SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file number is 0-27604
PICK COMMUNICATIONS CORP.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 75-2107261
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or jurisdiction)
5225-55 N.W. 87th Avenue 33178
Miami, Florida 33178 (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (305) 717-1500
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
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 such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the 10,141,012 shares of voting stock held by
non-affiliates of the Registrant as of April 2, 2001 was $1,267,627 (assuming
solely for purposes of this calculation that all directors and officers, but not
greater than 5% stockholders of the Registrant, are "affiliates").
The number of shares outstanding of the Registrant's Common Stock, par value
$0.01 per share, as of April 2, 2001 was 10,642,969.
Documents incorporated by reference: None.
1
PART I
This Report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including statements regarding
expected future revenues and expenses. Forward-looking statements relate to our
plans and expectations and are subject to risks and uncertainties, including our
ability to implement our business plan and strategy and the ability of PICKSat,
Inc. to commercialize its services, our need for additional funding, the
repayment of substantial short-term indebtedness, contingent liabilities of our
discontinued operations, significant and continuing losses, PICKSat's dependence
on a limited number of customers and on the Internet, PICKSat's timely
development and acceptance of new products in a constantly evolving Internet
industry, the impact of competitive products and pricing, government regulations
and other risks detailed from time to time in our SEC reports.
Item 1. Business
General
We are a holding company, currently without any operations of our own.
As of December 31, 2000, we owned all of the outstanding capital stock of
PICKSat, Inc. Since then, PICKSat has issued 1,460,800 shares of its common
stock, representing 48.0% of the outstanding PICKSat common stock, to European
and Middle Eastern investors, for a total purchase price of $7,304,000, plus
585,000 shares, representing 19.2% of the outstanding PICKSat common stock, to
consultants for introducing those investors. Since our ownership
of PICKSat has been reduced to less than 50%, we will no longer consolidate
PICKSat in our financial statements. Our investment in PICKSat will be accounted
for under the equity method of accounting.
PICKSat, formed in December 1997, was established to offer satellite
based broadband services to emerging countries with an initial focus on Latin
America, the Caribbean and the Middle East. Development of the product offerings
commenced in the second quarter of 1998. During the year 2000, PICKSat did not
have any material revenue as it continued to develop and commercialize its
product offerings.
PICKSat has developed a platform that allows high speed asymmetrical
Internet delivery and multi-casting of data and video files over satellite using
Digital Video Broadcast Signal standard. A shortage of adequate Internet
infrastructure, poor quality of Internet transmission and high cost of Internet
access in emerging countries affords PICKSat an opportunity to offer its
broadband services that allow:
o High speed Internet access that enable cable television operators
to offer its customers Internet services on a cost-effective,
turnkey basis.
2
o Delivery of asymmetric Internet service to Internet service
providers and corporate customers on a cost effective, turnkey
basis.
o Data delivery services that provide simultaneous distribution of
data, video, audio and multimedia files to single users or groups
of users over a geographically dispersed area.
o Video delivery services that provide real time audio and video file
delivery to single users or groups of users over a geographically
dispersed area.
PICKSat's services are broadly marketed under the following product branding:
o Fuego(TM), which provides high speed Internet access for
residential customers through existing cable television operators.
The primary market for this service is coaxial and wireless cable
television operators that desire to offer high speed Internet
access as a value added product.
o SkyRelay(TM), which provides asymmetric Internet bandwidth to
Internet service providers, corporations, telephone companies,
government agencies, schools, hotels and other users of Internet
services.
o SkyXpress (TM), which provides data delivery system for
multi-casting data files over satellite.
o Bizcast(TM), which offers multi-casting of video streams over
satellite.
Our wholly-owned PickOnline.com subsidiary, a development stage
company, is a multimedia content aggregator that intends to provide audio and
video streaming content for Internet service providers and broadband networks
via satellite using PICKSat's delivery platform. PickOnline has had no revenues
to date.
We are a Nevada corporation and a successor by merger to Prime
International Products Inc., a Utah corporation incorporated in April 1984 under
the name S.T.V., Inc. On September 12, 1995, we entered into a purchase
agreement to acquire all of the outstanding shares of common stock and warrants
of Public Info/Comm. Kiosk, Inc., a New Jersey corporation incorporated in
August 1992, in exchange for 1,650,000 shares of our common stock. This
transaction was a reverse acquisition accounted for as a recapitalization of
Public Info/Comm. Kiosk, Inc. The name of our corporation was changed to Pick
Communications Corp. in December 1995.
In January 2000, we sold our discontinued telecommunications business
which had not been profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Our principal executive offices are located at 5225-55 N.W. 87th
Avenue, Miami Florida 33178, and our telephone number is (305) 717-1500.
3
Sales and Marketing
PICKSat is marketing to cable television operators, Internet service
providers, telephone companies and governmental agencies that require
bandwidth on demand at competitive prices, and companies that transmit large
amounts of data, including video, to multiple locations. PICKSat believes that
this strategy will enable it to market to a broader base of clients and secure
customers. Where appropriate, PICKSat plans to establish a local presence to
market its services and support its customer base.
PICK Online.com intends to market its service first to radio stations
already hosted on the Internet. Full marketing activities will not commence
until after we have available sufficient funds for marketing, sales and
operating needs.
Competition
The Internet services business is highly competitive and there are few
significant barriers to entry. Currently, PICKSat competes with a number of
broadband satellite service providers. In addition, a number of traditional
telecom operators such as AT&T, Worldcom, Sprint, KPN and Telefonica, are
offering broadband services. We also face significant competition from satellite
companies and from on-line service firms such as America Online.
In addition, we believe that the Internet service and on-line service
businesses will further consolidate in the future, which could result in
increased price and other competition in the industry and adversely impact
PICKSat. When on-line services lower their monthly service fees, PICKSat will be
forced to lower its monthly fees in order to compete.
We believe that the primary competitive factors among Internet access
providers are price, customer support, technical expertise, local presence in a
market, ease of use, variety of value-added services and reliability. We believe
PICKSat will be able to compete favorably in these areas. PICKSat's success in
the high-speed Internet market will depend heavily upon its ability to provide
high quality Internet connectivity and value-added Internet services targeted in
select markets. Other factors that will affect PICKSat's success in these
markets include PICKSat's ability to attract experienced marketing, sales and
management talent, and the expansion of support, training and field service
capabilities.
Many of our competitors possess financial resources significantly
greater than ours and, as a result, could initiate and support prolonged price
competition to gain market share.
Patents and Trademarks
We have obtained a trademark registration for the name "PICK", PICKSat
plans to file applications for the mark "PICKSat" and its products "FUEGO",
"SkyXpress", "Bizcast", "SkyRelay", and "PICKRadio". We, together with a
non-affiliate, are joint owners of a patent on the technology for a
microprocessor-controlled prepaid cellular telephone system, which has not been
marketed by us.
4
Government Regulation
We are subject to regulations administered by the Occupational Safety
and Health Administration, various state agencies and county and local
authorities acting in cooperation with federal and state authorities. The
extensive regulatory framework imposes significant compliance burdens and risks
on us. Governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions or impose civil and criminal fines in the
case of violations.
Employees
As December 31, 2000, we had one employee, Helge Bornmann, our
President and Chief Executive Officer. PICKSat employed 27 full-time employees
and also employed independent contractors for various purposes. The employees
are not represented by a labor union.
Item 2. Properties
We occupy space at 5255 N.W. 87th Avenue, Miami, Florida leased by
PICKSat for its headquarters and network operations center. The initial lease
expires on February 29, 2004. There is no written agreement with PICKSat
concerning our occupancy.
Item 3. Legal Proceedings
In February 1997, we commenced a mediation action against AT&T seeking
$10 million in damages for breach of contract, fraudulent inducement and
malicious conduct under a carrier agreement entered into in February 1996 for
inbound 800 service and outbound domestic and international long distance
service. On November 5, 1997, we filed for arbitration proceedings against AT&T
and filed an action for $5 million. In October 1999, the arbitrator found that
AT&T was entitled to the gross claim of $1,776,000 minus credits for claims
found in our favor of $399,000 for a net amount of $1,376,447 plus 9% interest
per annum since January 31, 1997. A liability of $1,100,000 is included in the
discontinued operations of our telecommunications business which we sold in
January 2000. AT&T converted the arbitration award into a judgment and attempted
to enforce the judgment and seize our assets. We remain contingently liable for
the judgment, but are without the funds to satisfy the judgment. Unless we are
able to negotiate payment over an extended period of time of this amount, as
well as others described below, we may have to curtail our operations or seek
protection under the bankruptcy laws.
5
On or about March 15, 1999, Worldcom Network Services, Inc., d/b/a
Wiltel, commenced a lawsuit against us in the United States District Court,
Southern District of New York, demanding a judgment in the amount of $1,177,734
and interest at 18% per annum, plus costs and expenses. The plaintiff alleged
that we failed to pay for telecommunications services provided. On April 15,
1999, we entered into a settlement agreement, as amended on July 27, 1999, under
which we agreed to pay Worldcom $1,256,622 in exchange for a full and complete
settlement of Worldcom's lawsuit. We agreed to pay the settlement with interest
at 16% per annum on or before January 16, 2001, as extended, and Worldcom agreed
to discontinue, without prejudice, the legal proceedings until such date. We
also agreed to issue to Worldcom 100,000 shares of common stock as a
restructuring fee. We have not paid the settlement amount and no action has been
taken by Worldcom to date.
On March 27, 2000, Telecom Management Resources, Inc. (as successor to
International Career Information, Inc.), a vendor of PICK Net, commenced a
lawsuit against us and our PICK Net subsidiary in the Superior Court of New
Jersey, Law Division, Hudson County. The complaint involved the alleged
non-payment of $58,220 under a facilities management service agreement and
$50,400 for additional payments under an acceleration provision, plus interest.
We answered and denied the charges and raised affirmative defenses, including
the fact that the liability was assigned to PICK Net with the consent of the
plaintiff and then PICK Net was sold. We settled this litigation on September 8,
2000 for $21,250.
In January 2001, Sandra Betancourt, a former PICKSat employee, filed a
lawsuit against PICKSat seeking unspecified damages in excess of $15,000 for
violation of the "Florida Whistle Blower Act", Florida Statute 448.102(3), that
allegedly occurred in Mexico. Ms. Betancourt's initial complaint was dismissed
by the court, without prejudice, because of Ms. Betancourt's imprecise and
faulty complaint. Ms Betancourt filed an amended complaint in March 2001.
PICKSat has sought its dismissal and plans to vigorously defend its position.
On February 5, 2001, Robert Sams, individually and on behalf of SAICOL
Limited, a Bermuda corporation of which Mr. Sams is allegedly the President and
sole shareholder, commenced an action in the Court of the Eleventh Judicial
Circuit for Dade County, Florida (Case No. 0102847 CA 21) against us, PICKSat,
Wolfgang Wacker and Salah Al-Fulaij, seeking damages in an unspecified amount
and alleging
o we breached his employment agreement with us; and
o Wolfgang Wacker and Salah Al-Fulaij fraudulently induced him to
resign as Chairman of our Board of Directors and our sole Director
and to appoint Salah Al-Fulaij as Chairman of the Board and as sole
director as a condition to entering into his employment agreement.
On April 2, 2001, PICKSat filed a motion to dismiss the first amended
complaint on the grounds that (1) the fraud claim is barred by the economic loss
doctrine which proscribes fraud claims that are inexorably connected to a breach
of contract claim; and (2) the unjust enrichment claim is barred because
directors of a corporation do not receive compensation for services rendered as
a director. That motion is presently pending before the Court.
6
On April, 11, 2001, we filed our motion to dismiss on the grounds that
the existence and terms of the contract prevent plaintiffs from bringing claims
for fraud. We seek to limit the case to the terms of the contract, and defend
the case vigorously on allegations of Mr. Sam's own wrongful conduct.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of our securityholders during
the quarter ended December 31, 2000.
7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded in the over-the-counter market and is quoted
on the NASD's OTC Bulletin Board under the symbol "PICK". Our common stock was
delisted from the NASD's OTC Bulletin Board from May 26, 2000 to November 9,
2000 as a result of our failure to file all reports required to be filed with
the Securities and Exchange Commission under the Securities Exchange Act of
1934.
The following table sets forth the high and low bid prices of a share
of our common stock for the periods indicated. These prices give retroactive
effect to a one-for-ten reverse split effected on July 23, 1999. The prices
represent inter-dealer quotations, without retail mark-up, mark down or
commission, and may not represent actual transactions.
Bid Prices
-----------------------------------
Period High Low
-------- ---- ---
Fiscal Year 1999
----------------
First quarter $15.20 $3.60
Second quarter $28.75 $7.30
Third quarter $ 8.20 $1.625
Fourth quarter $ 2.56 $0.81
Fiscal Year 2000
----------------
First quarter $1.96875 $0.50
Second quarter $1.00 $0.375
Third quarter $0.8125 $0.4375
Fourth quarter $0.375 $0.125
As of April 2, 2001, we had 10,642,969 shares of common stock issued
and outstanding and 437 record holders of our common stock.
We have not declared or paid any cash dividends on our common stock
since inception and we do not expect to pay cash dividends for the foreseeable
future. We currently intend to retain our earnings, if any, to finance
operations.
8
During the year 2000, we issued an aggregate of 917,500 shares of
common stock upon conversion of our series B and series D preferred stock. The
issuance of these shares was exempt from the registration requirements of the
Securities Act under Section 3(a)(9).
In January, 2000, we issued an aggregate of 200,000 shares of common
stock to three consultants. The issuance of these shares was exempt from the
registration requirements of the Securities Act under Section 4(2).
