SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to_________.
Commission file number 0-26684
GLOBAL INTELLICOM, INC.
(Exact name of registrant as specified in its charter.)
Nevada 13-3797104
- ------------------------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
747 Third Avenue
New York, New York 10017
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(Address of principal executive offices) (Zip code)
(212)750-3772
Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
As of November 15, 1996, there were outstanding 4,404,313 shares of
Global Intellicom, Inc.'s common stock, par value $0.1 per share (the "Common
Stock").
<PAGE>
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 6,299,423 $ 9,619,408 $ 20,960,442 $ 23,983,314
COST OF GOODS SOLD 5,623,453 8,191,726 18,950,332 20,412,202
------------ ------------ ------------ ------------
GROSS PROFIT 675,970 1,427,682 2,010,110 3,571,112
OPERATING EXPENSES:
Selling, shipping and general
and administrative 588,223 1,650,511 1,547,018 4,554,787
Depreciation and amortization 19,190 72,860 44,806 178,591
Amortization of intangibles 39,460 47,836 110,982 157,158
------------ ------------ ------------ ------------
646,873 1,771,207 1,702,806 4,890,536
------------ ------------ ------------ ------------
OPERATING INCOME 29,097 (343,525) 307,304 (1,319,424)
OTHER EXPENSES - INTEREST 94,167 288,774 229,087 626,648
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (TAX BENEFITS) (65,070) (632,299) 78,217 (1,946,072)
PROVISION FOR INCOME TAXES (TAX BENEFITS) -- (252,920) -- (778,429)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (65,070) $ (379,379) $ 78,217 $ (1,167,643)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE $ (0.20) $ (0.12) $ 0.03 $ (0.37)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,124,774 3,165,678 3,124,774 3,165,678
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS
December 31, September 30,
1995 1996
(a) (Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 496,622 $ 984,881
Due from factor 446,424 2,331,152
Accounts receivable -- trade, less allowance for doubtful
accounts of $68,265 and $231,333, respectively 135,787 4,279,547
Accounts receivable -- non-trade 285,933 2,868,777
Other receivables 92,938 --
Inventories 4,666,842 8,371,074
Notes receivable --stockholders 419,680 538,703
Note and loans receivable -- other 81,315 93,166
Prepaid expenses and other current assets 322,087 366,341
Deferred income taxes 180,000 1,138,962
------------ ------------
Total current assets 7,127,628 20,972,603
------------ ------------
PROPERTY AND EQUIPMENT -- net of accumulated
depreciation and amortization 544,275 1,294,779
------------ ------------
INTANGIBLE ASSETS -- net of accumulated amortization 3,462,446 4,916,075
------------ ------------
OTHER ASSETS:
Deferred offering costs 125,389 381,604
Other assets 54,093 29,761
------------ ------------
179,482 411,365
------------ ------------
$ 11,313,831 $ 27,594,822
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable--related party $ -- $ 200,000
Note Payable--current -- 613,170
Due to financial institutions 4,994,135 6,823,046
Accounts payable -- trade 1,618,091 7,799,797
Accounts and note payable -- related party 445,700 474,091
Accounts payable -- related party -- --
Due on acquisitions -- current portion 422,788 384,145
Current portion of capitalized lease obligations 89,700 113,612
Income taxes payable 149,103 32,133
Accrued expenses and other current liabilities 514,562 601,120
------------ ------------
Total current liabilities 8,234,079 17,041,114
------------ ------------
LONG-TERM LIABILITIES:
Capitalized lease obligations --net of current portion 221,873 218,676
Due on acquisitions -- net of current portion 447,522 332,539
Notes Payable -- 1,882,732
Other liabilities 80,833 22,708
------------ ------------
750,228 2,456,655
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock -- $.01 par value:
Authorized -- 10,000,000 shares -- 1996
Common stock -- $.01 par value:
Authorized -- 20,000,00 shares --1995 and 1996
Issued -- 3,143,203 shares -- 1995 and 1996 31,432 33,480
Common stock to be issued 181,753 424,626
Preferred Stock
Series 1 -- 3,300
Series 2 -- 8
Series 3 -- 3,500
Additional paid-in capital 2,013,224 8,696,667
Retained earnings 111,999 (1,055,644)
Treasury stock, at cost (8,884) (8,884)
------------ ------------
Total stockholders' equity 2,329,524 8,097,053
------------ ------------
$ 11,313,831 $ 27,594,822
============ ============
</TABLE>
(a) The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
----------------------------
September 30,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income: $ 78,217 $ (1,167,643)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 44,805 178,591
Amortization of intangibles 110,952 157,158
Loss on disposition of property and equipment 5,983 --
Deferred income taxes -- (778,429)
Changes in assets and liabilities:
Due from factor (259,221) (1,884,728)
