Registration of Securities of a Small-Business Issuer — Form 10-SB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10SB12G Registration of Securities of a Small-Business 50 192K
Issuer
2: EX-2.1 Plan of Acquisition, Reorganization, Arrangement, 3 14K
Liquidation or Succession
3: EX-2.2 Plan of Acquisition, Reorganization, Arrangement, 10 47K
Liquidation or Succession
4: EX-3.1(A) Articles of Incorporation/Organization or By-Laws 64 337K
5: EX-6.1(A) Opinion re: Discount on Capital Shares 25 105K
10SB12G — Registration of Securities of a Small-Business Issuer
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
.............
FORM 10-SB
General Form for Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of
the Securities Exchange
Act of 1934
.............
SONUS COMMUNICATION HOLDINGS, INC.
(Name of Small Business Issuer in its charter)
Delaware 54-193-9577
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Wilson Blvd., Suite 1008 22209
Arlington, Virginia (Zip Code)
(Address of principal executive offices)
(703) 527-8860
(Issuer's telephone number)
. . . . . . . . . . . .
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.0001 PAR VALUE
TABLE OF CONTENTS
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PART I
ITEM 1. Description of Business.................................................................. 1
ITEM 2. Management Discussion and Analysis or Plan of Operations................................. 6
ITEM 3. Description of Property.................................................................. 8
ITEM 4. Security Ownership of Certain Beneficial Owners and Management........................... 8
ITEM 5. Directors, Executive Officers, Promoters and Control Persons............................. 11
ITEM 6. Executive Compensation................................................................... 14
ITEM 7. Certain Relationships and Related Transactions........................................... 16
ITEM 8. Description of Securities................................................................ 17
PART II
ITEM 1. Market Price of and Dividends on the Registrant's Common Equity and Other Shareholder
Matters.................................................................................. 17
ITEM 2. Legal Proceedings........................................................................ 18
ITEM 3. Changes in and Disagreements with Accountants............................................ 18
ITEM 4. Recent Sales of Unregistered Securities.................................................. 18
ITEM 5. Indemnification of Directors and Officers................................................ 19
PART F/S
Company (The Park Group, Ltd.) Financial Statements...................................... 21
Sonus Communications, Inc. Financial Statements.......................................... 30
Company (Sonus Communication Holdings, Inc.) Pro Forma Financial Statements.............. 41
PART III
ITEM 1. Index to Exhibits........................................................................ 47
ITEM 2. Description of Exhibits.................................................................. 47
Signatures.............................................................................................. 48
(i)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Sonus Communications, Inc. ("Sonus") is a wholly owned subsidiary of
Sonus Communications Holdings, Inc. (the "Registrant"). The Registrant was
incorporated in the State of Delaware on April 7, 1999.
Sonus is a US "FCC-214" facilities based telecommunications company that
utilizes the public Internet as well as private IP networks as its primary
transport media. Sonus is among the first of a growing number of service
providers to offer telephone services that utilize the Internet and private
IP networks as its primary transport media and is also among the first
carriers with Internet based telephone service regarded as equivalent to
that of the major international long-distance carriers such as AT&T. Sonus
implements leading edge technology in its ongoing effort to develop and
deploy a global Internet Protocol ("IP") Network that transmits telephone,
facsimile, data and video services.
Sonus's current customers are international long-distance carriers and
pre-paid calling card companies, that use the Sonus network (the "Sonus
Network") to send their commercial telephone traffic through the "least cost
route" to international destinations.
SONUS
Sonus sells wholesale telephone, facsimile, and Internet service to US
and foreign telecommunications carriers and pre-paid phone-card companies.
Sonus' principal strategy is to develop business relationships with carriers
in U.S. and international markets and to sell "out-bound" and "inbound"
telephone services.
Sonus is currently focused on expanding its international long
distance telecommunications network and establishing an infrastructure that
primarily uses the public Internet as well as private IP networks. Sonus is
attempting to increase its customer base, expand the number of markets served,
and expand capacity in the markets currently being served.
Sonus plans to pursue geographical markets which have been historically
under-served, but which management has identified to be "emerging," such as
the former Soviet Union (the "FSU"), China and others. Sonus expects to enter
new markets that it determines are strategic or offer the best opportunities
for exploitation.
Sonus hopes to gain share in the markets it enters by offering carrier
quality services at lower prices than its competitors. Sonus relies on
numerous technologies and techniques aimed at driving down the costs of its
international routing, including Internet routing, "Intelligent switching"
and a "Refile" strategy.
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The public Internet and private IP networks employed by the Company are
significantly more cost-efficient that the older technology networks
currently employed by both traditional long-distance carriers that use
circuit switching and the "so-called" next-generation telecommunication
companies ("Next Gen Telcos"), with networks that are based on
"point-to-point" leased bandwidth. Use of the Internet gives Sonus a
significant cost advantage, with "carrier grade" efficiency, over competitors
that do not benefit from the low cost of Internet bandwidth.
Sonus is able to offer competitive rates on traffic directed to
destinations beyond its points of presence through the use of a Refile
strategy and the Intelligent-switching capability built into the fabric of
its network. Intelligent switching permits Sonus to utilize its points of
presence ("PoPs") in foreign destinations to terminate phone traffic and/or
to redirect it to destinations along the least cost route.
Refile is a "least cost routing" strategy, whereby traffic is directed
from one country to another country, then redirected to a third country. This
practice permits Sonus to combine the cost-efficiency of its own network with
favorable rate structures that exist between the countries in which Sonus
maintains its points of presence ("PoPs") and other nations. Refile strategy
leverages the Sonus Network by combining the cost-efficient connections
between its points of presence ("PoPs") with favorable international
long-distance rate structures that may exist from the country in which a PoP
resides to other destinations.
The vast majority of Sonus's traffic originates in the US and terminates
in foreign destinations. Revenues derived from traffic originating in foreign
destinations and terminating in the US, are deducted from Sonus's foreign
termination costs rather than paid to Sonus directly. Therefore, all of
Sonus's revenues are derived from US carrier clients and are US dollar
denominated, which minimizes Sonus foreign exchange risk and most other
financial risks associated with foreign operations.
Currently, Sonus derives most of its revenue from telecommunications
services to and from the FSU and China for four major customers. Its traffic
to the FSU is carried over a private IP network. Sonus's China-directed
telephone traffic is transmitted directly over the public Internet.
The Internet service providers ("ISPs") that serve Sonus employ
technologies, techniques and services that bypass the public exchange "choke
points" greater than 90% of the time in both directions. Utilizing a strategy
called "tunneling," Sonus's ISPs have strategically coordinated their
relationship to send voice packets along the shortest, most direct path
across the Internet. In bypassing the choke points, Sonus's Internet Protocol
Voice packets in effect "cut ahead in line" past other data being transferred
across the Internet by conventional means.
Sonus is currently in the process of developing an entirely new network
configuration that implements SS7 signaling ("SS7"). The implementation of SS7
offers the possibility of reducing Sonus's post-dial delay and supports
advanced calling features. Most established long-distance carriers do not
offer these capabilities as part of their international long-distance
services. With the implementation of SS7. Sonus expects to be positioned to
serve carriers attempting to differentiate themselves by offering
"super-premium" services.
2
Sonus was incorporated in May 1995 to provide its Former Soviet Union
("FSU") clients with Internet, phone and facsimile access services. Sonus
began offering "outbound" international telephone service from the United
States ("US") to the FSU in October 1998.
COMPETITION
The markets in which Sonus operates are extremely competitive. Several
Next Gen Telcos offer Internet-based long-distance service at a substantial
discount to traditional commercial grade service.
Competition for customers is primarily based on price and the type and
quality of service offered. Sonus' ability to market its long-distance resale
services depends upon the existence of spreads between the rates offered by
Sonus and those offered by the International Exchange Carriers (IXCs) with
whom it competes as well as those from whom it obtains service. IXC's are
long-distance providers as well as companies that provide long-distance
access. Sonus' ability to compete in the long-distance telecommunications
market also depends, in part, on its ability to procure advantageous
termination rates from other IXCs, and on the ability of such IXCs to carry
the calls that Sonus routes to their networks.
Sonus competes with (i) International Exchange Carriers ("IXCs") engaged in
the provision of long-distance access and other long-distance providers,
including large carriers such as AT&T, MCI/WorldCom and Sprint and, (ii)
foreign government-owned postal, telegraph and telephone monopolies ("PTTs"),
(iii) other marketers of international long-distance, (iv) wholesale
providers of international long-distance services, (v) alliances for
providing carrier services such as "Global One" (Sprint, Deutsche Telekom,
and France Telecom), "Concert" (British Telecom Plc and MCI) and "Uniworld"
(AT&T and Unisource-Telecom Netherlands, Telia AB, Swiss Telecom PTT and
Telefonica de Espana S.A.), (vi) new entrants to the International and
domestic long-distance market, such as the regional telephone operating
companies ("RBOCs") in the United States, who have entered or have announced
plans to enter the international long-distance market pursuant to recent
legislation authorizing such entry, and new or expected entrants to the
international long-distance market such as RWE AG ("RWE") in Germany, and
(vii) small resellers and facility-based TXCs. Many of Sonus' competitors are
significantly larger and have substantially greater market presence and
financial, technical, operational, marketing and other resources and
experience than Sonus.
SUPPLIERS AND PROVIDERS
Sonus is dependent on third-party suppliers of telecommunications and
Internet network transmission services for many of its services and does not
have long-term contracts with some of its suppliers. Sonus' principal
suppliers of satellite services and satellites are ICG Satellite Services,
Inc., Comsat, Inc. and Intelsat, Inc. Sonus' principal suppliers of
terrestrial and internet circuits include MCI/WorldCom and Verio. Sonus is
dependent upon its current primary providers of leased-line network capacity
and Internet access and upon third-parties to provide telecommunications
services to its customers. Sonus' ability to provide quality and reliable
telecommunications services and its ability to expand its network through the
timely provisioning
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of new voice and data lines is dependent upon the services of
telecommunication and Internet service providers such as MCI/WorldCom.
