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, 1997
( ) 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.)
1121 ALDERMAN DRIVE, SUITE 200, ALPHARETTA, GEORGIA 30202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 667-6088
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date 24,083,157 Common Stock as of
October 6, 1997
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 September 30, 1997 . . . . . . . . .1
Consolidated Income Statements for the Three and Nine
Months ended September 30, 1997 and September 30, 1996 . . . . .2
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1997 and September 30, 1996 . . . . .3
Consolidated Statements of Shareholders' Equity for the
Nine Months ended September 30, 1997 . . . . . . . . . . . . . . . 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. . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Part II - Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . 16
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS
Current Assets
Accounts receivable, net of Allowance of
$6,950,300 (Note 4) 188,604
Due from stockholders 25,000
Inventory 66,027
Other current assets 41,120
------------
Total Current Assets 320,751
Property and equipment, net of accumulated
depreciation of $409,756 4,891,325
Other Assets (Note 2) 1,007,891
------------
TOTAL ASSETS $6,219,967
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities
Accounts payable (Note 4) $ 10,953,406
Accrued expenses 2,301,071
Current portion of Capital Lease Obligations 8,989
Notes Payable (Note 3) 569,331
------------
Total Current Liabilities 13,832,797
Long-Term Liabilities
Notes Payable (Note 3) 7,628,631
Long-term Capital Lease Obligations, net of current 23,741
------------
portion
Total Long-Term Liabilities 7,652,372
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 75,000,000
shares; issued and outstanding 23,609,535 94,421
Additional paid-in capital 5,380,107
Note receivable from stock sale (310,000)
Accumulated deficit (20,429,730)
------------
Total Stockholders' Equity Deficiency (15,265,202)
------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY DEFICIENCY $6,219,967
------------
------------
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
--------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
TOTAL REVENUES: $6,720,502 $421,051 $11,935,859 $1,026,103
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Communication and Marketing Services 6,852,369 463,393 12,350,824 1,045,334
----------- ----------- ----------- -----------
General and Administrative 8,366,398 1,365,059 12,713,839 2,995,730
----------- ----------- ----------- -----------
Total Operating Expenses 15,218,767 1,828,452 25,064,663 4,041,064
----------- ----------- ----------- -----------
Operating (Loss) (8,498,265) (1,407,401) (13,128,804) (3,014,961)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest Expense (286,591) (71,158) (964,287) (105,570)
Interest Income - 9,661 - 10,965
Other Income - 37,329 - 56,078
----------- ----------- ----------- -----------
NET LOSS $(8,784,856) $(1,431,569) $(14,093,091) $(3,053,488)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER SHARE $(0.38) $(0.11) $(0.70) $(0.27)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 23,359,600 12,577,454 20,175,821 11,233,069
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
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
------------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(14,093,091) (3,053,488)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 846,233 103,081
Bad Debt 6,981,797 -
Stock issued for services 485,663 192,480
Loss on sale of equipment 31,316 -
Changes in assets and liabilities:
Decrease (increase) in:
Receivables (6,874,890) (199,586)
Due from Stockholders (25,000) -
Inventories 413,295 (40,254)
Other current assets 109,197 (1,789,793)
Increase (decrease) in:
Accounts payable and accrued expenses 10,385,285 479,265
Amounts due to stockholders - (166,485)
----------- -----------
Total adjustments 12,353,396 1,371,292
----------- -----------
Net cash provided (used) from operating activities (1,739,695) (4,424,780)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 20,283 -
Acquisition of property and equipment (181,071) (157,053)
----------- -----------
Net cash used in investing activities (160,788) (157,053)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 387,437 6,512,500
Payments on notes payable (219,351) (60,000)
Debt acquisition costs 267,647 -
Proceeds from issuance of common stock 1,394,980 468,728
----------- -----------
Net Cash Provided by Financing Activities 1,830,713 6,921,228
----------- -----------
Net Increase (Decrease) in Cash (69,770) 2,339,395
Cash at Beginning of Period 69,770 192,976
----------- -----------
Cash at End of Period $ - $ 2,532,371
----------- -----------
----------- -----------
3
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Details of acquisition:
Fair value of assets acquired 92,186
Goodwill established 147,182
Liabilities assumed 241,368
Details of disposal:
Goodwill written off 241,122
Net liabilities written off 241,122
Acquisition of equipment for stock 840,000
Acquisition of equipment through assumption
of liabilities 1,077,000
Conversion of note payable for common stock 382,232
Issuance of common stock for note receivable 335,000
The accompanying notes are an integral part of these consolidated financial
statements.
