UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-28330
TALK VISUAL CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
Nevada 95-4561156
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3550 Biscayne Blvd. Ste 704
Miami, FL 33137
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(Address of principal executive offices) (Zip Code)
305-572-0575
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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There were 67,409,654 shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of November 10, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
TALK VISUAL CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item l. Financial Statements (Unaudited):
Balance Sheets at September 30, 2000 and
December 31, 1999. 3
Statements of Operations for the three
months ended September 30, 2000 and 1999,
and for the nine months ended
September 30, 2000 and 1999. 5
Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999. 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan
Of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
<PAGE>
20
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 485,766 $ 287,156
Accounts receivable, net of allowances 149,887 46,031
Inventory 147,168 25,853
Other receivables 555,575 530,319
Stock subscriptions receivable - 1,908,790
Marketable securities 65,150 180,043
Other current assets 299,545 56,172
----------- -----------
Total current assets 1,703,091 3,034,364
PROPERTY AND EQUIPMENT, net 11,966,995 11,477,805
ADVANCES TO RELATED ENTITIES 609,329 675,102
OTHER ASSETS 2,485,689 451,118
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TOTAL $16,765,104 $15,638,389
=========== ===========
See notes to condensed consolidated financial statements.
3
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TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(continued)
SEPTEMBER 30, DECEMBER 31,
2000 1999
---------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current portion
of long-term debt $ 290,493 $ 1,571,634
Accounts payable 917,721 918,780
Accrued expenses 175,394 248,824
Other current liabilities 86,959 52,828
----------- -----------
Total current liabilities 1,470,567 2,792,066
LONG-TERM DEBT, net of current portion 5,397,026 5,372,001
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TOTAL LIABILITIES 6,867,593 8,164,067
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COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Series A convertible redeemable
preferred stock - liquidation value
$1 per share, par value $.001 per
share, 25,000,000 shares authorized; 186,452
and 975,000 shares issued and outstanding 187 975
Common Stock, par value $.001 per share,
100,000,000 shares authorized; 64,202,416
and 32,060,977 shares issued and outstanding 64,202 32,061
Common stock subscribed 1,803 4,241
Additional paid in capital 22,175,577 16,409,119
Accumulated deficit (10,677,074) (7,221,561)
Accumulated other comprehensive loss (803,430) (688,537)
Stock subscriptions receivable (863,757) (1,061,976)
----------- -----------
Total Stockholders' Equity 9,897,511 7,474,322
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TOTAL $16,765,104 $15,638,389
=========== ===========
See notes to condensed consolidated financial statements.
4
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TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT 30, NINE MONTHS ENDED SEPT 30,
--------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
REVENUE
Telecommunication services, software
and product sales $ 774,241 $ 1,569 $ 884,280 $ 16,829
Real estate revenue 324,581 272,500 954,430 802,869
Other income 8,762 - 8,762 -
--------- --------- --------- -----------
Total revenue 1,107,584 274,068 1,847,472 819,697
--------- --------- --------- -----------
COSTS AND EXPENSES
Cost of equipment sales, telecommunication
and retail operation expenses 1,193,095 144,435 1,669,780 147,639
Depreciation and amortization 130,941 83,497 315,953 182,155
Research & product development - 24,903 10,000 143,227
Real estate operations 218,643 124,317 461,818 415,275
General & administrative 771,254 609,698 2,472,217 3,960,952
--------- --------- --------- -----------
Total costs and expenses 2,313,933 986,850 4,929,768 4,849,248
--------- --------- --------- -----------
LOSS FROM OPERATIONS (1,206,349) ( 712,782) (3,082,296) (4,029,551)
--------- --------- --------- -----------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE (172,460) (165,850) (496,346) (489,546)
INTEREST INCOME 184 3 783 6,209
--------- --------- --------- -----------
(172,276) (165,847) (495,563) (483,337)
LOSS BEFORE EXTRAORDINARY ITEM (1,378,625) ( 878,629) (3,577,859) (4,512,888)
EXTRAORDINARY ITEM - DEBT RESTRUCTURING - - 122,347 -
--------- --------- --------- -----------
NET LOSS (1,378,625) ( 878,629) (3,455,512) (4,512,888)
DIVIDENDS ON PREFERRED STOCK - 23,156 - 30,875
--------- --------- --------- -----------
NET LOSS APPLICABLE TO COMMON SHARES $(1,378,625) $( 901,785) $(3,455,512) $(4,543,763)
========= ========= ========= ===========
NET LOSS PER COMMON SHARE BASIC (1)
BEFORE EXTRAORDINARY ITEM ($0.02) ($0.03) ($0.08) ($0.18)
EXTRAORDINARY ITEM - - $0.00 -
($0.02) ($0.03) ($0.08) ( 0.18)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 57,011,342 28,305,767 45,302,236 25,460,607
</TABLE>
(1) The effect of common stock options and warrants is excluded from diluted
earnings per share as its inclusion would be anti-dilutive for the three month
and nine month periods ended September 30, 2000 and 1999.
