<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC..
(Name of small business issuer in its charter)
FLORIDA 64-0708107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1121 ALDERMAN DRIVE, SUITE 200, ALPHARETTA, GEORGIA 30202
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 667-6088
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date 22,651,451 Common Stock as of July
25, 1997
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB
FOR QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheet as of June 30, 1997.......................... 1
Consolidated Income Statements for the Three and Six
Months ended June 30, 1997 and June 30, 1996 ....................... 2
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 1997 and June 30, 1996 ....................... 3
Consolidated Statements of Shareholders' Equity for the
Six Months ended June 30, 1997 ..................................... 5
Notes to Consolidated Financial Statements............................... 6
Part I - Item 2. Management's Discussion and Analysis of Financial
Condition, Liquidity and Capital Resources, and
Results of Operations............................................... 11
Part II - Item 2. Changes in Securities.................................. 13
Part II - Item 5. Other Information...................................... 14
Signatures............................................................... 15
Part II - Item 6. Exhibits............................................... 16
</TABLE>
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current Assets
Cash $ 167,445
Accounts receivable, net of Allowance of $555,712 1,556,342
Due from stockholders 25,000
Inventory 60,751
Other current assets 73,720
----------
Total Current Assets 1,883,258
Property and equipment, net of accumulated depreciation of $279,646 5,100,997
Other Assets 1,091,056
----------
TOTAL ASSETS $8,075,311
==========
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities
Accounts payable $3,738,307
Accrued expenses 2,938,728
Current portion of Capital Lease Obligations 8,716
Notes Payable 818,416
----------
Total Current Liabilities 7,504,167
Long-Term Liabilities
Notes Payable 7,425,377
Long-term Capital Lease Obligations, net of current portion 26,093
----------
Total Long-Term Liabilities 7,451,470
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 25,000,000 shares;
issued and outstanding 22,651,451 90,588
Additional paid-in capital 4,983,959
Note receivable from stock sale (310,000)
Accumulated deficit (11,644,873)
------------
Total Stockholders' Equity Deficiency (6,880,326)
----------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY DEFICIENCY $8,075,311
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
3. NOTES PAYABLE AND LITIGATION
Notes payable consist of the following at June 30, 1997
Current:
18% note payable, due on demand ............................... $ 273,467
Short-term portion of 12% note payable, secured by building.... 7,511
7% note payable, due on September, 1997........................ 250,000
Various floating rate notes, due on demand .................... 250,000
Other miscellaneous notes..................................... 37,438
--------
$ 818,416
--------
--------
Long Term:
Long-term portion of 12% note payable, secured by building..... 1,822,489
Floating rate convertible debentures, due on demand ........... 5,602,888
---------
$7,425,377
----------
----------
Maturities of long-term debt are as follows:
1997 $ -
1998 5,614,729
1999 1,810,648
-----------
$ 7,425,377
-----------
-----------
4. COMMITMENTS
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
The Company's long distance and marketing activities are subject to certain
federal and state regulations. The Company is involved in various regulatory
matters as well as lawsuits incidental to its business. In the opinion of
management, these regulatory matters and lawsuits in the aggregate will not have
an material adverse effect on the Company's financial position or the results of
operations of future periods.
On July 15, 1996, the Company entered into an agreement to purchase enhanced
switching equipment for $2,600,000. As of June 30, 1997, $650,000 has been
paid, and the balance is contingent upon certain system performance requirements
defined under the contract.
