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 March 31, 1997.
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.
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(Exact name of registrant as specified in its charter.)
Nevada 13-3797104
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
747 Third Avenue
New York, New York 10017
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(212)750-3772
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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 March 31, 1997, there were outstanding 7,475,269 shares of Global
Intellicom, Inc.'s common stock, par value $0.01 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 MONTHS ENDED MARCH 31, 1996 AND 1997
(Unaudited)
Three months ended
March 31,
--------------------------
1996 1997
----------- ------------
NET SALES $ 8,701,661 $ 11,106,730
COST OF GOODS SOLD 7,330,507 10,122,294
----------- ------------
GROSS PROFIT 1,371,154 984,436
OPERATING EXPENSES:
Selling, shipping and general and administrative 1,353,206 3,338,188
Depreciation and amortization 50,487 95,911
Amortization of intangibles 61,487 78,620
----------- ------------
1,465,180 3,512,719
----------- ------------
OPERATING LOSS (94,026) (2,528,283)
OTHER EXPENSES 157,411 161,724
----------- ------------
LOSS BEFORE INCOME TAX BENEFITS (251,437) (2,690,007)
INCOME TAX BENEFITS (100,574) (1,021,000)
----------- ------------
NET LOSS $ (150,863) $ (1,669,007)
=========== ============
NET LOSS PER COMMON SHARE $ (0.05) $ (0.23)
=========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,143,203 7,335,524
=========== ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1996 1997
------------ ------------
(a) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,516,072 $ 335,101
Due from factor 687,139 1,123,412
Accounts receivable -- trade, less allowance for doubtful
accounts of $168,343 and $290,582, respectively 5,060,836 760,012
Accounts receivable -- non-trade 394,951 721,619
Other receivables 250,409 289,913
Inventories 5,291,046 4,868,536
Notes receivable -- officers and stockholders 457,979 510,244
Note and loans receivable -- other 61,788 70,788
Prepaid expenses and other current assets 182,890 174,775
Deferred income taxes 690,476 690,476
------------ ------------
Total current assets 14,593,586 9,544,876
------------ ------------
PROPERTY AND EQUIPMENT -- net of accumulated
depreciation and amortization 1,154,511 1,179,842
------------ ------------
INTANGIBLE ASSETS -- net of accumulated amortization 5,906,125 5,994,952
------------ ------------
OTHER ASSETS:
Deferred income taxes 493,832 1,514,832
Software development costs 220,347 378,987
Deferred costs 189,465 134,737
Other assets 28,594 48,694
------------ ------------
932,238 2,077,250
------------ ------------
$ 22,586,460 $ 18,796,920
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to financial institution $ 1,711,429 $ 2,132,570
Accounts payable -- trade 4,518,894 3,327,705
Accounts and note payable -- related party 81,778 --
Customer deposits 881,100 52,948
Notes payable -- officers and stockholders 216,076 183,000
Due on acquisitions -- current portion 847,172 772,612
Current portion of capitalized lease obligations 135,159 134,539
Notes payable 404,852 237,540
Income and other taxes payable 254,751 155,856
Accrued expenses and other current liabilities 1,611,587 1,381,703
------------ ------------
Total current liabilities 10,662,798 8,378,473
------------ ------------
LONG-TERM LIABILITIES:
Capitalized lease obligations --net of current portion 169,854 134,163
Due on acquisitions -- net of current portion 2,109,886 2,309,370
Other liabilities 18,750 18,750
------------ ------------
2,298,490 2,462,283
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred Stock -- $.01 par value:
Authorized -- 10,000,000 shares
Issued and outstanding -- 378,500 shares - 1996 3,785 --
350,000 shares - 1997 -- 3,500
Common stock -- $.01 par value:
Authorized -- 20,000,00 shares
Issued and outstanding -- 6,880,830 shares - 1996 68,808 --
7,470,269 shares - 1997 -- 74,703
Common stock to be issued 95,873 95,873
Additional paid-in capital 10,438,979 10,433,369
Retained earnings (deficit) (973,389) (2,642,397)
Treasury stock, at cost (8,884) (8,884)
------------ ------------
Total stockholders' equity 9,625,172 7,956,164