Accounts receivable -- trade 1,542,492 (4,143,760)
Accounts receivable -- non-trade (292,135) (2,582,844)
Inventories 200,608 (3,704,232)
Other receivables -- 92,938
Notes and loan receivable -- other 11,741 (11,851)
Prepaid expenses and other (109,989) (44,254)
Other assets (103,279) 24,332
Accounts payable trade (165,443) 6,181,706
Note payable - NCR -- 613,170
Accounts and note payable -- related party -- 28,391
Accrued expenses and other 224,170 52,345
Deferred Taxes -- (180,533)
Income taxes payable -- (116,970)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,288,901 (7,286,613)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipt of cash from stock purchase 482,012 --
Payments of deferred costs (326,938) --
Payments pursuant to stock purchase agreement (100,000) --
Payments pursuant to acquisitions -- (153,626)
Loans to stockholders (230,689) (119,023)
Payments of other intangibles (513,934) (1,674,833)
Purchases of property and equipment (103,104) (965,049)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (792,653) (2,912,531)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 335,780 7,035,172
Purchase of treasury stock (8,884) --
Deferred offering costs -- (256,215)
Proceeds from notes payable--related party -- 200,000
Proceeds from notes payable--Mantech -- 1,882,732
Advances on line of credit -- net (179,022) --
Due to financial institutions -- net (252,038) 1,828,911
Payments on capitalized lease obligations (9,673) (3,197)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (113,837) 10,687,403
------------ ------------
NET CHANGE IN CASH 382,411 488,259
CASH -- at beginning of year 36,267 496,622
------------ ------------
CASH -- at end of period $ 418,678 $ 984,881
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
--------------------------
September 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
SCHEDULE OF NON-CASH ACTIVITIES:
Accrued deferred debt costs -- notes payable -- related party $ -- $ 29,595
Offset of note receivable from purchase of business 36,748 --
Accrued acquisition costs -- 11,264
Increase in deferred costs (316,560) 187,076
Common stock to be issued -- (117,873)
Due to seller pursuant to asset purchase agreement 204,453 --
Due to accounts payable-related party 316,560 (110,062)
Increase in goodwill thereon (241,201) --
----------- -----------
$ -- $ --
=========== ===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Purchase of property and equipment $ (295,663) $ (97,825)
Transfer of inventory to property and equipment 191,705 --
Capitalized lease obligation 103,958 97,825
----------- -----------
$ -- $ --
=========== ===========
Due to seller pursuant to stock purchase agreement $ (833,000) $ 1,882,732
Common stock issued pursuant to purchase of subsidiary 280,000
Common stock to be issued pursuant to purchase of subsidiary 125,000
Preferred stock issued pursuant to purchase of subsidiary 3,500,000
Purchase of subsidiary pursuant to stock purchase agreement 833,000 (5,787,732)
----------- -----------
$ -- $ --
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 205,527 $ 481,282
Cash paid for income taxes 6,040 9,875
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE>
GLOBAL INTELLICOM. INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Unaudited Financial Statements
The accompanying unaudited condensed consolidated financial statements
of Global Intellicom, Inc. (the "Company") have been prepared in accordance with
Rule 10-01 of Regulation S-X and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of the Company, however, the accompanying financial
statements contain all adjustments, which include only normal recurring
adjustments, necessary to present fairly the Company's financial position as of
December 31, 1995 and September 30, 1996, its results of operations for the
three and nine month periods ended September 30, 1996 and 1995 and cash flows
for the nine month periods ended September 1996 and 1995. The Company's interim
results of operations are not necessarily indicative of what may be expected for
the full year.
B. Inventories
Inventory is computed at the lower of cost or market. Cost is computed
on an identified cost basis and a first-in-first-out basis.
C. Debt
On January 26, 1996, in order to meet short term cash requirements,
the Company borrowed $200,000 from a limited partnership whose general partner
is a corporation controlled by a Director and Stockholder of the Company. The
loan ("Bridge Loan") is evidenced by a promissory note bearing interest at 6%
per annum and was due and payable on August 1, 1996, the maturity date has been
extended by agreement to December 15, 1996. The note is convertible, upon the
occurrence of an event of default thereunder, at the sole discretion of the
borrower at a rate of $3.50 per share of unregistered common stock. The note is
collateralized by the common stock of the Company's wholly-owned subsidiary
National Computer Resources, Inc. ("NATCOM").
