U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _________
Commission file number 33-90344
Clariti Telecommunications International, Ltd.
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(Exact name of small business issuer as specified in its charter)
Delaware 23-2498715
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1735 Market Street, Mellon Bank Center Suite 1300, Philadelphia, PA 19103
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(Address of principal executive offices)
(215) 979-3600
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(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 ( )
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date: As of February 7, 2000, there were
138,984,067 shares outstanding of $.001 par value common stock.
Transitional Small Business Disclosure Format (check one):
Yes ( ) No (X)
1
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Balance Sheets at
December 31, 1999 (unaudited) and
June 30, 1999 (audited) 3
Consolidated Statements of Operations
and Comprehensive Income (Loss) for the
six months and three months ended
December 31, 1999 and 1998 (unaudited) 4-5
Consolidated Statement of Stockholders'
Equity for the six months ended
December 31, 1999 (unaudited) 6
Consolidated Statements of Cash Flows
for the six months ended
December 31, 1999 and 1998 (unaudited) 7-8
Notes to Consolidated Financial
Statements (unaudited) 9-16
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 17-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 23-24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Events 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
PART I. - FINANCIAL STATEMENTS.
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars and Shares in Thousands)
Dec. 31, June 30,
1999 1999
----------- ---------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,931 $ 3,284
Trade accounts receivable 997 286
Refundable taxes - 408
Prepaid expenses and other current assets 406 112
--------- ---------
17,334 4,090
PROPERTY AND EQUIPMENT, NET 3,469 3,244
INTANGIBLE ASSETS, NET 18,184 12,596
--------- ---------
TOTAL ASSETS $ 38,987 $ 19,930
========= =========
LIABILITIES AND STOCKHOLDERS'EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable - trade $ 2,199 $ 4,653
Accrued expenses and other current liabilities 2,192 524
Note payable to related party - 2,000
Excess of net liabilities over assets of
unconsolidated subsidiaries - 32,413
--------- ---------
TOTAL LIABILITIES 4,391 39,590
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
$.001 par value; authorized 300,000 shares;
issued and outstanding, 138,984 shares at
December 31, 1999 and 124,235 at June 30, 1999 139 124
WARRANTS OUTSTANDING, NET 9,935 2,322
ADDITIONAL PAID-IN-CAPITAL 256,101 228,611
ACCUMULATED DEFICIT (231,552) (252,065)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ( 27) 1,348
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 34,596 ( 19,660)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,987 $ 19,930
========= =========
See accompanying notes
3
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars and Shares in Thousands, Except Per Share Amounts)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
As Restated As Restated
1999 1998 1999 1998
-------- --------- -------- ---------
REVENUE $ 1,217 $ - $ 899 $ -
COST OF REVENUE 896 - 708 -
-------- --------- -------- --------
GROSS PROFIT 321 - 191 -
Salaries and benefits 2,284 821 1,279 426
Operating expenses 348 - 276 -
Marketing expenses 624 - 337 -
Research and development 1,510 1,083 815 652
General and administrative
expenses 5,323 1,276 3,770 758
Depreciation and amortization 2,283 66 1,246 32
Equity in losses of
unconsolidated subsidiaries - 2,813 - 2,813
-------- --------- -------- --------
LOSS FROM OPERATIONS (12,051) ( 6,059) ( 7,532) ( 4,681)
OTHER INCOME (EXPENSE)
Interest income 101 112 85 100
Interest expense ( 39) - ( 1) -
-------- -------- -------- --------
Net loss before extraordinary
item (11,989) ( 5,947) ( 7,448) ( 4,581)
EXTRAORDINARY ITEM
Gain on discharge of
indebtedness 32,502 - - -
-------- -------- -------- --------
NET INCOME (LOSS) $ 20,513 $( 5,947) $( 7,448) $( 4,581)
OTHER COMPREHENSIVE
INCOME (LOSS):
Foreign currency
translation adjustment ( 27) - ( 10) -
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS) $ 20,486 $( 5,947) $( 7,458) $( 4,581)
======== ======== ======== ========
4
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars and Shares in Thousands, Except Per Share Amounts)
SIX MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
As Restated As Restated
1999 1998 1999 1998
-------- --------- -------- ---------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 128,164 32,258 131,188 40,790
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE
Net loss before
extraordinary item $( 0.09) $( 0.18) $( 0.06) $( 0.11)
Extraordinary item 0.25 - - -
-------- -------- -------- --------
Net income (loss) $ 0.16 $( 0.18) $( 0.06) $( 0.11)
======== ======== ======== ========
See accompanying notes
5
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1999
(Dollars and Shares in Thousands)
COMMON STOCK COMMON
------------------- STOCK
NUMBER WARRANTS
OF OUTSTAN-
SHARES AMOUNT DING,NET
-------- ------ --------
BALANCES, JUNE 30, 1999 124,235 $ 124 $ 2,322
Six months ended
December 31, 1999 (unaudited):
Common stock issued for cash 11,807 12 -
Common stock issued in settlement
of loan payable 500 1 -
Common stock issued as
consideration for acquisitions 2,442 2 -
Common stock warrants issued, net
of unearned consulting fees of
$1,758 - - 7,613
------- ----- -------
BALANCES, DECEMBER 31, 1999 138,984 $ 139 $ 9,935
======= ===== =======
ACCUMU-
LATED
OTHER
COMPRE-
ADD'L. ACCUMU- HENSIVE
PAID-IN LATED INCOME
CAPITAL DEFICIT (LOSS)
--------- ---------- --------
BALANCES, JUNE 30, 1999 $228,611 $(252,065) $ 1,348
Six months ended
December 31, 1999 (unaudited):
Common stock issued for cash 25,588 - -
Common stock issued in settlement
of loan payable 999 - -
Commission on issuance of
common stock ( 2,650) - -
Common stock issued as
consideration for acquisitions 6,460 - -
Common stock warrants issued ( 4,988) - -
Capitalization of note payable
