U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
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Commission File Number 0-28330
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TALK VISUAL CORPORATION
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(Name of small business issuer as specified in its charter)
NEVADA 95-4561156
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(State or other jurisdiction of (IRS 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 (305) 572-0576
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(Issuer's telephone number) (Issuer's facsimile number)
Securities registered under Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which
None registered None
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Securities registered under Section 12(g) of the Exchange Act:
Common stock, par value $.001
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes (x) No (
)
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB. [ ]
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State issuer's revenues for its most recent fiscal year. $1,165,988
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act). Note: If
determining whether a person is an affiliate will involve an unreasonable effort
and expense, the issuer may calculate the aggregate market value of the common
equity held by non-affiliates on the basis of reasonable assumptions, if the
assumptions are stated, The aggregate market value of the voting stock held by
non-affiliates of the Company as of March 27, 2000 was: $77,745,360
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. Common Stock,$.001 par value;
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38,413,261 shares as of March 21, 2000.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g. Part I, Part II, etc.)into
which the document is incorporated (1)any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g. annual
report to security holders for fiscal year ended December 24, 1990).
Documents incorporated by reference:
Document Item (s) Into Which Incorporated
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None
Transitional Small Business Disclosure Format (Check one) : Yes [ ] No [X]
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TALK VISUAL CORPORATION
Form 10-KSB
Table of Contents
Part I. Page No.
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Item 1. Business 4
Item 2. Facilities 11
Item 3. Legal proceedings 13
Item 4. Submission of matters to vote of security holders 13
Part II.
Item 5. Market for registrants' common equity and related 13
stockholder matters
Item 6. Management's discussion and analysis of financial 16
condition and results of operations
Item 7. Financial statements 23
(see table of contents, page 22)
Item 8. Changes in and disagreements with accountants 45
Part III.
Item 9. Directors and executive officers of the registrant 47
Item 10. Executive compensation 50
Item 11. Security ownership of certain beneficial owners and 52
management
Item 12. Certain relationships and related transactions 53
Item 13. Exhibits and reports on Form 8-K 53
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PART I
Introductory Statement
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Except for historical information contained herein, the statements in the
report (including without limitation, statements indicating that the registrant
"expects", "estimates", "anticipates" or "believes" and all other statements
concerning future financial results, product offerings 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 (the "Exchange
Act"), and Section 27A of the Securities Act of 1933, as amended.
Forward-looking statements involve known and unknown factors, risks and
uncertainties, and actual results may differ materially from forecasted results.
Those factors, risks and uncertainties include, but are not limited to: The
registrant's ability to effectively manage its various businesses in a rapidly
changing environment; the timing of new product introductions; retail acceptance
of the registrant's products; the registrant's ability to adapt and expand its
product offerings; the cost of, and demand for, customer service and technical
support; price pressures in the competitive environment; the consummation of
possible acquisitions; and the registrant's ability to integrate acquired
operations into its existing business and manage growth. Additional information
on these and other risk factors are included under "Risk Factors" and elsewhere
in this Form 10-KSB.
ITEM 1. BUSINESS
BACKGROUND
General
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Talk Visual Corporation ("TVCP", the "Company" or "Talk Visual") is a leading
provider of retail-based videocalling services for business and the general
public in North and South America. Through its Retail Operations & Sales
Division, the Company is rapidly developing its videocalling services in Europe,
Eastern Europe, the Caribbean and North Africa. Taken together with the
Company's innovative videocalling equipment - the TV225, produced under
exclusive contract with Motion Media of Bristol, UK - the Company's extensive
suite of telecommunications products has positioned TVCP to become a major
provider of videocalling services to businesses and consumers worldwide, linking
people in the developed countries to one another and to businesses and families
in less developed nations. The Company's retail locations and its associated
company branch locations in Canada, the UK, Israel and the Philippines provide
an audio-visual link for businesses and families. The service enables unusually
low-cost visual communications especially designed for expatriates and the small
home office marketplace, allowing these groups to communicate with high-quality
audio-visual images over inter-continental distances, in real-time.
The Company believes that there is a deep-seated relationship between certain
key telecommunications products/services and other tangential products/services
it carries in its retail operations. Conceptually, the products/services permit
businesses and consumers to "communicate" domestically and internationally. To
support the "communication" needs of key business and consumer populations, the
Company's retail locations sell a wide range of telecom and telecom-related
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products and services. The products sold include pagers, cellphones and
videophones; services include long-distance telephone calling in-store
("call-shop services"), money transfer, and air travel ticket issuance.
Recently, the Company has begun the process of retail store build-out to create
a network of retail locations during the year 2000. These stores are in addition
to the planned deployment of over 1,000 videophone locations associated with
Postal Business Center partners in the United States. Generally, most
Company-owned and partnership locations will sell the majority of the Company's
products and services.
The Videophone Sales Division markets a highly price-competitive ISDN-based
video-telephone, the TV225. The TV225 is a sophisticated interactive
video-appliance, with an enhanced features set designed to provide consumers and
businesses with the ability to download news, movies, information and other
real-time data from the desktop, without the need for a computer. The Videophone
Sales Division also arranges for the Company to provide TV225 purchasers with
Local Exchange Carrier hookup for a 128-Kilobit ISDN line. Long distance
service, for which the underlying provider is Sprint, is provided by the Company
and billed to the consumer on the local carrier monthly bill or separately,
depending upon carrier billing arrangements.
The Company's Carrier Sales Division works with the Videophone Sales Division to
resell ISDN service to support 128-Kilobit and greater ISDN videophone calls.
The Carrier Sales Division sells both international and domestic service for
ISDN ordinary analog telephone service. Both the Carrier Sales Division and the
Videophone Sales Division have been created recently (as of March 2000) for the
purposes of tying together all aspects of the Company's product and service
sales plan. The Company is also a reseller for US Wats, Inc. long distance
service on a special website uniquely designed for verifiable customer
authorization for carrier designation. US Wats provides highly competitive
domestic and international tariffs on a direct-to-consumer basis, with reseller
commissions forwarded automatically to the Company.
The Company believes that videocalling services will become one of the fastest
growing areas of the telecommunications industry. Despite its early promise,
videocalling has lagged major telecom products such as fax and cellular
telephone service, largely because of a) the cost of equipment; b) the absence
of a unified ISDN (or IP) setup mechanism; and c) the availability of adequate
origination and termination points. Talk Visual believes that it has remedied a)
with the newly available TV225 videophone; that in conjunction with the local
exchange carriers and outside ISDN service agencies the ordering and
facilitation of ISDN lines is now a routine and simple matter; and because of
the low price of the TV225 videophone, the Company will be able to offer
businesses and consumers a broad range of originating and terminating points for
convenient videocalls.
According to the Gartner Group, a respected telecommunications research company,
"the videoconferencing market is growing at 48 percent a year from a base of 1.1
billion dollars in 1995." Another industry research company, Forward Concepts,
projects a 40% annualized growth rate from over $1 billion in 1996 to over $5
billion by 2001. IDC sees the business market for videoconferencing systems
climbing to 600,000 systems in 2001. In contrast, they see the heretofore
non-existent consumer market also reaching a quarter-million units in 2001, but
blossoming to 5.4 million systems in 2005. Finally, another research firm, Frost
and Sullivan, predicts staggering growth of videoconferencing sales to $35
billion by 2002.
This prediction for 2002 is exactly equivalent to the industry forecasts for
wireless subscriber growth.
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Talk Visual Corporation believes that it has positioned itself to participate in
this projected growth by providing equipment, services and especially retail
locations for the processing of videocalls and other closely related
"communications" products and services.
The Company was organized as a Florida corporation in 1998 and merged with Talk
Visual Corporation (formerly Legacy Software, Inc.), a Delaware corporation,
pursuant to a merger agreement in 1999. As part of the merger, the Company
became a Nevada corporation. The Company introduced its videocalling services,
cellular telephone and pager sales products in early 1999 with the launch of its
first corporate retail locations. The Company's principal office is located at
3550 Biscayne Boulevard, Suite 704, Miami, Florida 33137 and its telephone
number is (305) 572-0575.
DESCRIPTION OF BUSINESS
Retail Operations and Sales Division
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The Company introduced its first retail stores in early 1999, and was offering
connectivity in its fourteen Company-owned locations by July 1999. Through its
current partnerships with approximately thirty additional locations, and with
four hundred Sprint-enabled locations, the Company can offer service in most
major cities on the planet. As the Company recently transitioned from a
development stage company, the revenue from retail sales of products and
services is negligible at this time.
The Company sells the following items out of its retail stores:
o Telephone calls ("call-shop services")
o Videocalls (domestic and international)
o Prepaid phone cards and prepaid residential services
o Cellular phones, pagers, and related accessories
o High-speed Internet services, including free email
o Sale and distribution of videotelephones and equipment
By the end of the year 2000, the Company plans to have presence in over 150 U.S.
Metropolitan Service Areas (MSA's), which cover more than 70% of the U.S.
population and all major markets in Canada. The Company anticipates being the
leading videocalling provider for small business and consumer videocalling
services, and believes it is currently the lowest-cost provider in the United
States and abroad. The Company purchases low-cost minutes from Sprint and other
carriers, and resells them to its customers and partner retailers.
The Company has arranged with a variety of domestic and international carriers
to carry its voice traffic from key populous cities to South American,
Caribbean, Asian, African and European destinations. Calls are routed and rated
using outside-vendor software, deployed in each retail store location. A typical
average margin of 40% is retained by the Company for international calls.
The Company purchases its prepaid phone cards from a variety of vendors, and
offers its retail clients a range of pricing with "best per-minute values"
varying from week to week and month to month, depending upon vendor
arrangements. Prepaid phone cards produce a 30% average margin for the Company.
The Company has not launched its prepaid residential services, but has acquired
switching equipment to deliver this service in New York, Los Angeles and Miami.
The service is anticipated to be launched during the third quarter of 2000.
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Cellular telephones and cellular services are provided to the Company by
Voicestream/Omnipoint, AT&T Wireless Services, and Sprint PCS. The Company makes
net margins on service implementation of between $100 and $150 per instrument
sold. At this time, the Company does not enjoy any residual payments from these
carriers. Accessories for cellular telephones are a high-margin item (typically
over 300%), and the Company promotes its accessories sales whenever cellular
phones are sold.
Pagers are provided to the Company by Nixxo, Motorola and Philips. Price points
enjoyed by the Company allow retail margins of 10% to 50%, depending upon the
service plan and product. The Company believes that its pager sales programs
will provide a meaningful contribution to carrying expenses. Accessories are
purchased from a range of vendors, largely based on price, quality and the
cellular telephones most popular within the retail area.
Integrated Digital Services Network, or "ISDN", is made up of two channels of
digital signals sent over standard copper telephone lines. Because it is a
digital signal, it can achieve information transfer rates of up to five times
faster than standard analog lines which carry regular telephone calls. The
Company's ISDN-based network permits a partner retailer to launch calls from the
partner's location to the Company's switching platform, via the domestic Sprint
network. Calls are launched using either credit-card validation systems over the
ISDN network, or via the partnering retailer's locally-provided ISDN lines. All
partner retailers' ISDN local lines have long-distance service provided by the
Company, which resells/rebills Sprint ISDN service. A subscribing partner
retailer establishes an account with the Company by assigning to the Company a
Letter of Authorization, allowing the Company to order local and long distance
ISDN service in the partner's name. Fees are paid by the partner retailers to
the local exchange carrier for one-time installation and network connection
fees, and for ongoing monthly service rates. A wide range of national service
plans, provided by the local exchange carriers, offers monthly costs ranging
from $30 to $90, with the more costly plans including local exchange "free"
minutes. The Company "PICs" (Preassigned Interexchange Carrier assignment) the
ISDN phone numbers to its own account, and receives from Sprint a bill
representing the monthly long-distance traffic by individual account. Accounts
are viewed on-line on a daily basis by the Company's carrier accounting
department, and any calls made from the individual ISDN-based phones are billed
directly to the partner retailer. The billing method is simple and effective:
the retailer must have on-file with the Company a valid and current credit card,
which is charged for all calls on a daily basis. Charges are based on
pre-determined routings and ratings, which are made known to the retailer's
customers by literature at the ISDN videophone site. The retailer charges the
customer for all call minutes at the time of call termination, and collects
cash, credit card or other payment methodology; these methodologies are
transparent to the Company, which bills the partner retailer's credit card for
the appropriate call charges less the retained retailer's portion. This retained
portion typically represents about 25% of the final videocall fee. Typical calls
are an average of twenty-two (22) minutes long, and typical fees are $1.00 per
minute for domestic videocalls. The retailer, therefore, will normally keep
$5.50 for each call. While experience is limited, the Company's current research
indicates that five calls per day are the likely complement, subject to local
advertising, demographics and location. This would represent approximately $650
per month in revenue to the retailer, of which a median amount of $60 would be
direct and indirect costs. It is estimated that most retailers will retain a net
income of about $600 monthly.
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The service is currently being rolled out in the United States. The Company will
provide a minimum of 1,000 retailers who are members of the Postal Business
Express Center association (USXP - Universal Express) with low-cost or zero-cost
videophones in order to create the network end-points for the origination and
termination of videocalls.
The Company is in the process of building retail locations of its own in key
major cities. Retail stores are being opened in several business locations and
expatriate communities in New York City (in the boroughs of Manhattan and
Queens), in towns on the New York/New Jersey border (greater New York area),
Miami, Chicago, Denver, Los Angeles and San Francisco. Correlated retail
locations are under investigation in the most populous cities of Colombia,
Guatemala, Honduras, the Dominican Republic, and Mexico. Some of these retail
locations will be partnership locations. In addition to these locations, the
Company has entered into an agreement with Skynet Corporation, an international
package delivery service with over 300 locations in major cities worldwide, to
set up 200 of its locations with videophone services under a revenue sharing
agreement.
Videophone Sales Division
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The Company has begun providing videophone sales in response to the industry's
need for low-cost videophone instruments. The Company's videophone sales
division has committed to Motion Media, of Bristol, UK to sell a total of 10,000
of its TV225 videophone units, custom designed for Talk Visual Corporation. In
order to implement sales programs, the Company is hiring two teams of eight
sales and sales support personnel to implement the investigatory program focused
on videophone sales in Miami, FL. Subscribers to the videophone program will a)
purchase a videophone for $1396, based on a downpayment of $100 and 36 monthly
payments of $36; b) purchase installation of facilities for and monthly ISDN
service from the local exchange carrier, arranged for by the Company; and c)
purchase for $200 the required Network Interface device (NT-1) to connect the
videophone to the local network. Purchasers may opt to purchase the videophone
outright for $1599, with an additional NT-1 purchase, if needed.
Videophone purchasers are connected to the local exchange carrier through the
efforts of the Carrier Sales Division. The Carrier Sales Division receives
orders from the Videophone Sales Division, implements the service, and follows
up with customers to offer them other long distance and local telecommunications
service products. The Company believes that the consumers and both small and
larger businesses will appreciate the convenient size and performance of the
TV225. In addition, local exchange subscribers are able to have any "regular"
telephone service line upgraded to ISDN service for a modest charge. The new
ISDN line allows both "regular" telephone services - phone calls, fax calls -
and permits as well high-speed Internet connection to the subscriber's Internet
Service Provider (ISP), along with providing for connectivity to service
videocalls. Long distance ISDN services will be provided by Sprint and other
carriers.
The Company believes that its sales efforts in Miami can be expanded city by
city into every major American business and population center. The combination
of a) a quality, low-cost videophone; b) "wrapped" service for the arranging of
ISDN line installation; c) videophone availability in local retail partnership
operations; d) the existing "legacy" ISDN-based equipment in tens of thousands
of businesses; and e) the presence of videophones in high-visibility areas such
as airport lounges, will create a vibrant market for videophone carrier sales
and videophone instrument sales.
