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, 2000
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
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(Exact name of registrant as specified in its charter)
Nevada 95-4561156
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3550 Biscayne Blvd. Ste 704
Miami, FL 33137
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(Address of principal executive offices) (Zip Code)
305-572-0575
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(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
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There were 43,877,889 shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of May 8, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
TALK VISUAL CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited):
Balance Sheets at March 31, 2000 and
December 31, 1999. 3
Statements of Operations for the three
months ended March 31, 2000 and 1999. 5
Statements of Cash Flows for the three
months ended March 31, 2000 and 1999. 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan
Of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
Exhibits
Exhibit 11 18
Exhibit 27 19
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TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
2000 1999
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(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,048,981 $ 287,156
Accounts receivable, net of allowances 107,645 46,031
Inventory 60,752 25,853
Other receivables 12,145 530,319
Stock subscriptions receivable - 1,908,790
Marketable securities 239,550 180,043
Other current assets 135,059 56,172
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Total current assets 1,604,132 3,034,364
PROPERTY AND EQUIPMENT, net 11,571,335 11,477,805
ADVANCES TO RELATED ENTITIES 737,432 675,102
OTHER ASSETS 452,988 451,118
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TOTAL $14,365,887 $15,638,389
========== ==========
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(continued)
MARCH 31, DECEMBER 31,
2000 1999
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(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable and current portion
of long-term debt $ 784,382 $ 1,571,634
Accounts payable 515,907 918,780
Accrued expenses 90,495 248,824
Other current liabilities 59,000 52,828
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Total current liabilities 1,449,784 2,792,066
LONG-TERM DEBT, net of current portion 4,914,821 5,372,001
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TOTAL LIABILITIES 6,364,605 8,164,067
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COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Series A convertible redeemable
preferred stock - liquidation
value $1 per share, par value $.001 per
share, 25,000,000 shares authorized; 791,000
and 975,000 shares issued and outstanding 791 975
Common Stock, par value $.001 per share,
100,000,000 shares authorized; 40,707,299
and 32,060,977 shares issued and outstanding 40,707 32,061
Common stock subscribed - 4,241
Additional paid in capital 16,771,673 16,409,119
Accumulated deficit (8,001,727) (7,221,561)
Accumulated other comprehensive loss (629,030) (688,537)
Stock subscriptions receivable (181,132) (1,061,976)
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Total Stockholders' Equity 8,001,282 7,474,322
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TOTAL $14,365,887 $15,638,389
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED MARCH 31,
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2000 1999
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REVENUE
Telecommunication Services, Software and
Product sales $ 22,416 $ 2,028
Real Estate revenues 315,556 226,168
Other income 3,559 -
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Total revenue 341,531 228,196
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COSTS AND EXPENSES
Cost of equipment sales, telecommunication
and retail operation expenses 181,484 3,204
Depreciation and amortization 85,324 45,980
Research and development 10,000 38,935
Real estate operations 104,597 120,088
General, administrative and marketing 682,646 2,121,008
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Total costs and expenses 1,064,051 2,329,215
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LOSS FROM OPERATIONS ( 722,520) (2,101,019)
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OTHER INCOME (EXPENSE)
Interest expense ( 180,304) ( 130,813)
Interest income 310 4,037
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( 179,994) ( 126,776)
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LOSS BEFORE EXTRAORDINARY ITEM ( 902,514) (2,227,795)
EXTRAORDINARY ITEM - DEBT RESTRUCTURING 122,347 -
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NET LOSS ( 780,167) (2,227,795)
DIVIDEND ON PREFERRED STOCK - 7,719
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NET LOSS APPLICABLE TO COMMON SHARES $( 780,167) $(2,235,514)
========== ==========
NET LOSS PER COMMON SHARE BASIC (1)
BEFORE EXTRAORDINARY ITEM $ (0.03) $ (0.10)
EXTRAORDINARY ITEM 0.01 -
(0.02) (0.10)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 34,860,479 23,295,955
========== ==========
(1) The effect of common stock options and warrants is excluded from diluted
earnings per share as its inclusion would be anti-dilutive for the three month
period ended March 31, 2000 and 1999.
