SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
{x} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ________
Commission File Number 333-8305
UTG COMMUNICATIONS INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3895294
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17 Cattano Avenue, Morristown, New Jersey 07960
(Address of principal executive offices) (Zip Code)
(201) 644-3161
(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 |_|
At November 17, 1997, there were 13,291,000 shares of Common Stock, par
value $.00001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
INDEX
CONSOLIDATED BALANCE SHEETS (UNAUDITED)...................................... 1
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)............................ 2
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)............................................................. 3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)............................ 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).................. 5 - 11
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1997 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Note 1c) $ 252,274 $ 388,198
Restricted Cash 41,563 --
Subscription Receivable (Note 2) 75,000 670,000
Accounts Receivable, Net of allowance for doubtful
accounts at September 30, 1997 and March 31, 1997 of
$142,637 and $75,925, respectively 1,029,360 815,106
Prepaid Expenses and Other Current Assets 237,830 167,508
----------- -----------
Total Current Assets 1,636,027 2,040,812
Property and Equipment, at cost, Net of Accumulated
Depreciation at September30, 1997 and March 31, 1997 of
$782,389 and $401,898, respectively (Notes 1f & 3) 2,195,156 1,618,316
Organization Costs, at cost, Net of Accumulated
Amortization at September 30, 1997 and March 31, 1997 of
$10,225 and $6,795, respectively (Note 1d) 34,267 27,286
Goodwill, at cost, Net of Accumulated Amortization of
$3,397 (Note 1e) 271,777 --
Deferred Taxes (Notes 1k & 6) -- --
Other Assets 12,228 12,218
----------- -----------
TOTAL ASSETS $ 4,149,455 $ 3,698,632
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank Overdraft (Notes 1g) $ 216,120 $ 132,237
Accounts Payable and Accrued Expenses (Note 7) 5,888,975 3,208,711
Capital Lease Obligation, Current (Note 7) 194,640 13,013
----------- -----------
Total Current Liabilities 6,299,735 3,353,961
Capital Lease Obligation, Long-Term (Note 7) 341,268 14,132
Commitments and Contingencies (Note 7) -- --
----------- -----------
TOTAL LIABILITIES 6,641,003 3,368,093
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 1,2,8 & 9)
Common Stock - $0.00001 Par Value Authorized
20,000,000 shares; 13,691,000 and 13,246,000
Issued and Outstanding at September 30, 1997 and
March 31, 1997, respectively 134 132
Additional Paid-in Capital 7,425,507 7,180,509
Accumulated Deficit (9,806,492) (6,712,669)
Cumulative Foreign Currency Translation Adjustment (110,714) (137,450)
Minority Interest 17 17
----------- -----------
Total Stockholders' Equity (Deficit) (2,491,548) 330,539
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 4,149,455 $ 3,698,632
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For The Quarter Ended For The Six Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,521,888 $ 68,319 $ 2,839,289 $ 93,562
COST OF SALES 1,571,006 153,631 2,552,520 216,271
----------- ----------- ----------- -----------
GROSS PROFIT (49,118) (85,312) 286,769 (122,709)
----------- ----------- ----------- -----------
SELLING AND TECHNICAL EXPENSES
Consulting Fees 6,930 68,726 28,269 181,391
Technical Fees 392,813 304,382 912,705 351,077
Sales Salaries 156,690 58,243 236,244 87,254
Other Selling Expenses 28,251 21,791 56,282 30,974
----------- ----------- ----------- -----------
Total Selling and Technical Expenses 584,684 453,142 1,233,500 650,696
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS BEFORE GENERAL AND
ADMINISTRATIVE EXPENSES (633,802) (538,454) (946,731) (773,405)
----------- ----------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Management and Consulting Fees 283,173 208,574 463,513 305,160
Salaries 209,092 106,074 411,463 262,633
Depreciation and Amortization 210,121 187,305 381,697 247,205
Professional Fees 80,223 57,297 157,060 115,479
Travel Expenses 8,215 23,525 34,148 116,663
Employment Agency Fees 1,196 45,406 14,683 67,743
Bad Debt Expense 66,788 -- 66,788 --
Rent Expense 79,010 10,445 128,385 20,755
Insurance Expense 20,899 4,820 29,653 18,881
Association Fees 545 24,412 611 24,412
Other Taxes 174 35,373 174 35,373
Other Operating Expenses 182,504 78,166 348,065 103,900
----------- ----------- ----------- -----------
Total General and Administrative Expenses 1,141,940 781,397 2,036,240 1,318,204
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,775,742) (1,319,851) (2,982,971) (2,091,609)
OTHER INCOME (EXPENSES)
Interest Income 692 7,305 735 16,776
Interest Expense (29,480) (49,904) (42,982) (69,357)
Loss From Foreign Currency (Note 1h) (12,799) (94,988) (33,339) (94,582)
Other Income (77,028) -- (35,266) --
----------- ----------- ----------- -----------
Total Other Income (Expenses) (118,615) (137,587)) (110,852) (147,163)
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (1,894,357) (1,457,438) (3,093,823) (2,238,772)
INCOME TAXES (Notes 1k and 5) -- -- -- --
----------- ----------- ----------- -----------
NET LOSS BEFORE MINORITY INTEREST (1,894,357) (1,457,438) (3,093,823) (2,238,772)
MINORITY INTEREST -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $(1,894,357) $(1,457,438) $(3,093,823) $(2,238,772)
=========== =========== =========== ===========
LOSS PER COMMON SHARE (Note 1j) $ (.14) $ (.14) $ (.23) $ (.22)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional Foreign Total
------------------ Paid-In Accumulated Currency Minority Stockholders'
Shares Amount Capital Deficit Adjustment Interest Equity (Deficit)