The Company has various agreements for communication services which commit
approximately $9,360,000 over the next six years as follows:
1997 $1,365,000
1998 3,120,000
1999 3,000,000
2000 1,500,000
2001 and thereafter 375,000
----------
$9,360,000
----------
----------
8
<PAGE>
5. SIGNIFICANT CONTRACT
The Company entered into an agreement (the "Agreement"), on April 12, 1997, as
amended on May 1, 1997, and May 14, 1997 with a major distributor of prepaid
calling cards (the "Distributor") pursuant to which the Distributor will
purchase long-distance telecommunications facilities from the Company to market
prepaid telephone calling cards. The term of the Agreement is twenty-four
months, in addition to a ramp-up and testing period ("ramp-up period") during
which it is anticipated that the Company will take the necessary steps to insure
that its telecommunication switches have the necessary capacity and reliability
to facilitate the anticipated volume requirements. As of June 30, 1997, the
Company was still operating under the ramp-up and testing period. The Agreement
shall automatically renew for consecutive periods of one year unless one party
gives written notice to the other party, no later than six months before
expiration of the Agreement, of its intention to terminate.
The Distributor will purchase telecommunications services from the Company for
the purposes of marketing and distributing its prepaid calling cards, subject
to a minimum monthly charge of $10 million. After completion of the ramp-up
period, when the Distributor, for any month, purchases from the Company at least
$10 million in telecommunications services, the Distributor shall then be
obligated to pay the Company, for each subsequent month, a minimum of $10
million for telecommunications services.
Simultaneously with execution of the Agreement, the Company and the Distributor
entered into a Marketing Consulting Agreement pursuant to which the Distributor
will provide certain consulting services to the Company in return for the
granting of options ("Options") for the purchase of up to four million shares of
the Company's Common Stock. The Options are exercisable at $0.50 per share,
carry certain registration rights, and vest over the life of the contract as
certain performance thresholds are met.
6. SUBSEQUENT EVENT
On July 17, 1997, one of the Company's wholly-owned subsidiaries, System 3
(d/b/a The West Group and Finish Line Collectibles) filed for relief under
Chapter 7 of the Bankruptcy Code, Title 11, United States Code, under which its
assets will be liquidated under Bankruptcy Court supervision with the proceeds
to be applied to the claims of secured, priority, and unsecured creditors as
provided by the Bankruptcy Code. The case was filed in the United States
Bankruptcy Court, Middle District of Florida, Jacksonville Division. The
Bankruptcy Court has appointed Aaron Cohen as the interim trustee and it is
expected that Mr. Cohen will be confirmed as the permanent trustee following the
first meeting of creditors, which is scheduled for September 4, 1997.
As of November 15, 1996, System 3 acquired substantially all of the assets of
the business of Finish Line Collectibles, Inc. and two related corporations from
Mr. Arthur West, pursuant to the terms of an asset purchase agreement. Since
this date, System 3 attempted to market collectible prepaid calling cards
depicting the licensed marks of personalities in NASCAR Winston Cup Racing as
well as operated a membership club for racing fans. Net losses accumulated from
operations of System 3 during 1997 exceeded approximately $350,000 and
accordingly have been included in the results of operations through June 30,
1997.
9
<PAGE>
On July 11, 1997 the Company signed an agreement to acquire from the controlling
shareholder, 75% of the issued and outstanding shares of International Teledata
Corporation ("ITD"), for a combination of cash, notes and common stock of the
Company. The Company intends to tender for the for the balance of the common
stock of ITD, on the same terms and conditions, upon obtaining required
approvals. The transaction is subject to the fulfillment of certain
contingencies and is expected to close in the third quarter of 1997.
Based in Tampa, Florida, ITD markets a variety of high-quality
telecommunications products and services, including One Plus and 800 services,
prepaid long distance debit cards and message on hold products. ITD has also
secured the marketing rights to a proprietary new satellite transmission
protocol which provides a wide range of communications services worldwide to
facilitate business and personal applications.
10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
This report, including the disclosures below, contains certain forward-looking
statements that involve substantial risks and/or uncertainties. When used
herein, the terms "anticipates," "expects," "estimates," "believes" and similar
expressions, as they relate to the Company or its management, are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements.
RESULTS OF OPERATIONS
The Company seeks to manage its business to enhance long-term growth and
shareholder value. The Company also seeks to utilize financial leverage, equity
funding, and cash flow generated from operations to support capital expenditures
and possible future acquisitions. The Company intends to be an acquirer of new
technologies that would (i) result in an acceptable rate of return on such long
term investments and (ii) provide adequate opportunity to effectively implement
the Company's operating strategies.
