UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 2002
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to
Commission File Number: 033-05384
GTDATA CORPORATION
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0443026
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
625 Cochran St., Simi Valley, California 93065
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(Address of principal executive offices)
(805) 582-3600
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Issuer's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve 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 [ ]
The number of shares outstanding of Registrant's common stock as of
July 24, 2002 was: 17,342,517
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GTDATA Corporation and Subsidiaries
Consolidated Balance Sheet
Assets June 30, 2002 December 31, 2001
----------------- -----------------
(Unaudited)
Current Assets:
Cash $102,710 $177,317
Certificate of Deposit 50,000 -
Accounts receivable, net of
allowance for doubtful accounts
of approximately $140,000 1,009,170 1,366,845
Inventories 900,275 1,161,838
Prepaid expenses and other
current assets 42,998 31,005
Note receivable and
interest receivable 169,472 157,637
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Total Current Assets 2,274,625 2,894,642
Property and Equipment, net 88,462 128,665
Other Assets 106,249 66,146
----------------- -----------------
Total Assets $2,469,336 $3,089,453
================= =================
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable and
accrued liabilities $1,279,282 $1,673,811
Accrued payroll and
related expenses 625,490 588,882
Line of credit 495,861 657,188
Convertible note payable 375,000 375,000
Current portion of long-term debt 113,900 155,735
Notes payable to related parties 698,000 698,000
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Total Current Liabilities 3,587,533 4,148,616
Long-term debt, net of current portion - 42,400
Stockholders' Deficit:
Series A preferred stock, $0.001 par value:
1 share authorized and outstanding
Series B preferred stock, $0.001 par value;
10,000,000 shares authorized and
no shares issued and outstanding
Common stock, par value $0.001, 250,000,000
shares authorized, 17,342,517 shares
issued and outstanding 17,343 16,063
Additional paid in capital 1,401,415 1,312,695
Subscriptions receivable (360,789) (348,588)
Accumulated deficit (2,176,166) (2,081,733)
----------------- -----------------
Total Stockholders Deficit (1,118,197) (1,101,563)
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Total Liabilities and
Stockholders' Deficit $2,469,336 $3,089,453
================= =================
See accompanying notes to these consolidated financial statements
2
GTDATA Corporation and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
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Net Sales $2,079,480 $2,483,867
Cost of Sales 1,428,426 1,564,830
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Gross Profit 651,054 919,037
Operating Expenses:
Employee Compensation 566,256 762,864
Selling, General, and Administrative 159,293 375,945
Stock compensation for professional fees 90,000 -
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Total Operating Expenses 815,549 1,138,809
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Operating Loss (164,495) (219,772)
Other Expense:
Interest Expense - net (36,790) (17,632)
----------------- -----------------
Net Loss $ (201,285) $ (237,404)
================= =================
Basic and Diluted Net Loss Available
to Common Stockholders per Share $ (0.01) $ (0.02)
================= =================
Weighted Average Number of Common
Shares Outstanding - Basic and Diluted 16,788,011 14,752,414
================= =================
See accompanying notes to these consolidated financial statements
3
GTDATA Corporation and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
----------------- -----------------
Net Sales $4,499,717 $4,617,173
Cost of Sales 2,899,901 2,916,711
----------------- -----------------
Gross Profit 1,599,816 1,700,462
Operating Expenses:
Employee Compensation 1,154,174 1,376,099
Selling, General, and Administrative 370,684 710,028
Stock compensation for professional fees 90,000 -
----------------- -----------------
Total Operating Expenses 1,614,858 2,086,127
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Operating Loss (15,042) (385,665)
Other Expense:
Interest Expense, net (79,391) (39,854)
----------------- -----------------
Net Loss $ (94,433) $ (425,519)
================= =================
Basic and Diluted Net Loss Available
to Common Stockholders per Share $ (0.01) $ (0.02)
================= =================
Weighted Average Number of Common
Shares Outstanding - Basic and Diluted 16,427,267 14,752,414
================= =================
See accompanying notes to these consolidated financial statements
4
GT DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
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Cash flows from operating activities:
Net Loss $ (94,433) $ (425,519)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Interest income on note receivable (11,835) -
Depreciation and amortization 41,850 111,604
Amortization of estimated fair market
value of options issued for professional fees 90,000 -
Interest accrued on subscriptions receivable (12,201) (11,403)
Allowance for doubtful accounts (60,000) -
Changes in operating assets and liabilities:
Accounts receivable 417,675 (193,441)
Inventories 261,563 (256,828)
Prepaid expenses and other current assets (11,993) 14,999
Other assets (40,103) (3,484)
Accounts payable and accrued liabilities (394,529) 625,925
Accrued payroll and related expenses 36,608 135,926
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Net cash provided by (used in)
operating activities 222,602 (2,221)
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Cash flows from investing activities:
Purchases of property and equipment (1,647) (6,546)
Purchase of Certificate of Deposit (50,000) -
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Net cash used in investing activities (51,647) (6,546)
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Cash flows from financing activities:
Proceeds from the issuance of Common
Stock, net of commissions paid - 112,369
Proceeds from the issuance of Series B
Preferred Stock, net of commissions paid - 5,222
Proceeds from convertible note payable - 375,000
Net repayments under the line of credit (161,327) (365,180)
Principal repayments on long-term debt (84,235) (67,135)
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Net cash provided by (used in)
financing activities (245,562) 60,276
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Net increase (decrease) in cash (74,607) 51,509
Cash at beginning of period 177,317 331,899
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Cash at end of period $ 102,710 $ 383,408
============= =============
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $ 66,362 $ 40,934
============= =============
Taxes - -
============= =============
See accompanying notes to these consolidated financial statements for
additional information relating to non-cash investing and financing activities
during the period ended June 30, 2002 and 2001.
