United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended January 31, 2000
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From _______________ to _______________
Commission file number 0-22636
-------
Dial-Thru International Corporation
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2801677
- ------------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8100 Jetstar Drive, Suite 100
Irving, Texas 75063
--------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(972) 929-1920
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(Registrant's telephone number, including area code)
ARDIS Telecom & Technologies, Inc.
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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
As of March 14, 2000, 8,323,932 shares of common stock, $.001 par value per
share, were outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DIAL-THRU INTERNATIONAL CORPORATION
AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED BALANCE SHEETS
January 31, October 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 279,298 $ 846,141
Restricted cash 664,919 613,634
Trade accounts receivable, net of allowance for doubtful
accounts of $223,018 and $181,675 at January 31, 2000 and
October 31, 1999, respectively 1,908,839 297,914
Accounts receivable - other 15,321 --
Inventory 246,263 141,017
Prepaid expenses and other 90,102 92,074
Current portion of long-term receivable, net of allowance for doubtful
accounts of $20,000 at January 31, 2000 and October 31, 1999 -- 300,000
------------ ------------
Total current assets 3,204,742 2,290,780
------------ ------------
PROPERTY AND EQUIPMENT, net 1,930,980 1,421,328
RESTRICTED CASH 573,650 624,099
LONG-TERM RECEIVABLE, net of current portion, net of allowance for doubtful
accounts of $30,000 at January 31, 2000 and October 31, 1999 50,000 50,000
OTHER ASSETS 119,786 80,582
GOODWILL, net of amortization of $7,877 at January 31, 2000 1,252,402 --
------------ ------------
TOTAL ASSETS $ 7,131,560 $ 4,466,789
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 162,000 $ 162,000
Current portion of capital lease obligation 24,572 --
Trade accounts payable 3,122,126 336,053
Accrued liabilities 164,398 306,239
Deferred revenue 924,254 235,104
Other payable 135,500 --
Related party note payable - current 200,000 --
------------ ------------
Total current liabilities 4,732,850 1,039,396
------------ ------------
Long-term debt, net of current portion 521,500 562,000
Related party note payable, net of current portion 127,735 --
------------ ------------
Total long-term liabilities 649,235 562,000
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none issued and outstanding at January 31, 2000 and October 31, 1999 -- --
Common stock, 44,169,000 shares authorized; $.001 par value
8,074,905 and 6,881,005 shares issued and outstanding at January 31,
2000 and October 31, 1999, respectively 8,075 6,881
Additional paid-in capital 26,124,402 24,940,093
Accumulated deficit (24,159,536) (22,076,165)
Accumulated other comprehensive income (5,416) (5,416)
Notes receivable for common stock (218,050) --
------------ ------------
Total shareholders' equity 1,749,475 2,865,393
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,131,560 $ 4,466,789
============ ============
See accompanying notes.
2
DIAL-THRU INTERNATIONAL CORPORATION
AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
------------------------------
2000 1999
----------- -----------
REVENUES $ 3,806,767 $ 1,542,719
----------- -----------
COSTS AND EXPENSES
Costs of revenues 4,363,673 1,417,221
Sales & marketing 508,214 220,098
General & administrative 940,096 420,721
Depreciation and amortization 115,105 10,363
----------- -----------
Total costs and expenses 5,927,088 2,068,403
----------- -----------
OTHER INCOME (EXPENSES)
Interest income (expense), net 36,951 (890)
----------- -----------
Total other income (expenses) 36,951 (890)
----------- -----------
NET LOSS FROM CONTINUING OPERATIONS (2,083,370) (526,574)
DISCONTINUED OPERATIONS
Income (loss) from operation of software business,
net of income taxes of $0 -- 218,376
Gain on sale of software business, net of income
taxes of $0 -- 2,015,494
----------- -----------
NET INCOME (LOSS) $(2,083,370) $ 1,707,296
=========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.26) $ (0.08)
Discontinued operations -- 0.34
----------- -----------
Net earnings (loss) $ (0.26) $ 0.26
=========== ===========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations $ (0.26) $ (0.08)
Discontinued operations -- 0.34
----------- -----------
Net earnings (loss) $ (0.26) $ 0.26
=========== ===========
SHARES USED IN THE CALCULATION OF PER SHARE AMOUNTS:
Basic common shares 7,892,030 6,627,309
Dilutive impact of stock options and warrants -- --
----------- -----------
Diluted common shares 7,892,030 6,627,309
----------- -----------
See accompanying notes.
