<PAGE>
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 March 31, 1999
OR
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-28330
TALK VISUAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4561156
(State or other jurisdiction of (I.R.S. Employer Identification No.)
information or organization)
One Canal Park, 3rd Floor
Cambridge, Massachusettes 02141
(Address of principal executive offices) (Zip Code)
(617) 679-0300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
There were 4,954,916 shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of May 7, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
<PAGE>
TALK VISUAL CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C>
Item l. Financial Statements (Unaudited):
Balance Sheets at March 31, 1999 and
December 31, 1998 3
Statements of Operations for the three
months ended March 31, 1999 and 1998. 4
Statements of Cash Flows for the nine
months ended March 31, 1999 and 1998. 5
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of
Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibits
Exhibit 11 19
Exhibit 27 20
</TABLE>
2
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TALK VISUAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 449,799 $ 153,608
Accounts receivable, net of allowances
for doubtful accounts of $12,500 and $12,500 2,260 31,243
Inventory 8,029 8,250
Other receivables 130,232 70,000
Advances related parties 1,512,049 -
Subscriptions receivable - 1,743,000
Marketable securities - 89,210
Other current assets 10,710 6,746
----------- -----------
Total current assets 2,113,079 2,102,057
----------- -----------
Product development costs, net 381,604 381,604
Property and equipment, net 1,900,446 18,500
Advance on acquisition 2,250,000 -
Other assets 99,455 1,400
----------- -----------
Total assets $ 6,744,584 $ 2,503,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 136,112 $ 129,968
Accrued expenses 40,294 16,685
Other current liabilities 20,805 -
Notes payable and current portion
of long-term debt 147,066 281,066
----------- -----------
Total current liabilities 344,277 427,719
----------- -----------
LONG-TERM DEBT, net of current portion 1,024,085 75,000
----------- -----------
Total Liabilities 1,368,362 502,719
----------- -----------
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.001 per share, 5,000,000
shares authorized; 975,000 and -0- issued and outstanding 975 -
Common Stock, par value $.001 per share, 10,000,000
shares authorized: 4,724,913 and 1,393,417 shares
issued and outstanding 4,725 1,393
Stock Subscribed 28 382
Additional paid in capital 14,825,966 10,000,719
Accumulated deficit (9,455,471) (7,829,760)
Accumulated other comprehensive loss - (14,892)
Stock Subscriptions receivable - (157,000)
----------- -----------
Total stockholders' equity 5,376,222 2,000,842
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,744,584 $ 2,503,561
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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TALK VISUAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
---------------- -----------
<S> <C> <C>
REVENUE
Royalties $ 2,028 $ 128,909
Software sales - 8,122
Corporate services - 42,000
Rental activities 19,264 -
----------- --------
Total revenue 21,292 179,031
----------- --------
COSTS AND EXPENSES
Cost of royalties 3,204 17,221
Cost of software sales - 10,562
Product development - 43,332
Real estate operations 8,766 -
General & administrative 49,349 159,812
Consulting services 1,483,887 -
Legal and accounting 95,310 29,459
Selling - 24,556
----------- --------
Total costs and expenses 1,640,516 284,942
----------- --------
LOSS FROM OPERATIONS (1,619,224) (105,910)
INTEREST EXPENSE (1,243) (12,645)
INTEREST INCOME 4,037 -
OTHER EXPENSE (1,563)
OTHER INCOME -
----------- --------
NET LOSS $(1,617,993) (118,555)
=========== ========
NET LOSS PER COMMON SHARE
BASIC $(0.47) $(0.12)
NET LOSS PER COMMON SHARE
DILUTED $(0.47) $(0.12)
==== =====
WEIGHTED AVERAGE COMMON STOCK SHARES
OUTSTANDING BASIC AND DILUTED 3,454,555 885,001
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
TALK VISUAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,617,993) $(118,555)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of product development costs -- 23,730
Depreciation 3,147 20,447
(Gain) loss on stock exchanged for debt 1,563 --
Common stock issues for services 1,497,637 --
Increase (decrease) in cash from changes in:
