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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(AMENDMENT NO. 1)
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-25668
GLOBAL TECHNOLOGIES, LTD.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 86-0970492
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
1811 Chestnut Street, Suite 120
Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices)
(215) 972-8191
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
Class Outstanding at February 10, 2000
----- --------------------------------
Class A Common Stock, $.01 par value 7,153,716 shares
Class B Common Stock, $.01 par value -0- shares
Transitional Small Business Disclosure Format
Yes [ ] No [X]
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<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999
(unaudited) and June 30, 1999.........................................3
Condensed Consolidated Statements of Operations for the Three
Months and Six Months Ended December 31, 1999 and 1998 (unaudited)....4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended December 31, 1999 and 1998 (unaudited)...................5
Notes to Condensed Consolidated Financial Statements..................6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................14
SIGNATURES....................................................................14
2
<PAGE>
GLOBAL TECHNOLOGIES, LTD.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1999 1999
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,282,558 $ 15,521,275
Restricted cash 1,658,414 1,412,736
Investments 447,146 4,594,751
Accounts receivable 1,031,726 128,489
Notes receivable from related parties 78,932 98,932
Inventories, net of allowance of $7,837,595 3,751,153 1,400,000
Prepaid expenses 1,003,588 607,900
Assets held for sale -- 800,000
Other current assets 384,868 470,273
------------ ------------
Total current assets 12,638,385 25,034,356
Investments 4,937,360 5,752,599
Note receivable from related party 78,000 75,000
Property and equipment, net of accumulated
depreciation of $1,190,539 and $915,901,
respectively 2,965,142 1,369,392
Intangibles, net accumulated amortization
of $443,849 and $74,981, respectively 6,815,025 7,119,806
Other assets 5,183,917 61,468
------------ ------------
Total assets $ 32,617,829 $ 39,412,621
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,461,772 $ 2,530,675
Accrued liabilities 955,503 1,072,269
Deferred revenue 2,108,151 365,851
Accrued product warranties 144,750 --
Notes payable 9,121 24,391
Notes payable to related parties 44,694 68,836
------------ ------------
Total current liabilities 5,723,991 4,062,022
Notes payable -- 3,467,045
Other liabilities 1,037,289 1,220,340
Accrued litigation settlement 1,000,000 1,843,750
------------ ------------
Total liabilities 7,761,280 10,593,157
------------ ------------
Minority interest 995,917 1,165,098
Commitments and contingencies
Stockholders' equity:
Series A 8% Convertible preferred stock,
3,000 shares designated, zero and 3,000
shares issued and outstanding respectively
(liquidation preference of $1,200 per share) -- 30
Series B 8% Convertible preferred stock,
3,000 shares designated, zero
shares issued and outstanding -- --
Class A common stock, one vote per share,
par value $0.01 per share, 40,000,000 shares
authorized; 7,153,746 and 5,460,636 shares
issued and outstanding, respectively 71,537 54,606
Class B common stock, six votes per share,
par value $0.01 per share, 4,000,000 shares
authorized; zero shares issued and outstanding -- --
Additional paid-in capital 116,150,238 113,462,394
Accumulated other comprehensive income:
Net unrealized loss on investment securities (266) (10,107)
Accumulated deficit (91,969,070) (85,658,567)
Treasury stock, at cost; 78,600 shares (193,990) (193,990)
------------ ------------
Total stockholders' equity 23,860,632 27,654,366
------------ ------------
Total liabilities and stockholders' equity $ 32,617,829 $ 39,412,621
============ ============
See accompanying notes to consolidated financial statements.