3
DIAL-THRU INTERNATIONAL CORPORATION
AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
----------------------------------
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(2,083,370) $ 1,707,296
Adjustments to reconcile net income (loss) to net
cash provided by (used in) continuing operating activities:
Income from discontinued operations -- (218,376)
Gain on disposal of software business -- (2,015,494)
Stock issued for services -- 74,225
Warrants issued for services -- 5,942
Depreciation and amortization 114,355 10,363
Changes in operating assets and liabilities, net of effects of acquisition:
Trade accounts receivable (1,027,320) (439,302)
Accounts receivable - other 1,999 --
Inventory (105,246) 16,718
Prepaid expenses and other 39,663 (65,362)
Other assets (29,705) 7,665
Trade accounts payable 1,774,161 (267,166)
Accrued liabilities (109,354) (50,509)
Deferred revenue 689,150 (22,608)
----------- -----------
Net cash used in operating activities from
continuing operations (735,667) (1,256,608)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of software business -- 3,769,917
Purchase of property and equipment (111,048) (12,552)
Payments on note receivable 300,000 6,452
Cash in DTI at acquisition date 69,137 --
----------- -----------
Net cash provided by investing activities of continuing operations 258,089 3,763,817
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of convertible debenture - shareholder -- (1,000,000)
Payments on notes payable (40,500) (9,011)
Payments on related party note payable (54,000) --
Change in restricted funds (836) --
Issuance of common shares for cash 29,953 --
Payments on capital leases (23,882) --
----------- -----------
Net cash used in financing activities of continuing operations (89,265) (1,009,011)
----------- -----------
Cash provided by discontinued operations -- 564,873
----------- -----------
NET INCREASE (DECREASE) IN CASH (566,843) 2,063,071
Cash at beginning of period 846,141 207,609
----------- -----------
Cash at end of period $ 279,298 $2,270,680
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Cash paid for interest $ 15,517 $ 39,868
=========== ===========
Offset of accounts payable against notes receivable $ -- $ 21,554
=========== ===========
Stock issued for services $ -- $ 74,225
=========== ===========
See accompanying notes.
4
DIAL-THRU INTERNATIONAL CORPORATION
AND SUBSIDIARIES
(Formerly Ardis Telecom & Technologies, Inc., Formerly Canmax, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. 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. Operating results for the three month period ended January
31, 2000 are not necessarily indicative of the results that may be expected for
the year ending October 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended October 31, 1999.
Dial-Thru International Corporation and subsidiaries ("DTI" or the "Company"),
(formerly ARDIS Telecom & Technologies, Inc., "Ardis" and formerly Canmax, Inc.,
"Canmax"), was incorporated on July 10, 1986 under the Company Act of the
Province of British Columbia, Canada. On August 7, 1992, the Company renounced
its original province of incorporation and elected to continue its domicile
under the laws of the State of Wyoming, and on November 30, 1994, its name was
changed to "Canmax Inc." On February 1, 1999 this predecessor company
reincorporated under the laws of the State of Delaware and changed its name to
"ARDIS Telecom & Technologies, Inc". On November 2, 1999, the Company acquired
substantially all of the business and assets of Dial-Thru International
Corporation, a California corporation, along with the rights to the name
"Dial-Thru International Corporation." On January 19, 2000, the Company changed
its name from ARDIS Telecom & Technologies, Inc. to "Dial-Thru International
Corporation."
