394
Investment in customer accounts, net of accumulated
amortization of $225,082 (Notes 1 and 3) ................... 294,918
Other intangible assets, net of accumulated
amortization of $11,521 (Notes 1 and 3) ..................... 17,445
Goodwill, net of accumulated amortization
of $594,778 (Notes 1 and 3) ................................. 650,969
----------
Total other assets ..................................... 4,393,379
Total Assets $ ................................................. 5,005,906
==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-3
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1994
Current liabilities
<S> <C>
Current portion of long-term debt
Related party (Note 7) ................................... $ 159,268
Other (Note 3) ........................................... 1,571,270
Accounts payable and accrued expenses ...................... 2,149,334
Total current liabilities .......................... 3,879,872
Commitments and contingencies (Note 9)
Minority interest ............................................ 40,000
Stockholders' equity
Convertible cumulative preferred stock:
Series A; 10% cumulative annual dividend, $1.00
par value; authorized 250,000 shares; issued
and outstanding 250,000 shares .......................... 250,000
Series B; redeemable, 10% cumulative annual
dividend, liquidation preference of $12.50 per
share, $1.00 par value; authorized 180,000 shares;
issued and outstanding 32,500 shares .................... 32,500
Common stock; no par value; authorized 20,000,000
shares, issued and outstanding 29,186 shares(1) .......... 11,413,784
Accumulated deficit ........................................ (10,610,250)
------------
Total stockholders' equity ........................... 1,086,034
Total Liabilities and Stockholders' Equity ................... $ 5,005,906
============
</TABLE>
(1) All references to common stock have been adjusted to reflect the 25 for 1
reverse stock split approved on October 17, 1994, and subsequent reverse
stock splits as outlined in Note 15.
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
For the Year
Ended December 31,
1994 1993
-------------- ----------
(unaudited)
<S> <C> <C>
Sales ............................................ $ 4,625,765 $ 3,440,889
Cost of sales .................................... 3,274,709 2,522,102
----------- -----------
Gross profit ..................................... 1,351,056 918,787
----------- -----------
General and administrative expenses
Management fees to International
Petroleum (Note 7) ......................... 141,043 453,235
Other general and administrative expenses ..... 2,197,714 1,384,948
----------- -----------
Total general and administrative expenses . 2,338,757 1,838,183
----------- -----------
Loss from operations ............................. (987,701) (919,396)
----------- -----------
Other income (expense)
Realized gain (loss) on investments ........... (123,750) 57,089
Interest expense:
Related parties (Note 7) ................... (15,383) (8,412)
Others ..................................... (253,006) (208,441)
Aborted stock offering (Note 13) .............. (435,950) - 0 -
Bad debts-related parties (Note 7) ............ (146,833) (926,848)
Valuation adjustment of assets (Note 13) ...... (998,900) - 0 -
Settlement of litigation ...................... 7,645 (110,000)
----------- -----------
Total other income (expense) ............... (1,966,177) (1,196,612)
----------- -----------
Net loss ......................................... (2,953,878) (2,116,008)
Preferred dividend requirements (Note 8) ......... (122,473) (139,366)
----------- -----------
Net loss applicable to common stock .............. $(3,076,351) $(2,255,374)
=========== ===========
Net loss per common share ........................ $ (363.89) $ (1020.53)
=========== ===========
Weighted average number of common share
equivalents outstanding used for computing
primary earnings per share .................... 8,454 2,210
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Issued Common Stock Issued
Shares Par Value Shares Amount
----------- ----------- ----------- -------------
Balance, December 31, 1992
<S> <C> <C> <C> <C>
(unaudited) ....................................... $ 351,000 $ 351,000 1,383 $ 5,779,528
Net proceeds from sale
of common stock ................................... -- -- 133 862,985
assets from National ............................. -- -- 201 1,510,552
Stock ....................................... -- -- -- (583,405)
Cash ........................................ -- -- -- (922,965)
Cash ........................................ -- -- -- 199,500
on behalf of ComCentral ........................... -- -- -- 100,000
International Petroleum ........................... -- -- -- 120,000
Shares issued for future services .................. -- -- 1,960 14,700,000
of intercompany debt to Teltronics ................ -- -- 161 1,203,640
Capital Distribution to Teltronics ................. -- -- -- (352,562)
treasury stock acquisition(1) .................... 267 2,000,000
Unrealized gain on securities(2) ................... -- -- -- --
Compensation earned ................................ -- -- -- --
Net loss .................................... -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1993
(unaudited) ....................................... 351,000 351,000 4,105 24,617,273
Media credits acquired for
the issuance of common stock ...................... -- -- 15,786 2,009,394
court order (Note 9) ........................ -- -- 11,000 --
in shares of Teltronics stock .................... -- -- -- (122,000)
to common and payment of
related dividends (Note 8) ..................... (68,500) (68,500) 457 240,200
Unrealized loss on securities(2) ................... -- -- -- --
from ATC (Note 7) ................................. -- -- -- 876,500
Contracts acquired ................................. -- -- -- --
Compensation earned ................................ -- -- -- --
deferred compensation ............................ -- -- (1,894) (14,207,583)
in contemplation of treasury
stock acquisition(1) .............................. -- -- (267) (2,000,000)
Net loss .................................... -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1994 ......................... 282,500 $ 282,500 29,187 $ 11,413,784
============ ============ ============ ============
Common
Unrealized Stock Issued Total
Gain on for Future Accumulated Stockholders'
Securities Services Deficit Equity
------------ ----------- ----------------- ----------
Balance, December 31, 1992
<S> <C> <C> <C> <C>
(unaudited) ......................... $ -- $ -- $ (5,368,664) $ 761,864
Net proceeds from sale
of common stock ..................... -- -- -- 862,985
Acquisition of net
assets from National ............... -- -- -- 1,510,552
Capital distribution to Nat'l:
Stock ......................... -- -- -- (583,405)
Cash .......................... -- -- -- (922,965)
Capital contributions from Nat'l:
Cash .......................... -- -- -- 199,500
Stock issued by National
on behalf of ComCentral ............. -- -- -- 100,000
Capital contribution from
International Petroleum ............. -- -- -- 120,000
Shares issued for future services .... -- (14,700,000) -- --
Shares issued in satisfaction
of intercompany debt to Teltronics .. -- -- -- 1,203,640
Capital Distribution to Teltronics ... -- -- -- (352,562)
Shares issued in contemplation of
treasury stock acquisition(1) ...... -- -- (2,000,000) --
Unrealized gain on securities(2) ..... 281,250 -- -- 281,250
Compensation earned .................. -- 59,000 -- 59,000
Net loss ...................... -- -- (2,116,008) (2,116,008)
