United States
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 April 30, 2003
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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 0-22636
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DIAL THRU INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-2461665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17383 Sunset Boulevard, Suite 350
Los Angeles, California 90272
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(Address of principal executive offices) (Zip Code)
(310) 566-1700
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of June 9, 2003,
16,201,803 shares of common stock, $.001 par value per share, were
outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
DIAL THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------ April 30, October 31,
2003 2002
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(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 954,129 $ 488,868
Trade accounts receivable, net of allowance for
doubtful accounts of $434,975 at April 30, 2003
and $548,467 at October 31, 2002 1,172,212 1,369,955
Prepaid expenses and other current assets 218,928 147,209
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Total current assets 2,345,269 2,006,032
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PROPERTY AND EQUIPMENT, net 2,500,470 3,203,663
ADVERTISING CREDITS, net 2,376,678 2,376,678
INTANGIBLE ASSETS, net 326,890 330,613
GOODWILL, net 1,796,917 1,796,917
OTHER ASSETS 83,890 73,525
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TOTAL ASSETS $ 9,430,114 $ 9,787,428
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LIABILITIES AND SHAREHOLDERS' DEFICIT
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CURRENT LIABILITIES
Current portion of capital leases $ 301,087 $ 389,450
Trade accounts payable 5,705,252 5,405,356
Accrued liabilities 3,092,638 2,313,873
Deferred revenue 368,470 331,786
Deposits and other payables 444,196 444,204
Notes payable to related parties, net of debt
discount of $211,645 at April 30, 2003 and
$423,291 at October 31, 2002 2,136,756 1,925,110
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Total current liabilities 12,048,399 10,809,779
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CAPITAL LEASES, net of current portion 39,380 72,365
NOTE PAYABLE, net of debt discount of $34,258
at April 30, 2003 1,215,742 -
CONVERTIBLE DEBENTURE, net of debt discount
of $15,056 at April 30, 2003 and $163,510
at October 31, 2002 499,944 880,365
SHAREHOLDERS' DEFICIT
Preferred stock, $.001 par value; 10,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; 44,169,100 shares
authorized; 16,019,920 shares issued at April
30, 2003 and 15,074,916 shares issued at
October 31, 2002 16,020 15,075
Additional paid-in capital 39,049,008 38,894,064
Accumulated deficit (43,005,298) (40,631,392)
Accumulated other comprehensive income (376,310) (196,057)
Treasury stock, 12,022 common shares at cost (54,870) (54,870)
Subscription receivable - common stock (1,901) (1,901)
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Total shareholders' deficit (4,373,351) (1,975,081)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 9,430,114 $ 9,787,428
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The accompanying notes are an integral part of these consolidated financial
statements.
DIAL THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
------------------------ ------------------------
2003 2002 2003 2002
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REVENUES $ 6,013,131 $ 6,086,154 $11,667,832 $12,672,908
COSTS AND EXPENSES
Cost of revenues 4,534,949 4,081,414 8,673,782 8,627,158
Sales and marketing 272,925 339,437 586,302 704,982
General and administrative 1,415,294 1,972,694 2,826,377 3,973,105
Depreciation and amortization 467,533 615,550 967,364 1,293,083
Sales tax settlement 350,000 - 350,000 -
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Total costs and expenses 7,040,701 7,009,095 13,403,825 14,598,328
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Operating loss (1,027,570) (922,941) (1,735,993) (1,925,420
OTHER INCOME (EXPENSE)
Interest expense and financing costs (270,231) (313,377) (647,408) (581,818)
Foreign exchange 6,009 (3,496) 9,495 (27,022)
Gain on sales of equipment - - - 8,553
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Total other income (expense) (264,222) (316,873) (637,913) (600,287)
---------- ---------- ---------- ----------
NET LOSS $(1,291,792) $(1,239,814) $(2,373,906) $(2,525,707)
========== ========== ========== ==========
LOSS PER SHARE:
Basic and diluted loss per share $ (0.08) $ (0.09) $ (0.15) $ (0.19)
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SHARES USED IN THE CALCULATION
OF PER SHARE AMOUNTS:
Basic and diluted common shares 15,964,530 13,506,173 15,840,266 13,111,620
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
DIAL THRU INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
April 30,
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2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,373,906) $(2,525,707)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain from disposal of fixed assets - (8,553)
Stock and warrants issued for services - 13,750
Bad debt expense 29,797 413,797
Non-cash interest expense 423,545 422,600
Depreciation and amortization 967,364 1,293,083
Effects of changes in foreign exchange rates (280,364) (27,939)
(Increase) decrease in:
Trade accounts receivable 167,946 (509,316)
Prepaid expenses and other current assets (71,719) (151,150)
Other assets 2,257 (122,076)
Increase (decrease) in:
Trade accounts payable 300,429 (1,076,811)
Accrued liabilities 785,895 1,160,918
Deferred revenue 36,684 16,256
Deposits and other payables (8) (1,685)
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Net cash used in operating activities (12,080) (1,102,833)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (160,337) (169,571)
Refund of license fee - 1,424,899
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Net cash provided by (used in) investing activities (160,337) 1,255,328
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 1,250,000 -
Proceeds from convertible debentures - 550,000
Payments on capital leases (121,881) (217,739)
Deferred financing fees (47,441) (92,625)
Payments on convertible debentures (443,000) -
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Net cash provided by financing activities 637,678 239,636
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NET INCREASE IN CASH AND CASH EQUIVALENTS 465,261 392,131
Cash and cash equivalents at beginning of period 488,868 94,985
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Cash and cash equivalents at end of period $ 954,129 $ 487,116
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SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES
Conversion of convertible debenture and accrued
interest to common stock 93,005 -
Fair value of warrants issued with debt 62,884 154,973
Conversion of convertible note to common stock - 370,000
Exercise of stock options in exchange for
retirement of 100,000 common shares - 70,000
The accompanying notes are an integral part of these consolidated financial
statements.
