U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Name of small business issuer in its charter)
DELAWARE 64-0708107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3490 Piedmont Rd., Suite 600, Atlanta, Georgia 30305
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (404) 233-3277
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes ____ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date 37,720,723 Common Stock as of
November 13, 1998
Transitional Small Business Disclosure Format (Check One): Yes ___ No X
Global Telemedia International, Inc.
and Subsidiaries
Quarterly Report on Form 10-QSB
For Quarter Ended September 30, 1998
INDEX
Page
----
Consolidated Balance Sheet as of September 30, 1998 ................................................. 1
Consolidated Income Statements for the Three and Nine
Months ended September 30, 1998 and September 30, 1997 ......................................... 2
Consolidated Statements of Cash Flows for the Nine Months ended September 30,
1998 and September 30, 1997 .................................................................... 3
Consolidated Statements of Shareholders' Equity for the
Nine Months ended September 30, 1998 ........................................................... 4
Notes to Consolidated Financial Statements ........................................................... 5
Part I - Item 2. Management's Discussion and Analysis of Financial
Condition, Liquidity and Capital Resources, and Results of Operations .......................... 10
Part II - Item 1. Legal Proceedings .................................................................. 13
Part II - Item 4. Submission of Matters to a Vote of Security Holders ................................ 15
Part II - Item 6. Exhibits ........................................................................... 15
Signatures ........................................................................................... 16
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
September 30, 1998
ASSETS
Current Assets
Cash $ --
Accounts receivable, net of Allowance of $6,931,465 --
Other current assets 460,296
------------
Total Current Assets 460,296
Property and equipment, net of accumulated depreciation of $37,434 36,923
------------
Total Assets $ 497,219
============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities
Overdraft $ 92,325
Accounts payable 11,802,369
Accrued expenses 1,757,432
Current portion of Capital Lease Obligation 12,190
Notes Payable (Note 2) 5,898,000
----------
Total Current Liabilities 19,562,316
Long-Term Liabilities
Long-Term Capital Lease Obligation, net of current portion 16,310
----------
Total Liabilities 19,578,626
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 75,000,000 shares; 155,244
issued and outstanding 37,086,965
Additional paid-in capital 7,193,822
Note and accounts receivable from stock sale --
Accumulated deficit (26,430,472)
------------
Total Stockholders' Equity Deficiency (19,081,406)
------------
Total Liability and Stockholders' Equity Deficiency $ 497,219
===========
The accompanying notes are an integral part of these consolidated financial
statements.
1
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Income Statement
(Unaudited)
Three Months ended Nine Months ended
September 30 September 30
1998 1997 1998 1997
TOTAL REVENUES: $ 236,247 $ 6,720,502 $ 240,526 $ 11,935,859
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Communication and Marketing Services 180,471 6,852,369 185,866 12,350,824
Selling, General and Administrative 997,106 8,366,398 2,389,033 12,713,839
------------ ------------ ------------ ------------
Total Operating Expenses 1,177,577 15,218,767 2,574,899 25,064,663
------------ ------------ ------------ ------------
Operating (Loss) (941,330) (8,498,265) (2,334,373) (13,128,804)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest Expense (59,507) (286,591) (172,065) (964,287)
Other Income (Note 5) -- -- 510,000 --
------------ ------------ ------------ ------------
NET LOSS $ (1,000,837) $ (8,784,856) $ (1,996,438) $(14,093,091)
============ ============ ============ ============
NET LOSS PER SHARE $ (0.03) $ (0.38) $ (0.07) $ (0.70)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 33,512,065 23,359,600 29,183,452 20,175,821
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months ended
September 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (1,996,438) $(14,093,091)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 581,191 846,233
Bad Debt (192,991) 6,981,797
Stock issued for services 435,126 485,663
Changes in assets and liabilities:
Loss on sale of equipment 31,316
