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 March 31, 1997
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to _____________
Commission File Number 0-20922
-------------
TOTAL WORLD TELECOMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-2274730
- ------------------------------------ ----------------------------------------
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3200 North Military Trail, Suite 300, Boca Raton, Florida 33431
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(561) 997-5880
---------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements in the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date: 11,251,077 common shares as of
April 30, 1997; the Issuer is currently engaged in a dispute with certain
holders of its convertible preferred stock and notes as to the validity of their
asserted rights to convert their securities into Common Stock and as to the
number of shares of Common Stock that may be issuable thereunder if they do have
valid conversion rights. The Issuer has received purported notices of conversion
which, if valid and accepted at the amounts alleged by the holders, would result
in the Issuer having issued and outstanding 34,244,449 shares of Common Stock as
of April 30, 1997.
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
INDEX
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -- March 31, 1997
Consolidated Statements of Operations -- Three Months Ended
March 31, 1997 and 1996
Consolidated Statements of Operations -- Six Months Ended
March 31, 1997 and 1996
Consolidated Statements of Cash Flows -- Six Months Ended
March 31, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Financial Statements, Pro Forma Financial Information and
Exhibits
2
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1997
--------------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 475,132
Accounts receivable, net 7,830,266
Due from employees and related parties 915,493
Prepaid expenses and other current assets 1,228,336
-----------
Total current assets 10,449,227
-----------
PROPERTY AND EQUIPMENT, at cost
(net of accumulated depreciation
of $2,315,939) 5,744,573
-----------
OTHER ASSETS:
Intangible assets, (net of accumulated
amortization of $2,763,777) 45,546,169
Estimated realizable value of net
assets of discontinued operations 2,339,220
-----------
47,885,389
-----------
Total assets $64,079,189
===========
See accompanying notes to financial statements.
3
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1997
--------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 3,080,762
Convertible debt 12,755,334
Accounts payable 12,074,483
Accrued expenses and other liabilities 8,984,644
Estimated future losses of discontinued
operations 1,000,000
------------
Total current liabilities 37,895,223
------------
LONG-TERM DEBT 2,559,711
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock 39,034,987
Common Stock, $.00001 par value,
100,000,000 shares authorized,
9,326,314 shares issued and
outstanding 78
Additional paid-in capital 68,063,184
Unearned compensation (4,927,394)
Accumulated deficit (77,806,600)
Treasury stock at cost, 55,933
common shares (740,000)
------------
23,624,255
------------
Total liabilities and
stockholders' equity $ 64,079,189
============
See accompanying notes to financial statements.
4
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Three Months
Ended March 31,
1997 1996
------------ ------------
(Unaudited)
REVENUE $ 11,357,170 $ 81,678
------------ ------------
COST OF SALES 11,499,483 --
------------ ------------
GROSS PROFIT (LOSS) (142,313) 81,678
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 9,308,850 788,257
Depreciation and amortization 473,394 9,313
------------ ------------
9,782,244 797,570
------------ ------------
Loss from operations (9,924,557) (715,892)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (5,675,526) (47,624)
Interest income 28,371 --
Other income 1,423 --
------------ ------------
Total other income (expense) (5,645,732) (47,624)
------------ ------------
Loss from continuing operations (15,570,289) (763,516)
------------ ------------
DISCONTINUED OPERATIONS:
Operating loss from discontinued
operations (464,974) (373,641)
Estimated loss from disposal of real
estate brokerage and credit union
auditing segments (6,000,000) --
------------ ------------
Loss from discontinued operations (6,464,974) (373,641)
------------ ------------
NET LOSS $(22,035,263) $ (1,137,157)
============ ============
PER COMMON SHARE:
Loss from continuing operations $ (4.25) $ (.51)
Loss from discontinued operations ( .95) (.25)
------------ ------------
NET LOSS $ (5.20) $ (.76)
============ ============
NUMBER OF SHARES USED IN COMPUTATION 6,774,310 1,495,703
============ ============
See accompanying notes to financial statements
5
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the Six Months
Ended March 31,
1997 1996
------------ ------------
(Unaudited)
REVENUE $ 20,284,459 $ 149,663
------------ ------------
COST OF SALES 19,572,200 --
------------ ------------
GROSS PROFIT 712,259 149,663
------------ ------------
OPERATING EXPENSES:
Selling, general and administrative 13,501,810 1,536,675
Depreciation and amortization 2,447,151 17,569
------------ ------------
15,948,961 1,554,244
Loss from operations (15,236,702) (1,404,581)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (5,866,037) (97,265)
Interest income 43,933 --
Other income 1,460,337 --
------------ ------------
Total other income (expense) (4,361,767) (97,265)
------------ ------------
Loss from continuing operations (19,598,469) (1,501,846)
------------ ------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (1,713,926) (724,314)
Estimated loss from disposal of real
estate brokerage and credit union
auditing segments and restructur-
ing charges (6,000,000) --
------------ ------------
Loss from discontinued operations (7,713,926) (724,314)
------------ ------------
NET LOSS $(27,312,395) $ (2,226,160)
============ ============
PER COMMON SHARE:
Loss from continuing operations $ (7.58) $ (1.09)
Loss from discontinued operations (2.01) (.52)
------------ ------------
NET LOSS $ (9.59) $ (1.61)
============ ============
NUMBER OF SHARES USED IN COMPUTATION 6,341,039 1,381,626
============ ============
See accompanying notes to financial statements