ENGINEERING, RESEARCH AND DEVELOPMENT
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Talk Visual Corporation believes that its future success will depend in large
part on its ability to enhance existing services and develop new services in
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response to changing market, consumer or technological developments in the
video-telecommunications areas. An important factor in the future success of the
Company's videophone sales and service offerings will be the Company's ability
to provide, at competitive prices, more functionality and features than those
which might become typically available in other competitive offerings. While the
Company does not know of any other entities currently providing truly
competitive services, it does believe that such competition will arise in the
future.
The Company is developing proprietary methodologies to route, rate and service
videocalls. Calls being launched from Company partnership locations in, for
example, Trans World Airlines "Ambassadors Club" lounges, will go through the
local exchange carrier to a platform at the Company's headquarters. Specialized
ISDN-based T-1 circuits will route and rate the outbound call to other videocall
equipment anywhere in the world. The calling customer will pay for the call
using a standard credit card, the information for which is entered at the time
of the call.
The Company believes that providing a platform for centralization of
videocalling is a key element in its future growth. The platform allows callers
to access a vast menu of available sites to call - both private and business
sites - in addition to the Company's locations. Callers may access a complete
menu of choices in order to make reservations with a live operator on-line,
place a videocall, or receive information from news or entertainment sources.
These technologies are currently under development at the research level. The
Company anticipates making them available to the general public by the middle of
year 2000.
The Company believes that two key wireless technologies will assist in its
effective delivery of services: a) the linking of physical locations, whether
retail operations or switching locations, by wireless services generally in the
unregulated 2.4 gigahertz range, to key points-of-presence for carriers -
specifically to avoid the costs associated with "IP-T-1" facilities
traditionally deployed by the local exchange carriers, and the major
long-distance carriers, for prices in excess of $1,000 monthly carrying fees;
and b) the development of "local area" wireless video-telephony to enable a
wireless mobile "cart" or "unit" to move around in hospital, nursing home and
hotel environments. The Company is developing both these technologies, in both
the ISDN and IP transmission realms, and anticipates trial deployment before the
end of year 2000.
SALES, MARKETING AND DISTRIBUTION
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The Company's sales strategy is to establish and maintain long-term
relationships with its consumer and business customers, and to leverage
relationships with major corporations in order to rapidly expand its presence
and reach. The Company utilizes a consultative sales process to understand and
define customer needs, and determine how those needs can be addressed by the
Company's services. Talk Visual seeks to build upon its existing customer
relationships by integrating and cross-selling its different service offerings.
The Company's sales cycle varies for different services and products, and the
development of key large corporate relationships can be up to 12 months for the
Company's Carrier and Videophone Sales Divisions.
The Company's sales force consists of sales representatives who generally have
significant experience in either retail and/or telecommunications sales, either
as former employees of wireline or wireless carriers or in selling products and
services to businesses and/or within a quality retail environment. The Company
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typically assigns each business sales representative to a well-defined group of
business prospects in order to support the development and maintenance of
long-term strategic customer relationships. The sales representative are
supported by product specific account and service managers within the sales
teams and who assist in the management of the accounts on a daily basis after
the completion of the initial sale. At this time, the Company's sales
representatives are located at the Company headquarters in Miami, Florida;
however, the Company intends to roll out its Miami-based sales programs into
strategic cities in major geographic regions.
The Company's direct sales strategy is complemented by a marketing program that
includes participation in industry shows, advertising and public relations.
Because the Company's business and retail consumer groups are diverse, the
Company seeks to gain wide exposure through selected promotions and advertising
on a highly targeted basis.
CUSTOMERS
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The Company provides its services to small and large business users of
video-telephony through its Videophone Sales Division; to expatriate populations
seeking to contact their business associates, friends and family abroad through
the various Company and partnership retail outlets as mediated by the Retail
Operations and Sales Division; and to partners themselves through specialized
team members who are integrated into the other sales and support divisions. The
Company believes that a close integration and inter-penetration of sales,
marketing and support personnel helps to create the cross-communication
necessary for a vibrant, multi-purpose sales effort.
For the year ended December 31, 1999, the Company's sales totaled $1,165,988,
which was composed of $1,075,482 from real estate operations and $90,506 from
telecommunication products and services.
COMPETITION
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The market for videocalling services is competitive on the equipment side, and
just beginning to develop on the carrier, support and product
development/features side. A number of companies currently offer one or more of
the services provided by the Company, but generally only in the area of
hardware. In some instances, for example, in the case of Polycom and PictureTel,
the Company acts as a reseller of equipment purchased through a major dealer
such as Sprint. At this time, the Company does not know of any other providers
who bring together the various disparate elements of the video-services sales
process - from retail operations, to hardware, to support of installation and
long-distance services.
The Company believes that the principal competitive factors in the
video-telephony industry include the ability to identify and respond to customer
needs, quality and breadth of service offerings, price and technical expertise.
The Company's ability to compete also depends in part on a number of competitive
factors out of its control, including the ability to hire and retain employees,
the development by others of products and services that are competitive with the
Company's products and services, the price at which others offer comparable
products and services and the extent of its competitors' responsiveness to
customer needs. There can be no assurance that the Company will be able to
continue to compete successfully with its existing competitors or with new
competitors.
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GOVERNMENT REGULATION
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The Federal Communications Commission (FCC), under the terms of the
Communications Act of 1934, as amended, including the Telecommunications Act of
1996, regulates interstate communications and use of radio spectrum, including
entry, exit, rates and terms of operation. The Company presently neither
operates any facilities utilizing regulated frequencies nor has any
facilities-based services involving interstate communications. However, the
Company has applied for and has been granted a "Section 214" license from the
FCC, which allows the Company to resell international long-distance services.
This license will continue to be maintained by the Company, along with the
reporting requirements pursuant thereto.
The Company recognizes that the long-distance and local exchange carriers that
underlie the Company's services are regulated at both the federal and state
levels. Such regulation may decrease the growth of the videocalling industry,
affect the development of key markets, and limit the number of potential
customers for the Company's services or impede the Company's ability to offer
competitive services, or otherwise have a material adverse effect on the
Company's business and results of operation.
REAL ESTATE OPERATIONS
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As more fully described below under "Facilities," the Company owns and operates
two real estate properties. One is located in Sacramento, California and the
other is in Toronto, Ontario, Canada. Both properties are leased to commercial
tenants and are held by the subsidiaries of the Company.
EMPLOYEES
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As of December 31, 1999, the Company had a total of 22 full-time employees and 2
part-time employees. The Company's employees are not covered by a collective
bargaining agreement and the Company has experienced no work stoppages. The
Company believes that its relationships with its employees is good.
ITEM 2 - FACILITIES
The Company leases space at 2 retail locations, and at its principal
headquarters in Miami, Florida. The Miami location serves as the core sales,
support and marketing facility headquarters for the Company's executive,
engineering, sales, human resources and finance personnel. The following is a
listing of the Company's significant leased facilities:
Location Square Footage Expiration Date
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Miami, Florida - Headquarters 3,143 June 30, 2002
Miami, Florida - Retail store 1,890 December 31, 2001
Boston, Massachusetts - store 1,030 December 31, 2001
The Company, through its subsidiaries, also owns two commercial real estate
properties. The Company acquired a 119,100 square foot, two story, strip center
retail and office complex located in Sacramento, California with the acquisition
of Sacramento Results, Inc. A retail videocalling center has been opened in a
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515 square foot space. On February 24, 1999, the Company acquired a 22,662
square foot property in Toronto, Canada, which contains commercial rental
tenants.
The Sacramento property has an occupancy rate of 82.2% and is composed of 50.46%
office rental and 49.54% retail stores. Two of the twenty six tenants occupy
more than ten percent of the rentable square footage; one is the U. S. Post
Office and the other operates a bingo hall. The average effective annual rental
per square foot for the entire property is $9.88. All existing leases, excluding
renewal provisions and the U. S. Post office, will expire within the next ten
years. Management believes that the property is stable and the current occupancy
rate will be maintained or improved.
For federal tax purposes, the basis in the property is the acquisition price
paid by Sacramento Results, Inc., the subsidiary in which the property is held.
The property is being depreciated over 39 years under the straight line method.
Real estate taxes for 1999 totaled $55,696.
This property is encumbered by five loans as follows:
Mortgage note, secured by a first lien on the land and building, including a
deed of trust on rents and fixtures; bearing interest at 12%, payable monthly
with the entire principal due January, 2004. The current balance on this
mortgage is $3,840,000.
12.5% Mortgage note, secured by a second lien on the land and building,
including a deed of trust on rents and a lien on specified equipment; disbursed
to a maximum funding of $500,000 based upon completion of certain leasehold
improvements and delivery of specified equipment; payable in monthly
installments of principal and interest for 60 months; undisbursed funds at
December 31, 1999 totaled $350,000. The balance on the mortgage is $124,912, at
December 31, 1999.
Convertible discounted loan note, secured by an unrecorded lien on the
Sacramento land and building, with imputed interest at the rate of 9.4%,
interest payable monthly, principal balance due November 2001, net of
unamortized discount of $108,900. The balance on this loan at December 31, 1999
is $386,100.
A non-interest bearing obligation of $1,000,000 to the seller of the property.
This note was renegotiated and partially paid down on February 19, 1999. Under
the renegotiated note, the Company paid $457,000. The renegotiated note is
secured by a subordinated position on the land and building to existing
mortgages and collateralized by 200,000 shares of the Company's common stock.
During the first quarter of 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. Balance due as of December 31,
1999 is $893,000.
A 9% Mortgage note, secured by a lien on the land and building, with a maximum
funding of $1,000,000 due September 1, 2000. Interest is payable monthly. The
balance at December 31, 1999 is $500,000.
The Toronto, Ontario, Canada property has an occupancy rate of 79.07% which
represents three tenants out of the four units available. All tenants are retail
stores on street level. The average effective annual rental for 1999 is $8.51
per square foot. All existing leases will expire within the next ten years,
however management is confident that the property will maintain or improve upon
its current occupancy level.
The property is located in Canada and subject to Canadian tax law. Real estate
taxes for the year ended December 31, 1999 totaled $47,406.
12
<PAGE>
This property is encumbered by a 7.05% Mortgage note, secured by the land and
building and matures February 1, 2002. The mortgage is payable in monthly
installments of $8,000, including principal and interest. The mortgage is
payable in Canadian dollars. The balance on December 31, 1999 in US dollars is
$964,089.
The property was pledged by the seller as collateral on an unrelated bank debt
of the seller in the amount of $621,000. The seller has provided a personal
guarantee and indemnity until the pledge is discharged. The seller is in the
process of having the pledge discharged.
Management believes it carries sufficient and adequate insurance on all
properties.
ITEM 3 - 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board market under the
symbol TVCP. Prior to May 14, 1996, there was no public trading market for the
Common Stock. After the Company began public trading on May 14, 1996, and until
April 7, 1999, the Common Stock was quoted on the Nasdaq SmallCap Market(SM)
under the symbol LGCY, from May 14, 1996 through February 28, 1999 and under the
symbol TVCP from March 1, 1999 through April 7, 1999. The following table sets
forth the range of high and low closing bid prices for each period indicated as
reported by the National Quotation Bureau, LLC:
Price Range for Common Stock
- ----------------------------
CALENDAR YEAR 1999 High Low
------ ------
First Quarter $4.125 $3.625
Second Quarter 3.500 0.460
Third Quarter 0.570 0.120
Fourth Quarter 0.910 0.057
13
<PAGE>
CALENDAR YEAR 1998 High Low
------ ------
First Quarter $3.75 $1.125
Second Quarter 3.375 0.3125
Third Quarter 1.78125 0.9375
Fourth Quarter 4.00 0.8125
Market prices have been adjusted for the 1:3 reverse split of the Company's
Common Stock on September 6, 1998. The quotations noted above, with respect to
transactions on the OTC Bulletin Board, represent prices between dealers and do
not include retail markups, markdowns or commissions.
HOLDERS
- -------
As of March 27, 2000, there were 38,413,261 shares of Common Stock
outstanding, representing approximately 9200 beneficial holders.
TRANSFER AGENT AND REGISTRAR
- ----------------------------
The Nevada Agency and Trust Company, Suite 880 Valley Bank Plaza, 50
West Liberty, Reno, NV 89501, is the Transfer Agent and Registrar for the Common
Stock.
DIVIDENDS
- ---------
The Company has not paid any cash dividends on its capital stock to
date. The Company currently anticipates that it will retain all future earnings,
if any, for use in its business and does not anticipate paying any cash
dividends on its capital stock in the foreseeable future. In addition, the
payment of cash dividends may be limited by financing agreements entered into by
the Company in the future.
In connection with the acquisition of real estate on February 24, 1999,
the Company issued 975,000 shares of 1999 Class A Convertible Preferred stock,
$.001 par value, paying a dividend of $0.095 per share per annum. The Company
paid a total of $69,469 in dividends on the Class A Convertible Preferred stock
during 1999.
Sales of Unregistered 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. All the issued securities were restricted securities under Rule
144, or Reg S regulations, and appropriate restrictive legends were affixed to
the securities in each transaction.
14
<PAGE>
On October 26, 1999, the Company issued 200,000 shares of common stock to a
consultant for services in representing the Company to the investing community.
The shares were issued at a value of $0.0625 for a total value of $12,500. These
securities were issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities
Act of 1933.
On November 4, 1999, the Company satisfied its obligation to a foreign based
corporation in which the Chairman of the Company is a 33% shareholder, for open
invoices in the amount of $130,000, representing consulting and management
services provided by the Chairman, with the issuance of 1,698,014 shares. The
value on the date of issue was $.0766 per share. These securities were issued in
a transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
On November 17, 1999, the Company issued 100,000 shares of common stock to a
consultant for services in representing the Company to the investing public via
the internet. The shares were issued at $0.7031 for a total value of $70,310.
These securities were issued in a transaction exempt from registration under the
Securities Act of 1933 in reliance on Sections 4(2) and 4(6) of the Securities
Act of 1933.
On December 23, 1999, the Company issued 18,000 shares to employees and
associates as additional compensation. These shares were valued at $0.4688 per
share, for a total expense of $8,438. These securities were issued in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
On December 30, 1999, the Company issued 150,500 shares in satisfaction of
consulting contract obligations to three consultants for marketing, business
acquisition and computer programming services. Issue prices ranged from $0.4062
to $0.4688 per share for a total expense of $70,523. These securities were
issued in transactions exempt from registration under the Securities Act of 1933
in reliance on Sections 4(2) and 4(6) of the Securities Act of 1933.