DIAL THRU INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
The consolidated financial statements of Dial Thru International Corporation
and its subsidiaries, "DTI" or "the Company", included in this Form 10-Q are
unaudited and do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
of the financial position and operating results for the three and six month
periods ended April 30, 2003 have been included. Operating results for the
three and six month periods ended April 30, 2003 are not necessarily
indicative of the results that may be expected for the fiscal year ending
October 31, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended October 31, 2002.
The Company is a full service, facility-based provider of communication
products to small and medium size businesses, both domestically and
internationally. The Company provides a variety of international and
domestic communication services including international dial thru, Internet
voice and fax services, e-commerce solutions and other value-added
communication services, using its Voice over Internet Protocol ("VoIP")
Network to effectively deliver these services to the end user.
In addition to helping customers achieve significant savings on long-
distance voice and fax calls by routing calls over the Internet or the
Company's private network, the Company also offers new opportunities for
existing Internet Service Providers who want to expand into voice services,
private corporate networks seeking to lower long-distance costs, and Web-
enabled corporate call centers engaged in electronic commerce.
The Company has also introduced VoIP to a new segment of customers by
delivering a high quality, reliable and scaleable solution that uniquely
addresses the needs of the rapidly growing VoIP industry.
Estimates and Assumptions
-------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - GOING CONCERN
The Company has an accumulated deficit of approximately $43.0 million as
well as a working capital deficit of approximately $9.7 million as of April
30, 2003. Funding of the Company's working capital deficit, current and
future operating losses, and expansion will require continuing capital
investment. The Company's strategy is to fund these cash requirements
through operations, debt facilities and additional equity financing.
In November 2002, the Company obtained additional financing of $1,250,000, a
portion of which was used to repay the balance of the Company's April 11,
2001 convertible debenture with Global Capital Funding Group L.P.
Although the Company has been able to arrange debt facilities and equity
financing to date, there can be no assurance that sufficient debt or equity
financing will continue to be available in the future or that it will be
available on terms acceptable to the Company. Failure to obtain sufficient
capital could materially affect the Company's operations and expansion
strategies. As a result of the aforementioned factors and related
uncertainties, there is doubt about the Company's ability to continue as a
going concern.
NOTE 3 - STOCK-BASED COMPENSATION
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), the Company accounts for its stock-based employee compensation
plans using the intrinsic valued method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related interpretations. As such, compensation expense is recorded on
the date of grant to the extent the current market price of the underlying
stock exceeds the option exercise price. The Company did not record any
stock-based compensation expense in the three and six months ended April 30,
2003 and 2002.
In December 2002, the Financial Accounting Standards Board issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" ("SFAS 148"), which amends SFAS 123. SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
more prominent and more frequent disclosures in financial statements of the
effects of stock-based compensation. The Company anticipates that it will
continue to apply APB 25. Accordingly, the Company believes that the
adoption of this standard will have no material impact on its financial
position, results of operations or cash flows.
Had the Company determined compensation based on the fair value at the grant
date for its stock options in accordance with SFAS 123, as amended by SFAS
148, net loss and loss per share would have been increased as follows:
Three Months Six Months
Ended April 30, Ended April 30,
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2003 2002 2003 2002
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Net loss, as reported $(1,291,792) $(1,239,814) $(2,373,906) $(2,525,707)
Deduct: Stock based
employee compensation
expense determined
under fair value
based method (46,597) (85,925) (108,060) (171,850)
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Pro forma net loss $(1,338,389) $(1,325,739) $(2,481,966) $(2,697,557)
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Net loss per share
As reported
Basic and diluted $ (0.08) $ (0.09) $ (0.15) $ ( 0.19)
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Pro forma
Basic and diluted $ (0.08) $ (0.10) $ (0.16) $ (0.21)
========== ========== ========== ==========
The fair values under FAS 123 for options granted were estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
2003 2002
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Expected life (years) 3 5
Interest rate 4% 4%
Volatilty 133% 99% - 157%
Dividend yield 0% 0%
NOTE 4 - ADVERTISING CREDITS
On September 8, 2000, the Company issued 914,285 shares (which are fully
vested and non-forfeitable) of the Company's common stock in exchange for
$3.2 million face value of advertising credits. These credits were issued
by Millenium Media Ltd. and Affluent Media Network, national advertising
agencies and media placement brokers. The Company recorded the advertising
credits on the date the shares were issued, September 8, 2000, using the
Company's quoted common stock price of $3.3125, totaling $3,028,569. During
the fiscal year ended October 31, 2000, the Company recorded an impairment
charge of $575,542 to reduce the credits to their estimated fair value, and
sold a portion of the credits for cash, reducing the balance by an
additional $76,349. The estimated fair value was established at the end of
fiscal 2000 using a discount of 25% off the face value, which was based on
management's estimate of the dollar value of the credits to be used in
settling various outstanding trade obligations. Such credits can be used by
the Company to place electronic media and periodical advertisements. The
primary use for the media credits is to advertise products and services
domestically. As the Company's focus to date has been on foreign traffic,
the Company has not utilized any of the media credits. The Company is
currently developing domestic products and services and management intends
to utilize the media credits to advertise these new services. There is no
contractual expiration date for these trade credits and there are no
limitations relating to the use of these credits.