See notes to condensed consolidated financial statements.
5
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TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT 30,
--------------------------
2000 1999
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(3,455,512) $(4,512,888)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 315,879 182,155
Amortization of product development costs 12,000 -
(Gain) loss on stock exchanged for debt (122,347) 1,563
Issuance of common stock in exchange for services 150,799 2,251,387
Increase (decrease) in cash from changes in:
Accounts receivable, net (103,856) 63,037
Inventory (121,315) (8,739)
Other receivables (25,256) (25,973)
Other current assets (243,373) 71,437
Accounts payable (35,209) 789,047
Accrued expenses (73,430) 95,097
Other current liabilities 34,131 21,539
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Net Cash from Operating Activities (3,667,489) (1,072,337)
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Cash Flows From Investing Activities:
Purchase of property and equipment (757,440) (1,217,307)
Disposal of marketable securities - 89,210
Advances - related parties 65,773 (83,535)
Acquisition of retail stores (350,000) -
Deposits and other (93,754) (868)
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Net Cash from Investing Activities (1,135,421) (1,212,500)
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Cash Flows from Financing Activities:
Borrowings on debt 111,533 350,000
Payments on notes payable and long term debt (549,537) (275,624)
Proceeds from exercise of options on common stock 593,500 -
Collections on stock subscriptions receivable 1,921,290 1,900,000
Proceeds from private placements of common stock 3,045,000 -
Cash dividend payments - (30,875)
Other (120,270) 20,390
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Net Cash from Financing Activities 5,001,520 1,963,891
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Increase (decrease) in cash and cash equivalents 198,610 (320,947)
Cash and cash equivalents at beginning of period 287,156 378,658
--------- ---------
Cash and cash equivalents at end of period $ 485,766 $ 57,711
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
NINE MONTHS ENDED SEPT 30,
--------------------------
Supplemental disclosure of cash flow information: 2000 1999
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a. Cash paid during the period for:
interest $ 423,681 $ 441,041
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income taxes $ 5,970 $ 800
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b. Noncash investing and financing transactions:
For the period ended September 30, 1999:
Purchase of Canadian real estate in exchange for 975,000 shares of
convertible preferred stock and assumption of a mortgage in the amount of
$987,755.
Issuance of 55,650 shares of common stock in satisfaction of notes payable
in the amount of $129,009.
Issuance of 600,000 shares of common stock as a commission with respect to
the acquisition of Videocall International Corp., total value of $2,250,000.
Cancellation of an advance payable in the amount of $30,000 in exchange for
7,500 shares of common stock.
Issuance of 19,841,400 shares of common stock pursuant to the merger of
Videocall International Corp. with Talk Visual Corporation.
For the period ended September 30, 2000:
Conversion of the Convertible Discounted Loan Notes into 495,000 shares of
common stock, previously issued, for the outstanding balance of the note in the
amount of $386,100.
Cashless exercise of an Option to purchase 900,000 shares of common stock
at $0.25 per share, at a market price of $3.875 for a total issue of 841,935
shares.