See accompanying notes to these consolidated financial statements
5
Note 1 - Organization and Summary of Significant Accounting Principals
Basis of Presentation
The management of GTDATA Corporation ("GTDATA" or the "Company"), and its
wholly-owned subsidiaries, Technical Services & Logistics Inc. ("TSLi) and
GTDATA Delaware, without audit, has prepared the consolidated financial
statements for the six months ended June 30, 2002 and 2001. Due to the Company's
merger with World Internetworks ("WINS"), the reporting amounts are those of the
surviving corporation, GTDATA. The results of operations of WINS previously
filed in prior years are not included herein. Certain information and note
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted. These financial statements should be read in conjunction with
the audited financial statements and notes thereto, which are included in the
GTDATA Form 10-KSB filed April 1, 2002. In the opinion of management, the
financial statements contain all adjustments, consisting of normal recurring
adjustments necessary to present fairly the financial position of GTDATA for the
period presented. The interim operating results may not be indicative of
operating results for the full year or for any other interim periods.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
GTDATA Corporation, and TSLi and GTDATA Delaware, which are wholly owned
subsidiaries of GTDATA. All significant intercompany balances and transactions
have been eliminated in consolidation.
Going Concern
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. The Company has negative working capital of $1,312,908, a
stockholders' deficit of $1,118,197, and a lack of operational history, among
others, that raise substantial doubt about its ability to continue as a going
concern. The Company hopes to increase earnings from additional revenue services
and other cost-cutting measures. In the absence of significant revenues and
profits, the Company intends to fund operations through additional debt and
equity financing arrangements which management believes may be insufficient to
fund its capital expenditures, working capital, and other cash requirements for
the fiscal year ending December 31, 2002. Therefore, the Company may be required
to seek additional funds to finance its long-term operations. The successful
outcome of future activities cannot be determined at this time and there are no
assurances that if achieved, the Company will have sufficient funds to execute
its intended business plan or generate positive results.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Risks and Uncertainties
The Company operates in a highly competitive industry that is subject to intense
competition, government regulation, and rapid technological change. The
Company's operations are subject to significant risk and uncertainties including
financial, operational, technological, regulatory and other risks associated
with an emerging business, including the potential risk of business failure.
6
Concentration Risk
The Company grants credit to customers within the United States of America and
does not require collateral. The Company's ability to collect receivables is
affected by economic fluctuations in the geographic areas served by the Company.
Reserves for uncollectable amounts are provided, based on past experience and a
specific analysis of the accounts, which management believes are sufficient.
Although the Company expects to collect amounts due, actual collections may
differ from the estimated amounts.
Four customers accounted for approximately 58% of total revenue for the six
months ending June 30, 2002, compared to 56% for the same period in 2001. The
loss of any of these customers may have a material impact on the Company's
financial statements and results of operations.
Revenue Recognition
The Company records sales when goods are shipped to the customer or upon the
completion of the services.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. Management believes the Company's revenue recognition policies
conform to SAB 101.
