U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________________ to ______________
Commission file number 1-13478
GLOBAL iTECHNOLOGY, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3698386
-------------------------------- -------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
317 Madison Avenue, Suite 807, New York, New York 10017
-------------------------------------------------------
(Address of principal executive offices)
(212) 697-6131
--------------
(Issuer's telephone number including area code)
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
----------------------------------------
(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 November 20, 2000, the issuer
had outstanding 16,771,841 shares of Common Stock, par value $.01 per share.
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - September
30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 2000
and 1999 and July 1, 2000, date of commencement
of development stage, to September 30, 2000
(unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and 1999 and
July 1, 2000, date of commencement of development
stage, to September 30, 2000 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
------------------ ------------------
Assets
<S> <C> <C>
Current assets:
Cash $ 60,234 $ 302,067
Other assets 29,713 44,635
------ --------
Total current assets 89,947 346,702
Investment in and advances to affiliate - 140,502
Goodwill, net 485,096 -
Computers and software, net 53,977 26,640
Assets of liquidating subsidiaries 392,667 3,705,832
------- ---------
$1,021,687 $ 4,219,676
========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $1,317,408 $ 1,053,612
Loans payable-related parties 705,000 -
Accrued license fee 1,221,979 1,221,979
Accrued earn-out to related party 748,506 1,200,000
Other accrued expenses 794,911 1,302,026
------- ---------
Total current liabilities 4,787,804 4,777,617
Other liabilities:
Notes payable to related party - 628,815
Liquidating subsidiaries' liabilities subject to compromise - third parties 20,180,941 23,716,888
---------- ----------
Total liabilities 24,968,745 29,123,320
---------- ----------
Commitments and Contingencies
Stockholders' Equity (Deficit)
Preferred stock - $.01 par value, authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value, authorized 35,000,000 shares;
Issued 16,819,732 and 14,727,882 168,098 147,278
Additional paid-in capital 57,167,652 56,233,248
Deficit accumulated during development stage (162,466) -
Accumulated deficit (81,073,564) (81,237,392)
Accumulated other comprehensive income 23,089 23,089
Less: Treasury stock, 47,891 shares (69,867) (69,867)
-------- --------
Total stockholders' equity (deficit) (23,947,058) (24,903,644)
------------ -----------
$1,021,687 $ 4,219,676
========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
July 1, 2000
Date of Commencement
Of Development
Three Months Ended Nine Months Ended Stage to
September 30, September 30, September 30,
----------------------------------- ---------------------------------------- -----------------
2000 1999 2000 1999 2000
--------------- ---------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
General and administrative
expenses $149,393 $ 378,915 $465,425 $ 1,253,283 $149,393
Depreciation and
amortization 13,073 4,339 13,073 11,825 13,073
--------------- ---------------- ------------------ ------------------ -----------------
Operating loss (162,466) (383,254) (478,498) (1,265,108) (162,466)
Equity in net income (loss)
from affiliate (100,000) 43,469 (205,419) 43,469 -
--------------- ---------------- ------------------ ------------------ -----------------
Loss from continuing
operations (262,466) (339,785) (683,917) (1,221,639) (162,466)
--------------- ---------------- ------------------ ------------------ -----------------
Discontinued operations:
Loss from discontinued
operations (107,171) (4,989,629) (1,126,424) (10,360,008) -
Gain on disposal of
discontinued operations 202,897 - 1,811,703 - -
--------------- ---------------- ------------------ ------------------ -----------------
Income (loss)
from discontinued operations 95,726 (4,989,629) 685,279 (10,360,008) -
--------------- ---------------- ------------------ ------------------ -----------------
Income (loss) before
extraordinary item (166,740) (5,329,414) 1,362 (11,581,647) (162,466)
Extraordinary loss
on conversion of debt - - - (1,420,172) -
--------------- ---------------- ------------------ ------------------ -----------------
Net income (loss) $(166,740) $(5,329,414) $1,362 $(13,001,819) $(162,466)
=============== ================ ================== ================== =================
Basic and diluted income (loss)
per share:
Loss from continuing
operations $(.02) $(.02) $(.04) $ (.09)
Income (loss) from
discontinued operations .01 (.35) .04 (.70)
Extraordinary loss on
conversion of debt - - - (.10)
--------------- ---------------- ------------------ ------------------
Basic and diluted income
(loss) per share $(.01) $ (.37) $ - $ (.89)