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
OPERATING (LOSS)
REVENUES for the three and six months ended June 30, 1997 increased
approximately 1259% and 762% to $3.61 miilion and $5.22 million, respectively.
The dramatic revenue increases were associated with increased levels of
operations in both the international wholesale carrier business and Vision 21.
During May 1997, the Company began to recognize revenues associated with the
testing and ramp-up phases of a significant contract which calls for monthly
minimum revenues of $10 million at full capacity. That contract accounted for
over half of the Company's second quarter revenues. As of June 30, 1997, the
Company continues in the rampup phase of the contract due to unanticipated
reliability problems associated with the Company's enhanced switching network
known as "Workhorse." The Company continues to work with the vendor to resolve
the Workhorse reliability problems, but has purchased and installed a second
network architecture to enhance its ability to achieve the minimum $10 million
monthly levels under its contract. However, there is no assurance that the
Company will be successful in performing under the contract.
During June 1997, the Company revamped the product offerings and compensation
program for its Vision 21 direct marketing subsidiary, adding a travel products
package and revising its menu of telecommunications products. While initial
reaction of field representatives during pre-rollout has been positive, there is
no assurance that the market for Vision 21 products will develop on a
ssuccessful and profitable basis.
11
<PAGE>
COMMUNICATION AND MARKETING SERVICES EXPENSES increased for the three and six
months ended June 30, 1997 increased approximately 1027% and 845%, respectively,
compared to the corresponding period of the prior year. Substantially all of
the increases were associated with the increased revenue levels. During the
second quarter of 1997, the Company issued credits of approximately $725,000 to
its largest customer due to certain reliability problems associated with the
Company's Workhorse switching network and thus the Company's related inability
to obtain favorable "buy" rates to certain countries to which it routes traffic.
The credits resulted in lower than anticipated gross margins and a loss on the
contract for the quarter.
GENERAL AND ADMINISTRATIVE COSTS increased approximately 187% and 167%,
respectively, for the three and six months ended June 30, 1997 compared to the
corresponding period in 1996. During the second quarter of 1997, the Company
provided reserves related to certain accounts receiveable of approximately
$319,000. The amounts in question have been disputed by the customer due in
part to reliability problems with the enhanced service platform. The Company
has also experienced unusually high levels of consulting and legal expenses
associated with financing matters and ongoing litigation. The Company does not
anticipate incremental increases in general and administrative costs in
conjunction with anticipated future revenue growth.
NET LOSS FROM OPERATIONS increased approximately 187% to $2,687,108 for the
three months ended June 30, 1997, and approximately 188% to $4,630,539 for the
six months then ended. The increased net operating loss was primarily the
result of the planned ramp-up of communications and general expenses in advance
of the expected revenue, combined with customer credits associated with the
Company's inability to obtain better buy rates from its carrier suppliers.
Such reduced rates generally lag behind increases in network traffic volume.
The Company expects that its increased volume will enable it to obtain better
underlying carrier rates which should improve overall gross margins. However,
there can be no assurances to this effect.
OTHER INCOME (EXPENSES)
Interest expense increased to approximately $337,000 and $678,000, respectively,
for the three and six months ended June 30, 1997 compared to 1996 due to
increases in notes payable. The Company will continue to explore the most
effective utilization of financial leverage as well as alternative means of
raising additional capital to enhance long-term growth and maximize shareholder
value.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash increased during the six months ended June 30, 1997.
Principal sources of funds consisted of (i) borrowings on notes payable
($387,437) and (ii) proceeds from the issuance of common stock ($995,000). The
primary uses of funds consisted of (i) additions to property and equipment
($181,077). The majority of these proceeds were received from the conversion of
various warrants at prices ranging from $.40 to $.50 per share. As of June 30,
1997, the Company has still not received $310,000 of these funds, but which are
covered by a note receivable from a single purchaser. The funds received to
date have been used for working capital purposes.