Exercise of Options to purchase 1,750,000 shares of common stock at $0.4375
per share in exchange for notes receivable in the amount of $765,625.
Issuance of 3,000,000 shares of common stock pursuant to a joint venture
agreement with EnterTech Media Group for 3,333,333 shares of EnterTech Media
common stock at a total value of $1,078,200.
Issuance of 1,066,718 shares of common stock under the terms of the
acquisition of eleven retail stores in New York and New Jersey from Various
Business Management Corporation at a total value of $550,000.
7
<PAGE>
TALK VISUAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) General and Summary of Business and Significant Accounting Policies
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
considered necessary for a fair presentation of the Company's financial position
at September 30, 2000, the results of operations for the nine months ended
September 30, 2000 and September 30, 1999, and the cash flows for the nine
months ended September 30, 2000 and September 30, 1999 are included. Operating
results for the nine month period ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
The information contained in this Form 10-QSB should be read in conjunction with
the audited financial statements as of December 31, 1999, filed as part of the
Company's Annual Report on Form 10-KSB.
Prior Period Restatement
The Company, prior to February, 1999, was known as Legacy Software, Inc., a
developer of educational entertainment software. In September of 1998, an
agreement and plan of merger between Legacy Software, Inc. ("Legacy")and
Videocall International Corp. ("Videocall") was announced, but didn't take
effect until June of 1999. Videocall was a development stage company in the
telecommunications industry. During the fourth quarter of 1998, key officers of
Videocall were elected as directors and officers of Legacy, and effective at the
end of December, the business activity of Legacy was changed to focus on the
business activity of Videocall. Even though the stock-for-stock merger was
approved by the stockholders of both companies in June of 1999, as a result of
the common control and change of business activities, these financial
statements, as reflected in the December 31, 1999 Form 10-KSB, report the
combined operations of both companies as if the merger had occurred at December
31, 1998.
A summary of the adjusted amounts for the nine months ended September 30, 1999,
in comparison to amounts reported on the September 30, 1999 Form 10-QSB is as
follows:
Reported on
9/30/99 Form 10-QSB Restated
-------------- --------------
Total Revenue $ 405,576 $ 819,697
Total Expenses 3,589,702 4,849,248
Loss From Operations (3,184,126) (4,029,551)
Net Loss Applicable to
Common Shares (3,389,872) (4,543,763)
Net Loss per Common Share
Basic and Diluted ($0.26) ($0.18)
8
<PAGE>
(2) Financial Condition and Liquidity
Since inception, the Company has incurred significant net losses and expects to
continue to incur losses through year end. The Company is dependent on revenues
from the real estate operations, investor stock subscriptions, and short term
and long term borrowings to supplement retail videocalling and telecommunication
product sales for working capital needs, until the operating activities generate
sufficient cash flow to fund the Company.
The Company collected $1,929,293 of its subscriptions receivable, $591,000 in
option exercise payments, $3,045,000 in private placement funds and $446,900 due
from the Chairman, during the nine months ended September 30, 2000. The Company
is pursuing refinancing of the Sacramento property in the amount of $6,250,000
of first mortgage financing. This refinancing is anticipated to close during the
first week of December, 2000. The property currently carries $4,500,000 of
existing debt and has a value of $11,000,000 based on an independent appraisal.
Additionally, 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 not met
by other funding sources. The Company also has a funding agreement by the
preferred stockholders to purchase one dollar of common shares per preferred
share converted to common shares after the first 3,348,500, for a total
commitment of $13,365,881. At September 30, 2000, the preferred shareholders had
contributed $3,045,000 toward that commitment. Finally, the Company signed a
Common Stock Purchase Agreement with a private investor for an amount of up to
$15 Million, on July 28, 2000, pursuant to an equity funding agreement. See the
discussion below for more information. Based upon the current cash utilization
rate and Management's plan for expansion and new products/joint
ventures/acquisitions, the Chairman's funding obligation, the preferred
shareholders' conversion commitment and the Common Stock Purchase Agreement
under the equity offering, Management believes that there should be sufficient
capital to meet the needs of the Company for a period exceeding the next twelve
months.