------ ------ ---------- ----------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 13,246,000 $132 $7,180,509 $(6,712,669) $(137,450) $17 $ 330,539
Net Loss - For the Six Months
Ended September 30, 1997 -- -- -- (3,093,823) -- -- (3,093,823)
Issuance of Common Stock 445,000 2 244,998 -- -- -- 245,000
Cumulative Foreign Currency
Translation Adjustment -- -- -- -- 26,736 -- 26,736
---------- ---- ---------- ----------- --------- --- -----------
Balance at September 30, 1997 13,691,000 $134 $7,425,507 $(9,806,492) $(110,714) $17 $(2,491,548)
========== ==== ========== =========== ========= === ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months Ended
September 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,093,823) $(2,238,772)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities
Depreciation and Amortization 381,697 247,205
Changes in Certain Assets and Liabilities:
Increase in Restricted Cash (41,563) --
Increase in Accounts Receivable (214,254) (62,972)
Increase in Prepaid Expenses (70,322) (157,045)
Increase in Organization Costs (10,411) (27,505)
Increase in Other Assets (10) (19,127)
Due To/From Related Party -- (319,099)
Increase in Bank Overdraft 83,883 --
Increase in Accounts Payable and Accrued Expenses 2,680,264 1,186,516
----------- -----------
Total Cash Used by Operating Activities (284,539) (1,390,799)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets, Net (957,331) (2,063,590)
Increase in Goodwill (275,174) --
----------- -----------
Total Cash Used by Investing Activities (1,232,505) (2,063,590)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Capital Lease Payable 508,763 --
Contribution to Capital 840,000 3,688,574
Offering Costs -- (122,933)
Minority Interest -- 17
----------- -----------
Total Cash Provided By Financing Activities 1,348,763 3,565,658
----------- -----------
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH 32,357 36,633
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (135,924) 147,902
CASH AND CASH EQUIVALENTS - BEGINNING 388,198 --
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 252,274 $ 147,902
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest Expense $ -- $ 19,944
=========== ===========
Income Taxes $ -- $ --
=========== ===========
</TABLE>
NON-CASH FINANCING ACTIVITIES:
The Company issued common stock in exchange for stock subscription
agreements as of September 30, 1997. The receivable on the agreements
totalled $75,000 for 150,000 shares.
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with 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 only of normal
recurring adjustments) considered necessary for a fair presentation
have been included.
For further information refer to the consolidated financial
statements and footnotes included in Form 10-KSB for the year ended
March 31, 1997.
The accompanying consolidated financial statements include the
accounts of UTG Communications International, Inc. ("The Company"),
a holding company organized under the laws of the state of Delaware
on April 17, 1996 and its majority-owned and/or controlled
subsidiaries:
1) UTG Communications Holding AG, ("UTG Holding"),
incorporated under the laws of Switzerland on February
29, 1996 (owned 99.9% by the Company);
2) UTG Communications (Europe) AG, ("UTG Europe"),
incorporated under the laws of Switzerland on March 28,
1996 (owned 100% by UTG Holding);
3) UTG Communications Belgium N.V., ("UTG Belgium"),
incorporated under the laws of Belgium on June 27, 1996
(owned 100% by UTG Holding);
4) Multicom N.V., ("Multicom"), incorporated under the laws
of Belgium on April 2, 1997 (owned 100% by UTG Belgium).
See also Note 8;
5) United Telecom GMBH, ("UTG GmbH"), incorporated under
the laws of Switzerland on May 28, 1996 (owned 100% by
UTG Holding);
6) UTG Communications (Network), Ltd., ("UTG NET")
incorporated under the laws of the United Kingdom on
October 22, 1996 (owned 100% by UTG Holding);
7) Tibesta Corporation N.V., ("Tibesta"), incorporated
under the laws of Curacao on December 24, 1996, (owned
49% by UTG Holding) See also Note 8; and
8) Metatel Telemarketing B.V., ("Metatel"), incorporated
under the laws of Amsterdam on February 5, 1979, (owned
100% by Tibesta) See also Note 8.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
-5-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Line of Business
The Company is a switch-based provider of private voice, fax and
data management telecommunication services throughout Europe and
Canada.
c) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
d) Organization Costs
Organization costs consist of legal and other administrative costs
incurred relating to the formation of the Company. These costs have
been capitalized and will be amortized over a period of five years.
e) Goodwill
Goodwill represents the cost in excess of the fair market value of
the acquisitions of certain subsidiaries. Amortization is being
computed using the straight-line method over a period of forty
years.
f) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives
of the various classes of assets. Maintenance and repairs are
charged to expense as incurred.
g) Bank Overdraft
The Company maintains overdraft positions at certain banks. Such
overdraft positions are included in current liabilities.
h) Translation of Foreign Currency
The Company translates the foreign currency financial statements of
its Swiss, Belgium and United Kingdom subsidiaries, in accordance
with the requirements of Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation". Assets and liabilities are
translated at current exchange rates, and related revenues and
expenses are translated at average exchange rates in effect during
the period. Resulting translation adjustments are recorded as a
separate component in stockholders' equity. Foreign currency
transaction gains and losses are included in the statement of
operations.
