<PAGE>
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 September 30, 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 33375885
-----------------------
Teltran International Group, Ltd.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 11-3172507
- -------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Penn Plaza, Suite 4632, New York, New York, 10119
-----------------------------------------------------
(Address of Principal Executive Offices)
(212) 643-1283
--------------
(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
--- ---
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
--- ---
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 - 13,371,283 shares as of September 30, 1999
- - -------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No
--- --
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
INDEX
PAGE NO.
Part I Financial Information
Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998 1
Consolidated Statements of Operations for the nine months
ended September 30, 1999 and 1998 2
Consolidated Statements of Operations for the three months
ended September 30, 1999 and 1998 3
Consolidated Statements of Stockholders Equity for the nine months
ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Part II Other Information
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 498,048 $ 5,389
Accounts receivable 1,715,707 94,296
Investment 6,000,000 --
Prepaid expenses 163,350 --
Loans and exchanges 29,200 --
Deferred financing costs - net of amortization -- 19,797
------------ ------------
Total current assets 8,406,305 119,482
------------ ------------
Fixed Assets:
Machinery & Equipment, net of accumulated depreciation 29,138 --
------------ ------------
Other Assets:
Goodwill - net of amortization 222,166 37,588
Organization expense - net of amortization 23 98
------------ ------------
Total other assets 222,189 37,686
------------ ------------
Total assets $ 8,657,632 $ 157,168
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Convertible debentures payable $ -- $ 180,488
Loan payable 50,000 50,000
Accounts payable, accrued expenses and taxes payable 574,078 104,581
Due to factor -- 65,193
Corporation taxes payable 100 100
------------ ------------
Total current liabilities 624,178 400,362
------------ ------------
Long-Term Liabilities:
Loans payable - stockholders' 1,245 1,245
------------ ------------
Total long-term liabilities 1,245 1,245
------------ ------------
Total liabilities 625,423 401,607
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000,000 shares
authorized and -0- issued and outstanding
Common stock, $.001 par value per share, 50,000,000 shares
authorized and 13,371,283 and 7,697,295 issued
and outstanding, respectively 13,371 7,697
Additional paid in capital in excess of par value 22,484,841 2,002,359
Deficit (14,466,003) (2,254,495)
------------ ------------
Total stockholders' equity (deficit) 8,032,209 (244,439)
------------ ------------
Total liabilities and stockholders' equity $ 8,657,632 $ 157,168
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
-1-
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended September 30,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Sales $2,807,749 $ 449,304
Miscellaneous 8,159 --
---------- ----------
2,815,908 449,304
Cost of Sales:
Purchases 1,420,009 220,383
---------- ----------
Gross profit 1,395,899 228,921
---------- ----------
Expenses:
Salaries 545,746 56,787
Professional fees 227,746 137,486
Fees - other 70,039 2,800
Payroll taxes 18,102 5,756
Leasing expense 8,397 8,259
Travel 86,013 87,825
Insurance 27,886 16,411
Rent 102,049 41,292
Office expense 21,861 21,032
Miscellaneous 12,538 1,915
Registration fees 12,469 --
Business development 2,923 --
Telephone 52,724 7,688
Contributions 1,450 --
Advertising 6,505 --
Amortization expense 2,302 7,285
---------- ----------
Total expenses 1,198,750 394,536
---------- ----------
Income (loss) from operations 197,149 (165,615)
Interest expense 36,753 17,703
---------- ----------
Income (loss) before provision for income taxes 160,396 (183,318)
Provision for income taxes 2,473 387
---------- ----------
Net income (loss) $ 157,923 $ (183,705)
========== ==========
Net income (loss) per share of common stock based upon 11,698,334