3
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GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Equipment sales $ 46,759 $ -- $ 5,597,319 $ 89,028
Service income -- 438,071 59,827 903,475
------------ ------------ ------------ ------------
46,759 438,071 5,657,146 992,503
------------ ------------ ------------ ------------
Costs and expenses:
Cost of equipment sales 34,534 -- 3,454,915 283,714
Cost of service income 6,523 199,771 15,103 346,133
General and administrative expenses 3,472,509 3,030,811 6,434,775 7,868,209
Non-cash compensation expense 539,050 -- 624,050 --
Provision for doubtful accounts -- 28,647 -- 28,647
Expenses associated with investments 1,656,587 -- 1,656,587 --
Special charges -- -- -- (190,000)
Depreciation and amortization expense 327,500 212,383 652,565 552,903
------------ ------------ ------------ ------------
6,036,703 3,471,612 12,207,694 8,889,606
------------ ------------ ------------ ------------
Operating loss (5,989,944) (3,033,541) (6,550,548) (7,897,103)
Other:
Interest expense (39,624) (1,866) (48,275) (4,256)
Interest income 221,069 478,316 524,907 1,069,430
Equity in loss of nonconsolidated affiliates (562,875) -- (715,451) --
Other income (expense) (17,192) (564,689) (3,784) (567,317)
------------ ------------ ------------ ------------
Net loss before minority interest
and preferred dividends $ (6,388,566) $ (3,121,780) $ (6,793,151) $ (7,399,246)
------------ ------------ ------------ ------------
Minority interest 348,682 -- 254,163 --
------------ ------------ ------------ ------------
Net loss $ (6,039,874) $ (3,121,780) $ (6,538,988) $ (7,399,246)
============ ============ ============ ============
Basic and diluted net loss per share
of common stock $ (1.00) $ (0.63) $ (1.03) $ (1.45)
============ ============ ============ ============
Weighted average shares outstanding:
basic and diluted 6,013,788 4,988,550 6,319,119 5,054,351
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
GLOBAL TECHNOLOGIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended Ended
December 31, December 31,
1999 1998
------------ ------------
Cash flows from operating activities:
Net loss $ (6,538,988) $ (7,399,246)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 652,365 552,903
Equity on loss of nonconsolidated affiliate 715,451 --
Non-cash expenses associated with investments 1,656,587 --
Loss applicable to minority interest (170,947) --
Special charges -- (190,000)
Loss on sale of assets held for sale 37,893 --
Non cash compensation expense 624,050 --
Loss on disposals of property and equipment -- 1,006,532
Changes in assets and liabilities, net of
acquisition:
Increase in accounts receivable (903,237) (4,867,319)
(Increase)Decrease in inventories (2,351,153) 107,959
Increase in prepaid expenses, other current
assets and other assets (313,315) (967,786)
Decrease in accounts payable (110,223) (383,888)
Decrease in accrued liabilities (278,311) (801,259)
Increase in deferred revenue 1,742,300 4,483,870
Increase (Decrease) in accrued product
warranties 144,750 (1,316,046)
------------ ------------
Net cash used in operating activities $ (5,101,578) $ (9,774,280)
------------ ------------
Cash flows from investing activities:
Maturities of investment securities 1,450,079 2,008,020
Purchases of investment securities (1,839,643) (2,826,252)
Sales of investment securities 4,545,961 --
Investments in affiliates (1,763,948) 784,239
Payments received on related party note
receivable 17,000 --
Deposits on property and equipment (5,119,417) --
Purchases of property and equipment (1,870,672) (51,680)
Proceeds from sale of equipment -- 11,786
Proceeds from sale of assets held for sale 762,107 --
Decrease (Increase) in restricted cash (245,678) (865,443)
Purchase of Johnny Valet, Inc. -- (688,736)
Payments to purchase Series A, D and E notes (555,000) --
------------ ------------
Net cash used in investing activities $ (4,619,211) $ (1,628,066)
------------ ------------
Cash flows from financing activities:
Redemption of Series A Preferred Stock (3,519,970) (42,074)
Payments on notes payable (719,901) --
Issuance of stock to directors and officers 2,702,438 (1,350,475)
Employee stock option purchases 19,505 --
------------ ------------
Net cash used in financing activities $ (1,517,928) $ (1,392,549)
------------ ------------
Net decrease in cash and cash equivalents (11,238,717) (12,794,895)
Cash and cash equivalents at beginning of period 15,521,275 38,961,896
------------ ------------
Cash and cash equivalents at end of period $ 4,282,558 $ 26,167,001
============ ============
See accompanying notes to consolidated financial statements.
5
<PAGE>
PART I. FINANCIAL INFORMATION
BASIS OF PRESENTATION
(1) PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
Global Technologies, Ltd. ("Global") and its wholly-owned subsidiaries:
GlobalTech Holdings Limited (formerly IFT Holdings, Limited), GTL Management
Limited (formerly IFT Management Limited), Interactive Flight Technologies
(Gibraltar) Limited, IFT Lottoco, Inc., IFT Subco, Inc., GTL Investments
(formerly IFT Investments), GTL Leasing Limited (formerly IFT Leasing Limited),
Lottery Sales Company Limited, and MTJ Corp; and the majority-owned and
controlled subsidiary, The Network Connection, Inc. and its wholly-owned
subsidiary TNCi UK Limited ("TNCi") (collectively, the "Company"). The ownership
interest of minority shareholders in TNCi are recorded as "minority interest" on
the accompanying condensed consolidated financial statements. TNCi was acquired
by Global effective May 1, 1999 for accounting purposes (the "Transaction"). All
significant intercompany accounts and transactions have been eliminated.
