SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
Commission File Number 333-08305
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)
Limmattalstr. 10, Geroldswil Switzerland 8954
(Address of principal executive offices) (Zip Code)
(011) 411 749 31 03
(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 January 28, 2000, there were 3,931,107 shares of Common Stock, par
value $.00001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
1
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
INDEX
PART I
Item 1 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in Securities
Item 3 Defaults upon Senior Securities
Item 4 Submission of Matters to a Vote of Security-Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
2
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1999 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 150,411 $ 402,925
Restricted Cash 336,293
Accounts Receivable, Net of Allowance for
Doubtful Accounts at December 31, 1999 and
March 31, 1999 of $309,811 and $372,314 respectively 3,292,160 1,167,227
Other Receivables 372,977 824,602
Prepaid Expenses and Other Current Assets 1,116,101 117,757
Inventory 511,035 606,140
------------ ------------
TOTAL CURRENT ASSETS 5,442,684 3,454,944
Property and Equipment, at cost, Net of Accumulated
Depreciation at December 31, 1999 and March 31, 1999
of $2,830,241 and $2,158,682 respectively 1,721,868 2,579,646
Organization Costs, at cost, Net of Accumulated
Amortization at December 31, 1999 and
March 31, 1999 of $108,953 and $36,160 -- 108,953
Goodwill, at cost, Net of Accumulated Amortization At
December 31, 1999 and March 31, 1999 of $56,071
and $45,925 7,051,151 205,753
Deferred Taxes -- --
Customer Lists Net of Accumulated Amortization at
December 31, 1999 and March 31, 1999 of $432,093 and
$291,534, respectively 439,575 645,536
Other Assets 1,892,357 203,283
------------ ------------
TOTAL ASSETS $ 16,547,635 $ 7,198,115
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ 1,573,148 $ 663,925
Notes Payable -- 67,649
Due to Related Party -- 14,516
Accounts Payable and Accrued Expenses 6,797,659 3,835,759
Capital Lease Obligation, Current 219,043 253,788
------------ ------------
Total Current Liabilities 8,589,850 4,835,637
Capital Lease Obligation, Long-Term 1,120,377 473,920
Loans Payable 527,510 371,250
Commitments and Contingencies -- --
------------ ------------
TOTAL LIABILITIES 10,237,737 5,680,807
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock - $.00001 Par Value Authorized 60,000,000
shares; 3,931,107 and 1,711,190 Issued and Outstanding
at December 31, 1999 and March 31, 1999 respectively 40 16
Additional Paid-in Capital 14,482,529 8,667,784
Accumulated Deficit (7,834,198) (7,222,639)
Treasury Stock (300,000) (300,000)
Cumulative Foreign Currency Translation Adjustment (175,969) 365,738
Minority Interest 137,496 6,409
------------ ------------
Total Stockholders' Equity 6,309,898 1,517,308
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 16,547,635 $ 7,198,115
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Quarter ended For the nine Months ended
December 31, December 31,
(unaudited) (unaudited)
------------------------------------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 4,687,475 $ 1,525,328 $ 10,889,170 $ 2,871,063
COST OF SALES 3,425,053 1,045,461 8,238,948 1,842,848
------------ ------------ ------------ ------------
GROSS PROFIT 1,262,422 479,867 2,650,222 1,028,215
------------ ------------ ------------ ------------
SELLING AND TECHNICAL EXPENSES
Consulting Fees -- 14,412 -- 133,084
Technical Fees 4,505 68,093 195,414 224,758
Sales Salaries 17,690 98,705 92,654 393,680
Other Selling Expenses -- 77,955 -- 118,813
------------ ------------ ------------ ------------
Total Selling and Technical Expenses 22,195 259,165 288,068 870,335
------------ ------------ ------------ ------------
PROFIT/LOSS FROM OPERATIONS BEFORE GENERAL AND
ADMINISTRATIVE EXPENSES 1,240,227 220,702 2,362,154 157,880
------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Management and Consulting Fees 21,102 -- 104,501 6,644
Salaries 563,467 183,247 1,442,650 240,801
Bad Debt Expenses 835 -- 5,436 --
Depreciation and Amortization 327,320 210,340 982,406 557,758
Professional Fees 45,930 40,139 258,134 167,891
Travel Expenses 65,862 695 103,814 25,007
Employment Agency Fees 4,631 -- 81,168 --
Rent Expenses 82,241 21,470 168,340 61,426
Association Fees 75 -- 11,284 --
Insurance Expenses 2,675 1,027 8,503 9,677
Other Operating Expenses 304,506 146,431 749,498 269,918
------------ ------------ ------------ ------------
Total General and Administrative Expenses 1,418,644 603,349 3,915,734 1,339,122
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (178,417) (382,647) (1,553,580) (1,181,242)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest Income 1 151 111 209
Gain (Loss) on Sale of Subsidiaries 1,790 -- (27,314) --
Interest Expenses 16,635 (41,635) (59,689) (40,429)
Loss from Foreign Currency (18,953) (258) (111,779) (29,939)
Other Income 66,609 (4,961) 52,177 (5,183)
------------ ------------ ------------ ------------
Total Other Income (Expenses) 66,082 (46,703) (146,494) (75,342)
------------ ------------ ------------ ------------
INCOME/(LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST (112,335) (429,350) (1,700,074) (1,256,584)
INCOME TAXES -- -- (129) --
