U.S. Securities and Exchange Commission
Washington, D.C. 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, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Name of small business issuer in its charter)
FLORIDA 64-0708107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1121 Alderman Drive, Suite 200, Alpharetta, Georgia 30202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 667-6088
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 X No __
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 practical date 14,982,267 shares of Common
Stock as of September 30, 1996.
Transitional Small Business Disclosure Format (Check One): Yes ___ No X
<PAGE>
Global Telemedia International, Inc.
and Subsidiaries
Quarterly Report on Form 10-QSB
For Quarter Ended September 30, 1996
INDEX
Page
Consolidated Balance Sheet as of September 30, 1996................... 1
Consolidated Income Statements for the Three and Nine
Months ended September 30, 1996 and September 30, 1995........... 2
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 1996 and September 30, 1995........... 3
Consolidated Statements of Shareholders' Equity for the
Three and Nine Months ended September 30, 1996................... 4
Notes to Consolidated Financial Statements............................ 5
Part I - Item 2. Management's Discussion and Analysis of Financial
Condition, Liquidity and Capital Resources, and Results of
Operations................................................... 10
Signatures............................................................ 13
Part II - Item 6. Exhibits and Reports on Form 8-K.................... 14
<PAGE>
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Balance Sheet
September 30, 1996
(Unaudited)
ASSETS
[S] [C]
Current Assets
Cash $ 2,532,371
Accounts receivable, net of allowance of $1,826 70,021
Due from stockholders 134,865
Inventory 79,348
Deposit for switching equipment 650,000
Prepaid debt financing, net of accumulated amortization 529,578
Other current assets 414,019
-------------
Total Current Assets 4,410,202
Property and equipment, net of accumulated depreciation
of $90,125 273,558
-------------
Total Assets $ 4,683,760
=============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities
Accounts payable $ 325,403
Accrued expenses 452,884
Notes and interest payable 1,057,598
-------------
Total Current Liabilities 1,835,885
Long-Term Liabilities
Notes Payable 5,004,660
Other long-term liabilities 32,730
-------------
Total Long-Term Liabilities 5,037,390
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 25,000,000 shares;
issued and outstanding 14,982,267 59,912
Additional paid-in capital 1,438,572
Accumulated deficit (3,687,999)
-------------
Total Stockholders' Equity Deficiency (2,189,515)
-------------
Total Liability and Stockholders' Equity Deficiency $ 4,683,760
=============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Income Statements
(Unaudited)
Three Months ended Nine Months ended
September 30 September 30
1996 1995 1996 1995
[S] [C] [C] [C] [C]
Revenues:
Communication
and marketing
services $ 421,051 $ 202,756 $ 1,026,103 $ 2,950,434
---------- ---------- ------------ ------------
Total revenues 421,051 202,756 1,026,103 2,950,434
Operating expenses:
Communication
and marketing
services 463,393 90,000 1,045,334 2,258,881
General and
administrative 1,365,059 1,188,870 2,995,730 3,343,449
----------- ---------- ---------- ----------
Total operating
expenses 1,828,452 1,278,870 4,041,064 5,602,330
----------- ---------- ---------- ----------
Operating (loss)(1,407,401) (1,076,114) (3,014,961) (2,651,896)
----------- ----------- ----------- -----------
Other income (expenses):
Interest expense (71,158) (6,871) (105,570) (35,105)
Interest income 9,661 0 10,965 0
Other income 37,329 0 56,078 312,053
------------ ----------- ----------- -----------
Net loss $(1,431,568) $(1,082,985) $(3,053,488) $(2,374,948)
============ =========== =========== ===========
Net loss per share (.11) (0.16) (.27) (0.40)
============ =========== =========== ===========
Weighted average
number of shares
and share equivalents
outstanding 12,577,454 6,902,053 11,233,069 6,011,868
============ =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30
1996 1995
------------------------------
[S] [C] [C]
Cash flows from operating activities
Net (Loss) $ (3,053,488) $ (2,374,948)
