SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission File No. 33-853963
INTRATEL GROUP, LTD.
(Formerly Three-L Enterprises, Inc. and Intelicom Corporation)
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(Exact Name of Registrant as Specified in its Charter)
Delaware 72-1265159
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
28050 U.S. HIGHWAY 19 NORTH
SUITE 202
CLEARWATER, FLORIDA 34621
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(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number, Including Area Code: (813) 797-9000
Securities Registered Pursuant to Section 12(b) of the Act: NONE.
Securities Registered Pursuant to Section 12(g) of the Act: NONE.
Common Stock, No Par Value Per Share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. / X /
As of March 1, 1997, 1,527,620 shares of Common Stock were outstanding and
the aggregate market value of the Common Stock of Intelicom Corporation
held by nonaffiliates was not able to be ascertained as no trading market
exists for the Registrant's Common Stock.
Documents incorporated by reference: NONE.
This Form 10-KSB consists of 35 pages. The Exhibit Index begins on page
20.
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PART I
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ITEM 1. BUSINESS.
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HISTORY
Intelicom Corporation, a Delaware corporation, was incorporated on
March 18, 1994 under the name Three-L Enterprises, Inc. and was formed for
the primary purpose of seeking out and merging with an operating entity.
On September 12, 1996, the Company acquired 100% of the outstanding shares
of Intelicom International Corporation, a private Florida corporation,
formed by the Company's current Chief Executive Officer and Secretary,
David A. Kanstoroom, to act as a reseller for long distance services. As
a result of the business combination, the Company's name was changed from
Three-L Enterprises to Intelicom Corporation to reflect the acquisition of
its predecessor's telecommunications business. All references to the
Company herein include its wholly-owned subsidiary, Intelicom International
Corporation unless the context requires otherwise.
Initially, the Company's business was restricted to marketing retail
telecommunication services (including, but not limited to, long distance,
conference calling, paging, pre-paid calling cards and voice mail services)
for other telecommunications companies through a network of independent
sales agents. In September 1995, the Company entered into a wholesale long
distance agreement which enabled the Company to begin purchasing
telecommunications services on its own behalf from a long distance provider
and then reselling those services to customers under its own private label.
The Company began billing its customers directly through its own billing
system which enables it to receive revenues directly from end users instead
of having to wait to receive sales commissions for business sold by the
Company on behalf of other telecommunications providers.
The Company offers personalized services at what it believes to be
competitive prices to residences and businesses of all sizes throughout the
United States. Among the services offered are the routing equipment and
phone lines of large carriers, such as WilTel, Frontier, Sprint, BTI and
other carriers which the company may contract with in the future. The
Company has filed with the appropriate licensing commissions throughout the
United States to offer its own long distance services, and has received its
certification as a licensed long distance carrier in all states.
As discussed elsewhere in this Report, subsequent to year end,
acquired all of the issued and outstanding shares of Intral Acquisition
Company, Inc. of Osprey, Florida. At that time the corporation's name was
changed to IntraTel Group, Ltd. (hereinafter referred to as the "Company")
and Charles Brink was appointed President and Robert E Yaw II, Chairman of
the Board.
GENERAL
Prior to September, 1995, the Company's business was restricted to
marketing retail telecommunication services (including, but not limited to,
long distance, conference calling, paging, pre-paid calling cards and voice
mail services) for other telecommunications companies through a network of
independent sales agents. In September 1995, the Company entered into its
first wholesale long distance agreement with a major carrier enabling the
Company to purchase telecommunications services on a wholesale basis and
then reselling those services to end users under its own private label. As
a result, the Company was able to service customers through its own system
which enabled it to receive revenues directly from the customer instead of
having to wait for its commissions from other telecommunications providers.
The Company continues to complement its own labeled services with the
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services of other telecommunications providers in order to offer its
customers a wider array of product offerings.
The Company offers personalized long distance services at what it
believes to be competitive prices to residential users and businesses of
varying sizes throughout the United States. Among the services offered are
the access to routing equipment and phone lines of large carriers, such as
WilTel, Frontier, Sprint and BTI. The Company markets these
telecommunications services through a nationwide network of independent
sales agents.
The Company currently has in excess of 1,000 independent agents with
no geographical restrictions on their potential market. The Company
presently has approximately 250 independent agent trainers which are
located throughout the United States, with larger numbers in Florida, North
Carolina, Arizona, Utah, New Mexico, Idaho and California. Training
consists of three to five hours of instruction in product knowledge,
techniques on building the agent's business, completion of paperwork,
understanding of the compensation plan and the Company's Internet policies
and procedures.
INDUSTRY BACKGROUND
The U.S. long distance industry is dominated by the nation's three
largest long distance carriers, AT&T, MCI and Sprint, which together
accounted for 83% of the $67 billion in aggregate revenues generated by all
U.S. long distance carriers in 1994 according to a December 1995 FCC
report. Other long distance carriers, some with national transmission
capabilities, accounted for the remainder of the market.
The telecommunications industry's structure has until recently been
formed by a 1984 court decree (the "Consent Decree") between AT&T and the
United States Department of Justice which required the divestiture by AT&T
of its Bell operating companies and divided the country into 201 Local
Areas and Transport Areas ("LATAs"). The 22 Bell operating companies,
which were combined into seven Regional Bell Operating Companies ("RBOCs"),
were allowed to provide local telephone service, local access service to
long distance carriers and service within LATAs ("intraLATA service").
However, the right to provide service between LATAs ("interLATA service")
was restricted to AT&T and other long distance carriers.
To encourage competition in the long distance market, the Consent
Decree and certain FCC regulations require most RBOCs and other local
exchange carriers ("LECs") to provide access to local exchange services
that is "equal in type, quality and price" to that provided to AT&T and
with the opportunity to be selected by customers as their preferred long
distance carrier. These "equal access" provisions are intended to prevent
preferential treatment of AT&T by LECs and, with other regulatory, judicial
and technological factors, have helped smaller companies to become
competitive alternatives to AT&T, MCI and Sprint for long distance
services. A December 1995 FCC report stated that as of December 31, 1994
there were 465 long distance carriers purchasing equal access services from
LECs in the United States. Included in these carriers are the "first tier"
of AT&T, MCI and Sprint, a "second tier" of somewhat smaller carriers, such
as WorldCom, Allnet Communications Services, Inc., Cable & Wireless
Communications and LCI International, and a "third tier" of the remaining
companies.
Major long distance carriers have historically charged higher rates to
small and medium-sized business customers than to large business customers.
Large business customers are often able to commit to large volumes of
traffic and so are able to negotiate low rates under individualized
contracts, unlike smaller businesses. The combination of FCC policy and
economics has given rise to "resellers," such as the Company, who negotiate
low rates from carriers in return for large volume commitments, and then
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either resell those services to small and medium-sized businesses at a
lower rate than these customers would have otherwise paid, or resell the
services to another reseller who then sells them to the end-user.
Companies in the long distance industry are further differentiated by
their technological capabilities. Facilities-based carriers maintain
switching equipment, which is necessary to direct calls or data over the
appropriate transmission line. Some smaller non-facilities-based
providers, known as "switchless resellers," gain the use of switches as
part of their contracts with facilities-based resellers," install their own
switches in those areas where they have sufficient volume to justify the
capital expense and maintenance costs.
The long distance industry may be significantly altered in the future
by two recent regulatory enactments. First, in October 1995 the FCC
terminated AT&T's previous price cap regulations regarding service to
residences and small businesses and now allows AT&T to file effective rate
schedules on one day's notice, thereby limiting competitors' previous
ability to protest such tariffs. These changes give AT&T increased
flexibility that may permit it to compete more effectively with smaller
long distance service providers, such as the Company, particularly in
regard to the small business customers who compose the vase majority of the
company's customer base. Second, on February 8, 1996, the President signed
the Telecommunications Act, designed to introduce more competition into
U.S. telecommunications markets. The Act increases the potential for
competition in both the long distance services market, by removing the
prohibitions against RBOCs providing long distance services, and in the
local services market by requiring LECs to permit interconnection to their
networks, thus allowing long distance and regional carriers to compete in
local markets. Due to these changes, the Company may be forced to compete
with both RBOCs and long distance carriers to a greater degree than in the
past. See "-- Government Regulation" and "--Competition."