------------ ------------ ------------ ------------
INCOME/(LOSS) BEFORE MINORITY INTEREST (112,335) (429,350) (1,700,203) (1,256,584)
Extraordinary Item -- -- 1,174,590 --
------------ ------------ ------------ ------------
Extraordinary Income 17,277 85,352 17,277 367,648
Closing Subsidiary Costs -- (13,719) -- (16,409)
MINORITY INTEREST 15,275 3,528 (103,223) 3,528
------------ ------------ ------------ ------------
NET INCOME / LOSS $ (49,783) $ (354,189) $ (611,559) $ (901,817)
============ ============ ============ ============
PROFIT/LOSS PER COMMON SHARE $ (0.01) $ (0.22) $ (0.16) $ (0.54)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
For the Nine Months Ended
December 31,
---------------------------
1999 1998
----------- -----------
COMPREHENSIVE INCOME (Loss)
Net Loss $ (611,559) $ (901,817)
Foreign Currency Translation Adjustment (541,707) 793,910
----------- -----------
COMPREHENSIVE INCOME (LOSS) $(1,153,266) $ (107,907)
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Foreign Total
----------------- Paid-In Treasury Accumulated Currency Minority Stockholders'
Shares Amount Capital Stock Deficit Adjustment Interest Equity
------ ------ ------- ----- ------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1999 1,711,190 $ 16 $ 8,667,784 $ (300,000) $(7,222,639) $ 365,738 $ 6,409 $ 1,517,308
Net Loss - For the nine months
Ended December 31, 1999 -- -- -- (611,559) (611,559)
Issuance of Common Stock 2,219,917 24 5,887,038 -- -- -- 5,887,062
Offering Costs (72,293) (72,293)
Minority Interest -- -- -- -- -- 131,087 131,087
Cumulative Foreign
Currency Translation Adjustment -- -- -- -- (541,707) -- (541,707)
--------- ----- ----------- -------- ----------- --------- --------- -----------
Balance at December 31, 1999 3,931,107 $ 40 $14,482,529 (300,000) $(7,834,198) $(175,969) $ 137,496 $ 6,309,898
========= ===== =========== ======== =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months ended
December 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (611,559) $ (901,817)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities
Depreciation and Amortization 982,406 557,758
Changes in Certain Assets and Liabilities:
Increase/Decrease in Accounts Receivable (2,124,933) (518,016)
Decrease in Other Receivables 451,625 (382,526)
Increase in Prepaid Expenses (998,344) (697,809)
Decrease in Inventory 95,105 --
Increase in Organization Costs -- (139,741)
Decrease in Assets -- (4,874)
Increase in Bank Overdrafts 909,223 347,369
Increase other Assets (1,689,074) --
Due To/From Related Party (14,516) --
Increase in Accounts Payable and Accrued Expenses 2,961,900 1,199,344
----------- -----------
Total Cash Used by Operating Activities (38,167) (540,312)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Increase/Decrease in Fixed Assets, Net 186,219 (686,519)
Decrease in Restricted Cash 336,293 --
Increase in Goodwill (6,855,544) (507,113)
Increase/Decrease in Customer Lists 65,402 (102,525)
----------- -----------
Total Cash Provided (Used) by Investing Activities (6,267,630) (1,257,346)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Notes (67,649) 371,250
Increase/(Decrease) in Capital Lease Payable 611,712 212,437
Contribution to Capital 5,814,769 600,000
Offering Costs -- (34,000)
Increase Loans payable 156,260 --
Minority Interest (131,807) 81,830
----------- -----------
Total Cash Provided By Financing Activities 6,646,179 1,231,517
----------- -----------
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH (592,896) 809,207
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (252,514) 243,066
CASH AND CASH EQUIVALENTS - BEGINNING 402,925 363,169
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING $ 150,411 $ 606,235
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest Expenses $ 59,689 $ 40,429
=========== ===========
Income Taxes $ -- $ --
=========== ===========
</TABLE>
7
<PAGE>
UTG COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
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, 1999.
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) Starfon Telecom Services AG, ("Starfon"), formerly UTG Communications
Holding AG, incorporated under the laws of Switzerland on February 29,
1996 (owned 100% by the Company);
2) UTG Communications Belgium N.V., ("UTG Belgium"), incorporated under
the laws of Belgium on June 27, 1996 (owned 100% by Starfon);
3) United Telecom GmbH, ("UTG GmbH"), incorporated under the laws of
Switzerland on May 28, 1996 (owned 100% by Starfon);
4) Telelines International SA, ("Telelines"), incorporated under the laws
of Panama on July 28, 1997 (owned 100% by the Company).
5) Starpoint Card Services Ltd. ("Starpoint"), incorporated under the laws
of Great Britain on November 18, 1998, (owned 51% by Telelines).
6) Star Global Ltd., ("StarGlobal"), incorporated under the laws of
Jersey, Great Britain on November 24, 1998, (owned 100% by Telelines).
7) Musicline AG (Musicline), incorporated under the laws of Switzerland on
July 16, 1998, owned 51% by the Company.
8) SSC Selected Sound Carrier AG, (SSC), incorporated under the laws of
Switzerland on July 1st, 1998, (owned 100% by Musicline)
9) JM Sontel AG, (JM), incorporated under the laws of Switzerland on
December 12, 1991, (owned 100% by Musicline)
All significant intercompany accounts and transactions have been
eliminated in consolidation.