Prior to December 7, 1998, the Company operated in the software and
telecommunications industries. On December 7, 1998, the Company sold its retail
automation software business (the "Software Business") to Affiliated Computer
Services, Inc. Therefore, the Company no longer engages in the Software
Business, and is now operating only in the telecommunications industry (the
"Telecommunications Business"). Results of operations in prior periods have been
restated to reclassify the Software Business as discontinued operations. The
measurement date for the sale is December 7, 1998, the date the shareholders
approved the transaction.
During 1998, the Company began competing in the telecommunications market
through its wholly-owned subsidiary, Canmax Telecom, Inc. ("Telecom") now known
as RSDT, Inc. In connection with the Company's entry into this new business, on
January 30, 1998, the Company acquired USCommunications Services, Inc. ("USC").
The acquisition was rescinded as of May 27, 1998. RDST's operations include
mainly sales and distribution of prepaid domestic and international calling
cards to wholesale and retail customers. In August 1998, the Company entered
into an agreement with PT-1 Communications, Inc. ("PT-1"). The agreement
provided for PT-1 to supply long distance telecom and debit services, for use in
the
5
Company's marketing and distribution of domestic and international prepaid long
distance calling cards. The relationship with PT-1 continued through July 31,
1999, at which time the Company established its own facilities-based operations.
Accordingly, at the beginning of fiscal 1999, the Company conducted its
telecommunications business as a switchless reseller of telecommunications
services. During the fourth quarter of fiscal 1999, the Company began operating
its own enhanced services platform and switching facilities and migrated from
providing its telecommunications services as a switchless reseller of products
of PT-1 Communications, to conducting its telecommunications business as a
facilities-based operator.
On November 2, 1999, the Company consummated the acquisition of substantially
all of the assets and business of Dial-Thru International Corporation, a
California corporation now known as DTI-LIQCO, Inc., including the rights to the
name "Dial-Thru International Corporation." Through the acquisition of Dial-Thru
International Corporation, effective November 1, 1999, the Company provides a
variety of international telecommunications services, including international
dial-thru, re-origination and Internet FaxThru services. This business utilizes
packetized voice technology and compression techniques, such as Voice Over
Internet Protocol, to improve both the costs and efficiencies of its
telecommunications transmissions.
NOTE B - REVENUE RECOGNITION
Prepaid services sold while the Company operates its own switch (this policy
applies to all prepaid revenue generated in the quarter ended January 31,
2000)--Revenue recognition originates from customer usage. The Company sells
products to retailers and distributors at a fixed price. When the retailer or
distributor is invoiced, deferred revenue is recognized. The Company recognizes
revenue, and reduces the deferred revenue account as the customer utilizes
calling time or upon the expiration of cards containing unused calling time.
Revenues generated by international re-origination and dial-thru services are
based on minutes of customer usage. The Company records payments received in
advance as deferred revenue until such services are provided.
Prepaid services sold through the PT-1 Agreement (this policy applies to all
revenue generated in the quarter ended January 31, 1999)--Revenue was recognized
when the prepaid phone cards were invoiced and shipped. The Company performed no
other services after the cards were shipped.
NOTE C - RESTRICTED CASH
At January 31, 2000, $1,238,569 of cash was pledged as collateral on an
outstanding note payable and letters of credit and is classified as restricted
cash on the balance sheet. The portion of the restricted cash which pertains to
the long-term portion of the note payable has, correspondingly, been classified
as long-term.
