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 June 30, 1998.
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 or 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
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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 August 14, 1998, there were outstanding 10,051,536 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 AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------------- -------------------------------------
1997 1998 1997 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $ 10,567,513 $ 11,992,523 $ 18,498,954 $ 21,320,548
COST OF GOODS SOLD 9,087,546 9,859,333 16,423,680 16,019,964
---------------- ----------------- ----------------- -----------------
GROSS PROFIT 1,479,967 2,133,190 2,075,274 5,300,584
---------------- ----------------- ----------------- -----------------
OPERATING EXPENSES:
Selling, shipping and general
and administrative 917,789 1,824,583 3,307,033 4,616,893
Depreciation and amortization 17,510 84,564 62,187 167,251
Amortization of intangibles 100,042 98,850 127,203 205,699
---------------- ----------------- ----------------- -----------------
1,035,341 2,007,997 3,496,423 4,989,843
---------------- ----------------- ----------------- -----------------
OPERATING INCOME (LOSS) 444,626 125,193 (1,421,149) 310,741
OTHER INCOME (EXPENSES) (134,012) 109,557 (237,699) 59,287
---------------- ----------------- ----------------- -----------------
INCOME BEFORE INCOME TAX 310,614 234,750 (1,658,848) 370,028
INCOME TAX BENEFITS (COST) (116,480) 484,200 631,520 930,089
---------------- ----------------- ----------------- -----------------
INCOME (LOSS) FROM CONTINUING OPERATIONS 194,134 718,950 (1,027,328) 1,300,117
---------------- ----------------- ----------------- -----------------
LOSS FROM DISCONTINUED OPERATIONS (2,055,198) (2,514,991) (45,000)
LOSS ON DISPOSAL OF AGGREGATOR (233,125) (233,125)
---------------- ----------------- ----------------- -----------------
(2,288,323) - (2,748,116) (45,000)
---------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) $ (2,094,189) $ 718,950 $ (3,775,444) $ 1,255,117
================ ================= ================= =================
BASIC INCOME PER COMMON SHARE
INCOME FROM CONTINUING OPERATIONS $ 0.03 $ 0.09 $ (0.14) $ 0.16
DISCONTINUED OPERATIONS
(0.31) - (0.37) (0.01)
---------------- ----------------- ----------------- -----------------
$ (0.28) $ 0.09 $ (0.51) $ 0.15
================ ================= ================= =================
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING
7,470,269 7,988,345 7,406,171 7,970,345
================ ================= ================= =================
</TABLE>
Tha 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, 1997 AND JUNE 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
--------------- ---------------
(a) (Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 138,469 $ 194,396
Due from factor
Accounts receivable -- trade, less allowance for doubtful
accounts of $290,582 and $0, respectively 3,684,106 6,302,142
Accounts receivable -- non-trade 268,815 675,881
Other receivables 206,770 528,335
Inventories 3,001,519 1,884,640
Notes receivable -- officers and stockholders 50,643
Note and loans receivable -- other 40,113 299,171
Prepaid expenses and other current assets 624,322 1,590,964
Deferred income taxes 630,000 1,708,100
Current Assets of discontinued operations 32,884 32,885
-------------- --------------
Total current assets 8,626,998 13,267,157
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PROPERTY AND EQUIPMENT -- net of accumulated
depreciation and amortization 1,326,058 1,157,059
-------------- --------------
INTANGIBLE ASSETS -- net of accumulated amortization 5,542,385 4,378,424
-------------- --------------
OTHER ASSETS:
Deferred income taxes 2,645,000 2,913,245
Deferred costs 707,106 2,087,294
Other assets 34,058 200,512
Other assets discontinued operations 53,362 83,362
-------------- --------------
3,439,526 5,284,413
-------------- --------------
$18,934,967 $24,087,053
-------------- --------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
--------------- ---------------
(a) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Due to financial institution $4,153,645 $5,463,117
Notes payable - bank 50,000 $ 50,000
Accounts payable -- trade 7,883,413 6,737,214
Accounts and note payable -- related party -
Customer deposits 21,578 1,280
Notes payable -- officers and stockholders 132,677 125,136