MAJOR CUSTOMERS
Currently, Sonus has four primary customers, all of which are resellers
of long distance telephone service for long-distance providers or are long
distance providers. These customers are Carmen Associates, World Link,
Incorporated, Axistel, Inc. and World Access, Inc. Sonus is dependent on
these customers for the majority of its revenues.
REGULATORY ENVIRONMENT
TELECOMMUNICATIONS. Sonus is a Federal Communications Commission ("FCC")
"214-approved" facilities based carrier and has received its license under
the Communications Act of 1934. U.S. domestic interstate long-distance
telecommunications services are generally subject to regulation by the FCC.
Intrastate long-distance services are regulated by state commissions, which
have varying requirements. International telephone services are subject to
regulation by both U.S. and foreign regulators. The FCC requires
international telephone service providers such as Sonus to provide service
without violating the laws of the countries in which they operate. Local laws
and regulations differ among the jurisdictions in which Sonus operates, and
the interpretation and enforcement of such laws and regulations vary and are
often based on the informal views of the local government ministries which,
in some cases, are subject to influence by the local PTTs. In certain of
Sonus' principal existing and target markets, there may exist certain laws,
regulations or policies that either prohibit or limit, or could be used to
prohibit or limit, certain of Sonus' services.
The 1996 Telecommunications Act substantially altered the regulatory
framework for the telecommunications industry for domestic and U.S.
international telecommunications services. The 1996 Telecommunications Act
directs the FCC to conduct a variety of rulemaking activity to implement the
Act's requirements. The Company cannot predict the ultimate effects of this
legislation or the outcome of the FCC rulemaking required by this Act. The
legislation does not impose substantial regulatory burdens on Sonus at
present. However, the rulemaking required by the 1996 Telecommunications Act
could produce additional regulatory requirements, including a requirement
that Sonus contribute some portion of its revenues to subsidize mechanisms
for universal service. In addition, the legislation could increase
competition and affect interconnections and costs.
Many of the overseas markets in which Sonus currently markets
long-distance telephone services are undergoing dramatic changes as a result
of privatization and deregulation. The European Union has mandated
competitive markets for the European telecommunications industry and the
various European countries are at different stages of opening their
telecommunications markets. As a result of privatization and deregulation, a
new competitive environment is emerging in which major European telephone
companies, media companies and utilities are entering the telecommunications
market and forming new alliances which are radically changing the landscape
for domestic and international telephone services. This new
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environment, although competitive, has allowed small companies such as Sonus
to penetrate new markets and rapidly gain market share.
INTERNET TELEPHONY. The FCC and various state regulatory commissions have
not made any formal determinations regarding the regulatory status of voice
telephony services provided through use of the Internet. However, America's
Carriers Telecommunications Association, an association of domestic phone
carriers, filed a petition (the "Petition") in March, 1996 with the FCC
alleging that providers of Internet telephone software are operating as
telecommunications carriers and, as such, should be subject to the FCC
regulatory framework applicable to traditional telecommunications companies.
The Petition seeks a declaratory ruling establishing the FCC's authority over
interstate and international communications using the Internet and an order
directing that persons providing Internet phone service to comply with the
regulatory requirements of the Communication Act of 1934. Finally, the
Petition urges the FCC to initiate a rulemaking proceeding to consider rules
governing the use of the Internet for the provision of telecommunication
services. The FCC has not taken final action with respect to the Petition.
Sonus is also subject to regulations relating to Internet telephony in
each point of presence in which it operates. Some of the countries in which
Sonus' PoPs are located have uncertain regulatory environments.
EMPLOYEES
Sonus has seven employees, all of which are full-time employees. The
Registrant has no employees and does not anticipate hiring any employees in
the foreseeable future.
Certain of Sonus' employees have entered into employment and other
agreements with Sonus, which are described in Part 6 of Item I and
incorporated herein by reference.
HISTORY
HISTORY OF PREDECESSOR CORPORATION
The Registrant is the successor of The Park Group, Ltd. ("Park") as the
result of a merger of Park with and into the Registrant, with the Registrant
as the surviving company following the merger. The merge became effective on
April 16, 1999.
Park was originally incorporated as American Ventures, Inc. ("AVI") on
January 24, 1986 under the laws of the State of Colorado. AVI was formed as a
"blind pool," in which investors entrusted management to apply of the
offering proceeds to acquire or merge with a suitable operating company. In
August of 1986, AVI closed an initial public offering of it stock. In
February of 1987, AVI acquired The Park Group, Ltd., a mortgage company, (the
"Mortgage Company"), as a wholly owned subsidiary. AVI then changed the
Mortgage Company's name to "Park Group Mortgage Company, Ltd.," and changed
its own name to "The Park Group, Ltd."
THE MERGER OF SONUS WITH SONUS PARK ACQUISITION, INC.
In January of 1999, Sonus entered into merger discussions with Park. In
anticipation of the merger, Park formed Sonus Park Acquisition, Inc., a
Virginia corporation, as a wholly owned subsidiary of Park, which merged with
and into Sonus on March 4, 1999, leaving Sonus as the surviving corporation
and a wholly owned subsidiary of Park. The
5
former shareholders of Sonus received approximately 92% of the capital stock
of Park in the merger.
THE MERGER OF THE REGISTRANT WITH PARK
On April 7, 1999, Park organized the Registrant as a Delaware
corporation and wholly owned subsidiary of Park. On April 16, 1999, the
Registrant merged with and into Park, leaving the Registrant as the surviving
corporation following the merger. As a consequence of the merger, Sonus
become a wholly-owned subsidiary of the Registrant. Shares of Park were
exchanged for shares of the Registrant on a one-for-one basis in the merger.
The purpose of the merger was to reincorporate in the State of Delaware.
ENVIRONMENTAL COMPLIANCE
The cost and effect of compliance with environmental laws has not been a
material factor for the Registrant or Sonus.
FORWARD LOOKING STATEMENTS
Certain statements made in this Form 10-SB are not based on historical
facts, but are forward-looking statements. The provisions of the Private
Securities Litigation Reform Act of 1995 provide companies with a "safe
harbor" when making forward-looking statements. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," "intends," "plans" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Forward-looking statements are based on the beliefs
of the Registrant's management with respect to future events and are subject
to risks and uncertainties that could cause actual results to differ
materially from those in forward-looking statements. Such risks and
uncertainties include but are not limited to: competitive factors including
the increased competition from existing competitors and the emergence of new
and different technologies; pricing pressures; changes in relationships with
its suppliers, customers, distributors and vendors; adverse changes in legal
and regulatory requirements domestically and in all jurisdiction in which
Sonus provides services or operates it systems; and adverse changes in
general economic conditions.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Registrant's only material asset is all of the issued and
outstanding capital stock of Sonus.
Sonus was incorporated in the State of Virginia in May of 1995 to
provide satellite based Internet, telephone and facsimile services in the former
Soviet Union. Sonus entered the U.S. out bound international telephone service
business in October 1998 and is currently focused on building and operating a
facilities based worldwide telecommunications network which will provide quality
telephone and facsimile services in several foreign markets.
In January of 1999, Sonus also entered into merger discussions with
Park, which completed a "blind-pool" public offering in 1986. Park has
remained inactive since 1993 except for reviewing and evaluating possible
merger and acquisition opportunities. In anticipation of the merger, Park
formed Sonus Park Acquisition, Inc., a Virginia corporation, which merged
with and into Sonus. The merger became effective on March 4, 1999, subsequent
to the year end, leaving Sonus as the surviving corporation and a wholly
owned subsidiary of Park.
6
RESULTS OF OPERATIONS
During 1997, Sonus had revenues of $121,318 from consulting
services, its only source of revenues during 1997. In 1998, Sonus generated
total revenues of $287,290 of which $225,840 was from telecommunications
services as Sonus began to install its network. Revenues from consulting
services decreased to $61,450 as Sonus began to focus on building the
telecommunications services business.
During 1998, Sonus was transmitting telephone calls from the
Republic of Georgia. In the second quarter of 1999, Sonus installed and began
transmitting telephone calls to China. As Sonus proves the reliability of
this system, Sonus expects revenues from China to increase, but can provide
no assurances in that regard. Sonus is also in the process of installing a
system in other countries which it expects to generate telephone traffic
later in 1999.
If the above locations prove reliable, Sonus expects its customers
to send more traffic over Sonus' network thereby increasing revenues. Sonus
is also developing partnerships in other foreign markets which may allow
Sonus to enter these markets and install its networks.
By using the Internet, Sonus has a cost advantage over traditional
long distance competitors that use leased bandwidth. As a result of this
advantage, Sonus expects to be able to attract customers that will use the
Sonus Network to carry long distance traffic resulting in additional revenue
to Sonus.
For the year ended December 31, 1997, Sonus' operating expenses were
$165,047. During 1998, Sonus began its telecommunications services business
which resulted in an increase in operating expenses to $350,755. In order to
build the network currently in place, Sonus has made a significant investment
in equipment and staffing. For the current call traffic levels, Sonus expects
to increase staffing slightly to support the network. Sonus, however, expects
that in order to increase capacity of the current installed locations and to
expand into additional locations, a significant investment in both equipment
and personnel will be necessary. The result will be to increase operating
expenses with no assurance that a return on investment will occur.
As a result of the limited operations described above, Sonus had net
losses of $70,463 in 1998 and net losses of $50,727 in 1997.
LIQUIDITY
At December 31, 1998, Sonus had cash of $1,002, negative working
capital of $312,472 and negative shareholders equity of $180,826. In January
1999, Sonus completed the sale of 750,000 shares of its common stock in a
private offering realizing net proceeds aggregating approximately $627,000.
The Registrant is currently in the process of raising additional funds
through a private placement in order to fund operations.
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As noted above, expansion of the current network as well as the
addition of more locations requires substantial investment of both equipment
and personnel. Sonus expects that it will have to continue to raise funds to
have enough cash to pay for this expected expansion.
