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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2004
Commission File No. 0050069
COMMUNICATIONS RESEARCH, INC.
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(Exact name of small business issuer in its charter)
NEVADA 22-2991753
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(State or other jurisdiction of) (I.R.S. Employer
incorporation or organization) Identification No.)
67 RAMAPO VALLEY RD, SUITE 103, MAHWAH, NJ 07430
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (201) 684-0880
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
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(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
[x] Yes [ ] No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 2004 were $94,859
Aggregate market value of voting stock (A Common only) held by non-affiliates of
registrant (deemed by registrant for this purpose to be neither a Director,
Officer or active employee of the registrants company) computed by reference to
the SB-2, AMENDMENT 4 dated May, 1, 2002, "DETERMINATION OF SHARE PRICE" sets
the per share value as .35 cents per share, with 8,259,050 non-affiliate shares
for an aggregate market value of $2,890,667.
Number of shares outstanding of registrant's Common Stock, as of December 31,
2004 was 104,081,670 shares
DOCUMENTS INCORPORATED BY REFERENCE
Registrants SB2, AMENDMENT 4, dated May, 1, 2002, is herein incorporated by
reference throughout PART I, II and III of this report.
Transitional Small Business Disclosure Format (check one) Yes [x] No [ ]
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements as defined in Safe Harbor
under the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may involve known and unknown risks, uncertainties and other factors
that may cause actual results and performance in future periods to be materially
different from any future results or performance suggested by these statements.
The company cautions investors not to place undue reliance on forward-looking
statements, which speak only to management's expectations on this date. The
Company does not undertake any obligation to publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
This discussion in this Annual Report regarding Communications Research and our
business and operations contains "forward-looking statements." These
forward-looking statements use words such as "believes," "intends," "expects,"
"may," "will," "should," "plan," "projected," "contemplates," "anticipates," or
similar statements. These statements are based on our beliefs, as well as
assumptions we have used based upon information currently available to us.
Because these statements reflect our current views concerning future events,
these statements involve risks, uncertainties and assumptions. Actual future
results may differ significantly from the results discussed in the
forward-looking statements. A reader, whether investing in our common stock or
not, should not place undue reliance on these forward-looking statements, which
apply only as of the date of this report.
When used in this Annual Report on Form 10-KSB, "Communications Research," "we,"
"our," and "us" refers to Communications Research, Inc., a Nevada corporation,
and our subsidiaries.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Our Company was incorporated in New Jersey on August 11, 1989. From our
inception until 1992, we had acted as consultants and engineers providing
research and development for manufacturers and clients using RF Broadband
technology for video and data products. In 1992, with data and video networking
migrating away from RF and CATV equipment to twisted pair cable and fiber
optics, we began to design and install Local Area Networked video and data
communication systems, primarily for the Health Care market. In 1994, we began
to design and install video conference and video presentation systems as well.
It was during that period, to meet the requirements of a military location, the
company developed a desktop video conference and distant learning system to meet
their anticipated training needs.
We became a wholly owned subsidiary of Visual Telephone of New Jersey,
Inc., a publicly traded Delaware corporation ("Visual of New Jersey") on July
17, 1996. With the merger, Visual of New Jersey changed its name to Visual
Telephone International, Inc. ("Visual Telephone") in September of 1996. We
operated as a wholly owned subsidiary of Visual Telephone until May 21, 1999,
when our shares were distributed to the shareholders of Visual Telephone
pursuant to an Agreement and Plan of Reorganization dated May 14, 1999 (the
"Reorganization Agreement") by and among us, to the shareholders of record as of
close of business on May 21, 1999. Since May 21, 1999, we have operated as a
separate and autonomous entity. On July 15, 1999, we completed a change of
domicile pursuant with merger agreement which changed our state of domicile from
New Jersey to Nevada. In November 1999 the company purchased the assets of
Optel, Syosset, NY, the principle asset being the exclusive rights to the
Tele-Writer-AGS (Advanced Graphics System) software. The company incorporated
Tele-Writer Corporation, Inc. to continue with the product development and
planned marketing of the software system.
We presently design, develop, and provide construction management for
audiovisual, video conference, structured cabling and data communications
systems that process, display and transmit video, audio and data. We have two
autonomous internal divisions. Our core business is Special Systems Consulting
that provides clients with design, development, bid specifications, cost
consulting and project management of audio, video, data, and communications
systems. Our Systems Integration Division is a boutique design-build operation,
for special clients, to provide turnkey design, develop and act as general
contractor to install sophisticated data, audio, video and communications
systems.
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The diversity of technology we span lends itself to several
applications, both within a particular business and throughout an enterprise or
institution. Our ability spans the gamut of electronic communications. Our
customers need to communicate within their organization and/or reach a diverse
audience at many remote locations. Very often we begin working with a client to
provide a specific system or technology solution and find our scope of work
expand to include other technology systems.
We have designed and installed electronic systems to be used as video
conferencing systems, distance learning systems, audio/visual presentation
systems, security/surveillance systems, broadcast and sophisticated campus
distribution systems. Our systems combine data, voice and video transmission in
an efficient and cost effective manner to meet client needs.
In 2002, the company decided to phase out our line of PC Based desktop
video conferencing products. Our line of video conferencing products that
featured our proprietary Visual-EZ and Communicator products will be frozen and
only existing client systems shall continue to be supported. This decision was
made as the cost to maintain compliance with new PC operating systems and
evolving International Standards compliance was not justified by revenues
generated from sales. The company does own, and will continue to support and
develop, the collaboration software embedded into the Visual-EZ operating
system, that being the TeleWRITER AGS system and has made an agreement to resell
and support the Polycom series of products.
The following sets forth a breakdown, by industry, segment of our sales
revenues to unaffiliated entities, sales to related entities, operating profit
or loss and identifiable assets.
INDUSTRY BACKGROUND
Communication systems play a pivotal role in how industry utilizes
corporate information to satisfy its strategic goals. Networked resources allow
businesses to transmit and track information necessary to manage their
operations. Telecommunication connectivity is the backbone that allows the
transport of this information, in the form of data, voice or video between
employees, management and even customers. Multimedia presentations which utilize
data, voice and full motion video transmission have become an effective means
for communicating ideas, statistics and information at costs significantly lower
than long distance personal presentations.
Communication technology has evolved in great leaps over the last
several years, yielding high quality digitally compressed, full motion video
capabilities at reduced costs for many applications other than the tradition
video conferencing and distant education. Reduced costs have led to an increase
in options for users. Increased communications options lead to user confusion
and the need to provide guidance and expertise. We believes that the trends of
advancing technology and convergence of technology will continue, yielding
improved productivity and profitability for businesses that have planned their
communications strategies carefully, and we have positioned ourselves to provide
the knowledge and expertise necessary for the deployment of this ever advancing
technology.
DESCRIPTION OF OUR BUSINESS SEGMENTS
SPECIAL SYSTEMS CONSULTING DIVISION.
------------------------------------
We offer an array of consulting services as; full system
design/specification service, configuration, program development, cost
consulting, system certification testing, installation management and technical
support. Our Communications Consulting operations begins with a discussion with
the client's management team to review the client's current requirements and
assess their current and future needs. Existing systems are tested, documented
and mapped to aid in the diagnosis of problems, potential problem areas and to
determine what part of existing systems, if any, can be recovered and
incorporated into a client's new and improved design. A programming review is
conducted with the client to determine actual requirements and budget
constraints. A functional design and implementation plan is established based
upon the budget, current and projected needs, of the client. Upon approval of
our preliminary plans, a full design is prepared with construction details and
specifications for the client to bid the project. After award to successful
bidder, our engineers and project managers; coordinate, manage and test the
system through completion, as part of the second phase support program.
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SYSTEMS INTEGRATION DIVISION.
-----------------------------
We, through our Systems Integration Division, provide our clients with
sophisticated communications solutions designed to fulfill their strategic
needs. We provide the knowledge and experience necessary for the deployment of
both analog and digital, voice and video technology. We have been providing the
development, design, integration and support of large scale security,
surveillance, audio/visual, professional video and computer/network systems
since 1989. Our Systems Integration Division accounts for approximately 25% of
our business. This division has no foreign operations and no material foreign
sales.
Capital equipment, supplies, materials and installation labor used by
our System Integration Division are supplied by various manufacturers, vendors
and sources. We believe that the various components, parts and equipment used by
our Systems Integration Division are readily available from a diverse assortment
of suppliers. The company strives to be vendor independent, allowing us to
design solutions that fit the client's needs and are correct to meet project
goals defined. This eliminates the need for us to maintain an excessive level of
inventory. Installation labor on large projects is bid to contract installers
know to provide high quality workmanship that meets our standards and goals. The
elimination of any one supplier would not have a material effect on our ability
to design and install systems.
GOVERNMENT BUSINESS.
--------------------
We are qualified and registered to do business with all branches of the
federal government. Our location provides us with a strategic advantage when
bidding on projects for federal, state and local governments in the Middle
Atlantic region
In June 1999, we were approved as a New Jersey State DPMC (Department
of Property Management and Construction) Communications Consultant. In June;
2003, upon performance review the per-project cap was increased to $1,500,000.00
value per project. This is a contract renewed every two years, and will be
renewable on or before expiration by June 30, 2005, upon review of performance
and scope of projects completed. In November of 2004, the company was cleared as
a NJSCC approved communications consultant to directly provide K-12 schools
engineering and consulting service. We have been awarded projects for
engineering and consulting services under New Jersey DPMC status as a state
qualified consulting firm. The company has elected to continue working with K-12
schools through our close association with State approve Architectural firms we
have continuing professional relations with. No assurances can be given that any
additional projects will be awarded to us pursuant to this contract.
We are a qualified contractor for bidding in the Commonwealth of
Pennsylvania for video conferencing, distant learning, audio/visual, multimedia,
audio, graphic and image display system projects. This qualification is renewed
annually and is not subject to review or re-negotiation. This work is highly
competitive, requires installation and other personnel to be residents of
Pennsylvania.
On February 17, 2004, we were qualified by the New Jersey Commerce &
Economic Growth Commission for school construction projects that fall under
Management Interventions, Inc., for the State of New Jersey. To date the company
has not received any consulting projects of significance from this state
affiliation
RECENTLY COMPLETED PROJECTS.
----------------------------
Our Systems Special Systems Consulting or System Integration Division
is currently working on the following governmental or public projects:
Ramapo College of New Jersey, Mahwah, NJ
Dater School, Jr. High School, Ramsey, NJ
NJEdge, new Statewide College and University Network
Sussex Community College, Sussex, NJ
City of Lodi, Lodi, NJ
Ingersol-Rand Corporate Headquarters, Montvale, NJ
Kennelon Schools, Kennelon, NJ
We have enjoyed business relationships with the following architectural
and engineering firms:
H2L2 Partners, Philadelphia, PA
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GBQC Architects, Philadelphia, PA
LAN Associates, Inc. Midland Park, NJ and Goshen, NY
Seyffer & Koch Architectural Group, Glen Rock, NJ
SNS Partnership, Montvale, NJ
Current government, education and public projects represent
approximately 75 percent of our revenues. However, one large system project in
either the public or private sector could dramatically change this percentage.
Recently with the economic climate, many large projects have been suspended or
cancelled with reductions in funding for higher education in the State of New
Jersey.
MARKETING AND SALES STRATEGY.
We focus our sales and marketing efforts on developing strategic
alliances with equipment manufacturers ("OEMs"), Architects and service
providers. This permits us to act as a vendor for the OEM, Architectural Firm or
service provider, sub-contracting our engineering, integration and project
management into the OEM's products, Architects Specifications or other service
provider's scope of work. We rely on the sales efforts of the sales
professionals employed by our business affiliates. This philosophy allows us to
function without the added burden of a large direct sales force. Additionally,
we directly market our services to Fortune 500 companies, federal, state and
local governments, the military, Department of Defense, courts and education
institutions. The company has become a boutique consulting engineering firm and
engineering contractor with its diverse understanding and competency, providing
a broad range of technology solutions.
We have enjoyed business relationships with the following equipment
manufacturers:
AutoPatch Division of XN Technology, Chency, WA
Baxall, Denver, CO and Baxall Limited, Great Britain,
Crestron, Creskill, NJ
Extron Electronics, Anaheim, CA
Steward Filmscreen Corporation, Torrance, CA
Siemon Corporation, Waterbury, CT
The company is a qualified System Consultant in the Siemon
Engineer/Contractor program. The term of the qualification expires on May 14,
2005. Siemon Corporation has recommended and assigned projects to the company
under this agreement in the past two years.
While we strive to maintain such relationships, no assurances are given
that it will be able to do so or whether it will be able to develop new
relationships with other manufacturers and suppliers.