4
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SEPTEMBER 30, 1997
(UNAUDITED)
Common Stock Issued Additional Total
------------------------- Paid-In Shareholder Shareholders'
Shares Par Value Capital Deficit Note Receivable Equity
--------------------------------------------------------------------------------------
Balance, December 31, 1996 16,242,386 $ 64,953 $1,971,700 $(6,336,639) - $(4,299,986)
Shares Issued to Consultants 32,051 128 23,910 - - 24,038
Exercise of Warrants 2,100,000 8,400 916,600 - - 925,000
Compensation Earned 40,000 160 1,840 - - 2,000
Cancellation of shares previously (112,500) (450) (5,175) - - (5,625)
granted
Note receivable from stock sale - - - - (310,000) (310,000)
Net Loss - - - (2,278,030) - (2,278,030)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 18,301,937 $ 73,191 $2,908,875 $(8,614,669) $(310,000) $(5,942,603)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Shares Issued to Consultants 750,000 3,000 390,750 - - 391,050
Exercise of Warrants 100,000 400 68,600 - - 69,000
Compensation Earned 50,000 200 2,300 - - 2,500
Purchase of Stock 2,678,767 10,715 1,234,285 - - 1,245,000
Conversion of Notes Payable 770,747 3,083 379,149 - - 382,232
Net Loss - - - (3,030,293) - (3,030,293)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 22,651,451 $ 90,589 $4,983,959 $(11,644,962) $(310,000) $(6,883,114)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Shares Issued to Consultants 958,084 3,832 396,148 - - 399,980
Net Loss - - - (8,784,856) - (8,784,856)
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 23,609,535 94,421 5,380,107 (20,429,730) (310,000) (15,265,202)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
5
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
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.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of the
net identifiable assets acquired from the Internet Service Business acquisition
in January 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
6
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 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, 1996, 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, 1996. 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, 1997
and 1996, 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. OTHER ASSETS
Other assets consist of the following at September 30, 1997
Deposit for purchase of equipment. . . . . . . . . . . . . . .$ 650,000
Prepaid debt financing, net of accumulated amortization. . . . . . 240,386
Goodwill, net of accumulated amortization . . . . . . . . . . . . 117,505
------------
$ 1,007,891
7
3. NOTES PAYABLE
Notes payable consist of the following at September 30, 1997
Current:
TJC 18% note payable, due on demand (note 4). . . . . . . . .$ 273,468
Short-term portion of 12% note payable, secured by building . . .13,344
Various floating rate notes, due on demand. . . . . . . . . . . 250,000
Other miscellaneous notes. . . . . . . . . . . . . . . . . . . .32,519
----------
$ 569,331
----------
----------
Long Term:
Long-term portion of 12% note payable, secured by building. . 1,816,656
Floating rate convertible debentures, due on demand . . . . . 5,811,975
----------
$7,628,631
----------
----------
Maturities of long-term debt are as follows:
1997 $ -
1998 5,614,729
1999 1,810,648
----------
$7,425,377
----------
----------
4. COMMITMENTS AND LITIGATION
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
On October 17, l997, the Company entered into a Settlement Agreement and
Mutual Release with Johns, Colclasure and TJC Communications and release
52,500 shares of the Company's common stock to TJC that had been previously
issued as well as issued 97,500 restricted common shares of the common stock
as full and complete settlement.
On October 8, l997, the Company filed a complaint in the Superior Court of
Fulton County, State of Georgia (Civil Action #E-62102) against Trident
Communications Corp., Wail H. Alkhatib and Daniel G. Kuttab (collectively,
"Trident") alleging breach of contract, both oral and written, fraud, unjust
enrichment, and detrimental reliance among its counts. Within this suit, the
Company is requesting return of 2,168,767 shares issued to Trident in
conjunction with a certain Resale Debit Card Agreement as well as $10 million
as payment for services rendered to Trident but not paid for. While the
Company anticipates that a favorable resolution will be reached in this
litigation, there can be no assurances that the Company will receive any
amounts as a result.