IMPACT OF THE YEAR 2000 ON INFORMATION SYSTEMS
The Year 2000 issue arises as the result of computer programs having
been written, and systems having been designed using two digits rather than
four to define the applicable year. Consequently, such software has the
potential to recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
Neither the Registrant nor Sonus is expected to be affected by Year
2000 because neither corporation relies on date-sensitive software or
affected hardware. Sonus' current accounting and other systems were purchased
with Year 2000 compliant "off-the-shelf" software and therefore does not
expect any Year 2000 software problems. If Sonus finds it is using any
non-compliant Year 2000 software, it expects to be able to timely update the
systems. However, there are no assurances that a material adverse effect
could not occur.
Sonus has not yet contacted other companies on whose services they
depend to determine whether such companies' systems are Year 2000 compliant.
If any systems of Sonus or other companies, including Sonus' customers, are
not Year 2000 compliant, there could be a material adverse effect on the
Registrant's and Sonus' financial condition or results of operations.
ITEM 3. DESCRIPTION OF PROPERTY
Sonus maintains its corporate headquarters in and leases 2,027
square feet of office space located at 1600 Wilson Blvd., Suite 1008,
Arlington, Virginia 22201.
Sonus owns telecommunications equipment located in Holmdel, New
Jersey, New York City, New York, Los Angeles, California, Shanghai, China and
Tbilisi, Republic of Georgia. Sonus paid approximately $428,000 for the
telecommunications equipment, of which approximately $231,000 was sold to a
customer of Sonus. The value of the equipment currently owned by Sonus is
approximately $257,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 12, 1999, the beneficial
ownership of shares of the common stock of the Registrant, par value $.0001
per share (the "Common Stock") of those persons known to be the beneficial
owners of more than 5% of such securities. Common Stock is the only voting
stock which the Registrant has issued.
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BENEFICIAL OWNERS OF MORE THAN 5%
OF THE REGISTRANT'S COMMON STOCK
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AMOUNT AND NATURE OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
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Charles W. Albo 1,044,431 31.2%
1600 Wilson Blvd
Suite 1008
Arlington, VA
22201
Nana Maraneli 1,000,000 29.9%
1600 Wilson Blvd.
Suite 1008
Arlington, VA
22201
L. Flomenhaft & Co., Inc. 697,500(1) 17.8%
225 West 34th Street
Suite 2008
New York, NY
10122
Evansville Ltd. 175,000 5.2%
Attn: Thomas A. Huzer
Quadrant Management, Inc.
720 5th Avenue
New York, NY
10019
The following table sets forth, as of May 12, 1999, the beneficial
ownership of shares of Common Stock of the Directors and Executive Officers of
the Registrant.
BENEFICIAL OWNERSHIP OF DIRECTORS
AND EXECUTIVE OFFICERS
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AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
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Charles W. Albo - Chairman and 1,044,431 31.2%
Executive Vice President
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
Steven Albo - Chief Technology Officer 90,000 (2) 2.6%
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
Raleigh Coffin - Director 25,000 (3) -- (4)
c/o Hudson Capital Advisors, LLC
160 Shore Road
Old Greenwich, CT 06870
W. Todd Coffin - Chief Executive
Officer, President and Director 50,000 1.5%
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
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(1) Includes warrants to purchase 90,000 shares of Common Stock at a price
of $1.00 per share, which are fully vested, and warrants to purchase
487,500 shares of Common Stock at a price of approximately $.92 per
share, all of which are fully vested.
(2) Represents warrants to purchase 75,000 shares of Common Stock at
$1.00 per share granted as of January 1, 1999, all of which are
fully vested, and warrants to purchase 15,000 shares of Common Stock
at $1.00 per share granted as of April 20, 1999, all of which are
fully vested.
(3) Represents 25,000 warrants to purchase shares of Common Stock at an
exercise price of $1.00 per share which are fully vested.
(4) Percent of class is less than 1%.
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Nana Maraneli - Vice Chairperson,
Executive Vice President and Secretary 1,000,000 29.9%
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
Richard D. Rose - Treasurer and Chief
Financial Officer 15,000 (5) -- (6)
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
John Theodoracopulos - Director 100,000 3%
545 Madison Avenue
6th Floor
New York, NY 10022
Directors and Executive Officers as a Group 2,324,431 66.9%
CONDITIONAL RIGHT TO ACQUIRE CERTAIN SECURITIES
In addition to the shares set forth in the table above, Mr. Albo
also owns warrants to purchase 125,000 shares of Common Stock at $1.50 per
share, which vest when the shares of Common Stock issued in the next private
placement of Common Stock conducted by the Registrant are registered for
resale or otherwise are exempt from registration under the Securities Act of
1933, as amended (the "Act") and the stock price per share has closed at or
above $3.00 bid for 20 consecutive trading days within the eighteen month
period following the closing of such private placement. The warrants were
issued on April 20, 1999 and expire on April 20, 2004. The Company does not
expect the foregoing vesting conditions to be satisfied within the next 60
days.
In addition to warrants to purchase 90,000 shares of Common Stock of
the Registrant at a price of $1.00 per share, all of which are fully vested,
Mr. Stephen Albo owns warrants to purchase an additional 60,000 shares of
Common Stock at a price of $1.00 per share, which vest in equal 10,000
warrant increments on each six month anniversary of the date of issuance of
the warrants. The warrants were issued to Mr. Stephen Albo as of April 20,
1999.
In addition to owning fully vested warrants to purchase 25,000
shares of Common Stock at a price of $1.00 per share, Mr. Raleigh Coffin also
owns additional warrants to purchase 75,000 shares of Common Stock at an
exercise price of $1.00 per share, 50,000 of which vest upon the successful
completion of the next private placement of Common Stock conducted by the
Registrant, which may or may not occur within the next 60 days, and 25,000
of which vest upon the accomplishment of certain other milestones which are
not expected to be met within the next 60 days. The warrants were issued on
April 20, 1999 and expire on April 20, 2004.
In addition to the 50,000 shares of Common Stock shown in the table
above, Mr. W. Todd Coffin, through Coffin & Sons, Inc., his wholly-owned
consulting company, also has the right to receive (i) 50,000 additional
shares of Common Stock upon the completion of the next private placement of
Common Stock in an amount in excess of $1,000,000 at a price per share of at
least $1.50 per share, which may or may not occur within the next 60 days,
(ii) 50,000 shares of Common Stock following the closing of such private
placement, if the shares issued in such private placement are successfully
registered for resale under the Act and the stock trades at or above $3.00
per share for 20 consecutive trading days within 18 months of the closing of
such private placement, and (iii) in the event Sonus and Coffin & Sons, Inc.
choose not to renew their consulting arrangement, 50,000 shares of Common
Stock following the installation of a new chief executive officer identified
and recruited by Coffin & Sons, Inc. and acceptable to Sonus.
0----------
(5) Represents 15,000 warrants to purchase shares of Common Stock at an
exercise price of $1.00 per share which are fully vested.
(6) Percent of class is less than 1%.
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In addition to the shares set forth in the table above, Ms. Maraneli
also owns five year warrants to purchase 125,000 shares of Common Stock at
$1.50 per share, which vest when the Common Stock issued in the next private
placement of Common Stock conducted by the Registrant are registered for
resale under the Act or otherwise are exempt from registration and the stock
price per share has closed at or above $3.00 bid for 20 consecutive trading
days within the eighteen month period following the closing of such private
placement. The warrants were issued on April 20, 1999 and expire on April 20,
2004. The Company does not expect the foregoing vesting conditions to be
satisfied within the next 60 days.
In addition to warrants to purchase 15,000 shares of Common Stock of
the Company at a price of $1.00 per share, all of which are fully vested, Mr.
Rose owns warrants to purchase an additional 60,000 shares of Common Stock at
a price of $1.00 per share, which vest in equal 10,000 warrant increments on
each six month anniversary of the date of issuance of the warrants. The
warrants were issued to Mr. Rose as of April 20, 1999 and expire on April 20,
2004.
In addition to the shares set forth in the table above, Mr.
Theodoracopulos owns $25,000 in 10% Convertible Debentures of the Company
issued in May, 1999 (the "Debentures"). Under the terms of the Debentures,
the outstanding principal amount, together with all interest accrued
thereunder, is automatically converted into shares of Common Stock on the
first closing of the next private placement of Common Stock to be conducted
by the Registrant, at a conversion price of $1.50 or, if different, the price
at which Common Stock will be offered in connection with such private
placement. Such conversion may or may not occur within the next 60 days.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, ages and titles of all directors and executive officers of
the Registrant and Sonus are:
[Enlarge/Download Table]
NAME AGE POSITION
---- --- --------
W. Todd Coffin 32 President, Chief Executive Officer, Director
Charles W. Albo 61 Chairman and Executive Vice President, Director
Richard D. Rose 44 Chief Financial Officer; Treasurer
Stephen Albo 36 Chief Technology Officer
Raleigh Coffin 65 Director
Nana Maraneli 52 Vice-Chairman; Executive Vice-President; Secretary; Director
John Theodoracopulos 34 Director
Each director is elected to hold office until the next annual
meeting of stockholders and until his or her successor is elected and
qualified. Each officer serves at the discretion of the Board of Directors,
subject to any applicable employment agreements. Stephen Albo is Charles
Albo's son.
W. TODD COFFIN, CHIEF EXECUTIVE OFFICER, PRESIDENT, DIRECTOR, joined
the Registrant and Sonus as CEO on April 14, 1999, as President on April 19,
1999 and as a Director on April 20, 1999. From March 1997 to April 1999, Mr.
Coffin worked in investment banking for Tanner Unman Securities where he
assisted in the financing of telecommunications companies including
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IDT Corp. and Amnex and technology companies including Fonix, Globalink and
SuperConductor Technologies. Mr. Coffin's background is in finance,
telecommunications and enabling technologies. From June 1995 to May 1997, Mr.
Coffin was the Investment Director for ETOM Technologies, a venture-backed
technology company. From April of 1993 to May of 1995, Mr. Coffin was with
Alex Brown & Sons. From 1991 to 1993, Mr. Coffin was with Smith Barney,
Harris, Upham.