We do not believe that the business generated by our Systems
Integration Division is seasonal. While our Systems Integration Division does a
significant amount of business with agencies of federal, state and local
governments, we are not dependent upon the business of one or a few customers,
the loss of any one or more of which would have a material adverse effect upon
our operations. No single customer of our Systems Integration Division is
responsible for 10% or more of our aggregate sales.
While our Systems Integration Division employs pricing and payment
terms that our management considers competitive, we do not employ extended
payment terms or liberal return policies that could have a materially adverse
effect on our operations. This division's sales varies with the timing and scope
of the projects booked. In most cases, backlog varies between two weeks and four
months.
ADVERTISING AND PROMOTION
The Company launched an updated TeleWRITER Corporation website in 2004
which provides potential clients with detailed capability and technical
information about TeleWRITER-AGS, its principle product. The WEB address of the
new site is either www.telewriterags.com or www.telewriter-ags.com. We have
engaged American Internet to establish and host an on-line ordering for
TeleWRITER products and updates, when reasonable, for better client notification
and easier ordering.
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The Company WEB site is under revision and will provide information on
the Engineering Consulting and Systems Integration divisions of the company. The
WEB address for that site is www.cri-inc.biz , with the former address
www.vistele.com, still remaining in operation at least through the end of 2005.
In addition, the company website will offer, information for investors,
new releases, vendor/manufacturers represented and client specific log-in area
for e-mail, project scheduling and system updates for clients with access. The
Company will continue to make improvements and expand its website. We will look
into posting any product specials or inventory closeouts for better client
notification and easier ordering.
The primary advertising medium used to attract new clients shall be
advertisement placement in trade publications, placed in strategic issues, as
convention and exhibition issues. The Company will place increased emphasis in
2005 on expanding its advertising, public relations and investor relations
strategies for both the company and Tele-Writer. The Company will continue to
expand its advertising efforts as we anticipate our sales and marketing spending
will grow dramatically in 2005. The Company also plans to promote specific
technologies or completed projects in trade publications. The company has
received a considerable amount of exposure from previously being featured in
System Contractor News. We plan to continue this method of exposure and
marketing.
DOCUMENTATION AND QUALITY ASSURANCE.
Truly effective communications systems require easy and inexpensive
maintenance. Maintenance costs are reduced by employing accurate and easy to use
documentation. We diagrammatically and functionally detail the construction and
wiring of each system we design and identify, track, and map all cable runs and
devices utilized in a system. Performance test results and certification runs
are compiled and documented to provide quality assurance. In 2004 the company
replaced aging Windows 98 workstations with new Windows XP systems, Microsoft
Office 2003, and Microsoft Project. We provide complete sets of prints
reflecting cable runs, equipment location and functional interconnect details
for all systems that it engineers and installs. The company added a new AutoCad
2004 station and its first Architectural Desktop system, by Autodesk, for
development and design, including upgrading the existing two AutoCad 2000
stations to AutoCad 2004.
Our mapping documentation becomes a most useful maintenance tool.
Documentation is supplied on CD's that can be readily modified. When clients are
unable to provide digitized floor plans of their facility, we can scan and
digitize any floor plan into an AutoCad file for an additional fee. We believe
that the use of our documentation and quality assurance strategies will provide
our clients with significant savings as our mapping decreases the amount of time
that technicians need to maintain the systems that we design and commission.
We own and maintain an inventory of test and measurement equipment for
the daily requirements of our business. Additional testing equipment is acquired
to support special project requirements on a case by case basis. All such
testing and measurement equipment is re-calibrated every six months to traceable
National Bureau of Standards sources. In 2005, the company has plans to continue
to replace all equipment greater than three years old and add additional test
equipment to meet current testing standards.
RESEARCH AND DEVELOPMENT.
It is not anticipated that the Consulting Division or Systems
Integration Division will incur material research and development expenses and
we have not made any budgeting provisions for research and development. The
company will continue to be required to partake in advanced technology and
product training seminars, by manufacturers we represent, and certification
agencies requiring continuing education and re-certification. The company will
continue to support these programs and re-certifications out of operating
revenues.
While some of the companies' professional development costs are funded
from our operating revenues, much of our research and development costs are
performed under contract and paid for by our clients. In such events, we own the
rights to the fruits of such research and development and our clients have the
unlimited but non-exclusive use of the technology or design that we have
developed for them. Most development projects are to solve a specific client
problem, with no commercial viability, there is always the potential some
specific solutions could become reoccurring revenue streams.
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MARKET SEGMENTS SERVED.
We have offered our consulting services in connection with video
conference/distant learning, large scale security/surveillance, audio/visual
media display/retrieval, professional video and communications/networking
projects. Our systems have been geared towards the following applications:
VIDEO CONFERENCING/DISTANCE LEARNING SYSTEMS.
Corporations, large and small, have significantly increased their
reliance for corporate meetings and training since September 11th. With the
perfection of the H.323 IP standards, MPEG codec's streaming at megabit speeds,
gigabit network standard and the availability of reserve bandwidth in corporate
and educational networks, video conferencing has matured and new generations of
video conference products are being embraced by corporate and educational users.
The emphasis on locational convenience, together with the availability of
tuition reimbursement incentives offered by employers, have contributed to an
increase in demand for higher education and training at off-campus locations.
This allows educational institutions, businesses and others to offer classes and
training to remote locations far from the traditional campus or home office.
A number of national, economic, demographic and social trends,
including: i) employer and employee recognition of the need to have employees
advance their skills; ii) the shift from unskilled jobs to skilled jobs in the
United States due to the shift from an industrial to an information based
economy; iii) improvement in the student's financial prospects; and iv) the need
for colleges to increase their revenue base, are contributing to the growing
demand for career oriented education.
We design and integrate video conferencing and distant learning systems
for corporations, educational institutions, private sector and governmental
agencies. Our marketing objectives for these systems are achieved by:
*Targeting major corporations, federal, state and local
governmental agencies and other organizations that are
distributed over large and medium geographic areas requiring
spontaneity of corporate meeting, corporate doctrine and job
related training for their personnel at diverse locations.
*Making alliances with colleges, universities and primary
education school boards to provide support, re-manufacturing
of existing systems and rollout new technology systems.
*Making alliances with equipment vendors and
telecommunications services providers to gain access to the
latest technology capable of providing quality, cost-effective
interactive video conferencing systems.
COMPETITION - VIDEO CONFERENCING/DISTANCE LEARNING SYSTEMS
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We face competition from a number of large and small companies, both
public and private. Many of the companies we compete with possess greater
financial and personnel resources than we possess and have greater leverage in
acquiring prospects, hiring personnel and marketing. A high degree of
competition in these areas is expected to continue. No assurance is given that
we will not be adversely affected by these factors.
SECURITY/SURVEILLANCE SYSTEMS.
The use of video surveillance has aided the automation of the security
industry. Closed Circuit Television ("CCTV") surveillance is being relied upon
more heavily today to protect lives and property as an adjunct to classical
security alarm measures. Larger corporate, institutional and governmental
agencies require CCTV systems that utilize high quality industrial grade video,
elaborate control of cameras with pan/tilt/zoom capability, video matrix
switching of sources and archival recording for audit trails or submittal as
legal evidence.
Competition in the small and medium surveillance system market is
intense as the levels of technical expertise and financial resources needed are
minimal. Large security system design and integration requires a high degree of
technical knowledge in a number of electronic systems areas. These systems are
usually distributed in a wide area making the need for multiplexing video and
control mandatory. Fiber optics are generally needed to support the wide
bandwidth multiplexing for transmittal of signals over greater distances than
copper cable will allow without equalization. Control of different pan/tilt/zoom
devices needed to meet various specifications must be designed for remote single
or multiple control. Video from multiple camera sources must be processed and
switched among numerous monitors and monitor locations.
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We have successfully designed and implemented high level
security/surveillance systems for museums, colleges, casinos and high security
military installations. Recently our services have been sought after by various
local municipalities and state agencies to provide a new generation of high end
visual surveillance system to meet objectives and directives as outlined in the
Homelands Security Bill, approved November 2002 and the `Safe Street Act'. While
the events of September 11th have negatively impacted business for us and most
American companies, in its aftermath it has opened opportunity to provide 21st
century Technology to meet expanded security needs.
Provisions of the Homeland Security Bill provides:
o Establishment of new Transportation Security
Administration (TSA) within the Department of
Transportation under the Aviation and Transportation
Security Act. This Act significantly changes the way
transportation security will be performed and managed in
the United States. This new administration was chartered
to secure critical and strategic assets as 10,000 FAA
facilities, pipelines, railroad and highway bridges,
Ports, highways and railroads. TSA's initial budget for
2004 was 4.8 Billion dollars and is continuing to be
funded by the federal government.
o The Homeland Security Bill directly provides funding to
secure the 7500 miles of land and sea borders shared with
Canada and Mexico. Each year more than 500 million people
are admitted into the United States of which 330 million
are non-citizens. Ten Billion dollars is allocated to
securing Americas borders, 700 Million dollars is
allocated to "21st century technology development for
defending the homeland, 5 billion for aviation security, 5
billion for non-Department of Defense (DOD) Homeland
security and 4.6 billion allocated for physical security
of DOD facilities and personnel.
o An additional 35 billion is expected to be spent for
Critical Infrastructure Protection (CIP) by private
industry to secure high risk facilities as nuclear power
plants, fossil fuel power plants, ports, hydro-electric
dams, telecommunications nodes and chemical facilities.
An advanced technology solution has been developed to meet the needs
and objectives of the Homeland Security initiative. The criteria for visual
security will provide the highest level of surveillance, merging video
compression technology with IP interfaces, over high speed networks, or the
internet, with real-time digital archive servers. Using IP video and control,
there are no distance limitations. The quality, performance and controls are the
same across a campus, county, state or country.
The company has elected to team with Baxall USA, a British manufacturer
of digital cameras and digital archive servers to provide a suitable solution to
the complex archive and retrieval issues of this program. This system allows any
camera or group of cameras to be viewed in real time, or playback prerecorded
cameras to recreate past events. The company pioneered the use of high speed
internet cable access for the transport of digitally compressed video
surveillance cameras for locations within a municipality to the police, fire and
municipal command center.
This highly advanced approach conceived by the company involves using
digital, full motion compressed video for visual surveillance. The company works
with the local cable company to define their fixed resources that must be
enhanced for higher bandwidth and quality of signal service, needed for the
digital camera signal transport.
This new concept has many advantages to solve some high level
requirements of the Homeland Security Bill, allowing surveillance monitoring,
remote control and Command Centers to be distributed over large geographic
areas. To accomplish this, IP (Internet protocol) based digital cameras can be
connected by standard telephone/data cable to high speed data network backbone.
These cameras, monitors and recording devices also can be connected by wide area
networks, private virtual networks and even through the internet.
The digital security cameras have what is termed a codec for
Coder/Decoder. The technology of digitally compressed full motion video and
audio was developed in the early 1980's and has advanced to international
standards for the interchange of audio and video signals. Currently, the
international H.261 video standard is most commonly used for what is known as
video teleconferencing and distant learning.
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The systems currently being deployed are fully capable of meeting
international standards with either, MPEG IV Motion JPEG or H.261 compression
standards. Presently, digital cameras, transmission and archival storage are
currently available with proprietary protocols that are exclusive to only one
manufacturer. CRI elected to use standards based IP networks and compression
protocols for greater flexibility now, with vendor independence for the future.
COMPETITION - SECURITY/SURVEILLANCE SYSTEMS
-------------------------------------------
We face competition from a number of large and small manufacturers,
most possessing greater financial and personnel resources than we possess and
have greater leverage in acquiring prospects, hiring personnel and marketing.
The company approach is to continue to support Baxall and their commercially
available, standards based digital cameras to be processed, controlled and
archived. This will allow a more open platform for vendor independence of
peripheral equipment. Currently there are a number of manufactures that offer
digital recording of surveillance cameras using their own proprietary algorithms
and recording methods. A high degree of competition in these areas is expected
to continue. No assurance can be given that we will not be adversely affected by
these factors.
AUDIO/VISUAL AND IMAGING.
Audio Visual systems have grown in sophistication over the past five to
8 years and can generally be dubbed the work horse of the information age. The
convergence of technology has impacted the A/V industry in a positive way, which
has lead to a great deal of cross over technology being implemented, in a unique
way, to make presentations, training and entertainment more effective.
Effective AV presentations are a blend of audio, video, computer,
graphics, large screen video display and network technologies integrated in a
way that meets the user requirements. These systems are used in many
applications as classrooms, lecture halls, corporate board rooms, meeting rooms,
Houses of Worship, museums to name only a few. AV presentation has additionally
been linked between corporate, educational and government locations with audio
and video conferencing over a network to expand the reach of participants that
potentially will take part in meetings and class sessions.