6
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(27,312,395) (2,226,160)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 836,237 282,770
Interest accrued on amounts due stockholders -- 23,873
Amortization of intangible assets 1,985,793 --
Issuance of debt for payment of interest on debentures 2,755,334 --
Common stock issued for consulting fees -- 19,097
Credit arising from disputed transaction (1,500,000) --
(Increase) decrease in accounts receivable 215,933 (484,409)
Increase (decrease) in mortgages held for sale (182,018) --
(Increase) decrease in advances to
employees and stockholders (494,737) (140,000)
(Increase) (decrease) in prepaid expenses
and other current assets 4,864 (531,727)
(Increase) decrease in other assets (6,326) (9,183)
(Decrease) increase in accounts payable
and accrued expense 6,387,816 (473,005)
------------ ------------
Net cash provided used in operating activities (17,309,499) (3,538,744)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of subsidiaries (4,433,765) --
Capital expenditures (2,113,095) (301,779)
------------ ------------
Net proceeds used in investing activities
of continuing operations (6,546,860) (301,779)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Preferred Stock (13,100,492) --
Payments for repurchase of common stock (10,630,611) --
Proceeds from notes payable & long term debt 10,198,256 (443,366)
Proceeds from officers 197,500 --
Payments of amounts due to officers and stockholders (100,000) (288 639
Payments of notes payable and long-term debt (5,122,801) --
Net proceeds from issuance of common stock per Reg S 4,577,751 6,502,251
Net proceeds from issuance of convertible preferred stock 38,804,917 --
Preferred stock dividends paid (1,883,800) (29,200)
------------ ------------
Net cash provided financing activities 22,940,720 5,741,046
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 915,639 1,900,523
CASH received in acquisition of SOW and N'Touch 32,357 --
CASH AND CASH EQUIVALENTS, beginning of period 1,358,414 1,130,843
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 475,132 $ 3,031,366
============ ============
NON-CASH FINANCING TRANSACTIONS:
Dividends accrued on Series M Preferred Stock $ 1,854,600 $ --
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 169,305 $ 103,911
============ ============
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
TOTAL WORLD TELECOMMUNICATIONS, INC.
------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
March 31, 1997
(1) GENERAL:
--------
The interim March 31, 1997 and 1996 unaudited financial statements, in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of financial
position as of such date and earnings and cash flows for the periods then ended.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, and the Statements of Operations for three and
six months ended March 31, 1996 have been reclassified for comparative purposes.
It is recommended that these interim consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Operating results for the six-month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ended September 30, 1997.
(2) DISCONTINUED OPERATIONS:
------------------------
In the latter part of March 1997, management elected to divest the two
business units comprising the Company's non-telecommunica- tions operations.
These two units are Financial Standards Group, Inc., the credit union auditing
operation ("FSG"), and Real Estate Services Network Holding Corp., the real
estate group ("RESN"). These operations generated net losses of approximately
$6,800,000 and $1,713,926 in the year ended September 30, 1996 and the six
months ended March 31, 1997, respectively. In addition, $6,000,000 (which
includes $1,000,000 of estimated future losses through the disposition period
estimated to be June 15, 1997) has been charged to the estimated loss on
disposal of net assets of discontinued entities.
The Company has negotiated a contract with the current management of FSG
to sell all of the outstanding stock in FSG as well as the office condo in Boca
Raton, Florida, all of which is owned by TWTI, for an estimated purchase price
of $150,000.
8
<PAGE>
In addition, the Company is negotiating with present management of the
real estate services group to sell all of the outstanding stock in its
subsidiary, RESN, as well as the commercial warehouse facility in Mount Vernon,
Ohio, for a purchase price of approximately $2,000,000 which is represented by a
note. The note would be collateralized by an interest in the Ohio property.
The net book value of the foregoing is approximately $7,339,200.
Accordingly, the Company has recorded a charge to operations of $5,000,000 in
the period representing the difference between the carrying value and the
estimated realizable value of $2,339,220.
(3) NET LOSS PER COMMON SHARE:
--------------------------
The loss per share is computed by dividing the weighted average shares
outstanding during each period into the net loss applicable to common shares and
is based on the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss from continuing
operations $(15,570,289) $ (763,516) $(19,598,469) $ (1,501,846)
Preferred stock dividends
applicable to conversion
feature and discounts 12,909,313 -- 20,272,831 --
Preferred stock dividends
based on coupon rate 320,020 -- 508,849 --
------------ ------------ ------------ ------------
Loss from continuing
operations (28,799,622) (763,516) (40,380,149) (1,501,846)
Loss from discontinued
operations (6,464,974 (373,641) (7,713,926) (724,314)
------------ ------------ ------------ ------------
Net loss applicable to
common shares $ 35,264,596 $ (1,137,157) ($48,094,075) $ (2,226,160)
============ ============ ============ ============
Number of shares used
in computation 6,774,310 1,495,703 6,341,039 1,381,626
------------ ------------ ------------ ------------
Loss per share from
continuing operations $ (4.25) $ (.51) $ (7.58) $ (1.09)
Loss per share from
discontinued operations (.07) (.25) (1.22) (.52)
Estimated loss on disposal
of real estate brokerage
and credit union auditing
segments (.88) -- (.79) --
------------ ------------ ------------ ------------
Net loss $ (5.20) $ (.76) $ (9.59) $ (1.61)
============ ============ ============ ============
The impact of converting certain convertible debt and convertible preferred stock is
anti-dilutive.