------------ ------------ ------------ ------------
Balance, December 31, 1993
(unaudited) ......................... 281,250 (14,641,000) (9,484,672) 1,123,851
Media credits acquired for
the issuance of common stock ........ -- -- -- 2,009,394
Issuance of shares pursuant to
court order (Note 9) .......... -- --
Capital distribution to National
in shares of Teltronics stock ...... -- -- -- (122,000)
Conversion of preferred stock
to common and payment of
related dividends (Note 8) ....... -- -- (171,700) --
Unrealized loss on securities(2) ..... (281,250) -- -- (281,250)
Capital contributed
from ATC (Note 7) ................... -- -- -- 876,500
Contracts acquired ................... -- 120,000 -- 120,000
Compensation earned .................. -- 313,417 -- 313,417
Rescission of shares for
deferred compensation .............. -- 14,207,583 -- --
Rescission of shares issued
in contemplation of treasury
stock acquisition(1) ................ -- -- 2,000,000 --
Net loss ...................... -- -- (2,953,878) (2,953,878)
------------ ------------ ------------ ------------
Balance, December 31, 1994 ........... $ - 0 - $ - 0 - $(10,610,250) $ 1,086,034
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Year
Ended December 31,
1994 1993
------------- ------------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss ............................................................. $ (2,953,878) $ (2,116,008)
---------- ----------
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization ..................................... 465,085 417,349
Stock issued for services ......................................... 313,417 93,000
Effect of National pooling ........................................ - 0 - 356,979
Aborted stock offering ............................................ 202,528 - 0 -
Decline in value of stock of Teltronics ........................... 123,750 - 0 -
Equipment valuation adjustment .................................... 1,080,000 104,500
Realized gain on sale of marketable equity securities ............. - 0 - (57,089)
Decrease in accounts receivable ................................... 230,373 55,532
Increase in accounts payable and accrued
expenses ........................................................ 364,176 923,533
Increase (decrease) in prepaid fees ............................... 157,265 (100,265)
Bad debts from related parties .................................... 146,833 - 0 -
---------- ----------
Total adjustments .......................................... 3,083,427 1,793,539
---------- ----------
Net cash provided by (used for) operating activities ................... 129,549 (322,469)
---------- ----------
Cash flows from investing activities:
Cash refunded for deposits ........................................... 17,494 29,366
Proceeds from the sale of assets ..................................... 81,100 - 0 -
Proceeds from sale of marketable equity securities ................... - 0 - 321,152
Purchase of equipment ................................................ (10,693) (210,762)
Cash acquired in exchange of common stock for assets ................. - 0 - 15,251
Cash paid to National in acquisition of assets ....................... - 0 - (922,865)
---------- ----------
Net cash provided by (used in) investing activities .................... 87,901 (767,858)
---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Continued)
For the Year
Ended December 31,
1994 1993
------------- -----------
(unaudited)
Cash flows from financing activities:
<S> <C> <C>
Proceeds from issuance of common stock ................................ $ - 0 - $ 922,865
Proceeds from long-term debt .......................................... - 0 - 351,319
Principal payments on long-term debt .................................. (242,253) (30,397)
Proceeds from related party debt ...................................... 185,000 - 0 -
Principal payments on related party debt .............................. (185,000) - 0 -
Advances from Teltronics .............................................. - 0 - 272,000
Payments to Teltronics ................................................ - 0 - (331,893)
Deferred charges in connection with uncompleted
securities offering ................................................. - 0 - (233,422)
Capital distribution to National ...................................... - 0 - (59,980)
Capital contribution from National .................................... - 0 - 92,500
--------- ---------
Net cash provided by (used for) financing activities .................... (242,253) 982,992
--------- ---------
Net decrease in cash and cash equivalents ............................... (24,803) (107,335)
Cash and cash equivalents, beginning of year ............................ 31,164 138,499
--------- ---------
Cash and cash equivalents, end of year .................................. $ 6,361 $ 31,164
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
COMCENTRAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Continued)
For the Year
Ended December 31,
1994 1993
------------- ---------
(unaudited)
Supplemental disclosure of noncash investing and
financing activities:
Purchase of assets from National in exchange for
common stock:
<S> <C> <C>
Historical cost ........................................................... $ - 0 - $ 569,808
Capital distribution ...................................................... 122,000 3,436,442
Stock issued, cash remitted directly to National ............................. - 0 - 862,985
Capital contribution from National ........................................... - 0 - 207,000
Capital contribution from International Petroleum ............................ - 0 - 120,000
Purchase of equipment under capital lease .................................... 43,000 - 0 -
Conversion of preferred shares to common ..................................... - 0 - - 0 -
Common shares issued for future services ..................................... - 0 - 14,700,000
Payment of preferred dividends
with common stock .......................................................... 171,700 - 0 -
Debt obligation issued by ComCentral for
conversion of ComCentral Corp. stock
warrants and $80,000 subsidiary Preferred Stock
(minority interest) ........................................................ 185,000 - 0 -
Assets acquired by issuance of common stock .................................. 2,009,394 - 0 -
Contracts acquired, paid by releasing previously
escrowed common stock ...................................................... 120,000 - 0 -
Earned salary and consulting services paid
by releasing previously escrowed common stock .............................. 313,417 - 0 -
Settlement of amount due to Teltronics by issuance of 602,000
shares of common stock ..................................................... - 0 - 851,438
Assets acquired in settlement of claim ....................................... 876,500 - 0 -
Issuance of shares pursuant to court order ................................... 825,000 - 0 -
Conversion of preferred stock to common ...................................... 205,950 - 0 -
Rescission of shares of deferred compensation ................................ 14,205,583 - 0 -
Rescission of shares issued in contemplation of treasury
stock acquisition .......................................................... 2,000,000 - 0 -
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................... $ 184,763 $ 68,251
Income taxes ............................................................... - 0 - - 0 -
</TABLE>
The accompanying notes to consolidated financial statemnts
are an integral part of these statements.