The highly specialized AV presentation systems require an engineering
approach and integration support that has a broad knowledge base of multiple
communications technologies. The company has been specializing and developing
large system solutions in all the allied fields and has an opportunity to
integrate special solutions bringing these special talents together to meet the
broad based needs of AV presentation system today. It is this ability, the
company believes, is what has expanded to new opportunities with our existing
client base and opened new relationships with clients. Successful completion of
special system projects has opened market awareness to the value and broad base
technical expertise we bring to a project. The company has migrated from
depending on a few clients that represented 80% of its revenue to working on
projects for multiple clients, none of which represents greater than 10% of our
present revenues.
Typically a system includes multiple images with large screen video
projection, high resolution graphics, video media, audio sources, Surround
Sound, High Definition retrieval, computer data input, and remote access.
Systems the company is presently working on includes; normal classrooms, meeting
rooms, and conference rooms and beyond into large venue auditoriums, churches,
screening rooms, theaters, multi-purpose rooms and even home theaters. While the
scale of the project increases or decreases to meet the application, the design,
implementation, technology and quality are always to the highest degree. As a
human to information interface, Audio Video presentations provide an effective
tool to meet and communicate knowledge, information and ideas.
COMPETITION - AUDIO/VISUAL AND IMAGING
--------------------------------------
Competition among integrators and consultants is fierce but with the
high amount of opportunities, the growth for all the companies capable of
providing solutions for audio video presentation systems in on a steady rise.
There is significant competition in this market from small and large companies
as well as electrical contractors, retailers, and manufacturers. The company
recognizes this competition and prefers to address the market of specialty
systems with the greatest technical suffocation using multiple technologies for
meeting the presentation requirements of clients. May competitors have greater
resources and financial backing than we have. There is no guaranty we can
continue to make a significant market impact with limited financial resources.
9
PROFESSIONAL VIDEO.
The company was founded on the belief the convergence of technology and
the Advanced Television system will create a huge market for replacement and new
installations of television equipment in broadcast support, post production and
corporate professional video users. This recognition of potential is turning
into reality in 2004. Communications Research, having recognized this potential
over the past years has worked in technology markets to build recognition in
allied technology industries in preparation for the large scale deployment of HD
systems. The company has begun to effectively compete in the Broadcast and
Professional Video market.
The company recognizes, and has been carefully monitoring proceedings
of The Advanced Television Systems Committee, Inc. (ATSC), an international,
non-profit membership organization developing voluntary standards for the entire
spectrum of advanced television systems. ATSC is working to coordinate
television standards among different communications media focusing on digital
television, interactive systems, and broadband multimedia communications. ATSC
is also developing digital television implementation strategies and presenting
educational seminars on the ATSC standards.
ATSC was formed in 1982 by the member organizations of the Joint
Committee on InterSociety Coordination (JCIC): the Electronic Industries
Association (EIA), the Institute of Electrical and Electronic Engineers (IEEE),
the National Association of Broadcasters (NAB), the National Cable Television
Association (NCTA), and the Society of Motion Picture and Television Engineers
(SMPTE). Currently, their membership is comprised of representatives of
broadcast, broadcast equipment manufacturers, motion picture, consumer
electronics, computer, cable, satellite, and semiconductor industries. ATSC
Digital TV Standards include digital high definition television (HDTV), standard
definition television (SDTV), data broadcasting, multichannel surround-sound
audio, and satellite direct-to-home broadcasting.
The market for Digital Television Sets (DTV) is anticipated to reach 58
million units in 2007 according to the research firm of In-Stat/MDR. Although
DTV sets only began shipping in 1998, the anticipated growth is attributed to
the FCC mandating all TV sets sold in the US larger than 13" be equipped with
DTV tuners by 2007. Set manufacturers are anticipating providing these DTV sets
with IEEE 1394 and DVI connection capability and most are considering also
adding 802.11b and Ethernet connections. This proliferation is anticipated to
cause a surge of rebuilding and upgrading in the professional television market.
The technology shall require all program and content production facilities to
begin recording, distributing and transmitting in the DTV format.
To this extent, the company has been successful in building a number of
advanced High Definition screening rooms for production companies and developing
systems for tele-production, mobile video production and educational clients.
The company believes it has found a new potential hire to head up the sales and
engineering effort in this market. Supplemented with the support our key
employees can provide, we feel the company can make sufficient progress into
capturing a significant share of this market. Additionally the company will look
for strategic alliances with manufacturers and distributors of digital video
production equipment to have access to a broad competitive line of products.
COMPETITION - PROFESSIONAL VIDEO
--------------------------------
While it is premature to fully evaluate the competitive market place,
it is reasonable to assume the greatest competition in deploying digital
television systems will be from end users and their in-house engineering and
construction staff. Smaller companies, education, low power television stations
and production houses will be most likely going outside to furnish and build
there digital infrastructure and new facilities. It is these opportunities that
we expect to pursue but there is no guarantee the company will have the
resources to effectively compete against equipment manufacturers and large
system integrators.
COMMUNICATIONS/NETWORKING.
We provide specialized system design, installation and support for
structured cable system solutions that support local area networks that connect
data clients and display devices with host computers and shared resources. Over
the last ten years, we have seen network technology change many times, as the
need to transmit more data, voice and video at faster rates increases. Data
systems with fiber backbones running at gigabit speeds are becoming common. A
properly designed and carefully installed system will require low maintenance
and provide reliable operation over the system's service life. Since our
inception, we have successfully designed and installed such systems.
10
In a recent white paper, by Frost & Sullivan, they discuss the changing
enterprise telephony market and "all-in-one box" enterprise media exchange
solutions for organizations. According to the White Paper, "The new millennium
is expected to bring a profound change in the communications requirements for a
typical enterprise."
Many corporations, institutions and schools are again faced with the
need to upgrade their data and or telephone network. With the convergence of
technologies formally autonomous video, voice and data networks are being
considered for replacement or restructuring to provide even higher data networks
speeds, IP telephony, media servers for information interchange, conferencing
and training. Corporate communications which is distributed between offices now
must face the reality of the ever growing dependence on their workers and
executives needs for mobility and ability to work at home.
The need for employee mobility is on the rise. This mobility is taking
the form of off-premises mobility or offices. On premises wireless networks
frees the workers from being tied to one location for access to data or media
servers. IP telephony further frees the workers from accessing the corporate
network from their office, car, home or while traveling. People can have a
"follow me" communications system for messages, calls, e-mail and conferencing
anywhere around the country or world. Telephone features, corporate databases
and network applications can be retrieved remotely, creating virtual offices
anywhere, anytime.
The company envisions new communications infrastructure to be a merging
of voice, data and video on a single integrated platform, with efficiency
greater than any singled ended solution. With telephones, media, cameras, data,
and many other communications sources becoming available with IP interfaces,
there has been a greater trend to utilize open standards in the software and
hardware in order to enable products and applications to inter-operate among
each other, and simplify the complexity associated with applications and system
design.
The company has been successful in completing the design and providing
the specifications that meet the needs of a number of regional junior and senior
high schools to replace its aging telephone infrastructure with a unified system
that immediately provides, telephone, intercom, paging and master clock, with
ability to transparently include distributed data and video in all offices and
classrooms. This solution provides a cost effective unified system immediately
with the capability to add value added features at significantly reduced cost to
the school district compared to older systems. This advanced system provides
automated operation with up to, 300 telephone, 380 speakers and 250 clocks. Only
a few years ago it would have required the procurement and installation of three
independent, autonomous propriety systems that could not inter-operate
seamlessly.
COMPETITION - COMMUNICATIONS/NETWORKING.
----------------------------------------
While the network and communications the company provides is cutting
edge, these advanced solutions utilize existing technology implemented in a
unique way. While the designs are covered by copyright their is no means of
patent or other protection of these designs. Many of the companies we compete
with possess greater financial and personnel resources than we possess and can
acquire the resources, hiring personnel and conceive systems of similar design.
A high degree of competition in these areas is expected. No assurance is given
that we will not be adversely affected by these factors.
VISUAL PRODUCTS DIVISION.
- -------------------------
In 2002, the company completed the phase out of our line of PC Based
desktop video conferencing products and Visual Products Division. Our company
shall maintains a suitable supply of replacement parts in inventory to meet any
servicing or repair needs of the existing client base. Our proprietary Visual-EZ
and Communicator products have been frozen and only existing client systems
shall continue to be supported at the level of system software of the original
system purchased.
Competing technologies, emerging definitions of the current
international standard and the development of new industry standards have
rendered our video conferencing products non-competitive and obsolete. The
competitive nature of this industry mandates higher research and development
budgets in response to rapidly evolving standards and features with short
product life cycles and downward pricing trends. In recognition of these
concerns, we have elected to provide Polycom equipment as our preferred vendor
of choice, for our video conferencing and distant learning systems. Polycom has
become the leading company in the market and purchasing these products for
inclusion into our video conferencing systems makes the company less susceptible
to the aforementioned competitive risks with fixed equipment costs.
11
The company owns and will continue to support, and develop, the
collaboration software embedded into the Visual-EZ operating system, that being
the TeleWRITER AGS system.
TeleWRITER-AGS OPERATING SYSTEM SOFTWARE. The TeleWRITER operating
system software was the custom operating interface for the Visual series of
products. This collaboration software was developed by Optel Communications,
Inc., Syosset, NY ("Optel"). We acquired all rights to the TeleWRITER-AGS
(Advanced Graphics System) system software in 1999. This software was assigned
by us, to a wholly owned subsidiary, TeleWRITER CORPORATION, INC., in exchange
for 51% of the common stock in the subsidiary as well as a perpetual license to
use the software as we deem appropriate. The remainder of stock in TeleWRITER
Corporation, Inc. under the laws of the state of Nevada in September 1999, is
independently held by our President, Carl Ceragno.
TeleWRITER CORPORATION
- ----------------------
The TeleWRITER product has evolved since its inception by Optel in
1982. TeleWRITER was the first audio graphic collaboration software system and
in the mid 1990's captured almost 60% of the collaboration market. TeleWRITER is
a client based product with a capability of having up to 32 users share and
access documents, resources and computing programs. In point to point operation
the software provided in band, face to face audio and video of participants. In
multipoint mode the conference required a simultaneous multipoint bridge
telephone conference with full graphic and annotation T.120 functionality over
an IP network. The principal feature of the TeleWRITER-AGS operating system is
its powerful white boarding, graphics and collaboration package. All uses in a
conference require the PC client software installed and operating on the PC.
The company recognizes the T.120 Transport Protocol and H.323 audio and
video compression standard used in the TeleWRITER-AGS are on the down side of
their life expectancy as useable standards with potentially at lease three
usable years remaining. The company has recognized this and for that reason has
begun a development effort to replace T.120 with SIP for a transport Protocol
and MPEG-4 for compression algorithm.
After almost a year of development and testing, TeleWRITER Corporation
released Version 3.0 of the TeleWRITER-AGS operating system, the first major
revision and update to the software in five years since the former release of
Version 2.15 In 1998. Since the software was released for the market in October
2004, the company has embarked on a very aggressive show and exhibition schedule
to bring the product before the industry in an attempt to re-establish its
presence in the collaborative computing market. Recently in February 2005,
TeleWRITER Corporation released its first variation in what will become a family
of products. The product is a standalone white boarding software product at
$200.00 per client copy to compete with the $2,000.00+ hardware white boarding
solutions. The new white boarding product revives an old product name by Optel,
called VideoWRITER.
NEW PRODUCT DEVELOPMENT.
------------------------
We focused our efforts in 2004 to update the operating system and
further enhance its features by building an internal software development team
of programmers directly engaged by the company with the knowledge and ability to
revise the software to meet current operating system compatibility requirements.
The company had engaged Mr. Jeffery Cone of Tampa Florida in 2003 in an
operational management and sales capacity. With his background as a programmer
and software development project manager, Mr. Cone assembled a software
development team with the programming and computing resources available in the
Tampa area to successfully complete the needed upgrades and enhancements to our
software. The Tampa Area offers many attractive advantages for relocation of the
company. The company recently narrowed its search for a permanent office
location for TeleWRITER Corporation to the North Tampa area and signed a two
year lease for a 755 sq. ft. space to provide two executive offices, conference
room, utility room and reception demonstration area. The build-out of the space
is anticipated to be completed no later than June 1, 2005.
The location will serve as general operating offices for TeleWRITER
Corporation. TWC General Manager, Jeff Cone, the software development team and
customer support will operate out of this location. The Carrollwood Executive
Center is located in the North Tampa, Carrollwood Section, on Dale Mabry
12
Highway, a major North/South commercial artery through Tampa. The office complex
is a short commute for the existing staff and management, with its strategic
location and excellent highway access. It allows easy access to all resources of
the region and is situated very close to Tampa International Airport. In this
location, we will need to retain the services of one or more technical and
customer support employees to provide technical assistance and support to
potential clients and end users.
