U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required)
For the fiscal year ended December 31, 1995
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from_________to
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC
f/k/a PHOENIX ADVANCED TECHNOLOGY, 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, GA 30202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (404) 667-6088
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common
(Title of class)
Redeemable Common Share Purchase Warrants
(Title of class)
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__
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB ( )
State issuer's revenues for its most recent fiscal year.
$2,864,000
State the aggregate market value of the voting stock held by
non-affiliates computed by reference at the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a specified
date within the past 60 days: $10,466,842 is based on the average high and
low price as of April 15, 1996.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date 10,785,000 shares of Common
Stock as of April 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check One): Yes No X
<PAGE>
PART I
Item 1. Description of Business
Global TeleMedia International, Inc. f/k/a Phoenix Advanced Technology,
Inc. (the "Company") is engaged in the sale of telecommunications services,
including residential long distance, commercial long distance, prepaid
"debit" calling cards, interactive voice mail and conference calling. The
services rendered under these product names are provided by independent third
party vendors. The Company's Vision 21, Inc. subsidiary markets
discount-priced, consumer long-distance service through network marketing.
The Company has recently narrowed the focus of its operations by licensing
its food and nutritional products to third parties for manufacture and sale.
Telecommunications Products and Services
The Company is primarily engaged in the marketing of long distance
telephone and related services. The Company presently markets long distance
services to residential purchasers and to businesses presently using from
$100 to $1,000 per month in long distance telephone services. The Company
charges a flat rate of 12.9 cents per minute regardless of the time that the
call is made or the distance of the call. In addition to the Company's
standard residential and commercial long distance programs, the Company
markets prepaid calling cards through its network marketing subsidiary,
Vision 21, Inc.
Vision 21, Inc., the Company's wholly-owned subsidiary, markets the
Company's products and services via network marketing through Independent
Communications Representatives (ICRs), Qualified Communications
Representatives (QCRs) and Certified Instructors (CIs). The Company believes
that this method of distribution to the marketplace is effective in both
building and retaining customer loyalty due to the fact that customers are
acquired by "relationship selling" whereby customers acquired are generally
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 of acquiring
customers, and therefore it is not subjected to significant advertising costs
and overhead for salaries and related expenses. Further, customers acquired
via this method have historically demonstrated a more significant loyalty and
are less likely to switch providers, enabling the Company to maintain a
constant base marketshare while continuing to obtain new marketshare.
The Company has created sales and marketing literature and
merchandise that educates the sales agents about the programs and products
the Company offers. 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 additionally serve as a revenue source for the
Company.
Competition for Telecommunications Products and Services
The Company competes with AT&T's True Voice, Sprint's Most and MCI's
Friends & Family programs, among others. Additionally, since these and
similar services are offered through other network marketing companies, the
Company also competes with Excel Communications and MCI as distributed
through Amway representatives. Because the quality of long distance service
is uniform throughout the industry, competition is based on pricing and
customer perception of a company's products and services based upon such
criteria as customer service, ease of use of service, etc. Many of the
Company's competitors have substantially greater resources and experience in
the marketing of telecommunications products. The Company believes that it
can successfully compete in the telecommunications market by providing
valuable enhancements to existing long distance service such as its billing
system for billing and providing innovative products such as Enhanced Value
Calling Cards, or pre-paid calling cards.
Market Development and Product Distribution for Telecommunications Products
and Services
The Company uses network marketing and direct sales to market
residential and commercial service. The marketing territory is the
continental U.S. Vision 21, Inc. markets its products and services through
Independent Communications Representatives ("ICR") and Qualified
Communications Representatives ("QCR") to promote the Residential Long
Distance Program, the Commercial Long Distance program, and the Enhanced
Value prepaid calling card. ICRs and QCRs are analogous to independent
contractors; one advantage to the Company of using ICRs and QCRs is that it
does not have to pay them a salary, and a disadvantage is that, unlike direct
salespersons, ICRs and QCRs are not employees of the Company.
Telecommunications Service Providers
The Company is in the process of being licensed as a certificated
telecommunications carrier. At present, the Company is authorized to act as
a certificated telecommunications carrier in 14 states. Additionally, the
Company has obtained its FCC Interstate license and is in the process of
application for an FCC 214 International tariffs. Carrier status allows
the Company to deal directly with its underlying carriers. In the past the
Company was required to process its provisioning and billing for the
customers of the telecommunications subsidiaries through such providers who
were unable to provide service in a satisfactory or timely fashion. In the
opinion of the Company, authorized service provider status will allow it to
provide better service to its customers at a lower cost to the Company.
The Company anticipates that it will acquire carrier status in a minimum
of 30 states mid-second quarter 1996. Until that time, the Company will act
as a marketing agent for a variety of long distance service providers for
which it is compensated on a monthly basis for total billable minutes carried
by the specific provider. Accordingly, on September 29, 1995, the Company
entered into a long distance services agreement with QCC, Inc. to provide
operation and customer support for the Company's recently incorporated
wholly-owned subsidiary, Vision 21, Inc. Vision 21, Inc. will facilitate the
network marketing efforts of the Company's new telecommunications products
and services. The Company believes that this agreement, along with the
outsourcing of the operational function of its telecommunications services
during this transition period, will substantially reduce the Company's
overhead costs.
Additionally, upon reaching its targeted carrier status, the Company
anticipates that it will enter into agreements with various underlying
carriers (i.e., WorldCom, MCI, IXC etc.). These agreements are typically for
terms ranging from month to month to one year and are typically renewable for
like terms. Such agreements would provide the Company with access to
inter-exchange networks at rates which are typically discounted and vary with
monthly traffic generated on each network. 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.
Federal Regulations
FCC Regulations
The telecommunications services offered by the Company are regulated by
the Federal Communications Commission. In addition, as a certificated
telecommunications provider, the Company is subject to regulation on an
individual state-by-state basis by each individual Public Service Commission,
Public Utilities Commission and Attorney General. Further, the Company is
required to obtain and maintain authority as a "foreign corporation" to
transact business within each individual state. The Company presently has 23
Certificates of Public Convenience and Necessity (CPCN) and is seeking CPCNs
in the remaining 25 states. Further, the Company is currently receiving its
"foreign corporation" certification and believes that it has complied with
all applicable rules and regulations of all pertinent regulatory agencies.
Business Combinations
The Company entered the telecommunications industry in 1993 through a
merger with Global Wats One, Inc. and TeleFriend, Inc., two Knoxville-based
companies primarily engaged in the resale of long distance telephone
services.
In connection with the purchase of Global, the Company assumed
contractual obligations that Global entered into in September 1992, and
August 25, 1993, whereby in consideration for $800,000 in cash invested by a
venture capitalist Global agreed to pay the investor a defined amount that
effectively represented 10.5% of Global's gross margin less commissions and
cost of sales through September 2012, at which time Global was required to
pay the investor 10.5% of the fair value of Global as determined by an
appraisal. The agreements specified that the first twelve monthly payments
for financing costs were to be deferred and paid ratably over five months
beginning in the thirteenth month. Global could terminate the agreements
after September 1995 upon payment to the investor of 10.5% of the then fair
value of Global, as determined by an appraisal. Finance costs and other
costs owing to the investor were charged to income as incurred. $12,632 was
recognized as expense related to this agreement in fiscal 1993 and $82,560 in
1994. Terms of the agreements limit indebtedness of Global to an aggregate
amount outstanding at any one time to $100,000 and also allows the investor
to designate one member of the board of directors of Global.
In satisfaction of the obligation of the Company to the venture
capitalist, and based on a determination by the venture capitalist and the
Board of Directors, the venture capitalist accepted in full satisfaction of
the obligation 1,050,000 shares of the Company's common stock.
In November, 1994, the Company purchased all of the assets, including
certain long distance telephone contracts, and assumed certain liabilities of
TJC Communications, Inc., an unrelated corporation. The Company issued
52,500 shares of its common stock and issued a note payable for $315,000 due
on demand July 1, 1995 bearing interest at 10%. Subsequently, TJC relocated
their personnel and channeled their sales efforts in other directions.
On September 29, 1995, the Company entered into a Purchase Agreement
with QCC, Inc. ("QCC") pursuant to which the Company agreed to sell to QCC
its customer accounts, including but not limited to, related customer
contracts, customer files, customer applications, customer letters of agency
and accounts receivable related thereto. The purchase price for such assets
is $3,000,000 of which the Company has received approximately $267,000 to
date. The remaining purchase price will be payable in monthly installments
on the 20th of each month. The agreement provides for reduction in the
purchase price in the event that the gross profit received by QCC from the
transferred assets is less than certain specified targeted amounts. Inasmuch
as there are no assurances that the full purchase price will be realized, the
company has elected to report the income as received. Future revenues will
reflect the income as received from this transaction.
Medical and Nutritional Products
Prior to January 1995, the Company manufactured through contract
suppliers and sold certain food and nutritional products including: the Go!R
beverage, a high protein drink invented by Dr.Cade, the inventor of GatoradeR,
which has been manufactured by the Company since 1989 and was sold by the
Company through multi-level marketing by its Marketshare Division, Go!R
Slender Bars, a high fiber, low-fat meal replacement or snack food sold by the
Company through its MSI division, Cholesterade, a cholesterol reducing drink
which the Company began marketing in late July, 1994, Tropic-LiteTM, a low
calorie snack beverage that is high in protein, potassium, calcium and dietary
fiber, Orange Spray, an all natural, 100% biodegradable, citrus solvent
cleaner, degreaser and deodorant, QuickshapeTM, a low fat, low calorie meal
substitute designed to help in weight reduction and weight management; Body
Chrome CapletsTM, a combination of concentrated amino acids and chromium
picolinate designed to aid in muscle development and fat loss, specifically
for those involved in fitness programs; and Body HeatTM, a weight formulation
containing lipotropic (fat burning) agents; Body ChargeTM, a caplet of herbal
concentrates designed to give renewed vigor to active individuals; Body
ToneTM, a caplet of natural herbs prepared to serve as antioxidants in the
body; and Body BlendTM, a high-potency, herbal-based multiple vitamin caplet
("food and nutritional products").
On January 28, 1995 the Company entered into a license agreement with
L&M Group, Inc. under which L&M purchased the Company's inventory of the food
and nutritional products sold by the Company at the Company's cost and
received from the Company the exclusive right to sell those products
world-wide. In consideration of the license granted by the Company, L&M has
paid the Company cash in the amount of $275,000 for the rights and $34,649.78
for inventory on hand and agreed to pay a royalty of 4 % of all sums received
for the sale or use of the nutritional and food products other than Go! and
Cholesterade sold through multi-level marketing, a royalty of 2.7% of net
sales of Go! and Cholesterade sold through multi-level marketing and 1.5% of
the net sales of certain nutritional supplements. The Company's agreement
with L&M Group requires L&M to pay certain minimum quarterly royalties which
increase to a maximum of $37,500 per quarter in 1997. Additionally, the
Company was to pay a fee of 0.5% of net sales to Dr. J. Robert Cade in
consideration of Dr. Cade's continued endorsement of said products.