Decrease (increase) in:
Receivables -- (6,874,890)
Due from Stockholders -- (25,000)
Inventories -- 413,295
Other current assets (460,294) 109,197
Increase in:
Accounts payable and accrued expenses 280,385 10,385,785
------------ ------------
Total adjustments 643,417 12,353,396
------------ ------------
Net cash used by operating activities (1,353,021) (1,739,695)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 20,283
Acquisition of property and equipment -- (181,071)
------------ ------------
Net cash used in investing activities -- (160,788)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable -- 387,437
Payments on notes payable (547,379) (219,351)
Debt acquisition costs -- 267,647
Shares issued in settlement of liabilities 1,458,483 --
Proceeds from issuance of common stock 441,917 1,394,980
------------ ------------
Net Cash Provided by Financing Activities 1,353,021 1,830,713
------------ ------------
Net Increase in Cash -- (69,770)
Cash at Beginning of Period -- 69,770
------------ ------------
Cash at End of Period $ -- $ --
------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements
3
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
September 30, 1998
(Unaudited)
Additional Total
Common Stock Issued Paid-in Shareholder Shareholders'
Shares Par Value Capital Deficit Receivables Equity
--------------------------------------------------------------------------------------
Balance, December 31, 1997 22,170,700 $ 88,666 $4,857,061 $(24,434,034) $(310,000) $(19,798,307)
Shares Issued to Consultants 1,283,235 5,133 259,306 -- -- 264,439
Sale of Stock 2,425,000 9,700 232,800 -- -- 242,500
Compensation Earned 739,058 2,956 85,731 -- -- 88,687
Shares Issued in Settlement of Liabilities 2,407,407 9,630 279,259 -- -- 288,889
Conversion of Note Payable 262,822 1,051 30,488 -- -- 31,539
Account receivable from stock sale -- -- -- -- (209,889) (209,889)
Net Loss -- -- -- (667,559) -- (667,559)
---------- ------------ ---------- ------------ --------- ------------
Balance, March 31, 1998 29,288,222 $ 117,136 $5,744,645 $(25,101,593) $(519,889) $(19,759,701)
========== ============ ========== ============ ========= ============
Shares Issued to Consultants 400,000 1,600 80,400 82,000
Sale of Stock 187,500 750 46,750 47,500
Conversion of Note Payable 298,451 1,194 103,861 105,055
Account receivable from stock sale (310,000) 519,889 209,889
Net Loss (328,042) (328,042)
---------- ------------ ---------- ------------ --------- ------------
Balance, June 30, 1998 30,174,173 $ 120,680 $5,665,656 $(25,429,635) $ -- $(19,643,299)
========== ============ ========== ============ ========= ============
Shares Issued to Consultants 2,890,000 $ 14,450 $ 363,363 377,813
Sale of Stock 1,030,392 $ 5,152 $ 146,765 151,917
Conversion of Note Payable 2,992,400 $ 14,962 $1,018,038 1,033,000
Account receivable from stock sale --
Net Loss $ (1,000,837) (1,000,837)
Balance, September 30, 1998 37,086,965 $ 155,244 $7,193,822 $(26,430,472) $ -- $(19,081,406)
========== ============ ========== ============ ========= ============
The accompanying notes are an integral part of these consolidated financial
statements
4
Global Telemedia International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
as of September 30, 1998
(Unaudited)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries, as well as less than majority owned entity which
it controls. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Property and Equipment
Purchased Property and equipment are recorded at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, commencing
when the assets are installed or placed in service. The estimated useful lives
are ten years for furniture and fixtures, seven years for office equipment, and
five years for computer equipment. The cost of installed equipment includes
expenditures for installation. Capital Leases are recorded at lower of fair
market value or the present value of future minimum lease payment. Assets
recorded under capital leases and leasehold improvements are depreciated over
the shorter of their useful lives or the term of the related lease.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt as
of January 1, 1996. Under SFAS 123, the Company recognizes compensation expense
for all stock-based compensation, using a fair value methodology. This policy is
consistent with the company's prior accounting.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that effect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Significant estimates in the financial statements include the assumption the
Company will continue as a going concern. The assumption could change in the
near term.
