UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-28330
TALK VISUAL CORPORATION
-----------------------
(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 56,597,858 shares outstanding of the registrant's Common Stock, par
value $.001 per share, as of August 7, 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 June 30, 2000 and
December 31, 1999. 3
Statements of Operations for the three
months ended June 30, 2000 and 1999, and for the
six months ended June 30, 2000 and 1999. 5
Statements of Cash Flows for the six
months ended June 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 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibits
Exhibit 11
Exhibit 27
2
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 609,699 $ 287,156
Accounts receivable, net of allowances 64,989 46,031
Inventory 138,028 25,853
Other receivables 91,584 530,319
Stock subscriptions receivable --
1,908,790
Marketable securities 102,238 180,043
Other current assets 161,294 56,172
----------- -----------
Total current assets 1,167,832 3,034,364
PROPERTY AND EQUIPMENT, net 11,808,613 11,477,805
ADVANCES TO RELATED ENTITIES 730,797 675,102
OTHER ASSETS 644,033 451,118
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TOTAL $14,351,275 $15,638,389
=========== ===========
See notes to condensed consolidated financial statements.
3
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(continued)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable and current portion
of long-term debt $ 259,329 $ 1,571,634
Accounts payable 514,032 918,780
Accrued expenses 252,758 248,824
Other current liabilities 92,779 52,828
------------ ------------
Total current liabilities 1,118,898 2,792,066
LONG-TERM DEBT, net of current portion 5,376,252 5,372,001
------------ ------------
TOTAL LIABILITIES 6,495,150 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; 469,289
and 975,000 shares issued and outstanding 469 975
Common Stock, par value $.001 per share,
100,000,000 shares authorized; 50,638,244
and 32,060,977 shares issued and outstanding 50,638 32,061
Common stock subscribed -- 4,241
Additional paid in capital 18,025,939 16,409,119
Accumulated deficit (9,298,447) (7,221,561)
Accumulated other comprehensive loss (766,342) (688,537)
Stock subscriptions receivable (156,132) (1,061,976)
------------ ------------
Total Stockholders' Equity 7,856,125 7,474,322
------------ ------------
TOTAL $ 14,351,275 $ 15,638,389
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Telecommunication services, Software
and product sales $ 87,623 $ 13,232 $ 110,039 $ 15,260
Real estate revenue 310,858 304,201 626,414 530,369
Other income -- -- 3,435 --
------------ ------------ ------------ ------------
Total revenue 398,481 317,433 739,888 545,629
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Cost of equipment sales, telecommunication
and retail operation expenses 295,201 -- 476,685 3,204
Depreciation and amortization 99,688 52,678 185,012 98,658
Research & product development -- 79,389 10,000 118,324
Real estate operations 138,454 170,870 243,175 290,958
General & administrative 1,018,317 1,230,247 1,700,963 3,351,255
------------ ------------ ------------ ------------
Total costs and expenses 1,551,660 1,533,183 2,615,835 3,862,398
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,153,179) (1,215,750) (1,875,947) (3,316,769)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE (143,582) (192,883) (323,886) (323,696)
INTEREST INCOME 289 2,169 599 6,206
------------ ------------ ------------ ------------
(143,293) (190,714) (323,287) (317,490)
LOSS BEFORE EXTRAORDINARY ITEM (1,296,472) (1,406,464) (2,199,234) (3,634,259)
EXTRAORDINARY ITEM - DEBT RESTRUCTURING -- -- 122,347 --
------------ ------------ ------------ ------------
NET LOSS (1,296,472) (1,406,464) (2,076,887) (3,634,259)
DIVIDENDS ON PREFERRED STOCK -- 23,156 -- 30,875
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES (1,296,472) $ (1,429,620) (2,076,887) $ (3,665,134)
============ ============ ============ ============
NET LOSS PER COMMON SHARE BASIC (1)
BEFORE EXTRAORDINARY ITEM $ ( 0.02) $ ( 0.06) $ (0.05) $ (0.15)
EXTRAORDINARY ITEM -- -- $ 0.00 --
$ ( 0.02) $ ( 0.06) $ (0.05) (0.15)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THE PERIOD 43,791,469 24,678,614 40,884,211 24,046,944
</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 six months periods ended June 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>
SIX MONTHS ENDED JUNE 30,
----------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(2,076,887) $(3,634,259)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 185,012 98,658
