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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended March 31, 1999.
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number
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Teltran International Group, Ltd.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3172507
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Penn Plaza, Suite 4632, New York, New York, 10119
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(Address of Principal Executive Offices)
(212) 643-1283
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(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $.001 par value - 12,741,318 shares as of July 16, 1999
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Transitional Small Business Disclosure Format (check one):
Yes No
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PART I.
Item 1. Consolidated Financial Statements
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................................. $ 172,644 $ 3,604
Accounts receivable............................................................... 53,603 23,908
Prepaid expenses.................................................................. 4,982 14,666
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Total current assets........................................................... 231,229 42,178
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Other Assets:
Goodwill--net of amortization..................................................... 36,917 40,273
Organization expense--net of amortization......................................... 68 188
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Total other assets............................................................. 36,985 40,461
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Total assets................................................................... $ 268,214 $ 82,639
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</TABLE>
See accountants' compilation report and notes.
1
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TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loan payable...................................................................... $ 50,000 $ 50,000
Accounts payable, accrued expenses and taxes payable.............................. 105,440 76,845
Customer deposits................................................................. -- 12,432
Corporation taxes payable......................................................... -- 876
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Total current liabilities...................................................... 155,440 140,153
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Long-Term Liabilities:
Loan payable...................................................................... -- 290,000
Loans payable--stockholders'...................................................... 1,245 69,641
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Total long-term liabilities.................................................... 1,245 359,641
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Total liabilities.............................................................. 156,685 499,794
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Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000,000 shares
authorized and -0- shares issued and outstanding
Common stock, $.001 par value per share, 50,000,000 shares authorized and
9,679,828 and 915,637 shares issued and outstanding, respectively.............. 9,679 916
Additional paid in capital in excess of par value................................. 2,775,133 1,501,928
Deficit........................................................................... (2,673,283) (1,919,999)
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Total stockholders' equity (deficit)........................................... 111,529 (417,155)
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Total liabilities and stockholders' equity..................................... $ 268,214 $ 82,639
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</TABLE>
See accountants' compilation report and notes.
2
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TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Revenues:
Sales................................................................................. $ 83,459 $ 39,976
Miscellaneous......................................................................... -- 1,714
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83,459 41,690
Cost of Sales:
Purchases............................................................................. 122,311 --
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Gross profit............................................................................ (38,852) 41,690
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Expenses:
Salaries.............................................................................. 113,301 --
Outside services...................................................................... 31,770 77,605
Professional fees..................................................................... 31,960 4,000
Fees--other........................................................................... 63,488 --
Payroll taxes......................................................................... 10,310 --
Leasing expense....................................................................... 4,780 --
Travel................................................................................ 18,641 7,759
Insurance............................................................................. 13,009 7,190
Rent.................................................................................. 46,350 3,398
Office expense........................................................................ 1,502 5,510
Miscellaneous......................................................................... 599 --
Telephone............................................................................. 6,483 50,683
Contributions......................................................................... 1,000 --
Amortization expense.................................................................. 20,498 --
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Total expenses..................................................................... 363,691 156,145
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Loss from operations.................................................................... (402,543) (114,455)
Interest expense...................................................................... 15,465 --
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Loss before provision for income taxes.................................................. (418,008) (114,455)
Provision for income taxes.............................................................. 780 388
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Net loss................................................................................ $(418,788) $(114,843)
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Net loss per share of common stock based upon 8,955,146 and 915,637 (weighted average)
shares issued......................................................................... $ (0.05) $ (0.13)
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</TABLE>
See accountants' compilation report and notes
3
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TELTRAN INTERNATIONAL GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
4
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TELTRAN INTERNATIONAL GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................................................ $(418,788) $(114,843)
Adjustment to reconcile net loss to net cash (used in) operating activities:
Amortization expense.................................................................. 20,498 30
Decrease (increase) in accounts receivable............................................ 40,693 (23,908)
(Increase) in prepaid expenses........................................................ (4,982) (14,666)
Cash advances from factor (net of repayments)......................................... (65,193) --
Increase in customer deposits......................................................... -- 12,432
Increase in accounts payable, accrued expenses and taxes payable...................... 759 42,152
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Net cash (used in) operating activities............................................ (427,013) (98,803)
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Cash Flows from Investing Activities:
Loans from stockholders and others.................................................... -- 58,761
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Cash Flows from Financing Activities:
(Decrease) of convertible debentures payable.......................................... (180,488) --
Conversion of convertible debenture--stock issued..................................... 550,000 --
(Decrease) in notes payable........................................................... (550,000) --
Cash received as advances from investors.............................................. 774,756 40,000
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Net cash provided by financing activities.......................................... 594,268 40,000
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Net increase (decrease) in cash......................................................... 167,255 (42)
Cash--January 1,........................................................................ 5,389 3,646
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Cash--March 31,......................................................................... $ 172,644 $ 3,604
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Supplemental Disclosures:
Income tax............................................................................ -- --
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Interest paid......................................................................... $ 749 --
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</TABLE>
See accountants' compilation report and notes.