Warranty
The Company provides warranties ranging from ninety days to six months on
certain products sold. Estimated future warranty obligations related to certain
products and services are provided by charges to operations in the period in
which the related revenue is recognized. The Company has a warranty reserve of
approximately $40,000 which is included in accounts payable and accrued
liabilities in the accompanying consolidated balance sheet at June 30, 2002.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per share is
computed by dividing income available to common shareholders by the weighted
average number of shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive
(none and 654,152 shares as of June 30, 2002 and 2001, respectively). Because
the Company has incurred a net loss in 2002 and 2001, basic and diluted loss per
share are the same as additional potential common shares would be anti-dilutive.
Business Combinations, Goodwill, and Other Intangible Assets
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations,"
which is effective for business combinations initiated after June 30, 2001. SFAS
No. 141 eliminates the pooling of interest method of accounting for business
combinations and requires that all business combinations occurring on or after
July 1, 2001 are accounted for under the purchase method. In July 2001, the FASB
issued SFAS No. 142, "Goodwill and Other Intangible Assets," which is effective
for fiscal years beginning after December 15, 2001. Early adoption is permitted
for entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been previously issued. SFAS No. 142
addresses how intangible assets that are acquired individually or with a group
of other assets should be accounted for in the financial statements upon their
acquisition and after they have been initially recognized in the financial
7
statements. SFAS No. 142 requires that goodwill and intangible assets that have
indefinite useful lives not be amortized but rather be tested at least annually
for impairment, and intangible assets that have finite useful lives be amortized
over their useful lives. SFAS No. 142 provides specific guidance for testing
goodwill and intangible assets that will not be amortized for impairment. In
addition, SFAS No. 142 expands the disclosure requirements about goodwill and
other intangible assets in the years subsequent to their acquisition. Impairment
losses for goodwill and indefinite-life intangible assets that arise due to the
initial application of SFAS No. 142 are to be reported as resulting from a
change in accounting principle. However, goodwill and intangible assets acquired
after June 30, 2001will be subject immediately to the provisions of SFAS No.
142. The adoption of SFAS 141 and 142 did not have a material impact on the
Company's financial statements or results of operations.
New Accounting Pronouncements
Additionally, the FASB has recently issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs, and is effective for financial
statements issued for fiscal years beginning after June 15, 2002. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, including
accounting for a segment of a business accounted for as a discontinued
operation. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001. Management does not believe that the
requirements of such pronouncements will have a significant impact on the
Company's future financial statements.
Note 2 - Security Deposit on TSLi Facility
On February 1, 2002 and pursuant to the Company's lease agreement, the Company
was required to pay an additional $64,000 security deposit. The new lease
agreement entered into in November 2001 provides for a total security deposit in
the amount of $96,000, of which $32,000 was paid in November 2001, and monthly
lease payments of $32,000. The lease agreement also provides for the lease
payments for month thirteen and twenty-five to be applied against the security
deposit. The security deposit is recorded under other assets in the accompanying
consolidated balance sheet at June 30, 2002.
Note 3 - Repayment of Note Payable
On March 25, 2002, the Company repaid a note payable to a third party in the
amount of $64,496, including interest of $2,361. The note was originally for
ninety days and accrued interest at the rate of fifteen percent.
Note 4 - Stockholders' Equity
During the current period ending June 30, 2002, the Company issued 630,000
shares of its common stock to certain shareholders in connection with the
Company's reverse merger with World Internetworks, Inc. in April 2001. The
shares represent additional shares for the fractional shares which resulted from
the merger and the resulting reverse stock split. The Company did not value the
shares as they were a result of the stock exchange between the companies.
Note 5 - Consulting Agreements
On March 28, 2002, the Company entered into a consulting agreement with the
former Chief Executive Officer ("former CEO") of World Internetworks, as a
consultant and advisor to the Company. The former CEO has been retained to
assist the Company with its internet operations, make introductions to possible
strategic partners, and to complete the transfer of ownership of the internet
domain names related to the Company. The former CEO will also assist with
corporate communications and investor relations. The agreement expires in
December 2002. Pursuant to the agreement, the Company granted options to the
former CEO to purchase 250,000 shares of the Company's common stock with a
non-cash exercise feature. The options vest immediately and are exercisable
through March 2012.
On April 18, 2002, the Company entered into a second agreement with the former
CEO of World Internetworks, Inc. to design, develop, host, and maintain a web
8
site for the Company and to also handle the Company's public/investor relations.
Pursuant to the agreement, the Company granted options to the former CEO to
purchase 400,000 shares of the Company's common stock with a non-cash exercise
feature. The options vest immediately and are exercisable through April 2012.
On June 14, 2002 the former CEO of World Internetworks exercised the above
mentioned 650,000 options utilizing the non-cash exercise feature, resulting in
the Company issuing 650,000 shares of its common stock.