The equity method of accounting is used for the Company's 50% or less owned
affiliates (Inter Lotto (UK) Limited and Donativos S.A. de C.V.) over which the
Company has the ability to exercise significant influence. The amount by which
the Company's carrying value in each such affiliate exceeds its share of the
underlying net assets of such equity affiliate is amortized over five years on a
straight-line basis from the date of acquisition which adjusts the Company's
share of such affiliate's earnings or losses. The Company's investments in US
Wireless Corp. and Shop4Cash.com, Inc. are accounted for at cost.
The Company continually evaluates investments for indications of impairment
based on the market value of each investment relative to cost, financial
condition, near-term prospects of the investment, and other relative factors. If
impairment is determined the carrying value is adjusted to fair value.
The equity method of accounting requires that when it is determined that
only one party in an investment has any tangible assets at risk, 100% of the
equity loss should be recorded by that party without regard to the percent
ownership in the investment. The Company has determined during the quarter ended
December 31, 1999 that it now retains the majority of the financial risk related
to InterLotto and, accordingly, has recorded against their investment 100% of
the loss incurred by Inter Lotto during this period before operations begin.
This accounting treatment will be revisited in future periods to insure accurate
presentation of this investment.
As of December 31, 1999, the Company has determined that the value of its
investment in Donativos S.A. de C.V. ("Donativos") has been permanently
impaired. Since the opening of its entertainment center, Donativos has not
generated sufficient profits to meet its obligations to the Company under the
loan and equipment financing agreements and, therefore, its ability to continue
as a "going concern" is in doubt. The equity investment has been written off and
a reserve for the full amount of the loans and subsequent advances to Donativos
has been recorded, resulting in a charge to income of $1.7 million.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
which are necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in consolidated financial statements have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the transition period ended June 30,
1999, included in the Company's Annual Report on Form 10-KSB.
The results of operations for the three months and six months ended
December 31, 1999 are not necessarily indicative of the results to be expected
for the entire fiscal year.
6
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(2) USE OF ESTIMATES
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. Additionally, such estimates and assumptions affect the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
(3) REVERSE STOCK SPLIT AND STOCK DIVIDEND
On October 30, 1998, the stockholders of the Company approved a
one-for-three reverse stock split on the Company's Class A Common Stock and
Class B Common Stock. One share was issued for three shares of Common Stock held
by stockholders of record as of the close of business on November 2, 1998. All
references to the number of common shares, per share amounts and stock option
data elsewhere in the consolidated financial statements and related footnotes
have been restated as appropriate to reflect the effect of the reverse split for
all periods presented prior to the reverse split.
On January 5, 2000, the Board of Directors approved a three-for-two stock
split to be effected by way of a stock dividend of one share for each two shares
of Common Stock held by stockholders of record as of the close of business
February 15, 2000. The dividend is payable on February 29, 2000; fractional
shares will be paid out in cash. Amounts contained herein have not been adjusted
to reflect the effect of this stock dividend.
(4) NOTES RECEIVABLE
Prior to the Transaction, TNCi issued a secured promissory note to Global
in the principal amount of $750,000, bearing interest at a rate of 9.5% per
annum, and a related security agreement granting Global a security interest in
TNCi's assets (the "Promissory Note"). The Promissory Note was convertible into
shares of TNCi's Series C 8% Convertible Preferred Stock ("TNCi Series C Stock")
at the discretion of Global. The Note had an original maturity of May 14, 1999
but had been extended until September 2001.
In July and August 1999, Global purchased all of the Series A and E notes
and the Series D notes issued by TNCi (collectively, the "Series Notes"),
respectively, from the holders of such notes. Concurrent with such purchase by
Global, TNCi executed the allonges to the Promissory Note which cancelled such
Series Notes and rolled the principal balance, plus accrued but unpaid interest,
penalties and redemption premiums on the Series Notes, into the principal
balance of the Promissory Note. Subsequent to May 18, 1999, Global has also
advanced working capital to TNCi in the form of intercompany advances. In August
1999, TNCi executed an allonge to the Promissory Note which rolled the
intercompany advances into the principal balance of the Promissory Note and
granted Global the ability to convert the Promissory Note directly into shares
of TNCi's Common Stock as an administrative convenience.