With the divestiture of the nutritional division on January 28, 1995,
the Company focused on the telecommunications industry.
Pharmaceutical Product Interest
In addition to its licensing of food products the Company has reached
the following agreement regarding research previously funded by the Company:
Px
Px is an anti-inflammatory drug in development which the Company
developed through research sponsored at Virginia Commonwealth University
("VCU"). Patent applications for Px have been filed based on the Company
research. No investigational new drug application nor new drug application
for Px has been filed with the FDA. On February 4, 1992, the Company entered
into an agreement with VCU pursuant to which the Company conveyed all of its
rights in Px to VCU in exchange for 25% of all payments received by VCU for
the licensing of the Px technology. VCU is seeking sponsorship for further
development of Px.
Product Agreements - Nutritional and Medical Products
Go!R Beverage
In recognition of the University of Florida's participation in the
testing of the product and Dr. Cade's participation in the development of the
product, the Company has obtained a release from the University of Florida
Research Foundation, Inc. ("UFRFI") of all of the University of Florida's
rights to Go!R. In exchange, the Company has agreed to pay UFRFI a royalty
of 10% of all sums received by the Company from the licensing of Go!R and .3%
(three-tenths of one percent) of the Company's receipts from the sale of Go!R
manufactured by the Company.
Trademarks
The Company has received federal trademark registration for the mark
GO!R, The Nutrition Quick ShakeTM. The Company amended this registration to
reflect changes in the design of the trademark in connection with the
redesign of the product's packaging. The Company has also applied for
federal trademark protection for the trademarks "GO!Slim" and "GO!Slender".
The Company has not applied for any other trademarks.
Employees
The Company employs 20 persons, all of them working full time.
Organization and Personnel
The Company has completed certain internal restructurings since August
2, 1995. Geoffrey F. McClain, who has served in the capacity of Senior Vice
President of the Company for the past four years was appointed director of
the Company on August 2, 1995. On October 1, 1995, Herbert S. Perman was
appointed a director and named Chief Executive Officer and Treasurer of the
Company.
The addition of the last members completes the needed professional and
technical experience of the management team. All of the members of the team
have significant experience in their areas of responsibility. In addition to
the new management members and organizational structure, the firm has also
re-deployed its current employees to more effectively meet the needs of the
Company in the areas of Representative Support, Fulfillment, Provisioning,
Customer Service and Collections. The Company anticipates expanding its
Board of Directors to include individuals with expertise in the areas of
business, finance and telecommunications during the course of 1996.
In the area of Sales and Marketing, the Company has added 600 new ICR
and QCR sales agents. Growth since the start of the Vision 21, Inc.. network
marketing program has been as follows:
Total Sales Agents Total Customers
[S] [C] [C] [C] [C]
December 31, 1995 201 474
January 31, 1996 438 117.9% 940 98.3%
February 29, 1996 694 58.5% 1,967 109.3%
Other Matters
The business of the Company is not seasonal. The Company has not
entered into any government contracts. There are numerous firms engaged in
the telecommunications; however, the number of such competitors cannot be
estimated with reasonable certainty. Competition is primarily based on the
need, originality and demand for new products.
Federal, state and local provisions which have been enacted or adopted
relating to the protection of the environment or otherwise have had no
material effect upon the capital expenditures, earnings or competitiveness of
the Company. It is not anticipated that such provisions will have any
material effect upon the Company's capital expenditures, earnings or
competitiveness in the future.
In view of significant changes in the Company's marketing and other
operating practices, and its management, the Board of Directors of the parent
and its wholly-owned subsidiaries approved at a special meeting on April 12,
1996 a corporate readjustment of stockholders' equity accounts as applicable
to quasi-reorganization. Under Florida law (the state of incorporation of the
parent), this action does not require shareholder approval. The adjustment
was effected by offsetting the accumulated deficit as of September 30, 1995 of
$13,378,000 against additional paid-in capital. Because the carrying amounts
of the Company's assets and liabilities approximate their fair or net
realizable values, no further valuation adjustments were necessary in
connection with the readjustment.
Item 2. Description of Properties.
On November 10, 1994, the Company entered into a lease agreement for
9,984 square feet of office space in Atlanta, Georgia. This office space is
located at 500 Northridge Road, Suite 780, Atlanta, Georgia. The lease was
for a term of one year, with the term expiring November 25, 1995, thereafter
extended to January 31, 1996, with monthly payments of $9,152.
On January 31, 1996, the Company relocated its headquarters to
Alpharetta, Georgia from Atlanta, Georgia. The Company occupies
approximately 11,000 square feet in a 28,200 square foot office building, with
monthly payments of $10,800. The Company has an option to purchase the
property for $2,500,000 which will provide the Company with scheduled
expansion availability at July 31, 1996 and January 31, 1997, totaling 28,200
square feet.
Item 3. Legal Proceedings.
Neither the Company nor any of its subsidiaries are presently parties to
any litigation, other than the following:
On October 13, 1993, the Company and its majority owned subsidiary,
Progress Research, Inc., filed suit against the University of Florida
Research Foundation, Inc. ("UFRFI"), and the University of Florida
("University") for a declaratory judgment to determine their respective
rights under a license completion agreement. In the suit, Case Number
93-3439-CA, in the Alachua County, Florida, Court (the "Suit"), the Company
seeks a declaration that UFRFI breached the contract and asks for an
accounting of subsequent licensing fees received by UFRFI, if any and payment
of licensing fees due, if any. Both UFRFI and the University have answered
the complaint and have filed a counterclaim for a declaration of their
respective rights under the contract. On March 17, 1995, an Amended Judgment
was entered which, among other things, affirmed Progress and the Company's
right to an accounting and affirmed Progress's right to receive payments due
under the License Completion Agreement. On May 22, 1995, an appeal taken by
the University and the Foundation was dismissed for lack of jurisdiction.
Following the dismissal of an appeal by the University and UFRFI, the Company
on December 12, 1995, reached a settlement between itself and its subsidiary,
Progress Research, and the University and UFRFI regarding Progress'
entitlement to a portion of licensing fees received by the University
pursuant to the License Completion Agreement. Under the terms of the
Settlement Agreement, the Company received $500,000 in cash as satisfaction
of all claims under the License Completion Agreement.
On August 29, 1994, Gaetan Pelletier filed a Complaint in the U.S.
District Court for the District of Colorado naming the following as
Defendants: Global Wats One, Inc., the Company, Communications Gateway
Network, Inc., International Telecommunication Exchange, Inc., WilTel, Inc.,
GE Exchange, Inc., Roderick A. McClain, Geoff McClain, Michael C. Cooper,
Nelson J. Thibodeaux, Arnold Zimmerman, Joseph D. Cirulli, Edward L. Goolsby,
Howel H. Hopson, George R. Lebo, Nico B.M. Letschert and Randolph H. Reese
(the "Suit"). The Complaint, containing 22 counts alleging numerous theories
of liability, asks for damages against the Defendants in excess of
$65,000,000 for loss of customers, loss of representatives, loss of revenue,
and damage to reputation, in addition to punitive damages, attorneys' fees,
interest and costs. This case was subsequently dismissed.
On October 25, 1994, Gaetan and Nancy J. Pelletier filed a Complaint in
the District Court, County of Routt, State of Colorado naming the following
as Defendants: Global Wats One, Inc. (and its corporate assume name "Global
TeleMedia, Inc."), TeleFriend, Inc. (and under its filed amended name "Global
TeleMedia Network, Inc."), the Company, Communications Gateway Network, Inc.,
International Telecommunication Exchange, Inc., WilTel, Inc., GE Company
d.b.a. and under the trade name "GE Exchange," Roderick A. McClain, Geoff
McClain, Michael C. Cooper, Nelson J. Thibodeaux, Arnold L. Zimmerman, Joseph
D. Cirulli, Edward L. Goolsby, Howel H. Hopson, George R. Lebo, Nico B.M.
Letschert, Randolph H. Reese, Global Wats One, Inc. d.b.a. GFN Agency,
Marketshare International, Inc., Rick Catinella, Bruce Brashear, AT&T and
Edmond Clement (the "Colorado State Suit"). The Complaint, containing 10
counts alleging numerous theories of liability, including claims under the
Colorado Deceptive Trade Practice Act, asks for damages against the
Defendants in excess of $15,000,000 for loss of customers, loss of
representatives, loss of revenue, and damage to reputation, in addition to
punitive damages, attorneys' fees, interest and costs. This case was
subsequently dismissed.
An action was filed against the Company, L&M Group, L.C. and others, by
Technical Chemicals and Products, Inc. on or about February 22, 1995, in the
Circuit Court in Alachua County, Florida (Case No. 95-501-CA), seeking to
rescind the licensing of certain product rights to Go! and Cholesterade to
L&M, as well as the sale of inventory. Following a hearing, the court denied
temporary injunctive relief on March 9, 1995. On November 4, 1995, the
Plaintiff, TCPI, dismissed this action.
On January 16, 1996, an action was filed in the United States District
Court, Southern District of Florida, by CAT Interests Limited against Global
TeleMedia International, Inc., Roderick A. McClain and Quest Telecom (Case
Number 96-0084). The complaint alleges breach of contract of a Foreclosure
Agreement dated July 12, 1995 between CAT Interests Limited and Global
TeleMedia International, Inc. (see Item 5., Other Matters); fraud relative to
the settlement of the University of Florida/Progress Research, Inc. suit; and
violation of the Lanham Act, Unfair Competition. While Plaintiff is seeking
monetary and other damages, the Company intends to aggressively defend this
action and will assert such defense and counterclaims as it deems appropriate.
The Company and CAT are attempting to reach a final settlement.
Item 4. Submission of Matters to a Vote of Security Holders.
On November 22, 1995, the Company held its annual shareholder's meeting
at the Northeast Hilton, in Atlanta, Georgia at 10:00 a.m. At that meeting
the shareholders elected three (3) directors for a term of one (1) year and
until the election and qualification of their successors. The Directors
elected at that meeting were: Roderick A. McClain, Geoffrey McClain, and
Herbert S. Perman.
Broker
For Against Abstain Non-Votes
[S] [C] [C] [C] [C]
Roderick McClain 3,029,696 59,527 -0- -0-
Geoffrey McClain 2,863,695 225,528 -0- -0-
Herbert S. Perman 3,089,223 -0- -0- -0-
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Prior to July 6, 1995, the Company's Common Stock was traded on NASDAQ
Small Cap under the symbol "GTMI." Prior to February 13, 1995, it traded on
NASDAQ Small Cap under the symbol "PATI." Due to a delisting from NASDAQ
effective July 6, 1995, the Company's Common Stock now trades on OTC Bulletin
Board under the Symbol "GTMI". The following table sets forth high and low
bid quotations for each quarter in 1995 and 1994, and the first quarter of
1996: These nubmers reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transaction.