F-9
<PAGE>
COMCENTRAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1994
(1) Summary of Significant Accounting Policies:
The following is a summary of the more significant accounting policies and
practices of ComCentral Corp. and its subsidiaries which affect the accompanying
consolidated financial statements:
(a) Organization and Operations--ComCentral Corp. and its subsidiaries (the
Company) operate in a single industry, marketing and reselling operator assisted
long distance telephone services. The Company commenced operations in 1989.
(b) Basis of Consolidation--The consolidated financial statements include
the accounts of ComCentral Corp. and its wholly and majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements are based on the
assumption that ComCentral and National were combined for the nine months ended
September 30, 1993.
(c) Cash and Cash Equivalents--For the purpose of reporting cash flows, the
Company considers all highly liquid investments with an original maturity date
of three months or less to be cash equivalents.
(d) Marketable Equity Securities--Marketable equity securities includes the
Company's investment in common stock of Teltronics recorded at fair market
value. Classification as current or non-current is based on the Company's intent
to hold or sell the securities within one year.
(e) Property and Equipment--Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 5 to 10 years. Major renewals and
betterments are capitalized while expenditures for maintenance and repairs are
charged to operations as incurred. Accumulated depreciation on property and
equipment not under capital leases was $1,403,547 at December 31, 1994.
The Company leases certain telephone switching and computer equipment under
capital leases. The assets and liabilities under the capital leases are recorded
at the lower of the present value of the minimum lease payments or the fair
value of the asset. The assets are depreciated over the lower of their related
lease terms or useful lives of the assets. Depreciation is computed using the
straight-line method over five to seven years. Depreciation of assets under
capital leases is included in depreciation expense. Accumulated depreciation on
assets under capital leases was $981,311 at December 31, 1994.
Property and equipment includes $120,000 of telephone equipment inventory
and excess switch capacity for resale, settlement of debt obligations, or to be
used in future installations.
(f) Intangible Assets and Amortization--Intangible assets and amortization
expense include the following items:
(i) Goodwill--Goodwill represents the excess of cost over fair market value
of net assets acquired from a subsidiary during 1990. Amortization is computed
using the
<PAGE>
COMCENTRAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1994
(1) Summary of Significant Accounting Policies (continued):
straight-line method over five to six years. The Company
re-evaluates goodwill each year based on factors including
forecasted income, resale value, and cash flows and has
revised its intangibles to reflect the sale of ComCentral,
Inc. (See Note 14).
(ii) Other Intangible Assets--These intangible assets
consist of state certification fees. The assets are
capitalized at cost and amortized using the straight-line
method over five years. The Company re-evaluates all
intangibles each year based on factors including forecasted
revenues from the states involved and resale value.
(iii) Investment in Customer Accounts--Investment in
customer accounts consists of certain customer account
contracts acquired. These assets are capitalized at cost and
amortized using the straight-line method over five years. The
Company re-evaluates this investment each year based on
factors including forecasted revenue stream from the contracts
and resale value for the contracts.
Amortization expense charged to operations was $291,752 and $226,846 for
the years ended December 31, 1994 and 1993, respectively.
(g) Revenue Recognition--Revenues are recognized in the period when the
customer places the related call, net of unverifiable calls and rejects based on
historical estimates.
(h) Factoring of Accounts Receivable--In the normal course of business, the
Company sells its trade accounts receivable with recourse to its billing
processor at its collectible value under factoring agreements. The Company pays
a financing fee to the billing processor during the collection period at prime
rate plus 2%. The Company is also charged for any amounts not collectible by the
billing processor. The Company's loss experience with uncollectible amounts on
factored receivables has not been significant. Accordingly, no provision has
been made for future losses that may result under the recourse arrangement. The
Company sold $3,921,974 and $1,791,281 of accounts receivable for the years
ended December 31, 1994 and 1993, respectively. The factored and uncollected
accounts receivable balance with right of recourse was $120,829 at December 31,
1994.
(i) Loss Per Common Share--Net loss per common share is computed based on
the weighted average number of shares outstanding plus the weighted average of
19,333 shares issued in connection with the National acquisition assuming the
shares were issued as National purchased assets from its inception (August 17,
1992) to September 30, 1993, as described in Note 2. Net loss per common share
has been adjusted for cumulative dividend requirements on the convertible
preferred stock. Fully diluted loss per share data are not presented because
they are either anti-dilutive or not materially dilutive. See Note 15 regarding
the effect of reverse stock splits occurring subsequent to the balance sheet
date.
(j) Inventory--Inventory consists of textiles that can be used for various
upholstery purposes. It is valued at the lower of cost (first-in, first-out) or
market.
<PAGE>
(2) Business Combinations:
Business Acquisition of National--On September 30, 1993, the Company
exchanged 96,000 shares of its common stock and $1,022,965 in cash (which was
derived from the proceeds of an additional 20,000 shares issued) for
substantially all of the assets of National Communications of Sarasota, Inc.
(National) in a business combination accounted for similar to a pooling of
interests because the Company and National are considered under common control
(see Notes 7 and 13). National's principal assets included 24,000 shares of
common stock of Teltronics, Inc., contractual rights to buy certain
telecommunication equipment and customer accounts of Southnet Corporation
(Southnet) which was also consummated on September 30, 1993, and certain
equipment originally purchased from American Telecommunications Corp.
(American). This transaction included the Company's assumption of approximately
$79,990 in equipment capital lease obligations and operating leases of office
space from Southnet.
