Item 1. Business
Inter-Continental Services Corporation (the "Company" or "ICSC") is a Missouri corporation incorporated in 1958 under the name All State Credit & Research, Inc. The Company changed its name to Inter-Continental Computing, Inc. in September, 1968, and in June, 1969, it changed to its current name, Inter- Continental Services Corporation.
The Company operates a credit card recovery and cardholder contact service, as All State Credit in Kansas City, MO, Costa Mesa, CA and Phoenix, AZ. In order to eliminate duplicate costs and realize certain economies of scale, the Kansas City credit card operations merged with the Phoenix operation. The Kansas City facility is scheduled for total elimination in fiscal 1997.
Initially, the services were for better control of oil credit charge cards. In the late 1960's, with the introduction of bank cards and expanded appeal of travel cards, All State's card recovery services were modified and adapted to the more demanding requirements of the multi-purpose cards.
While technology has greatly decreased the need for card recovery, All State has developed related services which focus on effecting issuer/customer contact and developing pertinent facts and information relative to more effective and less costly collection. All State's reputation, current services, and adaptation to the contemporary challenges in the credit industry should allow it to remain firm in service support to the ever- changing and more demanding challenges of the portfolios of fewer but larger credit grantors.
Substantially all of the revenues are concentrated with a few customers in the credit card industry. During 1996, the Company obtained 93% of operating revenue from two customers. In 1995, two customers provided 87% of operating revenues. Two customers provided 80% of revenues in 1994. Although the Company is directly affected by the well-being of its major customers, management is uncertain as to the possiblity of significant loss of customers at December 31, 1996.
As of December 31, 1996 the Company had 6 employees.
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1995 vs. 1994
Revenues decreased 11% in 1995 to $379,718 over the $427,345 in 1994, as a result of the Company's customers replacing outside services with their own staff. The Company also stopped doing higher cost lower revenue business with smaller customers.
Operating expenses increased 5% to $473,693 over the $452,575 in 1994 largely because of costs associated with the listing of stock on the market and the attempt to seek an infusion of capital. There were additional computer software costs and costs with outsourcing of services.
The Company had a loss from operations of $163,745 in 1995 compared to $87,599 in 1994 because of the lower revenues and increased costs.
LIQUIDITY AND FINANCIAL RESOURCES
The Company ended 1996 with anticipation for better operating results in the future. Liquidity is needed as liabilities exceed assets.
Notes payable are lower in 1996 than 1995 because of note payments and notes were canceled with an infusion of new investment funds. Management believes that with some of the steps taken in 1996 future profitability would allow the Company to expand its business base.
Management continues to actively seek a corporate merger or a source of infusion of capital to allow the Company to expand and adequately market its services. As of December 31, 1996, two major shareholders had reached agreement with Mr. Robert Meyer and the Meyer Group Limited to purchase all their shares and notes of the Company. It is expected that this transaction will be completed during the first half of 1997. There are no commitments for capital expenditures.
INFLATION
The impact of inflation is not material to the operations of the Company.
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Item 8.
Item 8. Financial Statements
Page Independent Auditor's Report 6 Balance sheet - December 31, 1996 and 1995 7 Statements of Operations - Years Ended December 31, 1996, 1995 and 1994 8 Statements of Shareholders' Deficit - Years Ended December 31, 1996, 1995 and 1994 9 Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 10 Notes to Financial Statements 11-14
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Independent Auditor's Report
Board of Directors Inter-Continental Services Corporation
We have audited the balance sheet of Inter-Continental Services Corporation as of December 31, 1996 and 1995, and the related statements of operations, shareholders' deficit, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Inter-Continental Services Corporation at December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the three years in the period of December 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our audits of the financial statements also included the schedules listed in answer to Item 14(a)2. In our opinion, such schedules present fairly the information required to be set forth therein.
Weaver & Martin Certified Public Accountants & Consultants 801 West 47th St., Suite 208 Kansas City, Missouri 64112
April 19, 1997
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See notes to financial statements.
