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 1-13478
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3698386
------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5697 Rising Sun Avenue, Philadelphia, Pennsylvania 19120
(Address of principal executive offices)
(215) 342-7700
(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 for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of May 9, 1997, there
were 2,190,116 shares of common stock outstanding.
Page 1 of 18 Pages
Exhibit Index -- Page 15
1
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996....................................3
Consolidated Statements of Operations - Three months ended March 31, 1997 and 1996 (unaudited)....................4
Consolidated Statements of Cash Flows - Three months ended March 31, 1997 and 1996 (unaudited)....................5
Notes to Consolidated Financial Statements........................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................9
Part II. Other Information
Item 2. Changes in Securities...................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders.....................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................................13
Signatures.......................................................................................................14
</TABLE>
2
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 235,618 $ 1,352,322
Accounts receivable, less allowance for doubtful accounts
of $502,700 and $399,000 in 1997 and 1996, respectively 2,208,575 2,450,119
Inventory 241,367 202,129
Deferred costs 1,220,100 1,127,887
Prepaid royalties and patent license fees 70,876 95,396
Prepaid expenses and other current assets 245,984 164,876
---------- -------------
Total current assets 4,222,520 5,392,729
----------- ------------
Goodwill, net 17,692,501 18,008,599
Fixed assets, net 1,886,752 1,948,917
Deferred financing fees, net 301,530 270,219
Other assets 187,355 198,901
--------- -------------
Total assets 24,290,658 $25,819,365
========== ===========
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable 3,688,810 3,238,666
Accrued liabilities 733,957 542,965
Deferred revenues 4,047,845 4,431,309
Estimated sales and excise tax liability 1,986,348 1,684,478
Amounts payable to affiliate 954,628 1,073,921
Capital lease obligation, current 58,108 51,775
--------- -------------
Total current liabilities 11,469,696 11,023,114
----------- -----------
Capital lease obligation, long-term 23,565 42,002
Convertible notes payable 2,693,500 2,800,000
Notes payable, net of unearned discount of $1,291,285 and $1,484,040 1,758,715 1,565,960
----------- -----------
Total liabilities 15,945,476 15,431,076
------------ -----------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares;
none issued -- --
Common stock, $.01 par value, authorized 35,000,000 shares;
issued and outstanding 1,856,782 and 1,837,601 shares, respectively 18,568 18,376
Additional paid-in capital 23,301,014 22,990,766
Deferred compensation (180,357) (102,498)
Accumulated deficit (14,681,419) (12,406,504)
Cumulative foreign currency translation adjustment (12,624) (11,851)
Common stock note receivable (100,000) (100,000)
------------ --------------
Total stockholders' equity 8,345,182 10,388,289
------------ -----------
Total liabilities and stockholders' equity $24,290,658 $25,819,365
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Net sales $ 3,688,153 $ 1,327,710
Cost of sales 2,855,357 1,013,556
---------- ----------
Gross profit 832,796 314,154
---------- ----------
Selling and marketing expenses 778,663 515,282
General and administrative expenses 1,586,144 848,980
Depreciation and amortization 428,252 141,418
---------- ----------
Operating expenses 2,793,059 1,505,680
---------- ----------
Operating loss (1,960,263) (1,191,526)
Investment income 3,901 19,581
Interest expense (322,753) (17,226)
Other 4,200 1,400
------------ -------------
Loss before income taxes (2,274,915) (1,187,771)
Income tax expense -- --
Net loss $ (2,274,915) $ (1,187,771)
=========== ===========
Net loss per share $ (1.23) $ (.95)
=============== ================
Weighted average shares of common stock and common
stock equivalents 1,847,786 1,254,830
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,274,915) $(1,187,771)
Adjustments to reconcile net loss to net cash provided by or used in
operating activities:
Depreciation and amortization 428,252 141,418
Deferred compensation 73,789 98,667
Amortization of deferred financing fees 5,001 1,699
Amortization of unearned discount 192,755 --
Issuance of common stock as severance 50,000 --
Loss on disposal of fixed assets 19,912 --
Changes in operating assets and liabilities, net of effects of acquisition:
Decrease in accounts receivable 241,544 1,883,903
Increase in inventory (39,238) (24,796)
Increase in deferred costs (92,213) (46,573)
Decrease in prepaid royalties and patent license fees 24,520 5,926
(Increase) decrease in prepaid expenses and other current assets (81,108) 12,096
(Increase) decrease in other assets 11,546 (9)