The assets and liabilities acquired from National have been recorded at the
historical cost of the respective entities. The difference between the recorded
cost of the assets acquired less liabilities assumed and the value of the 96,000
shares issued and cash paid ($922,965) has been recorded as a return of capital
($583,405) to National in the accompanying consolidated financial statements. An
additional capital distribution of $120,000 was recorded in 1994 arising from
disputes with National which is part of $122,000 total. See Statement of
Stockholders' equity.
The operations of the Company were temporarily managed by Southnet under a
telecommunications service agreement dated August 10, 1992 (see Note 7).
Effective October 1, 1993, the telecommunications service agreement was
terminated and the Company has taken over the combined operations of ComCentral
Corp. and Southnet.
National continues in existence subsequent to September 30, 1993, as a
shareholder of the Company. The assets of National not related to the
transaction with the Company have not been reflected in these financial
statements.
Summarized results of operations of the separate companies for the period
January 1, 1993, through September 30, 1993, the date of acquisition, are as
follows:
ComCentral National
(Unaudited) (Unaudited)
Sales $ 2,148,597 $ -
Net loss (530,352) (356,979)
Prior to September 30, 1993, the Company loaned $150,000 to National, that
loaned the $150,000 to Southnet. This amount has been included as consideration
between the companies in the accompanying financial statements.
<PAGE>
<TABLE>
<CAPTION>
(3) Long-Term Debt:
Long-term debt consists of the following:
December 31,
1994
8% note payable to individual, collateralized by stock of ComCentral, Inc.
<S> <C>
(a subsidiary), principal and interest due on demand $ 28,192
Convertible subordinated note payable to a corporation, interest at 8%,
currently in default 150,000
Notes payable to various individuals and corporations, principal and interest
at 10%, currently in default 700,000
Notes payable to a corporation, payments of $5,000 plus interest at 8% due
monthly, currently in default 45,000
Capital lease payable to a corporation, currently in default 23,706
Nonrecourse note payable to a corporation, collateralized by media
credits, due December, 1995 400,000
8% note payable to a corporation, collateralized by inventory due
in monthly installments of $15,000 beginning June, 1995 75,000
Capital lease payable to a corporation, currently in default 5,012
Other interest bearing obligations, converted from trade creditors,
secured by cash, equipment, receivables and intangibles owned by
ComCentral, Inc. (a subsidiary) 144,360
Total long-term debt 1,571,270
Less: Current portion 1,571,270
Long-term debt, less current portion -0-
==========
</TABLE>
The Company is currently negotiating repayment terms on all defaulted
obligations. The convertible subordinated note payable is to be paid with common
shares as the Company settles with the note holder.
Certain debt agreements contain dividend, capital structure and other
restrictions that are in effect as long as the debt is outstanding.
<PAGE>
(3) Long-Term Debt (continued):
Maturities on long-term debt as of December 31, 1994, for the next
five years are as follows:
Related
Year Ending Parties
December 31, (Note 7) Other Total
- --------------- ------------------- ------------- ----------
1995 $ 159,268 $ 1,571,270 $ 1,730,538
1996 - - -
1997 - - -
1998 - - -
1999 - - -
------------- ------------- ---------
$ 159,268 $ 1,571,270 $ 1,760,538
============= ============= =============
The minimum future lease payments under the capital leases (included in
long-term debt) as of December 31, 1994, for each of the next five years and in
the aggregate are as follows:
Year Ending
December 31, Amount
-------------- -------------------------------------
1995 $ 28,718
1996 - 0 -
1997 - 0 -
1998 - 0 -
1999 - 0 -
Thereafter - 0 -
---------------
Total minimum lease payments 28,718
Less: Amount representing interest - 0 -
---------------
Present value of minimum lease
payments $ 28,718
=============
The Company leases office space under two non-cancelable operating leases.
Minimum future rental payments under these operating leases as of December 31,
1994, for each of the next five years and in the aggregate are as follows:
Year Ending
December 31, Amount
-------------- -------------------------------------
1995 $ 29,136
1996 -
1997 -
1998 -
1999 -
Thereafter -
Total minimum lease payments $ 29,136
=============
<PAGE>
(3) Long-Term Debt (continued):
Rent expense under this and other operating leases was $122,598 and $91,430
for the years ended December 31, 1994 and 1993, respectively.
(4) Marketable Equity Securities:
On September 30, 1993, the Company acquired 24,000 shares of Teltronics
common stock from National in a transaction described in Note 2. The 24,000
shares were originally recorded at National's historical cost because the
Company and National are under common control.
At December 31, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," issued May 1993. The Statement requires recording
marketable equity securities classified as available-for-sale securities at fair
market value. The net unrealized holding gains and losses are reported as a
separate component of shareholders' equity until realized. Accordingly, the
Company changed its method of accounting to record marketable equity securities
at fair market value and increased its marketable equity securities by $281,250
at December 31, 1993. This change had no effect on net loss or accumulated
deficit for 1993.
(5) Concentrations of Credit Risk:
Significant concentrations of credit risk for all financial instruments
owned by the Company are as follows:
(a) Demand Deposits--The Company has demand deposits with local banks of
$6,361 and $31,164 at December 31, 1994 and 1993, respectively. The Company has
no policy requiring collateral or other security to support its deposits,
although all demand deposits with banks are federally insured up to $100,000 by
the FDIC.
(b) Accounts Receivables--The Company's accounts receivable are comprised
of amounts due from regional and national long distance telephone companies. The
Company has no policy requiring collateral or other security to support its
accounts receivable. The Company has contract agreements with each customer. The
Company also factors trade accounts receivable with its billing processor with
right of recourse under factoring agreements. The factored and uncollected
accounts receivable balance with right of recourse is $158,107 and $463,702 at
December 31, 1994 and 1993, respectively.
(6) Income Taxes:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," issued in February
1992. The Statement requires a change from the deferred method to the asset and
liability method of accounting for income taxes. The Statement also requires the
recognition of net operating loss carryforwards to be a component of the income
tax provision rather than an extraordinary item. There was no effect from this
accounting change on the Company's net loss or accumulated deficit for 1993.