See also Management's Discussion and Analysis of Financial Condition
and Results of Operation for additional information regarding
organizational changes of the Company.
b) Line of Business
The Company is a switch-based provider of private voice, fax and
<PAGE>
data management telecommunication services throughout Europe. The
Company also plans to be engaged in E Commerce and is engaged in the
distribution of Music CD and Music over the Internet.
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 were
capitalized and amortized over a period of five years through March
31, 1999. As of March 31, 1999, these costs were expensed per
Statement of Position No. 98-5, Accounting for Start-Up Costs.
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) Customer Lists
Customer lists present the costs of the acquisition of subscriber
names at their fair market value. Amortization is being computed
using the straight-line method over a period of three years.
g) 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.
h) Bank Overdraft
The Company maintains overdraft facilities at certain banks. Such
overdraft positions are included in current liabilities.
i) 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.
j) 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.
k) Profit/Loss Per Share
Profit/Loss per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding
<PAGE>
during the period. Weighted average common shares outstanding were
3,931,107 and 1,453,154 for the quarters ended December 31, 1999 and
December 31, 1998, respectively. Average common equivalent shares
outstanding have not been included, as the computation would not be
dilutive.
l) 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.
m) 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.
n) Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages, but does not require
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock.
o) Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", was issued (SFAS No. 121).
SFAS No.121 requires that long-lived assets and certain identifiable
intangibles to be held and used or disposed of by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Company has adopted this statement and determined
that no impairment loss need be recognized for applicable assets of
continuing operations.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31, 1999 March 31, 1999
Telecommunications Equipment $ 4,552,109 $ 4,738,328
Computer Equipment & Software
Furniture and Fixtures
Less: Accumulated Depreciation (2,830,241) (2,158,682)
----------- -----------
$ 1,721,868 $ 2,579,646
=========== ===========
Depreciation expense for the quarter ended December 31, 1999 and 1998 was
$401,098 and $210,340, respectively.
<PAGE>
NOTE 3 - MINORITY INTEREST
At December 31, 1999 there was a minority interest in the Company's
subsidiary, Starpoint Card Sales Ltd., of 49% of the total stockholders'
equity of $79,403.
At December 31, 1999 there was a minority interest in the Company's
subsidiary, Musicline AG, of 49% of the total stockholders equity of $
58,093.
NOTE 4 - FOREIGN OPERATIONS
As described in Note 1b, substantially all of the Company's
operations are located throughout Europe and the majority of its identifiable
assets are located in Switzerland, Belgium and the United Kingdom.
NOTE 5 - INCOME TAXES
The components of the provision for income taxes are 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%
==========
At December 31, 1999, the Company had net carryforward losses of
approximately $7,834,198. 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 December 31, 1999 are as follows:
Deferred Tax Assets
Loss Carryforwards $ 7,834,198
Less: Valuation Allowance (7,834,198)
-----------
Net Deferred Tax Assets $ --
===========
<PAGE>
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 6 - 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 as of December 31, 1999:
Operating Capital
Leases Leases
2000 $ 132,750 226,319
2001 60,000 200,300
2002 60,000 160,031
2003 60,000 65,850
2004 60,000 --
2005 and thereafter --
---------
Total Minimum Lease Payments $ 372,750 $ 652,500
Less: Amounts Representing Interest (64,422)
---------
Present Value of Future Minimum
Lease Payments 648,930
Less: Current Maturities (212,467)
---------
Total $ 436,463
=========
Rent expense under operating leases for the quarter ended December 31, 1999 was
$56,586.
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 7 - STOCK OPTIONS
During the quarter ended December 31, 1999, an investor exercised warrants to
purchase 58,025 shares of common stock for a purchase price of $3.00 per share
for an aggregate consideration of $174,075.
NOTE 8 - ACQUISITION
On October 20, 1999, the Company's stockholders other than Mr. Ernst or persons
affiliated with or associated with him approved, by an affirmative vote of more
than two-thirds of the shares of Common Stock held by such stockholders, the
Stock Purchase Agreement, dated as of August 9, 1999 between the Company and
Ueli Ernst, the Company's Chairman and Chief Executive Officer, to acquire a
majority of the capital stock of Musicline AG, a Swiss corporation
("Musicline"), in consideration for 1,750,000 shares of the Company's common
stock, the assignment to Mr. Ernst of a receivables account in the principal
amount of approximately $790,000, and, if Musicline's net profits reach at least
$300,000 during the fiscal year ending March 31, 2000 or March 31, 2001, an
additional 350,000 shares of the Company's common stock. The closing of this
transaction occurred on November 15, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<PAGE>
The following discussion and analysis relates to the financial condition and
results of operations of the Company for the quarter ended December 31, 1999.
This information should be read in conjunction with the Company's consolidated
financial statements appearing elsewhere herein. 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.
Through its operating subsidiaries, the Company is operating in Switzerland,
Belgium and the United Kingdom.
The Company has received an aggregate of approximately $14,482,529 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 is generated from long distance telecom services provided
to retail corporate customers and wholesale customers and, through Musicline,
from the production, sale and distribution of music CD's to wholesale and retail
customers in Europe.