The above option transactions were measured on the grant dates using the
variable method of accounting as required by SFAS No. 123 and FIN 44. As a
result, the Company recognized total compensation expense of approximately
$90,000 during the period ending June 30, 2002.
Note 6 -Term Note
On April 1, 2002, the Company entered into a $60,000 term note ("Note") with its
current financial lender. The note matures in October 2002 and accrues interest
at a rate equal to the greater of 11% per annum or the sum of 6.25% plus the
prime rate. The note requires the Company to make weekly principal payments of
$2,500, with the accrued interest on the unpaid principal balance due and
payable on the 10th day of each month commencing on May 10, 2002 and continuing
on the same day of each month thereafter until all principal and interest have
been fully paid.
Note 7 - Secured Letter of Credit
On April 5, 2002, the Company established a $50,000 secured letter of credit
("LOC"), with a term of one year, using the proceeds from the above mentioned
term note as collateral. The beneficiary is a major supplier, and customer, of
the Company. The letter of credit was established so the Company could purchase
product from the supplier for the Company's resale operations.
The letter of credit is secured by a promissory note ("Note") in the amount of
$50,000, with a term of one year and an interest rate of 6.75%. As collateral
for the LOC, the Company deposited $50,000 in a certificate of deposit account
(CD), which also has a term of one year and earns the Company 2%.
Note 8 - Engagement of SBI E2-Capital USA and General Pacific Partners
On June 20, 2002 the Company announced that it has engaged SBI E2-Capital Inc,
the U.S. investment banking arm of Softbank Investment Corp., and General
Pacific Partners, LLC to assist in the execution of the Company's corporate
finance strategies.
SBI E2-Capital and General Pacific Partners are preparing a private placement in
order for the Company to raise $2,500,000 in cash through the sale of the
Company's common stock. The private placement provides for 125,000,000 shares of
the Company's common stock to be offered at $0.02 per share, less any
commissions of approximately 15%, as defined in the Private Placement
memorandum. The offering is on a best-efforts basis, with no minimum amount
guaranteed to be raised by either SBI E2-Capital USA or General Pacific Partners
LLC.
Per the agreement, the Company will pay Softbank Investment Corp. $50,000 for
the Fairness Opinion in relation to the Private Placement, and, upon successful
completion of the Private Placement, the Company will enter into a twelve month
consulting agreement with General Pacific Partners LLC at a cost of $15,000 per
month. General Pacific Partners will work with the Company's management to
promote the Company's stock and provide investor relations services. Both the
$50,000 fee for the Fairness Opinion and the $180,000 total consulting fee will
be paid with funds raised through the Private Placement. In addition, upon
completion the agreement requires the Company to grant warrants to purchase
1,000,000 shares of the Company's common stock at $0.01 per share to General
Pacific Partners.
As of the date of this filing, no shares of the Company's common stock have been
sold in relation to this Private Placement.
9
Note 9 - Non-Binding Letter of Intent to Acquire a Non-Franchise Distributor
On June 24, 2002, the Company signed a non-binding letter of intent to acquire a
non-franchise distributor ("Acquiree"). The Company believes the Acquiree to be
a leader in their specific data-storage field.
Pursuant to the terms of the non-binding agreement, the purchase price will be
$300,000 in cash plus the Company will issue 200,000 shares of its common stock
for all the outstanding shares of the Acquiree. The $300,000 is to be paid over
nine months in equal installments, with the first payment due upon the date of
acquisition. The Company will account for the acquisition in conformity with
SFAS 141, with the acquired company becoming a wholly-owned subsidiary of GTDATA
Corp.
Note 10 - Commitments and Contingencies
The Company may from time to time, be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations or discrimination, or
breach of contract actions incidental to the normal operations of its business.
The Company is currently not involved in any such litigation which management
believes could have a material adverse effect on its financial position or
results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
This report on Form 10-QSB contains, in addition to historical information,
forward-looking statements that involve substantial risks and uncertainties. Our
actual results could differ materially from the results anticipated by us and
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences are discussed in the section entitled "factors
that may affect our business, operating results, and financial condition" in the
Company's 10-KSB, as amended, for the year ended December 31, 2001.
GTDATA Corporation (the "Company" or "GTDATA") is a Nevada based corporation
that operates its wholly-owned subsidiaries, Technical Services & Logistics,
Inc. (TSLi) and GTDATA Delaware (GTDATA Delaware is merely a legal entity; it
has no assets or operations of any nature). TSLi was acquired on February 28,
2000 and specializes in the repair and remarketing of mass storage products such
as hard drives, tape drives, tape libraries, CD Roms, and optical drives. TSLi
also provides logistics support for its customers through its Vendor Managed
Inventory (VMI) programs that deliver refurbished, working drives to the
customer within 24 hours. TSLi's primary customers are the major OEMs, although
TSLi also provides its products and services to other, smaller companies.