12
<PAGE>
During the second quarter, the Company revised the merchandise and product
offering for Vision 21 and is preparing to launch the new program during the
third quarter of 1997. This resulted in an increase in refunds and a write-off
of inventory as of June 30, 1997. In addition, during 1997, the Company began
selling wholesale international time to other carriers. Based on the Company's
positive feedback on these new products, the Company had a significant increase
in Accounts Receivable.
The increase in property and equipment reflects the acquisition of additional
telecommunications equipment purchased in conjunction with the Company's
nationwide network. Approximately $840,000 of this increase was paid for
through the issuance of common stock.
The increase in accounts payable and accrued expenses resulted from the
Company's cash position. The increase in notes payable and accrued interest
represents the amortization of debt discounts from various previously issued
demand notes and convertible debentures. In addition, the Company issued an
additional $100,000 of convertible debentures which were converted and an
additional $250,000 of short-term debentures during the six months ended June
30, 1997.
The Company has historically financed its operations principally through the
sale of equity and debt securities and through funds provided by operating
activities.
As of June 30, 1997, the Company had notes payable totaling $8,243,793, accrued
but unpaid expenses totaling $2,938,728, and current accounts payable totaling
$3,738,307. Although management of the Company anticipates an improvement in the
Company's cash flow position from increased revenues from one or more of its
businesses, no assurance can be given to that effect. Even if such increases
were to occur, management believes that the Company can sustain operations only
by the infusion of substantial amounts of financing. No assurances can be given
that such financing will be available at terms acceptable to the Company, or at
all. Inability to obtain such financing could force the Company to cease all
business operations.
In the Company's 10-KSB filing on April 15, 1997, the Company's auditors
included an explanatory paragraph in their Report of Independent Certified
Public Accountants to the effect that recovery of the Company's assets are
dependent upon future events, the outcome of which is indeterminable, and that
the successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost corporate
infrastructure. There can be no assurances that such financing can be
completed on terms favorable to the Company or at all, or that the Company will
ever achieve profitable operations.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(C)
During the second quarter, 1997 the Company sold unregistered shares to certain
accredited investors and principal shareholders. The Company believes all of
these issuances were made in accordance with the exemptions under Section 4(2)
of the Securities Act of 1933. These shares were issued in the following
transactions:
13
<PAGE>
On April 22, 1997, the Company issued 50,000 shares for $.40 per share.
On April 30, 1997, the Company issued 500,000 shares valued at $.40 per share to
Trident Communications Corporation for consulting services performed.
On May 14, 1997, the Company issued 500,000 shares to Trident Communications
Corporation with a restrictive legend which states that these shares are not yet
paid for and subject to cancellation. This legend will be removed if Trident
Communications Corporation achieves certain performance thresholds. However, the
shares may be cancelled if such threshholds are not met by September 15, 1997.
The Company has treated these shares as issued and outstanding but not yet paid
for as of June 30, 1997.
On May 30, 1997, the Company issued 1,168,767 shares to Trident Communications
Corporation valued at $.7187 per share in consideration for certain
telecommunications equipment.
On June 30, 1997 the Company issued 770,747 shares valued at $.4959 per share
pursuant to the conversion of a $350,000 convertible debenture, plus interest
accrued thereon.
ITEM 5. OTHER INFORMATION
On July 17, 1997, one of the Company's wholly-owned subsidiaries, System 3
(d/b/a The West Group and Finish Line Collectibles) filed for relief under
Chapter 7 of the Bankruptcy Code, Title 11, United States Code, under which its
assets will be liquidated under Bankruptcy Court supervision with the proceeds
to be applied to the claims of secured, priority, and unsecured creditors as
provided by the Bankruptcy Code. The case was filed in the United States
Bankruptcy Court, Middle District of Florida, Jacksonville Division. The
Bankruptcy Court has appointed Aaron Cohen as the interim trustee and it is
expected that Mr. Cohen will be confirmed as the permanent trustee following the
first meeting of creditors, which is scheduled for September 4, 1997.