=============== ================ ================== ==================
Weighted average shares
outstanding-basic and
diluted 16,169,341 14,437,903 15,530,286 14,259,894
=============== ================ ================== ==================
The accompanying notes are an integral part of these condensed consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
July 1, 2000
Date of
Commencement
Of Development
Nine months ended Stage to
September 30, September 30,
---------------------------------- ------------------
2000 1999 2000
---------------- ----------------- ------------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 1,362 $(13,001,819) $(162,466)
Loss from discontinued operations 1,126,424 10,360,008 -
Depreciation and amortization 13,073 11,825 13,073
Loss on debt conversion - 1,420,172 -
Issuance of stock for litigation settlements 24,689 - -
Issuance of warrants to related party lenders 10,410 - 10,410
Gain on disposal of discontinued operations (1,811,703) - -
(Income) loss from equity investment 205,409 (43,469) -
Issuance of stock options to consultants - 102,000 -
Amortization of financing charges and unearned discount - 11,097 -
Changes in operating assets and liabilities:
Accounts receivable and other assets 41,562 80,023 (12,357)
Accounts payable and accrued expenses (463,036) (545,272) 103,038
Accrued license fees - 283,365
Accrued note and earn-out to related party (451,494) 328,365
---------------- ----------------- ------------------
Cash provided (used) by continuing operating activities (1,303,304) (993,705) (48,302)
Cash flows from discontinued operating activities
or prior to commencement of development stage 462,497 156,292 (372,683)
---------------- ----------------- ------------------
Cash provided (used) by operating activities (840,807) (837,413) (420,985)
---------------- ----------------- ------------------
Cash flows from investing activities:
Acquisition related costs (28,545) - (28,545)
Purchase of equipment and software (54,612) (142,054) (48,401)
Advances to affiliate (64,907) - -
---------------- ----------------- ------------------
Net cash (used) by investing activities (148,064) (142,054) (76,946)
---------------- ----------------- ------------------
Cash flows from financing activities:
Proceeds from short term borrowings 705,000 - 505,000
Proceeds from exercise of stock options 42,038 - 1,500
---------------- ----------------- ------------------
Net cash provided (used) by financing activities 747,038 - 506,500
---------------- ----------------- ------------------
Net change in cash (241,833) (979,467) 8,569
Cash, beginning of period 302,067 1,604,166 51,665
---------------- ----------------- ------------------
Cash, end of period $60,234 $624,699 $60,234
================ ================= ==================
Supplemental disclosures:
Fair value of assets acquired $497,534 $ 497,534
Less; Liabilities assumed (219,717) (219,717)
Issuance of common stock and warrants in connection
with acquisition (249,272) (249,272)
---------------- ----------------- ------------------
Acquisition related costs $ 28,545 - $ 28,545
================ ================= ==================
Conversion of notes payable to common stock $628,815 $2,524,750 -
================ ================= ==================
Issuance of stock options for financing fees - $ 92,792 -
================ ================= ==================
Deferred finance fees related to options and warrants - $11,838 -
================ ================= ==================
Cash paid for interest - $185,870 -
================ ================= ==================
The accompanying notes are an integral part of these condensed consolidated financial statements
</TABLE>
5
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
(1) Business and Basis of Presentation
Business
Global iTechnology, Inc., formerly known as Global Telecommunication
Solutions, Inc., (the "Company") was incorporated on December 23, 1992 and
historically, through certain subsidiaries, was engaged in the marketing and
distribution of prepaid phone cards. As a result of the Company's subsidiaries
long history of losses in the prepaid phone card business, coupled with an
increasingly competitive environment, the Company's Board of Directors adopted a
plan to discontinue and sell the prepaid phone card business. To facilitate the
possible sale of the phone card assets, these subsidiaries filed voluntary
petitions with the U.S. Bankruptcy Court for the District of Delaware ("Court")
under Chapter 11 of the U.S. Bankruptcy Code on October 28, 1999. The
subsidiaries of the Company that filed for Court protection are Global Link
Telecom Corporation, GTS Holding Corp., Inc., TelTime, Inc., Network Services
System, Inc., Network Services System, L.P., GTS Marketing, Inc., Global
Telecommunication Solutions, L.P., Networks Around the World, Inc. and
Centerpiece Communications, Inc. (collectively the "Debtors"). On January 31,
2000, the Debtors entered into an agreement to sell their fixed assets to J D
Services, Inc. ("J D Services"). See below.