<PAGE>
(6) Income Taxes (continued):
The Company and its subsidiary have an unused operating loss carryforward
of approximately $2,257,000 at December 31, 1994, which may be applied against
future taxable income expiring in years through 2006, subject to certain IRS
limitations as follows:
Year of Year of
loss expiration Amount
-------------------- ----------------- ---------------
1989 2004 $ 5,000
1990 2005 100,000
1991 2006 190,000
1992 2007 722,000
1993 2008 1,000,000
1994 2009 240,000
-----------------
$ 2,257,000
At December 31, 1994, a deferred tax asset has not been recorded due to the
uncertainty as to whether or not the Company will be able to generate income to
use the net operating loss carryforwards.
(7) Related Party Transactions:
The Company is considered related by common ownership and/or common control
with the following parties: Teltronics, Inc.; Norman R. Dobiesz; Marvin O. Webb;
Carl Smith; Whitfield Capital of Sarasota, Inc.; International Petroleum Corp.;
Envirosure Management Corp., Inc.; Britusa Management Corporation, Inc.;
American Telecommunications Corp.; ATC, Inc.; H & N Management Co., Inc.;
National Communications of Sarasota, Inc.; Southnet Corporation; TampaBay
Financial, Inc.; Aire-Wrap Systems International, Inc.; Nevada Communications
Corp.; and KL Communications Corp., Inc. All significant transactions with these
parties are summarized and disclosed below:
Long-term debt with related parties consist of the following:
December 31,
1994
10% judgement payable to Marvin O. Webb $ 159,268
Less: Current portion 159,268
Long-term debt with related parties, less current portion $ - 0 -
==============
Interest expense on debt to related parties was $15,383 and $8,412 for the
years ended December 31, 1994 and 1993, respectively.
<PAGE>
(7) Related Party Transactions (continued):
In November and December 1993, the Company issued 24,080 shares of its
common stock to Teltronics in satisfaction of $851,438 of outstanding
intercompany debt. The shares were valued at $1,204,000 and a capital
distribution of $352,562 was recorded.
Effective December 31, 1993, the Company agreed to issue 40,000
unregistered shares of its common stock to an unrelated third party in exchange
for various notes receivable totaling $1,820,000 which were to be acquired from
Teltronics. The notes receivable are secured by 48,533 shares of ComCentral
common stock. The 40,000 shares were to be sold by the third party, the proceeds
of which were to be paid to Teltronics. Since the third party was unable to sell
the 40,000 shares they were returned to the Company and the notes were returned
to Teltronics. This transaction, in substance, was considered to be an
acquisition of treasury stock since the notes receivable are deemed to be
uncollectible. The Company originally recorded the value associated with the
shares issued of $2,000,000 as a charge to accumulated deficit and the
rescission was adjusted as a credit to accumulated deficit.
During 1992, the Company paid $600,000 to International Petroleum under a
consulting agreement for acquisition services which is classified as management
fee expense in 1992. International Petroleum has agreed to repay the $600,000
and has given a note receivable to the Company. No value has been assigned to
the note in the accompanying consolidated financial statements due to
uncertainties regarding its collectability. If any amounts are ultimately
received from International Petroleum, the Company will record the amount as a
capital contribution.
On August 10, 1992, the Company entered into an agreement with Southnet
whereby Southnet agreed to provide telecommunication services to the Company's
customers for a period up to three years. The Company agreed to pay Southnet an
amount equal to one-third of the gross billings from the Company's customers.
Southnet is responsible for all costs of servicing the Company's customers. For
the year ended December 31, 1994 and 1993, the Company recorded $150,000 and
$447,300 in expense under this agreement. In addition to paying its obligation
to Southnet, the Company also made advances to and paid liabilities on behalf of
Southnet during 1992 and 1993. The net amount due the Company at December 31,
1993 and 1994, under the foregoing transactions was $1,200,553. Although the
Company is pursuing collection of these advances to and payments on behalf of
Southnet, the Company expensed $146,833 and $926,848 as bad debts to related
parties in 1994 and 1993, respectively, since collection was not certain.
The Company charged operations $183,750 in 1994 for 7,000 shares of common
stock issued to International Petroleum in connection with the asset
acquisitions described in Note 2 in 1993.
In November 1993, the Company issued 6,280 shares of its common stock to
three officers of the Company for future services. The Company recorded $225,000
and $59,000 of expense in 1994 and 1993 under this arrangement.
In April, 1993, the Company purchased $428,537 of telephone switching
equipment from Teltronics.
<PAGE>
(7) Related Party Transactions (continued):
In November 1993, the Company issued common stock for future services to
the following entities: International Petroleum 14,000 shares; National
Communications 10,000 shares; Nevada Communications 10,000 shares; and KNS
Enterprises, Inc., an unrelated company, 13,720 shares under agreements
described below:
International Petroleum--Effective January 1, 1993, the Company
entered into a ten-year consulting and acquisition services agreement with
International Petroleum. The agreement requires the Company to pay 3% of
the Company's gross revenues not to exceed $450,000 annually. This
agreement could be terminated by International Petroleum for any reason
upon 90 days notice. The Company could cancel the agreement upon 90 days
notice and payment of a three-year unspecified lump sum settlement,
purchase of any stock warrants or options of International Petroleum, and
reimbursement of all expenses and fees owed to International Petroleum at
the time of cancellation.
The Company issued 14,000 shares of common stock in 1993 under this
agreement and recorded $558,750 as stock issued for future services. The
Company expensed $313,417 under this arrangement in 1994. In addition, the
Company paid $144,000 in cash to International Petroleum during 1993 and
recorded $40,765 in prepaid fees and expensed $103,235 under this
agreement in 1993. After terminating its relationship with Norman R.
Dobiesz and International Petroleum, the Company rescinded this agreement
including all remaining shares.
National Communications--Effective November 1, 1993, the Company
entered into a consulting and acquisition services agreement with National
Communications. Under this agreement, the Company issued National 10,000
shares of common stock. This agreement could have been terminated by
National for any reason upon 45 days notice in 1993. The Company recorded
$500,000 for the 10,000 shares as stock issued for future services.
National originally represented to the Company that it was negotiating
with numerous acquisition targets expected to materialize over the next
two years, however, no such candidates were ever presented to the Company.
