UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-23532
GLOBETEL COMMUNICATIONS CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 88-0292161
-------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
444 Brickell Avenue Suite 522 Miami, FL 33131
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(Address of principal executive offices)
305-579-9922
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes[_X _] No[__]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 648,557,304 shares of
common stock, par value $0.001, were outstanding at the close of business on
November 19, 2003.
Transitional Small Business Disclosure Format (Check one): Yes __ No X
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. 2
Item 2. Management's Discussion and Analysis or Plan of Operation. 9
Item 3. Controls and Procedures. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities. 14
Item 3. Default Upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheet - (Unaudited) 3
Statements of Operations (Unaudited) 4
Statements of Cash Flows (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
2
GLOBETEL COMMUNICATIONS CORP.
f/k/a AMERICAN DIVERSIFIED GROUP, INC. & SUBSIDIARIES
BALANCE SHEET (UNAUDITED)
September 30, 2003
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 280,181
Accounts receivable, less allowance for doubtful accounts of $86,834 3,799,324
Convertible notes receivable 40,000
Deferred tax asset, less valuation allowance of $278,324 --
----------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,119,505
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PROPERTY AND EQUIPMENT, less accumulated depreciation of $389,325 502,982
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OTHER ASSETS
Deposits 128,622
Miscellaneous receivable (less $125,000 allowance for uncollectibility) --
----------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 128,622
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TOTAL ASSETS $ 4,751,109
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 658,039
Notes payable, unsecured 438,701
Capital lease obligations 54,507
Loans payable to related party - Charterhouse 361,960
Loan payable 10,000
Accrued expenses and other liabilities 60,357
Accrued officers' salaries and bonuses 318,750
Due to related parties 57,500
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TOTAL CURRENT LIABILITIES 1,959,814
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CONTINGENCY (NOTE 10)
STOCKHOLDERS' EQUITY
Preferred stock, Series A, $.001 par value, 10,000,000 shares
authorized; $ --
Common stock, $.00001 par value, 1,500,000,000 shares authorized;
638,626,471 shares issued and outstanding 6,386
Additional paid-in capital 27,391,686
Accumulated deficit (24,481,777)
Stock subscription receivable ( 125,000)
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TOTAL STOCKHOLDERS' EQUITY 2,791,295
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,751,109
==============================================================================================
See accompanying notes
3
GLOBETEL COMMUNICATIONS CORP.
f/k/a AMERICAN DIVERSIFIED GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (UNAUDITED)
For the For the For the For the
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
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REVENUES
Sales $ 8,905,232 $ 2,967,604 $ 2,812,121 $ 2,230,911
Sales - related parties -- 5,717,150 -- 2,028,575
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Total sales 8,905,232 8,684,754 2,812,121 4,259,486
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Cost of sales 6,451,431 4,627,637 2,203,587 2,390,203
Cost of sales - related parties -- 159,000 -- 159,000
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Total costs of sales 6,451,431 4,786,637 2,203,587 2,549,203
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GROSS MARGIN 2,453,801 3,898,117 608,534 1,710,283
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EXPENSES
Payroll and related taxes 235,470 195,392 78,380 88,869
Professional fees 433,249 398,637 212,820 260,029
Officers' salary 399,705 241,000 116,620 35,000
Consulting and investment banking fees 289,006 915,800 233,509 343,300
Bad debts 88,873 -- 44,436 --
Bad debt - affiliate, Sigma On-Line -- 283,051 -- --
Other operating expenses 121,468 58,613 35,506 22,008
Telephone and communications 52,597 42,928 17,776 20,597
Travel and related expenses 72,069 52,050 21,190 19,221
Rents 33,715 30,240 11,515 10,339
Insurance and employee benefits 80,157 62,780 30,617 24,944
Depreciation and amortization 32,653 24,321 10,355 8,292
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TOTAL EXPENSES 1,838,962 2,304,812 812,724 832,599
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INCOME FROM OPERATIONS 614,839 1,593,305 ( 204,190) 877,684
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OTHER INCOME (EXPENSE)
Interest income 188 5,651 47 17
Interest expense (95,736) (35,041) (19,550) (21,545)
Reincorporation expenses -- (215,024) -- (215,024)
Gain on disposition of assets 34,365 -- -- --
Gain on settlement of liabilities 91,085 -- 91,085 --
Loss on forgiveness of accrued interest
receivable from officers -- (43,488) -- --
Reduction in fair value of receivables and
marketable securities (4,834,878) -- (4,834,878) --
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NET OTHER INCOME (EXPENSE) (4,804,976) (287,902) (4,763,296) (236,552)
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INCOME (LOSS) BEFORE INCOME TAXES (4,190,137) 1,305,403 (4,967,486) 641,132
INCOME TAXES (CREDITS)
Provision (benefit) for income tax credits (2,024,652) 522,161 (2,024,652) 256,452
Tax provision (benefit) from utilization of net
operating loss carryforward 2,024,652 (522,161) 2,024,652 (256,452)
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TOTAL INCOME TAXES -- -- -- --
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NET INCOME (LOSS) $ (4,190,137) $ 1,305,403 $ (4,967,486) $ 641,132
========================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (BASIC AND DILUTED) 621,259,294 490,860,168 636,697,207 517,545,641
========================================================================================================================
BASIC NET INCOME (LOSS) PER SHARE (BASIC AND DILUTED) $ (0.017) $ .0027 $ (.0078) $ .0012
========================================================================================================================
See accompanying notes.