PLAN OF OPERATION AND DESCRIPTION OF BUSINESS
From inception and until September 1995, the Company functioned
primarily as a telecommunications marketing and consulting firm offering
the products and services of most major long distance providers to the
Company's customers on a retail basis. The Company's current long distance
contracts allow the Company the ability to provide long distance service
under its own private label, directly invoice its customers, and collect
revenue directly from its own client base. Revenues from its wholesale
division are now based on 100% of end users billings instead of just a
percentage paid to the Company from another carrier as sales commission.
Accordingly, the Company is a nationwide carrier that offers its customers
a diverse menu of long distance carriers, including both the Company's
private labeled long distance services as well as the services of other
major carriers.
MAJOR CONTRACTS
BUSINESS TELECOM INCORPORATED AGREEMENT. In December 1993, the
Company entered into an agreement with Business Telecom Incorporated
("BTI") pursuant to which, the Company became entitled to market long
distance services on BTI s behalf to commercial and residential customers
on an agency basis. Prior to contracting with the Company, BTI had little
or no presence outside of its "on-net" areas (i.e. North Carolina, South
Carolina, Georgia, Florida, Tennessee, Alabama, Virginia and the District
of Columbia). The Company's management believes that, through the
successful sales efforts of the Company's network of independent sales
agents, BTI went from being a regional based carrier in the Southeast to
being a national telecommunications concern with customers nationwide.
BTI pays sales commissions to the Company on a monthly basis based on
a negotiated percentage multiplied by the long distance revenues of the
Company's entire customer base. BTI is responsible for
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all credit checks, bad debt, collections costs and billing costs. The
Company's commissions are paid on billed revenues regardless if end-users
pay their invoices to BTI. Consequently, the Company suffers no charge
backs or pay backs on delinquent or bad accounts.
Since 1993, BTI has continued to improve the commissions and rate
structure available to the Company in light of the Company's high level of
sales and customer quality. In addition, BTI offers value added services
to the Company's current product line. These services include paging,
conference calling, operator services, data services and special rates and
programs for non-profit organizations.
In March 1996, the Company entered into a wholesale contract with BTI.
This contract enables the Company to resell long distance services
nationwide at competitive rates while, at the same time, maintaining
margins normally attained by only much larger long distance carriers. The
contract was agreed to as a wholesale arrangement meant to compliment the
existing agency agreement already in effect between the two companies. BTI
has agreed to assist the Company in setting up of all credit procedures as
well as making the Company a "beta site" for on-line access to all
information needed by the Company to service its customers. Intelicom has
no "take or pay" commitments to BTI, and BTI has agreed to allow all of the
Company's business, both from the agency contract as well as the wholesale
contract, to be credited towards the Company qualifying for more favorable
rates and margins under the wholesale agreement. This additional facet of
the wholesale agreement allows the Company to offer its own services to
switched and dedicated customers of all sizes throughout the United States.
FRONTIER COMMUNICATIONS (FORMERLY WORLD CALL TELECOMMUNICATIONS, INC.)
AGREEMENT. In June 1993, the Company entered into an agreement with
Frontier ("Frontier") (formerly World Cable Telecommunications, Inc.) to
market long distance services to businesses and residential users across
the United States. Frontier pays commissions to the Company on a monthly
basis based on a negotiated percentage multiplied by the Company's entire
customer base long distance billings. Frontier is responsible for all
credit checks, bad debt, collections costs and billing costs. The
Company's commissions are paid on billed revenue regardless if the end
users pay bills to Frontier. The Company has no charge backs or pay backs
on accounts that are delinquent in payments or written off as bad debt.
PRODUCTS AND SERVICES
The Company currently markets a variety of switched and dedicated long
distance products. These products primarily fall into two categories: (i)
products from the Company's agent contracts with other long distance
providers, and (ii) the Company's own products offered through wholesale
contracts, primarily with BTI.
The Company's product mix includes residential and small, medium and
large commercial products of long distance, voice mail, credit card and
paging. These products primarily utilize the underlying networks of
Frontier, BTI, WilTel and Sprint. The Company targets customers with long
distance phone bills ranging between $100 and $5,000 per month, although
the Company has several large customers billing over $20,000 per month. By
offering such a wide range of carrier products, the Company is able to
offer greater network stability and back up in the event of service
interruption. More importantly, however, the vast array of product options
enables the Company the flexibility to offer favorable rates and services
to its customers. In addition, the Company also offers state-of-the-art
paging, conference calling and pre-paid calling cards to meet all of its
client needs. The Company also has contracts in place to begin offering
local dial tone and cellular services as deregulation makes these services
available.
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MAJOR CARRIERS
The Company receives a substantial portion of its commission revenues
from two major telecommunication carriers namely BTI and Frontier. For the
fiscal year ended December 31, 1996, approximately 26.2% and 33.4% of the
Company's revenues were generated under the Company's agent contracts with
BTI and Frontier, respectively.
From its inception and up through 1995, the Company's primary strategy
was to market telecommunications services of various contract providers
through its nationwide network of independent agents. The Company's
marketing strategy is for its independent agents to be able to offer a menu
of long distance providers to potential customers. The Company currently
has in excess of 1,000 full- and part-time independent agents across the
United States and has a goal of increasing that number significantly in the
next 12 - 18 months.
The Company intends to continue to market telecommunications services
through its network of sales agents. These agents will continue to sell
products available through the Company's agency agreements, but will
increasingly be offering the products that the Company offers under it's
own private label through its wholesale contracts (primarily through the
BTI wholesale contract). The Company will also attempt to continue its
expansion in the long distance industry through acquisitions of existing
long distance companies and/or their customer accounts.
The Company anticipates it will be required to increase its in-house
staff of customer service and support personnel to increase the efficiency
of order processing and agent support. In addition, the Company will be
aggressively marketing its independent agent program to substantially
increase the size of its sales force nationwide as well as internationally.
The Company believes it can attract qualified sales agents due to an
extensive mix of products including the addition of local access service,
favorable commission and bonus schedules and the customer service.
ACQUISITION STRATEGY
The Company believes that there are in excess of 400 small to
medium-sized long distance companies operating throughout the United States
which are similar to the Company in terms of operating revenues and customer
base. It is anticipated that a portion of proceeds through any future
equity financings will be used to acquire other telecommunications
companies. Although the Company presently has no understanding,
arrangement or agreement to make any other acquisitions, based on its
experience, the Company believes that many existing resellers are willing
to be acquired due to the lack of sufficient volume vis-a-vis their current
operating expenses. The Company believes it has the ability to maximize
the potential of these acquisitions through increased operating efficiency
without significant increase in overhead by eliminating duplicate overhead
and the enhanced use of the Company's software and switchless resellers of
long distance. There can be no assurance that the anticipated results of
such an acquisition will occur, and any such acquisition may be adversely
affected by competitive and other pressures.
RECENT EVENTS
Subsequent to fiscal year end, David A. Kanstoroom ("Kanstoroom") and
David Spezza ("Spezza") officers and directors of the Registrant
(collectively referred to as the "Selling Shareholders") entered into a
Stock Purchase Agreement with IntraTel Acquisition Company, Inc.
("IntraTel") pursuant to which each of the Selling Shareholders agreed to
sell 182,847 shares of the Company's Common Stock to IntraTel in
consideration of a total of $1,200,000 in cash and secured promissory notes
and certain
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other Contingent Consideration. For purposes of the Stock Purchase
Agreement, Contingent Consideration provides that Kanstoroom and Spezza
together will be entitled to $750,000 if, within the first 12 months of the
close of any future public equity offering, the Company has, in any one
month period, direct customer billings of $250,000; or within 24 months of
the close of any future public equity offering, they will be entitled to
$1,000,000 less any prior contingency payments if one month's direct
customer billings equals $500,000; or $1,250,000 less any prior contingency
payments if one month's direct customer billings equals $750,000.
IntraTel paid $100,000 in cash to the Selling Shareholders and
delivered two promissory notes, each in the amount of $550,000, payable
June 30, 1997. The notes are secured by a security interest in, and first
priority lien on, IntraTel's cash, accounts receivable, inventory,
equipment, furniture and fixtures, books and records, including computer
programs, tangible and intangible property.
IntraTel and the Selling Shareholders also entered into a Pledge
Agreement which granted the Selling Shareholders a security interest and
lien on the 365,694 shares of the Company's Common Stock sold to IntraTel.