-------------- --------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 103,081 260,100
Stock issued for services 192,480 -
Changes in assets and liabilities:
Decrease (increase) in:
Receivables and amounts due from
stockholders (199,586) (133,847)
Inventories (40,254) 36,703
Other current assets (1,766,799) (538)
Increase (decrease) in:
Accounts payable and
accrued expenses 479,265 (693,715)
Amounts due to stockholders (116,485) -
Capital lease obligation (22,994) -
----------- -----------
Total adjustments (1,371,292) (531,297)
----------- -----------
Net cash used in operating activities (4,424,780) (2,906,245)
----------- -----------
Cash flows from investing activities
Acquisition on property and equipment (157,053) (60,543)
----------- -----------
Net cash used in investing activities (157,053) (60,543)
----------- -----------
Cash flows from financing activities
Decrease in property, plant, and
equipment, and goodwill from
divestiture - 2,871,340
Payments on notes payable (60,000) (1,317,595)
Borrowings on notes payable 6,512,500 -
Proceeds from issuance of common stock 468,728 1,392,080
----------- -----------
Net cash provided by financing activities 6,921,228 2,945,825
----------- -----------
Net increase (decrease) in cash & cash
equivalents 2,339,395 (20,963)
Cash at beginning of period 192,976 32,248
----------- -----------
Cash and cash equivalents at end of period $2,532,371 $(11,285)
----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ (17,649) $ (35,105)
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Additional Total
Common Stock Issued Paid-In Shareholders'
Shares Par Value Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 9,937,991 $ 39,735 $ 197,363 $ (634,510) $ (397,412)
Sale of Stock 115,500 462 58,196 - 58,658
Shares Issued to Consultants 169,000 676 7,774 - 8,450
Compensation Earned 525,000 2,100 24,150 - 26,250
Net Loss - - - (672,100) (672,100)
---------- ---------- ---------- ------------ ----------
Balance, March 31, 1996 10,747,491 $ 42,973 $ 287,483 $ (1,306,610) $ (976,154)
Sale of Stock 12,000 48 5,952 - 6,000
Shares Issued in connection
with settlement 929,406 3,718 52,767 - 56,485
Shares Issued to Consultants 1,530,000 6,120 70,380 - 76,500
Compensation earned 50,000 200 2,300 - 2,500
Exercise of warrants 350,000 1,400 361,100 - 362,500
Net Loss - - - (949,820) (949,820)
---------- ---------- ---------- ------------ -----------
Balance, June 30, 1996 13,618,897 $ 54,459 $ 779,982 $ (2,256,430) $(1,421,989)
Compensation earned 17,300 69 796 - 865
Exercise of warrants 100,000 400 99,600 - 100,000
Conversion of Notes Payable 1,246,070 4,984 606,336 - 611,320
Conversion of Debt Financing
Costs (48,142) - (48,142)
Net Loss - - - (1,431,569) (1,431,569)
---------- ---------- ---------- ------------ ------------
Balance, September 30,
1996 14,982,267 $ 59,912 $ 1,438,572 $ (3,687,999) $(2,189,515)
========== ========== ========== ============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Global Telemedia International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Nature of Business
Description of Business and Operations
Global TeleMedia International, Inc. (the "Company" or "GTMI") was incorporated
in the State of Florida in December 1984. The Company is primarily engaged in
the marketing of information and telecommunications services, which include but
are not limited to residential and commercial long distance, prepaid calling
cards, interactive voice mail and other enhanced voice recognition services.
The Company primarily utilizes independent representatives to market its long
distance service to residential and small business subscribers, throughout the
United States. To provide these services, the Company has primarily utilized
network switching and transmissions facilities provided by other companies.
However, the Company is in the process of implementing its enhanced services
platform called "Workhorse" nationwide with switching facilities in Atlanta,
Georgia; Chicago, Illinois; New York, New York; Dallas, Texas; Los Angeles,
California; San Francisco, California; Kansas City, Missouri; Denver,
Colorado; and Tampa, Florida. Workhorse will enable the Company to offer many
of its information and telecommunication services directly to its customers
instead of outsourcing these services. Additionally, Workhorse will enable
the Company to introduce many new services.