to related party 2,081 - -
Net income - 20,513 (1,348)
Currency translation adjustment - - ( 27)
-------- --------- -------
BALANCES, DECEMBER 31, 1999 $256,101 $(231,552) $( 27)
======== ========= =======
See accompanying notes
6
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
SIX MONTHS ENDED
DECEMBER 31,
-----------------------
As Restated
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 20,513 $( 5,947)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Extraordinary gain on discharge of
indebtedness (32,502) -
Equity in losses from unconsolidated
subsidiaries - 2,813
Depreciation and amortization 2,283 66
Issuance of common stock warrants for
consulting fees 2,625 -
Settlement of interest upon capitalization
of loan payable to related party 81 -
Change in current assets and liabilities
which increase (decrease) cash, excluding
effect of companies acquired:
Trade accounts receivable 14 -
Prepaid expenses and other current assets ( 85) 177
Accounts payable - trade ( 2,667) ( 57)
Accrued expenses and other current
liabilities ( 108) ( 88)
Other ( 6) -
-------- --------
Net cash used in operating activities ( 9,852) ( 3,036)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ( 587) ( 68)
Cash received with companies acquired net
of cash paid for companies acquired 136 -
Advances to unconsolidated subsidiaries - ( 2,975)
-------- --------
Net cash used in investing activities ( 451) ( 3,043)
-------- --------
7
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
SIX MONTHS ENDED
DECEMBER 31,
----------------------
As Restated
1999 1998
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock for cash 25,600 20,100
Commission on sale of common stock ( 2,650) ( 468)
-------- --------
Net cash received from financing activities 22,950 19,632
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS 12,647 13,553
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 3,284 1,391
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 15,931 $ 14,944
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period:
Interest $ 1 $ -
Income taxes $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Common stock issued as consideration for
acquisitions of NKA and TWC $ 6,462 $ -
Capitalization of note payable to related
party $ 2,000 $ -
Issuance of common stock in settlement of
loan payable $ 1,000 $ -
Issuance of common stock warrants for
unearned consulting fees $ 1,758 $ -
Issuance of common stock in settlement of
accounts payable and accrued liabilities $ - $ 56
See accompanying notes
8
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - BASIS OF INTERIM PRESENTATION
The accompanying interim period financial statements of Clariti
Telecommunications International, Ltd. ("Clariti" or the "Company") are
unaudited, pursuant to certain rules and regulations of the Securities and
Exchange Commission, and include, in the opinion of management, all adjustments
(consisting of only normal recurring accruals) necessary for a fair statement
of the results for the periods indicated, which, however, are not necessarily
indicative of results that may be expected for the full year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The financial
statements should be read in conjunction with the financial statements and the
notes thereto included in Clariti's June 30, 1999 Form 10-KSB and other
information included in Clariti's Forms 8-K and amendments thereto as filed
with the Securities and Exchange Commission.
NOTE 2 - DESCRIPTION OF THE BUSINESS
Clariti is a diversified international telecommunications company with
businesses that cover voice, data, Internet and wireless communications. The
Company's businesses operate on the basis of two industry segments; IP/Internet
Services and Wireless Messaging.
Clariti's IP/Internet Services group ("Clariti IP") consists of the following
wholly owned subsidiaries:
- Clariti IP Services, Inc., formerly MegaHertz-NKO, Inc., acquired May 7,
1999
- Clariti IP Services Asia Pty., Ltd., formerly NKA Communications Pty.,
Ltd. ("NKA"), acquired October 12, 1999 (see Note 5)
- Clariti Telecom, Inc., formerly Tekbilt World Communications, Inc.
("TWC"), acquired December 23, 1999 (see Note 5).
Clariti IP currently offers prepaid phone cards, residential and business long
distance, and fax services through Internet Protocol ("IP") and traditional
circuit switching technologies. Clariti IP is also an Internet Service
Provider ("ISP"), offering dial up and dedicated access, customized Web hosting
and e-commerce.
Clariti Wireless Messaging is pursuing a business strategy of bringing
innovative, affordable, wireless telecommunications products and services to
markets worldwide. Clariti Wireless Messaging is currently developing the
world's first low-cost Digital Voice Messaging System for use on FM radio
frequencies based on the Company's ClariCAST(TM) technology.
The Company also acquired GlobalFirst Holdings Limited ("GlobalFirst") in
December 1998 and Mediatel Global Communications Limited ("Mediatel") in March
1999. At the time of their acquisitions, GlobalFirst, Mediatel and their
respective subsidiaries (the "International Telecommunications Group") were
telecommunications resellers operating in the residential, commercial and
9
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
international calling card business sectors in Europe. As of October 11, 1999,
the International Telecommunications Group filed for voluntary liquidation and
ceased operation of its businesses (see Note 4).
Fiscal Year End
- ---------------
The Company's fiscal year ends on June 30. In these financial statements, the
three-month periods ended December 31, 1999 and 1998 are referred to as Fiscal
2Q00 and Fiscal 2Q99, respectively, and the six-month periods ended December
31, 1999 and 1998 are referred to as Fiscal 1st Half 2000 and Fiscal 1st Half
1999, respectively.
Principles of Consolidation and Basis of Presentation
- -----------------------------------------------------
The consolidated financial statements include the accounts of the Company and
all wholly owned subsidiaries where management control is not deemed to be
temporary. All significant intercompany transactions have been eliminated in
consolidation.