6
NOTE D - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
One customer accounted for approximately 20% of revenues during the three month
period ended January 31, 2000. This customer made up approximately 14% of the
trade accounts receivable balance at January 31, 2000. The Company generally
does not require collateral for its trade accounts. The Company has an
outstanding receivable from a customer of approximately $435,000 which is
overdue by approximately one year, of which $105,000 has been reserved as of
January 31, 2000. Management believes the remaining $330,000 is fully
collectible. The Company had a note receivable and accrued interest from its
former subsidiary, USC, under which approximately $300,000 (net of reserve of
$160,000) in principal was outstanding at October 31, 1999. On August 17, 1999,
USC commenced voluntary bankruptcy proceedings under Chapter 11 of the
Bankruptcy Code. The Company collected $300,000 of this balance as a final
settlement in January 2000. The remaining balance due of $160,000 was charged to
operations during the fiscal year ended October 31, 1999.
NOTE E - ACQUISITION
On November 2, 1999, the Company consummated the acquisition of substantially
all of the assets and business of Dial-Thru International Corporation (the
"Seller"), a California corporation. The acquisition was effected pursuant to
the terms of an Asset Purchase Agreement between the Company, a wholly owned
subsidiary of the Company, the Seller and John Jenkins, the sole shareholder of
the Seller. The Company issued to the Seller an aggregate of 1,000,000 shares of
common stock, recorded a total purchase price of $937,500 using the Company's
common stock price at the time the acquisition was announced, and agreed to
issue an additional 1,000,000 shares of its common stock upon the acquired
business achieving specified revenue and earnings goals. As of January 31, 2000
no additional shares were earned by the seller based on revenue and earnings
goals. The acquisition was accounted for as a purchase. Goodwill recorded in the
acquisition will be amortized over a period of 10 years. The results of
operations of the acquired entity are included in the consolidated operations of
the Company from November 1, 1999.
The fair value of assets and liabilities acquired consisted of:
Cash $ 69,137
Accounts receivable, net 583,605
Fixed assets 505,082
Other assets 64,512
Liabilities (1,545,115)
Goodwill 1,260,279
------------
$ 937,500
============
Unaudited pro forma financial information for the three month period ended
January 31, 1999, as though the acquisition had occurred on November 1, 1998 is
as follows:
7
Revenues $ 3,412,020
============
Net loss from continuing operations $ (538,898)
============
Discontinued operations income $ 2,233,870
============
Net income $ 1,694,972
============
Net loss per common share from continuing
operations (basic and diluted) $ (0.07)
============
Net income per common share (basic and diluted) $ 0.22
============
Weighted average common shares outstanding
(basic and diluted) $ 7,627,309
============
NOTE F - RECLASSIFICATIONS
Certain amounts in 1999 consolidated financial statements have been reclassified
to conform to the 2000 presentation.
NOTE G - RELATED PARTY PAYABLE
In connection with the acquisition of Dial-Thru International Corporation on
November 2, 1999, the Company assumed a related party note payable to the sole
owner of the acquired entity of approximately $400,000. The note bears interest
at 6% per annum, is payable in quarterly installments of $50,000 plus interest
beginning November 1, 1999, and matures on August 1, 2001.
NOTE H - DISCONTINUED OPERATIONS
On December 7, 1998, the Company sold substantially all of the assets of the
Software Business. Pursuant to the terms of the Purchase Agreement, the Company
sold the assets and received $4,000,000 at closing and transferred certain
liabilities arising from the Software Business. On January 21, 1999, the
purchaser and the Company calculated the net working capital (generally current
assets other than cash minus current liabilities) as of the closing date, and
the purchaser received a net working capital adjustment of $230,083. The Company
recorded an initial gain on the sale of the Software Business of $2,015,494. The
gain was calculated as net proceeds of $3,769,917 less net assets of $1,693,259
less legal and accounting fees related to the sale of $61,164. The Company was
entitled, upon the sale of the Software Business, to receive additional deferred
payments of up to an additional $3,625,000 calculated at the end of each
calendar quarter during the twelve-month period commencing on January 1, 1999.
Each deferred payment was calculated based upon the cumulative level of revenue
attributable to the Software Business from January 1, 1999 through the end of
each three month period through December 31, 1999, and equaled (a) the sum of
(i) 75% of all such revenues greater than $4 million and less than or equal to
$7 million plus (ii) 13.75% of all such revenues greater than $7 million or less
than or equal to $17 million, minus (b) the sum of any deferred payments
previously made.