Conversion of 1999 Series-A Convertible Preferred Stock
- -------------------------------------------------------
On December 1, 1999, the holder of the 975,000 1999 Series-A Convertible
Preferred stock, originally issued in connection with the acquisition of the
Toronto property, notified the Company of its intention to convert the Preferred
stock to common stock under the terms of the conversion privilege contained in
the Certificate of Designation. The formula outlined in the Certificate of
Designation, called for the conversion to be based on the lesser of (x) $3.25
per share or (y) the average of the lowest three day closing bid prices for the
Common Stock as reported by the NASDAQ SmallCap Market or such other national
securities exchange or quotation system during the 25 trading days prior to the
conversion date. The arithmetic average yields $0.0583 per share, for a total
issue obligation of 16,714,381 shares. At December 31, 1999, none of the shares
had been converted. The Company has been advised that the Preferred shareholder
will convert the shares over the next thirty six months. The holder of the
Preferred shares has agreed on all conversions after the first 3,348,500 shares
to re-invest, within the thirty-six month period, $1.00 per converted share, for
a total investment to the Company of $13,365,000.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company was organized as Legacy Software, Inc. ("Legacy") in California in
1989, as a successor to a partnership formed in 1986 and was reincorporated in
Delaware in March, 1996, then reincorporated in Nevada in 1999. The Company
completed an initial public offering of 1,150,000 shares of its common stock,
par value $.001 per share ("Common Stock"), in May of 1996. In September of
1998, the Company effected a one for three (1:3) reverse split of the Common
Stock. From its inception until October, 1998, Legacy primarily developed and
sold educational entertainment software. On September 14, 1998, a merger (the
"Merger") was announced between Videocall International Corporation
("Videocall") and Legacy. Videocall was a development stage company incorporated
in Florida in February, 1998, headquartered in Cambridge Massachusetts, to
provide videocalling and related telecommunication services to businesses and
consumers. Following the announcement of the proposed Merger, the key officers
of Videocall were elected as officers of Legacy and open positions on the Board
of Directors were filled by Directors of Videocall, thus creating common control
of the two companies. By December 31, 1998, Legacy had ceased developing and
marketing software products and began focusing on the business activities of
Videocall. On March 1, 1999, Legacy's name was changed to Talk Visual
Corporation ("Talk Visual"). The stock-for-stock transaction, in accordance with
the terms of the Merger, was approved by the stockholders of both companies June
15, 1999, after which Videocall was merged into Talk Visual, with Talk Visual
(the "Company") being the survivor. In addition, the stockholders approved
increasing the authorized common shares to 100,000,000 and the authorized
preferred shares to 25,000,000.
The Merger has been accounted for as a reverse acquisition. As a result of the
change in control and change in business activity in 1998, the Merger is
considered to have occurred by December 31, 1998 and accordingly, all references
are to the activities of Videocall.
On August 30, 1999, the Company moved its headquarters from Cambridge,
Massachusetts to Miami, Florida.
Prior to August 24, 1999, the Company was considered a development stage
company. On August 24, 1999, the Company launched its videocalling services
through its wholly owned retail stores in the United States and joint venture
partners in Europe, Israel, Canada, Asia and South America. On September 2,
1999, the Company announced the successful transmission of full-motion, superior
quality videocalls over the internet from the Company's Sacramento, California
location to the Miami, Florida location.
In conjunction with Film World, Inc. and producers John Daly (Platoon, The Last
Emperor, Terminator) and Menahem Golan (Cobra Delta Force, Runaway Train,
Missing in Action), the Company initiated Global Visual Casting on November 2,
1999. This service permits aspiring actors and actresses around the globe to
conduct live videocall auditions with Film World's casting directors in
Hollywood.
In December, 1999, the Company announced a joint venture with Universal Express
with access to over 7,000 potential sites for installation of videoconferencing
equipment. The Company designed and is currently offering an attractive,
low-cost turnkey package for those retail locations to join the videocalling
network. Also in December, the Company initiated its internet sales operation,
Beeperforabuck.com to commence selling pagers at a low cost over the world wide
web.
16
<PAGE>
Through a recently signed contract with an original equipment manufacturer,
Motion Media, Ltd., the Company now offers a desktop based videoconferencing
telephone at a reasonable price. The Company views this unit as the next step in
deploying video telephony to the mass market.
In October of 1998, Videocall acquired the stock of Sacramento Results, Inc.
("SRI"), a California corporation. SRI's primary asset consists of a 119,100
square foot, two story, strip center retail and office complex located in
Sacramento, California. In February, 1999, the Company formed a Canadian
subsidiary to acquire a 22,662 square foot property in Toronto, Canada, which
contains commercial retail rental tenants. Both properties currently represent
the primary source of the Company's gross receipts.
The Company plans expansion through an aggressive program of acquisition,
opening new retail sites, forming joint ventures with other telecom providers
and expanding the telecom product offerings in all physical and internet retail
sites.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 1999, compared to Fiscal Year Ended December 31,
1998
The Company's predecessor, Videocall, was in development stage during all of
1998 and until August 24, 1999. Therefore, revenue from operations only
commenced in the fourth quarter of 1999.
Sales of $8,147 in services and $79,393 in equipment represent the commencement
of the Company's core business activity - that of selling videocalling and
telephony service and equipment. The majority of the equipment sales were to
joint venture partners, some of which share common management with the Company
and therefore are considered related parties.
The initial investment in real estate property occurred in October of 1998. The
increase in real estate revenues of $846,355 results from a full year of
ownership of the Sacramento property and the addition in February 1999 of the
Toronto property. The Toronto property is 20% of the revenue and the Sacramento
property is 80% of rental receipts.
Software development costs incurred prior to the Merger totaled $1,487,018 and
accumulated amortization prior to the current year aggregated $1,105,325 for a
net asset value of $381,693. Management has reviewed the value of the
development costs and determined that it was necessary to reduce the value by
$206,694 to reflect the net realizable value of the asset. The Company currently
has a contract for sale of the software asset for the amount of the adjusted net
realizable value.
Telecommunication and retail operation expenses represent the costs of initial
store openings and operating expenses for the retail stores. The major elements
of the total expense of $442,710 are comprised of the following:
17
<PAGE>
Advertising $ 64,956
Rents 22,704
Tech Support 104,539
Store Salaries 150,064
Telecom costs 46,933
Supplies, Utilities, Misc. 53,514
-------
Total $442,710
=======
Research and development costs decreased $197,609, from $270,376 in 1998 to
$72,767 in 1999. This decrease represented the reduction in expenditures as a
result of completion of the development of the web based reservation system for
videocalling and the software for retail store operations.
Real estate operations expense for the year ended December 31, 1998, included a
one time charge to bad debt for $150,959. This amount was for funds transferred
by the seller of the Sacramento property to it's related entities that were
never repaid. Actual general and administrative costs for the rental operations
totaled $50,774 for the short period of ownership in 1998 and $292,610 for both
properties for the year ended December 31, 1999.
General, administrative and marketing expenses are comprised of the following
1999 1998
------ ------
Salaries and benefits $ 719,943 $260,391
Travel 295,286 85,219
Office, computer and maintenance 372,927 90,140
Rents, licenses and other expenses 304,344 66,642
Consultants 1,652,453 48,827
Legal and other professional 1,178,418 205,260
Marketing and public relations 459,782 51,607
--------- -------
Total $4,983,153 $808,086
========= =======
Of the total $4,983,153 expense in 1999, $2,441,568 was paid in common stock;
actual cash payments totaled $2,541,585. For the year ended December 31, 1998,
of the total expense of $808,086, $223,000 was paid in common stock and the
balance of $585,086 was paid in cash. Consultants, legal and other professional
expenses totaling $2,830,871 for the year ended December 31, 1999, included
$2,296,629 paid in common stock, leaving actual cash payments to those
professionals in the amount of $534,242. Management anticipates that the
majority of these expenses are one time, as they result from identifying,
developing and cultivating business relations for deployment of the videocalling
network and with respect to the legal expense, resolution of issues arising from
the Merger and deployment of videocalling services.
Interest expense of $663,964 for the year ended December 31, 1999, increased
over the year ended December 31, 1998 in the amount of $557,196, primarily from
the full year ownership of the Sacramento and Ontario properties in 1999.
18
<PAGE>
Dividends paid on the Preferred stock in 1999 result from the issuance of the
Series 1999-A Convertible Preferred stock for the acquisition of the Toronto
property. On December 1, 1999, the holder of the Preferred stock notified the
Company of its intention to convert the Preferred stock to common stock under
the terms of the conversion privilege contained in the Certificate of
Designation of the Series 1999-A Convertible Preferred Stock issue. No further
dividends will be due as a result of the election to convert.
As of December 31, 1999, the Company had federal and state net operating
loss carry-forwards of approximately $12,215,000 and $6,552,000, respectively,
available to offset taxable income through the year 2019. The Company's net
deferred tax assets consisted primarily of net operating losses. The Company has
established a valuation allowance equal to the net deferred tax asset for each
period, as the Company could not conclude, based upon prior recurring operating
losses, that it was more likely than not that the Company will generate
sufficient taxable income before 2013 to utilize all of the Company's deferred
tax assets.
Year 2000 Compliance
The Company did not encounter any disruptions in service as a result of Year
2000 computer programming. The Company did not separately identify costs
incurred in connection with its Year 2000 compliance activities as such costs
were not significant because they generally have been incurred in the normal
course of internally modifying and updating the Company's software programs.
Future expenditures are not expected to be significant and will be funded out of
operating cash flows.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $287,156 of cash and cash equivalents
on hand. The Company will require additional cash to finance continuing revenue
growth, new product introduction and acquisitions.
Net cash outflows from operating activities for the year ended December 31, 1999
was $2,315,093 and $839,511 for the year ended December 31, 1998. The increase
in net outflows results from the Company operations extending the entire year
versus part of the year in 1998. The total net cash outflow of $2,315,093 for
1999, was comprised primarily of the net loss from operations of $5,954,719
adjusted for non-cash items in the amount of $3,093,871, an increase in
inventory and other receivables totaling $151,923 offset by a decrease in
accounts receivable of $27,785, a decrease in other current assets of $81,740
and an increase in accounts payable and other current liabilities totaling
$588,153.
Cash inflows from investing activities of $294,989 for the year ended December
31, 1999, resulted primarily from the inclusion of net assets acquired as a
result of the Merger. Purchases of equipment and leasehold improvements
aggregated $1,275,724 in the year ended December 31, 1999 and $125,138 in the
19
<PAGE>
year ended December 31, 1998. In the year ended December 31, 1999, an increase
in the advances to related parties accounted for the use of $589,366 of
investing cash flows.
Net cash provided by financing activities was $1,928,602 in 1999 and $1,743,041
in 1998. These funds were achieved by new debt of $1,054,568 in 1999 and
$608,493 in 1998; proceeds from private placements of common stock of $1,000,000
in 1999 and $1,172,709 in 1998 and collection of prior year subscriptions of
$688,931 in 1999, offset by payments on debt and payment of loan fees totaling
$745,428 in 1999 and $38,161 in 1998 and cash dividend payments on preferred
stock of $69,469.
RISK FACTORS
As of December 31, 1999, the Company has never achieved operating profits. The
Company is dependent on revenues from the real estate operations, investor stock
subscriptions, short term and long term borrowings and retail videocalling and
telecommunication product sales for working capital needs, until the business
operations generate sufficient cash flow to fund the Company. There is no
assurance of profitability - because the Company, prior to August 24, 1999, was
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.
During the first quarter of 2000 the Company has collected $1,908,790 of its
stock subscriptions receivable. It is anticipated that the remaining $1,061,976
will be collected during the second quarter of 2000. Additionally, the Company
has collected $1,053,500 in option exercise payments and $446,900 due from
shareholder. The Chairman of the Company has made a guarantee to fund and/or
obtain funding to meet the obligations and working capital needs of the Company.
In addition, the Company anticipates receiving $13,365,000 from the holder of
the Convertible Preferred stock over the next thirty six months as the preferred
is converted to common stock.
Management anticipates that the available funds are sufficient to meet the needs
for working capital and capital expenditures in the near term. The Company may
need to raise additional funds for the pursuit of additional acquisitions, for
the undertaking of new product developments or if the Company experiences
operating losses that exceed expectations. If the Company raises additional
funds through the issuance of equity, or equity-related or debt securities,
these securities may have rights, preferences or privileges senior to those of
the rights of the common stock and the Company's stockholders may experience
additional dilution. The Company cannot be certain that additional financing
will be available on favorable terms when required, or at all.
Effective March 30, 2000, the Company has entered into a one year placement
agreement with a prominent 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. 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 an
average price for a period of 22 consecutive trading days preceding the date of
funding.
Management of Growth; Uncertainties Relating to Acquisitions, Business
Combinations and New Businesses. The Company has pursued, is currently pursuing
20
<PAGE>
and, in the future may pursue, new technologies and businesses internally and
through acquisitions and combinations which involve significant risks. Any such
acquisition or combination may involve, among other things, the issuance of
equity securities, the payment of cash, the incurrence of contingent liabilities
and the amortization of expenses related to goodwill and other intangible
assets, and transaction costs, which have adversely affected, or may adversely
affect, the Company's business' results of operations and financial condition.
The Company's ability to integrate and organize any new businesses and/or
products, whether internally developed or obtained by acquisition or
combination, 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.
21
<PAGE>
Item 7. Financial statements and supplementary data
-------------------------------------------
Contents
Report of Independent Auditors......................................... 23
Consolidated Balance Sheets............................................ 24-25
Consolidated Statements of Operations.................................. 26
Consolidated Statements of Shareholders' Equity........................ 27-28
Consolidated Statements of Cash Flows.................................. 29-30
Notes to Consolidated Financial Statements............................. 31-47
22
<PAGE>
Report of Independent Auditors
To the Stockholders of
Talk Visual Corporation
Miami, Florida
We have audited the accompanying consolidated balance sheet of Talk Visual
Corporation as of December 31, 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Talk Visual
Corporation at December 31,1999, and the results of its operations and its cash
flows for each of the two years ended in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
As more fully described in Note 2 to the financial statements, there are certain
liquidity matters concerning the Company. Management's plans with regard to
these liquidity matters are discussed in Note 2.
/s/Mayer Rispler & Company,P.C.
- -------------------------------
Mayer Rispler & Company, P.C.
Brooklyn, New York
March 30, 2000
23
<PAGE>
TALK VISUAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 287,156
Accounts receivable, net of allowances
for doubtful accounts of $3,017 46,031
Inventory 25,853
Other receivables 530,319
Stock subscriptions receivable 1,908,790
Marketable securities 180,043
Other current assets 56,172
----------
Total current assets $ 3,034,364
PROPERTY AND EQUIPMENT, net 11,477,805
ADVANCES TO RELATED ENTITIES 675,102
OTHER ASSETS 451,118
----------
TOTAL $15,638,389
==========
See notes to consolidated financial statements.
24
<PAGE>
TALK VISUAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Continued)
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion
of long-term debt $ 1,571,634
Accounts payable 918,780
Accrued expenses 248,824
Other current liabilities 52,828
----------
Total current liabilities 2,792,066
LONG-TERM DEBT, net of current portion 5,372,001
---------
TOTAL LIABILITIES 8,164,067
---------
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; 975,000 issued and outstanding 975
Common Stock, par value $.001 per share,
100,000,000 shares authorized; 32,060,978 shares
issued and outstanding 32,061
Common stock subscribed 4,241
Additional paid in capital 16,409,119
Accumulated deficit (7,221,561)
Accumulated other comprehensive loss (688,537)
Stock subscriptions receivable (1,061,976)
----------
Total Stockholders' Equity 7,474,322
----------
TOTAL $15,638,389
==========
See notes to consolidated financial statements.