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 149,900 2,251,387
Increase (decrease) in cash from changes in:
Accounts receivable, net (18,958) 55,124
Inventory (112,175) 221
Other receivables 438,735 (23,018)
Other current assets (105,122) 2,732
Accounts payable (438,898) 520,634
Accrued expenses 3,934 (4,435)
Other current liabilities 39,951 26,469
----------- -----------
Net Cash from Operating Activities (2,044,855) (704,924)
----------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment (491,441) (1,001,300)
Disposal of marketable securities -- 89,210
Advances - related parties (55,695) (358,246)
Deposit on asset acquisition (158,285) --
Other (40,158) (868)
----------- -----------
Net Cash from Investing Activities (745,579) (1,271,204)
----------- -----------
Cash Flows from Financing Activities:
Borrowings on debt 54,567 --
Payments on notes payable and long term debt (544,522) (247,451)
Proceeds from exercise of options on common stock 591,000 --
Collections on stock subscriptions receivable 1,929,293 1,900,000
Proceeds from private placements of common stock 1,200,000 --
Cash dividend payments -- (23,156)
Other (117,361) 12,660
----------- -----------
Net Cash from Financing Activities 3,112,977 1,642,053
----------- -----------
Increase (decrease) in cash and cash equivalents 322,543 (334,075)
Cash and cash equivalents at beginning of period 287,156 378,658
----------- -----------
Cash and cash equivalents at end of period $ 609,699 $ 44,583
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
TALK VISUAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(continued)
SIX MONTHS ENDED JUNE 30,
-------------------------
Supplemental disclosure of cash flow information: 2000 1999
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a. Cash paid during the period for:
interest $ 321,489 $ 320,321
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income taxes $ 800 $ 800
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b. Noncash investing and financing transactions:
For the period ended June 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 June 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.
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 June 30, 2000, the results of operations for the six months ended June 30,
2000 and June 30, 1999, and the cash flows for the six months ended June 30,
2000 and June 30, 1999 are included. Operating results for the six month period
ended June 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 transaction
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 six months ended June 30, 1999, in
comparison to amounts reported on the June 30, 1999 10-QSB is as follows:
Reported on
6/30/99 10-QSB Restated
-------------- --------------
Total Revenue $ 131,508 $ 545,629
Total Expenses 2,602,853 3,862,398
Loss From Operations (2,471,345) (3,316,769)
Net Loss Applicable to
Common Shares (2,511,244) (3,665,134)
Net Loss per Common Share
Basic and Diluted ($0.37) ($0.15)
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, 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, $1,200,000 in private placement funds and $446,900 due
from the Chairman, during the six months ended June 30, 2000. The Company is
pursuing refinancing of the Sacramento property and has received a term sheet
proposing $6,600,000 of first mortgage financing. This refinancing would make
$2,100,000 available to the Company, after satisfying existing debt on the
property. 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. Finally, 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. 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 recently signed
Common Stock Purchase Agreement and the proposed equity offering, Management
believes that there should be sufficient capital to meet the needs of the
Company for the next thirteen months.
(3) Recent Sale of Equity Securities
The Company has issued and sold unregistered securities that have not been
previously reported as set forth below. An underwriter was not utilized in any
of these transactions. The recipients of securities in each transaction
represented their intention to acquire the securities without a view to the
distribution thereof. All the issued securities were restricted securities,
under Rule 144, or Reg S regulations, and appropriate restrictive legends were
affixed to the securities in each transaction.
On June 29, 2000, the Company issued 841,935 shares of common stock from the
cashless exercise of 900,000 warrants, at $0.25 per share.