During the months of April and May, 1996, four directors and one
shareholder advanced approximately $500,000 to the Company, to meet short term
cash requirements, in return for one-year promissory notes bearing interest at
10% per annum and a total of 28,020 warrants, exercisable over two years at
$5.25 per share.
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<PAGE>
On June 26, 1996, the Company issued a 90-day $500,000 convertible
subordinated promissory note to Inabata America Corporation ("Inabata Note").
The Inabata Note bore interest at 2% per month, payable on the 1st day of each
month commencing August 1, 1996. On September 26, 1996, the Company paid the
principal and all interest due under the Inabata Note in full.
The Company borrowed $200,000, on August 1, 1996 and issued two
non-interest bearing promissory notes in the amount of $100,000 each to Avonwood
Capital Corporation and Ms. Willie Salet. Avonwood and Ms. Salet each received
three-year warrants to purchase 35,000 shares of the Company's common stock at
$3.00 per share. On August 16, 1996, the notes were paid in full.
D. Capital Stock
On July 9, 1996 the Company entered into an Offshore Subscription
Agreement under Regulation S, promulgated under the United States Securities Act
of 1933 as amended ("Regulation S"), pursuant to which Signature Equities
Agency, GmbH, a broker located in Dusseldorf, Germany, sold 140,000 shares of
the Company's common stock at $2.475 per share amounting to gross proceeds of
$346,500, of which 5% was paid in commissions. The shares issued to Signature
Equities are currently tradable.
On August 23, 1996, the Company sold 825 shares of Series 2
Convertible Preferred Stock to two South American investors (the "Series 2
Shares") under Regulation S. The Series 2 Shares were placed by Worldwide
Capital Corporation of Boulder, Colorado. Each Series 2 Share has a redemption
value of $1,000 per share and is convertible to shares of the Company's common
stock at the lower of 70% of the closing price of the Company's common stock on
August 23, 1996 or 65% of the five day moving average for the Company's common
stock as recorded by NASDAQ on the day prior to conversion. As a result of the
Series 2 Shares sale, the Company received gross proceeds of $825,000 of which
10% was paid in commissions. The holding period for the Series 2 Shares has now
expired. As of November 15, 1996, 625 Series 2 Shares have been converted to
247,864 shares of common stock.
On September 3, 1996, the Company sold 330,000 shares of Series 1
Convertible Preferred Stock to various foreign investors (the "Series 1 Shares")
under Regulation S. The Series 1 Shares were placed by Worldwide Capital
Corporation of Boulder, Colorado. Each Series 1 Share has a redemption value of
$10 per share and is convertible to shares of the Company's common stock at the
lower of 70% of the closing bid price of the Company's common stock on the date
of purchase or 70% of the average closing bid price for the Company's common
stock during the five trading days prior to conversion. As a result of the
Series 1 Shares sale, the Company received gross proceeds of $3.3 million of
which 10% was paid in commissions. The holding period for the Series 1 Shares
has now expired. As of November 15, 1996, approximately 47,500 Series 1 Shares
have been converted to 191,240 shares of the Company's common stock.
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<PAGE>
E. Acquisition of Assets
On September 16, 1996 Global-InSync ("InSync"), a wholly owned
subsidiary of the Company, purchased substantially all of the assets of ManTech
Solutions Corporation ("MSOL") effective as of September 1, 1996. As such,
InSync's result of operations for the period September 1, 1996 through September
30, 1996, have been included in the accompanying condensed consolidated
statement of operations.
F. Subsequent Events
On October 4, 1996, the Company sold 25,000 Shares of Series 4
Convertible Preferred Stock (the "Series 4 Shares") to various foreign investors
under Regulation S. The Series 4 Shares were placed by Worldwide Capital
Corporation of Boulder, Colorado. Each Series 4 Share has a $100 redemption
value and is convertible to common stock at the lower of 70% of the closing bid
price for the Company's common stock on the date of purchase, or 70% of the
average closing bid price of the Company's common stock over the five trading
days prior to conversion. The Company realized gross proceeds of $2.5 million
from the sale of Series 4 Shares of which 10% was paid in commissions. The
Series 4 Shares may be converted after November 15, 1996. As of November 15,
1996, none of the Series 4 Shares have been converted.
On October 11 and October 23, 1996 the Company issued an aggregate of
540,000 restricted shares, subject to certain vesting and lock-up provisions
currently being negotiated, to four directors of the Company, representing
compensation in connection with obtaining financing and consideration for the
on-going guarantee of the Company's lease and its agreements with its factor and
floorplanner.