25
<PAGE>
TALK VISUAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------
1999 1998
---- ----
REVENUE
Telecommunication Services and
Product sales $ 8,147 $ --
Equipment sales, related parties 79,393 --
Real Estate revenues 1,075,482 229,127
Other income 2,966 --
---------- ---------
Total revenue 1,165,988 229,127
---------- ---------
COSTS AND EXPENSES
Cost of equipment sales, telecommunication
and retail operation expenses 442,710 --
Depreciation and amortization 299,264 41,982
Research and development 72,767 270,376
Real estate operations 292,610 201,733
General, administrative and marketing 4,983,153 808,086
Write-down of software development
costs 206,694 --
---------- ---------
Total costs and expenses 6,297,198 1,322,177
---------- ---------
LOSS FROM OPERATIONS (5,131,210) (1,093,050)
---------- ---------
OTHER INCOME (EXPENSE)
Interest expense (663,964) (106,768)
Interest income 5,915 2,445
Foreign currency translation loss (962) --
Adjustment of non-marketable securities
to fair value (164,498) --
---------- ----------
(823,509) (104,323)
NET LOSS $(5,954,719) $(1,197,373)
DIVIDEND ON PREFERRED STOCK $ 69,469 $ --
---------- ----------
NET LOSS APPLICABLE TO COMMON SHARES $(6,024,188) $(1,197,373)
========== ==========
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.23) $ (0.06)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 26,674,262 21,234,818
========== ==========
See notes to consolidated financial statements
26
<PAGE>
<TABLE>
<CAPTION>
Talk Visual Corporation
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998
Additional
Preferred Shares Common Shares Stock Paid In
Shares Amount Shares Amount Subscribed Capital
------ ------ ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 -- $ -- 885,000 $ 885 -- $ 7,062,557
Year Ended December 31, 1998:
Common shares issued in private placement -- -- 472,667 473 -- 308,777
Exercise of warrants -- -- 19,084 19 -- 74,981
Common shares subscribed -- -- -- -- 354 2,453,748
Common shares issued for services -- -- 16,667 17 -- 222,983
Common shares exchanged for debt -- -- -- -- 28 73,172
Net Loss -- -- -- -- -- --
Other comprehensive income - unrealized gain
(loss) on marketable securities -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
Issued pursuant to Videocall-Talk Visual
Merger -- -- 19,841,400 19,841 25,693 (481,599)
----------------------------------------------------------------------------
Balance December 31,1998 -- -- 21,234,818 21,235 26,075 9,714,619
Year Ended December 31, 1999:
Effect Equity transfer of Talk
Visual-Videocall Merger -- -- -- -- -- 678,592
Collections on subscriptions -- -- -- -- (25,693)
Common Shares issued for services -- -- 4,459,642 4,460 -- 2,437,108
Common Shares issued in exchange
for debt -- -- 27,500 28 -- 106,535
Previously subscribed stock,
issued -- -- 2,321,017 2,292 (354) (1,938)
Issuance of preferred shares 975,000 975 -- -- -- 974,024
Issuance of stock for prior
agreement -- -- -- 28 (28) --
Common shares issued in private
placement -- -- 4,000,000 4,000 -- 996,000
Common shares subscribed -- -- -- -- 4,241 1,495,759
Issued to employees -- -- 18,000 18 -- 8,420
Net Loss -- -- -- -- -- --
Other comprehensive loss - unrealized
loss on marketable securities
and currency exchange -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
Dividends paid on preferred stock -- -- -- -- -- --
----------------------------------------------------------------------------
Balance December 31,1999 975,000 $ 975 32,060,977 $ 32,061 $ 4,241 $ 16,409,119
============================================================================
</TABLE>
See notes to consolidated financial statements
27
<PAGE>
<TABLE>
<CAPTION>
Talk Visual Corporation
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1999 and 1998
(continued)
Accumulated
Other Stock Total
Accumulated Comprehensive Subscription Stockholders' Comprehensive
Deficit Loss Receivable Equity Loss
----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998 $(6,511,054) $ -- $ -- $ 552,388
Year Ended December 31, 1998:
Common shares issued in private placement -- -- -- 309,250
Exercise of warrants -- -- -- 75,000
Common shares subscribed -- -- (157,000) 2,297,102
Common shares issued for services -- -- -- 223,000
Common shares exchanged for debt -- -- -- 73,200
Net Loss (1,318,706) -- -- (1,318,706) $ (1,318,706)
Other comprehensive income -
unrealized gain
(loss) on marketable securities -- 207,043 -- 207,043 207,043
-----------
Comprehensive loss -- -- -- -- $ (1,111,663)
===========
Issued pursuant to Videocall-Talk Visual
Merger 6,632,387 -- (1,589,666) 4,606,656
------------------------------------------------------------------
Balance December 31,1998 (1,197,373) 207,043 (1,746,666) 7,024,933
Year Ended December 31, 1999:
Effect Equity transfer of Talk
Visual-Videocall Merger -- -- -- 678,592
Collections on subscriptions -- -- 1,746,666 1,720,973
Common Shares issued for services -- -- -- 2,441,568
Common Shares issued in exchange
for debt -- -- -- 106,563
Previously subscribed stock,
issued -- -- -- --
Issuance of preferred shares -- -- -- 974,999
Issuance of stock for prior
agreement -- -- -- --
Common shares issued in private
placement -- -- 1,000,000
Common shares subscribed -- -- (1,061,976) 438,024
Issued to employees -- -- -- 8,438
Net Loss (5,954,719) -- -- (5,954,719) (5,954,719)
Other comprehensive loss - unrealized
loss on marketable securities
and currency exchange -- (895,580) -- (895,580) (895,580)
-----------
Comprehensive loss -- -- -- -- $ (6,850,299)
===========
Dividends paid on preferred stock -- (69,469) -- (69,469)
------------------------------------------------------------------
Balance December 31,1999 $(7,221,561) $ (688,537) $(1,061,976) $ 7,474,322
==================================================================
</TABLE>
See notes to consolidated financial statements
28
<PAGE>
<TABLE>
<CAPTION>
TALK VISUAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(5,954,719) $(1,197,374)
Adjustments to reconcile net
loss to net cash used
in operating activities:
Depreciation and amortization 272,491 41,979
Amortization of product development costs 206,605 --
Write down of other investments 145,563 --
Write off of intangibles 27,645 --
Issuance of common stock in exchange for services 2,441,567 223,000
Increase (decrease) in cash from changes in:
Accounts receivable, net 27,785 28,326
Inventory (17,603) --
Other receivables (134,320) (98,674)
Other current assets 81,740 (94,160)
Accounts payable 514,893 184,838
Accrued expenses 73,232 43,024
Other current liabilities 28 29,530
----------- -----------
Net Cash from Operating Activities (2,315,093) (839,511)
----------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment (1,275,724) (125,138)
Advances - related parties (589,366) --
Purchase of subsidiary -- (468,950)
Assets acquired in merger 2,157,842 153,608
Acquisition or disposition of other assets 2,237 (85,606)
----------- -----------
Net Cash from Investing Activities 294,989 (526,086)
----------- -----------
Cash Flows from Financing Activities:
Borrowings on debt 1,054,568 608,493
Payments on Notes Payable and Long Term Debt (727,883) (1,812)
Proceeds from Private Placements of Common Stock 1,000,000 1,172,709
Collections on stock subscriptions receivable 688,931 --
Cash dividend payments (69,469) --
Other (17,545) (36,349)
----------- -----------
Net Cash from Financing Activities 1,928,602 1,743,041
----------- -----------
Increase (decrease) in cash and cash equivalents (91,502) 377,444
Cash and cash equivalents at beginning of period 378,658 1,214
----------- -----------
Cash and cash equivalents at end of period $ 287,156 $ 378,658
=========== ===========
</TABLE>
See notes to consolidated financial statements
29
<PAGE>
TALK VISUAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
YEAR ENDED DECEMBER 31,
-----------------------
Supplemental disclosure of cash flow information: 1999 1998
--------- ----------
a. Cash paid during the period for:
interest $ 641,888 $ 5,540
--------- ----------
income taxes $ 800 $ -0-
--------- ----------
b. Noncash investing and financing transactions:
For the year ended December 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 200,000 shares of common stock in satisfaction of accounts
payable in the amount of $81,240.
Issuance of 55,650 shares of common stock in satisfaction of notes payable
in the amount of $129,009.
Videocall International
- -----------------------
For the year ended December 31, 1998:
Issuance of 611,909 shares of common stock for $75,000 in equipment and
$66,000 in third party notes receivable.
Issuance of 2,974,250 shares of common stock for marketable securities with
a value of $882,100.
Issuance of 3,000,000 common shares and a note payable for $1,000,000 for
the acquisition of the subsidiary which holds the California real estate.
Issuance of 212,500 shares of common stock for 212,500 options to purchase
marketable securities, valued at $341,998 net of the option exercise price.
Talk Visual Corp. (formerly Legacy Software, Inc.)
- --------------------------------------------------
For the year ended December 31, 1998:
On December 18, 1998, the Company agreed to issue 52,051 shares of
common stock in exchange for the contribution of a short term investment with a
market value of $104,102.
In December, 1998, the Company agreed to issue 28,150 shares of common
stock for the cancellation of a note payable including accrued interest in the
amount of $73,200.
Sale of assets and assumption of debt by a third party $147,935.
Reduction of debt by a former co-development partner $300,000.
See notes to consolidated financial statements
30
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Merger
- ----------
Talk Visual Corporation, formerly Legacy Software, Inc. ("Legacy") was
incorporated in Delaware in 1996 and primarily developed and sold educational
entertainment software. Videocall International Corporation ("Videocall") was a
development stage company incorporated in Florida in February, 1998, to provide
videocalling services to businesses and consumers. Pursuant to an Agreement and
Plan of Merger ("Merger"), dated September 14, 1998, a merger was announced
between Videocall and Legacy. Subsequently, the key officers of Videocall were
elected as directors and officers of Legacy, thus creating common control of the
two companies. At December 31, 1998, Legacy had ceased developing and marketing
software products and began focusing on the business activities of Videocall. In
February, 1999, Legacy's name was changed to Talk Visual Corporation ("Talk
Visual"). The stock-for-stock transaction was approved by the stockholders of
both companies June 15, 1999, after which Videocall was merged with Talk Visual,
with Talk Visual (the "Company") being the survivor.
The Merger has been accounted for as a reverse acquisition. Shareholders of the
Company also approved the re-incorporation of the Company in Nevada. 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
price of the holdings. In effecting the Merger, the Company was obligated to
issue 19,841,400 shares of common stock to the Videocall shareholders, and has
granted 15,608,475 three year options for one share of stock each, at an
exercise price of $1.00 per share. As a result of the common control and change
of business activities, these financial statements reflect the combined
operations of both companies for the full 1999 fiscal year, as if the merger had
occurred at December 31, 1998.
Business
- --------
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 through its wholly owned retail stores in the United
States and joint venture partners in Europe, Israel, Canada, Asia and South
America. Additionally, during 1999, the Company commenced selling other
telecommunications services and equipment through its retail outlets and over
the internet. The Company also owns and operates, through its wholly owned
subsidiary, Sacramento Results, Inc., a commercial property located in
Sacramento, California and through its wholly owned subsidiary, The Ontario
International Property Corporation, a commercial property in Toronto, Ontario,
Canada.
On August 30, 1999, the Company moved its headquarters from Cambridge,
Massachusetts to Miami, Florida.
On February 8, 1999, the Company purchased a commercial property through its
wholly owned subsidiary, The Ontario International Property Corporation, a
Canadian corporation, as follows:
31
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Business(continued)
- --------
Assumption of mortgage $ 987,755
Issuance of 975,000 shares of Class A
Convertible preferred stock valued at
$1.00 per share, paying dividends
of $.095 per share 975,000
Cash 45,383
----------
$2,008,138
==========
The property was purchased subject to a lien of $621,000. The prior owners have
committed to have the lien released on the property and have provided a personal
guarantee and indemnity to that effect from the prior owner's principal.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Talk Visual
Corporation and its wholly owned subsidiaries, Sacramento Results, Inc. and The
Ontario International Property Corporation. All intercompany balances and
transactions have been eliminated.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an initial maturity of three months or
less to be cash equivalents.
Concentrations of Credit Risk
- -----------------------------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and temporary cash investments. At
times, cash balances held at financial institutions were in excess of federally
insured limits. The Company places its temporary cash investments with
high-credit, quality financial institutions and, by policy, limits the amount of
credit exposure to any one financial institution. The Company believes no
significant concentration of credit risk exists with respect to these cash
investments.
32
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventory
- ---------
Inventory, which consists of finished goods, is valued at the lower of cost or
market. Cost is determined by the first-in, first-out (FIFO) method.
Stock Subscriptions Receivable
- ------------------------------
On December 14, 1999 a private placement of $1,500,000 for 4,241,322 shares of
Common Stock was subscribed to by third party investors to provide additional
capital to the Company. Of the $2,970,766 still due under the subscriptions at
December 31, 1999, through March 27, 1999, $1,908,790 has been received in cash
and have been presented as a component of current assets in the accompanying
financial statements; the balance of $1,061,976 remains to be collected, and has
been presented as a reduction of stockholder equity in the accompanying
financial statements.
Property and Equipment
- ----------------------
Property and equipment is stated at cost less accumulated depreciation.
Depreciation on property and equipment is computed using the straight-line
method over the estimated useful lives of the assets, which range from three to
seven years for furniture, fixtures and equipment and fifteen to forty years for
real estate.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Under SFAS 109, deferred tax assets may be recognized for temporary differences
that will result in deductible amounts in future periods. A valuation allowance
is recognized, if on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax asset will not be realized.
Revenue Recognition
- -------------------
Revenue is recognized upon completion of the service or delivery of equipment.
Earnings Per Share
- ------------------
The Company adopted SFAS No. 128, "Earnings Per Share". 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
33
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings Per Share (continued)
- -------------------
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. All amounts have been adjusted for the September 8,
1998 one for three reverse split. For the years ended December 31, 1999 and
1998, diluted earnings per share have not been included as it would be
antidilutive.
Foreign Currency Conversion
- ---------------------------
The financial statements of the Company's foreign subsidiary have been
translated into United States dollars at the average exchange rate during the
year for the statement of operations and year-end rate for the balance sheet.
Stock Based Compensation
- ------------------------
The Company accounts for its stock option awards under the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company makes pro forma disclosures of net
income and earnings per share as if the fair value based method of accounting
had been applied as required by SFAS No. 123, "Accounting for Stock-Based
Compensation".
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") issued by the FASB is
effective for financial statements with fiscal years beginning after June 15,
2000. This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. The Company does not expect
the adoption of SFAS 133 to have an impact on its financial position or results
of operations.
NOTE 2 - LIQUIDITY
As reflected in the accompanying financial statements, the Company incurred
significant net losses for the years 1999 and 1998, and expects to continue to
incur losses in 2000. The Company is dependent on revenues from the real estate
operations, investor stock subscriptions, short term and long term borrowings
and retail videocalling and telecommunication product sales for working capital
34
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 2 - LIQUIDITY (continued)
needs, until the operating activities generate sufficient cash flow to fund the
Company.
During the first quarter of 2000 the Company collected $1,908,790 of its
subscriptions receivable. It is anticipated that the remaining $1,061,976 will
be collected during the second quarter of 2000. Additionally, the Company
collected $1,053,500 in option exercise payments and $446,900 due from the
Chairman, during the first quarter of 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. Based upon the current cash utilization rate and
Management's plan for expansion and new products/joint ventures/acquisitions,
and the Chairman's funding obligation, Management believes that there should be
sufficient capital to meet the needs of the Company for the next twelve months.
In addition to the funding noted above, 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.
NOTE 3 - MARKETABLE SECURITIES
Marketable securities consist of common stock currently trading on a national
exchange. Marketable securities are stated at market value as determined by the
most recently traded price of each security at the balance sheet date. At
December 31, 1999, marketable securities were considered as available-for-sale
as defined by Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported as a separate component of stockholders' equity. The cost of
investments sold is determined on the specific identification or the first-in,
first-out method. At December 31, 1999, available-for-sale equity securities and
their market value was as follows:
Equity Securities, at cost $ 882,100
Unrealized Loss (702,057)
-----------
Market Value at December 31, 1999 $ 180,043
===========
These equity securities are held in a Canadian brokerage account under the name
of the Company's chairman. The Company has received executed stock assignment
certificates.
