<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 June 30, 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)
Nevada 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 24,914,463 shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of August 6, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
<PAGE>
TALK VISUAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item l. Financial Statements (Unaudited):
Condensed Balance Sheets at June 30, 1999 and
December 31, 1998. 3
Condensed Statements of Operations for the three
months ended June 30, 1999 and 1998 and
the six months ended June 30, 1999 and 1998. 4
Condensed Statements of Cash Flows for the six
months ended June 30, 1999 and 1998. 5
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan
of Operations 13
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibits
Exhibit 11 23
Exhibit 27 24
</TABLE>
2
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 44,583 $ 153,608
Accounts receivable, net of allowances
for doubtful accounts of $12,500 and $12,500 87,873 31,243
Inventory 8,029 8,250
Other receivables 260,271 70,000
Advances related parties 789,640 -
Subscriptions receivable - 1,743,000
Marketable securities - 89,210
Other current assets 224,716 6,746
------------ -----------
Total current assets 1,415,112 2,102,057
------------ -----------
Product development costs, net 381,604 381,604
Property and equipment, net 11,261,742 18,500
Payment in excess of fair value for acquisition 2,370,000 -
Other investments 359,000 -
Other assets 493,630 1,400
------------ -----------
Total assets $ 16,281,088 $ 2,503,561
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 752,720 $ 129,968
Accrued expenses 170,268 16,685
Other current liabilities 72,919 -
Notes payable and current portion
of long-term debt 191,354 281,066
------------ -----------
Total current liabilities 1,187,261 427,719
------------ -----------
LONG-TERM DEBT, net of current portion 6,256,271 75,000
------------ -----------
Total Liabilities 7,443,532 502,719
------------ -----------
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001 per share, 25,000,000
shares authorized; 975,000 and -0- issued and outstanding 975 -
Common stock, par value $.001 per share, 100,000,000
shares authorized: 24,914,463 and 1,393,417 shares
issued and outstanding 24,914 1,393
Stock subscribed - 382
Additional paid in capital 21,022,012 10,000,719
Accumulated deficit (10,371,878) (7,829,760)
Accumulated other comprehensive loss 15,359 (14,892)
Stock subscriptions receivable (1,853,826) (157,000)
------------ -----------
Total stockholders' equity 8,837,556 2,000,842
------------ -----------
Total Liabilities and Stockholders' Equity $ 16,281,088 $ 2,503,561
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Royalties $ 859 $ 63,601 $ 2,887 $ 192,510
Software sales - 7,687 - 15,810
Equipment sales, net 12,373 - 12,373 -
Corporate services - 19,500 - 61,500
Real estate revenue 96,985 - 116,248 -
---------- ---------- ------------ ----------
Total revenue 110,217 90,788 131,508 269,820
---------- ---------- ------------ ----------
COSTS AND EXPENSES
Cost of royalties - 9,560 3,204 26,781
Cost of software sales - 3,638 - 14,200
Depreciation 16,425 20,006 19,572 40,454
Research & product development 8,607 3,229 8,607 7,218
Real estate operations 41,416 - 50,182 -
General & administrative 201,564 138,430 244,728 277,205
Consulting services 51,726 12,699 1,535,613 52,631
Legal and Professional 631,389 27,007 726,699 56,466
Marketing 14,248 20,017 14,248 44,574
---------- ---------- ------------ ----------
Total costs and expenses 965,375 234,586 2,602,853 519,529
---------- ---------- ------------ ----------
LOSS FROM OPERATIONS (855,158) (143,798) (2,471,345) (249,709)
INTEREST EXPENSE (39,096) (31,495) (40,339) (44,140)
INTEREST INCOME 3 - 440 -
---------- ---------- ------------ ----------
NET LOSS ($894,251) ($175,293) ($2,511,244) ($293,849)
========== ========== ============ ==========
NET LOSS PER COMMON SHARE
BASIC ($0.12) ($0.07) ($0.37) ($0.11)
NET LOSS PER COMMON SHARE
DILUTED ($0.12) ($0.07) ($0.37) ($0.11)
WEIGHTED AVERAGE COMMON STOCK
SHARES OUTSTANDING
BASIC 7,453,662 2,655,002 6,821,992 2,655,002
DILUTED 7,453,662 2,655,002 6,821,992 2,655,002
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 2,511,244) $(293,849)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of product development costs - 32,606
Depreciation 19,572 40,454
(Gain) loss on stock exchanged for debt 1,563 -