NOTE 5 - NOTE PAYABLE
In November 2002, the Company executed a 12% note payable (the "GC-Note")
with Global Capital Funding Group, L.P., which provided financing of
$1,250,000. The GC-Note's maturity date is November 8, 2004. The GC-Note is
secured by $1,518,267 of certain property and equipment. In connection with
the GC-Note, the Company paid $47,441 as financing fees, which are being
amortized over the life of the GC-Note. During the three and six months
ended April 30, 2003, the Company recorded approximately $6,000 and $12,000,
respectively, as interest expense. The Company also issued to the holder of
the GC-Note warrants to acquire an aggregate of 500,000 shares of common
stock at an exercise price of $0.14 per share, which expire on February 28,
2008. The Company recorded a debt discount of approximately $46,000, the
fair value of the warrants, relating to the issuance of the warrants.
The Company is amortizing the debt discount over the two year life of
the GC-Note. During the three and six months ended April 30, 2003, the
Company has recorded interest expense of approximately $6,000 and $11,000,
respectively, relating to the warrants.
NOTE 6 - NOTES PAYABLE - RELATED PARTY
In October 2001, the Company executed 10% convertible notes (the "Notes")
with three executives of the Company, which provided financing in the
aggregate principal amount of $1,945,958. The original maturity date of
each note was October 24, 2003. In January 2003, the Company extended the
maturity date of each note to February 24, 2004. The Notes are secured by
certain Company assets. Each Note is convertible into the Company's common
stock at the option of the holder at any time. The conversion price
is equal to the closing bid price of the Company's common stock on the
last trading day immediately preceding the conversion. The Company has
calculated the beneficial conversion feature embedded in the Notes in
accordance with EITF No. 00-27 and recorded debt discount of approximately
$171,000 which is being amortized over two years. The Company also issued
to the holders of the Notes warrants to acquire an aggregate of 1,945,958
shares of common stock at an exercise price of $0.78 per share, which expire
on October 24, 2006. Additional debt discount of approximately $657,000 was
recorded during the fourth quarter of fiscal 2001. The Company determined
the additional debt discount by allocating the relative fair value to the
Notes and the warrants. The Company is amortizing the additional debt
discount over the life of the Notes. During the three and six months ended
April 30, 2003, the Company has recorded approximately $123,000 and
$205,000, respectively, of interest expense. In January 2002, an additional
$102,433 was added to the Notes in exchange for an existing note payable.
The Company also issued to the holder of the Notes warrants to acquire an
additional 102,433 shares of common stock at an exercise price of $0.75,
which expire on January 28, 2007. Additional debt discount of approximately
$24,000 was recorded during the first quarter of fiscal 2002. The Company
determined the additional debt discount by allocating the relative fair
value to the Notes and the warrants. The Company is amortizing the
additional debt discount over the remaining life of the Notes. During the
three and six months ended April 30, 2003, the Company has recorded
approximately $4,000 and $7,000, respectively, of interest expense relating
to the warrants. In July 2002, an additional $300,000 was added to the
Notes, representing incremental monies loaned by a shareholder. The Company
also issued to the holder of the Notes warrants to acquire an additional
300,000 shares of common stock at an exercise price of $0.75, which expire
on July 8, 2007.
NOTE 7 - CONVERTIBLE DEBENTURES
Convertible Debenture with Global Capital Funding Group L.P.
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In April 2001, the Company executed a 6% convertible debenture (the
"Debenture") with Global Capital Funding Group L.P. ("Global"), which
provided financing of $1,000,000. In November 2002, the Debenture's
outstanding balance of $443,000 was paid in full following the issuance of
the GC-Note (see Note 5). In November 2002, the remaining unamortized
deferred financing fees of approximately $131,000 on the Debenture were
recorded as interest expense. During the three months ended January 31,
2003, Global converted $50,875 of debt and $4,859 of accrued interest into
approximately 724,000 shares of the Company's common stock.
Convertible Debenture with GCA Strategic Investment Fund Limited
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In January 2002, the Company executed a 6% convertible debenture (the
"Second Debenture") with GCA Strategic Investment Fund Limited ("GCA"),
which provided financing of $550,000. The Second Debenture's original
maturity date was January 28, 2003. The Second Debenture is secured by
certain property and equipment held for sale. The conversion price is equal
to the lesser of (i) 100% of the volume weighted average of sales price as
reported by the Bloomberg L.P. of the common stock on the last trading day
immediately preceding the Closing Date and (ii) 85% of the average of the
three lowest volume weighted average sales prices as reported by Bloomberg
L.P. during the twenty Trading Days immediately preceding but not including
the date of the related Notice of Conversion (the "Formula Conversion
Price"). In an event of default the amount declared due and payable on the
Debenture shall be at the Formula Conversion Price. In connection with the
Second Debenture, the Company paid $92,625 in financing fees, which were
amortized over the original life of the Second Debenture. During the three
and six months ended April 30, 2003, the Company has recorded interest
expense of approximately $0 and $23,000, respectively, relating to these
financing fees. The Company calculated the beneficial conversion feature
embedded in the Second Debenture in accordance with EITF No. 00-27 and
recorded approximately $114,000 as debt discount. This debt discount was
amortized over the original life of the Second Debenture. For the three and
six months ended April 30, 2003, the Company has recorded approximately $0
and $28,000, respectively, as interest expense. The Company also issued to
the holder of the debenture warrants to acquire an aggregate of 50,000
shares of common stock at an exercise price of $0.41 per share, which expire
on January 28, 2007. The Company recorded debt discount of approximately
$17,000 related to the issuance of the warrants. The Company determined the
debt discount by allocating the relative fair value to the Second Debenture
and the warrants, and the Company amortized the debt discount over the
original life of the Second Debenture. For the three and six months ended
April 30, 2003, the Company has recorded interest expense of approximately
$0 and $4,000, respectively, relating to the warrants.