Interim Information
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X promulgated by the Securities and Exchange Commission. Such
financial statements do not include all disclosures required by
5
generally accepted accounting principles for annual financial statement
reporting purposes. However, there has been no material change in the
information disclosed in the consolidated financial statements included in the
Company's Form 10-KSB for the year ended December 31, 1997, except as disclosed
herein. Accordingly, the information contained herein should be read in
conjunction with the consolidated financial statements and related disclosures
contained in the Company's Form 10-KSB for the year ended December 31, 1997. The
accompanying financial statements reflect, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the interim periods presented.
The periods presented are the three and nine months ended September 30, 1998 and
1997, respectively. Certain reclassifications have been made to the financial
statements for prior periods to conform to the current year presentation. These
reclassifications have no effect on the net income for any of the periods.
2. Notes Payable
Notes payable consist of the following at September 30, 1998
Current:
Various demand notes, interest rates 7% -12% ................................................... $ 382,000
Floating rate convertible debentures, due August 15, 1998....................................... 5,266,000
Floating rate notes, due on demand ............................................................. 250,000
---------
$5,898,000
==========
3. Fair Value of Financial Instruments
Significant financial instruments consist of accounts payable, notes payable,
or accrued expenses that are either demand or due through 1998. The Company does
not currently have the funds required to settle these amounts. As a result, the
Company is unable to estimate the timing and ultimate form of the settlement of
these liabilities. It believes that if the current holders were to sell such
instruments to other parties, the sales price would be substantially less than
the carrying value.
4. Commitments and Litigation
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
Walsh Litigation. See Form 10-KSB filed April 15, 1998 for a complete discussion
of this matter. The Company proposed a settlement to the plaintiff. As of July
7, 1998, the Company entered into a settlement agreement for $120,000 payable in
6 equal monthly installments beginning July 7, 1998. The August payment was due
and payable by August 13, 1998. The failure to make this payment resulted in a
$330,000 judgement, and delivery by the escrow agent of 250,000 shares of GTMI
common stock, as security for the judgement, in accordance with the consent
order.
RBB/Khalifa Litigation. See Form 10-KSB filed April 15, 1998 for a complete
discussion of this matter. On July 29, 1998, the court affirmed its November 20,
1997 order that the Company issue 2,496,761 shares of stock to the plaintiffs.
The Company has instructed the transfer agent to issue the shares and the
transfer agent has issued the shares. The terms of the convertible debentures
provide that as of August 15, 1998, the balance of the notes automatically
convert, including accrued and unpaid interest, into approximately 18.8 million
shares of common stock. However,
6
the litigation continues in progress and the issues related to the automatic
conversion of the convertible debentures and other claims for damages remain the
subject of the litigation.
Trident Litigation. See Form 10-KSB filed April 15, 1998 for a complete
discussion of this matter. As of May 15, 1998, the Company has entered into
discussions with Trident in an effort to settle the litigation. No assurances
can given at this time that any settlement will be reached. Discovery in this
case is proceeding.
WorldCom Litigation. See Form 10-KSB filed April 15, 1998 for a complete
discussion of this matter. Trial on the merits of this case has been postponed
and not yet rescheduled. The Company has proposed a settlement of all issues
remaining in this case.
Southern Signatures Litigation. There have been no new developments in this
matter since the Company filed its Form 10-KSB on April 15, 1998, which contains
a complete discussion of this matter.
Metropolitan Fiber Systems Litigation. Metropolitan filed a complaint claiming
the principal sum of $88,547.16 on June 11, 1998 in the State Court of DeKalb
County under Case No. 98A45706-5. The Company submitted an answer to the
complaint on August 17, 1998.