The Company is currently in the process of obtaining additional state licenses
as a certified telecommunications carrier. At present, the Company is
authorized as a certified telecommunications carrier in 35 states, is pending
approval in 6 states, and is preparing to file for approval in the remaining
states. Additionally, the Company has obtained its FCC Interstate license
and FCC 214 International Tariff. Carrier status allows the Company to deal
directly with its underlying carriers and will allow the Company to provide
better service to its customers at a lower cost to the Company. In the past
the Company was required to process its telecommunications customer
provisioning and billing through providers who were unable to provide service
in a satisfactory or timely fashion. The Company intends to enter into
agreements with various other carriers. These agreements are typically for
terms ranging from 90 days to three years and are typically renewable
for like terms. Such agreements would provide the Company with access to
inter-exchange networks at typically discounted rates which vary with monthly
traffic. Such agreements will likely obligate the Company to guarantee
certain minimum monthly usage commitments. Payment terms typically range
from net 15 days to net 45 days.
Marketing Activities
While the Company has greatly expanded its telecommunications personnel
capabilities, its core strength is still its unique marketing skills. The
Company's business plan is three pronged. The first is internal growth led
by its network marketing channel, Vision 21. The second prong is its direct
agency program, which segues into its third prong, wholesale carrier sales.
The full deployment of the Company's nationwide switching network will
establish the Company as a reliable wholesale carrier as well as a premier
enhanced service provider.
The Company's long distance service is sold primarily by independent
representatives located throughout the United States under the Company's
wholly owned subsidiary, Vision 21. Vision 21 markets the Company's products
and services via network marketing. The Company believes this method of
distribution to the marketplace is effective in both building and retaining
customer loyalty. Customers are acquired by "relationship selling" from the
independent agent's "warm market" or immediate center of influence (i.e.,
friends, relatives, etc.). Further, the Company recognizes that this is an
efficient and cost-effective method of acquiring marketshare. The Company
relies strongly on this "relationship selling" method to significantly
decrease advertising costs, salaries, and related overhead expenses.
Additionally, the Company markets through its direct agency network.
Individuals and companies, either with or without telecommunications experience,
sell the Company's personally customized products and services directly to the
marketplace. These independent agencies provide the Company with a myriad of
conventional and non-conventional marketing niches. The Company gains not only
penetration to new markets, but also benefits by orchestrating this large
sales force at no direct marketing cost to the Company. Each agency funds
his own business and marketing plan, while the Company provides
administrative support.
The Company has created sales and marketing literature and merchandise to
educate the sales agents about the Company's programs and products. The
Company's literature and merchandise also aid the agents in recruiting
customers and other agents. The sales agents may purchase the literature and
merchandise to aid them in their sales efforts. These literature sales to
agents additionally serve as a revenue source for the Company.
Interim Information
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
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 Rule 10-01 of
Regulation S-X promulgated by the Securities and Exchange Commission.
Such financial statements do not include all disclosures required by generally
accepted accounting principles for annual financial statement reporting
purposes. However, there has been no material change in the information
disclosed in the consolidated financial statements included in the Company's
Form 10-KSB for the year ended December 31, 1995, except as disclosed herein.
Accordingly, the information contained herein should be read in conjunction
with the consolidated financial statements and related disclosures contained
in the Company's Form 10-KSB for the year ended December 31, 1995. The
accompanying financial statements reflect, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the interim periods presented.
The periods presented are the three and nine months ended September 30,
1996 and 1995, respectively. Certain reclassifications have been made to the
prior year financial statements to conform to the current year presentation.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
For financial reporting purposes, cash and cash equivalents includes cash on
hand and highly liquid money market investments.
Property and Equipment
Property and equipment, including items financed through capital leases, are
recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the assets, commencing when the assets are
installed or placed in service. The estimated useful lives are ten years
for furniture and fixtures, seven years for office equipment, and five years
for computer equipment. The cost of installed equipment includes
expenditures for installation. Assets recorded under capital leases and
leasehold improvements are amortized over the shorter of their useful lives
or the term of the related lease.
Inventory
Inventory consists of promotional and training materials used in the Vision 21
marketing program.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt
as of January 1, 1995. Under SFAS 123, the Company recognizes compensation
expense for all stock-based compensation, using a fair value methodology.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes" which requires that deferred income tax expenses
be provided based upon estimated future tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes calculated based upon provisions
of enacted tax laws.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that effect the reported amounts of assets,
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 may differ from these estimates.