Accounts receivable, net 28,983 36,800
Other receivables 43,870 15,183
Inventories 221 11,509
Other assets (3,964) 9,164
Accounts payable 6,144 12,292
Accrued expenses 23,609 3,460
Deferred revenues -- (26,380)
Net cash from operating activities (16,783) (12,350)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (37,390) (3,578)
Additions to organization costs (868) --
Advances-related parties (1,512,049) --
Net cash used in investing activities (1,550,307) (3,578)
----------- ---------
Cash flows from financing activities:
Product development advances -- 30,000
Payments on notes payable and long term debt (29,000) (585)
Payment of cash dividends (7,719) --
Collection of stock subscriptions receivable 1,900,000 --
Net cash provided by financing activities 1,863,281 29,415
----------- ---------
Increase (decrease) in cash and cash equivalents 296,191 13,487
Cash and cash equivalents, at beginning of period 153,608 14,464
----------- ---------
Cash and cash equivalents, at end of period $ 449,799 $ 27,951
=========== =========
Supplemental disclosure of cash flow information
a. Cash paid during the period for:
Interest $ 1,243 $ 12,645
----------- ---------
Income Taxes $ 800 --
----------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
TALK VISUAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
<S> <C>
b. Non-cash transactions 3/31/99
---------
Conversion of marketable securities contributed under a stock subscription
For a note receivable $ 104,102
==========
Purchase of Toronto real estate in exchange for 975,000 shares of Convertible Preferred
Stock with a value of $975,000, assumption of a mortgage and other debts
in the amount of $966,743 $1,941,743
==========
600,000 shares issued under agreement for the acquisition of Videocall International as
a commission $2,250,000
==========
20,000 shares issued in cancellation of a note payable in the
amount of $75,000 $ 77,500
==========
7,500 shares issued in cancellation of an advance payable in
the amount of $30,000 $ 29,063
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation of the Company's financial position at March 31, 1999, the results
of operations for the three months ended March 31, 1999 and March 31, 1998, and
the cash flows for the three months ended March 31, 1999 and March 31, 1998 are
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
The information contained in this Form 10-QSB should be read in conjunction with
audited financial statements as of December 31, 1998 filed as part of the
Company's Annual Report on Form 10-KSB.
The Balance Sheet at December 31, 1998, does not reflect the rental property
assets acquired February 24, 1999. Additionally, the Consolidated Statement of
Operations for the period ended March 31, 1998 does not reflect any income or
expense from the rental property. When viewing the respective comparitive
financial information, the reader is advised to take into consideration the
inclusion or exclusion of the rental property acquired February 24, 1999.
(2) Proposed Acquisition of Videocall International Corporation
On September 8, 1998 Legacy Software, Inc., renamed Talk Visual Corporation
February 26, 1999 (the "Company") and Videocall International Corporation
("Videocall") announced that the two companies had entered into a Letter of
Intent for the Company to purchase the common shares of Videocall in
exchange for the Company's common and preferred stock. On September 14, 1998
the two companies signed an Agreement and Plan of Merger ("Merger Plan")
detailing the terms of the transaction, whereby Videocall will merge (the
"Merger") with a newly formed, wholly owned subsidiary of the Company. Videocall
is a development stage company formed to provide videocalling services to
businesses and consumers. Videocall is in the process of developing
international locations through strategic partnerships and wholy owned
outlets. The Board of Directors of the Company and the Board of Directors of
Videocall have approved the Merger Plan. The parties have prepared a
definitive Proxy Statement and Registration Statement on Form S-4 to be
submitted for Company stockholder approval of the Merger Plan at the annual
shareholder meeting scheduled for June 15, 1999, for shareholders of record May
7, 1999.
7
<PAGE>
TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Financial Condition and Liquidity
As of March 31, 1999, the Company had never achieved operating profits.
