U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required)
For the quarterly period ended March 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (No Fee Required)
For the transition period from __________ to
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC.
f/k/a PHOENIX ADVANCED TECHNOLOGY, INC.
(Name of small business issuer in its charter)
FLORIDA 64-0708107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1121 Alderman Drive, Suite 200, Alpharetta, Georgia 30202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 667-6088
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ____ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date 10,746,991 shares of Common Stock
as of April 15, 1996.
Transitional Small Business Disclosure Format (Check One): Yes ___ No X
PART I: Financial Information
Item 1: Financial Statements
(The remainder of this page is intentionally left blank)
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1996
(Unaudited)
ASSETS
[S] [C]
CURRENT ASSETS
Cash $ (8,045)
Accounts receivable, less allowances of $38,092 41,810
Inventory 50,740
Prepaid expenses and Deposits 25,402
-------------
Total Current Assets 109,907
Property and equipment, net of accumulated
depreciation of $66,404 104,461
-------------
TOTAL ASSETS $ 214,368
=============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
CURRENT LIABILITIES
Accounts Payable, trade $ 613,015
Accrued Expenses 71,610
Notes & Interest Payable 315,498
Due to Stockholder 116,485
Deposits and other 73,770
-------------
Total Current Liabilities 1,190,378
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 25,000,000
shares; issued and outstanding 10,746,991 42,988
Additional paid-in capital 287,467
Accumulated Deficit (1,306,465)
Total Stockholders' Equity Deficiency (976,010)
-------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY DEFICIENCY $ 214,368
The accompanying notes are an integral part of these consolidated financial
statements.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(Unaudited)
Three Months Ended March 31
1996 1995
[S] [C] [C]
SALES AND REVENUE:
Product Sales $ 5,123 $ 4,946
Long-distance marketing fees 334,642 1,380,061
------------- -------------
Total Sales and Revenue 339,765 1,385,007
COSTS:
Cost of products sold 182,749 2,846
Long-distance marketing and commission
expense 60,271 1,061,656
------------- -------------
Total Costs 243,020 1,064,502
------------- -------------
GROSS MARGIN 96,745 320,505
------------- -------------
OPERATING EXPENSES:
Amortization and depreciation 5,340 118,710
Selling, general and administrative 764,318 1,181,539
------------- -------------
Total Operating Expense 769,658 1,300,249
------------- -------------
Operating Loss (672,913) (979,744)
------------- -------------
OTHER INCOME (EXPENSES):
Interest Expense (6,837) (19,838)
Interest Income 231 -
Rental and Other Income 7,419 18,130
------------- -------------
Total Other Income (Expenses) 813 (1,708)
------------- -------------
Net Loss from continuing operations (672,100) (981,452)
------------- -------------
DISCONTINUED OPERATIONS:
Estimated gain on disposal of MSI,
(net of income tax of $0) - 267,333
------------- -------------
NET (LOSS) $ (672,100) $ (714,119)
============= =============
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE $ (0.07) $ (0.14)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING 10,211,824 5,237,399
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31
1996 1995
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (672,100) $ (714,119)
------------- -------------
Adjustments:
Depreciation and amortization 5,340 118,710
(Decrease) in deferred revenue - (17,363)
Increase in accounts payable
and accrued expenses 309,418 144,320
(Increase) in prepaid expenses,
deposits & other (5,706) (37,794)
(Increase) in accounts and
notes receivable (4,210) (194,081)
Decrease (increase) in inventories (11,646) 36,703
------------- -------------
Total adjustments 293,196 50,495
------------- -------------
Net cash used in operating
activities (378,904) (663,624)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for building improvements
and equipment (31,276) (79,670)
------------- -------------
Net cash used in investing activities (31,276) (79,670)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts from (Payments on) notes payable 115,800 (755,492)
Proceeds from sale of common stock 93,359 1,212,155
------------- -------------
Net cash provided by financing
activities 209,159 456,663
------------- -------------
Net (decrease) in cash & cash equivalents (201,021) (286,631)
------------- -------------
Cash at beginning of period 192,976 32,248
------------- -------------
Cash and cash equivalents at end of period $ (8,045) $ (254,383)
------------- -------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ - $ 19,838
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. The consolidated financial statements include the accounts
of the Company and all wholly-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
Accounting Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that effect the reported amounts of assets, liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.
