UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2001
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number: 333-37654
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9278 COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 98-0207906
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1942 Williamsbridge Road, Bronx, New York 10461
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(Address of principal executive offices)
(718) 887-9278
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 after the distribution of securities under a plan confirmed
by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the registrant's
classes of common equity, as of the latest practicable date:
Common Stock, $.001 par value - 23,943,002 shares issued and outstanding as of
May 18, 2001
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
March 31, December 31,
2001 2000
---- ----
Current Assets:
Cash and cash equivalents $ 4,705,349 $ 4,114,651
Marketable securities 23,682 20,962
Accounts receivable, less allowance for doubtful accounts of $675,000 6,760,832 6,844,833
Inventory 4,261,741 3,582,040
Prepaid expenses 95,986 -
------------ ------------
Total Current Assets 15,847,590 14,562,486
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Furniture and Equipment - Net 843,752 653,597
Goodwill, net of accumulated amortization of $66,227 and $17,154 respectively 3,817,932 3,884,159
Other Assets 143,343 40,743
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$ 20,652,617 $ 19,140,985
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 16,012,273 $ 14,618,528
Current maturities of notes payable 1,049,647 904,936
Current maturities of debt obligations 49,983 48,023
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Total Current Liabilities 17,111,903 15,571,487
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Notes payable, shareholder, less current maturities 1,000,000 2,000,000
Debt obligations, less current maturities 90,650 103,071
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18,202,553 17,674,558
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Shareholders' equity
Convertible preferred stock
Class B, $0.001 par value, 5,000,000 shares authorized
280 and 505 shares issued and outstanding, respectively 280,000 505,000
Common Stock, $0.001 par value; 40,000,000 shares authorized,
23,593,153 and 23,166,969 shares issued and outstanding, respectively 23,593 23,166
Paid in capital 7,967,825 7,743,252
Accumulated Deficit (5,821,354) (6,804,991)
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Total Shareholders' Equity 2,450,064 1,466,427
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$ 20,652,617 $ 19,140,985
============ ============
The accompanying notes are an integral part of these financial statements
-2-
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2001 2000
---- ----
Sales $ 37,438,730 $ 16,882,918
Cost of Sales 34,715,305 16,181,991
------------ ------------
Gross Profit 2,723,425 700,927
Operating Expenses
Selling 386,484 7,967
General and administrative 1,139,696 481,650
Depreciation and amortization 115,002 31,703
Loss on disposition of assets - 363,367
Provision for bad and doubtful debts 52,270 263,474
Interest expense 45,458 45,027
Unrealized gain on investment in securities (2,693) -
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1,736,217 1,193,188
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Income/(Loss) from Operations Before Income Taxes 987,208 (492,261)
Provision for Income Taxes 3,571 -
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Net Income / (Loss) attributable to common shareholders $ 983,637 (492,261)
============ ============
Basic and diluted earnings (loss) per share $ 0.04 $ (0.02)
============ ============
Shares used in the calculation of earnings per share 23,593,153 20,003,337
============ ============
The accompanying notes are an integral part of these financial statements
-3-
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2001 2000
---- ----
Cash Flows from Operating Activities
Net Income / (Loss) $ 983,637 $ (492,261)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 115,002 31,703
Provision for doubtful accounts - 263,474
Unrealized gain on investment in securities (2,693) -
Loss on sale of equipment - 370,837
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 231,905 (481,667)
Inventory (611,686) 374,869
Prepaid expenses and other current assets (95,986) (43,452)
Other assets (2,627) (12,760)
Accounts payable, accrued expenses and other current liabilities 1,280,068 (392,607)
----------- ---------
Net Cash provided by (used in) Operating Activities 1,897,620 (381,864)
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Cash flows from Investing Activities
Acquisition of property and equipment (233,430) (207,996)
Acquisition of businesses (207,742) -
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Net Cash used in Investing Activities (441,172) (207,996)
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Cash flows From Financing Activities
Notes and advances payable, shareholder (855,289) -
Principal payments on debt obligations (10,461) (16,540)
Issuance of common stock - 908,000
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Net cash flows from Financing Activities (865,750) 891,460