The following analysis of the Company's operations refers primarily to those of
TSLi, which constitute the majority of the Company's business activities. GTDATA
is primarily a holding company, with only one employee and no offices or
tangible assets. The structure of the Company is such that all legal and
professional fees, including, but not limited to, audits, taxes, legal, and
fund-raising fees are allocated to GTDATA, while TSLi records expenses incurred
in the normal course of it's operations. Expenses incurred by GTDATA are
primarily wages and legal and professional fees.
Results of operations for the three months ended June 30, 2002 compared to June
30, 2001 and the six months ended June 30, 2002 compared to June 30, 2001.
Revenue
Revenue for the three months ending June 30, 2002 was $2,079,480, a decrease of
$404,387 (16.3%) compared to the $2,483,867 from the same period last year.
Repair revenue was $1,551,860 (74.6% of total revenue) for the current period,
down $163,779 (9.5%) from the $1,715,639 (69.1% of total revenue) in the first
three months of fiscal year 2001. Sales revenue was down $240,608 (31.3%) for
the current period, with total sales revenue of $527,620 (25.4% of total
10
revenue) for the current quarter and $768,228 (30.9% of total revenue) for the
same period last year.
During the six months ending June 30, 2002, the Company had revenues of
$4,499,717, a decrease of $117,456 (2.6%) from the $4,617,173 for the same
period in fiscal year 2001. Repair revenue was $3,421,527, or 76% of total
revenue for the period, versus $3,379,720 (73.2% of revenue) for the same period
last year. Sales revenue was $1,078,190 (24% of revenue) for the current period
versus $1,237,453 (26.8% of revenue) for the same period last year.
For the six month period, the $159,263 decrease in sales revenue was due
primarily to a restructuring of the Company's Sales department that resulted in
the terminations of the Director of Sales and Marketing and one of the full-time
salespeople. A new salesperson was hired approximately one month later, but
sales revenue dropped dramatically while the Company operated with only one
experienced salesperson. The decline in sales revenue was partially offset by
the $41,807 increase in repair revenue.
Gross Profit
For the three months ending June 30, 2002, gross profit totaled $651,054, or
31.3% of total revenue, compared to $919,037, or 37% of total revenue for the
same period last year. The $267,983 (29.2%) decrease in gross profit was
primarily due to the $404,387 drop in revenue, which accounts for approximately
$126,600 of the difference, assuming the gross profit margin remains constant at
31.3%. Higher overhead costs accounted for an additional $86,000 of the decrease
in gross profit.
For the six months ending June 30, 2002, gross profit for the period was
$1,599,816, or 35.6% of revenue, compared to gross profit of $1,700,462, or
36.8% of revenue, for the same period last year. This represents a decrease of
$100,646 (6%) from the same period last year.
The decrease in gross profit for the six month period was due primarily to (1)
lower revenue, which results in a decrease of approximately $41,800 assuming a
gross profit margin of 35.6% and (2) higher direct labor costs.
Operating Expenses
During the three months ending June 30, 2002, operating expenses totaled
$815,549 (39.2% of revenue), a decrease of $323,260 (28.4%) from the $1,138,809
(45.8% of revenue) incurred during the same period last year. Included in the
$815,549 of operating expenses for the current quarter is $90,000 of
professional fees that are both non-cash and non-recurring. Excluding the
$90,000, operating expenses for the current quarter were down $413,260 (36.3%)
from the same period last year. Legal and professional fees declined to $75,384
in the current quarter, which represents a reduction of $111,750 (59.7%) from
the $187,134 incurred in the same quarter last year. Legal and professional fees
were significantly higher in last year's quarter as a result of the reverse
merger with World Internetworks and the negotiations to merge with Trace Affex.
Other costs associated with the merger, that were not legal and professional
fees, accounted for an additional $100,000 in the same period last year.
For the six months ending June 30, 2002, operating expenses totaled $1,614,858
(35.9% of revenue), a decrease of $471,269, or 22.6%, from the $2,086,127 (45.2%
of revenue) incurred during the same period last year. Legal and professional
fees were $268,395 in the current period versus $409,236 in the same period last
year, a decrease of $140,841 (34.4%). Legal and professional fees for the
quarter ending June 30, 2002 include $90,000 for non-cash, non-recurring
professional fees. Excluding the $90,000 of non-cash charges, legal and
professional fees were $178,395, a decrease of $230,841 (56.4%) from the same
period last year. Legal and professional fees were higher in the prior year
period due to costs incurred in connection with the reverse merger with World
Internetworks and the negotiations to merge with Trace Affex.