Aacquisition indebtedness -- current portion 581,823 581,823
Current portion of capitalized lease obligations 147,615 140,430
Income taxes payable 238,534 275,141
Accrued expenses and other current liabilities 1,976,510 1,342,574
Current liabilities of discontinued operations 224,758 224,758
-------------- --------------
Total current liabilities 15,410,553 14,941,473
-------------- --------------
LONG-TERM LIABILITIES:
Acquisition indebetness -- net of current portion 1,545,261 1,449,709
Capitalized lease obligations --net of current portion 86,854 77,724
Convertible Debentures 2,000,000
-------------- --------------
1,632,115 3,527,433
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred Stock -- $.01 par value:
Authorized -- 10,000,000 shares
Issued and outstanding -- 351,985 shares - 1997 3,520 3,548
354,735 shares - 1998 -
Common stock -- $.01 par value:
Authorized -- 20,000,00 shares
Issued and outstanding -- 7,497,345 shares - 1997 74,973 79,703
7,970,345 shares - 1998 -
Common stock to be issued 417,188 417,188
Additional paid-in capital 12,003,524 14,469,497
Retained earnings (deficit) (10,598,022) (9,342,905)
Treasury stock, at cost (8,884) (8,884)
-------------- --------------
Total stockholders' equity 1,892,299 5,618,147
-------------- --------------
$18,934,967 $24,087,053
-------------- --------------
</TABLE>
4
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUN 30, 1997 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------------
1997 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss: (1,279,842) 1,255,117
Net loss from discontinued operations (2,495,602)
Adjustments to reconcile net loss to net cash
provided by (used by) operating activities:
Depreciation and amortization 289,462 167,251
Amortization of intangibles 648,633 205,699
Deferred income taxes (2,265,266) (1,305,738)
Imputed interest on ManTech acquisition 44,011 -
Deferred costs 54,000
Changes in assets and liabilities:
Due from factor 928,412 1,309,472
Accounts receivable -- trade 2,643,491 (2,618,036)
Accounts receivable -- non-trade 311,860 (407,066)
Inventories 481,435 1,116,879
Other receivables 250,409 (321,565)
Notes and loan receivable -- other (527,321) (259,058)
Prepaid expenses and other (491,385) (966,642)
Other deferred costs - (1,546,642)
Accounts payable trade 2,084,696 (1,146,199)
Accounts and note payable -- related party - -
Customer deposits (806,490) (20,298)
Accounts payable -- related party - -
Accrued expenses and other (485,511) (633,206)
Discontinued Operations 546,908 (30,000)
Income taxes payable (13,465) -
-------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (81,565) (5,200,032)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to stockholders (61,455) (58,184)
Other assets (151,295) -
Software development costs (369,972) -
Payments of other intangibles (176,786) 958,262
Purchases of property and equipment (375,670) 1,748
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (1,135,178) 901,826
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions (1,913) 2,466,000
Proceeds from convertible Debentures - 2,000,000
Proceeds from notes payable--related party - -
Due to financial institutions -- net 558,710 -
Payments on notes payable -- related party (81,778) -
Payments on notes payable -- stockholders (52,899) -
Payments on notes payable (404,852) -
Payments on due on acquisitions (116,531) (95,552)
Payments on capitalized lease obligations (72,929) (16,315)
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (172,192) 4,354,133
-------------- --------------
NET CHANGE IN CASH (1,388,935) 55,927
CASH -- at beginning of year 1,516,072 138,469
-------------- --------------
CASH -- at end of period $ 127,137 $ 194,396
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of these condensed consolidated financial statments.
</TABLE>
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,
1997 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 normal recurring adjustments
and adjustments necessitated by the discontinuance of the operations of Speech
Solutions and the aggregator operations of the Company's Nevcor subsidiary,
necessary to present fairly the Company's financial position as of December 31,
1997 and June 30, 1998, its results of operations for the six-month periods
ended June 30, 1998 and 1997 and cash flows for the six-month periods ended June
30, 1998 and 1997. The Company's interim results of operations are not
necessarily indicative of what may be expected for the full year.