With respect to the Company's telecommunications business, the Company's
wholesale customers comprise international telecom carriers and national
telecoms, and the Company's retail customers comprise medium-sized companies
located in Switzerland, Belgium and the United Kingdom. In Switzerland, the
Company has entered into an interconnection agreement with Swisscom, the
national Swiss telecommunications carrier. The Company intends to enter into
interconnection agreements with telecommunications carriers in the United
Kingdom, Belgium and other European countries into which the Company may expand
in the future. The interconnection with national telecommunication carriers,
which became possible as a result of the deregulation of the European
telecommunications markets in January 1998, enables the Company to offer both
domestic and international telecommunications services to its customers and
eliminates the need to route all outgoing calls through London. Management
believes that entering into interconnection agreements with national
telecommunications carriers will result in an increase in traffic volume for the
Company and will allow the Company to reduce fixed overhead costs considerably.
The Company holds an International Simple Resale ("ISR") license in the United
Kingdom and, during the fiscal year ended March 31, 1999, was granted an
International Facility License ("IFL") by the United Kingdom. The ISR license
permits the Company to engage in the resale of international telecom services in
the United Kingdom and the IFL license enables the Company to own facilities for
international services such as circuits. By operating its own facilities, the
Company can avoid the costs associated with leased line charges and,
accordingly, reduce its operating expenses.
During the fiscal year ended March 31, 1999, the Company entered into a joint
venture agreement with eight individual distributors for the purpose of
establishing a distribution network for telecommunication cards in the United
Kingdom. The Company and its eight distribution partners formed StarPoint Card
Services Ltd., located in London with the Company holding 51% of StarPoint's
equity and the Company's partners holding the remaining 49%. In addition, during
the fiscal year ended March 31, 1999, the Company formed StarGlobal Ltd., a
wholly-owned indirect subsidiary organized under the laws of the United Kingdom,
with the intent to resume the Company's wholesale and carrier-to-carrier
business. StarGlobal's new equipment can handle traffic worth USD 25 million per
year with a gross margin of about 5 to 8% depending on the destination.
On July 5, 1999, the Company sold its subsidiary, Multicom Communication NV, to
an unaffiliated Liechtenstein investor for BEF 25,000 to streamline the
activities of UTG Belgium.
During the quarter ended September 30, 1999, the Company completed its
development of a credit card based phone service for the Swiss market. The
Company launched this product together with the Manor Group, a large department
store chain in Switzerland on July 19, 1999. This product allows holders of
<PAGE>
credit cards issued by Manor to use the credit card as a post-paid phonecard and
to benefit from discounts for international and national long distance
telecommunication services.
On November 15, 1999, the Company acquired a majority of the capital stock of
Musicline AG, a Swiss corporation ("Musicline"), pursuant to a Stock Purchase
Agreement, dated as of August 9, 1999 between the Company and Ueli Ernst, the
Company's Chairman and Chief Executive Officer, in consideration for 1,750,000
shares of the Company's common stock, the assignment to Mr. Ernst of a
receivables account in the principal amount of approximately $790,000, and, an
additional 350,000 shares of the Company's common stock if Musicline's net
profits reach at least $300,000 during the fiscal year ending March 31, 2000 or
March 31, 2001. At a stockholders meeting held on October 22, 1999, the
Company's stockholders other than Mr. Ernst or persons affiliated or associated
with him approved such stock purchase agreement by an affirmative vote of more
than two-thirds of the shares of common stock held by such stockholders. The
closing of this transaction occurred on November 15, 1999.
Musicline is a Swiss-based wholesale and retail music CD distribution and
production company with a European client base. Musicline has the rights to sell
approximately 15,000 music titles in CD format as well as on the Internet.
Musicline produces about 4,000 different music compilations per year. The
Company expects this acquisition to provide it with Internet opportunities,
specifically in the business-to-business and business-to-consumer e-commerce
sectors, although there can be no assurance in that respect.
On August 13, 1999, the Company issued a note in the principal amount of
$200,000, due June 30, 2003, and a note in the principal amount of CHF250,000,
due June 30, 2003 to Blacksea Investment Ltd. The CHF250,000 note carries 8%
interest and the CHF250,000 note carries 5% interest. Such notes were issued by
the Company in lieu of a loan agreement, dated August 13, 1998, which provided
for loans in the principal amounts of the notes. In addition, the Company issued
to Blacksea Investment Ltd. 3,000 warrants to purchase shares of common stock of
the Company at $30 per share, 3,000 warrants to purchase shares of common stock
of the Company at $45 per share, 3,000 warrants to purchase shares of common
stock of the Company at CHF50 per share, and 3,000 warrants to purchase shares
of common stock of the Company at CHF75 per share. All of such warrants expire
on June 30, 2001.
On August 22, 1999, the Company issued an aggregate of 179,130 shares of common
stock and warrants to purchase an aggregate of 1,103,625 shares of common stock
at a purchase price of $15.00 per share expiring in 2003 to certain stockholders
of record on March 20, 1998. This issuance was made in connection with the
Company's 13:1 reverse stock split effected on March 23, 1998. In connection
with the reverse stock split, the Board of Directors of the Company authorized
the issuance of one warrant for each share of Company common stock held by each
stockholder of record on March 20, 1998. In addition, the Board of Directors of
the Company authorized the distribution to stockholders who continuously held
shares of Company common stock from March 20, 1998 through September 21, 1998 a
number of shares of Company common stock equal to not more than 20% of the
amount of shares of Company common stock continuously held by stockholders
during that time period to compensate such stockholders for a decrease in the
market value of the Company's shares of Common Stock following the reverse stock
split.