On August 24, 1999, the Board of Directors of Global approved the
conversion of the Promissory Note into approximately 4.8 million shares of
TNCi's Common Stock. Such conversion was contingent upon receiving shareholder
approval to increase the authorized share capital of TNCi. This increase in
authorized share capital was subsequently approved at the September 17, 1999
Special Meeting of TNCi shareholders. Accordingly, TNCi has issued to Global
approximately 4.8 million shares of its Common Stock based on the conversion
date of August 24, 1999. Separately from the Promissory Note, TNCi issued
886,140 shares of its Common Stock to Global upon conversion of the TNCi Series
C Stock held by Global.
Also, on August 24, 1999, the Company's Board of Directors approved a $5
million secured revolving credit facility by and between TNCi and Global (the
"Facility"). The Facility provides that TNCi may borrow up to $5 million for
working capital and general corporate purposes at the prime rate of interest
plus 3%. The Facility matures in September 2001. TNCi paid an origination fee of
$50,000 to Global and will pay an unused line fee of 0.5% per annum. The
7
<PAGE>
Facility is secured by all of the assets of TNCi and is convertible, at Global's
option, into shares of TNCi's Common Stock at a price equal to the lesser of
66.7% of the average five day low share price of the preceding 20 days, as
defined, or $1.50 per share, or any lesser amount at which shares of TNCi's
Common Stock have been issued to third parties.
Pursuant to Nasdaq rules, Global may not convert borrowings under the
Facility into shares of TNCi Common Stock in excess of 19.99% of the number of
shares of TNCi Common Stock outstanding as of August 24, 1999, without
stockholder approval. As of December 31, 1999, no amounts were outstanding under
the Facility. As of December 31, 1999, Global did not have sufficient cash for
TNCi to borrow the full $5 million under the Facility. Should TNCi draw on the
Facility, Global would have to obtain financing or sell assets to meet its
obligations under the Facility.
In September 1999, TNCi sold one of its two buildings in Alpharetta,
Georgia. The net proceeds of approximately $390,000 from the sale, plus cash of
approximately $80,000, was used by the Company to repay a note payable due April
2001, in the principal amount of $470,000. The sale of the second building
occurred in November 1999. The net proceeds of approximately $367,000 from the
sale were used to retire a note payable due 2009 in the principal amount of
$217,000.
In October 1999, a convertible note payable of TNCi in the principal amount
of $400,000 due September 5, 1999 was converted into 200,000 shares of TNCi's
Common Stock.
(5) PREFERRED STOCK
On November 10, 1999, the Board of Directors of the Company approved the
redemption of the Company's Series A 8% Convertible Preferred Stock ("Series A
Stock") as of November 6, 1999 for approximately $3.57 million, consisting of
its stated value of $3 million, plus accrued and unpaid dividends of
approximately $120,000 and a redemption premium of approximately $450,000. Such
amounts were paid on November 16, 1999 to the holder of the Series A Stock.
(6) WARRANTS
In December 1999, TNCi issued warrants to purchase 25,000 shares of TNCi
Common Stock at $6.50 per share and Global issued warrants to purchase 25,000
shares of Global Class A Common Stock at $7.88 per share to Emden Consulting
Corp. in exchange for certain financial advisory services. The warrants expire
in December 2004. Non-cash compensation expense of $269,525 was recorded in the
current period.
In December 1999, TNCi issued warrants to purchase 25,000 shares of TNCi
Common Stock at $6.50 per share and Global issued warrants to purchase 25,000
shares of Global Class A Common Stock at $7.88 per share to Waterton Group LLC
in exchange for certain financial advisory services. The warrants expire in
December 2004. Non-cash compensation expense of $269,525 was recorded in the
current period.
In December 1999, TNCi issued warrants to purchase 100,000 shares of TNCi
Common Stock at prices ranging from $6 to $10 per share to Continental Capital &
Equity Corp. in exchange for public relations and financial advisory services.
The warrants vest over a period of 270 days and expire in February 2002.
Non-cash compensation expense will be recognized over the 12 months of the
agreement.
(7) OPTION GRANTS
In October 1999, the Compensation Committee of the Board of Directors of
Global recommended, and the Board approved, option grants to purchase up to
1,000,000 shares of Global's Class A Common Stock to Mr. Irwin L. Gross,
Chairman and Chief Executive Officer of the Company. One quarter of these
options vested immediately and one quarter vest over three years. The remainder
vest on the sixth anniversary of the date of grant, subject to acceleration to a
three-year vesting schedule in the event of the achievement of certain
performance goals. Exercise price of the options is equal to the closing market
price of the Global's Class A Common Stock on the day prior to grant. The
options expire in October 2009.