5
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TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS
Nature of Business
Teltran International Group, Ltd. through its wholly owned Subsidiary
Teltran International, Inc. (the "Company") provides services for state of the
art telecommunications.
Effective May 1, 1996, the shareholders of Teltran International Inc. ("the
Subsidiary"), a Delaware corporation, completed a stock exchange with Spectratek
Inc., a Utah corporation, whereby all the common shares of the subsidiary, were
exchanged for 10,000,000 common shares of Spectratek, par value $.001. The
10,000,000 shares represented approximately 67% of the then total issued and
outstanding 15,145,491 shares of Spectratek Inc.
On October 6, 1997, Spectratek merged with Teltran International Group,
Ltd., a newly formed Delaware corporation, with the surviving entity.
Except as otherwise indicated by the context, references to "the Company"
refer to Teltran International Group, Ltd. and the subsidiary.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary. Intercompany balances and transactions have
been eliminated.
Development Stage Activities and Operations
At March 31, 1999, the Company has a net operating loss carryforward of
approximately $2,673,000 after limitations based on changes in ownership.
Basic loss per share was computed by dividing the Company's net loss by the
weighted average number of common shares outstanding during the period. There is
no presentation of diluted loss per share as the effect of common stock options,
warrants and convertible debt amounts are antidilutive. The weighted average
number of common shares used to calculate loss per common share during this
period was 8,995,146 and 915,637, respectively.
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share". The Statement established standards for computing
and presenting earnings per share (EPS). It replaced the presentation of primary
EPS with a presentation of basic EPS and also requires dual presentation of
basic and diluted EPS on the fact of the income statement.
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 amounts.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value information, whether or not recognized in
the balance sheet, where it is practicable to estimate that value. The carrying
value of cash, cash equivalents, accounts receivable and notes payable
approximates fair value.
6
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TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Impairment of Long-Lived Assets
The Company has not completed it's evaluation of the adoption of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." However, management believes any such effect will not be
material.
Revenue Recognition
Telecommunications revenues from services provided are recognized and
billed as services performed.
Major Customer
During the period ended March 31, 1999, approximately 70% of the
company's revenue was from one customer. Also, 97% of accounts receivable are
from the same customer.
Goodwill
Goodwill is stated at cost and is amortized on a straight line basis
over a life of 15 years. Amortization expense is $671 for the period ended
March 31, 1999.
Stock Options
The Company recognizes compensation for stock options granted to
NOTE 3--NOTES RECEIVABLE
In July 1996, the Company issued 3,166,667 shares of common stock to
investors for the sum of $950,000. During the year ended December 31, 1996, the
Company received $347,700 and the balance of $602,300 was received during the
year ended December 31, 1997.
NOTE 4--DUE TO FACTOR
In June 1998, the Company entered into a factoring agreement; financing the
accounts receivable of their major customers. In February 1999, the Company
terminated the factoring agreement and paid the outstanding balance in full.
NOTE 5--NOTES PAYABLE
In January 1999, the Company issued $550,000 of convertible debentures due
January 14, 2000 to non-related parties. Interest at 10% was forgiven. Shortly
thereafter, all the debentures were converted to 1,104,444 shares of the
Company's common stock. Financing costs related to these debentures were
expensed.
In August 1998, the Company issued $300,000 of convertible debentures due
August 14, 1999 to non-related parties. The debentures accrued interest at 10%.