IntraTel also granted the Selling Shareholders an irrevocable proxy to vote
the shares of the Company's Common Stock in their sole and absolute
discretion until the remaining payment of $1,100,000 required by the Stock
Purchase Agreement has been made.
To facilitate the merger discussed below, Telecom Venture &
Acquisition Corp., a principal shareholder, for no consideration, executed
a letter of intent dated January 23, 1997 to return to the Company's
treasury 182,847 shares of the Company's Common Stock.
Simultaneously with the execution of the Stock Pledge Agreement and
related documents between IntraTel and the Selling Shareholders, IntraTel
and the Company entered into an Agreement of Merger (the "Merger
Agreement") effective April 1, 1997, providing for the merger of IntraTel
with and into the Company, and the eventual change of the Company's name to
IntraTel Group, Ltd. The Merger Agreement provides that the issued and
outstanding shares of the Company as of the effective date of the merger
will not be affected, and the current shareholders of IntraTel will
surrender their shares of IntraTel (a total of 2,000 shares) in exchange
for 1,631,626 shares of the Company less that number of shares which are
required to satisfy IntraTel's obligations to issue equity to certain
investors of IntraTel. The Merger Agreement was unanimously approved by
the Company's shareholders and the Certificate of Merger was filed with the
Delaware Secretary of State's office on April 1, 1997. In the event
IntraTel or the Company defaults under or breaches any representation,
warranty or covenant of the Merger Agreement, the non-defaulting party is
entitled to obtain from the defaulting party costs and expenses, including
reasonable attorney's fees, incurred in enforcing its rights under the
Merger Agreement.
IntraTel entered into an employment agreements with Kanstoroom and
Spezza, which will become effective May 1, 1997. The employment
agreements, which are identical, have a term of five years, provide for an
annual salary of $100,000 ("Base Salary"), with bonuses and salary
increases at the discretion of the Board of Directors. Each is to receive
benefits provided to other executives and employees of the Company, such as
medical, dental and disability insurance coverage, and in addition thereto,
a life insurance policy in the face amount of $1 million, payable to
beneficiaries other than IntraTel. If employment is terminated for any
reason after May 1, 1997, IntraTel is to provide each of Kanstoroom and
Spezza with medical and health benefits similar to that provided to other
executives of IntraTel for two years after termination of employment.
In the event of a merger or combination in which IntraTel is not a
surviving corporation, or the sale of all or substantially all of the
assets of IntraTel, Kanstoroom and Spezza have the right to exercise any
outstanding stock options, in whole or in part, or the right to elect to
have his stock options replaced
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with new stock options of the successor or acquiring company at the same
exchange ratio as that used for the exchange of shares held by shareholders
of IntraTel, with such new options having exercise rights and entitlements
at least equivalent to those available under the stock options with
IntraTel. In the event of any merger or combination in which IntraTel is
not the survivor, or the sale of substantially all of the assets of
IntraTel, each shall be entitled to receive new additional stock options
for the purchase of that number of such other corporation's shares which,
when multiplied by one times the book value per share of such other
corporation's shares immediately after the merger, combination or sale,
shall be equal to $2 million, the purchase price per share upon exercise of
such options shall be equal to the book value per share of such other
corporation's shares immediately after the merger, combination or sale, and
the other terms and conditions of such option shall be reasonably
equivalent to those stock options for the purchase of the shares held by
Kanstoroom and Spezza on July 1, 1997. If Kanstoroom and Spezza's
employment is terminated during the term of the employment agreement for
death, disability or by Kanstoroom or Spezza as provided for in the
agreement, in addition to the rights and options discussed above, each may
elect to exercise all options he then holds for the purchase of shares,
including options acquired pursuant to the provisions discussed above or he
may elect to require IntraTel to purchase from him all or part of the
shares then held by Kanstoroom or Spezza, including shares received and
shares to which he has become entitled to receive through options at a
price per share equal to the greater of the book value or the market
capitalization of IntraTel determined on the last day of the last month
proceeding the termination event, divided by the number of IntraTel shares
then issued and outstanding.
Following any acquisition, merger or combination in which IntraTel is
not a surviving corporation or is thereafter controlled by another
corporation, or the sale of all or substantially all of the assets of
IntraTel, if Kanstoroom's or Spezza's employment is terminated for any
reason, and if Kanstoroom or Spezza elects within sixty (60) days
thereafter, then IntraTel or its successor or acquiror shall purchase all
of Kanstoroom's or Spezza's shares in such entity, including all shares for
which he then has an option to purchase, at a price per share equal to the
greater of the market capitalization or book value of IntraTel, divided by
the number of IntraTel's shares then issued and outstanding.
Kanstoroom's or Spezza's employment may be terminated without breach
of the employment agreement in the event of the death, disability, or by
the employee for "Good Reason" or if his health becomes so impaired that
his continued performance of his duties would be hazardous to his physical
or mental health or his life, with such position supported by the written
statement of a qualified physician. For purposes of the agreement, "Good
Reason" means (i) a change in control of IntraTel (as defined); or (ii) a
failure by IntraTel to comply with any material provision of the employment
agreement which has not been cured within twenty (20) days after notice of
noncompliance provided to IntraTel.
If Kanstoroom's or Spezza's employment is terminated either by death
or disability, each is to receive his Base Salary, reduced in the case of
termination due to disability by amounts paid under a disability insurance
policy, until the expiration of the Severance Compensation Period. If
IntraTel terminates the employment for any reason other than death or
disability, or if Kanstoroom or Spezza terminates his employment for Good
Reason or impaired health then IntraTel shall pay the employee an amount
equal to the monthly salary payable to the employee pursuant to his Base
Salary multiplied by the number of months in the Severance Compensation
Period, with such payment to be made (i) if resulting from a termination
based on a change of control of IntraTel, in one lump sum on or before the
tenth day following the date of termination, or (ii) if resulting from any
other cause, in substantially equal monthly installments continuing until
the expiration of the Severance Compensation Period. If Kanstoroom or
Spezza terminates his employment for any reason other than pursuant to Good
Reason or impaired health, then IntraTel is not obligated to pay any amount
of Base Salary for periods subsequent to termination. The "Severance
Compensation Period" is the greater of (i) the remaining period of time, if
any, in the initial five (5) year term of the employment agreements or (ii)
an initial period of twenty-
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four (24) months which shall, on each anniversary of the effective date of
the employment agreement on which Kanstoroom or Spezza is an employee of
IntraTel, be increased by two (2) additional months.
The employment agreements provide that neither Kanstoroom nor Spezza
will not, without the consent of IntraTel, acquire a financial interest in
any outside business which competes with IntraTel, or which would give rise
to a material interference with Kanstoroom's or Spezza's allegiance to
IntraTel or with the employee's devotion of full time to IntraTel. In the
event of breach of this provision, or act or acts constituting proven
malfeasance involving dishonesty by Kanstoroom or Spezza which has a
material adverse impact upon IntraTel, IntraTel will be relieved of its
obligation to pay to Kanstoroom and Spezza any amount of Base Salary for
periods subsequent to the date of termination.
The employment agreements also contain confidentiality and trade
secret provisions, and two year non-competition and non-solicitation
provisions.
GOVERNMENT REGULATION
The Company's provision of telecommunications services is subject to
government regulation. Federal law regulates domestic interstate and
international telecommunications, and state law regulates
telecommunications that originate and terminate within the same state.
Furthermore, in February 1996, the President signed the 1996
Telecommunications Act, which affects both local and long distance
telecommunications.
THE 1996 TELECOMMUNICATIONS ACT. The President signed the 1996
Telecommunications Act into law in February 1996. The legislation is
designed to increase competition in both the local and long distance
telecommunications markets. The legislation opens the local markets by
requiring LECs to permit interconnection to their networks by long distance
and regional services providers and through creating LEC obligations
regarding unbundled access, dialing parity, access of rights-of-way,
resale, number portability, mutual compensation and other matters.
Additionally, the legislation codifies the LECs' equal access and
nondiscrimination obligations and preempts inconsistent state law. Through
these requirements, the legislation allows long distance and regional
services providers to enter the local services markets.