35
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 4 - OTHER RECEIVABLES
Included in other receivables at December 31, 1999, is a receivable in the
amount of $446,901 due from the Chairman of the Company. This receivable was
repaid, in full, during the first quarter of 2000.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Other operations:
Equipment, Machinery and Automobiles $ 406,106
Furniture and Fixtures 42,255
Leasehold Improvements 348,568
Real estate operations:
Equipment, Machinery and Automobiles 137,476
Furniture and Fixtures 13,833
Leasehold Improvements 92,268
Buildings 6,167,094
Land 4,590,296
---------
11,797,896
Less accumulated depreciation (320,091)
----------
Net assets $11,477,805
==========
Depreciation and amortization expense on property and equipment was $223,733 for
the year ended December 31, 1999 and $29,793 for the year ended December 31,
1998.
NOTE 6 - PRODUCT DEVELOPMENT COSTS
As noted earlier, the Company has ceased developing and marketing software
products and is focusing on videoconferencing and telecommunications. With
respect to the year ended December 31, 1999, the Company reduced the capitalized
software development costs by $206,694 to reflect management's determination of
the current estimated net realizable value.
NOTE 7 - DEBT
The Company's debt is as follows:
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
36
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
NOTE 7 - DEBT (continued)
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.
The renegotiated note is secured by a third position on the real estate and
collateralized by 200,000 shares of Talk Visual common stock. Subsequent to the
balance sheet date, the holder of the note signed a settlement agreement in
which it has accepted a cash payment of $450,000 and 100,000 shares of common
stock in full payment of this obligation. The adjustment will be reflected in
subsequent financial statements.
<S> <C>
Balance due as of December 31, 1999 $ 893,000
Unsecured note payable to IBM (past due, currently in
negotiation) 150,000
Due to prior officer (in arbitration) 72,066
Convertible discounted loan note ("CDLN"), secured by an unrecorded lien on the
Sacramento land and building, with imputed interest at the rate of 9.4%,
interest payable monthly, principal balance due November 2001, net of
unamortized discount of $108,900 (see discussion below) 386,100
Mortgage note, secured by a first lien on the Sacramento land and building,
including a deed of trust on rents and fixtures; bearing interest at 10% for the
initial 12 months and 12% thereafter; payable monthly, interest only for
seventy-two months, with the entire principal due January, 2004 3,840,000
12.5% Mortgage note, secured by a second lien on the Sacramento land and
building, including a deed of trust on rents and a lien on specified equipment;
disbursed to a maximum funding of $500,000 based upon completion of certain
leasehold improvements and delivery of specified equipment; payable in monthly
installments of principal and interest for 60 months; undisbursed funds at
December 31, 1999 totaled $350,000 124,912
9% Mortgage note, secured by a lien on the Sacramento land and
building, maximum funding of $1,000,000 due September 1, 2000.
Interest payable monthly 500,000
</TABLE>
37
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 7 - DEBT (continued)
7.05% Mortgage note, secured by the land and building
in Toronto Ontario, and matures February 1, 2002. The
mortgage is payable in monthly installments of $8,000,
including principal and interest The mortgage is
payable in Canadian dollars 964,089
10.27% Unsecured installment obligation payable monthly,
principal and interest, in the amount of $1,561.21 for
9 months 13,468
----------
Total Debt $6,943,635
Less current maturity 1,571,634
----------
Long term obligations $5,372,001
==========
The aggregate maturities of long-term debt maturing in succeeding years are as
follows:
Amount
---------
2001 $ 499,423
2002 62,058
2003 934,924
2004 3,875,596
Concurrent with the placement of the Convertible Discounted Loan Note ("CDLN"),
the lenders have subscribed to 990,000 shares of common stock at a price of
$990,000, paying $108,900 toward the total subscription. The CDLN is 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 declines the conversion feature, the
Company is 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 the time of the placement of the CDLN, there was no beneficial
conversion feature as the conversion price and market price of the underlying
common stock were both at $1.00 per share.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain equipment and real estate under various operating
leases which expire at various dates through June 30, 2002. Future minimum
rental payments required under operating leases that have initial or remaining
terms in excess of one year at December 31, 1999 are as follows:
38
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued)
Operating
December 31, Leases
------------ ------
2000 $114,358
2001 92,586
2002 23,573
-------
Total future minimum rentals $230,517
=======
Rent expense for the years ended December 31, 1999 and 1998 was $144,432 and
$42,601, respectively.
Legal Proceedings
- -----------------
There are no material legal proceedings, other than routine litigation
incidental to the business, to which the Company or any of its subsidiaries is a
party to or which any of their property is subject.
NOTE 9 - STOCKHOLDERS' EQUITY
The Company's authorized capital stock consists of 100,000,000 shares of common
stock, par value of $0.001 and 25,000,000 shares of non-voting preferred stock,
par value $0.001. At December 31, 1999, the Company has 32,060,978 issued and
outstanding Common shares and 975,000 issued and outstanding Series 1999-A
Preferred shares. The preferred issue has a stated liquidation preference value
of $975,000 or $1.00 per share, with no voting rights and pays a cumulative
dividend of $0.095 per share. Holders of the Series 1999-A preferred have the
right to convert the stated value of their shares, in whole or in part, into
common stock at a conversion price of $1.00 per share. The Company has the right
to redeem, in whole or in part, the Series 1999-A Preferred issue for $1.15 per
share at any time.
In May 1996, the Company consummated an initial public offering of 383,333
shares of its common stock, adjusted for the 1:3 reverse split in September
1998. On June 18, 1999, the Company completed the merger with Videocall
International Corporation. This transaction was recorded as a reverse merger
effective December 31, 1998.
Options and Warrants Outstanding
- --------------------------------
As a result of the Merger, on June 18, 1999, the Company issued options to
purchase 15,608,475 shares of common stock at $1.00 per share with a three year
expiration period to the Videocall shareholders and 1,800,000 warrants at $0.25
per share with a three year expiration period as a commission fee to brokers
involved in the introduction of the merged companies. No value has been recorded
for these options since they have not been registered and are not tradeable.
39
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
On May 30, 1999, the Company issued 45,000 options at $2.97 per share with a two
year expiration period to a former employee. The stock price on the date of
issue was $2.875. Accordingly, no compensation expense was recorded.
In connection with the Company's initial public offering of common stock, the
Company issued warrants to a trust company to purchase 66,667 shares of common
stock at $3.93 per share, expiring five years from the date of issue. The
warrants were exercisable immediately. Through December 31, 1999, the trust
company has exercised 60,432 of the warrants.
As of December 31, 1999, warrants and options to purchase 17,593,043 shares of
common stock were outstanding.
Capital Stock Transactions
- --------------------------
During 1999 the Company issued an aggregate 1,132,128 shares of common stock,
for various services and obligations. At issuance, the stock ranged in price
from $0.0625 per share to $4.00 per share. These issuances were recorded at a
total expense of $2,056,773, which includes a non-marketability discount.
Included in this amount is 50,000 shares of common stock to the President as a
bonus and 18,000 shares of common stock to employees and associates as
additional compensation.
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, which was charged to equity. 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 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 total acquisition price of the property was $2,008,138. 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
shareholder will convert the shares over the next thirty six months. The holder
of the Preferred shares has agreed on all conversions after the first 3,348,500
shares to reinvest, within the thirty-six month period, $1.00 per converted
share, for a total investment to the Company of $13,365,000.
On March 5, 1999, the Company issued 27,500 shares of common stock in exchange
for $105,000 of notes payable and accrued interest at $3.875 per share. The
40
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TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
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 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. In connection with the Merger, the
Company also issued 1,800,000 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.
On July 16, 1999, the Company issued 4,000,000 shares of common stock under a
private placement subscription dated July 7, 1999. The shares were issued at a
subscribed price of $0.25 per share, based on the trading price for the day at a
twenty percent discount.
On November 4, 1999, the Company satisfied its obligation to Overseas
Communications, Ltd., a foreign corporation in which the Chairman of the Company
is a 33% shareholder, for open invoices in the amount of $130,000, representing
consulting and management services provided by the Chairman, with the issuance
of 1,698,014 shares of common stock. The value on the date of issue was $.0766
per share.
Pursuant to an S-8 filing December 17, 1999, the Company issued 980,000 shares
of common stock to various individuals as compensation for services rendered.
Issue prices ranged from $0.10 per share to $0.4688 per share, for a total value
of $347,750.
NOTE 10 - STOCK OPTION AND PURCHASE PLAN
Talk Visual Corporation, formerly Legacy Software, Inc., predecessor to the
merged entities, had a tax qualified stock option plan for employees and certain
non-employees, that provided for the granting of stock options and authorized
the issuance of common stock. On June 19, 1997, in connection with the
termination of certain employment agreements, all stock options were fully
vested for terminating employees. At December 31, 1999, all outstanding stock
options were fully vested.
Under the former option plan, options granted fell into two catagories: (i) the
Incentive Stock Option Plan under which qualified employees could, at the
discretion of the Plan administrator, be granted options to purchase shares of
Common Stock at an exercise price of not less than 85% of their fair market
value on the grant date or at the Plan Administrator's discretion, be issued
41
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10 - STOCK OPTION AND PURCHASE PLAN (continued)
shares of Common Stock directly, through the purchase of shares at a price not
less than 85% of their fair market value at the time of issuance or as a bonus
tied to the performance of services; and (ii) the Automatic Option Grant Program
under which option grants will automatically be made at periodic intervals to
eligible non-employee Board members to purchase shares of Common Stock at an
exercise price equal to 100% of the fair market value on the grant date.
Videocall International Corporation granted a stock option with respect to Talk
Visual common stock, to a former employee. Dated May 30, 1999, the employee was
granted the right to purchase up to 45,000 shares at a price of $2.97 per share
expiring February 28, 2002.
Option activity within each plan was as follows:
Weighted
Incentive Directors Average
Stock Option Stock Option Price
Plan Plan Per Share
------------ ------------ ---------
Balance outstanding, December 31, 1997 119,000 8,333 $9.60
Options granted range from
$2.07 to $12.00 per share 140,000 1,667 $3.20
Options cancelled range from
$3.00 to $12.00 per share (6,667) (10,000) $9.60
------- --------
Balance outstanding, December 31, 1998 252,333 -0- $5.74
========
Options expired range from
$8.25 to $9.75 per share (119,000) $9.00
-------
Balance outstanding, December 31, 1999 133,333 $2.85
=======
Talk Visual stock option granted by Videocall International Corporation: 45,000
shares at a weighted average price per share of $2.97
The total balance outstanding at December 31, 1999 is 178,333, with a weighted
average exercise price of $2.88 per share.
Information relating to stock options outstanding and exercisable at December
31, 1999, summarized by exercise price are as follows:
42
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 10 - STOCK OPTION AND PURCHASE PLAN (continued)
Life Exercise
Shares (months) Price
-------- ------ --------
Incentive Stock Option Plan
8,333 9.0 $4.14
25,000 14.0 $4.14
8,333 9.0 $3.11
25,000 14.0 $3.11
16,667 9.0 $2.07
50,000 14.0 $2.07
Granted May 30, 1999
45,000 26.0 $2.97
-------
Total 178,333 $2.88
=======
All stock options issued to employees have an exercise price of not less than
85% of the fair market value of the Company's common stock on the date of the
grant, and in accordance with accounting for such options utilizing the
intrinsic value method there is a related compensation expense recorded in the
Company's financial statements representing 15% of the fair market value. Had
the compensation cost for stock-based compensation been determined based on the
fair value of the grant dates consistent with the method of SFAS 123, the
Company's net loss and loss per share for the years ended December 31, 1999 and
1998 would have been increased to the pro forma amounts presented below as
follows:
1999 1998
--------- ---------
Net loss as reported $(6,024,188) $(1,197,373)
Net loss pro forma $(6,092,320) $(1,244,787)
Basic and diluted net loss per
common share as reported $(0.23) $(0.06)
Basic and diluted net loss per
common share pro forma $(0.23) $(0.06)
The fair value of option grants is estimated on the date of grant utilizing the
Black-Sholes option-pricing model with the following weighted average
assumptions for grants in 1999 and 1998: expected life of option of 2.5 years
and 10 years, respectively, expected volatility of 80.0% and 26.2%,
respectively, risk-free interest rate of 6.0% and a 0% dividend yield for both
years. The weighted average fair value at date of grants for options granted
during 1999 and 1998 was $1.51 and $0.34 per option, respectively.
43
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 11 - GENERAL, ADMINISTRATIVE AND MARKETING EXPENSE
General, administrative and marketing expense is comprised of the following
items:
1999 1998
------ ------
Salaries and benefits $ 719,943 $260,391
Consultants 1,652,453 48,827
Legal and other professional 1,178,418 205,260
Marketing and public relations 459,782 51,607
Other general and administrative 972,557 242,001
--------- -------
Total $4,983,153 $808,086
========= =======
Of the total $4,983,153 expense in 1999, $2,441,567 was paid in common stock;
actual cash payments totaled $2,541,585. For the year ended December 31, 1998,
of the total expense of $808,086, $223,000 was paid in common stock and the
balance of $585,086 was paid in cash.
NOTE 12 - INCOME TAXES
At December 31, 1999 and 1998, the Company had federal and state net operating
loss carryforwards of approximately $12,215,000 and $6,552,000, available to
offset taxable income expiring at various times through the year 2019. The Tax
Reform Act of 1986 contains provisions which limit the federal net operating
loss carryforwards available that can be used in any given year in the event of
certain occurrences, which include significant ownership changes.
At December 31, 1999 and 1998, the Company's net deferred tax asset consisted
primarily of net operating losses. The Company established a 100% valuation
allowance equal to the net deferred tax asset, as the Company could not conclude
that it was more likely than not that the deferred tax asset would be realized.
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company provided certain administrative, technical and operational support,
loan advances, loan of equipment and sales of equipment along with facilities
utilization to the foreign entities TV Telecommunications, Ltd, Videocall of
Canada, Inc., Videocall Israel, Ltd. and the Belgium operations. These entities
are owned and/or managed by individuals are stockholders of in the Company. At
December 31, 1999, balances due from these entities totaled $675,102.
During 1999, the Company incurred and paid $35,788 of interest and recorded
$6,413 of prepaid interest to a foreign entity managed by a Director of the
Company. The same Director was issued 175,000 shares of common stock at a price
44
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 13 - RELATED PARTY TRANSACTIONS(continued)
of $2.719 for a total charge to expense of $475,781, for services rendered in
securing financing for the Company.
The Company accrued $150,000 to Overseas Communications Ltd., a foreign
corporation owned 33% by the Chairman of the Company, for consulting services
provided by the Chairman. The Company issued common stock in payment of $130,000
of this obligation.
NOTE 14 - EARNINGS PER SHARE
The following is a reconciliation of the weighted average number of shares used
to compute basic and diluted earnings per share:
1999 1998
---- ----
Basic weighted average shares outstanding 26,674,262 20,895,575
Dilutive effect of options -- --
---------- ----------
Diluted weighted average shares outstanding 26,674,262 20,895,575
========== ==========
Options and warrants to purchase 17,593,043 and 252,333 shares were outstanding
during the years ended December 31, 1999 and 1998, respectively, and Class A
Preferred Stock, Series 1999-A convertible into 16,715,241 shares was also
outstanding, but these amounts were not included in the computation of diluted
loss per common share because the effect would be antidilutive.
NOTE 15 - SUBSEQUENT EVENTS
Business Acquisitions
On January 30, 2000, the Company signed a letter of intent to acquire 100% of
First Debit Corporation for $2,750,000, payable by $225,000 in cash and the
balance in common shares. First Debit Corporation specializes in the production,
distribution and sales of prepaid telephone cards in Toronto and Montreal.