The debentures are convertible into the Company's stock at $1.25 or 70% of the
lowest closing bid price of the common stock, 30 trading days preceding the
conversion date. During the period August through December 1998, $119,512 of
debentures were converted to 269,158 shares of common stock. In connection with
the transaction, the Company issued 30,000 warrants to purchase 30,000 shares
of common stock at $1.25 per share. Financing costs of this transaction have
been fully amortized as the convertible debentures were fully converted to
999,747 shares of common stock at March 31, 1999 (including prior conversion).
Prior to 1998, the Company received a loan in the amount of $50,000. During
1998, this loan was renegotiated and terms were extended. The loan is due upon
notification from the maker or upon the anniversary date of the renegotiation.
In November 1997, the Company entered into a joint venture agreement with a
group of unrelated foreign investors which provided for their participation of
future profits of the Company in return for cancellation of indebtedness. In
June 1998, the Company issued an aggregate of 6,000,000 shares to these
investors in consideration of the termination of the joint venture.
NOTE 6--STOCKHOLDERS' DEFICIT
During the period August 1998 to December 31, 1998 the Company issued
269,158 shares of its common stock upon the conversion of $119,512 of the
debentures referred to in Note 5.
The Company also issued 500,000 shares of its common stock to related
parties of an officer and an officer as repayment of $100,000 advanced to the
Company during the year.
NOTE 7--COMMITMENTS AND CONTINGENCIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the Company as a going concern. The Company was a development
stage company and had no significant revenues and limited financing during the
first three months of 1998. Additionally, the Company, as shown in the
accompanying consolidated financial statements, has an accumulated deficit of
$2,673,283 at March 31, 1999 and incurred a net loss of $418,788 during the
period ended March 31, 1999. Subsequent to June 30, 1998, the Company is no
longer a development stage company since revenues are continuing.
7
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TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1999
NOTE 7--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company rents its facility under a lease agreement through August 31,
2003.
Future minimum lease payments under these agreements for the years ended
December 31, are as follows:
<TABLE>
<S> <C>
2000.......................................................... $ 90,500
2001.......................................................... 90,500
2002.......................................................... 98,644
2003.......................................................... 98,644
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$378,288
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</TABLE>
NOTE 8--STOCK COMPENSATION PLAN
During the year December 31, 1998, the company granted 1,180,000 stock
options, with a life of 10 years, to certain officers/directors, employees and
non-employees that may be exercised at prices ranging from $.375 to $5.00 per
share. Subsequent to December 31, 1998, the Company pursuant to the plan,
granted 795,000 additional stock options, also with a 10 year life, to certain
employees and non-employees that may be exercised at a price of $.59 per share.
These options vested immediately upon the date of issuance.
The following table summarizes certain information relative to stock
options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INCENTIVE STOCK OPTIONS SHARES EXERCISE PRICE
- ---------------------------------------------------- --------- ----------------
<S> <C> <C>
Granted............................................. 1,180,000 $ 1.69
Exercised........................................... 0 --
---------
Outstanding--December 31, 1997...................... 0 --
Expired/canceled.................................... 0 --
Granted............................................. 0 --
---------
Outstanding--December 31, 1998...................... 1,180,000 1.69
---------
---------
Exercisable--December 31, 1998...................... 497,500 1.69
---------
---------
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes contained elsewhere in this
prospectus.
GENERAL
Prior to April 1998 we were essentially a start-up venture. During 1998
most of our revenues were derived from acting as an OzEmail refile hub in the
United States. During 1999 these revenues were diminishing and we devoted our
efforts to promoting our affiliate arrangements with OzEmail as well as
establishing businesses for our web portal. Therefore comparisons between 1998
and 1999 will be of limited value.
During the balance of 1999 and early 2000 our Plan of Operation is to:
o enter into and implement arrangements to provide wholesale customers
in the United States with Internet telephony over the OzEmail system. We
have already entered into three agreements to provide such services, two of
which commenced in June and the third is scheduled to commence in July
1999. We are negotiating additional similar arrangements. Each of these
arrangements requires us to expend money for equipment purchases and the
payment of various fees.
o seek to enter into arrangements to become an affiliate of OzEmail in
additional countries. This, among other things, will enable us to provide
economic services from the United States to those countries and participate
in revenues on both ends of a call. We have received OzEmail's permission
to establish affiliates in Bangladesh, Pakistan and Israel. We are seeking
to finalize our arrangement in Pakistan. We are also negotiating to acquire
an entity in England which will enable us to become an affiliate in the
United Kingdom and Ireland.
o develop our portal and provide other related businesses utilizing
our portal. These including offering advertising on the Internet developing
additional sales affiliate arrangements on the Internet. We also plan
through our proposed joint venture to operate a website for the sale of
music.
o continue to augment other aspects of our telecommunications business
as well.