B. Capital Stock
As previously reported, through the first quarter of 1998 the
Company completed the sale of 2,200 shares of Series 6 Convertible Preferred
Stock ("Series 6 Stock"), 1,425 shares of Series 7 Convertible Preferred Stock
("Series 7 Stock") and 325 shares of Series 8 Convertible Preferred Stock to
investors in private placement transactions
In addition, on May 26, 1998 the Company issued 200 shares of
a Series 9 Convertible Preferred Stock ("Series 9 Stock") in settlement of a
litigation involving one of its directors, for which the Company had an
indemnification obligation. The Series 9 Stock has a liquidation preference of
$1,000 per share and carries a 1% dividend. Shares of the Series 9 Stock are
convertible into the Company's Common Stock at the market value of the Common
Stock on the date of conversion. No more than 10% of the Series 9 Stock may be
converted per week.
On June 17, 1998 the Securities and Exchange Commission issued
an order declaring effective the Company's registration statement on Form S-3
(the "Registration Statement"), which inter alia registered for sale the shares
of the Company's Common Stock underlying the Series 6, 7, 8 and 9. Through
August 7, 1998, 1200 shares of the Series 6, 7, 8 and 9 Convertible Preferred
Stock have been converted, resulting in the issuance (including dividends and
penalties) of 1,973,656 shares of the Company's common stock.
6
<PAGE>
As previously reported, on April 30, 1998, the Company
concluded the sale of $2 million worth of its convertible debentures to a
private investor (the "Debentures"). The shares underlying the Debentures were
included the Company's Registration Statement. The Debentures bear interest at
6% per annum and are convertible at the lower of 110% of the average closing bid
price on the five days prior to closing, or 80% of the average of the five
lowest closing bid prices during the 25 day period prior to conversion. To date,
no Debentures have been converted.
C. Subsequent Events
On August 7, 1998, the Company entered into a Lock-Up
Agreement (the "Lock-Up") with the holders of 2000 shares ($2 million) of the
Series 6 Stock. Under the terms of the Lock-Up, the Series 6 Stock ("Series 6
Holders") agreed not to convert 88.75% of their Series 6 Stock until November
15, 1998. The Series 6 Holders may, however convert up to 33% of their then
current holdings in each month, provided the Company's Common Stock is trading
at $3.00 or higher at that time. In consideration for the Lock-Up, the Series 6
holders agreed to subscribe for 600 shares of the Company's Series 11
Convertible Preferred Stock ("Series 11 Stock"). The Series 11 shares have a
liquidation preference of $1,000 each, are non-voting and carry a dividend of
$50.00 per share per year, payable semi-annually. At the election of the
Company, dividends may be paid in shares of Common Stock, priced at the five-day
average closing bid price of Common Stock prior to the dividend record date.
Shares of Series 11 Stock are convertible into Common Stock at market price,
without discount. Fifty percent (50%) of the Series 11 shares may not be
converted until 30 days from the date of issuance. The remaining 50% may not be
converted until November 15, 1998. The Company may require the holders of the
Series 11 Stock to convert at any time and may call such shares for redemption
at a price equal to 133% of the liquidation preference of the shares.
Simultaneously with the Lock-Up transaction, the Company also
concluded the sale of 1000 shares of a Series 10 Convertible Preferred Stock
("Series 10 Stock"). The Series 10 shares have a liquidation preference of
$1,000 each, are non-voting and carry a dividend of $50.00 per share per year,
payable semi-annually. At the election of the Company, dividends may be paid in
shares of Common Stock, priced at the five-day average closing bid price of
Common Stock prior to the dividend record date. Shares of Series 10 Stock are
convertible into Common Stock at 75% of the five-day average closing bid price
of Common Stock immediately prior to conversion. The Company may require the
holders of the Series 10 Stock to convert at any time and may call such shares
for redemption at a price equal to 133% of the liquidation preference of the
shares. The Company is employing the proceeds from the sale of the Series 10
Stock to redeem the remaining shares of Series 7 Stock and for working capital.