As of June 30, 1999 and for Fiscal 1st Half 2000, the International
Telecommunications Group was accounted for under the equity method of
accounting because the Company's control was deemed to be temporary due to the
fact that the group filed for voluntary liquidation on October 11, 1999 (see
Note 5). The comparative financial statements included herein for Fiscal 1st
Half 1999 and Fiscal 2Q99 have been restated to account for the International
Telecommunications Group under the equity method (see Note 4).
Revenue Recognition
- -------------------
The Company's revenue is generated principally through telephony services
(including prepaid and postpaid calling cards) and ISP services. The Company
sells prepaid phone cards to distributors at a fixed price with normal credit
terms. When the distributor is invoiced, deferred revenue is recognized. The
Company recognizes revenue and reduces deferred revenue as the end user
utilizes calling time and upon expiration of cards containing unused calling
time. Deferred revenue is included in the consolidated balance sheet under
accrued expenses and other current liabilities. Revenues from ISP services are
recognized as the services are provided.
Income Taxes
- ------------
There is no income tax benefit for operating losses for the three months and
six months ended December 31, 1999 due to the following:
Current tax benefit - the operating losses cannot be carried back to
earlier years.
10
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred tax benefit - the deferred tax assets were offset by a valuation
allowance required by FASB Statement 109,
"Accounting for Income Taxes." The valuation
allowance is necessary because, according to
criteria established by FASB Statement 109, it is
more likely than not that the deferred tax asset
will not be realized through future taxable income.
Fair Value of Financial Instruments
- -----------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
About Fair Value of Financial Instruments" requires the determination of fair
value for certain of the Company's assets and liabilities. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate the fair value:
Current assets and liabilities: The carrying value of cash and cash
equivalents, receivables, payables, deferred revenue, accrued liabilities and
notes payable approximates fair value due to their short maturity.
NOTE 4 - RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS
In the Company's December 31, 1998 Form 10-QSB, the acquisition of GlobalFirst
was accounted for using the purchase method of accounting as a reverse
acquisition in which GlobalFirst was considered the accounting acquirer and
Clariti was considered the acquired company. Consistent with such reverse
acquisition accounting treatment, the consolidated financial statements for
Fiscal 1st Half 1999 included in the Company's December 31, 1998 Form 10-QSB
reflected the results of operations and cash flows of GlobalFirst for the full
reporting periods and the results of Clariti from the acquisition date through
the end of the period.
As of June 30, 1999 and for Fiscal 1st Half 2000, the International
Telecommunications Group (including GlobalFirst) was accounted for under the
equity method of accounting because the Company's control was deemed to be
temporary due to the fact that the Group filed for voluntary liquidation on
October 11, 1999 (see Note 5). In order to present prior period amounts on a
basis consistent with those of the current period, results of operations and
cash flows for Fiscal 1st Half 1999 have been restated to reflect the
acquisition of GlobalFirst using the equity method of accounting. The
following table presents the impact of this restatement on the consolidated
statements of operations for Fiscal 1st Half 1999 and for Fiscal 2Q99. Amounts
presented in the following table are in thousands of dollars, except per share
amounts.
11
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS (continued)
Amounts
Previously Restated
Reported Amounts
---------- ---------
Fiscal 1st Half 1999:
Revenues $ 16,870 $ -
Net loss $(22,708) $( 5,947)
Net loss per share $ (0.70) $( 0.18)
Fiscal 2Q99:
Revenues $ 8,131 $ -
Net loss $(18,270) $( 4,581)
Net loss per share $ (0.45) $( 0.11)
The impact of the restatement also resulted in changes to the consolidated
statement of cash flows for Fiscal 1st Half 1999.
NOTE 5 - EXTRAORDINARY GAIN
As of October 11, 1999, the International Telecommunications Group filed for
voluntary liquidation and ceased operation of its businesses. This voluntary
liquidation was undertaken because the International Telecommunications Group
could not pay its debts, including debt the group owed to Clariti. The
liquidation proceedings have discharged all liabilities of the International
Telecommunications Group. Management believes that all losses from operations
of the International Telecommunications Group had been provided for as of June
30, 1999, including estimated losses from operations during the period from
July 1, 1999 to October 11, 1999. Therefore, the Company recognized an
extraordinary gain of $32,502,000, which was largely attributable to the excess
of liabilities over assets of the International Telecommunications Group as of
the liquidation date.
NOTE 6 - ACQUISITIONS
On October 12, 1999, the Company completed the acquisition of all of the
outstanding common stock of NKA, an Australian IP telephony company, for
consideration valued at approximately $3,554,000, substantially all of which
was recognized as goodwill. Consideration paid for NKA consisted of 1,150,000
shares of Clariti common stock. An additional 350,000 shares of Clariti common
stock are being held in escrow until certain performance targets are achieved
by NKA over a two-year period.
On December 23, 1999, the Company completed the acquisition of all of the
outstanding common stock of TWC, a telecommunications company that offers long
distance and toll-free services, prepaid calling cards, postpaid calling cards,
prepaid cellular and e-commerce telecommunications services, through both
retail and wholesale distribution channels, for consideration valued at
12
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - ACQUISITIONS (continued)
approximately $3,206,000, substantially all of which was recognized as
goodwill. Consideration paid for TWC consisted of 1,292,333 shares of Clariti
common stock valued at approximately $2,908,000 and $298,000 in cash. An
additional 2,222,223 shares of Clariti common stock are being held in escrow
until certain performance targets are achieved by TWC over a three-year period.