-6-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i) 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.
j) Loss Per Share
Loss per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the
period. Weighted average common shares outstanding were 13,300,000.
Average common equivalent shares outstanding have not been included,
as the computation would not be dilutive.
k) Income Taxes
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". The liability method
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences
between the reported amount of assets and liabilities and their tax
basis.
l) Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, approximates fair
value due to the relatively short maturity of these instruments.
NOTE 2 - SUBSCRIPTION RECEIVABLE
On September 30, 1997, the Company entered into subscription
agreements to sell 400,000 shares of its common stock to certain
investors for an aggregate price of $200,000. As of September 30,
1997, $125,000 was received relating to the agreements. (See also
Note 10).
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows at September 30,
1997:
Telecommunications Equipment $ 2,581,946
Computer Equipment & Software 278,157
Furniture and Fixtures 117,442
------------
2,977,545
Less: Accumulated Depreciation ( 782,389)
------------
$ 2,195,156
============
Depreciation expense for the six months ended September 30, 1997 was
$367,607.
-7-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 4 - MINORITY INTEREST
Minority interest represents the following:
a) Less than a 1% share of the common equity of the Company's
subsidiary UTG Holding.
b) A 51% share of UTG Holding's subsidiary Tibesta and its 100% owned
subsidiary Metatel (inactive companies).
NOTE 5 - FOREIGN OPERATIONS
As described in Note 1b, substantially all of The Company's
operations take place throughout Europe and Canada and the majority
of its identifiable assets are located in Switzerland and the United
Kingdom.
NOTE 6 - INCOME TAXES
The components of the provision for income taxes is as follows:
Current Tax Expense
U.S. Federal $ --
State and Local --
----------
Total Current --
----------
Deferred Tax Expense
U.S. Federal $ --
State and Local --
----------
Total Deferred --
----------
Total Tax Provision from Continuing
Operations $ --
==========
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
Federal Income Tax Rate ( 34.0)%
Deferred Tax Charge (Credit) --
Effect on Valuation Allowance 34.0%
State Income Tax, Net of Federal Benefit --
----------
Effective Income Tax Rate 0.0%
==========
-8-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 6 - INCOME TAXES (Continued)
At September 30, 1997, the Company had net carryforward losses of
approximately $1,051,900. Because of the current uncertainty of
realizing the benefit of the tax carryforward, a valuation allowance
equal to the tax benefit for deferred taxes has been established.
The full realization of the tax benefit associated with the
carryforward depends predominantly upon the Company's ability to
generate taxable income during the carryforward period.
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's
deferred tax assets and liabilities at September 30, 1997 are as
follows:
Deferred Tax Assets
Loss Carryforwards $ 1,051,900
Less: Valuation Allowance (1,051,900)
-----------
Net Deferred Tax Assets $ --
===========
Net operating loss carryforwards expire starting in 2007 through
2011. Per year availability is subject to change of ownership
limitations under Internal Revenue Code Section 382.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a) The Company's future minimum annual aggregate rental payments
required under operating and capital leases that have initial
or remaining non-cancelable lease terms in excess of one year
are as follows:
Operating Capital
Leases Leases
------------ -----------
1998 $ 45,232 $ 258,076
1999 45,232 238,308
2000 30,216 67,785
2001 7,698 67,785
2002 -- 45,069
2003 and thereafter -- --
------------ -----------
Total Minimum Lease Payments $ 78,840 677,023
============
Less: Amounts Representing Interest ( 141,115)
-----------
Present Value of Future Minimum
Lease Payments 535,908
Less: Current Maturities ( 194,640)
-----------
Total $ 341,268
===========
Rent expense under operating leases for the six months ended
September 30, 1997 was $128,385.
-9-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
b) The Company is a party to claims and lawsuits arising in the
normal course of operations. Management is of the opinion that
these claims and lawsuits will not have a material effect on
the financial position of the Company. The Company believes
these claims and lawsuits should not exceed $50,000 and
accordingly has established a reserve included in accounts
payable and accrued expenses.
NOTE 8 - ACQUISITIONS
a) During February 1997, UTG Holding entered into an agreement to
purchase 49% of Tibesta Corporation N.V. ("Tibesta"), a
Curacao incorporated company. Tibesta is the 100% parent of
Metatel Telemarketing B.V., ("Metatel"), an Amsterdam
incorporated company. The purchase price for the Company's 49%
interest in Tibesta was $10,551 of which $2,940 represents
their 49% ownership of Metatel. The agreement was consummated
by UTG Holding on April 9, 1997.