Common stock issues for services 2,251,387 -
Increase (decrease) in cash from changes in:
Accounts receivable, net 20,533 84,055
Other receivables (23,018) 19,849
Inventories 221 5,039
Other assets 2,732 18,046
Accounts payable 172,248 1,184
Accrued expenses (4,435) -
Deferred revenues - (31,004)
Other current liabilities 17,408 -
------------ ---------
Net cash from operating activities ( 53,033) (123,620)
------------ ---------
Cash flows from investing activities:
Purchase of property and equipment (38,390) (4,617)
Disposal of marketable securities 89,210
Additions to organization costs (868) --
Advances-related parties (1,973,047) --
Investment in production joint ventures (48,647)
---------
Net cash used in investing activities (1,923,095) (53,264)
------------ ---------
Cash flows from financing activities:
Product development advances - 30,000
Payments on notes payable and long term debt (22,401) (1,221)
Payment of cash dividends (23,156) -
Collection of stock subscriptions receivable 1,842,545 -
Proceeds from private placement for common stock - 105,000
Obligation for equipment sold 70,115 -
Exercise of common stock warrants - 75,000
Due to former co-development partner - 20,000
------------ ---------
Net cash provided by financing activities 1,867,103 228,779
------------ ---------
Increase (decrease) in cash and cash equivalents (109,025) 51,895
Cash and cash equivalents, at beginning of period 153,608 14,464
------------ ---------
Cash and cash equivalents, at end of period $ 44,583 $ 66,359
============ =========
Supplemental disclosure of cash flow information
a. Cash paid during the period for:
Interest $ 356,741 $ 44,140
------------ ---------
Income taxes $ 800 -
------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(continued)
<TABLE>
<S> <C>
6/30/99
----------
b. Non-cash transactions
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 in connection with 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
==========
19,841,400 shares issued pursuant to the merger of Videocall International Corporation with Talk Visual
Corporation as approved by the shareholders $5,462,458
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED 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 June 30, 1999, the results
of operations for the three and six months ended June 30, 1999 and June 30,
1998, and the cash flows for the six months ended June 30, 1999 and June 30,
1998 are included. Operating results for the three and six month period ended
June 30, 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, nor the assets and liabilities of videocall
international corporation and subsidiaries merged effective June 18, 1999. When
viewing the respective comparitive financial information, the reader is advised
to take into consideration the inclusion or exclusion of the rental and other
assets acquired.
(2) Acquisition of Videocall International Corporation
Pursuant to an Agreement and Plan of Merger ("Merger"), dated September 14,
1998, a merger was consummated between Videocall International Corporation
("Videocall") and a newly formed, wholly owned subsidiary of the Company on June
18, 1999. The stock-for-stock transaction was aproved by the stockholders of
both companies, after which the subsidiary into which Videocall has been merged
will be merged with and into the Company, with talk visual being the survivor.
Each share of Videocall's common stock was converted into either 3 shares, 1
share and/or options exercisable at $1.00 per share, depending on the
shareholder's purchase date of the holdings. In effecting the Merger, the
Company will issue 19,841,400 shares of common stock to the Videocall
shareholders, and will grant 13,688,475 three year options for one share of
stock each, at an exercise price of $1.00 per share. The transaction was valued
at $0.275 per share for a total purchase price of $5,462,458. The Videocall
merger was accounted for using the purchase method of accounting and accordingly
the purchase price has been allocated to the assets purchased and liabilities
assumed based on the fair market values at the date of the acquisition as
follows:
7
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
(2) Acquisition of Videocall International Corporation (continued)
<S> <C>
Current assets $ 888,655
Land, buildings and other fixed assets 9,328,383
Other assets 2,391,621
Liabilities (7,146,201)
-----------
Total purchase price $ 5,462,458
===========
</TABLE>
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.