The legislation also removes the prohibitions against RBOCs providing
InterLATA long distance services. The new provisions allow a RBOC to
provide these services "out-of-region" (where it is not the LEC)
immediately after obtaining any state and/or federal regulatory approvals
necessary to the provision of long distance service. A RBOC may also
provide long distance service "in-region" after it obtains FCC approval by
showing that facilities-based competition is present in its market and that
it has entered into interconnection agreements which satisfy a 14-point
checklist of competitive requirements. The legislation defines in-region
service to include every state, in its entirety, in which the RBOC provides
local exchange service, even if the RBOC is not the incumbent local
exchange provider in all parts of that state.
The Company will face new competition from the RBOCs that are able to
obtain the required state or FCC approvals to provide in-region or
out-of-region InterLATA long distance services. However, the legislation
does establish certain safeguards to prevent anticompetitive abuse by RBOCs.
The legislation restricts the ability of RBOCs to market jointly InterLATA
long distance services together with local services. RBOCs may engage in
such efforts, only through separate subsidiaries with separate books and
records, management, financing and employees. RBOCs also may not package
local and long distance services unless they permit competitors to offer
similar packages. Moreover, RBOCs must obtain in-region long distance
authority before they may market local and long distance services jointly
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in a state. The adequacy of these safeguards against anticompetitive abuse
by RBOCs and any effect of such conduct on the Company cannot be
determined.
FEDERAL REGULATION. International non-dominant carriers must maintain
tariffs on file with the FCC. The tariffs of non-dominant carriers, such
as the Company, are presumed lawful and are seldom contested, although
those tariffs and the rates and charges they specify are subject to FCC
review. Prior to a 1995 court decision, domestic non-dominant carriers
were allowed by the FCC to file tariffs with a "reasonable range of rates"
instead of the detailed schedules of individual charges required of
dominant carriers. After such court decision, which required detailed rate
schedules for domestic offerings in their tariffs, the Company and most of
its competitors relied on the FCC's past practice of allowing relaxed
tariff filing requirements for non-dominant carriers and did not maintain
the required detailed rate schedules. Until the two-year statute of
limitations expires, the Company could be held liable for damages for its
failure to do so, although it believes that such an outcome is highly
unlikely and would not have an adverse effect on it. In order to recover
damages, a competing telecommunications provider would need to demonstrate
that the Company's failure to file detailed rate schedules caused that
other service provider to lose customers and that the Company should be
held liable for the damages. The possible extent of such damages, if any,
cannot be determined by the Company.
The FCC recently eliminated the requirement that nondominant
interstate carriers such as the Company file tariffs with the FCC for
domestic interstate services and such carriers, including the Company, must
withdraw tariffs filed with the FCC to the extent such tariffs apply to
interstate services. The FCC also requested public comment on whether any
other regulations presently imposed on nondominant carriers be eliminated.
It is not known when the FCC will act on this proposal.
AT&T was previously classified as a dominant carrier, but the FCC in
October 1995 granted AT&T nondominant status in the domestic market. As a
result, past price cap restrictions on AT&T's service to residences and
small businesses have been terminated, which could result in greater price
competition for the Company. Moreover, the FCC also now allows AT&T to
file effective tariffs on one day's notice, thereby limiting competitors'
previous ability to protest such tariffs.
Among domestic local carriers, only the current LECs are presently
classified by the FCC as dominant carriers for the provision of interstate
access services. This means that the FCC regulates many of the LECs'
rates, charges and services to a larger degree than the Company's. The
FCC's regulation of LECs is expected to decrease over time, especially
given the 1996 Telecommunications Act. The FCC has proposed that RBOCs
that provide out-of-region long distance services be regulated as
nondominated carriers.
STATE REGULATION. The intrastate long distance operations of the
Company are also subject to various state laws and regulations, including
prior certification, notification and registration requirements. The vast
majority of states require the Company to apply for certification to
provide intrastate telecommunications services, or at least to register or
be found exempt from regulation, before commencing intrastate services.
Most states also require the Company to file and maintain detailed tariffs
listing their rates for intrastate service. Many states also impose
various reporting requirements and/or require prior approval for transfers
of control of certified carriers, assignment of carrier assets, including
customer bases, carrier stock offerings and incurrence by carriers of
significant debt obligations. Certificates of authority can generally be
conditioned, modified, cancelled, terminated or revoked by state regulatory
authorities for failure to comply with state law and/or the rules,
regulations and policies of the state regulatory authorities. Fines and
other penalties may also be imposed for such violations.
-10-
<PAGE>
The Company provides interstate and international long distance
service in all or some portions of 50 states for which the Company has
filed a tariff with the FCC. The Company is authorized, pursuant to state
regulations, certifications, tariffs or notifications or on an unregulated
basis, to provide intrastate service in 42 states and is in the process of
obtaining approvals in 4 additional states. The Company expects to obtain
authority to operate in each jurisdiction where authority is required, but
there can be no assurance that one or more of these jurisdictions will not
deny the Company's request for operating authority.
EMPLOYEES
As of December 31, 1996, the Company had ten (10) full time employees,
including David Kanstoroom, the Company's Chief Executive Officer, and
David Spezza, the Company's President.
ITEM 2. PROPERTIES.
- ------------------
The Company leases its office space and some of its office equipment
under noncancellable operating leases expiring in various years ranging
through 2000. These leases generally require the Company to pay insurance,
taxes, and other expenses related to the leased property. The Company's
executive offices consist of 2,036 square feet located at 28050 U.S. 19
North, Suite 202, Clearwater, Florida 34621. Monthly payments on leased
office space is approximately $2,300 per month. The lease runs through the
year 2000.
ITEM 3. LEGAL PROCEEDINGS.
- --------------------------
The Company is not involved in any legal proceedings as of the date of
this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------------------------------------------------------------
On September 10, 1996, the Company's shareholders approved the Stock
Exchange Agreement between Three-L Enterprises and Intelicom International
Corporation. The shareholders also approved a name change to Intelicom
Corporation to more adequately reflect its current business and the
appointment of David A. Kanstoroom and David Spezza as new Officers and
Directors.
-11-
<PAGE>
PART II
--------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ---------------------------------------------------------------------
MATTERS.
- -------
(a) PRINCIPAL MARKET OR MARKETS. The Company's Common Stock has not
traded in the over-the-counter market and is not listed in the NASDAQ
Small-Cap Market System.
HIGH LOW
---- ---
1995
----
First Quarter No quote No quote
Second Quarter No quote No quote
Third Quarter No quote No quote
Fourth Quarter No quote No quote
1996
----
First Quarter No quote No quote
Second Quarter No quote No quote
Third Quarter No quote No quote
Fourth Quarter No quote No quote
On December 31, 1996, there was no trading market for the Registrant's
Common Stock.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of
record owners of the Company's Common Stock at December 31, 1996, was
approximately 88. This does not include shareholders who hold stock in
their accounts at broker/dealers.
(c) DIVIDENDS. Holders of Common Stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's Common Stock and no
dividends are anticipated to be paid in the foreseeable future.
-12-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
- --------------------------------------------------------------------
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT
OF 1934. SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THIS SECTION AND
UNDER "ITEM 1. DESCRIPTION OF BUSINESS." ACTUAL EVENTS OR RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS
A RESULT OF VARIOUS FACTORS.
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS
REPORT.
OVERVIEW
Intelicom was founded in 1992, with operations beginning in 1993.
Intelicom has financed their growth primarily with cash flow from
operations. Intelicom has increased revenues through its attainment of
marketing agreements with several telecommunication carriers, expanding its
sales representative force and its attention to customer service. In
September of 1995, Intelicom began buying wholesale long distance services
which it resells to customers under its own name (private label products
and services).
The Company is experiencing continued growth in revenues from
operations due to the introduction of its own private label
telecommunications products and services, thereby allowing the Company to
bill and collect directly from its customers for telecommunications
services rather than merely receiving commissions from other
telecommunications carriers for services provided by those other carriers.