In order to be able to continue to provide its customers with state of the art
communication services and to benefit from the opportunities created by the
Internet, the Company has developed an Internet strategy. The Company intends to
become an Internet services provider (ISP) to take advantage of the efficiencies
created by its existing switches and its access to the Internet backbone. The
Company intends to offer these services (and related consulting and support
services), to retail and other Internet services providers in Europe. The
Company also intends to diversify into e-commerce and to operate Internet
shopping platforms for its telecommunications services and other retail
industries, including music, media and software distribution.
The Company deems an expansion into Internet-related services, such as
E-commerce, with its expected high growth potential, a competitive necessity in
the markets in which it currently operates. The Company believes that
<PAGE>
establishing an e-commerce business would synergistically supplement its
conventional telecommunications services and its newly developed Internet
services.
The Company is currently exploring several appropriate opportunities in its core
markets and in Germany as well as in other countries. The Company will carefully
evaluate expansion of its operation into other European countries as and when
business, market and regulatory conditions permit.
There can be no assurance that any of the Company's new activities commenced
during the quarter ended December 31, 1999 or any of its efforts to expand its
business in its core markets, any other countries or the Internet will result in
successful commercial operations.
The Company's financial statements for the quarter ended December 31, 1999 for
the first time reflect the financial condition and results of operations of
Musicline. The financial statements reflect Musicline's results of operations
for the entire quarter.
Financial Condition
At December 31, 1999, the, Company had a negative working capital of $3,147,166
and an accumulated deficit of $7,834,198, as compared to a negative working
capital of $1,380,693 and an accumulated deficit of $ 7,222,639, respectively,
at March 31, 1999.
During the quarter ended December 31, 1999, 58,025 warrants to purchase shares
of the Company's common stock at $3.00 per share were exercised. The aggregate
gross proceeds received by the Company from the exercise of such warrants during
the quarter ended December 31, 1999 was $174,075. In connection with the
exercise of such warrants, Interfinance Investment Co. Ltd., a company
controlled by Mr. Ueli Ernst, the Chairman and CEO of the Corporation, is
entitled to a commission of $5,222.25. This commission has not yet been paid.
Based upon the Company's current plan of operation, the Company estimates that
its existing financing resources, together with funds generated from operations,
will be sufficient to fund the Company's current working capital requirements.
However, there can be no assurance in that regard.
An expansion of the Company's business through the acquisition of other
telecommunication providers or companies in other industries, the planned
expansion of the Company's business into the Internet and significant
investments in infrastructure and marketing require additional debt or equity
financing from third parties. There can be no assurance that any such financing
will be timely available. Accordingly, the Company may have to forego
opportunities for entering into new businesses, expanding its telecommunications
or music CD production and distribution businesses.
The Company believes that its telecommunications network has adequate switching
capacity to serve its projected volume of traffic through to the end of March
2000. The Company plans to upgrade its Switches to increase capacity and to meet
its increase of the demand of the telecommunication services. The Company
estimates the costs for such upgrade to be approximately $500,000. As in the
past, the Company intends to finance such upgrades through equipment leasing
arrangements. There can be no assurance that the Company will be able to obtain
such financing on a timely basis, for commercially reasonable conditions or at
all. A failure or delay to obtain such financing could have a material adverse
effect on the company.
The Company's telecommunications network is designed 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 its network to another country for termination, or back to the
switches in Zurich, Belgium and London for routing to the desired destination.
The selected path is based on the least cost.
This provides a large amount of flexibility to the Company and ensures the
quality of the connections and lowest cost. With this distributive architecture,
the capacity of the Company's switches is not expected to be a limiting factor
for the expansion of the Company's business. The opening of the European
telecommunications markets is expected to allow the Company to take full
<PAGE>
advantage of its network flexibility.
Musicline expects to invest up to $1,500,000, through equipment leasing
financings, in various equipment and production of DVD products, however, there
can be no assurance as to when or if such financings will occur.
Accounts payable and accrued expenses amounted to approximately $6,797,659 at
December 31, 1999 compared to $3,835,759 at March 31, 1999.
Results of operations
During the quarter ended December 31, 1999, the Company could generally achieve
the expected gross margins in its business.
Quarter Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
Sales $4,687,475 $ 1,525,328 $10,889,170 $2,871,063
During the quarter ended December 31, 1999, the Company recorded net sales of
$4,687,475, compared to $1,525,328 during the quarter ended December 31, 1998
and during the nine-month period ended December 31, 1999, the Company recorded
net sales of $10,889,170 compared to $2,871,63 during the same period of the
previous year. This increase in net sales is the result of increased revenue in
Switzerland, Belgium, the addition of the Company's distribution business in the
United Kingdom and the commencement of the sale of the Company's
pre-and-post-paid calling card products in Switzerland. It also includes sales
in the amount of $1,824,230 generated by Musicline and its subsidiaries during
the quarter ended December 31, 1999. Management expects an additional increase
in the Company's net sales as a result of the increase in revenues from the new
pre-paid and post-paid calling card services in Switzerland, Musicline's music
distribution and production business and the addition of new Internet services.