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Net Increase in Cash and Cash Equivilents 590,698 301,600
Cash and Cash Equivilents - Beginning of Period 4,114,651 26,192
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Cash and Cash Equivilents - End of Period $ 4,705,349 $ 327,792
=========== =========
The accompanying notes are an integral part of these financial statements
-4-
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(UNAUDITED)
Additional Retained
Preferred Number Paid-in Earnings
Stock of shares Amount Capital (Deficit)
--------- ---------- -------- ----------- -------------
Balance at January 1, 2001 $ 505,000 23,166,969 $ 23,166 $ 7,743,252 $ (6,804,991)
Conversion of preferred stock to
common stock (225,000) 426,184 427 224,573
Net Income for the three months
ended March 31, 2001 - - - - 983,637
--------- ---------- -------- ----------- -------------
$ 280,000 23,593,153 $ 23,593 $ 7,967,825 $ (5,821,354)
========= ========== ======== =========== =============
The accompanying notes are an integral part of these financial statements
-5-
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1 - BASIS OF PRESENTATION
The accompanying condensed consolidated unaudited financial statements
of 9278 Communication Inc. and subsidiaries (collectively, the "Company") have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") for quarterly reports on Form 10-Q and do not
include all of the information and footnote disclosures required by generally
accepted accounting principles and should be read in conjunction with our
consolidated financial statements and notes thereto for the fiscal year ended
December 31, 2000, included in the Company's Form 10-KSB as filed with the SEC.
The accompanying condensed consolidated unaudited financial statements have been
prepared in accordance with generally accepted accounting principles and reflect
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of the management, considered necessary for a fair presentation of
results for these interim periods. Operating results for the three month periods
ended March 31, 2001 and 2000 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2001.
2 - NATURE OF BUSINESS
The Company markets and distributes prepaid telephone cards to small
retail establishments and distributors, primarily located in the New York
Metropolitan area and surrounding areas in the Northeastern United States.
Inventories
Inventories consist of prepaid telephone cards that are stated at the
lower of cost (first-in, first-out) or market.
Income Taxes
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting of Income Taxes" (SFAS 109). Under SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The provision for income taxes for the three
months ended March 31, 2001 reflects the utilization of the Company's net
operating loss carryforwards.
(Continued)
-6-
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
2 - EARNINGS PER SHARE
Basic earning per common share is calculated by dividing net income
(loss) available to common stockholders by the weighted average number of common
shares outstanding during the year. Diluted earnings per share for the three
months ended March 31, 2001 and 2000 excludes all potentially dilutive
securities, as the effect of the related incremental shares (235,000 and 25,000
shares in 2001 and 2000, respectively) would be antidilutive. The dilutive
effect of outstanding referred stock was not material.
3 - ACQUISITIONS
On January 23, 2001, the Company purchased certain assets of two of its
distributors in an asset purchase transaction, wherein the Company acquired all
the accounts receivables, inventories, fixed assets and customer lists of the
distributors net of accounts payable. The Company paid $100,000 in excess of
their net assets for the customer lists. A summary of the transactions is as
follows:
Assets purchased:
Accounts receivable $ 147,904
Inventories 68,015
Other assets 5,500
Customer lists 100,000
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321,619
Liabilities assumed:
Accounts payable (113,677)
----------
Net assets acquired 207,742
----------
Cash paid 207,742
----------
Pro-forma results of operations are not presented, as they are not
material to the historical results presented herein.
(Continued)
- 7 -
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
4 - INVESTMENTS
On January 29, 2001 the Company acquired a 27% equity interest in DMS
Acquisition Corp., (a Delaware Corporation), as an inducement to enter into a
long-term distribution agreement with DMS Acquisition Corp. DMS Acquisition
Corp. is a facility-based carrier of long distance telephone service. On
February 8, 2001 DMS Acquisition Corp. was a party to a triangular merger with
Capital One Ventures Corp. (a NOTC publicly traded company) with Capital One
Ventures Corp. as the surviving entity. DMS Acquisition Corp. became a wholly
owned subsidiary of Capital One Ventures Corp. Simultaneous with the merger
Capital One Ventures Corp. changed the corporate name to Cirus Telecom, Inc.
("Cirus"). As a result of the merger, the Company's equity interest of 8,100,000
shares of Cirus was diluted to 18%. The Company's investment in Cirus is
restricted and subject to other conditions pursuant to the service agreement.