On February 1, 2000, the Company exchanged its investments in its recently
formed subsidiaries Imagine Telecom, Inc. and TalkToGo.com, Inc. for a 44%
interest in Enticent.com, Inc. ("Enticent"), also a startup entity. As a result
of the transaction the Company is the largest shareholder of Enticent, owning
approximately 40% of the outstanding shares. These businesses are involved in
online and offline business-to-business and business-to-consumer sales
initiatives.
As a result of the acquisition of Certificate Express, Inc. ("CEI") in
August 2000 the Company's main focus is the development, as an application
service provider, of transactional software solutions which enable e-commerce
integration of online and offline business-to-business and business-to-consumer
sales initiatives. Its first software product, introduced in September 2000 and
for which a United States patent is pending, is an eCertificate Web Toolkit, a
transactional processing technology that allows currency, in the form of an
electronic gift certificate, to be distributed online and be redeemed instantly
at a retail store point of sale credit card terminal.
Basis of Presentation
The condensed consolidated balance sheet at the end of the preceding year
has been derived from the audited consolidated balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes. All other
financial statements are unaudited.
The accompanying unaudited condensed 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 made. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the full fiscal
year. These condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB for the most recent year.
The Company's financial statements have been prepared in accordance with
the American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting by Entities in Reorganization "("SOP 90-7"). The
Debtors have been operating their business as debtors-in-possession subject to
the jurisdiction of the Court.
6
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
As a result of the Company's decision to sell its phone card business and
the subsequent voluntary filing by certain of the Company's subsidiaries under
Chapter 11 of the U.S. Bankruptcy Code, the operations of that business are
presented herein as discontinued operations and the assets and liabilities of
the filing subsidiaries have been aggregated in the accompanying balance sheets.
Additionally, because the Company's major emphasis is the activities of
CEI, a development stage company as defined in the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 7, "Accounting
and Reporting by Development Stage Enterprises" ("SFAS 7"), the financial
statements have been prepared in accordance with SFAS 7. Accordingly, the
results of operations of the discontinued operations and equity investments have
been excluded from development stage reporting.
(2) Going Concern and Liquidity
At September 30, 2000 the Company, excluding the assets and liabilities
relating to the Debtors, had cash of $60,234 and a working capital deficit of
$4.7 million. Subsequent to September 30, 2000, the Company continues to
generate negative cash losses from operations.
At September 30, 2000 substantially all the Company's current liabilities
relate to indebtedness incurred in connection with the discontinued phone card
business. These liabilities were incurred by the Company rather than the
Debtors, and are due to less than 10 entities. The Company is currently
negotiating with the various parties in an effort to reach settlements regarding
the amounts due. The Company is attempting to settle these liabilities on
favorable terms to the Company.
The Company's ability to continue to operate and execute its new business
plan is dependent upon various factors including, but not limited to, resolving
its aforementioned outstanding liabilities, and raising additional capital.
Management of the Company cannot presently predict the outcome of these matters
and there can be no assurance that the Company will be successful in any of
these endeavors.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business.
(3) Software Development Costs
The Company accounts for software development costs in accordance with
American Institute of Certified Public Accountants Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization of direct cost
incurred in connection with development or obtaining software for internal-use,
including external direct costs of materials and services and payroll related
costs for employees who are directly associated with and devote time to internal
used software development projects. During 2000, the Company capitalized $25,000
of costs related to the implementation of internal-used software that is
included in computers and software in the accompanying balance sheet.
(4) Income (Loss) Per Share
For the three and nine months ended September 30, 2000 and 1999, basic and
diluted loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. Common stock equivalents
are excluded from the loss per share calculation because their effect would be
antidilutive or de minimus.
(5) Reclassifications
Certain reclassifications have been made to the 1999 condensed consolidated
financial statements to conform to the 2000 presentation.