On June 9, 1997, Metatel, a company wholly owned by Tibesta,
entered into an agreement to form UTG Communications France
S.A. ("UTG France"), a 94% owned company with an office
located in Paris. Metatel's initial investment in UTG France
was 750,000 FRF or approximately $129,500 of which 49% was
paid by the Company. The Company was incorporated on July 22,
1997 under the laws of France. As of September 30, 1997, these
subsidiaries are no longer active and the Company has expensed
their investments. These subsidiaries will be dissolved by
year end.
b) On April 2, 1997 UTG Belgium acquired a 100% interest in
Multicom NV ("Multicom"), an existing telecommunications
company operating in the areas of direct dial and indirect
dial. Per the purchase agreement, the purchase price of
11,101,043 BEF or approximately $317,000 was based upon a due
diligence report from KPMG Bedrijfsrevisoren. As of June 30,
1997, the entire purchase price was paid.
NOTE 9 - STOCK OPTIONS
In connection with the subscription agreement dated January 15,
1997, the Company granted IIC an option to purchase up to an
additional 1,200,000 shares of common stock at $2.00 per share for a
two year period commencing on the completion of the purchase of the
full 2,000,000 shares subscribed for.
On March 25, 1997, the Company granted nonqualified stock options to
purchase up to 100,000, 100,000 and 300,000 shares, respectively, to
each of Ron Kuzon, David Schlecht and Fritz Wolff. The options are
exercisable at $1.00 per share, vest in equal installments on the
first, second and third anniversaries of the date of grant, and
expire five years from the date of grant. As Fritz Wolff resigned
from all functions with regard to the company, and David Schlecht
has resigned his position as Chief Executive Officer, before the
first anniversary of the above-mentioned grant, none of the 400,000
options have vested to them.
-10-
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 9 - STOCK OPTIONS (continued)
In connection will the subscription agreement dated September 30,
1997 (see Note 2), the Company granted the subscribers warrants to
purchase up to an additional 200,000 shares of common stock at $0.60
per share for a three year period commencing on the date of original
issuance.
NOTE 10 - SUBSEQUENT EVENTS
The Company subsequently received the $75,000 subscription
receivable during October 1997. (See Note 2).
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis relates to the financial condition
and results of operations of the Company for the quarter ended September 30,
1997. This information should be read in conjunction with the Company's
consolidated financial statements appearing elsewhere herein. Although
comparison is made to the corresponding period of the prior fiscal year, the
Company's activities during that period were primarily focused on establishing
its European communications network and only minimal revenue was generated
during that period. All references herein to the Company shall, unless the
context otherwise requires, be deemed to include UTG Communications
International, Inc. and its subsidiaries.
General
The Company commenced operations in April 1996 and is a holding company
for a number of operating subsidiaries organized at various times since February
1996. The Company has received an aggregate of approximately $6,600,000 in
equity capital. Since inception, the Company's operations have been focused on
establishing and enhancing its switch-based European communications network and
expanding its European customer base.
The Company's revenue to date has been generated from long distance
telecom services provided to retail corporate customers and wholesale customers.
The Company's wholesale customers presently comprise international telecom
carriers and national telecoms, and the Company's retail customers presently
comprise small and medium-sized companies located in Switzerland, Belgium,
United Kingdom and the Netherlands. The Company recently entered the residential
market in the Netherlands and Italy. As previously reported, the Company has
been granted an International Simple Resale ("ISR") license from the United
Kingdom Secretary of State for Trade of Industry. The ISR license permits the
Company to engage in the international resale of telecom services. The Company
has filed an application to the United Kingdom Department of Trade and Industry
for the issuance of an International Facility License ("IFL"). The IFL would
permit the Company to own international facilities such as circuits, thereby
enabling the Company to gain a cost advantage by eliminating leased line
charges. At the time of the report, the processing of the IFL license
application was still in the works.
While the Company's retail operations were initially limited to
Switzerland, the Company has begun to expand its operations through subsidiaries
and joint ventures into other European countries. In June 1997, the Company
consummated the purchase of Multicom NV ("Multicom"), a leading long distance
reseller headquartered in Antwerp, Belgium with a base of more than 280 direct
dial customers. The purchase price for Multicom was 11,101,043 Belgium Francs
(approximately $317,000). See Part II Item 1. Legal Proceedings. In April 1997,
the Company purchased a 49% interest in Tibesta Corporation N.V. ("Tibesta"), a
company seeking to offer, through a 99.6% indirectly owned subsidiary, UTG
Communications France S.A., dedicated line and direct dial services as well as
calling card services in France. To date, the Company has provided approximately
$75,000 in funds in connection with the capitalization of Tibesta and its
subsidiaries. Due to a change in the French telecommunications market (France
Telecom has introduced considerable tariff cuts in France), the Company's
management has decided not to continue efforts to enter the French market. (See
Notes 7 and 8 of Notes to Consolidated Financial Statements.)
In Germany, the Company is currently supporting an international calling
card project for a large bank and insurance company. In its efforts to focus on
profitable markets the company is reviewing this project to determine whether
future investment or divestment is appropriate.