On August 24, 2000, the Company signed a proposal from RCC Finance Group, Ltd.,
for a Master Lease Line in the amount of $1,000,000. Upon acceptance, the
Company plans on utilizing this lease line to acquire switching and bridging
equipment as part of the network buildout.
(3) Recent Sale of Equity Securities
The Company has issued and sold unregistered securities that have not been
previously reported as set forth below. An underwriter was not utilized in any
of these transactions. The recipients of securities in each transaction
represented their intention to acquire the securities without a view to the
distribution thereof. All the issued securities were restricted securities,
under Rule 144, or Reg S regulations, and appropriate restrictive legends were
affixed to the securities in each transaction.
The Company issued 2,896,371 shares of common stock under various private
placement subscriptions pursuant to the agreement of the preferred shareholders
to contribute $1.00 per converted common share received after the first
3,348,500 common shares. The shares were issued at prices ranging from $0.2774
to $0.5517 per share, based on the average closing price for the three days
prior to the funding, at a twenty five percent discount. Included in the
subscriptions, were 317,187 shares to the Chairman of the Company.
9
<PAGE>
The Company issued 1,066,718 shares of common stock to Various Business
Management Corporation as part of the acquisition of eleven New York and New
Jersey retail stores on July 20, 2000. The issued shares were valued at $0.5156
per share, for a total of $550,000.
On August 28, 2000, the Company issued 1,750,000 shares of common stock upon the
exercise of options, at $0.4375 per common share. The options were exercised by
two officers of the Company.
On September 27, 2000, the Company issued 3,000,000 shares of common stock in
exchange for 3,666,000 shares of common stock of EnterTech Media Group, Inc.,
pursuant to a joint venture agreement dated April 1, 2000. The transaction had a
value of $1,078,000 or $0.3594 per Talk Visual common share.As a result of this
stock exchange, the Company owns 20.3% of EnterTech Media Group, Inc.
On September 29, 2000, the Company issued 2,500 shares of common stock to an
employee pursuant to an employment letter of agreement, at a price of $0.3594
per common share for a total value of $899.
At September 30, 2000, the Company had received $845,000 against various stock
subscriptions for common stock at prices ranging from $0.3594 to $0.4336 per
share. The Company is obligated to issue 1,962,957 shares under these stock
subscriptions.
(4) Segment Information
The Company's reportable operating segments consist of real estate and
telecommunication services. The summary of the operating segment information is
as follows:
Rental Telecom Total
---------- ---------- ----------
September 30, 2000
Net revenue $ 954,430 $ 893,042 $1,847,472
Depreciation/amortization 182,372 133,581 315,953
Income (loss)before
extraordinary item (199,840) (3,378,019) (3,577,859)
Assets, net 10,964,029 5,801,075 16,765,104
September 30, 1999
Net revenue 802,868 16,829 819,697
Depreciation/amortization 140,298 41,857 182,155
Loss (255,329) (4,257,559) (4,512,888)
Assets, net 11,078,694 4,834,512 15,913,206
(5) Contingencies
The Company is involved in certain claims arising in the normal course of
business. An estimate of the possible loss resulting from these matters cannot
be made; however, the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on its financial position or
results of operations.
(6) Subsequent Events
On July 28, 2000, the Company signed a Common Stock Purchase Agreement with a
private equity investor pursuant to an equity line agreement. The private
investor has committed to purchase up to $15 million of the Company's common
stock, subject to the effectiveness of a Registration Statement to be filed with
the Securities and Exchange Commission. The issuance of the common stock to be
sold to the private investor under the Common Stock Purchase Agreement will not
be registered under the Securities Act of 1933. However, the Company filed a
Registration Statement on Form SB-2 covering the resale of the shares by the
investor. On October 31, 2000, the Registration Statement became effective.