4
GLOBETEL COMMUNICATIONS CORP.
f/k/a AMERICAN DIVERSIFIED GROUP, INC. & SUBSIDIARIES
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the For the
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(4,190,137) $ 1,305,403
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization 150,846 100,544
Amortization of deferred consulting fees -- 250,000
Gain on discontinued operations (34,365) --
Loss on Reduction in fair value of receivables and
Marketable securities 4,834,878 --
Gain on settlement of liabilities (91,085)
Common stock exchanged for services 394,009 435,800
Common stock issued for severance pay 36,000 --
Property and equipment used in cost of sales -- 233,191
Non-readily marketable, available for sale equity securities
due from related party - Charterhouse Investment -- (4,051,500)
Non-readily marketable, available for sale equity securities -- (1,600,000)
(Increase) decrease in assets:
Accounts receivable and unbilled revenues (2,082,220) (2,097,769)
Accounts receivable, related party -- 872,248
Related party receivables -- 493,199
Deposits (38,000) 32,401
Increase (decrease) in liabilities:
Accounts payable 18,764 2,479,242
Accounts payable, to be satisfied with non-readily marketable,
available for sale equity securities -- 672,500
Accrued payroll and related taxes ( 12,785) (133,075)
Accrued officers' salaries and bonuses 272,118 136,912
Accrued expenses and other liabilities 11,657 (1,371)
Deferred revenues 16,162 (11,090)
Deferred revenues - related party (184,350) 304,350
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NET CASH USED BY OPERATING ACTIVITIES (898,508) (579,015)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (252,950) (3,186)
Proceeds from note receivable (40,000) --
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NET CASH USED BY INVESTING ACTIVITIES (292,950) (3,186)
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CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 375,000 7,000
Payments on capital lease financing (28,477) (5,600)
Proceeds from related party payables 285,279 37,100
Payments on related party payables (96,053) (12,342)
Proceeds from promissory notes payable 734,259 900,000
Payments on secured promissory notes payable made by Global VoIP -- (350,000)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,270,008 576,158
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78,550 (6,043)
CASH AND CASH EQUIVALENTS - BEGINNING 201,631 32,233
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CASH AND CASH EQUIVALENTS - ENDING $ 280,181 26,190
========================================================================================================
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 95,736 $ 9,438
Income taxes $ -- $ --
Non-readily marketable, available-for-sale equity securities
due from related party in payment of notes and accounts rec. $ -- $ 4,301,500
Non-readily marketable, available-for-sale equity securities
due from related party, received in payment of notes and
accounts receivable $ -- $ 1,600,000
In addition to amounts reflected above, common stock was issued for:
Settlement of debt $ 1,246,086 $ 940,000
Consulting services $ 394,009 $ 685,800
Other non-cash transactions:
Stock options issued for accrued salaries $ 683,368 $ --
=======================================================================================================
See accompanying notes.
5
GLOBETEL COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements reflect all adjustments,
which, in the opinion of management, are necessary for a fair presentation of
the financial position and the results of operations for the interim periods
presented. All adjustments are of a normal recurring nature, except as otherwise
noted below.