On October 18, 1996, the Company's wholly owned subsidiary, Pro Notes
Acquisition Corporation, subsequently re-named Speech Solutions, Inc. ("Speech
Solutions"), entered into an asset purchase agreement by which it purchased
substantially all of the assets of Pro Notes, Inc. ("Pro Notes"), a business
engaged in the development, marketing, sale and distribution of speech
recognition computer software, including developer's tools and voice command
control applications.
The aggregate purchase price for the Pro Notes assets consisted of
$325,000, plus an earn-out amount equal to 3% of the gross sales of any Pro
Notes products sold by Speech Solutions or its affiliates to an unaffiliated
third party purchaser during the five-year period following the closing. The
earn-out amount will only be payable to the extent of Speech Solutions'
cumulative available net earnings before interest and taxes. Pro Notes will be
entitled to receive a minimum aggregate earn-out payment equal to $195,000. In
the event the earn-out payments are less than $1,950,000 at the end of the
five-year period, such period shall be extended for a period not to exceed an
additional five years, until the aggregate earn-out amount reaches $1,950,000.
Speech Solutions did not assume any of Pro Notes' liabilities.
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<PAGE>
Simultaneously with the closing of the Pro Notes asset purchase,
Speech Solutions entered into an employment agreement with Alan Costilo, the
principal developer of the Pro Notes voice recognition tools, pursuant to which
Mr. Costilo will be employed by Speech Solutions at an annual salary for a
period of five years. Mr. Costilo will also receive an incentive payment equal
to 2% of Speech Solutions gross sales of Pro Notes' products sold by Speech
Solutions or its affiliates to an unaffiliated third party purchaser during the
five-year period following the closing. The incentive payment will only be
payable to the extent of Speech Solutions' available cumulative net earnings
before interest and taxes. Mr. Costilo will be entitled to receive a minimum
aggregate incentive payment equal to $130,000. In the event the incentive
payments are less than $950,000 at the end of the five-year period, such period
shall be extended for a period not to exceed an additional five years, until the
aggregate incentive payment reaches $950,000.
On October 23, 1996, the Company issued an aggregate of 22,223
restricted shares of its common stock to two officers of its subsidiary,
Global-InSync. The shares were issued in connection with the MSOL acquisition
and were in payment of divestiture bonuses in the total amount of $125,000 due
the InSync officers as a result of the acquisition.
On or about October 30, 1996, Scott and Ellen Arch, the former owners
of the Company's wholly-owned subsidiary Amcom Business Centers Corp. ("AMCOM"),
commenced an action against AMCOM and two of the Company's directors as
guarantors (the "Arch Complaint"). The Arch Complaint stems from a dispute over
the proper calculation of certain state, local and federal income taxes incurred
by the plaintiffs in 1994, which were included in the AMCOM purchase price.
According to the plaintiffs, they are due an additional payment of $93,449.
AMCOM and the Company believe that all sums due to the plaintiffs have been paid
and intend to defend the action vigorously. AMCOM's answer is due by December
15, 1996.
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
On September 28, 1995 Global Intellicom, Inc. (the "Company")
purchased all of the issued and outstanding stock of National Computer
Resources, Inc. ("NATCOM") and as such NATCOM's results of operations for 1996
have been included in the accompanying condensed consolidated statement of
operations.
On September 16, 1996 Global-InSync ("InSync"), a wholly owned
subsidiary of the Company, purchased substantially all of the assets of ManTech
Solutions Corporation ("MSOL") effective as of September 1, 1996. As such,
InSync's result of operations for the period September 1, 1996 through September
30, 1996, have been included in the accompanying condensed consolidated
statement of operations.
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<PAGE>
The following discussion and analysis compares the operating results
of the Company for both the nine and three months ended September 30, 1996, with
the nine and three months ended September 30, 1995. Also included is a
discussion and analysis of the Company's financial condition and liquidity as of
September 30, 1996.
The Nine Months Ended September 30, 1996 (Unaudited) As Compared With The Nine
Months Ended September 30, 1995 (Unaudited).
Net Sales. Net sales increased 14% to $23,983,314 in the first nine
months of 1996 from $20,960,442 in the first nine months of 1995, or a
$3,022,873 increase. The net sales of NATCOM were $2,785,542 in the first nine
months of 1996. The net sales of InSync were $3,979,238 in the month of
September 1996. Net sales increased primarily due to the NATCOM and InSync
acquisitions and were partially offset by a decrease in Amcom and Vircom, Inc.