7
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
(6) Acquisition and Investment in Affiliates
Pursuant to a Security Exchange Agreement dated as of August 4, 2000 ("CEI
Agreement") , effective August 18, 2000 the Company acquired 100% of the
outstanding capital stock of CEI from the shareholders of CEI, a privately held
financial transaction technology company based in Bethesda, Maryland. The
consideration for the CEI shares was an aggregate 1,200,000 shares of the
Company's common stock and three year warrants to purchase an additional 225,000
shares of common stock at an exercise price of $2.00 per share. The value of
these warrants, determined using the Black-Scholes option-pricing model has been
included in the cost of the acquisition. The former CEI shareholders may earn up
to an additional 950,000 shares if certain performance targets related to the
issuance of a patent for the technology developed by CEI is issued and a certain
number of transactions are processed by CEI, each within a specified period of
time. The number of shares of the Company's common stock received by the CEI
shareholders is further subject to adjustment to protect the former CEI
shareholders from dilutive issuances of common stock in the manner described in
the CEI Agreement. In connection witht the Company's acquisitionof CEI, the
Company agreed to make up to $900,000 available to CEI in the form of working
capital loans. If the Company fails to make required advances to CEI, the
Company is required to transfer the assets of CEI to its former shareholders.
Through September 30, 2000 the Company had advanced $325,000 to CEI.
Excluding conditional consideration, the purchase price of CEI was
approximately $500,000 in stock and the assumption of liabilities. The excess of
the purchase price over the fair market value of the tangible net assets
acquired is classified as goodwill and is being amortized on a straight-line
basis over 5 years. The following unaudited combined pro forma information
reflects the results of operations assuming the CEI merger had been consummated
on January 1, 1999.
Nine months ended
September 30,
-------------
2000 1999
---- ----
Operating loss $(549,768) $(1,333,155)
Net loss $(69,908) $(13,069,866)
Net loss per share $ - $ (.92)
On February 1, 2000, the Company exchanged its investments in its recently
formed subsidiaries Imagine Telecom, Inc. and TalkToGo.com, Inc. for a 44%
interest in "Enticent, also a startup entity. As a result of the transaction the
Company is the largest shareholder of Enticent, owning approximately 40% of the
outstanding shares. At September 30, 2000, the Company's investment in Enticent,
accounted for on the equity method, has been fully reserved against.
(7) Debtors Sale of Assets and Discontinued Operations
On January 31, 2000, the Debtors entered into an agreement ("Purchase
Agreement") to sell substantially all of their assets to J D Services. The sale
transaction was consummated effective April 1, 2000 pursuant to an order of the
Court. Under the terms of the Purchase Agreement, J D Services paid an aggregate
of $2.1 million as follows: (i) forgiveness of $750,000 debtor-in-possession
financing previously provided to the Debtors and (ii) assumption of Debtor's
obligations to provide telecommunications services to previously activated phone
cards "Deferred Liability." The Purchase Agreement also provides that should the
Deferred Liability be less than $1.35 million, the Debtors shall be due the
difference ("True-up Amount".) As a result of this sale, the Debtors realized a
gain of $1,608,806. In addition, in the three months ended September 30, 2000,
the True-up Amount was determined to be approximately $203,000 which amount was
paid to Mr. Cherkas. See below.
A condition of the Purchase Agreement required that certain agreements,
including non-compete agreements among the Company, Debtors and Messrs. Cherkas
and Liguori be assigned to J D Services. These agreements with Messrs. Cherkas
and Liguori were entered into in connection with the Company's acquisition of
Networks Around the World, Inc. ("NATW") in February 1998. To accomplish this
assignment, defaults by the Company and the Debtors under the various agreements
had to be cured. With respect to Messrs. Cherkas and Liguori, the Company and
Debtors entered into an Agreement Regarding The Assignment of Contracts, Cure
Amounts and Related Matters on March 7, 2000, which was approved by the Court on
March 22, 2000 ("Assignment Agreement".) Under the terms of the Assignment
Agreement, the Company, on May 3, 2000, paid Mr. Liguori $15,000 for unpaid
bonuses due him and delivered to him 50,000 shares of Common Stock. Also on May
3, 2000, the Company paid Mr. Cherkas $94,000; $64,000 for accrued but unpaid
salary and $30,000 for reimbursement of legal fees. As provided by the
Assignment Agreement, the Debtors paid Mr. Liguori on May 3, 2000, $110,000 in
payment of the note, and related interest, issued in connection with the
acquisition of NATW.
8
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
With respect to approximately $1.2 million originally due Mr. Cherkas under
an earn-out agreement entered into in connection with the NATW acquisition
("Earn Out") and subsequently reduced to $748,506 as a result of the
aforementioned payment of the True-up amount and the payment by the Debtors of
approximately $250,000 in September 2000, under the Assignment Agreement,
modified in September 2000, he has agreed to release the Company and Debtors if
he receives a minimum payment of an additional $250,000 by January 5, 2001, paid
as discussed below. To the extent he does not receive the minimum payment of an
additional $250,000, the amount due him by the Company shall be $750,000, less
any additional payments he receives under the Assignment Agreement.