NOTE 7 - COMPREHENSIVE INCOME
The Company has adopted FASB Statement 130, "Comprehensive Income." The
Company's only item of comprehensive income that is excluded from net
income for Fiscal 2Q00 and Fiscal 1st Half 2000 is the cumulative foreign
currency translation adjustment associated with the Company's ongoing foreign
businesses. The Company had foreign currency translation adjustments of
$(10,000) and ($27,000) during Fiscal 2Q00 and Fiscal 1st Half 2000,
respectively. During Fiscal 1st Half 2000, the Company also reclassified a
cumulative foreign currency translation adjustment of $1,348,000 to net income
as a result of the liquidation of the International Telecommunications Group.
This reclassification amount was included in the extraordinary gain described
in Note 4 above.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
In March 1999 Clariti, GlobalFirst, Mediatel and Chadwell Hall Holdings Limited
("CHH"), the Company's majority shareholder of record, entered into an
agreement with Frontier Corporation together with its subsidiary, Frontel
Communications, Ltd. (collectively, "Frontier") to resolve a billing dispute
between GlobalFirst and Mediatel on the one part ("Customers") and Frontier on
the other part (the "Frontier Agreement"). One objective of the Frontier
Agreement is to identify the precise amount of the balance due to Frontier, if
any, by the Customers ("Balance Due Frontier"). Pursuant to the Frontier
Agreement, Clariti paid to Frontier $3,000,000 during March 1999 against the
Balance Due Frontier and issued to Frontier 5,000,000 shares of the Company's
restricted common stock valued at $11,250,000 as security for payment of any
remaining Balance Due Frontier. Within 5 business days after any Balance Due
Frontier is determined by agreement among the parties or by arbitration, CHH is
to pay such amount to Frontier, and Frontier must then transfer the 5,000,000
shares of Clariti common stock to CHH. At any time prior to the purchase of
the Clariti stock by CHH, Clariti (or its designee) may purchase any portion or
all of the stock for an amount equal to any Balance Due Frontier. In the event
CHH and/or Customers fail to pay to Frontier any Balance Due Frontier, Frontier
may, at its option, sell a sufficient amount of the Clariti shares in order to
satisfy the Balance Due Frontier. If Frontier sells all 5,000,000 shares of
Clariti common stock for less than the Balance Due Frontier, CHH (but not
Clariti) is contingently liable to pay Frontier the remaining Balance Due
Frontier. Once Frontier collects the Balance Due Frontier (whether by sale of
Clariti stock or payment made by any of the parties), Frontier must surrender
any remaining shares of the Clariti stock to Clariti. On or about June 17,
13
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
1999, Clariti, together with GlobalFirst, Mediatel and CHH filed a demand for
arbitration with the American Arbitration Association (case no. 50 N 181
0021399) against Frontier concerning Frontier's obligations arising under the
Frontier Agreement. This arbitration matter is currently pending.
On November 30, 1999, IDT Corporation ("IDT") filed a complaint in the Court of
Common Pleas in Philadelphia, Pennsylvania against the Company and Clariti
Carrier Services Limited, a United Kingdom subsidiary, seeking payment for
long-distance telephone services pursuant to a contract between IDT and
GlobalFirst Communications Limited, a subsidiary of GlobalFirst. The complaint
seeks damages in the amount of $690,163 plus interest, costs and attorneys
fees. As of October 11, 1999, the International Telecommunications Group filed
for voluntary liquidation and ceased operation of its businesses (see Note 4).
The Company believes damages IDT may have suffered, if any, must be recovered
through the liquidation proceedings of the International Telecommunications
Group, and that neither the Company nor Clariti Carrier Services Limited has
any liability with respect to IDT's claim.
The Company is, from time to time, during the normal course of its business
operations, subject to various other litigation claims and legal disputes. The
Company expects none to have a material adverse impact on its operations;
however, no assurance can be given that an adverse determination of any claim
or dispute would not have an adverse impact on its operations or cash flows
during any given period.
NOTE 9 - RELATED PARTIES
In connection with the Company's acquisition of Mediatel, the Company issued a
promissory note payable to CHH, its majority shareholder of record, in the
amount of $3,000,000. On April 7, 1999 Clariti prepaid $1 million against the
principal balance of the note. During Fiscal 1st Half 2000 the remaining
$2,000,000 balance of the note plus accrued interest of $81,000 was capitalized
as a contribution to capital of the Company by CHH. The Company issued no
common stock to CHH in connection with this contribution to capital.
NOTE 10 - COMMON STOCK
During Fiscal 1st Half 2000 the Company sold approximately 11,807,000 shares of
its common stock to several third party investors for proceeds, net of
commissions, of $22,950,000. In addition, the Company issued 500,000 shares to
a third party investor in settlement of a loan for $1,000,000 such investor had
made to the Company.
14
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - COMMON STOCK OPTIONS
During Fiscal 1st Half 2000, the Company issued options to purchase a total of
600,000 shares of the Company's common stock to several new and existing
employees of the Company. These stock options may be exercised over a period of
10 years at the fair market value on the date of the grant (weighted average
price of $2.57 per share) and generally carry such other terms as if they had
been issued under the Company's Stock Option Plan. In addition, a total of
223,332 options to purchase the Company's common stock expired without being
exercised. These expired options carried a weighted average price of $2.81 per
share.
NOTE 12 - COMMON STOCK WARRANTS
From time to time, the Company may issue warrants to purchase its common stock
to parties other than employees and directors. Warrants may be issued as a
unit with shares of common stock, as an incentive to help the Company achieve
its goals, or in consideration for cash or services rendered to the Company, or
a combination of the above. Cost associated with warrants issued to other than
employees is valued based on the fair value of the warrants as estimated using
the Black-Scholes model with the following assumptions: no dividend yield,
expected volatility of 80%, and a risk-free interest rate of 5.5%.