Pro-Forma Effect of Videocall Merger
- ------------------------------------
The merger transaction between Videocall and the Company has been accounted for
as a purchase; accordingly, operating results for Videocall have been included
from the date of acquisition. The following unaudited pro forma combined results
of operations for the Company for the three months and six months ended June 30,
1999, and June 30, 1998, assumes that the Videocall Merger was completed on
January 1, 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ---------------------------
1999 1998 1999 1998
--------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUE
Royalties $ 859 $ 63,601 $ 2,887 $ 192,510
Software sales - 7,687 - 15,810
Equipment sales, net 12,373 - 12,373 -
Corporate services - 19,500 - 61,500
Real estate revenue 511,105 - 530,369 -
----------- --------- ----------- ---------
Total Revenue 524,337 90,788 545,629 269,820
----------- --------- ----------- ---------
COSTS AND EXPENSES
Cost of royalties - 9,560 3,204 26,781
Cost of software sales - 3,638 - 14,200
Depreciation 95,511 20,006 98,658 40,454
Research & product development 118,324 3,229 118,324 7,218
Real estate operations 282,192 - 290,958 -
General & administrative 779,113 138,430 825,315 277,205
Consulting services 98,292 12,699 1,582,179 52,631
Legal and professional 722,742 27,007 818,052 56,466
Marketing 125,708 20,017 125,708 44,574
----------- --------- ----------- ---------
Total costs and expenses 2,221,882 234,586 3,862,398 519,529
----------- --------- ----------- ---------
LOSS FROM OPERATIONS (1,697,545) (143,798) (3,316,769) (249,709)
INTEREST EXPENSE (322,453) (31,495) (323,696) (44,140)
INTEREST INCOME 2,169 - 6,206 -
----------- --------- ----------- ---------
NET LOSS (2,017,829) (175,293) (3,634,259) (293,849)
=========== ========= =========== =========
</TABLE>
8
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) Financial Condition and Liquidity
As of June 30, 1999, the Company had never achieved operating profits. The
Company is dependent on revenues from the real estate operations and
collection of investor stock subscriptions and other receivables for working
capital needs, until the videocalling operations commence.
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 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.
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 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.
(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.
On January 25, 1999, the Company issued 600,000 shares of 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 Company is also obligated under the agreement, to issue
options, exercisable at $0.25 per share, to the same parties. See the discussion
under the June 18,1999 equity transaction noted below.
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.
9
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Equity Transactions (continued)
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 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.
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 April 9, 1999, the Company issued 30,000 shares of common stock for legal
services at $3.375 per share for a total expense of $101,250. On that same date,
the Company set aside 200,000 shares in escrow for the former owners of
Sacramento Results, Inc., the subsidiary of Videocall which holds the Town and
Country Plaza real estate. This stock was set aside as collateral for the note
payable from Videocall to the former owners of Sacramento Results, Inc. as part
of the original purchase agreement.
On June 8, 1999, the Company issued 50,000 shares of common stock to the
president of the Company as a bonus. The Company also issued 220,000 shares in
payment for legal services and set aside 20,000 for a consultant, to be released
at a later date. The shares were issued at a price of $2.25, for a total expense
of $652,500.
On June 18, 1999, as a result of the Videocall merger, each share of Videocall
common was converted into the right to receive either one share, three shares,
and/or options of Talk Visual Common Stock or, 19,841,400 shares and 15,608,477
options in the aggregate. The options are exercisable at $1.00 per share and
expire three years from their issue date. The transaction was valued at $0.275
per share for a total purchase price of $5,462,458. In connection with the
merger, the Company also issued 1,800,000
10
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Equity Transactions (continued)
options, in addition to the options to the shareholders previously noted, at an
exercise price of $0.25 per share for a three year period, to third parties who
were responsible for the introduction of the Company and Videocall.
(5) Segment Information
Effective with the June 18, 1999 Merger, the Company has two reportable
segments, videocalling/telecommunication services and real estate rental
activities. 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 previous quarter and the ownership of Town and
Country Plaza West, acquired in the Videocall merger which occurred 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 operations real estate operations. As of this reporting period, the
Company has received an insignificant amount of videocalling/telecommunication
income during the twelve day period Videocall International Corp was included in
this financial reporting period.
(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
On July 13, 1999, the Company announced that a private placement funding of
$1,000,000 was subscribed to by an European investment group. The Company began
receiving the funds under this subscription in the latter part of July and
anticipates receiving the balance in August and September, 1999.
On July 30, 1999, the Company signed a lease with Lucky Capital, Inc. for
approximately 3,143 square feet of office space in Miami, Florida. The Company
has announced that it will be relocating its world headquarters from Cambridge
Massachusettes to Miami, Florida in August, 1999. The lease term is three years
at a base rate of $3,666 per month for the first year, $3,798 for the second
year and $3,929 for the third and final year. The Company
11
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) Subsequent Events (Continued)
Currently leases 2,504 square feet on a month to month lease in Cambridge,
Massachusettes for a monthly base payment of $7,262.
