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 March 31, 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.)
55 Marietta Street, Suite 1760, Atlanta, Georgia 30303
(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 29,317,415 Common Stock as of
April 9, 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, 1997
INDEX
Page
----
Consolidated Balance Sheet as of March 31, 1998 ................... 1
Consolidated Income Statements for the Three
Months ended March 31, 1998 and March 31, 1997 .............. 2
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1998
and March 31, 1997 .......................................... 3
Consolidated Statements of Shareholders' Equity for the
Three Months ended March 31, 1998 ........................... 5
Notes to Consolidated Financial Statements ........................ 6
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 .................................... 13
Part II - Item 6. Exhibits ........................................ 13
Signatures ........................................................ 14
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Balance Sheet
March 31, 1998
(Unaudited)
ASSETS
Current Assets
Cash $ 65,430
Accounts receivable, net of
Allowance of $7,204,048 (Note 4) 40,000
------------
Total Current Assets 105,430
Property and equipment, net of accumulated
depreciation of $29,028 44,641
------------
Total Assets $ 150,071
============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities
Accounts payable (Note 4) $ 10,689,065
Accrued expenses 2,541,561
Current portion of Capital Lease Obligation 6,933
Notes Payable (Note 3) 6,650,898
------------
Total Current Liabilities 19,888,457
Long-Term Liabilities
Long-Term Capital Lease Obligation,
net of current portion 21,315
Stockholders' Equity Deficiency
Common stock, $.004 par value,
authorized 75,000,000 shares;
issued and outstanding 29,288,222 117,136
Additional paid-in capital 5,744,645
Note and accounts receivable from stock sale (519,889)
Accumulated deficit (25,101,593)
------------
Total Stockholders' Equity Deficiency (19,759,701)
------------
Total Liability and Stockholders' Equity Deficiency $ 150,071
============
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
March 31
1998 1997
------------ ------------
TOTAL REVENUES: $ 4,279 $ 1,609,006
------------ ------------
OPERATING EXPENSES:
Communication and Marketing Services 5,395 1,680,009
Selling, General and Administrative 626,857 2,063,452
------------ ------------
Total Operating Expenses 632,252 3,743,461
------------ ------------
Operating (Loss) (627,973) (2,134,455)
------------ ------------
OTHER INCOME (EXPENSES):
Interest Expense (49,586) (149,936)
Other Income 10,000 6,361
------------ ------------
NET LOSS $ (667,559) $ (2,278,030)
============ ============
NET LOSS PER SHARE $ (0.03) $ (0.13)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 24,262,338 17,497,988
============ ============
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)
Three months ended March 31
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (667,559) $(2,278,030)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 222,683 242,876
Stock issued for services 642,015 45,413
Changes in assets and liabilities:
Decrease (increase) in:
Receivables (40,000) (557,947)
Inventories -- 5,136
Other current assets -- 160,739
Capital Lease Obligation (1,850) (10,406)
Increase (decrease) in:
Accounts payable and accrued expenses (141,009) 2,481,954
----------- -----------
Total adjustments 681,839 2,367,765
----------- -----------
Net cash provided (used) from
operating activities 14,280 89,735
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Goodwill -- (147,182)
Acquisition of property and equipment -- (997,556)
----------- -----------
Net cash used in investing activities -- (1,144,738)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable -- 100,000
Payments on notes payable (13,000) --
Shares issued in settlement of liabilities 31,539 --
Increase in stock subscription receivable (209,889)
Proceeds from issuance of common stock 242,500 900,000
----------- -----------
Net Cash Provided by Financing Activities 51,150 1,000,000
----------- -----------
Net Increase (Decrease) in Cash 65,430 (55,003)
Cash at Beginning of Period 69,770
----------- -----------
Cash at End of Period $ 65,430 $ 14,767
----------- -----------
3
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Conversion of note payable for common stock 31,539
The accompanying notes are an integral part of these consolidated financial
statements.
4
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
March 31, 1998
(Unaudited)
Common Stock Issued Additional Total
--------------------- 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)
========== ======== ========== ============ ========= ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
Global Telemedia International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
as of March 31, 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. 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.
Inventory
Inventory consists of promotional and training materials used in the Vision 21
marketing program. These amounts are recorded at the lower of cost (first-in,
first-out) or market value. Due to the decision to divest Vision 21 and expected
changes in the thrust and image of that company thereafter, all existing
inventory was reduced to zero valuation as of December 31, 1997.
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.
6
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 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 months ended March 31, 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 March 31, 1998
Current:
Various demand notes, interest rates 7% -12% ........... $ 352,000
Floating rate convertible debentures,
due August 15, 1998.................................. 6,048,898
Floating rate notes, due on demand ..................... 250,000
-----------
$ 6,650,898
===========
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 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.
7
RBB/Khalifa 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.
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.
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 rescheduled.
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 coprporation
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
$700,000 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.
The Company is petitioning the court in Miami Florida to vacate the award based
on the grounds that it was erroneously entered. Management is confident that the
award will be overturned; however, there can be no assurances to that effect.
5. Subsequent Events
This Quarterly Report on Form 10-QSB (the "Report") may be deemed to
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). 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.