Item 6. Selected Financial Data
The following table sets forth the selected financial data for each of
the five years ended December 31, 2000. The selected financial information for
and as of the years ended December 31, 1997 and 1996 are derived from our
consolidated financial statements which have been audited by Durland & Company,
CPAs, PA, independent certified public accountants.The selected financial
information for and as of the years ended December 31, 2000, 1999 and 1998 have
been audited by Goldstein Golub Kessler LLP. The consolidated balance sheets as
of December 31, 2000 and 1999 and the consolidated statements of operations for
the years ended December 31, 2000, 1999 and 1998 and the accountants' reports
thereon are included in this report under the heading "Consolidated Financial
Statements." Historical results are not necessarily indicative of the results to
be expected. The selected consolidated financial data presented below is
qualified in its entirety by, and should be read together with, our consolidated
financial statements and related notes included in this report under the caption
"Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Years Ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------
Operating loss $(13,599,958) $ (2,926,191) $ (2,139,830) $ (399,448) $ (607,890)
------------------------------------------------------------------------------
Other income (expense) (2,467,813) (1,824,845) (133,000) (9,890,284) 8,436,809
------------------------------------------------------------------------------
Loss (Income) from continuing
operations before minority
interest in loss of
consolidated subsidiaries and
provision for (benefit) from
income taxes (16,034,852) (4,751,036) (2,272,830) (10,289,732) 7,828,919
Minority interest in
loss of consolidated
subsidiary 1,742 2,062 434,064 260,541
Loss from continuing operations 16,034,852 4,749,294 2,270,768 9,855,668 8,089,460
Benefit (provision) for
income taxes -- -- -- 1,808,000 (1,808,000)
Loss from discontinued
operations (952,047) (5,486,880) (14,792,541) (1,452,134) (4,645,670)
Loss on disposal of discontinued
operations and related costs -- (45,315,574) -- -- --
Loss on abandonment of
fixed assets (2,013,456) -- -- -- --
Estimated cost to discontinue
operations -- (1,793,137) -- -- --
==============================================================================
Net (loss) income (19,000,355) (57,344,885) (17,063,309) (9,499,802) 1,635,790
Beneficial conversion
feature of preferred stock -- (25,170,000) -- -- --
------------------------------------------------------------------------------
Net (loss) income applicable to common
share $(19,000,355) $(82,514,885) $(17,063,309) $(9,499,802) $ 1,635,790
==============================================================================
Loss from continuing operations
and beneficial conversion
feature of preferred stock
per common share--basic and
diluted $ (1.56) $ (6.30) $ (0.61) $ (2.18) --
Loss from discontinued
operations per common share-
basic and diluted $ (0.29) $ (11.07) $ (4.01) $ (0.39) --
------------------------------------------------------------------------------
Net (loss) income per common share -
basic and diluted $ (1.85) $ (17.37) $ (4.62) $ (2.57) $ 0.39
==============================================================================
Weighted-average common shares
outstanding-basic and diluted 10,308,524 4,750,742 3,692,356 3,695,853 4,199,150
==============================================================================
9
Balance Sheet Data:
At December 31,
------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------
Working capital
(deficiency) $(31,777,979) $(19,997,015) $(14,569,842) $(7,405,608) $(3,152,216)
==============================================================================
Total Assets $ 4,231,464 $ 7,266,835 $ 6,791,156 $ 1,817,513 $ 8,917,149
==============================================================================
Current Liabilities $ 32,136,278 $ 20,498,690 $ 16,134,301 $ 8,027,642 $ 6,582,429
==============================================================================
Long-term liabilities $ 9,880,000 $ 10,616,586 $ 10,922,716 $ 794,905 $ --
==============================================================================
Stockholders' equity
(deficiency) $(37,784,814) $(23,848,441) $(20,351,879) $(7,093,114) $ 869,579
==============================================================================
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read together with our consolidated financial
statements included in this prospectus under the caption "Consolidated Financial
Statements."
Results of Operations
General
On June 23, 1999, our Board of Directors voted to sell or discontinue
our telecommunications business in order to focus on our Internet services
business conducted through PICKSat and PICK Online.com. As a result, our
financial statements reflect the discontinuance of the operations of our PICK
US, PICK Net, and PICK Net UK subsidiaries. The sale of our PICK Net and PICK
Net UK subsidiaries was completed on January 18, 2000.
In 1999, through our then wholly owned PICKSat subsidiary, we commenced
development of a system to provide high speed Internet access via satellite.
Also in March 1999, we formed PICK Online to provide broadband Internet content
to users. PICKSat and PICK Online are in the development stage and did not
generate any significant revenues as of December 31, 2000.
10
Revenues for PICKSat will be derived from monthly recurring fees
charged, based on the type of usage and bandwidth contracted for, one time
installation charges and sale of computer cards required to access certain
PICKSat's services.
The discontinued subsidiaries generated revenues from the resale of
telecommunication services, which included international long distance service
to carriers and resellers, and from the sale of prepaid telephone calling cards
to distributors for resale to retail outlets.
For the resale of international long distance, we recognized revenues
from discontinued operations as our customers used the traffic. For prepaid
telephone calling cards sales, we recognized revenues from discontinued
operations at the time we provided the telephone services associated with our
cards and recognized the cost from discontinued operations of the carrier
telephone traffic based on the minutes used in the same periods that we
recognized revenues.
Our costs of sales primarily consists of the cost of satellite space
segment, teleport connections and Internet access.
Our costs of sales for the discontinued operations primarily consist of
the cost of telephone services, for both the resale of international long
distance services and for prepaid telephone calling cards.
Year Ended December 31, 2000 Compared with December 31, 1999
Revenues:
PICKSat continued to develop its product offerings on a commercial
basis during the year 2000. The revenue derived mainly from services deployment
and installation charges was $32,919 in 2000 as compared to zero in 1999. PICK
Online.com did not generate any revenues during 2000 and 1999.
Costs and Expenses:
Selling, general and administrative expenses increased to approximately
$12,372,148 for the year ended December 31, 2000 from $2,825,957 for the year
ended December 31, 1999 reflecting an increase of $9,546,191 or approximately
338%. The increase is primarily due to expenses incurred in commercializing the
PICKSat product offerings. We generated significant expenses for salaries,
outside consultants and contractors, accounting, sales and marketing, trade
shows, international travel, public relations and legal and professional
expenses. We also had increased expenses for preparation of public filings and
the negotiations of debt arrangements, which was primarily handled by
non-employees.
11
Loss from Operations:
Our loss from continuing operations increased from $4,749,294 to
$16,034,852, primarily due to the aggregate salaries, outside consultants and
contractors, selling, general and administrative costs. At December 31, 2000,
PICKSat was completing the development of its product offerings and has moved
closer to commercial deployment phase. In addition, the loss from continuing
operations during the year 2000 was reduced by $293,977 due to a settlement of
an old outstanding accounts payable balance.
Discontinued Operations:
On June 23, 1999, we formalized a plan to discontinue our
telecommunications and prepaid calling card business consisting of PICK US, PICK
Net and PICK Net UK PLC ("collectively "PICK NET") which we determined could not
be made profitable. Accordingly, the telecommunications and calling card
businesses are accounted for as discontinued operations in the accompanying
consolidated financial statements. On September 13, 1999, we agreed to sell our
PICK Net operations to Lebow Investments Ltd. ("Lebow"), a recently formed
B.V.I. corporation. Lebow was formed as a vehicle through which ultimate Gulfsat
Communications Company, a Kuwait Company ("Gulfsat") could purchase the PICK Net
stock. Lebow agreed to be financially responsible for the PICK Net operations
which received funding from Atlantic Network, Inc., as described below, to
continue operations commencing in September 1999 through the closing of this
transaction. On January 18, 2000, we completed the sale of all of the stock of
PICK Net for nominal value, since the buyer had agreed to assume approximately
$10.7 million of PICK Net's liabilities. Simultaneously at the closing, Gulfsat
Communications Company, a Kuwaiti company ("Gulfsat"), purchased all of the
common stock of Lebow and assumed the $10.7 million of PICK Net's liabilities.
In February, 2000, Gulfsat defaulted under its agreements by not funding PICK
Net's obligations and discontinued operating PICK Net. We have made demand on
Lebow and Gulfsat to satisfy its obligations, or face legal remedies. We also
are attempting to negotiate a settlement. In any event, in addition to our
direct obligations, we retain substantial contingent liabilities related to our
discontinued operations (See Note 11 of Notes to Consolidated Financial
Statements for operating results of the discontinued operations).
Loss from discontinued operations decreased from $52,595,591 for the year ended
December 31, 1999 to $2,965,503, which was net of $45,239 due to settlement of
certain accounts payable balances for the year ended December 31, 2000. We
operated our subsidiaries for only 18 days during the year 2000 before selling
the operations, although we had certain ongoing obligations in view of
contingent liabilities which necessitated certain payments.
Liquidity and Capital Resources at December 31, 2000
Due to the losses discussed above, our working capital deficit increased from
$19,997,015 as of December 31, 1999 to $31,777,979 as of December 31, 2000, an
increase in the working capital deficiency of $11,780,964. The stockholders'
deficiency increased from $23,848,441 to $37,784,814, an increase in
stockholders' deficiency of $13,936,373.
Current assets decreased by $143,376 primarily due to a decrease in current
assets from discontinued operations and an increase in the cash balance at
December 31, 2000. Current liabilities increased by $11,637,588. The increase is
largely due to increase in the current portion of debt, in accounts payable and
accrued expenses and current liabilities from discontinued operations, although
a substantial portion of current liabilities from discontinued operations were
assumed by Lebow and Gulfsat on January 18, 2000; however in February 2000, they
defaulted under their agreements.
12
A significant portion of our liabilities matured or were subject to payment by
December 31, 2000. We have had discussions with several of our largest unsecured
creditors, including, but not limited to, AT&T and IDT. We have been
unsuccessful in our efforts to reach agreements with our substantial unsecured
creditors.
We are in need of immediate financing for working capital. In April
2000, a group of investors from Europe and the Middle East committed an
aggregate of $10 million to PICKSat, to occur over a 12-month period. During the
year ended December 31, 2000, $6,056,700 was advanced to PICKSat by those
investors. There was no issuance of shares to those investors in the year 2000
and as of December 31, 2000, this amount has been included in current
liabilities. As of March 31, 2001, PICKSat has received $7,304,000 for which it
has issued 1,460,800 shares of common stock to the investors. PICKSat also
issued 585,000 shares to consultants for introducing the investors.
PICKSat received in total $2.75 million in loan proceeds during the
year ended December 31 2000, of which $500,000 was for a convertible loan on a
pari passu basis with Atlantic Tele-Network Inc. ("ATN"). On October 15 and
December 15, 2000, PICKSat issued separate promissory notes (the "Notes") to an
investor in the principal amount of $2,000,000 and $250,000, respectively, which
bears interest at 7.50% per annum. The principal amount plus accrued interest is
due on October 15, and December 15, 2001,respectively and may be repaid at any
time without any penalty. The Notes are collateralized by all the assets of
PICKSat.
In September, 1999 PICK entered into an option agreement with ATN to
sell at up to 19.9% of the common stock of PICKSat for $8 million, with an
option to acquire an additional 31.1% for an additional $15 million payable in
500,000 shares of ATN common stock or $15 million in cash, whichever produced
the higher value at the time the warrants were fully exercised. PICKSat obtained
interim loans in the principal amount of $476,000 from ATN for our and PICKSat's
operating expenses. ATN chose not to exercise the option. In addition, under a
credit facility, as of December 31, 2000, one of our former subsidiaries, PICK
Net USA, had debt, amounting to $2,052,867 plus accrued interest, which includes
the $476,000 principal amount plus accrued interest assumed from PICKSat's
balance by PICK Net's buyer, on the date of sale, January 18, 2000. In
accordance with the terms of the above loans from ATN, the $476,000 borrowed by
PICKSat and the $1,576,867 borrowed by PICK Net USA, all became due and payable
on February 4, 2000 and have not been paid. On January 4, 2000, in in connection
with the completion of the sale of our PICK Net and PICK Net UK subsidiaries to
Lebow and Gulfsat, as well as the termination of the PICKSat option, ATN
received five year warrants to purchase 1 million shares of our common stock
exercisable at $2.00 per share.
On November 3, 1999, PICKSat obtained a 120 day revolving line of
credit for $500,000 from Tri-Links Investment Trust. PICKSat borrowed the entire
$500,000 under the line of credit. Amounts borrowed under this facility bear
interest at 13% per annum, increasing to 15% per annum upon default and payment
of amounts borrowed is secured by a lien on PICKSat's assets which was initially
subordinated to ATN and then made equal in priority. We were obligated to repay
amounts borrowed under this facility initially on March 3, 2000. We obtained an
extension of the maturity date until May 3, 2000. In addition, on January 26,
2000, we together with Tri-Links, PICKSat, Group Technology for Scientific
Equipment and Supplies and Salah Khalid Fulaij ("Fulaij") entered into an
amendment relating to this credit facility which was amended again in March and
April 2000, increasing the commitment. The loan payable balance as of December
31, 2000 amounted to $1,447,430 plus accrued interest.
13
We have not made any principal payments under this agreement as of April 18,
2000. The parties continue to negotiate a settlement.
In March 1999, the board of directors authorized the issuance of 2,000,000
shares of series B convertible preferred stock. The series B convertible
preferred stock has a par value of $0.01 per share and 1,871,000 shares were
issued, convertible into 1,871,000 shares of our common stock at the rate of
$1.00 per share. As of December 31, 2000, 1,476,000 shares of series B
convertible preferred stock have been converted into common stock, including
$535,000 stated value of series B preferred stock converted into 535,000 shares
of common stock during fiscal 2000.
In April 1999, the board of directors authorized the issuance of 500,000 shares
of series D convertible preferred stock. The series D convertible preferred
stock has a par value of $0.001 per share and was initially convertible into
1,190,500 shares of our common stock at the rate of $4.20 per share. As of
December 31, 1999, we had sold an aggregate of 466,000 shares of series D
convertible preferred stock for $4,660,000 prior to the payment of $459,750 of
preferred stock placement costs. In addition, we issued an aggregate of 700,000
common stock purchase warrants in connection with the sale of series D
convertible preferred stock. Each warrant is exercisable at $6.30 per share of
common stock for a two-year period. On July 15, 1999, we sold 34,000 shares of
series D convertible preferred stock for $340,000 to Diego Leiva, then chairman
of the board. The purchase was evidenced by a recourse promissory note secured
by a pledge of the securities. As at December 31, 2000, we cancelled a
subscription due of $340,000 from Diego Leiva for series D convertible preferred
shares. In January 2000, the conversion rate was adjusted so that the preferred
stock converts into common stock at $2.00 per share. As of December 31, 2000,
$3,160,000 stated value of series D preferred stock had been converted,
including $765,000 stated value during the year 2000, which was converted into
382,500 shares of common stock. The remaining $1,500,000 stated value (exclusive
of Mr. Leiva's $340,000 of preferred stock) of series D convertible preferred
stock, is convertible into 750,000 shares of common stock, subject to
adjustment.
14
At December 31, 1999, we also recorded a beneficial dividend of $25,170,000
associated with the issuances of preferred stock. This charge did not use any
cash.
Material Changes in Cash Flows
At December 31, 2000, we had a cash balance of $296,740 as compared to an
overdraft of $20,193 at December 31, 1999.
Cash Flows from Operating Activities
Operating activities used $6,723,765 in cash during the year ended December 31,
2000, compared with a use of $5,241,762 during the year ended December 31, 1999.
Cash flows from operating activities consists primarily of a net loss of
$19,000,355 for the year ended December 31, 2000, compared with a net loss of
$57,344,885 for the year ended December 31, 1999. Net cash flow from operating
activities also reflect $4,268,471 for stock options and warrants issued by
PICKSat for consulting and compensation charges, loss of $2,639,575 on
retirement of fixed assets and decrease of $2,068,394 in long term assets from
discontinued operations.
Cash Flows from Investing Activities
Our capital expenditure of $2,325,445 for the year ended December 31, 2000
increased from the year ended December 31, 1999 of $1,340,035. The increase is
attributable primarily to the development of satellite based Internet access for
PICKSat.