During the fourth quarter of 1998, the Company received $2,654,102 in cash and
other assets from third party investors to provide additional capital to the
Company for use in the merged Company/Videocall operations.
On February 24, 1999, the Company acquired a 22,622 square foot property in
Toronto, Canada in exchange for 975,000 shares of Class A Preferred stock,
$.001 par value, paying dividends of $.095 per share per annum. This building
was acquired as an investment and as part of the facility needs of the
videocalling operations.
The Company believes that it will be able to consummate the Merger, as
previously described, and its prospects for obtaining additional financing will
improve as a result thereof. However, should this transition not be successful,
the Company could face liquidity requirements that could significantly deplete
its current cash resources.
The Company has ceased its' CD-ROM software development activities, and is in
the process of determining the economic value of the sale or retention of
existing products and is currently focusing entirely on Videocall operations
in anticipation of shareholder approval of the Merger Plan. Since the Company
has ceased its software development and sales activities, in the event the
Merger is not consummated, the Company will not have any future revenue stream.
On April 7, 1999, the Company was notified by The Nasdaq Stock Market, Inc.
("Nasdaq") that the Company was not in compliance with the requirements for
continued listing on The Nasdaq SmallCap Market(SM), as set forth in the Nasdaq
Listing Qualifications Panel (the "Panel") decision dated January 20, 1999.
Accordingly, the Company's securities were delisted from The Nasdaq SmallCap
Market(SM)effective April 7, 1999 and are currently listed under the symbol
"TVCP" on the OTC Bulletin Board. The Company is currently appealing the Panel's
decision.
(4) Equity Transactions
On January 19,1999, the Company issued 175,000 shares of common stock to an
entity for services related to obtaining financing sources. This transaction was
priced at $3.625 per share for a total expense of $634,375.
8
<PAGE>
TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Equity Transactions (continued)
On January 25, 1999, the Company issued 600,000 shares common stock pursuant to
the agreement with the parties responsible for the introduction of Videocall to
the Company. This transaction was priced at $3.75 per share for a total cost of
$2,250,000. The shares are in escrow pending the consummation of the Merger, and
accordingly the transaction has been recorded as an advance on the acquisition
of Videocall.
On January 25, 1999, the Company issued 190,000 shares common stock for
consulting services at $3.75 per share for a total expense of $712,500.
On February 1, 1999, the Company issued 5,000 shares common stock for legal
services at $3.25 per share for a total expense of $16,250.
On February 2, 1999, the Company issued 40,000 shares common stock for
consulting services at $3.25 per share for a total expense of $130,000.
On March 5, 1999, the Company issued 27,500 shares common stock in exchange for
$105,000 of notes payable and accrued interest at $3.875 per share. The market
value of the shares issued on the date of exchange exceeded the obligations
recorded on the books of the Company by $1,562.
On March 16, 1999, the Company issued 1,128 shares common stock for services
rendered at $4.00 per share for a total expense of $4,512.
On February 24, 1999, the Company acquired a 22,622 square foot office facility
in Ontario, Canada with the issuance of 975,000 shares of Class A Preferred
Stock, Series 1999-A, $.001 par value, and the assumption of a first mortgage in
the amount of $935,450 along with various minor obligations totaling $31,293.
The Preferred shares have a stated value of $975,000 ($1.00 per share), are non-
voting, and pay a cumulative dividend of $0.095 per share. The total acquisition
price of the property was $1,941,743. The property was appraised at $1,854,000.
Included in other assets is $87,743 representing the excess purchase price paid
over the fair value of the acquisition.
(5) Segment Information
The Company has two reportable segments: Software development and sales and
Rental activities. Pending the Merger, Software development and sales have been
discontinued, excluding minor incidental sales. The Rental activity results from
the ownership of the Toronto property acquired in the current reporting period.