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Inter-Continental Services Corporation Notes to Financial Statements December 31, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: - -------------------- The Company operates a credit card recovery and cardholder contact service business. Substantially all of the revenues and accounts receivable are concentrated with a few customers in the credit card industry. During 1996 the Company obtained approximately $185,000 in revenue from two customers. During 1995 the Company obtained approximately $330,000 in revenue from two customers. During 1994 the Company obtained approximately $341,000 in revenue from two customers. At December 31, 1996 approximately $44,000 of accounts receivable was from one customer. Although the Company is directly affected by the well-being of its major customers, management is uncertain as to the possibility of a significant loss of customers at December 31, 1996. (See Note 2)
Use of Estimates: - ----------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Actual results could differ from those estimates, but management does not believe such differences will materially affect the Company's financial position, results of operations or cash flows.
Cash Equivalents: - ---------------- The Company's cash equivalents consist principally of cash and money market accounts with high quality financial insitutions. The investment policy limits the amount of credit exposure to any one financial institution.
Fixed assets: - ------------ Fixed assets are depreciated on accelerated methods over the estimated useful lives (5-7 years) of the asset.
Reclassification: - ---------------- Certain reclassifications have been made in the 1995 and 1994 financial statements to conform to the classifications in the current year.
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Notes to financial statements (con't.)
NOTE 2 - CONTINUED EXISTENCE OF THE COMPANY The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern. However, the Company has sustained operating losses in recent years. In addition, the Company has used substantial amounts of working capital in its operations. Further, at December 31, 1996, current liabilities exceed current assets by $194,149, and total liabilities exceed total assets by $188,659.
In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements, and the success of its future operations. Management believes that actions presently being taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern.
NOTE 3 - NOTES PAYABLE TO SHAREHOLDERS Notes payable to shareholders were repaid in the year ending December 31, 1996. These were demand notes. The interest accrued on these notes was waived by the note holders. (See Note 7) A $106,000 note reported as a demand note in 1995 was reclassified as a convertible note in 1996 as documentation of the note being convertible was obtained.
NOTE 4 - NOTE PAYABLE TO BANK Note payable to bank consists of a loan at prime plus 2%. The bank was taken over by the Federal Deposit Insurance Corporation and it is unknown who currently owns the note. No interest payments have been made since the third quarter of 1993. Interest is not being accrued by the Company. (See Note 7)
NOTE 5 - CONVERTIBLE NOTES PAYABLE Convertible notes payable are demand notes. In the year ending December 31, 1996 $244,399 of the notes were canceled. (See Note 12) In conjunction with the cancellation, accrued interest on the ntoes was waived. Remaining notes of $109,700, including the $106,000 note discussed in Note 3, can convert into common stock at a rate of $.50 per share (219,400 shares).
NOTE 6 - DUE TO SHAREHOLDERS During 1995, the Company obtained advances from shareholders. There are no repayment terms associated with the advance and no interest was accrued.
NOTE 7 - EXTRAORDINARY ITEM In fiscal 1996 interest owed to shareholders on convertible notes and share- holders notes $(178,350) was waived in lieu of 10,000 shares of newly issued (valued at $10,000) stock. Also interest accrued on the note payable to bank ($4,500) was written off. The total $172,850, less tax effect of $10,170 was recorded as an extraordinary item.
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Notes to financial statements (cont'd.)
NOTE 8 - INCOME TAXES In fiscal 1996 the Company utilized approximately $61,000 of net operating loss carryforward resulting in a tax benefit of approximately $10,170.
The Company has net operating loss carryforwards for financial statement purposes of approximately $700,000 expiring in 1999 through 2010.
The potential deferred tax asset resulting from the loss carryforwards has been fully reserved with a valuation allowance equal to the benefit.
The deferred tax asset and valuation allowance are as follows:
1994 $234,000 1995 $270,000 1996 $238,000
The reduction in 1996 resulted in the utilization of loss carryforwards. The difference between statutory tax rates (34%) and rates utilited is the surtax exemption.