-12-
<PAGE>
In Hungary, UTG Magyar Kommunikacios Kft ("UTG Hungary") was organized by Mr.
Fritz Wolff, the Company's former Chief Executive Officer. Ownership of UTG
Hungary was registered in the name of Mr. Wolff, who had represented to the
Company that such ownership was for the benefit of the Company. On August 28,
1997, Mr. Wolff signed a sales agreement pursuant to which he was to transfer
ownership to UTG Holding. After Mr. Wolff's departure from the Company he has
not effected the registration of transfer of such ownership. The Company is in
discussions with Mr. Wolff regarding the same. At the time of filing the Company
is considering disassociating itself with UTG Hungary and charging its
investment of approximately $5,600 as well as a receivable of approximately
$8,900 to Mr. F. Wolff.
There can be no assurance that the Company's efforts in any of the
foregoing countries will result in successful commercial operations. The
Company's goal is to focus on its current operations and, under the new
management, to streamline costs and to target optimal network capacity
utilization. The Company will carefully evaluate expansion of its operations
into other European countries as and when business, market and regulatory
conditions permit.
Financial Condition
At September 30, 1997, the Company had a working capital deficit of
$5,004,977, and an accumulated deficit of $9,806,492, as compared to a working
capital deficit and accumulated deficit of $1,313,149 and $6,712,669,
respectively, at March 31, 1997.
Effective September 30, 1997, the Company's bank overdraft facility with
Credit Suisse in Switzerland of CHF 300,000 (approximately $205,000) was repaid.
The outstanding balance at that date was CHF 185,484 (approx. $128,000). The
Company's overdraft position with the Union Bank of Switzerland has a balance
outstanding of CHF 92,706 (approx. $63,900), including accrued interest. The
balance bears interest of 7% per annum plus a commission on highest outstanding
balance of 1/4%.
Effective September 30, 1997, the Company sold to a limited number of
accredited or sophisticated investors 400,000 shares of common stock at a price
of $0.50 per share and, for no additional consideration, warrants to purchase an
additional 200,000 shares of Common Stock at a price of $0.60 per share. At
September 30, 1997, $125,000 of the total $200,000 had been received by the
Company, and the remaining $75,000 was fully paid by October 6, 1997.
The Company believes that its network has adequate switching capacity to
serve projected volume of traffic through 1998. The Company initially designed
its network to take advantage of deregulation across Europe. It can perform
distributive least cost routing by using its hub sites in European cities to
direct traffic to carriers within a country, across the UTG network to another
country for termination, or back to the switch in London for routing. Both of
the first options do not require the calls to transit via the Company's switch.
The selected path is based on the least cost. This provides a large amount of
flexibility to the Company, and to ensure the quality of the connections and
lowest cost. With this distributive architecture the capacity of UTG's main
switch is not a limiting factor with regard to expansion. Although the Company
presently has no commitments to acquire a new switch, the Company may be
required to do so by the end of fiscal 1998.
Based upon the Company's plan of operation, the Company estimates that
existing resources, together with funds generated from operations, will not be
sufficient to fund the Company's working capital requirements beyond the
next few months. On November 3, 1997, the Company signed a preliminary letter
agreement with an entity to act as exclusive placement agent in connection with
a proposed equity financing. The financing is subject to a number of conditions,
including a contemplated restructuring of the Company's outstanding capital. The
placement agent has no obligation to complete the financing. The agreement
provides penalties (in the form of a $50,000 cash or 250,000 share payment) in
the event the contemplated financing does not occur because the Company fails to
effect the restructuring or otherwise fails to comply with the agreement. There
can be no assurance that the contemplated private placement will occur or that
sufficient financing will be available on terms acceptable to the Company or at
all. If the Company is unable to obtain sufficient financing in the immediate
future, the Company will be required to scale back operations and may be
required to cease operations.
-13-
<PAGE>
Of accounts payable and accrued expenses in the amount of approximately
$5,889,000 owing at September 30, 1997 ($1,186,516 at September 30, 1996),
approximately $1,107,000 represented amounts due to TeleMedia International,
Inc. ("TMI"), the Company's largest creditor, for leased lines. An agreement was
signed on September 15, 1997, to pay off the balance then owing (approximately
$1,130,000) in 12 equal monthly installments commencing September 30, 1997. As
part of the agreement, the Company has committed to pay 24 monthly installments
of approximately $14,500 in the form of a lease for equipment that the Company
has been using in London. The equipment was formerly utilized by a company that
was owned by one of UTG's former directors. The lease payments include imputed
interest of 11% per annum. The net present value of the installments over 24
months is approximately $310,000.
Results of operations
Sales
During the quarter ended September 30, 1997, the Company recorded net
sales of $1,521,888, in comparison with net sales for the entire year ended
March 31, 1997 of $1,743,377. During the quarter ended September 30, 1996, the
Company recorded net sales of $68,319. Sales in the six months ending September
30, 1997 were $2,839,289 compared to $93,562 in the equivalent period in 1996.