The Company is obligated to register for public sale the shares of
Common Stock issuable to holders of Series 10 and Series 11 Stock, and will file
with the Securities and Exchange Commission a registration statement in which
such shares, along with other securities, are included.
7
<PAGE>
As previously reported, the Company received a letter from the NASDAQ
Stock Market, Inc. notifying the Company that it no longer met NASDAQ continued
listing requirements and requesting that the Company submit a plan for achieving
compliance. On May 11, 1998, the Company submitted such a plan. Following
submission of the Company's plan, the NASDAQ Staff recommended that the Company
be delisted. The Company has submitted a response to such recommendation and
requested a hearing. As a result, the recommendation was stayed pending the
hearing which took place on August 13, 1998. The Company has presented its case
to NASDAQ and expects a decision shortly. Although the Company believes that it
has taken steps that have brought it into compliance with the NASDAQ listing
requirements and believes it has met the net tangible asset standard as of the
hearing date, there can be no assurance (i) that the Company will prevail, or
(ii) that it will thereafter be able to obtain a further postponement of any
delisting. If the Company should no longer be listed on NASDAQ, trading in the
Company's common stock would have to be reported in another form of
over-the-counter market such as the OTC Bulletin Board or the pink sheets, and
stockholders might find it more difficult to obtain timely, accurate quotations
as to the price of the common stock and, accordingly, may have more difficulty
in effecting transactions in the stock. In addition, if the common stock were to
be delisted from quotation on NASDAQ and the trading price of the common stock
were to be below $5.00 per share thereafter, trading in the common stock would
become subject to the provisions of the penny stock rules promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), which require additional
disclosure by broker-dealers who sell such stocks to customers other than
established customers and accredited investors. Such rules also require
broker-dealers to make special suitability determinations and to receive
customers' written consents prior to completing transactions, and the additional
burdens imposed on broker-dealers by such requirements may discourage them from
effecting transactions in the Company's common stock, which could adversely
effect the market price and limit the market liquidity of the Company's common
stock.
D. Discontinuance of Operations
The balance sheet as at December 31, 1997, the statement of
operations for the six-month period ended June 30, 1997 (unaudited) and the
statement of cash flows for the six months ended June 30, 1997 (unaudited) have
been restated. Operating results of the discontinued operations are shown
separately in the accompanying statement of operations.
Net sales of discontinued operations for the six months ended
June 30, 1998 and 1997 were $0 and $5,105,216 respectively (unaudited). These
amounts are not included in net sales in the accompanying statement of
operations.
E. Year 2000 Compliance
The Company and its subsidiaries employ computer systems that
are Year 2000 compliant. Accordingly, the Company does not anticipate Year 2000
issues to have a material effect on its business, results of operations, or
finances but there can be no assurance thereof.
8
<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's continuing operations for the six months ended June 30,
1998, which include the operations of Natcom Automated Solution, Inc. ("ASDI")
acquired in the third quarter of 1997, with the six months ended June 30, 1997.
Also included is a discussion and analysis of the Company's financial condition
and liquidity as of June 30, 1998. The information and comparative data
presented herein reflect the elimination of Speech Solutions and of Nevcor's
aggregator operations.
THE QUARTER ENDED JUNE 30, 1998 (UNAUDITED) AS COMPARED WITH THE QUARTER ENDED
JUNE 30, 1997 (UNAUDITED).
Net Sales. Net sales from continuing operations increased by
$1,425,010 (13.5%) from $10,567,513 to $11,992,523 in the quarter ended June 30,
1998. This increase resulted from additional sales efforts and sales staff.
Gross Profit. The Company's gross profit for the quarter ended
June 30, 1998 increased to $9,859,333 from $9,087,546, a 8.5% increase. Overall
gross profit as a percentage of net sales for the quarters ended June 30, 1997
and June 30, 1998 increased from 14.0% to 17.8%. The increase in gross profit
was a result of the additional sales volume in the cabling and service
businesses.