In 2004 TeleWRITER Corporation hired Mr. Bill B. Davis in the capacity
of Federal and GSA sales Director. Since his engagement Mr. Davis has
aggressively gone forward in the sales and marketing of the TeleWRITER AGS
software system and has been give the additional responsibility of corporate
sales. Further, Mr. Davis is coordinating the company's initiative to acquire
products that are synergetic with TeleWRITER or enhance its features for
specific markets or applications.
The company raised the bar in establishing the industry standard with
its MultiMedia Authoring tool for automating classroom and meeting preparation;
and recently, in mid-March, added a Digital Streaming Recorder to capture the
class or meeting session in AVI or MPEG2 video standard. This new capability
includes an editing tool for authoring courseware to a DVD, uploading to a
streaming WEB server or to an archival library server.
The Company engaged the Ruddick International Group, Denver Colorado,
as management consultants in January 2005. The first project for the Ruddick
Group was to evaluate the TeleWRITER Corporation marketing and business plan.
The group completed a comprehensive evaluation of the operations and prepared a
business and marketing plan adapted by the company, with an executive summary in
the form of a Power Point Graphic presentation. A full copy of that presentation
is included herein, as an attachment to this annual report.
The TeleWRITER software system is widely used by many federal,
educational and corporate clients. The product potentially can recapture the
market it lost due to inactivity. The new release is future compatible, with
modern era computing operating systems and software. It has been revised
consistent with current programming philosophy with development of a core
engine, with modules that can be mixed and readily modified for meeting
different needs and applications.
TeleWRITER software holds the potential of shaping the direction of the
market and shifting the role that collaborative computing will have on the way
people share information and communicate in group settings. The TeleWRITER
product line, with a universal product, holds a potential paralleling the market
served by Adobe. Adobe has made the Adobe Acrobat Reader a standard. It is a
software that is available for every computer and PDA. Similarly, the TeleWRITER
engine represents a capability that should be in every computer, while holding
the potential of serving a range of robust and unique, industry-specific
collaborative communications computing needs. The company will be developing a
free, lite version with reduced capability of full licensed version that will be
freely distributed and provided to PC manufactures for distribution with their
products.
Trends points to the opportunity reflected by companies seeking desktop
solutions to their real-time, interactive multi-media collaborative
communication requirements. Recent growth and momentum marked by the eLearning
and collaborative computing market has reached a stage of maturity to where the
demand for more is creating much activity and opportunity among competitors. New
buzzwords mark the distinctive's and niches being targeted: Collaborative
Computing", "satellite distance learning," "web-conferencing," "online
communities," "collaborative learning," "knowledge sharing" represent only the
tip of the iceberg.
Competition - TeleWRITER Corporation
------------------------------------
The data collaboration industry has met and exceeded projections for
growth over the past five years. Frost and Sullivan reported "the recent
acquisition of PlaceWare by Microsoft could be exactly what the web conferencing
industry needs to reach $1 billion dollars by the end of 2004. With the high
visibility and awareness for collaboration that will likely result from
Microsoft's increasing focus on the collaborative industry, we feel web
conferencing vendors should be excited by this new venture rather than being
intimidated."
This market has become highly competitive and relatively highly priced
with respect to product acquisition and other costs for needed computing
hardware as well as ongoing costs of operation and maintenance.
13
Microsoft themselves have launched a new networked service that
provides clients the ability to connect as workgroups for collaborative work
sessions. TeleWRITER is a low initial cost solution requiring only a high speed
interconnection that can out perform with greater features, the Microsoft system
or any server based internet product.
We face competition from a number of large companies both public and
private with more expensive server based products that function with the new
operating systems and use a standard browser as the user interface in
collaborative mode. Our most significant competitors are Voyant, WebEx,
Placeware and NetMeeting. Many of the companies competing with us, with respect
to our TeleWRITER products, possess greater financial and personnel resources
than we possess and have greater leverage in acquiring prospects, hiring
personnel and marketing.
EMPLOYEES
As of December 31, 2004, we had 6 full-time employees, none of whom are
employed pursuant to the terms of an employment agreement. We also engage
independent contractors and contract workers on an as-needed basis for the
installation of the systems that we design and engineer. The number of
independent contracts utilized by us for the installation of our systems is
directly proportionate to the amount of business that our Systems Integration
Division is conducting. In 2005 we anticipate to increase the number of our
permanent employees, primarily in software development, technical and marketing
positions in the TeleWRITER Subsidiary. None of our employees or independent
contractors are covered by a collective bargaining agreement. We believe that
our relationship with our employees is satisfactory.
CASH REQUIREMENTS
It is anticipated that we will require expenditures for salaries,
professional fees, office and facility lease payments and general operating
expenses over the next six months, which in the aggregate should not exceed
$175,000.00. We believe that we will be able to satisfy our cash requirements,
for both working capital and product development purposes, during the next six
months from funds generated from our operations, and that of TeleWRITER
Corporation. However, no assurance is given that we will not be required to
raise additional funds to satisfy our working capital and other needs either
privately or in a subsequent public offering of our securities.
In our core business of communications consulting, when pricing a
particular project, we usually require an advance payment of 33% to 50% of the
project's purchase price. Client's generally make negotiated progress payments
thereafter. Advance payments and ensuing progress payments may not be sufficient
to continuously fund our operations during the course of large system
integration projects that we undertake, resulting in gaps in the cash flow
necessary to complete the project. Internally generated cash flow from our other
projects may not be sufficient to fill these gaps. To insure adequate cash flow
and the ability to pursue larger projects, we have in place an asset based loan
agreement with a commercial lender that permits us to draw up to 80% of a
client's purchase order up to $1,000,000.00. We cannot undertake large system
general contracting projects without this loan facility. While we believe that
we can continue to rely upon the availability of this loan facility, we cannot
give any assurances that this loan facility will be available to us in the
future or whether we will be able to replace it if it is terminated.
ADDITIONAL INFORMATION
The Company filed our the SEC a registration statement on Form SB-2
under the Securities Act of 1933 with respect to the common stock that we are
registering. Our SEC registration became effective May 8, 2002. The company was
cleared by NASD and assigned the trading symbol CRHI. The company was cleared to
commence trading on or about May 5, 2003. The Company posted a Bid/Ask on the
Over the Counter Pink Sheets on or about October 21, 2003 and on or about
November 6, 2003, was authorized to trade on the Over the Counter Bulletin
Board. On or about November 29, 2004 the company was approved to increase its
Class A shares authorized to 160,000,000 and Class B shares authorized to
2,000,000.
The Company is a fully reporting company and all filings and
accompanying exhibits, may be inspected and copied at the principal offices of
the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, and at any of the 12
regional offices of the SEC around the country. Copies of all or any part of
this registration statement may be obtained at prescribed rates from the SEC's
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20545 or by
calling the SEC at 1-800 SEC-0330. The SEC also maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
14
When we qualify statements in this document with the word "believe",
unless otherwise indicated, we are basing our belief on the knowledge and
experience of our personnel and advisors. Statistical information included in
this prospectus has been obtained by us from publications we deem reliable and
with which we have no relationship.
ITEM 2. DESCRIPTION OF PROPERTY
Communications Research currently occupies approximately 2,850 square
feet of space at 67 Ramapo Valley Road, Suite 103, Mahwah, New Jersey 07430 for
our corporate and administrative offices under a lease expiring on October 31,
2006 and requiring $2,868.54 monthly rent subject to annual escalations. We
believe that our current space is suitable for our current and projected needs
over the next ten month period and we have no current plans to lease additional
space for the Company.
The lease requires the Company to bear, in addition to the basic rent,
the costs of utilities, insurance, and certain maintenance costs.
With TeleWRITER Corporation gaining momentum in the market, the company
recently signed a lease for 766 sq. ft. in the Carrollwood Executive Center,
13902 North Dale Mabry Highway, Tampa, Florida $1,043 per month which includes
all utilities. The company selected the Tampa/Clearwater area of Florida as it
offers many advantages and resource opportunities for a `high tech' software
company as TeleWRITER. The Company will continue to use our Mahwah Location as
the headquarters for TeleWRITER Corporation, and Federal/GSA sales will remain
in Hampton, Virginia. It is anticipated that a west coast presence and operation
will be established potentially by winter 2006. While no definite location has
been selected at this time, the company is exploring all possibilities.
ITEM 3. LEGAL PROCEEDINGS
There are no pending or threatened legal or governmental claims,
actions or proceedings against or relating to us which could, individually or in
the aggregate, have a materially adverse effect on us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information:
On March 19, 2003 the company was given approval to trade its
securities on the National Association of Securities Dealers in the National
Quotations Bureau Pink Sheets under the symbol CRHI. Our Class A shares have
been recognized and traded on the NASD Over the Counter Bulletin Board since
October 21, 2003. We hope to establish a market for said shares. Our securities
have traded recently in a range of . 04 (low)-.14 (high) cents per share since
trading commenced.
HOLDERS.
As of December 31, 2004, there were approximately 1215 shareholders of
record of our common stock.
DIVIDENDS.
We have not declared any cash dividends on our common stock since our
inception and do not anticipate paying such dividends in the foreseeable future.
We plan to retain any future earnings for use in our business. Any decisions as
to future payment of dividends will depend on our earnings and financial
position and such other factors, as the Board of Directors deems relevant.
15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
We have been principally focused upon our core business of
communications consulting and the TeleWRITER operations. Management believes
that our TeleWRITER subsidiary will be instrumental to increasing our revenues.
We believe that we are on the right path towards sustained profitability as our
revenues increase. However, we cannot be certain that we will be able to do so.
To the extent that we cannot achieve and maintain profitability, we will require
additional financing to continue our operations.
RESULTS OF OPERATIONS.
Revenues We booked total revenues of $149,468 for the year ending
December 31, 2004, as compared to revenues $94,859 for the prior year. Resources
normally used productively for income producing work were redirected to launch
TeleWRITER sales and marketing to reintroduce the product into the marketplace.
While we increased our revenues 58% over the prior year, the total fell
short of expected level due to redirecting principle executive staff to assist
in launching the TeleWRITER product.
Gross profit Our gross profit was approximately 14% for the year ended
December 31, 2004, as compared to approximately 86% for fiscal 2003. The
decrease in our gross profit was the result of system projects requiring
contract support labor to fill in, creating a lesser overall markup than using
in house consulting and engineering resources.
Operating Expenses While our revenues were up from 2003 by
approximately 58% overall, our operating expenses have only increased
approximately 5% from $244,777 for the year ending December 31, 2003, to
$257,190 for the year ending December 31, 2004. The minimal increase in total
operating expenses for 2004 reflects our efforts to control costs and expenses.
Operating Loss We have not shown a net profit for a calendar year as an
independent company to date. While our operating losses have increased from
$162,883 as of December 31, 2003 to $235,571 as of December 31, 2004, due
largely to funding the rollout of TeleWRITER Corporation therefore increasing
operating expenses. Over the past years, our executive officers have been
loaning us funds to finance our losses over the last several years. No money has
been advanced in 2004 as the Regulation S stock offering provided suitable
reserves until profitability is achieved.
Cash and cash Equivalents Total cash as of December 31, 2004 was
$203,519 as compared to $12,677 as of December 31, 2003. Total accounts
receivable as of December 31, 2004 was $150,650, of which CRI direct business
accounts receivable portion increased to $48,608 from $25,112 as of December 31,
2003 and $102,048 from TeleWRITER Corporation. Total current assets increased to
$366,052 as of December 31, 2004 from $42,749 at December 31, 2003 as a result
of our increased revenues, mainly in the fourth quarter.
Current Liabilities Our current liabilities have decreased
approximately 12% from $494,666 as of December 31, 2003 to $131,903 as of
December 31, 2004. Our Total Liabilities for notes payable to related parties
decreased from to $183,637 to $37,244 on December 31, 2004, which is currently
due our president and secretary. The company does not show the intellectual
property asset value of the TeleWRITER software system that was purchased for
..01 cents on a dollar, or the amount of $150,000 as defined in Auditor Note 10,
representing an asset valued at $1,500,000. With the product released the
intellectual value can be re-evaluated and verified.
While we are taking measures to expand our revenues, improve our
liquidity and continue to trim our expenses, we cannot guaranty that we will be
able to operate profitably. Until we can do so, we are reliant upon the ongoing
loans from our executive officers or the proceeds of any stock offerings to
remain in business.