High Low
[S] [C] [C]
1994 First Quarter $4.69 $2.75
Second Quarter $4.19 $2.69
Third Quarter $3.88 $2.50
Fourth Quarter $3.31 $1.44
1995 First Quarter $1.94 $1.81
Second Quarter $0.9375 $0.4375
Third Quarter $1.1875 $0.28
Fourth Quarter $1.21875 $0.70
1996 First Quarter $3.875 $0.6562
As of March 15, 1996, there were approximately 6,231 record holders of the
Common Stock of the Company. On March 15, 1996, the Common Stock of the
Company closed at $3.875 high, $2.50 low.
Trading commenced in the Redeemable Common Share Purchase Warrants
(the "RCSP Warrants") on NASDAQ Bulletin Board under the symbol "PATIW" on
March 26, 1991. The symbol was changed as of February 9, 1995, to "GTMIW."
As of July 6, 1995, due to a delisting from NASDAQ Small Cap, the RSCP
Warrants now trade on the OTC Bulletin Board under the Symbol "GTMIW". As of
Arpil 15, 1996, there were approximately 21 record holders of the RCSP
Warrants of the Company. On April 15, 1996, the RCSP Warrants of the Company
closed at $0.1250 high, $0.1250 low.
The following table sets forth high and low bid quotations for
the RCSP Warrants for the quarters indicated:
High Low
[S] [C] [C]
1994 First Quarter $1.50 $0.91
Second Quarter $1.19 $0.75
Third Quarter $1.00 $0.66
Fourth Quarter $1.25 $0.41
1995 First Quarter $0.63 $0.19
Second Quarter $0.00 $0.00
Third Quarter $0.02 $0.125
Fourth Quarter $0.125 $0.16
1996 First Quarter $0.00 $0.00
The Company does not have a record of paying cash dividends and at the
present time does not anticipate paying cash dividends in the future.
PART II
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 has been funded almost exclusively through the sale
of common stock and warrants. In 1994 the Company received $283,500 and in
1995 the Company received $675,980 for 1,773,500 shares from the sale of its
previously unissued common stock. This stock is restricted stock and therefore
was sold at 50% to 75% of the NASDAQ market quotation trading bid price for
the Company's stock. Debt financing has been used only for short term
purposes.
The Company's current expansion plans will require expenditures of
approximately $2.5 million. The Company believes that the proceeds from a
private placement and internally generated cash will be adequate to finance
its operations and anticipated capital expenditures through fiscal 1996.
The Company received no monies from the exercise of warrants during 1994
and 1995.
On September 26, 1994, the Company borrowed $100,000 from one of its
shareholders, Dr. J. Robert Cade. The note is payable with interest at the
rate of seen percent (7%) per annum. The note was due March 26, 1995. On
December 15, 1994, the Company borrowed an additional $50,000 from Dr. Cade
and executed another promissory note and mortgage (on its property at 3310 N.
Main Street, Gainesville, Florida) in the principal amount of $151,534.40 (to
encompass both the September 26 loan and the December 15 loan) at an interest
rate of 7% per annum with interest and principal due in full on March 26,
1995. This note has been retired by issuance of 260,261 restricted common
shares of the Company.
The Company had cash and cash equivalents of $32,248 at December 31, 1994
and $193,000 at December 31, 1995. The majority of the cash used by the
Company since December 31, 1994, has been for operations. In the Company's
telecommunications division, operating expenses have been incurred in excess
of current revenues in order to generate future revenues. The Company expects
these revenues to increase substantially in the near future as a result of
this investment in operations. Management has taken several decisive steps
toward increasing the Company's profitability over the next few quarters.
First, the long term strategic plan of elevating to carrier status was
accelerated as a result of the provisioning problems experienced by Other
Authorized Service Providers. The result of attaining carrier status is
increased margins with little additional expenditures. Additionally, the
Company will improve its provisioning ratio from approximately 75% to 96%.
Contracts are signed and experienced personnel have been hired to manage these
operations. This change in status will also allow the Company to market its
commercial products competitively to much larger customer bases. Further, the
Company can negotiate contracts with certain carriers to provide a lower cost
and greater margin. Existing personnel have been re-assigned to more
effectively and efficiently meet the needs of the Company especially in
provisioning and collections. The Company has launched its network marketing
subsidiary, Vision 21, Inc., with existing programs and an improved
performance level, in addition to new, significant programs. The anticipated
effect will be a surge of excitement as this agency network "goes to work.
"The Company will market a standard residential long distance program, a
standard commercial long distance program and new direct agent programs.
Although the Company projects profitable operations in the future, this may
not occur for some time. The Company is currently planning to sustain or
improve its cash position in the short term mainly through various financing
activities, including the possible exercise of warrants, the private offering
of stock, and loans.
Other Matters
In November, 1994, the Company purchased all of the assets,including
certain long distance telephone contracts, and assumed certain liabilities of
TJC Communications, Inc., an unrelated corporation. The Company issued
52,500 shares of its common stock and issued a note payable for $315,000 due
on demand July 1, 1995 bearing interest at 10%. Subsequent to the
Foreclosure Agreement between the Company and CAT Interests Limited, TJC
relocated their personnel and channeled their sales efforts in other
directions.
In June 1995, the Company entered an agreement with an unrelated group
of investors for the purchase of 10,000,000 shares of the Company's common
stock. As part of this transaction, the investment group loaned the Company
$250,000. As a result of the Company's delisting from NASDAQ and certain
other events, the parties agreed to a termination of the Stock Purchase
Agreement.
As a result of the Company's position and other events, the Company was
unable to honor its obligations under its secured promissory note to the
investor. Subsequently, the investor assigned its rights to CAT Interests
Limited ("CAT"), and the Company and CAT entered into a Foreclosure Agreement
and Release ("Foreclosure Agreement"). At that time, CAT satisfied the
obligation to the unrelated investor and became an obligor of the Company.
The Foreclosure Agreement provided the Company would transfer to CAT the
customer list to all its customers who were serviced by the WilTel Network or
Cherry Communications Network. In addition, the Company, by quitclaim deed,
transferred certain warehouse property and land in Gainesville, Florida to
CAT. The Company also transferred to CAT all of the outstanding and issued
shares of Global TeleMedia, Inc. (f/k/a Global Wats One, Inc.), the Company's
wholly-owned subsidiary. At the time of transfer, Global TeleMedia, Inc. had
liabilities of approximately $2,000,000 and certain assets, including
Certificates of Public Convenience and Necessity.
As a result of the inability of the Company to obtain alternative
sources of funding, the Company dramatically curtailed its operations in
August, 1995, dismissing a significant portion of its employees and limiting
its operations.
On September 29, 1995, the Company entered into a Purchase Agreement
with QCC, Inc.. pursuant to which the Company agreed to sell to QCC its
customer accounts, including, but not limited to, related customer contracts,
customer files, customer applications, customer letters of agency and
accounts receivable related thereto. The purchase price for such assets is
$3,000,000 of which the Company has received approximately $267,000 to date.
The remaining purchase price is payable in 58 monthly installments on the
20th of each month. The agreement provides for the reduction in the purchase
price in the event that the gross profit received by QCC from the transferred
assets is less than certain specified targeted amounts. Inasmuch as there
are no assurances that the full purchase price will be realized, the Company
has elected to report the income as received.
On October 13, 1995, the Company incorporated its wholly-owned
subsidiary, Vision 21, Inc. in Georgia.
Results of Operations
Revenues - Telecommunication Services and Products
Following the completion of the telecommunications division's physical
relocation to Atlanta, Georgia, the Company continued to incur expenses, many
of which were one-time expenses, in order to complete the transition to a
full-service telecommunications company. The Company had identified its
reliance on outsourcing the actual performance of the transfer from a
customer's present long distance carrier to the Company's service had proved
to be ineffective and near fatal. In 1994, the Company enrolled approximately
120,000 customers on various long distance programs, only to realize
provisioning (enrollment) of approximately 40,000 (a 33% ratio). This not
only created significant loss of revenue but also, more importantly, a loss of
momentum to the sales force. Since the core business plan is for the Company
to recruit, develop and train sales agent networks, it had no choice but to
put all existing sales efforts in abeyance until these problems were addressed.
At the heart and soul of the Company's efforts is the concept of
"relationship selling". Nowhere is this belief more important than in the
network marketing subsidiary, Vision 21, Inc.. The aforementioned problems
created a significant drop-off in sales. However, with the divestiture of
Global TeleMedia, Inc., the Company launched its new network marketing
subsidiary, Vision 21, with improved programs and an improved performance
level, as well as will be developing new programs. Despite the Company's
difficulties in recent transition, the revenue has continued to grow since
Vision 21's pre-launch in December 1995. The six-month hiatus from
aggressive marketing is reflected in the first three quarters of 1995 with a
decrease in gross revenues. The Company, however, anticipates increase in
gross revenues with its return to aggressive marketing efforts through Vision
21.
Sales of telecommunications services and products (commissions,
literature and merchandise sales and processing fees) for the twelve months
ended December 31, 1994 were $3,412,303 and $2,864,000 for the twelve months
ended December 31, 1995. The Company began selling prepaid telephone calling
cards during the first quarter of 1994. The Company recorded $203,354 in
revenue and $407,182 in deferred revenue from the sales of these products in
1994. The Company is actively expanding its customer base through promotional
activities and new product development.
Licensing Fees
On January 28, 1995, the Company entered into a License Agreement with
L&M Group, L.C., under which L&M purchased the Company's inventory of food
and nutritional products previously sold by the Company at the Company's cost
and received from the Company the exclusive right to see those products
world-wide. In consideration of the license granted by the Company, L&M has
paid the Company cash in the amount of $275,000 for the rights and $34,469.78
for inventory on hand. L&M further agreed to pay a royalty of 4% of all sums
received for the sale or use of the nutritional and food products other than
Go! and Cholesterade sold through multi-level marketing, a royalty of 2.5% of
net sales of Go! and Cholesterade sold through multi-level marketing and 1.5%
of the net sales of certain nutritional supplements. The Company's agreement
with L&M Group, L.C. requires that L&M pay certain minimum quarterly
royalties which increase to a maximum of $37,500 per quarter in 1997.
Other Income
Depreciation and Amortization
Depreciation and amortization expense decreased from $932,000 for the
year end December 31, 1994 to $580,000 for the year ended December 31, 1995.
Additionally, the Company wrote off the remaining unamortized goodwill and
royalty rights of $322,000 in 1994 and $422,000 in 1995 related to previously
acquired companies that were considered to have nocontinuing value.
Selling, General and Administrative
Selling, general and administrative expenses decreased in 1995 over 1994
primarily due to the divestiture of Global TeleMedia, Inc. The Company, as a
result of the divestiture decreased its personnel.
Interest Expense
The Company incurred additional interest in 1993 due to six months of
short-term borrowing in 1993 compared to three months in 1992 and due to the
purchase of land and building with debt financing in September, 1992.
Interest expense was $51,000 for the year ended December 31,
1994 to $59,000 for the year ended December 31, 1995.
Inflation
Inflation and changing prices have not had a material impact on the
operation of the Company and its subsidiaries.