Creative Network Litigation. Since the Company filed its Form 10-KSB on April
15, 1998 which contains a complete discussion of this matter. Creative has filed
a motion for summary judgement which has been granted for the amount of $61,541
plus interest.
Interlynx Litigation. There have been no new developments in this matter since
the Company filed its Form 10-KSB on April 15, 1998, which contains a complete
discussion of this matter.
The Company is involved in an arbitration proceeding with Extelcom Corporation
(a/k/a K&S International Communications, Ltd."K&S") with respect to a former
agreement under which each party was to provide services to the other. The
Company believes that Extelcom's claims are without substantial merit but due to
the nature of the arbitration process, at the end of 1997 elected to increase
its litigation reserves by an amount in excess of $1,000,000 for the potential
liability claim by Extelcom. Based upon a technical default, an award was
entered against the Company in May 1998 for $2.5 million. While the Company was
prepared to petition the court in Miami Florida to vacate the award based on the
grounds that it was erroneously entered, management believed that the award
might not be overturned. Therefore, on November 6, 1998, the Company entered
into a settlement agreement with K&S for $325,000, to be paid on or before
December 15, 1998. If this payment is not promptly made, the $2.5 million Final
Judgement will be entered.
Freed & Berman, P.C., Litigation. Freed & Berman filed a complaint claiming the
sum of $37,562.91 on April 9, 1998 in the Superior Court of Fulton County under
Case No. E-61447. The Company entered into a Consent Order on July 23, which
provides for payments that the Company has not yet been able to make. The
Plaintiffs are pursuing collection alternatives.
Silfen, Segal, Fryer & Shuster, P.C. Litigation. The Plaintiff, a professional
corporation, filed a complaint claiming the sum of $4,826.13 on July 29, 1998 in
the State Court of Fulton County, under case no. 98VS1427874. The Company
submitted a timely response on September 23, 1998.
Programs Abroad-Travel Alternatives, Inc Litigation. The Plaintiff has filed a
complaint against the company and others in State Court of Fulton County,
Georgia on October 2, 1998 (Civil
7
Action No 98VS145081F) claiming damages in the amount of $18,749.00. The Company
submitted an answer to the complaint on November 9, 1998.
BT Office Products International Litigation. The Plaintiff has filed a complaint
against the company in State Court of DeKalb County, Georgia on September 8,
1998 (Civil Action No 98A48500-2) alleging that certain monies are owed on
account, being the amount of $2,722.78 plus interest. The Company filed an
answer on October 26, 1998.
Boone Electric Litigation. The Plaintiff has filed a complaint against the
company and others in State Court of Fulton County, Georgia on May 16, 1998
(Civil Action No 98V5140008C) alleging that certain monies are owed for services
rendered and goods supplied in the amount of $1,454.00. The Company filed an
answer on June 29, 1998.
Thomason Printing Company, Inc. Litigation. Judgement was granted against the
Company on February 24, 1998, in the amount of $5,053.00 by the Fulton County
Magistrate Court (Civil Action File No. 97M50060655). The Company has been
served with post-judgement discovery.
See Form 10-KSB filed April 15, 1998.
8
5. Subsequent Events
GCN Merger. On April 8, 1998, the Company entered into a letter of intent with
Paradigm Communications Corporation d/b/a Global Communications Network ("GCN"),
a privately owned company, under which GCN would provide certain network
services to the Company and under which GCN proposed a conditional tender offer
for up to 51% of the outstanding shares of the Company. Subsequently, parties
amended the letter of intent to provide that the two companies would enter into
a merger agreement under which sufficient shares of Company common stock will be
issued such that the shareholders of GCN will own 51% of the outstanding stock
of the Company. In consideration for services provided by GCN, it will receive
833,333 shares of the Company's common stock for each month that it provides the
expected network services. Such shares will count against the 51% position
expected to be held by GCN following the merger.