In January 2003, the Company and GCA agreed to extend the maturity date of
the Second Debenture to November 8, 2004. In consideration for this
extension, in February 2003, the Company adjusted the exercise price of the
previously issued warrants to $0.21 per share. The Company also issued to
the holder of the Second Debenture warrants to purchase an additional
100,000 shares of common stock also at an exercise price of $0.21 per share,
which expire on February 8, 2008. The Company recorded additional debt
discount of approximately $17,000 related to the warrant exercise price
adjustment and the issuance of the new warrants. The Company is amortizing
the additional debt discount over the Second Debenture's extension period.
For the three and six months ended April 30, 2003, the Company has recorded
interest expense of approximately $2,000 relating to the warrants.
During the three months ended April 30, 2003, GCA converted $35,000 of debt
and $2,271 of accrued interest into approximately 221,000 shares of the
Company's common stock.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
On June 12, 2001, Cygnus Telecommunications Technology, LLC ("Cygnus"),
filed a patent infringement suit (case no. 01-6052) in the United States
District court, Central District of California, with respect to the
Company's "international reorigination" technology. The injunctive relief
that Cygnus sought in this suit has been denied, but Cygnus continues to
seek a license fee for the use of the technology. The Company believes that
no license fee is required as the technology described in the patent is
different from the technology used by the Company.
In August 2002, Cygnus filed a motion for a preliminary injunction to
prevent the Company from providing "reorigination" services. The Company
filed a cross motion for summary judgment of non-infringement. Both motions
were denied. The Company intends to refile the motion for summary judgment
for non-infringement. The Company intends to continue defending this case
vigorously, though its ultimate legal and financial liability with respect
to such legal proceeding cannot be estimated with any certainty at this
time.
The State of Texas ("State") performed a sales tax audit of the Company's
former parent, Canmax Retail Systems ("Canmax"), for the years 1995 to 1999.
The State determined that the Company did not properly remit sales tax on
certain transactions, including asset purchases and software development
projects that Canmax performed for specific customers. The Company's
current and former managements filed exceptions, through its outside sales
tax consultant, to the State's audit findings, including the non-taxable
nature of certain transactions and the failure of the State to credit the
Company's account for sales tax remittances. In correspondence from the
State in June 2003, the State agreed to consider offsetting remittances
received by Canmax during the audit period. The State has refused to
consider other potential offsets. Based on this correspondence, the Company
has recorded an estimated liability of $350,000 as of and during the quarter
ended April 30, 2003.
The Company will continue to pursue its options to appeal the decision by
the State. Furthermore, the Company will aggressively pursue the collection
of unpaid sales taxes from former customers of Canmax.
NOTE 9 - RECLASSIFICATIONS
Certain reclassifications were made to the 2002 consolidated financial
statements to conform to current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These statements relate to
expectations concerning matters that are not historical facts. Words such as
"projects", "believe", "anticipates", "estimate", "plans", "expect",
"intends", and similar words and expressions are intended to identify
forward-looking statements. Although the Company believes that such forward-
looking statements are reasonable, we cannot assure you that such
expectations will prove to be correct. Factors that could cause actual
results to differ materially from such expectations are disclosed herein.
All forward-looking statements attributable to the Company are expressly
qualified in their entirety by such language and we do not undertake any
obligation to update any forward-looking statements. You are also urged to
carefully review and consider the various disclosures we have made
throughout this Report which describe certain factors which affect our
business. The following discussion and analysis of financial condition and
results of operations covers the three and six months ended April 30, 2003
and 2002 and should be read in conjunction with our Financial Statements and
the Notes thereto.
General
On November 2, 1999, we consummated the DTI Acquisition and, in the second
quarter of fiscal 2000, we shifted focus toward our global VoIP strategy.
This change in focus has lead to a significant shift from our prepaid long
distance operations toward higher margin international wholesale and retail
telecommunication opportunities. This strategy allows us to form local
partnerships with foreign Postal, Telephone and Telegraph companies (those
entities responsible for providing telecommunications services in foreign
markets and are usually government owned or controlled) and to provide IP
enabled services based on the in-country regulatory environment affecting
telecommunications and data providers. In the third quarter of fiscal
2000, we further concentrated our efforts toward our global VoIP
telecommunications strategy by moving our operations to Los Angeles,
California. This refocusing and consolidation of operations has resulted in
not only greater savings, but also higher profits and more sustainable
revenues. This consolidation and reduction in staff has allowed us to
significantly reduce our overhead, and although our operations have not yet
produced positive cash flow, we believe that continued cost reductions and
moderate revenue growth would allow us to achieve positive results in the
near future.