Net Loss Per Share
Net loss per share is based on the weighted average number of common shares
outstanding during each period. Common stock equivalents include stock
appreciation and warrants. For 1996 and 1995, common stock equivalents were not
considered in the calculation of net loss per share as they were anti-dilutive.
3. Other Current Assets
Other current assets consist of the following at September 30, 1996:
[S] [C]
Deposit for purchase of building.............................. $ 240,000
Prepaid consulting ........................................... 78,500
Other miscellaneous deposits.................................. 95,519
----------
$ 414,019
==========
4. Notes Payable
Notes payable consist of the following at September 30, 1996:
[S] [C]
Current:
10 % note payable, due on demand............................. $ 273,468
Various floating rate notes, due on demand................... 250,000
8% convertible debentures, due 1997.......................... 450,000
__________
$ 973,468
==========
[S] [C]
Long-term:
8% convertible debentures, due 1998.......................... $ 5,004,660
From July 30, 1996 through August 28, 1996, the Company sold $6,683,333
of convertible debentures at a discount with an effective interest rate of
approximately 14.5%. The convertible debentures are payable in full two
years from the date of sale and may be paid in cash or in common stock.
Holders of the convertible debentures may convert principal and accrued
interest all or in part after 45 days from funding.
5. Commitments
The Company has employment agreements with certain officers and key
employees, which expire at various times through 2000.
The Company has sold or granted warrants to acquire common stock at various
times and under various agreements at prices that approximated or exceeded fair
value of the date of issue. These warrants range in exercise prices from
$1.25 to $3.75.
The Company's long distance and marketing activities are subject to certain
federal and state regulations. The Company is involved in various regulatory
matters as well as lawsuits incidental to its business. In the opinion of
management, these regulatory matters and lawsuits in the aggregate will not
have a material adverse effect on the Company's financial position or the
results of operations of future periods.
On October 2, 1996, the Company entered into a six year, $7,500,000
commitment for communication services.
<PAGE>
PART I. Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL POSITION
The Company's cash and cash equivalents increased $2,532,370 during the nine
months ended September 30, 1996. Principal sources of funds consisted of (i)
borrowings on notes payable ($6,512,500) and (ii) proceeds from the issuance of
common stock ($468,728). The primary uses of funds consisted of (i) operating
activities ($4,210,020) and (ii) additions to property and equipment ($157,053).
During the third quarter, the Company continued development of a new marketing
collateral and improved various other marketing literature and merchandise
for the Vision 21 independent representatives. Based on the Company's
positive feedback on these new products, inventories increased throughout the
year.
The increase in other assets primarily reflects (i) a $650,000 deposit for
switching equipment, (ii) a $240,000 deposit for the Company's office space,
which will be applied to the down payment when the Company exercises its
option to purchase the building and (iii) capitalization of $529,578 of debt
financing costs associated with the issuance convertible debentures.
The increase in notes payable and accrued interest represents the issuance of
various demand notes and convertible debentures totaling $5,288,790. During
the nine months ended September 30, 1996, the Company received $468,728 from
the issuance of common stock. The majority of these proceeds were received
from the conversion of various warrants at prices ranging from $.50 to $1.25
per share. These funds have been used for working capital purposes and for
improvement of the Company's liquidity position as of September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses from operations since its inception. These
losses and the acquisition of products, property, equipment, patent rights
and other companies have been funded almost exclusively through the sale of
common stock, warrants, debentures, and limited partnership units (which were
sold prior to the Company's initial public offering and later converted into
Company common stock).
While its operating and development expenses have exceeded operating revenues
since the commencement of its telecommunication business, the Company's
Management has taken various steps for long term growth, profitability,
and increased shareholder value. Although the implementation of any program
has been adversely impacted through September 30, 1996 by the lack of capital
resources and liquidity, the Company has elevated itself to carrier status which
should increase margins. In addition, on July 31, 1996, the Company signed
an agreement to receive additional funding of up to $10,000,000, of which
$5,000,000 has been received to date. As a result of this funding, Management
believes the Company will have adequate capital resources for implementing
its long term strategic plan, which includes implementing a nationwide
enhanced services platform, entering into strategic alliances with complimentary
companies offering unique technologies, and aggressively pursuing certain
acquisitions to improve the Company's long term growth and profitability.