Increase (decrease) in accounts payable 450,144 (319,765)
Increase in accrued liabilities 190,992 134,813
Increase in sales and excise taxes payable 301,870 153,045
Decrease in deferred revenue (383,464) (74,688)
---------- ------------
Net cash provided by (used in) operating activities (880,613) 777,965
----------- ------------
Cash flows from investing activities:
Purchases of fixed assets (69,901) (57,851)
Cash acquired in excess of cash payment for acquisition -- 54,190
----------- ------------
Net cash used in investing activities (69,901) (3,661)
----------- ------------
Cash flows from financing activities:
Payment of notes payable to affiliate (119,293) (550,000)
Increase in notes receivable from Global Link prior to merger -- (250,655)
Proceeds from the exercise of options 4,374 --
Payments on capital lease obligation (12,104) --
Increase in deferred financing fees (38,394) --
----------- ------------
Net cash used in financing activities (165,417) (800,655)
----------- ------------
Effects of exchange rate changes on cash (773) (2,657)
----------- ------------
Net decrease in cash (1,116,704) (29,008)
Cash and cash equivalents at beginning of period 1,352,322 928,516
----------- ------------
Cash and cash equivalents at end of period $ 235,618 $ 899,508
----------- ============
Supplemental disclosures:
Interest paid during the period $ 9,328 $ --
============ ============
Income taxes paid during the period $ -- $ --
============ ============
Non-cash investing and financing activities:
Issuance of common stock in connection with acquisition $ -- $11,039,488
============ ============
Deferred compensation arising from grant of options and warrants $ 151,648 $ 400,000
============ ============
Conversion of convertible notes payable in common stock $ 106,500 $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1997
(1) Business and Basis of Presentation
Business
Global Telecommunication Solutions, Inc. (the "Company") was
incorporated on December 23, 1992 and is engaged in the marketing and
distribution of prepaid phone cards. The Company's phone cards provide
consumers access to long distance service through its switching
facilities and long distance network arrangements.
Basis of Presentation
The accompanying unaudited 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 Item 310(b) of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997.
(2) Loss Per Share
Weighted average shares of common stock for the three months ended
March 31, 1997 and 1996 does not include common stock equivalents as
their effect would be anti-dilutive.
(3) Reclassifications
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform to the 1997 presentation.
(4) Acquisition
On February 29, 1996, pursuant to an Agreement and Plan of Merger dated
January 18, 1996, the Company, through a wholly-owned subsidiary,
acquired all the issued and outstanding common stock of Global Link
Teleco Corporation ("Global Link"). The acquisition was accounted for
as a purchase. Accordingly, the acquired assets and liabilities were
recorded at their estimated fair values at the date of acquisition and
the operating results of Global Link were included in the accompanying
consolidated statement of operations from the acquisition date.
In connection with the merger, the Company issued 572,773 shares of
common stock in exchange for all of the issued and outstanding common
stock of Global Link. In addition, the Company issued 17,602 shares of
common stock to Peoples Telephone Company, Inc. ("Peoples"), a creditor
of Global Link and a principal stockholder of the Company. The total
cost of the acquisition was approximately $11,400,000 including direct
transaction costs of approximately $344,000.
6
<PAGE>
The acquisition resulted in goodwill of $19,069,000, based on an
allocation of purchase price, calculated as follows:
Fair market value of common stock issued $11,040,000
Fair value of liabilities assumed 10,811,000
Fair value of assets acquired (3,126,000)
Acquisition related costs 344,000
-----------
Goodwill $19,069,000
The following unaudited combined pro forma information reflects the
results of operations assuming the acquisition of Global Link had been
made on January 1, 1996.
Three Months Ended
March 31, 1996
Net sales $ 2,690,740
Net loss (2,007,017)
Net loss per share $ (1.23)
Pro forma adjustments include recording amortization expense on
goodwill and the elimination of interest expense on debt of Global Link
repaid in connection with the acquisition.
The pro forma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
purchase been made at the beginning of the respective period, or of
results which may occur in the future.
(5) Reverse Stock Split
In February 1997, the Board of Directors of the Company approved an
amendment to its Amended and Restated Certificate of Incorporation to
effect a one-for-three reverse stock split. All per share data and
references to number of shares have been retroactively restated in
these financial statements to give effect to the reverse stock split.