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $( 780,167) $(2,227,795)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 85,323 45,980
Amortization of product development costs 12,000 -
(Gain) loss on stock exchanged for debt (122,347) 1,563
Issuance of common stock in exchange for services 86,025 1,497,637
Increase (decrease) in cash from changes in:
Accounts receivable, net (61,615) 8,437
Inventory (34,899) 221
Other receivables 518,174 (117,969)
Other current assets (78,887) (112,270)
Accounts payable (402,873) 236,808
Accrued expenses (158,329) (78,318)
Other current liabilities 6,173 470
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Net Cash from Operating Activities (931,422) (745,235)
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Cash Flows From Investing Activities:
Purchase of property and equipment (166,665) (258,553)
Advances - related parties (114,233) (24,999)
Other (19,953) (7,765)
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Net Cash from Investing Activities (300,851) (291,317)
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Cash Flows from Financing Activities:
Borrowings on debt 54,567 -
Payments on notes payable and long term debt (480,898) (746,819)
Proceeds from exercise of options on common stock 593,500 -
Collections on stock subscriptions receivable 1,908,790 1,900,000
Cash dividend payments - (7,719)
Other (81,861) -
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Net Cash from Financing Activities 1,994,098 1,145,462
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Increase (decrease) in cash and cash equivalents 761,825 108,910
Cash and cash equivalents at beginning of period 287,156 378,658
--------- ---------
Cash and cash equivalents at end of period $1,048,981 $ 487,568
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
THREE MONTHS ENDED MARCH 31,
----------------------------
Supplemental disclosure of cash flow information: 2000 1999
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<S> <C> <C>
a. Cash paid during the period for:
interest $ 180,304 $ 130,813
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income taxes $ 800 $ 800
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</TABLE>
b. Noncash investing and financing transactions:
For the period ended March 31, 1999:
Purchase of Canadian real estate in exchange for 975,000 shares of
convertible preferred stock and assumption of a mortgage in the amount of
$987,755.
Issuance of 55,650 shares of common stock in satisfaction of notes payable
in the amount of $129,009.
For the period ended March 31, 2000:
Conversion of the Convertible Discounted Loan Notes into 495,000 shares of
common stock, previously issued, for the outstanding balance of the note in the
amount of $386,100.
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TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) General and Summary of Business and Significant Accounting Policies
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 and Regulation S-B. 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, 2000, the results of operations for the three months ended March
31, 2000 and March 31, 1999, and the cash flows for the three months ended March
31, 2000 and March 31, 1999 are included. Operating results for the three month
period ended March 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2000.
The information contained in this Form 10-QSB should be read in conjunction with
the audited financial statements as of December 31, 1999, filed as part of the
Company's Annual Report on Form 10-KSB.
Loss Per Common Share
The Company calculates loss per common share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Basic
loss per share is computed by dividing the loss available to common shareholders
by the weighted-average number of common shares outstanding. Diluted loss per
share is computed similar to basic loss per share, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. For the three months ended March 31,
2000 and 1999, common stock equivalents have been excluded from the
aforementioned computations as their effect would be anti-dilutive.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
required when it is less likely than not that the Company will be able to
realize all or a portion of its deferred tax assets.
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TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(2) Financial Condition and Liquidity
Since inception, the Company has incurred significant net losses and expects to
continue to incur losses through year end. The Company is dependent on revenues
from the real estate operations, investor stock subscriptions, short term and
long term borrowings to supplement retail videocalling and telecommunication
product sales for working capital needs, until the operating activities generate
sufficient cash flow to fund the Company.
The Company collected $1,908,790 of its subscriptions receivable, $593,500 in
option exercise payments and $446,900 due from the Chairman, during the three
months ended March 31, 2000. The Chairman of the Company has made a guarantee to
fund or obtain funding to meet the obligations and working capital needs of the
Company. Additionally, the Company has entered into a placement agreement with
an investment banking firm for a proposed offering of equity securities to
provide capital to the Company in an amount of up to $75,000,000. Based upon the
current cash utilization rate and Management's plan for expansion and new
products/joint ventures/acquisitions, the Chairman's funding obligation and the
proposed equity offering, Management believes that there should be sufficient
capital to meet the needs of the Company for the next thirteen months.