Future Expenditures
Our future capital expenditures will depend upon our ability to
generate revenues or additional investment capital if our revenues are not
sufficient. If, and to the extent that we are successful in generating net
revenues or raising investment capital, our future expenditures will be applied
towards salaries and general working capital purposes.
16
The company will continue replacing aging office and data processing
equipment. CRI has provided funding to TeleWRITER Corporation to purchase
additional demonstration equipment for shows. Additionally we require additional
technical testing equipment to install and maintain state of the art electronic
systems and equipment. If the company is unable to purchase this equipment it
will be unable to effectively compete in the markets it has defined.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative losses since being spun off as an
independent corporation. At December 31, 2003 we have an accumulated deficit of
$1,495,153, compared to $1,434,441 at December 31, 2003 and the report from of
our independent auditor on our audited financial statements at December 31, 2003
contained a going concern statement. We will continue to incur losses during the
foreseeable future and have yet to achieve revenues sufficient to offset direct
expenses and corporate overhead. We do not have any present commitments for
capital expenditures. While we are taking measures to expand our revenues,
improve our liquidity and trim our expenses, we cannot guaranty that we will be
successful in our efforts.
We have adequate working capital for the near term. We will continue to
be reliant on loans from our officers or proceeds of sale of stock to provide
additional working capital. If our officers are unable to continue to loan us
working capital, or we do not raise working capital through our public offering,
we cannot guarantee that we will be successful in obtaining capital upon terms
acceptable to us, if at all. Our failure to secure necessary capital when needed
could have a material adverse effect on our financial condition and results of
operations in future periods.
ADDITIONAL CAPITALIZATION
The Company has entered into four Regulation S agreements for the sale
of restricted securities off-shore. The regulation stock sale allows the Company
to sell stock equity in the company to raise needed revenue for the
capitalization of the Company and initially seed the roll out of the new
Tele-WRITER products. This method of capitalization was attractive to the
company as it did not require the considerably high expense to register company
stock for sale and institute a full public offering. Further the shares of stock
can not be registered or be eligible for sale for a period of one year after
initial purchase. The company feels this will be more than adequate time to
build our revenues and stock value that it will not dilute current shareholders
share price on the open market or equity position.
A Regulations S offering has been executed by the company on or about
January 15 2004, with West Bay Consulting of Barcelona, Spain. The Company has
been raising funds under this agreement.
A Regulations S offering has been executed by the company on or about
March 18, 2004, with EsPRIT, Dilsukhnagar Hyderabad, 500060 India and begun
raising funds in the later part of December 2004.
A Regulations S offering had been executed by the company on or about
July 1, 2004, with Starz Investments, Ltd., Belize City, Belize. The Company has
been raising funds under this agreement.
A Regulations S offering has been executed by the company on or about
August 4, 2004, with Bonham Investments, Ltd. of Port Louis, Mauritius. . The
Company has been raising funds under this agreement.
CONTROLS AND PROCEDURES
Our management, including Carl Ceragno our President and Chief
Financial Officer, has conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-14(c) promulgated
under the Securities and Exchange Act of 1934, as amended) as of March 30, 2004
(the "Evaluation Date"), which is within 90 days prior to the filing date of
this report. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer, Mr. Ceragno, has concluded that our disclosure controls and
procedures are effective for timely gathering, analyzing and disclosing the
information we are required to disclose in our reports filed under the
Securities Exchange Act of 1934, as amended. There have been no significant
changes made in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the Evaluation Date.
17
ITEM 7. FINANCIAL STATEMENTS.
SEE ATTACHMENT 1. AUDITORS FINANCIAL STATEMENT
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES.
NONE
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth information regarding the executive
officers, directors and our control persons.
NAME AGE POSITIONS HELD
- ------------------- --- ---------------------------------
Carl R. Ceragno 58 Director, President and Treasurer
Lawrence S. Hartman 39 Director and Vice President
Almajean O'Connor 55 Secretary
The directors named above will serve until the next annual meeting of
our shareholders to be held within six (6) months of the close of our fiscal
year or until their successors shall have been elected and accepted their
positions. Directors are elected for one year terms. Mr. Ceragno and Ms.
O'Connor are our executive officers.
Carl R. Ceragno. Carl R. Ceragno, who is our founder, has served as our
president and chief executive officer since our inception. His principal
responsibilities include system design engineering, project management, sales
and technical proposal preparation. From July 1969 through June of 1992, Mr.
Ceragno served as a studio engineer, project engineer, chief engineer, and
ultimately vice president of engineering for Tele-Measurements, Inc., an A/V
systems integration business located in Clifton, New Jersey.
Mr. Ceragno received a bachelor of sciences degree in June of 1968 from
Emerson College, Boston, MA. At graduation, he was honored by receiving the
departmental award for excellence and service to the Emerson College
broadcasting department.
Mr. Ceragno has given numerous network, audiovisual and video
conferencing design lectures, authored technology white papers and has authored
numerous lectures regarding telecommunications technology and integration.
From 1998 to 2001, Mr. Ceragno has served as trustee and president of
the New York Susquehanna & Western Technical and Historical Society. He
currently serves is a delegate to the United Railroad Historical Society of New
Jersey (custodian of historic railroad equipment owned by the State of New
jersey and destined for the State railroad and transportation to be built in
Phillipsburg, New Jersey), Director of North East Rail Car Association (NERCA)
and is active in railroad equipment restoration and preservation.
Lawrence S. Hartman. Lawrence S. Hartman has served as Vice
President-Corporate Counsel since May of 1999. Mr. Hartman does not devote his
full time efforts to our affairs. Rather, he provides his time on an "as needed"
basis. From June of 1999 to the present, Mr. Hartman has served as Director,
President and Secretary of Omega Ventures, Inc., which provides on-line
marketing services. From May of 1998 to June of 1999, Mr. Hartman had served as
a senior manager of the Ocwen Federal Bank, where his responsibilities were
devoted towards real estate asset management. From January 1996 to May of 1998,
Mr. Hartman served as Vice President, secretary and general counsel with
Terragon Realty Advisors, a real estate investment trust. From January of 1994
until January of 1996, Mr. Hartman was employed as an associate attorney with
the law firm of Coudert Brothers, where his area of practice was limited to real
estate law. Mr. Hartman earned a Bachelor of Arts degree from Albany University
in May of 1987. He earned his Juris Doctor degree from Columbia Law School in
May of 1990. Mr. Hartman is currently licensed to practice law in the State of
New York.
Almajean M. O'Connor Almajean M. O'Connor has served as our corporate
secretary since May of 1999. She has been employed by us as our office manager
since November of 1996. From November of 1987 to November of 1996, Ms. O.'Connor
had been employed as a legal secretary and legal assistant with the law firm of
18
Hannoch Weisman, Roseland, New Jersey. While Ms. O'Connor has not earned a four
year degree, she has attended Atlantic County Community College, Mays Landing,
New Jersey, where she had taken computer science classes.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth the compensation of our three (3)
officers for the last five (5) fiscal years:
NAME AND ANNUAL COMPENSATION LONG TERM COMPENSATION
- ----------------------- ----------------------------------------------- --------------------------------------
PRINCIPAL POSITION YEAR SALARY BONUS OTHER STOCK SAR's LTIP OTHER
--------------------- --------- ------------- -------- -------- -------- -------- -------- --------
Carl R. Ceragno 2000 $ 21,000.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
President & Treasurer 2001 $ 16,400.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2002 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2003 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2004 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
Lawrence S. Hartman 2000 $ NONE $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
Vice President 2001 $ NONE $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2002 $ NONE $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2003 $ NONE $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2004 $ NONE $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
Almajean O'Connor 2000 $ 5,500.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
Secretary 2001 $ 13,900.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2002 $ 800.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2003 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
2004 $ 50,000.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------- ------------- -------- -------- -------- -------- -------- --------
TERMS OF OFFICE.
Our directors hold office until the next annual meeting of our
stockholders or until their successors are elected and duly qualified. All
officers serve at the discretion of the directors.
DIRECTORS' COMPENSATION
No compensation has been paid to any directors for service in such
capacity in the past. Directors may be reimbursed for expenses incurred while
attending Board and committee meetings. Board of Directors intends to adopt an
appropriate policy to compensate non-employee directors, in order to attract and
retain the services of qualified non-employee directors. Non-employee directors
will be issued 25,000 shares of common stock as compensation for their
participation as Board Members in 2004. Out of pocket expenses shall continue to
be paid to all independent directors to travel to Board and committee meetings.
STOCK OPTIONS
NONE
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following tables set forth the ownership, as of December 31, 2000,
of our common stock (i) by each person known by us to be the beneficial owner of
more than 5% of our outstanding common stock, (ii) by each of our directors,
(iii) by stockholders owning more than five percent (5%) of our shares, and (iv)
by all executive officers and our directors as a group. All persons named have
sole voting and investment power with respect to such shares, subject to
community property laws, and except as otherwise noted.
19
PERCENTAGE OF TOTAL SHARES
TITLE OF NO. OF Percentage of
CLASS NAME & ADDRESS SHARES Ownership
- ------------------------- ------------------- --------- ------
Class A Common Lawrence S. Hartman 1,305,000 1.25%
--------- ------
Class A Common Almajean O'Connor 1,473,700 1.4%
--------- ------
Class A Common Carl R. Ceragno 5,817,000 5.5%
========= ======
All Officers and Directors as
a Group (3 Individuals) 8,595,700 8.25%
--------- ------
Class B Common Carl R. Ceragno 2,000,000 100.0%
--------- ------
As our Class B shares are entitled to 100 votes per share at all
meetings at which shareholders are entitled to vote, Mr. Ceragno possesses
voting control over all matters that may come to a vote of our shareholders.
Changes in Control.
There are currently no arrangements which would result in a change in
control of our management.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Carl R. Ceragno founded the company in 1989 and served as our President
from inception and was a director, executive officer and control person of
Visual Telephone, our former parent company. Pursuant to the Reorganization
Agreement, we changed the state in which we had been incorporated from New
Jersey to Nevada and we were to issue two classes of common stock and vest
voting control of our shares with Mr. Ceragno.
Carl R. Ceragno, our president, and Alma Jean O'Connor, our secretary,
have been funding our ongoing losses. Mr. Ceragno has outstanding loans to us in
the amount of $39,244 as of December 31, 2004 and Ms, O'Connor has outstanding
loans to us in the amount of $15,694, as of December 31, 2004.
The loans from Mr. Ceragno have been used to pay salaries and other
operating expenses. These loans are demand loans and are not evidenced by
promissory notes and may be called by Mr. Ceragno and Ms. O'Connor, as the case
may be, at any time.
Ms. O'Connor's and Mr. Ceragno's loan accrue interest at the rate of 7%
per annum. The balance of Mr. Ceragno's loan does not accrue interest.
Additionally, we received loans of $7,050 from an entity controlled by Mr.
Ceragno during 1999. A portion of that amount has been paid back and the
remaining outstanding amount totals, $4,279.
We have been issued a line of credit in the amount of $1,000,000 by the
Brookdale Funding Group, none of which is currently drawn upon. We anticipate
that this loan facility would be used to help finance long term projects that
cannot be financed by other means. Repayment of this loan facility is personally
guarantied by our President, Carl R. Ceragno. The terms of this facility require
Mr. Ceragno to exercise voting control of our common stock so as to avoid a
change in our control.
Pursuant to our agreement to acquire the Optel/TeleWRITER AGS software,
we paid CSTI-Outreach Technology the sum of $150,000.00 of which $15,000.00 was
advanced by Carl R. Ceragno, our President as a loan to TeleWRITER Corporation.
During 2004, after repeated attempts to locate CSTI, the Company has determined
to consider the debt forgiven. The Company had been accruing interest at the
rate mentioned above, and had accrued a total of $55,320. Therefore, after 5
years of trying to locate the creditor for payment, the Company has written off
principal and interest in the amount of $135,000 and $55,320, respectively.
RECENT DEVELOPMENTS
The company has executed and instituted two Regulation S offers to
raise needed operating capital as defined herein
20
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
1. Risk Factors
2. Audited financial report of company by Chishlom, Bierwolf & Nilson,
L.L.C., North Salt Lake City, Utah
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Executive Officer
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. section 1350, as adpoted pursuant to section
906 of the Sarbanes-Oxley Act of 2002
99.1 Power Point Presentation, Executive Summary TeleWRITER Business and
Marketing Plan
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K to date in 2004 as follows.
February 10, 2004 change of Auditor notification Pursuant To Section 13 Or 15(D)
of the Securities and Exchange Act Of 1934, and on March 17, 2004 For
Registration of Certain Classes of Securities Pursuant to Section 12(g) of the
Securities exchange Act of 1934.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNICATIONS RESEARCH, INC.