and 6,929,082 (weighted average) shares issued, respectively $ 0.01 $ (0.03)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-2-
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended September 30,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues:
Sales $2,267,570 $ 320,449
Miscellaneous 6,702 --
---------- ----------
2,274,272 320,449
Cost of Sales:
Purchases 1,042,867 141,204
---------- ----------
Gross profit 1,231,405 179,245
---------- ----------
Expenses:
Salaries 305,159 56,787
Professional fees 114,787 11,628
Fees - other -- 2,800
Payroll taxes 7,889 5,756
Leasing expense 4,120 2,149
Travel 61,634 33,591
Insurance 8,755 4,407
Rent 40,554 37,894
Office expense 17,655 16,252
Miscellaneous 1,740 1,915
Telephone 41,000 5,011
Contributions 250 --
Advertising 6,505 (567)
Amortization expense 451 7,225
---------- ----------
Total expenses 610,499 184,848
---------- ----------
Income (loss) from operations 620,906 (5,603)
Interest expense -- 17,704
---------- ----------
Income (loss) before provision for income taxes 620,906 (23,307)
Provision for income taxes 1,693 --
---------- ----------
Net income (loss) $ 619,213 $ (23,307)
========== ==========
Net income (loss) per share of common stock based upon
11,698,334 and 6,929,082 (weighted average) shares
issued, respectively $ 0.05 $ (0.01)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
-3-
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital
------------------------ in Excess of
Shares Amount Par Value Deficit
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - January 1, 1998 915,637 $ 916 $ 1,501,928 $ (1,805,156)
Issuance of shares (Aug. 1998)
re: conversion of debt 13,445 13 8,364 --
Issuance of shares (Aug.1998) as
full payment of outstanding debt 6,000,000 6,000 284,000 --
Net loss for the period -- -- -- (183,705)
--------- ------------ ------------ ------------
Balance - September 30, 1998 6,929,082 $ 6,929 $ 1,794,292 $ (1,988,861)
========= ============ ============ ============
Balance - January 1, 1999 7,697,295 $ 7,697 $ 2,002,359 $ (2,254,495)
Issuance of shares re:
conversion of debt 1,835,033 1,835 674,484 --
Issuance of shares re:
warrants 167,500 167 98,270 --
Private placement 278,999 279 1,008,190
Warrants exercised 37,500 38 146,462
Investment 2,000,000 2,000 5,998,000
Issuance of shares re:
acquisition 94,500 95 188,905
Stock dividend - 6/30/99 585,000 585 5,739,246 (5,739,831)
Stock dividend - 9/1/99 675,456 675 6,628,925 (6,629,600)
Net income for the period -- -- -- 157,923
--------- ------------ ------------ ------------
Balance - September 30, 1999 13,371,283 $ 13,371 $ 22,484,841 $(14,466,003)
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
-4-
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) $ 157,923 $ (183,705)
Adjustment to reconcile net income (loss) to net cash
(used in) operating activities:
Amortization expense 2,302 7,285
(Increase) in accounts receivable (1,619,216) (223,413)
(Increase) in loans and exchanges (29,200)
(Increase) in prepaid expenses (163,350) (8,278)
Decrease (increase) in deferred financing costs 19,797 (55,875)
Cash (repayments) received- factor (65,193) 93,748
Increase in accounts payable, accrued expenses
and taxes payable 469,497 46,573
----------- -----------
Net cash (used in) operating activities (1,227,440) (323,665)
----------- -----------
Cash Flows from Investing Activities:
Purchase of fixed assets (29,138) --
----------- -----------
Cash Flows from Financing Activities:
(Decrease) Increase of convertible debentures payable (180,488) 290,000
(Decrease) in notes payable -- (250,000)
Loans from stockholders and others -- 8,316
Conversion of convertible debenture - stock issued 676,319 10,000
Exercise of warrants 244,937 290,000
Private placement 1,008,469 --
----------- -----------
Net cash provided by financing activities 1,749,237 348,316
----------- -----------
Net increase in cash 492,659 24,651
Cash - January 1, 5,389 3,646
----------- -----------
Cash - September 30, $ 498,048 $ 28,297
=========== ===========
Supplemental Disclosures:
Income tax $ 780 --
=========== ===========
Interest paid $ 749 --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
-5-
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
Note 1 - Basis of Presentation:
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim periods.