8
As of January 31, 2000, the Company had received total payments relating to the
additional consideration of $3,625,000. These payments had been recorded as
additional gain on the sale of the Software Business, reduced by costs
associated with the sale. The total net gain resulting from disposition of the
Software Business was $5,309,927.
Summarized operating results of the discontinued Software Business operations
are as follows:
Period from
November 1,
Through
December 7,
1998
------------
Revenues $ 1,686,945
Costs and expenses 1,468,569
------------
Net income (loss) $ 218,376
============
NOTE I - SHAREHOLDERS' EQUITY
COMMON STOCK ISSUANCES
In connection with the acquisition of Dial-Thru International Corporation, the
Company issued 1,000,000 shares. The Company also issued 193,900 shares in
connection with the exercise of options for $248,003 in cash proceeds. $218,050
of this cash was received after January 31, 2000.
WARRANT ISSUANCES
During the three months ended January 31, 2000 the Company issued 870,000
options and warrants. The options and warrants were issued at the closing
trading price on the date of grant, have exercise prices ranging from $0.81 to
$1.44, and expire over 2 to 3 years. The options and warrants have various
vesting terms.
NOTE J - SUBSEQUENT EVENTS
Subsequent to January 31, 2000 the Company used restricted cash collateralizing
the long-term debt to pay off all of the debt.
On February 4, 2000, the Company consummated the private placement of $1,000,000
of convertible notes and warrants to eight accredited investors. The notes are
payable on the earlier of one year from the date of issuance or the Company's
consummation of a debt or equity financing in excess of $5,000,000. If the notes
are not repaid within 90 days, they are convertible into shares of common stock
at $4.00 per share while they remain outstanding. The Company also issued to the
purchasers of the notes warrants to acquire an aggregate of 125,000 shares of
common stock at an exercise price of $3.00 per share, which expire five years
from the date of issuance. Pursuant to the terms of the notes, the Company is
also obligated to issue to the holders of the notes warrants to acquire up to an
aggregate of 125,000 shares of common stock at an exercise price of $2.75 per
share if the convertible notes have not been repaid within six months following
the date of issuance.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Through December 7, 1998, the Company operated two distinct businesses, its
software business conducted through its subsidiary Canmax Retail Systems, Inc.
(the "Software Business") and its telecommunications business (the
"Telecommunications Business"). On December 7, 1998, the Company consummated the
sale of the Software Business (the "Software Business Sale") to Affiliated
Computer Services, Inc. As a result of the Software Business Sale, the Company
no longer engages in the Software Business and its business is focused solely on
its Telecommunications Business. Therefore, historic financial information
attributable to the Software Business is reported as discontinued operations.
Because the Software Business was discontinued in the first quarter of fiscal
1999, management has not discussed the results of operations for the Software
Business for the first quarter of fiscal 2000 as compared to 1999.
On November 2, 1999, the Company consummated the acquisition (the "DTI
Acquisition") of substantially all of the assets and business of Dial-Thru
International Corporation, a California corporation now known as DTI-LIQCO,
Inc., including the rights to the name "Dial-Thru International Corporation." On
January 14, 2000, the stockholders of the Company approved the Company's
proposed change of its name from "ARDIS Telecom & Technologies, Inc." to
"Dial-Thru International Corporation" and on January 19, 2000, the Company
officially changed its name to Dial-Thru International Corporation. The acquired
business provides a variety of international telecommunications services,
including international dial-thru, re-origination and Internet FaxThru services,
utilizing packetized voice technology and compression techniques, such as Voice
over Internet Protocol, to improve both the costs and efficiencies of its
telecommunications transmissions.