Cash Flows from Financing Activities
During the year ended December 31, 2000, we had net cash provided by financing
activities of $9,345,950 as compared to $6,563,263 for the year ended December
31, 1999. The proceeds are primarily from the issuance of PICKSat's equity and
funds advanced to PICKSat on third-party debts during the year ended December
31, 2000 in the amounts of $6,056,700 and $3,309,443. During the year ended
December 31, 1999, the proceeds were primarily from the issuance of the series B
and series D preferred stock and funds advanced on third-party debts.
Year Ended December 31, 1999 as Compared with Year Ended December 31, 1998
Revenues:
PICKSat and PICK Online were in development stage and as such have not
had any revenues.
Costs and Expenses:
Selling, general and administrative expenses increased to approximately
$2,826,000 for the year ended December 31, 1999 from $2,094,000 for the year
ended December 31, 1998. PICKSat was in the organizational phase through the end
of 1998 and as such had nominal expenditures in 1998. Therefore, a substantial
portion of the increase is attributable to start-up and development expenses of
PICKSat and PICK Online. We also had significant increase in salaries, outside
consultants, accounting, legal travel, and public relations expenses.
Contemporaneous with our board of directors decision to sell or discontinue our
telecommunications operations and layoff the associated personnel, it needed to
retain outside professional services on an interim basis to handle the functions
previously performed by salaried employees. Preparation of public filings and
the negotiation of debt arrangements gave a rise to the majority of the increase
in expenses.
15
On September 13, 1999, we agreed to sell our PICK Net operations to
Lebow Investments Ltd. Lebow agreed to be financially responsible for the PICK
Net operations which received funding from Atlantic Tele-Network to continue
operations through the closing of this transaction, on January 18, 2000.
Simultaneously with the closing, Gulfsat Communications Company, a Kuwaiti
company, purchased all of the common stock of Lebow. Gulfsat was a principal
vendor of services to PICK Net. Gulfsat was owed approximately $1,555,000 as of
October 31, 1999, primarily under a reciprocal telecommunications agreement.
Payment of this amount was assumed by Lebow pursuant to the Lebow Stock Purchase
Agreement. In February 2000, Gulfsat defaulted under its agreements and
discontinued operating PICK Net. We made a demand on Lebow and Gulfsat to
satisfy their obligations. We retain substantial contingent liabilities on the
discontinued operations if those liabilities are not paid.
Discontinued Operations
Total revenues amounted to approximately $5,930,000 for 1999, compared
to $9,823,000 for 1998, a decrease of approximately $3,893,000 prior to the
discontinuance of operations. See Note 11 of Notes to Consolidated Financial
Statements for operating results of the discontinued operations. We
significantly curtailed our operations during the first half of 1998, while we
installed and tested two leased Siemens Digital Central Office Switches. These
switches replaced switching services previously purchased from third party
vendors. Consequently, we decided to curtail our marketing efforts for the sale
of international long distance services until we completed this installation and
until we had the capability to deliver traffic through Gulfsat. For 1999, we
generated international long distance revenue of approximately $2,567,000, as
compared with $1,978,000 for 1998. Prepaid telephone calling card revenues were
approximately $3,363,000 for 1999, compared to $7,844,000 for 1998. This latter
decrease is attributable to the discontinuance of sales to Blackstone Calling
Card, Inc., a major marketer and distributor of prepaid telephone calling cards
under our agreement with Blackstone, which had its first full year of sales with
PICKSat in 1998.
In the discontinued operations, the cost of telephone time purchased
decreased from approximately $16,393,000 in 1998 to $7,860,000 in 1999, as
operations were being wound down.
Loss from Operations:
Our loss from continuing operations increased from approximately
$2,271,000 in l998 to approximately $4,749.000 in 1999, primarily due to the
increases in aggregate salaries, selling, general and administrative costs and
interest expense primarily on private placement debt outstanding for the full
year of 1999, and without the receipt of revenues, as PICKSat and PICK Online
continued the development of their products and offerings and as PICKSat began
to move into the commercial deployment phase and other expenses as discussed
under "Costs and Expenses" above.
16
Total loss from discontinued operations increased from $14,793,000 for
1998 to approximately $52,596,000 for 1999. Included in the loss for 1999 is a
loss on the disposal of the discontinued operations in the aggregate amount of
approximately $45,316,000. This amount is attributable to the writing off of the
deferred interest and debt placement charges of the restructured notes which
amounts are related to the discontinued operations and therefore will provide no
future benefit.
As a result, we incurred a net loss of approximately $57,345,000 in
l999 as compared to a net loss of approximately $17,063,000 in l998. In
addition, we recorded a charge of $25,170,000 in l999 for the beneficial
conversion feature of the preferred stock we sold in l999.
Liquidity and Capital Resources at December 31, 1999
Due to the losses discussed above, our working capital deficit
increased from approximately $14,570,000 as of December 31, 1998, to
approximately $19,913,000 as of December 31, 1999, an increase of approximately
$5,343,000 and the stockholders' deficiency changed from approximately a
negative $20,352,000 at December 31, 1998 to approximately $23,848,000 at
December 31, 1999, an increase in negative net worth of approximately
$3,496,000.
Current assets decreased by approximately $1,063,000 primarily due to a
decrease in current assets from discontinued operations. We had no cash on hand
and were overdrawn by approximately $20,000 at December 31, 1999. Current
liabilities increased by approximately $4,280,000. This increase is largely due
to net increases in accounts payable and accrued expenses as a result of
increased business activity in the newly formed subsidiaries, funding of
continued losses and lower sales volume and a decrease in current liabilities
from discontinued operations offset, in part, by a decrease in deferred revenue
for pre-paid calling cards. However, a substantial portion of current
liabilities from discontinued operations were assumed by Lebow and Gulfsat on
January 18, 2000, as described under "Discontinued Operations."
In early 1999, we negotiated with our largest trade creditors to
restructure a substantial portion of our short-term debt. We reached certain
agreements to make a down payment and convert the balance of our obligation into
long-term indebtedness and/or equity securities. However, we have been unable to
meet our monetary obligations under the revised agreements. See Notes 4, 11, 12
and 14 of Notes to Consolidated Financial Statements.
We were able to obtain net equity investments totaling $6,481,000
during 1999. Of the total investments, $1,050,000 was recorded during the first
quarter of 1999 and $5,431,000 was recorded in the second quarter, as described
above under Liquidity and Capital Resources at December 31, 2000.
17
Due to the restructuring of the $9,900,000 short term notes, we
recorded an increase in additional paid-in-capital of $45,054,337 during 1999.
We also recorded a charge on the beneficial conversion feature of the preferred
stock of $25,170,000 associated with the issuance of preferred stock. Neither of
these latter two charges used any of our cash.
In June 1999, we elected to divest or terminate our long distance
telephone services subsidiaries. We recorded a charge to retained earnings of
$45,315,574, as the loss on the discontinuance and disposal of the long distance
telephone services and prepaid calling card business. These charges did not
affect cash. We entered into an agreement in September 1999 to divest PICK Net,
Inc. and PICK Net UK, PLC, both of which provided international long distance
services to other carriers and resellers. We ceased marketing and distributing
prepaid telephone calling cards through PICK US Inc. We plan to dissolve our
PICK US, Inc. unit upon the termination of the liability due to the outstanding
prepaid calling cards. On January 18, 2000, we completed the sale of the stock
of the two PICK Net subsidiaries for nominal value and the buyer assumed
approximately $10 million of related indebtedness. However, in February 2000,
the buyer failed to discharge certain of the assumed liabilities.
Material Changes in Cash Flows
Cash decreased during 1999, by approximately $17,000. This decrease is
attributable primarily to a decrease in cash used in operating activities of
approximately $63,000 from $5,305,000 in l998 to $5,242,000 in l999, a decrease
in cash provided by financing activities of approximately $2,532,000 from
approximately $9,095,000 to $6,563,000, as described below, as well as a
decrease in cash used in investing activity of approximately $2,477,000.
Cash Flows from Operating Activities
Operating activities used approximately $5,242,000 in cash
during 1999, compared with cash provided of approximately $5,305,000 for 1998.
For 1999, we incurred a net loss of approximately $57,345,000, as compared to
approximately $17,063,000 for 1998. The net loss for 1999 included a loss on
disposal of discontinued operations of approximately $47,109,000. This loss of
disposal included a non-cash debt restructuring charge of approximately
$45,316,000 (See Note 4 of Notes to Consolidated Financial Statements) that
related to the businesses being discontinued; the issuance of stock, options and
warrants issued for services in the amount of approximately $3,680,000, none of
which included a cash expense. The increased use of cash in operations in l999
also resulted from decreased sales in the prepaid calling card business under
an agreement with Blackstone and sales of long distance services, which was
partially offset by an increase in accounts payable and accrued expenses.
Cash Flows from Investing Activities
Our capital expenditures of approximately $1,340,000 for 1999 decreased
from $3,817,000 in 1998. This decrease is attributable primarily to the delay in
the development of the satellite-based Internet access, interactive multimedia
structures for PICKSat and PICK Online subsidiaries.
Cash Flows from Financing Activities
During 1999, we had net cash provided by financing activities of
approximately $6,563,000, as compared to net cash provided by financing of
approximately $9,095,000 for 1998. The proceeds are from the issuance of the
series B and series D preferred stock and funds advanced on third party debt
during 1999. The 1999 amounts were offset by loan repayments and costs
attributable to the issuance of the preferred stock. Cash provided during l998
was primarily from funds advanced from third party debt, less debt repayments.
18
Item 8. Financial Statements and Supplementary Data
Our financial statements are included in a separate section of this
Report, following Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
19
PART III
Item 10. Directors and Executive Officers of the Registrant
Name Age Position
---- --- --------
Helge Bornmann 45 Chairman of the Board, President and Chief
Executive Officer
Wolfgang Wacker 53 President and Chief Executive Officer of PICKSat
Michael Volz-Kjer 50 Director
Wolfgang Nonn 37 Director
Helge Bornmann has served as our Chairman of the Board, Chief Executive Officer
and President since September 1, 2000. From January 1997 to May 2000, Mr.
Bornmann was involved in the restructuring of the Ukrainian pipe industry, and
then served as Managing Director of SEPCO GmbH from February 1998 to May 2000.
In November 1989, Mr. Bornmann founded TubiTec, which assisted in marketing
United States Steel tubulars on a worldwide basis. Mr. Bornmann began his
professional career in 1976 with Salzgitter GmbH, a German industrial group in
the steel industry, working in Mexico from 1977 to 1982. He was then employed by
Sairex GmbH commencing in May 1983, a German based pipe company, managing
offices in the United States, Switzerland and Singapore until October 1989.
Wolfgang Wacker has served as President and Chief Executive Officer of PICKSat
since May 23, 2000 and as our Interim CEO from March 14, 2000 until May 23,
2000. He has also served as a director of PICKSat since May 16, 2000. Since
1996, Mr. Wacker has been a consultant under SEPCO GmbH, Germany, to restructure
the Ukrainian pipe industry and was responsible for setting up an international
sales and marketing organization. From 1992 to 1996, Mr. Wacker was a consultant
for United States Steel Corp. in charge of international marketing and sales of
tubular pipes, and also served as Managing Director of Metallia Tubulars.
Michael Volz-Kjer has been a director since November 22, 2000. He has been
General Manager of Inova GmbH (trading in natural wood products) since August
1999. From 1993 to June 1998, he was a banker with Dresder Bank.
Wolfgang Nonn has been a director since November 22, 2000. He has been Managing
Director of Nonn Plus Ultra, an advertising firm, since May 1990. From February
1988 to April 1990, he was an administrator in the print media department with
Bertelsmann.
20
Under the terms of a Restructuring Agreement with Commonwealth
Associates in April 1999, our Board of Directors was to be restructured to
consist of a majority of independent directors. The proposed board was to be
Diego Leiva, then Chairman of the Board, two existing independent directors, a
new Chief Executive Officer, one designee of Commonwealth Associates, one
designee of the holders of our bridge notes issued in July 1998 and one other
independent director. Subsequently, Tri-Links Investment Trust purchased shares
of our series D convertible preferred stock and obtained the right to designate
a nominee to the Board or an observer who has the right to attend and observe at
all Board Meetings. To date, none of these persons has joined the Board of
Directors. Tri-Links subsequently received the right to nominate four additional
directors under the terms of its bridge loan to PICKSat in November 1999, two of
which nominees Tri-Links assigned to its co-lenders.
Section 16 of the Exchange Act requires that our directors, executive
officers and beneficial owners of more than 10% of our common stock file certain
reports, within specified time periods, indicating their holdings of and
transactions in our common stock and derivative securities. Based solely on a
review of such reports provided to us and written representations from such
persons regarding the necessity to file such reports, we are not aware of the
failure of any such person to file reports, or report transactions in a timely
manner, during our fiscal year ended December 31, 2000.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by,
or paid to our chief executive officer and each other executive officer whose
compensation was in excess of $100,000 for the fiscal year ended December 31,
2000.
Annual Compensation
Other Annual Shares/Underlying
Name and Positions Year Salary Bonus Compensation Stock Options
------------------ ---- ------ ----- ------------ -----------------
Helge Bornmann 2000 $ -0- -0- $ 70,000(1) 160,000(1)
Chief Executive Officer, President
and Chairman of the Board of
Directors
Wolfgang Wacker 2000 -0- -0- $167,000 -0-
President and Chief Executive
Officer of PICKSat
Diego Leiva 2000(2) 299,100 -0- -0- -0-
Former Chief Executive 1999 278,000 -0- -0- -0-
Officer and Chairman of the 1998 162,500 15,201 -0- 275,000
Board of Directors
Robert Sams 2000(3) -0- -0- -0- -0-
Former Chief Executive Officer
(1) See Helge Bornmann employment and consulting agreement below. The fair
market value of the 160,000 shares of common stock issued to Mr. Bornmann
and his affiliate during the year 2000 was $79,078.
(2) Mr. Leiva resigned from all positions with us on May 8, 2000 and his
employment with PICKSat was terminated on November 28, 2000. We maintained a
$250,000 term life insurance policy for Diego Leiva, for which we paid $0,
$1,494 and $1,377 in 2000, 1999 and 1998, respectively. In addition, during
2000 and 1999, we maintained a $1,000,000 key man life insurance policy on
Mr. Leiva's life.
(3) Mr. Sams' employment was terminated in August 2000.
21
Employment and Consulting Agreements
On June 1, 2000, PICKSat entered into a consulting agreement with TubiTec
GmbH, a German corporation. Under the agreement, Helge Bornmann, the principal
shareholder and managing director of TubiTec, is to provide terrestrial or
wireless/satellite broadband high speed Internet and communication consulting
services for PICKSat. The agreement is for a term ending June 1, 2003. As
compensation for the consulting services, we are required to pay TubiTec
$120,000 per year, in equal monthly installments of $10,000. We also are
obligated to pay Helge Bornmann a living allowance for time he works in the
United States. In addition, we issued to Helge Bornmann and TubiTec, 150,000 and
10,000 shares of our common stock, respectively. Mr. Bornmann also has the right
to purchase 70,000 shares of PICKSat common stock at 50% of the price per share
sold in PICKSat's last exempt sale of equity or exercise of option upon the
establishment of an affiliate of PICKSat or joint venture/strategic alliance in
Mexico. Helge Bornmann has been our Chief Executive Officer, President and
Chairman of our Board of Directors since September 1, 2000.