During Fiscal 1st Half 2000 the Company issued a total of 12,306,666 warrants
in connection with the issuance of a like number shares of common stock. Such
warrants were issued with exercise prices ranging from $3.00 per share to $5.00
per share and expiration dates ranging from June 15, 2000 to March 31, 2001.
The Black-Scholes model valued these warrants at a total of $4,988,000.
During Fiscal 1st Half 2000 the Company also issued to several consultants
warrants to purchase a total of 2,850,000 shares of the Company's common stock
at prices ranging from $2.38 per share to $3.00 per share. The warrants were
issued for services rendered or to be rendered and expire 2 to 3 years from the
date of grant. The Black-Scholes model valued these warrants at a total of
$4,383,000, of which $2,625,000 was recognized as general and administrative
expenses in the Fiscal 1st Half consolidated statement of operations and
$1,758,000 was reflected as reduction of warrants outstanding at December 31,
1999 because the value of such warrants had not been earned.
NOTE 13 - EARNINGS PER SHARE
The Company utilizes FASB Statement 128, "Earnings Per Share," which prescribes
standards for computing and presenting earnings per share. Under FASB Statement
128, basic income or loss per common share is based upon the weighted average
number of common shares outstanding during the period. Diluted income or loss
per common share is computed after the assumed conversion of potential common
shares (warrants and stock options). The treasury stock method is used to
calculate dilutive shares. Such method reduces the number of dilutive shares
by the number of shares purchasable from the proceeds of the options and
15
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 13 - EARNINGS PER SHARE (continued)
warrants assumed to be exercised. Basic and diluted weighted average shares
outstanding were the same for Fiscal 1st Half 2000, Fiscal 1st Half 1999,
Fiscal 2Q00 and Fiscal 2Q99 because the effect of using the treasury stock
method would be antidilutive.
NOTE 14 - SEGMENT INFORMATION
The Company has adopted FASB Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information." The Company had determined that
presentation of segment information was not required for the year ended June
30, 1999. For the year ended June 30, 2000, the Company will be presenting
segment information based on the following reportable segments: IP/Internet
Services, Wireless Messaging, and Corporate and Other. Amounts presented in
the following tables are in thousands of dollars, except per share amounts.
Fiscal 1st Half 2000
- --------------------
IP/Internet Wireless Corporate
Services Messaging and Other Total
----------- --------- --------- ---------
Revenues $ 1,217 $ - $ - $ 1,217
-------- -------- -------- --------
Loss before
extraordinary item $( 4,277) $( 2,166) $( 5,546) $(11,989)
Extraordinary item - - 32,502 32,502
-------- -------- -------- --------
Net income (loss) $( 4,277) $( 2,166) $ 26,956 $ 20,513
======== ======== ======== ========
Per Share Amounts:
Loss before
extraordinary item $( 0.03) $( 0.02) $( 0.04) $( 0.09)
Extraordinary item - - 0.25 0.25
-------- -------- -------- --------
Net income (loss) $( 0.03) $( 0.02) $ 0.21 $ 0.16
======== ======== ======== ========
Total assets at
December 31, 1999 $ 22,298 $ 682 $ 16,007 $ 38,987
-------- -------- -------- --------
Fiscal 2Q00
- -----------
IP/Internet Wireless Corporate
Services Messaging and Other Total
----------- --------- --------- ---------
Revenues $ 899 $ - $ - $ 899
-------- -------- -------- --------
Net loss $( 2,840) $( 1,107) $( 3,501) $( 7,448)
-------- -------- -------- --------
Net loss per share $( 0.02) $( 0.01) $( 0.03) $( 0.06)
-------- -------- -------- --------
16
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain information included in this Quarterly Report may be deemed to
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, that involve risk and uncertainty, such as information
relating to expected capital expenditures and expected trends in operating
losses and cash flows, as well as the Company's ability to successfully do any
or all of the following:
- commercialize its digital voice messaging technology
- expand its telecommunications business using Clariti IP's managed IP
network infrastructure as well as the business operations of NKA and TWC
- integrate the business operations of Clariti IP with those of NKA and
TWC
- adequacy of existing financing arrangements and ability to obtain the
necessary financing to achieve it business plans
- manage compliance with Year 2000 issues
In addition, certain statements may involve risk and uncertainty if they
are preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar
expressions, and other statements contained herein regarding matters that are
not historical facts. Although the Company believes that its expectations are
based on reasonable assumptions, it can give no assurance that its expectations
will be achieved. The important factors that could cause actual results to
differ materially from those in the forward-looking statements herein (the
"Cautionary Statements") include, without limitation, risks associated with the
Company's operating losses, risks relating to the Company's development and
expansion and possible inability to manage growth, risks relating to the
Company's significant capital requirements, risks relating to competition and
regulatory developments, risks relating to implementing local and enhanced
services, risks relating to its long distance business, as well as other risks
referenced in the Company's annual report on Form 10-KSB for the year ended
June 30, 1999 and from time to time in the Company's filings with the
Securities and Exchange Commission . All subsequent written and oral forward-
looking statements attributable to the Company or persons acting on its behalf
are expressly qualified in their entirety by the Cautionary Statements. The
Company does not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with the
Company's consolidated financial statements appearing elsewhere in this
report.
General Operations
- ------------------
Clariti's subsidiary businesses consist of the IP/Internet Services group
and Wireless Messaging.