(3) Recent Sale of Equity Securities
The Company has issued and sold unregistered securities that have not been
previously reported as set forth below. An underwriter was not utilized in any
of these transactions. The recipients of securities in each transaction
represented their intention to acquire the securities without a view to the
distribution thereof. All the issued securities were restricted securities,
excluding the securities relating to the satisfaction of the note payable due on
the Sacramento property purchase, under Rule 144, or Reg S regulations, and
appropriate restrictive legends were affixed to the securities in each
transaction.
During the three months ended March 31, 2000, the Company issued 1,100,000
shares of common stock from the exercise of options and warrants, at prices
ranging from $0.25 to $2.07 per share.
On January 14, 2000, the Company issued 10,000 shares of common stock to a
former employee pursuant to an employment agreement, at a price of $0.4375 per
share for a total value of $4,365.
On March 23, 2000, the Company issued 100,000 shares of common stock along with
a payment of $450,000 in exchange for a note payable with an adjusted book value
of $840,997. The price of the common stock on the date of issue was $2.6865 per
share, for a total value of $268,650. The difference of $122,347 is reflected as
extraordinary income.
On March 27, 2000, the Company issued 45,000 shares of common stock for legal
services in the amount of $50,000. At issuance, the stock was priced at $1.87
per share, which includes a non-marketability discount, for a total expense of
$84,150.
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TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(4) Segment Information
The Company's reportable operating segments consist of real estate and
telecommunication services. The summary of the operating segment information is
as follows:
Rental Telecom Total
---------- ---------- ----------
March 31, 2000
Net revenue $ 315,556 $ 25,975 $ 341,531
Depreciation/amortization 58,622 26,702 85,324
Income (loss)before
extraordinary item 120,973 ( 843,493) ( 722,520)
Assets, net 10,818,778 3,547,109 14,365,887
March 31, 1999
Net revenue 226,168 2,028 228,196
Depreciation/amortization 39,933 6,047 45,980
Operating income (loss) (83,900) (2,143,894) (2,227,794)
Assets, net 10,641,634 7,038,833 17,680,467
(5) 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.
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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. Forward looking statements are all
based on current expectations, and the Company assumes no obligation to update
this information.
BUSINESS AND ORGANIZATION
Talk Visual Corporation and its subsidiaries (collectively the "Company"),
provides videocalling services through its wholly owned retail stores in the
United States and joint venture partners in Europe, Israel, Canada, Asia and
South America. Additionally, the Company sells telecommunications services and
equipment through its retail outlets and over the internet. The Company, through
its wholly owned subsidiaries, also owns and operates commercial properties
located in Sacramento, California and Toronto, Canada.
PROPOSED ACQUISITIONS
On March 6, 2000, the Company signed a letter of intent to acquire 70% of YAK
Communications (USA) Inc., parent company to YAK Communications Canada, Inc. YAK
Canada is a leading Dial-Around service provider in Canada, with annual revenues
of $12 million (Cdn). YAK Communications (USA) Inc. is owned 32% by parties
related to the Company. The Company has engaged an independent international
consulting firm to render an opinion of valuation for this acquisition. The
consideration is 8,400,000 preferred shares with a face value of $8,400,000
convertible into common shares at the lower of $3.875 per share or the average
of the lowest closing bid price in the five days prior to conversion. The
Company also agreed to invest an additional $6,000,000 consisting of $500,000 in
cash and $5,500,000 of convertible preferred shares under the same terms. This
agreement is subject to change based upon the valuation and Board approval.
On March 16, 2000, the Company signed an agreement to acquire a 25% interest in
Entertech Media Group, Inc. of Hollywood, CA. Under the terms of the agreement,
the Company has formed a joint venture with Entertech and will exchange
3,000,000 common shares for 3,666,666 shares of Entertech Media common stock.
Entertech has been granted exclusive rights in North America to provide content
(such as movies, music, news programs, documentaries, etc.) to customers of the
Company who have purchased the Company's videotelephone model TV225. The Company
has launched an aggressive sales program to bring the benefits of the TV225 to
both business and consumers. The Company is obligated to pay a broker 75,000
shares of its common stock on consummation of this transaction. The transaction
is subject to Board approval.
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On March 24, 2000, the Company signed a letter of intent to acquire QuickPage of
NJ, Inc., a retail chain of fourteen stores in the New York/New Jersey area. The
consideration was to be $5,500,000, payable in stock and cash. The Company has
conducted initial due diligence investigation and is in the process of
renegotiating the terms of the letter of intent.