The increase reflects the fact that operations had not fully begun before
November 1996. The reduction in the gross margin as compared to the quarter
ending June 30, 1997 is due principally to the fact that the Company had
underaccrued in the prior period for uninvoiced bandwidth costs from TMI. The
latter had not invoiced the Company since May 1997, and the backlog of charges
were settled and invoiced at the end of September, resulting in an uneven
attribution of the cost of sales. The gross margin for the six months ended
September 30, 1997 ($286,769) increased as compared to the same period in 1996
(negative $122,709) reflecting the fact that the Company's volume of operations
has increased and is covering the fixed costs of leased lines included in cost
of sales with its revenues from operations.
-14-
<PAGE>
The Company's revenue has been generated primarily from long distance
telecom services provided to retail corporate customers in Switzerland and
Belgium and wholesale customers. For the quarter ended September 30, 1997, the
allocation between retail corporate customers and wholesale customers was
approximately 51% and 49%, respectively, compared to 11% and 78%, respectively,
for the year ended March 31, 1997. The shift in the allocation is primarily due
to the fact that the Company's Swiss customer base is steadily increasing, as
well as the acquisition of Multicom whose customers are 100% retail. The
Company's wholesale customers presently comprise international telecom carriers
and national telecom companies, and the Company's retail customers presently
comprise small and medium-sized companies located in Switzerland and Belgium.
Management anticipates that the allocation between wholesale and retail
customers will continue to shift in favor of retail customers consistent with
the Company's goal of expanding its corporate retail customer base.
Cost of Sales
Cost of sales was $1,571,006 for the quarter ended September 30, 1997, as
compared to $153,631 for the equivalent period in 1996, consisting of
approximately $1,174,000 for carrier charges and the balance being attributable
to costs for leased lines and related activities. Carrier charges and transport
(leased lines) charges per unit are ultimately dependent on the Company's
ability to generate high volumes of traffic. Carrier charges are exceptionally
high this quarter because the Company has made additional accruals of
approximately $280,000 for traffic from a carrier that has not billed the
Company since it first began to use its services beginning of 1997. This carrier
has been experiencing billing problems and has informed the Company that
staggered payment terms will be offered once the traffic is invoiced. The
remainder of the increase in carrier costs is in proportion to the increase in
the volume of traffic for the period. Cost of sales was $2,552,520 for the six
months ended September 30, 1997 as compared to $216,271 for the equivalent
period in 1996. The increase is due again to the fact that operations had not
fully begun in the latter period. Cost of sales remains high in proportion to
revenues because it includes relatively high fixed costs related to leased lines
($647,196 for the six-month period ended September 30, 1997) that are incurred
regardless of the amount of traffic carried. As the Company increases its
operations these fixed costs will become proportionately smaller.
Selling and Technical Expenses
Selling and technical expenses for the quarter ended September 30, 1997
were $584,684, compared to $648,816 for the previous quarter and $453,142 for
the quarter ended September 30 1996. The increase over the September 30, 1996
quarter year results primarily from increases in the number of selling and
technical personnel and related travel and other expenses, increases in the
number of customer installations, and network maintenance expenses. The decrease
over the previous quarter is a result of the restructuring process the Company
is undergoing, in which cost cutting measures have been carried out to limit
expenses. These expenses for the six month period ended September 30, 1997 were
$1,233,500 as compared to $650,696 for the equivalent period in 1996.
General and Administrative Expenses
General and administrative expenses for the quarter ended September 30,
1997 were $1,141,940, compared to $781,397 for the quarter ended September 30,
1996 and $2,036,240 for the six months ended September 30, 1997, compared to
$1,318,204 for the equivalent period in 1996. The increase primarily results
from increases in the number of management and administrative personnel and
related office and other expenses and increased depreciation expense resulting
from the purchase of additional equipment. Consulting fees were particularly
high for the quarter, relating to the engaging of outside financial consultants
to construct a business and operations plan for the ongoing activities of the
Company.
Other expenses
The Company incurred a loss of $71,944 related to the 49% investment and
related expenses made in the subsidiary Metatel (see Note 8 in the financial
statements). Metatel's subsidiary Tibesta invested FRF 750,000 (approximately
$126,000), of which the Company invested 49%, in forming a company UTG
Communications France SA, for the purpose of providing telecommunications
services in France. Due to the increasing tightening of margins on such services
in France, following an aggressive pricing policy by France Telecom, the Company
decided to withdraw its expansion plans in that market. There has been a
shareholder resolution, in principal, to dissolve UTG France, which is currently
inactive, as well as to dispose of the subsidiaries Metatel and Tibesta. The
Company has fully written off this investment.
-15-
<PAGE>
Net Loss
The Company's net loss for the quarter ended September 30, 1997 was
$1,894,357 primarily resulting from the continuing effect of initial delays and
cost overruns in setting up the Company's network and resulting lag in the
realization of revenues. The net loss for the quarter ended September 30, 1996
was $1,457,438, reflecting the more limited nature of the Company's operations
at that time with less overhead, personnel expenses, depreciation and other
operating expenses.