The investment in Cirus is accounted for at cost and is not material to the
Company's financial position. Cirus Telecom Inc. trades under ticker symbol
"CTLE".
5 - NOTES AND ADVANCES PAYABLE, SHAREHOLDER
On December 10, 1999 the Company declared $3,000,000 in dividends, of
which $1,000,000 was paid at that time. On December 13, 1999, the Company
executed a promissory note for the benefit of the shareholders in the amount of
$2,000,000, payable to the Company's chief executive officer, who is also a
shareholder. A principal payment of $1,000,000 was originally due on June 13,
2000, and the second payment was originally payable on December 13, 2001. In
consideration for deferring these payments, on June 13, 2000, the Company issued
warrants to purchase 200,000 shares of common stock at an exercise price of
$1.625 per share. The warrants vested immediately and are exercisable until
2010.
Further, on March 22, 2001, the Company amended the terms of these
promissory notes to defer the payments to March 31, 2002 and December 31, 2002,
respectively, reserving the right to prepay on the note prior to the due date.
Interest on the note is payable at a rate of 8%. For the three months
ended March 31, 2001, interest expense on this note was $40,000 and was paid in
full as of that date.
6 - RELATED PARTY TRANSACTIONS
Sales of inventory to a customer who is related to an officer were
approximately $4,288,000 and $1,200,000 for the three months ended March 31,
2001 and 2000 respectively. The Company also purchases inventory from this
customer during this period in the amount of $2,525,000.
- 8 -
9278 COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
7 - LITIGATION
For the year ended December 31, 1999, purchases from one telephone card
supplier were approximately 55% of total purchases. In November 1999, the
Company commenced an action against this supplier to recover damages resulting
from cancellation of the telephone card purchases by the Company. The supplier
subsequently counter sued. In the Company's opinion, with which its legal
counsel concurs, no material liability will result from the counter suit. The
Company incurred a loss of $553,547, which was reflected in the fourth quarter
of 1999. The Company is doubtful as to the prospects for recovery against such
loss. The Company subsequently mitigated, in substantial part, its reliance on
this supplier by increasing its purchases from other vendors.
In November 1999, a distributor of the Company's prepaid telephone
cards instituted an action for approximately $600,000, based on a purported
breach of oral contract by the Company. The Company filed an answer and
counterclaim against the distributor for approximately $600,000 of unpaid
invoices. The Company believes it has meritorious defenses to the claims of the
distributor and is pursuing its claim for unpaid invoices. The Company has
provided an allowance for doubtful accounts equal to the total unpaid invoices.
8 - SUBSEQUENT EVENTS
Between April 1, 2001 and May 18, 2001, the remaining 280 preferred
shares were converted into 349,829 common shares.
- 9 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the consolidated condensed financial statements and related footnotes
appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to
historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions, which could cause
actual results to differ materially from management's expectations. Factors that
could cause differences include, but are not limited to, expected market demand
for our products, fluctuations in pricing for products we distribute and
products offered by competitors, as well as general conditions of the
telecommunications marketplace.
OVERVIEW
To date, our principal source of revenue has been the marketing and
distribution of prepaid phone cards. We market and distribute branded prepaid
phone cards, which are produced by a variety of telecommunications long distance
carriers and resellers, as well as private label proprietary prepaid phone cards
produced exclusively for us by various long distance carriers and/or resellers.
Prepaid phone cards are distributed through a vast network of retail
outlets, including convenience stores, newsstands, grocery stores and discount
stores. The retail outlets are serviced by independent distributors, which often
distribute newspapers or other items to them. We purchase large volumes of
branded prepaid phone cards from long distance carriers and/or resellers and
resell the cards in smaller quantities, together with cards from other carriers
and/or private label cards we distribute, to the independent distributor for
ultimate distribution to the retailer outlets.
We purchase branded cards at a discount from the face value of the
card, and resold to the distributor at a slightly lower discount. The difference
between the two discount rates, typically from 3% to 8%, represents the gross
margin we retain. We purchase branded cards on varying terms, from C.O.D. to an
as-used basis. Sales of our products are generally made on a net 14 day basis.