On June 29, 2000, the Company issued 155,000 shares of common stock to two
vendors for services rendered, at a price of $0.4375 per common share for a
total value of $67,813.
On June 29, 2000, the Company issued 2,250 shares of common stock to an employee
pursuant to an employment letter of agreement, at a price of $0.4375 per common
share for a total value of $914.
On June 29, 2000, the Company issued 3,412,968 shares of common stock under a
private placement subscription 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 a price of $0.3516 per
share, based on the average closing price for the day of funding and two days
prior to the funding, at a twenty five percent discount. Included in the total
subscription, was 1,137,656 shares to Overseas Communications Ltd., a foreign
corporation which is 33% owned by the Chairman of the Company.
9
<PAGE>
(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
---------- ---------- ----------
June 30, 2000
Net revenue $ 626,414 $ 113,474 $ 739,888
Depreciation/amortization 117,474 67,538 185,012
Income (loss)before
extraordinary item (90,193) (1,986,694) (2,076,887)
Assets, net 10,914,469 3,436,806 14,351,275
June 30, 1999
Net revenue 527,189 18,440 545,629
Depreciation/amortization 74,766 23,892 98,658
Loss (344,966) (3,289,293) (3,634,259)
Assets, net 10,770,953 3,140,135 13,911,088
(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 3, 2000, the Company hired Pedro D. Sanchez as Chief Technical Officer.
Mr. Sanchez has an extensive background in computer telephony and telco system
design, testing, deployment and management.
For the period July 17, 2000, through August 3, the Company received $1,295,000
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. A total of 3,169,120 shares were issued at prices ranging from
$0.3125 to $0.5517.
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 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 plans to file
a Registration Statement on Form SB-2 covering the resale of the shares by the
investor. The Company's ability to draw down on the $15 million that the
investor is committing for the purchase of the common stock is conditioned on
the SB-2 being declared effective by the SEC. Draws under the Common Stock
Purchase Agreement may be in increments of up to $1.5 million.
It was announced on August 10, 2000, that the Company's Chairman of the Board,
Mr. Michael Zwebner, had been elected to the Board of Sector Communications,
Inc. Sector Communications, Inc. is listed on the Over the Counter Bulletin
Board under the symbol SECT.
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. With the hiring of Pedro Sanchez as Chief Technical
Officer, the Company will move 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 is subject to change based upon the valuation and Board approval.
On May 30, 2000, the Company issued a letter of intent to acquire a R & D
engineering, manufacturing and leading provider of PC-based data communications
test and network products located in the Mid-Atlantic region. Preliminary terms
of the acquisition call for a purchase price of about $5,000,000, with
$1,650,000 paid in cash at closing. The balance is to be paid for by a
combination of secured notes, convertible debentures and restricted stock. The
Company is currently negotiating the specific terms of the acquisition and
performing its due diligence.
11
<PAGE>
On June 26, 2000, pursuant to an asset purchase agreement, the Company took
possession of eleven retail telephone call shops owned and operated by Various
Business Management, Inc. The consideration for the acquisition consists of
$350,000 in cash and 1,066,718 shares of the Company's common stock. An 8-K
report, reflecting the closing date of July 20, 2000, was filed on August 3,
2000.
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 letter calls for an asset
only, all cash transaction, for a purchase price of between a minimum of
$500,000 (Cdn.) to a maximum of $2,100,000 (Cdn.) based on the number of active
accounts during a twenty four month period following closing. The offer is
conditional upon other terms in a purchase and sale agreement and Board
approval.
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 June 30, 2000, the Company employed 47 full and part-time employees in
the telecommunications operations and nine full and part-time employees in the
real estate operations.
Under the direction of the Company's Chief Technical Manager and its V.P. of
Internetworking Systems, the Company is deploying wireless communication systems
for carrying voice, data and videocalls over its network. Additionally, the
Company has tested and began deploying the bridging of ISDN based videocalls
over the internet and full motion, high quality videocalls entirely over the
internet protocol. The Company's goal is to provide videocall technology over
multiple platforms at reasonable costs and thus be able to deliver it to large
segments of the population.