During the six months ended June 30, 2002, the Company achieved additional cost
savings in the area of research and development, with current period R&D costs
down approximately $62,000 compared to the same period last year. Amortization
of goodwill was zero in the current period, as the Company wrote-off its
unamortized goodwill at year-end 2001. This resulted in savings of approximately
11
$18,000 during the first six months of fiscal year 2002. Expenses incurred
during the reverse merger with WINS that were not legal and professional fees
totaled approximately $100,000 during the first six months of fiscal year 2001.
These were one-time charges that represent almost a third of the decrease in
operating expenses on a year-to-year basis.
Tighter costs controls at both GTDATA and its wholly-owned subsidiary, TSLi,
played a significant role in the reduction of operating expenses.
Loss from Operations
During the three months ended June 30, 2002, the Company had a loss from
operations of $164,495, which was $55,277 (25.2%) less then the loss from
operations of $219,772 for the same quarter in fiscal year 2001. Excluding the
$90,000 in non-cash, non-recurring professional fees, the loss from operations
in the current quarter was only $74,495, a $145,277 improvement from the
operating loss of a year ago. Lower legal and professional fees and tighter cost
controls were the factors driving the $145,277 improvement in loss from
operations.
The loss from operations for the first six months of fiscal 2002 was $15,042
compared to a loss from operations of $385,665 in the same period in the prior
year. Excluding the $90,000 in non-cash, non-recurring professional fees, the
Company would have had income from operations of $74,958, resulting in an
increase of $460,623 from the prior year period.
Tighter cost controls, as well as other factors that were discussed in the
previous section, contributed to the significant reduction in the loss from
operations for the six months ended June 30, 2002.
Earnings before Interest, Taxes, Depreciation, and Amortization of Non-Cash
Charges (EBITDA)
EBITDA for the three months ending June 30, 2002 was ($53,556) versus ($164,970)
in fiscal 2001. Depreciation expense and amortization of the professional fees
were $20,940 and $90,000, respectively, in the current quarter, with
depreciation of $46,000 and amortization of goodwill of $8,802 in the same
quarter last year.
For the six months ending June 30, 2002, EBITDA was $116,808 compared to EBITDA
of ($274,061) in the same period last year. Depreciation and amortization of the
professional fees for the current period was $41,850 and $90,000, respectively.
In the same period last year, depreciation and amortization of goodwill totaled
$94,000 and $17,604, respectively.
Interest Expense
For the three months ending June 30, 2002, net interest expense was $36,790,
with total interest expense of $46,968 and interest income of $10,178. In the
same quarter last year, net interest expense was $17,632, with total interest
expense of $23,365 and interest income of $5,733.
Net interest expense for the six month period was $79,391, with interest expense
totaling $103,427 and interest income of $24,036. In the same period last year,
net interest expense was $39,854, with interest expense of $51,257 and interest
income of $11,403. Net interest expense for the first six months of fiscal year
2002 increased $39,537 (99.2%) from the same period last year.
The increase in interest expense was primarily the result of higher debt. At
June 30, 2002 the Company owed $495,861 on its line of credit compared to zero
at June 30, 2001. Total debt as of June 30, 2002 was $1,682,761 versus
$1,175,728 as of June 30, 2001, an increase of $507,033, or 43.1%.
12
Assets and Liabilities
At June 30, 2002, the Company had total assets of $2,469,336 compared to total
assets of $3,089,453 at December 31, 2001. Cash was $102,710 as of June 30,
2002, down $74,607 from the $177,317 cash on hand as of December 31, 2001. Cash
generated from operations was $222,602, cash used in investing was $51,647, and
cash used in financing activities was $245,562, with net cash used during the
current period being $74,607. Major cash out-flows included net debt payments of
$245,562, net payments to vendors of $394,529, the $64,000 security deposit for
the Company's leased headquarters, and the purchase of the $50,000 certificate
of deposit. These out-flows were offset by the $357,675 reduction in net
accounts receivable and the $261,563 reduction in inventories, as compared to
their respective balances at December 31, 2001.
Net accounts receivable were $1,009,170 at June 30, 2002, a decrease of $357,675
(26.2%) from the $1,366,845 at December 31, 2001. The decrease in accounts
receivable is primarily due to a new customer that the Company began doing
business with in November 2001 and which owed the Company approximately $640,000
at December 31, 2001, all of which was collected in the first six months of
fiscal year 2002. Shipments to this customer during the current period totaled
approximately $397,000.