On March 6, 2000, the Company signed a letter of intent to acquire 70% of YAK
Communications (USA) Inc., a company of which 17% is owned by Charles Zwebner,
brother to the Chairman of the Company, 7% by the Chairman and 8% by the
principal holder of the convertible preferred stock. 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. The Company has engaged an
independent outside valuation firm for this acquisition.
45
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 15 - SUBSEQUENT EVENTS (continued)
Business Acquisitions (continued)
- ---------------------
On March 16, 2000, the Company signed an agreement to purchase a 25% interest in
Entertech Media Group, Inc. of Hollywood, CA. Under the terms of the agreement,
the Company will exchange 3,000,000 common shares for 3,666,666 shares of
Entertech Media common stock. Entertech has agreed 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
agreed to pay a broker 75,000 shares of its common stock on consummation of this
transaction. The transaction is subject to Board approval.
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 is $5,500,000, payable in stock and cash. At closing, the Company
will make a cash payment of $250,000, pay cash for the inventory, not to exceed
$250,000, and will commence payments of $100,000 per month for the ten months
following closing. The balance, due in common stock, will be priced at the
average trading price for the five trading days prior to closing.
Manufacturing Agreement
- -----------------------
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.
Financing Agreement
- -------------------
On March 30, 2000, the Company entered into a one year placement agreement with
an investment banking firm for a proposed underwriting 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 an average price for a period of 22 consecutive trading days
preceding the date of funding. If the underwriter is unable to locate a
qualified institutional investor willing to invest in the offering within sixty
days of the contract signing, the Company has the right to terminate the
agreement.
Facilities
- ----------
The Company leased an additional 2,559 square feet at its corporate headquarters
effective February 1, 2000. The lease term is twenty nine months and calls for a
monthly payment of $4,265 the first year, increasing $170 in year two and $179
in the final year, for a total obligation of $127,480.
46
<PAGE>
TALK VISUAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTE 16 - SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," ("SFAS 131") issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. SFAS 131 requires that public companies report certain information
about operating segments, products, services and geographical areas in which
they operate and their major customers.
The Company's reportable operating segments consist of real estate and
telecommunication services. The summary of the operating segment information is
as follows at December 31,:
Rental Telecom Total
---------- ---------- ----------
1999
Net revenue $1,075,482 $ 90,506 $1,165,988
Depreciation/Amortization 213,323 85,940 299,263
Operating Income (loss) (414,784) (5,539,935) (5,954,719)
Assets, net 11,068,078 4,570,311 15,638,389
Capital expenditures 2,637,963 619,016 3,256,979
1998
Net revenue 229,127 -- 229,127
Depreciation/Amortization 36,701 5,280 41,982
Operating Income (loss) (190,549) (1,006,824) (1,197,373)
Assets, net 8,564,161 889,113 9,453,274
Capital expenditures 8,363,003 177,913 8,540,916
47
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Certain biographical information concerning the Directors and executive officers
of the Company as of March 31, 2000 is set forth below. Such information was
furnished by them to the Company.
David B. Hurwitz
David B. Hurwitz - Age 36, has been a Director of the Company since November 6,
1998. Mr. Hurwitz is the President and Chief Executive Officer of US WATS, Inc.
A senior executive and business development professional, Mr. Hurwitz has proven
ability to build entrepreneurial-based businesses through strategic alliances,
teaming relationships, creating cohesive organizational structures, and the
professional development of their human resources. Mr. Hurwitz has over 12 years
experience in the telecommunications industry, encompassing business
development, general management, and strategic sales and marketing initiatives.
Prior to joining Commonwealth Long Distance/RCN as Vice President of Sales &
Marketing, where Mr. Hurwitz led a sales force of greater than 140
representatives and was a key element in the development and management of
corporate sales and marketing strategies, Mr. Hurwitz was involved in several
successful entrepreneurial start-up ventures, funded by Petrocelli Industries of
NYC. As Executive Vice President & Chief Operating Officer of Internet
Communications Services, Inc., Mr. Hurwitz was responsible for the development
and operation of a prepaid "debit" long distance calling card service and
validation processing service bureau, and as General Manager of FiberNet, Mr.
Hurwitz was responsible for overseeing the sale and marketing of services
associated with FiberNet's Upstate, and New York Metropolitan Area Networks. Mr.
Hurwitz spearheaded the development of business relationships with the country's
largest long distance carriers, and was responsible for product and service
development, rate structures and operating policies and procedures. Prior to
developing the business plan and negotiating funding for InterNet, Mr. Hurwitz
participated in the due diligence and sale of FiberNet's Upstate, and
Metropolitan New York Area markets to MFS. Mr. Hurwitz graduated with a BA in
English and History from Hobart College in 1985. He completed Master's level
course work in Telecommunications Management in 1988 and 1989 at the State
University New York at Albany. While affiliated with Rochester Tel.
Telecommunications Group, a division of Rochester Telephone (now Frontier) from
1985 until February of 1992, Mr. Hurwitz held numerous positions including:
Account Executive, Regional Sales Manager and Director of the Mid-Atlantic and
Central Regions.
Michael J. Zwebner
Michael Zwebner - Age 47, is the founder and has served as Chairman of Videocall
International Corporation since February 1998. Mr. Zwebner has recently been
appointed to the Board of a Canadian public firm. From 1974 to 1986, Mr. Zwebner
founded and ran a travel and tourism company as well as a charter airline,
specializing in the areas of air charter travel, wholesale ticketing and general
business and tourist travel. From 1986 to 1990, Mr. Zwebner owned and operated
several real estate companies as well as managed a chain of five family
restaurants and related catering services in England. From 1991 to 1997 Mr.
48
<PAGE>
Zwebner founded and served as Vice-President of Cardcall International Holdings
Inc. (USA) and Operating Manager of Cardcall (UK) Ltd. for which he designed and
developed telecommunications and marketing concepts and organized the extensive
prepaid phone card operations (Cardcall having been the largest such operation
in both the UK and Canada). Mr. Zwebner also coordinated corporate finance
activities for Cardcall. Mr. Zwebner has served as Chairman of the Board and a
Director of the Company since September 1998. In February of 1997, Mr. Zwebner
negotiated and secured the sale/merger of the Cardcall Group to DCI
Telecommunications Inc., a publicly-held entity based in Connecticut, and was
subsequently instrumental in the multi-million dollar sale of the UK
distribution contract to SmarTalk Teleservices Inc. In addition, in February of
1988, Mr. Zwebner negotiated the creation of a multi-million dollar joint
venture between Cardcaller Canada Inc. with Datawave Systems Inc. of Vancouver,
Canada.
Eugene A. Rosov
Eugene Rosov - Age 51, has served as Director, President and Chief Executive
Officer of Videocall International Corporation since June 1998. In 1967, Mr.
Rosov started a national music educational and touring company, and in 1978
started the international chamber music association, Chamber Music America. Mr.
Rosov served as acting Director of Marketing for the nation's largest public
radio station, WNYC, from 1979 to 1980. In 1980 he was founder, president and
CEO of Water Test Corporation, a national drinking water testing laboratory
acquired by Household International in 1987. From 1988 to 1995 he was founder,
president, CEO and Chairman of Innovative Telecom Corporation, the Nashua, New
Hampshire telecommunications systems integrator and provider to five (of six)
Regional Bell operating companies of prepaid telephone card technologies and
customer service operations. From 1995-1998 Mr. Rosov acted as a consultant to
various telecom companies. Mr. Rosov graduated from Harvard College in 1971 with
a BA in General Studies. Mr. Rosov has served as Chief Executive Officer and a
Director of the Company since November 1998 and September 1998, respectively.
Michael Cuzner-Charles
Michael Cuzner-Charles - Age 53, currently serves as a Director with the
internet based firm Tango-Zebra. He formerly served as a director of Regal Brook
Ltd. in Berkshire (UK), since 1995. He was finance director of Kingston
Coatings, Courtaulds Plc from 1976 to 1979, and became a Director of the CJ
Phoenix Group (Jewelers in Paris, London and Birmingham) in 1979 until 1982. For
the international management consulting firm of Grant Thornton, Mr.
Cuzner-Charles was senior manager from 1982 to 1984, and became senior manager
of Corporate Finance for Touche Ross from 1984-1992. From 1992-1995 Mr.
Cuzner-Charles served as a director of MBS Plc, a computer distribution company,
and was Chief Executive Officer of Trade Intermediary Group Plc. He is a Fellow
of the Institute of Chartered Accountants in England and Wales. Mr.
Cuzner-Charles has served as a Director of the Company since September 1998.
Alexander H. Walker, Jr.
Mr. Walker - Age 73, has served as Director and General Counsel to Videocall
International Corporation since July 1998. Since 1968 Mr. Walker has served as
Chairman of the Board of the Nevada Agency and Trust Company in Reno, Nevada, a
licensed and registered Trust Company and Transfer Agent in business since 1903.
From 1944 to 1946 Mr. Walker served in the United States Army, rising to the
rank of Captain, Infantry in the United States Army Reserve. He received his
B.A. from Waynesburg College (1950) and his J.D. from the University of
Pittsburgh School of Law in 1952. Since 1956, Mr. Walker has been a practicing
attorney, with his practice including all phases of trial work, with a
particular emphasis on corporate securities matters. From 1954 to 1955 he served
first as Attorney Advisory, and then 1955-1956 as Attorney in Charge of the Salt
Lake (UT) Branch for the United States Securities and Exchange Commission (SEC).
49
<PAGE>
From 1956 to date, he has maintained a private practice as an Attorney. Mr.
Walker has served as a Director of the Company since September 1998.
Clinton H. Snyder
Clinton H. Snyder, CPA - Age 45, has held the position of Chief Financial
Officer since November 6, 1998. From 1975 to 1982 he served as auditor and
business consultant with the public accounting firm of Stegman & Associates.
From 1982 to 1985 he served as Finance Officer for a multi-national construction
products and real estate development firm in Baltimore, Md. From 1985 to 1990 he
served as Executive Officer for Finance and Administration with North American
Beauty Services, Inc., a wholesale and retail distributor of beauty products.
From 1990 to 1992, he served as VP of Finance for Innovative Telecom Company,
Inc., a telecommunications provider. From 1992 to 1998, he served as a business
consultant, financial and tax strategist for companies throughout the New
England area.
Section 16(a) Beneficial Ownership Reporting Compliance
(The following people are directors, officers, beneficial owners of 10% or more
of the common stock, or any other person subject to Section 16 of the Exchange
Act that failed to file on a timely basis Forms 3, 4 and/or 5 as required under
Section 16(a) of the Exchange Act)
Alexander Walker, Jr., and Michael Cuzner-Charles had reportable events in 1998
which required the filing of Forms 3 and 5, which have not been filed.
Alexander Walker, Jr., and Michael Cuzner-Charles had a reportable event in 1999
which requires the filing of Form 4, which has not been filed.
Michael Zwebner filed five Form 4s late, and filed the 1999 Form 5 late.
Alexander Walker, Jr., and Michael Cuzner-Charles have not filed Form 5 for the
calendar year 1999.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Directors
The Company has no standard arrangements pursuant to which directors of the
Company are compensated for any services provided as a director except for the
Automatic Option Grant Program component of the 1995 Stock Option/Stock Issuance
Plan (the "1995 Plan"). Directors who are not current employees of the Company
("non-employee directors") are eligible for the Automatic Option Grant Program
component of the 1995 Plan under which option grants will automatically be made
at periodic intervals to eligible non-employee Board members to purchase shares
of Common Stock at an exercise price equal to 100% of their fair market value on
the grant date. Under the Automatic Option Grant Program, each individual who is
first elected or appointed as a non-employee Board member will receive a 3,333
share option grant on the date of such election or appointment, provided such
individual has not been in the prior employ of the Company. In addition, at each
Annual Meeting, beginning with the 1997 Annual Meeting, each individual who is
to continue to serve as a non-employee Board member after the meeting will
receive an additional option grant to purchase 833 shares of Common Stock
whether or not such individual has been in the prior employ of the Company.
Each automatic grant will have a term of ten (10) years, subject to the earlier
termination following the optionee's cessation of Board service. Each automatic
option will be immediately exercisable; however, any shares purchased upon
50
<PAGE>
exercise of the option will be subject to repurchase should the optionee's
service as a non- employee Board member cease prior to vesting in the shares.
The initial 3,333 share grant will vest in four equal and successive annual
installments over the optionee's period of Board service. Each additional 833
share grant will vest upon the optionee's completion of one year of Board
service measured from the grant date. However, each outstanding option will
immediately vest upon (1) certain changes in the ownership or control of the
Company or (2) the death or disability of the optionee while serving as a Board
member.
Compensation of Executive Officers
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company on behalf of (i) the Chief Executive
Officer and (ii) the other most highly compensated executive officers of the
Company whose total annual salary and bonus for fiscal year 1998 exceeded
$100,000 (the "Named Executive Officers"), with respect to services rendered by
such persons to the Company and its subsidiaries for each of the fiscal years
ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Summary Compensation Table
- --------------------------
Long-Term Compensation
Other Annual Awards
Salary Compensation ---Securities---
Name and Principal Position Year ($) ($) Underlying Options(#)
- --------------------------- ---- ------ ------------ ----------------------
<S> <C> <C> <C> <C>
Michael J. Zwebner (1) 1999 -0- $120,000(2) -0-
Chairman of the Board 1998 -0- $ 30,000(2) -0-
of Directors
Eugene A. Rosov (3) 1999 $148,961 $112,500(4) -0-
Chief Executive Officer, 1998 -0- -0- -0-
President
Clinton H. Snyder, CPA (5) 1999 $120,000 -0- -0-
Chief Financial Officer
and Secretary
</TABLE>
- -----------
(1) Mr. Zwebner became Chairman on November 6, 1998.
(2) Mr. Zwebner's compensation is paid under a contract with Overseas
Communication, Ltd., a non U. S. company. This amount was paid by the
issuance of 1,698,014 shares at .0766 per share on November 4, 1999.
(3) Mr. Rosov became Chief Executive Officer on November 6, 1998
(4) Paid by the issuance of 50,000 shares on June 8, 1999, at a value of $2.25.
(5) Mr. Snyder became Chief Financial Officer October 6, 1998 and Secretary
March 1, 1999.
Compensation Committee Interlocks and Insider Participation
The Company's Compensation Committee was formed in January, 1996 to establish
salary, bonus and other forms of compensation for officers of the Company,
provide recommendations for the salaries and incentive compensation of the
employees and consultants of the Company and make recommendations to the Board
of Directors regarding such matters.
51
<PAGE>
The principal objectives of the Company's executive compensation are to:
- - support the achievement of the desired Company performance;
- - align the executive officer's interests with the success of the Company and
with the interests of the Company's stockholders; and
- - provide compensation that will attract and retain qualified management and
reward performance.
These objectives are principally achieved through compensation in the form of
annual base salaries, discretionary bonuses and equity investment opportunities,
such as stock option grants. Prior to January, 1996, the Board of Directors
performed the functions of the Compensation Committee. The Company has not
historically linked executive compensation directly to corporate performance.
During the 1999 fiscal year, the Compensation Committee was composed of Messrs.
Hurwitz, Rosov and Cuzner-Charles. No interlocking relationship exists between
the Company's Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Stock Options
The Company did not grant any options or stock appreciation rights to the
Company's Named Executive Officers during fiscal year 1999.