The Company's reportable segments are separate business units with their
individual reporting systems. Rental activity is delineated on the Consolidated
Statements of Operations under rental revenue and cost of sales real estate
operations.
9
<PAGE>
TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Contingencies
The Company is involved in certain claims arising in the normal course of
business. An estimate of the possible loss resulting from these matters cannot
be made; however, the Company believes that the ultimate
resolution of these matters will not have a material adverse effect on its
financial position or results of operations.
(7) Subsequent Events
The Company has signed an agreement with Interconnect Sprl. of Brussels Belguim
to introduce the videocalling concept to its telephone call shop customers
worldwide. The Company and Interconnect Sprl. will jointly market "turnkey"
video calling room systems to telephone call shops in key global markets, under
a plan to bring low-cost videocalling capability to thousands of call shops
globally.
The Company has filed a lawsuit in Los Angeles, California, claiming a total of
$30,000,000 in damages against DCI Telecommunications, Inc., its officers and
Directors and several of its shareholders. The lawsuit
alleges that during the period February 1998 to April, 1999, the defendents
conspired jointly to libel, slander and falsely accuse the Chairman of the
Company of wrong doing by posting messages on the internet.
(8) Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per Share", during 1997. SFAS
No. 128 requires presentation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts, such as stock options, to
issue common stock were exercised or converted into common stock. For The three
months ended March 31, 1999, all outstanding options and warrants were not
included in diluted earnings per share since they were antidilutive.
(9) Year 2000 Compliance
The Company has reviewed its computer systems in order to evaluate if any
modifications are necessary for the year 2000. The Company currently does not
anticipate that any material modifications or expenditures will be required in
its computer systems to bring the systems into compliance with the computational
needs for the year 2000. The Company has been advised by its external vendors
that their systems are in compliance with year 2000 issues.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," anticipates," or "believes" and all other statements
concerning future financial results, product offerings, proposed acquisitions or
combinations or other events that have not yet occurred) are forward-looking
statements that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements involve known and unknown factors, risks and
uncertainties which may cause the Company's actual results in future periods to
differ materially from forecasted results.
PROPOSED ACQUISITIONS
On September 8, 1998 the Company and Videocall announced that the two
companies had entered into a Letter of Intent for the Company to purchase the
common shares of Videocall in exchange for the Company's common and preferred
stock. On September 14, 1998 the two companies signed the Merger Plan detailing
the terms of the transaction whereby Videocall will merge with a newly formed
wholly owned subsidiary of the Company. The Company has scheduled the annual
shareholders' meeting for June 15, 1999, for the stockholders to vote on the
Merger plan.
On September 14, 1998, September 22, 1998, December 18, 1998 and December 31,
1998, private placements of $200,000, $2,000,000, $104,102 and $350,000 for
400,000, 2,040,816, 52,051 and 200,000 shares of Common Stock, respectively, was
subscribed to by third party investors to provide additional capital to the
Company for use in the merged Company/Videocall operations. Management feels
that based on these contributed capital amounts, the Company will be able to
operate for the coming twelve months. The Company believes that it will be able
to consummate the Merger, and its prospects for obtaining additional financing
will improve as a result thereof.
Videocall is a development stage company in the area of providing
videocalling services to businesses and consumers. Videocall is in the process
of developing international locations through strategic partnerships and through
vendor relationships. The Board of Directors of the Company and the Board of
Directors of Videocall have approved the Merger Plan. The Company has ceased
its' CD-ROM software development activities, and is in the process of
determining the economic value of the sale or retention of existing products
and is currently focusing entirely on Videocall operations in anticipation of
shareholder approval of the Merger Plan. Also, subject to approval of the Merger
Plan it is the intent of the Company to reincorporate from Delaware to Nevada.
See "Risk Factors" and elsewhere in this form 10-QSB.
The Company has issued 600,000 shares of stock and has agreed to issue
1,800,000 options to parties responsible for the introduction of the Company to
Videocall. The options are exercisable at twenty five
11
<PAGE>
cents per share and expire three years from the issue date. Additionally,
Videocall has agreed to issue 1,200,000 shares in connection with the Merger
Plan to parties responsible for the introduction of Videocall to the Company.