Draws under the Common Stock Purchase Agreement may be in increments of up to
$1.5 million. The Company has requested an initial draw in the amount of
$700,000.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report (including without limitation, statements indicating that the Company
"expects," "estimates," anticipates," or "believes" and all other statements
concerning future financial results, product offerings, proposed acquisitions or
combinations or other events that have not yet occurred) are forward-looking
statements that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. Forward-looking statements involve known and unknown factors, risks and
uncertainties which may cause the Company's actual results in future periods to
differ materially from forecasted results. Forward looking statements are all
based on current expectations, and the Company assumes no obligation to update
this information.
BUSINESS AND ORGANIZATION
Talk Visual Corporation and its subsidiaries (collectively the "Company"),
provides videocalling services through its wholly owned retail stores in the
United States and joint venture partners in Europe, Israel, Canada, Asia and
South America. Additionally, the Company sells telecommunications services and
equipment through its retail outlets and over the internet. The Company sells
through its national sales staff, retail and Web based outlets, its own
privately labeled desktop video phone (model TV225), at a competitive price,
along with providing a complete turnkey package for videocalling installation
and call bridging services. The Company is currently moving forward with its
transmission and network technology expansion, particularly in the area of
bridging voice and video calls over the IP network. The Company, through its
wholly owned subsidiaries, also owns and operates commercial properties located
in Sacramento, California and Toronto, Canada.
PROPOSED ACQUISITIONS
On March 6, 2000, the Company signed a letter of intent to acquire 70% of YAK
Communications (USA) Inc., parent company to YAK Communications Canada,
Inc.("YAK"). The letter of intent was amended July 2, 2000, to acquire 51% to
60% of the outstanding common stock. YAK is a leading Dial-Around service
provider in Canada, with annual revenues of $12 million (Cdn). YAK
Communications (USA) Inc. is owned 32% by parties related to the Company. The
Company has engaged an independent international consulting firm to render an
opinion of valuation for this acquisition. The consideration is $.50 and four
shares of Talk Visual common stock for each YAK share. YAK has 3,852,000 shares
outstanding. The Company has also agreed to lend up to $5 million to YAK. This
agreement was approved by the Board on October 4, 2000. It is anticipated that
this acquisition will close in the fourth quarter of 2000.
On September 28, 2000, the Company issued a letter of intent to acquire
Frederick Engineering, Inc., a R & D engineering, manufacturing and leading
provider of PC-based data communications test and network products located in
the Mid-Atlantic region. The terms of the acquisition call for a purchase price
of $5,250,000, with $850,000 paid in cash at closing. The balance is to be paid
for by a combination of installment notes and common stock.
11
<PAGE>
On July 26, 2000, the Company issued a letter of intent to acquire the assets of
a Canadian retail pager sales and service company. The offer was withdrawn based
on Management's determination made as a result of due diligence inquiries.
GENERAL
The Company has embarked on an aggressive program to develop videocalling retail
locations, joint venture partners and sales of the desktop videophone model
TV225. At September 30, 2000, the Company employed 94 full and part-time
employees in the telecommunications operations and nine full and part-time
employees in the real estate operations.
The Company continues its deployment of wireline and wireless communication
systems for carrying voice, data and videocalls over its network. Additionally,
the Company has tested and began deploying the bridging of ISDN based videocalls
over the internet and full motion, high quality videocalls entirely over the
internet protocol. The Company's goal is to provide videocall technology over
multiple platforms at reasonable costs and thus be able to deliver it to large
segments of the population.
Expansion is planned through an aggressive program of acquisitions, opening new
retail sites, forming joint ventures with other telecom providers, network
buildout of equipment and telecom facilities and expanding the telecom product
offerings in all physical and Internet retail sites.
During this reporting period and up to November 10, 2000, the Company has
achieved the following:
- Signed an engagement letter with a major investment banking firm to act as its
exclusive agent to provide up to $75,000,000 of financing through the placement
of the Company's common stock. In connection with that engagement letter, the
Company signed a Common Stock Purchase Agreement with a private equity investor.