On September 7, 2000, we entered into an agreement with Mr. Bornmann
under which we agreed to issue to him
o 25,000 shares of common stock for each year that he is a director
of our company
o 25,000 shares of common stock for each year he is president and/or
chief executive officer of our company; and
o 100,000 shares of common stock as a bonus upon a successful
restructuring of our company, in accordance with criteria to be
established by our Board of Directors.
On March 14, 2000, Wolfgang Wacker entered into an engagement letter
pursuant to which he was appointed Interim Chief Executive Officer of PICKSat
for a six-month period. Mr. Wacker's sole compensation under the engagement
letter agreement was warrants to purchase 5% of the outstanding stock of PICKSat
on a fully diluted basis for nominal value. One-half of the warrants were issued
upon his appointment and the other one-half will be issued upon completion of
permanent financing currently being conducted.
On August 6, 2000, Mr. Wacker entered into an employment agreement to
become the President and Chief Executive Officer of PICKSat effective January 1,
2001. The term of the agreement is until June 1, 2003, but is renewable for
additional two-year periods at the option of PICKSat upon the notification of
Mr. Wacker in writing at least 30 days prior to the end of the then current
term. Under the agreement, as amended as of April 24, 2001, Mr. Wacker is
entitled to
o a salary of $200,000 per annum
o a bonus of a minimum of $100,000 per annum.
In addition, Mr. Wacker was granted an option to purchase 600,000 shares of
PICKSat common stock at an exercise price of $1.00 per share, which option
expires April 24, 2010.
22
Mr. Wacker is also entitled to a monthly car allowance of $800 per month plus
accommodations in Miami.
Directors Compensation
Directors currently receive no cash compensation for serving on the Board
of Directors or on any Committee of the Board, other than reimbursement of
travel expenses incurred by them and their spouses in attending Board meetings.
During 1999, each Director received restricted stock and/or stock options.
Option Grants in Last Fiscal Year
The table below contains certain information concerning stock options
granted to the executive officers named in the Summary Compensation Table during
the year ended December 31, 2000:
Number of Percent of Total Potential Realizable Value at Assumed
Securities Options Annual Rates of Stock Price
Underlying Granted to Exercise Appreciation for Option Term
Options Employees in Price Expiration 5% 10%
Granted Fiscal Year ($/Share) Date ($) ($)
------------- ---------------- --------- -------------- ------ -----
None
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values
The following table summarizes for each of the individuals listed in
the Summary Compensation Table the total number of unexercised options, if any,
held at December 31, 2000, and the aggregate dollar value of in-the-money,
unexercised options, held at December 31, 2000. The value of the unexercised,
in-the-money options at December 31, 2000, is the difference between their
exercise or base price and the value of the underlying common stock on December
31, 2000. The closing sale price of the common stock on the OTC Bulletin Board
on December 31, 2000 was $0.156 per share, which was less than the exercise
price of any unexercised options.
Shares Acquired
Upon Exercise of
Options During Fiscal Year Number of Value of Unexercised
Ended Unexercised Options In-The-Money Options at
December 31, 2000 at December 31, 2000 December 31, 2000
------------------- --------------------- -----------------------
Valued
Name Number Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------ -------- ----------- ------------- ----------- -------------
Helge Bornmann 0 0 0 0 $0 $0
Wolfgang Wacker 0 0 0 0 0 0
Diego Leiva 0 0 275,000 0 0 0
Robert Sams 0 0 50,000 0 0 0
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee was an officer or employee of
our company or any of its subsidiaries during the prior year or was formerly an
officer of our company or of any of our subsidiaries. None of our executive
officers has served during the last fiscal year on the Compensation Committee of
any other entity, any of whose officers served on our Compensation Committee
during the last fiscal year.
23
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 2, 2001, the number of
shares of common stock beneficially owned by (i) each director, (ii) each
executive officer named in the Summary Compensation Table, (iii) each beneficial
owner of more than 5% of our common stock and (iv) all of the executive officers
and directors as a group:
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership (1) Percentage (2)
------------------- ------------------------ --------------
Diego Leiva 1,304,825 (3) 12.3%
13635 Deering Bay Drive, #293
Coral Gables, FL 33158
Helge Bornmann 356,000 (4) 3.3%
c/o PICKSat, Inc.
5225-55 N.W. 87th Avenue
Miami, FL 33178
Wolfgang Wacker 38,957 *
c/o PICKSat, Inc.
5225-55 N.W. 87th Avenue
Miami, FL 33178
Michael Volz-Kjer 52,000 *
Am Langholz 3, D-88289
Waldburg, Germany
Wolfgang Nonn 55,000 *
Schoen Wasserstr. 154
D-47800
Krefeld, Germany
Tri-Links Investment Trust 780,000 (5) 6.9%
Two World Financial Center
17th Floor
New York, NY 10281
Atlantic TeleNetwork, Inc. 1,000,000 (6) 8.7%
P.O. Box 12030
St. Thomas, U.S. Virgin Islands 00801
Robert Sams 130,968 1.2%
Woodmans Farm
Perryman Lane
Brussel, E. Sussex
England, TN 1970
All executive officers and directors 501,957 4.7%
as a group (4 persons)
-------------
* less than one percent
(1) Unless otherwise noted, all shares are beneficially owned and the sole
voting and investment power is held by the person indicated.
(2) Based on 10,642,969 shares outstanding as of April 2, 2001. Each beneficial
owner's percentage ownership is determined by assuming that options or
warrants that are held by such person and which are convertible or
exercisable within sixty (60) days of such date pursuant to Rule l3d-3 under
the Exchange Act have been converted or exercised.
24
(3) Includes 429,000 shares beneficially owned by Mr. Leiva's wife.
(4) Includes 196,000 shares owned by Mr. Bornmann and an additional 160,000
shares which will vest over time, provided Mr. Bornmann is still employed by
us.
(5) Represents the 750,000 shares that may be acquired upon conversion of shares
of series D preferred stock, plus 30,000 shares that may be acquired upon
exercise of warrants.
(6) Represents 1,000,000 shares that may be acquired upon exercise of warrants.
Item 13. Certain Relationships And Related Transactions
See "Employment and Consulting Agreements" above for information
concerning agreements with our executive officers.
On May 4, 2000, we entered into a Management Service Agreement with
Saicol Limited, of which Robert R. Sams was the President and sole shareholder.
The agreement was retroactive to June 30, 1999. Under the Management Service
Agreement, Mr. Sams was to provide management services to PICK Net UK Plc. We
agreed to pay Saicol $15,000 per month, plus expenses for these management
services. Mr. Sams' responsibilities included the sale of the PICK Net companies
to Atlantic Tele-Network; the provision of office space in the United Kingdom;
accounting maintenance and supervision of auditors, licensing and U.K.
government filings and registration and management of agreements for the
provision of fibre and satellite unlinking stations. This agreement was
terminated in July 2000. Mr. Sams was a director of our company from September
1995 to August 2000 and our Chief Executive Officer and President from May 2000
to August 2000. Mr.Sams was not paid any amount under the agreement - see item 3
under "Legal Proceedings."
In September 1998, we entered into a five-year employment agreement with
Diego Leiva, as our President and Chief Executive Officer. The agreement
provided for a salary of $300,000 per annum in the first year, increasing by
$50,000 increments in each of the four following years. Mr. Leiva was entitled
to a monthly car allowance of $1,600 per month for automobiles in Florida and
New Jersey and reimbursement for reasonable living expenses in the location
which is not his principal residence. Mr. Leiva's agreement precluded him from
soliciting our employees or interfering with our relationships with other
employees for 18 months after termination of employment. Mr. Leiva was also
prohibited from competing with us during the period following termination of
employment for which we are liable to pay him his base salary. In April 1999,
Mr. Leiva's employment agreement was amended to provide he would continue solely
as Chairman of the Board of Directors and to receive his salary at the rate of
$300,000 per annum. As of May 8, 2000, Mr. Leiva resigned from all positions
with our company and his employment agreement has been terminated. In addition,
Mr. Leiva's employment with PICKSat was terminated on November 28, 2000.
On November 3, 1999, we issued warrants to purchase 2.5% of the
fully-diluted common stock of PICKSat outstanding as of the date of the warrant
to Tri-Links Investment in connection with a bridge loan to PICKSat and we
issued warrants to purchase an additional 1% of the fully-diluted common stock
of PICKSat outstanding as of the date of the warrant to Tri-Links as of March 3,
2000 in connection with the extension of the bridge loan. These warrants are
exercisable until December 31, 2004 at 50% of PICKSat's per share book value or
the lowest sale price in a private transaction.
25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K.
(a) 1. Financial Statements Page
----
Independent Auditor's Report F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statement of Stockholders' Deficiency for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - 25
(a)(2) Reports on Form 8-K. None
(a)(3) Exhibits.
3.1 Amended Articles of Incorporation (1)
3.2 Certificate of Amendment to Articles of Incorporation (7)
3.3 By-Laws
4.1 Form of Warrant Agreement between Registrant and certain holders of
warrants (3)
4.2 Form of Note issued by the Registrant to the Noteholders in the July 1998
Bridge Loan (6)
4.3 Form of Note issued by the Registrant to the Noteholders in the July 1998
Bridge Loan, as amended (6)
4.4 Form of Warrant issued by the Registrant to the Noteholders in the July 1998
Bridge Loan (6)
4.5 Form of Warrant issued by the Registrant to the Noteholders in the July 1998
Bridge Loan, as amended (6)
4.6 Certificate of Designation, Number, Powers, Preferences and Relative
Participating, Optional and Other Special Rights, Qualifications,
Limitations, Restrictions, and Other Distinguishing Characteristics of
Series B Convertible Preferred Stock (6)
26
4.7 Certificate of Designation, Number, Powers, Preferences and Relative
Participating, Optional and Other Special Rights, Qualifications,
Limitations, Restrictions, and Other Distinguishing Characteristics of
Series D Convertible Preferred Stock (6)
4.8 Form of Warrant issued by the Registrant to holders of the Series D
Convertible Preferred Stock (6)
4.9 Form of Amended Note dated April 30, 1999 to the Noteholders in the July
1998 Bridge Loan (7)
10.1 General Security Agreement dated July 29, 1998 by and between the
Registrant and Commonwealth Associates (7)
10.2 Amendment No. 1 to General Security Agreement dated December 20, 1999 (7)
10.3 Amendment No. 2 to General Security Agreement dated March 31, 2000 (7)
10.4 Employment Agreement dated September 28, 1998 between Diego Leiva and the
Registrant (7)
10.5 Amendment dated April 22, 1999 to Employment Agreement between Diego Leiva
and the Registrant. (7)
10.6 Restructuring Agreement dated April 21, 1999 by and between the Registrant
and Commonwealth Associates (7)
10.7 Agreement dated November 12, 1999 by and between IDT Corporation and the
Registrant. (7)
10.8 Guaranty Agreement dated November 12, 1999 by and between IDT Corporation
and the Registrant. (8)
10.9 Forbearance letter dated July 27, 1999 by and among Worldcom Network
Services, Inc. the Registrant and other entities of the Registrant (7).
10.10 Note dated November 10, 1999 issued by PICK Net, Inc. to IDT
Corporation (7),
10.11 Consulting Agreement dated July 8, 1999 by and between Thomas M. Malone
and the Registrant (7)
10.12 Loan Agreement dated November 3, 1999 by and among Tri-Links Investment
Trust, PICKSat, Inc. and the Registrant (7)
10.13 Borrower Security Agreement dated November 3, 1999 by and among Tri-Links
Investment Trust, and the Registrant (7)
10.14 Parent Guarantee Agreement dated November 3, 1999 by and among Tri-Links
Investment Trust, and the Registrant (7).
10.15 Promissory Note dated November 3, 1999 issued by PICKSat, Inc. to
Tri-Links Investment Trust (7).
10.16 Amendments to Stock Purchase Agreement dated January 13, 2000 by and
between the Registrant and Lebow Investments, Ltd. (7).
10.17 Warrant dated January 13, 2000 issued by PICKSat, Inc. to Gulfsat
Communications Company (7).
10.18 Credit Facility dated September 13, 1999 by and between the PICK Net, Inc.
and Atlantic TeleNetwork, Inc. (7)
10.19 Guaranty dated September 13, 1999 by and between the Registrant and
Atlantic TeleNetwork, Inc. (7).
10.20 Stock Purchase Agreement, between the Registrant and Lebow Investments,
Ltd., dated as of September 13, 1999 (5)
10.21 PICKSat Option Agreement, among the Registrant, PICKSat, Inc. and Atlantic
Tele-Network, Inc., dated as of September 13, 1999 (5)
10.22 Consulting Agreement, between PICKSat and TubiTec GmbH, dated June 1,
2000 (8)
10.23 Employment Agreement dated August 6, 2000, between PICKSat and Wolfgang
Wacker, as amended on April 24, 2001
10.24 Agreement between the Registrant and Helge Bornmann, dated September 7,
2000 (8)
21.1 Subsidiaries of the Registrant
23.1 Consent of Goldstein Golub Kessler LLP
27
------------
(1) Incorporated herein by reference from Exhibits to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996.
(2) Incorporated herein by reference from Exhibits to Registrant's Form 10.
(3) Incorporated herein by reference from Exhibits to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997.
(4) Incorporated herein by reference from Exhibits to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1998.
(5) Incorporated herein by reference from Exhibits to Registrant's Form 8-K for
September 17, 1999.
(6) Incorporated herein by reference to Registrant's Registration Statement on
Form S-1 (No. 333-85205) declared effective on November 15, 1999.
(7) Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999.
(8) Incorporated herein by reference to Registrant's post-effective amendment
no. 1 to Form S-1 (Registration No. 333-85205).
28
SIGNATURES
Pursuant to the requirements of Section l3 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized on May 7, 2001.
PICK COMMUNICATIONS CORP.
By: /s/ Helge Bornmann
-------------------------------
Helge Bornmann
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on May 7,
2001:
Name Title
---- -----
/s/ Helge Bornmann Chairman of the Board,
------------------------- President and Chief Executive Officer
Helge Bornmann (Principal Executive Officer and
Principal Financial Officer) and Director
------------------------- Director
Michael Volz-Kjer
/s/ Wolfgang Nonn
------------------------- Director
Wolfgang Nonn
29
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Independent Auditor's Report F-2
Consolidated Financial Statements:
Balance Sheets F-3
Statement of Operations F-4
Statement of Stockholders' Deficiency F-5
Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-25
F-1
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
PICK Communications Corp.