Private label cards are generally designed and produced by us,
utilizing card numbers and PINs provided by the telecommunications' carrier or
reseller providing the long distance service for the card. We incur the up-front
expense of printing the phone cards. However, we do not pay the long distance
carrier until it activates the cards, which occurs upon our sale to the
distributor. Accordingly, through the use of private label cards, our cost of
inventory is significantly reduced, as purchases are effectively made on an
as-needed basis. In addition, private label cards generally provide us with the
ability to achieve a greater gross margin percentage, typically ranging from 6%
to 10%.
We are seeking to develop and acquire rights to additional prepaid
telecommunications services and other prepaid products or services to diversify
our product offerings and increase our overall gross margin. In the short-term,
additional costs related to the development or acquisition of such products may
have an impact on our net profits.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Net sales increased $20,556,000 to $37,439,000 for the three months
ended March 31, 2001, up 121.8% from net sales of $16,883,000 for the three
months ended March 31, 2000. The increase in net sales was primarily due to our
acquisitions and geographic expansion in the third and fourth quarters of
calendar year 2000 and, to a lesser extent, the first quarter of 2001. In
September 2000, we opened two offices, one in Yonkers, New York and one in
Silver Springs, Maryland, which accounted for an
10
aggregate of $4,800,000 in sales in the first quarter of 2001. In December 2000,
we acquired Reliable Networks, Inc., a competitor of ours located in Queens, New
York, which accounted for $11,100,000 in sales in the first quarter of 2001. In
January 2001, we acquired the assets of two separate distributors in
Connecticut and opened an office in Connecticut, which accounted for an
aggregate of $1,500,000 in sales in the first quarter of 2001. Same location
sales increased in the first quarter of 2001 by approximately $3,100,000, from
$20,000,000 in 2001 to $16,900,000 million in the year prior.
Gross profit increased to $2,723,000 for the three months ended March
31, 2001, as compared to $701,000 in the same period in 2000, as a result of
increased volume and greater sales margins. As a percentage of sales, gross
profit increased to 7.27% for the three months ended March 31, 2001, as compared
to 4.15% for the same period in 2000. This increase in gross profit was
attributable to our addition of higher margin private label cards, slightly
offset by the decrease in margins attributable to branded products and
increasing competition from additional cards entering the marketplace.
Operating expenses for the three months ended March 31, 2001 increased
by $543,000 to $1,736,000, an increase of 45.5% over operating expenses of
$1,193,000 for the three months ended March 31, 2000. Selling expenses increased
to $386,000 in the first quarter of 2001, from $8,000 for the same period in
2000, as a result of our utilizing commissioned sales staff to make bulk sales.
In addition, general and administrative expenses increased to $1,140,000 for the
three months ended March 31, 2001, as compared to $482,000 for the same period
in 2000. This increase was primarily due to an increase in salaries of $235,000
that is directly related to our growth, an increase in professional fees of
$219,000 due to legal, accounting and consulting fees incurred primarily in
connection with our acquisitions and costs of litigation, and an increase in
trade publication advertising of $71,000. The remainder of the increase in
general and administrative expenses of approximately $127,000 reflects the
normal escalation of overhead required to support our growth.
Depreciation and amortization for the three months ended March 31, 2001
equaled $115,000, an increase of $83,000 compared to the same period in 2000.
The increase is comprised of $46,000 in increased depreciation of fixed assets
and $37,000 in increased amortization of goodwill. In the three months ended
March 31, 2000, we recorded a loss on the disposition of assets of $363,000 and
a provision for bad debts of $263,000. During the three months ended March 31,
2001, the provision for bad debts was only $52,000.
We had a net profit of $984,000 for the three months ended March 31,
2001, as compared to a loss of $492,000 for the three months ended March 31,
2000. The increase in net income was due to the increase in sales volume and
gross profit margins, improved internal controls for overhead, reduced bad debt
and the lack of any other significant losses. For purposes of earnings per
share, net income/loss attributable to common stock reflects net income of
$984,000 for the three months ended March 31, 2001 as compared to a net loss of
$492,000 for the three months ended March 31, 2000.
CAPITAL RESOURCES
At March 31, 2001, we had total current assets of approximately
$15,848,000. This included $4,705,000 in cash, $4,262,000 of inventory and
$6,761,000 of accounts receivable. Our cash balances vary significantly from
day-to-day due the large volume of purchases and sales we make from the various
prepaid phone card companies and the numerous distributors to whom we sell
cards.