Aggregated Option Exercises in Fiscal 1999 and Value of Options at End of Fiscal
1999
The following table sets forth certain information with respect to the Company's
Named Executive Officers concerning unexercised stock options held as of
December 31, 1999. No stock options were exercised by such individuals during
fiscal year 1999. The Company did not grant any stock appreciation rights during
fiscal year 1999 and no such rights were outstanding as of the end of such
fiscal year.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Securities Underlying In-the-Money
Options at Options at
Fiscal Year End Fiscal Year End($)
--------------------- ---------------------
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Michael J. Zwebner -0- -0- -0- -0-
Eugene A. Rosov -0- -0- -0- -0-
Clinton H. Snyder, CPA -0- -0- -0- -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 28, 2000, the number and percentage
of shares of Common Stock beneficially owned (as defined in Rule 13d-3 adopted
under the Exchange Act) by (a) all persons known to the Company to own
52
<PAGE>
beneficially more than 5% of any class of voting security of the Company, (b)
each of the Company's directors, (c) the Company's officers named in the Summary
Compensation Table set forth herein and (d) all directors and executive officers
of the Company as a group.
Common Stock
-----------------------
Number Percentage
of Shares of Shares
Beneficially Beneficially
Name and Address (1) Owned(2)(3) Owned(2)(3)
- -------------------------------------------- ------------ ------------
Overseas Communications, Ltd. (4)
46/11 Diskin St
Jerusalem, Israel 4,898,014 12.12%
Helmsbridge Holdings Ltd. (5)
c/o Plazacorp Investments
3845 Bathurst St.
Toronto, Ontario, Canada 16,714,381 30.32%
All directors and executive
officers as a
Group (6 persons) (6) 7,117,671 17.40%
- --------------
(1) Unless otherwise indicated, the stockholder's address is the Company's
principal executive offices.
(2) Percentage ownership is based on 38,413,261 shares of Common Stock
outstanding as of March 28, 2000, plus any shares issuable pursuant to
options or warrants held by the person or class in question which may be
exercised within 60 days of March 28, 2000. Only those shares beneficially
owned by the person holding such options are included in the outstanding
shares for purposes of computing the percentage beneficially owned by that
person; such shares are not deemed to be outstanding for purposes of
computing any other person's percentage.
(3) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each stockholder named in this table has
sole voting and investment power with respect to the shares set forth
opposite such stockholder's name.
(4) Michael J. Zwebner owns 33% of this entity, all other owners own less than
10%. The shares listed includes 2,000,000 of options currently exercisable.
(5) The beneficial owner of Helmbridge Holdings Ltd. is Anthony Heller. The
entire amount is composed of the common stock shares upon conversion.
(6) Includes options to purchase 2,488,667 shares of common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engages the services of the Chairman through Overseas
Communications, Ltd. The annual payment is $120,000. Overseas Communications,
Ltd. is 30% owned by the Chairman of the Company.
On March 6, 2000, the Company signed a letter of intent to acquire 70% of YAK
Communications (USA) Inc. The consideration is 8,400,000 preferred shares with a
assigned 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
53
<PAGE>
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. YAK Communications (USA) Inc. is owned 17% by Charles
Zwebner, brother to the Chairman of the Company, 7% by Michael Zwebner, Chairman
of the Company and 8% by Anthony Heller, who is the beneficial owner of
Helmsbridge Holdings, Ltd., owner of the Convertible Preferred shares of the
Company.
On March 16, 2000, the Company signed an agreement to purchase a 25% interest in
Entertech Media Group, Inc. of Hollywood, CA. Under the terms of the agreement,
the Company will exchange 3,000,000 common shares for 3,666,666 shares of
Entertech Media common stock. Entertech's Chairman is John Daly, who is a
principal shareholder of Whyteburg Ltd. At the time of the Merger, Whyteburg
Ltd. was a more than 5% holder of the Company's common stock. The Company has
agreed to pay a broker 75,000 shares of its common stock on consumation of this
transaction.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3(i) Articles of Incorporation
3(ii) By-Laws
21 Subsidiaries of Talk Visual Corporation
23 Consent of Mayer Rispler & Associates
27 Financial Data schedule
REPORTS ON FORM 8-K.
No reports were filed during the fourth quarter of 1999.
54
<PAGE>
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint Michael J. Zwebner and Clinton H. Snyder as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting in the premises deems
appropriate and to file any such amendment to the report with the Securities and
Exchange Commission.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TALK VISUAL CORPORATION
By: /s/Clinton H. Snyder
-------------------------
Chief Financial Officer
Dated: April 12, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ EUGENE ROSOV President and Chief Executive Officer April 12, 2000
- ------------------ (Principal Executive Officer) and
Eugene Rosov Director
/s/ CLINTON H. SNYDER Chief Financial Officer (Principal April 12, 2000
- --------------------------- Financial and Accounting Officer)
/s/ MICHAEL ZWEBNER Chairman of the Board and Director April 12, 2000
- ---------------------------
/s/ DAVID B. HURWITZ Director April 12, 2000
- ---------------------------
/s/ ALEXANDER WALKER, JR. Director April 12, 2000
- -------------------------
/s/ MICHAEL CUZNER-CHARLES Director April 12, 2000
- --------------------------
Michael Cuzner-Charles
</TABLE>
55
EX-21
Exhibit 21
Subsidiaries of Talk Visual Corporation
Jurisdiction
Of Incorporation Name
- ---------------- ----------------------------------------------
California Sacramento Results, Inc.
Ontario, Canada The Ontario International Property Corporation
56
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 333-93007 and 333-80097)Talk Visual Corporation 1999 Stock
Compensation Plan, as amended, of our report dated March 30, 2000, with respect
to the consolidated financial statements of Talk Visual Corporation, included in
the Annual Report (Form 10-KSB) for the year ended December 31, 1999, filed with
the Securities and Exchange Commission.
Mayer Rispler & Company,P.C.
Brooklyn, New York
March 30, 2000
57
Exhibit 3(i)
ARTICLES OF INCORPORATION
OF
TALK VISUAL CORPORATION
* * * * * *
The undersigned, acting as incorporator, pursuant to the
provisions of the laws of the State of Nevada relating to private corporations,
hereby adopts the following Articles of Incorporation:
ARTICLE ONE. [NAME]. The name of the corporation is:
TALK VISUAL CORPORATION
ARTICLE TWO. [RESIDENT AGENT].The initial agent for
service of process is The Nevada Agency and Trust Company, 50 West Liberty
Street, Suite 880, City of Reno, County of Washoe, State of Nevada 89501.
ARTICLE THREE. [PURPOSES]. The purposes for which the
corporation is organized are to engage in any activity or business not in
conflict with the laws of the State of Nevada or of the United States of
America, and without limiting the generality of the foregoing, specifically:
I. [OMNIBUS]. To have to exercise all the
powers now or hereafter conferred by the laws of the State of
Nevada upon corporations organized pursuant to the laws under
which the corporation is organized and any and all acts
amendatory thereof and supplemental thereto.
II. [CARRYING ON BUSINESS OUTSIDE STATE]. To
conduct and carry on its business or any branch thereof in any
state or territory of the United States or in any foreign
country in conformity with the laws of such state, territory,
or foreign country, and to have and maintain in any state,
territory, or foreign country a business office, plant, store
or other facility.
III. [PURPOSES TO BE CONSTRUED AS POWERS]. The
purposes specified herein shall be construed both as purposes
and powers and shall be in no wise limited or restricted by
reference to, or inference from, the terms of any other clause
in this or any other article, but the purposes and powers
specified in each of the clauses herein shall be regarded as
independent purposes and powers, and the enumeration of
specific purposes and powers shall not be construed to limit
or restrict in any manner the meaning of general terms or of
the general powers of the corporation; nor shall the
expression of one thing be deemed to exclude another, although
it be of like nature not expressed.
ARTICLE FOUR. [CAPITAL STOCK]. The corporation shall have
authority to issue an aggregate of NE HUNDRED TWENTY-FIVE MILLION (125,000,000)
shares of stock, divided into two (2) classes of stock as follows for a total
capitalization of ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($125,000):
(A) NON-ASSESSABLE COMMON STOCK: ONE HUNDRED
MILLION (100,000,000) shares of COMMON
STOCK, Par Value ONE MILL ($0.001) per share
58
<PAGE>
(B) PREFERRED STOCK: TWENTY-FIVE MILLION
(25,000,000)shares of PREFERRED STOCK, Par
Value ONE MILL ($0.001) per share.
All capital stock when issued shall be fully paid and
non-assessable. No holder of shares of capital stock of the corporation shall be
entitled as such to any pre-emptive or preferential rights to subscribe to any
unissued stock, or any other securities which the corporation may now or
hereafter be authorized to issue.
The corporation"s capital stock may be issued and sold from
time to time for such consideration as may be fixed by the Board of Directors,
provided that the consideration so fixed is not less than par value.
Holders of the corporation"s Common Stock shall not possess
cumulative voting rights at any shareholders meetings called for the purpose of
electing a Board of Directors or on other matters brought before stockholders
meetings, whether they be annual or special.
ARTICLE FIVE. [DIRECTORS]. The affairs of the corporation
shall be governed by a Board of Directors of not more than fifteen (15) nor less
than one (1) person. The Board of Directors may be classified as determined by
the initial Board at its discretion. The name and address of the first Board of
Directors is:
NAME ADDRESS
---- -------
Alexander H. Walker, Jr. 50 W. Liberty Street, Suite 880
Reno, Nevada 89501
ARTICLE SIX. [ASSESSMENT OF STOCK]. The capital stock of
the corporation, after the amount of the subscription price or par value has
been paid in, shall not be subject to pay debts of the corporation, and no paid
up stock and no stock issued as fully paid up shall ever be assessable or
assessed.
ARTICLE SEVEN. [INCORPORATOR]. The name and address of the
incorporator of the corporation is as follows:
NAME ADDRESS
---- -------
Amanda Cardinalli 50 West Liberty Street, Suite 880
Reno, Nevada 89501
ARTICLE EIGHT.
[PERIOD OF EXISTENCE]. The period of existence of the corporation shall be
perpetual.
ARTICLE NINE. [BY-LAWS]. The initial By-laws of the
corporation shall be adopted by its Board of Directors. The power to alter,
amend, or repeal the By-laws, or to adopt new By-laws, shall be vested in the
Board of Directors, except as otherwise may be specifically provided in the
By-laws.
ARTICLE TEN. [STOCKHOLDERS' MEETINGS]. Meetings of
stockholders shall be held at such place within or without the State of Nevada
as may be provided by the By-laws of the corporation. Special meetings of the
stockholders may be called by the President or any other executive officer of
the corporation, the Board of Directors, or any member thereof, or by the record
holder or holders of at least ten percent (10%) of all shares entitled to vote
59
<PAGE>
at the meeting. Any action otherwise required to be taken at a meeting of the
stockholders, except election of directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by
stockholders having at least a majority of the voting power.
ARTICLE ELEVEN. [CONTRACTS OF CORPORATION]. No contract or
other transaction between the corporation and any other corporation, whether or
not a majority of the shares of the capital stock of such other corporation is
owned by this corporation, and no act of this corporation shall in any way be
affected or invalidated by the fact that any of the directors of this
corporation are pecuniarily or otherwise interested in, or are directors or
officers of such other corporation. Any director of this corporation,
individually, or any firm of which such director may be a member, may be a party
to, or may be pecuniarily or otherwise interested in any contract or transaction
of the corporation; provided, however, that the fact that he or such firm is so
interested shall be disclosed or shall have been known to the Board of Directors
of this corporation, or a majority thereof; and any director of this corporation
who is also a director or officer of such other corporation, or who is so
interested, may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of this corporation that shall authorize such
contract or transaction, and may vote thereat to authorize such contract or
transaction, with like force and effect as if he were not such director or
officer of such other corporation or not so interested.
ARTICLE TWELVE. [LIABILITY OF DIRECTORS AND OFFICERS]. No
director or officer shall have any personal liability to the corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except that this Article Twelve shall not eliminate or limit the liability of a
director or officer for (I) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of
dividends in violation of the Nevada Revised Statutes.
60
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has hereunto
affixed her signature at Reno, Nevada this 23rd day of November, 1998.
/s/Amanda Cardinalli
-----------------------------
AMANDA CARDINALLI
STATE OF NEVADA }
: ss.
COUNTY OF WASHOE }
On the 23rd day of November, 1998, before me, the undersigned,
a Notary Public in and for the State of Nevada, personally appeared AMANDA
CARDINALLI, known to me to be the person described in and who executed the
foregoing instrument, and who acknowledged to me that she executed the same
freely and voluntarily for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
----------------------------------
NOTARY PUBLIC
Residing in Reno, Nevada
My Commission Expires:
October 10, 2002
- ----------------------
61
BY-LAWS FOR THE REGULATION
EXCEPT AS OTHERWISE PROVIDED BY STATUTE
OR ITS ARTICLES OF INCORPORATION OF
TAK VISUAL CORPORATION
* * * * *
ARTICLE I.
Offices
Section 1. PRINCIPAL OFFICE. The principal office for the
transaction of the business of the corporation is hereby fixed and located at
Suite 880, Bank of America Plaza, 50 West Liberty Street, Reno, Nevada 89501,
being the offices of THE NEVADA AGENCY AND TRUST COMPANY. The board of directors
is hereby granted full power and authority to change said principal office from
one location to another in the State of Nevada.
Section 2. OTHER OFFICES. Branch or subordinate offices may
at any time be established by the board of directors at any place or places
where the corporation is qualified to do business.
ARTICLE II.
Meetings of Shareholders
Section 1. MEETING PLACE. All annual meetings of shareholders
and all other meetings of shareholders shall be held either at the principal
office or at any other place within or without the State of Nevada which may be
designated either by the board of directors, pursuant to authority hereinafter
granted to said board, or by the written consent of all shareholders entitled to
vote thereat, given either before or after the meeting and filed with the
Secretary of the corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of
shareholders shall be held on the __________ day of _______________ each year,
at the hour of __:00 o'clock _.m. of said day commencing with the year 19__,
provided, however, that should said day fall upon a legal holiday then any such
annual meeting of shareholders shall be held at the same time and place on the
next day thereafter ensuing which is not a legal holiday.
Written notice of each annual meeting signed by the president
or a vice president, or the secretary, or an assistant secretary, or by such
other person or persons as the directors shall designate, shall be given to each
shareholder entitled to vote thereat, either personally or by mail or other
62
<PAGE>
means of written communication, charges prepaid, addressed to such shareholder
at his address appearing on the books of the corporation or given by him to the
corporation for the purpose of notice. If a shareholder gives no address, notice
shall be deemed to have been given to him, if sent by mail or other means of
written communication addressed to the place where the principal office of the
corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which said office is located. All such
notices shall be sent to each shareholder entitled thereto not less than ten
(10) nor more than sixty (60) days before each annual meeting, and shall specify
the place, the day and the hour of such meeting, and shall also state the
purpose or purposes for which the meeting is called.
Section 3. SPECIAL MEETINGS. Special meetings of the
shareholders, for any purpose or purposes whatsoever, may be called at any time
by the president or by the board of directors, or by one or more shareholders
holding not less than 10% of the voting power of the corporation. Except in
special cases where other express provision is made by statute, notice of such
special meetings shall be given in the same manner as for annual meetings of
shareholders. Notices of any special meeting shall specify in addition to the
place, day and hour of such meeting, the purpose or purposes for which the
meeting is called.
<PAGE>
Section 4. ADJOURNED MEETINGS AND NOTICE THEREOF. Any
shareholders' meeting, annual or special, whether or not a quorum is present,
may be adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or represented by proxy thereat,
but in the absence of a quorum, no other business may be transacted at any such
meeting.