The Assignment Agreement provides that Mr. Cherkas shall receive the
following additional amounts, if any:
o 70% of the amount of the Debtors' available cash remaining after
deduction of amounts for unpaid accrued administrative expenses.
o At the election of the Company, an amount equal to the difference
between $700,000 and the amounts otherwise paid him under the
Assignment Agreement.
It is impossible to predict the amount of additional cash, if any, Mr.
Cherkas will receive under the Assignment Agreement and accordingly the Company
could be liable to Mr. Cherkas up to $750,000 if he does not receive a minimum
of $250,000 from the Debtors and/or the Company by January 5, 2001.
The Debtors have filed a plan of liquidation ("Plan") with the Court on a
timely basis. Subject to certain exceptions in the Bankruptcy Code, acceptance
of a Plan requires approval of the Court and the affirmative vote (i.e. more
than 50% of the number and at least 66 2/3% of the dollar amount, both with
regard to claims actually voted) of each class of creditors and equity holders
of the Company, whose claims are impaired by the Plan. The Debtors intend to
solicit approval of the Plan before December 31, 2000. If the Debtors fail to
receive approval of the Plan or a modification thereof, any creditor or equity
holder will be free to file a Plan with the Court and solicit acceptances
thereof. Until the Plan is approved, the impact on the Company of the Plan, if
any, cannot be predicted. In addition should the assets of the Debtors not be
sufficient to pay administrative priority claims, the Debtors would not be able
to confirm a Plan and a trustee would be appointed by the Court to administer
the Debtors' estate.
Operating results from the discontinued operations of the Debtors for the
nine months ended September 30 is as follows:
2000 1999
---------------- ------------------
Net sales $3,259,959 $26,807,211
Cost of sales 3,242,223 26,869,606
---------------- ------------------
Gross Profit 17,736 (62,395)
Selling, general and
administrative expense 899,835 4,426,840
Depreciation and amortization 251,808 3,484,295
Goodwill impairment _ 2,144,087
---------------- ------------------
Operating loss (1,133,907) (10,117,617)
Interest income 7,483 28,532
Interest expense - (270,923)
---------------- ------------------
Net loss from discontinued
Operations $ (1,126,424) $ (10,360,008)
================ ==================
9
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
Summary balances sheets of the discontinued operations of the Debtors is as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- -----------------------
<S> <C> <C>
Current assets:
Cash $355,906 $594,143
Accounts receivable, net 36,761 1,102,229
Inventory - 251,776
---------------- -----------------------
Total current assets 392,667 1,948,148
Property and equipment, net - 1,707,684
Other assets, net - 50,000
---------------- -----------------------
Total assets of liquidating
subsidiaries $392,667 $3,705,832
================ =======================
Pre-petition current liabilities:
Accounts payable $8,899,793 $8,638,408
Accrued regulatory fees 5,836,021 5,836,021
Other accrued expenses - 430,967
Deferred revenues - 1,963,797
Estimated sales tax liability 5,402,446 5,429,514
Notes payable to related party - 110,000
---------------- -----------------------
20,138,260 22,408,707
Post-petition administrative
claims 42,681 1,308,181
---------------- -----------------------
Total liquidating subsidiaries'
liabilities subject to compromise-
third parties $20,180,941 $23,716,888
================ =======================
</TABLE>
(8) Debt
In connection with the NATW acquisition, the Company issued notes in the
aggregate amount of $1 million of which $900,000 were payable to Mr. Cherkas. In
December 1998, Mr. Cherkas preliminarily agreed to convert his note into Common
Stock. The conversion of the note into 769,750 shares of Common Stock occurred
in March 2000 after deducting from the note $376,185, which represents a
reimbursement to the Company of amounts due it under an indemnity contained in
the NATW merger agreement.
In April 2000, the Company borrowed, on a demand basis, $125,000 from Mr.