We have audited the accompanying consolidated balance sheets of PICK
Communications Corp. and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for each of the three years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated 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 financial position of PICK Communications
Corp. and Subsidiaries as of December 31, 2000 and 1999, and the results of
their operations and cash flows for each of the three years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 14 to
the consolidated financial statements, the Company has incurred substantial
recurring losses from operations, has a net capital deficiency and has a working
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 14. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 18, 2001
F-2
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
====================================================================================================================================
December 31, 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 296,740 $ -
Prepaid expenses and other current assets 61,559 176,455
Current assets from discontinued operations - 325,220
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 358,299 501,675
------------------------------------------------------------------------------------------------------------------------------------
Property and Equipment - at cost, net of accumulated depreciation
and amortization of $708,542 and $214,527, respectively 3,444,000 4,434,970
------------------------------------------------------------------------------------------------------------------------------------
Other Assets:
Security deposits 429,165 261,796
Deferred income tax asset, net of valuation allowance of $38,299,000
and $30,509,000, respectively - -
Long-term assets from discontinued operations - 2,068,394
------------------------------------------------------------------------------------------------------------------------------------
Total other assets 429,165 2,330,190
------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 4,231,464 $ 7,266,835
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Cash overdraft - $ 20,193
Current portion of debt $ 4,197,443 888,000
Accounts payable and accrued expenses 9,647,889 8,624,883
Sales of common stock of subsidiary to be issued 6,056,700 -
Current liabilities from discontinued operations 12,234,246 10,965,614
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 32,136,278 20,498,690
Debt, less current portion 9,880,000 9,880,000
Long-term Liabilities from Discontinued Operations - 736,586
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 42,016,278 31,115,276
------------------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Stockholders' Deficiency:
Convertible preferred stock - $.01 par value; authorized 10,000,000 shares;
Designated as Series B - 2,000,000 shares; 1,871,000 shares; 395,000
shares and 930,000 shares outstanding, respectively; aggregate
liquidation value $1,871,000 395,000 930,000
Designated as Series D - 500,000 shares; issued 500,000 shares; 150,000
shares and 260,500 shares outstanding, respectively; aggregate
liquidation value $5,000,000 and $4,660,000, respectively 1,500,000 2,605,000
Common stock - $.01 par value; authorized 100,000,000 shares,
issued 10,642,969 and 8,919,881 shares, respectively 106,465 89,234
Additional paid-in capital 86,092,979 79,746,228
Options and warrants 2,720,071 2,720,071
Subscription receivable - (340,000)
Treasury stock, at cost, 3,550 shares (11,978) (11,978)
accumulated other comprehensive income 1,482 1,482
Accumulated deficit (128,588,833) (109,588,478)
------------------------------------------------------------------------------------------------------------------------------------
Stockholders' deficiency (37,784,814) (23,848,441)
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficiency $ 4,231,464 $ 7,266,835
====================================================================================================================================
The accompanying notes and independent auditor's report should be read in conjunction with the consolidated financial statements
F-3
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Revenue $ 32,919
------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Selling, general and administrative 12,372,148 $ 2,825,957 $ 2,094,025
Loss on retirement of fixed assets 550,970
Depreciation and amortization 676,840 100,234 45,805
------------------------------------------------------------------------------------------------------------------------------------
Operating loss 13,599,958 2,926,191 2,139,830
------------------------------------------------------------------------------------------------------------------------------------
Other expense (income):
Interest expense 2,761,790 1,824,845 -
Settlement of third party debts (293,977) - -
Net loss on marketable equity securities - - 133,000
------------------------------------------------------------------------------------------------------------------------------------
Total other expense 2,467,813 1,824,845 133,000
------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before minority interest in
loss of consolidated subsidiaries and discontinued operations 16,034,852 4,751,036 2,272,830
Minority interest in loss of consolidated subsidiaries - 1,742 2,062
------------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations 16,034,852 4,749,294 2,270,768
------------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from discontinued operations 952,047 5,486,880 14,792,541
Loss on disposal of discontinued operations and related costs 45,315,574 -
Loss on abandonment of fixed assets 2,013,456
Estimated cost to discontinue operations - 1,793,137 -
------------------------------------------------------------------------------------------------------------------------------------
Total loss from discontinued operations 2,965,503 52,595,591 14,792,541
------------------------------------------------------------------------------------------------------------------------------------
Net loss 19,000,355 57,344,885 17,063,309
Beneficial conversion feature of preferred stock - 25,170,000 -
------------------------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $ 19,000,355 $ 82,514,885 $ 17,063,309
====================================================================================================================================
Loss from continuing operations and beneficial conversion
feature of preferred stock per common share - basic and diluted $ 1.56 $ 6.30 $ 0.61
====================================================================================================================================
Loss from discontinued operations per common share - basic and diluted $ 0.29 $ 11.07 $ 4.01
====================================================================================================================================
Net loss applicable to common share - basic and diluted $ 1.85 $ 17.37 $ 4.62
====================================================================================================================================
Weighted-average shares outstanding - basic and diluted 10,308,524 4,750,742 3,692,356
====================================================================================================================================
The accompanying notes and independent auditor's report should be read in conjunction with the consolidated financial statements
F-4
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock Series D Preferred Stock
----------------------------------------------------------------
Number Number
of Shares Amount of Shares Amount
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 - - - -
Issuance of common stock for compensation - - - -
Issuance of common stock in connection
with private placement - - - -
Issuance of common stock upon exercise of
warrants by director - - - -
Issuance of warrants in connection with
short-term debt - - - -
Issuance of options for compensation - - - -
Cancellation of 723,000 shares of treasury stock - - - -
Accumulated other comprehensive loss - - - -
Net loss - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - - - -
Issuance of preferred stock 1,821,000 $ 1,821,000 466,000 $ 4,660,000
Issuance of preferred stock for services 50,000 50,000
Issuance of common stock for services - - - -
Conversion of preferred stock to common stock (941,000) (941,000) (239,500) (2,395,000)
Issuance of preferred stock as a subscription
receivable - - 34,000 340,000
Expiration of options and warrants - - - -
Preferred stock issuance cost - Series B and D - - - -
Issuance of common stock upon exercise of
options for cash - - - -
Issuance of common stock for old debt - - - -
Issuance of common stock upon exercise of
options and warrants for services
Issuance of common stock and warrants
to the restructured debt and fees - - - -
Issuance of warrants for services
Issuance of options for services - - - -
Beneficial conversion feature of preferred stock - - - -
Foreign currency translation adjustments
Net loss - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 930,000 930,000 260,500 2,605,000
Issuance of common stock for services - - - -
Issuance of options and warrants for services
Issuance of subsidiary's options, warrants and common
stock to be issued for services
Issuance of subsidiary's common stock to new investors
Issuance of common stock for old debt - - - -
Conversion of common stock from preferred stock (535,000) (535,000) (76,500) (765,000)
Issuance of common stock upon exercise of
options and warrants
Cancellation of preferred stock as a subscription receivable (34,000) (340,000)
Net loss - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 395,000 $ 395,000 150,000 $ 1,500,000
====================================================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------ Options
Number Paid-in and
of Shares Amount Capital Warrants
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 3,605,902 $ 43,325 $ 5,886,825 $ 21,242
Issuance of common stock for compensation 66,299 663 296,363 -
Issuance of common stock in connection
with private placement 139,437 1,394 864,405 -
Issuance of common stock upon exercise of
warrants by director 5,000 50 13,450 -
Issuance of warrants in connection with
short-term debt - - - 2,359,940
Issuance of options for compensation - - - 306,279
Cancellation of 723,000 shares of treasury stock - (7,230) (3,053,014) -
Accumulated other comprehensive loss - - - -
Net loss - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,816,638 38,202 4,008,029 2,687,461
Issuance of preferred stock - - - -
Issuance of preferred stock for services - - - -
Issuance of common stock for services 854,005 8,540 965,031 -
Conversion of preferred stock to common stock 1,511,238 15,112 3,320,888
Issuance of preferred stock as a subscription
receivable
Expiration of options and warrants - - 89,743 (89,743)
Preferred stock issuance cost - Series B and D - - (544,750) -
Issuance of common stock upon exercise of
options for cash 24,500 245 44,705
Issuance of common stock for old debt 100,000 1,000 999,000
Issuance of common stock upon exercise of
options and warrants for services 437,500 4,375 639,245 (643,620)
Issuance of common stock and warrants
to the restructured debt and fees 2,176,000 21,760 45,054,337 239,477
Issuance of warrants for services 494,996
Issuance of options for services 31,500
Beneficial conversion feature of preferred stock - - 25,170,000 -
Foreign currency translation adjustments
Net loss - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 8,919,881 89,234 79,746,228 2,720,071
Issuance of common stock for services 200,000 2,000 198,000
Issuance of options and warrants for services 595,511
Issuance of subsidiary's options, warrants and common
stock to be issued for services 4,268,471
Issuance of subsidiary's common stock to new investors
Issuance of common stock for old debt 50,000 500 (500)
Conversion of common stock from preferred stock 917,500 9,175 1,290,825
Issuance of common stock upon exercise of
options and warrants 555,588 5,556 (5,556)
Cancellation of preferred stock as a subscription receivable
Net loss - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 10,642,969 $ 106,465 $ 86,092,979 $ 2,720,071
====================================================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Subscriptions Other
and Notes Treasury Comprehensive Accumulated
Receivable Stock Income(Loss) Deficit
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1998 - $ (3,072,222) $ 38,000 $ (10,010,284)
Issuance of common stock for compensation - -
Issuance of common stock in connection
with private placement - -
Issuance of common stock upon exercise of
warrants by director - -
Issuance of warrants in connection with
short-term debt -
Issuance of options for compensation -
Cancellation of 723,000 shares of treasury stock - 3,060,244 -
Accumulated other comprehensive loss - - (38,000)
Net loss - (17,063,309)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - (11,978) - (27,073,593)
Issuance of preferred stock - - - -
Issuance of preferred stock for services - - - -
Issuance of common stock for services - -
Conversion of preferred stock to common stock
Issuance of preferred stock as a subscription
receivable $ (340,000)
Expiration of options and warrants - -
Preferred stock issuance cost - Series B and D - -
Issuance of common stock upon exercise of
options for cash
Issuance of common stock for old debt
Issuance of common stock upon exercise of
options and warrants for services
Issuance of common stock and warrants
to the restructured debt and fees - -
Issuance of warrants for services
Issuance of options for services - -
Beneficial conversion feature of preferred stock - (25,170,000)
Foreign currency translation adjustments 1,482
Net loss - (57,344,885)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 (340,000) (11,978) 1,482 (109,588,478)
Issuance of common stock for services
Issuance of options and warrants for services
Issuance of subsidiary's options, warrants and common
stock to be issued for services
Issuance of subsidiary's common stock to new investors
Issuance of common stock for old debt
Conversion of common stock from preferred stock
Issuance of common stock upon exercise of
options and warrants
Cancellation of preferred stock as a subscription receivable 340,000
Net loss - (19,000,355)
------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $ - $ (11,978) $ 1,482 $ (128,588,833)
====================================================================================================================================
--------------------------------------------------------------------------------
Year ended December 31, 2000
--------------------------------------------------------------------------------
Shareholders'
Deficiency
--------------------------------------------------------------------------------
Balance at January 1, 1998 $ (7,093,114)
Issuance of common stock for compensation 297,026
Issuance of common stock in connection
with private placement 865,799
Issuance of common stock upon exercise of
warrants by director 13,500
Issuance of warrants in connection with
short-term debt 2,359,940
Issuance of options for compensation 306,279
Cancellation of 723,000 shares of treasury stock -
Accumulated other comprehensive loss (38,000)
Net loss (17,063,309)
--------------------------------------------------------------------------------
Balance at December 31, 1998 (20,351,879)
Issuance of preferred stock 6,481,000
Issuance of preferred stock for services 50,000
Issuance of common stock for services 973,571
Conversion of preferred stock to common stock -
Issuance of preferred stock as a subscription
receivable -
Expiration of options and warrants -
Preferred stock issuance cost - Series B and D (544,750)
Issuance of common stock upon exercise of
options for cash 44,950
Issuance of common stock for old debt 1,000,000
Issuance of common stock upon exercise of
options and warrants for services -
Issuance of common stock and warrants
to the restructured debt and fees 45,315,574
Issuance of warrants for services 494,996
Issuance of options for services 31,500
Beneficial conversion feature of preferred stock -
Foreign currency translation adjustments 1,482
Net loss (57,344,885)
--------------------------------------------------------------------------------
Balance at December 31, 1999 (23,848,441)
Issuance of common stock for services 200,000
Issuance of options and warrants for services 595,511
Issuance of subsidiary's options, warrants and common
stock to be issued for services 4,268,471
Issuance of subsidiary's common stock to new investors
Issuance of common stock for old debt -
Conversion of common stock from preferred stock -
Issuance of common stock upon exercise of
options and warrants -
Cancellation of preferred stock as a subscription receivable -
Net loss (19,000,355)
--------------------------------------------------------------------------------
Balance at December 31, 2000 $ (37,784,814)
================================================================================
The accompanying notes and independent auditor's report should be read in
conjunction with the consolidated financial statements
F-5
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (19,000,355) $ (57,344,885) $ (17,063,309)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on marketable securities - 133,000
Stock, options and warrants issued for compensation or services 795,511 1,550,067 603,305
Options and warrants issued by subsidiary for compensation or services 4,268,471
Loss on disposal of discontinued operations and related costs 45,315,574 -
Loss on retirement or abandonment of fixed assets 2,639,575
Amortization of debt discount and debt placement expenses - 4,656,773
Depreciation and amortization 676,840 100,234 359,711
Minority interest in loss of consolidated subsidiaries (1,742) (2,062)
Bad debt expense - 125,740
Changes in operating assets and liabilities:
Decrease (Increase) in prepaid expenses and other current assets 114,896 101,897 (1,017,764)
Decrease (increase) in current assets from discontinued operations 325,220 943,835 (231,499)
Increase in security deposits (167,369) (100,000) -
Decrease (increase) in long-term assets from discontinued operations 2,068,394 (198,662) -
Increase in accounts payable and accrued expenses 1,023,006 5,393,474 2,814,642
Increase in deferred revenue - 1,502,153
Increase in other current liabilities - 2,814,316
Increase in current liabilities from discontinued operations 1,268,632 - -
Decrease in long-term liabilities from discontinued operations (736,586) (1,001,554) -
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (6,723,765) (5,241,762) (5,304,994)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activity - Purchase of property and equipment (2,325,445) (1,340,035) (3,817,153)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Funds advanced on third-party debt, net of cash placement costs 3,309,443 888,000 11,468,966
Proceeds from issuance of common stock for cash 44,950 13,500
Proceeds from subsidiary's common stock to be issued 6,056,700 - -
Proceeds from issuance of Series B preferred stock 1,821,000 -
Proceeds from issuance of Series D preferred stock 4,660,000 -
Payment of preferred stock issuance cost (544,750) -
Decrease in long-term liabilities from discontinued operations (306,130)
Payment on third-party debt (20,000) (2,217,667)
Increase in bank overdraft (20,193) 20,193 -
Funds advanced by stockholders - 15,000
Payments of stockholders' advances - (185,000)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 9,345,950 6,563,263 9,094,799
------------------------------------------------------------------------------------------------------------------------------------
Effect of foreign translation on cash - 1,482 -
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 296,740 (17,052) (27,348)
Cash at beginning of year - 17,052 44,400
------------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 296,740 $ - $ 17,052
====================================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for interest from:
Continuning operations $ 38,417 $ 1,519 $ -
====================================================================================================================================
Discontinued operations $ - $ 171,413 $ 1,167,716
====================================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Assets from discontinued operations acquired under capital leases $ - $ - $ 591,026
====================================================================================================================================
Discounts on short-term debt $ - $ - $ 1,312,934
====================================================================================================================================
Conversion of debt to equity $ - $ 1,000,000 $ -
====================================================================================================================================
(Cancellation) issuance of preferred stock as subscriptions receivable $ (340,000) $ 340,000 $ -
====================================================================================================================================
Beneficial conversion feature of preferred stock $ - $ (25,170,000) $ -
====================================================================================================================================
The accompanying notes and independent auditor's report should be read in conjunction with the consolidated financial statements
F-6
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. PRINCIPAL PICK Communications Corp. and Subsidiaries (collectively,
BUSINESS the "Company") provide satellite-based Internet access and
ACTIVITY AND interactive multimedia services to end-user service
SUMMARY OF providers. In March 1999, the Company formed a new
SIGNIFICANT subsidiary, PICK Online.Com Inc., a media content aggregator
ACCOUNTING using a satellite-based multicast delivery system for
POLICIES: Internet service providers and broadband networks. The
Company is headquartered and leases facilities in Miami,
Florida.