The Company also has experienced increased profitability as a result of its
own private label billing and collection since it has been acting in the
role of an actual telecommunications carrier which buys and resells
telecommunications services. Through its strategy of continued growth
through expansion of its agent network, the Company expects to continue to
generate significant savings in its transport costs by achieving volume
discounts from its underlying carriers. In addition, the Company
experienced streamlined and efficient service to its customers through its
ability to bill and collect directly from its customers, thereby generating
enhanced customer loyalty and lowering customer attrition. Finally, the
Company has complemented its own private label billing and collection with
the continued availability of products and services of other major carriers
on a sales agency basis, thereby affording the Company the opportunity to
attract and retain customers by providing a diverse array of
telecommunications products and services. It is anticipated that these
factors, combined with the Company's stated goal of continuing to attract
and train highly qualified individuals to serve as sales agents and
consultants, will provide significantly increased potential for growth in
revenues and operating profit.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996, COMPARED TO THE YEAR ENDED
- ----------------------------------------------------------------
DECEMBER 31, 1995
- -----------------
Revenue from operations for the year ended December 31, 1996 ("1996"),
was approximately $2,019,000, compared to approximately $1,687,000 for the
year ended December 31, 1995. This represents a 20% or approximately
$332,000 increase over revenues for 1995. This increase in revenues was
mainly attributable to increases in commissions revenues of approximately
$283,000 or 18% over the 1995 amounts. This increase was due to the
Company adding additional qualified sales representatives, increased
efforts on the part of management to stimulate sales production from its
sales representatives. The increase in long distance revenues is due to
the sales from its own private label long distance programs initiated in
1996 by the Company. The decrease in fee revenue is due to the Company
waiving certain fees in 1996 to attract new sales representatives as well
as promote additional sales among
-13-
<PAGE>
current sales representatives. Intelicom received approximately 9.7% of
its total revenues from various fees received from its sales
representatives and long distance sales.
The gross margin decreased 5.7% from 43.8% in 1995 to 38.1% in 1996.
The 1996 gross margin was negatively impacted due to the lower margin on
reseller and long distance costs due to certain start up costs and fixed
costs which were absorbed by the Company as these programs were initiated.
The Company paid commissions to sales people of approximately $1,145,000 in
1996 compared to approximately $926,000 in 1995 representing an increase of
approximately 18%. The gross margin on commissions decreased from 40% in
1995 to 37% in 1996. This decrease was due to the Company having increased
its incentives to its sales representatives to earn greater commissions in
1996 as well as increased sales volume by certain representatives allowing
for increases in the rate of commissions on their revenues. Management
believes the sales representative commissions will decrease as a percentage
of net revenues in future periods as a result of Intelicom revenues being
earned more from offering its own long distance product to end-users.
Selling and marketing expenses were approximately $104,000 for 1996 as
compared to approximately $169,000 for 1995, a decrease of 38%. This
decrease was mainly due to Intelicom incurring significant travel and
marketing costs associated with recruiting the expanded sales
representative force and consummating the cost effective marketing and
consulting agreements with its long distance providers in 1995. These
costs were not incurred at such significant levels in 1996 due to the 1995
efforts.
General and administrative expenses were approximately $579,000 for
1996 compared to approximately $491,000 in 1995, an increase of 20%.
Increases in general and administrative expenses were mainly due to the
significant increases in certain Officer salary amounts during 1996.
During 1995, the Officers of the Company took minimal salaries which were
adjusted to market rates during 1996.
The Company had net other income of approximately $9,500 for 1996 with
approximately $3,700 for 1995. The 1996 amounts were favorably impacted
due to additional interest earned on higher cash balances maintained during
1996 in interest bearing accounts.
Income taxes for 1995 include a tax provision reflecting a change in
the Company's tax status from an S-Corporation to a C-Corporation of
$27,500. See Note 5 of the Notes to the Financial Statements.
Net income for 1996 was approximately $81,000 as compared to
approximately $48,000 for 1995. The increase in net income was
attributable to the $27,500 charge to income taxes in 1995 related to the
change in tax status as well as increased income from commissions sales
during the year. Pro forma net income for 1996 was approximately $81,000
for 1996 compared to approximately $62,000 for 1995. The increase in pro
forma net income is mainly due to an increase in sales volume during the
year. The increase in pro forma net income resulted in an increase in pro
forma earning per share from $.04 in 1995 to $.06 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Intelicom's cash position at December 31, 1996 was approximately
$188,000 and net working capital was approximately $250,000. Intelicom's
agency agreements with its three primary long distance carriers result in
Intelicom's commission revenues being paid based on billed revenue
regardless if end-users pay bills to the carriers, thus improving
Intelicom's working capital. Intelicom has no charge
-14-
<PAGE>
backs, or pay backs on accounts that are delinquent or written off as bad
debt from its two primary carriers.
Net cash outflows from investing activities for the year ended
December 31, 1996 totaled approximately $16,000. This amount was mainly
due to the acquisition of equipment as well as the purchase on an
investment during 1996.
Net cash inflows from financing activities for the year ended December
31, 1996 totaled approximately $117,000, which is primarily the result of
net repayments of shareholder loans/advances offset by the cash proceeds
received from the acquisition of Three-L Corporation in exchange for 100%
of the Company's outstanding stock in September 1996.
The Company believes that available cash, together with funds expected
to be generated from operations, will be sufficient to finance the
Company's working capital requirements as well as planned capital additions.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 is designed to modify the earnings per
share information provided in financial statements by simplifying existing
computational guidelines, revising the disclosure requirements, and
increasing the comparability of earnings per share data on an international
basis. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. Early
application is not permitted. Management is currently assessing the impact
of SFAS No. 128 on the Company's presentation of earnings per share data.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
Please see Part IV, page F-1 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
In March 1997, Coopers & Lybrand LLP was selected to replace Schmidt
& Associates LLP as the Company's independent public accountants. Schmidt
& Associates LLP performed the Company's audit for the years ended December
31, 1995 and 1996. The decision to dismiss Schmidt & Associates LLP was
recommended by the Board of Directors. This decision was not based on any
disagreement with Schmidt & Associates LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of
Schmidt & Associates LLP, would have caused it to make reference to the
subject matter of the disagreement in connection with its report. Schmidt
& Associates LLP's report did not contain an adverse or a disclaimer of
opinion for either of the Company's fiscal years ended December 31, 1995 or
1996.
-15-
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
(a)(b) IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES.
The following sets forth certain information with respect to the
officers and directors of the Company as of December 31, 1996.
Name Age Position
---- --- --------
David A. Kanstoroom (1)(2) 32 President, Chief Executive Officer
and a Director since 1996
David Spezza (1)(2) 32 Secretary, Treasurer, Chief
Financial Officer and
a Director since 1996
___________________________
(1) Elected officers and directors of the Company on July 3, 1996.
(2) Subsequent to year end and pursuant to the Merger Agreement referred
to elsewhere in this Report, Mr. Robert E. Yaw II, Charles R. Brink,
William F. Wolff and Benjamin W. Bronston were appointed Directors of
the Company.
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of the Company are elected by the
Board of Directors and hold office until their successors are elected and
qualified.
The Company has no audit or compensation committee.
Biographical information concerning each director and executive
officer, including business experience for the past five years is as
follows:
DAVID A. KANSTOROOM has served as an officer and director of the
Company from September 1996 to date. From 1992 to 1996, he served as a
director and chief executive officer of Intelicom International Corporation
of Clearwater, Florida. From 1987 to 1992, he was employed by
International Business Machines as a senior marketing consultant where he
was responsible for consulting with IBM's national customers and training
new customer support representatives. Mr. Kanstoroom received B.S.B.A.
degrees in Business and Computer Science from the University of Florida in
1987. Mr. Kanstoroom devotes full time to the business of the Company.
DAVID SPEZZA has served as an officer and director of the Company from
September 1996 to date. Mr. Spezza is involved in the long distance
services offered by the Company. From 1992 to 1996, Mr. Spezza was a
director and president of Intelicom International Corporation of
Clearwater, Florida. From 1987 to 1992, he was employed with Arthur
Andersen & Co. in New York in the tax department. Mr. Spezza received an
accounting degree from Hofstra University in New York in 1987. Mr. Spezza
devotes full time to the business of the Company.
-16-
<PAGE>
(c) FAMILY RELATIONSHIPS.
There are no family relationships between or among any officer and
director.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No officer, director, significant employee, promoter or control person
of the Company has been involved in any event of the type described in Item
401(d) of Regulation S-B during the past five years.
ITEM 10. EXECUTIVE COMPENSATION.
- --------------------------------
(a)(b) GENERAL AND SUMMARY COMPENSATION TABLE.