Shelly Finkel, chairman of the Company's Board of Directors and a shareholder of
the Company, at an interest rate of 8% per annum. In June and July 2000, the
Company borrowed, on a demand basis, an aggregate of $75,000 and $175,000 from
Messrs. Barry Rubenstein and Eli Oxenhorn. In August 2000, the Company borrowed
an aggregate of an additional $330,000 from Messrs. Finkel, Rubenstein and
Oxenhorn. All of these loans were converted into three separate term loans, each
in the amount of $235,000 payable on the earlier of August 10, 2001 or upon the
receipt by the Company of $1 million in proceeds from a qualified financing. The
loans bear interest at 8% per annum and are secured by the Company's stock
ownership in CEI. The proceeds from the $330,000 in loans are to partially fund
CEI's working capital needs. In addition, the Company issued warrants to the
lenders, expiring in August 2003, to acquire an aggregate of 66,000 shares of
Common Stock at a price of $.1875 per share. The value of these warrants,
determined using the Black-Scholes option-pricing model, has been include as
interest expense in the Company's financial statements.
10
<PAGE>
GLOBAL iTECHNOLOGY, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(unaudited)
(9) Litigation
On February 7, 2000, Star Telecommunications Inc. ("Star") obtained a
judgment against the Company in the total amount of $233,557. Star brought an
action against the Company for failure to pay Star for international
long-distance telecommunications services which Star provided to the Company's
operating subsidiaries under a Carrier Service Agreement entered into between
Star and the Company. The Company believes it has adequately accrued for this
liability.
On March 17, 1999, Gloria Diaz, Edward Ragar and Charles Ruggieri (all
former sales people for the Company's subsidiaries) commenced an action against
the Company in the Superior Court of New Jersey, Somerset County Law Division,
docket No. L-432-99 alleging that the Company owes them approximately $62,000 in
the aggregate for salary, commissions and reimbursement for business expenses.
The Company disputes these claims and is defending this matter. The Company has
reached a settlement with Mr. Ruggieri under which he will be paid approximately
$11,000 in cash and issued 9,733 shares of the Company's common stock. The
Company believes it has adequately accrued for this liability.
On December 3, 1999, MTS Communications, Inc. ("MTS") commenced an action
against the Company in the United States District for the District of New
Jersey. MTS claims that the Company owes it $368,697, together with interest, in
connection with operations of the Company's Canadian subsidiary. The Company
disputes MTS' claims and is defending this matter. The Company has reached a
settlement with MTS under which the Company will pay MTS $10,000 in cash and
issue to MTS 17,500 shares of Series A Preferred Stock (a new class of preferred
stock) with a liquidating value of $175,000 and which will be convertible into
250,000 shares of the Company's common stock. The Company believes it has
adequately accrued for this liability.
The Company is currently in default under a settlement agreement it reached
in IDB Worldcom Services, Inc. ("IDB") in 1999. The settlement agreement calls
for additional payments of approximately $250,000 to IDB which the Company has
recorded as a liability. If the Company is unable to renegotiate a new
settlement agreement, it could be liable for an additional $300,000 to IDB.
The Company also is involved in litigation incidental to its business. Such
litigation can be expensive and time consuming to prosecute and defend. The
Company believes that these pending litigation matters, in the aggregate, could
have a material adverse effect on its operating results and financial condition
if resolved against the Company.
(10) Subsequent Event
In October 2000, the Company borrowed, on a demand basis, $150,000 from Mr.
Barry Rubenstein at an interest rate of 8% per annum.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, 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 "management believes," "the Company believes,"
"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 results 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.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Continuing Operations
The Company had no sales or cost of sales for the three months ended
September 30, 2000 and 1999 because of (i) the discontinuance of the Company's
phone card business, (ii) the Company's wholly owned subsidiary CEI is in the
development stage and has yet to record any sales and (iii) the results of
operations of the Company's investment in Enticent are reported on the equity
method.
General and administrative expenses consist mainly of salaries and
professional fees. While the number of Company employees increased by four in
August 2000 as a result of the acquisition of CEI, salary expense during the
three months ended September 30, 2000 declined from that which was reported in
the similar period of 1999 as a result of the decline in the overall number of
employees. Salary expense in the three months ended September 30, 2000 was
further reduced as a result of the Debtors' reimbursing the Company for service
performed by the Company's employees on their behalf. Such reimbursement will
cease as the Debtors' operations wind-down. Professional fees during the year
2000 period also declined from that reported in 1999 as a result of a lower
level of activity.