The Company has entered into negotiations with a private investment Group to
provide financing, utilizing the Sacramento property for security. The initial
commitment has been proposed at $2,300,000, pending an appraisal report on the
property. The obligation will bear an interest rate of 8% APR plus an additional
amount, payable in the Company's common stock, depending on the length of time
for repayment. The Company has received an initial payment under this
commitment.
(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.
12
<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 March 22, 1999, the Company signed a letter of intent, subject to Board
approval, to acquire all of the outstanding stock of Proximity, Inc. for a
purchase price of $4,250,000, to be paid in the Company's common stock and cash
of $250,000. The cash payment portion would be payable in ten installments of
$25,000 each on a monthly basis. Additionally, the Company has agreed to make
available $200,000 of working capital for Proximity upon execution of a
definitive agreement.
Proximity, Inc. is an international full spectrum provider of
videoconferencing services with public access to over 2,000 videoconferencing
sites. In addition to videoconferencing access, Proximity provides High Impact
Videoconferencing Productions, multipoint bridge coordination, satellite
uplink/downlink services, corporate videoconferencing outsourcing and consulting
services.
MERGER OF VIDEOCALL
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 held a special shareholders'
meeting June 15, 1999, whereupon the stockholders approved the Merger plan.
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 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.
The Company has issued 600,000 shares of stock and 1,800,000 options to
parties responsible for the introduction of the Company to Videocall. The
13
<PAGE>
options are exercisable at twenty five cents per share and expire three years
from the issue date. Additionally, Videocall issued 1,200,000 shares in
connection with the Merger Plan to those same parties.
On June 18, 1999, as a result of the Videocall merger, each share of Videocall
common was converted into the right to receive either one share, three shares,
and/or options of Talk Visual Common Stock or 19,841,400 shares and 15,608,477
options in the aggregate. The options are exercisable at $1.00 per share and
expire three years from their issue date. The transaction was valued at $0.275
per share for a total purchase price of $5,462,458. The Videocall merger was
accounted for using the purchase method of accounting and accordingly the
purchase price has been allocated to the assets purchased and liabilities
assumed based on the fair market values at the date of the acquisition as
follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 888,655
Land, buildings and other fixed assets 9,328,383
Other assets 2,391,621
Liabilities (7,146,201)
-----------
Total purchase price $ 5,462,458
===========
</TABLE>
The amounts paid by the Company in stock, to the third parties, as
compensation for the introduction of Videocall, has been capitalized as amounts
paid in excess of fair value. This amount, totaling $2,370,000 for the combined
entities, is considered an intangible asset and will be amortized over forty
years. No amortization has been taken during the current period as it was
considered immaterial for reporting purposes.
RISK FACTORS
As of June 30, 1999, the Company had never achieved operating profits. The
Company has ceased its software development and sales activities and is wholly
dependent on the videoconferencing and real estate rental activities for its
future revenues. 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. 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,
14
<PAGE>
whether internally developed or obtained by acquisition or combination, 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 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 June 30, 1999 compared to the three months ended
---------------------------------------------------------------------------
June 30, 1998.
- --------------
For the three months ended June 30, 1999, revenues increased from $90,788 for
the three months ended June 30, 1998 to $110,217 for the three months ended June
30, 1999. This $19,429 increase was due to the change from software sales and
support to real estate activities and the sale of videocalling equipment to
foreign joint venture partners. The Company invoices a fee for the sale of the
equipment separate from the equipment cost. Accordingly, revenue from equipment
sales represents only the fee portion of the sale.
Costs associated with royalty income are considered immaterial and are not
reflected in the cost and expense schedule. As a result of the cessation of
gaming software development and sales activities, the Company has not recognized
any cost of software sales nor has the Company incurred any product development
costs. Research and product development expense of $8,607 for the three months
ended June 30, 1999 represent amounts incurred for videocalling systems after
the June 18, 1999 merger with videocall international corp. The amount of $3,229
for the three months ended June 30, 1998 represents software development costs
incurred by the Company for development of its former product line.
Expenses of $41,416 were incurred for the Toronto real estate operation acquired
february 24, 1999 and the Sacramento real estate acquired as part of the
Videocall merger June 18,1999. Rental income, as noted above, was $96,985,
yielding net rental earnings of $55,569 before interest and depreciation.