We cannot assure you that we will be able to successfully implement our
plan.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
Our revenues were approximately $83,459 for the first quarter of 1999 while
the Company had revenues of approximately $41,690 in the comparable quarter in
1998. This increase was due to our generation of sales of our services as an
affiliate in the OzEmail system.
In spite of increased sales, we incurred net losses of ($418,788) in the
first quarter of 1999 which was an increase from the net loss of ($114,843) in
the first quarter of 1998. The increase was primarily due to an increase in
salaries, professional and other expenses which were associated with the OzEmail
affiliate business. Unless we obtain additional customers, or otherwise expand
our revenue base, our accounts receivable and revenues may be concentrated with
one or two customers.
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997
Our revenues were approximately $535,000 for 1998 while we received no
revenues in 1997. Over 70% of our revenues in 1998 were derived from OzEmail for
acting as a refile hub. Revenues to be derived from this activity will decline
in 1999.
Our operating expenses during 1998 were approximately $709,400 compared to
approximately $827,800 during the prior year. The reduced expenses were
primarily attributable to a decline in salary expense in 1998 resulting from a
reduction in staff.
9
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Since we did not commence income producing operations until 1998, we do not
believe that either 1997 or 1998 are any indication of our future operations. We
anticipate that the year 1999 will be the first full year of operations and that
our revenues will be derived from businesses not conducted in 1998.
Our monthly charges for the balance of the year under new agreements will
exceed all our revenues earned in 1998. Based on these agreements and other
activities we believe that we will have substantially increased revenues in 1999
as we begin to derive revenues from our voice telephony operations.
LIQUIDITY
We had a working capital of approximately $75,700 as at March 31, 1999
compared to a negative working capital of approximately ($98,000) as at
March 31, 1998. The increase was primarily attributable to increased reduction
of debt resulting from conversion of debt in 1999. Also during 1998 we financed
a portion of our receivables through a factoring arrangement. Since
December 31, 1998 we received gross proceeds of $650,000 from the sale of
convertible notes and exercise of warrants. All the notes have been converted
into equity and we have been able to repay and terminate our factoring
arrangement. In June 1999 we completed a private placement of shares of Common
Stock and received approximately $1,240,000. Upon effectiveness of this
registration statement and in the absence of adverse changes these purchasers
are obligated to pay us another $400,000 for additional shares.
At the present time we are aware of only two possible substantial capital
expenditures. We may have to purchase VINs at $9,000 per VIN to enable us to
perform future affiliate arrangements. All affiliate arrangements require us to
pay fees to connect various segments of the call. We also may have to contribute
up to $300,000 as our contribution to the proposed joint venture with Antra
Music Group.
Additional funds may be required when we form joint ventures to establish
foreign OzEmail affiliations and to pay for salaries under employment agreements
with management. We believe funds obtained and to be obtained from the sale of
shares and cash flow from operations will be sufficient for working capital
purposes until June 30, 1999.
10
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
LEGAL PROCEEDINGS
In June 1999 an action was commenced against us in the United States
District Court for the Southern District of New York. The plaintiffs claim that
they suffered damages as a result of alleged fraudulent and negligent
misrepresentations made in 1996 concerning the Company's prospects. We did not
believe we have any liability to the plaintiffs and will vigorously defend this
action. Our Company is not aware of any legal proceedings, or pending legal
proceedings, to which we are party or to which our property is subject. A claim
however has been made by a corporation for $304,000 representing amounts
advanced on our behalf to a potential reseller of telecommunications time to us.
Such amount was to be held in escrow until commencement of the contract between
ourselves and the reseller by an agent appointed by the potential reseller. The
contract was aborted and the escrow agent failed to return the escrow funds. The
claimant has requested the payment of the amount advanced with interest and
alternately a participation in revenues which it believed arose from the
relationship with the reseller. The claimant has failed to respond to our
communications for the past several months.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Teltran International Group, Ltd.
---------------------------------
(Registrant)
Date: July 16, 1999 /s/Byron R. Lerner
--------------- --------------------------------------------------
Byron R. Lerner, President Chief Executive Officer
Principal Financial and Accounting Officer