Certain financial information and footnote disclosures which are normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, but which are not
required for interim reporting purposes for Form 10-QSB, have been condensed or
omitted. The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto as of December 31, 2002,
contained in the Company's Form 10-KSB.
The financial statements for periods prior to the merger and reincorporation in
July, 2002 include the consolidated accounts of American Diversified Group, Inc.
and its two then wholly-owned subsidiaries, Global Transmedia Communications
Corp. and NCI Telecom, Inc., all of which together and individually are referred
to as the Company. All material intercompany balances and transactions were
eliminated in the consolidation.
NOTE 2 - NET INCOME (LOSS) PER COMMON SHARE
Basic net loss per common share has been computed based upon the weighted
average number of shares of common stock outstanding during each period. The
basic net loss is computed by dividing the net loss by the weighted average
number of common shares outstanding during each period. Available stock options
at September 30, 2003, were anti-dilutive and not considered common stock
equivalents for purposes of computing net loss per common share.
NOTE 3 - ACCOUNTS RECEIVABLE AND SALES - SIGNIFICANT CONCENTRATIONS OF CREDIT
RISK AND ECONOMIC DEPENDENCE
Two customers accounted for 99% of the Company's sales for the three months
ended September 30, 2003, including 28% attributable to the Brazil network and
71% to the Mexico network. The same two customers accounted for 97% of the
Company's sales for the nine months ended September 30, 2003, including 25%
attributable to the Brazil network and 72% to the Mexico network. The same two
customers account for 99% of the Company's accounts receivable, including 40%
attributable to the Brazil network and 59% to the Mexico network as of September
30, 2003.
Revenue of $73,740 and $221,220 was recognized during the three months and nine
months ended September 30, 2003, respectively, in connection with the Company's
service agreements for the Brazil and Philippines networks, representing $36,870
and $110,610 for each network.
In connection with the Brazil network, $568,458 and $1,315,915 during the three
months and nine months ended September 30, 2003, respectively, was paid by our
Brazilian network customer directly to a local provider of network termination
services, and, accordingly, the accounts receivable due from the customer was
reduced by the same amounts.
In connection with the Mexico network, $1,506,935 and $4,084,814 during the
three months and nine months ended September 30, 2003, respectively, was paid by
our Mexico network customer directly to a local provider of network termination
services, and, accordingly, the accounts receivable due from the customer was
reduced by the same amounts.
6
NOTE 4 - NON-READILY-MARKETABLE EQUITY SECURITIES, AVAILABLE FOR SALE
As of June 30, 2003, the Company had included in its current assets, $1,600,000
in non-readily marketable, available-for-sale equity securities, which
represented 16 million shares of IP World (IPW) unrestricted stock, valued at
$.10 per share, held in the Company's name. Further, as of June 30, 2003, the
Company also included in other assets, $4,301,500 in non-readily marketable,
available-for-sale equity securities, due from a related party, Charterhouse,
which represented 70 million shares of IPW restricted stock valued at $.06145
per share, held by Charterhouse on the Company's behalf.
As of September 30, 2003, IP World Ltd. was in liquidation and was no longer
listed in the Australian Exchange. The Company is still transacting with IPW to
move out of liquidation and be relisted in the Australian Exchange. However, the
outcome of the transaction can not be determined, therefore, the Company has
charged off $4,301,500, of non-readily marketable, available-for-sale equity
securities due from a related party as well as the $1,600,000, of non-readily
marketable, available-for-sale equity securities it had in its name. These
amounts are included in "reduction in fair value of receivables and marketable
securities."
NOTE 5 - CONVERTIBLE NOTES RECEIVABLE
In September 2003, the Company entered into an agreement with Advantage
Telecommunications Ltd. (ATC), an Australian telecommunications corporation
where, for a strategic investment of $1.2 million, the Company would receive
three-year convertible notes receivable with interest of 12% per year
convertible into one share of $0.01 (Australian $0.01) of stock and one free
attaching option exercisable at $0.01 (Australian $0.01). Upon conversion, the
Company could own up to 50% of the stock of ATC, and would have control of the
board of directors of ATC. As of September 30, 2003, $40,000 had been remitted
to ATC and a total of $252,300 has been remitted as of the date of this report
and the Company is committed to remit an additional $1.0 million during the
fourth quarter.