8
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Additionally, in November 1999, the Compensation Committee of the Board of
Directors of TNCi recommended, and the Board approved, option grants to purchase
up to 500,000 shares of TNCi's Common Stock to Mr. Irwin L. Gross, Chairman and
Chief Executive Officer of TNCi. One quarter of these options vested immediately
and one quarter vest over three years. The remainder vest on the sixth
anniversary of the date of grant, subject to acceleration to a three-year
vesting schedule in the event of the achievement of certain performance goals.
Exercise price of the options is equal to the closing market price of TNCi's
Common Stock on the day prior to grant. The options expire in October 2009.
(8) PRO FORMA INFORMATION
Pro forma unaudited operations data assuming the TNCi acquisition had taken
place on July 1, 1998 is as follows:
Three Months Ended Six Months Ended
December 31, 1998 December 31, 1998
----------------- -----------------
Revenue................................ $ 6,096 $ 1,722,268
Net loss............................... $(8,142,119) $(15,666,423)
Net loss per share..................... $ (1.60) $ (3.06)
(9) COMMITMENTS AND CONTINGENCIES
(a) LAWSUIT
FIDELITY AND GUARANTY INSURANCE COMPANY V. INTERACTIVE FLIGHT TECHNOLOGIES,
INC., United States District Court for the District of Minnesota, CV No. 99-410.
This is a declaratory judgment action where the Company and its insurers are
seeking a declaration of the applicability of an excess liability policy to
claims made by the estates of victims of the crash of Swissair Flight No. 111 on
September 2, 1998.
Swissair/MDL-1269, IN REGARDS TO AN AIR CRASH NEAR PEGGY'S COVE, NOVA
SCOTIA. This multi-district litigation, which is being overseen by the United
States District Court for the Eastern Division of Pennsylvania, relates to the
crash of Swissair Flight No. 111 on September 2, 1998. The Swissair MD-11
aircraft involved in the crash was equipped with an entertainment network system
that had been sold to Swissair by the Company. Estates of the victims of the
crash have filed lawsuits throughout the United States against Swissair, Boeing,
Dupont and various other parties, including the Company. TNCi has been named in
some of the lawsuits filed by families of victims on a successor liability
theory. The Company and TNCi deny all liability for the crash. TNCi is being
defended by the aviation insurer for the Company.
FEDERAL EXPRESS CORPORATION V. THE NETWORK CONNECTION, INC., State Court of
Forsyth County, State of Georgia, Civil Action File No. 99-SC-0053. This lawsuit
was served on the Company on or about July 22, 1999 by Federal Express
Corporation and relates to charges incurred by prior management. The suit
alleges the Company owes Federal Express approximately $110,000 for past
services rendered. The Company is currently discussing settlement with Federal
Express.
BRYAN R. CARR V. THE NETWORK CONNECTION, INC. AND GLOBAL TECHNOLOGIES,
LTD., Superior Court of Georgia, Civil Action No. 99-CV-1307. Bryan R. Carr, the
Company's former Chief Operating and Chief Financial Officer and a former
Director, filed a claim on November 24, 1999 alleging a breach of his employment
agreement. Mr. Carr claims that he is entitled to the present value of his base
salary through October 31, 2001, a share of any "bonus pool," the value of his
stock options and accrued vacation time. The Company is currently defending the
claim.
In September of 1999, Global filed a lawsuit against Barington Capital
Group, L.P. ("Barington") in Maricopa County Superior Court, Arizona, seeking a
declaratory judgment that no sums were owed to Barington pursuant to a Financial
Advisory Service Agreement dated in October of 1998. In October of 1999,
Barington filed a lawsuit on the same contract in the Supreme Court of the State
of New York, County of New York, Index No. 99-604l606, captioned Barington
Capital Group, L.P. v. Interactive Flight Technologies, Inc., alleging that
Barington is owed $1,750,471 in connection with services alleged to have been
performed pursuant to the Financial Advisory Service Agreement. Global denies
all liability and denies that any sums are owed to Barington.
GLOBAL TECHNOLOGIES, LTD. V. XCEL CAPITAL, LLC, United States District
Court for the Eastern District of Pennsylvania, Case No. 00-CV-505. On January
27, 2000 Global filed an action against XCEL Capital, LLC ("XCEL") for specific
performance and breach of contract. In the action, Global is seeking to compel
XCEL to tender 75,000 shares of Global Class A Common Stock to Global at $4.75
per share in accordance with XCEL's obligations pursuant to a put/call agreement
entered into between the parties on August 12, 1999.
On October 25, 1999, Global filed a lawsuit against Regal Gaming (and its
principals and their spouses) in the United States District Court for the
Southern District of Florida seeking judgment in favor of Global on the $500,000
promissory note made by Regal Gaming (and guaranteed by its principals and their
spouses) to Global. The promissory note was made to secure Regal Gaming's
obligations to fund cost overruns in connection with the entertainment center
project undertaken by Donativos.