Clariti's IP/Internet Services group ("Clariti IP") consists of Clariti IP
Services, formerly MegaHertz-NKO, Inc., which was acquired on May 7, 1999,
Clariti IP Services Asia, formerly NKA Communications Pty., Ltd., which was
17
acquired on October 12, 1999, and Clariti Telecom, formerly Tekbilt World
Industries, Inc., which was acquired on December 23, 1999 (see Note 6 to the
consolidated financial statements). Clariti IP is a provider of enhanced
telecommunications and Internet Protocol ("IP") telephony services (voice,
data, fax and video) in the United States and Australia. Clariti IP is also an
Internet Service Provider ("ISP") in the United States, offering dial up and
dedicated access, customized Web hosting and e-commerce. The acquisitions of
Clariti IP Service Asia in October 1999 and Clariti Telecom in December 1999
are expected to significantly increase the Company's revenues during the
remainder of Fiscal 2000.
Clariti Wireless Messaging is pursuing a business strategy of bringing
innovative, affordable, wireless telecommunications products and services to
markets worldwide. Clariti Wireless Messaging is currently developing the
world's first low-cost Digital Voice Messaging System for use on FM radio
frequencies based on the Company's ClariCAST(TM) technology.
Recent Developments
- -------------------
The Company acquired GlobalFirst Holdings Limited in December 1998 and
Mediatel Global Communications Limited in March 1999. At the time of their
acquisitions, GlobalFirst, Mediatel and their respective subsidiaries comprised
the Company's International Telecommunications Group and were
telecommunications resellers operating in the residential, commercial and
international calling card business sectors. On October 11, 1999, the
International Telecommunications Group filed for voluntary liquidation under
the laws of the United Kingdom and ceased operations of the Group. This
voluntary liquidation was undertaken because the International
Telecommunications Group could not pay its debts, including debt the group owed
to Clariti. The liquidation proceedings have discharged all liabilities of the
International Telecommunications Group.
Results of Operations
- ---------------------
As of June 30, 1999 and for Fiscal 1Q00, the International
Telecommunications Group was accounted for under the equity method of
accounting because the Company's control was deemed to be temporary due to the
fact that the Group filed for voluntary liquidation on October 11, 1999. The
comparative prior period financial information included herein has been
restated to account for the International Telecommunications Group under the
equity method (see Note 4 to the consolidated financial statements).
Three Months Ended December 31, 1999
v. Three Months Ended December 31, 1998
- ----------------------------------------
For the three months ended December 31, 1999 ("Fiscal 2Q00"), the Company
had a net loss of $7,448,000, or $0.06 per share, on revenue of $899,000
compared to a net loss of $4,581,000, or $0.11 per share, on no revenue for the
three months ended December 31, 1998 ("Fiscal 2Q99"). All of the Fiscal 2Q00
revenues were generated by the IP/Internet Services group, the component parts
of which were acquired in May, October and December 1999.
18
Salaries and benefits in Fiscal 2Q00 increased $853,000, or 200%, to
$1,279,000 as compared to $426,000 in Fiscal 2Q99. Of this increase, $555,000,
or 65%, was attributable to the IP/Internet Services group, the component
parts of which were acquired in May, October and December 1999, and $298,000,
or 35%, was attributable to increased employment in Clariti Wireless Messaging
and Corporate staff. Operating and marketing expenses in Fiscal 2Q00
were $276,000 and $337,000, respectively, as compared to no operating or
marketing expenses in Fiscal 2Q99. All operating expenses were attributable to
the IP/Internet Services group, and $257,000, or 76%, of the marketing expenses
were attributable to the IP/Internet Services group. All research and
development expenses related to the development of the Digital Voice Messaging
System. Such R&D expenses in Fiscal 2Q00 increased $163,000, or 25%, to
$815,000 as compared to $652,000 in Fiscal 2Q99 due to expansion and
acceleration of the Company's efforts to complete development of the Digital
Voice Messaging System. General and administrative expenses in Fiscal 2Q00
increased $3,012,000, or 397%, to $3,770,000 as compared to $758,000 in Fiscal
2Q99. Of this increase, $552,000, or 19%, was attributable to the IP/Internet
Services group, the component parts of which were acquired in May, October and
December 1999, and $1,912,000, or 63%, was due to the recognition of common
stock warrants issued as compensation to several consultants. The remaining
$548,000, or 18%, of the increase was due to an overall expansion of the
Company's business activities. Depreciation and amortization increased from
$32,000 in Fiscal 2Q99 to $1,246,000 in Fiscal 2Q00, of which $816,000 was
goodwill amortization resulting from the May, October and December 1999
acquisitions of the component parts of the IP/Internet Services group and
$331,000 was depreciation expense of the IP/Internet Services group. Results
of operations for Fiscal 2Q99 also include the recognition of equity in net
losses of GlobalFirst of $2,813,000, which reflects GlobalFirst's net loss from
December 7, 1998 (acquisition date) to December 31, 1998.
Six Months Ended December 31, 1999
v. Six Months Ended December 31, 1998
- ----------------------------------------
For the six months ended December 31, 1999 ("Fiscal 1st Half 2000"), the
Company had net income of $20,513,000, or $0.16 per share, on revenue of
$1,217,000 compared to a net loss of $5,947,000, or $0.18 per share, on no
revenue for the six months ended December 31, 1998 ("Fiscal 1st Half 1999").
Excluding a $32,502,000, or $0.25 per share, extraordinary gain, the Company
had a net loss of $11,989,000, or $0.09 per share, in Fiscal 1st Half 2000.
The Company's Fiscal 1st Half 2000 revenues were generated by the IP/Internet
Services group, the component parts of which were acquired in May, October and
December 1999.
On October 11, 1999, the International Telecommunications Group filed for
voluntary liquidation and ceased operation of its businesses. As of June 30,
1999, the Company had written off all assets related to the International
Telecommunications Group and had accrued for all of the Group's estimated
losses from operations up to the date of liquidation. The liquidation
proceedings have discharged all liabilities of the International
Telecommunications Group, and as a result the Company recognized an
extraordinary gain of $32,502,000 on the discharge of such indebtedness in
Fiscal 1st Half 2000.