NOTE 6 - NOTES AND LOANS PAYABLE, UNSECURED
In February 2003, the Company executed two unsecured promissory notes payable,
each for $100,000 (to fund operations), to an unrelated third party, which was
also a secured promissory note holder. Each note was originally due in May 2003,
and included interest payable monthly at a rate of 25% per annum. The Company
and the note holders subsequently agreed to extend due dates of the loans on a
month-to-month basis under the same interest rate. The notes remain outstanding
as of the date of this report.
In February 2003, the Company executed a $40,000 promissory note payable to
another party, due on demand with interest payable at a rate of 2.5% per annum.
In June 2003, the Company executed a $200,000 promissory note payable to
Commercebank, N.A., due in June 2004, with interest payable at a rate of one
percent over the prime rate, currently 4%.
NOTE 7 - LOAN PAYABLE TO RELATED PARTY - CHARTERHOUSE
In January 2003, the Company received a $50,000 loan from Charterhouse. This
loan payable, as well as the previous balance of $311,960, is unsecured,
non-interest bearing and provides for no formal repayment terms.
NOTE 8 - INVESTMENT BANKING AGREEMENT
In January 2003, Fordham Financial Management, Inc., an investment banking firm,
based in New York City, assumed all functions and responsibilities of Charles
Morgan Securities to provide consulting services. Under the agreement, the
Company was obligated to pay a monthly fee of $10,000. In June 2003, the firm
and the Company agreed to suspend the monthly fee until both parties agree to
resume the monthly fee. The Company paid total fees of $40,000 during the six
months ended June 30, 2003. Pursuant to the agreement, the Company issued 4.9
million restricted shares of the Company's common stock as payment for services
rendered. The Company charged $51,250 to expense during the three months ended
September 30, 2003, based on an amount equal to one-half of the average bid and
asked price of the Company's shares on the date of issuance.
7
NOTE 9 - GAIN ON DISPOSITION OF ASSETS AND SETTLEMENT OF LIABILITIES
In September 2003, the Company settled with one of its vendors to pay a lesser
amount for the purchase of equipment that ultimately did not function as
purported. Likewise, the Company wrote-off other outstanding long-term
liabilities for purchase of equipment that also did not function properly. The
settlement and write-off resulted in a gain of $91,085.
In June 2003, the Company ceased operations at its St. Louis, Missouri office.
As part of the termination agreement with the employees of the St. Louis office,
the employees were authorized to maintain and service the existing clients and
keep the property and equipment of that office, and the Company agreed to return
the customer deposits made by the St. Louis clients. The Company recorded a gain
of $34,365 in connection with these transactions.
Three terminated employee were issued a total of 1.2 million free-trading shares
of the Company's stock as severance pay. The Company charged $36,000 to expense
during the three months ended September 30, 2003, based on an amount equal to
the average bid and asked price of the Company's shares on the date of issuance.
NOTE 10 - PREFERRED STOCK
In May and June 2003, the Company applied for a loan with a financing company
that brokered the transaction with several major European banks. The total
amount of the loan is for $4.4 million and may be increased when and if
additional funds become available. The loan amounts are payable over five (5)
years at 5.5% per annum, with only interest being paid during the first year.
Further, the loans are to be collateralized with preferred stock, which the
banks can only convert in case of a default by the Company.
As of September 30, 2003, the transaction had not been consummated and the
Company has withdrawn its application and the preferred stock totaling 1,194,356
shares that was being held in escrow has been cancelled.
In October 2003, the Company entered into an agreement with Fordham Financial
Management Inc. to raise funds to finance the ATC transaction. In accordance
with the agreement, the investors will receive preferred shares convertible upon
investment that will be convertible into common stock. The Company expects to
issue preferred stock to investors in November, 2003.
8
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
GlobeTel Communications Corp. ("GlobeTel") was organized in July 2002, under the
laws of the State of Delaware. Upon its incorporation, GlobeTel was a
wholly-owned subsidiary of American Diversified Group, Inc. (ADGI). ADGI was
organized January 16, 1979, under the laws of the State of Nevada. ADGI had two
other wholly-owned subsidiaries, Global Transmedia Communications Corporation
(Global), a Delaware corporation, and NCI Telecom, Inc. (NCI), a Missouri
corporation.