However, there can be no assurances that such funding will be completed or
that the Company will ever achieve profitable operations.
RESULTS OF OPERATIONS
The Company seeks to manage its business to enhance long-term growth and
shareholder value. The Company also seeks to utilize financial leverage and
cash flow generated from operations to support capital expenditures and
possible future acquisitions. The Company intends to be an acquirer of new
technologies that would (i) result in an acceptable rate of return on such
long term investments and (ii) provide adequate opportunity to effectively
implement the Company's operating strategies.
Nine months ended September 30, 1996 and 1995
Operating (loss)
Communication and marketing services and total operating expenses decreased for
the nine months ended September 30, 1996 compared to the prior year, resulted
primarily due to the foreclosure loss on the Company's previously owned
subsidiary. In the prior year, this subsidiary represented substantially
all the revenues and expenses of the Company. Subsequent to this foreclosure,
the Company has been actively attempting to expand its customer base through
promotional activities and new product development.
Communcation and marketing service expenses as a precentage of communication
and marketing service revenue were 101.9% compared to 76.6% for the nine
months ended September 30, 1996 and 1995, respectively. This increase in
expenses as a percentage of revenues is primarily due to the decrease in
monthly minute volume and related higher long distance carrier charges. The
Company anticipates improvement in these ratios as additional volume is
generated through internal growth and customer base acquisitions. In addition,
the Company recognized additional costs associated with the development of
marketing literature and merchandise for the Vision 21 independent
representatives. The Company has elected to expense the design and
development costs associated with producing these new products as there can
be no assurance that these costs will be recovered from the sale of these
items.
General and administrative costs decreased $415,604 for the nine months ended
September 30, 1996 compared to the same period in the prior year, as the
Company has been effectively monitoring its overhead costs during the
development of its new customer base. The Company does not anticipate an
incremental increase in general and administrative costs in conjunction
with anticipated future revenue growth.
Other income (expenses)
On January 28, 1995 the Company entered into a license agreement with L&M Group,
Inc. under which L&M purchased the Company's food and nutritional product
inventory. Additionally, L&M paid the Company $275,000 for the exclusive right
to distribute and market these products. This one time fee was recorded as
other income during the nine months ended September 30, 1995. Royalty income
received during the nine months ended September 30, 1996 totaled $20,818.
The Company does not anticipate significant revenue from royalty income in
the future.
Interest expense increased for the nine months ended September 30, 1996
compared to 1995 due to increases in notes payable. The Company will
continue to explore the most effective utilization of financial leverage as
well as alternative means of raising additional capital to enhance
long-term growth and maximize shareholder value.
Three months ended September 30, 1996 and 1995
Operating (loss)
Communicaiton and marketing services and toal operating expenses increased
for the three months ended September 30, 1996 compared to the prior year
primarily from the July, 1995 foreclosure loss of the Company's previsouly
owned subsidiary. As a result, the Company significantly curtailed its
operations in August, 1995 and dismissed a significant number of its
employees.
Other income (loss)
Interest expense increased for the three months ended September 30, 1996
compared to 1995 due to increases in notes payable.
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Registrant)
/S/ Roderick A. McClain
______________________________________
Roderick A. McClain, President & CEO
Date: November 4, 1996
/S/ Herbert S. Perman
________________________________________
Herbert S. Perman, Chief Financial Officer
Date: November 4, 1996
<PAGE>
(27) Financial Data Schedule
Cash 2,532,371
Securities 0
Receivables 204,886
Allowances 0
Inventories 79,348
Current Assets 4,410,201
PP&E 363,683
Depreciation 90,125
Total Assets 4,683,760
Current Liabilities 1,835,885
Bonds 0
Common 59,912
Preferred Mandatory 0
Preferred 0
Other SE (2,249,427)
Total Liab and SE 4,683,760
Sales 1,026,103
Total Revenues 1,026,103
CGS 1,045,334
Total Costs 4,041,064
Other expenses 0
Loss provision 0
Interest expense 105,570
Income pretax (3,053,488)
Income tax 0
Income continuing (3,053,488)
Discontinued 0
Extraordinary 0
Changes 0
Net Income (3,053,488)
EPS primary (0.27)
EPS diluted (0.27)