NOTE 9 - RELATED PARTY TRANSACTIONS The Company reimbursed affiliated companies and a shareholder (formerly an officer) for certain overhead items. Payments for the year ended December 31, 1996, 1995 and 1994 were approximately $35,000, $49,000 and $23,000, respectively. Included in accounts payable is $3,650 for advances from an affiliate.
NOTE 10 - RENTAL AGREEMENTS The Company leases office space under operating leases expiring in 1997 and on a monthly basis. Minimum rental payments under non-cancelable operating leases having remaining terms in excess of one year at December 31, 1996 are 1997-$27,000. Rent payments for the years ended December 31, 1996, 1995 and 1994 were approximately $50,000, $54,000 and $50,500, respectively.
NOTE 11 - ISSUANCE OF COMMON STOCK During fiscal 1996 a shareholder of the Company contributed $119,000 in cash, $35,000 in canceled note payable to shareholder and $206,640 in canceled convertible notes (convertible at $.50 per share or 413,280 shares) in exchange for 416,666 shares of newly issued common stock. There was no documentation of Board of Director minutes or shareholder minutes approving the transactions, or any other inducements made to the shareholder.
During the fourth quarter the Company collected $15,250 from investors for the issuance of 27,000 shares (prices from $.50 to $.75 per share). The shares were not issued at December 31, 1996. There was documentation of Board of Director minutes or shareholder minutes approving the transaction. The trans- action was recorded as a deposit for unissued stock as of December 31, 1996.
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Notes to financial statements (cont'd.)
During the fourth quarter the Company, in conjunction with the waiving of accrued interest on shareholder notes and convertible notes, agreed to issue 10,000 shares of stock (priced determined to be $1 per share) (See Note 7). The stock was unissued at December 31, 1996. The transaction was recorded as a deposit for unissued stock at December 31, 1996.
The Company issued 30,000 treasury shares for services rendered in 1995 at a valuation of $.50 per share. The Company issued 50,000 treasury shares to an employee for services in 1995 valued at $.20 per share.
NOTE 12 - EARNINGS PER SHARE Earnings per share amounts are computed based on the weighted average number of shares actually outstanding. The number of outstanding shares used in the computation are 1,658,032 in 1996; 1,419,491 in 1995 and 1,339,491 in 1994. The number of outstanding shares used in fully diluted computations was 1,877,432 in 1996.
NOTE 13 - CONTINGENCIES The Company has not filed appropriate documents with the Security and Exchange Commission disclosing Director resignation and a material event. The Company had one Board of Director meeting minutes and no shareholder meeting minutes. The Company has issued stock in exchange for cash and canceled notes without acquiring the notes and has issued a significant amount of new shares without a shareholder meeting. The effect of these transactions can not be determined nor are any loss contingencies recorded in the financial statements as of December 31, 1996.
NOTE 14 - SUBSEQUENT EVENT On January 7, 1997 the Company announced a Carrier International Long Distance Service Agreement whereby the Company agreed to forward telecommunication services. The effect of this agreement could significantly impact the operations of the Company, however, at the current time it is not determin- able if or when the Company will begin realizing revenue.
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Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
The Company's board of Directors does not have a standing audit committee.
Item 10.
Item 10. Directors and Executive Officers of the Registrant
(a) The Directors presently serving will hold office until the next annual meeting and until their successors are elected and have qualified. Directors serve one year terms.
(b) Executive officers of the Company are not elected to a specific term of office.
Directors and Executive Officers
Robert N. Meyer President, Chief Executive Officer Age: 34 and Chairman of the Company Director since: 1996
Thomas F. Fangrow President, Sunrise Drilling, Inc. Age: 72 Louisburg, Kansas Director since: 1958
Carol M. Maltby Vice President and Secretary Age: 57
Barry J. Weidenhammer Vice President and Treasurer Age: 58
(c) Business Experience:
Mr. Meyer became president, chief executive officer and chairman of the Company on September 18, 1996. Prior to this position, Mr. Meyer served as President, Chief Executive Officer and Chairman of Meyer Group Limited and Access Medical Systems, Inc. in Costa Mesa, California where he resides.