The results of operations for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
Note 2 - Material Events:
During the nine months ended September 30, 1999, the following events
occurred:
In the six months ended June 30, 1999, the company issued 1,835,033 shares
of common stock which represented the conversion of $ 850,000 of
convertible debentures issued August 1, 1998 and due August 1, 1999.
Relating to the same transaction, the company issued 167,500 shares when
warrants that were issued as part of the convertible debenture transaction
were exercised.
In June 1999 the company issued 316,499 shares in a private placement
transaction; the net proceeds to the company $ 1,154,969.
The Company exchanged 2,000,000 shares of its common stock for 2,000,000
shares of common stock of another public corporation. The Companies are in
the process of forming a joint venture in which each will own 50%.
In a transaction effective June 1, 1999, the Company issued 94,500 common
shares to acquire 100% of Channel Net, Ltd.
585,000 common shares, representing a previously declared 5% stock
dividend, were issued during the quarter ended June 30, 1999.
675,456 common shares, representing a declared 5% stock dividend, were
issued during the quarter ended September 30, 1999.
<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
Forward Looking Statements
Certain statements contained herein may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to various known and
unknown risks and uncertainties and Teltran cautions you that any
forward-looking information provided by or on behalf of Teltran is not a
guarantee of future performance. Our actual results could differ from those
anticipated by such forward-looking statements due to a number of factors, some
of which are beyond Teltran's control, including (i) the volatile and
competitive nature of the telecommunications and internet industry, (ii) changes
in domestic and foreign economic and market conditions, (iii) the effect of
federal, state and foreign regulation on Teltran's business in general and in
the telecommunications and internet industries, (iv) failure of Teltran, its
vendors or other third parties to achieve Year 2000 compliance, (v) changes
in technology, (vi) reduced telecommunication rates, (vii) delays of third
parties in commencing service and (viii) the impact of recent and future
acquisitions on Teltran's business and financial condition. Teltran does not
undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any statement is made or
to reflect the occurrence of unanticipated events.
Plan of Operations
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 fully replaced by our successful
efforts of promoting our Teltran VoIP Service as well as establishing businesses
for our web portal. Therefore comparisons between 1998 and 1999 will be of
limited value.
<PAGE>
During the balance of 1999 and early 2000 our Plan of Operation is to:
o enter into and implement arrangements to provide wholesale
customers throughout the world with Internet telephony. We have already entered
into several such agreements to provide these services and others are scheduled
to commence in the fourth quarter. 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 have recently
finalized agreements to originate and terminate traffic in Pakistan. We have
also become an affiliate in the United Kingdom and Ireland thru ChannelNet, our
newly acquired entity in England.
o utilize ChannelNet switching to reduce the costs of worldwide
terminations.
o develop marketing strategies with Norweb, a national telecom
network operator in the UK, and utilize our alliance with them to expand
our VoIP network.
o enhance our portal by providing additional related business
services. These including offering banner ads, sponsorship agreements and other
types of advertising. We will also develop additional sales affiliate
arrangements on our portal and continue to run live internet chats on a monthly
basis.
o operate our joint venture, RecordsToGo.com, for the sale an
auction of music. The venture is in the process of obtaining
partner/affiliate agreements with a variety of music and non-music
websites and will be marketing RecordsToGo.com worldwide.
o promote and market our new ISP service through our web portal
Teltran.com. The service will be competitively priced and will offer
unlimited internet access, free e-mail and free home pages to all users.
o expand our sales staff to resell our Unidial services to
commercial accounts. Unidial operates as an independent network of
telecommunications resellers. Unidial services will also be marketed to
individuals via our Teltran.com web portal.
<PAGE>
o promote and market our new Fax over IP (FoIP) service to our
customers. This service allows users to send and receive faxes over the
internet at a reduced cost.
o as a result of increased activity, hire new employees and obtain
additional office facilities and equipment.