("Vircom"), a wholly-owned subsidiary of the Company, sales as a result of
product availability and diminished cash-flow.
Gross Profit Gross profit increased to $3,571,112 in the first nine
months of 1996 from $2,010,110 in the first nine months 1995. The gross profit
percentage increased to 14.9% from 9.6%. This improvement is primarily due to
the NATCOM and InSync acquisitions and is partially offset by a decrease in
Amcom and Vircom sales as a result of product availability and diminished
cash-flow.
Operating Expenses. Operating expenses increased to $4,890,536 in the
first nine months of 1996 from $1,702,806 in the first nine months of 1995, or
an increase of $3,187,730. The operating expenses of NATCOM were $1,230,838. The
operating expenses for InSync were $221,165 for the month of September 1996. The
remaining increase of $1,735,727 is due to the following items. There was an
increase in salaries and overhead, increased expenses incurred in maintaining a
warehouse, a configuration center and operating offices in West Chester,
Pennsylvania and executive offices in New York City. In addition, factor fees of
$143,485 were incurred. Depreciation and amortization expenses increased as a
result of the NATCOM and InSync acquisitions.
Other Expenses. Other expenses, principally interest expense increased
to $626,648 in the first nine months of 1996 from $229,087 in the first nine
months of 1995. The increase is primarily the result of two factors: (i)
increased interest expense and; (ii) the amortization of deferred debts costs.
Interest expense increased due to increase in the level of outstanding
indebtedness with both the Company's factor and financial institution.
Net Income (Loss). Net loss was ($1,167,643) in the first nine months
of 1996 as compared to net income of $78,217 in the first nine months of 1995.
As a result of the factors discussed above net loss per share amounted to
$($0.37) per share in the first nine months of 1996 as compared to net income
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<PAGE>
per share of $0.03 in the first nine months of 1995. The per share calculations
as of September 30, 1996 and 1995 are based upon weighted average shares
outstanding, of 3,165,678 and 3124,774, respectively.
The Quarter Ended September 30, 1996 (Unaudited) As Compared With The Quarter
Ended September 30, 1995 (Unaudited).
Net Sales. Net sales increased 53 % to $9,619,408 for the quarter
ended September 30, 1996 from $6,299,423 for the quarter ended September 30,
1995, or a $3,319,985 increase. The net sales of NATCOM were $1,422,593 for the
quarter ended September 30, 1996. The net sales of InSync were $3,979,238 for
the quarter ended September 30, 1996. Net sales increased primarily due the
NATCOM and InSync acquisitions and were partially offset by a decrease in Amcom
and Vircom sales.
Gross Profit. Gross profit increased to $1,427,682 for the quarter
ended September 30, 1996 from $675,970 for the quarter ended September 30, 1995.
The gross profit percentage increased to 14.8% from 10.7%. This improvement is
primarily due to the NATCOM and InSync acquisitions and is partially offset by a
decrease in Amcom and Vircom sales.
Operating Expenses. Operating expenses increased to $1,771,207 for the
quarter ended September 30, 1996 from $646,873 for the quarter ended September
30, 1995, or an increase of $1,124,334. The operating expenses of NATCOM were
$402,102. The operating expenses of InSync were $221,165. The remaining increase
of $501,167 is due to the following items. There was an increase in overhead,
salaries and related payroll expenses, to support the Company's growth. In
addition, factor fees of $31,495 were incurred. Depreciation and amortization
expenses increased as a result of the NATCOM, InSync acquisitions.
Other Expenses. Other expenses, principally interest expense increased
to $228,774 for the quarter ended September 30, 1996 from $94,167 for the
quarter ended September 30, 1995. The increase is primarily the result of two
factors: (i) increased interest expense and; (ii) the amortization of deferred
debts costs. Interest expense increased due to increase in the level of
outstanding indebtedness with both the Company's factor and financial
institution.
Net (Loss). Net loss increased to ($379,379) for the quarter ended
September 30, 1996 from ($65,070) for the quarter ended September 30, 1995. As a
result of the factors discussed above net loss per share increased to $(0.12)
per share for the quarter ended September 30, 1996 from ($0.20) per share for
the quarter ended September 30, 1995. The per share calculations as of September
30, 1996 and 1995 are based upon weighted average shares outstanding, of
3,165,678 and 3,124,774, respectively.
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<PAGE>
Financial Condition And Liquidity
All of the Company's subsidiaries except InSync and Speech Solutions
have entered into factoring agreements with Century Business Credit Corporation
("Century") whereby the subsidiaries sell to Century their trade receivables,
without recourse, provided Century approves the customers' credit. The term of
the factoring agreements are one year, with automatic renewals from year to
year, unless terminated earlier. The Company's agreement with Century is
personally guaranteed by two of the Company's directors.