Operating Expenses. Operating expenses for the quarter ended
June 30, 1998 rose to $1,824,583 from $917,789, a 98.8% increase. The increase
of $906,794 in operating expenses is attributable to the addition of the CableCo
Business, and the establishment of New York and Pittsburgh sales offices.
Provision For Income Tax. Income tax benefit was $484,200 for
the quarter ended June 30, 1998, compared to a cost of $116,480 for the same
period in 1997. The Company has increased its deferred tax asset by $578,100 as
a result of the improved results in the second quarter.
Net Income (Loss) Per Common Share. As a result of the factors
discussed above, the net income from continuing operations for the quarter ended
June 30, 1998 was $718,950 and net income per share was $0.09 as compared to a
net income of $194,134 and net income per common share of $0.03 from continuing
operations for the same period in 1997.
9
<PAGE>
THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AS COMPARED WITH THE SIX MONTHS
ENDED JUNE 30, 1997 (UNAUDITED).
Net Sales. Net sales increased by $2,821,594 (15.3%) from
$18,498,954 in the six months ended June 30, 1997 to $21,320,548 in the first
six months of 1998. This increase resulted from additional sales efforts and
sales staff.
Gross Profit. The Company's gross profit for the first six
months of 1998 increased to $5,300,584 from $2,075,274 in the six months ended
June 30, 1997, a 155.0% increase. Overall gross profit as a percentage of net
sales for the first six months ending June 30, 1998 and 1997 amounted to 24.9%
and 11.2% respectively. The increase in gross profit is due to a variety of
reasons including the growth of higher margin cabling service and system
integration sales, and a discontinuance of lower margin computer equipment
sales.
Operating Expenses. Operating expenses for the first six
months of 1998 rose to $4,616,893 from $3,307,035 for the same period in 1997, a
39.6% increase. The increase represents additional expenditures for the cabling
business and the new sales offices in Pittsburgh and New York.
Provision for Income Tax. The benefit for income taxes was
$930,089 for the first six months of 1998, compared to a benefit of $631,520 for
the same period in 1997. The Company has increased its deferred tax assets by
$1,078,100 as a result of the improved profits during the first six months. It
is anticipated that the improved profits will provide income enough to utilize
its deferred tax asset.
Net Income (Loss) Per Common Share. As a result of the factors
discussed above, the net income from continuing operations for the first six
months of 1998 was $1,300,117 and net income per share was $0.16, as compared to
a net loss of ($1,027,328) and a net loss per common share of ($0.14) from
continuing operations in the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance as of June 30, 1998 was $194,396
and its working capital amounted to ($1,674,316). Net cash used in operating
activities during the six months ended June 30, 1998 was $5,200,032. The
increase in the Company's cash position and cash flow is a result of the six
month profit from continuing operations of $1,300,117 and the loss for the same
period from discontinued operations in the amount of ($45,000).
The Company does not have significant commitments for capital
expenditures as of June 30, 1998 and no significant commitments are anticipated
for the remainder of the 1998 calendar year.
10
<PAGE>
Since inception, the Company has been actively engaged in
making acquisitions of related businesses. Under existing acquisition
agreements, the Company has a variety of commitments, as described below.
In accordance with the agreements relating to the acquisition
of Nevcor, the Company is required to pay a contingent payment based upon 1/2%
of Nevcor and Vircom's net sales, quarterly during 1996, and monthly after
January 1, 1997. The Company believes that no payments are required subsequent
to the discontinuance of Nevcor. (See "Legal Proceedings" in the Company's 1997
annual report filed on Form 10-K.)