Both equity obligations take effect on the consummation of the Merger.
RISK FACTORS
As noted above, on September 8, 1998 the Company and Videocall announced that
the two companies had entered into a Letter of Intent for the Company to
purchase the common shares of Videocall in exchange for the Company's common and
preferred stock. On September 14, 1998 the two companies signed the Merger Plan
detailing the terms of the transaction whereby Videocall will merge with a newly
formed wholly owned subsidiary of the Company.
The Company believes that it will be able to consummate the Merger, and its
prospects for obtaining additional financing will improve as a result thereof.
Because Videocall is a developmental company, there can be no assurance that the
Company will achieve profitability and, even if achieved, that such
profitability will be consistent on a quarterly or annual basis. However,
should this transition not be successful, the Company could face liquidity
requirements that could significantly deplete its current cash resources.
Additionally, since the Company has ceased its software development and sales
activities, in the event the Merger is not consummated, the Company will not
have any future revenue stream.
Although the Company believes that the proposed Merger is in the best
interests of the Company and its stockholders, there are significant risks
associated with these transactions. The Company's ability to integrate and
organize new businesses and successfully manage growth requires significant
expansion in its operational, financial and management systems. There is no
assurance that the Company will be able to address these requirements in a
satisfactory manner, and the failure to do so could have a material adverse
effect on the Company's results of operations, financial condition and business.
Management of Growth; Uncertainties Relating to Acquisitions, Business
Combinations and New Businesses. The Company has pursued, is currently pursuing
and, in the future may pursue, new technologies and businesses internally and
through acquisitions and combinations which involve significant risks. Any such
acquisition or combination may involve, among other things, the issuance of
equity securities, the payment of cash, the incurrence of contingent liabilities
and the amortization of expenses related to goodwill and other intangible
assets, and transaction costs, which have adversely affected, or may adversely
affect, the Company's business, results of operations and financial condition.
The Company's ability to integrate and organize any new businesses and/or
products, whether internally developed or obtained by acquisition or
combination, including the acquisition of Videocall, will likely require
significant expansion of the Company's operations. There is no assurance that
the Company will have or be able to obtain the necessary resources to
satisfactorily effect such expansion, and the failure to do so could have a
material adverse
12
<PAGE>
effect on the Company's business, financial condition and results of operations.
In addition future acquisitions and or combinations by the Company involve risks
of, among other things, entering markets or segments in which the Company has no
or limited prior experience, the potential loss of key employees of the acquired
company and/or difficulty, delay or failure in the integration of the
operations, management, personnel and business of any such new business with the
Company's business and operating and financial difficulties of any new or newly
combined operations, any of which could have a materially adverse effect on the
Company's business, financial condition and results of operations. Moreover,
there can be no assurance that the anticipated benefits of any specific
acquisition or of any internally developed new business segment or business
combination will be realized.
RESULTS OF OPERATIONS
For the three months ended March 31, 1999 compared to the three months ended
----------------------------------------------------------------------------
March 31, 1998.
- ---------------
For the three months ended March 31, 1999, revenues decreased from $179,031 for
the three months ended March 31, 1998 to $21,292 for the three months ended
March 31, 1999. This $157,739 decrease was due primarily to the cessation of
software development and sales pending the Merger. Of the $21,292 in revenue for
the three months ending March 31, 1999, $19,264 or 90% was from rent receipts in
the Toronto property.
Costs of revenues for the three months ended March 31, 1999 totaled $3,204,
representing costs incurred in the current period for products previously
shipped. Total costs of revenues for the three months ended March 31, 1998 were
$27,783. As a result of the cessation of software development and sales
activities, the cost of such sales decreased accordingly.