(6) Deferred Compensation
In January 1997, the Company extended its consulting agreements with
two of the Company's stockholders, pursuant to which the stockholders
will provide consulting services to the Company for a two-year period
ending February 1999. As consideration for these services, the Company
issued options to purchase 25,000 shares of common stock at $9.00 per
share to each stockholder. These options became exercisable in February
1997 and remain exercisable until February 2002. The estimated fair
market value of these options of $151,648 was recorded as deferred
compensation and the Company has recorded compensation expense of
$18,957 to date.
(7) Amounts Payable to Principal Stockholder
In March 1997, the Company entered into an agreement with Peoples
whereby Peoples agreed not to sell or otherwise dispose of its shares
of the Company's common stock until June 30, 1997 ("Termination Date").
The Company agreed that it would pay Peoples the balance of
approximately $954,000 in trade payables from the proceeds of the
Company's proposed secondary offering (note 10) within two days after
the consummation of such offering ("Closing Date"). If the offering is
7
<PAGE>
consummated before June 30, 1997, and the trade payables are paid
within two days, Peoples agreed to extend the Termination Date to the
six month anniversary of the Closing Date.
(8) Tax Obligations and Compliance
At March 31, 1997, the Company has not remitted certain amounts
previously collected for sales, use and excise taxes to various taxing
jurisdictions. Further, the Company has not filed certain sales and
use, excise, income or franchise tax returns in certain jurisdictions
in which it does business. Management is in the process of reviewing
the Company's tax collection, remittance and compliance policies and
procedures and has recorded a reserve for estimated tax obligations and
related compliance issues. Depending on the ultimate resolution of
these matters, it is reasonably possible that the amount of this
reserve could require adjustment in the near term and the amount of
such adjustment could be material.
(9) Liquidity
The Company has substantial capital requirements resulting from the
funding of losses from operations and the need to finance continued
growth. The Company believes that its cash balances, along with the
proceeds of $2,500,000 from the exercise of certain warrants in April
1997 (note 10), will satisfy the Company's cash requirements until the
end of 1997. Except for the financing referred to in note 10 below, the
Company does not have any arrangements with respect to, or sources of,
additional financing and there can be no assurance that additional
financing will be available to the Company on commercially reasonable
terms, or at all. The failure to obtain such financing could have a
material adverse effect on the Company.
(10) Subsequent Events
Pursuant to an agreement with Wheatley Partners, L.P. ("Wheatley"), an
affiliate of the Company, in April 1997, the Company received
$2,500,000 upon the exercise of warrants to purchase 333,334 shares of
Common Stock issued to Wheatley in a private placement consummated by
the Company in December 1996.
In April 1997, the Company filed a registration statement on Form SB-2
with the Securities and Exchange Commission for a secondary offering of
securities. The Company is attempting to raise approximately $20
million in gross proceeds.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this Form 10-QSB and in future filings by Global
Telecommunication Solutions, Inc. ("GTS" or the "Company") with the Securities
and Exchange Commission ("SEC"), in the Company's press releases and in oral
statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result," "management expects" or "the
Company expects," "will continue," "is anticipated," "estimated" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
each of which speak only as of the date made. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company has no obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Company Overview
On February 29, 1996, the Company acquired, through a merger
("Global Link Merger"), all of the outstanding capital stock of Global Link
Teleco Corporation ("Global Link") for a purchase price of approximately
$11,400,000. Prior to the Global Link Merger, GTS primarily focused on marketing
custom- designed prepaid phone cards for business promotional use and other
retail products utilizing prepaid phone card technology. Global Link marketed
primarily traditional prepaid phone cards through various retailers and
distributors, including supermarkets, convenience stores, travel agencies and
tour wholesalers and Company-owned and operated retail phone centers.
Capitalizing on the strengths of their prior businesses, GTS and Global Link
have integrated their operations to create a more diversified prepaid phone card
company. Global Link's operating results were consolidated with the Company's
commencing on March 1, 1996.
The Company records deferred revenue at the time it sells its
prepaid phone cards. The Company recognizes revenue (i) at the time the consumer
accesses long distance services utilizing the Company's phone cards or in the
case of promotional programs during the period the program is executed or (ii)
when the phone card expires (generally 12 to 18 months after issuance or six to
12 months after last use). At the time revenue is recognized, the costs to which
that revenue specifically relates also are recognized. When the Company
recognizes revenue due to the expiration of a prepaid phone card, the Company
does not incur any long distance costs associated with that revenue. As of March
31, 1997, the Company's deferred revenue was $4,047,845.
The Company's primary cost of sales are the costs of providing
the long distance service and the design and production of its prepaid phone
cards. The cost of providing long distance service represents obligations to
carriers that provide minutes of long distance over their networks and services
associated with the Company's phone cards.