General and administrative expenses increased $63,134 from $138,430 for the
three months ended June 30, 1998 to $201,564, for the three months ended June
30, 1999. This resulted from the Company's support of the videocalling
activities and included $112,500 in bonus payments to an officer of the
corporation which was paid in stock.
15
<PAGE>
Consulting services, not related to software development or sales, for the three
months ended June 30, 1999 were $51,726, compared to $12,699 for the three
months ended June 30, 1998. This amount represents $45,000 paid in shares of the
Company's common stock and $6,726 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 $27,007 for the three months ended
June 30, 1998 to $631,389 for the three months ended June 30, 1999. The increase
of $604,382 resulted primarily from legal costs incurred in the preparation of
the proxy related to the Merger; legal costs incurred in security matters, legal
work performed in relation to the filings as a result of the merger and legal
costs for the Toronto subsidiary and the issuance of preferred stock. The
disproportionate expense was also a function of the market price of the stock at
the time of issue, as a majority of the expense was paid for with the Company's
common stock. Of the $631,389 expense, $596,250 was paid for with common stock
of the Company.
The Company's marketing expenses for the three months ended June 30, 1999,
amounted to $14,248, compared to $20,017 of expenses for the three months ended
June 30, 1998. Marketing expenses in the three month period ending June 30, 1999
related to videocall activities, verses marketing expenses in the prior year for
the same period related to education software products.
Interest expense increased $7,601 from $31,495 for the three months ended June
30, 1998 to $39,096 for the three months ended June 30, 1999. Interest expense
in the current reporting period resulted from the mortgages held on the rental
properties, whereas interest expense in the comparative prior year period
resulted from financing corporate software production and sales activities.
For the six months ended June 30, 1999 compared to the six months ended June
----------------------------------------------------------------------------
30, 1998.
- ---------
For the six months ended June 30, 1999, revenues decreased from $269,820 for the
six months ended June 30, 1998 to $131,508 for the six months ended June 30,
1999. This $138,312 decrease was due to the change from software sales and
support to real estate activities and the sale of videocalling equipment to
foreign joint venture partners. The Company invoices a fee for the sale of the
equipment separate from the equipment cost. Accordingly, revenue from equipment
sales represents only the fee portion of the sale.
As a result of the cessation of gaming software development and sales
activities, the Company has recognized minimal costs of software sales and has
not incurred any product development costs. Research and product development
expense of $8,607 for the six months ended June 30, 1999 represent amounts
incurred for videocalling systems development after the June 18, 1999 merger
with Videocall International Corp. The amount of $7,218 for the six months ended
June 30, 1998 represents software development costs incurred by the Company for
development of its former product line.
Expenses of $50,182 were incurred for the Toronto real estate operation acquired
February 24, 1999 and the Sacramento real estate acquired as part of the
Videocall merger June 18,1999. Rental income, was $116,248, yielding net rental
earnings of $66,066 before interest and depreciation.
16
<PAGE>
General and administrative expenses decreased $32,477 from $277,205 for the six
months ended June 30, 1998 to $244,728, for the six months ended June 30, 1999.
For the six months ended June 30, 1998, the Company incurred general and
administrative expenses to support the administration and marketing of the
educational software products. Prior to the merger on June 18, 1999, the Company
had one employee and other administrative expenses comprised primarily of
insurance and minor incidentals. Of the total expense of $244,728, $112,500 was
a payment in stock as a bonus to an officer of the corporation.
Consulting services, not related to software development or sales, for the six
months ended June 30, 1999 were $1,535,613, compared to $52,631 for the six
months ended June 30, 1998. This amount represents $1,526,387 paid in shares of
the Company's common stock and $9,226 paid in cash. The majority of the
consulting services were for assistance in financing, investor relations and
public relation services. The amount charged to expense is a function of the
market share price at the time the stock is issued to the consultant under the
terms of the consulting agreement.
Legal and accounting expense increased from $56,466 for the six months ended
June 30, 1998 to $726,699 for the six months ended June 30, 1999. The increase
of $670,233 resulted primarily from legal costs incurred in the preparation of
the proxy related to the Merger; legal costs incurred in security matters, legal
work performed in relation to the filings as a result of the merger and legal
costs for the Toronto subsidiary and the issuance of preferred stock. The
expense is a function of the market price of the stock at the time of issue. Of
the $726,699 expense, $612,500 was paid for with common stock of the Company.