On January 30, 2000, the Company signed a letter of intent to acquire 100% of
First Debit Corporation for $2,750,000. The Company has conducted initial due
diligence investigation and is in the process of renegotiating the terms of the
letter of intent.
GENERAL
The Company has embarked on an aggressive program to develop videocalling retail
locations, joint venture partners and sales of the desktop videophone model
TV225. To that end, the Company currently employs 31 full and part-time
employees in the telecommunications operations and nine full and part-time
employees in the real estate operations.
Under the direction of the Company's Chief Technical Manager and its V.P. of
Internetworking Systems, the Company is deploying wireless communication systems
for carrying voice, data and videocalls over its network. Additionally, the
Company has tested and began deploying the bridging of ISDN based videocalls
over the internet and full motion, high quality videocalls entirely over the
internet protocol. The Company's goal is to provide videocall technology over
multiple platforms and thus be able to deliver it to large segments of the
population.
On February 1, 2000, the Company leased an additional 2,559 square feet of
office space at its Miami office headquarters. The lease increased rent
obligations by $52,000 per year and expires June 30, 2002. The additional space
has been added to house sales and marketing staff, telephonic equipment, the
data processing department and conference facilities.
The Company commenced selling long distance services under an agreement with
Capsule Communications, Inc. (formerly US Wats, Inc.)over the worldwide web.
Employing relatively new technology allowing simple, cost efficient web-based
ordering and a unique electronic "Letter of Authorization," methodology along
with very favorable telecom rates, this system is anticipated to generate
substantial activity. The Company's long distance services website is located at
www.talkvisual-ld.com. This new product offering is a continuing expansion of
the Company's e-commerce development programs to enhance and expand revenue
sources.
MATERIAL COMMITMENTS
On February 11, 2000, the Company signed an OEM agreement with Motion Media
Technology Limited for the purchase of video conferencing telephone units
aggregating $9,994,000 over a three year period. As of March 31, 2000, the
Company has placed orders totaling $300,000 against this purchase agreement, and
has paid $15,000 in private labeling and development costs.
RISK FACTORS
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,
12
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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, 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 March 31, 2000 compared to the three
- ---------------------------------------------------------------
months ended March 31, 1999.
----------------------------
Prior to August 24, 1999, the Company was considered a development stage
company. On August 24, 1999, the Company became operational with the launch of
its videocalling services. Additionally, during the fourth quarter of 1999, the
Company commenced selling other telecommunications services and equipment
through its retail outlets and over the internet. Product sales of $2,028 during
the three months ended March 31, 1999 were entirely from sales of software by
the Company's predecessor, Legacy Software, Inc. Sales of $22,416 during the
three months ended March 31, 2000 are from the sale of videocalling services,
cell phone services, pager equipment and pager contracts.
Real estate revenue increased from $226,168 for the three months ended March 31,
1999 to $315,556 for the three months ended March 31, 2000, representing an
increase of $89,388 or 40%. The Toronto, Canada, property was acquired February
24, 1999, and had gross rents of $19,000 in the three months ended March 31,
1999. During the three months ended March 31, 2000, the Toronto property had
gross rents of $39,500. The Sacramento, California, property was owned during
the entire three months of both 1999 and 2000. Therefor, of the $89,388 increase
in rents, $20,000 is a result of the ownership of the Toronto, Canada property
for the entire three months of the period ended March 31, 2000, while $69,388 is
due to improvements in the rent roll of the Sacramento property.
Cost of equipment sales, telecommunication services and retail operation
expenses totaled $181,484 for the three months ended March 31, 2000. This amount
represents costs associated with the Company's seven wholly owned retail stores
and the beeperforabuck web sales activities. The amount of $3,204 for the three
months ended March 31, 1999 is attributable to costs of software sales in which
the revenue was recognized in 1998.
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Depreciation expense increased $39,344 for the three months ended March 31, 2000
compared to the same period in 1999. Of this increase, $20,655 is attributable
to telecommunication activities and $18,689 to the real estate activities. The
increase for telecommunication activities results from the acquisition of assets
and leasehold improvements associated with the opening of retail stores. The
increase in real estate activities is a result of the Canadian real estate held
one month in the period ended March 31, 1999 versus three months in the period
ended March 31, 2000, along with other capital improvements to the California
property.