In the first quarter of fiscal 1999, the Company conducted its
Telecommunications Business as a switchless reseller of telecommunications
services. During the fourth quarter of fiscal 1999, the Company began operating
its own telecommunications switching equipment and enhanced services platform
and migrated from providing its telecommunications services as a switchless
reseller of products of other carriers to conducting its Telecommunications
Business as a facilities-based operator. During the first quarter of fiscal
2000, the Company conducted its Telecommunications Business as a
facilities-based operator. As a facilities-based operator, the Company defers
the recognition of revenue and expenses of its prepaid products until the
customer utilizes the services, or until the expiration date of the product is
reached. As a switchless reseller, the Company recognized revenue upon the
shipment and invoicing of products, as the Company performed no further services
after shipment.
The following discussion should be read in conjunction with the Company's Form
10-K and the consolidated financial statements for the years ended October 31,
1999, 1998 and 1997; the Company's Form 10-Q for the quarter ending January 31,
1999; and the consolidated financial statements and related notes for the
quarter ended January 31, 2000 found elsewhere in this report.
10
RESULTS OF OPERATIONS
REVENUES
Revenues were $3,807,000 for the quarter ended January 31, 2000, compared to
$1,543,000 for the quarter ended January 31, 1999, representing a 147% increase
from the prior period. This increase is primarily attributable to revenues of
approximately $1,762,000 arising from the business acquired in the DTI
Acquisition, and increases of $502,000 in domestic retail revenues.
EXPENSES
Cost of revenues were $4,364,000 for the quarter ended January 31, 2000,
compared to $1,417,000 for the quarter ended January 31, 1999, representing a
208% increase in cost of revenues from the prior period. Of this increase,
approximately $1,549,000 related to the acquisition of DTI. The remaining
increases in cost of revenues are primarily attributable to increased revenues
from prepaid telecommunications services during the period.
Sales and marketing costs were $508,000 for the quarter ended January 31, 2000,
compared to $220,000 for the quarter ended January 31, 1999, representing a 131%
increase in costs from the prior period. Approximately $13,000 of this increase
is attributable to the DTI Acquisition. The remaining costs are primarily
comprised of costs associated with the development of distribution channels and
customer support, discounts, commissions and advertising costs associated with
the Company's prepaid telecommunications products.
General and administrative costs were $940,000 for the quarter ended January 31,
2000, compared to $421,000 for the quarter ended January 31, 1999, representing
a 123% increase from the prior period. These costs are comprised primarily of
management, accounting, legal and overhead expenses and have increased as a
result of the Company's increase in its business operations and increases in
personnel and overhead resulting from the DTI Acquisition. Of this increase,
approximately $317,000 relates to the DTI Acquisition.
During the three month period ended January 31, 2000, the Company reported net
interest income of $37,000, compared with a net interest expense of $1,000 for
the three month period ended January 31, 1999. This change resulted from the
Company's repayment of indebtedness during 1999 and the investment of restricted
and non-restricted cash during the first fiscal quarter of 2000.
As a result of the foregoing, the Company incurred a net loss of $2,083,000, or
$0.26 per share, for the three month period ended January 31, 2000, as compared
to a net loss of $527,000, or $0.08 per share from continuing operations for the
quarter ended January 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth models for its business are scaleable, but the rate of
growth is dependent on the availability of future financing for capital
resources. The Company plans to commit at least $2.0 million for capital
investments for fiscal 2000, and plans to finance additional infrastructure
development externally through debt and/or equity offerings and internally
through the operations of its telecommunications business. The Company believes
that, if provided with sufficient capital, it can significantly accelerate its
growth plan, and consequently plans to raise between $5.0 million and $15.0
million in either debt or equity financing during the first
11
half of fiscal 2000. The Company is also contemplating an additional funding of
a larger nature, possibly in the second half of fiscal 2000. The Company
believes that it will be able to accomplish these financings on acceptable terms
in order to support its growth plans. The Company's failure to obtain any such
financing could significantly delay the Company's implementation of its business
plan and have a material adverse effect on its business, financial condition and
operating results.