The accompanying consolidated financial statements include
the accounts of PICK Communications Corp. and its wholly
owned subsidiaries, PICKSat Inc. ("PICKSat"), PICK
Online.Com Inc. ("POL"), and the discontinued operations of
PICK US Inc. f/k/a PICK Inc. ("PICK US"), PICK Net Inc.
("PICK Net") and PICK Net UK PLC ("Pick Net UK") and P.C.T.
Prepaid Telephone Inc. ("PCT"), its majority owned
subsidiary. All significant intercompany balances and
transactions have been eliminated.
The Company has discontinued the operations of its
telecommunication and prepaid calling card business
consisting of PICK US, PICK Net and PICK Net UK (see Note
11).
The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in
the United States of America. In preparing the consolidated
financial statements, management is required to make
estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the consolidated
balance sheet and revenue and expenses for the periods then
ended. Actual results could differ from those estimates.
Revenue from PICKSat was derived from monthly fees charged
based upon the type of usage and bandwidth contracted for,
one time installation charges, and sale of computer card
required to access certain PICKSat services. For the year
ended December 31, 2000, both PICKSat and POL had no
significant revenue. Revenue from the discontinued
operations were recognized at the time that the service was
provided, for long-distance time as reported by the
electronic switching devices, and for prepaid calling cards
revenue as the card was used.
For comparability, certain 1999 and 1998 amounts have been
reclassified, where appropriate, to conform to the financial
statement presentation used in 2000.
Basic net loss per share is computed by dividing the net
loss applicable to common stock by the weighted-average
number of common shares outstanding during the period.
Diluted net loss per share is not presented separately
because the inclusion of common share equivalents in the
calculation would be antidilutive.
The Company does not believe that any recently issued but
not yet effective accounting standards will have a material
effect on the Company's consolidated financial position,
results of operation or cash flows.
F-7
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Depreciation of property, equipment and software is provided
for by the straight-line method over the estimated useful
lives of the related assets. Amortization of leasehold
improvements is calculated by the straight-line method over
the term of the lease.
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes. The Company recorded a
deferred tax asset for the tax effect of net operating loss
carryforwards and temporary differences. In recognition of
the uncertainty regarding the ultimate amount of income tax
benefits to be derived, the Company has recorded a full
valuation allowance.
Loss from continuing operations and beneficial conversion
feature of preferred stock per common share - basic is
computed by adding (i) the beneficial conversion feature of
preferred stock and (ii) the loss from continuing operations
and then dividing the result by the weighted-average common
shares outstanding - basic. The loss from discontinued
operations per common share - basic was computed by dividing
total loss from discontinued operations by the
weighted-average common shares outstanding - basic. Net loss
per common share applicable to common stock - basic is
computed by dividing the net loss applicable to common stock
by the weighted-average common shares outstanding - basic.
Diluted net loss per share is not presented because the
inclusion of common share equivalents would be antidilutive.
2. PREPAID Prepaid expenses and other current assets consist of the
EXPENSES AND following:
OTHER CURRENT
ASSETS:
December 31, 2000 1999
------------------------------------------------------------
Accounts receivable $ 3,942
Computer equipment for resale - $ 58,159
Inventory 24,750 -
Prepaid expenses 5,840 61,851
Advances and other current assets 27,027 56,445
------------------------------------------------------------
$ 61,559 $176,455
============================================================
3. PROPERTY AND Property and equipment, at cost, consists of the following:
EQUIPMENT:
Estimated
December 31, 2000 1999 Useful Life
-----------------------------------------------------------------------------------------------------
Property, equipment and software $ 3,544,462 $ 567,543 3 and 5 years of
Leasehold improvements 608,080 - lease term
Assets development/
installation-in-process - 4,081,954
-----------------------------------------------------------------------------------------------------
4,152,542 4,649,497
-----------------------------------------------------------------------------------------------------
Less accumulated depreciation
and amortization 708,542 214,527
=====================================================================================================
$ 3,444,000 $ 4,434,970
=====================================================================================================
F-8
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The hardware and software costs related to the Company's
high-speed Internet business, which was under development in
1999 was placed in service during the third quarter of 2000.
Depreciation commenced at that time.
4. DEBT: Debt consists of the following:
December 31, 2000 1999
------------------------------------------------------------
Private placement debt (a) $ 9,880,000 $ 9,880,000
Note payable (b) 2,750,000 0
Revolver loan (c) 1,447,443 412,000
Note payable (d) 0 476,000
------------------------------------------------------------
14,077,443 10,768,000
Less current portion of debt 4,197,443 888,000
------------------------------------------------------------
Debt, less current portion $ 9,880,000 $ 9,880,000
============================================================
(a) Between July 29, 1998 and September 8, 1998, the
Company, through Commonwealth Associates ("Commonwealth"),
placed $9,900,000 (face amount) of 10%, 120-day Senior
Secured Notes (the "Original Notes") and 9,900,000 warrants
to purchase 990,000 shares of the Company's common stock at
$5.00 per share for five years (the "Placement"). The
Original Notes were secured by all the assets of PICK
Communications Corp. The Company allocated $8,587,066 of the
gross sales proceeds to the debt and $1,312,934 to the
warrants. The $1,312,934 discount was amortized as interest
expense over the original 120-day life of the Original
Notes. In November and December 1998, the Company exercised
its rights to extend the maturity date of the Original Notes
for 60 days. Under the terms of the Original Notes, the
interest rate of the Original Notes was increased to 18% per
annum, retroactive to the issuance of the Original Notes. In
January, February and March 1999, the holders of the
Original Notes agreed to extend the maturity of the Original
Notes until April 27, 1999. In return for the extensions,
the Company agreed to issue 50,012 shares of its common
stock (valued at $265,063 and included in loss from
discontinued operations in the accompanying consolidated
statement of operations) and warrants (valued at $485,100
and included in loss from discontinued operations in the
accompanying consolidated statement of operations) to
purchase 245,750 shares of the Company's common stock for
five years at $5.00 per share to the holders of the Original
Notes. For the placement of the Original Notes, the Company
paid Commonwealth and Liberty Capital (the Company's
co-financial advisor) $1,099,000 in cash, issued 139,437
shares of common stock (valued at $865,799) and warrants to
purchase 250,986 shares of common stock at $5.00 per share
(valued at $383,002) for five years. The costs related to
the Placement were being deferred and amortized as debt
placement expenses over the term of the debt. At December
31, 1998, all debt placement was amortized and included in
the consolidated statement of operations.
F-9
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
On April 27, 1999, the holders of the Original Notes, who
controlled in excess of 99% of the principal which was due
on April 27, 1999, consented to restructure their Original
Notes (the "Restructured Notes") and extend the maturity
date until April 27, 2002. Additionally, the Company has the
option to extend the maturity date for one additional year
in which event the conversion price (see below) will be
reduced to 50% of the market price. Under the terms of the
restructuring, the Restructured Notes are convertible into
shares of common stock at $10.00 or less per share (valued
at $7,077,600), as defined in the terms of restructuring.
The Restructured Notes automatically convert to common stock
if the closing bid price exceeds $15.00 per share, as
defined. In January 2000, as a result of antidilution
provision of the Restructured Notes the conversion rate
was reduced to $5.00 per share.
In consideration for the restructuring, the consenting
noteholders received the following:
(i) the right for a two-year period to exchange the
existing warrants for an aggregate of 988,000 shares of
the Company's common stock for no consideration (valued
at $15,604,800); and
(ii) the right to receive from the Company an aggregate of
988,000 shares of the Company's common stock for no
consideration (valued at $16,907,600).
During 1999, the 1,976,000 shares referred to in (i) and
(ii) above were issued to the consenting noteholders.
In consideration for the restructuring of the Original
Notes, the Company also issued to Commonwealth 200,000
shares of common stock (valued at $3,440,000 and which
amount is included in loss on disposal of discontinued
operations in the accompanying consolidated statement of
operations) plus warrants to purchase 50,000 of the
Company's common stock at $13.75 per share (valued at
$239,477 and included in loss on disposal of discontinued
operations in the accompanying consolidated statement of
operations). Additionally, warrants previously issued to
Commonwealth will be exercisable at $1.00 per share (valued
at $2,046,097 and included in additional paid-in capital in
the accompanying consolidated balance sheet).
Due to the restructuring of the $9,900,000 Original Notes,
the Company recorded an increase in additional paid-in
capital of $45,054,337, $21,760 in issuance of common stock
and $239,477 in issuance of warrants, total amounted to
$45,315,574 during 1999. This charge used no cash of the
Company.
At December 31, 1999, management believed the cost of the
restructuring had no future value. Accordingly, all amounts
were written off and charged to loss on disposal of
discontinued operations and related costs since most of the
funds were used to fund these operations. Additionally, all
deferred interest and placement charges were also written
off and included in the loss on disposal of discontinued
operations and related costs.
F-10
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(b) PICKSat issued three separate promissory notes (the
"Notes") to an investor, a Kuwaiti company, for the
aggregated amount of $2,750,000 at the rate of 7.50% per
annum as follows:
o On October 15, 2000, PICKSat issued the first
promissory note for the principal sum of
$2,000,000. The principal amount plus accrued
interest is due on October 15, 2001.
o On December 15, 2000, PICKSat issued the second
promissory note for the principal sum of $500,000.
This promissory note was for a convertible loan on
a pari passu basis with Atlantic Tele-Network, Inc.
("ATN"). The principal amount plus accrued interest
is due on December 15, 2001.
o On December 26, 2000, PICKSat issued the third
promissory note for the principal sum of $250,000.
The principal amount plus accrued interest is due
on December 26, 2001.
The Notes are collateralized by all the assets of PICKSat.
(c) On November 3, 1999, PICKSat obtained a 120-day revolver
for $500,000 (the "Revolver") from Tri-Links Investment
Trust ("Tri-Links"). The Revolver balance at December 31,
1999 amounted to $412,000 plus accrued interest at the rate
of 13% per annum. The interest rate was increased to 15% per
annum upon default; payment of which is guaranteed by PICK.
Tri-Links was granted a security interest in substantially
all of PICKSat's assets which was initially subordinated to
ATN and then made pari passu and equal in priority as of
April 2000. The Revolver came due on March 3, 2000 and was
extended until May 3, 2000. In addition, on January 26,
2000, Tri-Links, PICK, PICKSat and Group Technology for
Scientific Equipment and Supplies and Salah Khalid Al-Fulaij
("Fulaij") entered into an Amendment Agreement which was
amended again in March and April 2000, whereby the
commitment under the Revolver was eventually increased. The
loan payable balance at December 31, 2000 amounted to
$1,447,430 plus accrued interest. The Company has not made
any principal payment under this agreement as of April 18,
2001.
F-11
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
(d)PICKSat issued a promissory note payable to ATN
aggregating $476,000, which loan bears interest at prime
plus 2%. This promissory note was entered into in connection
with PICKSat options as described in the PICKSat option
agreement dated September 13, 1999. ATN chose not to
exercise this option. The promissory note became due and
payable on February 4, 2000 but has not been paid. On
January 4, 2000, in consideration of the then pending
completion of the sale of the Company's PICK Net
subsidiaries (see Note 11), as well as the termination of
the PICKSat option, ATN received five-year warrants to
purchase 1,000,000 shares of PICK common stock exercisable
at $2.00 per share. This promissory note was assumed by PICK
Net's buyer on the date of the sale of PICK Net, January 18,
2000. During the second quarter ended June 30, 2000, PICKSat
removed the full loan balance plus accrued interest from
its books and recorded the amount on PICK Net's books, which
amount is included in current liabilities from discontinued
operations in the accompanying consolidated balance sheet.
5. ACCOUNTS Accounts payable and accrued expenses consist of the
PAYABLE following:
AND ACCRUED
EXPENSES:
December 31, 2000 1999
------------------------------------------------------------------------------------
Accounts payable - operating $ 1,096,298 $ 2,323,613
Accrued expenses - operating 803,495 2,272,306
Subsidiary's common stock to be issued 124,975 0
Accrued expenses - for equipment - 1,066,000
Accrued interest - for loans and settlements 4,660,157 0
Accrued expenses - settlement reserves
(see note 12) 2,962,964 2,962,964
------------------------------------------------------------------------------------
$ 9,647,889 $ 8,624,883
====================================================================================
6. PREFERRED In March 1999, the board of directors authorized the
STOCK: issuance of 2,000,000 shares of Series B convertible
preferred stock. The Series B convertible preferred stock
has a par value of $.001 per share and 1,821,000
shares were issued, convertible into 1,821,000 shares of the
Company's common stock at the rate of $1.00 per share. An
additional 50,000 shares were issued (valued at $50,000) for
professional services provided to the Company. There was a
placement cost of $85,000 related to the issuance of Series
B and the amount was paid in full during 1999. Through
December 31, 2000, an aggregate of 1,476,000 shares of
Series B convertible preferred stock has been converted
into 1,476,000 shares of common stock and 395,000 shares
remain convertible into common stock.