On October 12, 2001, we completed the acquisition from Rapid Link,
Incorporated ("Rapid Link") of certain assets and executory contracts of
Rapid Link, USA, Inc. and 100% of the common stock of Rapid Link
Telecommunications, GmbH, a German company. Rapid Link provided integrated
data and voice communications services to both wholesale and retail
customers around the world. Rapid Link built a large residential retail
customer base in Europe and Asia, using Rapid Link's network to make
international calls anywhere in the world. Furthermore, Rapid Link
developed a VoIP network using Clarent and Cisco technology which we have
used to take advantage of wholesale opportunities where rapid deployment and
time to market are critical. A significant portion of our revenue in our
2002 fiscal year was derived from the operating assets acquired through our
Rapid Link acquisition.
On November 19, 2002 we entered into an agreement with Global Capital
Funding Group, L.P. that provided us with a two year loan of $1.25 million.
A portion of the proceeds from this financing were used to pay off the
remaining balance of Dial Thru's April 2001 convertible debenture with
Global Capital while the remaining $807,000 has been and will be used for
the Company's ongoing working capital needs.
Critical Accounting Policies
The consolidated financial statements include accounts of our Company and
all of our majority-owned subsidiaries. The preparation of financial
statements in conformity with accounting principles generally accepted in
the United States requires us to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying consolidated
financial statements and related footnotes. In preparing these consolidated
financial statements, we have made our best estimates and judgments of
certain amounts included in the consolidated financial statements, giving
due consideration to materiality. The application of these accounting
policies involves the exercise of judgment and use of assumptions as to
future uncertainties and, as a result, actual results could differ from
these estimates.
Revenue Recognition
Our revenues are generated at the time a customer uses our network to make a
phone call. We sell our services to small and medium-sized enterprises
("SMEs") and end-users who utilize our network for international re-
origination and dial thru services, and to other providers of long distance
usage who utilize our network to deliver domestic and international
termination of minutes to their own customers. At times, we receive payment
from our customers in advance of their usage, which we record as deferred
revenue, recognizing revenue as calls are made. The Securities and Exchange
Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition",
provides guidance on the application of generally accepted accounting
principles to selected revenue recognition issues. We have concluded that
our revenue recognition policy is appropriate and in accordance with
generally accepted accounting principles and SAB No. 101.
Allowance for Uncollectible Accounts Receivable
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. All of our receivables are due from commercial
enterprises and residential users in both domestic and international
markets. The estimated allowance for uncollectible amounts is based
primarily on our evaluation of the financial condition of the customer, and
our estimation of the customer's willingness to pay amounts due. We review
our credit policies on a regular basis and analyze the risk of each
prospective customer individually in order to minimize our risk.
Goodwill, Intangible and Other Long-Lived Assets
Property, plant and equipment, certain intangible and other long-lived
assets are amortized over their useful lives. Useful lives are based on our
estimate of the period that the assets will generate revenue. Goodwill is
assessed for impairment at least annually. Goodwill and other intangible
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Financing, Warrants and Amortization of Warrants and Fair Value
Determination
We have traditionally financed our operations through the issuance of debt
instruments that are convertible into our common stock, at conversion rates
at or below the fair market value of our common stock at the time of
conversion, and typically include the issuance of warrants. We have
recorded these financing transactions in accordance with Emerging Issues
Task Force No. 00-27. Accordingly, we recognize the beneficial conversion
feature imbedded in the financings and the fair value of the related
warrants on the balance sheet as debt discount. The debt discount is
amortized over the life of the respective debt instrument.
Carrier Disputes
We review our vendor bills on a monthly basis and periodically dispute
amounts invoiced by our carriers. We record cost of revenues excluding
these disputed amounts. We review our outstanding disputes on a quarterly
basis as part of the overall review of our accrued carrier costs, and adjust
our liability based on management's estimate of amounts owed.
Revenues
Our primary source of revenue is the sale of voice and fax traffic
internationally over our VoIP network, which is measured in minutes,
primarily to SMEs, residential users, and wholesale customers. We charge
our customers a fee per minute of usage that is dependent on the destination
of the call and is recognized in the period in which the call is completed.
Expenses
Our costs of revenues are termination fees, purchased minutes and fixed
costs for specific international and domestic Internet circuits and private
lines used to transport our minutes. Termination fees are paid to local
service providers and other international and domestic carriers to terminate
calls received from our network. This traffic is measured in minutes, at a
negotiated contract cost per minute.
General and administrative expenses include salaries, payroll taxes, benefit
expenses and related costs for general corporate functions, including
executive management, finance and administration, legal and regulatory,
information technology and human resources. Sales and marketing expenses
include salaries, payroll taxes, benefits and commissions that we pay for
sales personnel and advertising and marketing programs, including
expenses relating to our outside public relations firms. Interest expense
and financing costs relate primarily to the amortization of deferred
financing fees and debt discounts on our various debt instruments.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure" ("SFAS 148"), which amends SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS 148
amends the disclosure requirements of SFAS 123 to require more prominent and
more frequent disclosures in financial statements of the effects of stock-
based compensation. We adopted the disclosure provisions of SFAS 148 during
February 2003. We anticipate that we will continue to apply Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, we believe that the adoption of this standard will have no
material impact on our financial position, results of operations or cash
flows.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE AND SIX MONTHS ENDED APRIL
30, 2003 AND 2002
REVENUES
For the three months ended April 30, 2003, we had revenues of $6,013,000, a
decrease of $73,000, or 1%, over the same period in 2002. For the three
months ended April 30, 2003, 44% and 56% of our revenues were derived from
our retail and wholesale customers, respectively, compared to 58% and 42%,
respectively, for the three months ended April 30, 2002. In absolute
dollars, our wholesale revenues have increased by 33% from the three months
ended April 30, 2002 compared to the three months ended April 30, 2003,
while our retail revenues have decreased by 26% over the comparable period.