The Company's marketing expenses for the six months ended June 30, 1999,
amounted to $14,248, compared to $44,574 of expenses for the six months ended
June 30, 1998. Marketing expenses in the six month period ending June 30, 1999
related to videocall activities, verses marketing expenses in the prior year for
the same period related to education software products.
Interest expense decreased $3,801 from $44,140 for the six months ended June 30,
1998 to $40,339 for the six months ended June 30, 1999. Interest expense in the
current reporting period resulted from the mortgages held on the rental
properties, whereas interest expense in the comparative prior year period
resulted from financing corporate software production and sales activities.
Liquidity and Capital Resources
The Company had $53,033 in cash outflows from operating activities for the six
months ended June 30, 1999 compared to cash outflows of $123,620 for the six
months ended June 30, 1998. The decrease in net outflows of $70,587 between
1999 and 1998 operating cash flow, primarily resulted from the following: a
increase of $17,933 in the net loss from operations after adjustments for non-
cash items; a decrease in the change of deferred revenue of $31,004; a decrease
in the change in accounts receivable of $63,522; an increase in the change in
other receivables of $42,867; a decrease in the change in inventory of $4,818;
an increase in the change in accounts payable
17
<PAGE>
of $171,064; a decrease in the change in accrued expenses of $4,435 and an
decrease in other assets of $15,314; an increase in the change in other current
liabilities of $17,408. this decrease in net outflows is primarily due to the
Company's cessation of learning game software sales and marketing activities.
Investing activities in the first six months ended June 30, 1999 consisted of
the purchase of the Toronto property, which required cash payments of $37,390;
purchase of minor computer equipment for $1,000 compared to the purchase of
computer equipment in the six months ended June 30, 1998, for $4,617; conversion
of the marketable securities to cash for $89,210; additional expenditures for
organization costs of $868; and advances to related parties of $1,973,047
compared to investment in joint ventures for the six months ended June 30, 1999
of $48,647.
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 $1,867,103 from financing activities for the
first six months of 1999 compared to cash inflows of $228,779 for the first six
months of 1998. Financing activities for the six months ended June 30, 1999
included collection of stockholder's and stock subscriptions receivable of
$1,842,545; payment on notes payable of $22,401 and payment of cash dividends on
the preferred stock of $23,156. This compares to an advance received of $30,000
for use in project joint ventures; proceeds on private placements of $105,000;
exercise of common stock warrants for $75,000; payment due to former co-
developer of $20,000, offset by payments of $1,221 on notes payable for the six
months ended June 30, 1998.
The Company has entered into negotiations with a private investment
group to provide financing, utilizing the Sacramento property for security. The
initial commitment has been proposed at $2,300,000, pending an appraisal report
on the property. The obligation will bear an interest rate of 8% apr plus an
additional amount, payable in the Company's common stock, depending on the
length of time for repayment. The Company has received an initial payment under
this commitment in the amount of $100,000. Management intends to retire this
debt upon the refinancing of the property as described below.
The Company has entered into discussions with several financial institutions
with respect to refinancing the Sacramento property. The current proposals under
discussion include placing a mortgage in the amount of $6.5 or $7.5 million
dollars against the property. The funds would be used to retire existing debt on
the property, make additional improvements to the property and provide the
Company with cash to replace the Company's investment in the property.
Management expects to finalize this financing within the third quarter of 1999.
18
<PAGE>
On July 13, 1999, the Company announced that a private placement funding of
$1,000,000 was subscribed to by an European investment group. The Company has
received approximately $250,000 under this subscription and anticipates
receiving the balance in August and September, 1999. Management feels that based
on contributed capital amounts and anticipated refinancing of the Sacramento
property, the Company will be able to operate for the coming twelve months.
The Company has signed an agreement with the I.W. Miller Group, Inc. for
financial public relations services. This consulting firm is established in the
securities industry and has substantial experience in providing publicly held
companies with advice and support in expanding its investor base and increasing
the number of market professionals who are aware of the Company's activities.
The Company has agreed to pay the consulting firm a combination of cash and
common stock based on performance.
The Company has signed a six month agreement with an independent consultant
(a former broker/dealer in the securities industry) to provide services in
representing the Company to the securities industry. The consultant has agreed
to contact various financial institutions to secure their support of the stock
of the Company and to obtain private or public placements of the stock for the
Company. The Company has agreed to pay the consultant a combination of cash and
common stock for the services and a fee based on any new financing obtained by
the consultant.