The acquisition and related employment agreements pursuant to
which the Company acquired Natcom in 1995 required the Company to make various
installment payments. Effective as of December 31, 1997, the Company negotiated
the termination of such agreements and accepted the resignation of Natcom's
President. The termination arrangements provide for a total payment to the
former Natcom shareholders of $177,000, which payment may be made by the
issuance of an aggregate of 85,500 shares of the Company's Common Stock. The
Company has also agreed to issue an aggregate of 150,000 shares of Common Stock
to certain former Natcom officers in consideration of such officers' entering
into non-compete agreements. The non-compete shares vest over a two-year period
and the non-competition agreements expire December 31, 1999.
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 starts to accrue on 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 ended 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. The Company is currently
negotiating a payment arrangement for an installment of the First Note, which is
in arrears.
During the first six months of 1998, the Company instituted
various programs by which it has reduced its operating expenses. In implementing
such programs, the Company has significantly reduced its work force. The Company
has also relocated its Vircom TG subsidiary from West Chester, PA to smaller
more economical space in Exton, PA and is negotiating the termination of its
lease at the InSync premises and a move to smaller, more economical space. In
addition, the Company has restructured its healthcare and benefit plans to allow
its employees improved coverage at more favorable rates to the Company.
The Company has a factoring facility with a financial
institution ("the Factor"), under which the Factor purchases, on an uncommitted
basis, receivables from the Company.
11
<PAGE>
Such receivables financing facility is important to the Company's liquidity and
enables the Company to better manage its cash flow. The Company views its
relationship with the Factor as important and beneficial to the Company's
operations. During the course of the Company's relationship with the Factor
disputes and charge backs have occurred and continue to occur. The Company has
taken steps to prevent the recurrence of any defaults and no default has been
declared by the Factor. While any loss of the relationship with the Factor is
not anticipated, there can be no assurance that the Company will continue
indefinitely to have access to the Factor's financial facility, and any loss of
such facility in the future would have a materially adverse effect on the
Company's business. In the event of any such loss, the Company would be required
to obtain replacement receivables financing, but there can be no assurance that
such replacement financing would be available.
The Company has filed its sales tax returns with the sales tax
authority in Pennsylvania and is negotiating a resolution and payment of such
returns.
The Company has experienced reduced cash flow in 1997 due to
the losses from discontinued operations and certain non-recurring expenses. The
Company had positive cash flow during the first six months of 1998. The report
of the Company's auditors on the Consolidated Financial Statements for the year
ended December 31, 1998, noted that the Company's recurring operating losses and
a working capital deficiency raised substantial doubt about the Company's
ability to continue as a going concern, and Note 1 to the Consolidated Financial
Statements indicated that the continuation of the Company's as a going concern
would be dependent on the realization of a management plan for the restructuring
of operations, the reduction of overhead, the obtaining of additional financing
and the achieving of profitable operations and sufficient cash flow to meet
current obligations. While the Company believes it has made substantial progress
since December 31, 1997, income and cash flow anticipated from continuing
operations during the remainder of 1998, together with working capital, may not
be sufficient to fund the Company's operations at existing levels. As a result,
the Company may require additional financing in the near or intermediate term.
There is no assurance that such financing will be available on terms acceptable
to the Company, or on any terms.
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
The Company is involved in the following legal proceedings:
12
<PAGE>
1. An action pending in the United States District Court for the Southern
District of New York, entitled Green Tree Vendor v. Global Intellicom, Inc. et
al., commenced on or about April 14, 1998, alleging payments due in the amount
of approximately $260,000 for leased equipment. The Company has filed an answer
in this action asserting that the claimed amount is not due and that Global's
records reflect that the amount owed, if any, is far less than the amount
demanded. Initially filed in New Jersey, the matter was transferred, upon the
Company's motion to New York. The Company intends to continue to defend this
action vigorously.
2. On or about April 15, 1998, Bell Micro Products, a supplier of the Company's
Global-InSync subsidiary, commenced an action in the United States District
Court for the Eastern District of Virginia against the Company and
Global-InSync, alleging payments due to Bell Micro in the amount of $784,556.43.
The Company has filed an answer and is actively attempting to resolve this
dispute.