The following table sets forth all compensation paid or accrued by the
Company for services rendered during the fiscal years ended December 31,
1994, 1995 and 1996 by its Chief Executive Officer. No other executive
officers received a salary and other compensation which exceeded $100,000
during any year.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------- --------------------------------------------
Name and Restricted
Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary Bonuses($) Compensation Awards SARS Payouts($) Compensation
-------- ---- ------ ---------- ------------ ----- ---- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David A. Kanstoroom 1996 $72,912 $41,344 $ -0- -0- -0- -0- -0-
President and 1995 N/A -0- $ -0- -0- -0- -0- -0-
Chief Executive 1994 N/A -0- $ -0- -0- -0- -0- -0-
Officer
David Spezza 1996 $72,912 $43,067 $ -0- -0- -0- -0- -0-
Treasurer and 1995 N/A -0- $ -0- -0- -0- -0- -0-
Chief Financial 1994 N/A -0- $ -0- -0- -0- -0- -0-
Officer
</TABLE>
(c) OPTION/SAR GRANTS TABLE.
There were no options to purchase shares of Common Stock granted to
the Executive Officers of the Company listed in the Executive Compensation
Table during the Company's last fiscal year.
(d) AGGREGATED OPTION/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR
VALUE TABLE.
Not applicable.
(e) TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
(f) COMPENSATION OF DIRECTORS.
STANDARD ARRANGEMENTS. All Directors are reimbursed for reasonable
out-of-pocket expenses incurred related to Board duties assigned and in
connection with attending Board and Shareholders' meetings.
-17-
<PAGE>
OTHER ARRANGEMENTS. There are no other arrangements pursuant to which
the Company's Directors receive compensation from the Company for services
as Directors.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS.
None.
(h) REPORTING ON REPRICING OF OPTIONS/SARS.
Not Applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -----------------------------------------------------------------------
(a)(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of December 31, 1996 the ownership
of the Company's Common Stock by (i) each Director of the Company, (ii) all
Executive Officers and Directors of the Company as a group, and (iii) all
persons known by the Company to own more than 5% of the Company's Common
Stock.
Beneficial Ownership (1)
-------------------------
Name Number of Shares Percentage
---- ---------------- ----------
David A. Kanstoroom 473,563 31%
28050 U.S. Highway 19 North
Suite 202
Clearwater, Florida 34621
David Spezza 473,563 31%
28050 U.S. Highway 19 North
Suite 202
Clearwater, Florida 34621
Telcom Venture & Acquisition Corp. 473,563 31%
3900 North Causeway Blvd.
Metairie, Louisiana 70002
All Directors and Officers 947,126 62%
as a Group (2 persons)
_________________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but are not deemed outstanding for
the purpose of calculating the percentage owned by each other person
listed.
-18-
<PAGE>
(c) CHANGES IN CONTROL.
Except as noted elsewhere in this Report, there exists no
understandings, arrangements or agreements are known by management at this
time which would result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
(a)(b) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
As part of its Independent Agent Agreement with its sales
representatives, as of December 31, 1996 the Company has a 2% revenue
sharing pool that its representatives can qualify to share in if they meet
certain production requirements. Three shares of the 2% revenue sharing
pool are irrevocably reserved each month for two Officers and Directors of
the Company, David A. Kanstoroom and David Spezza.
(c) PARENTS OF THE REGISTRANT.
Herman K. Watsky, the Company's former President, David A. Kanstoroom
and David Spezza, current Officers and Directors, may be deemed to be the
parents of the Company.
(d) TRANSACTIONS WITH PROMOTERS.
Information required by Item 404 of Regulation S-B is not required to
be presented inasmuch as the Company has been organized for more than five
years.
(e) COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors and Officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish the Registrant with copies of all
Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms
received by it during the fiscal year ended December 31, 1996, and written
representations that no other reports were required, the Company believes
that each person who, at any time during such fiscal year, was a director,
officer or beneficial owner of more than 10% of the Company's Common Stock
complied with all Section 16(a) filing requirements during such fiscal year
or prior fiscal year.
-19-
<PAGE>
PART IV
-------
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS. The following financial statements are filed as
part of this report:
Page
----
Reports of Independent Certified Public
Accountants . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets - December 31, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the years
ended December 31, 1996 and 1995 . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996 and 1995 . F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1995 . . . . . . . . F-5
Notes to Consolidated Financial Statements. . . . F-6 - F-12
All Schedules are omitted because they are not required, inapplicable,
or the information is included in the financial statements or notes
thereto.
(3)(a) EXHIBITS.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by
the Company during the last quarter of the period covered by this
report.
-20-
<PAGE>
INTRATEL GROUP, LTD. AND SUBSIDIARY
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
TABLE OF CONTENTS
PAGES
Report of Independent Accountants F-1
Financial Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Consolidated Notes to Financial Statements F-6 - F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
IntraTel Group, Ltd.
Clearwater, Florida
We have audited the accompanying consolidated balance sheets of IntraTel
Group, Ltd. (formerly Three-L Enterprises, Inc. and Intelicom Corporation)
and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of IntraTel Group, Ltd. and subsidiary as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows
for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
April 1, 1997
F-1
<PAGE>
INTRATEL GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS 1996 1995
Current assets:
Cash $ 188,365 $ 43,639
Investments 1,180 0
Accounts receivable 308,633 261,797
Prepaid expenses 109 5,000
---------- ----------
Total current assets 498,287 310,436
---------- ----------
Property and equipment:
Furniture and equipment 64,529 55,459
Accumulated depreciation (27,565) (15,943)
---------- ----------
Net property and equipment 36,964 39,516
---------- ----------
Other assets:
Deposits 10,000 10,000
---------- ----------
Total assets $ 545,251 $ 359,952
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,376 $ 18,266
Accrued expenses 199,491 178,762
Current portion of long-term debt 0 2,980
Notes payable - shareholders 0 6,091
Income tax payable 15,000 7,000
Current deferred tax liability 22,500 18,000
---------- ----------
Total current liabilities 248,367 231,099
Deferred tax liability 10,000 9,500
---------- ----------
Total liabilities 258,367 240,599
---------- ----------
Commitment and Contingencies (Note 3)
Stockholders' equity:
Preferred stock, $.0001 par value
(25,000,000 shares authorized,
none issued and outstanding) 0 0
Common stock (100,000,000 shares
authorized, 1,527,620 and 1,420,687
shares issued and outstanding
at $.0001 par value) 153 142
Additional paid-in capital 205,943 119,211
Retained earnings 80,788 0
---------- ----------
Total stockholders' equity 286,884 119,353
---------- ----------
Total liabilities and
stockholders' equity $ 545,251 $ 359,952
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
INTRATEL GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996 and 1995
1996 1995
Revenues:
Commissions $1,823,453 $1,540,850
Long distance 73,095 0
Fees 122,850 146,461
---------- ----------
Total revenues 2,019,398 1,687,311
---------- ----------
Cost of sales:
Commission expense 1,145,054 925,693
Reseller and other costs 92,487 22,756
---------- ----------
Total cost of sales 1,237,541 948,449
---------- ----------
Gross profit 781,857 738,862
Operating expenses:
Selling and marketing 104,167 169,092
General and administrative 579,420 490,547
---------- ----------
Total operating expenses 683,587 659,639
---------- ----------
Income from operations 98,270 79,223
---------- ----------
Other income (expense):
Interest income 9,859 3,810
Interest expense (341) (67)
---------- ----------
Total other income (expense) 9,518 3,743
---------- ----------
Income before income taxes 107,788 82,966
Income tax provision 27,000 34,500
---------- ----------
Net income $ 80,788 $ 48,466
========== ==========
Net income per share $ 0.06
==========
Average common shares outstanding 1,452,913
==========
Pro forma income data:
Income before income taxes $ 82,966
----------
Pro forma provision for income
taxes relating to S corporation (13,500)
Actual provision for income taxes 34,500
----------
Total provision and pro forma
provision for income taxes 21,000
----------
Pro forma net income $ 61,966
==========
Pro forma net income per share $ 0.04
==========
Pro forma average shares outstanding 1,420,687
==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
INTRATEL GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------------- Paid-in Retained --------------------
Shares Amount Capital Earnings Shares Amount
-------- -------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 1,729,532 $142 $ 2,158 $ 104,256 (308,845) $ (4,000)
Recapitalization on merger
with Intelicom
International on
December 4, 1995 (308,845) 0 (2,158) (1,842) 308,845 4,000
Net income 0 0 0 48,466 0 0