Net inventories declined $261,563 (22.5%), to $900,275, from the $1,161,838 at
December 31, 2001. A majority of the decrease in inventory is due to shipments
to the customer mentioned in the previous paragraph. In addition, the Company's
resale business has focused on selling inventory acquired during the final
months of fiscal year 2001.
Net fixed assets totaled $88,462 at June 30, 2002 compared to $128,665 at
December 31, 2001. Purchases of fixed assets totaled $1,647 during the current
period, while depreciation and amortization totaled $41,850, resulting in a net
decrease in fixed assets of $40,203.
Total liabilities at June 30, 2002 were $3,587,533, a decrease of $603,483
(14.4%) from the $4,191,016 at December 31, 2001. Accounts payable and accrued
liabilities were $1,279,282 at June 30, 2002, a decrease of $394,529 (23.6%)
from the $1,673,811 at December 31, 2001. Included in accrued liabilities is
$230,339 of liabilities of TSLi UK, a former subsidiary of TSLi US that was shut
down as of year-end 1999. A primary reason for the decrease in accounts payable
and accrued liabilities is that the Company paid vendors for product it
purchased to support the new customer mentioned earlier. At year-end 2001, the
Company owed approximately $85,000 for product purchased to support its newest
customer. Accounts payable were further reduced by approximately $106,000
resulting from an account reconciliation with a prominent supplier to the
Company. Accounts payable were further reduced by payments made during the
course of normal operations.
Accrued payroll totaled $625,490 at June 30, 2002, compared to $588,882 at
December 31, 2001. The increase was due primarily to Robert Genesi, the
Company's CEO, only receiving partial payment of his current and prior wages,
with the remaining amount being accrued. Accrued interest payable, which is
included in accounts payable and accrued liabilities, was $171,732 at June 30,
2002, an increase of $33,399 from the $138,333 at December 31, 2001. Included in
accrued interest payable is $9,964 that was paid on July 1, 2002.
Notes payable and other debt totaled $1,682,761 at June 30, 2002, a decrease of
$245,562 (12.7%) from the $1,928,323 at December 31, 2001. Credit line debt
decreased by $161,327 to $495,861 at June 30, 2002. Notes payable were further
reduced by the repayment of $62,135 that was loaned to the Company in December
2001 and by an additional $22,100 of net principal payments on the Company's
term loan with its financial lender.
The following is a summary of notes payable:
June 30, 2002 December 31, 2001
----------------- -----------------
Notes payable to related parties $698,000 $698,000
Convertible note payable 375,000 375,000
Credit Line 495,861 657,188
Term note to Lender 113,900 136,000
Other Note Payable 62,135
----------------- -----------------
$1,682,761 $1,928,323
13
Stockholder's Deficit
Stockholder's deficit was $1,118,197 at June 30, 2002, an increase of $16,634
from the $1,101,563 at December 31, 2001. The changes in stockholder's equity
were as follows:
Balance as of December 31, 2001 ($1,101,563)
Net Loss (94,433)
Interest on subscriptions receivable (12,201)
Estimated fair market value of options 90,000
----------------
($1,118,197)
Liquidity and Capital Resources
As of June 30, 2002, the Company had $2,469,336 in total assets, including
$102,710 in cash, $50,000 in a certificate of deposit, $1,009,170 in accounts
receivable, $900,275 in inventories, and net fixed assets of $88,462. The
accounts receivable are considered by management to have a high probability of
collection, as a majority of the receivables are to large OEMs. Inventories
consist primarily of hard drives and tapes drives and are very marketable,
although by nature their value tends to decrease over time as newer, more
advanced products are brought to market. Fixed assets consist primarily of
computers, office furniture and equipment, software, and test equipment. Due to
the age and proprietary nature of most of the fixed assets, these assets
probably have limited value to those outside the Company.
Also at June 30, 2002, total liabilities were $3,587,533, including accounts
payable and accrued liabilities of $1,279,282, accrued payroll and related
expenses of $625,490, and notes payable of $1,682,761. The accrued liabilities
include $230,339 of liabilities of TSLi UK, a subsidiary of TSLi US that was
shut down at the end of fiscal year 1999. Accrued wages include $420,491 of
accrued salary for Robert Genesi, the Company's Chief Executive Officer. Notes
payable include $470,000 to Robert Genesi and Anthony Giraudo, a former director
of the Company. Notes payable also includes $495,861 owed on the Company's
credit line with its financial lender. At June 30, 2002, the Company had
approximately $105,000 of availability on its credit line for short-term
financing needs.