General, administrative and marketing expenses in the three month period ended
March 31, 1999, included $1,483,887 of consulting services of which all but
$2,500 was paid in shares of the Company's common stock. The majority of these
consulting services were for assistance in financing, investor relations and
public relations services. After removing the consulting services just
described, the balance of general, administrative and marketing expenses for the
three month period ended March 31, 1999, totaled $637,121, compared to the three
months ended March 31, 2000, of $682,646.
Interest expense increased $49,491 from $130,813, for the three months ended
March 31, 1999 to $180,304 for the three months ended March 31, 2000. This
increase was a result of increased borrowing costs on the mortgage of the
California property, the addition of the Canadian property's mortgage and
additional borrowing to fund videocalling activities.
In connection with the acquisition of the Sacramento property, the Company
incurred a short term non-interest bearing obligation of $1,000,000. The short
term obligation to the seller of $1,000,000 was renegotiated and partially paid
down on February 19, 1999. Under the renegotiated note, the Company paid an
advance against leasehold improvements in the amount of $350,000 and a principal
payment of $107,000, leaving a balance due of $893,000 on the renegotiated note,
adjusted for certain offsets. On March 29, 2000, the holder of the note signed a
settlement agreement in which it accepted a cash payment of $450,000 and 100,000
shares of common stock in full payment of this obligation. The net result of
this transaction resulted in the recognition of a gain on debt forgiveness
totaling $122,347. This is reported as an extraordinary item in the Condensed
Consolidated Statements of Operations for the three months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $931,422 in cash outflows from operating activities for the
three months ended March 31, 2000, compared to cash outflows of $745,235 for the
three months ended March 31, 1999. This increase in outflows of $186,187
primarily resulted from the payment of accounts payable and the reduction of
accrued expenses over the balances carried at the end of the same period in
1999.
Investing activities for the three months ended March 31, 2000, totaled
$300,851, compared to $291,317, for the same period in 1999. Purchase of
property and equipment decreased $91,888, from $258,553 in 1999 to $166,665 in
2000, while advances to related parties increased $89,234, from $24,999 to
$114,233 for the same time periods.
Net cash from financing activities increased in the three months ended March 31,
2000, by $848,636, over the three months ended March 31, 1999. This increase
resulted from the receipt of option exercise proceeds and a decrease in payments
on long term debt over the amount paid in the prior year period.
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Included with notes payable at December 31, 1999, was a convertible discounted
loan note ("CDLN"), which was secured by an unrecorded lien on the Sacramento
land and building, carrying imputed interest at the rate of 9.4%. The principal
balance was due November 2001, and totaled $386,100, at December 31, 1999, net
of unamortized discount of $108,900. Concurrent with the placement of the CDLN,
the lenders subscribed to 990,000 shares of common stock at a price of $990,000,
paying $108,900 toward the total subscription. The CDLN was convertible with an
additional payment of $108,900, at the option of the holder, into 495,000 shares
of the Company's common stock, during the term of the note or at maturity. If at
maturity, the holder declined the conversion feature, the Company was obligated
to pay the principal on the note, rescind the subscription for the 990,000
shares of common stock and refund the deposit paid toward that subscription. At
March 31, 2000, the holders of the CDLN elected to convert the note payable to
common stock, cancel the remaining subscription and apply the balance of all
payments to the common stock purchase. This action effectively eliminated
$386,100 of long term debt.
On February 24, 1999, the Company acquired an office facility in Ontario, Canada
with the issuance of 975,000 shares of Class A Preferred Stock, Series 1999-A,
$.001 par value. On December 1, 1999, the holder of the Preferred shares issued
under this acquisition, notified the Company of its election to exercise the
convertibility feature of the certificate provisions. Under the formula outlined
in the certificate of designation of the preferred stock and based upon the
price of the Company's common stock for the time period on which the conversion
is based, each share of preferred stock will be converted to 17.14 shares of
common stock. The conversion of the preferred stock will result in the issuance
of 16,714,381 shares of common stock. The Company has been advised that the
Preferred shareholders will convert the shares over a thirty six month period
commencing February, 2000. During the three months ended March 31, 2000, the
Preferred holders converted 183,781 shares into 3,150,000 shares of common
stock. The holder of the Preferred shares has agreed on all conversions after
the first 3,348,500 shares of common stock to reinvest, within the thirty-six
month period, $1.00 per share of common stock issued on conversion, for a total
investment in the Company of $13,365,000.