On July 1, 2002, both Global and NCI were merged into ADGI. On July 24, 2002,
ADGI stockholders approved a plan of reincorporation for the exchange of all
outstanding shares of ADGI for an equal number of shares of GlobeTel.
Subsequently, ADGI was merged into GlobeTel, which is now conducting the
business formerly conducted by ADGI and its subsidiaries, and all references to
ADGI in these financial statements now apply to GlobeTel interchangeably.
In July 2002, pursuant to the reincorporation, we authorized the issuance of up
to 1,500,000,000 shares of common stock, par value of $0.00001 per share and up
to 10,000,000 shares of preferred stock, par value of $0.001 per share.
Forward-Looking Statements; Market Data; Risk Factors
Forward-Looking Statements: This Form 10-QSB and other statements issued or made
from time to time by GlobeTel and ADGI contain statements which may constitute
"Forward-Looking Statements" within the meaning of the Securities Act of 1933,
as amended and the Securities Exchange Act of 1934 by the Private Securities
Litigation Reform Act of 1995, 15 U.S.C.A. Sections 77Z-2 and 78U-5 (SUPP.
1996). Those statements include statements regarding our intent, belief or
current expectations, our officers and directors as well as the assumptions on
which such statements are based. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those contemplated by such forward-looking statements.
Forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations, intentions and assumptions and other statements
that are not historical facts. Words like "expect", "anticipate", "intend",
"plan", "believe", "seek", "estimate" and similar expressions identify
forward-looking statements.
This quarterly report contains certain estimates and plans related to the
telecommunications industry. The estimates and plans assume that certain events,
trends and activities will occur, of which there can be no assurance. In
particular, we do not know what level of growth to expect in the
telecommunications industry, and particularly in the Voice over Internet
Protocols markets.
The majority of our revenues are dependent on the Brazil and Mexico networks and
our ability to achieve revenues from additional networks, including, networks in
the Philippines, Venezuela, Colombia and other countries we have identified as
our potential market.
Results of Operations - Comparison of Three Months Ended September 30, 2003 and
2002
Revenues. During the three-month period ended September 30, 2003, our gross
sales were $2,812,121, representing a decrease of 49% over the same period in
the prior year when its gross sales were $4,259,486. This decrease is primarily
because there were no related party transactions, related to the sale of
networks, in the current period as compared to the prior year, when related
party transactions totaling $2,028,575 was reported. Gross sales, excluding
related party transactions in the prior year, actually increased by 26%.
9
Our two main customers were the source of over 99% of all revenues. Our Mexico
Network generated $1,989,153 (or 71% of gross sales) from one customer and our
Brazil network generated $803,053 (or 28% of gross sales) from another customer.
For the three months ended September 30, 2003, we had no income from
International sales, compared to the same period in 2002 when we had
international sales totaling 60% of total sales, representing revenues related
to the network sales and services to related parties (Charterhouse) domiciled
outside of the United States.
Cost of Sales. Our cost of sales consists primarily of the costs of depreciation
of telecommunications equipment, technical services, rents and the wholesale
cost of buying bandwidth purchased by us for resale. We had cost of sales of
$2,203,587 for the three months ended September 30, 2003, compared to $2,549,203
for the same period in 2002. We expect cost of sales to increase in future
periods only to the extent that our sales volume increases.
Operating Expenses. Our operating expenses consist primarily of payroll and
related taxes, expenses for executive and administrative personnel, facilities
expenses, professional and consulting service expenses, travel and other general
corporate expenses. Our operating expenses for the three months ended September
30, 2003, was $812,724 compared to $832,599 for the same period in 2002.
Our operating expenses are expected to further decrease as a percentage of
revenue in future periods because our existing operating infrastructure will
allow increases in revenues without having to incrementally add operating
expenses. However, our expenses may increase in absolute dollars as we continue
to expand our network termination locations worldwide and incur additional costs
related to the growth of our business and being a public company.
Income (loss) from Operations. We had a loss from operations of $204,190 during
the three months ended September 30, 2003, compared to an income of $877,684
during the same period in 2002. The difference in the margins is mainly
attributable to extraordinary margins from the construction of networks in the
prior year. For the current period, the loss was primarily due to lower margins
in the termination traffic and also increased consulting and professional fees.