------------ ------------
$ 22,586,460 $ 18,796,920
============ ============
</TABLE>
(a) The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss: $ (150,863) $(1,669,007)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 73,462 95,911
Amortization of intangibles 61,487 78,620
Deferred income taxes (100,574) (1,021,000)
Imputed interest on ManTech acquisition -- 44,011
Deferred costs -- 54,000
Changes in assets and liabilities:
Due from factor (60,745) 297,809
Accounts receivable -- trade 101,580 3,566,742
Accounts receivable -- non-trade (259,136) (326,668)
Inventories 1,832,685 422,510
Other receivables (16,638) (39,504)
Notes and loan receivable -- other (4,349) --
Prepaid expenses and other (39,362) 8,115
Other deferred costs -- (20,100)
Accounts payable trade (398,418) (1,191,190)
Accounts and note payable -- related party (150,000) --
Customer deposits -- (828,152)
Accounts payable -- related party 20,416 --
Accrued expenses and other (49,155) (229,884)
Income taxes payable -- (98,895)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 860,390 (856,682)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to stockholders 40,851 (52,265)
Notes and loans receivable -- (9,000)
Software development costs -- (158,640)
Payments of other intangibles (87,862) (11,974)
Purchases of property and equipment (23,270) (121,242)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (70,281) (353,121)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs (127,539) --
Proceeds from notes payable--related party 200,000 --
Due to financial institutions -- net (1,318,472) 421,141
Payments on notes payable -- related party -- (81,778)
Payments on notes payable -- stockholders -- (33,076)
Payments on notes payable -- (166,584)
Payments on due on acquisitions -- (74,560)
Payments on capitalized lease obligations (38,655) (36,311)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,284,666) 28,832
----------- -----------
NET CHANGE IN CASH (494,557) (1,180,971)
CASH -- at beginning of year 496,622 1,516,072
----------- -----------
CASH -- at end of period $ 2,065 $ 335,101
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
SCHEDULE OF NON-CASH ACTIVITIES:
Increase in Natcom purchase price $ -- $ 155,473
========== ==========
Imputed interest on acquisition of ManTech Solutions Corporation $ -- $ 44,011
========== ==========
Conversion of preferred shares $ -- $ 5,894
========== ==========
Accrued deferred debt costs -- notes payable -- related party $ 29,595 $ --
========== ==========
Accrued acquisition costs $ 11,264 $ --
========== ==========
Common stock to be issued -- notes payable related party $ 25,000 $ --
========== ==========
Accrued deferred offering costs $ 94,203 $ --
========== ==========
Purchase of property and equipment by capital leases $ 117,950 $ --
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 123,559 $ 145,634
Cash paid for income taxes $ 705 $ 2,860
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Basis of Presentation
The condensed consolidated balance sheet as of December 31, 1996 has
been condensed from the audited consolidated balance sheet at that date. 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, 1996 and March 31, 1997, its results of operations for the three
month periods ended March 31, 1997 and 1996 and cash flows for the three month
periods ended March 31, 1997 and 1996. The Company's interim results of
operations are not necessarily indicative of what may be expected for the full
year.
B. Debt
The amount "due from factor" in the above financial statements is
net of loans payable to the factor in the amount of $3,290,021
C. Capital Stock
In January of 1997, as a result of the conversion of the remaining
shares of the Company's Series 1 and Series 4 Convertible Preferred Stock sold
by the Company in 1996, 589,439 shares of the Company's common stock were issued
to various foreign investors.
D. Subsequent Events
On April 1, 1997, the Company's Nevcor (formerly Amcom), Vircom,
Natcom and InSync subsidiaries entered into an amendment to their factoring
agreements with a financial institution. The terms of the amended agreements
provide for factoring of the receivables with recourse at a lower fee. The new
factoring agreements are terminable on 60 days notice and are no longer
personally guaranteed by any of the Company's directors.