Business:
The Company is primarily engaged in the marketing of long distance
telephone and related services. The Company sells it services to individuals
and other customers, throughout the United States. In the normal course of
business the Company sells its telephone related accounts receivable to the
billing processor under a factoring agreement with recourse. The Company also
licenses certain nutritional products which the company expects to provide a
nominal amount of revenue.
Furniture and Equipment:
Furniture and Equipment is stated at cost, and depreciation is computed
using the straight-line method at rates based upon the estimated useful life of
the assets.
Stock-Based Compensation:
In October 1995, the Financial Accounting Standards issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt
as of January 1, 1995. Under SFAS 123, the Company recognizes compensation
expense for all stock-based compensation, using a fair value methodology.
Net Loss Per Share:
Net loss per share are based on the weighted average number of common
shares outstanding during each period. Common stock equivalents include stock
appreciation and warrants. For 1995 and 1994, common stock equivalents were
not considered in the calculation of net loss per share as they were
anti-dilutive.
B. Inventory:
Inventory consists of promotional and training materials used in the Vision
21 marketing program.
C. License Agreement:
On January 23, 1995 the Company licensed its former food products business,
sold the inventory and assigned the rights to the distribution network used in
the sale of the products. The contract provides for various royalties based on
type of sale and product. The agreement also has provision for minimum quarterly
royalties beginning the third quarter of 1995 and continuing for seven quarters.
The Company recognized the initial $275,000 license fee as all the initial
services required under the terms of the agreement were performed.
D. Foreclosure Loss:
In connection with an agreement to sell restricted stock, the Company
entered into a loan agreement with the potential investor. The loan was secured
by the Company's list of customers on a certain long-distance carrier and
certain other assets. The loan agreement required the Company to maintain its
NASDAQ listing until the closing of the stock sale agreement. Prior to the
closing date the Company was delisted from NASDAQ and was, therefore, in default
of the loan agreement. As part of the foreclosure proceedings, the Company
agreed to transfer all the shares of stock of its subsidiary, Global TeleMedia,
Inc. In addition the Company transferred certain other assets not included
among the assets of the subsidiary but which were also pledged as security.
As a result of the transaction, the remaining goodwill, $1,538,000, associated
with the original acquisition of the subsidiary was charged to operations.
Included in the consolidated statement of loss are the operating results
of a foreclosed subsidiary (which are substantially all revenues of the Company)
for period January 1, through March 31, 1995 as follows:
1995
[S] [C]
Sales $ 1,380,061
Costs and expenses (1,061,656)
-------------
Loss from operating $ 318,405
=============
Since the Company remains in the business of marketing long distance
telephone services, the foregoing does not qualify as the disposal of a business
segment.
E. Corporate Readjustment
In view of significant changes in the Company's marketing and other
operating practices, and its management, the Boards of Directors of the parent
and its wholly-owned subsidiaries approved at a special meeting on April 12,
1996 a corporate readjustment of stockholders' equity accounts as of October
1, 1995, effected in accordance with accounting principles applicable to
quasi-reorganizations. Under Florida law (the state of incorporation of the
parent), this action does not require shareholder approval. The adjustment was
effected by offsetting the accumulated deficit as of September 30, 1995, of
$13,188,000 against additional paid-in capital.
Because the carrying amounts of the Company's assets and liabilities
approximate their fair or net realizable values, no further valuation adjustment
were necessary in connection with the readjustment.
F. Leases:
In February 1996 the Company occupied new space under a draft short-term
lease expiring in six months or upon the exercise of a provision to acquire
title to the building or upon exercise of a provision to extend the lease for
another six months. The monthly lease payment is $11,000 and $13,000 if the
Company extends the lease under an extended term provision. The purchase price
noted in the purchase agreement is $2,500,000. On April 25, 1996 the lease
agreement and the agreement for the purchase of the property have been
executed.
G. Commitments:
Employment Contracts:
The Company has employment agreements with certain officers and employees,
which expire at various times through 2000. The agreements provide for
automatic bonus compensation payable in common stock of the Company, provided
the person is employed by the Company. The aggregate commitment for future
salaries at March 31, 1996, excluding bonuses was approximately $764,000. The
aggregate commitment for common stock under the stock bonus sections of the
agreements was 430,000 shares at March 31, 1996.