RICHARD D. ROSE, CHIEF FINANCIAL OFFICER, TREASURER, joined the
Registrant and Sonus on April 20, 1999 as Chief Financial Officer and
Treasurer. From March 1998 until April 1999, Mr. Rose served as Vice
President of Finance and Administration of Visual Mining, Inc., a
venture-backed start-up software company. From October 1997 to March 1998,
Mr. Rose was the Chief Financial Officer for the Netrix Corporation, a
telephone/data switch manufacturer. From January 1997 through September 1997,
Mr. Rose ran his own financial services company consulting to high-technology
start-ups. Prior to January 1997, for more than five years, Mr. Rose was
Chief Financial Officer of Penril Data Communication Networks, Inc., a
manufacturer of data communications equipment.
STEPHEN ALBO, CHIEF TECHNOLOGY OFFICER, has been the Company's Chief
Technology Officer since January, 1999. He has over 14 years of project
management, systems analysis, design, development and maintenance experience
at all levels. He also has experience in telecommunications, software
development and business management. From January, 1999, Mr. Albo was
employed by Sonus as its Chief Technology Officer, responsible for system
development, implementation, and maintenance of all voice/data networks. From
September, 1996 until January 1999, Mr. Albo was the Director of Information
Systems for CommTek Communications Corp., where he oversaw development and
operations of all corporate IS functions including production of printed and
electronic magazines, and EDI partnerships. From May, 1994 until September,
1996 he was Director of Information Systems/Manager of Technical Support for
Intrafed, Inc., where he was in charge of development and operations of all
corporate IS functions and the implementation and customer satisfaction of
high imaging solutions. Mr. Albo is the son of Charles W. Albo, Chairman and
Executive Vice President of the Registrant and Sonus.
CHARLES W. ALBO, CHAIRMAN, has been Chairman and a director of the
Registrant and Sonus since April 7, 1999, served as Chief Executive Officer
of Sonus from its incorporation in May, 1995 until April 14, 1999, and has
been a director of the Sonus since May, 1995. Mr. Albo oversees Sonus'
existing operations and is responsible for managing and developing new
domestic customer relationships and new foreign partnership relationships.
Mr. Albo's background is in strategic planning, analysis and management. In
1994, together with Nana Maraneli, Mr. Albo co-founded Goodwill
Communications, Ltd. ("Goodwill Communications"), a company which installed
and is operating international telecommunications services linking the
Republic of Georgia to the United States. From 1994 through the present, Mr.
Albo has served as Goodwill Communications' president. Goodwill
Communications expects to permanently cease operations in early 1999. From
1992 until 1995, Mr. Albo served as President of Management Vision Partners,
Inc. ("Management Vision"), a company which assisted high technology
companies in the development of next generation products, non-defense markets
and international business.
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RALEIGH COFFIN, DIRECTOR, has been a director of the Registrant and
Sonus since April 19, 1999. He has extensive management experience in several
major corporations. Mr. Coffin is currently Director and Vice Chairman of
InMedia Presentations Inc. (listed on the Montreal Exchange as IMD)
("InMedia") and is responsible for the strategic, marketing and funding needs
for InMedia. InMedia sells computer software which provides for the
digitization of film and other images for enhancement, e-mailing or
multi-media presentations. Mr. Coffin served as President and CEO of ETOM
Technologies Corp. ("ETOM"), a company that performed research and
development for next generation DVD and video on demand technology, from 1992
until 1997. Mr. Coffin served as President and Founder of The Alternate
Network, providing original programming and interactive phone services for
The Alternate Network. He has served as Brand Manager at Procter & Gamble,
assistant to the President and Chairman and as a division manager at General
Foods (now Kraft/General Foods/Philip Morris), and President of International
Standard Brands (now RJR/Nabisco). In addition, Mr. Coffin had responsibility
for all operations outside the U.S. as President of Playtex International.
NANA MARANELI, VICE-CHAIRPERSON, has been Vice Chairperson,
Executive Vice President, Secretary and a director of the Registrant since
April, 1999, was President of Sonus from May, 1995 until April 20, 1999, and
has been a director of Sonus since May, 1995. Ms. Maraneli oversees the
Company's operations in the FSU and is responsible for the development of new
telecommunication opportunities in Eastern Europe and Asia. Ms. Maraneli was
born in Tbilisi, Georgia and is a permanent resident of the United States.
She has ten years experience generating business partnerships between
entities in the U.S., Tbilisi, Georgia, Moscow, Paris, Vienna, Amsterdam, and
London. Under George Soros' direction, Ms. Maraneli organized the development
of the Soros Foundation's Georgian branch and served as its first executive
director. In 1994, Ms. Maraneli co-founded Goodwill Communications. Goodwill
Communications is a Georgian telecommunication service provider linking
Georgia to the United States and elsewhere. It is the first private joint
venture telecommunications company in Georgia and owns a satellite earth
station in Tbilisi, Georgia. From 1993 through 1995, Ms. Maraneli served as
Vice President of Management Vision Partners, Inc. While at Management Vision
Partners, Inc., Ms. Maraneli assisted other companies in identifying joint
venture partners and negotiating joint venture agreements for enterprises in
Eastern Europe and the FSU, including joint ventures in Karelia for forest
products, Georgia for bank card clearing and Bulgaria for cellular and paging
services.
JOHN THEODORACOPULOS, DIRECTOR, joined the Registrant and Sonus on
April 19, 1999. Since 1989, John H. Theodoracopulos has worked for National
Shipping & Trading Corp. ("National"), a tanker and bulk carrier operator.
Based in New York, New York, he oversees the fleet's worldwide commercial
operations. He also advises National's overseas affiliates on investments in
real estate, tourism and agriculture.
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ITEM 6. EXECUTIVE COMPENSATION
The Registrant was incorporated on April 7, 1999 and has no history
of executive compensation to report under this Item 6. Herbert R. Donica
served as the chief executive officer of Park, the Registrant's predecessor,
during the last three fiscal years, until February 26, 1999. Mr. Donica
received no compensation for his services as chief executive officer of Park.
Effective April 16, 1999, Park merged with and into the Registrant, with the
Registrant as the surviving corporation following the merger. No other
executive officer of Park received any compensation for services rendered to
Park during the last three fiscal years.
Charles W. Albo served as chief executive officer of Sonus during
the last three fiscal years, until April 14, 1999. During the last three
fiscal years, Mr. Albo received a cash salary of $9,794 in 1998, $35,996 in
1997 and $7,363 in 1996. Mr. Albo did not receive any options or warrants to
purchase shares of the Registrant or Sonus during the last three fiscal years.
In the current fiscal year (i) Charles W. Albo received warrants to
purchase 125,000 shares of Common Stock at an exercise price of $1.50 per
share, (ii) Raleigh Coffin received warrants to purchase 100,000 shares of
Common Stock at an exercise price of $1.00 per share, (iii) Nana Maraneli
received warrants to purchase 125,000 shares of Common Stock at an exercise
price of $1.50 per share, (iv) Richard D. Rose received warrants to purchase
75,000 shares of Common Stock at an exercise price of $1.00 per share, and
(v) Coffin & Sons, Inc., a consulting company wholly-owned by W. Todd Coffin,
received 50,000 shares of Common Stock and was granted the right to receive
an additional 150,000 shares of Common Stock in consideration of its
consulting services to Sonus. The warrants described in clauses (i), (ii),
(iii) and (iv) above expire on April 20, 2004.
SEE PART 6, "EMPLOYMENT AND OTHER AGREEMENTS" FOR ADDITIONAL INFORMATION.
DIRECTOR COMPENSATION
Mr. Raleigh Coffin owns 25,000 warrants to purchase shares of Common
Stock at an exercise price of $1.00 per share which are fully vested. In
addition, Mr. Raleigh Coffin is also the owner of additional warrants to
purchase 75,000 shares of Common Stock at an exercise price of $1.00 per
share, 50,000 of which vest upon the successful completion of the next
private placement of Common Stock, which may or may not occur within the next
60 days, and 25,000 of which vest upon the accomplishment of certain other
milestones which are not expected to be met within the next 60 days. All of
the warrants were issued on April 20, 1999 in consideration for consulting
services that were rendered to the Company by Mr. Coffin.
The directors do not receive any fees for their services in such
capacity. However, each Director is reimbursed for all reasonable and
necessary costs and expenses incurred as a result of being a Director of the
Registrant and are entitled to certain benefits.
14
EMPLOYMENT AND OTHER AGREEMENTS
Charles W. Albo is currently an at-will employee of Sonus. Sonus
expects to enter into a written employment agreement with Mr. Albo during the
second quarter of 1999. Mr. Albo has verbally agreed to forego his salary
until April, 2000.
Sonus entered into consulting agreement with Coffin & Sons, Inc. as
of April 15, 1999. Coffin & Sons, Inc. is wholly owned by W. Todd Coffin. The
agreement provides that Coffin & Sons, Inc. will provide certain consulting
services relating to representing Sonus and the Registrant with investors and
within the investment community, budgeting, financial planning and business
development, among other things, for a term of six months and fifteen days.
Coffin & Sons, Inc. will receive a cash consulting fee of $10,000 per month.
Sonus may terminate the agreement for "cause". The agreement also contains
provisions pursuant to which Coffin & Sons, Inc. has agreed not to complete
with Sonus. In addition to the cash compensation provided in the agreement,
Coffin & Sons, Inc. was issued 50,000 shares of Common Stock in May, 1999,
and shall be entitled to further receive (i) 50,000 shares upon the
successful completion of the next private placement of equity in an amount in
excess of $1,000,000 at a price per share of at least $1.50; (ii) 50,000
shares following the closing of such private placement if the shares issued
in such private placement are successfully registered for resale and the
stock trades at or above $3.00 per share for 20 consecutive trading days; and
(iii) in the event Sonus and Coffin & Sons, Inc. fail to renew the Agreement
after its stated expiration date, 50,000 shares following the installation of
a new chief executive officer identified and recruited by Coffin & Sons, Inc.
and acceptable to the Company.