For the six months ended April 30, 2003, we had revenues of $11,668,000 a
decrease of $1,005,000, or 8%, over the same period in 2002. For the six
months ended April 30, 2003, 47% and 53% of our revenues were derived from
our retail and wholesale customers, respectively, compared to 62% and 38%,
respectively, for the six months ended April 30, 2002. In absolute dollars,
our wholesale revenues have increased by 27% from the six months ended April
30, 2002 compared to the six months ended April 30, 2003, while our retail
revenues have decreased by 30% over the comparable period.
The decrease in retail revenues for the three and six months ended April 30,
2003 is primarily attributable to increased competition in our largest
foreign markets, including competition from the incumbent phone company in
each market. The increase in wholesale revenues for the three and six months
ended April 30, 2003 is attributable to additions to our wholesale sales
force which focuses on developing greater wholesale opportunities. We are
exploring opportunities to grow our retail business through use of our
advertising credits and newspaper advertising.
OPERATING EXPENSES
Direct Costs: During the three months ended April 30, 2003 and 2002, we had
total direct costs of revenues of $4,535,000 and $4,081,000, respectively,
or 75% and 67% of revenues, respectively. During the six months ended April
30, 2003 and 2002, we had total direct costs of revenues of $8,674,000 and
$8,627,000, respectively, or 74% and 68% of revenues, respectively. Our
costs of revenues as a percentage of revenues has increased due to a decline
in our retail traffic which realizes higher margins than our wholesale
traffic. Costs of revenues as a percentage of revenues will fluctuate, from
period to period, depending on the traffic mix between our wholesale and
retail products.
General and Administrative Expenses: During the three months ended April 30,
2003 and 2002, we had total general and administrative expenses of
$1,415,000 and $1,973,000, respectively, or 24% and 32% of revenues,
respectively. During the six months ended April 30, 2003 and 2002, we had
total general and administrative expenses of $2,826,000 and $3,973,000,
respectively, or 24% and 31% or revenues, respectively. Included in general
and administrative expenses is bad debt expense of $18,000 and $94,000 for
the three months ended April 30, 2003 and 2002, respectively, and $30,000
and $414,000 for the six months ended April 30, 2003 and 2002, respectively.
Bad debt expense for the six months ended April 30, 2002 is primarily
attributable to non-payment from one wholesale customer. We have implemented
strict credit policies and systems to closely monitor our wholesale traffic
daily to reduce the risk of bad debt. We have further reduced our general
and administrative costs by approximately $330,000 and $591,000, for the
three and six months ended April 30, 2003, respectively, through the
elimination of personnel and personnel related costs. We review our general
and administrative expenses regularly, and continue to manage the costs
accordingly to support the current and anticipated future business.
Sales and Marketing Expenses: During the three months ended April 30, 2003
and 2002, sales and marketing expenses were $273,000 and $339,000,
respectively, or 5% and 6% of revenues, respectively. During the six months
ended April 30, 2003 and 2002, sales and marketing expenses were $586,000
and $705,000, respectively, or 5% and 6% of revenues, respectively. A
majority of our revenues are generated by outside agents or through
newspaper and periodical advertising, which is managed by a small in-house
sales and marketing organization. We will continue to focus our sales and
marketing efforts on newspaper and periodical advertising and agent related
expenses to generate additional revenues. The use of our advertising
credits is expected to increase sales and marketing expenses in absolute
dollars in future periods.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses were $468,000 and $616,000 for the
three months ended April 30, 2003 and 2002, respectively, and $967,000 and
$1,293,000 for the six months ended April 30, 2003 and 2002, respectively.
Depreciation and amortization has decreased as a portion of our assets
still in use have become fully depreciated, including a majority of the
assets acquired from Rapid Link. A majority of our depreciation and
amortization expense relates to the equipment utilized in our VoIP network.
SALES TAX SETTLEMENT
We recorded an expense of $350,000 during the three months ended April 30,
2003. This estimated cost is attributable to audit findings on our former
parent, Canmax Retail Systems, from the State of Texas for the years 1995 to
1999. The State of Texas determined that we did not properly remit sales
tax on certain transactions. Our current and former managements have filed
exceptions, through our outside sales tax consultant, to the State's audit
findings. (See Note 8.)
INTEREST EXPENSE AND FINANCING COSTS
Interest expense and financing costs were $270,000 and $313,000 for the
three months ended April 30, 2003 and 2002, respectively, and $647,000 and
$582,000 for the six months ended April 30, 2003 and 2002, respectively.
Interest expense and financing costs are primarily attributable to the
amortization of deferred financing fees and debt discounts relating to our
various debt instruments.
NET LOSS
As a result of the foregoing, for the three months ended April 30, 2003 and
2002, we incurred a net loss of $1,292,000 or $0.08 per share and $1,240,000
or $0.09 per share, respectively. For the six months ended April 30, 2003
and 2002, we incurred a net loss of $2,374,000 or $0.15 per share and
$2,526,000 or $0.19 per share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The growth model for our business is scaleable, but the rate of growth is
dependent on the availability of future financing for capital resources.
Our funding of additional infrastructure development will be provided
through the operations of our telecommunications business and externally
through debt and/or equity offerings. We plan to obtain vendor financing
for any equipment needs associated with expansion. We believe that, with
sufficient capital, we can significantly accelerate our growth plan. Our
failure to obtain additional financing could delay the implementation of our
business plan and have a material adverse effect on our business, financial
condition and operating results.