F-12
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In April 1999, the board of directors authorized the
issuance of 500,000 shares of Series D convertible preferred
stock. The Series D convertible preferred stock has a stated
par value of $.001 per share and was initially convertible
into 1,190,500 shares of the Company's common stock at the
rate of $4.20 per share. As of December 31, 1999, the
Company had sold an aggregate of 466,000 shares of Series D
convertible preferred stock for $4,660,000 prior to the
payment of $459,750 of preferred stock placement costs. This
$459,750 placement costs has been recorded in the additional
paid in capital account. In addition, the Company issued an
aggregate of 700,000 common stock purchase warrants in
connection with the sale of Series D convertible preferred
stock. Each warrant, as adjusted, is exercisable at $6.30
per share of common stock for a two-year period for an
aggregate of 70,000 shares. On July 15, 1999, the Company
sold 34,000 shares of Series D convertible preferred stock
for $340,000 to Diego Leiva, chairman of the board. The
purchase was evidenced by a recourse promissory note secured
by a pledge of the securities. The 34,000 shares, 68,000
warrants and $340,000 promissory note have all been
cancelled upon termination of Mr. Leiva's employment by the
Company.
In January 2000, the conversion rate was adjusted so that
the preferred stock converts into shares at $2.00 per share.
Through December 31, 2000, an aggregate of $3,160,000 of the
principal amount of Series D convertible preferred stock had
been converted into 952,738 shares of common stock. An
aggregate of $1,500,000 principal amount remains
outstanding, convertible into 750,000 shares of common
stock.
At the time of issuance, the Series B and Series D were
convertible at prices below the market value of the
underlying common stock. The beneficial conversion feature
represented by the intrinsic value is calculated as the
difference between the conversion price and the market price
of the underlying common stock multiplied by the number of
shares to be issued from the conversion. The beneficial
conversion feature is recognized as a return to the
preferred stockholders. At December 31, 1999, the beneficial
conversion feature amounted to $6,361,000 and $18,809,000
aggregating to $25,170,000 for the Series B and Series D,
respectively. The beneficial conversion feature had no value
at December 31, 2000.
7. COMMON STOCK: On February 26, 1999, the board of directors of the Company
authorized an increase of the Company's authorized shares of
common stock from 100,000,000 to 400,000,000 shares which
was effective on April 13, 1999.
Effective July 28, 1999, the board of directors of the
Company authorized a change in shares of common stock from
400,000,000 with par value of $.001 to 100,000,000 with par
value of $0.01 per share.
F-13
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
8. STOCK OPTIONS: In February 1996, the Company adopted an incentive stock
option plan for employees, directors, independent
contractors and consultants of the Company which provides
for the grant of stock options and stock appreciation
rights. Options may be granted at prices not less than fair
market value of the Company's common stock at the date of
grant and may not be exercised more than 10 years after the
date granted. Unless otherwise provided, options vest at a
rate of 20% a year commencing with the date of grant. On
March 19, 1999, the board of directors increased the
aggregate number of shares of common stock reserved for
issuance under the plan from 750,000 shares to 1,000,000
shares. Of the total number of shares of common stock as of
December 31, 2000, 767,000 shares of common stock relate to
options issued outside of the incentive stock option plan.
Transactions related to stock options are as follows:
Number Weighted-average
of Shares Price per Share
------------------------------------------------------------
Balance at January 1, 1998 450,000 $ 2.30
Granted 680,000 5.20
Expired/canceled (5,000) (2.70)
------------------------------------------------------------
Balance at December 31, 1998 1,125,000 4.10
Granted 1,237,500 3.11
Exercised (437,500) (2.06)
Canceled/forfeited (907,500) (3.78)
------------------------------------------------------------
Balance at December 31, 1999 1,017,500 2.49
Granted 1,235,000 0.32
Exercised - -
Expired/canceled (442,000) (2.33)
------------------------------------------------------------
Balance at December 31, 2000 1,810,500 $ 1.05
============================================================
The weighted-average fair value per share of options granted
during the years ended December 31, 2000, 1999 and 1998
amounted to $0.68, $0.06 and $1.30, respectively.
Approximately $795,511, $1,228,624 and $306,000 of charges
are reflected in selling, general and administrative
expenses for the years ended December 31, 2000, 1999 and
1998, respectively, relating to options granted to
nonemployees.
In addition, $4,393,446 of charges are reflected in selling,
general and administrative expenses for the year ended
December 31, 2000 for the issuance of PICKSat's stock
options, warrants and common stock to be issued to
non-employees and employees.
F-14
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The Company has elected, in accordance with the provisions
of SFAS No. 123, Accounting for Stock-Based Compensation to
apply the current accounting rules under Accounting
Principles Board Opinion No. 25 and related interpretations
in accounting for its stock options and, accordingly, has
presented the disclosure-only information as required by
SFAS No. 123. If the Company had elected to recognize
compensation cost based on the fair value of the options
granted at the grant date as prescribed by SFAS No. 123, the
Company's net loss and net loss per common share for the
years ended December 31, 2000, 1999, and 1998 would
approximate the pro forma amounts indicated in the table
below:
2000 1999 1998
-----------------------------------------------------------------------------
Net loss - as reported $19,000,355 $57,344,885 $17,063,309
Net loss - pro forma $19,000,355 $57,454,201 $17,253,914
Diluted net loss per
common share - as reported $ 1.85 $ 12.07* $ 4.62
Diluted net loss per
common share - pro forma $ 1.85 $ 12.09* $ 4.67
-----------------------------------------------------------------------------
* This does not give effect to the beneficial conversion
feature of preferred stock.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for the
years ended December 31, 2000, 1999 and 1998, respectively;
expected volatility of 250%, 18% and 18%, respectively;
risk-free interest rates of 6.00%, 5.00% and 6.01%,
respectively; no annualized dividends paid with respect to a
share of common stock at the date of grant, and options have
expected lives of between two and ten years.
F-15
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
The following table summarizes information about fixed stock
options outstanding at December 31, 2000:
Options Options
Outstanding Exercisable
------------------------------------------------------------------------------------------
Weighted-
Number Average Weighted- Number Weighted-
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Range of Exercise Prices 2000 Life (Years) Price 2000 Price
--------------------------------------------------------------------------------------------
$0.00- $0.10 910,000 4.42 $0.08 910,000 $0.08
$1.00 - $1.25 250,000 4.22 1.10 250,000 1.10
$1.63 - $1.81 555,500 2.78 1.80 555,500 1.80
$5.00 - $5.50 85,000 2.67 5.21 85,000 5.21
$9.90 10,000 1.85 9.90 10,000 9.90
--------------------------------------------------------------------------------------------
Total 1,810,500 3.79 $1.05 1,810,500 $1.05
============================================================================================
On March 3, 1999, the board of directors granted each of the
then three independent directors options to purchase 50,000
shares of common stock at $1.81 per share. Those options
became fully vested on March 3, 2000.
9. COMPREHENSIVE Comprehensive income, as defined in SFAS No. 130, Reporting
INCOME (LOSS): Comprehensive Income (Loss), includes all changes in equity
during a period from non-owner sources. An example of items
included in comprehensive income (loss) that are excluded
from net income (loss) are unrealized gains or losses on
marketable equity securities. For the years ended December
31, 2000, 1999 and 1998, changes in accumulated other
comprehensive income (loss) were $0, $1,482 and ($38,000),
respectively, and relate to unrealized gains or losses on
marketable equity securities.
10. INCOME TAXES: The Company's deferred tax assets at December 31, 2000
consist of the following:
Federal $32,694,000
State 5,605,000
------------------------------------------------------------
38,299,000
Less valuation allowance (38,299,000)
------------------------------------------------------------
Net deferred tax assets $ -0-
============================================================
The deferred tax assets are comprised of the tax benefit of
net operating loss carryforwards, and capital loss
carryforwards from continuing operations are approximately
$22,926,000 and $133,000, respectively, at December 31,
2000. Net operating loss carryforwards from discontinued
operation and loss on disposal from discontinued operations
are approximately $23,244,924 and $47,109,000, respectively
at December 31, 2000. These losses are available to offset
future taxable income through the years 2019 and 2003,
respectively.
F-16
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
11. DISCONTINUED On June 23, 1999, the Company formalized its plan to
OPERATIONS: discontinue its telecommunications and prepaid calling card
business consisting of PICK US, PICK Net and PICK Net UK PLC
(collectively, "PICK Net"). Accordingly, the
telecommunications and prepaid calling card business are
accounted for as a discontinued operation in the
accompanying consolidated financial statements. The Company
contracted to sell PICK Net on September 13, 1999 and
discontinued the operations of PICK US. On January 18, 2000,
PICK completed the sale of all of the stock of PICK Net for
nominal value, and had approximately $10,700,000 million of
PICK Net's liabilities assumed. As part of this transaction,
the Company issued warrants to purchase 1,000,000 shares of
common stock (valued at $1,000,000) to ATN. Subsequent to
the closing of the sale of PICK Net, the buyer defaulted on
its payment obligation. As a result of the default of the
buyer, the assumed liabilities continue to remain
outstanding on the Company's financial statements. The
Company has demanded compliance by the buyer.
Operating results of discontinued telecommunications and
prepaid calling card business are as follows:
Year ended December 31, 2000 1999 1998
-------------------------------------------------------------------------------------------
Sales of long-distance services $ 168,598 $ 2,566,823 $ 1,978,441
Sales of prepaid calling cards 0 3,362,999 7,844,462
-------------------------------------------------------------------------------------------
Net sales 168,598 5,929,822 9,822,903
-------------------------------------------------------------------------------------------
Cost of sales 328,864 7,859,558 16,392,544
Selling, general and administrative 585,138 2,332,047 1,786,075
Depreciation and amortization 18,587 451,116 313,906
Bad debt expense 64,099 47,262 125,740
-------------------------------------------------------------------------------------------
Total costs and expenses 996,688 10,689,983 18,618,265
-------------------------------------------------------------------------------------------
Loss before amortization of debt
placement expenses and interest expense 828,090 4,760,161 8,795,362
Amortization of debt placement expenses
and interest expense 123,957 726,719 5,997,179
-------------------------------------------------------------------------------------------
Loss from discontinued operations 952,047 5,486,880 14,792,541
-------------------------------------------------------------------------------------------
Loss on disposal of discontinued
operations and related costs 0 45,315,574 0
-------------------------------------------------------------------------------------------
Estimated cost to discontinue operations 0 1,793,137 0
Loss on abandonment of fixed assets 2,013,456 0 0
-------------------------------------------------------------------------------------------
Total loss from discontinued operations $2,965,503 $52,595,591 $14,792,541
===========================================================================================
F-17
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Assets and liabilities of discontinued telecommunications
and prepaid calling card business are as follows:
Year ended December 31, 2000 1999
----------------------------------------------------------------------------------------
Cash 0 $ 18,117
Accounts Receivable, less allowance for
doubtful accounts of $0 and $482,735, respectively 0 228,885
Prepaid expenses and other current assets 0 78,218
----------------------------------------------------------------------------------------
Current assets from discontinued operations 0 325,220
----------------------------------------------------------------------------------------
Property and equipment - at cost, net of
accumulated depreciation and amortization
of $0 and $771,301, respectively 0 2,032,044
Security deposits 0 36,350
----------------------------------------------------------------------------------------
Long-term Assets from Discontinued Operations 0 2,068,394
----------------------------------------------------------------------------------------
Current liabilities:
Current portion of debt (a)(b)(c) $ 4,757,332 3,814,244
Current portion of other debt 1,018,578 306,130
Accounts payable and accrued expenses 6,363,336 6,815,620
Deferred revenue - prepaid calling cards - 29,620
Other current liabilities - AT&T settlement 95,000 -
----------------------------------------------------------------------------------------
Current liabilities from discontinued
operations 12,234,246 10,965,614
----------------------------------------------------------------------------------------
Long-term liabilities from discontinued
operations - less current portion 0 736,586
----------------------------------------------------------------------------------------
Net liabilities of discontinued
operations $12,234,246 $ 9,308,586
========================================================================================
(a) In February 1998, the Company amended its existing
telecommunications agreement with IDT Corporation
("IDT"), one of its long distance vendors/customers.
Under the terms of the amendment, the Company agreed to
sell IDT up to 10,000,000 minutes per month of long
distance traffic, through June 9, 1999, at favorable
rates and IDT agreed to lend the Company $2,000,000. Of
this amount, $500,000 was funded when the transaction
was signed, $1,000,000 was funded in April 1998 and the
remaining $500,000 was advanced in June 1998. The loan
bore interest at 9% per annum and matured on February 9,
1999. In April 1999, the Company renegotiated its loan
into a new six-month promissory note (the "Note"), in
the amount of $2,000,000 plus $60,000 accrued interest
at 12% per annum.
F-18
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Pursuant to an agreement dated November 12, 1999, the
Company extended the Note for an additional six months
in the principal amount of $2,000,000 plus accrued
interest. The Company issued to IDT 40,000 shares of
PICK's common stock in exchange for IDT's warrants to
purchase 40,000 shares of PICK's common stock, which
were canceled upon such delivery, plus a restructuring
fee of 50,000 shares of PICK common stock. The Company
also agreed to pay $250,000 upon the earlier to occur of
30 days from the date of execution of the agreement or
the completion of additional financing for at least
$5,000,000 for PICK and shall make six monthly principal
payments of $25,000 each on the last business day of
each month following the issue date of this Note,
beginning on November 15, 1999. PICK elected to exercise
its option to extend the maturity date of the Note from
six months to eighteen months (until May 15, 2001) and
delivered to IDT 37,500 shares of PICK's common stock.
Thereafter, PICK agreed to pay IDT $25,000 per month for
all 12 months, including the six monthly payments
described above beginning on November 15, 1999. Interest
is payable monthly at 9% per annum. This Note will
automatically convert into common stock at $10.00 per
share if the average price of the Company's common stock
exceeds $15.00 per share for at least 20 consecutive
days during which time the daily trading volume is at
least 20,000 shares. All shares of common stock issued
or issuable to IDT were included in a registration
statement declared effective on November 12, 1999. PICK
has been unable to make any required cash payments to
IDT under the Note.
(b) As of December 31, 2000, PICK Net has received from an
affiliate of the buyer of PICK Net approximately
$283,000.
(c) PICK Net has promissory notes with ATN in the aggregate
amount of $2,052,857 (including $476,000 principal
amount plus accrued interest assumed from PICKSat by
PICK Net's buyer on the date of sale, January 18, 2000).
At December 31, 2000, these notes bear interest at prime
plus 2% (11.5%). These promissory notes were entered
into in connection with sales of PICK Net as described
in the stock purchase agreement dated September 13,
1999. The promissory notes became due and payable on
February 4, 2000 and have not been paid (see Note 4).
12. LITIGATION AND The Company is, from time to time, party to litigation that
RESERVE FOR arises in the ordinary course of its business operations or
CONTINGENT otherwise. Except as described below, the Company is not
LIABILITY: presently a party to any litigation that it believes would
have a material adverse effect on its business.