On March 30, 2000, the Company entered into a one year placement agreement with
an investment banking firm for a proposed placement of common stock in an amount
of up to $75,000,000. Under the terms of the agreement, the Company is required
to file a registration statement with the Securities and Exchange Commission
covering the common stock to be issued. The issue price of the stock will be
based upon a discount from an average price for the common stock for a period of
22 consecutive trading days preceding the date of funding. If the investment
banking firm is unable to locate a qualified institutional investor willing to
invest in the placement within sixty days of the contract signing, the Company
has the right to terminate the agreement. The Company has been advised by the
investment banking firm of a qualified institutional investor, and pending the
completion of the investor's due diligence process, the Company anticipates
filing the registration statement during the second quarter of 2000.
15
<PAGE>
The Company has submitted an application to refinance the Sacramento real
estate. The letter of interest obtained from a private investment company
outlines terms of a $6,500,000 loan at 9% with principal and interest amortized
over 30 years, with a five year call. The Company anticipates net proceeds from
the refinancing to be about $2,000,000. Additionally, the Company will benefit
in reduced interest costs on the existing mortgages under this refinancing
proposal. This loan is subject to Board approval and completion of the lendor's
due diligence process.
As noted previously, the Chairman of the Company has made a guarantee to fund or
obtain funding to meet the obligations and working capital needs of the Company.
Based upon the current cash utilization rate and Management's plan for expansion
and new products/joint ventures/acquisitions, the Chairman's funding obligation,
the refinancing of the Sacramento property and the proposed equity offering,
Management believes that there should be sufficient capital to meet the needs of
the Company for both short term needs and long term growth.
16
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 11 - Computation of Weighted Average 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:
None
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, 2000 TALK VISUAL CORPORATION
/s/ CLINTON H. SNYDER
---------------------
Clinton H. Snyder
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
17
EXHIBIT 11
TALK VISUAL CORPORATION
COMPUTATION OF WEIGHTED AVERAGE
COMMON STOCK SHARES OUTSTANDING
Three Months
Total Number Ended
Of Shares March 31,1999
------------ -------------
Outstanding shares as of January 1, 2000 32,060,977 32,060,977
Issuance of shares to former employee
on 01/14/00 10,000 8,556
Issue of common shares in private placements
on 01/31/00 1,979,284 1,319,523
Exercise of options on 01/31/00 150,000 100,000
Preferred stock exchange on 02/24/00 1,150,000 460,000
Exercise of options on 02/28/00 50,000 17,778
Preferred stock exchange on 03/03/00 2,000,000 622,222
Exercise of options on 03/14/00 450,000 85,000
Exercise of options on 03/16/00 450,000 75,000
Issue of common shares in exchange for debt
03/23/00 100,000 8,889
Issue of common shares for services on 03/27/00 45,000 2,000
Issue of common shares in private placements
on 03/27/00 2,262,038 100,535
---------- ----------
Total Weighted Average Shares Outstanding 40,707,299 34,860,479
========== ==========
Net Loss before extraordinary item $( 902,514)
Extraordinary item 122,347
----------
Net Loss after extraordinary item $( 780,167)
==========
Net loss per common share before extraordinary item $ (0.03)
Extraordinary item 0.01
Net Loss per common share (1) $ (0.02)
(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, 2000
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TALK VISUAL
CORPORATION'S BALANCE SHEET AS OF MARCH 31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1048981
<SECURITIES> 0
<RECEIVABLES> 110662
<ALLOWANCES> 3017
<INVENTORY> 60752
<CURRENT-ASSETS> 1604132
<PP&E> 11964560
<DEPRECIATION> 393225
<TOTAL-ASSETS> 14365887
<CURRENT-LIABILITIES> 1449784
<BONDS> 0
0
791
<COMMON> 40707
<OTHER-SE> 7959784
<TOTAL-LIABILITY-AND-EQUITY> 14365887
<SALES> 22416
<TOTAL-REVENUES> 341531
<CGS> 181484
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 882257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180304
<INCOME-PRETAX> (780167)
<INCOME-TAX> 0
<INCOME-CONTINUING> (780167)
<DISCONTINUED> 0
<EXTRAORDINARY> 122347
<CHANGES> 0
<NET-INCOME> (780167)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