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The Company is subject to other lawsuits and claims arising in the ordinary
course of its business. In the Company's opinion, as of December 31, 1999, the
effect of such matters will not have a material adverse effect on the Company's
results of operations and financial position.
(b) CARNIVAL AGREEMENT
In September 1998, the Company entered into a Turnkey Agreement (the
"Carnival Agreement") with Carnival Corporation ("Carnival") for the purchase,
installation and maintenance of its advanced cabin entertainment and management
system for the cruise industry ("CruiseView(TM)") on a minimum of one Carnival
Cruise Lines ship. During the four-year period commencing on the date of the
Carnival Agreement, Carnival has the right to designate an unspecified number of
additional ships for the installation of CruiseView(TM). The cost per cabin for
CruiseView(TM) purchase and installation on each ship is provided for in the
Carnival Agreement. In December 1998, Carnival ordered the installation of
CruiseView(TM) on one Carnival Cruise Lines "Fantasy" class ship which has been
in operational use since August 1999. In August 1999, Carnival ordered the
installation of CruiseView(TM) on one Carnival Cruise Lines "Destiny" class ship
which has been in operational use since October 1999. Under the terms of the
agreement, the Company receives payment for 50% of the sales price of the system
in installments through the commencement of operation of the system. Recovery of
the remaining sales price of the system is through the receipt of the Company's
50% share of revenues generated by the system over future periods.
The terms of the Carnival Agreement provide that Carnival may return the
CruiseView(TM) system within the acceptance period, as defined in the Carnival
Agreement. The acceptance periods for the "Fantasy" and "Destiny" class ships
are twelve months and three months, respectively. As of December 31, 1999, the
Company recorded deferred revenue of $2,108,151, reflecting amounts paid by
Carnival towards the purchase price of CruiseView(TM) aboard these ships. As of
December 31, 1999, the Company had not recognized any revenue in association
with the Carnival Agreement. In January 2000, the systems installed aboard the
Fantasy and Destiny class ships were accepted by Carnival.
The Company has concluded that the cost of building and installing
CruiseView(TM) systems in carnival ships pursuant to the agreement with Carnival
may exceed the revenue earned in connection therewith. Carnival's continuing to
exercise its option for building and installing CruiseView(TM) on additional
ships under the agreement may prove unprofitable and therefore have a negative
effect on the Company's working capital. The company is currently endeavoring to
renegotiate the terms of the agreement with Carnival.
(d) PURCHASE COMMITMENT
In September 1999, GTL Leasing Limited entered into an agreement with
International Lottery & Totalizator Systems, Inc., a California corporation
("ILTS"), to purchase an on-line lottery system for the operation of the Inter
Lotto lotteries. The base value of the lottery system being purchased from ILTS
is $12.3 million of which approximately $7.7 million has yet to be paid as of
December 31, 1999. In addition, on the same date, GTL Management Limited entered
into an eight-year facilities management agreement with ILTS to provide
operational and technology support for the system. Under this agreement, GTL
Management is required to make weekly payments of $72,000, plus additional
amounts based on the number of installed terminals and sales volumes, upon the
commencement of ticket sales through the system. Global has guaranteed the
obligations of GTL Leasing Limited and GTL Management Limited under these
agreements.
10
<PAGE>
(10) COMPREHENSIVE INCOME
Comprehensive income encompasses net income and "other comprehensive
income", which includes all other non-owner transactions and events which change
stockholders' equity. The Company recognized comprehensive income (loss) for the
three months and six months ended December 31, 1999 and 1998 as follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net loss
Other comprehensive loss,
net of tax $(5,842,058) $(3,121,780) $(6,341,171) $(7,399,246)
Net unrealized loss on
Investment securities 1,149 -- 9,841 --
----------- ----------- ----------- -----------
Comprehensive loss $(5,840,909) $(3,121,780) $(6,331,330) $(7,399,246)
=========== =========== =========== ===========
(11) OPERATING SEGMENTS
In 1998, the Company adopted SFAS 131, which requires the reporting of
operating segments using the "management approach" versus the "industry
approach" previously required. The Company's reportable segments consist of TNCi
and general corporate operations. TNCi's operations include the design,
manufacture, installation and maintenance of advanced, high-end,
high-performance computer servers and interactive, broad-band information and
entertainment systems, and procuring and providing the content available through
these systems. These all-digital systems deliver an on-demand, multi-media
experience via high-speed, high-performance Internet protocol networks. The
systems are designed to provide users access to information, entertainment and a
wide array of service options such as movies, shopping for goods and services,
computer games, access to the World Wide Web and on-line gambling, where
permitted by applicable law. General corporate operations consist of investing
in, developing and operating or assisting in the management of affiliate
companies, most of which are engaged in telecommunications, e-commerce,
networking solutions and gaming.