6
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis compares the operating results
of the Company for the three months ended March 31, 1997, which include the
operations of Global-InSync, Inc. ("InSync") and Speech Solutions, Inc. ("Speech
Solutions") acquired in the last quarter of 1996, with the three months ended
March 31, 1996. Also included is a discussion and analysis of the Company's
financial condition and liquidity as of March 31, 1997.
The Three Months Ended March 31, 1997 (Unaudited) As Compared With The
Three Months Ended March 31, 1996 (Unaudited).
Net Sales. Net sales increased 28% to $11,106,730 in the first three
months of 1997 from $8,701,661 in the first three months of 1996. The net sales
of InSync and Speech Solution for the first three months of 1997 were $4,228,361
and $13,683, respectively. Net sales increased primarily due to the InSync
acquisition, and a 160% increase in Natcom sales and were partially offset by a
decrease in Nevcor and Vircom sales, partially as a result of certain product
unavailability and reorganization of sales and marketing operations.
Gross Profit. The Company's gross profit for the first three months
of 1997 decreased to $984,436 from $1,371,154, a 28% decline. Overall gross
profit as a percentage of net sales for the first three months ending March 31,
1997 and 1996 amounted to 8.9% and 15.8%, respectively. If the operations of
InSync were not included in the first three months of 1997, the company's gross
profit as a percentage of sales would have been 12.7% for that period. The
decrease in gross profit resulted primarily from lower profit margins in the
first quarter as a result of the competitive nature of the computer distribution
business.
Operating Expenses. Operating expenses for the first three months of
1997 rose substantially, to $3,512,719 from $1,465,180 for the same period in
1996, a 140% increase, due to $722,136 of operating expenses resulting from the
operations of InSync and Speech Solutions for the first three months of 1997,
which were not included in the first quarter of 1996. The balance represents
additional investment in sales, marketing and administrative personnel, along
with expenditures in integrating acquired operations. Other expenses did not
change significantly.
Provision For Income Tax Credits. The benefit for income taxes was
$1,021,000 for the first three months of 1997, compared to a benefit of $100,574
for the same period in 1996. The deferred tax benefit is based on deferred tax
assets which are considered realizable.
Net Income (Loss) Per Common Share. As a result of the factors
discussed above, the net loss for the first three months of 1997 was
($1,669,007) and net loss per share was ($.23), as compared to a net loss of
($150,863) and net loss per common share of ($.05) for the same period in 1996.
7
<PAGE>
Financial Condition And Liquidity
The Company's cash balance as of March 31, 1997 was $335,101 and its
working capital amounted to $1,166,403. Net cash used in operating activities
during the three months ended March 31, 1997 was $856,682. The decrease in cash
flow is as a result of the first quarter loss.
For the three months ended March 31, 1997 two of the Company's
customers accounted for approximately 13% 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 32% of its net sales during the
three months ended March 31, 1997 from the sale of products supplied by two
vendors. One vendor, NEC Technologies ("NEC"), accounted for 22% of the
Company's net sales for the three months ended March 31, 1997. 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, in the Company's ongoing efforts to
reduce its dependence on any single supplier.
All of the Company's subsidiaries except Speech Solutions have
entered into renegotiated factoring agreements with a financial institution
whereby the subsidiaries sell their trade receivables, with recourse. The term
of the factoring agreements is one year, with automatic renewals from year to
year, unless terminated earlier upon 60-days notice.
Three of the Company's subsidiaries, Nevcor, Vircom and Natcom have
entered into a Loan and Security 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.
On May 5, 1997, the Company entered into an employment agreement
with Richard Tashman for the purpose of creating a division of the Company's
Vircom subsidiary that will act as a value added reseller in markets and for
products not already covered by the Company's other subsidiaries.
The Company does not have significant commitments for capital
expenditures as of March 31, 1997 and no significant commitments are anticipated
for the remainder of the 1997 calendar year.
Since inception, the Company has been actively engaged in making
acquisitions as a result of which the Company has the commitments described
below.