3. An action pending on the Massachusetts District Court for the District of
Lawrence entitled Seek Solutions v. Nevcor Technologies Group, Inc. et al. in
which the plaintiff alleges damages of approximately $40,000 as a result of
Nevcor's refusal to accept return of certain computer hard drives that had been
altered subsequent to delivery to plaintiff. The Company has retained local
counsel to answer the complaint and assert counterclaims. The Company believes
the case to be meritless and will defend same vigorously.
4. An action pending in the Supreme Court for the State of New York, entitled
Cambridge Partners v. Global Intellicom, Inc. et al., in which the plaintiff
alleges that it is entitled to a minimum of $250,000 in commissions on
transactions consummated by the Company, without plaintiff's assistance. The
Company has filed an answer to the complaint and intends to defend this action
vigorously.
For a description of other pending litigation reference is
made to the Company's annual report for the year ended December 31, 1997 on Form
10-K.
Items 2 through 5 are not applicable. Item 6 Exhibits and Reports on Form 8-K:
(A) Exhibits
(a) (11) Statement re computation of per share earnings
(a) (27) Financial Data Schedule
(B) Reports on Form 8-K:
On May 14, 1998 the company filed a current report on Form 8-K
describing the terms of the sale of $2 million of its convertible debentures,
and reporting on the Company' submission of
13
<PAGE>
a plan, at the request of the NASDAQ Stock Market, Inc., to enable the Company
to meet NASDAQ listing requirements.
(SIGNATURES APPEAR ON THE NEXT PAGE)
14
<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: August 19, 1998
GLOBAL INTELLICOM, INC.
By: /s/ Robert L. Olson
----------------------------
Robert L. Olson
Vice President Finance, a
duly authorized officer and
principal financial officer
<PAGE>
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF INCOME PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------------
1997 1998 1997 1998
----------------- ---------------- ------------------- ------------------
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER COMMON SHARE
Income (Loss) from continuing operations $ (36,124) 718,950 $ (1,279,842) 1,300,117
Less: Cumulative undeclared dividend on
Series 3 Convertible Preferred Stock 52,500 52,500 105,000 105,000
================= ================ =================== ==================
$ (88,624) $ 666,450 $ (1,384,842) $ 1,195,117
================= ================ =================== ==================
Loss from discontinued operations $ (2,058,065) 0 $ (2,464,352) -45,000
================= ================ =================== ==================
SHARES:
Weighted average number of common
shares outstanding 7,406,171 7,988,345 7,406,171 7,970,345
================= ================ =================== ==================
NET INCOME (LOSS) PER COMMON SHARE
Income (Loss) from continuing operations $ - 0.09 $ (0.16) 0.16
Discontinued operations (0.28) 0 (0.34) (0.01)
----------------- ---------------- ------------------- ------------------
$ (0.28) $ 0.09 $ (0.50) 0.15
================= ================ =================== ==================
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE
</TABLE>
Tha accompanying notes are an integral part of these
condensed consolidated financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 194,396
<SECURITIES> 0
<RECEIVABLES> 6,302,142
<ALLOWANCES> 0
<INVENTORY> 1,884,640
<CURRENT-ASSETS> 13,267,157
<PP&E> 2,020,753
<DEPRECIATION> 863,694
<TOTAL-ASSETS> 24,087,053
<CURRENT-LIABILITIES> 14,941,473
<BONDS> 2,000,000
79,703
0
<COMMON> 3,548
<OTHER-SE> 5,534,896
<TOTAL-LIABILITY-AND-EQUITY> 24,087,053
<SALES> 21,320,548
<TOTAL-REVENUES> 21,320,548
<CGS> 16,019,964
<TOTAL-COSTS> 16,019,964
<OTHER-EXPENSES> 59,287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 323,043
<INCOME-PRETAX> 370,028
<INCOME-TAX> 930,089
<INCOME-CONTINUING> 1,300,117
<DISCONTINUED> (45,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,255,117
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.09
</TABLE>