The private investor has committed to purchase up to $15 million of the
Company's common stock, under the Registration Statement which became effective
October 31, 2000. The Company has commenced its drawdown of those funds to
finance its operating and expansion plans.
- Received $3,045,000 in private placement funds as part of the commitment made
by the preferred shareholders to contribute funds on the conversion of the
preferred shares into common shares.
- Successfully tested a global home and office entertainment service delivered
through the Company's TV225 videophone. This service allows users to see and
hear movies, international news, weather, live interactive entertainment and
other content over ISDN lines. The Company has entered into an agreement with
EnterTech Media Group, Inc. to deliver content through this medium. The service
was successfully demonstrated at the Cannes Film Festival in May, 2000.
- Unveiled the Company's ISDN to IP/IP to ISDN commercial bridging service, with
technology provided by RADvision. This service permits any ISDN videoconference
unit to link to any IP or ISDN video-enabled system in the world.
- Pursuant to an asset purchase agreement, the Company took possession of eleven
retail telephone call shops in the New York and New Jersey market areas. As a
result of this acquisition and the Company's aggressive marketing campaign in
existing retail locations, telecom product and service sales for the three
months ended September 30, 2000, totaled $774,241, compared to $1,569 for the
same period in 1999.
12
<PAGE>
- Signed an exclusive agreement with the Mexican telephone company, TelMex, to
create an inter-operability relationship between all of the Company's locations
in the United States and ninety one of TelMex's locations throughout Mexico.
Traffic between the Company's retail stores and TelMex's locations has commenced
during this reporting period.
- Signed a national product and service distribution agreement with
VoiceStream(TM) and began a major sales campaign in the retail stores promoting
the GSM wireless products.
- Opened or signed agreements to open, new video calling locations in the
Dominican Republic, in conjunction with Codetel, Miami, Florida, as Company
owned stores and Toronto, Canada, in conjunction with Quartet Services.
- Developed an exclusive Talk Visual wireless sales program for resale by 8,500
Postal Business Centers through an agreement with USXP. The rollout of this
program is to occur in the fourth quarter of 2000.
- Executed an exclusive agreement to provide TV225 videophones to Global Tech
Expos, a division of Sector Development, Inc. This agreement calls for the
provisioning of up to 250 videophones along with other videoconferencing
services and equipment, at job fairs held by Global Tech Expos for the next
three years. Management anticipates substantial revenues from this agreement.
MATERIAL COMMITMENTS
On June 30, 2000, the Company signed a purchase agreement with NACT
Telecommunications, Inc. for the World Access telecommunications switch with a
list price of $324,145. The Company has paid $93,148 in deposits against this
purchase.
RISK FACTORS
The Company has pursued, is currently pursuing and, in the future may pursue,
new technologies and businesses internally and through acquisitions and
combinations which involve significant risks. Any such acquisition or
combination may involve, among other things, the issuance of equity securities,
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.
13
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RESULTS OF OPERATIONS
For the three months ended September 30, 2000 compared to the three
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months ended September 30, 1999.
-------------------------------
Prior to August 24, 1999, the Company was considered a development stage
company. On August 24, 1999, the Company became operational with the launch of
its videocalling services. Additionally, during the fourth quarter of 1999 and
continuing into the current year, the Company commenced selling other
telecommunications services and equipment through its retail outlets and over
the internet. Effective July 20, 2000, the Company took ownership of eleven
retail stores in the New York and New Jersey market. These stores added
substantial sales activities to the retail operations.The increase in sales of
$772,672 for the three months ended September 30, 2000 in comparison to the
three months ended September 30, 1999, reflected sales activities in the
existing retail stores, the acquired retail stores and equipment sales of the
TV225, which did not exist in the prior year.
Cost of equipment sales, telecommunication services and retail operation
expenses totaled $1,193,095 for the three months ended September 30, 2000. This
amount represents costs associated with the Company's eighteen wholly owned
retail stores, cost of equipment sold and the beeperforabuck web sales
activities.