During the period ended June 30, 2002, the Company generated $222,602 of cash
from operations, used $51,647 in investing activities, and used $245,562 in its
financing activities, with net cash used during the period of $74,607. The
Company's positive cash flow from operations resulted primarily from the
Company's cash collections and sales of inventory. Accounts payable and accrued
liabilities decreased as the Company paid vendors and significantly reduced
legal and professional expenses. Wages payable increased due to the fact that
the Company paid its CEO, Robert Genesi, a partial salary.
The Company had negative working capital of $1,312,908 at June 30, 2002. The
Company expects its operations to continue using net cash through at least the
third quarter of fiscal year 2002 as it continues to invest in new business
opportunities. Thus, the Company's success, including its ability to fund future
operations, depends largely on its ability to secure additional funding. There
can be no assurance that the Company will be able to consummate debt or equity
financings in a timely manner, on a basis favorable to the Company, or at all.
Inflation
Management believes that inflation has not had a material effect on the
Company's results of operations.
Going Concern
The Company's independent certified public accountants have stated in their
reports included in the Company's Form 10-KSB dated April 1, 2002 that the
Company has negative working capital, lack of operations history, and an
accumulated deficit. These conditions, among others, raise substantial doubt
about the Company's ability to continue as a going concern.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company may, from time to time, be involved in various claims,
lawsuits or disputes with third parties, actions including discrimination or
breach of contract or actions incidental to the operations of its business.
The Company received a Notice of Filing of Discrimination Complaint
from the Department of Fair Employment and Housing ("DFEH") on July 12, 2002 in
regard to a former employee of the Company. While the Company believes that this
claim is without merit, if the Company is proven to have engaged in
discrimination, the Company would be required to pay such employee back pay and
possibly other damages, which collectively could materially affect the Company.
In addition, the Company received a Notice of Case Closure from the DFEH on
August 6, 2002 indicating that a discrimination complaint in regard to another
former employee of the Company has been closed and that such former employee has
requested an immediate right-to-sue notice. At this time, the Company has not
received notice of a lawsuit regarding such former employee, but such notice may
be forthcoming.
The Company has also been requested to submit a claim to arbitration
regarding the repayment of a promissory note. While the Company is going to
agree to arbitrate the claim, the Company has been and is diligently pursuing a
settlement of such claim and expects to reach a settlement satisfactory to both
parties.
The Company is not currently a party to any other legal proceedings,
the adverse outcome of which, individually or in the aggregate would have a
material adverse effect on its financial position or results of operations.
Item 2. Changes in Securities.
On June 30, 2002, the Company issued 630,000 shares of restricted
common stock to 22 shareholders of the Company. Such shares were issued in
connection with the Company's reverse merger with World Internetworks, Inc. that
took place in April 2001.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
15
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation filed March 17, 1986, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on Form SB-2,
Registration No. 333-35766, as amended (Registrant's Statement on Form SB-2)
3.2 Articles of Amendment filed September 5, 1996, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on Form SB-2.
3.3 Certificate Pursuant to section 78.207(4) of the Nevada Revised Statues
filed October 11, 1996, which is incorporated h herein by reference to Exhibit
3.1 to the Registrant's Statement on Form SB-2.
3.4 Certificate Pursuant to section 78.207(4) of the Nevada Revised Statues
filed October 24, 1996, which is incorporated herein by reference to Exhibit 3.1
to the Registrant's Statement on Form SB-2.
3.5 Certificate of Amendment filed March 30, 1998, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on Form SB-2.
3.6 Certificate of Amendment filed August 31, 1998, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on Form SB-2.
3.7 Certificate Pursuant to Section 78.207(4) of the Nevada Revised
Statutes filed March 16, 2001. 3.8 Amended Bylaws of World Internetworks, Inc.
3.9 Certificate of Amendment filed November 30, 2001.
10.1 Agreement and Plan of Reorganization and Merger dated February 27,
2001 between GTDATA, Inc., GTD Acquisition, Inc. and GTData Corporation, which
is incorporated herein by reference to Exhibit 2.1 to the Registrant's Statement
on Form 8-K dated March 22, 2001.
21.1 Subsidiaries of Registrant.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
(b) Reports on Form 8-K
None
16
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GTDATA Corporation
Date: August 14, 2002 /s/ Robert Genesi
-----------------
Robert Genesi, President and
Chief Executive Officer
17