Distributions paid to
stockholders 0 0 0 (31,669) 0 0
Change in tax status from
an S corporation to a
C corporation 0 0 119,211 (119,211) 0 0
--------- -------- --------- --------- --------- ---------
Balance,
December 31, 1995 1,420,687 142 119,211 0 0 0
Reverse acquisition
of Three-L 106,933 11 86,732 0 0 0
Net income 0 0 0 80,788 0 0
--------- -------- --------- --------- --------- ---------
Balance,
December 31, 1996 1,527,620 $ 153 $ 205,943 $ 80,788 0 $ 0
========= ======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
INTRATEL GROUP, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $ 80,788 $ 48,466
Adjustment to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 11,622 9,305
Bad debt expense 2,111 1,492
Unrealized loss on investments 5,820 0
Deferred tax liability 5,000 27,500
(Increase) in accounts receivable (48,947) (82,341)
(Increase) decrease in prepaid
expenses 4,891 (5,000)
(Increase) in deposits 0 (10,000)
Increase (decrease) in accounts
payable (46,027) 12,772
Increase in accrued expenses 20,729 38,574
Increase in income tax payable 8,000 7,000
---------- ----------
Net cash provided by
operating activities 43,987 47,768
---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment (9,070) (14,045)
Purchase of investment (7,000) 0
Payment received on note 0 2,223
---------- ----------
Net cash used in
investing activities (16,070) (11,822)
---------- ----------
Cash flows from financing activities:
Payments on notes payable -
shareholders (13,591) (32,372)
Borrowing from shareholders 0 30,239
Borrowing from note payable 0 2,980
Payment on note payable (2,980) 0
Distributions to shareholders 0 (31,669)
Proceeds from merger 133,380 0
---------- ----------
Net cash provided by (used in)
financing activities 116,809 (30,822)
---------- ----------
Net increase in cash 144,726 5,124
Cash, beginning of year 43,639 38,515
---------- ----------
Cash, end of year $ 188,365 $ 43,639
========== ==========
Cash paid during the year for:
Interest $ 341 $ 67
========== ==========
Income taxes $ 14,109 $ 0
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
INTRATEL GROUP, LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION - Intelicom Corporation was
incorporated under the laws of the State of Florida in November 1992,
and began conducting business in 1993. The officers and directors
approved the merger of Intelicom Corporation and Intelicom
International Corporation effective December 4, 1995. Intelicom
International Corporation did not have any business activities until
its tax free merger with Intelicom Corporation in December of 1995.
On September 12, 1996, Three-L Corporation (Three-L) acquired 100% of
the stock of Intelicom International Corporation in exchange for
1,420,687 shares (93%) of stock in Three-L. As a result of the
transaction, Intelicom International was merged with Three-L. The
transaction is treated for accounting purposes as a reverse
acquisition whereby Intelicom International Corporation acquired
Three-L. The net assets of Three-L received by Intelicom
International Corporation as a result of this transaction were as
follows:
Cash $ 133,380
Accounts payable (39,137)
Notes payable (7,500)
----------
$ 86,743
==========
Accordingly, the financial statements presented herein represent the
accounts of Intelicom International for all periods presented and
those of the acquired entity from September 12, 1996. Based on this
transaction being considered a capital stock transaction and not a
business combination, no pro forma information of Three-L is
presented. In connection with the merger, Three-L changed its name to
Intelicom Corporation (the Company). In connection with the reverse
acquisition, Three-L had entered into a finder's fee agreement with a
telecommunications consulting firm. Three-L issued 30,552 shares of
Three-L common stock once the business combination was consummated.
Also, in connection with the reverse acquisition with Three-L,
historical stockholders' equity prior to the merger was retroactively
restated for the equivalent number of shares received in the
transaction with any difference between the par value of Three-L's and
Intelicom International's stock recorded with an offset to additional
paid-in capital. See Subsequent Event (Note 11) for discussion of
agreement of merger and name change to IntraTel Group, Ltd. effective
April 1, 1997.
DESCRIPTION OF BUSINESS - The Company's primary business purpose prior
to September 1995 was to market telecommunication services for other
companies. In September 1995, the Company began buying wholesale long
distance services, which it resells to customers under its own name,
in addition to continuing to market other companies' services. The
Company receives revenue from carriers of long distance whose services
it markets, and also assists some carriers in collection efforts. In
September 1995, the Company began receiving revenue from private
individuals and companies for the sale of its own services.
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Intelicom Corporation and its wholly-owned
subsidiary, Intelicom International Corporation. All significant
intercompany transactions and balances have been eliminated in
consolidation.
INCOME TAXES - The Company had elected to be taxed as a "small
business corporation" under the provisions of Subchapter S of the
Internal Revenue Code. However, as a result of the merger discussed
above between Intelicom Corporation and Intelicom International
Corporation, the S corporation status of the Company terminated on
December 4, 1995. Prior to such termination, the Company did not have
any federal or state income tax liabilities and its stockholders were
subject to income tax liabilities based on their respective interests
in the Company's taxable income.
The Company is subject to the provisions of Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" (SFAS
No. 109). Under the liability method prescribed by SFAS No. 109,
deferred income taxes will reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and carrying amounts for income tax
purposes. The change in entity status in 1995 from an S corporation
to a C corporation resulted in the Company recording a deferred tax
liability of $27,500 to reflect the tax effect of the cumulative
liability associated with temporary differences reversing in the
future. This adjustment was not reflected in the previously issued
financial statements. The 1995 balances have been restated to reflect
this adjustment.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line
method over the following estimated useful lives: furniture, fixtures
and equipment - 7 years; computer equipment - 5 years. Upon disposal,
the related cost and accumulated depreciation are removed from the
accounts, with the resulting gain or loss included in income.
MARKETABLE SECURITIES - The Company's short-term investments are
classified as trading securities as defined by Statement of Financial
Accounting Standard (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." These investments consist
of certain equity securities at December 31, 1996 and are stated at
estimated fair value based upon market quotes. Pursuant to SFAS No.
115, any unrealized gains and losses on such securities are reflected
in current year earnings.
TREASURY STOCK - Treasury stock is stated at cost.
ADVERTISING - Advertising costs are expensed as incurred.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Estimates
also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of cash and trade receivables. The Company
maintains substantially all of its cash investments with what it
believes to be high credit quality financial institutions. The
Company's credit concentrations are limited due to the credit
worthiness of the customers with whom business is transacted.
NEW ACCOUNTING PRONOUNCEMENTS - In February 1997, the Financial
Accounting Standards Board issued SFAS (SFAS) No. 128, "Earnings Per
Share," which is effective for periods ending after December 15, 1997.
This statement establishes standards for computing and presenting
earnings per share data. The Company is currently assessing the
impact of SFAS No. 128 on the Company's presentation of earnings per
share.
RECLASSIFICATIONS - Certain 1995 amounts have been reclassified to
conform with current year presentation.
2. MARKETABLE SECURITIES:
The Company currently invests in certain equity securities which it
classifies as trading securities. The investments are recorded at
fair market value with any differences between fair market value and
cost recorded in current year earnings. Unrealized losses on
investments at December 31, 1996 totaled $5,820.
3. ACCRUED EXPENSES:
Accrued expenses consisted of the following at December 31:
1996 1995
Commissions payable $ 187,729 $ 163,623
Wages payable 7,513 11,562
Other 4,249 3,577
---------- ----------
$ 199,491 $ 178,762
========== ==========
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED:
4. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following at December
31, 1996 and 1995:
1996 1995
-------- --------
Notes payable to shareholders,
non-interest bearing,
payable on demand $ 0 $ 6,091
Note payable to bank, interest at 18%,
monthly payments of $268 including
interest, due in 1996, collateralized
by computer equipment 0 2,980
---------- ----------
0 9,071
Less current portion 0 (9,071)
---------- ----------
$ 0 $ 0
========== ==========
5. INCOME TAXES:
Prior to the merger and change in tax status described in Note 1, the
Company had elected to be taxed as an S-Corporation, whereby the
Company did not have any federal or state income tax liabilities, and
its stockholders were subject to income tax based on their respective
interests in the Company. The cumulative effect of such change in tax
status as of December 4, 1995 was to decrease 1995 income by $27,500.