Nana Maraneli is currently an at-will employee of Sonus. Sonus
expects to enter into a written employment agreement with Ms. Maraneli during
the second quarter of 1999. Ms. Maraneli has verbally agreed to forego her
salary until May, 2000.
Sonus entered into an employment agreement with Mr. Rose as of April
15, 1999. The agreement provides that Mr. Rose will serve as Chief Financial
Officer and Treasurer of Sonus
15
and the Registrant for a term of one year. Mr. Rose is paid an annual salary
of $84,000 and will receive $31,000 in additional compensation at the
year-end if he is still employed by Sonus at such time. Upon execution of the
agreement, Mr. Rose was granted five-year warrants to purchase 75,000 shares
of Common Stock at $1.00 per share. Fifteen thousand of such warrants vested
upon execution of the agreement, and the remainder will vest in equal
installments of 10,000 warrants each, on each six month anniversary of the
agreement. The agreement also provides that Mr. Rose shall be entitled to
participate in benefit programs available to similarly situated senior
management employees. Sonus may terminate the agreement for "cause" or upon
the disability of Mr. Rose. The agreement also contains provisions pursuant
to which Mr. Rose has agreed not to compete with Sonus for a certain period
of time.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April, 1999, Mr. Albo, Executive Vice President, and Ms.
Maraneli, Executive Vice President, each transferred 550,000 shares of Common
Stock to the Registrant (the "Founders Shares"), for cancellation by the
Registrant. The cancellation became effective in May, 1999. In exchange for
the Founders Shares, the Registrant issued to Mr. Albo and Ms. Maraneli each
125,000 stock purchase warrants dated April 20, 1999. Mr. Albo and Ms.
Maraneli are the original founders of Sonus.
In April, 1999, Mr. Albo and Ms. Maraneli also each transferred to
the Registrant 75,000 shares, at a price of $1.50 per share (the "Redemption
Price"), which shares were redeemed by the Registrant effective in May, 1999.
Mr. Albo, Ms. Maraneli and the Registrant have agreed that payment of the
Redemption Price will be deferred until the closing of a private placement of
Common Stock in an amount not less than $1,000,000 or another equity
financing of the Registrant in which the Registrant receives proceeds of not
less than $1,000,000. In exchange for the deferral of the Registrant's
payment obligations, the Registrant has agreed to advance each of Mr. Albo
and Ms. Maraneli up to $7,000 each month as a loan from the Registrant to Mr.
Albo and Ms. Maraneli, not to exceed the Redemption Price in the aggregate.
All amounts so advanced will be deducted from the Redemption Price to be
paid to Mr. Albo and Ms. Maraneli upon the closing of the proposed private
placement or other equity financing providing proceeds to the Registrant not
less than $1,000,000. Mr. Albo and Ms. Maraneli are required to repay such
advances only from the amount of the Redemption Price paid to Mr. Albo and
Ms. Maraneli by the Registrant.
On April 16, 1999, the Registrant and Sonus agreed to convert the
shareholder demand note in the aggregate principal amount of $99,969 issued
by Sonus in favor of Mr. Albo (the "Demand Note") into 44,431 shares of
Common Stock, reflecting a conversion rate of at least $2.25 per share. The
Demand Note was cancelled in exchange for the issuance of the shares in May,
1999.
In May, 1999, the Registrant offered $550,000 of its 10%
Convertible Debentures (the "Debentures"), of which amount $415,000 have been
sold as of the date of this Form 10-SB. The Debentures will be automatically
converted into Common Stock upon the first closing of a private placement of
Common Stock following the issuance of the Debentures at a conversion price
of $1.50 or, if different, the price at which the shares of Common Stock are
offered in such private placement. Mr. Theodoracopulos purchased $25,000
aggregate principal amount of such Debentures.
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SEE PART I, ITEM 4, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT: CONDITIONAL RIGHT TO ACQUIRE CERTAIN SECURITIES" FOR ADDITIONAL
INFORMATION, WHICH IS INCORPORATED BY REFERENCE INTO THIS ITEM.
SEE PART I, ITEM 6, "EXECUTIVE COMPENSATION: EMPLOYMENT AND OTHER AGREEMENTS"
FOR ADDITIONAL INFORMATION, WHICH IS INCORPORATED BY REFERENCE INTO THIS ITEM.
ITEM 8. DESCRIPTION OF SECURITIES
The securities being registered are shares of common stock, par
value $.0001 per share. There are one hundred million (100,000,000) shares of
Common Stock authorized, with 3,342,385 shares currently outstanding. Each of
the shares of Common Stock is entitled to one vote on all matters submitted
to a vote of the stockholders. There are no cumulative voting rights or other
special voting rights. There are no preemptive rights or any preference as to
dividends or interest upon liquidation.
On January 21, 1999, Sonus sold 750,000 shares of common stock and
granted certain piggy-back registration rights in connection with such sale.
The terms and conditions of the piggy-back registration rights are contained
in Section 5 of the Stock Subscription Agreement attached hereto as Exhibit
3.1(a) incorporated herein. In addition, Sonus granted demand and piggy-back
registration rights in accordance with Sections 10 and 11 of the Placement
Agent Warrants attached hereto as Exhibit 3.1(j) and incorporated herein to
the holders of 112,500 warrants issued in connection with the private
placement of the aforementioned 750,000 shares. The Registrant has assumed
the foregoing registration obligations of Sonus.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
There is no public market in which the Registrant's common equity is
traded. The Registrant intends to seek listing of its Common Stock on the OTC
Electronic Bulletin Board upon the effectiveness of this Form 10-SB. As of
the date of filing of this Form 10-SB, there were approximately 156 holders
of record of the Registrant's Common Stock. The Registrant has not declared
any cash dividends. There are no restrictions on the Registrant's ability to
pay dividends on common equity. The Registrant does not intend to declare or
pay cash dividends in the foreseeable future. Management anticipates that all
earnings and other cash resources of Sonus and the Registrant, if any, will
be retained for investment in its business. The payment of dividends is
subject to the discretion of the Board of Directors of the Registrant and
will depend on the results of operations, financial position, financial
requirements, general business conditions, restrictions imposed by financing
arrangements, if any, legal and regulatory restrictions on the payment of
dividends and other factors the Board of Directors deems relevant.
In addition to 3,342,385 shares of Common Stock, the Registrant has
outstanding (i) five-year stock purchase warrants, exercisable at $1.50, to
purchase 250,000 shares of Common Stock, which vest when the shares of Common
Stock issued in the next private placement of Common Stock are registered for
resale (or otherwise exempt from registration), and the stock price of such
shares has closed at or above $3.00 bid for 20 consecutive trading days
within the eighteen month period following the closing of the proposed
private placement, (ii) five year warrants to purchase 600,000 shares of
Common Stock at $1.00 per share, which are fully vested, (iii) $415,000
aggregate principal amount of 10% Convertible Debentures, which will be
automatically converted into Common Stock upon the
17
first closing of a private placement of Common Stock following the issuance
of the Debentures, at a conversion price of $1.50 or, if different, the price
at which the shares of Common Stock are offered in such private placement,
(iv) warrants to purchase 100,000 shares of Common Stock at an exercise price
of $1.00 per share, 25,000 of which are fully vested, 50,000 of which vest
upon the successful completion of the next private placement of Common Stock,
and 25,000 of which vest upon the completion of certain other financial
milestones, and (v) an obligation to issue up to 150,000 shares of Common
Stock to Coffin & Sons, Inc. pursuant to the consulting agreement attached to
this Form 10-SB as Exhibit 6.1(f) and incorporated herein by reference.
The Registrant has issued and outstanding 39,075 shares of Common
Stock as of May 12, 1999 which the Registrant believes could be sold under
Rule 144, promulgated under the Act.
On January 21, 1999, Sonus sold 750,000 shares of common stock and
granted certain piggy-back registration rights in connection with such sale.
The terms and conditions of the piggy-back registration rights are contained
in Section 5 of the Stock Subscription Agreement attached hereto as Exhibit
3.1(a) incorporated herein. In addition, Sonus granted demand and piggy-back
registration rights in accordance with Sections 10 and 11 of the Placement
Agent Warrant attached hereto as Exhibit 3.1(j) and incorporated herein to
the holders of 112,500 warrants issued in connection with the private
placement of the aforementioned 750,000 shares. The Registrant has assumed
the foregoing registration obligations of Sonus.
ITEM 2. LEGAL PROCEEDINGS
Neither the Registrant nor Sonus is currently subject to any legal
proceedings or suits.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, Park issued 42,698,875 shares (prior to the 1 for
262.154216 reverse stock split approved by shareholders on January 29, 1999)
of its common stock in exchange for services rendered and cancellation of
indebtedness to Herbert R. Donica, Steven J. Goodman, Lawrence Kaplan, Eileen
Kaplan and Creative Business Strategies Inc., all shareholders of Park. In
November 1998, Park sold 14,795,177 shares of its common stock to existing
shareholders of Park for $7,500 in cash. Park relied upon the exemption from
registration contained in Section 4(2) of the Act in offering and selling
such shares without registration under the Act.
On January 21, 1999, Sonus sold 750,000 shares of common stock,
$.001 per share (the "Private Placement Shares"), with L. Flomenhaft & Co.,
Incorporated, acting as placement agent, to twenty-one individual and
corporate accredited investors. The aggregate offering price was $750,000,
reflecting a $1.00 per share offering price. The placement agent received
warrants to purchase 112,500 shares of Common Stock at $1.00 per share (the
"Agent Warrants"), and $75,000 in cash. Sonus relied on Section 4(2) of the
Act, and on Rule 506 of Regulation D promulgated thereunder, in issuing the
shares without registering the offering under the Act. Sonus relied upon
representations and
18
warranties of the investors in the private placement contained in the
subscription agreements entered into between Sonus and the private placement
investors, to the effect that such investors were accredited investors, as
well as investor questionnaires completed by such investors.