</TABLE>
9
<PAGE>
(4) CHANGE IN ACCOUNTING POLICY:
----------------------------
As of October 1, 1996, the Company has changed its method of accounting
from not recognizing the assumed discounts from conversion of preferred shares
into common shares at a discount to recognizing the benefits received by
preferred stockholders' conversions as a dividend to conform to current
interpretation.
The excess of the quoted market value of the common stock assumed
converted over the net proceeds (after commissions and fees) received for
issuance of convertible preferred shares is considered a preferred stock
dividend with this difference being accreted over the period beginning with the
issuance of the preferred stock to the date the shares are eligible for
conversion.
During the period October 1, 1996 through March 31, 1997, these assumed
preferred stock dividends aggregating $20,272,831 have been charged to the
accumulated deficit. Unredeemed accreted amounts are included in the Redeemable
Convertible Preferred Stock on the balance sheet. In addition, undeclared
dividends based on coupon rates aggregated $479,641.
(5) EQUITY TRANSACTIONS:
--------------------
The Company has at various times in 1996 and 1997 issued shares of its
convertible preferred stock in transactions that were intended to be exempt from
registration under the federal securities laws under Regulation S, and has
issued convertible notes in a transaction that was intended to be exempt from
registration under the federal securities laws under Regulation D. Among other
provisions, these instruments have included terms of conversion that would allow
a holder who has given the required notice after a specified date to convert
them into shares of Common Stock based on the following formula:
[(x)(n/365)(y)] + y
-------------------
Conversion Rate
x = a stated percentage, i.e., 0% to 10%.
n = the number of days from the date of closing to the date
of conversion
y = the number of preferred shares being converted
multiplied by the face value of the preferred stock,
i.e., 1,500 shares x $100 = 150,000
Conversion Rate = a stated percentage, i.e, 75%, 80%, 81%, etc., of the
five-day average of the closing bid price as
reported on the NASDAQ SmallCap Market Exchange
10
<PAGE>
The only exception to this formula is Series Z Convertible Preferred Stock
which conversions are based on the following formula:
[(.02)(n/365)($100.00)] + $100.00 = x
---------------------------------
Conversion Rate
n = the number of days from the date of closing to the date
of conversion
x = the number which is multiplied by the number of
preferred shares being converted to obtain the number of
common shares to be received, i.e., x = 122 x 1,500
shares = 183,000 common shares
This formula essentially allows the holder to receive Common Stock having
a value equal to 133% of the purchase price of the security, plus an accumulated
return of 8% per annum. Upon receiving notice of conversion, the Company
generally has the right to effect a redemption of the convertible security by
paying the holder cash in an amount equal to the value of the Common Stock that
would be issued upon conversion. If the Company fails to issue the shares of
Common Stock indicated by the above formula with regard to the Series H and
Series Z Preferred Stock, the instruments provide that a penalty equal to 1% of
the total value of the shares issuable accrues for seven days, and after seven
days the penalty accrues at a rate of 2% per day. Under these provisions, as the
value of the Company's Common Stock decreases, the holder would obtain the right
to purchase an ever increasing number of shares of Common Stock upon exercise of
the conversion right.
The Company has identified a number of circumstances that have caused
management to believe that the holders of these convertible securities may not
be legally entitled to convert such securities into Common Stock, and that the
number of shares issuable to any holder that has valid conversion rights may be
in dispute (the "Questionable Acts"), including without limitation the existence
of heavy short selling of the Company's Common Stock during 1997, that suggest
that the purchasers of the Company's convertible securities may have violated
certain representations and warranties in their purchase documents with regard
to their investment intent in purchasing the securities, or that they or other
persons may have engaged in other actions to manipulate the price of the
Company's Common Stock downward for their advantage. Such actions would also
prevent the Company from issuing freely tradable shares of Common Stock upon
conversion in order to avoid participating in a potentially unregistered
distribution of Common Stock in violation of the federal securities laws.
Accordingly, the Company is engaged in a dispute with certain of the holders of
these securities as to their rights under such securities, and is preparing a
11
<PAGE>
proposal to restructure the Company's capital stock. This dispute could result
in litigation that could require a substantial amount of the Company's limited
financial resources and management time to resolve.