The following summarizes information related to the Company's segments. All
significant inter-segment activity has been eliminated. Assets are the owned or
allocated assets used by each operating segment.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
TNCi $ 46,759 $ 143,740 $ 5,657,146 $ 478,065
Other -- 294,331 -- 514,438
------------ ------------ ------------ ------------
$ 46,759 $ 438,071 $ 5,657,146 $ 992,503
Gross profit(a)
TNCi $ 5,702 $ 143,260 $ 2,187,128 $ 193,615
Other -- 95,040 -- 169,041
------------ ------------ ------------ ------------
$ 5,702 $ 238,300 $ 2,187,128 $ 362,656
Operating income (loss)
TNCi $ (1,852,214) $ (1,358,377) $ (1,334,579) $ (6,047,349)
Other (4,137,730) (1,675,164) (5,215,969) (1,849,754)
------------ ------------ ------------ ------------
$ (5,989,944) $ (3,033,541) $ (6,550,548) $ (7,897,103)
General corporate operations
Equity in loss of non-
consolidated affiliate $ (562,875) $ -- $ (715,451) $ --
Net interest 181,445 476,450 476,632 1,065,174
Other income (expenses) 17,192 (564,689) (3,784) (567,317)
Minority interest 348,692 -- 254,163 --
------------ ------------ ------------ ------------
$ (49,930) $ (88,239) $ (11,560) $ 497,857
Net loss $ (6,039,874) $ (3,121,780) $ (6,538,983) $ (7,399,246)
Total assets
TNCi $ 14,630,592 $ 9,005,850 $ 14,630,592 $ 9,005,850
General corporate 17,987,237 31,811,603 17,987,237 31,811,603
------------ ------------ ------------ ------------
Total Assets $ 32,617,829 $ 40,817,453 $ 32,617,829 $ 40,817,453
============ ============ ============ ============
</TABLE>
(a) Gross profit is the difference between Revenue and Cost of Revenue in the
consolidated statement of operations.
(12) SUBSEQUENT EVENTS
(a) LETTER OF INTENT: ISSUANCE OF CONVERTIBLE SUBORDINATED DEBENTURE ON TNCi
In January 2000, TNCi entered into a Letter of Intent relating to the
issuance of a subordinated convertible debenture (the "Debenture") and warrants
to purchase shares of TNCi's Common Stock for net proceeds to TNCi of $5.8
million. The letter provides that over the 24-month term of the Debenture it
will accrue interest at an annual rate equal to the prime interest rate. Under
the terms of the letter, TNCi shall provide a Letter of Credit equal to 50% of
the outstanding principle balance of the Debenture and that TNCi shall register
the shares of Common Stock into which the Debenture and warrants are convertible
or exercisable, as the case may be. The letter of credit requirement shall be
reduced to 35% of the outstanding principal balance of the debenture 45 days
after the effective date of the registration statement.
Beginning on the funding date, the holder of the Debenture shall be
permitted each month to convert a pro rata portion (according to a 12-month term
payment schedule) of principal amount of the Debenture plus accrued interest
into shares of TNCi Common Stock at a conversion price equal to the lesser of
(i) 130% of the average closing price of TNCi Common Stock for the 10
consecutive trading days prior to the funding date, or (ii) 100% of the average
three low daily trades of TNCi Common Stock selected by the holder of the
Debenture for the 12 days prior to the submission of the conversion notice. The
letter also provides the Company with certain prepayment and forced conversion
rights.
12
<PAGE>
Additionally, the holder of the Debenture is to receive 120,000 warrants to
purchase Common Stock of TNCi at a price equal to 130% of the average closing
price of TNCi Common Stock for the five consecutive trading days prior to the
funding date. The warrants are callable under certain circumstances and expire
five years from date of issue. Proceeds from this transaction will be used to
fund general operations of TNCi.