Item 7. Financial Statements
Financial statements are submitted in Items 13(a)(1) and (2) on this
Form 10-KSB.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
On December 14, 1994, Coopers & Lybrand L.L.P. resigned as auditors for
the Registrant. It's auditors' reports for the last two fiscal years did not
contain adverse opinions or disclaimers of opinion. The Coopers & Lybrand
report for year end December 31, 1993 was modified as to uncertainty. In view
of Coopers & Lybrand's resignation, the decision to change accountants was not
recommended or approved by the Board of Directors. There were no
disagreements with Coopers & Lybrand L.L.P. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
On February 6, 1995, the firm of Kaufman & Rossin was appointed as the
Company's principal independent auditors.
On October 10, 1995, the Company engaged The Marlett Group to reaudit for
the Company's fiscal year ended December 31, 1993. Previously, Coopers and
Lybrand, LLP had audited the Company's financial statements for such year. In
an agreement with Coopers and Lybrand, LLP, which has previously been
disclosed, Coopers agreed to provide its consent only for the 1993 financial
statements, only for inclusion in the Company's 10-KSB for the year ended
December 31, 1994 and for no other filings under either the Securities Act of
1933, as amended, or the Securities Act of 1934. Except for certain footnote
changes of a non-material nature and a change relating to the going concern
of the Company, no other changes were made from the Coopers & Lybrand, LLP
audit for the fiscal year ended December 31, 1993.
On November 22, 1995, following approval by the Board of Directors of
Global TeleMedia International, Inc. (the "Company"), the Company having no
audit or similar committee of the Board of Directors, the Company ratified
Tauber & Balser, P.C. ("T&B") as the Company's principal accountant, replacing
Kaufman, Rossin & Co. ("KRC"), the Company's former principal accountant, who
was dismissed on November 21, 1995. KRC was principal accountant for the
Company for the fiscal year 1994 only.
In connection with the audit of the most recent fiscal years and through
the date hereof, there were no disagreements with KRC on any matter of
accounting principals or practices, financial disclosure, or auditing scope
or procedure, either resolved or unresolved, which disagreements, if not
resolved to the satisfaction of KRC, would have caused KRC to make reference
in connection with its reports to the subject matter of the disagreement. There
were no disagreements with Tauber & Balser of The Marlett Group on any matters
of accounting principles or practices or financial statement disclosure KRC's
report on the Company's financial statements for the past year contained no
adverse opinion or disclaimer of option, and was not modified as to
uncertainty, audit scope or accounting principles, other than with respect to
the Company's ability to continue as a going concern or adjustments that may
result from the outcome of such uncertainty.
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Roderick A. McClain Age 48 CEO, President, Chairman of the Board
Geoffrey McClain Age 52 Senior Vice President, Director
Melissa D. Hart Age 30 Secretary
Herbert S. Perman Age 58 Chief Financial Officer, Director
Roderick A. McClain is Chairman of the Board, Chief Executive Officer
and President of the Company and has been a Director of the Company since
1993, and Chief Executive Officer of Global Wats One, Inc. since 1991. After
attending the University of Tennessee on a golf scholarship, Mr. McClain
pursued a career as a PGA golf professional. From 1972 - 1976, he was a
principal and Executive Vice President of Mountain States Development
Corporation, developing resort properties in Gatlinburg, Tennessee.
Following the acquisition of Mountain States Development Corporation by the
real estate division of Kaiser Aluminum/Aetna Insurance, he became project
manager for the southeast region. Mr. McClain was a real estate consultant
through 1978 for several major properties located in Tennessee and North
Carolina. He founded Previews Investment and Management, Inc., a real estate
development, management and brokerage corporation, in 1978. Acting as a
contract consultant Mr. McClain performed the duties of International
Marketing Director for Overseas Electronics, Inc. from 1981 to 1985 and
National Sales Manager for Santos Powerboats in 1991 until founding Global.
Geoffrey F. McClain is Senior Vice President and has been a Director of
the Company since August 1995. After fulfilling a tour of duty overseas, Mr.
McClain received a BBA in Finance from the University of Miami and entered
the retail field as a buyer with both Federated and Allied department store
chains. Utilizing this background knowledge of consumer needs, he founded
two successful electronics companies. One exported goods to the emerging
marketplaces of South and Central America, while the other combined wholesale
prices and a telemarketing program to compete nationally. Following the sale
of his interest in these two companies, he obtained both a real estate
broker's license and a mortgage broker's license in the state of Florida. He
specialized in undeveloped land of investment and development of business
parks. Mr. McClain was an original founder of Global Wats One, Inc.., which
was acquired by the Company in September, 1993.
Melissa D. Hart has been Corporate Secretary of the Company since
December 1994. Ms. Hart has been employed by the Company's
telecommunications subsidiary since 1991, serving as Manager of Regulatory
Affairs and Executive Administrator. Prior to 1991, Ms. Hart was employed
with Tenneco, Inc.., in the areas of Federal Reporting, Major Project
Management and Engineering. Ms. Hart was an honors student while attending
the University of Tennessee, majoring in Chemistry and English.
Herbert S. Perman has served as Chief Financial Officer since 1995 and
was appointed as Director of the Company in 1995. Mr. Perman received a BS
from the City College of New York and J.D. from Brooklyn Law School. From
1994 through October 1995, Mr. Perman was a consultant to the long distance
and prepaid telephone industry. From 1989 to 1994, Mr. Perman was director
of marketing for PDQ Notes, Inc.(a medical software company). From 1985 to
1989, he was executive vice president and later president of a greeting card
distribution company. Prior to this, he served as chief financial officer of
an international educational sales company, financial vice president of a
national mortgage finance company, administrative executive of a marketing
subsidiary of a heavy equipment manufacturer and was executive vice president
of an outdoor advertising company. Mr. Perman is licensed as a certified
public accountant and attorney in the state of New York.
Mr. Roderick A. McClain, Mr. Herbert S. Perman and Mr. Geoffrey McClain
were elected as Directors at the Annual Shareholder's Meeting November 22,
1995 and will serve until the next Annual Shareholders' Meeting, the date of
which has not yet been set.
Each of the Company's Directors is elected for a term of one year and
until his successor is duly elected and qualified. There are no family
relationships between any of the Company's Directors and officers except
between Roderick A. McClain and Geoffrey McClain, who are brothers. Meetings
of the Board of Directors are held as necessary and at least quarterly.
Directors receive no cash compensation for their services. Directors are
eligible to receive 10,000 shares of stock annually provided they have
attended at all board meetings scheduled. The following Directors and former
Directors received the amounts of the Company's common shares set forth next
to their name for their service in 1995:
[S] [C]
Roderick A. McClain 10,000 shares
Anthony R. Catinella 0 shares
Herbert S. Perman 0 shares
Geoffrey McClain 0 shares
Stephen R. Kaas 0 shares
R. Wayne Johns 0 shares
Gregory R. Catinella 0 shares
John L. Walsh 0 shares
Cy Caine 0 shares
Keith Montgomery 0 shares
Arnold Zimmerman 0 shares
Howel Hopson 0 shares
George Lebo 0 shares
Joseph Cirulli 0 shares
Gary Stukes 0 shares
Since February 16, 1995, the Company received resignations from Arnold
L. Zimmerman, Randolph H. Reese, George R. Lebo, Howel H. Hopson, Joseph D.
Cirulli, Gary P. Stukes and A. R. Catinella. The Board of Directors, in
accordance with the by-laws of the Company, filled three such vacant
Directors' positions by appointing Stephen R. Kaas, Gregory R. Catinella and
John L. Walsh as Directors.
In June, 1995, in accordance with a Stock Acquisition Agreement entered
into with an unrelated investment group, the investment group requested and
received resignations from Board Members Stephen R. Kaas, John L. Walsh,
Gregory R. Catinella and R. Wayne Johns. The investment group additionally
requested and received appointment of Keith Montgomery and Cy Caine to the
Board.
On August 2, 1996 the Company appointed Geoffrey F. McClain to the Board
of Directors. On August 4, 1995, the Company received resignations from Cy
Caine and Keith Montgomery. On October 1, 1995, Herbert S. Perman was
appointed director and named Chief Financial Officer and Treasurer of the
Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms furnished to the
Company and written representation from certain reporting persons, the
Company believes that during the fiscal year ended December 31, 1994, all
filing requirements applicable to the Company's executive officers, directors
and more than 10% shareholders were complied with except the following:
Item 10. Executive Compensation
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
(a) (b) (c) (d) (e) (f) (g)
Name Other Restricted Securities
and Annual Stock Underlying
Principal Salary Bonus Compensation Awards1,2 Options/SARs
Position Year ($) ($) ($) ($) (#)
____________________________________________________________________________
Roderick A. McClain 1995 $ 125,000(5)
CEO
Arnold L. Zimmerman 1994 $ 72,000
CEO (until 10-22-94)
Roderick A. McClain 1994 $ 65,000
CEO (beginning 10-22-94)
Arnold L. Zimmerman 1993 $ 69,000
CEO
1. At December 31, 1994, the CEO's spouse held 150,000 restricted shares of
stock valued at $0, and at December 31, 1995, the CEO's spouse held 1,150,000
restricted shares of stock valued at $57,500.
2. While the Company does not anticipate paying any dividends on its stock,
such dividends, if paid, would apply to the CEO's restricted stock.
3. On September 30, 1993, the Company entered into an employment agreement
with its current CEO. The agreement is for two years at an annual salary of
$65,000 subject to a $15,000 increase under certain company performance
criteria. The agreement also includes the right to receive shares of the
Company's previously unissued common stock equal to a percentage (not greater
than 100%) of a total of 850,000 shares. The percentage is a fraction, the
denominator of which is $29,946,938 and the numerator of which is the
cumulative combined net income of Global and Global TeleMedia Network
beginning October 1, 1993 and ending September 30, 1995, to be awarded
periodically.
4. On May 15 1995, the Company entered into an executive employment
agreement with its current CEO. The agreement is for five years at a base
salary of $125,000 increasing at 10% per year. This agreement also includes
the right to receive bonus schedules based upon performance of the Company.
5. On May 7, 1991, the Company entered into a two year employment agreement
with its former executive officer. This agreement was amended on February
18, 1992, November 30, 1992 and April 1, 1993, and was canceled on August 19,
1993. On August 19, 1993, the Company entered into a one year employment
agreement effective April 1, 1993 with its executive officer for an annual
salary of $72,000. The agreement canceled the option for 100,000 shares of
common stock awarded under prior employment agreements. The agreement also
modified the existing stock appreciation rights (SARs). The Company also pays
all federal income taxes of the officer attributable to the exercise of these
SARs and Incentive Stock Rights. On November 9, 1994, Company entered into a
consulting agreement with Arnold L. Zimmerman, who was formerly the President
of the Company, and then a member of the Board of Directors. Under the terms
of the consulting agreement, the Company has agreed to pay Mr. Zimmerman
$4,000 per month commencing on April 30, 1995, for a period of 18 months in
consideration of his providing strategies and financial advice. Company
satisfied its obligation to Zimmerman pursuant to a Satisfaction and Release
Agreement dated June 15, 1995 whereby the Company issued 125,000 shares of
the Company's restricted common stock as full settlement of this consulting
agreement.