Other Income (Expense). Other income (expense) consists of interest expense on
our borrowings and interest income earned on our cash and cash equivalents and
receivables from related parties. We recorded interest income of $47 during the
three months ended September 30, 2003, compared $17 during the same period in
2002.
During the three months ended September 30, 2003, we recorded a gain on the
settlement of liabilities of $91,085 consisting of $23,517 for settlement of an
amount owed to a vendor which was paid at a decreased amount from what was
recorded in the books for providing equipment that did not function as
purported. Likewise, we recorded a gain of $67,568 by writing off a long-term
outstanding liability that has been forgiven because the equipment delivered was
defective.
In June 2003, we recorded a gain of $34,365 in connection with the closing of
operations of our St. Louis, Missouri office after all accounting adjustments
were made. Interest expense during the three months ended September 30, 2003,
was $19,550 compared to $21,545 during the same period in the prior year.
Net Loss. Our net loss for the three months ended September 30, 2003, was
$4,967,486 compared to a net income of $641,132 during the same period in 2002.
The net loss is primarily attributable to the writing off of our assets,
specifically, the IPW stock which we are rendering without value as it is
presently in liquidation and not listed in the Australian Exchange.
Results of Operations - Comparison of Nine months ended September 30, 2003 and
2002
Revenues. During the nine months ended September 30, 2003, we had gross sales of
$8,905,232, compared to gross sales of $8,684,754 during the same period in
2002. The increase is primarily attributable to the growth of our sales from our
Mexico and Brazil networks. During this period, our two main customers generated
$8,621,473 in gross sales or 97% of all sales. Our Mexico network customer
generated sales of $6,370,294 or 72% of all sales, while our Brazil network
customer generated sales of $2,251,179 or 25% of total sales.
10
For the nine months ended September 30, 2003, we had no income from
international sales, compared to the same period in 2002 when we had
international sales totaling $5,717,150 or 66% of total sales, related to the
network sales and services to related parties (Charterhouse) domiciled outside
of the United States.
Cost of Sales. Our cost of sales consists primarily of the costs of depreciation
of telecommunications equipment, technical services, rents and the wholesale
cost of bandwidth purchased by us for resale. We had cost of sales of $6,451,431
for the nine months ended September 30, 2003, compared to $4,786,637 for the
same period in 2002. We expect cost of sales to increase in future periods only
to the extent that our sales volume increases. Our gross margin for the nine
months ended September 30, 2003, was 28%, compared to 45% for the same period in
2002. The difference in the margins is mainly attributable to extraordinary
margins from the construction of networks in the prior year.
Operating Expenses. Our operating expenses consist primarily of payroll and
related taxes, expenses for executive and administrative personnel, facilities
expenses, professional and consulting service expenses, travel and other general
corporate expenses. Our operating expenses for the nine months ended September
30, 2003, was $1,838,962 compared to $2,304,812 for the same period in 2002. The
decrease of approximately 30% was predominantly due to a decrease in consulting
costs and overall reduction in monthly operating costs.
Our operating expenses are expected to further decrease as a percentage of
revenue in future periods because our existing operating infrastructure will
allow increases in revenues without having to incrementally add operating
expenses. However, our expenses may increase in absolute dollars as we continue
to expand our network termination locations worldwide and incur additional costs
related to the growth of our business and being a public company.
Income from Operations. We had an income from operations of $614,839 for the
nine months ended September 30, 2003, compared to $1,593,305 for the same period
in 2002.
Other Income (Expense). Other income (expense) consists of interest expense on
our borrowings and interest income earned on our cash and cash equivalents and
receivables from related parties. We recorded interest income of $188 during the
nine months ended September 30, 2003, compared to $5,651 during the same period
in the prior year. During the nine months ended June 30, 2002, we recorded a
loss of $43,488 attributable to the forgiveness of accrued interest receivable.
We did not incur any such loss in 2003.
During the nine months ended September 30, 2003, we recorded a gain on the
settlement
of liabilities of $91,085 consisting of $23,517 for settlement of an amount owed
to a vendor, which was paid at a decreased amount from what was recorded in the
books for providing equipment that did not function as purported. Likewise, we
recorded a gain of $67,568 by writing off a long-term outstanding liability that
has been forgiven because the equipment delivered was defective.