Expansion is planned through an aggressive program of acquisition, 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 July 31, 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, subject to the effectiveness of a Registration Statement
to be filed with the Securities Exchange Commission.
- received $2,495,000 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.
12
<PAGE>
- began selling long distance phone service through a new web site, as a
reseller for Capsule Communications, Inc. Via a unique electronic "letter of
authorization" and an efficient web based ordering system, the Company has
employed it's e-commerce expertise to market low cost long distance services.
- 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. With
this acquisition, the Company will add about 35 new employees and anticipates
annual sales of $2,000,000 from the operations.
- hired a Chief Technical Officer, Pedro Sanchez, with an extensive background
in computer telephony and telco system design, testing, deployment and
management. Mr. Sanchez's background will serve the Company to build its own
network into Europe and Latin America and run video, voice and data over the
PSTN and global IP networks. His valuable experience with remote VSATs in Latin
America, and their interconnect with local PTTs through SatMex V, rounds out his
experience with transmission and network technologies. The Company anticipates
to incur major additional capital and research and development expense in the
build out and expansion of the network over the next two quarters.
- signed an accord with Bellsouth to provide ISDN turn-key solutions at very
market competitive pricing, and complete the comprehensive ISDN service offering
in conjunction with the Company's contract to offer Sprint Long Distance ISDN
service.
- issued a letter of intent to acquire 7,000 to 25,000 active pager accounts
from a Canadian retail pager sales and service company. The letter calls for an
asset only, all cash transaction, for a purchase price of between a minimum of
$500,000 (Cdn.) to a maximum of $2,100,000 (Cdn.) based on the number of active
accounts during a twenty four month period following closing.
- 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. The
Company anticipates this will open significant videocall traffic opportunities.
MATERIAL COMMITMENTS
On June 30, 2000, the Company signed a purchase agreement with NACT
Telecommunications, Inc. for the World Accesss telecommunications switch with a
list price of $324,145.
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
13
<PAGE>
that the Company will have or be able to obtain the necessary resources to
satisfactorily effect such expansion, and the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, future acquisitions and/or combinations by
the Company involve risks of, among other things, entering markets or segments
in which the Company has no or limited prior experience, the potential loss of
key employees of the acquired company and/or difficulty, delay or failure in the
integration of the operations, management, personnel and business of any such
new business with the Company's business and operating and financial
difficulties of any new or newly combined operations, any of which could have a
materially adverse effect on the Company's business, financial condition and
results of operations. Moreover, there can be no assurance that the anticipated
benefits of any specific acquisition or of any internally developed new business
segment or business combination will be realized.
RESULTS OF OPERATIONS
For the three months ended June 30, 2000 compared to the three
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months ended June 30, 1999.
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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. The increase in sales of $74,391 for the three months ended June
30, 2000 in comparison to the three months ended June 30, 1999, reflected sales
activities in the 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 $295,201 for the three months ended June 30, 2000. This amount
represents costs associated with the Company's seven wholly owned retail stores,
cost of equipment sold and the beeperforabuck web sales activities.
Research and product development costs decreased $79,389 during the second
quarter in 2000 as compared to 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 reduced in the current year.
General and administrative (which includes marketing expenses) in the three
month period ended June 30, 2000, were $211,930 lower than the expenses incurred
during the same period ended June 30, 1999. During the three month period ended
June 1999, the Company paid compensation and consulting expenses which were not
incurred in the period ended June 30, 2000.
Interest expense decreased $49,301 from $192,883, for the three months ended
June 30, 1999 to $143,582 for the three months ended June 30, 2000. This
decrease was a result of the payoff of $386,100 of the convertible discounted
loan notes and the elimination of late charges incurred during 1999 on the
Sacramento property first mortgage.
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For the six months ended June 30, 2000 compared to the six
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months ended June 30, 1999.