Option/SAR Grants in Last Fiscal Year
NONE
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, as of April 15, 1996, with
respect to all stockholders known by the Company to be the beneficial owners
of more than 5% of its outstanding Common Stock, all directors, and all
directors and officers as a group. Except as noted below, each person has
sole voting and investment powers with respectto the shares shown.
Title of Class Amount/Nature Percent
(Common Beneficial of
Shares) Name and Ownership(1) Class
Address of Beneficial Owner
Common Neil Berman, 6031 Town Colony Dr., #116, Boca Raton, FL 33433
491,134(2) 4.55%
Common J. Robert Cade, M.D., 529 N.W. 58th St., Gainesville, FL 32607
941,012(3) 8.73%
Common Anthony R. Catinella, 4615 River Oaks Dr., Knoxville, TN 37920
300,000(4) 2.78%
Common Gregory Catinella, 720 Kings Court, Bethlehem, GA
117,500(5) 1.09%
Common Sandra Catinella, 4615 River Oaks Dr., Knoxville, TN 37920
300,000(6) 2.78%
Common R. Wayne Johns, 11111 Houze Road, #304, Roswell, GA 30076
26,250(7) 0.24%
Common Stephen R. Kaas, 285 Dunwoody Creek Circle, Atlanta, GA 30350
100,000 0.93%
Common Geoffrey F. McClain, 7330 Mindello Street, Miami, FL 33143
278,588 2.58%
Common Roderick A. McClain, 9265 Prestwick Club Drive, Duluth, GA 30350
1,290,568(8) 11.97%
Common Allyson Rodriguez, 9265 Prestwick Club Drive, Duluth, GA 30350
1,290,568(9) 11.97%
Common Arnold L. Zimmerman, 1107 NW 57th St., Gainesville, FL 32605
319,221 2.96%
Common Herbert S. Perman, 1714 Johnson Ferry Rd., Atlanta, GA 30319
150,000 1.39%
Common John L. Walsh, 500 Northridge Rd., #780, Atlanta, GA 30350
0 0%
Common Cy Caine, Address Unknown
0 0%
Common Keith Montgomery, Address Unknown
0 0%
Common All Officers and Directors as a Group 4,066,273(4)(5)(6)(7)
37.70%
(1) Indicates record ownership unless otherwise indicated.
(2) Based on oral representation of shareholder; includes 284,550 shares
purchasable within 60 days (% of record 4.96%).
(3) Includes 3,500 shares purchasable within 60 days pursuant to exercise of
outstanding warrants.
(4) Includes spouse's shares (225,000)
(5) Includes shares purchasable pursuant to exercise of warrants (11,250).
(6) Includes spouse's shares (75,000)
(7) Includes spouse's shares (1,189,948)
(8) Includes spouses shares (1,189,948)
Item 12. Certain Relationships and Related Transactions.
On August 30, 1990, Dr. Cade entered into an Agreement with the Company
under which he agreed to endorse TQ2, Go!R and other products developed or
improved by Dr. Cade ("Cade Products"). With regard to Cade Products and
competing products, the Company's right to Dr. Cade's endorsement is
exclusive. The agreement also gives the Company the right to use Dr. Cade's
likeness in connection with the sale of Cade Products. The agreement
provides that the Company will pay Dr. Cade only for his expenses incurred in
connection with personal appearances. The agreement provides that it will
remain in effect so long as the Company receives any income from Cade
Products.
On February 11, 1993, the Company sold 17,777 restricted shares of its
Common stock to Neil Berman in a private placement for the sum of $25,000.
On that date the market price of the Company's Common Stock was $3.06 high,
$2.88 low. Another transaction occurred on March 9, 1993, when the Company
sold 17,779 restricted shares of its Common Stock to Neil Berman in a private
placement for the sum of $25,000. On that date the market price of the
Company's Common Stock was $2.75 high, $2.69 low. Another transaction
occurred on April 15, 1993 when the Company sold 21,344 restricted shares of
its Common Stock to Neil Berman in a private placement for the sum of $30,000.
On that date the market price of the Company's Common Stock was $3.44 high,
$3.25 low. The final transaction of the series occurred on June 2, 1993, when
the Company sold 8,305 restricted shares of its Common Stock to Neil Berman in
a private placement for the sum of $13,755. On that date the market price of
the Company's Common Stock was $3.44 high, $3.31 low.
On September 6, 1994, the Company agreed to sell 220,000 restricted shares
of its Common Stock at $1.25 per share (total of $275,000) to Neil Berman in a
private placement; if all the shares were purchased, Mr. Berman's warrants
would be extended. The purchase price was based on 50% of the closing bid on
that day which was $2.50 per share. The purchase price of $85,000 was
received by the Company on October 20, 1994. The agreement was modified on
October 22, 1994 to provide for the sale of 300,000 shares of restricted
Common Stock at $1.00 per share ($300,000 total). The modified agreement
terminated by its terms on November 22, 1994. As a result, the Company issued
85,000 shares of restricted Common Stock to Mr. Berman for his October 20,
1994 payment of $85,000.
On September 26, 1994, the Company borrowed $100,000 from one of its
shareholders, Dr. J. Robert Cade. The note was payable with interest at the
rate of seven percent (7%) per annum. The note was due March 26, 1995. On
December 15, 1994, the Company borrowed an additional $50,000 from Dr. Cade
and executed another promissory note and mortgage (on its property at 3310 N.
Main Street, Gainesville, Florida) in the principal amount of $151,534.40 (to
encompass both the September 26 loan and the December 15 loan) at an interest
rate of 7% per annum with interest and principal due in full on March 26,
1995. This note has been paid by issuance of 260,261 restricted common
shares.
In November, 1994, the Company purchased all of the assets, including
certain long distance telephone contracts, and assumed certain liabilities of
TJC Communications, Inc., an unrelated corporation. The Company issued
52,500 shares of its common stock, paid $50,000 in cash and issued a note
payable for $315,000 due on demand July 1, 1995 bearing interest at 10%.
Subsequent to the Foreclosure Agreement dated July 12, 1995 between the
Company and CAT Interests Limited, TJC personnel relocated their physical
presence and have focused their sales efforts in other areas.
From November, 1994 through the present, the Company has made several
private placements of its stock pursuant to a resolution passed by the Board
of Directors on October 22, 1994. Under the resolution, a total of 325,092
restricted shares have been issued for considerations ranging from $0.50 per
share to $1.00 per share.
On January 3, 1995, the Company sold 92,307 shares of restricted Common
Stock to J. Robert Cade for a consideration of $75,000.
On February 13, 1995, the Company and Mr. Berman entered into a
Subscription, Option and Warrant and Option Extension Agreement. Under the
terms of the agreement, Mr. Berman agreed to purchase 200,000 restricted
shares of Common Stock for a price of $100,000 on or before March 1, 1995
(the "Part I" shares). If the Part I shares were purchased, then Mr. Berman
could purchase, in whole or in part, an additional 145,000 restricted shares
of the Company's Common Stock at $.50 per share if funds were received by the
Company on or before March 30, 1995, or at 50% of the market price for such
Common Stock on the day preceding the day funds are received by the Company
as to funds received after March 30, 1995 (the "Part II" shares), provided,
however that the Part II shares must be purchased on or before March 13, 1996.
On March 7, 1995, the Company sold 71,529 shares of restricted Common
Stock to J. Robert Cade for a consideration of $50,000.
For the year ended December 31, 1993, the Company paid accounting fees
for services to a firm other than the Independent Accountants. Edward L.
Goolsby, formerly an officer and director of the Company, is a partner in
that firm.
In September, 1993, the Company acquired Global Wats One, Inc. and
TeleFriend, Inc. of which Anthony R. Catinella, a former Director of the
Company, Roderick A. McClain, the Company's Chief Executive Officer, and
Geoffrey F. McClain, Mr. McClain's brother, were the principal shareholders.
Under the terms of the acquisition, the former owners of Global and TeleFriend
were entitled to receive common stock equal to a percentage (not greater than
100%) of 461,250 shares. This percentage was based upon, among other things,
the net income of Global and TeleFriend beginning October 1, 1993, and ending
September 30,1995. It was the contention of the former shareholders of Global
and TeleFriend that the Company breached its obligations under the acquisition
agreement by failing to provide Global and TeleFriend with the needed capital
to pursue its business plan, as well as other business decisions by the
Company's previous management, which hindered the operations of Global and
TeleFriend. In March 1995, the Company was advised by the former shareholders
of Global and TeleFriend of their intent to seek issuance of the shares of
common stock. The Company's Board of Directors, excluding Mr. McClain,
approved a settlement transaction for Mr. McClain and the other Global and
TeleFriend shareholders. The settlement provides that the Global and
TeleFriend shareholders be issued 450,000 shares of common stock as if the
earnout under the acquisition agreement had been fully satisfied (each former
shareholder of Global and TeleFriend received 150,000 shares of the Company's
common stock). Furthermore, the Board of Directors agreed to issue 850,000
shares of common stock pursuant to the terms of his employment agreement which
was similarly conditioned upon the net income of Global and TeleFriend. Mr.
McClain similarly asserted that such net income of Global could not be reached
based upon the reasons set forth above. Furthermore, the Board of Directors
agreed to enter into a new long-term employment contract with its President
and CEO, which was finalized June 15, 1995.
In June 1995, the Company entered into an agreement with an unrelated
group of investors for the purchase of 10,000,000 shares of the Company's
Common Stock. As part of this transaction, the investment group loaned the
Company $250,000. As a result of the Company's delisting from NASDAQ and
other events, the parties agreed to a termination of the Stock Purchase
Agreement.
As a result of the Company's financial position and other events, the
Company was unable to honor its obligations under its secured promissory note
to the investor. The Company and the investor agreed to a termination of the
Stock Purchase Agreement. Subsequently, the investor assigned its rights to
CAT Interests Limited ("CAT"), and the Company and CAT entered into a
Foreclosure Agreement and release ("Foreclosure Agreement"). At that time,
CAT satisfied the obligation to the unrelated investor and became an obligor
of the Company.
The Foreclosure Agreement provided the Company would transfer to CAT the
customer list to all its customers who were serviced by the WilTel Network or
Cherry Communications Network. In addition, the Company, by quitclaim deed,
transferred certain warehouse property and land in Gainesville, Florida to
CAT. The Company also transferred to CAT all the outstanding and issued
shares of Global TeleMedia, Inc., the Company's wholly-owned subsidiary. At
the time of transfer, Global TeleMedia, Inc. (f/k/a Global Wats One, Inc.),
had liabilities of approximately $2,000,000 and certain assets, including
Certificates of Public Convenience and Necessity.
As a result of the inability of the Company to obtain alternative
sources of funding, the Company dramatically curtailed its operations in
August, 1995, dismissing a significant portion of its employees and limiting
its operations.