On March 4, 1999, the Private Placement Shares were converted, on a
one-for-one basis, into shares of Park in connection with the merger of Sonus
Park Acquisition, Inc., a Virginia corporation and wholly-owned subsidiary of
Park, with and into Sonus, with Sonus as the surviving corporation following
the merger. As a consequence of the merger, Sonus became a wholly owned
subsidiary of Park, and the former shareholders of Sonus (including the
private placement investors) received approximately 92% of all of Park's
capital stock. Park assumed the Agent Warrants and registration obligations
of Sonus.
On April 16, 1999, Park merged with and into the Registrant. The
issued and outstanding shares of Park were automatically converted, on a
one-for-one basis, into shares of Common Stock. The Registrant assumed Park's
obligations with respect to all outstanding securities, including the Agent
Warrants and the registration obligations of Park. Registrant was the
surviving corporation following the merger, with Sonus as its wholly owned
subsidiary. The issued and outstanding shares of Sonus are the Registrant's
only material asset.
In May, 1999, the Registrant offered $550,000 aggregate principal
amount of its Debentures, with L. Flomenhaft & Co., Incorporated, acting as
placement agent, to certain accredited investors. As of the date of this
Form 10-SB, $415 aggregate principal amount of its Debentures have been sold.
The Debentures are automatically converted into Common Stock upon the first
closing of a private placement of Common Stock following the issuance of the
Debentures at a conversion price of $1.50 or, if different, the price at
which the shares of Common Stock are offered in such private placement. No
commissions were earned on the private placement of Debentures, however, the
placement agent will earn warrants entitling the placement agent to purchase,
at $1.50 per share, a number of shares of Common Stock as is equal to 15% of
the aggregate number of shares of Common Stock issued upon conversion of the
Debentures, and 10% of the face amount of the Debentures in cash. The
Registrant relied on Section 4(2) of the Act, and on Rule 506 of Regulation D
promulgated thereunder, in issuing the Debentures without registration of the
offering under the Act. The Registrant relied upon representations and
warranties of the investors in the private placement which were contained in
the Debenture Purchase Agreements entered into between the Registrant and the
private placement investors, to the effect that such investors were
accredited investors, as well as investor questionnaires completed by such
investors.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.2 of the Registrant's Certificate of Incorporation
provides that no director of the Registrant shall be liable to the Registrant
or its stockholders for monetary damages except: (a) for any breach of the
director's duty of loyalty to the Registrant or its stockholders; (b) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (c) for the types of liability set forth in
Section 174 of the Delaware General Corporation Law; or (d) for any
transaction from which the director received any improper personal benefit.
Article 7 of the Registrant's Certificate of Incorporation and
Section 6.1 of the Registrant's Bylaws provides that, to the fullest extent
permitted by the Delaware General Corporation Law,
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the Registrant shall indemnify any party to an action, suit or proceeding by
reason of the fact that such person serves as a director or officer of the
Registrant or as a director or officer of another entity at the bequest of
the Registrant against all losses or amounts reasonably incurred or suffered
in connection therewith. Section 145 of the Delaware General Corporation Law
authorizes the Registrant to provide this protection to directors and
officers and contains the standards for determining whether indemnification
shall be made.
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PART F/S
INDEX TO REGISTRANT (THE PARK GROUP, LTD.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
[Download Table]
Page(s)
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Report of Independent Certified Public Accountants - Current Auditor 22
Report of Independent Certified Public Accountants - Prior Auditor 23
Financial Statements:
Balance Sheets 24
Statements of Operations 25
Statement of Changes in Shareholders' Deficit 26
Statements of Cash Flows 27
Notes to Financial Statements 28
21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Park Group, Ltd.
We have audited the balance sheet of The Park Group, Ltd. (a Colorado
corporation) as of December 31, 1998, and the related statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of The Park Group, Ltd. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses which raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding this matter are described in Note 4. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Lazar Levine & Felix LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 26, 1999
22
FORMER AUDITOR'S REPORT
SCOTT & GUILFOYLE
CERTIFIED PUBLIC ACCOUNTANTS
5 DAKOTA DRIVE, SUITE 206
LAKE SUCCESS, NY 11042
(516) 775-9600
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Park Group, Ltd.
We have audited the balance sheet of The Park Group, Ltd. (a Colorado
corporation) as of December 31, 1998, and the related statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of The Park Group, Ltd. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses which raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding this matter are described in Note 4. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/ SCOTT & GUILFOYLE
---------------------------------
SCOTT & GUILFOYLE
New York, New York
March 26, 1999
23
THE PARK GROUP, LTD.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- ASSETS -
[Enlarge/Download Table]
1998 1997
---- ----
CURRENT ASSETS:
Cash $ 261 $ 5,386
--------- ---------
TOTAL CURRENT ASSETS 261 5,386
--------- ---------
$ 261 $ 5,386
--------- ---------
--------- ---------
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accrued expenses $ -- $ 1,682
Due to shareholders -- 19,395
Loan payable -- 2,250
--------- ---------
TOTAL CURRENT LIABILITIES -- 23,327
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 3 AND 4)
SHAREHOLDERS' EQUITY (Note 2):
Preferred stock, no par value; 100,000,000 shares authorized; none issued and -- --
outstanding
Common stock, $.0001 par value; 1,000,000,000 shares authorized; 91,184,052 and 9,118 3,369
33,690,000 shares issued and outstanding for 1998 and 1997, respectively
Additional paid-in capital 243,129 219,733
Accumulated deficit (251,986) (241,043)
--------- ---------
261 (17,941)
--------- ---------
$ 261 $ 5,386
--------- ---------
--------- ---------
See accompanying notes.
24
THE PARK GROUP, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Download Table]
1998 1997
---- ----
REVENUES $ -- $ --
OPERATING EXPENSES (10,943) (13,062)
--------- ---------
NET LOSS $ (10,943) $ (13,062)
--------- ---------
--------- ---------
LOSS PER COMMON SHARE:
Basic $ -- $ --
--------- ---------
--------- ---------
Diluted $ -- $ --
--------- ---------
--------- ---------
See accompanying notes.
25
THE PARK GROUP, LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
[Enlarge/Download Table]
Common Stock
------------------------------------------
Paid -in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
Balance, December 31, 1996 33,690,000 $ 3,369 $ 219,733 $ (227,981) $ (4,879)
Net loss for the year ended December 31, 1997 -- -- -- (13,062) (13,062)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 33,690,000 3,369 219,733 (241,043) (17,941)
Conversion of loans 42,698,875 4,270 17,375 -- 21,645
Sale of common shares 14,795,177 1,479 6,021 -- 7,500
Net loss for the year ended December 31, 1998 -- -- -- (10,943) (10,943)
---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 91,184,052 $ 9,118 $ 243,129 $ (251,986) $ 261
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
See accompanying notes.
26
THE PARK GROUP, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Download Table]
1998 1997
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,943) $(13,062)
Changes in operating assets and liabilities:
(Decrease) increase in accrued expenses (1,682) 1,682
-------- --------
NET CASH (USED) IN OPERATING ACTIVITIES (12,625) (11,380)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -- --
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from shareholders -- 14,516
Other loans received -- 2,250
Proceeds from sale of common stock 7,500 --
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,500 16,766
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,125) 5,386
Cash and cash equivalents, beginning of year 5,386 --
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 261 $ 5,386
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(1) Interest paid -- $
Taxes paid --
(2) During 1998, the Company issued 42,698,875 shares of common stock in payment
of loans aggregating $21,645.
See accompanying notes.
27
THE PARK GROUP, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
The Park Group, Ltd., (the Company), incorporated in the State of
Colorado, commenced business operations on January 24, 1986. The books
and records of the Company are kept in Florida and managed by a
majority stockholder of the Company. The Company is commonly known as
a blind pool and was seeking the acquisition of, or merger with an
existing company. See Note 4 re: Subsequent Event.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates and assumptions.
RELATED PARTY TRANSACTIONS:
The Company's President, Herbert R. Donica, provides management,
legal, administrative services, and office space. For the years ended
December 31, 1998 and 1997 there were no charges for these items.
INCOME TAXES:
As of December 31, 1998, the Company had a net operating loss carry
forward of approximately $308,000 available to offset future taxable
income through 2002.
NOTE 2 - CAPITAL STOCK:
In July of 1996 the Company amended and restated its articles of
incorporation to increase the authorized number of shares of common
stock from 1,000,000 to 1,000,000,000, and to authorize 100,000,000
shares of preferred stock, the relative rights to be established by
the Board of Directors at the time of issuance.
On January 29, 1999, subsequent to the balance sheet date, and in
connection with the merger (see Note 4), the shareholders of the
Company approved a 1 for
28
262.154216 reverse stock split of the Company's common stock.
Additional shares were issued to round up each shareholder's
fractional shares, and, as a result of this reverse split, 347,954
shares became outstanding.
NOTE 3 - GOING CONCERN:
As shown in the financial statements, the Company incurred a net loss
of $10,943 and $13,062 for the years ended December 31, 1998 and 1997,
respectively. Combined with the fact that the Company has no working
capital and an accumulated deficit of $251,986, it is management's
assertion that these circumstances may hinder the Company's ability to
continue as a going concern. See Note 4 re: Subsequent Events.
NOTE 4 - SUBSEQUENT EVENT:
On February 26, 1999, subsequent to the balance sheet date, the
Company and its newly formed, wholly owned subsidiary, Sonus Park
Acquisitions, Inc., (a Virginia corporation) entered into an agreement
to merge Sonus Park Acquisitions, Inc., (SPAC) with and into Sonus
Communications, Inc., (a Virginia corporation), the surviving entity.
As a result of this merger, Sonus Communications, Inc., (Sonus),
became a wholly owned subsidiary of the Company.
Sonus, a telecommunications company, currently provides
satellite-based Internet, phone and facsimile access services to
countries in the former Soviet Union and China. Sonus is also in the
process of establishing such services in Pakistan and plans to enter
other foreign markets as well.
29
SONUS COMMUNICATIONS, INC.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- INDEX -
[Download Table]
Page(s)
-------
Independent Auditors' Report 31
Financial Statements:
Balance Sheets 32
Statements of Operations 33
Statement of Shareholders' Equity (Deficit) 34
Statements of Cash Flows 35
Notes to Financial Statements 36
30
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Sonus Communications, Inc.