Mr. Fangrow assisted in the development of Sunrise Drilling, Inc. during 1981 and subsequently became its owner and President. Prior to his involvement with Sunrise Drilling, Mr. Fangrow was Vice President of the Company for a period in excess of five years.
With twenty five years experience in general management, sales and marketing, Ms. Maltby served as a director and an executive officer for international and national companies. Most recently, Ms. Maltby served as vice president and secretary of Meyer Group Limited and Acess Medical Systems, Inc. She resides in Carlsbad, California.
Mr. Weidenhammer has thirty years experience in general management. Most recently, he served as general manager of Eaton Aerospace in Costa Mesa, California. Mr. Weidenhammer resides in Newport Beach, California.
Item 11.
Item 11. Executive Compensation
No compensation was paid to any officer or director and there were not any director's fees. No employee was paid above $100,000.
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Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table shows the amount of common stock owned as of December 31, 1996 by each person known by the Company to own directly or beneficially more than five percent (5%) of the outstanding shares of the Company's stock.
Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership of Class - ------------------------------------ -------------------- -------- Dr. David Ganch 27 W. 041 Walz Drive Wheaton, Illinois 60187 545,666 28.77%
James F. Bell 5700 Broadmoor, Suite 712 Mission, Kansas 66202 (1) 174,674 9.21%
(1) Includes 70,674 shares held by Mr. Bell's wife.
The following table shows the amount of common stock owned as of December 31, 1996 as well as beneficial ownership of the Common Stock by the Company's Directors and by all Directors and Officers as a group.
Amount and Nature of Percent Name and Address of Beneficial Owner Beneficial Ownership of Class - ------------------------------------ -------------------- -------- Thomas Fangrow 1995 West 247th Street Louisburg, Kansas 66053 (2) 190,020 10.02%
(2) Includes 12,000 shares held by Mr. Fangrow's wife and 33,000 shares held by her as custodian for their child, beneficial ownership of which is disclaimed by Mr. Fangrow. Does not include 219,400 shares available from conversion of convertible note.
Item 13.
Item 13. Certain Relationships and Related Transactions
As of December 31, 1996 the Company was indebted to the following:
Thomas Fangrow, President and Director $109,700
The indebtedness is convertible notes with no stated interest. Unpaid interest has not been accrued.
The Company paid a management charge in 1996 of $25,300 to an affiliate in which James F. Bell was more than a 10% owner.
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PART IV
Item 14.
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a)(1) The following financial statements are included in Part II Item 8:
Page Independent Auditor's Report 6 Balance sheet - December 31, 1996 and 1995 7 Statements of Operations - Years Ended December 31, 1996, 1995 and 1994 8 Statements of Shareholders' Deficit - Years Ended December 31, 1996, 1995 and 1994 9 Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 10 Notes to Financial Statements 11-14
(2) The following financial statement schedules should be read in conjunction with the financial statements referred to above.
Page Years Ended December 31, 1996, 1995, and 1994 Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees other than Related Parties 18 Schedule V - Property, Plant and Equipment 19 Schedule VI - Accumulated Depreciation of Property, Plant and Equipment 19 Schedule VIII - Valuation and Qualifying Accounts 20 Schedule IX - Short-term Borrowings 21 Schedule X - Supplementary Income Statement 22 Information
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
No reports on Form 8-K have been filed by the registrant during the last quarter of the period covered by this report.
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Inter-Continental Services Corporation Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation of Property, Plant and Equipment
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INTER-CONTINENTAL SERVICES CORPORATION
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Inter-Continental Services Corporation
DATE: March 31, 1997___ BY: Robert N. Meyer, President
DATE: March 31, 1997___ BY: Thomas F. Fangrow, Director
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