As of November 15, 1996, System 3 acquired substantially all of the assets of
the business of Finish Line Collectibles, Inc. and two related corporations from
Mr. Arthur West, pursuant to the terms of an asset purchase agreement. Since
this date, System 3 attempted to market collectible prepaid calling cards
depicting the licensed marks of personalities in NASCAR Winston Cup Racing as
well as operated a membership club for racing fans. Net losses accumulated from
operations of System 3 during 1997 exceeded approximately $350,000 and
accordingly have been included in the results of operations through June 30,
1997.
14
<PAGE>
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Registrant)
/s/ Roderick A. McClain
- -----------------------------------------
Roderick A. McClain, President & CEO
Date: August 1, 1997
/s/ Terry A. Huetter
- -----------------------------------------
Terry A. Huetter, Chief Financial Officer
Date: August 1, 1997
15
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended June 30 Six Months ended June 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
TOTAL REVENUES: $ 3,606,351 $ 265,286 $ 5,215,357 $ 605,051
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Communication and Marketing Services 3,818,446 338,921 5,498,455 581,941
General and Administrative 2,475,013 861,013 4,347,441 1,630,671
----------- ----------- ----------- -----------
Total Operating Expenses 6,293,459 1,199,934 9,845,896 2,212,612
----------- ----------- ----------- -----------
Operating (Loss) (2,687,108) (934,648) (4,630,539) (1,607,561)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest Expense (336,736) (26,503) (677,696) (33,109)
Other Income (6,361) 11,331 18,750
----------- ----------- ----------- -----------
NET LOSS $(3,030,205) $ (949,820) $(5,308,235) $(1,621,920)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER SHARE $(0.15) $(0.08) $(.29) $(0.15)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 19,582,830 12,264,848 18,557,547 11,128,106
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(5,308,235) (1,621,920)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 563,742 16,044
Bad Debt 351,212 -
Stock issued for services 485,663 191,615
Changes in assets and liabilities:
Decrease (increase) in:
Receivables and amounts due from stockholders (1,637,042) (22,264)
Inventories 418,571 (52,144)
Other current assets 76,597 (174,265)
Increase (decrease) in:
Accounts payable and accrued expenses 3,809,921 179,214
Amounts due to stockholders - (56,485)
----------- -----------
Total adjustments 4,068,664 81,715
----------- -----------
Net cash provided (used) from operating activities (1,239,571) (1,540,205)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Goodwill - -
Acquisition of property and equipment (181,071) (43,589)
----------- -----------
Net cash used in investing activities (181,071) (43,589)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 387,437 1,500,000
Debt acquisition costs 135,887 -
Proceeds from issuance of common stock 995,000 368,728
----------- -----------
Net Cash Provided by Financing Activities 1,518,324 1,868,728
----------- -----------
Net Increase (Decrease) in Cash 97,676 284,934
Cash at Beginning of Period 69,770 192,976
----------- -----------
Cash at End of Period $ 167,446 $ 477,910
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
CONTINUED
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Details of acquisition:
Fair value of assets acquired 92,186
Goodwill established 147,182
Liabilities assumed 239,368
Details of disposal:
Goodwill written off 241,122
Net liabilities written off 241,122
Acquisition of equipment for stock 840,000
Acquisition of equipment through assumption
of liabilities 1,077,000
Conversion of note payable for common stock 382,232
Issuance of common stock for note & accounts receivable 335,000
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Issued Additional Total
------------------------ Paid-In Shareholder Shareholders'
Shares Par Value Capital Deficit Note Receivable Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 16,242,386 $ 64,953 $1,971,700 $(6,336,639) - $(4,299,986)
Shares Issued to Consultants 32,051 128 23,910 - - 24,038
Exercise of Warrants 2,100,000 8,400 916,600 - - 925,000
Compensation Earned 40,000 160 1,840 - - 2,000
Cancellation of shares previously granted (112,500) (450) (5,175) - - (5,625)
Note receivable from stock sale - - - - (310,000) (310,000)
Net Loss - - - (2,278,030) - (2,278,030)
-------------- ----------- ------------- -------------- ------------ --------------