Arlington, Virginia
We have audited the balance sheets of Sonus Communications, Inc. as of December
31, 1998 and 1997 and the related statements of operations, shareholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sonus Communications, Inc. as
of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Lazar Levine & Felix LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
April 1, 1999
31
SONUS COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
- ASSETS -
[Enlarge/Download Table]
1998 1997
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 1,002 $ 235
Accounts receivable - trade 41,244 --
Installment sales receivable - net of unearned
profit of $131,340 (Notes 3c and 4) 231,090 --
Prepaid expenses and other current assets -- 2,018
--------- ---------
TOTAL CURRENT ASSETS 273,336 2,253
FIXED ASSETS - NET (NOTES 3D AND 5) 231,615 --
--------- ---------
$ 504,951 $ 2,253
--------- ---------
--------- ---------
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 7) $ 212,039 $ 2,149
Interest payable - shareholder (Note 6) 17,496 10,498
Accounts payable - equipment (Note 4) 356,273 --
--------- ---------
TOTAL CURRENT LIABILITIES 585,808 12,647
--------- ---------
LONG-TERM LIABILITIES:
Note payable - shareholder (Note 6) 99,969 99,969
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY (DEFICIT) (NOTES 2A AND 8):
Common stock; par value $.001, 100,000,000 shares authorized,
3,250,000 and 600 (pre-split) shares issued and outstanding
in 1998 and 1997, respectively 3,250 600
Additional paid-in capital 12,197 14,847
Accumulated deficit (196,273) (125,810)
--------- ---------
(180,826) (110,363)
$ 504,951 $ 2,253
--------- ---------
--------- ---------
See accompanying notes.
32
SONUS COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Download Table]
1998 1997
----------- -----------
OPERATING INCOME:
Telecommunication services (Note 3c) $ 225,840 $ 0
Consulting fee income (Note 7) 61,450 121,318
----------- -----------
287,290 121,318
OPERATING EXPENSES:
Direct expenses 267,946 46,954
General and administrative expenses 82,809 118,093
----------- -----------
350,755 165,047
LOSS FROM OPERATIONS (63,465) (43,729)
Interest expense (Note 6) (6,998) (6,998)
----------- -----------
LOSS BEFORE INCOME TAXES (70,463) (50,727)
Provision for income taxes (Notes 3e and 9) -- --
----------- -----------
NET LOSS $ (70,463) $ (50,727)
----------- -----------
----------- -----------
BASIC LOSS PER COMMON SHARE (NOTE 3F) $ (.02) $ (.02)
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (NOTE 3F) 3,250,000 3,250,000
----------- -----------
----------- -----------
See accompanying notes.
33
SONUS COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
[Download Table]
ADDITIONAL ACCUMULATED
COMMON STOCK PAID-IN CAPITAL DEFICIT TOTAL
------------ --------------- ----------- -----
Balance at December 31, 1996 $ 600 $ 14,847 $ (75,083) $ (59,636)
Net loss -- -- (50,727) (50,727)
--------- --------- --------- ---------
Balance at December 31, 1997 600 14,847 (125,810) (110,363)
Adjustment for stock split 2,650 (2,650) -- --
Net loss -- -- (70,463) (70,463)
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1998 $ 3,250 $ 12,197 $(196,273) $(180,826)
--------- --------- --------- ---------
--------- --------- --------- ---------
See accompanying notes.
34
SONUS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
[Download Table]
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (70,463) $ (50,727)
Adjustments to reconcile net loss to
net cash provided (utilized) by operating
activities:
Depreciation 25,735 --
Changes in assets and liabilities:
(Increase) in accounts receivable (41,244) --
(Increase) in installment sales receivable (231,090) --
Decrease in prepaid expenses 2,018 48,065
Increase (decrease) in accounts payable 209,890 (4,778)
Increase in interest payable 6,998 6,998
Increase in accounts payable - equipment 356,273 --
--------- ---------
NET CASH PROVIDED (UTILIZED) BY OPERATING ACTIVITIES 258,117 (442)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (257,350) --
CASH FLOWS FROM FINANCING ACTIVITIES -- --
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 767 (442)
Cash and cash equivalents, beginning of year 235 677
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,002 $ 235
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ -- $ --
Income taxes -- --
See accompanying notes.
35
SONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS:
Sonus Communications, Inc., (the Company), was incorporated as MVP
International, Inc., in the state of Virginia on May 25, 1995, and
changed its name on July 8, 1998.
The Company currently provides satellite-based Internet, phone and
facsimile access services to countries within the former Soviet Union
as well as China and Pakistan. Using leased-bandwidth and satellite
connections, the Company also intends to enter other foreign markets
through relationships it proposes to develop with other entities in
other countries.
NOTE 2 - SUBSEQUENT EVENTS
(a) OFFERING OF SHARES OF COMMON STOCK:
In January, 1999, subsequent to the balance sheet date, the
Company successfully completed the sale of 750,000 (post-split
- see Note 8) shares of its common stock in a private
offering, at a price of $1.00 per share. Net proceeds realized
from this offering aggregated $626,634.
(b) MERGER:
On February 26, 1999, subsequent to the balance sheet date,
the Company entered into an agreement to merge with and into
Sonus Park Acquisitions, Inc., (a Virginia corporation), a
newly formed, wholly owned subsidiary of The Park Group, Ltd.,
(Park). The Company, which was the surviving entity, became a
wholly owned subsidiary of Park.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with generally
accepted accounting principles. Outlined below are those policies
considered particularly significant.
(a) USE OF ESTIMATES:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates,
36
management does not expect such variances, if any, to have a
material effect on the financial statements.
(b) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows the Company
considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash
equivalents.
(c) REVENUE RECOGNITION:
The Company recognizes revenue as services are rendered to
customers. In connection with certain sales, however, when the
related receivables are collected over extended periods of
time, profit is recognized on the installment method as
receivables are collected.
(d) DEPRECIATION AND AMORTIZATION:
Fixed assets are reflected at cost. Depreciation is provided
using the straight-line method over the following useful
lives:
[Download Table]
Machinery and equipment 5 years
Furniture and fixtures 7 years
Maintenance and repairs are expensed as incurred. Depreciation
expense for the years ended December 31, 1998 and 1997
aggregated $25,635 and $0 respectively.
(e) INCOME TAXES:
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and to
net operating loss and tax credit carry forwards, measured by
enacted tax rates for years in which taxes are expected to be
paid or recovered (see Note 9).
(f) EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of
the weighted average number of common shares outstanding
during each period presented according to the standards of
SFAS No. 128 "EARNINGS PER SHARE" ("SFAS 128"). See Note 8 re:
stock split.
37
(g) STATEMENT OF COMPREHENSIVE INCOME:
SFAS 130 "Reporting Comprehensive Income" is effective for
years beginning after December 15, 1997. This statement
prescribes standards for reporting comprehensive income and
its components. Since the Company currently does not have any
items of other comprehensive income, a statement of
comprehensive income is not yet required. Comprehensive income
consists of net income or loss and other comprehensive income
(income, expenses, gains and losses that bypass the income
statement and are reported directly as a separate component of
equity).
NOTE 4 - INSTALLMENT SALES RECEIVABLE:
During 1998, the Company purchased telecommunications equipment from a
vendor in the aggregate amount of $427,943, of which $196,853 was
placed in service. The remainder of this equipment, at a cost of
$231,090, was sold to Egrisi Joint Stock Company, Ltd., an entity in
the nation of Georgia for $362,430. Since the payment terms are based
on usage of the equipment, the collection period may be extended, and
as such, the Company has recorded this sale under the installment sales
method, (see Note 3c). Each payment collected will be allocated to cost
and profit, in the same ratio that these two elements existed in the
original sale.
As of December 31, 1998, no payments had been collected. Starting in
March 1999, Egrisi Joint Stock Company, Ltd. began making weekly
payments.
NOTE 5 - FIXED ASSETS:
Fixed assets consist of the following:
[Download Table]
1998 1997
--------- -------
Telephonic equipment $ 257,350 $ --
Less: accumulated depreciation (25,735) --
--------- -------
$ 231,615 $ --
--------- -------
--------- -------
NOTE 6 - NOTE PAYABLE - SHAREHOLDER:
Note payable - shareholder represents advances made to the Company, by
a shareholder, bearing interest at an annual rate of 7%. Interest
accrued and unpaid as of December 31, 1998 and 1997, aggregated $17,496
and $10,498, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Company provides consulting services to Goodwill Communications
USA, Inc., (Goodwill USA), a Virginia corporation which is 90% owned by
the Company's two shareholders. Income earned for such services
aggregated $37,450 and $119,613, for 1998 and 1997, respectively.
38
Goodwill USA holds certain satellite service contracts, which it does
not use and which are material to the business operations of the
Company. The Company has been utilizing the services of these contracts
and has been making the appropriate payments to either Goodwill USA or
the service provider. In March of 1999, subsequent to the year end,
such service contracts were assigned to the Company by Goodwill USA.
As of December 31, 1998, accounts payable include $100,461 payable to
Goodwill USA with respect to such contracts.
NOTE 8 - SHAREHOLDERS' EQUITY:
In December 1998, the two shareholders of the Company approved an
amendment to its Articles of Incorporation changing the par value of
its shares from $1.00 to $.001 and increasing the authorized capital
from 1,000 to 100,000,000 shares of common stock. On January 10, 1999
(subsequent to the balance sheet date) this change was effected and the
Board of Directors authorized a stock split of 5,415 shares of common
stock for each share of common stock then outstanding. This transaction
has been retroactively reflected as of December 31, 1998. All
references in the accompanying financial statements to per share
amounts have also been restated to retroactively reflect this split.
NOTE 9 - INCOME TAXES:
No provision for Federal and state income taxes has been recorded since
the Company has incurred losses through December 31, 1998, aggregating
$196,273. Deferred tax assets at December 31, 1998 and 1997 which
consist primarily of the tax effect of net operating loss carry
forwards, amount to approximately $60,000 and $39,000, respectively.