----------------------------
Telecommunication services, software and product sales increased $94,779 for the
six months ended June 30, 2000 compared to the six months ended June 30, 1999.
This increase resulted from sales of telephone products in the stores and sales
of the Company's TV225 videocalling equipment, which did not exist in 1999.
Real estate revenue increased $96,045 for the comparative periods ending June
30, 2000 and 1999, as a result of higher occupancy at the Sacramento building
and ownership for the full six months in 2000 of the Canadian property compared
to three months of ownership in 1999.
Cost of equipment sales, telecommunication and retail operation expenses
increased $473,481 to $476,685 for the six months ended June 30, 2000, compared
to $3,204 for the six months ended June 30, 1999. This increase reflects the
operation of the Company's retail locations, cost of equipment sold and the
beeperforabuck web sales activities, which did not exist in 1999. The expense
amount of $3,204 for the six months ended June 30, 1999 is attributable to costs
of software sales.
The increase of $86,354 of depreciation expense for the six months ended June
30, 2000 in comparison to the same period ended June 30, 1999, represents
capital assets acquired and put in service following the commencement of
operations after August, 1999, and improvements to the real estate in
Sacramento.
General and administrative expenses incurred in the six months ended June 30,
1999 totaled $3,351,255 and for the six months ended June 30, 2000, totaled
$1,700,963, for a decrease of $1,650,292. Of this decrease, $1,535,613 was
attributable to consulting services paid for in 1999 that were not incurred in
2000. 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 six months ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $2,044,855 in cash outflows from operating activities for the
six months ended June 30, 2000, compared to cash outflows of $704,924 for the
six months ended June 30, 1999. This increase in outflows of $1,339,931
primarily resulted from the payment of accounts payable and the increase in
inventory over the balances carried at the end of the same period in 1999.
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Cash used in investing activities for the six months ended June 30, 2000,
totaled $745,579, compared to $1,271,204, for the same period in 1999. The
Company purchased less property and equipment during the first six months of the
current year compared to the same six months in 1999, which accounted for the
decrease in cash expenditures for investing activities.
Net cash from financing activities increased in the six months ended June 30,
2000, by $1,470,924, over the six months ended June 30, 1999. This increase
resulted from the receipt of option exercise proceeds, receipt of $1,200,000 of
private placement proceeds offset by an increase in payments on long term debt
over the amount paid in the same prior year period.
The Company collected $1,929,293 of its subscriptions receivable, $591,000 in
option exercise payments, $1,200,000 in private placement funds and $446,900 due
from the Chairman, during the six months ended June 30, 2000. These receipts
total $4,167,193. These funds were used to retire long term debt, pay down on
accounts payable and other liabilities, purchase property and equipment,
inventory and place funds on deposit in consumating the acquisition of the
eleven retail stores. The Company has a current operating cash utilization (or
"burn") rate of about $308,700 per month. The Company is pursuing refinancing of
the Sacramento property and has received a term sheet proposing $6,600,000 of
first mortgage financing. This refinancing would make $2,100,000 available to
the Company, after satisfying existing debt on the property. 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 preferred shareholders have
agreed to contribute one dollar 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 June 30, 2000, there remains $12,193,791
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 preferred shareholder's subscription commitment, the
recently signed Common Stock Purchase Agreement and the proposed equity
offering, 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation that is
expected to have a material adverse effect on the Company's business or
financial position. There can be no assurance, however, that third parties will
not assert infringement or other claims against the Company in the future which,
regardless of the outcome, could have an adverse impact on the Company as a
result of defense costs, diversion of management resources and other factors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herewith:
Exhibit 11 - Computation of Weighted Average Common Stock Shares
Outstanding
Exhibit 27 - Financial Data Schedule
(b) The Company filed the following reports on Form 8-K during the quarter for
which this form is filed:
None
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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: August 11, 2000 TALK VISUAL CORPORATION
/s/ CLINTON H. SNYDER
----------------------------
Clinton H. Snyder
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
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