There were no research and product development costs during the third quarter in
2000 as compared to an expense of $24,903 in the same period in 1999. During
1999, the Company was in the process of developing its world wide web based
reservation system and other software and hardware needs of the videocalling
operation. By the August, 1999 operational date, a substantial amount of the
development work had been completed and accordingly expenses were minimal in the
current year.
General and administrative expenses (which include marketing expenses) in the
three month period ended September 30, 2000, were $161,556 higher than the
expenses incurred during the same period ended September 30, 1999. This resulted
from increased marketing activities and increased salary expense from staff
expansion due to business activity expansion.
For the nine months ended September 30, 2000 compared to the nine
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months ended September 30, 1999.
-------------------------------
Telecommunication services, software and product sales increased $867,451 for
the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999. As previously stated, effective July 20, 2000, the Company
took ownership of eleven retail stores in the New York and New Jersey market.
These stores added substantial sales activities to the retail operations. The
increase in sales reflected sales activities in the existing retail stores, the
acquired retail stores and equipment sales of the TV225, which was not a product
the Company sold in the prior year.
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Real estate revenue increased $151,561 for the comparative periods ended
September 30, 2000 and 1999, as a result of higher occupancy at the Sacramento
building and ownership for the full nine months in 2000 of the Canadian property
compared to six months of ownership in 1999. Occupancy at the Sacramento
property currently stands at 90%, compared to 71% in 1999.
Cost of equipment sales, telecommunication and retail operation expenses were
$1,522,141 for the nine months ended September 30, 2000, compared to $147,639
for the nine months ended September 30, 1999. This increase reflects the
operation of the Company's newly acquired retail locations, cost of equipment
sold and the beeperforabuck web sales activities, which did not exist in 1999.
The increase of $133,798 of depreciation expense for the nine months ended
September 30, 2000 in comparison to the same period ended September 30, 1999,
represents capital assets acquired and put in service following the commencement
of operations after August, 1999, improvements to the real estate in Sacramento,
the New York/New Jersey store acquisition and equipment acquired as part of the
network buildout.
General and administrative expenses incurred in the nine months ended September
30, 1999 totaled $3,960,952 and for the nine months ended September 30, 2000,
totaled $2,472,217, for a decrease of $1,488,735. Consulting services paid for
in 1999 that were not incurred in 2000 totaled $1,535,613. The majority of the
1999 consulting services were for assistance in financing, investor relations
and public relations services and were paid for with common stock.
In connection with the acquisition of the Sacramento property, the Company
incurred a short term non-interest bearing obligation of $1,000,000. The short
term obligation to the seller of $1,000,000 was renegotiated and partially paid
down on February 19, 1999. Under the renegotiated note, the Company paid an
advance against leasehold improvements in the amount of $350,000 and a principal
payment of $107,000, leaving a balance due of $893,000 on the renegotiated note,
adjusted for certain offsets. On March 29, 2000, the holder of the note signed a
settlement agreement in which it accepted a cash payment of $450,000 and 100,000
shares of common stock in full payment of this obligation. The net result of
this transaction resulted in the recognition of a gain on debt forgiveness
totaling $122,347. This is reported as an extraordinary item in the Condensed
Consolidated Statements of Operations for the nine months ended September 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $3,667,489 in cash outflows from operating activities for the
nine months ended September 30, 2000, compared to cash outflows of $1,072,337
for the nine months ended September 30, 1999. This increase in outflows of
$2,595,152 primarily resulted from the payment of accounts payable and the
increases in inventory and accounts receivable over the balances carried at the
end of the same period in 1999.
Cash used in investing activities for the nine months ended September 30, 2000,
totaled $1,135,421, compared to $1,212,500, for the same period in 1999. The
Company purchased less property and equipment during the first nine months of
the current year compared to the same nine months in 1999, but invested $350,000
in cash in the New York/New Jersey store acquisition.