The Company has provided a full, 100% valuation allowance on the
deferred tax assets at December 31, 1998 and 1997 to reduce such asset
to zero, since there is no assurance that the Company will generate
future taxable income to utilize such asset. Management will review
this valuation allowance requirement periodically and make adjustments
as warranted.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
(a) OPERATING LEASES:
In January 1999, subsequent to the balance sheet date, the
Company entered into three-year leases for space in New York
and Los Angeles to house its equipment for operations. These
leases include provisions for a one-time charge of $8,700, for
installation services provided by the lessor. In March 1999
subsequent to the balance sheet date, the Company entered into
a three-year lease for new office space. During 1998, the
Company utilized space rented on a month-to-month basis. Prior
to 1998, a shareholder of the Company provided office space at
no charge.
39
The Company is obligated under long-term lease commitments for
warehouse and office space as follows:
[Download Table]
1999 $ 57,513
2000 72,546
2001 74,037
2002 16,703
--------
$220,799
--------
Rental expense for the years ended December 31, 1998 and
1997 were $10,800 and $0, respectively.
(b) Other Matters:
(i) During the year ended December 31, 1996 the Company wrote
off a $100,000 equity investment it had made in SFH
Trading & Brokerage ("SFH"), a company located in
Switzerland. The Company has been unable to recover its
investment from SFH. The Company is continuing to seek
the assistance of the appropriate policing authorities in
order to locate SFH and recover their investment.
(ii) The Company is dependent on certain primary providers of
leased-line network capacity and internet access and
upon third parties to provide telecommunications
services to its customers.
(iii) Through December 31, 1998, the Company had only one
major customer to which it was providing
telecommunications services. For the year ended
December 31, 1998, sales to this customer accounted for
more than 50% of revenues from such services.
(iv) As a telecommunications company providing international
telephone services, the Company is subject to the 1996
Telecommunications Act which is administered by the FCC.
40
SONUS COMMUNICATION HOLDINGS, INC.
INDEX TO PRO FORMA FINANCIAL STATEMENTS
[Download Table]
PAGE(S)
-------
Introduction to Pro Forma Financial Statements 42
Financial Statements:
Balance Sheet as of December 31, 1998 43
Statements of Operations Year Ended 12/31/98 44
Statements of Operations Year Ended 12/31/97 45
Notes to Pro Forma Financial Statements 46
41
SONUS COMMUNICATION HOLDINGS, INC.
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial statements have been prepared based
upon certain pro forma adjustments to the historical financial statements of
Sonus Communication Holdings, Inc., (formerly The Park Group, Ltd.). The pro
forma financial statements should be read in conjunction with the notes thereto
and the historical financial statements of Sonus Communication Holdings, Inc.,
(the Company).
The accompanying pro forma balance sheet has been presented as if the
transactions described below occurred at the Company's balance sheet date,
December 31, 1998. The accompanying pro forma statements of operations have been
prepared as if the transactions occurred at the beginning of the years ended
December 31, 1998 and 1997.
These pro forma financial statements do not purport to be indicative of the
results which would actually have been obtained had the pro forma transactions
been completed as of the beginning of the years ended December 31, 1998 and
1997.
The pro forma transactions (see notes to pro forma financial statements) are as
follows:
- the consummation of a private offering of Sonus' common shares
- the reverse stock split of the outstanding common shares of the Company
- the merger of Sonus Communications, Inc. (Sonus) into a newly-formed,
wholly-owned subsidiary of the Company, with Sonus being the surviving
entity
42
SONUS COMMUNICATION HOLDINGS, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
[Enlarge/Download Table]
Historical
------------------------------
Sonus Sonus
Communication Communications,
Holdings, Inc. Inc. Transactions and Adjustments Consolidated
--------------- --------------- -------------------------------- -------------
- ASSETS -
CURRENT ASSETS:
Cash $ 261 $ 1,002 $ 626,634(1) $ 627,897
Accounts receivable 0 41,244 41,244
Installment sale receivable 0 231,090 231,090
----------- ----------- -----------
TOTAL CURRENT ASSETS $ 261 273,336 900,231
FIXED ASSETS 0 231,615 231,615
INVESTMENT IN SUBSIDIARY 0 0 642,081(3) 642,081(4) 0
----------- ----------- -----------
TOTAL ASSETS $ 261 $ 504,951 $ 1,131,846
----------- ----------- -----------
----------- ----------- -----------
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable & accrued liabilities $ 0 $ 212,039 $ 212,039
Interest payable - shareholder 0 17,496 17,496
Accounts payable - equipment 0 356,273 356,273
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 0 585,808 585,808
----------- ----------- -----------
NON-CURRENT LIABILITIES:
Note payable - shareholder 0 99,969 99,969
----------- ----------- -----------
0 99,969 99,969
----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock 0 0 0
Common stock 9,118 3,250 9,083(2) 750(1) 435
4,000(4) 400(3)
Additional paid-in capital 234,129 12,197 638,081(4) 9,083(2) 893,893
625,884(1)
641,681(3)
Accumulated deficit (251,986) (196,273) (448,259)
----------- ----------- -----------
Total stockholders' equity (deficit) 261 (180,826) 446,069
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 261 $ 504,951 $ 1,131,846
----------- ----------- -----------
----------- ----------- -----------
43
SONUS COMMUNICATON HOLDINGS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
[Enlarge/Download Table]
Historical
--------------------------------
Sonus Sonus
Communication Communications, Transactions and
Holdings, Inc. Inc. Adjustments Consolidated
-------------- --------------- ------------------ ------------
REVENUES - NET $ 0 $ 287,290 $ 287,290
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of revenues 0 267,946 267,946
General and administrative 10,943 82,809 93,752
----------- ----------- -----------
TOTAL OPERATING EXPENSES 10,943 350,755 361,698
----------- ----------- -----------
LOSS FROM OPERATIONS (10,943) (63,465) (74,408)
Interest expense 0 (6,998) (6,998)
----------- ----------- -----------
NET LOSS $ (10,943) $ (70,463) $ (81,406)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 174,360 4,174,360
----------- -----------
----------- -----------
BASIC LOSS PER SHARE $ (0.06) $ (0.02)
----------- -----------
----------- -----------
44
SONUS COMMUNICATION HOLDINGS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
[Enlarge/Download Table]
Historical
--------------------------------
Sonus Sonus
Communication Communications, Transactions and
Holdings, Inc. Inc. Adjustments Consolidated
----------- ----------- ---------------- -----------
REVENUES - NET $ 0 $ 121,318 $ 121,318
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of revenues 0 46,954 46,954
General and administrative 13,062 118,093 131,155
----------- ----------- -----------
TOTAL OPERATING EXPENSES 13,062 165,047 178,109
----------- ----------- -----------
LOSS FROM OPERATIONS (13,062) (43,729) (56,791)
Interest expense 0 (6,998) (6,998)
----------- ----------- -----------
NET LOSS $ (13,062) $ (50,727) $ (63,789)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 128,513 4,128,513
----------- -----------
----------- -----------
BASIC LOSS PER SHARE $ (0.10) $ (0.02)
----------- -----------
----------- -----------
45
SONUS COMMUNICATION HOLDINGS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(UNAUDITED)
NOTE - 1 On January 21, 1999, Sonus Communications Inc., (Sonus)
completed the sale of 750,000 of its common shares in a
private offering at a price of $1.00 per share. Net proceeds
from this offering aggregated $626,634. As a result of this
offering, Sonus had 4,000,000 common shares outstanding.
NOTE - 2 On January 29, 1999, Sonus Communication Holdings, Inc., (the
Company) effected a 1 for 262.154216 reverse stock split of
its common stock. Additional shares were issued to round up
each shareholder's fractional shares, and, as a result 347,954
shares became outstanding.
NOTE - 3 On March 4, 1999, Sonus merged with and into Sonus Park
Acquisitions, Inc. a newly formed subsidiary of Sonus
Communication Holdings, Inc. (formerly The Park Group). Sonus
was the surviving entity of this merger. In conjunction with
this merger, the Company issued 4,000,000 common shares to the
Sonus shareholders in exchange for the 4,000,000 Sonus shares
held by them.
NOTE - 4 This adjustment eliminates the Company's investment in Sonus,
due to consolidation.
46
PART III
ITEM 1. INDEX TO EXHIBITS
[Enlarge/Download Table]
Exhibit No. PAGE
----------- ----
2.1 Certificate of Incorporation
2.2 By-laws
3.1 Instruments defining the rights of security holders
(a) Stock Subscription Agreement dated January 14, 1999
(b) Placement Agent Agreement dated January 14, 1999
(c) Shareholders Agreement dated as of January 21, 1999
(d) Debentures dated May 5, 1999
(e) Debenture Purchase Agreement dated May 5, 1999
(f) Articles of Merger dated February 26, 1999
(g) Articles of Merger dated April 12, 1999
(h) Certificate of Merger dated April 12, 1999
(i) Form of Warrant
(j) Placement Agent Warrant
6.1 Material contracts
(a) Consulting Agreement dated January 14, 1999
(b) Placement Agent Agreement dated January 14, 1999, attached hereto
as Exhibit 3.1(b) and incorporated herein by reference
(c) Employment Agreement with Richard D. Rose dated April 15, 1999
(d) Consulting Agreement with Raleigh Coffin dated as of April 15, 1999
(e) 10% Convertible Debentures, attached hereto as Exhibit 3.1(d)
and incorporated herein by reference
(f) Consulting Agreement dated April 15, 1999 between the Registrant
and Coffin & Sons, Inc.
ITEM 2. DESCRIPTION OF EXHIBITS
47
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SONUS COMMUNICATION HOLDINGS, INC.
--------------------------------------------------------------------------------
(Registrant)
Date: May 12, 1999
By: /s/ W. Todd Coffin
Name: W. Todd Coffin
Title: Chief Executive Officer
By: /s/ Richard D. Rose
Name: Richard D. Rose
Title: Chief Financial Officer
48
Dates Referenced Herein and Documents Incorporated by Reference
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