Quarter Ended Nine Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
Gross Profit $1,262,422 $479,867 $2,650,222 $1,028,215
Gross profit for the nine months ended December 31, 1999 increased to $2,650,222
(or 32,1% of the Company's sales) as compared to a gross profit of $1,028,215
(or 35,8% of the Company's sales) during the same period in 1998 and gross
profit for the quarter ended December 31, 1999 increased to $1,262,422 (or
26,9%) of the Company's sales as compared to a gross profit of $479,867 (or
35.40% of sales) during the same period in 1998. The increase of the Company's
gross profit in absolute terms resulted from the increase of the Company's net
sales. The relative decrease of the Company's gross profit is the result of the
fact that a significant part of the Company's sales was generated in the
Company's phone card distribution business in the United Kingdom, its Swiss
phone card business and Musicline's CD distribution and production business,
which has a lower margin than the Company's other telecommunications services
historically used to have.
The Company's revenue from its telecommunications business has been generated
primarily from long distance and international telecom services provided to
retail corporate customers in Switzerland and Belgium and its wholesale
customers, as well as its prepaid card distribution in the United Kingdom and
the first sales of its pre-paid and post-paid calling card products in
Switzerland. Musicline's business has primarily been generated by the sale of
music CDs to consumers and business customers in Europe. The Company believes
that its margin will remain relatively constant in the near future. However, the
Company expects its gross profit to increase in absolute terms as the Company's
net sales increase.
Quarter Ended Nine Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
Cost of Sales $3,425,053 $1,045,461 $8,238,948 $1,842,848
<PAGE>
Cost of sales was $3,425,053 for the quarter ended December 31, 1999 and
$8,238,948 for the nine-month period ended December 31, 1999, as compared to
$1,045,461 and $1,842,848, respectively, for the same periods in 1998. Cost of
sales of the Company's telecommunications business were approximately $2,062,023
and for Musicline cost of sales were approximately $ 1,362,030.
Quarter Ended Nine Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
Selling and
Technical Expenses $22,195 $259,165 $288,068 $870,335
Selling and technical expenses are attributable to the Company's
telecommunications business. Selling and technical expenses were $22,195 for the
quarter ended December 31, 1999 and $288,068 for the nine-month period ended
December 31, 1999 compared to $259,165 and $870,335, respectively for the
corresponding periods in 1998. The primary reasons for this decrease is the fact
that the Company now employs certain persons who previously had performed
technical and sales services as independent contractors to the Company. This
shift resulted in a decrease in technical and sales-related expenses paid to
third parties.
Quarter Ended nine Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
General and
Administrative Expenses $1,418,644 $603,349 $3,915,734 $1,339,122
General and administrative expenses were $1,418,644 for the quarter ended
December 31, 1999 and $3,915,734 for the nine-month period ended December 31,
1999 compared to $603,349 and $1,339,122, respectively, for the corresponding
periods in 1998. This increase is due to the increase in the Company's
activities, including the addition of new employees (including individuals who
previously performed technical and sales services as independent contractors),
the addition of Musicline increased depreciation and amortization expenses
related to newly acquired equipment and increased travel and other
administrative expenses. However, the growth of the Company's sales during the
quarter and the nine-month period ended December 31, 1999 exceeded the increase
of general and administrative expenses.
Quarter Ended Nine Months Ended
December 31 December 31
1999 1998 1999 1998
---- ---- ---- ----
Net Income/(Loss) $(49,783) $(354,189) $(611,559) $(901,817)
In the quarter ended December 31, 1999, the Company realized net sales of
$4,687,475 and a net loss of $49,783 compared to net sales of $1,525,328 and a
net loss of $354,189 during the quarter ended December 31, 1998. During the
nine-month period ended December 31, 1999 the Company's net sales and net loss
of $10,889,170 and $611,559, respectively, compared to $2,871,063 and $901,817,
respectively, for the same periods in 1998. The decrease in the Company's net
loss for the quarter ended December 31, 1999 is primarily attributable to the
increase in sales in the Company's telecommunications business and the addition
of the sales generated by Musicline. The decrease in the Company's net loss
during the nine-month period ended December 31, 1999 is primarily attributable
to the extraordinary gain achieved from the sale of Multicom and the addition of
Musicline. Without such extraordinary gain, the Company's net loss for the
nine-month period ended December 31, 1999 would have increased in absolute terms
because of the Company's higher operating expenses and lower gross profit
resulted from the increase in sales and the relative decrease in operating
expenses.
As a result of the expected growth of the Company's telecommunications business,
in particular its pre-paid and post-paid calling card business in Switzerland,
the expected growth in Musicline's music CD distribution and production
business, the planned
<PAGE>
introduction of Internet services and e-commerce business, and on-going
reorganization of the Company's wholesale business, management expects a further
increase in revenues during the quarter ending March 31, 2000 and a further
reduction of the Company's operating loss, although no assurances can be given
in this regard.
Year 2000
The change in the calendar on January 1, 2000 had no significant impact on the
Company's operations. The costs incurred to make the Company's systems year 2000
compliant were not material.
FORWARD-LOOKING STATEMENTS
Investment in the Company's securities involves a high degree of risk. In
evaluating an investment in the Company's securities, Company stockholders and
prospective investors should carefully consider the risk factors discussed in
the Company's Registration Statement on Form S-3/A, Registration No. 333-8305,
which was declared effective on June 11, 1999, the information detailed in the
Company's Form 10-KSB for the fiscal year ended March 31, 1999 and this Form
10-QSB under Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as information contained in the
Company's other filings with the Securities and Exchange Commission.
Certain statements in this Report under Item 1 and Item 6 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. Forward-looking statements speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information future events
or otherwise. Risk factors include, among others, 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.