Equity in net loss from affiliate for the three months ended September 30,
2000 reflects the Company's estimated share of the net loss of Enticent for that
period. Enticent began operations effectively in late 1999. In as much as the
Company has not received in 2000 financial statements from Enticent, as required
by the shareholder agreement between the Company, Enticent and the other
Enticent stockholders, for the three months ended September 30, 2000, the equity
in net loss from affiliate was estimated based upon available information.
The per share loss from continuing operations remained constant in the
three months ended September 30, 2000 from that reported in the prior year as a
result of the aforementioned decline in general and administrative expenses
being offset by the Enticent loss.
12
<PAGE>
Discontinued Operations
During the three months ended September 30, 2000 current operations consist
of the continued liquidation of that business under the bankruptcy statutes. The
loss from discontinued operations for the three months ended September 30, 2000
declined substantially from that reported in the similar period in the prior
year as a result of the Debtors ceasing operations on March 31, 2000.
Additionally, during the three months ended September 30, 2000 the Debtor's
received an additional purchase price payment not previously accrued.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Continuing Operations
The Company had no sales or cost of sales for the nine months ended
September 30, 2000 and 1999 because of (i) the discontinuance of the Company's
phone card business, (ii) the Company's wholly owned subsidiary CEI is in the
development stage and has yet to record any sales and (iii) the results of
operations of the Company's investment in Enticent are reported on the equity
method.
General and administrative expenses consist mainly of salaries and
professional fees. While the number of Company employees increased by four in
August 2000 as a result of the acquisition of CEI, salary expense during the
nine months ended September 30, 2000 declined from that which was reported in
the similar period of 1999 as a result of the decline in the overall number of
employees. Salary expense in the nine months ended September 30, 2000 was
further reduced as a result of the Debtors' reimbursing the Company for service
performed by the Company's employees on their behalf. Such reimbursement will
cease as the Debtors' operations wind-down. Professional fees during the year
2000 period also declined from that reported in 1999 as a result of a lower
level of activity. General and administrative expenses were further reduced as a
result of the reversal of certain accruals in the quarter ended June 30, 2000.
Equity in net loss from affiliate for the nine months ended September 30,
2000 reflects the Company's share of the net loss of Enticent for that period
calculated, as discussed above, based on management's estimates. Enticent began
operations effectively in late 1999.
The per share loss from continuing operations declined in the nine months
ended September 30, 2000 from that reported in the prior year as a result of the
aforementioned decline in general and administrative expenses.
Discontinued Operations
The loss from discontinued operations for the nine months ended September
30, 2000 declined substantially from that reported in the similar period in the
prior year as a result of the Debtors ceasing operations on March 31, 2000. The
gain on disposal of discontinued operations results from the sale of the
Debtors' fixed assets to J D Services effective March 31, 2000.
The loss the Company recorded in the quarter ended December 31, 1999 of
$2,144,087 to reflect the impairment of goodwill related to the phone card
business, has been retroactively reflected in the loss from discontinued
operations for the nine months ended September 30, 2000.
Extraordinary Item
During the nine months ended September 30, 1999 the Company recorded a
non-cash loss upon the conversion of outstanding debt into common stock.
Liquidity and Capital Resources
As a result of the Company's long history of losses in the prepaid phone
card business, coupled with an increasingly competitive environment, the Company
elected to exit the prepaid phone card business. To accomplish this, the Debtors
filed voluntary petitions with the Court for the District of Delaware under
Chapter 11 of the Bankruptcy Code on October 28, 1999. The Debtors have sold
their fixed assets and intend to liquidate the remaining assets of the phone
card operations with the proceeds of such sale and liquidation to be distributed
to the Debtors' creditors pursuant to a liquidating plan of reorganization.
13
<PAGE>
At September 30, 2000, the Company, excluding the assets and liabilities
relating to the Debtors, had cash of $60,000 and a working capital deficit of
$4.7 million. At September 30, 2000 approximately $4.1 million of the Company's
current liabilities relate to indebtedness incurred in connection with the
discontinued phone card business. Because of contractual obligations, these
liabilities are the obligations of the Company rather than the Debtors, and are
due to less than 10 creditors. The Company is currently negotiating with those
parties in an effort to settle the amounts due at less than the amount recorded
on the balance sheet.
In April 2000, the Company borrowed on a demand basis $125,000 from Mr.