The Company's selling and marketing expenses consist primarily
of salary and related employment expenses for the Company's in-house sales
force, advertising and promotional expenses, and commissions payable to third
party distributors, sales agents and brokers. The Company's general and
administrative expenses consist primarily of salaries and occupancy costs.
9
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated,
items from the Company's Consolidated Statements of Operations expressed as a
percentage of sales:
<TABLE>
<CAPTION>
Percentage of Sales
--------------------------------
Three Months Ended
March 31,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Traditional card sales................................................. 76.3 81.2
Promotional card and other retail product and service sales............ 23.7 18.8
---- ----
Net sales..................................................... 100.0 100.0
Cost of sales.......................................................... 76.3 77.4
---- ----
Gross profit.................................................. 23.7 22.6
----- ----
Selling and marketing expenses......................................... 38.8 21.1
General and administrative expenses.................................... 63.9 43.0
Depreciation and amortization.......................................... 10.7 11.6
----- ----
Operating expenses............................................ 113.4 75.7
----- ----
Operating loss................................................ (89.7) (53.1)
------ ------
Interest income........................................................ 1.5 0.1
Interest expense....................................................... (1.3) (8.8)
Other.................................................................. -- 0.1
------ ------
Loss before income taxes...................................... (89.5) (61.7)
Income tax expense..................................................... -- --
------ ------
Net loss...................................................... (89.5%) (61.7%)
======= =======
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Substantially all of the increases in revenues from traditional cards and
operating expenses were attributable to GTS' acquisition on February 29, 1996 of
all of the outstanding capital stock of Global Link. Global Link's operating
results were consolidated with the Company's commencing on March 1, 1996.
Accordingly, while Global Link's operating results were included for all three
months of the quarter ended March 31, 1997, Global Link's operating results only
were included for one month of the quarter ended March 31, 1996.
Net sales for the three months ended March 31, 1997 were $3,688,153
compared to $1,327,710 for the three months ended March 1996, an increase of
$2,360,443, or 177.8%. Net sales of traditional phone cards were approximately
$2,995,000 for the three months ended March 31, 1997, compared to approximately
$1,013,000 for the three months ended March 31, 1996, an increase of
approximately $1,982,000. Net sales generated from the sale of promotional
cards, other retail products utilizing prepaid phone card technology and other
services for the three months ended March 31, 1997 were approximately $693,000,
compared to approximately $315,000 for the comparable period in the prior year,
an increase of approximately $378,000. The Company's gross margins decreased to
22.6% of net sales for the three months ended March 31, 1997, compared to 23.7%
of net sales for the comparable period in the prior year. The decrease in the
gross margin was primarily a result of an increase in the sale of cards with
reduced per-minute rates to consumers and an increase in patent license fees as
a result of an increase in revenues subject to such fees, offset by a decrease
in production and switch administration costs as a percentage of sales.
Selling and marketing expenses were $778,663 (21.1% of net sales) for the
three months ended March 31, 1997, compared to $515,282 (38.8% of net sales) for
the three months ended March 31,1996. Approximately $69,500 of the increase was
due to increased salaries and benefits of marketing and sales personnel.
Additionally, approximately $33,200 of the increase was due to additional travel
expenses,
10
<PAGE>
$54,200 to commissions paid to independent third party distributors, sales
agents and brokers, $33,200 to costs associated with the Company's attendance at
trade shows, and $59,000 to an increase in the provision for uncollectible
accounts receivable, all of which increased as a result of the increase in net
sales.
General and administrative expenses were $1,586,144 (43.0% of net sales)
for the three months ended March 31, 1997, compared to $848,980 (63.9% of net
sales) for the three months ended March 31, 1996. The increase consists of
approximately $288,300 in salaries and related benefits of other additional
personnel which make up the Company's infrastructure, including accounting,
legal, customer service and support and information technology personnel;
approximately $150,600 in rent costs; approximately $73,100 in professional
fees; and approximately $50,000 expensed as a result of the issuance of stock to
a former employee.
Depreciation and amortization expense increased to $428,252 for the three
months ended March 31, 1997 from $141,418 for the three months ended March 31,
1996, primarily due to the amortization of goodwill resulting from the Global
Link Merger and the acquisition of additional switching equipment.
Investment and interest income was $3,901 for the three months ended March
31, 1997, compared to $19,581 for the three months ended March 31, 1996. The
decrease of $15,680 was a result of lower balances of cash and cash equivalents
on hand.