For the three months ended March 31, 1999, the Company did not make any
expenditures for product development, compared to the $43,332 expense for the
period ended March 31, 1998.
Expenses of $8,766 were incurred for the Toronto real estate operation acquired
February 24, 1999. Rental income, as noted above, was $19,264 yielding net
rental earnings of $10,498.
General and administrative expenses decreased $110,463 from $159,812 for the
three months ended March 31, 1998 to $49,349 for the three months ended March
31, 1999. This resulted from the Company closing its Los Angeles office and
consolidating operations with Videocall in Cambridge, Massachusettes;
terminating all employees except one; and terminating all services from outside
vendors except for incidental costs associated with the former software
development and sale activities.
Consulting services, not related to software development or sales, for the three
months ended March 31, 1999 were $1,483,887, compared to no expense for the
three months ended March 31, 1998. This amount
13
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represents $1,481,387 paid in shares of the Company's common stock and $2,500
paid in cash. The majority of the consulting services were for assistance in
financing, investor relations and public relation services.
Legal and accounting expense increased from $29,459 for the three months ended
March 31, 1998 to $95,310 for the three months ended March 31, 1999. The
increase of $65,851 resulted primarily from legal costs incurred in the
preparation of the proxy related to the Merger; legal costs incurred in Nasdaq
matters and legal costs for the Toronto subsidiary and the issuance of preferred
stock. Of the $95,310 expense, $16,250 was paid for with common stock of the
Company.
The Company had no selling expenses for the three months ended March 31, 1999,
compared to $24,556 of expenses for the three months ended March 31, 1998. The
decrease was a result of the cessation of software development and sales
activities.
Interest expense decreased $11,402 from $12,645 for the three months ended March
31, 1998 to $1,243 for the three months ended March 31, 1999. For the three
months ended March 31, 1998 there was no interest income received, compared to
$4,037 for the three months ended March 31, 1999. Both changes in interest
expense and interest income were a result of the capital infusion from funds and
assets received in the private placements occurring in 1998.
The $1,563 of other expense in the three months ended March 31, 1999 (compared
to no other expenses incurred in the three months ended March 31, 1998)resulted
from the market value of the common stock issued over the liability recorded in
the exchange of common stock for debt.
Liquidity and Capital Resources
The Company had $16,783 in cash outflows from operating activities for the
three months ended March 31, 1999 compared to cash outflows of $12,350 for the
three months ended March 31, 1998. The increase in net outflows of $4,433
between 1999 and 1998 operating cash flow, primarily resulted from the
following: a increase in the net loss from operations after adjustments for non-
cash items of $41,268; a decrease in the change of deferred revenue of $26,380;
a decrease in the change in accounts receivable of $7,817; an increase in the
change in other receivables of $28,687; a decrease in the change in inventory of
$11,288; a decrease in the change in accounts payable of $6,148; an increase in
the change in accrued expenses of $20,149 and an increase in other assets of
$13,128. This increase is primarily due to the Company's cessation of sales and
marketing; the increased legal and professional costs associated with the
shareholder proxy statement and additional insurance purchases.
Investing activities in the first three months ended March 31, 1999 consisted
of the purchase of the Toronto property, which required cash payments of
$37,390, compared to the purchase of computer equipment in the three months
ended March 31, 1998, for $3,578; additional expenditures for organization costs
of $868 for the year ended March 31, 1999; and advances to related parties of
$1,512,049.
14
<PAGE>
The acquisition of the Toronto, Ontario Canada property was accomplished with
the issuance of 975,000 shares of Class A Preferred Stock, Series 1999-A, $.001
par value, and the assumption of a first mortgage in the amount of $935,450
along with various minor obligations totaling $31,293. The Preferred shares have
a stated value of $975,000 ($1.00 per share), are non-voting, and pay a
cumulative dividend of $0.095 per share. The total acquisition price of the
property was $1,941,743. The property was appraised at $1,854,000. Included in
other assets is $87,743 representing the excess purchase price paid over the
fair value of the acquisition. The property is held by a subsidiary of the
Company, The Ontario International Property Corporation.