On August 29, 1997, a complaint was filed against the Company by WorldCom
Network Services, Inc. d/b/a WilTel in the State Court of Dekalb County,
Georgia (Aciton No. 97A-36948-3) seeking recovery of approximately $6 million
for payment of services rendered as well as fees for attorneys and court
costs. This suit was amended to reflect an amount of $7.5 million and the
Company has included this entire amount in Accounts Payable. On October 2,
l997, the Company filed its answer and believes that this amount is incorrect
due to apparent significant
8
overbillings by WorldCom and disputed amounts with its former customer, Trident
Communications Corp. While no assurances can be given, Management intends to
vigorously defend this action.
On August 14, l997, the Company and its Vision 21 subsidiary commenced an
action in the Superior Court of Fulton County, State of Georgia (Civil Action
E61477) against Interlynx Technologies and certain former employees and
independent representatives of the Company, seeking a temporary restraining
order and interlocutory and permanent injunction under the Georgia Uniform
Deceptive Trade Practices Act; interlocutory and permanent injunction for
actual and threatened misappropriation of trade secrets; and alleging
violation of the Georgia Trade Secrets Act, Violation of the Georgia Computer
Systems Protection Act, Breach of Contract, Georgia Racketeer Influenced and
Corrupt Organizations Act (RICO), breach of fiduciary and/or confidential
relations, tortious interference with contractual and business relations and
prospective contractual and business relations, defamation, and seeking
conversion and imposition of a constructive trust, among other things.
5. ITD ACQUISITION
On July 11, 1997 the Company signed an agreement to acquire from the
controlling shareholder, 68% of the issued and outstanding shares of
International Teledata Corporation ("ITD"), for a combination of cash, notes
and common stock of the Company. The Company intends to tender for the
balance of the common stock of ITD, on the same terms and conditions, upon
obtaining required approvals. The transaction closed on October 7, 1997 and
the following consideration was issued to the former 68% shareholder;
Cash-$101,970, Notes-$3,976,830, and 10,876,800 restricted shares of Common
Stock.
Based in Tampa, Florida, ITD markets a variety of high-quality
telecommunications products and services, including One Plus and 800
services, prepaid long distance debit cards and message on hold products.
ITD has also secured the marketing rights to a proprietary new satellite
transmission protocol which provides a wide range of communications services
worldwide to facilitate business and personal applications.
6. SUBSEQUENT EVENT
On July 15, 1996, the Company entered into a purchase agreement for the IEX,
DaVinci, enhanced services platform. As of September 30, 1997, $650,000 had
been paid under this agreement. However, due to certain problems related to
reliability and stability of the platform, the original agreement was
canceled and the Company and IEX entered into a new expanded Technology
Agreement on October 15, 1997 which includes the latest version of software
upgrades. Under this Technology Agreement, the Company received its original
down payment of $650,000 and additional monies related to network costs. In
addition, the Company entered into a lease for the IEX, DaVinci platform
which includes a ramp-up period and very specific performance and acceptance
criteria. The Company is in the process of installing the necessary equipment
to facilitate traffic under the Technology Agreement.
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 AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OPERATING (LOSS)
REVENUES for the three and nine months ended September 30, 1997 increased
approximately $6.30 million and $10.91 million, respectively. The revenue
increases were primarily associated with increased levels of operations in
the international wholesale carrier business.
During May 1997, the Company began to recognize revenues associated with the
testing and ramp-up phases of a significant contract which called for monthly
minimum revenues of $10 million at full capacity. That contract accounted
for over 90% of the Company's third quarter revenues. As of September 30,
1997, the Company has cancelled the contract due to the customer's failure to
pay amounts owed.
On October 15, 1997,the Company also cancelled the IEX vendor agreement due
to certain reliability problems associated with the equipment and executed a
new Technology Agreement. Under this Technology Agreement, the Company has
the ability to utilize the IEX technology while leasing the necessary
equipment which utilizes this enhanced services technology. The Company is
in the process of installing the necessary equipment to facilitate traffic
under the new Technology Agreement.