Interest expense for the three months ended March 31, 1997 increased to
$322,753 from $17,226 for the three months ended March 31, 1996, primarily as a
result of interest on the principal amount of convertible debentures
("Convertible Debentures"), amounts due to Peoples Telephone Company, Inc.
("Peoples"), and the amortization of the unearned discount and deferred
financing costs relating to the issuance of notes payable pursuant to the
private placement consummated by the Company in December 1996 ("December 1996
Private Placement").
For the foregoing reasons, the Company incurred a net loss of $2,274,915
for the three months ended March 31, 1997, compared to a net loss of $1,187,771
for the three months ended March 31, 1996.
Liquidity and Capital Resources
At March 31, 1997 the Company had cash and cash equivalents of
$235,618 and a working capital deficit of $7,247,176, compared to $1,352,322 and
$5,630,385, respectively, at December 31, 1996.
Net cash used in operating activities for the three months
ended March 31, 1997 of $880,613 was primarily due to the Company's net loss and
a decrease in deferred revenue, offset by non-cash items such as depreciation
and amortization, increases accounts payable, accrued expenses and sales and
excise taxes payable and a decrease in accounts receivable. Accounts receivable
are generated pursuant to sales of prepaid phone cards primarily to distributors
and retail establishments. Typically, the Company provides 30- day terms (or
less) to reputable retail establishments that sell its phone cards. Deferred
revenue represents sales of prepaid phone cards for which revenue has not yet
been recognized, but will typically be recognized in future periods as customers
access long distance services, at the expiration dates of the phone cards or, in
the case of promotional phone card programs, during the period the program is
executed. Net cash used in investing activities for the three months ended March
31, 1997 consisted of $69,901 of capital expenditures. Net cash used in
financing activities consisted of payments to Peoples of $119,293, payments on
capital lease obligations of $12,104, an increase in deferred financing fees of
$38,394 in connection with the issuance of notes payable in December 1996,
offset by $4,374 of proceeds from the exercise of employee stock options. Under
its carrier agreement with Sprint, the Company must fulfill a $200,000 per month
usage commitment.
Pursuant to an agreement with Wheatley Partners, L.P.
("Wheatley"), an affiliate of the Company, in April 1997, the Company received
$2,500,000 upon the exercise of warrants to purchase 333,334 shares of Common
Stock issued to Wheatley in the December 1996 Private Placement.
11
<PAGE>
In April 1997, the Company filed a registration statement on
Form SB-2 with the SEC for a secondary offering of securities. The Company is
attempting to raise approximately $20 million in gross proceeds.
As indicated in the accompanying financial statements, the
Company incurred a net loss of $2,274,915 for the three months ended March 31,
1997 and is in a negative working capital position of $7,274,176 at March 31,
1997. Management's projections indicate that the Company anticipates that it
will continue to generate operating losses and negative cash flow through 1997.
The Company has substantial capital requirements resulting from the funding of
losses from operations and the need to finance continued growth. The Company
believes that its cash balances, along with the proceeds of $2,500,000 from the
exercise of warrants in April 1997, will satisfy the Company's cash requirements
until the end of 1997. Other than the Company's $20 million planned secondary
offering of securities, for which no assurance can be given that it will be
consummated, the Company does not have any arrangements with respect to, or
sources of, additional financing and there can be no assurance that additional
financing will be available to the Company on commercially reasonable terms, or
at all. The failure to obtain such financing could have a material adverse
effect on the Company.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities
During the three months ended March 31, 1997, the Company made
the following sales of unregistered securities:
<TABLE>
<CAPTION>
Consideration
Received and
Description of If Option, Warrant
Underwriting or Other or Convertible
Discounts to Market Exemption from Security, Terms of
Price Afforded to Registration Exercise or
Date of Sale Title of Security Number Sold Purchasers Claimed Conversion
- ------------ ----------------- ----------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
1/21/97 and 3/27/97 Common Stock 11,496 conversion of 6% Senior 4(2) N/A
Secured Convertible
Promissory Notes
- -----------------------------------------------------------------------------------------------------------------------------------
3/4/97 Common Stock 7,130 severance payment to 4(2) N/A
former employee
- -----------------------------------------------------------------------------------------------------------------------------------
3/31/97 options to 20,004 options granted - no 4(2) exercisable for ten
purchase consideration received years from date of
Common Stock by Company until grant at an exercise
granted to exercise price of $11.125 per
directors share
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 4. Submission of Matters to a Vote of Security Holders
By unanimous written consent dated February 11, 1997, the
Board of Directors of the Company authorized an amendment to the Company's
Amended and Restated Certificate of Incorporation to effect a one-for-three
reverse stock split ("Reverse Split") of the currently issued and outstanding
shares of the Company's Common Stock. The number of shares of Common Stock
authorized by the Amended and Restated Certificate of Incorporation was to
remain at 35,000,000. The Board of Directors fixed the close of business on
February 14, 1997 as the record date for the determination of stockholders
entitled to vote with respect to stockholder authorization of the Reverse Split.