The Company has cash inflows of $1,863,281 from financing activities for the
first three months of 1999 compared to cash inflows of $29,415 for the first
three months of 1998. Financing activities for the three months ended March 31,
1999 included collection of stockholder's recievable of $1,900,000; payment on
notes payable of $29,000 and payment of cash dividends on the preferred stock of
$7.719. This compares to an advance received of $30,000 for use in project joint
ventures offset by payments of $585 on notes payable for the three months ended
March 31, 1998.
As noted earlier the Company and Videocall announced that the two companies
had entered into a Letter of Intent for the Company to purchase the common
shares of Videocall in exchange for the Company's common and preferred stock. On
September 14, 1998 the two companies signed the Merger Plan detailing the terms
of the transaction whereby Videocall will merge with a newly formed wholly owned
subsidiary of the Company. The Company has scheduled the annual shareholders'
meeting for June 15, 1999, for the stockholders to vote on the Merger plan.
On September 14, 1998, September 22, 1998, December 18, 1998 and December 31,
1998, private placements of $200,000, $2,000,000, $104,102 and $350,000 for
400,000, 2,040,816, 52,051 and 200,000 shares of Common Stock, respectively, was
subscribed to by third party investors to provide additional capital to the
Company for use in the merged Company/Videocall operations. Management feels
that based on these contributed capital amounts, the Company will be able to
operate for the coming twelve months. The Company believes that it will be able
to consummate the Merger, and its prospects for obtaining additional financing
will improve as a result thereof.
YEAR 2000 ISSUES
The Company has reviewed its computer systems in order to evaluate if any
modifications are necessary for the year 2000. The Company currently does not
anticipate that any material modifications or expenditures will be required in
its computer systems to bring the systems into compliance with the computational
needs for the year 2000. The Company has been advised by its external vendors
that their systems are in compliance with year 2000 issues.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 18, 1997, the U.S. Securities and Exchange Commission ("SEC") issued
a subpoenas deces tecum to the Custodian of Records of the Company and other
parties. The subpoenas were issued in connection with the SEC's formal
investigation entitled In the Matter of Reynolds Kendrick Stratton, Inc., File
No. LA-752 (the "Investigation"). The Investigation appears to center around
activities of JB Oxford Holdings, Inc., a broker-dealer, which is the successor
to Reynolds Kendrick Stratton, Inc., and was the underwriter of the Company's
initial public offering. The SEC has indicated that it expects to take the
testimony of the Company and other parties at some point in the future. The
Company has no reason to conclude that it is a target of the Investigation.
The Company has filed a lawsuit (the "Complaint") in Los Angeles,
California against the former Chairperson, Ariella Lehrer, the D&A Lehrer
Children Trust and other related entities. In that action, the Company alleges
that Lehrer breached her fiduciary duties to the Company through various actions
that, according to the Complaint, "undertook to burden an already weakened
Legacy with unreasonable, unnecessary and unfair obligations that primarily
benefited her personally." The Company also claims that Lehrer's actions were
"taken in bad faith and were... not in the best interest of Plaintiff Legacy or
its shareholders." The Company also alleges that Lehrer fraudulently backdated
documents for her personal benefit, and "deliberately and maliciously
misrepresented the financial condition of plaintiff Legacy..." The company
claims that the misrepresentations created substantial and unnecessary legal
exposure for the Company, particularly with the Company's listing on the Nasdaq
SmallCap Stock Market. The Company seeks to recover substantial damages, to be
proved at trial, for Lehrer's actions and also seeks injunctive relief requiring
Lehrer to return to the Company significant assets.
The Company has filed a lawsuit in Los Angeles, California, claiming a total of
$30,000,000 in damages against DCI Telecommunications, Inc., its officers and
Directors and several of its shareholders. The lawsuit alleges that during the
period February 1998 to April, 1999, the defendents conspired jointly to libel,
slander and falsely accuse the Chairman of the Company of wrong doing by posting
messages on the internet.