As of March 31, 1997, the Company had outstanding the following
convertible securities which are convertible into Common Stock based on the
formulas set forth above:
Number of
Stated Value Common Shares
of Preferred Underlying
Shares Conversion
------------ -------------
Series C $12,809,200 4,879,695
Series D 5,185,600 1,975,467
Series H 9,600,000 3,657,143
Series L 1,035,000 394,286
Series U 550,000 209,524
Series Y 2,250,000 857,143
Series Z 2,313,300 881,257
----------- -----------
33,743,100 12,854,515
Other outstanding
preferred shares:
Series A 73,000 730,000
Series M 231,000 1,539,999
Series O 35,000 443,333
----------- -----------
34,082,100 15,567,847
Accretion in excess
of stated value 4,952,887 -
----------- -----------
Balance March 31, 1997 $39,034,987 15,567,847(a)
=========== ===========
_____________
(a) The Company's common stock had a closing NASDAQ price of $3.50 per share
on March 31, 1997 and $2.75 per share on May 19, 1997. Had such
conversions, as indicated in the table above, been calculated using the
May 19, 1997 stock price, the number of common shares issuable would have
been substantially higher. In addition to the foregoing, in connection
with outstanding convertible debt of $14,779,107 including interest,
4,859,144 shares are issuable upon conversion.
Of the above convertible securities as of May 19, 1997, the Company had
received purported conversion notices which, if honored, would result in the
issuance of 8,138,057 additional shares of Common Stock. The Company has not
honored these notices of Conversion, and has not delivered shares of Common
Stock to the holders pursuant thereto based on the above concerns. If such
notices were valid, which the Company disputes, 645,023 additional shares of
Common Stock would have been issuable as of May 9, 1997 as a penalty for delayed
issuance of the requested shares of Common Stock. Between January 1, 1997 and
March 31, 1997, the Company did accept notices of conversion and issued
1,906,657 shares of Common Stock, as to which the Company reserves its rights to
contest the validity of the conversion rights so exercised. In addition, the
Company has received notices of conversion and responded with the intention of
exercising the Company's right to redeem. The Company's right of redemption was
12
<PAGE>
not exercised on a timely basis, thereby reverting back to the original
conversion request. Of the remaining convertible securities, based upon the
market price of the Common Stock during the five trading days ending May 19,
1997, the holders of such securities, if exercising valid conversion rights,
could have required that 2,241,163 additional shares of Common Stock (including
1,177,192 penalty shares) be issued, and at those same stock prices,
approximately 40,000,000 additional shares of Common Stock would be issuable as
of various dates ending September 18, 1997.
When the above described convertible securities were issued, it was the
Company's belief that its financial results would permit the redemption of such
securities without issuance of any additional shares of Common Stock, thereby
avoiding any material dilution to the holders of the Company's Common Stock. The
Company's financial results in the first half of fiscal 1997 have not permitted
the Company to redeem its convertible securities as intended, and the decline
in the price of the Company's Common Stock has resulted in significant potential
dilution of the holders of the Company's issued and outstanding Common Stock if
the holders of the convertible securities have valid conversion rights at the
levels they have claimed or that might otherwise be provided by their
instruments. These developments may have effectively terminated the Company's
ability to issue its equity securities and otherwise threaten to substantially
diminish the value of the Company's Common Stock.
The Company intends to contest by all available means the right of
substantially all of the holders of the Company's convertible securities to
convert based upon the Questionable Actions referenced above, and plans to
propose a recapitalization of the Company. There can be no assurance that the
Company will be successful in these efforts or that the holders of Common Stock
will not experience substantial dilution as the result of the purported
conversion of the Company's convertible securities.
During the six months ended March 31, 1997, the Company entered into a
program to purchase shares of its own stock at the market value. Accordingly,
1,601,866 shares of common stock were purchased by the Company for an aggregate
cost of $10,803,600. Substantially all of these purchases were made in the first
quarter of fiscal 1997. Such shares were retired.
(6) CONVERTIBLE DEBT:
-----------------
On December 7, 1996, the Company entered into a convertible note agreement
providing for interest at 7% and received proceeds of $8,000,000. The note was
due or convertible in 60 days from the time of issuance into shares of common
stock based on a formula which provided common shares to be issued at 75% of the
quoted market value, as defined and having an aggregate value of $8,000,000. On
February 7, 1997, the Company was granted an extension of time to repay the note
13
<PAGE>
until January 31, 1999. The new note bears interest at 7% per annum and was
issued in the amount of $10,755,334 in consideration for extending the payment
term. The difference between the new note and the original note of $2,755,334
has been charged to operations. The Company also received $2,000,000 in cash on
February 7, 1997 with the same due dates and interest rates. Both notes are
convertible with a similar formula to the December 7, 1996 note with conversion
allowable in 90 days from the date of the note limited to conversion of 4.9% of
the outstanding shares at the date conversion is requested. Accretion has been
calculated from the date of the note issuance through the period the debt first
could be converted. Accretion and additional accrued interest aggregating
$2,023,773 has also been charged to operations. At March 31, 1997, the
outstanding debt was convertible into 4,859,144 shares of common stock. Interest
payments were to commence on May 1, 1997. The Company has defaulted on such
payment and has accrued an additional 7% interest pursuant to the terms of the
note. The note also provided for registration rights for the common shares in a
defined period. The Company is past due pursuant to this provision.
(7) FINANCIAL CONDITION:
--------------------
Since inception, the Company has incurred substantial losses, and as of
March 31, 1997, has an accumulated deficit of $77,806,600. The Company's working
capital requirements to date have been satisfied through cash on hand, as well
as certain loans from private individuals and private financings with a limited
number of non-resident institutional investors conducted pursuant to Regulation
S and Regulation D of the federal securities laws.