In September 1995, the Company reached a settlement agreement with
certain employees and issued an aggregate of 119,148 shares of its restricted
Common Stock to such employees for previous deferred compensation payment
owed as follows: Geoffrey F. McClain - 55,200 shares; Roderick A. McClain -
39,948 shares; Melissa D. Hart - 12,000 shares; Michael Rogers - 12,000
shares.
On September 19, 1995, the Company entered into a Warrant and Option
agreement with an unrelated third party for the purchase of up to 1,400,000
warrants at prices ranging from $0.50 to $3.00. On March 4, 1996, this
Warrant and Option Agreement and the corresponding Consulting Agreement were
terminated.
On September 29, 1995, the Company entered into a Purchase Agreement
with QCC, Inc. ("QCC") pursuant to which the Company agreed to sell to QCC
its customer accounts, including, but not limited to, related customer
contracts, customer files, customer applications, customer letters of agency
and accounts receivable related thereto. The purchase price for such assets
is $3,000,000 of which the Company has received $267,000 to date. The
remaining purchase price will be payable in 58 monthly installments on the
20th of each month. The agreement provides for reduction in the purchase
price in the event that the gross profit received by QCC from the transferred
assets is less than certain specified targeted amounts. Inasmuch as there
are no assurances that the full purchase price will be realized, the Company
has elected to report the income as received.
In addition, the Company entered into a long distance services agreement
with QCC to provide operation and customer support for the Company's recently
incorporated wholly-owned subsidiary, Vision 21, Inc. Vision 21, Inc. will
facilitate the network marketing efforts of the Company's new
telecommunications products and services. The Company believes that this
agreement along with the out-sourcing of the operational function of its
telecommunications services during this transitional period will
substantially reduce the Company's overhead costs.
On October 10, 1995, the Company engaged the Marlett Group to provide an
audit for the Company's fiscal year ended December 31, 1993. Previously,
Coopers & Lybrand, LLP had audited the Company's financial statements for
such year. In an agreement with Coopers & Lybrand, LLP, which has been
previously disclosed, Coopers agreed to provide its consent only for the 1993
financial statements contained in the Company's 10-K for the year ended
December 31, 1994 and for no other filings under either the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934. Except for certain
footnote changes of a non-material nature and a change relating to the going
concern of the Company, no other changes were made from the Coopers &
Lybrand, LLP audit for the fiscal year ended December 31, 1993.
The Company is involved in a dispute with its former primary long
distance carrier, Communications Gateway Network, Inc. (CGN). The Company
alleges that CGN has failed to properly account for substantial revenues
derived from the Company's customers. Dispute has focused on the right of the
Company to move customers to another carrier subsequent to the alleged
actions and default of CGN. There have been no formal complaints filed and
the potential outcome of the dispute cannot be determined at this time. (See
Note 8 Notes to Consolidated Financial Statements).
As of February 1, 1996, the Company, through its new wholly-owned
subsidiary, Vision 21, Inc., has begun aggressively marketing its new
products and services. Further, the Company has begun its reapplication
process for Certificate of Public Convenience and Necessity in all states
where applicable.
On January 31, 1996, the Company relocated its headquarters to
Alpharetta, Georgia from Atlanta, Georgia. The Company occupies
approximately 11000 square feet in a 28,200 square foot office building. The
Company has an option to purchase the property for $2,500,000 which will
provide the Company with scheduled expansion availability at July 31, 1996
and January 31, 1997, totaling 28,200 square feet.
On January 16, 1996, a summons in a civil action was filed in the United
States District Court, Southern District of Florida, by CAT Interests Limited
against Global TeleMedia International, Inc., Roderick A. McClain and Quest
Telecom. (See Item 3 Legal).
On January 3, 1996, the Company entered into a Consulting Agreement with
Jim Devaney ("Devaney") pursuant to which th Company agreed to issue 30,000
shares of its Common Stock in part for consideration for consulting services
to be provided by Devaney to the Company over an anticipated one year period
commecning on the date of the consulting agreement. Under the terms of the
Consulting Agreement, Devaney is to act as a management consultant and to
provide services on behalf of the Company, including, but not limited to,
assisting the Company in evaluating real estate acquisitions.
On March 11, 1996, the Company entered into a Consulting Agreement with
Bruce Baker ("Baker") pursuant to which the Company agreed to issued 250,000
shares of its Common Stock in part for consideration for consulting services
to be provided Baker to the Company an anticipated one year period commencing
on the date of the consulting agreement. Under the terms of the Consulting
Agreement, Baker is to act as a management consultant and to provide services
on behalf of the Company, including, but not limited to, assisting the Company
in locating and evaluating mergers and acquisitions.
On January 16, 1996, the Company entered into a Consulting Agreement with
Joe Nolan ("Nolan") pursuant to which the Company agreed to issue 25,000 shares
of its Common Stock in part for consideration for consulting services to be
provided by Nolan to the Company over an anticipated one year period
commencing on the date of the the consulting agreement. Under the terms of
the Consulting Agreement, Nolan is to act as a management consultant and to
provide and to provide services on behalf of the Company, including, but not
limited to, assisting the Company in stock valuation and tax matters.
On January 30, 1996, the Company entered into a Public Relations Agreement
with Golden Holdings International, Inc. ("Golden") pursuant to which the
Company agreed to issue 300,000 shares of its Common Stock in part for
consideration for public relations services to be provided by Golden to the
Company over an anticipated one year period commencing on the date of the
Consulting Agreement. Under the terms of the Consulting Agreement, Golden is
to act as a public relations consultant and to provide services on behalf of
the Company concerning interaction with and presentations to the brokerage and
investment communities.
On January 11, 1996, the Company entered into an Agreement with
Alphatronix, Inc. ("Alpha") pursuant to which the Company agreed to issue
100,000 shares of its Common Stock in part for consideration for consulting
and and public relations services to be provided by Alpha to the Company.
Under the terms of this Agreement, Alpha is to act as a fancial public
relations counsel with respect to existing and potential marketmakers,
brokers, underwriters and investors.
On Jauary 29, 1996, the Company entered into an Argeement with James
Connell ("Connell") pursuant to which the Company agreed to issue 200,000
shares of its Common Stock in part for consideration for public relations
services to be provided by Connell to the Company over an anticipated one year
commencing on the date of the Consulting Agreement. Under the terms of the
Consulting Agreement, Connell is to act as a Public Relations Consultant and
to provide services on behalf of the Company concerning interaction with and
presentations to the brokerage and investment communities.
On March 22, 1996, the Company entered into an Agreement with Milton
Barbarosh ("Barbarosh") pursuant to which the Company agreed to issue 75,000
shares of its Common Stock in part for consideration for aquisition and
merging services to be provided by Barbarosh to the Company over an
anticipated two years commencing on the date of the Consulting Agreement.
Under the terms of the Consulting Agreement, Barbarosh is to act as an
Aquisition and Merger Advisor and to provide services on behalf of the Company
concerning interaction with and presentation to the brokerage and investment
communities.
On April 11, 1996, the Company entered into an Agreement with Southstar
Financial Services, Inc. ("Southstar") pursuant to which the Company agreed
to issue 25,000 shares of its Common Stock in part for consideration for
financing services to be provided by Southstar to the Compnay over an
anticipated one year period commencing on the date of the Consulting Agreement
Under the terms of the Consulting Agreement, Southstar is to act in the
capacity of a financing liaison an behalf of the Company concerning
preparation, assembly and presentation of financing documentation to lending
institutions to assist the Company in obtaining financing for its real
property.
On January 29, 1996, the Company entered into an Agreement with I.W.
Miller Company ("Miller") pursuant to which the Company agreed to issue
200,000 shares of its Common Stock in part for consideration for public
relations services to be provided by Miller to the Company over an anticipated
one year period commencing on the date of the Consulting Agreement. Under the
terms of the Consulting Agreement, Miller is to act as a financial public
relations consultant.
On March 13, 1996, the Company entered into an Agreement with F.P.I.,
Inc. ("FPI) pursuant to which the Company agreed to issue 250,000 shares of
its Common Stock in part for consideration for consulting and public relations
services to be provided by FPI to the Company. Under the terms of this
Agreement, FPI is to act as a financial public relations counsel with respect
to existing and potential marketmakers, brokers, underwriters, and investors.
The Company is currently in negotiations for settlement of all
outstanding issues between the Company and Neil Berman. No agreement has
currently been reached, and while no assurances can be made, the management
of the Company anticipates a favorable resolution to these outstanding issues.
The Company believes that the above-described transactions are as fair
to the Company as could have been made with unaffiliated parties. The Company
requires that transactions between the Company and its officers, directors,
employees or stockholders or persons or entities affiliated with officers,
directors, employees or stockholders be on terms no less favorable to the
Company than it could reasonably obtain in arms-length transactions with
independent third parties. Such transactions are approved by a majority of
the disinterested directors of the Company.
PART IV.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits Page
1. Financial Statements
(1) Reports of Independent Certified Accountants
2. Financial Statement Schedules None
3. Exhibits required by Item 601, Regulation S-B
(3) Articles of Incorporation and By-Laws
(a) Articles of Incorporation filed as Exhibit to Registrant's Form S-4
filed May 7, 1990, incorporated herein by reference.
(b) By-Laws filed as Exhibit to Registrant's Form S-4 filed May 7, 1990,
incorporated herein by reference.
(c) Articles of Amendment filed as Exhibit to Registrant's Form S-1, filed
November 2, 1990, incorporated herein by reference.
(d) Articles of Amendment to Articles of Incorporation filed as Exhibit to
Registrant's Form 10-KSB
(4) Instruments defining the Rights of Security Holders. None
(9) Voting Trust Agreement None
(10) Material Contracts
(a) First Addendum to April 1, 1993, Employment Agreement of Arnold L.
Zimmerman, effective April 1, 1994 incorporated herein by reference.
(b) Option to Hunter Equities, Inc. dated March 21, 1994, filed an exhibit
to Form S-8 Registration Statement filed on or about March 22, 1994,
incorporated herein by reference.
(c) Asset Purchase Agreement dated November 2, 1994, among the Company,
TJC Communications, Inc., R. Wayne Johns and Chuck Colclasure filed as an
exhibit to Form 10-QSB for the quarter ended September 30, 1994, incorporated
herein by reference.
(d) Amended License Agreement between the Company and L&M Group, L.C.
dated January 31, 1995.
58
(e) Subscription, Option and Warrant and Option Agreement and Release
between the Company and Neil Philip Berman dated February 13, 1995.
75
(f) Foreclosure Agreement between the Company and CAT Interests Limited
dated July 12, 1995.
(g) Purchase Agreement between the Company and QCC, Inc. dated September
29, 1995.
(h) Long Distance Services Agreement between the Company and QCC, Inc.
dated September 29, 1995.
(i) Satisfaction and Release Agreement between the Company, Progress
Research, Inc.., the University of Florida Research Foundation, Inc.. and the
University of Florida dated December 12, 1995.