The merger agreement was expected to be completed on or before September 15,
1998, was delayed due to GCN's failure to activate its Mexican network. As of
this date, GCN has not satisfactorily brought its network up. Because of this,
as of November 1, 1998, due diligence investigation has ceased. Should GCN
successfully implement their network in the future, the Company will reassess
the benefits of a business combination. .
UltraPulse Acquisition. On May 11, 1998, the Company entered into a letter of
intent with UltraPulse Communications Incorporated ("UCI") under which the
Company will acquire 51% of the outstanding equity securities of UCI. UCI is a
privately held company that holds exclusive license, from its principal
shareholder, Terence W. Barrett, Ph.D., for the development, production and
marketing of wireless communications products using a new form of ultrafast,
extremely high data rate technology that will permit, among other things, the
following: 1) Wireless data rates in excess of 155 megabytes per second without
compression; 2) the linkage of office, educational and medical complex buildings
with affordable wireless systems comparable to current high data rate
fiber-optic ATM or STM technology; 3) reliable WAN, LAN and PBX communications
which are minimally effected by building structures and can operate at rates
greater than 10 megabytes per second; and 4) size, weight, power and cost
advantageous superior to competing technologies.
The letter of Intent provides that the Company will provide financing to UCI in
the amount of $10 million under a schedule to be determined in the final
agreement. The agreement will be subject to due diligence by both parties and
the execution of the final agreement. As part of the agreement, the Company will
have a five-year option to acquire an additional 49% of the outstanding equity
of UCI.
There can be no assurances that the Company will reach definitive agreements
with either GCN or UCI, that all the conditions precedent will be met, or that
the Company will be successful in obtaining the financing necessary to close the
UCI transaction.
CIS Systems, Inc. On August 18, 1998, the Company entered into a letter of
intent to acquire CIS Systems, Inc. ("CIS"), an international holding company
with a specific focus in emerging Eastern European opportunities.
CIS owns majority rights to provide the full range of customs services,
including the collection of duties, taxes, and other service fees, for the
West-East Terminal Complex ("WETC"), a major transport corridor running throught
the Moscow Territory. WETC handles and processes the
9
cargo from respective ports, railway systems and highways, from Estonia through
the Moscow territory.
The letter of intent states that the Company will acquire all of the outstanding
securities of CIS in consideration of the issuance of shares of a series of
Convertible Preferred Stock
CIS will have acquired controlling interest in one or more PTTs with a minimum
customer base of no less than 2 million subscribers. To expedite the due
diligence process, CIS will receive audited financial statements for the PTTs
with which it has established relationships. Accordingly, two big five auditing
firms have been engaged to prepare audited financial statements.
CyberAir Communicatios, Inc. On November 3, 1998, the Company entered into a
formal agreement for a strategic alliance with CyberAir Communications, Inc.
(CyberAir"), of Los Angeles, California..
CyberAir is building an international telecommunications network, initially
deploying equipment in China, Pakistan, India and Mexico. GTMI will act as
CyberAir's primary marketing arm for international telecommunications traffic.
Under an initial contract, beginning November 1998, GTMI will sell CyberAir
traffic, originating in the U.S. and terminating in Mexico.
Other Income-Nutrition: As of June 30, 1998 the Company sold its remaining
interests in nutritional licenses for "Go" and "Cholestorade" for $500,000 to
WRRW, Inc., and retained the rights to market these products for network
marketing and direct sales programs in the United States.
10
PART I. Financial Information
Item 2. Management's Discussion and Analysis
or Plan of Operations
This Quarterly Report on Form 10-QSB (the "Report") may be deemed to
contain forward-looking statements. Forward-looking statements in this Report or
hereafter included in other publicly available documents filed with the
Securities and Exchange Commission (the "Commission"), reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. These risks
include, but are not limited to, the risks set forth herein, each of which could
adversely affect the Company's business and the accuracy of the forward-looking
statements contained herein.