The foregoing matters and uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. Management anticipates that,
with the recent acquisition of N'Touch and Southwestern Telecom, Inc. as well as
the development of its prepaid debit card business, revenues will begin to
increase on a quarterly basis. The Company is currently negotiating with several
alternative financing sources in order to secure sufficient funding to support
its contemplated expansions and acquisitions. While the Company believes that it
will have the opportunity to attain additional financial support, no assurances
can be provided that the Company will be able to secure sufficient funding in
order to complete its financial program or achieve its strategic plans.
(8) LEGAL PROCEEDINGS:
------------------
(a) On July 16, 1996, a Company's subsidiary entered into an agreement to
purchase all of the voting stock of The Financial Group ("TFG") from its
shareholders ("Shareholders"), and upon consummation of that agreement, TFG
became a wholly-owned subsidiary of the Company. At the time of purchase, TFG
conducted a mortgage banking business and was involved in the origination,
purchase and sale of residential mortgage loans. TFG presently continues to
14
<PAGE>
operate a mortgage banking business. As part of the stock purchase transaction,
TFG entered into an agreement with the Shareholders to allow them to operate a
net branch and originate residential mortgage loans under TFG's regulatory
licenses and approvals. On December 17, 1996, TFG received a letter from counsel
to the Shareholders which alleged numerous breaches, defaults and
misrepresentations by the Company in connection with the net branch operation.
The Shareholders have proposed a compromise pursuant to which the Company would
pay approximately $6,400 of accounting fees and computer conversion costs
allegedly incurred by the Shareholders, waive prior advances to the Shareholders
in the amount of approximately $12,000, and the parties would execute mutual
releases of all obligations between the parties. The Company disputes those
allegations and intends to vigorously defend against these claims.
(b) On July 1, 1995, the Company executed a Convertible Promissory Note in
the original principal amount of $956,250 (which is included as a liability the
Company's balance sheet) in favor of Christian E. Carlsen, as Trustee under a
Land Trust Agreement dated September 19, 1992 ("Carlsen"). The Carlsen Note
matured on December 31, 1996. On January 6, 1997, the Company received written
Notice of default from Carlsen as to the payment of principal and interest. On
March 7, 1997, the Company and Carlsen agreed to modify the terms of the note.
The Company received a 60- day extension on the note with no additional interest
in exchange for a $250,000 cash payment to Carlsen. At March 31, 1997, the
balance of $706,250 remains unpaid.
(c) On or about October 2, 1996, Jalmark Realty, Inc., an involuntarily
dissolved Florida Corporation, and Jalmark East Realty, Inc., a Florida
corporation, filed a Complaint against the Company, Real Estate Services Network
Holding Corp., its subsidiary and Mr. Francesco Morello, an officer of the
latter. The suit relates to an alleged breach of a 1995 agreement pursuant to
which RESN had allegedly agreed to purchase the real estate brokerage business
of Jalmark Realty, Inc. for $250,000. In addition to the breach of contract
count, the Complaint alleges numerous other counts, including, but not limited
to, for fraudulent misrepresentations, tortious interference with business
relationship, defamation and violations of Florida real estate laws. The
Plaintiffs have alleged damages in excess of $15,000, exclusive of interest and
costs, and have reserved the right to amend the Complaint to seek punitive
damages. The Defendants have filed a motion to dismiss the Complaint for failure
to state a cause of action. The motions to dismiss are set for hearing in early
February 1997. At the present time, discovery is being conducted in this case.
(d) A case was filed on January 11, 1996 by the Addison Terry Company, a
business brokering firm, against Total National Telecommunications Inc. (TNT).
The plaintiff claims in this lawsuit that it is owed a brokerage fee of $95,000
for the services it provided in connection with possible financing for TNT. TNT
15
<PAGE>
operate a mortgage banking business. As part of the signed a commitment letter,
but no final agreement was reached, and no financing was obtained. The plaintiff
claims, however, that it is entitled to its brokerage fee due to the signing of
the commitment letter. The plaintiff sues for the brokerage fee, attorneys'
fees, pre-judgment interest, post-judgment interest and costs of suit. TNT
denies that the brokerage fee is owed and intends to defend itself against the
plaintiff's claim. Further TNT has filed counterclaims against the plaintiff
asserting causes of action for breach of contract, breach of fiduciary duty,
negligence, negligent misrepresentation and violation of the Texas Deceptive
Trade Practices Act. TNT seeks to recover actual damages in the total amount of
$165,000, exemplary damages, pre-judgment and post-judgment interest, attorneys'
fees and costs of suit. The case is currently in the discovery stage, and the
parties have jointly moved for a continuance of the trial date.
The following matters (items e, f, g and h) aggregating $880,000 are included in
accrued expenses and other liabilities.
(e) On June 20, 1996, the Federal Communications Commission ("FCC") issued
a Notice of Apparent Liability proposing to assess a forfeiture against the
Company in the amount of $200,000 for unauthorized conversion of five long
distance customer accounts.
The Company filed a Response with the FCC on July 29, 1996 arguing
that the proposed forfeiture amount be reduced. While the FCC is presently in
the process of reviewing the Company's Response, the Company is exploring the
possibility of a settlement with the FCC regarding this matter. At March 31,
1997, the Company has accrued $200,000 relating to this matter.
(f) In July 1996, a civil action was filed against Heartline
Communications, Inc. by the Attorney General in the State of New York.