At April 30, 2003, we had cash and cash equivalents of $954,000 an increase
of $465,000 from the balance at October 31, 2002. As of April 30, 2003, we
had a working capital deficit of $9,703,000, compared to a working capital
deficit of $8,804,000 at October 31, 2002. As of April 30, 2003, our
current assets of $2,345,000 included net accounts receivable of $1,172,000,
which has decreased from the balance of $1,370,000 at October 31, 2002 as a
result of the Company implementing more stringent credit requirements during
fiscal 2002.
Net cash used in operating activities was $12,000 for the six months ended
April 30, 2003, compared to $1,103,000 for the six months ended April 30,
2002. The net cash used in operating activities for the six months ended
April 30, 2003 was primarily due to a net loss of $2,374,000 adjusted for:
non-cash interest expense of $424,000; depreciation and amortization of
$967,000; and net changes in operating assets and liabilities of $941,000.
For the six months ended April 30, 2002, the net cash used in operating
activities was comprised of a net loss of $2,526,000 adjusted for: bad debt
expense of $414,000; depreciation and amortization of $1,293,000; non-cash
interest expense of $423,000; and net changes in operating assets and
liabilities of ($712,000).
During the six months ended April 30, 2003, net cash used in investing
activities was $160,000, compared to net cash provided by investing
activities of $1,255,000 for the six months ended April 30, 2002. The net
cash used in investing activities for the six months ended April 30, 2003 is
due to capital expenditures of $160,000. For the six months ended April 30,
2002, net cash provided by investing activities is primarily attributable to
a refund of a license fee previously paid on behalf of our German subsidiary
of $1,425,000 offset by capital expenditures of $170,000.
Net cash provided by financing activities for the six months ended April 30,
2003, totaled $638,000, compared to $240,000 for the six months ended April
30, 2002. For the six months ended April 30, 2003, significant components
of net cash provided by financing activities include $1,250,000 in net
proceeds from a note payable, offset by $443,000 in payments on convertible
debentures, $122,000 in payments on capital leases, and $47,000 of deferred
financing fees. For the six months ended April 30, 2002, the significant
components of net cash provided by financing activities include $550,000 in
proceeds from the issuance of a convertible debenture, offset by $218,000 in
payments on capital leases, and $93,000 of deferred financing fees.
We are subject to various risks in connection with the operation of our
business including, among other things, (i) changes in external competitive
market factors, (ii) inability to satisfy anticipated working capital or
other cash requirements, (iii) changes in the availability of transmission
facilities, (iv) changes in our business strategy or an inability to
execute our strategy due to unanticipated changes in the market, (v) various
competitive factors that may prevent us from competing successfully in the
marketplace, (vi) our lack of liquidity, and (vii) our ability to raise
additional capital. We have an accumulated deficit of approximately $43.0
million as of April 30, 2003, as well as a working capital deficit of
approximately $9.7 million. Funding of our working capital deficit, current
and future operating losses, and expansion will require continuing capital
investment. Our strategy is to fund these cash requirements through
operations, debt facilities and additional equity financing. As of the date
of this report:
1. we obtained additional financing of $1,250,000 in November 2002, a
portion of which was used to fully pay the April 11, 2001 convertible
debenture with Global Capital Funding Group L.P.
2. we and GCA Strategic Investment Fund Limited agreed to extend the
maturity date of the January 2002 debenture from January 28, 2003 to
November 8, 2004.
Although we have been able to arrange debt facilities and equity financing
to date, there can be no assurance that sufficient debt or equity financing
will continue to be available in the future or that it will be available
on terms acceptable to us. Failure to obtain sufficient capital could
materially affect the Company's operations and expansion strategies. As a
result of the aforementioned factors and related uncertainties, there is
doubt about our Company's ability to continue as a going concern.
Our current capital expenditure requirements are not significant, primarily
due to the equipment acquired from Rapid Link. Our capital expenditures for
the six months ended April 30, 2003 were $160,000 and we do not anticipate
significant spending for the remainder of fiscal 2003.
In April 2001, we executed a 6% convertible debenture with Global Capital
Funding Group L.P, which provided financing of $1,000,000. During November
2002, the Debenture's outstanding balance of $443,000 was paid in full.
In October 2001, we executed 10% convertible notes (the "Notes") with three
of our executives, who provided an aggregate financing of $1,945,958. The
original maturity date of each note was October 24, 2003. In January 2003,
we extended the maturity date of each note to February 24, 2004. The Notes
are secured by certain Company assets and are convertible into our common
stock at any time prior to maturity. The conversion price is equal to the
closing bid price of our common stock on the last trading day immediately
preceding the conversion. We also issued to the holders of the Notes
warrants to acquire an aggregate of 1,945,958 shares of common stock at an
exercise price of $0.78 per share, which expire on October 24, 2006. In
January 2002, an additional $102,433 was added to the Notes in exchange for
an existing note payable. We also issued to the holder of the Notes
warrants to acquire an additional 102,433 shares of common stock at an
exercise price of $0.75, which expire on January 28, 2007. In July 2002, an
additional $300,000 was added to the Notes, representing incremental monies
loaned by an executive. We also issued to the holder of the Notes, warrants
to acquire an additional 300,000 shares of common stock at an exercise price
of $0.75, which expire on July 8, 2007.