This report, including the disclosures below, contains certain forward-looking
statements that involve substantial risks and/or uncertainties. When used
herein, the terms "anticipates," "expects," "estimates," "believes" and similar
expressions, as they relate to the Company or its management, are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements.
RESULTS OF OPERATIONS
The Company seeks to manage its business to enhance long-term growth and
shareholder value. The Company also seeks to utilize financial leverage, equity
funding, and cash flow generated from operations to support capital expenditures
and possible future acquisitions. The Company intends to be an acquirer of new
technologies that would (i) result in an acceptable rate of return on such long
term investments and (ii) provide adequate opportunity to effectively implement
the Company's operating strategies.
Three and nine months ended September 30, 1998 and 1997
Operating (loss)
Revenues for the three months ended September 30, 1998 and September 30, 1997
were approximately $236,000 and $6,721,000 respectively, and, for the nine
months ended September 30, 1998 and September 30, 1997 were approximately
$241,000 and $11,936,000 respectively. The revenue decreases were primarily
associated with decreased levels of operations in the wholesale carrier business
and the suspension of the operations of the Company's Vision 21, Inc.
subsidiary. The Company has decided to concentrate its efforts on the three
components of its wholesale operations, the Telecommunications, Carrier Sales
and Satellite Services businesses. The Company currently has no revenues from
any of these three businesses.
As of September 30, 1998, no revenues were being generated from the wholesale
carrier business. The Company is in the process of implementing third party
strategic relationships necessary to facilitate traffic under expected revenue
contracts. See footnote 5 to financial statements -
11
Subsequent Events. There can be no assurance that the Company will be successful
in generating revenues.
Communication and marketing services expenses for the three months ended
September 30, 1998 and September 30, 1997 were approximately $180,000 and
$6,852,000 respectively, and, for the nine months ended September 30, 1998 and
September 30, 1997 were approximately $186,000 and $12,351,000 respectively.
Substantially all of the decreases were associated with the decreased revenue
levels.
General and administrative costs for the three months ended September 30, 1998
and September 30, 1997 were approximately $997,000 and $8,366,000 respectively,
and, for the nine months ended September 30, 1998 and September 30, 1997 were
approximately $2,389,000 and $12,714,000 respectively. The entire decrease
during these periods of 1998 resulted from the Company's decision to scale back
its operations until meaningful revenue contracts can be signed and implemented.
The Company has also experienced unusually high levels of consulting and legal
expenses associated with financing matters and ongoing litigation. The Company
does not anticipate incremental increases in general and administrative costs in
conjunction with anticipated future revenue growth.
Net loss from operations for the three months ended September 30, 1998 and
September 30, 1997 were approximately $1,001,000 and $8,498,000 respectively,
and, for the nine months ended September 30, 1998 and September 30, 1997 were
approximately $2,334,000 and $13,129,000 respectively. The entire decrease
during these periods of 1998 resulted from the Company's operational scaleback
in the current year.
Other income (expenses)
Interest expense for the three months ended September 30, 1998 and September 30,
1997 was approximately $60,000 and $287,000 respectively, and, for the nine
months ended September 30, 1998 and September 30, 1997 were approximately
$172,000 and $964,000 respectively. The decrease was due to the elimination of
high cost short-term notes payable and the mortgage note on the Company's prior
building. The Company will continue to explore the most effective utilization of
financial leverage as well as alternative means of raising additional capital to
enhance long-term growth and maximize shareholder value.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overdraft position increased to $92,325 at September 30, 1998 from
an overdraft position at December 31, 1997. Principal sources of funds during
the nine months ended September 30, 1998 consisted of (i) sale of nutritional
licenses ($500,000), and (ii) proceeds from the issuance of common stock
($442,000). The proceeds received from the sale of shares involved private
negotiated transactions at prices ranging from $.10 to $.30 per share. The funds
received to date have been used for working capital purposes. The primary use of
funds during the three months ended September 30, 1998 consisted of operating
activities.