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 major external
vendors that their systems are in compliance with year 2000 issues.
19
<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, for
Lehrer's actions and also seeks injunctive relief requiring Lehrer to return to
the Company significant assets. Legal counsel has advised the Company that the
matter is currently in arbitration.
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 defendents have moved to dismiss the case based on
a lack of personal jurisdiction.
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.
20
<PAGE>
ITEM 2. CHANGES IN SECURITIES.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company has failed to pay the June, 1999, dividend on the Class A
Preferred Stock, series 1999-a, in the amount of $7,718.75.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of the stockholders was held on June 15, 1999. The following
matters were voted upon:
Approval and adoption of the Agreement and Plan of Merger dated September 14,
1998 among the Company, Legacy Acquisition, Inc. and Videocall International
Corporation.
For 3,100,791
Against 366
Withheld 0
Approval of the change in the Company's state of incorporation from Delaware to
Nevada and increase the Company's authorized stock from 15,000,000 shares to
125,000,000 shares, of which 100,000,000 are Common Stock and 25,000,000
Preferred Stock.
For 3,100,557
Against 499
Withheld 101
The foregoing matters are described in detail in the Company's Proxy
Statement/Prospectus/Notification of Merger dated May 28, 1999.
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 2, acquisition and disposition of assets disclosure of the
merger of the registrate with Videocall International Corp, dated
June 18,1999.
21
<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: August 12, 1999 Talk Visual Corporation
/s/ C. Harold Snyder
__________________________________
C. Harold Snyder
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
22
<PAGE>
EXHIBIT 11
TALK VISUAL CORPORATION
COMPUTATION OF WEIGHTED AVERAGE
COMMON STOCK SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months Six Months
Total Number Ended Ended
of Shares June 30, 1999 June 30, 1999
------------- -------------- --------------
<S> <C> <C> <C>
Outstanding shares as of January 1, 1999 1,393,418 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 1,122,449 1,048,032
Issue of common shares in private placements
12/31 on 01/14/99 200,000 200,000 184,530
Issue of common shares for services on 01/19/99 175,000 175,000 156,630
Issue of common shares for investment on 12/18
on 01/19/99 52,051 52,051 46,587
Issue of common shares for services on 01/25/99 790,000 790,000 680,884
Issue of common shares for services on 02/01/99 45,000 45,000 37,044
Issue of common shares in exchange for debt on
12/31 on 03/05/99 27,500 27,500 17,776
Issue of common shares for services on 03/16/99 1,128 1,128 661
Issue of 2,040,816 shares as part of private
placement 09/22/99 on 03/18/99 918,367 918,367 527,680
Issue of common shares for services 4/9/99 30,000 27,033 27,033
Issue of common shares in exchange for debt
on 12/31/98 issued 5/12/99 28,150 15,158 15,158
Issue of common shares for services on 6/8/99 290,000 70,110 70,110
Issue per rights under merger with Videocall
International Corp on 6/18/99 19,841,400 2,616,448 2,616,448
----------- ---------- ----------
Total weighted average shares outstanding 24,914,463 7,453,662 6,821,992
=========== ========== ==========
Net Loss (894,251) (2,511,244)
Net Loss per common share(1) $(0.12) $(0.37)
</TABLE>
(1) The effect of common stock options and warrants are excluded as their
inclusion would be anti-dilutive. For the three month periods ending June
30, 1999 and 1998 fully diluted net loss per common share does not differ
from primary net loss per common share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TALK VISUAL
CORPORATION'S BALANCE SHEET AS OF JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 44,583
<SECURITIES> 0
<RECEIVABLES> 87,873
<ALLOWANCES> 12,500
<INVENTORY> 8,029
<CURRENT-ASSETS> 1,415,112
<PP&E> 11,420,131
<DEPRECIATION> 158,389
<TOTAL-ASSETS> 16,281,088
<CURRENT-LIABILITIES> 1,187,261
<BONDS> 0
0
975
<COMMON> 24,914
<OTHER-SE> 8,811,667
<TOTAL-LIABILITY-AND-EQUITY> 16,281,088
<SALES> 15,260
<TOTAL-REVENUES> 131,508
<CGS> 3,204
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,599,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,339
<INCOME-PRETAX> (2,511,244)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,511,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,511,244)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