Part II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No changes have occurred in the status of the legal proceedings previously
disclosed by the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As of April 30, 1996, the Company issued 211,538 shares of Common Stock (as
adjusted for the Company's 1:13 reverse stock split) to Interfinance Inv. Co.
Ltd., a Panamanian company ("Interfinance"), 183,333 of which shares were issued
in exchange for $200,000 in cash and 197,435 of which shares were issued in
exchange for $26 in cash and a 7% promissory note. The promissory note was
repaid as of June 28, 1996 from proceeds received from purchasers of a portion
of the shares resold by Interfinance. On August 15, 1996, the Company sold an
additional 30,769 shares of Common Stock to Interfinance for $1,000,000
<PAGE>
consisting of $10,000 in cash and a 7% promissory note for $990,000. The note
was repaid in full in November 1996. Pursuant to a subscription agreement
entered into in November 1996, Interfinance subscribed for and the Company sold
an additional 9,615 shares of Common Stock at $52.00 per share. In addition, the
Company granted Interfinance an option to purchase up to an additional 92,308
shares of Common Stock at $26.00 per share for a two year period commencing on
completion of purchase of the full 153,846 shares. In connection with that
agreement, Mr. Combrinck transferred 5,769 shares to Interfinance for no
additional consideration. In January 1997, the Company entered into a
subscription agreement with Interfinance Inv. Co., Ltd. ("Interfinance"),
pursuant to which Interfinance subscribed for 153,846 shares of Common Stock at
a purchase price of $13.00 per share. In connection with the subscription
agreement, Mr. Thomas Combrinck agreed to transfer, without cost to
Interfinance, one share of UTG Common Stock owned by him for each share
purchased by Interfinance under the subscription agreement. As of the date
hereof, all amounts owing to the Company in respect of Interfinance's November
1996 and January 1997 subscriptions have been paid (giving effect to
approximately $20,000 in credits for expenses incurred by Interfinance on behalf
of the Company). No Underwriter's discount or fee was incurred by the Company in
connection with these issuances. The Company has agreed to register the resale
of the shares purchased by Interfinance under the Securities Act of 1933. These
transactions were exempt from the registration requirements of the Securities
Act of 1933 by reason of the exemption provided by Section 4(2) thereunder and
on the basis of certain representations provided by Interfinance including that
it is an "accredited investor."
On January 15, 1997, the Company granted an aggregate of 57,692 shares of Common
Stock to employees and consultants in consideration for services and as an
incentive to further the interests of the Company. On March 25, 1997, the
Company issued an aggregate of 769 shares to two individuals as part of a
settlement of claims by one of the individuals regarding breach of an alleged
employment relationship. These issuances were exempt from the registration
requirements of the Securities Act of 1933 by reason of the exemption provided
by Section 4(2) thereunder.
On March 10, 1997, the Company granted an option to purchase up to an aggregate
of 38,462 shares to certain of the Company's officers. As such individuals have
ceased to serve the Company in their respective executive capacity before the
first anniversary of the above-mentioned grant, non of such options vested.
Effective September 30, 1997, the Company sold to a limited number of accredited
or sophisticated investors 30,769 shares of common stock at a price of $6.50 per
share and, for no additional consideration, warrants to purchase an additional
15,385 shares of Common Stock at a price of $7.80 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. Interfinance acted as
placement agent for these issuances. No underwriter's discount or fee was
incurred by the Company in connection with these issuances. These issuances were
exempt from the registration requirements of the Securities Act of 1933 by
reason of the exemption provided by Section 4(2) thereunder.
On March 23, 1998, the Company issued 250,000 shares of Common Stock (post-
reverse split) at a purchase price of $2.00 per share. In addition, for each
share of Common Stock purchased, the subscriber received three warrants, each to
purchase one share of Common Stock, which warrants will expire five years from
the date of issuance and shall be exercisable at $2.00, $3.00 and $4.50 per
share, respectively. Net proceeds received by the Company were $485,000. Under
the terms of the subscription agreement, as amended, the Company had the right,
subject to certain conditions, to request the subscriber to purchase up to an
additional 500,000 shares of Common Stock upon the same terms and purchase price
as for the initial purchase on or prior to December 1, 1998. During the fiscal
year ended March 31, 1999, the Company issued an additional 408,036 shares to
such subscriber on the same terms and conditions as described above. Net
proceeds received by the Company in connection with such issuance were $791,590.
In connection with these issuances, Interfinance acted as placement agent and
<PAGE>
received a placement fee of 3% of the gross proceeds to the Company. An
aggregate amount of $39,482 has been paid to Interfinance with respect to such
placement fee. These transactions were exempt from the registration requirements
of the Securities Act of 1933 by reason of the exemption provided by Section
4(2) thereunder and on the basis of certain representations provided by the
subscriber including that it is an "accredited investor."
On August 13, 1999, the Company issued a note in the principal amount of
$200,000, due June 30, 2003, and a note in the principal amount of CHF250,000,
due June 30, 2003 to Blacksea Investment Ltd. The CHF250,000 note carries 8%
interest and the CHF250,000 note carries 5% interest. Such notes were issued by
the Company in lieu of a loan agreement, dated August 13, 1998, which provided
for loans in the principal amounts of the notes. In addition, the Company issued
to Blacksea Investment Ltd. 3,000 warrants to purchase shares of common stock of
the Company at $30 per share, 3,000 warrants to purchase shares of common stock
of the Company at $45 per share, 3,000 warrants to purchase shares of common
stock of the Company at CHF50 per share, and 3,000 warrants to purchase shares
of common stock of the Company at CHF75 per share. All of such warrants expire
on June 30, 2001. The Company received no proceeds from such issuance.