We generated $1,898,000 in cash from operating activities during the
three months ended March 31, 2001, as compared to $382,000 during the same
period in 2000. Increases in cash flows during the three months ended March 31,
2001, are related to the higher net income, increases in accounts payable, and
decreases in accounts receivable offset by increases in inventory and prepaid
expenses. The decrease in accounts receivable has been achieved in spite of
sales increasing by 121.8%, through the reduction in average collection time
from 31 days as of December 31, 2000 to 16 days as of March 31, 2001.
11
Cash utilized for investing activities amounted to $441,000 during the
three months ended March 31, 2001, utilized to acquire additional fixed assets
and acquire another business operation. Cash utilized for financing activities
amounted to $866,000 during the three months ended March 31, 2001 to pay down
notes payable and principal on debt obligations.
We believe that existing cash and cash equivalents, cash flow from
operations and available vendor credit will be sufficient to meet our planned
working capital and capital expenditure budget through the remainder of 2001.
However, there are no assurances that we will not be required to seek additional
financing. If we are required to seek other sources of financing, there can be
no assurance that we will be able to obtain such financing on commercially
reasonable terms, or otherwise, or that we will be able to otherwise satisfy our
short-term cash flow needs from other sources in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are subject to certain legal proceedings and claims which have
arisen in the ordinary course of our business. These actions when ultimately
concluded will not, in the opinion of management, have a material adverse effect
on our financial position, results of operations or liquidity. We are also
subject to other legal proceedings which we have previously disclosed.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In May 2001, pursuant to an automatic conversion provision of our
series B convertible preferred stock, the final 280 shares of our series B
convertible preferred stock were converted into 349,829 shares of our common
stock. This transaction was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 23, 2001, in lieu of a special meeting of stockholders, the
holders of a majority of our outstanding shares of common stock acted by written
consent to:
(i) elect Sajid Kapadia, Haris Syed and Hanif Bhagat as
directors of the company; and
(ii) adopt our 2001 Stock Option Plan and reserve
5,000,000 shares of our common stock for issuance
upon the exercise of options granted under the plan.
ITEM 5. OTHER INFORMATION.
On May 14, 2001, we engaged Grant Thornton LLP to act as our
independent auditors. We have not consulted Grant Thornton LLP during the two
most recent fiscal years, or any subsequent period prior to their engagement,
regarding the application of accounting principles to a specified transaction,
or the type of audit opinion that might be rendered on our financial statements.
The appointment of Grant Thornton LLP as our independent auditors was approved
by our board of directors on May 14, 2001.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
4.1 2001 Stock Option Plan of the Company(2)
10.1 Amendment, dated March 22, 2001, to the Employment Agreement between
the Company and Sajid Kapadia(2)
---------------------
(1) Incorporated by reference from the Company's report on Form 10-QSB for
the three-month period ended March 31, 2000
(2) Incorporated by reference from the Company's report on Form 10-KSB for
the year ended December 31, 2000
(b) Reports on Form 8-K.
On December 12, 2000, we filed a Current Report on Form 8-K, dated
December 8, 2000, to report the merger of Reliable Networks, Inc., a New York
Corporation, with and into a wholly-owned subsidiary of ours. As a result of the
merger, Reliable's sole shareholder was issued: (i) a cash payment in the amount
of $1.0 million, (ii) 1,000,000 shares of our common stock, and (iii) three
notes in the aggregate amount of $1.0 million. The number of shares and amount
of the notes issued are subject to adjustment under certain circumstances. In
connection with the merger, Reliable's sole shareholder entered into an
employment agreement with us to serve as the President of the combined company
through December 31, 2002. On February 9, 2001 and April 13, 2001, we filed
amendments to the Current Report on Form 8-K/A, dated December 8, 2000, to
include the financial statements of Reliable Networks, Inc. and certain pro
forma financial data.
On May 1, 2001, we filed a Current Report on Form 8-K to report the
resignation of Friedman Alpren & Green LLP as our independent auditors, as of
April 24, 2001.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
9278 COMMUNICATIONS, INC.
Date: May 21, 2001 By /s/ James Scigliano
----------------------------
James Scigliano
Chief Financial Officer
(Principal Financial and
Accounting Officer)