Two of the Company's subsidiaries, AMCOM and Vircom have entered into
a Loan and Securities Agreement as amended ("Loan Agreement") with Finova
Capital Corp. ("Financial Institution") which as amended provides for an
$8,000,000 inventory floorplanning credit line. The Company's agreement with the
Financial Institution is personally guaranteed by three of the Company's
directors.
The Company's capitalization as of September 30, 1996 consisted of
$8,097,053 of stockholder's equity, $200,000 bridge loans and $6,823,046 of
borrowings under the inventory floorplanning loan. Operating activities provided
net cash of ($7,286,613) in the first nine months of 1996. Net loss was
$1,167,643 Accounts receivable-non-trade increased $2,582,844, inventory
increased $3,704,232 and accounts payable trade increased $6,181,706. Investing
activities used cash of $2,912,531. Net repayment of loans from stockholders was
$119,023. The Company incurred costs related to acquisitions in the amount of
$153,626. Purchase of property and equipment amounted to $965,049. Financing
activities provided cash of $10,687,403. The Company incurred deferred offering
costs of $256,215 offset by an increase of $200,000 as a result of notes payable
to a-related party. Net borrowings from the Financial Institution increased by
$1,828,911.
For the nine months ended September 30, 1996 two of the Company's
customers accounted for approximately 27.9% of net sales. The Company considers
its business relationships with these two companies to be good, however, the
loss of any of these accounts or a significant reduction in the purchases by
these accounts could have an adverse impact on the Company's financial results.
The Company derived approximately 61.8% of its net sales during nine
months ended September 30, 1996 from the sale of products supplied by four
vendors. One vendor, NEC Technologies ("NEC"), accounted for 57.6% of the
Company's net sales for the nine months ended September 30, 1996. The loss of
any of these key vendors, and in particular NEC, could have a material adverse
impact. In addition, the Company's dependence on NEC could result in significant
decrease in net sales if NEC is not able to fill the Company's orders for
products on a timely basis. The Company has become an authorized reseller for
other vendors and has added the InSync line. As a result, the Company's
dependence on NEC has been substantially reduced.
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The Company does not have significant commitments for capital
expenditures as of September 30, 1996 and no significant commitments are
anticipated for the remainder of the 1996 calendar year.
The Company has commitments to make contractual payments in accordance
with certain agreements. In accordance with the agreements relating to the
acquisition of AMCOM the Company has to pay the following amounts: (i) $142,000
on April 18, 1996 which was paid and; (ii) a total contingent payment based upon
1/2% of net sales (as defined) beginning April 1996, payable quarterly during
1996 with the first quarterly payment due July 15, 1996, which was paid, and
commencing January 1, 1997 monthly thereafter. The acquisition of NATCOM
requires the Company to make the following payments: (i) $100,000 at closing
which was paid; (ii) $50,000 due six months after the Closing date, which was
paid; (iii) $150,000 due one year after the Closing Date which was paid; (iv)
$79,000 due at the end of the next seven quarters following the one year
anniversary of the Closing Date; and (v) $80,000 following the three year
anniversary, due September 28, 1998. In March, 1996, the purchase price was
amended to include $48,678 representing amounts payable for 1995 in accordance
with certain employment and/or consulting agreements. The payments may be
subject to certain adjustments for prior income taxes due by the sellers. In
connection with the February 16, 1996 settlement agreement with the Company's
former outside corporate counsel, the Company agreed to pay $464,000 in full
satisfaction of outside legal costs as follows: (i) $150,000 upon signing of the
Agreement, which was paid and; (ii) $314,000 promissory note payable as follows:
$75,000 on May 25, 1996, which was paid, August 25, 1996, which was paid, and
November 25, 1996; and $89,000 on December 31, 1996.
The Company anticipates increased revenues as a result of the NATCOM,
InSync and Speech Solutions acquisitions and additional vendor relationships
described above. The Company believes gross profits measured as a percentage of
net sales will increase to the extent that the percentage of the Company's net
sales from NATCOM, InSync and Speech Solutions increase, which historically have
a higher gross profit percentage than either of the Company's other
subsidiaries. The Company expects competitive pressure on gross profit margins
in the future. Competition is based on price, breadth of product lines, product
and credit availability, delivery time and the level and quality of technical
support services provided.