In February 1997, the Company commenced a mediation action
against American Telephone & Telegraph ("AT&T") seeking
$10,000,000 in damages for breach of contract and fraudulent
inducement and malicious conduct under a carrier agreement
(the "Carrier Agreement") entered into in February 1996. The
Company contracted with AT&T under the Carrier Agreement for
inbound 800 service and outbound domestic and international
long distance service. The Company claimed that AT&T reneged
on certain commitments to provide the Company with lower
international rates than the Company was invoiced by AT&T.
AT&T claimed that the Company owed it in excess of
$1,000,000. The Company has recorded a liability of
$1,706,342 plus accrued interest of which $95,000 plus
accrued interest was recorded on PICK Net's books and shown
in current liabilities from discontinued operations.
F-19
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
After two mediation sessions, AT&T indicated that it
intended to withdraw from the mediation. Accordingly, on
November 5, 1997, the Company filed for arbitration
proceedings against AT&T and reduced its claim to
$5,000,000. The trial began on April 19, 1999 and ended on
April 22, 1999. In October 1999, the arbitrator found that
AT&T was entitled to the gross claim of $1,776,000 minus
credits found in the Company's favor of $399,000 for a net
amount of $1,376,447 plus 9% interest per annum since
January 31, 1997.
Unless it is able to negotiate payment over an extended
period of time this amount could force the Company into
curtailing its operations or seeking protection under the
bankruptcy laws. AT&T converted the arbitration award into a
judgment and has attempted to enforce its judgment.
During March 1999, Worldcom Network Services, Inc., d/b/a
Wiltel ("Worldcom"), commenced a lawsuit against the Company
in the United States District Court, Southern District of
New York, demanding a judgment in the amount of $1,177,734
and interest at 18% per annum plus costs and expenses. The
plaintiff alleges that the Company failed to pay for
telecommunications services provided. On April 15, 1999, the
Company and Worldcom agreed to a settlement (the "Settlement
Agreement"). Under the terms of the Settlement Agreement,
the Company agreed to pay Worldcom $1,256,622 (the
"Settlement Payment") in exchange for a full and complete
settlement of Worldcom's lawsuit against the Company. The
Company agreed to pay the Settlement payment with interest
at 16% per annum on or before January 16, 2000 and for
Worldcom to discontinue, without prejudice, the legal
proceedings until such date. The Company exercised its
option to extend the forbearance through January 16, 2001.
The Company agreed to pay Worldcom a 100,000 share
restructuring fee. PICK has been unable to make any required
cash payments due under this settlement as of April 2001.
On March 27, 2000, Telecom Management Resources, Inc. (as
successor to International Career Information, Inc.), a
vendor of PICK Net, commenced a lawsuit against the Company
and PICK Net in the Superior Court of New Jersey, Law
Division, Hudson County. The complaint involved the alleged
non-payment of $58,220 under a Facilities Management Service
Agreement and $50,400 for additional payments under an
acceleration provision plus interest. The Company answered
and denied the charges and raised affirmative defenses
including the fact that the liability was assigned to PICK
Net with the consent of the plaintiff and then PICK Net was
sold. The parties have reached an agreement in principle to
settle this litigation for $21,250 which had been properly
recorded at December 31, 2000, and was subsequently paid.
On April 14, 2000, Teleglobe USA, Inc. threatened litigation
to recover $900,812 plus interest, from the Company. The
Company believes that its former subsidiary, PickNet Inc.,
is the obligor, and so informed Teleglobe USA, Inc. by
letter dated May 18, 2000. To our knowledge, no litigation
involving the Company has commenced. At the present time,
the outcome of this threatened litigation cannot be
predicted.
F-20
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
On February 5, 2001, Robert Sams, individually and on behalf
of SAICOL Limited, a Bermuda corporation of which Mr. Sams
is allegedly the President and sole shareholder, commenced
an action in the Court of the Eleventh Judicial Circuit for
Dade County, Florida (Case No. 0102847 CA 21) against us,
PICKSat, Wolfgang Wacker and Salah Al-Fulaij, alleging the
following:
o Breach his employment agreement.
o Wolfgang Wacker and Salah Al-Fulaij fraudulently
induced him to resign as Chairman of the Company's
Board of Directors and the sole Director and to
appoint Salah Al-Fulaij as Chairman of the Board
and as sole director as a condition to entering
into his employment agreement.
Mr. Sams seeks damages in an unspecified amount.
On April 2, 2001, PICKSat filed a motion to dismiss the
first amended complaint on the grounds that (1) the fraud
claim is barred by the economic loss doctrine which
proscribes fraud claims that are inexorably connected to a
breach of contract claim; and (2) the unjust enrichment
claim is barred because directors of a corporation do not
receive compensation for services rendered as a director.
The motion is presently pending before the Court.
On April 11, 2001, we filed our motion to dismiss on the
ground that the existence of the contract, and the terms
thereof, prevented plaintiffs from bringing claims for
fraud.
Although both PICK and PICKSat intend to contest these
claims vigorously, we cannot predict with any certainty the
outcome of this case.
13. COMMITMENTS: The Company leases facilities under noncancelable operating
leases expiring through February 2004. The future minimum
payments due under such leases are as follows:
Year ending December 31,
2001 $299,800
2002 308,800
2003 318,000
2004 53,300
------------------------------------------------------------
$979,900
============================================================
Rent expense under operating leases was $337,605, $281,863
and $356,781 for the years ended December 31, 2000, 1999 and
1998, respectively. The Company has the right to renew its
operating leases for terms of between 5 and 15 years.
The Company has employment and consulting agreements with
one employee of PICK, one employee of PICKSat and an outside
consulting company, expiring in various years through 2003.
The approximate aggregate commitment for future salaries and
consulting fees, excluding bonuses, under these employment
and consulting agreements is as follows:
Year ending December 31,
2001 $420,000
2002 120,000
2003 50,000
------------------------------------------------------------
$590,000
============================================================
F-21
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
In addition, the Company is committed to issue equity
compensation of PICK and PICKSat to the above parties per
these agreements.
In September 1998, the Company entered into an employment
agreement with a key executive commencing January 1, 1999.
The agreement provides for annual base salaries of $300,000,
$350,000, $400,000, $450,000 and $500,000 for the next five
years and additional compensation, as defined in the
agreement. In April 1999, the agreement was amended to
provide the key executive continue solely as chairman of the
board. In May 2000, this agreement was terminated.
14. GOING The accompanying consolidated financial statements have been
CONCERN prepared assuming that the Company will continue as a going
MATTERS: concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of
business. The Company has incurred substantial recurring
losses from operations, has a net capital deficiency in the
amount of $37,784,814 and has a working capital deficiency
of $31,777,979 at December 31, 2000 that raise substantial
doubt about its ability to continue as a going concern. In
addition, the Company had negative cash flow from operations
for the years ended December 31, 2000, 1999 and 1998.
Significant short-term obligations exist including the
payment of settlements with Worldcom and AT&T in the amounts
of $1,256,622, plus accrued interest and $1,801,342 plus
accrued interest, respectively, of which $1,706,342 was
recorded on PICK's books and $95,000 was recorded on PICK
Net's books (see Note 12), the Revolver balance amounted to
$1,447,443 plus accrued interest past due to Tri-Links, (see
Note 4), the promissory notes amounted to $2,750,000 (see
Note 4) and $2,052,857 (see Note 12) payable to a Kuwaiti
company and ATN plus accrued interest, respectively, a
settlement with IDT to extend its $2,000,000 loan plus
accrued interest (see Note 11) and normal cash flows from
operations. Without the Company's ability to extend the
payout terms of the aforementioned liabilities or obtain
additional long-term financing, as well as increasing
revenue and/or decreasing expenses, the Company will be
unable to continue as a going concern. The consolidated
financial statements do not include any adjustments relating
to the recoverability of assets or the classifications of
liabilities should the Company be unable to continue as a
going concern.
Furthermore, the Company is in need of immediate financing
for working capital. Subsequent to December 31, 2000,
PICKSat issued 1,460,800 shares of its common stock, to
European and Middle Eastern investors, for a total purchase
price of $7,304,000, plus 585,000 shares, representing 19.2%
of the then outstanding PICKSat common stock, to consultants
for introducing those investors. Accordingly, our ownership
percentage in PICKSat has been reduced to approximately 33%
of the outstanding shares. Therefore, the Company cannot
depend on PICKSat for financing.
The Company has had discussions with several of its largest
unsecured creditors, including, but not limited to AT&T and
IDT. The Company attempted to reach an approved out of court
"standby agreement" with all of its creditors. If the
standby agreement was acceptable to the Company's creditors,
then as long as the Company complied with its terms, the
Company's creditors would not exercise their legal rights
and remedies. If the proposed settlement with creditors was
successful, the Company would have no direct obligation to
any of its unsecured creditors because their claims will be
satisfied from the future earnings of PICKSat and/or other
affiliates. The Company's effort to resolve the claims of
its unsecured creditors were not successful.
F-22
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Should the Company be unable to obtain interim financing in
the near term and/or reach an agreement with its unsecured
creditors, the Company may be forced to suspend operations
and/or seek protection under the bankruptcy laws.
15. ALLOWANCE FOR Information relating to the allowance for doubtful accounts
DOUBTFUL is as follows for the years ended December 31:
ACCOUNTS:
Balance at
Beginning Charged to Balance at
of Year Expense Deductions End of Year
----------------------------------------------------------------------------------------
========================================================================================
1998 $326,497 $125,740 $100,399 $351,838
========================================================================================
1999 $351,838 $ 47,262 $(83,635) $482,735
========================================================================================
2000 $482,735 $ - $482,735 $ -
========================================================================================
16. SALES OF In April 2000, a group of investors from Europe and the
COMMON STOCK Middle East committed an aggregate of $10,000,000 to PICKSat
OF SUBSIDIARY to be funded over a 12-month period. As of December 31,
TO BE ISSUED, 2000, $6,056,700 had been advanced to PICKSat.
SUBSEQUENT
EVENTS AND
PRO FORMA:
F-23
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Subsequent to December 31, 2000, the investor group advanced
an additional $1,247,300 for an aggregate of $7,304,000 to
PICKSat and converted these advances into shares of common
stock of PICKSat at $5.00 per share. At March 19, 2001, the
investor group and financial consultants who were
compensated in PICKSat stock own approximately 67% of
PICKSat and the Company's ownership percentage in PICKSat
has been reduced to approximately 33%. In the first quarter
of 2001, PICK will be accounting for its investment in
PICKSat under the equity method of accounting due to the
decrease in ownership to below 50% and will no longer
consolidate its results with PICKSat.
Proforma condensed financial data of the Company giving
effect to (i) the deconsolidation of PICKSat as if the sale
of additional shares had occurred at December 31, 2000; and
(ii) the write off of PICK's investment in PICKSat, caused
by PICKSat having a stockholder deficiency which is in
excess of PICK's equity in and advances to PICKSat, at
December 31, 2000 is as follows:
PICK Communications
Corp. and Subsidiaries PICKSat, Pro Forma Pro Forma
December 31, 2000 Consolidated Inc. Adjustments After Deconsolidation
--------------------------------------------
Current assets $ 358,299 $ 355,090 $ 3,209
Current liabilities 32,136,278 11,449,876 20,686,402
-----------------------------------------------------------------------------
Working capital (deficiency) (31,777,979) (11,094,786) (20,683,193)
Equity in and advances to PICKSat, Inc. 4,525,677
(4,525,677)
Property and Equipment, net 3,444,000 3,431,096 12,904
Other noncurrent assets 429,165 421,290 7,875
Advances to PICK 4,525,677 (4,525,677) -
Long-term debt 9,880,000 9,880,000
-----------------------------------------------------------------------------
Stockholders' deficiency $(37,784,814) $(11,768,077) $(4,525,677) $(30,542,414)
=============================================================================
Revenue $ 32,919 $ 32,919 $ -
-----------------------------------------------------------------------------
Loss from continuing operations 16,034,852 12,580,843 4,525,677 $ 7,979,686
Loss from discontinued operations 2,965,503 - 2,965,503
-----------------------------------------------------------------------------
Net loss applicable to common shares $ 19,000,355 $ 12,580,843 $4,525,677 $ 10,945,189
=============================================================================
F-24
PICK COMMUNICATIONS CORP. AND SUBSIDIARIES
17. QUARTERLY FINANCIAL DATA:
The following is a summary of the unaudited results of operations for the years ended December 31, 2000 and 1999:
Fiscal year ended December 31, 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
------------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE - - - $ 32,919 $ 32,919
OPERATING LOSS $ 923,504 $1,502,216 $ 5,166,422 5,974,897 13,567,039
OTHER EXPENSES 276,956 708,845 713,303 768,709 2,467,813
----------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS 1,200,460 2,211,061 5,879,725 6,743,606 16,034,852
----------------------------------------------------------------------------
LOSS (INCOME) FROM DISCONTINUED OPERATIONS 364,911 84,648 (45,239) 2,561,183 2,965,503
----------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHARES $ 1,565,371 $2,295,709 $ 5,834,486 $ 9,304,789 $ 19,000,355
============================================================================
LOSS FROM CONTINUING OPERATIONS PER
COMMON SHARE - BASIC AND DILUTED $ 0.13 $ 0.21 $ 0.56 $ 0.66 $ 1.56
LOSS FROM DISCONTINUED OPERATIONS PER COMMON
SHARE - BASIC AND DILUTED $ 0.04 $ 0.01 $ (0.01) $ 0.25 $ 0.29
----------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHARES - BASIC AND
DILUTED $ 0.16 $ 0.22 $ 0.55 $ 0.91 $ 1.85
============================================================================
Fiscal year ended December 31, 1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ - $ - $ - $ - $ -
OPERATING LOSS (INCOME) 991,782 1,000,344 (129,177) 1,063,242 2,926,191
OTHER EXPENSES 479,423 150,604 - 1,194,818 1,824,845
----------------------------------------------------------------------------
LOSS (INCOME) FROM CONTINUING OPERATIONS 1,471,205 1,150,948 (129,177) 2,256,318 4,749,294
----------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS 1,845,039 49,124,262 2,004,682 (373,392) 2,595,591
----------------------------------------------------------------------------
NET LOSS 3,316,244 50,275,210 1,875,505 1,877,926 57,344,885
============================================================================
BENEFICIAL CONVERSION FEATURE OF PREFERRED
STOCK 3,570,000 21,600,000 - - 25,170,000
----------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHARES $ 6,886,244 $ 71,875,210 $ 1,875,505 $ 1,877,926 $ 82,514,885
============================================================================
LOSS FROM (INCOME) CONTINUING OPERATIONS AND
BENEFICIAL CONVERSION FEATURE OF PREFERRED
STOCK PER COMMON SHARE - BASIC AND DILUTED $ 1.21 $ 4.94 $ (0.03) $ 0.18 $ 6.30
LOSS FROM DISCONTINUED OPERATIONS PER COMMON
SHARE - BASIC AND DILUTED $ 0.44 $ 10.67 $ 0.46 $ (0.50) $ 11.07
----------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHARES - BASIC
AND DILUTED $ 1.65 $ 15.62 $ 0.43 $ (0.32) $ 17.37
============================================================================
F-25