As of September 30, 1998, the Company had convertible debentures payable
totaling $5,266,000, accrued but unpaid expenses totaling $1,757,432, and
accounts payable totaling $11,894,694. The terms of the convertible debentures
provide that as of August 15, 1998, the convertible debentures automatically
convert, including accrued and unpaid interest, into approximately 18.8 million
shares of common stock, in accordance with the terms of the convertible
debentures. However,
12
the convertible debentures are the subject of litigation currently in process,
and the issues related to the automatic conversion of the convertible debentures
and other claims for damages remains the subject of the litigation.
During the first quarter, the Company suspended the operations of Vision 21 and
is attempting to negotiate a sale of that subsidiary and its Vision 21's Travel
Pros, Inc. subsidiary. The plan to divest these subsidiaries resulted from a
decision to concentrate on the wholesale businesses of the Company.
The increase in accounts payable and accrued expenses resulted substantially
from the Company's underlying carrier obligations associated with the wholesale
international sales which, as of September 30, 1998 the Company has not paid
(Part II, Item 1. Legal Proceedings). The increase in notes payable and accrued
interest represents the amortization of debt discounts from previously issued
convertible debentures.
The Company has historically financed its operations principally through the
sale of equity and debt securities and through funds provided by operating
activities.
The successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's corporate
infrastructure. Management believes that the Company can sustain operations only
by the infusion of substantial amounts of financing. Inability to obtain such
financing could force the Company to cease all business operations. There can be
no assurances that such financing can be completed on terms favorable to the
Company or at all, or that the Company will ever achieve profitable operations
or be able to continue in business.
In the Company's 10-KSB filing on April 15, 1998, the Company's auditors
included an explanatory paragraph in their Report of Independent Certified
Public Accountants to the effect that recovery of the Company's assets are
dependent upon future events, the outcome of which is indeterminable, and that
the successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost corporate
infrastructure. There can be no assurances that such financing can be completed
on terms favorable to the Company or at all, or that the Company will ever
achieve profitable operations.
13
Part II. Other Information
Item 1. Legal Proceedings
See Form 10-KSB filed April 15, 1998
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
Walsh Litigation. See Form 10-KSB filed April 15, 1998 for a complete discussion
of this matter. The Company proposed a settlement to the plaintiff. As of July
7, 1998, the Company entered into an agreement for $120,000 payable in 6 equal
monthly installments beginning July 7, 1998. The August payment was due and
payable by August 13, 1998. The failure to make this payment resulted in a
$330,000 judgement, and delivery by the escrow agent of 250,000 shares of GTMI
common stock, as security for the judgement, in accordance with the consent
order.
RBB/Khalifa Litigation. See Form 10-KSB filed April 15, 1998 for a complete
discussion of this matter. On July 29, 1998, the court affirmed its November 20,
1997 order that the Company issue 2,496,761 shares of stock to the plaintiffs.
The Company has instructed the transfer agent to issue the shares and the
transfer agent has issued the shares. The terms of the convertible debentures
provide that as of August 15, 1998, the balance of the notes automatically
convert, including accrued and unpaid interest, into approximately 18.8 million
shares of common stock,. However, the litigation continues in progress and the
issues related to the automatic conversion of the convertible debentures and
other claims for damages remain the subject of the litigation.
Trident Litigation. See Form 10-KSB filed April 15, 1998 for a complete
discussion of this matter. As of May 15, 1998, the Company has entered into
discussions with Trident in an effort to settle the litigation. No assurances
can given at this time that any settlement will be reached. Discovery in this
case is proceeding.
WorldCom Litigation. See Form 10-KSB filed April 15, 1998 for a complete
discussion of this matter. Trial on the merits of this case has been postponed
and not yet rescheduled. The Company has proposed a settlement of all issues
remaining in this case.