(j) Settlement agreement between the Company and Neil Philip Berman dated
April 30, 1996.
(k) Employment Agreement of Roderick A. McClain effective May 15, 1995.
(11) Statement re: Computation of Per Share Earnings Note 1(e),
Financial Statements
(13) Annual Report to Securities Holders, Form 10-Q or quarterly report to
security holders None
(18) Letter re: Changes in Accounting Principles None
(19) Previously unfiled Documents None
(22) Subsidiaries of Registrant 83
(23) Published Report re: Matters Submitted to Vote of Security Holders
None
(24) Consents of Experts and Counsel None
(25) Power of Attorney None
(28) Additional Exhibits None
(29) Information from reports furnished to state insurance regulatory
authorities None
(b) Reports on Form 8-K
Form 8-K filed on or about August 22, 1995
Item 5. Resignation of directors.
Form 8-K filed on or about October 16, 1995
Item 5. Other Events relating to Foreclosure Agreement and corporate
restructuring
Form 8-K filed on or about November 30, 1995
Item 4. Change in registrant's certified accountants.
SUBSIDIARIES OF REGISTRANT
VIGOR CORPORATION Incorporated in Commonwealth of Virginia
PROGRESS RESEARCH, INC. Incorporated in State of Florida
VISION 21, INC.. Incorporated in State of Georgia
<PAGE>
Independent Auditors' Report
Board of Directors
Global Telemedia International, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheet of Global
Telemedia International, Inc. and subsidiaries as of December 31. 1995 and the
related consolidated statements of operations, and stockholders' equity
deficiency and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We have conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonsble assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provided a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Global Telemedia International, Inc. and subsidiaries as of December 31, 1995
and the consolidated results of their operations and their consolidated cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
As discussed in Note A of the financial statements, effective January 1,
1995 the Company adopted Statement of Accounting Standards No. 123, and as
discussed in Note H, readjusted stockholders' equity accounts as of October 1,
1995, effected in accordance with accounting principles applicable to
quasi-reorganizations.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note B to the consolidated financial statements, the Company's recurring
losses from operations and limited capital resources raise substantial doubt
about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Tauber & Balser, P.C.
Atlanta, Georgia
April 15, 1996
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
[S] [C]
CURRENT ASSETS
Cash $ 193,000
Other 96,000
------------
Total Current Assets 289,000
Furniture and Equipment
Furniture and Fixtures 30,000
Office Equipment 120,000
------------
150,000
Accumulated Depreciation (71,000)
------------
79,000
------------
TOTAL ASSETS $ 368,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
CURRENT LIABILITIES
Accounts Payable $ 322,000
Note Payable 273,000
Due to Stockholder 116,000
Due to Stockholder 30,000
Accrued Interest 24,000
------------
Total Current Liabilities 765,000
STOCKHOLDERS' EQUITY DEFICIENCY
Common stock, $.004 par, authorized
25,000,000 shares, issued and outstanding
9,937,991 shares 40,000
Additional paid-in capital 197,000
Accumulated Deficit, since October 1, 1995,
net of $13,378,000 eliminated in
quasi-reorganization (634,000)
------------
Total Stockholders' Equity Deficiency (397,000)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY $ 368,000
============
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
[S] [C] [C]
SALES $ 2,864,000 $ 3,720,000
------------ ------------
COST OF SALES (1,293,000) (2,816,000)
GENERAL AND ADMINSTRATIVE EXPENSES (3,027,000) (4,280,000)
------------ ------------
(4,320,000) (7,096,000)
------------ ------------
LOSS FROM OPERATIONS (1,456,000) (3,376,000)
OTHER INCOME (EXPENSES)
Litigation 500,000 -
Goodwill (422,000) -
Foreclosure (1,230,000)
Franchise income 302,000 -
Interest expense (59,000) (51,000)
Rental and other income 45,000 104,000
------------ ------------
(865,000) 53,000
------------ ------------
NET LOSS $(2,321,000) $(3,323,000)
============ ============
NET LOSS PER SHARE $ .30 $ .78
============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 7,629,987 4,237,422
============ ============
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(2,321,000) $(3,323,000)
------------ ------------
Adjustments:
Depreciation & amortization 580,000 932,000
Loss on disposal of equipment 2,000 7,000
Foreclosure loss 1,230,000 -
Stock Issued for services 187,000 187,000
Changes in :
Receivable 370.000 (464,000)
Other current assets 63,000 70,000
Accounts payable and accrued expense (951,000) 972,000
Deferred revenue (155,000) 155,000
------------ ------------
Total Adjustments 1,326,000 1,859,000
------------ ------------
Net cash used in operating activities (995,000) (1,464,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment - 2,000
Acquisition of property and equipment (60,000) (107,000)
------------ ------------
Net cash used in investing activities (60,000) (105,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (3,000) (113,000)
Borrowings on notes payable 310,000 -
Borrowings from shareholder - 152,000
Borrowings from officer 10,000 50,000
Advances from factor 223,000 353,000
Proceeds from sale of common stock 676,000 291,000
------------ ------------
Net cash provided by financing activities 1,216,000 733,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 161,000 836,000
CASH - BEGINNING OF YEAR 32,000 868,000
------------ ------------
CASH - END OF YEAR $ 193,000 $ 32,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 35,000 $ 51,000
============ ============
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Supplemental disclosure of noncash investing and financing activities:
1995 1994
[S] [C] [C]
Assets and Liabilities transferred
in forclosure
Accounts Receivable $ 622,000 $ -
Property and Equipment 769,000 -
Accounts Payable
and Accrued Expenses 1,625.000 -
Notes Payable 534,000 -
Purchase of inventory, furniture
and equipment - 25,000
Common Stock issued in satisfaction of note
payable to shareholder - 152,000
The Company purchased of substantially all the assets and operations of TJC
Communications, Inc. for $463,000 as follows:
1995 1994
[S] [C] [C]
Execution of note payable - 315,000
Fair value of common stock issued
(105,000 shares) - 148,000
------------ ------------
$ - $ 463,000
============ ============
See Notes To Consolidated Financial Statements
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
Common Additional
Stock Issued Paid-In
Shares Par Value Capital
[S] [C] [C] [C]
Balance, January 1, 1994 4,131,235 $ 17,000 $ 11,726,000
Shares Issued to Directors 15,000 - 30,000
Sale of Stock 325,307 1,000 282,000
Excercise of Warrants 2,000 - 7,000
Shares Issued to Consultants 55,130 - 200,000
Compensation Earned - - -
Issuance of Stock in connection
with Business Aquisition 105,000 1,000 147,000
Issuance of Stock in connection
with Conversion of Note Payable
to Shareholder 260,261 1,000 150,000
Net Loss - - -
------------- ------------- -------------
Balance, December 31, 1994 4,893,933 $ 20,000 12,542,000
Compensation earned - - -
Sale of Stock 1,301,410 5,000 671,000
Shares Issued to Directors 1,345,148 6,000 62,000
Shares Issued to Consultants 800,000 3,000 37,000
Shares Issued to Employees
for compensation 547.500 2,000 25,000
Shares Issued in connection
with contingent fee 1,050,000 4,000 48,000
Deficit reclassification
in connection with
quasi-reorganization
as of October 1, 1995 - - (13,188,000)
Net Loss - - -
------------- -------------- --------------
Balance, December 31, 1995 9,937,991 40,000 $ 197,000
============= ============== ==============
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER EQUITY
(Continued)
Common Stock Total
Issued for Shareholders'
Future Service Deficit Equity
[S] [C] [C] [C]
Balance, January 1, 1994 - $ (8,178,492) $ 3,565,000
Shares Issued to Directors - - 30,000
Sale of Stock - - 283,000
Excercise of Warrants - - 7,000
Shares Issued to Consultants (200,000) - -
Compensation Earned 157,000 - 157,000
Issuance of Stock in connection
with Business Aquisition - - 148,000
Issuance of Stock in connection
with Conversion of Note Payable
to Shareholder - - 151,000
Net Loss - (3,322,000) (3,322,000)
------------- ------------- -------------
Balance,
December 31, 1994 $ (43,000) $(11,500,000) $ 1,019,000
Compensation earned 43,000 43,000
Sale of Stock - - 676,000
Shares Issued to Directors - - 68,000
Shares Issued to Consultants - 40,000
Shares Issued to Employees
for Compebsation - - 27,000
Shares Issued in connection
with contingent fee - - 52,000
Deficit reclassification
in connection with
quasi-reorganization
as of October 1, 1995 - 13,188,000
Net Loss - (2,322,000) (2,322,000)
------------- ------------- -------------
Balance,
December 31, 1995 $ - $ (634,000) $ (397,000)
============= ============= =============
See Notes To Consolidated Financial Statements
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated.
Accounting Estimates:
The preparation of 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.
Business:
The Company is primarily engaged in the marketing of long distance
telephone and related services. The Company sells it services to individuals
and other customers, throughout the United States. In the normal course of
business the Company sells its telephone related accounts receivable to the
billing processor under a factoring agreement with recourse. The Company
also licenses certain nutritional products which the company expects to
provide a nominal amount of revenue.
Furniture and Equipment:
Furniture and Equipment is stated at cost, and depreciation is computed
using the straight-line method at rates based upon the estimated useful lives
of the assets.
Intangible Assets:
Intangible assets are periodically reviewed for impairment based on an
assessment of future operations to ensure that they are appropriately valued.
During 1995 the Company determined that goodwill resulting from prior
acquisitions no longer had continuing value and the remaining unamoritized
amounts were charged to operations.
Stock-Based Compensation:
In October 1995, the Financial Accounting Standards 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.
Net Loss Per Share:
Net loss per share are based on the weighted average number of common
shares outstanding during each period. Common stock equivalents include
stock appreciation and warrants. For 1995 and 1994, common stock equivalents
were not considered in the calculation of net loss per share as they were
anti-dilutive.
Reclassifications:
Certain prior year amounts have been reclassified to conform to current
year's presentation.
B. Going Concern:
The Company's financial statements for the year ended December 31, 1995
and 1994 have been prepared on the assumption that the Company will continue
as a going concern which contemplates the realization of assets and the
settlement of liabilities in the normal course of business. The Company
incurred a net loss of $2,321,000 for the year ended December 31, 1995, and
has a working capital deficiency of $476,000 and an equity deficiency of
$397,000. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
Management is actively involved in attempting to sell equity securities
as well as looking for other sources of funding. The Company is in process
of introducing its new Vision 21 network marketing program. However, no
assurance can be given that the Company will be successful in raising
additional capital. Further, there can be no assurance, assuming the Company
successfully raises additional funds that the Company will achieve
profitability or positive cash flow.
C. Inventory:
Inventory consists of promotional and training materials used in the
Vision 21 marketing program.
D. Intangibles:
Goodwill of $422,000 was charged to operations as the underlying assets
were deemed to have no further value.