On January 26, 1996, in order to meet short term cash requirements,
the Company borrowed $200,000 from a limited partnership whose general partner
is a corporation controlled by a consultant and stockholder of the Company. The
loan ("Bridge Loan") is evidenced by a promissory note bearing interest at 6%
per annum and is due and payable on August 1, 1996, the maturity date has been
extended by agreement to December 15, 1996. The note is convertible, upon the
occurrence of an event of default thereunder, at the sole discretion of the
borrower at a rate of $3.50 per share of unregistered common stock. The note is
collateralized by the common stock of NATCOM.
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During the months of April and May 1996, four directors and one
shareholder advanced approximately $500,000 to the Company, to meet short term
cash requirements, in return for one-year promissory note at 10% and a total of
28,020 warrants, exercisable over two years at $5.25 per share.
On June 26, 1996, the Company issued a 90-day $500,000 convertible
subordinated promissory note to Inabata America Corporation ("Inabata Note").
The Inabata Note bore interest at 2% per month payable on the 1st day of each
month commencing August 1, 1996. On September 26, 1996, the Company paid the
principal and all interest due under the Inabata Note.
In consideration of $200,000, on August 1, 1996, the Company issued
two non-interest bearing promissory notes in the amount of $100,000 each to
Avonwood Capital Corporation and Ms. Willie Salet. Avonwood and Ms. Salet also
each received three-year warrants to purchase 35,000 shares of the Company's
common stock at $3.00 per share. On September 16, 1996, the notes were paid in
full.
On July 9, 1996 the Company entered into an Offshore Subscription
Agreement under Regulation S, pursuant to which Signature Equities Agency, GmbH,
a broker located in Dusseldorf, Germany, sold 140,000 shares of the Company's
common stock at $2.475 per share amounting to gross proceeds of $346,500, of
which 5% was paid in commissions. The shares issued to Signature Equities should
be currently tradable. However, due to a transfer agent error, the shares bear
restrictive legends which will be removed.
On August 23, 1996, the Company sold 825 shares of Series 2
Convertible Preferred Stock to two foreign investors (the "Series 2 Shares")
under Regulation S. The Series 2 Shares were placed by Worldwide Capital
Corporation of Boulder, Colorado. Each Series 2 Share has a redemption value of
$1,000 per share and is convertible to shares of the Company's common stock at
the lower of 70% of the closing price of the Company's common stock on August
23, 1996 or 65% of the five day moving average for the Company's common stock as
recorded by NASDAQ on the day prior to conversion. As a result of the Series 2
Shares sale, the Company received gross proceeds of $825,000 of which 10% was
paid in commissions. The holding period for the Series 2 Shares has now expired.
As of November 15, 1996, 625 Series 2 Shares have been converted to 247,864
shares of common stock.
On September 3, 1996, the Company sold 330,000 shares of Series 1
Convertible Preferred Stock to various foreign investors (the "Series 1 Shares")
under Regulation S. The Series 1 Shares were placed by Worldwide Capital
Corporation of Boulder, Colorado. Each Series 1 Share has a redemption value of
$10 per share and is convertible to shares of the Company's common stock at the
lower of 70% of the closing bid price of the Company's common stock on the date
of purchase or 70% of the average closing bid price for the Company's common
stock during the five trading days prior to conversion. As a result of the
Series 1 Shares sale, the Company received gross proceeds of $3.3 million of
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which 10% was paid in commissions. The holding period for the Series 1 Shares
has now expired. As of November 15, 1996, approximately 47,500 Series 1 Shares
have been converted to 191,240 shares of the Company's common stock.
The Company has agreed with the former NATCOM shareholders to
distribute 15,000 restricted shares of its common stock to said shareholders in
payment of a balance of $47,873 due for the first quarter of 1996 under the
NATCOM stock purchase agreement, and the employment and consulting agreements
with three NATCOM employees and a consultant.
On September 16, 1996, Global-InSync, Inc. ("InSync"), a wholly-owned
subsidiary of the Company, purchased substantially all of the assets of ManTech
Solutions Corporation ("MSOL"), subject to certain liabilities (the "Net
Assets"), under the terms of an Asset Purchase Agreement dated as of September
16, 1996, entered into by and between the Company, InSync, MSOL and MSOL's
parent, ManTech International Corporation ("ManTech"), the sale to be effective
as of September 1, 1996.
MSOL was a Virginia corporation engaged in the business of
manufacturing build-to-order computer servers and workstations. The MSOL assets
acquired include all intellectual property, fixtures, inventory, trade accounts
and accounts and notes receivable and all other assets material to the operation
of MSOL's business, which will continue to operate under the InSync name as a
subsidiary of the Company.