At January 31, 2000, the Company had cash and cash equivalents of $279,000, a
decrease of $567,000 from the balance at October 31, 1999.
During the three months ended January 31, 2000, net cash used in operating
activities of $736,000 was primarily due to the net loss during the quarter of
$2,083,000 and net increases in trade accounts receivable of $1,027,000, as
reduced by increases in deferred revenues of $689,000 and increases in trade
accounts payables and other accrued liabilities of $1,665,000. The increases in
accounts receivable, accounts payable and deferred revenues are primarily
attributable to increases in the Company's revenues. During the three months
ended January 31, 1999, cash used in operating activities totaled $1,257,000 and
was comprised of the Company's net income $1,707,000, adjusted for gains from
discontinued operations of $218,000, a gain on the disposal of the Software
Business of $2,015,000, issuance of common stock to employees of $74,000,
depreciation of $10,000, and net changes in operating assets and liabilities of
$821,000.
Cash provided by investing activities was $258,000 for the three months ended
January 31, 2000 and was primarily comprised of a $300,000 repayment of a note
receivable and $69,000 of cash acquired in the DTI Acquisition, reduced by
$111,000 of purchased property and equipment. Cash provided by investment
activities for the first quarter of 1999 totaled $3,764,000 and was primarily
comprised of proceeds from the sale of the Software Business of $3,770,000,
reduced by the purchase of property and equipment of $13,000.
Cash used in financing activities for the three months ended January 31, 2000
totaled $89,000, and was comprised of payments of $41,000 on a note payable,
$54,000 on a related party note payable and $24,000 under capital leases, as
offset by $30,000 of proceeds received upon the exercise of stock options. Cash
used in financing activities for continuing operations for the three months
ended January 31, 1999, was $1,009,000, reflecting the repayment of borrowings
under a loan agreement that was entered into fiscal 1998.
Current liabilities as of January 31, 2000 were $4,733,000, while current assets
as of that date totaled $3,205,000. Current assets include $1,909,000 of
accounts receivable, of which 23% were comprised of a past due account from an
international customer. At January 31, 2000, the Company had a net working
capital deficiency of $1,529,000, compared to a net working capital surplus of
$1,252,000 at January 31, 1999.
The Company is currently negotiating with several of its carriers and financing
companies to eliminate or reduce the amount of required deposits (which are
included in restricted cash) to provide the Company with short-term liquidity.
Although the Company has applied some of its cash deposits against notes payable
under its current financing arrangements, the Company anticipates being able to
achieve approximately $500,000 to $800,000 of liquidity through various leasing
and financing activities.
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CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
Quarterly Report on Form 10-Q include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by the use of such terms as
"expects", "will", "anticipates", "estimates", "believes," "plans" and words of
similar meaning. These forward-looking statements relate to business plans,
programs, trends, results of future operations, satisfaction of future cash
requirements, funding of future growth, acquisition plans and other matters. In
light of the risks and uncertainties inherent in all such projected matters, the
inclusion of forward-looking statements in this Form 10-Q should not be regarded
as a representation by the Company or any other person that the objectives or
plans of the Company will be achieved or that operating expectations will be
realized. Revenues and results of operations are difficult to forecast and could
differ materially from those projects in forward-looking statements contained
herein, including without limitation statements regarding the Company's belief
of the sufficiency of capital resources and its ability to compete in the
telecommunications industry. Actual results could differ from those projected in
any forward-looking statements for, among others, the following reasons: (a)
increased competition from existing and new competitors using Voice over
Internet Protocol ("VoIP") to provide telecommunications services, (b) the
relatively low barriers to entry for start-up companies using VoIP to provide
telecommunications services, (c) the price-sensitive nature of consumer demand,
(d) the Company's dependence upon favorable pricing from its suppliers to
compete in the telecommunications industry, (e) increased consolidation in the
telecommunication industry, which may result in larger competitors being able to