E. Note Payable:
Note payable for business acquisition, due on demand,
interest at 18% $ 273,000
------------
F. License Agreement:
On January 23, 1995 the Company licensed its former food products
business, sold the inventory and assigned the rights to the distribution
network used in the sale of the products. The contract provides for various
royalties based on type of sale and product. The agreement also has provision
for minimum quarterly royalties beginning the third quarter of 1995 and
continuing for seven quarters. The Company recognized the initial $275,000
license fee as all the initial services required under the terms of the
agreement were performed.
G. Foreclosure Loss:
In connection with an agreement to sell restricted stock, the Company
entered into a loan agreement with the potential investor. The loan was
secured by the Company's customer base or list of customers on a certain
long-distance carrier and certain other assets. The loan agreement required
the Company to maintain its NASDAQ listing until the closing of the stock
sale agreement. Prior to the closing date the Company was delisted from
NASDAQ and was, therefore, in default of the loan agreement. As part of the
foreclosure proceedings, the Company agreed to transfer all the shares of
stock of its subsidiary, Global TeleMedia, Inc. In addition the Company
transferred certain other assets not included among the assets of the
subsidiary but which were also pledged as security. As a result of the
transaction, the remaining goodwill, $1,538,000, associated with the
original acquisition of the subsidiary was charged to operations. The
details of these transactions are:
G. Foreclosure Loss (Continue):
[S] [C]
Assets foreclosed:
Investment in subsidiary including
remaining goodwill $ 1,441,000
Book value in assets, less mortgage
payable 99,000
Liabilities settled: (310,000)
-------------
Loss $ 1,230,000
=============
Included in the consolidated statement of loss are the operating results
of the foreclosed subsidiary (which are substantially all revenues of the
Company) for period January 1, through July 11, 1995 (the date of
foreclosure) and 1994 as follows:
1995 1994
[S] [C] [C]
Sales $ 2,789,000 $ 2,719,000
Costs and expenses 4,337,000 4,015,000
------------ ------------
Loss from operating $ 1,548,000 $ 1,296,000
============ ============
Since the Company remains in the business of marketing long distance
telephone services, the foregoing does not qualify as the disposal of a
business segment.
In connection with the foreclosure of its interests in the subsidiary,
the acquiring entity made a claim that the Company did not transfer all the
assets required under the terms of the security agreement. Subsequent to
December 31, 1995, the parties reached a tentative settlement of
approximately $100,000. The final settlement has not been approved by the
parties as the Internal Revenue Service placed a levy on any payments from
the Company to the acquiring entity as a result of their failure to pay
payroll tax liabilities. The Company remains contingently liable on a
$510,000 mortgage associated with the land and building transferred under the
foreclosure.
H. Due to stockholders:
A stockholder tendered $56,485 to purchase additional restricted shares.
The Company determined that the tender was not in accordance with the terms
of their agreement and did not issue any additional shares pending reaching a
new understanding with the stockholder. In addition, amounts due to
stockholders include an 18% note for $50,000 and an 18% note for $10,000.
None of the foregoing stockholders have sufficient management influences to
characterized as "related parties."
I. Fair value of financial Instruments:
Note payable and due to stockholders are due on demand; however the
Company does not have the funds needed to settle these amounts currently.
As a result, the Company is unable to estimate the timing and ultimate form
of their settlement. It is believed that if the current holders were to sell
such instruments to other parties, the sales price would be substantially
less that the carrying value.
J. Common stock transactions:
The Company issued stock for compensation to officers and other
employees and in settlement of professional and other fees. For transactions
involving compensation, the Company valued the transaction at the fair value
of the common stock. In addition, by issuing common stock, the Company
settled a payable to an entity that raised capital for the Company's
acquisition of the subsidiary that it lost in foreclosure during the year.
The fee was calculated at Fair Value of the stock on the day of payment. The
Company issued a total of 3,743,000 shares of common stock for services, at a
Fair Value of $187,000.
K. Corporate Readjustment
In view of significant changes in the Company's marketing and other
operating practices, and its management, the Boards of Directors of the
parent and its wholly-owned subsidiaries approved at a special meeting on
April 12, 1996 a corporate readjustment of stockholders' equity accounts as
of October 1, 1995, effected in accordance with accounting principles
applicable to quasi-reorganizations. Under Florida law (the state of
incorporation of the parent), this action does not require shareholder
approval. The adjustment was effected by offsetting the accumulated deficit
as of September 30, 1995, of $13,378,000 against additional paid-in capital.
Because the carrying amounts of the Company's assets and liabilities
approximate their fair or net realizable values, no further valuation
adjustments were necessary in connection with the readjustment.
L. Leases:
In February 1996 the Company occupied new space under a draft short-term
lease expiring in six months or upon the exercise of a provision to acquire
title to the building or upon exercise of a provision to extend the lease for
another six months. The monthly lease payment is $11,000 and $13,000 if the
Company extends the lease under an extended term provision. The purchase
price noted in the purchase agreement is $2,500,000. At April 11, 1996
neither the lease agreement or the agreement for the purchase of the property
are executed.
Total rental expense under short-term operating leases was $82,000 for
1994 and $143,000 for 1995.
M. Commitments:
Employment Contracts:
The Company has employment agreements with certain officers and
employees, which expire at various times through 2000. The agreements
provide for automatic bonus compensation payable in common stock of the
Company, provided the person is employed by the Company. The aggregate
commitment for future salaries at December 31, 1995, excluding bonuses was
approximately $764,000. The aggregate commitment for common stock under the
stock bonus sections of the agreements was 430,000 shares at December 31,
1995.
Stock Options:
The Company has granted options to acquired its common stock at various
times and under various plans, contracts and employment agreements at prices
that approximated or exceeded fair market values at the date of issue.
Options granted were exercisable over periods ranging from one to four years.
1995 1994
[S] [C] [C]
Outstanding, beginning of year 144,195 144,195
Expired during the year (144,195) -
----------- ------------
Outstanding, end of year - 144,195
=========== ============
$3.60 to
Range of exercise prices $18.80
Stock Appreciation Rights:
The Company has issued both stock appreciation and incentive rights and
tandem stock options and stock appreciation rights (SARS). Upon exercise of
the SARS, the option surrenders the exercisable portion of the option in
exchange for payment in common stock (valued at the fair market value on the
date of surrender) or cash on the spread between the aggregate option price
and its aggregate fair market value on the date of surrender of the
exercisable portion of the option. Changes in SARS were:
1995 1994
[S] [C] [C]
Outstanding, beginning of year 346,711 346,711
Expired during the year (346,711) -
------------ ------------
Outstanding, end of year - 346,711
============ ============
$3.75 to
Range of exercise prices $38.38
Warrants:
The Company has sold or granted warrants to acquire its common stock at
various times and under various agreements at prices that approximated or
exceeded fair value at the date of issue. Warrants outstanding at December
31, 1995 may be exercised not later than August 31, 1996.
1995 1994
[S] [C] [C]
Outstanding, beginning of year 1,350,000 892,000
Grante 55,000 460,000
Exercised - (2,000)
Expired during the year (507,000) -
------------ ------------
Outstanding, end of year 898,000 1,350,000
============ ============
$1.25 to $2.625 to
Range of exercised prices $3.75 $5.00
N. Income Taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax reporting
purposes. The Company has recorded a valuation allowance to reflect the
uncertainty of the ultimate utilization of the deferred tax assets as
follows:
1995 1994
[S] [C] [C]
Net operating loss carry forward $ 3,053,000 $ 3,490,000
Less valuation allowance 3,053,000 3,490,000
------------ ------------
Net deferred tax assets $ - $ -
============ ============
Following is a reconciliation of applicable U.S. federal income tax rates
(credits) to the effective tax rates included in the statement of operations:
1995 1994
[S] [C] [C]
U.S. federal income tax rate (34.0%) (34.0%)
State income tax rate, net of
federal tax benefit (3.6) (3.6)
Tax loss carry forwards 37.6 37.6
------- -------
-- --
======= =======
At December 31, 1995, the Company had available net operating loss
carryforward for income tax reporting purposes as follows:
Net Operating Loss Expiring in
Year Ended Carry forward Year Ended
1987 $ 107,000 2002
1988 906,000 2003
1989 1,320,000 2004
1990 2,280,000 2005
1991 619,000 2006
1992 309,000 2007
1993 22,000 2008
1994 1,315,000 2009
1995 867,000 2010
------------
$ 7,745,000
============
In addition the Company has $1,230,000 of capital loss carry forward,
that expires in 2000, which can be used to offset capital gains, if any.
O. Subsequent Events:
On March 5, 1996, the Company entered into an option agreement to
purchase all of the issued and outstanding stock of EarthCall Communications
Corporation (EarchCall). The option allows the Company to purchase EarthCall
for a note of $500,000 and 850,000 shares of common stock of the Company.
The Note is payable one year after the exercise of the option, however, the
holder has the right to convert the note into common stock of the Company at
a conversion price of $1 per share. The note will bear interest at 7% per
annum. The option expires June 1, 1996 with one three month extension
available. The option requires the Company to meet certain requirements in
order to exercise. At March 15, 1996 the Company had not met the
requirements for closing.
On April 11, 1996 the Company entered into a letter of intent with
CAM-NET Communications Network, Inc. (CAM-NET), whereby CAM-NET agrees to
make a tender offer for the Company's common stock if certain performance
conditions are met. The letter of intent is subject to final negotiations
and approval of the companies board of directors and the Company's
shareholders.
P. Industry Segment Information:
The Company is primarily engaged in the marketing of long distance
telephone services (telephone segment). In addition, the Company also
licenses nutritional products (food segment) through an agreement entered
into during January, 1995. In 1995, $302,000 of revenues related to the
food segment, and all other revenues, losses, identifiable assets,
depreciation and capital expenditures realted to the telephone segment.
For 1994, the industry segment information is as follows:
Year Ended December 31, 1994
------------------------------------------
Food Telephone
Segment Segment Consolidated
Total revenues $ 306,220 $3,414,145 $3,720,365
Operating loss (1,663,355) (1,712,814) (3,376,169)
Identifiable assets 738,874 2,737,278 3,476,152
Depreciation and
amortization 696,889 234,853 931,742
Capital expenditures 18,709 87,754 106,463
Q. Fourth Quarter Results:
Significant adjustments made in the fourth quarter:
[S] [C]
Loss third quarter, as amended $1,082,000
Fourth quarter operating loss 135,000
Fourth quarter adjustments:
Write off goodwill 422,000
Write off accounts receivable 100,000
Write off equipment and improvements 166,000
Stock issued for services prior to fourth quarter 103,000
Foreclosure loss not recorded properly in third
quarter 1,230,000
Adjustment of transaction, stock issued for
settlement of fees (747,000)
Other (169,000)
-----------
Net loss for year $2,322,000
===========
GLOBAL TELEMEDIA INTERNATIONAL, INC.
f/k/a/ PHOENIX ADVANCED TECHNOLOGY, INC.
(Registrant)
Date: April 15, 1996
Roderick A. McClain
____________________________________
Roderick A. McClain, President & CEO