When any shareholders' meeting, either annual or special, is
adjourned for thirty (30) days or more, notice of the adjourned meeting shall be
given as in the case of an original meeting. Save as aforesaid, it shall not be
necessary to give any notice of an adjournment or of the business to be
transacted at an adjourned meeting, other than by announcement at the meeting at
which such adjournment is taken.
Section 5. ENTRY OF NOTICE. Whenever any shareholder entitled
to vote has been absent from any meeting of shareholders, whether annual or
special, an entry in the minutes to the effect that notice has been duly given
63
<PAGE>
shall be conclusive and incontrovertible evidence that due notice of such
meeting was given to such shareholders, as required by law and the By-Laws of
the corporation.
Section 6. VOTING. At all annual and special meetings of
stockholders entitled to vote thereat, every holder of stock issued to a bona
fide purchaser of the same, represented by the holders thereof, either in person
or by proxy in writing, shall have one vote for each share of stock so held and
represented at such meetings, unless the Articles of Incorporation of the
company shall otherwise provide, in which event the voting rights, powers and
privileges prescribed in the said Articles of Incorporation shall prevail.
Voting for directors and, upon demand of any stockholder, upon any question at
any meeting shall be by ballot. Any director may be removed from office by the
vote of stockholders representing not less than two-thirds of the voting power
of the issued and outstanding stock entitled to voting power.
Section 7. QUORUM. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at any meeting shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. CONSENT OF ABSENTEES. The transactions of any
meeting of shareholders, either annual or special, however called and noticed,
shall be as valid as though at a meeting duly held after regular call and
notice, if a quorum be present either in person or by proxy, and if either
before or after the meeting, each of the shareholders entitled to vote, not
present in person or by proxy, sign a written Waiver of Notice, or a consent to
the holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of this meeting.
Section 9. PROXIES. Every person entitled to vote or execute
consents shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the secretary of the corporation; provided that no such
proxy shall be valid after the expiration of eleven (11) months from the date of
its execution, unless the shareholder
64
<PAGE>
executing it specifies therein the length of time for which
such proxy is to continue in force, which in no case shall exceed seven (7)
years from the date of its execution.
ARTICLE III
Section 1. POWERS. Subject to the limitations of the Articles
of Incorporation or the By-Laws, and the provisions of the Nevada Revised
Statutes as to action to be authorized or approved by the shareholders, and
subject to the duties of directors as prescribed by the By-Laws, all corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the corporation shall be controlled by the board of directors.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the directors shall have the following
powers, to wit:
<PAGE>
First - To select and remove all the other officers, agents
and employees of the corporation, prescribe such powers and duties for them as
may not be inconsistent with law, with the Articles of Incorporation or the
By-Laws, fix their compensation, and require from them security for faithful
service.
Second - To conduct, manage and control the affairs and
business of the corporation, and to make such rules and regulations therefor not
inconsistent with law, with the Articles of incorporation or the By-Laws, as
they may deem best.
Third - To change the principal office for the transaction of
the business of the corporation from one location to another within the same
county as provided in Article I, Section 1, hereof; to fix and locate from time
to time one or more subsidiary offices of the corporation within or without the
State of Nevada, as provided in Article I, Section 2, hereof; to designate any
place within or without the State of Nevada for the holding of any shareholders'
meeting or meetings; and to adopt, make and use a corporate seal, and to
prescribe the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time, as in their judgment they may deem
best, provided such seal and such certificates shall at all times comply with
the provisions of law.
Forth - To authorize the issue of shares of stock of the
corporation from time to time, upon such terms as may be lawful, in
consideration of money paid, labor done or services actually rendered, debts or
securities canceled, or tangible or intangible property actually received, or in
65
<PAGE>
the case of shares issued as a dividend, against amounts transferred from
surplus to stated capital.
Fifth - To borrow money and incur indebtedness for the
purposes of the corporation, and to cause to be executed and delivered therefor,
in the corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and securities
therefore.
Sixth - To appoint an executive committee and other committees
and to delegate to the executive committee any of the powers and authority of
the board in management of the business and affairs of the corporation, except
the power to declare dividends and to adopt, amend or repeal By-Laws. The
executive committee shall be composed of one or more directors.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors of the corporation shall be not less than one (1)
and no more than fifteen (15).
Section 3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of shareholders, but if any such annual meeting
is not held, or the directors are not elected thereat, the directors may be
elected at any special meeting of shareholders. All directors shall hold office
until their respective successors are elected.
Section 4. VACANCIES. Vacancies in the board of directors may
be filled by a majority of the remaining directors, though less than a quorum,
or by a sole remaining director, and each director so elected shall hold office
until his successor is elected at an annual or a special meeting of the
shareholders.
A vacancy or vacancies in the board of directors shall be
deemed to exist in case of the death, resignation or removal of any director, or
if the authorized number of directors be increased, or if the shareholders fail
at any annual or special meeting of shareholders at which any director or
directors are elected to elect the full authorized number of directors to be
voted for at that meeting.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors. If the board of
directors accept the resignation of a director tendered to take effect at a
future time, the board or the shareholders shall have the power to elect a
successor to take office when the resignation is to become effective.
66
<PAGE>
No reduction of the authorized number of directors shall have
the effect of removing any director prior to the expiration of his term of
office.
Section 5. PLACE OF MEETING. Regular meetings of the board of
directors shall be held at any place within or without the State which has been
designated from time to time by resolution of the board or by written consent of
all members of the board. In the absence of such designation, a regular meeting
shall be held at the principal office of the corporation. Special meetings of
the board may be held either at a place so designated, or at the principal
office.
Section 6. ORGANIZATION MEETING. Immediately following each
annual meeting of shareholders, the board of directors shall hold a regular
meeting for the purpose of organization, election of officers, and the
transaction of other business. Notice of such meeting is hereby dispensed with.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of
the board of directors shall be held without call on the _____ _______day of
each month at the hour of __:00 o'clock _.m. of said day; provided, however,
should said day fall upon a legal holiday, then said meeting shall be held at
the same time on the next day thereafter ensuing which is not a legal holiday.
Notice of all such regular meetings of the board of directors is hereby
dispensed with.
Section 8. SPECIAL MEETINGS. Special meetings of the board of
directors for any purpose or purposes shall be called at any time by the
president, or, if he is absent or unable or refuses to act, by any vice
president or by any two (2) directors.
Written notice of the time and place of special meetings shall
be delivered personally to the directors or sent to each director by mail or
other form of written communication, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation, or if it is not
shown on such records or is not readily ascertainable, at the place in which the
meetings of the directors are regularly held. In case such notice is mailed or
telegraphed, it shall be deposited in the United States mail or delivered to the
telegraph company in the place in which the principal office of the corporation
is located at least forty-eight (48) hours prior to the time of the holding of
the meeting. In case such notice is delivered as above provided, it shall be so
delivered at least twenty-four (24) hours prior to the time of the holding of
67
<PAGE>
the meeting. Such mailing, telegraphing or delivery as above provided shall be
due, legal and personal notice to such director.
Section 9. NOTICE OF ADJOURNMENT. Notice of the time and
place of holding an adjourned meeting need not be given to absent directors, if
the time and place be fixed at the meeting adjourned.
Section 10. ENTRY OF NOTICE. Whenever any director has been
absent from any special meeting of the board of directors, an entry in the
minutes to the effect that notice has been duly given shall be conclusive and
incontrovertible evidence that due notice of such special meeting was give to
such director, as required by law and the By-Laws of the corporation.
Section 11. WAIVER OF NOTICE. The transactions of any meeting
of the board of directors, however called and noticed or wherever held, shall be
as valid as though had a meeting duly held after regular call and notice, if a
quorum be present, and if, either before or after the meeting, each of the
directors not present sign a written waiver of notice or a consent to the
holding of such meeting or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 12. QUORUM. A majority of the authorized number of
directors shall be necessary to constitute a quorum for the transaction of
business, except to adjourn as hereinafter provided. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present, shall be regarded as the act of the board of directors,
unless a greater number be required by law or by the Articles of Incorporation.
Section 13. ADJOURNMENT. A quorum of the directors may adjourn
any directors' meeting to meet again at a stated day and hour; provided,
however, that in the absence of a quorum, a majority of the directors present at
any directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the board.
Section 14. FEES AND COMPENSATION. Directors shall not receive
any stated salary for their services as directors, but by resolution of the
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board, a fixed fee, with or without expenses of Page 67 attendance may be
allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise, and receiving
compensation therefor.
ARTICLE IV.
Officers
Section 1. OFFICERS. The officers of the corporation shall be
a president, a vice president and a secretary/treasurer. The corporation may
also have, at the discretion of the board of directors, a chairman of the board,
one or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article. Officers other than president
and chairman of the board need not be directors. Any person may hold two or more
offices.
Section 2. ELECTION. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen annually by the board of
directors, and each shall hold his office until he shall resign or shall be
removed or otherwise disqualified to serve, or his successor shall be elected
and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The board of directors
may appoint such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority and perform
such duties as are provided in the By-Laws or as the board of directors may from
time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be
removed, either with or without cause, by a majority of the directors at the
time in office, at any regular or special meeting of the board.
Any officer may resign at any time by giving written notice to
the board of directors or to the president, or to the secretary of the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
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Section 5. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in the By-Laws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board,
if there shall be such an officer, shall, if present, preside at all meetings of
the board of directors, and exercise and perform such other powers and duties as
may be from time to time assigned to him by the board of directors or prescribed
by the By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the board of directors to the chairman of the board, if
there be such an officer, the president shall be the chief executive officer of
the corporation and shall, subject to the control of the board of directors,
have general supervision, direction and control of the business and officers of
the corporation. He shall preside at all meetings of the shareholders and in the
absence of the chairman of the board, or if there be none, at all meetings of
the board of directors. He shall be ex-officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the board of directors or the By-Laws.
Section 8. VICE PRESIDENT. In the absence or disability of
the president, the vice presidents in order of their rank as fixed by the board
of directors, or if not ranked, the vice president designated by the board of
directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the By-Laws.
Section 9. SECRETARY. The secretary shall keep, or cause to
be kept, a book of minutes at the principal office or such other place as the
board of directors may order, of all meetings of directors and shareholders,
with the time and place of holding, whether regular or special, and if special,
how authorized, the notice thereof given, the names of those present at
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directors' meetings, the number of shares present or represented at
shareholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the
principal office, a share register, or a duplicate share register, showing the
names of the shareholders and their addresses; the number and classes of shares
held by each; the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all
the meetings of the shareholders and of the board of directors required by the
By-Laws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or the By-Laws.
Section 10. TREASURER. The treasurer shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursement, gains, losses, capital, surplus
and shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of stated capital, shall be classified according to
source and shown in a separate account. The books of account shall at all times
be open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or the By-Laws.
ARTICLE V.
Miscellaneous
Section 1.
RECORD DATE AND CLOSING STOCK BOOKS. The board of
directors may fix a time, in the future, not exceeding fifteen (15) days
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preceding the date of any meeting of shareholders, and not exceeding thirty (30)
days preceding the date fixed for the payment of any dividend or distribution,
or for the allotment of rights, or when any change or conversion or exchange of
shares shall go into effect, as a record date for the determination of the
shareholders entitled to notice of and to vote at any such meeting, or entitled
to receive any such dividend or distribution, or any such allotment of rights,
or to exercise the rights in respect to any such change, conversion or exchange
of shares, and in such case only shareholders of record on the date so fixed
shall be entitled to notice of and to vote at such meetings, or to receive such
dividend, distribution or allotment of rights, or to exercise such rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after any record date fixed as aforesaid. The board of directors may
close the books of the corporation against transfers of shares during the whole,
or any part of any such period.
Section 2. INSPECTION OF CORPORATE RECORDS. The share register
or duplicate share register, the books of account, and minutes of proceedings of
the shareholders and directors shall be open to inspection upon the written
demand of any shareholder or the holder of a voting trust certificate, at any
reasonable time, and for a purpose reasonably related to his interests as a
shareholder, or as the holder of a voting trust certificate, and shall be
exhibited at any time when required by the demand of ten percent (10%) of the
shares represented at any shareholders' meeting. Such inspection may be made in
person or by an agent or attorney, and shall include the right to make extracts.
Demand of inspection other than at a shareholders' meeting shall be made in
writing upon the president, secretary or assistant secretary of the corporation.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other
orders for payment of money, notes or other evidences of indebtedness, issued in
the name of or payable to the corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the board of directors.
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Section 4. ANNUAL REPORT. The board of directors of the
corporation shall cause to be sent to the shareholders not later than one
hundred twenty (120) days after the close of the fiscal or calendar year an
annual report.
Section 5. CONTRACT, ETC., HOW EXECUTED. The board of
directors, except as in the By-Laws otherwise provided, may authorize any
officer or officers, agent or agents, to enter into any contract, deed or lease
or execute any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances; and unless so
authorized by the board of directors, no officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit to render it liable for any purpose or to any amount.
Section 6. CERTIFICATES OF STOCK. A certificate or
certificates for shares of the capital stock of the corporation shall be issued
to each shareholder when any such shares are fully paid up. All such
certificates shall be signed by the president or a vice president and the
secretary or an assistant secretary, or be authenticated by facsimiles of the
signature of the president and secretary or by a facsimile of the signature of
the president and the written signature of the secretary or an assistant
secretary. Every certificate authenticated by a facsimile of a signature must be
countersigned by a transfer agent or transfer clerk. Certificates for shares may
be issued prior to full payment under such restrictions and for such purposes as
the board of directors or the By-Laws may provide; provided, however, that any
such certificate so issued prior to full payment shall state the amount
remaining unpaid and the terms of payment thereof.
Section 7. REPRESENTATIONS OF SHARES OF OTHER CORPORATIONS.
The president or any vice president and the secretary or assistant secretary of
this corporation are authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation or corporations may be exercised either by such officers in person
or by any person authorized so to do by proxy or power of attorney duly executed
by said officers.
Section 8. INSPECTION OF BY-LAWS. The corporation shall keep
in its principal office for the transaction of business the original or a copy
of the By-Laws as amended, or otherwise altered to date, certified by the
secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
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ARTICLE VI.
Amendments
Section 1. POWER OF SHAREHOLDERS. New By-Laws may be adopted or these By-Laws
may be amended or repealed by the vote of shareholders entitled to exercise a
majority of the voting power of the corporation or by the written assent of such
shareholders.
Section 2. POWER OF DIRECTORS. Subject to the right of
shareholders as provided in Section 1 of this Article VI to adopt, amend or
repeal By-Laws, By-Laws other than a By-Law or amendment thereof changing the
authorized number of directors may be adopted, amended or repealed by the board
of directors.
Section 3. ACTION BY DIRECTORS THROUGH CONSENT IN LIEU OF
MEETING. Any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof, may be taken without a meeting,
if a written consent thereto is signed by all the members of the board or of
such committee. Such written consent shall be filed with the minutes of
proceedings of the board or committee.
----------------------------
Secretary
74
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED DECEMBER 31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 287156
<SECURITIES> 0
<RECEIVABLES> 49048
<ALLOWANCES> 3017
<INVENTORY> 25853
<CURRENT-ASSETS> 3034364
<PP&E> 11797896
<DEPRECIATION> 320091
<TOTAL-ASSETS> 15638389
<CURRENT-LIABILITIES> 2792066
<BONDS> 0
0
975
<COMMON> 32061
<OTHER-SE> 7441286
<TOTAL-LIABILITY-AND-EQUITY> 15638389
<SALES> 90506
<TOTAL-REVENUES> 1165988
<CGS> 442710
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6014033
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 663964
<INCOME-PRETAX> (5954,719)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5954719)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5954719)
<EPS-BASIC> (0.23)
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</TABLE>