8
<PAGE>
In accordance with the agreements relating to the acquisition of
Nevcor, the Company is required to pay the following amounts: a contingent
payment based upon 1/2% of net sales (as defined) which was due quarterly during
1996, and monthly after January 1, 1997. The payment for the fourth quarter of
1996 and each of the monthly payments for the period ending March 31, 1997 were
unpaid and accrued as of March 31, 1997.
The acquisition of Natcom requires the Company to make the following
future payments: $79,000 due at the end of each of the next six quarters
following the one year anniversary of the Closing Date which occurred on
September 28, 1995; and $80,000 following the three-year anniversary, due
September 28, 1998. In March 1996, the purchase price was increased by an
amendment to the acquisition agreement to include $48,678 in lieu of amounts
payable for 1995 in accordance with certain employment and/or consulting
agreements. In March 1997, the purchase price was further increased to include
$212,658, payable in six monthly installments of $35,443, commencing in July
1997, as well as certain payments payable based on achieving certain sales
goals. The payments may be subject to certain adjustments for prior income taxes
due by the sellers.
Future commitments for the Company's acquisition of the InSync
business include a promissory note, guaranteed by the Company, for $1,486,084,
(the "First Note") bearing interest at 9% per annum and a second promissory
note, guaranteed by the Company, for $470,000 ("the Second Note"). Under the
terms of the First Note, interest did 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 subsequent 12-month period beginning
with the 12 months ending June 30, 1998, 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.
Future commitments for the company's acquisition of the Speech
Solutions assets include three payments of $31,250, payable on April 15, 1997,
July 15, 1997 and October 15, 1997, plus an earn-out amount equal to 3% of
Speech Solutions' gross sales during the five years following the October 18,
1996 acquisition date. The earn-out is EBIT tested and payable 45 days after
each calendar quarter. The aggregate earn-out payments are guaranteed to be
$195,000 at the end of the earn-out period. In the event the aggregate earn-out
payments are less than $1,425,000 at the end of the earn-out period, such period
will be extended an additional five years or until such time as the aggregate
earn-out payments reach $1,425,000, whichever is earlier.
The Company has experienced reduced cash flow in the first quarter
of 1997 due to the operating loss described above. The Company expects that
income and cash flow anticipated from operations during the remainder of 1997,
together with existing financing arrangements and working capital, will be
sufficient to fund the Company's operations at existing levels. However, if
Global's operating levels and future growth exceed its financial resources, or
if anticipated improvements in operating results and cash flow do not occur, the
9
<PAGE>
Company will be required to seek additional credit and financing facilities,
either through institutional financing or the issuance of debt or equity
security in the private or public market. There is no assurance that such credit
or financing arrangements will be available on acceptable terms if needed.
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
On or about October 30, 1996, Scott and Ellen Arch, the former
owners of the Company's Nevcor subsidiary, commenced an action against Nevcor,
the company 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 Nevcor purchase price. According to the
plaintiffs, they are due an additional payment of $93,449. Nevcor and the
Company believe that all sums due to the plaintiffs have been paid and are
defending the action vigorously.
Items 2 through 5 are not applicable.
Item 6 Exhibits
- ------ --------
(a) (ii) Statement re computation of per share earnings
10
<PAGE>
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: May 20, 1997
GLOBAL INTELLICOM, INC.
By /s/Howard Maidenbaum
--------------------------------
Howard Maidenbaum
Executive Vice President
By: /s/ William C. Kaltnecker
--------------------------------
William C. Kaltnecker
Vice President and Controller
11
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF LOSS PER COMMON SHARE
(Unaudited)
Three months ended
March 31,
1996 1997
----------- -----------
LOSS PER COMMON SHARE
Net loss $ (150,863) $(1,669,007)
Less: Cumulative undeclared dividends on
Series 3 Convertible Preferred Stock 52,500
----------- -----------
Adjusted net loss $ (150,863) $(1,721,507)
=========== ===========
SHARES:
Weighted average number of common
shares outstanding 3,143,203 7,335,524
=========== ===========
LOSS PER COMMON SHARE $ (0.05) $ (0.23)
=========== ===========