FORWARD-LOOKING STATEMENTS
Certain statements in this Report regarding the Company's estimates,
present view of future circumstances or events and statements containing words
such as "estimates," "anticipates," "intends" and "expects" or words of similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding the Company's ability to meet future working capital
requirements and future cash requirements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: delays in expanding the Company's
network; need for additional financing; failure to receive or delays in
receiving regulatory approval; general economic and business conditions;
industry capacity; industry trends; demographic changes; competition; material
costs and availability; the loss of any significant customers; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; changes in, or the failure to comply with,
government regulations including changes in industry regulations; and other
factors referenced in this Report. For a more detailed description of these and
other factors, see the section entitled "Risk Factors" in the Company's
Registration Statement on Form SB-2, No. 333-8305, which was declared effective
on September 6, 1996.
-16-
<PAGE>
Part II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legal proceedings
On August 22, 1997, Discont-o-fon, a company which provided Multicom with
bandwidth prior to the Company's acquisition of Multicom, filed a claim with the
main court in Brussels, Belgium, to collect BEF 8,409,393 (approximately
$233,500) claimed to be owing for traffic services provided to Multicom. The
claim also seeks to prevent Multicom from transferring its clients to the
Company's network. On August 23, 1997, Multicom filed a suit in the same court
against this provider seeking BEF 9,000,000 (approximately $250,000) for loss of
customers due to poor quality of service. On August 27, 1997, two bank accounts
of Multicom's were frozen for a total of BEF 1,510,198 ($41,563). On October 5,
1997, a judgment on both cases was issued restraining Multicom from transferring
any more clients from the Discont-o-fon network to the Company's network. On
October 21, 1997, Multicom appealed to a higher court. A final decision is
pending. The accounts remain frozen pending the appeal. The amount claimed by
the supplier is fully accrued as part of accounts payable.
On October 20, 1997, Cermusoni & Wyder placed a claim via court in Zug,
Switzerland against UTG Europe. The claim is in respect of unpaid invoices in
the amount of CHF 39,656 (approximately $27,400) plus interest since April 1997.
The Company has informed the court that it desires the claim to be processed by
the court. The amount claimed, without interest, has been fully accrued as part
of accounts payable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective September 30, 1997, the Company sold to a limited number of
accredited or sophisticated investors 400,000 shares of common stock at a price
of $0.50 per share and, for no additional consideration, warrants to purchase an
additional 200,000 shares of Common Stock at a price of $0.60 per share. At
September 30, 1997, $125,000 of the total $200,000 had been received by the
Company, and the remaining $75,000 was fully paid by October 6, 1997.
The Company relied on the exemption from registration provided by Section
4(2) under the Securities Act of 1933, as amended.
ITEM 5. OTHER INFORMATION
On October 6, 1997, Fritz K. Wolff resigned as Chief Executive Officer and
Chairman of the Board of the Company. Ronald Kuzon, who has been Treasurer of
the Company since its inception, was elected to replace Mr. Wolff on a temporary
basis. Mr. Wolff also resigned as Director of UTG Network, UTG Belgium and
Multicom, and has been replaced in these positions by Mr. Keith Rhea. The
Company is in the process of streamlining the administrative structure of its
subsidiaries to consolidate its decision-making under the control of the
Company's Board of Directors and to improve administrative efficiencies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Consulting agreement between the Company and Telepath, Ltd.
27 -- Financial Data Schedule
(b) Reports on Form 8-K
No reports on form 8-K were filed by the Company during the quarter ended
September 30, 1997.
-17-
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UTG COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Ronald Kuzon
----------------------------------------
Ronald Kuzon, Chief Executive Officer
By: /s/ Keith Rhea
----------------------------------------
Keith Rhea, Chief Operating Officer
Date: November 19, 1997
-18-
Consulting Agreement
Consulting Agreement (the "Agreement") dated as of June 30, 1997 between UTG
Communications (Europe) A.G., with offices at Baarerstrasse 75, Postfach 6302,
Zug, Switzerland ("Company") and Telepath, Ltd. with offices at
______________BVI ("Consultant").
Company desires to engage Consultant to provide the services of Keith Rhea
("KR") outside the United States to perform services for Company and any present
or future non United States parent, subsidiary, or affiliate of the Company,
(collectively called the "UTG Companies") and Consultant desires to perform such
services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein and for other good and a valuable considerations, the receipt and
sufficiency of which are hereby acknowledged.
SECTION 1. Term
Company agrees to retain Consultant, and Consultant agrees to serve, on
the terms and conditions of this Agreement for a period commencing July 7, 1997
(the "Commencement Date") and ending on July 7, 2000, or such shorter period as
may be provided for herein.
The period during which Consultant is retained hereunder is hereinafter referred
to as the "Consulting Period".
SECTION 2. Duties and Services
During the Consulting Period, Consultant shall provide the services of KR
for up to 40% of his business time to perform such duties as Company may request
and require.
SECTION 3. Compensation
Fee. Company shall pay Consultant, during the Consulting Period, an annual
consulting fee of $80,000 ("Fee"), payable in equal, bi-weekly installments in
U.S. dollars. The parties agree that Consultant is acting as an independent
contractor and that Consultant is solely responsible for the payment of all
taxes with respect to the Fee.
SECTION 4. Expenses
Consultant shall be entitled to reimbursement within thirty (30) days for
reasonable travel and other out-of-pocket expense necessarily incurred in the
performance of its duties hereunder, upon submission and approval of written
statements and bills in accordance with the regular procedures of the Company.