During the first quarter of 1998, the Company concluded the private placement of
2,475,000 restricted shares of its Common stock at prices ranging from $0.10 to
$0.20 per share. In conjunction therewith, the Company issued warrants for an
additional 2,425,000 shares exercisable at various dates through March 18, 1999
at an exercise price of $0.20 per share. Net proceeds from the sale of the
shares was $252,500.
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
8
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 is expected to be completed on or before July 15, 1998 and
will be subject to execution of a definitive merger agreement and mutual due
diligence plus the following conditions: a) approval by the shareholders of both
companies; and b) GCN must be carrying a minimum monthly total of 50,000,000
termination minutes of international traffic at mutually approved margins. GCN
has recently executed a contract for over 350,000,000 international termination
minutes which is expected to generate gross revenues in excess of $75 million in
the first twelve months following implementation, which is expected to begin in
May 1998. This contract will satisfy the minimum levels required by the letter
of intent. Following execution of the merger agreement, the Company expects to
immediately commence preparation of a proxy statement to seek shareholder
approval and believes that the merger can be consummated within 120 days
following filing of the proxy statement.
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
aprivately 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 shares will be issued to the Company upon execution of the final agreement.
The Company has agreed to advance to UPI $1.5 million, in a form yet to be
determined, for working capital in accordance with an agreed business plan.
Similarly, the Company will advance, in a form and on a schedule to be
determined, additional amounts up to $8.5 million in accordance with the
business plan. 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, in exchange for shares of the Company,
an additional 29% 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.
9
PART I. Financial Information
Item 2. Management's Discussion and Analysis or Plan of Operations
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 months ended March 31, 1998 and 1997
Operating (loss)
Revenues for the three months ended March 31, 1998 decreased approximately $1.6
million. The revenue decrease were primarly 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
Satellite Services Business was started in late April 1998. The Company
currently has no revenues from any of these three businesses.
As of March 31, 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 6 to financial statements - Subsequent Events. Although
the Company anticipates new business in the near future which will be
facilitated under such strategic relationships, there can be no assurance that
the Company will be successful in generating revenues.
Communication and marketing services expenses decreased for the three months
ended March 31, 1998 approximately $1.7 million compared to the corresponding
period of the prior year. Substantially all of the decreases were associated
with the decreased revenue levels.
General and administrative costs decreased approximately $1.4 million for the
three months ended March 31, 1998 compared to the corresponding period in 1997.
The entire decrease during the first quarter of 1998 resulted from the Company's
decision to scale back its operations until meaningful revenue contracts can be
signed and implemented.
10
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 decreased approximately $1.5 million for the three
months ended March 31, 1998 compared to the corresponding period in 1997. The
entire decrease during the first quarter of 1998 resulted from the Company's
operational scaleback in the current year.
Other income (expenses)
Interest expense decreased approximately $100,000 for the three months ended
March 31, 1998 compared to 1997 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 cash increased to $65,430 at March 31, 1998 from an overdraft
position at December 31, 1997. Principal sources of funds during the three
months ended March 31, 1998 consisted of (i) refundable deposits related to a
potential sales contract ($175,000) and (ii) proceeds from the issuance of
common stock ($242,500). The proceeds received from the sale of shares involved
private negotiated transactions at prices ranging from $.10 to $.20 per share.
As of March 31, 1998, the Company has still not received approximately $210,000
of these funds, all of which were received in April 1998. The funds received to
date have been used for working capital purposes. The primary use of funds
during the three months ended March 31, 1998 consisted of operating activities.
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 receivable resulted from the reclassification of the
Company's credit card deposits as accounts receivable from the former credit
card processor for Vision 21. 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 March
31, 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.
As of March 31, 1998, the Company had notes payable totaling $6,650,898, accrued
but unpaid expenses totaling $2,541,561, and current accounts payable totaling
$10,689,065. Although management of the Company anticipates an improvement in
the Company's cash flow position
11
from increased revenues from one or more of its businesses, no assurance can be
given to that effect. Even if such increases were to occur, management believes
that the Company can sustain operations only by the infusion of substantial
amounts of financing. No assurances can be given that such financing will be
available at terms acceptable to the Company, or at all. Inability to obtain
such financing could force the Company to cease all business operations.
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.
12
Part II. Other Information
Item 1. Legal Proceedings
See footnote 5 to the financial statements included herein and Form 10-KSB filed
April 15, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective May 1, 1998, Mr. Terry A. Huetter, the Company's Chief Financial
Officer since June 1997, has resigned to pursue other business interests. The
Board of Directors has elected Mr. Herbert S. Perman to replace Mr. Huetter. Mr.
Perman is the Company's Executive Vice President and formerly served as its
Chief Financial Officer from 1995 until Mr. Huetter's election.
Item 6. Exhibits
None.
13
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: May 19, 1998
/s/ Herbert S. Perman
- -------------------------------------
Herbert S. Perman, Chief Financial Officer
Date: May 19, 1998
14
Part II. Other Information
Item 6. Financial Data Schedule
(27) Financial Data Schedule
15