In January 2002, we executed a 6% convertible debenture (the "Second
Debenture") with Global Capital Funding Group L.P, which provided financing
of $550,000. The Second Debenture's original maturity date was January 28,
2003. The conversion price is equal to the lesser of (i) 100% of the volume
weighted average of sales price as reported by the Bloomberg L.P. of the
common stock on the last trading day immediately preceding the Closing Date
("Fixed Conversion Price") and (ii) 85% of the average of the three (3)
lowest volume weighted average sales prices as reported by Bloomberg L.P.
during the twenty (20) Trading Days immediately preceding but not including
the date of the related Notice of Conversion ("the "Formula Conversion
Price"). In an event of default the amount declared due and payable on the
Second Debenture shall be at the Formula Conversion Price. We also issued
to the holder of the Second Debenture warrants to acquire 50,000 shares of
common stock at an exercise price of $0.41 per share which expire on January
28, 2007. In January 2003, we extended the maturity date of the Second
Debenture to November 8, 2004. In consideration for this extension, in
February 2003, we adjusted the exercise price of the previously issued
warrants to $0.21 per share and issued additional warrants to purchase
100,000 shares of common stock also at an exercise price of $0.21 per share,
which warrants expire on February 8, 2008.
In November 2002, we executed a 12% note payable (the "GC-Note") with Global
Capital Funding Group, L.P., which provided financing of $1,250,000. The
GC-Note's maturity date is November 8, 2004. The GC-Note is secured by
$1,518,267 of certain property and equipment. We also issued to the holder
of the GC-Note warrants to acquire 500,000 shares of common stock at an
exercise price of $0.14 per share, which expire on February 28, 2008.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We provide services primarily to customers located outside of the U.S. Thus,
our financial results could be impacted by foreign currency exchange rates
and market conditions abroad. However, the aggregate impact of any likely
exchange rate fluctuations would be immaterial as most of our services are
paid for in U.S. dollars. A strong dollar could make the cost of our
services more expensive than the services of non-U.S. based providers in
foreign markets. We have not used derivative instruments to hedge our
foreign exchange risks though we may choose to do so in the future.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Within the 90
days prior to the filing of this Quarterly Report on Form 10-Q, our Company
carried out an evaluation, under the supervision and with the participation
of our Company's management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
Company's disclosure controls and procedures. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
Company's disclosure controls and procedures are effective in timely
alerting them to material information required to be included in this
report. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless
of how remote.
(b) Changes in Internal Controls. There have been no significant
changes in our Company's internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the most
recent evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 12, 2001, Cygnus Telecommunications Technology, LLC ("Cygnus"),
filed a patent infringement suit (case no. 01-6052) in the United States
District court, Central District of California, with respect to our
"international reorigination" technology. The injunctive relief that Cygnus
sought in this suit has been denied, but Cygnus continues to seek a license
fee for the use of the technology. We believe that no license fee is
required as the technology described in the patent is different from the
technology used by us.
In August 2002, Cygnus filed a motion for a preliminary injunction to
prevent us from providing "reorigination" services. We filed a cross motion
for summary judgment of non-infringement. Both motions were denied. By
July 2003, we intend to refile the motion for summary judgment for non-
infringement. We intend to continue defending this case vigorously, though
its ultimate legal and financial liability with respect to such legal
proceeding cannot be estimated with any certainty at this time.
The State of Texas ("State") performed a sales tax audit of our former
parent, Canmax Retail Systems ("Canmax"), for the years 1995 to 1999. The
State determined that we did not properly remit sales tax on certain
transactions, including asset purchases and software development projects
that we performed for specific customers. Our current and former
managements filed exceptions, through our outside sales tax consultant, to
the State's audit findings, including the non taxable nature of certain
transactions and the failure of the State to credit our account for sales
tax remittances. In correspondence from the State in June 2003, the State
agreed to consider offsetting remittances received by Canmax during the
audit period. The State has refused to consider other potential offsets.
Based on this correspondence, we have recorded an estimated liability of
$350,000 as of and during the quarter ended April 30, 2003.
We will continue to pursue our options to appeal the decision by the State.
Furthermore, we will aggressively pursue the collection of unpaid sales
taxes from former customers of Canmax.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification of the Chief Executive Officer, dated June 16, 2003,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer, dated June 16, 2003,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) The following reports on Form 8-K were filed or required to be filed for
the last quarter.
On March 6, 2003, the Company filed a Report on Form 8-K to report a change
in accountants due to a merger of accounting firms. Effective March 1,
2003, King Griffin & Adamson P.C. merged with BDA&K Business Services, Inc.
and formed a new entity, KBA Group LLP. The personnel that the Company
has dealt with at King Griffin & Adamson P.C. are now employees of KBA Group
LLP. As a result of this merger, on March 6, 2003, King Griffin & Adamson
P.C. resigned to allow its successor entity, KBA Group LLP, to be engaged as
the Company's independent public accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAL THRU INTERNATIONAL CORPORATION
By: /s/ Allen Sciarillo
--------------------------------------------
Allen Sciarillo
Executive Vice President and Chief Financial
Officer (Principal Financial and Principal
Accounting Officer)
Dated June 16, 2003
CERTIFICATIONS
--------------
I, John Jenkins, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dial Thru
International Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 16, 2003 /s/ John Jenkins
-------------------------------
John Jenkins, Chairman, Chief
Executive Officer and President
I, Allen Sciarillo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dial Thru
International Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 16, 2003 /s/ Allen Sciarillo
-------------------------------
Allen Sciarillo, Chief
Financial Officer and Executive
Vice President