Net cash from financing activities increased in the nine months ended September
30, 2000, by $3,037,629, over the nine months ended September 30, 1999. This
increase resulted from the receipt of option exercise proceeds, receipt of
$3,045,000 of private placement proceeds offset by an increase in payments on
long term debt over the amount paid in the same prior year period.
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The Company collected $1,929,293 of its subscriptions receivable, $591,000 in
option exercise payments, $3,045,000 in private placement funds and $446,900 due
from the Chairman, during the nine months ended September 30, 2000. These
receipts total $6,012,193. These funds were used to retire long term debt,
purchase property, equipment, and inventory and consummate the acquisition of
the eleven retail stores. The Company had an operating cash utilization (or
"burn") rate of about $415,900 per month for the three months ended September
30, 2000. This compares to a burn rate of $308,700 for the prior six months
ended June 30, 2000. The increase for the three months ended September 30, 2000,
was due primarily to the integration of the eleven newly acquired stores, the
hiring of telecom engineers for the network expansion and the expansion of the
sales and marketing team to implement higher sales volume. The efforts of these
expenditures are showing signs of paying off, and management anticipates
reducing the increased burn rate significantly during the fourth quarter of
2000. The Company is pursuing refinancing of the Sacramento property in the
amount of $6,250,000 of first mortgage financing. This refinancing is
anticipated to close during the first week of December, 2000. The property
currently carries $4,500,000 of existing debt and has a value of $11,000,000
based on an independent appraisal. 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.
In connection with the proposed offering, the Company signed a Common Stock
Purchase Agreement with a private investor for an amount of up to $15 Million,
on July 28, 2000. The registration statement in connection with the Common Stock
Purchase Agreement became effective on October 31, 2000, and the Company has
begun to draw funds under the agreement. The preferred shareholders have agreed
to purchase one dollar of common stock for each share of common stock received
on the conversion of the preferred to common after the first 3,348,500 shares
for a total commitment of $13,365,881. As of September 30, 2000, there remains
$10,348,791 due to the Company under this commitment. Based upon the current
cash utilization rate and Management's plan for expansion and new products/joint
ventures/acquisitions, the refinancing of the Sacramento property, the preferred
shareholders' subscription commitment, and the equity financing agreement,
Management believes that there should be sufficient capital to meet the needs of
the Company for the short and long term growth of the Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation that is
expected to have a material adverse effect on the Company's business or
financial position. There can be no assurance, however, that third parties will
not assert infringement or other claims against the Company in the future which,
regardless of the outcome, could have an adverse impact on the Company as a
result of defense costs, diversion of management resources and other factors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of stockholders was held on July 27, 2000. The
directors elected at the meeting were:
For Withheld
------------ ------------
Michael Cuzner-Charles 43,728,119 213,403
David B. Hurwitz 43,728,119 213,403
Eugene Rosov 43,728,119 213,403
Clinton H. Snyder 43,728,119 213,403
Alexander H. Walker, Jr. 43,728,119 213,403
Michael J. Zwebner 43,728,119 213,403
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Approval of the amendment to the 1995 Stock Option Plan:
For Against Withheld
------------ -------------- ------------
22,711,914 354,074 25,150
Ratification of the selection of Mayer Rispler & Company, P.C., as the
Company's independent auditors for the fiscal year ending December 31, 2000:
For Against Withheld
------------ -------------- ------------
43,818,364 53,333 32,975
The foregoing matters are described in detail in the Company's proxy statement
dated July 20, 2000 for the 2000 Annual Meeting of Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 11 - Computation of Weighted Average Common Stock
Shares Outstanding
Exhibit 27 - Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the quarter for
which this form is filed:
Form 8-K dated August 3, 2000 reporting:
Item 2, Acquisition and Disposition of Assets -
Disclosure of the acquisition of eleven retail stores located
in New York and New Jersey, for $350,000 in cash and the
issuance of 1,066,718 shares of common stock, for a total
value of $900,000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000 TALK VISUAL CORPORATION
/s/ CLINTON H. SNYDER
----------------------------
Clinton H. Snyder
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