SECTION 5. Representations and Warranties of Consultant
<PAGE>
Consultant represents and warrants to Company that (a) neither Consultant
nor KR is under any contractual or other restriction or obligation which is
inconsistent with the execution of this Agreement, the performance of its duties
hereunder, or the other rights of the Company hereunder and (b) KR is under no
physical or mental disability that would hinder his performance of duties under
this Agreement.
SECTION 6. Patents, Etc.
Any interest in patents, patent applications, inventions, technological
innovations, copyrights, copyrightable works, developments, discoveries,
designs, and processes related to the business of Company ("Such Inventions")
which shall belong to Company as soon as Consultant owns, conceives of, or
develops any Such Invention, it agrees immediately to communicate such fact in
writing to the Secretary of Company, but at Company's expense, forthwith upon
request of the Company, Consultant shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks, and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Consultant's; right,
title, and interest, pledges, charges, and encumbrances ("Liens") and (b), if
patentable or copyrightable, to obtain patents or copyrights (including
extensions and renewals) therefore in any and all countries in such name as the
company shall determine.
SECTION 7. Confidential Information
All confidential information (including, without limitation, trade
secrets, know how, proprietary information, price lists, marketing plans and
customer lists), which Consultant may now possess, may obtain during or after
the Consulting Period, or may create prior to the end of the Consulting Period
relating to the business of Company or of any customer or supplier of Company
shall not be published, disclosed, or made accessible by Consultant to any other
person, firm, or corporation either during or after the termination of his
employment or used by him except during the Consulting Period for the benefit of
Company without the prior written permission of Company. Consultant shall return
all tangible evidence of such confidential information to Company prior to or at
the termination of its services.
SECTION 8. Termination
This Agreement shall terminate on the date that the employment of KR by
UTG Communications International Inc. ("UTG") occurs. As of such date, Company
shall have no continuing obligations to Consultant under this Agreement except
for accrued obligations through the date of termination. If termination by UTG
requires the payment of an additional six months salary to KR under the
Employment Agreement, then in such event Consultant shall be entitled to the
payment of an additional six months of consulting fees under this Agreement.
SECTION 9. Modification
This Agreement sets forth the entire understanding of the parties with
2
<PAGE>
respect to the subject matter hereof, supersedes all existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.
SECTION 10. Notices
Any notices or other communication required or permitted by this Agreement
shall be sufficiently given if delivered in person, by courier, or if sent by
registered or certified mail, postage prepaid, return receipt requested, or by
Express Mail, or similar overnight delivery service, or by facsimile
transmission (followed by telephone communication and hard copy), at the address
set forth in the preamble to this Agreement (or to such other address as the
party shall have furnished in writing in accordance with the provisions of this
Section 14). Any such notice or communication shall be deemed given (1) if sent
by certified or registered mail, return receipt requested, postage prepaid, five
calendar days after being deposited in the United States mail, postage prepaid;
(2) if sent by Express Mail, Federal Express or similar overnight delivery
service for next Business Day delivery, the next Business Day after being
entrusted to such service, with delivery charges prepaid or charged to the
sender's account; (3) if sent by facsimile transmission, on the date sent and
(4) if delivered in person, by courier, on the date of delivery.
SECTION 11. Waiver
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Agreement. The failure
of a party to insist upon strict adherence to any term of this Agreement on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Agreement. Any waiver must be in writing.
SECTION 12. Binding Effect
Consultant's right and obligations under this Agreement shall not be
transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance, or the claims of Consultant's creditors, and any
attempt to do any of the forgoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Consultants and his
heirs and personal representatives and shall be binding upon and inure to the
benefit of the Company and its successors.
SECTION 13. Headings.
The headings in this Agreement are solely for the convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
SECTION 14. Counterparts, Governing Law
3
<PAGE>
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. This Agreement shall be governed by and construed
in accordance with the laws of Switzerland, without giving effect to any
conflict of laws rule which would have the substantive law of any other state or
country apply to the subject matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
first above written.
UTG Communications (Europe) A.G.
by: /s/ Fritz Wolff
--------------------------------
Fritz Wolff, President
Telepath, Ltd
By: /s/ Keith Rhea
--------------------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from UTG
COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 252,274
<SECURITIES> 0
<RECEIVABLES> 1,029,360
<ALLOWANCES> 142,637
<INVENTORY> 0
<CURRENT-ASSETS> 1,636,027
<PP&E> 2,195,156
<DEPRECIATION> 782,389
<TOTAL-ASSETS> 4,149,455
<CURRENT-LIABILITIES> 6,299,735
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 7,425,507
<TOTAL-LIABILITY-AND-EQUITY> 4,149,455
<SALES> 2,839,289
<TOTAL-REVENUES> 2,839,289
<CGS> 2,552,520
<TOTAL-COSTS> 3,269,740
<OTHER-EXPENSES> 110,852
<LOSS-PROVISION> 142,637
<INTEREST-EXPENSE> 42,982
<INCOME-PRETAX> (3,093,823)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,093,823)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,093,823)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