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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
(UNAUDITED)
Our revenues were approximately $2,200,000 for the third quarter of 1999
while the Company had revenues of approximately $320,000 in the comparable
quarter in 1998. This increase was due to the generation of additional VoIP
sales of our international telecommunications network.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Our revenues were approximately $2,800,000 for the nine months ended
September 30, 1999 while we received $449,000 for the nine months ended
September 30, 1998.
Our operating expenses during the nine months ended September 30, 1999
were approximately $1,199,000 compared to approximately $394,000 during the
comparable period in 1998. The increased expenses were primarily attributable to
an increase in salary expense and rent due to expanding our staff and office
space. In addition, our professional fees increased due to our overseas
acquisitions and increased filing requirements.
9
<PAGE>
LIQUIDITY
We had a working capital of approximately $7,800,000 as of September 30,
1999 compared to a negative working capital of approximately $208,000 as of
September 30, 1998. The increase in capital resulted from receipt of proceeds
from our placements totalling $1,890,000 and an increase in receivables and
prepaid expenses in 1999. 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.
In most instances capital requirements of our core business are not
significant. To commence any new service, we will be required to purchase voice
interface nodes (VINs), presently costing $9,000 per VIN. Additional VINs may be
required based on call volume after commencement of service, but these will only
be purchased if revenues justify the purchase. There are additional start-up
costs for each new contract. In most instances we believe that costs associated
with these capital expenditures may be obtained from funds available and from
cash flow. There may be instances, however, where a new contract or service
because of its size may require significant capital expenditures. In such
instances we may have to seek debt or equity funding. There is no assurance that
we will be able to obtain funding on terms favorable to us. We also may have to
contribute up to $300,000 as our contribution to the proposed joint venture with
Antra Music Group. We have to make minimum cash payments of approximately
$185,000 to our two principal executive officers.
We may have to pay additional costs when we form joint ventures to
establish foreign OzEmail affiliations and to pay for the salaries of executives
to manage and operate such ventures.
We believe funds obtained and to be obtained from the sale of shares under
present arrangements and cash flow from operations will be sufficient for
working capital purposes through the year 2000.
YEAR 2000 DISCLOSURE
With the new millennium approaching, many businesses and institutions are
reviewing and modifying their computer systems to ensure they accurately process
transactions relating to the Year 2000 and beyond, This effort is necessary
because many existing computer systems and microprocessors with date functions,
including those in non-information technology equipment and systems, use only
two digits to identify a year in the date field and assume that the first two
digits of the year are always "19." Consequently, on January 1, 2000, computers
that are not Year 2000 compliant may read the year 1900. Computer systems that
calculate, compare or sort using the incorrect data may malfunction causing
disruption of operations, including a temporary inability to process
transactions, send invoices or engage in other normal business activities. Our
failure to address potential Year 2000 malfunctions in our computer and
non-information technology equipment and systems could have resulted in our
suffering business interruptions, financial loss, reputational harm and legal
liability.
We have completed a thorough audit of our Year 2000 state of readiness
including seeking and receiving representations from OzEmail and our Internet
Service Providers. As a result we have determined that our business is fully
Year 2000 compliant. Although we cannot predict with complete accuracy, we
nevertheless anticipate no potential liabilities or stoppages in our business as
a result of the new millennium.
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: November 3, 1999 /s/ Byron R. Lerner
--------------- ----------------------------------------
Byron R. Lerner, President
Chief Executive Officer
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Consolidated Balance Sheet and Statement of Operations as of and for
the nine months ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 498,048
<SECURITIES> 0
<RECEIVABLES> 1,715,707
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,406,305
<PP&E> 29,138
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,657,632
<CURRENT-LIABILITIES> 624,178
<BONDS> 0
0
0
<COMMON> 13,371
<OTHER-SE> 8,018,838
<TOTAL-LIABILITY-AND-EQUITY> 8,657,632
<SALES> 2,807,749
<TOTAL-REVENUES> 2,815,908
<CGS> 1,420,009
<TOTAL-COSTS> 1,420,009
<OTHER-EXPENSES> 1,198,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,753
<INCOME-PRETAX> 160,396
<INCOME-TAX> 2,473
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,923
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