The purchase price for the Net Assets was $5,736,084, to be paid to
MSOL as follows: (a) 350,000 shares of the Company's Series 3 Cumulative
Preferred Stock, convertible, at a value of $10 per share, to restricted shares
of the Company's common stock; (b) a promissory note from InSync to MSOL,
guaranteed by the Company, for $1,486,084, (the "First Note") bearing interest
at 9% per annum; (c) a promissory note from InSync to MSOL, guaranteed by the
Company, for $470,000 ("the Second Note"); (d) 49,778 restricted shares of the
Company's common stock, to be delivered within 20 days of closing. Under the
terms of the First Note interest does not accrue until March 16, 1997. Payments
under the First Note are to be made 45 days after the close of each fiscal
quarter, commencing with the quarter ended June 30, 1997, in the amount of 2% of
InSync's net sales. If, at the end of each calendar year, the sum of the
quarterly Note payments is less than the interest accrued over the previous four
quarters, plus 10% of the original principal amount, an adjustment payment will
be made to cover any shortfall. The Second Note contains substantially the same
terms as the First Note, except that payments do not commence until the earlier
of December 31, 2001, or upon payment in full of the First Note.
The Company currently anticipates its 1996 results of operations,
existing financing, and vendor relationships will meet the Company's short-term
and long-term cash requirements. To the extent the Company's growth exceeds its
resources, the Company anticipates obtaining additional credit facilities. The
Company intends to grow internally and through strategic acquisitions. The
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Company is currently evaluating potential acquisitions; however, there is no
assurance that the Company will conclude any such opportunities.
Should the Company's cash flow from operations be insufficient to meet
all of its requirements, the Company would seek additional capital through
institutional financing, the issuance of stock or debt in the public markets or
some form of private financing. The Company is presently considering various
activities to raise additional equity or convertible debt during the remainder
of 1996 to: (i) increase cash flow both short and long-term; (ii) fund the
growth management anticipates for 1996; and (iii) to provide funds, as
necessary, for strategic acquisitions.
Inflation. The impact of inflation on the Company's operations has not
been significant to date. There can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's
operations.
PART II OTHER INFORMATION
Item 1 Legal Proceedings
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On or about October 30, 1996, Scott and Ellen Arch, the former owners
of the Company's subsidiary AMCOM, commenced an action against AMCOM and two of
the Company's directors as guarantors (the "Arch Complaint"). The Arch Complaint
stems from a dispute over the proper calculation of certain state, local and
federal income taxes incurred by the plaintiffs in 1994, which were included in
the AMCOM purchase price. According to the plaintiffs, they are due an
additional payment of $93,449. AMCOM and the Company believe that all sums due
to the plaintiffs have been paid and intend to defend the action vigorously.
AMCOM's answer is due by December 15, 1996.
Item 6
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(a) Exhibits
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(4)(i) Form of Regulation S Securities Subscription Agreement, pursuant to
which the Company sold 330,000 shares of Series 1 Convertible Preferred Stock.
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(4)(ii) Form of Offshore Securities Subscription Agreement, pursuant to which
the Company sold 825 shares of Series 2 Convertible Preferred Stock.
(4)(iii) Form of Regulation S. Securities Subscription Agreement, pursuant to
which the Company sold 25,000 shares of Series 4 Convertible Preferred Stock.
(10)(i) Asset Purchase Agreement dated as of September 16, 1996, pursuant to
which the Company's wholly owned subsidiary Global-InSync, Inc. purchased
substantially all of the assets of ManTech Solutions Corporation ("MSOL"), by
and between the Company, InSync, MSOL and MSOL's parent, ManTech International
Corporation ("ManTech").
(10)(ii) Asset Purchase Agreement dated as of October 18, 1996, by and between
Pro Notes Acquisition Corporation and the Company on the one hand and Pro Notes
Inc. and Alan Costilo on the other, by which the Company purchased the assets of
Pro Notes, Inc.
(b) Reports on Form 8-K
On October 1, 1996, the Company filed a current report on Form 8-K,
reporting Item 2, Acquisition or Disposition of Assets, describing the Company's
purchase of substantially all the assets of ManTech Solutions Corporation. The
Company will file the required financial information by November 29, 1996.
Items 2 through 5 are not applicable.
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* Incorporated by reference from the Company's report on Form 8-K, filed on
October 1, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: November 19, 1996 GLOBAL INTELLICOM, INC.
By /s/ Anthony R. Cucchi
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Anthony R. Cucchi
President
By:/s/ William C. Kaltnecker
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William C. Kaltnecker
Vice President and Controller