National was to have earned 5% of the purchase price which would have been
capitalized by the Company as part of any such acquisitions. The Company
terminated its relationship with Norman R. Dobiesz and National
Communications of Sarasota, Inc., rescinded all shares, and canceled the
related stock issued for future services.
KNS Enterprises, Inc.--Effective November 1, 1993, the Company
entered into a consulting and acquisition services agreement with KNS
Enterprises, Inc. (KNS). The Company issued KNS 13,720 shares of common
stock in escrow. The shares and/or any proceeds therefrom were to be
released at the direction of the Company as services were performed by
KNS. This agreement could be terminated by KNS for any reason upon 45 days
notice. In 1994 the Company recorded $686,000 for the 13,720 shares as
stock issued for future services. KNS was to negotiate the acquisition of
customer contracts on behalf of the Company. KNS was entitled to 15% of
the first year revenue of contracts it negotiated. The Company was to
capitalize fees associated with business acquisitions and expense amounts
associated with sales contracts. The Company expected all amounts to be
earned over approximately three years. KNS terminated its relationship
with the Company in 1994 and all shares were rescinded and the $686,000
stock issued for future services was cancelled.
<PAGE>
(7) Related Party Transactions (continued):
Nevada Communications--Effective November 1, 1993, the Company
entered into a two-year consulting and traffic management services
agreement with Nevada Communications to begin January 1, 1994. Nevada
Communications was to provide marketing services on behalf of the Company
to the health care industry. The Company issued 10,000 shares of its
common stock which was recorded as $500,000 in 1993 as stock issued for
future services. The Company was to amortize this amount over a two-year
period beginning January 1, 1994. The Company terminated its relationship
with Norman R. Dobiesz and Nevada Communications and rescinded the
agreement, and the $500,000 worth of stock issued for future services was
cancelled.
Effective July 23, 1993, the Company entered into a ten-year
agreement with Nevada Communications to acquire long distance
telecommunications service contracts. Nevada Communications is 100% owned
by Stuart Lopata, a member of the Company's board of directors, and
specializes in marketing telecommunications services to hotels, hospitals
and travel agencies. Under the agreement, the Company issued, in escrow,
240,000 shares to Nevada Communications. The shares were to be released
contingent upon the ability of the contracts to generate $12,000,000 or
more in annual revenues or meet other criteria to be established at the
discretion of the board of directors of ComCentral Corp. The contract also
provided for a brokerage fee of 24,000 shares to International Petroleum,
Inc., as payment of a commission to Nevada Communications, an exclusive
agency for Nevada Communications to represent the Company in the state of
Nevada, and a non-competition agreement between both parties. As of
December 31, 1993, the Company recorded $12,000,000 as stock issued for
future services and no expense was recorded under this contract. The
Company capitalized $120,000 of contracts and cancelled the remaining
237,600 shares under this agreement.
The Company acquired $876,500 from ATC as a recovery of amounts
previously written off in 1992. This recovery has been recorded as
additional paid-in capital since ATC is a related party (See Note 11).
(8) Convertible Cumulative Preferred Stock:
Series A--The Company authorized 500,000 shares of preferred stock and
issued 250,000 shares of its Series A, non-voting preferred stock to Teltronics.
The preferred stock is entitled to a preference in the amount of $1.00 per share
in the event of the liquidation or dissolution of the Company and bears
cumulative dividends at an annual rate of 10%. Dividends in arrears on the
Series A 10% cumulative preferred stock totaled approximately $85,417 and
$60,417 at December 31, 1994 and 1993, respectively. No dividends on Series A
preferred stock have been paid. The preferred stock is convertible at the option
of the holder into common stock at a conversion price equal to the fair market
value of the common stock based on an average bid price for the ten day period
prior to conversion.
Series B--During 1992, the Company established a Series B convertible
preferred stock, $1.00 par value, 10% cumulative annual dividends, and reserved
180,000 shares of the Company's single class of authorized preferred stock for
issuance of the shares. The Company sold, pursuant to a private
<PAGE>
(8) Convertible Cumulative Preferred Stock (continued):
placement memorandum dated May 7, 1992, 101,000 shares of its Series B stock and
252,500 Class B common stock purchase warrants.
The Series B preferred stock is convertible, at any time after twelve
months from the date of issuance, into five shares of the Company's common
stock. Upon liquidation of the Company, holders of outstanding Series B
preferred stock are entitled to a liquidation preference in the amount of $12.50
per share, plus all accrued but unpaid dividends, however, the rights of the
Series B stock are junior to the rights of the Series A preferred stock. The
Series B preferred stock is redeemable by the Company at a price equal to 110%
of the liquidation preference.
Each warrant sold as part of the Units is exercisable into one share of
common stock at an exercise price of $2.50, during the period beginning six
months following the date of the private placement memorandum, and expiring two
and one-half years thereafter (see Note 9).
(9) Commitments and Contingencies:
No cash dividends have been paid on Series B preferred stock in 1994 and
1993, although $171,700 of dividends were paid in common stock as part of the
conversion of 68,500 shares of Series B preferred stock into common. Dividends
in arrears on the Series B stock were $81,250 and $126,250 at December 31, 1994
and 1993, respectively. The Company can pay earned and accrued dividends in cash
or common stock.
The Company is a litigant in several lawsuits resulting from the poor
financial condition of the Company and its subsidiaries. The potential exposure
from litigation at December 31, 1994 has not been estimated because certain
cases have unspecified damages. Management believes that the outcome of any of
the actions against the Company will not have a material impact on its financial
position or results of operations. The financial statements have not been
adjusted to reflect the outcome of these contingencies.
The Company entered into a five-year consulting and non-competition
agreement with TampaBay Financial, Inc., a company owned by former shareholders
of the Company and current shareholders of Teltronics, effective January 1,
1992. The agreement calls for monthly payments of the lesser of $30,000 or 20%
of the Company's monthly pre-tax income for the succeeding month. The Company
can increase the monthly payment to 25% of its monthly pre-tax income at its
sole discretion. Monthly payments are to be made until the $1,800,000 future
contingent liability has been paid under this agreement. If the corporation
fails to perform obligations under this agreement, the agreement can be
terminated by the Company for $200,000 to be paid in 40 equal monthly payments
beginning on the date of termination.