Date: March 31, 2004 By: /s/ Carl R. Ceragno
-------------------
Carl R. Ceragno
22
EXHIBIT 1
RISK FACTORS
An investment in the shares of common stock in the company involves a high
degree of risk and should be purchased only by those persons who can afford to
lose their investment and who have adequate liquid assets to be able to afford a
long-term illiquid investment. There can be no assurance that we will have
substantial sales or revenues, or that we will be able to sell our products or
services at a profit. Other risk factors include our reliance on a limited
in-house sales force and third-party independent distributors and wholesalers
for project sales. Prospective purchasers should, prior to purchase, carefully
consider the following risk factors, as well as other information set forth
elsewhere in this report.
RISKS RELATED TO OUR BUSINESS
OUR OPERATING LOSSES, OUR RELIANCE UPON LOANS FROM OUR OFFICERS, AND OUR
RELIANCE ON THE PROCEED OF ANY OFFERING RAISE SUBSTANTIAL DOUBT ABOUT OUR
ABILITY TO CONTINUE AS A GOING CONCERN.
We currently estimate that we will require between $ 300,000.00 and
$350,000.00 in operating capital over the next 12 months to remain in business.
Substantial expenditures will be required to enable us to pursue large projects,
expand our services, further develop our proprietary software, and market our
software product and services. The level of expenditures required for these
activities will depend in part upon changes in technology and whether we develop
and market our products and services independently or with others through
collaborative arrangements. Our future capital requirements will also depend on
one or more of the following factors: market acceptance of our products; the
extent and progress of our research and development programs; the costs involved
in filing, protecting and enforcing intellectual property claims; competing
technological and market developments; and the costs of marketing our services.
Our capital requirements will also depend largely on how aggressive we are in
expanding our revenues and managing our expenses.
FAILURE OF OUR OPERATING AND INTERNAL GROWTH STRATEGIES MAY AFFECT OUR ABILITY
TO EXECUTE OUR BUSINESS PLAN AND REMAIN IN BUSINESS
We intend to grow our revenues and attain profitability by expanding
the range and markets of service we offer to customers, attracting new
customers, strategically aligning ourselves with larger business partners,
increasing the number of projects performed for existing customers, and reducing
operating and overhead expenses. Many of the factors affecting our ability to do
so may be beyond our control and we cannot be certain that our strategies will
be successful or that we will be able to generate cash flow sufficient to fund
our operations and to support internal growth. Our failure to do so could cause
us to curtail or cease our operations.
While we strive to attain profitability, we are currently experiencing
a period of development and expansion which has placed, and could continue to
place, a significant strain on our management, customer service, support
operations, sales, administrative personnel and other resources. In order to
serve the needs of our existing and future customers, we will need to increase
our workforce, which will require us to attract, train, motivate and manage
qualified employees. Our ability to manage our planned growth will require us to
continue to expand our operating, management, information and financial systems,
all of which may significantly increase our operating expenses. Increased
operating expenses could frustrate our efforts to achieve sustained
profitability.
MOST OF OUR CONTRACTS CAN BE CANCELED ON SHORT NOTICE, WHICH MAKES IT DIFFICULT
FOR US TO FORECAST REVENUES AND EFFECTIVELY MANAGE OUR EXPENSES.
A substantial number of our contracts can be canceled upon short
notice. Accordingly, we cannot be certain that our future revenues will
approximate our historical performance. Our inability to replace any canceled
contracts with contracts entered into with other customers could have a
significant negative effect on our business.
UNLESS CLIENTS REQUIRE OUR SERVICES AT MULTIPLE LOCATIONS OUR CONTRACTS DO NOT
PROVIDE FOR REPEAT BUSINESS, WHICH REQUIRES US TO SEEK NEW REVENUE SOURCES ON AN
ONGOING BASIS
Many of our system integration projects are one time projects designed
to meet a specific customer need. The integrated systems that we install
generally have a long usable life expectancy. These projects do not promote long
term, repeat business with a particular customer unless that customer requires
23
our services at multiple locations. This requires us to maintain an ongoing
sales and marketing budget and requires our sales team to constantly attract
business from new customers.
OUR FAILURE TO ADJUST TO CHANGES IN TECHNOLOGY MAY RENDER OUR PRODUCTS AND
SYSTEMS OBSOLETE AND CAUSE A DRAMATIC REDUCTION IN OUR REVENUES.
The telecommunication field, professional video, video conferencing and
systems networking industries are subject to rapid changes in technology.
Systems used for the transmission and display of video, voice and data as well
as the hardware which carries these systems, are subject to rapid changes in
technology. The expertise developed by our key personnel may no longer be
applicable to subsequent advancements in technology. In the future, our
customers may be able to receive enhanced services without a significant upgrade
of their existing information technology and communication systems thereby
minimizing the need for the type of services that we provide.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
Our industry is highly competitive and is served by numerous small,
owner operated private companies, several public companies and several large
regional companies. There are no substantial barriers to entry in our industry
and we expect that competition will intensify in the future. Competition in the
industry depends upon a number of factors, including price. Our competitors may
have lower overhead cost structures and may, therefore, be able to provide their
services at more competitive prices. Many of our competitors have greater market
presence, engineering depth and marketing capabilities, as well as greater
financial, technological and personnel resources than we do. As a result, they
may be able to develop and expand their customer base more quickly, adapt more
swiftly to new or emerging technologies and changes in customer requirements,
take advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their products and services than
we can. We cannot be certain that we will be able to maintain or enhance our
competitive position. We also face competition from in-house service departments
of our prospective and existing customer base and cannot be certain that our
existing or prospective customers will continue to outsource business to us in
the future.
Current and potential competitors have established or may establish
cooperative relationships among themselves or directly with vendors to obtain
exclusive or semi-exclusive sources of products. Accordingly, it is possible
that new competitors or alliances among competitors and/or vendors may emerge
and rapidly acquire market share. Increased competition from any one of these
sources is likely to result in reduced operating margins, loss of market share
and a diminished brand franchise, any one of which could have a significant
negative affect on our business.
WE ARE SUBJECT TO LAWS GOVERNING INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
THAT MAY HAVE A NEGATIVE EFFECT ON OUR BUSINESS
As the number of products in the telecommunication, teleconferencing
and professional video industries increases and the functionality of these
products further overlaps, companies may increasingly become subject to claims
of infringement or misappropriation of the intellectual property or proprietary
rights of others. We cannot be certain that third parties will not assert
infringement or misappropriation claims against us in the future with respect to
current or future products, or that any such assertion will not require us to
enter into royalty arrangements or litigation that would be costly to us. Any
claims or litigation, with or without merit, and any subsequent finding of
infringement would result in a diversion of our management's attention as well
as a diversion of our financial resources, and could have a significant negative
effect on our business. Adverse determinations in such claims or litigation
could have a material adverse effect on our business, financial condition and
results of operations.
While we believe that our success will depend principally upon our
ability to design and effectively market them along with our integration and
installation services, our ability to compete is also dependent in part upon our
proprietary technology and intellectual property rights. Our inability to
protect our proprietary rights could have a significant negative effect on our
business. We have not filed for any federal copyrights, patents or trademarks to
protect our proprietary software, documentation and other proprietary
information. We cannot be certain that common law intellectual property rights
will be sufficient to protect our interests. Nor can we be certain that the
confidentiality agreements and other methods on which we may rely to protect our
trade secrets and proprietary information and rights will be adequate to prevent
competitors from developing similar technology. In the absence of patent
protection, our business may be adversely affected by competitors that develop
functionally equivalent technology and we may be subject to additional risk if
we enter into transactions in countries where intellectual property laws are not
24
well developed or enforced effectively. Litigation to defend and enforce our
intellectual property rights, regardless of the final outcome of such
litigation, would result in a diversion of our management's attention as well as
our financial resources, and could have a significant negative effect on our
business.
THE DEPARTURE OF MR. CERAGNO, OUR PRESIDENT, AND LACK OF QUALIFIED INSTALLATION
STAFF COULD DISRUPT OUR BUSINESS
We depend upon the continued services of our president, Carl R.
Ceragno. Mr. Ceragno is not employed by us pursuant to the terms of an
employment contract. The loss of the services of Mr. Ceragno would have a
significant negative effect on our business as we have not hired management
personnel to perform his duties if he cannot carry them out on his own. In
addition, we do not carry key-person life insurance policies on Mr. Ceragno's
life. We do however intend to purchase such insurance in the future. However,
whether funds will be available for such purposes cannot be assured and will
depend upon our future budgeting needs. Even if insurance benefits are received
we cannot be certain that we will be able to effectively replace Mr. Ceragno or
other key employees at affordable rates.
Our Systems Integration Division relies heavily upon the availability
of highly qualified and trained installation personnel and subcontractors for
the systems that it designs and installs. The competition for the services of
these individuals is intense. We cannot be certain that we will be successful in
attracting and retaining additional skilled installation personnel as needed.
Our failure to do so could have a significant negative effect on our business.
OUR OBLIGATION TO INDEMNIFY OFFICERS AND DIRECTORS MAY CAUSE SIGNIFICANT
OPERATIONAL EXPENSES
Our Articles of Incorporation, Bylaws and laws of the State of Nevada
provide for the indemnification of our officers and directors. It is possible
that we may be required to pay judgments, fines, legal fees and expenses
incurred by our officers or directors in connection with their corporate
activities, provided that the officer or director acted in good faith.
CONTROL OF OUR MANAGEMENT BY OUR PRESIDENT COULD LIMIT THE ABILITY OF OTHER
STOCKHOLDERS TO GOVERN OUR AFFAIRS.
Carl R. Ceragno, our president, owns all of our issued and outstanding
Class B shares as well as 5,690,000 of our Class A shares. He will have voting
control of our management. Mr. Ceragno will be able to continue to determine and
direct our affairs and policies and will effectively control virtually all
matters requiring approval by our stockholders, including the amendments of the
Articles of Incorporation, the election of directors, and the approval of
mergers or similar transactions. As a result, shareholders will not be able to
replace management even if they determine that we are being managed
ineffectively.
This concentration of voting control in the hands of Mr. Ceragno may
have the effect of delaying, deferring or preventing a change in control of our
Board of Directors, impeding a merger, consolidation, takeover or other business
combination that we may otherwise consider or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain control of our
Board of Directors. This could have a significant negative effect on the market
price of our common stock.
THE LOSS OF ONE OF OUR THREE MAJOR CUSTOMERS OR A DECREASE IN THE BUSINESS THAT
WE DO WITH ANY ONE OF THEM COULD NEGATIVELY AFFECT OUR BUSINESS
We are dependent upon a small number of our customers as well as a
small number of systems sales for a substantial portion of our revenues. For the
fiscal years ending December 31, 2000 and December 31, 2001, sales of
integration services to 1 client accounted for approximately 50% of our
operating revenues. While our client base has increased in 2003 the loss of any
one of our larger clients or a diminution in sales to any one of them could have
a significant long term negative effect on our business.
FUTURE ACQUISITIONS MAY DISRUPT OUR OPERATIONS AND DILUTE THE VALUE OF OUR
SHARES
One of our business strategies is to pursue Strategic Alliances and
acquisition opportunities that complement our existing services, expand our
distribution channel or are compatible with our business philosophy and
strategic goals. Future acquisitions could be financed by internally generated
funds, bank borrowings, and/or public offerings or private placements of equity
or debt securities. We cannot be certain that we will be able to make
25
acquisitions on terms favorable to us or that funds to finance an acquisition
will be available or permitted under our financing instruments. If we complete
alliances or acquisitions, we will encounter various associated risks, including
the possible inability to integrate an acquired business into our operations,
potentially increased goodwill amortization, diversion of management's attention
and unanticipated problems or liabilities, some or all of which could have a
significant negative effect on our business. In addition, such acquisitions
could result in substantial equity dilution to existing stockholders if they are
paid for with our shares.
OUR FAILURE TO PAY DIVIDENDS COULD NEGATIVELY AFFECT OUR SHAREHOLDERS
Investors seeking a regular cash return on their investment should know
that we have never paid dividends to our shareholders and do not anticipate
paying dividends to our shareholders in the foreseeable future. If our
operations become profitable, it is anticipated that earnings will be reinvested
in our operations to fund our growth.
OUR SECURITIES ARE SUBJECT TO PENNY STOCK REGULATIONS, WHICH MAY MAKE IT MORE
DIFFICULT TO SELL YOUR SHARES
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks and their
associated risks. It is likely that our shares will be regulated as a penny
stock and will be subject to the additional disclosure requirements imposed by
this law.
The impact of the regulations applicable to penny stocks on our
securities is a reduction in the market liquidity of our securities by limiting
the ability of broker/dealers to trade our securities and the ability of
purchasers of our securities to sell their securities in the secondary market.