H. Subsequent Events:
On March 5, 1996, the Company entered into an option agreement to purchase
all of the issued and outstanding stock of EarthCall Communications Corporation
(EarthCall). The option allows the Company to purchase EarthCall for a note of
$500,000 and 850,000 shares of common stock of the Company. The Note is payable
one year after the exercise of the option, however, the holder has the right to
convert the note into common stock of the Company at a conversion price of
$1 per share. The note will bear interest at 7% per annum. The option expires
June 1, 1996 with one three month extension available. The option requires the
Company to meet certain requirements in order to exercise. At March 15, 1996
the Company had not met the requirements for closing. On April 19, 1996, the
Company effectively terminated its option.
On April 11, 1996 the Company entered into a letter of intent with CAM-NET
Communications Network, Inc. (CAM-NET), whereby CAM-NET agrees to make a tender
offer for the Company's common stock if certain performance conditions are met.
The letter of intent is subject to final negotiations and approval of the
companies board of directors and the Company's shareholders.
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Net loss per common share is based on the weighted average number of shares
outstanding during the periods. Those stock options, SARs and warrants
outstanding that are anti-dilutive have been excluded in determining net loss
per share and the weighted average number of shares outstanding.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Global TeleMedia International, Inc. f/k/a Phoenix Advanced Technology, Inc
(the "Company") is engaged in the sale of telecommunications services, including
residential long distance, commercial long distance, prepaid "debit" calling
cards, interactive voice mail and conference calling. The services rendered
under these product names are provided by independent third party vendors. The
Company's Vision 21, Inc. subsidiary markets discount-priced, consumer
long-distance service through network marketing. The Company has narrowed the
focus of its operations by licensing its food and nutritional products to third
parties for manufacture and sale.
Telecommunications Products and Services
The Company is primarily engaged in the marketing of long distance
telephone and related services. The Company presently markets long distance
services to residential purchasers and to businesses presently using from
$100 to $1,000 per month in long distance telephone services. The Company
charges a flat rate of 12.9 cents per minute regardless of the time that the
call is made or the distance of the call. In addition to the Company's standard
residential and commercial long distance programs.
Vision 21, Inc., the Company's wholly-owned subsidiary, markets the Company
s products and services via network marketing through Independent Communications
Representatives (ICRs), Qualified Communications Representatives (QCRs) and
Field Directors. The Company believes that this method of distribution to the
marketplace is effective in both building and retaining customer loyalty due to
the fact that customers are acquired by "relationship selling" whereby customers
acquired are generally from the independent agent's "warm market" or immediate
center of influence (i.e., friends, relatives, etc.). Further, the Company
recognizes that this is an efficient and cost-effective method of acquiring
marketshare. The Company relies strongly on this "relationship selling" method
of acquiring customers, and therefore it is not subjected to significant
advertising costs and overhead for salaries and related expenses. Further,
customers acquired via this method have historically demonstrated a more
significant loyalty and are less likely to switch providers, enabling the
Company to maintain a constant base marketshare while continuing to obtain new
marketshare.
The Company has created sales and marketing literature and merchandise
that educates the sales agents about the programs and products the Company
offers. The Company's literature and merchandise also aid the agents in
recruiting customers and other agents. The sales agents may purchase the
literature and merchandise to aid them in their sales efforts. These literature
sales additionally serve as a revenue source for the Company.
Competition for Telecommunications Products and Services
The Company competes with AT&T's True Voice, Sprint's Most and MCI's
Friends & Family programs, among others. Additionally, since these and similar
services are offered through other network marketing companies, the Company
also competes with Excel Communications and MCI as distributed through Amway
representatives. Because the quality of long distance service is uniform
throughout the industry, competition is based on pricing and customer
perception of a company's products and services based upon such criteria as
customer service, ease of use of service, etc. Many of the Company's competitor
have substantially greater resources and experience in the marketing of
telecommunications products. The Company believes that it can successfully
compete in the telecommunications market by providing valuable enhancements
to existing long distance service such as its billing system for billing and
providing innovative products such as Enhanced Value Calling Cards, or
pre-paid calling cards.