Effective March 31, 1992, the Company and TampaBay Financial amended the
terms of the consulting and non-competition agreement described above. The
payments required to be made by the Company under the terms of the agreement
were reduced to the lesser of $15,000 per month or 10% of monthly pre-tax income
rather than the lesser of $30,000 or 20% of monthly pre-tax income. Monthly
payments are still to be made to TampaBay Financial until $1,800,000 has been
paid under this agreement. No amounts have been accrued under this agreement due
to operating losses incurred by the Company.
<PAGE>
(9) Commitments and Contingencies (continued):
The Company reached a settlement with a shareholder in a suit over the
Company's failure to instruct its transfer agent to remove a restrictive
Regulation S legend from certain shares. As part of the settlement, the Company
issued an additional 1,650,000 shares to the shareholder. If the shareholder is
unable to sell or redeem the shares for $275,000 by June 1, 1995, then the
Company is subject to penalties, including a $375,000 judgement being entered
against it, or the issuance of additional shares. There can be no assurance as
to the outcome of this contingency.
The Company has issued warrants to purchase common and preferred stock to
various individuals and organizations at various times for various purposes.
There were 719,494 warrants outstanding at December 31, 1994. Of that total,
494,494 were exercisable at prices ranging from $6.00 to $62.50. The Company is
reviewing the terms and conditions of all its warrants.
Additionally, the Company is either a defendant or codefendant in two other
lawsuits. The claims specified in these actions total approximately $650,000 and
the amounts are included in the liabilities of the Company at December 31, 1994.
The Company acquired certain telecommunications equipment and customer
accounts from Southnet Corporation (Southnet) through National Communications of
Sarasota, Inc. (National) as described in Note 2. Southnet is the defendant in a
lawsuit by a shareholder seeking the rescission of certain board actions
including the sale of the Company's assets to National. The Company disputes the
allegations, however, outside counsel for the Company has advised that only
limited discovery has been conducted and they cannot offer an opinion as to the
probable outcome or potential liability to the Company.
The Company has employment contracts with one officer effective January 1,
1993, for three years. This contract has a total base salary of $60,000 in 1994
and has a provision to increase up to $70,000 over the contract terms.
The Company acquired the assets and operations of Southnet Corporation (see
Note 2) which included continuing business relationships of Southnet's former
customers and vendors. The Company did not assume any liabilities of Southnet at
September 30, 1993 (the acquisition date), however, the Company paid
approximately $1,400,000 to former Southnet customers and vendors to continue
these business relationships. The Company may have to satisfy additional
Southnet liabilities in the future. The Company is unable to estimate its
potential liability for this uncertainty and, therefore, no provision for this
uncertainty has been recorded in the accompanying financial statements at
December 31, 1994. The Company does not believe this uncertainty will have an
additional material adverse affect on the Company in subsequent periods.
During 1993, the Company issued 64,000 shares to officers and consultants
under Form S-8. Approximately 30,000 shares of this stock were subsequently sold
to third party investors. The Securities and Exchange Commission instructed the
Company to de-register the remaining shares in the name of corporate entities,
which it did, and the Company also rescinded all of the remaining shares.
Management of the Company does not believe the resolution will have a material
adverse effect on the Company.
<PAGE>
(9) Commitments and Contingencies (continued):
In 1992, the Company entered into a telecommunications services agreement
with a telecommunications marketing company, Telecom America. The agreement
calls for the marketing company to provide $4,000,000 of call traffic annually
over a five-year period in exchange for 6,640 shares of the Company's common
stock plus normal marketing charges. The stock was placed in escrow and is to be
released annually in the event the annual revenue targets are met. If the
revenue targets are not met, a pro rata share of the stock will be released for
the percentage of the five-year target met. National transferred 2,000 shares of
its ComCentral stock to Telecom America under this agreement on behalf of the
Company. The Company recorded this reduction of its liability to Telecom America
as a capital contribution by National to the Company of $100,000, the fair
market value of the stock issued to Telecom America. The Company expensed
$57,000 and $34,000 under this arrangement for the years ended December 31, 1994
and 1993, respectively.
(10) Major Customers:
For the year ended December 31, 1994, net sales to two major customers were
approximately $514,986 and $243,385, which were 11% and 5%, respectively, of
total sales. For the year ended December 31, 1993, net sales to three major
customers were approximately $1,436,000, $580,000 and $418,000, which was 42%,
17% and 12%, respectively, of total sales.
(11) Media Credits:
Media credits consist of prepaid broadcast and print media due bills
acquired from both the issuance of stock and the settlement of claims from a
related party.
Carrying
Name Description Face Value Discount Value
American Independent
Network Television $3,400,000 $1,684,356 $1,715,644
La Suerte Newspaper 1,400,000 1,050,000 350,000
La Informacion Newspaper 1,800,000 1,350,000 450,000
Head Office Print Advertising 1,350,000 1,012,500 337,500
Hayden, Ives Radio &
& Neal Production 250,000 187,500 62,500
Allnight at the Movies Television 125,000 93,750 31,250
Access America Television 125,000 93,750 31,250
Krypton Television 125,000 93,750 31,250
---------- ---------- ----------
$8,575,000 $5,565,606 $3,009,394
========== ========== ==========
The Company's basis in media credits acquired from settlement of a claim
against a related party (ATC) is the historical cost basis of the media credits,
adjusted for estimated net realizable value. Media credits acquired with stock
are valued at the estimated value of the stock issued, which has also been
adjusted to estimated net realizable value. Discounts reflect the cost of fees
for the use of the credits, restrictions on the use of credits, restrictions of
marketability, and costs to engage media consultants in the management or trade
of the media credits. These credits expire in various years from 1996 to 2003.
<PAGE>
(11) Media Credits (continued):
Although the credits can be used by the Company, the Company has no plans
to use the credits since its marketing plan involves selling the
telecommunications products of larger well advertised companies. However, the
Company plans to sell and barter the credits for other products it can sell. In
addition, it has entered into negotiations to settle certain obligations of the
Company and may use the credits to invest in or acquire other companies.