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of the assets and liabilities
for financial reporting purposes and income tax purposes. The
components of the Company's deferred tax liabilities are as follows:
DECEMBER 31, DECEMBER 31,
1996 1995
---------- ----------
Deferred tax liabilities:
Current:
Change in revenue recognition
from accrual to cash $ 22,500 $ 18,000
---------- ----------
Net current deferred tax
liabilities 22,500 18,000
---------- ----------
Non-current:
Fixed asset basis differences 10,000 9,500
---------- ----------
Net non-current deferred
tax liability 10,000 9,500
---------- ----------
$ 32,500 $ 27,500
========== ==========
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INCOME TAXES, CONTINUED:
The components of the provision for income taxes are as follows:
DECEMBER 31, DECEMBER 31,
1996 1995
---------- ----------
Current:
Federal $ 18,000 $ 5,100
State 4,000 1,900
---------- ----------
22,000 7,000
---------- ----------
Deferred:
Federal 4,000 22,000
State 1,000 5,500
---------- ----------
5,000 27,500
---------- ----------
$ 27,000 $ 34,500
========== ==========
A reconciliation of the effective income tax rate is as follows:
DECEMBER 31, DECEMBER 31,
1996 1995
---------- ----------
Statutory federal income $ 36,648 $ 28,208
State taxes 4,300 0
S corporation income not subject
to tax 0 (16,400)
Graduated rate (13,948) (4,808)
SFAS No. 109 change in entity status 0 27,500
---------- ----------
Effective income tax rate $ 27,000 $ 34,500
========== ==========
6. RELATED PARTY TRANSACTIONS:
The Company received working capital advances and loans from the
Corporation's shareholders. The Company has advanced funds to its
shareholders for the formation of two other related entities,
Intelisoft and Intelicom International (before the December 4, 1995
merger) for formation costs and the development of computer software.
There are no other transactions with these entities.
As part of its Independent Agent Agreement with its sales
representatives, the Company has a 2% revenue sharing pool that its
representatives can qualify to share in if they meet certain
production requirements. Three shares of the 2% revenue sharing pool
shall be irrevocably reserved for the original founding members of the
Intelicom Corporation, with such shares being allocated among the
founding members in accordance with the policies as established by the
board of directors. The rights to such shares shall be irrevocably
vested in and to the founding members after two years of full-time
employment. The founders waived any right to any revenue sharing
through December 31, 1995. During 1996, the founders were paid
approximately $105,000 from the revenue sharing pool.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. STOCKHOLDER'S EQUITY:
The Company issued an underwriter warrants to purchase 3,238 shares
of common stock, which will be exercisable for a period of four years,
commencing one year from the date of closing the initial public
offering of Three-L, which was April 13, 1995, at an exercise price
of $6.30 per share, subject to adjustment in certain events. The
shares underlying the warrants are subject to piggyback registration
rights, expiring seven years after the effective date of the offering.
8. MAJOR CARRIER RELATIONSHIPS:
During 1996 and 1995, the Company received a substantial portion of
its commission revenues from two major telecommunication carriers.
During 1996 and 1995, commissions from these two carriers aggregated
approximately $1,206,000 and $1,299,000, respectively. At December
31, 1996 and 1995, commissions due from those carriers included in
accounts receivable were approximately $250,000 and $228,000,
respectively.
9. PRO FORMA DISCLOSURES:
PRO FORMA NET INCOME - The Company had elected to be treated as an S
corporation for income tax purposes, whereby the federal and state
income tax liabilities were recognized by its stockholders based on
their respective interests in the Company's taxable income. In
connection with the merger of Intelicom and Intelicom International
on December 4, 1995, the Company terminated its S corporation election
and accordingly became subject to federal and state income taxes. The
unaudited incremental pro forma provision for income taxes reported
on the consolidated statements of income (reduced by the one-time
charge associated with the change in entity status which was reflected
in the actual tax provision) approximates federal and state income
taxes (by applying statutory income tax rates) that would have been
incurred if the Company had been subject to tax as a C corporation.
PRO FORMA NET INCOME PER SHARE - Pro forma primary net income per
share is computed by dividing pro forma net income by the weighted
average number of shares outstanding during the period. For all
periods presented, the weighted average number of shares presented
represents the number of shares outstanding subsequent to the reverse
acquisition with Three-L discussed above for all periods presented.
10. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES - The Company leases its office space and some of its
office equipment under noncancelable operating leases expiring in
various years through 2000. These leases generally require the
Company to pay insurance, taxes and other expenses related to the
leased property.
Several of the equipment leases contain options to purchase the leased
equipment at fair market value upon expiration of the lease.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS AND CONTINGENCIES, CONTINUED:
Future minimum lease payments under these operations leases are
approximately as follows as of December 31:
1997 $ 35,000
1998 36,000
1999 37,000
2000 32,000
---------
$ 140,000
=========
Rent expense for all operating leases was approximately $38,000 and
$47,000 during 1996 and 1995, respectively.
LEGAL PROCEEDINGS - The Company was involved in litigation with a
computer software company related to a contract dispute. In June
1996, the Company reached a settlement with the computer software
company in which the Company agreed to pay $10,000.
11. SUBSEQUENT EVENT:
Subsequent to year-end, certain officers and directors ("Selling
Shareholders") entered into a Stock Purchase Agreement with IntraTel
Acquisition Company, Inc. ("IntraTel") pursuant to which the Selling
Shareholders agreed to sell a total of 365,694 shares of the Company's
common stock to IntraTel in consideration of a total of $1,200,000 in
cash and secured promissory notes and certain other contingent
consideration.
IntraTel and the Selling Shareholders also entered into a Pledge
Agreement which granted the Selling Shareholders a security interest
and lien on the 365,694 shares of the Company's common stock sold to
IntraTel. IntraTel also granted the Selling Shareholders an
irrevocable proxy to vote the shares of the Company's common stock in
their sole and absolute discretion until the remaining payment of the
secured promissory notes required by the Stock Purchase Agreement has
been made. To facilitate the merger discussed below, Telecom Venture
& Acquisition Corp., a principal shareholder, for no consideration,
executed a letter of intent dated January 23, 1997 to return to the
Company's treasury 182,847 shares of the Company's common stock.
Simultaneously with the execution of the Stock Pledge Agreement and
related documents between IntraTel and the Selling Shareholders,
IntraTel and the Company entered into an Agreement of Merger (the
"Merger Agreement") effective April 1, 1997, providing for the merger
of IntraTel with and into the Company, and the eventual change of the
Company's name to IntraTel Group, Ltd. The Merger Agreement provides
that the issued and outstanding shares of the Company as of the
effective date of the merger will not be affected, and the current
shareholders of IntraTel will surrender their shares of IntraTel (a
total of 2,000 shares) in exchange for 1,631,626 shares of the Company
less that number of shares which are required to satisfy IntraTel's
obligations to issue equity to certain investors of IntraTel. The
Merger Agreement was unanimously approved by the Company's
shareholders and the Certificate of Merger was filed with the Delaware
Secretary of State's office on April 1, 1997.
F-12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INTRATEL GROUP, LTD.
Dated: May 9, 1997 By /s/ CHARLES R. BRINK
--------------------------------
Charles R. Brink
By /s/ ROBERT E. YAW II
--------------------------------
Robert E. Yaw II
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Charles R. Brink President and Director May 9, 1997
- ---------------------------
Charles R. Brink
/s/ Robert E. Yaw II Director May 9, 1997
- ---------------------------
Robert E. Yaw II
/s/ David A. Kanstoroom Director May 9, 1997
- ---------------------------
David A. Kanstoroom
/s/ David A. Spezza Director May 9, 1997
- ---------------------------
David A. Spezza
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 188,365
<SECURITIES> 1,180
<RECEIVABLES> 308,633
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 498,287
<PP&E> 64,529
<DEPRECIATION> (27,565)
<TOTAL-ASSETS> 545,251
<CURRENT-LIABILITIES> 248,367
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 286,731
<TOTAL-LIABILITY-AND-EQUITY> 545,251
<SALES> 0
<TOTAL-REVENUES> 2,019,398
<CGS> 0
<TOTAL-COSTS> 1,237,541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> 107,788
<INCOME-TAX> 27,000
<INCOME-CONTINUING> 80,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,788
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