On August 22, 1999, the Company issued an aggregate of 179,130 shares of common
stock and warrants to purchase an aggregate of 1,103,625 shares of common stock
at a purchase price of $15.00 per share expiring in 2003 to certain stockholders
of record on March 20, 1998. This issuance was made in connection with the
Company's 13:1 reverse stock split effected on March 23, 1998. In connection
with the reverse stock split, the Board of Directors of the Company authorized
the issuance of one warrant for each share of Company common stock held by each
stockholder of record on March 20, 1998. In addition, the Board of Directors of
the Company authorized the distribution to stockholders who continuously held
shares of Company common stock from March 20, 1998 through September 21, 1998 a
number of shares of Company common stock equal to not more than 20% of the
amount of shares of Company common stock continuously held by stockholders
during that time period to compensate such stockholders for a decrease in the
market value of the Company's shares of Common Stock following the reverse stock
split.
In its quarterly report on Form 10-QSB for the quarter ended June 30, 1999, the
Company reported that it issued 67,593 shares to an investor following the
exercise of a call option under a subscription agreement, dated January 17,
1998. As such issuance would have exceeded the aggregate number of shares of
common stock available under such call option by 5,629 shares of the Company's
common stock, the Company and such investor agreed that in lieu of issuing such
shares pursuant to the exercise of the Company's call option, the investor would
exercise 5,629 warrants previously issued to it at an exercise price of $3.00
per shares and pay the Company additional consideration in the amount of $5,629
for such shares. In addition, during the quarter ended September 30, 1999, the
same investor exercised an additional 92,685 warrants to purchase shares of the
Company's common stock at $3.00 per shares, bringing the aggregate number of
warrants exercised by such investor and the number of shares issued by the
Company pursuant to the exercise of such warrants to 98,314. The aggregate gross
proceeds received by the Company from the exercise of such warrants during the
quarter ended September 30, 1999 was $283,684. In connection with the exercise
of such warrants, Interfinance Investment Co. Ltd., a company controlled by Mr.
Ueli Ernst, the Chairman and CEO of the Corporation, is entitled to a commission
of $8,509, which commission has not yet been paid.
During the quarter ended December 31, 1999, 58,025 warrants to purchase shares
of the Company's common stock at $3.00 per share were exercised. The aggregate
gross proceeds received by the Company from the exercise of such warrants during
the December 31, 1999 was $174,075. In connection with the exercise of such
warrants, Interfinance Investment Co. Ltd., a company controlled by Mr. Ueli
Ernst, the Chairman and CEO of the Corporation, is entitled to a commission of
$5,222.25. This commission has not yet been paid. In the aggregate, Interfinance
Investment Co. Ltd. is entitled to unpaid commissions in the aggregate amount of
$13,731.28 in connection with securities issuances of the Company.
These transactions were exempt from the registration requirements of the
Securities Act of 1933 by reason of the exemption provided by Section 4(2)
thereunder and Regulation S promulgated thereunder on the basis of certain
<PAGE>
representations provided by the subscriber including that it is an "accredited
investor" and that it is not a "U.S. person." The Company's use of the proceeds
from exercise of such warrants is for general working capital purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 22, 1999, the Company held a special meeting of stockholders for the
purpose of approving the consummation of the transactions contemplated by the
Stock Purchase Agreement, dated as of August 9, 1999, between the Company and
Mr. Ueli Ernst.
1,623,065 votes were cast in favor of such transaction, 80,466 votes were cast
against such transaction, and there were, in the aggregate, 757,351 abstentions
and votes withheld from voting on such transaction, which included all shares
held directly and indirectly by Mr. Ueli Ernst.
ITEM 5. OTHER INFORMATION
Part II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended December 31, 1999, the Company filed a Current
Report on Form 8-K on November 30, 1999 regarding the consummation of the
transactions contemplated by the Stock Purchase Agreement dated as of August 9,
1999, between the Company and Mr. Ueli Ernst.
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.
Date: February 15, 2000 By: /s/ Ueli Ernst
----------------------------------------
Ueli Ernst, Chairman and CEO
(Principal Executive Officer)
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from UTG
Communications International, Inc. and Subsidiaries and is qualified in it's
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 150,411
<SECURITIES> 0
<RECEIVABLES> 3,665,137
<ALLOWANCES> 309,811
<INVENTORY> 1,627,136
<CURRENT-ASSETS> 5,442,684
<PP&E> 13,935,191
<DEPRECIATION> 2,830,241
<TOTAL-ASSETS> 16,547,634
<CURRENT-LIABILITIES> 8,589,850
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 6,309,898
<TOTAL-LIABILITY-AND-EQUITY> 16,547,635
<SALES> 10,889,170
<TOTAL-REVENUES> 10,889,170
<CGS> 8,238,948
<TOTAL-COSTS> 11,500,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 611,559
<INTEREST-EXPENSE> (111)
<INCOME-PRETAX> (1,700,203)
<INCOME-TAX> 129
<INCOME-CONTINUING> (1,700,203)
<DISCONTINUED> 1,174,590
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (611,559)
<EPS-BASIC> (16)
<EPS-DILUTED> (09)
</TABLE>