Thereafter, on February 17, 1997, ten stockholders who were owners of record of
2,880,154 pre-split shares (51.8%) of Common Stock of the Company, the Company's
only class of voting securities outstanding, executed and delivered to the
Company their written consents to authorize the amendment. On March 3, 1997 an
Information Statement was mailed to all of the stockholders of the Company. On
March 24, 1997, the Company effectuated the Reverse Split by filing the
Amendment to its Amended and Restated Certificate of Incorporation with the
Delaware Secretary of State.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amendment to Amended and Restated Certificate of Incorporation
to effectuate the one-for-three reverse stock split.
27 Financial Data Schedule (3/31/97)
(b) Current Reports on Form 8-K
None.
13
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 15, 1997
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
By: /s/ Maria Bruzzese
---------------------------------------
Maria Bruzzese, Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page
<S> <C> <C>
3.1 Amendment to Amended and Restated
Certificate of Incorporation to effectuate the
one-for-three reverse stock split. 16
27 Financial Data Schedule 18
</TABLE>
15
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
-----------------------------------------------------
Pursuant to Section 242 of the
Delaware General Corporation Law
-----------------------------------------------------
The undersigned, being the Chief Executive Officer and
Secretary of Global Telecommunication Solutions, Inc., a Delaware corporation
("Corporation"), does hereby certify as follows:
FIRST, that the Corporation's Amended and Restated Certificate
of Incorporation be amended by striking out Article Fourth and substituting in
lieu thereof the following:
"FOURTH: The total number of shares of stock which the
corporation is authorized to issue is 36,000,000 shares, which
are divided into two classes consisting of (i) 35,000,000
shares of common stock, par value $.01 per share ("Common
Stock") and (ii) 1,000,000 shares of preferred stock, par
value $.01 per share ("Preferred Stock), issuable in series as
may be provided from time to time by resolution of the Board
of Directors. Effective upon the filing of the Certificate of
Amendment with the Delaware Secretary of State ("Effective
Date"), each three shares of Common Stock issued and
outstanding or held in the treasury of the Corporation
immediately prior thereto shall, without any action on the
part of the holder thereof, be reclassified and changed into
one fully paid and nonassessable share of Common Stock and
each holder of record of a certificate for three or more
shares of Common Stock as of the close of business on the
Effective Date shall be entitled to receive, as soon as
practicable, and upon surrender of such certificate, a
certificate or certificates representing one share of Common
Stock for each three shares of Common Stock represented by the
certificate of such holder, with the next higher number of
whole shares being issued in lieu of fractional shares."
16
<PAGE>
SECOND, that such amendment to the Certificate of
Incorporation was duly adopted by the Board of Directors of the Corporation and
by the affirmative vote of a majority of the outstanding shares entitled to vote
thereon in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has subscribed this
Certificate of Amendment on the 24th day of March, 1997 and does hereby affirm
under the penalties of perjury that the statements contained herein are true.
By: /s/ Gary J. Wasserson
-------------------------
Gary J. Wasserson
Chief Executive Officer
ATTEST:
/s/ David S. Tobin
- --------------------------
David S. Tobin, Secretary
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 235,618
<SECURITIES> 0
<RECEIVABLES> 2,711,275
<ALLOWANCES> 502,700
<INVENTORY> 241,367
<CURRENT-ASSETS> 4,222,520
<PP&E> 2,566,373
<DEPRECIATION> 679,621
<TOTAL-ASSETS> 24,290,658
<CURRENT-LIABILITIES> 11,469,696
<BONDS> 0
<COMMON> 18,568
0
0
<OTHER-SE> 8,326,614
<TOTAL-LIABILITY-AND-EQUITY> 24,290,658
<SALES> 3,688,153
<TOTAL-REVENUES> 3,688,153
<CGS> 0
<TOTAL-COSTS> 2,855,357
<OTHER-EXPENSES> 2,793,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (322,753)
<INCOME-PRETAX> (2,274,915)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,274,915)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,274,915)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> (1.23)
<PAGE>
</TABLE>