(12) Going Concern:
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying consolidated financial statements the Company has incurred
substantial operating losses in recent years and as of December 31, 1994,
current liabilities significantly exceed current assets.
In addition, the Company will be unable to raise capital in a public
offering of its securities due to the need to obtain reissued audit reports for
its 1992 and 1993 financial statements. In addition, the poor financial
condition of the Company has inhibited its ability to attract profitable
acquisition candidates. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company has significantly reduced operating expenses and has terminated
unprofitable activities through the disposition of its subsidiary, ComCentral,
Inc. This will save time and resources which the Company is now devoting to more
promising activities, by removing approximately $1.5 million of liabilities from
the Company's books. The Company is endeavoring to generate sufficient cash flow
to cover operating expenses, to meet its obligations and to generate revenues
for expansion as set forth below:
1. The Company has changed its marketing approach to using agents, which
is less costly since agents are paid strictly on the basis of gross
profits generated. It has expanded its product offering which
increases the revenue and profit potential of each sale. It has
expanded to a national scope in its product offering, whereas in the
past it was regional in nature.
2. The Company will sell and barter its media credits to obtain items for
resale. The Company believes it can settle up to $700,000 of the
Company's obligations by bartering media credits.
3. The Company will continue attempts to settle obligations by issuing
common stock.
4. The Company will pursue additional merger opportunities in and out of
the telecommunications business. Because of the financial condition of
the Company, it is more likely that any acquisitions will be startup
ventures, which are more risky than established ventures.
5. The Company intends to pursue real estate operations to produce
increased cash flow from the collection of rents. The Company plans to
become engaged in the acquisition and development of real estate for
sale as well as for capital appreciation.
There is no assurance that the above objectives will be accomplished.
<PAGE>
(13) Significant Fourth Quarter Adjustments:
The Company revalued the $243,750 of Teltronics, Inc. common stock to zero
due to declines in the value of Teltronics and the refusal of Norman R. Dobiesz,
who held the securities, to return them when requested. $120,000 of this amount
was treated as a capital distribution offsetting capital contributions
previously recorded from the repayment of $120,000 owed by International
Petroleum in 1993. The remaining $123,750 was, recorded as a loss on disposition
of the securities. The Company is currently in negotiations with certain
creditors who intend to take an assignment of the International Petroleum note
and pursue collection efforts. No assurance can be made of the outcome of these
negotiations.
The Company also recorded a loss of $432,500 from an aborted stock
offering. Although the Company believed a portion of the money was recoverable
from J. Gregory & Company, its underwriter, it concluded from inquiries that J.
Gregory & Company was unable to repay the amounts and wrote the entire amount
off.
The Company recorded as a capital contribution $876,500 recovered from
American Telecommunications by the receipt of assets from American's parent
company.
The Company rescinded $14,207,583 of shares issued for future services, as
part of the termination of its relationship with Norman R. Dobiesz and others
related to Dobiesz. (See Note 7, "Related Party Transactions"). The following
shares were rescinded:
Number of
Shares Amount
International Petroleum 9,860 $ 493,000
National Communications of
Sarasota 16,972 848,583
KNS Consulting 13,720 686,000
Nevada Communications 243,600 12,180,000
----------- -----------
284,152 $14,207,583
=========== ===========
The Company wrote down $998,900 of assets held by it and its subsidiary
ComCentral Inc. resulting from the determination to sell ComCentral Inc. for the
face value of its liabilities in the first quarter of 1995.
(14) Subsequent Events:
(a) Business Acquisition of International Teledata, Inc. - - On January 6,
1995, the Company exchanged 4,000,000 shares of its common stock and a note
payable of $1,000,000 to International Teledata, Inc. ("ITD") an unaffiliated
Tampa, Florida based long distance telecommunication marketing company in a
transaction accounted for as a purchase. It also agreed to issue up to 1,000,000
shares to certain beneficial owners of International Teledata, Inc. in exchange
for services. ITD subsequently has appointed two directors to the Company's
Board of Directors.
<PAGE>
(14) Subsequent Events (continued):
The assets and liabilities acquired from International Teledata have been
recorded at the value of the stock issued and note less a discount for declines
in the value of the stock issued.
Summarized results of operations of the Company, assuming the Combination
had occurred on January 1, 1993 are as follows:
Year ended December 31,
1994 1993
(unaudited) (unaudited)
Sales $ 4,935,686 $ 3,653,867
Net loss $(3,028,877) $(2,157,119)
(b) Disposition of ComCentral Inc. - - During the first quarter of 1995,
the Company disposed of its wholly owned subsidiary, ComCentral Inc. The
transaction was recorded without gain or loss as the purchase price consisted of
the assumption of liabilities and the Company's basis in its assets had been
written down to the amount of the liabilities during 1994. However, the Company
has recorded the judgements obtained by Marvin O. Webb and Data and Electronic
Services since they were both against the Company and ComCentral Inc.
The Company will continue in the business of marketing long distance
through its subsidiaries Fair Share Communications Inc. and International
Teledata Inc. as well as marketing other media and communications products
through ComCentral Acquisitions, Inc.
The Company has not treated the disposition of ComCentral Inc. as a
discontinued operation since the Company is continuing in the long distance
telecommunications business market, which has been the Company's business since
inception.
If these transactions occurred effective January 1, 1994, the December 31,
1994 financial position and results of operations would have been as follows:
Total Assets $ 3,372,769
Total Liabilities 2,300,016
Sales 309,921
Net Loss $(2,530,788)
(15) Reverse Stock Splits:
On February 17, 1995, a 10 to 1 reverse stock split was approved. On May
17, 1995, a 15 to 1 reverse stock split was approved, accompanied by a change in
par value from $.50 to no par. As a result of the change to no-par common stock,
$9,224,840 of additional paid-in capital was reclassified as common stock. The
financial statements have been adjusted to reflect these changes as if they had
occurred at the beginning of each period presented.