Negotiations have proceeded, and it is estimated the monetary exposure in this
matter to be approximately $100,000, which the Company has accrued at March 31,
1997.
(g) In June 1996, a civil action was filed by the Middlesex County Office
of Consumer Affairs in New Jersey. This has now been consolidated with an action
by the Office of the Attorney General of New Jersey. Negotiations are ongoing in
this, and it is anticipated that the monetary settlement range here will be near
$80,000, which has been accrued.
(h) On August 30, 1996, an administrative subpoena was issued by the
Orange County District Attorney's ("OCDA") office requesting information
regarding the marketing of telecommunication services in California by Heartline
and TWT. Although a formal proceeding has not been instituted, the OCDA asserts
that Heartline/TWT may have violated Business and Professions Code sections
17200 and 17500. These code sections provide for civil penalties for unlawful
and unfair business practices and false or misleading advertising. By letter
16
<PAGE>
dated December 11, 1996, the OCDA demanded in excess of $1,000,000 in return for
resolving the matter without litigation. Counsel believes the OCDA's demand
exceeds any reasonable estimate of Heartline/TWT's liability, and has been
instructed by TWT to vigorously defend the Company against these claims while
continuing to explore a reasonable settlement. The Company had charged
operations for $500,000 which has been accrued at March 31, 1997.
(i) On April 10, 1996, the California Public Utilities Commission
("Commission") issued an Order Instituting Investigation into the operations of
Heartline, Total National Telecommunications, Inc. ("TNT") d/b/a Total World
Telecom ("TWT") and their affiliates alleging that Heartline/TWT had violated
regulations governing how long distance telephone customers are switched from
one interexchange carrier to another.
On August 13, Heartline/TWT and Commission staff entered into a
settlement agreement to resolve the disputes among them and to settle and
forever dispose of all issues raised. The settlement agreement was approved by
the Commission on December 9, 1996. Pursuant to the settlement agreement, TWT is
prohibited from offering retail long distance service in California for a period
of forty months. In addition, TWT is required to pay $35,000 to the Commission's
general fund and refund $20.00 to all customers whose long distance telephone
service was allegedly switched to TWT/Heartline without proper authorization.
These customers may also seek additional restitution through arbitration. While
the exact amount of TWT's exposure as a result of the settlement agreement is
unknown at this time, the Company has accrued $635,000 for this matter which
adjusted the amounts of liabilities assumed during the TNT acquisition.
(j) In June of 1996, a Class Action Complaint was filed in Cook County,
Illinois against Heartline Communications, Inc. and several other defendants.
This action was dismissed by the judge on November 26, 1996. The plaintiffs
refiled their petition in December 1996, and it is being contested by the
Company.
(k) In February 1997, the Company also responded to civil investigative
demands in Arizona and Missouri. However, at this date, nothing has been filed
in either state.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21F OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SPECIFICALLY, ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT REGARDING THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND PLANS AND OBJECTIVES OF
MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR PHRASES OF SIMILAR
IMPORT AS THEY RELATE TO THE COMPANY OR COMPANY'S MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW OF
THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, COST OF
CAPITAL, GOVERNMENTAL REGULATION AND SUPERVISION, THE OPERATION OF THE COMPANY'S
NETWORKS, TRANSMISSION COSTS, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, DISRUPTIONS ASSOCIATED WITH EXPANSION, ONE-TIME EVENTS AND OTHER
FACTORS DESCRIBED HEREIN. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE
CORRECT. BASED UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS
OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE
INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS
ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR INTENDED. ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD- LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE APPLICABLE
CAUTIONARY STATEMENTS.
RESULTS OF OPERATIONS
- ---------------------
Three and Six Months Ended March 31, 1997 Compared to Three and Six Months Ended
- --------------------------------------------------------------------------------
March 31, 1996
- --------------
For the three months ended March 31, 1997, the Company had total
consolidated revenue of $11,357,170 in contrast to $81,678 for the three months
ended March 31, 1996. The reason for the increase in revenues was due to the
acquisition of the telecommunications (TWT) division. Management anticipates
that, with the acquisition of N'Touch and Southwestern Telecom, Inc. as well as
the development of its prepaid debit card business, revenues will begin to
increase on a quarterly basis.
18
<PAGE>
For the three months ended March 31, 1997, the Company had a gross loss of
$142,313 compared to a gross profit of $81,678 for the three months ended March
31, 1996. This decrease was attributable to the aforementioned decline in "box
business" and the related write offs in accounts receivable, as well as the
increased cost margins due to the under-utilization of the Company's switches
and network. For the three months ended March 31, 1997, the Company had a loss
from continuing operations of $15,570,289 as compared to a loss from continuing
operations for the three months ended March 31, 1996 of $763,516.
The loss from the discontinued credit union auditing segment and the real
estate segment for the three months ended March 31, 1997 was $464,974 as
compared to $373,641 for the same period in 1996. In addition, the estimated
loss from disposal of these two segments have been accrued at $6,000,000 for the
quarter ended March 31, 1997.