Shelly Finkel, chairman of the Company's Board of Directors and a shareholder of
the Company at an interest rate of 8% per annum. In June and July 2000, the
Company borrowed on a demand basis an aggregate of $250,000 from Messrs. Barry
Rubenstein and Eli Oxenhorn at an interest rate of 8% per annum. In August 2000,
the Company borrowed an aggregate of an additional $330,000 from Messrs. Finkel,
Rubenstein and Oxnehorn. These loans, plus the previous loans, were converted
into three term loans, each in the amount of $235,000 payable the earlier of
August 10, 2001 or upon the receipt by the Company of $1 million in proceeds
from a qualified financing. These loans bear interest at 8% and are secured by
the Company's stock ownership in CEI. The proceeds from the $330,000 in loans
are for CEI's working capital needs. In addition the Company issued to the
lenders warrants, expiring in August 2003, to acquire an aggregate of 66,000
shares of Common Stock at a price of $.1875 per share. In connection with the
Company's acquisition of CEI, the Company agreed to make up to $900,000
available to CEI in the form of working capital loans. If the Company fails to
make required advances to CEI, the Company is required to transfer the assets of
CEI to its former shareholders. Through September 30, 2000 the Company had
advanced $325,000 to CEI.
In October 2000, the Company borrowed, on a demand basis, an additional
$150,000 from Mr. Rubenstein at an interest rate of 8% per annum on a demand
basis.
The Company's ability to continue to operate and execute its new business
plan is dependent upon various factors including, but not limited to, resolving
its aforementioned outstanding liabilities, and raising additional capital.
Management of the Company cannot presently predict the outcome of these matters
and there can be no assurance that the Company will be successful in any of
these endeavors or that the individuals who have recently provided financing to
the Company will provide additional financing to the Company.
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. However, absent
the Company's ability to execute its plans to reduce its outstanding liabilities
and raise additional capital, the Company may be unable to continue as a going
concern, which could significantly impact the liquidation or settlement value of
its assets and liabilities.
At December 31, 1999, the Company had net operating loss carryforwards
("NOLs") exceeding $38.9 million available to offset future taxable income.
Under Section 382 of the Internal Revenue Code of 1986, as amended, utilization
of prior NOLs is limited after an ownership change, as defined in this section,
to an amount equal to the value of the loss corporation's outstanding stock
immediately before the date of the ownership change, multiplied by the federal
long-term tax-exempt rate in effect during the month that the ownership change
occurred. The Company is subject to limitations on the use of its NOLs as
provided pursuant to Section 382. Accordingly, there can be no assurance that a
significant amount of existing NOLs will be utilized by the Company.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 1998, IDB Worldcom Services, Inc. (IDB) commenced an action against
the Company in the Court of Common Pleas of Philadelphia, Pennsylvania alleging
that the Company owed IDB approximately $700,000. On September 7, 1999 the
Company settled this matter with IDB for $400,000. The Company is currently in
default on approximately $250,000 of this settlement and is presently attempting
to renegotiate the amount and terms of the settlement.
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
During the quarter ended September 30, 2000 the Company made the following
sales of unregistered securities.
<TABLE>
<CAPTION>
Consideration Received and If Option, Warrant
Description of Underwriting or Convertible
or Other Discounts to Market Exemption from Security, Terms of
Number Price Registration Exercise or
Date of Sale Title of Security Sold Afforded to Purchasers Claimed Conversion
------------ ----------------- ---- ---------------------- ------- ----------
<S> <C> <C> <C> <C> <C>
August 10, 2000 Warrant to 66,000 Warrants granted in 4(2) Exercisable from
purchase Common consideration for providing August 2000 to
Stock loan to the Company-no other August 2003 at an
consider received by the exercise price of
Company until exercised $.1875 per share
August 18, 2000 Common Stock 1,200,000 Acquisition of Certificate 4(2)
Express, Inc.
August 18, 2000 Warrant to 225,000 Warrants granted in 4(2) Exercisable from
purchase Common connection with the August 2000 to
Stock acquisition of Certificate August 2003 at an
Express, Inc.-no other exercise price of
consideration received by $2.00 per share
the Company until exercised
</TABLE>
Item 5. Other Information
In October 2000, the Company borrowed $150,000 from a shareholder of the
Company at an interest rate of 8% per annum on a demand basis.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Current Reports on Form 8-K
None
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: November 20, 2000
GLOBAL iTECHNOLOGY, INC.
By: /s/ Lee R. Montellaro
-------------------------------------
Lee R. Montellaro, Vice President and
Principal Financial Officer
16