compete more effectively, (f) the failure to attract or retain key employees,
(g) continuing changes in governmental regulations affecting the
telecommunications industry and the Internet, (h) changing consumer demand,
technological development and industry standards that characterize the industry,
and (i) the "Certain Business Factors" identified in the Company's Annual Report
on Form 10-K for the year ended October 31, 1999. The Company does not undertake
to update any forward-looking statements contained herein. Readers are cautioned
not to place undue reliance on the forward-looking statements made in, or
incorporated by reference into, this Quarterly Report on Form 10-Q or in any
document or statement referring to this Quarterly Report on Form 10-Q.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On December 1, 1999, the Company granted to two of its employees warrants to
acquire 50,000 shares each at an exercise price of $0.81 per share, the closing
price of the Company's common stock on November 30, 1999. These warrants vest
50% on the first anniversary of the date of grant and 50% on the second
anniversary of the date of grant, and expire two years after the date of
vesting. On December 22, 1999, the Company granted options to acquire 50,000
shares to an employee under its Stock Option Plan, at an exercise price of
$1.44, the closing price of the Company's common stock on December 21, 1999. The
right to acquire 10,000 shares under the stock option was
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immediately vested, and the right to acquire the remaining shares vests in
10,000 share increments on the first, second, third and fourth anniversary dates
of the date of grant.
On December 22, 1999, the Company granted warrants to acquire 420,000 shares to
nine of its employees at an exercise price of $1.44 per share, the closing price
of the Company's common stock on December 21, 1999. These warrants vest in 1/3
increments on the first, second and third anniversary dates of the date of
grant, and expire three years after the date of vesting. On December 22, 1999,
the Company also granted to a new employee a warrant to acquire 300,000 shares
of its common stock at $1.44 per share, the closing price of the Company's
common stock on December 21, 1999, of which the right to acquire 100,000 shares
was immediately exercisable and the right to acquire the remaining shares vest
in 100,000 shares increments on the first and second anniversary dates of the
date of grant. These warrants expire three years after the date of vesting.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
On January 14, 2000, the Company's stockholders approved an amendment to the
Company's certificate of incorporation to change the name of the Company from
"ARDIS Telecom & Technologies, Inc." to "Dial-Thru International Corporation."
The number of votes for, against and abstain from the proposal are set forth
below:
For Against Abstain
7,541,658 8,500 11,599
ITEM 5. OTHER INFORMATION
On January 19, 2000, the Company changed its name to Dial-Thru International
Corporation and on January 20, 2000, the Company's trading symbol on the OTC
Bulletin Board was changed to DTIX.
On February 4, 2000, the Company consummated the private placement of $1,000,000
of convertible notes and warrants to eight accredited investors. The notes are
payable on the earlier of one year from the date of issuance or the Company's
consummation of a debt or equity financing in excess of $5,000,000. If the notes
are not repaid within 90 days, they are convertible into shares of common stock
at $4.00 per share while remaining outstanding. The Company also issued to the
purchasers of the notes warrants to acquire an aggregate of 125,000 shares of
common stock at an exercise price of $3.00 per share, which expire five years
from the date of issuance. Pursuant to the terms of the notes, the Company is
also obligated to issue to the holders of the notes warrants to acquire up to an
aggregate of 125,000 shares of common stock at an exercise price of $2.75 per
share if the convertible notes have not been repaid within six months following
the date of issuance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are required to be filed with this quarterly report
on Form 10-Q:
11 Statement re Computation of Per Share Earnings (filed herewith).
27 Financial Data Schedule (filed herewith).
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(b) Reports on Form 8-Ks
On November 17, 1999, the Company filed a report on Form 8-K in
connection with the DTI Acquisition.
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.
Dial-Thru International Corporation
(Registrant)
DATE: March 16, 2000 /s/ John Jenkins
-------------------------- ----------------------------------
John Jenkins
President, Chief Financial Officer
(Principal Financial Officer)
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