The Company's consolidated net loss for the three months ended March 31,
1997 was $22,035,263 as compared to $1,137,157 at March 31, 1996. The March 31,
1997 quarter net loss includes certain expenses which are not expected to
continue relating to the telecommunications segment and the costs incurred with
the phaseout of the "box business." In addition, the Company realized $4,779,104
in interest expenses relating to the discount of the $12,000,000 convertible
promissory note.
For the six months ended March 31, 1997, the Company had total
consolidated revenue of $20,284,459 in contrast to $149,663 for the six months
ended March 31, 1996. The reason for the increase in revenues was due to the
acquisition of the telecommunications (TWT) division.
For the six months ended March 31, 1997, the Company had a gross profit of
$712,259 compared to a gross profit of $149,663 for the six months ended March
31, 1996. For the six months ended March 31, 1997, the Company had a loss from
continuing operations of $19,598,469 as compared to a loss from continuing
operations for the six months ended March 31, 1996 of $1,501,846.
The net loss from discontinued operations for the six months ended March
31, 1997 was $1,713,926 as compared to a net loss of $724,314 for the six months
ended March 31, 1996. This was primarily due to the expansion and growth in the
real estate segment.
Interest expense increased to $5,866,037 for the six months ended March
31, 1997 as compared to $97,265 for the six months ended March 31, 1996. This is
primarily due to the interest owed on the note payable pursuant to Regulation D
in the amount of $4,779,107. Other income increased by $1,460,337 for the six
months ended March 31, 1997 due to the reversal of the credit arising from a
disputed transaction of $1,500,000.
19
<PAGE>
The Company's consolidated net loss for the six months ended March 31,
1997 was $27,312,395 as compared to a net loss of $2,226,160 at March 31, 1996.
The March 31, 1997 six-month net loss includes increased cost due to the
under-utilization of the Company's switches and network. Additionally, write
downs on accounts receivable have contributed to reduced gross profit. These
costs are not expected to continue. The Company has discontinued its
participation in the "box business." This reduction in revenue from the box
business should be offset by revenues from Southwestern Telecom, N'Touch and the
prepaid debit card business.
Other costs included in the net loss for the six months ended March 31,
1997 are marketing expenses of $1.9 million, commissions paid to N'Touch sales
representatives of $2.5 million, bad debt expense of $1.4 million, amortization
of goodwill on the TWT acquisition of $1.4 million, a $6 million accrued loss on
the disposition of discontinued operations, as well as interest expense of $5.9
million. The Company is currently reviewing its business plan and budgets and
evaluating alternative solutions and planning an effort to control future
losses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The foregoing matters and uncertainties raise substantial doubt about the
Company's ability to continue as a going concern. Management anticipates that,
with the recent acquisition of N'Touch and Southwestern Telecom, Inc. as well as
the development of its prepaid debit card business, revenues will begin to
increase on a quarterly basis. The Company is currently negotiating with several
alternative financing sources in order to secure sufficient funding to support
its contemplated expansions and acquisitions. While the Company believes that it
will have the opportunity to attain additional financial support, no assurances
can be provided that the Company will be able to secure sufficient funding in
order to complete its financial program or achieve its strategic plans.
At March 31, 1997, the Company had operating cash on hand of $475,132 as
compared to operating cash on hand at March 31, 1996 of $2,312,910. At March 31,
1997, the Company had a working capital ratio of current assets to current
liabilities of approximately .32. The long-term portion of debt at March 31,
1997 related to the long-term portion of five capital leases for switches
located in Los Angeles, Atlanta, New York, Chicago and Houston.
Net cash used in operating activities was approximately $17,309,499 and
$3,538,744 for the three months ended March 31, 1997 and 1996, respectively. The
cash used in operations of the Company was primarily to fund the Company's
operating losses. Such losses are described above.
Net cash used in investing activities was $6,546,860 and $301,799 for the
three months ended March 31, 1997 and 1996, respectively. This is attributable
to expenses relating to the capital expenses associated with the addition of new
switches for the telecommunications segment as well as the additional payments
made for the acquisition of N'Touch.
20
<PAGE>
Net cash provided by financing activities was $22,940,720 (net of payment
of debt of $5,122,801, dividends paid $1,883,800, and repurchase/redemption of
stock of $23,731,103) and $5,741,046 for the three months ended March 31, 1997
and 1996, respectively. The increase was primarily attributable to the issuance
of the Company's Common Stock and/or convertible Preferred Stock in private
placement offerings and/or sales to accredited offshore investors pursuant to
Regulation S, as well as the refinancing of the discounted convertible
promissory note plus the receipt of $2,000,000 in additional cash making the new
convertible promissory note now $12,755,334.
During the three months ended March 31, 1997, the Company had financed its
expansion and operations with equity and debt funding. The Company received net
proceeds of $53,580,924 through the issuance of 373,032 shares of its preferred
stock and 305,059 shares of Common Stock pursuant to Regulation S and $2,000,000
through the refinancing of its convertible promissory note. The proceeds from
such financing have been used primarily to exercise the Company's option of
redemption on prior fundings. In addition, during the six months ended March 31,
1997, the Company purchased 1,601,866 shares of its Common Stock pursuant to a
buyback program at a total cost of $10,803,594.