Market Development and Product Distribution for Telecommunications Products and
Services
The Company uses network marketing and direct sales to market residential
and commercial service. The marketing territory is the continental U.S. Vision
21, Inc. markets its products and services through Independent Communications
Representatives ("ICR") and Qualified Communications Representatives ("QCR")
to promote the Residential Long Distance Program, the Commercial Long Distance
program, and the Enhanced Value prepaid calling card. ICRs and QCRs are
analogous to independent contractors; one advantage to the Company of using
ICRs and QCRs is that it does not have to pay them a salary, and a disadvantage
is that, unlike direct salespersons, ICRs and QCRs are not employees of the
Company.
Telecommunications Service Providers
The Company is in the process of being licensed as a certified
telecommunications carrier. At present, the Company is authorized to act as
a certified telecommunications carrier in 26 states. Additionally, the Company
has obtained its FCC Interstate license and is in the process of application
for an FCC 214 International Tariff. Carrier status allows the Company to deal
directly with its underlying carriers. In the past the Company was required
to process its provisioning and billing for the customers of the
telecommunications subsidiaries through such providers who were unable to
provide service in a satisfactory or timely fashion. In the opinion of the
Company, authorized service provider status will allow it to provide better
service to its customers at a lower cost to the Company.
The Company anticipates that it will acquire carrier status in a minimum
of 30 states mid-second quarter 1996. Until that time, the Company will act
as a marketing agent for a variety of long distance service providers for
which it is compensated on a monthly basis for total billable minutes carried
by the specific provider.
Additionally, upon reaching its targeted carrier status, the Company
anticipates that it will enter into agreements with various underlying carriers
(i.e., WorldCom, MCI, IXC etc.). These agreements are typically for terms
ranging from month to month to one year and are typically renewable for like
terms. Such agreements would provide the Company with access to inter-exchange
networks at rates which are typically discounted and vary with monthly traffic
generated on each network. Such agreements will likely obligate the Company
to guarantee certain minimum monthly usage commitments. Payment terms typically
range from net 15 days to net 45 days.
History
Although the Company has sustained losses from operations through the first
quarter of 1996 and presently has a working capital deficit which has negatively
impacted its business, the Company has recently completed agreements to provide
$3.5 million in new financing. Although no assurances can be made that the
financing will be completed, with the additional financing, Management believes
that it can grow its business through internal expansion and through
acquisition of other regional telecommunications companies.
Liquidity and Capital Resources
The Company has incurred losses from operations since its inception.
These losses and the acquisition of products, property, equipment, patent rights
and other companies has been funded almost exclusively through the sale of
common stock, warrants and limited partnership units (which were sold during
its start-up period, prior to its initial public offering and later converted
into Company common stock).
While its operating and development expenses have exceeded operating
revenues since the commencement of its telecommunication business, Management
of the Company has taken various steps for long term growth and profitability.
Although the implementation of any program has been adversely impacted through
March 31, 1996 by the lack of capital resources and liquidity, Management is
seeking to elevate itself to carrier status which should increase margins with
little additional expenditures.
Results of Operations
Revenues - Telecommunications Services and Products
Sales of telecommunications services and products, (commissions, literature
and merchandise sales and processing fees) for the three months ended March 31,
1995 were $1,385,007 and $339,765 for the three months ended March 31, 1996.
The Company is actively expanding its customer base through promotional
activities and new product development.
Interest Expense
Interest expense decreased from $19,838 for the three months ended March
31,1995 to $6,837 for the three months ended March 31, 1996 due to conversions
of debt to equity.
PART II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Plan of acquisition, reorganization, arrangements, liquidation
or succession None
(4) Instruments defining the rights of Security Holders None
(10) Material Contracts None
(11) Statement Re: Computation of Per Share Earnings 11
(15) Letter on unaudited interim financial information None
(18) Letter Re: Changes in Accounting Principles None
(19) Reports furnished to security holders None
(22) Published report regarding Matters Submitted to Vote of
Security Holders None
(23) Consents of Experts and Counsel None
(24) Power of Attorney None
(25) Additional exhibits None
(b) Reports on Form 8-K None
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
f/k/a PHOENIX ADVANCED TECHNOLOGY, INC.
(Registrant)
Date: May 15, 1996
____________________________________
Roderick A. McClain, President & CEO