The low price of our common stock also has a negative effect on the amount and
percentage of transaction costs paid by individual shareholders and our
potential ability to raise additional capital by issuing additional shares. The
primary reasons for these effects include the internal policies of many
institutional investors that prohibit the purchase of low-priced stocks, the
fact that many brokerage houses do not permit low-priced stocks to be used as
collateral for margin accounts or to be purchased on margin and brokerage house
policies and practices that tend to discourage individual brokers from dealing
in low-priced stocks. In addition, since broker's commissions on low-priced
stocks represent a higher percentage of the stock price than commissions on
higher priced stocks, the current low share price of the common stock results in
individual shareholders paying transaction costs that are a higher percentage of
their total share value than would be the case if the share price were
substantially higher. High transaction costs can erode an investor's return on
investment.
SHARES ELIGIBLE FOR FUTURE SALE MAY HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE
Future sales of substantial amounts of common stock in the public
market could adversely affect market prices of our common stock. There are
approximately 104,081,670 Class A Shares issued and outstanding as of December
31, 2004, from the 160,000,000 authorized by the company. There will be
approximately 8,957,500 non-affiliate shares Class A Shares of common stock that
will be freely tradeable without restriction or further registration under the
Securities Act, unless held by our "affiliate" as that term is defined in Rule
144 under the Securities Act ("Rule 144"), which shares will be subject to the
resale limitations of Rule 144. Of the Class A Shares 3,957,500 of said shares
will be deemed "restricted securities" under Rule 144 and may not be sold unless
they are registered under the Securities Act or unless an exemption from
registration, such as the exemption provided by Rule 144, is available.
No prediction can be made as to the effect, if any, that future sales,
or the availability of 144 stock for future sales, will have on the market price
of our stock from time to time. Sales of substantial amounts of 144 stock by us
or by stockholders who hold restricted securities, or the perception that such
sales may occur, could adversely affect market prices for our stock.
OUR ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THE FORWARD LOOKING
STATEMENTS THAT ARE CONTAINED IN THIS PROSPECTUS
This report contains forward-looking statements that involve risks and
uncertainties. The words "anticipate", "believe", "estimate", "expect", "will",
"could", "may," and similar words are intended to identify forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of many factors, including the
risks described above and elsewhere in this report.
26
COMMUNICATIONS RESEARCH, INC.
Financial Statements
December 31, 2004 and 2003
C O N T E N T S
Accountants' Report ...................................................... 3
Balance Sheets ........................................................... 4
Statements of Operations ................................................. 6
Statements of Stockholders' Equity........................................ 7
Statements of Cash Flows ................................................. 8
Notes to the Financial Statements ........................................ 9
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Communications Research, Inc.:
We have audited the accompanying balance sheets of Communications Research, Inc.
as of December 31, 2004 and 2003 and the related statements of operations,
stockholders' equity 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 standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform, an
audit of its internal controls over financial reporting. 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 Communications Research, Inc.
as of December 31, 2004 and 2003 and the results of its operations and cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7, the Company's
recurring operating losses and lack of working capital raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to those matters are also described in Note 7. The financial statements do not
include any adjustments that might result from outcome of this uncertainty.
Chisholm, Bierwolf & Nilson
Bountiful, Utah
March 21, 2005
COMMUNICATIONS RESEACH, INC.
Consolidated Balance Sheets
December 31, December 31,
2004 2003
----------- -----------
ASSETS
------
Current Assets
Cash $ 203,519 $ 12,677
Accounts Receivable 150,650 25,112
Prepaid Expenses 4,813 --
Interest Receivable 2,124 --
Inventory 4,946 4,960
----------- -----------
Total Current Assets 366,052 42,749
----------- -----------
Property & Equipment, Net 40,457 40,416
----------- -----------
Other Assets
Note Receivable - Related Party 200,000 --
Deposits 4,988 4,988
----------- -----------
Total Other Assets 204,988 4,988
----------- -----------
Total Assets $ 611,497 $ 88,153
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts Payable $ 5,418 $ 30,791
Accounts Payable-Related Party 4,104 4,104
Accrued expenses 71,021 118,499
Convertible debenture -- 135,000
Current portion of long-term liabilities 46,542 190,623
----------- -----------
Total Current Liabilities 127,085 479,017
----------- -----------
Long Term Liabilities
Notes payable - related party 39,244 183,637
Notes payable 15,694 22,635
Less current portion (46,542) (190,623)
----------- -----------
Total Long Term Liabilities 8,396 15,649
----------- -----------
Total Liabilities 135,481 494,666
----------- -----------
Commitments -- --
Stockholders' Equity
Preferred Stock, authorized 100,000,000 Shares of $.0001 Par
value, Zero Issued and Outstanding -- --
Common Stock Class A, authorized 160,000,000 Shares of $.001 Par
value, Issued and Outstanding 90,316,815 and 12,216,550 shares 104,081 12,217
Common Stock Class B, authorized 2,000,000 shares of $.0001
par value, issued and outstanding 400,000 -- --
Additional Paid in Capital 2,431,713 1,018,961
Subscriptions receivable (147,547) (3,250)
Deficit Accumulated During the Development Stage (1,912,231) (1,434,441)
----------- -----------
Total Stockholders' Equity 476,016 (406,513)
----------- -----------
Total Liabilities and Stockholders' Equity $ 611,497 $ 88,153
=========== ===========
The accompanying notes are an integal part of theses financial statements.
4
COMMUNICATIONS RESEARCH, INC.
Consolidated Statements of Operations
For the Year Ended
December 31,
----------------------------
2004 2003
------------ ------------
Revenues 149,468 94,859
Cost of Sales 127,849 12,965
------------ ------------
Gross Profit (Loss) 21,619 81,894
Operating Expenses
General and administrative expenses 142,932 98,286
Office salaries 423,019 40,800
Rent 38,149 34,580
Insurance 25,142 9,802
Travel and lodging 13,252 4,273
Depreciation and amortization 31,774 57,036
------------ ------------
Total Operating Expenses 674,268 244,777
------------ ------------
Net Operating Income (Loss) (652,649) (162,883)
------------ ------------
Other Income(Expense)
Interest Income 3,458 --
Interest Expense (18,919) (22,127)
Write-off of Debt 190,320 --
------------ ------------
Total Other Income(Expense) 174,859 (22,127)
------------ ------------
Net Income (Loss) $ (477,790) $ (185,010)
============ ============
Net Income (Loss) Per Share $ (0.02) $ (0.01)
============ ============
Weighted Average Shares Outstanding 25,625,416 12,580,591
============ ============
The accompanying notes are an integal part of theses financial statements.
5
COMMUNICATIONS RESEARCH, INC.
Statements of Stockholders' Equity
From January 1, 2003 through December 31, 2004
Common Stock
--------------------------------------------
Class A Class B Additional
----------------------- ------------------ Paid-In Accumulated Subscriptions
Shares Amount Shares Amount Capital (Deficit) Receivable
----------- -------- ------- ------- ---------- ------------ ---------
Balance, January 1, 2003 12,580,591 $ 12,581 400,000 $ -- $ 807,037 $ (1,249,431) $ (3,250)
Cancellation of shares (5,116,541) (5,116) -- -- 5,116
Issuance of Common Stock
for services at $.04 1,187,500 1,187 -- -- 46,313 --
Issuance of Common Stock
for salaries at $.04 1,020,000 1,020 -- -- 39,780 --
Issuance of Common Stock
to satisfy payables at $.11 400,000 400 -- -- 43,977 --
Issuance of Common Stock
to satisfy officer loans at $.35 150,000 150 -- -- 52,350 --
Issuance of Common Stock
for services at $.01 1,600,000 1,600 -- -- 14,400
Issuance of Common Stock
for cash at $.04 and $.02 395,000 395 -- -- 9,988 --
Net Loss for the year ended
December 31, 2003 -- -- -- (185,010) --
----------- -------- ------- ------- ----------- ------------ ---------
Balance, December 31, 2003 12,216,550 $ 12,217 400,000 $ -- $ 1,018,961 $ (1,434,441) $ (3,250)
Shares issued for cash pursuant
to a Regulation S offering at
$.19 per share 150,000 150 -- -- 28,350 --
Shares issued for cash pursuant
to a Regulation S offering at
$.08 per share 205,000 205 -- -- 16,195 --
Shares issued for cash pursuant
to a Regulation S offering at
$.07 per share 1,520,000 1,520 -- -- 104,880 --
Shares issued for cash pursuant
to a Regulation S offering at
$.06 per share 5,635,000 5,635 -- -- 332,465 --
Shares issued for cash pursuant
to a Regulation S offering at
$.05 per share 5,777,000 5,777 -- -- 283,073 --
Shares issued for cash pursuant
to a Regulation S offering at
$.04 per share 15,257,143 15,257 -- -- 595,029 --
Shares issued for cash pursuant
to a Regulation S offering at
$.03 per share 3,545,000 3,545 -- -- 102,805 --
Shares issued for cash pursuant
to a Regulation S offering at
$.02 per share 12,866,854 12,867 -- -- 244,470 --
Shares issued for cash pursuant
to a Regulation S offering at
$.01 per share 33,144,268 33,144 -- -- 298,299 --
Costs of Issuance -- -- -- -- (1,136,847) --
Shares issued for Compensation
at $.07 per share 5,050,000 5,050 -- -- 348,450 --
Shares issued for Services at
$.04 per share 1,500,000 1,500 -- -- 58,500 --
Shares issued for Cash at $.02
per share 7,214,855 7,214 -- -- 137,083 -- (144,297)
Net Loss for the year ended
December 31, 2004 -- -- -- -- -- (477,490) --
----------- -------- ------- ------- ----------- ------------ ---------
Balance, December 31, 2004 104,081,670 $104,081 400,000 $ -- $ 2,431,713 $ (1,911,931) $(147,547)
=========== ======== ======= ======= =========== ============ =========
The accompanying notes are an integal part of theses financial statements.
6
COMMUNICATIONS RESEARCH, INC.
Consolidated Statements of Cash Flows
For the years ended
December 31,
----------------------
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(477,790) $(185,010)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operations:
Depreciation & Amortization 31,774 57,036
Write-off of Long-term Debt (135,000) --
Shares issued for Services 413,500 104,300
Change in Assets and Liabilities
(Increase) Decrease in Accounts Receivable (125,538) (3,085)
(Increase) Decrease in Prepaid Expenses (4,813) --
(Increase) Decrease in Interest Receivable (2,124) --
(Increase) Decrease in Inventory 14 1,409
Increase (Decrease) in Accounts Payable (25,373) (1,714)
Increase (Decrease) in Accrued Expenses (47,870) 21,317
Increase (Decrease) in Accouts payable-related party -- (175)
--------- ---------
Net Cash Provided(Used) by Operating Activities (373,220) (5,922)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Loaned for Note Receivable (200,000) --
Purchases of Property and Equipment (31,425) --
--------- ---------
Net Cash Provided (Used) by Investing Activities (231,425) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Stockholder Loan -- 43,639
Payment on long-term debt (151,332) (39,581)
Proceeds from Issuance of common stock 946,819 10,383
--------- ---------
Net Cash Provided(Used) by Financing Activities 795,487 14,441
--------- ---------
The accompanying notes are an integal part of theses financial statements.
7
COMMUNICATIONS RESEARCH, INC.
Consolidated Statements of Cash Flows (Continued)
For the years ended
December 31,
--------------------
2004 2003
--------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 190,842 8,519
--------- --------
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 12,677 4,158
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 203,519 $ 12,677
========= ========
Cash Paid For:
Interest $ 8,119 $ 757
========= ========
Income Taxes $ -- $ --
========= ========
Non-Cash Activities:
Shares issued for Services and wages $ 413,500 $104,300
========= ========
Shares issued for officer debt conversion $ -- $ 52,500
========= ========
Shares issued for payable satisfaction $ -- $ 44,375
========= ========
The accompanying notes are an integal part of theses financial statements.
8
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization
The financial statements presented are those of Communications
Research, Inc. (The Company). The Company was organized on August 11,
1989 in the State of New Jersey. On July 17, 1996, the Company became a
wholly owned subsidiary of Visual Telephone International (VTI), a
publicly traded Delaware corporation. On May 21, 1999 shares of the
Company were distributed to the shareholders of VTI pursuant to an
agreement and Plan of Reorganization spin off. The Company has operated
as a separate entity since that date. Effective July 15, 1999, the
Company changed its domicile to the State of Nevada through the spin
off reorganization. These financial statements are therefore
unconsolidated with the Company's parent for all dates presented.
The Company is engaged in the design and installation of sophisticated
communications systems for data and audio visual systems integration.
B. Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin
("SAB") No. 104, Revenue Recognition in Financial Statements ("SAB
104"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. The
SAB 104 outlines the basic criteria that must be met to recognize
revenue and provides guidance for disclosure related to revenue
recognition policies. In general, the Company recognizes revenue
related to monthly contracted amounts for services provided when (i)
persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the fee is fixed or
determinable and (iv) collectibility is reasonably assured.
C. Earnings (Loss) Per Share
Loss Shares Per Share
(Numerator) (Denominator) Amount
--------------- ----------------- ----------------
For the year ended December 31, 2004
Income (Loss) to common stockholders $ (477,790) $ 25,625,416 $ (.02)
=============== ================= ================
For the year ended December 31, 2003:
Income (Loss) to common stockholders $ (185,010) $ 10,855,981 $ (.02)
=============== ================= ================
9
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
C. Earnings (Loss) Per Share
The following is the calculation for weighted-average common shares
used in basic and dilutive net loss per common share:
For the Year Ended
December 31
2004 2003
----------- -----------
Common shares outstanding during the entire period 12,216,550 12,580,591
Weighted-average common shares issued during
the period 13,408,866 (1,724,610)
----------- -----------
Weighted-average common shares used in basic EPS 25,625,416 10,885,981
Dilutive effects of potential common shares -- --
----------- -----------
Weighted-average number of common shares and
dilutive potential common stock used in diluted EPS 25,625,416 10,855,981
----------- -----------
D. Provision for Income Taxes
No provision for income taxes has been recorded due to the net
operating losses (NOL) of the Company of approximately $1,900,000. The
NOL carryforward will begin to expire in the year 2011. No tax benefit
has been reported in the financial statements because the Company has
yet to generate taxable income from operations, or show probability of
taxable income. Some of the losses will be limited due to the
acquisition and change of control.
Deferred tax assets and the valuation account are as follows at
December 31, 2004 and 2003.
For the Year Ended
December 31
----------------------
2004 2003
--------- ---------
Deferred Tax Asset:
NOL Carryforward $ 650,000 $ 487,000
Valuation Allowance (650,000) (487,000)
--------- ---------
Total $ -- $ --
========= =========
E. Cash and Cash Equivalents
The company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
10
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
F. Property and Equipment
Expenditures for property and equipment and for renewals and
betterments, which extend the originally estimated economic life of
assets or convert the assets to a new use, are capitalized at cost.
Expenditures for maintenance, repairs and other renewals of items are
charged to expense. When items are disposed of, the cost and
accumulated depreciation are eliminated from the accounts, and any gain
or loss is included in the results of operations.
The provision for depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Depreciation
expense for the period ended December 31, 2004 and 2003 is $31,774 and
$57,036, respectively.
G. Inventory
Inventory is recorded at the lower of cost or market and consists
primarily of computer components and parts.
NOTE 2 - Property and Equipment
Property and Equipment consists of the following:
2004 2003
--------- ---------
Furniture & Equipment $ 37,556 $ 34,523
Lab & test equipment 14,977 14,977
Software 175,200 150,000
Vehicles 51,711 51,711
--------- ---------
Total 279,444 251,211
Accumulated Depreciation (238,987) (210,795)
--------- ---------
Net Property & Equipment $ 40,457 $ 40,416
========= =========
NOTE 3 - RELATED PARTY TRANSACTIONS
As part of being acquired by Visual Telephone International, Inc., the
Company is indebted to Carl Ceragno an officer and director of the
Company. The original balance owed was $150,000 bearing interest at 7%.
During 2004, Mr. Ceragno did not advance any additional funds to the
Company. However, in 2003 he advanced an additional $31,659. During the
years ended 2004 and 2003 Mr. Ceragno was paid back $144,391 and
$81,209, respectively. The balance at December 31, 2004 and 2003 is
$17,708 and $162,099, respectively.
11
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
During the year ended December 31, 2000, Alma Jean O'Connor, an
officer, loaned the Company $19,410. The note bears interest at 7% and
is due upon demand. The balance due at December 31, 2004 and 2003 is
$9,558 and $9,558, respectively.
NOTE 4 - LONG-TERM LIABILITIES
Notes payable related party is detailed as follows:
2004 2003
--------- ---------
Note payable to an officer & director bears interest
at 7%, payable upon demand, unsecured note $ 17,708 $ 162,099
Note Payable to a director and shareholder
non-interest bearing, due on demand 11,980 11,980
Note payable to an officer, bears interest at 7%,
payable upon demand, unsecured note 9,558 9,558
--------- ---------
Total Notes payable related party $ 39,246 $ 183,637
--------- ---------
Notes Payable is as follows:
Note payable to a corporation, bears interest at 1.9%, monthly
payments due of $608 through October 2006,
secured by a vehicle. $ 15,694 $ 22,635
Note payable to a bank, bears interest at 8.5%,
installments due monthly of $331 through September
2004, secured by a vehicle -- 7,116
--------- ---------
Total Notes Payable 15,694 22,635
--------- ---------
Total Long-Term Liabilities $ 54,940 $ 206,272
--------- ---------
Less current portion of:
Notes payable - related party $ 39,246 $ 183,637
Notes payable 7,296 6,986
--------- ---------
Total current portion 46,542 190,623
--------- ---------
Net Long Term Liabilities $ 8,398 $ 15,649
========= =========
Future minimum principal payments on notes payable related party are as
follows:
2005 $ 39,246
---------
Total notes payable-related party $ 39,246
=========
12
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 4 - LONG-TERM LIABILITIES (Continued)
Future principal payments on notes payable are as follows:
2005 $ 7,296
2006 8,398
--------
Total $ 15,694
========
NOTE 5 - USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting
period. In these financial statements, assets and liabilities involve
extensive reliance on management's estimates. Actual results could
differ from those estimates.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is committed to a lease agreement for their office and
warehouse facilities. Monthly lease payments are due of $2,869 through
November of 2006.
Future minimum operating lease payments are as follows:
2005 $ 34,428
2006 28,690
--------
Total $ 63,118
========
Legal Proceedings
Under the terms of the reorganization, VTI has assigned to the Company
all of its rights to a lawsuit captioned VTI vs. Michael O'Brien
Pickens and the Pickens Venture Group, Case No. 97-2969(JWB) and filed
in the United States District Court. On August 26, 1999, the Company
was granted a summary judgment against Pickens in the amount of
$415,000 plus legal fees. On January 25, 2001, Michael O'Brien Pickens
filled a petition of personal bankruptcy under chapter 7 of the United
States cod in U.S. Bankruptcy Court. Upon review by the Bankruptcy
Court, they denied a request for summary judgment in favor of the
Company, and on June 18, 2001, the debt to the Company was discharged.
The Company has recourse against the Pickens Venture Group, Inc. and
the Pickens Group, co-defendants in the lawsuit, however no assurances
can be given that the remaining defendants in this case can be located
and would be able to satisfy any award of damages. The Company has
therefore not recorded a receivable in connection with the judgment due
to the uncertain ability to collect.
13
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 7 - GOING CONCERN
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has had
recurring operating losses for the past several years and is dependent
upon financing to continue operations. The financial statements do not
include any adjustments that might result from the outcome of
uncertainty. It is management's plan to continue to implement their
marketing strategy to generate the necessary revenue to support
operations. The Company's revenues continue to increase, and management
expects to report net income in the coming year. With the increase in
revenues, management believes they will have sufficient funds to
support operations for the coming year. Officers will continue to
advance funds as needed for any shortfalls in cash flows.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Company's financial instruments (all of
which are held for non-trading purposes) are as follows:
2004 2003
---------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Cash & Equivalents $ 203,519 $ 203,519 $ 12,677 $ 12,677
Long - Term Debt 54,938 54,938 206,272 206,272
The carrying amount approximates fair value of cash and cash
equivalents. The fair value of long-term debt is based on current rates
at which the Company could borrow funds with similar remaining
maturities.
NOTE 9 - STOCKHOLDERS EQUITY
Pursuant to the reorganization and spin off agreement dated May 21,
1999, the Company issued 9,233,092 shares of class A common stock to
the shareholders of VTI, and 400,000 shares of class B common stock to
a principal of the Company. No value is placed on the stock issuance
due to the nature of the issuance being similar to a forward stock
split. The financial statements have been retroactively restated for
the reorganization stock split as though it occurred at inception.
Concurrent with the reorganization, the Company changed its domicile to
the State of Nevada, and changed the authorized capital of the class A
common to 40,000,000 shares of $.001 par value stock. The Company also
authorized the creation of the 700,000 shares of class B common stock
with no par value and 100 to 1 voting power as compared to class A
common. The Company issued 400,000 shares of class B common to the
Company's founder and president as part of the reorganization.
14
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 9 - STOCKHOLDERS EQUITY (Continued)
In 2003, 5,110,000 unclaimed shares issued pursuant to the spin-off
agreement stated above were cancelled and returned to treasury.
In January 2003, the Company issued 2,607,500 shares for services to
contract laborers, wages to officers, and to settle payables.
In April 2003, the Company issued 1,000,000 shares for services valued
at $10,000 pursuant to an S-8 offering.
In October 2003, the Company issued 600,000 shares for services valued
at $6,000.
In November and December, the Company issued 120,000 and 275,000
shares, respectively for cash at $.04 and $.02 per shares respectively.
During the year ended December 31, 2004, the Company issued a total of
78,100,265 shares of common stock at per share prices from $.01 to $.19
per share. Accordingly, common stock and additional paid-in-capital
have been charged $78,100 and $868,719, respectively. Additional
paid-in-capital has been presented net of costs of acquisition in the
amount of $1,136,847.
On February 25, 2004, the Company issued 5,050,000 shares of common
stock at $.07 per share, for compensation to management. Accordingly,
common stock and additional paid-in-capital have been charged $5,050
and $348,450, respectively.
On March 24, 2004, the Company issued 1,500,000 shares of common stock
for services rendered on behalf of the Company. The shares were valued
at $.04 per share.
During 2004, the Company issued a total of 7,214,855 shares for cash at
a price of $.02 per share pursuant to a Regulation S offering. At
December 31, 2004, the cash had not yet been received for this amount
of shares issued. As such, subscriptions receivable has been charged
with the total value of the shares of $144,297. Subsequent to year end
$946,819 in cash had been received related to these subscriptions.
Subscriptions receivable has been properly shown as a negative
component of stockholders' equity.
NOTE 10 - CONVERTIBLE DEBENTURES
On November 17, 1999, the Company entered an agreement to purchase
software from Communication Systems Technology, Inc. (CSTI). Pursuant
to the purchase agreement the company paid $15,000 cash and became
indebted to CSTI for $135,000. Principal and interest on the note is
currently due, bears interest at 8%, and is secured by the software.
The note is convertible into shares of common stock, upon registration
of the Company's stock. The conversion rate is 80% of the average
trading price for the common stock for the 10 trading days ending one
day prior to the conversion election date.
15
COMMUNICATIONS RESEARCH, INC.
Notes to the Financial Statements
December 31, 2004 and 2003
NOTE 10 - CONVERTIBLE DEBENTURES (Continued)
During 2004, after repeated attempts to locate CSTI, the Company has
determined to consider the debt forgiven. The Company had been accruing
interest at the rate mentioned above, and had accrued a total of
$55,320. Therefore, after 5 years of trying to locate the creditor for
payment, the Company has written off principal and interest in the
amount of $135,000 and $55,320, respectively.
NOTE 11 - NEW TECHNICAL PRONOUNCEMENTS
In November 2004, the FASB issued SFAS No. 151, Inventory Costs--an
amendment of ARB No. 43, Chapter 4 This Statement amends the guidance
in ARB No. 43, Chapter 4 Inventory Pricing. SFAS No. 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS No. 149 is
effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151 will not have an
impact on the Company's consolidated financial statements.
In December 2004, the FASB issued SFAS No. 152, Amendment of FASB
Statement No. 66, Accounting for Sales of Real Estate, which references
the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of
Position. This Statement also amends FASB Statement No. 67, Accounting
for Costs and Initial Rental Operations of Real Estate Projects, to
state that the guidance for incidental operations and costs incurred to
sell real estate projects does not apply to real estate time-sharing
transactions. SFAS No. 152 is effective for financial statements for
fiscal years beginning after June 15, 2005. The adoption of SFAS No.
152 will not have an impact on the Company's consolidated financial
statements.
In December 2004, the FASB issued SFAS No. 153, Amendment of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, which is based
on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. SFAS No. 153
is effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. This adoption of SFAS No. 153 did not
have any impact on the Company's financial statements.
In December 2004, the FASB issued SFAS No. 123, (Revised), Accounting
for Stock-Based Compensation, which establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services
that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. This
Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions.
This adoption of SFAS No. 123 (revised) did not have any impact on the
Company's financial statements.
16