In November 1996, the Company acquired 100 percent of the outstanding
stock of Southwestern Telecom, Inc. ("STI"). The Company has formulated a
nationwide expansion program to make STI a leader in the casual-user direct-dial
market by expanding on a geographic basis to areas where TWT already has an
existing network to better utilize TWT's origination and termination facilities
and to use the tested marketing techniques of STI. For the quarter ended March
31, 1997, STI realized a net profit of $190,000. It is anticipated to take
approximately eighteen months to fully realize the revenue potential of the
planned nationwide expansion program.
In December 1996, the Company acquired 100 percent of the outstanding
shares of NETTouch Communications, Inc. from Telecommunications Resources, Inc.,
("TRI"), of Dallas, Texas. The company paid to the principal shareholders of
NETTouch $2,400,000 and issued a Common Stock Purchase Warrant to acquire shares
of the Company's Common Stock at an exercise price of $7.75 per share. In
addition, the Company is obligated to make additional payments to such
shareholders up to an aggregate of $4,800,000 based on NETTouch achieving
incremental revenues, as defined. At March 31, 1997, $1,160,000 had been paid on
such additional payments, and additional $1,200,000 has been accrued. The
Company is currently in default on such payments. The actual number of Warrants
to be received is predicated on the level of revenues periodically obtained by
NETTouch during the 1997 calendar year. To date, NETTouch has not achieved its
projected revenues and, for the quarter ended March 31, 1997, has a net loss of
$1.4 million.
21
<PAGE>
The Company has experienced negative cash flow during the period, and it
is in arrears in several of its financial obligations. The preferred dividend
payments to the former TNT shareholders have not been made through May 19, 1997.
Of this amount, the balance due at March 31, 1997 has been accrued in the amount
of $1,236,400.
On July 1, 1995, the Company executed a Convertible Promissory Note in the
original principal amount of $956,250 (which is included as a liability the
Company's balance sheet) in favor of Christian E. Carlsen, as Trustee under a
Land Trust Agreement dated September 19, 1992 ("Carlsen"). The Carlsen Note
matured on December 31, 1996. On January 6, 1997, the Company received written
Notice of default from Carlsen as to the payment of principal and interest. On
March 7, 1997, the Company and Carlsen agreed to modify the terms of the note.
The Company received a 60- day extension on the note with no additional interest
in exchange for a $250,000 cash payment to Carlsen. At May 16, 1995, the balance
of $706,250 remains unpaid.
Subsequent to March 31, 1997, the Company has received net proceeds of
approximately $434,420 through issuance of its preferred stock pursuant to
Regulation S. Currently the Company is evaluating its business plan in an effort
to achieve the necessary growth in revenues. Management is examining budgets and
expects to take measures to reduce future expenses.
The Company's plans include acquisitions of other telecommunications
companies whose operations could benefit from the use of TWT's switches and
network, as well as the addition of new technology and services. Several new
switches are planned to facilitate the growth and enhance profit margins on
current business. To achieve this necessary growth and the additional working
capital, the Company will require additional funding. In the absence of
conventional financing, the Company may also be looking for a strategic
alliance or potential joint venturer who may be interested in acquiring
the Company or forming a joint alliance.
Given the Company's financial constraints, the lack of sufficient revenue
growth, and the financial liabilities to prior investors, there can be no
assurances that the Company will be able to obtain additional funding or that
such funding will be sufficient to meet the continuing obligations of the
Company.
22
<PAGE>
PART II.
ITEM 1. LEGAL PROCEEDINGS
-----------------
For information concerning current litigation regarding the Company, see
Note 7 in the Notes to Consolidated Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
See Note 6 in the Notes to Consolidated Financial Statements.
ITEM 6. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
------------------------------------------------------------------
(a) Exhibits -- (27) Financial Data Schedule (Electronic filing only)
(b) The Company filed Form 8-K reports dated January 3, 1997 (item 9)
and February 7, 1997 (items 5 and 7).
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned as a duly authorized officer and as the chief financial officer of
the Registrant.
TOTAL WORLD TELECOMMUNICATIONS, INC.
(Registrant)
Date: May 20, 1997 By: /s/ Donald Booth
------------------------------------------
Donald Booth, President
and Chief Executive Officer
By: /s/ Loretta A. Murphy
------------------------------------------
Loretta A. Murphy, Vice President
Secretary and Chief Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TOTAL WORLD TELECOMMUNICATIONS, INC. FOR THE SIX MONTHS
ENDED ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CIK> 0000846381
<NAME> TOTAL WORLD TELECOMMUNICATIONS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 475,132
<SECURITIES> 0
<RECEIVABLES> 8,745,759
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,449,227
<PP&E> 8,060,512
<DEPRECIATION> 2,315,939
<TOTAL-ASSETS> 64,079,189
<CURRENT-LIABILITIES> 37,895,223
<BONDS> 0
0
39,034,987
<COMMON> 78
<OTHER-SE> (15,410,810)
<TOTAL-LIABILITY-AND-EQUITY> 64,079,189
<SALES> 0
<TOTAL-REVENUES> 20,284,459
<CGS> 19,572,200
<TOTAL-COSTS> 15,948,961
<OTHER-EXPENSES> 4,361,767
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,866,037
<INCOME-PRETAX> (19,598,469)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,598,469)
<DISCONTINUED> (7,713,926)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,312,395)
<EPS-PRIMARY> (9.59)
<EPS-DILUTED> (9.59)
</TABLE>