The Company is not currently involved in any litigation that is expected to
have a material adverse effect on the Company's business or financial position.
There can be no assurance, however, that third parties will not assert
infringement or other claims against the Company in the future which, regardless
of the outcome, could have an adverse impact on the Company as a result of
defense costs, diversion of management resources and other factors.
16
<PAGE>
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 11 - Weighted Average of Common Stock Shares
Outstanding
Exhibit 27 - Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the quarter for
which this form is filed:
Item 4, Changes in Registrant's Certifying Accountants
notification of the resignation of BDO Seidman, LLP, January 14,
1999, no financial statements filed with report.
Item 4, Changes in Registrant's Certifying Accountants
notification of appointment of Mayer Rispler & Company, February
4, 1999, no financial statements filed with report.
Item 2, Acquisition and Disposition of Assets disclosure of the
acquisition of a 22,622 square foot commercial property in
Toronto Canada and issuance of preferred stock, February 24,
1999, Proforma financial statements reflecting the acquisition;
Item 5, Other Events Notification of Name Change.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 1999 TALK VISUAL CORPORATION
/s/ C. HAROLD SNYDER
__________________________________
C. Harold Snyder
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
18
<PAGE>
EXHIBIT 11
TALK VISUAL CORPORATION
COMPUTATION OF WEIGHTED AVERAGE
COMMON STOCK SHARES OUTSTANDING
COMPUTATION OF WEIGHTED AVERAGE COMMON STOCK SHARES OUTSTANDING:
<TABLE>
<CAPTION>
Total Number Three Months Ended
Of Shares March 31, 1999
------------ ------------------
<S> <C> <C>
Outstanding shares as of January 1, 1999 1,393,418 1,393,418
Issue of 2,040,816 shares as part of private
placement 09/22/99 on 01/12/99 1,122,449 972,789
Issue of common shares in private placements
12/31 on 01/14/99 200,000 168,889
Issue of common shares for services on 01/19/99 175,000 138,056
Issue of common shares for investment on 12/18
on 01/19/99 52,051 41,062
Issue of common shares for services on 01/25/99 790,000 570,556
Issue of common shares for services on 02/01/99 45,000 29,000
Issue of common shares in exchange for debt on
12/31 on 03/05/99 27,500 7,944
Issue of common shares for services on 03/16/99 1,128 188
Issue of 2,040,816 shares as part of private
Placement 09/22/99 on 03/18/99 918,367 132,653
--------- ---------
Total Weighted Average Shares Outstanding 4,724,913 3,454,555
========= =========
Net Loss $(1,617,993)
Net Loss per common share (1) $(0.47)
</TABLE>
(1) The effect of common stock options and warrants are excluded from diluted
earnings per share as their inclusion would be anti-dilutive for the
three month period ending March 31, 1999
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TALK VISUAL
CORPORATION'S BALANCE SHEET AS OF MARCH 31, 1999 AND THE STATEMENTS OF
OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE PERIOD THEN ENDED, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 449,799
<SECURITIES> 0
<RECEIVABLES> 2,260
<ALLOWANCES> 12,500
<INVENTORY> 8,029
<CURRENT-ASSETS> 2,113,079
<PP&E> 1,903,593
<DEPRECIATION> 3,147
<TOTAL-ASSETS> 6,744,584
<CURRENT-LIABILITIES> 344,277
<BONDS> 0
0
975
<COMMON> 4,725
<OTHER-SE> 5,370,522
<TOTAL-LIABILITY-AND-EQUITY> 6,744,584
<SALES> 21,292
<TOTAL-REVENUES> 21,292
<CGS> 11,970
<TOTAL-COSTS> 1,645,516
<OTHER-EXPENSES> (5,600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,243
<INCOME-PRETAX> (1,617,993)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,617,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,617,993)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