Salaries and benefits in Fiscal 1st Half 2000 increased $1,463,000, or
178%, to $2,284,000 as compared to $821,000 in Fiscal 1st Half 1999. Of this
19
increase, $895,000, or 61%, was attributable to the IP/Internet Services
group, the component parts of which were acquired in May, October and December
1999, and $568,000, or 39%, was attributable to increased employment in Clariti
Wireless Messaging and Corporate staff. Operating and marketing expenses in
Fiscal 1st Half 2000 were $348,000 and $624,000, respectively, as compared to
no operating or marketing expenses in Fiscal 1st Half 1999. All operating
expenses were attributable to the IP/Internet Services group, and $431,000, or
69%, of the marketing expenses were attributable to the IP/Internet Services
group. All research and development expenses related to the development of the
Digital Voice Messaging System. Such R&D expenses in Fiscal 1st Half 2000
increased $427,000, or 39%, to $1,510,000 as compared to $1,083,000 in Fiscal
1st Half 1999 due to expansion and acceleration of the Company's efforts to
complete development of the Digital Voice Messaging System. General and
administrative expenses in Fiscal 1st Half 2000 increased $4,047,000, or 317%,
to $5,323,000 as compared to $1,276,000 in 1st Half 1999. Of this increase,
$744,000, or 18%, of the increase was attributable to the IP/Internet Services
group, the component parts of which were acquired in May, October and December
1999, and $2,625,000, or 65%, of the increase was due to the issuance of
common stock warrants as compensation to consultants. The remaining $678,000,
or 17%, of the increase was due to an overall expansion of the Company's
business activities. Depreciation and amortization increased from $66,000 in
Fiscal 1st Half 1999 to $2,283,000 in Fiscal 1st Half 2000, of which $1,451,000
was goodwill amortization resulting from the May, October and December 1999
acquisitions of the component parts of the IP/Internet Services group and
$331,000 was depreciation expense of the IP/Internet Services group. Results
of operations for Fiscal 1st Half 1999 also include the recognition of equity
in net losses of GlobalFirst of $2,813,000, which reflects GlobalFirst's net
loss from December 7, 1998 (acquisition date) to December 31, 1998.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company had working capital of $12,943,000
(including a cash balance of $15,931,000) as compared to a working capital
deficit of $35,500,000 (including a cash balance of $3,284,000) at June 30,
1999. The working capital increase of $48,443,000 is primarily due to the
following:
- the forgiveness of debt of approximately $32,502,000 related to the
liquidation of the International Telecommunications Group
- the sale of 11,807,000 shares of common stock for proceeds, net of
commissions, of $22,950,000 during Fiscal 1st Half 2000
These working capital improvements were partially offset by use of cash in
operations during Fiscal 1st Half 2000.
Management believes that these funds will enable the Company to continue
developing its Digital Voice Messaging System and continue to fund expected
negative cash flows and capital expenditures related to the growth of the
IP/Internet Services Group for the remainder of the current fiscal year.
Management is aware however that significant additional funding will be
required beyond its fiscal year-end to launch the Wireless Voice Messaging
System in specified target markets and to meet expected negative operating cash
flows and capital expenditure plans. There can be no assurances that such
funding will be generated or available, or if available, on terms acceptable to
the Company.
20
On February 2, 2000, the Company filed a Form S-3 registration statement
with the SEC seeking to register the resale by the holders thereof of up to
113,419,889 shares of common stock that had previously been issued in private
placements and up to 15,531,666 shares of common stock issuable upon the
exercise of outstanding common stock purchase warrants. As of December 31,
1999, the Company had 83,974,322 shares (including 81,701,989 shares covered by
the Form S-3 registration statement) subject to lock-up agreements. The
parties to the lock-up agreements are not permitted to sell their shares until
the expiration of the lock-up period without prior consent from the Company.
Current lock-up agreements have expiration dates ranging from June 2000 to
March 2002. The expiration of a particular lock-up period could have a
depressive effect on the market price of the Company's common stock.
Year 2000
- ---------
In the past a number of computer software programs were written using two
digits rather than four digits to determine the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in major system failures or
miscalculations, and is generally referred to as the "Year 2000" problem. In
addition, the date February 29, 2000 is a significant date for Year 2000
compliance.
Management believes that all of the Company's critical systems are Year
2000 compliant. Neither the Company nor its critical vendors have experienced
any significant Year 2000 related failures to date, and management does not
anticipate any problems with the date February 29, 2000. In addition, the
software being developed for use in the Digital Voice Messaging System has been
designed specifically to be Year 2000 compliant.