Due to problems associated with Workhorse's performance and the cancellation
of the underlying carrier contract, the Company discontinued carrying traffic
on its switching network at the end of August 1997. The Company is in the
process of deploying new replacement network and has targeted January 1998 to
connect new customers.
10
As of September 30, 1997, no revenues were being generated from the wholesale
carrier business. While the Company anticipates new business in the near future
which will be facilitated under the new IEX Technology Agreement, there can be
no assurance that the Company will be successful in generating revenues.
During June 1997, the Company revamped the product offerings and compensation
program for its Vision 21 direct marketing subsidiary, adding a travel products
package and revising its menu of telecommunications products. These resulted in
minimal revenues during the third quarter of 1997. While initial reaction of
field representatives during pre-rollout has been positive, there is no
assurance that the market for Vision 21 products will develop on a successful
and profitable basis.
COMMUNICATION AND MARKETING SERVICES EXPENSES increased for the three and nine
months ended September 30, 1997 approximately $6.39 million and $11.31 million,
respectively, compared to the corresponding periods of the prior year.
Substantially all of the increases were associated with the increased revenue
levels. During the second quarter of 1997, the Company issued credits of
approximately $725,000 to its largest customer due to certain reliability
problems associated with the Company's Workhorse switching network and thus the
Company's related inability to obtain favorable "buy" rates to certain countries
to which it routes traffic. The credits resulted in lower than anticipated
gross margins and a loss on the contract for the quarter. While these
reliability problems were largely corrected during the third quarter of 1997,
the Company cancelled the contract as a result of the customers failure to pay
amounts owed.
GENERAL AND ADMINISTRATIVE COSTS increased approximately $7.0 million and $9.72
million respectively, for the three and nine months ended September 30, 1997
compared to the corresponding periods in 1996. The entire increase during the
third quarter of 1997 and the majority of the increase for the nine months ended
September 30, 1997, resulted from reserves provided for related to the entire
accounts receivable of its most significant wholesale carrier customer. The
Company is currently seeking damages of $10 million from this customer.
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 increased approximately $7.09 million for the three
months ended September 30, 1997, and approximately $10.11 million for the nine
months then ended. The entire increase during the third quarter of 1997 and the
majority of the increase for the nine months ended September 30, 1997, resulted
from reserves provided for related to the entire accounts receivable of its
most significant wholesale carrier customer.
OTHER INCOME (EXPENSES)
Interest expense increased approximately $215,000 and $859,000, respectively,
for the three and nine months ended September 30, 1997 compared to 1996 due to
increases in notes payable. 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.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash decreased to $-0- at September 30, 1997 from $2,532,371 at
September 30, 1996. Principal sources of funds during the nine months ended
September 30, 1997 consisted of (i) borrowings on notes payable ($387,437) and
(ii) proceeds from the issuance of common stock ($1,394,980). The primary uses
of funds during the nine months ended September 30, 1997 consisted of (i)
additions to property and equipment ($181,071), (ii) operating activities
($1,739,695), and (iii) payments on notes payables ($219,351). The majority of
these proceeds were received from the conversion of various warrants at prices
ranging from $.40 to $.50 per share. As of September 30, 1997, the Company has
still not received $310,000 of these funds, which are covered by a note
receivable from a single purchaser. The funds received to date have been used
for working capital purposes.
During the second and third quarters, the Company revised the merchandise and
product offering for Vision 21 and is preparing to launch the new program during
the fourth quarter of 1997. This resulted in an increase in refunds and a
write-off of inventory for the nine months ended September 30, 1997.
The increase in accounts receivable, accounts payable and accrued expenses
resulted from the Company's wholesale international sales to primarily one
customer, which as of September 30, 1997 had not paid amounts due. The increase
in notes payable and accrued interest represents the amortization of debt
discounts from various previously issued demand notes and convertible
debentures. In addition, the Company issued an additional $100,000 of
convertible debentures which were converted during the nine months ended
September 30, 1997.