Balance, March 31, 1997 18,301,937 $ 73,191 $2,908,875 $(8,614,669) $(310,000) $(5,942,603)
-------------- ----------- ------------- -------------- ------------ --------------
-------------- ----------- ------------- -------------- ------------ --------------
Shares Issued to Consultants 750,000 3,000 390,750 - - 393,750
Exercise of Warrants 100,000 400 68,600 - - 69,000
Compensation Earned 50,000 200 2,300 - - 2,500
Purchase of Stock 2,678,767 10,715 1,234,285 - - 1,245,000
Conversion of Notes Payable 770,747 3,083 379,149 - - 382,232
Net Loss - - - (3,030,205) - (3,030,205)
-------------- ----------- ------------- -------------- ------------ --------------
Balance, June 30, 1997 22,651,451 $ 90,589 $4,983,959 $(11,644,873) $(310,000) $(6,880,326)
-------------- ----------- ------------- -------------- ------------ --------------
-------------- ----------- ------------- -------------- ------------ --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries, as well as less than majority owned entity which
it controls. Significant intercompany accounts and transactions have been
eliminated in consolidation.
PROPERTY AND EQUIPMENT
Purchased Property and equipment are recorded at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, commencing
when the assets are installed or placed in service. The estimated useful lives
are ten years for furniture and fixtures, seven years for office equipment, and
five years for computer equipment. The cost of installed equipment includes
expenditures for installation. Capital Leases are recorded at lower of fair
market value or the present value of future minimum lease payment. Assets
recorded under capital leases and leasehold improvements are depreciated over
the shorter of their useful lives or the term of the related lease.
INVENTORY
Inventory consists of promotional and training materials used in the Vision 21
marketing program. These amounts are recorded at the lower of cost (first-in,
first-out) or market value.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of the
net identifiable assets acquired from the Internet Service Business acquisition
in January 1997.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt as
of January 1, 1996. Under SFAS 123, the Company recognizes compensation expense
for all stock-based compensation, using a fair value methodology. This policy
is consistent with the company's prior accounting.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that effect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Significant estimates in the
6
<PAGE>
financial statements include the assumption the Company will continue as a
going concern. The assumption could change in the near term.
INTERIM INFORMATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X promulgated by the Securities and Exchange Commission. Such
financial statements do not include all disclosures required by generally
accepted accounting principles for annual financial statement reporting
purposes. However, there has been no material change in the information
disclosed in the consolidated financial statements included in the Company's
Form 10-KSB for the year ended December 31, 1996, except as disclosed herein.
Accordingly, the information contained herein should be read in conjunction with
the consolidated financial statements and related disclosures contained in the
Company's Form 10-KSB for the year ended December 31, 1996. The accompanying
financial statements reflect, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the interim periods presented.
The periods presented are the three and six months ended June 30, 1997 and 1996,
respectively. Certain reclassifications have been made to the financial
statements for prior periods to conform to the current year presentation. These
reclassifications have no effect on the net income for any of the periods.
2. OTHER ASSETS
Other assets consist of the following at June 30, 1997
Deposit for purchase of equipment .......................... $ 650,000
Prepaid debt financing, net of accumulated amortization .... 309,714
Goodwill, net of amortization of $36,088.................... 131,342
----------
$ 1,091,056
7
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 167,445
<SECURITIES> 0
<RECEIVABLES> 2,112,054
<ALLOWANCES> 555,712
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<CURRENT-ASSETS> 1,883,258
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<COMMON> 90,588
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<SALES> 5,215,357
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