While the Company has not experienced any significant Year 2000 related
failures to date, and management does not anticipate any problems with the date
February 29, 2000, unanticipated failures by critical vendors and financial
institutions, as well as the Company's failure to execute its own compliance,
could disrupt its business and its customers' businesses.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In March 1999 Clariti, GlobalFirst, Mediatel and Chadwell Hall Holdings
Limited ("CHH"), the Company's majority shareholder of record, entered into an
agreement with Frontier Corporation together with its subsidiary, Frontel
Communications, Ltd. (collectively, "Frontier") to resolve a billing dispute
between GlobalFirst and Mediatel on the one part ("Customers") and Frontier on
the other part (the "Frontier Agreement"). One objective of the Frontier
Agreement is to identify the precise amount of the balance due to Frontier, if
any, by the Customers ("Balance Due Frontier"). Pursuant to the Frontier
Agreement, Clariti paid to Frontier $3,000,000 during March 1999 against the
Balance Due Frontier and issued to Frontier 5,000,000 shares of the Company's
restricted common stock valued at $11,250,000 as security for payment of any
remaining Balance Due Frontier. Within 5 business days after any Balance Due
Frontier is determined by agreement among the parties or by arbitration, CHH is
to pay such amount to Frontier, and Frontier must then transfer the 5,000,000
shares of Clariti common stock to CHH. At any time prior to the purchase of
the Clariti stock by CHH, Clariti (or its designee) may purchase any portion or
all of the stock for an amount equal to any Balance Due Frontier. In the event
CHH and/or Customers fail to pay to Frontier any Balance Due Frontier, Frontier
may, at its option, sell a sufficient amount of the Clariti shares in order to
satisfy the Balance Due Frontier. If Frontier sells all 5,000,000 shares of
Clariti common stock for less than the Balance Due Frontier, CHH (but not
Clariti) is contingently liable to pay Frontier the remaining Balance Due
Frontier. Once Frontier collects the Balance Due Frontier (whether by sale of
Clariti stock or payment made by any of the parties), Frontier must surrender
any remaining shares of the Clariti stock to Clariti. On or about June 17,
1999, Clariti, together with GlobalFirst, Mediatel and CHH filed a demand for
arbitration with the American Arbitration Association (case no. 50 N 181
0021399) against Frontier concerning Frontier's obligations arising under the
Frontier Agreement. This arbitration matter is currently pending.
On November 30, 1999, IDT Corporation ("IDT") filed a complaint in the
Court of Common Pleas in Philadelphia, Pennsylvania against the Company and
Clariti Carrier Services Limited, a United Kingdom subsidiary, seeking payment
for long-distance telephone services pursuant to a contract between IDT and
GlobalFirst Communications Limited, a subsidiary of GlobalFirst. The complaint
seeks damages in the amount of $690,163 plus interest, costs and attorneys
fees. As of October 11, 1999, the International Telecommunications Group filed
for voluntary liquidation and ceased operation of its businesses (see Note 4).
The company believes damages IDT may have suffered, if any, must be recovered
through the liquidation proceedings of the International Telecommunications
Group, and that neither the Company nor Clariti Carrier Services Limited has
any liability with respect to IDT's claim.
22
Item 2. Changes in Securities and Use of Proceeds
The following information sets forth all shares of the Company's $.001 par
value common stock issued by the Company during the quarter ended December 31,
1999, none of which were registered under the Securities Act of 1933, as
amended (the "Act") at the time of issuance.
Number Total
Date Name of Shares Consideration
-------- --------------------------------- ---------- --------------
Oct-99 Corangamite Pty Ltd., Trustee 504,774 $ 1,559,752(a)
Oct-99 Consortium Communications Int'l.
Pty Ltd., Trustee 401,956 $ 1,242,044(a)
Oct-99 Doron Nevo 34,255 $ 105,848(a)
Oct-99 Australia Communication Brokers
Pty Ltd. 40,000 $ 123,600(a)
Oct-99 LaHougue Holdings Ltd. 31,686 $ 97,910(a)
Oct-99 Treblemore Investments Ltd. 31,686 $ 97,910(a)
Oct-99 Barbara Bromilow 22,837 $ 70,566(a)
Oct-99 Toga Developments Pty Ltd. 15,871 $ 49,041(a)
Oct-99 Masterlink Investments Pty Ltd. 15,814 $ 48,865(a)
Oct-99 D.V. Fogarty and A. H. Fogarty 11,133 $ 34,401(a)
Oct-99 Mirater Pty Ltd. 11,076 $ 34,225(a)
Oct-99 R. Van Gass 6,907 $ 21,343(a)
Oct-99 Consutel Pty Ltd. 6,228 $ 19,245(a)
Oct-99 Susan Baillie 4,739 $ 14,644(a)
Oct-99 Nelius Ltd. 4,739 $ 14,644(a)
Oct-99 Greg Faul 3,500 $ 10,815(a)
Oct-99 John Kelly 2,800 $ 8,652(a)
Oct-99 Carl Saling 1,292,333 $ 2,907,749(b)
Dec-99 Ansteed Investment Corp. 7,833,333(c) $15,666,666
(a) These shares were issued in consideration for the Company's acquisition
of NKA Communications Pty., Ltd.
(b) These shares were issued in consideration for the Company's acquisition
of Tekbilt World Communications, Inc.
(c) Warrants to purchase an additional 7,833,333 shares of the Company's common
stock at an exercise price of $3.00 per share were issued to Ansteed
Investment Corp. in connection with the issuance of the common stock.
The securities issuances set forth above are exempt from registration with
the Securities and Exchange Commission pursuant to Regulation S as transactions
with non-U.S. persons or Section 4(2) as transactions by an issuer not
involving any public offering in that said transactions involved the issuance
by the Company of shares of its common stock to financially sophisticated
entities who are fully aware of the Company's activities, as well as its
business and financial condition, and acquired said securities for investment
purposes. The Company plans to use proceeds from the issuance of these
securities for general corporate purposes and working capital needs of its
subsidiaries.
23
The Company has placed a restrictive legend on all of the stock
certificates representing the shares issued above and will give appropriate
"stop transfer" instructions to its transfer agent, until such time as those
shares are registered pursuant to the Act, or a valid exemption from
registration exists under the Act. On February 2, 2000, the Company filed a
Form S-3 Registration Statement with the Securities and Exchange Commission to
register the resale of the common stock described above.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Events
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit - 27. Financial Data Schedule
(b) Reports on Form 8-K:
None
24
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.
Dated: February 14, 2000
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
(REGISTRANT)
By: s/James M. Boyd, Jr.
--------------------
James M. Boyd, Jr.
Vice President of Finance
and Chief Accounting Officer
25