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 September 30, 1997, the Company had notes payable totaling $8,197,962,
accrued but unpaid expenses totaling $2,301,071, and current accounts payable
totaling $10,953,406. Although management of the Company anticipates an
improvement in the Company's cash flow position 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, 1997, 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
On October 17, l997, the Company entered into a Settlement Agreement and Mutual
Release with Johns, Colclasure and TJC Communications and release 52,500 shares
of the Company's common stock to TJC that had been previously issued as well as
issued 97,500 restricted common shares of the common stock as full and complete
settlement.
On October 8, l997, the Company filed a complaint in the Superior Court of
Fulton County, State of Georgia (Civil Action #E-62102) against Trident
Communications Corp., Wail H. Alkhatib and Daniel G. Kuttab (collectively,
"Trident") alleging breach of contract, both oral and written, fraud, unjust
enrichment, and detrimental reliance among its counts. Within this suit, the
Company is requesting return of certain shares issued to Trident in conjunction
with a certain Resale Debit Card Agreement as well as $10 million as payment for
services rendered to Trident but not paid for. While no assurances can be
given, the Company anticipates that a favorable resolution will be reached in
this litigation.
On August 29, 1997, a complaint was filed against the Company by WorldCom
Network Services, Inc. d/b/a WilTel in the State Court of Dekalb County,
Georgia (Aciton No. 97A-36948-3) seeking recovery of approximately $6 million
for payment of services rendered as well as fees for attorneys and court costs.
This suit was amended to reflect an amount of $7.5 million. On October 2, l997,
the Company filed its answer and believes that this amount is incorrect due to
apparent significant overbillings by WorldCom and disputed amounts with its
former customer, Trident Com Corp. While no assurances can be given,
Management intends to vigorously defend this action.
On August 14, l997, the Company and its Vision 21 subsidiary commenced an action
in the Superior Court of Fulton County, State of Georgia (Civil Action E61477)
against Interlynx Technologies and certain former employees and independent
representatives of the Company, seeking a temporary restraining order and
interlocutory and permanent injunction under the Georgia Uniform Deceptive Trade
Practices Act; interlocutory and permanent injunction for actual and threatened
misappropriation of trade secrets; and alleging violation of the Georgia Trade
Secrets Act, Violation of the Georgia Computer Systems Protection Act, Breach of
Contract, Georgia Racketeer Influenced and Corrupt Organizations Act (RICO),
breach of fiduciary and/or confidential relations, tortious interference with
contractual and business relations and prospective contractual and business
relations, defamation, and seeking conversion and imposition of a constructive
trust, among other things.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders (the "Meeting") was held on September 16,
1997.
The Stockholders reelected Roderick A. McClain, Chairman of the Board of
Directors and Chief Executive Officer and President, Geoffrey F. McClain, Senior
Vice President, and Herbert S. Perman, Executive Vice President as Directors.
In addition, two independent outside Directors were elected; Mr. Don L. Thone
and Mr. Ron Berkowitz.
The second proposal to change the Company's state of incorporation from Florida
to Delaware by means of a merger of the Company with and into a wholly-owned
subsidiary passed with 53% of the votes or 12,673,695 in favor, 742,121 votes
against, 42,902 votes abstaining, and 7,119,858 unvoted.
The third proposal was a conditional proposal which was not necessary due to the
second proposal passing.
The fourth proposal to adopt the Company's 1996 Stock Option Plan (the "1996
Stock Option Plan") and to reserve up to 3,400,000 shares of the Company's
Common Stock for issuance under the 1996 Stock Option Plan passed with 53% of
the votes or 12,633,005 in favor, 658,646 votes against, 167,067 votes
abstaining, and 7,119,858 unvoted.
The fifth proposal to approve the form of indemnification agreements between the
Company and the members of the Company's Board of Directors passed with 81% of
the votes or 19,333,903 in favor, 550,205 votes against, and 694,468 votes
abstaining.
The sixth proposal to ratify the appointment of Tauber & Balser P.C., Certified
Public Accountants, as independent public accountants for the Company for the
year ending December 31, 1997 passed with 86% of the votes or 20,337,424 in
favor, 139,247 votes against, and 101,905 votes abstaining.
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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 18, 1997
/s/ Terry A. Huetter
- -----------------------------------------
Terry A. Huetter, Chief Financial Officer
Date: November 18, 1997
15