(b) LETTER OF INTENT: ISSUANCE OF PREFERRED STOCK OF GLOBAL
In February 2000, Global entered into a letter of intent relating to the
issuance of preferred stock and callable warrants in return for $10 million. The
preferred stock carries a 5% cumulative dividend payable quarterly in cash or in
kind. The preferred stock converts into Class A Common Stock at a conversion
price equal to the 120% of the average closing bid prices thereof over the five
trading days beginning March 1, 2000 (the "Fixed Conversion Price"). Nine months
after funding, and every three months thereafter, the conversion price resets to
the lesser of the Fixed Conversion Price or 100% of the average of the four low
trading prices over the course of the preceding 20 trading days. The Company has
granted the purchaser of the preferred stock registration rights relating to the
Class A Common Stock into which the preferred stock and warrants are convertible
or exercisable as the case may be. Additionally, the Company may redeem the
preferred stock for a premium under certain circumstances.
(c) SHARE REPURCHASES
In August 1999 Global acquired from third parties Series Notes issued by
TNCi in November of 1998 for consideration consisting of cash and 387,610 shares
of Class A Common Stock. In connection with this transaction, Global entered
into put/call agreements with the various note holders which provided holders
with the right to require Global to purchase any or all of the shares for an
average price of $3.57 per share. Further, Global retained the right to purchase
these shares at an average price of $4.55 per share. Both the Company and the
former note holders would be entitled to exercise these put and call rights for
the period from January 1, 2000 to January 10, 2000.
In December 1999, Global determined to exercise its call rights effective
January 1, 2000 and provided proper notice to the parties that it had done so.
Accordingly, as of January 2000, Global had a payment obligation of
approximately $1.8 million due and payable on February 28, 2000. See description
of XCEL Capital, LLC litigation under "Legal Proceedings" below.
13
<PAGE>
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
The following Index to Exhibits lists the Exhibits filed as part of this
Quarterly Report on Form 10-QSB. Where so indicated, Exhibits which were
previously filed are incorporated by reference. Documents filed herewith are
denoted with an asterisk.
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
10.39 Employment Agreement between Irwin L. Gross and
Global Technologies, Ltd., dated October 1, 1999.(1)
10.40 Option Agreement between Global Technologies,
Ltd. and Irwin L. Gross, dated October 8, 1999.(2)
27 Financial Data Schedule.*
- ----------
* Filed herewith.
(1) Incorporated by reference from Global Technologies, Ltd.'s Quarterly Report
on Form 10-QSB for the Quarter ended September 30, 1999, filed with the
Securities and Exchange Commission on November 15, 1999, File No. 0-25668.
(2) Incorporated by reference from Global Technologies, Ltd.'s Quarterly Report
on Form 10-QSB for the Quarter ended December 31, 1999, filed with the
Securities and Exchange Commission on February 14, 2000, File No. 0-25668.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
December 31, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this Amendment No. 1 to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 16, 1999 GLOBAL TECHNOLOGIES, LTD.
By: /s/ Irwin L. Gross
------------------------------------
Irwin L. Gross
Chief Executive Officer
By: /s/ Patrick J. Fodale
------------------------------------
Patrick J. Fodale
Chief Financial Officer
14
<PAGE>
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.39 Employment Agreement between Irwin L. Gross and
Global Technologies, Ltd., dated October 1, 1999.(1)
10.40 Option Agreement between Global Technologies,
Ltd. and Irwin L. Gross, dated October 8, 1999.(2)
27 Financial Data Schedule.*
- ----------
* Filed herewith.
(1) Incorporated by reference from Global Technologies, Ltd.'s Quarterly Report
on Form 10-QSB for the Quarter ended September 30, 1999, filed with the
Securities and Exchange Commission on November 15, 1999, File No. 0-25668.
(2) Incorporated by reference from Global Technologies, Ltd.'s Quarterly Report
on Form 10-QSB for the Quarter ended December 31, 1999, filed with the
Securities and Exchange Commission on February 14, 2000, File No. 0-25668.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S 10-QSB FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,282,558
<SECURITIES> 447,146
<RECEIVABLES> 1,031,726
<ALLOWANCES> 0
<INVENTORY> 3,751,153
<CURRENT-ASSETS> 12,638,385
<PP&E> 4,155,681
<DEPRECIATION> 1,190,539
<TOTAL-ASSETS> 32,617,829
<CURRENT-LIABILITIES> 5,723,991
<BONDS> 0
0
0
<COMMON> 107,306
<OTHER-SE> 24,201,993
<TOTAL-LIABILITY-AND-EQUITY> 32,617,829
<SALES> 5,597,319
<TOTAL-REVENUES> 5,657,146
<CGS> 3,454,915
<TOTAL-COSTS> 3,470,018
<OTHER-EXPENSES> 9,367,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,275
<INCOME-PRETAX> (6,538,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,538,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,538,988)
<EPS-BASIC> (1.03)
<EPS-DILUTED> (1.03)
</TABLE>