Southern Signatures Litigation.. There have been no new developments in this
matter since the Company filed its Form 10-KSB on April 15, 1998, which contains
a complete discussion of this matter.
Metropolitan Fiber Systems Litigation. Metropolitan filed a complaint claiming
the principal sum of $88,547.16 on June 11, 1998 in the State Court of DeKalb
County under Case No. 98A45706-5. The Company submitted an answer to the
complaint on August 17, 1998.
Creative Network Litigation. Since the Company filed its Form 10-KSB on April
15, 1998 which contains a complete discussion of this matter. Creative has filed
a motion for summary judgement which has been granted for the amount of $61,541
plus interest.
Interlynx Litigation. There have been no new developments in this matter since
the Company filed its Form 10-KSB on April 15, 1998, which contains a complete
discussion of this matter.
The Company is involved in an arbitration proceeding with Extelcom Corporation
(a/k/a K&S International Communications, Ltd."K&S") with respect to a former
agreement under which each party was to provide services to the other. The
Company believes that Extelcom's claims are
14
without substantial merit but due to the nature of the arbitration process, at
the end of 1997 elected to increase its litigation reserves by an amount in
excess of $1,000,000 for the potential liability claim by Extelcom. Based upon a
technical default, an award was entered against the Company in May 1998 for $2.5
million. While the Company was prepared to petition the court in Miami Florida
to vacate the award based on the grounds that it was erroneously entered,
management believed that the award might not be overturned. Therefore, on
November 6, 1998, the Company entered into a settlement agreement with K&S for
$325,000, to be paid on or before December 15, 1998. If this payment is not
promptly made, the $2.5 million Final Judgement will be entered.
Freed & Berman, P.C., Litigation. Freed & Berman filed a complaint claiming the
sum of $37,562.91 on April 9, 1998 in the Superior Court of Fulton County under
Case No. E-61447. The Company entered into a Consent Order on July 23, which
provides for payments that the Company has not yet been able to make. The
Plaintiffs are pursuing collection alternatives.
Silfen, Segal, Fryer & Shuster, P.C. Litigation. The Plaintiff, a professional
corporation, filed a complaint claiming the sum of $4,826.13 on July 29, 1998 in
the State Court of Fulton County, under case no. 98VS1427874. The Company
submitted a timely response on September 23, 1998.
Programs Abroad-Travel Alternatives, Inc Litigation. The Plaintiff has filed a
complaint against the company and others in State Court of Fulton County,
Georgia on October 2, 1998 (Civil Action No 98VS145081F) claiming damages in the
amount of $18,749.00. The Company submitted an answer to the complaint on
November 9, 1998.
BT Office Products International Litigation. The Plaintiff has filed a complaint
against the company in State Court of DeKalb County, Georgia on September 8,
1998 (Civil Action No 98A48500-2) alleging that certain monies are owed on
account, being the amount of $2,722.78 plus interest. The Company filed an
answer on October 26, 1998.
Boone Electric Litigation. The Plaintiff has filed a complaint against the
company and others in State Court of Fulton County, Georgia on May 16, 1998
(Civil Action No 98V5140008C) alleging that certain monies are owed for services
rendered and goods supplied in the amount of $1,454.00. The Company filed an
answer on June 29, 1998.
Thomason Printing Company, Inc. Litigation. Judgement was granted against the
Company on February 24, 1998, in the amount of $5,053.00 by the Fulton County
Magistrate Court (Civil Action File No. 97M50060655). The Company has been
served with post-judgement discovery.
15
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit 27 - Financial Data Schedule
16
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Registrant)
/s/ Roderick A. McClain
- -----------------------------------------
Roderick A. McClain, President & CEO
Date: November 14, 1998
/s/ Herbert S. Perman
- ------------------------------------------
Herbert S. Perman, Chief Financial Officer
Date: November 14, 1998
17
Part II. Other Information
Item 6. Financial Data Schedule
(27) Financial Data Schedule