Interest expenses during the nine months ended September 30, 2003, were $95,736
compared to $35,041 during the same period in the prior year. Interest expense
increased due to increases in notes and loans payable.
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Net Loss. We had a net loss of $4,190,137 for the nine months ended September
30, 2003, compared to net income of $1,305,403 during the same period in 2002.
The net loss is primarily attributable to writing off assets, specifically, the
IPW stock as it is presently in liquidation and is not listed on the Australian
Exchange.
Liquidity and Capital Resources.
As of September 30, 2003, we had $280,181 of cash and cash equivalents compared
to $201,631 at December 31, 2002, and $26,190 as of September 30, 2002. We had
accounts receivable of $3,799,324 as of September 30, 2003, compared to
$1,747,819 on December 31, 2002, and $2,399,541 as of September 30, 2002. At
September 30, 2003, eight customers accounted for all of our accounts receivable
similar to September 30, 2002, when six customers accounted for all of our
accounts receivable. We believe that all of our accounts receivable are
collectible, although we have recorded an allowance for doubtful accounts of
$86,834 as of September 30, 2003.
We had non-readily marketable, available-for-sale equity securities (IPW stock)
totaling $1,600,000 as of June 30, 2003, and December 31, 2002. These securities
were written off as of September 30, 2003, as IPW was in liquidation and the
stock was de-listed from the Australian Exchange.
As of September 30, 2003, our current assets were $4,119,505 compared to
$3,549,450 as of December 31, 2002, and $4,025,731 as of September 30, 2002. The
increase in current assets was primarily as a result of increase in our accounts
receivable from customers.
As of June 30, 2003, and December 31, 2002, we had non-readily marketable,
available for sale equity securities due from related party - Charterhouse,
totaling $4,301,500 compared to $1,850,750 as of June 30, 2002. This amount
represented 70 million shares of IPW restricted stock valued at $.06145 per
share, held by Charterhouse on our behalf. These securities were written off as
of September 30, 2003, as IPW was in liquidation and the stock was removed from
the Australian Exchange.
Our total assets as of September 30, 2003, were $4,751,109, compared to
$8,344,884 at December 31, 2002, and $8,757,243 at September 30, 2002. The
decrease in total assets is primarily attributable to the writing off of the IPW
stock as previously noted.
Our total current liabilities as of September 30, 2003, were $1,959,814,
compared to $4,131,015 at December 31, 2002, and $4,651,765 at September 30,
2002. The decrease was primarily due to decreases in accounts payable,
liabilities payable in IPW shares, which are written off, and settlement of
debt.
Our cash used in operating activities was $898,508 for the nine months ended
September 30, 2003, compared to $579,015 during the same period in the prior
year. Our net cash used in investing activities was $292,950 for the nine months
ended September 30, 2003, compared to $3,186 used by investing activities for
the same period in the prior year. Cash provided by financing activities was
$1,270,008 for the nine months ended September 30, 2003, compared to $576,158
for the same period in the prior year.
We have recently begun distribution of our new product called "The Magic Money
Card(R)." The Magic Money Card(R), in addition to being a prepaid calling card,
is also a debit card/stored value card offering services that will include
prepaid calling and added financial services such as domestic and foreign money
remittances that will allow the user to shop in places that accept MasterCard
and Maestro Debit/Credit Cards. Our associate in this venture is a company
called Grupo Ingedigit, a certified MasterCard services provider, through its
subsidiary in the U.S., AmericasCom International, Inc.
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As part of the agreement, we will be connecting our network with Grupo
Ingedigit's network, valued at over $5 million and in return, the group will be
able to tap into our current market, starting with the Mexico and Brazil
markets. We have been negotiating with several companies who want to avail of
this service, and we believe that we will be able to generate considerable
revenues from this product once we have fully setup with all our networks. We
have receivables from our Mexico and Brazil customers which we are allowing them
to utilize to help set up the Magic Money Card(R) program in their respective
countries. We expect that our contributions to the rollout of the networks in
Mexico and Brazil will not exceed $350,000.
If we are unable to realize funds from the assets, non-readily marketable,
available-for-sale equity securities, and if we cannot bring the days of our
accounts receivable below ninety days, we will not have capital resources or
credit lines available that are sufficient to fund our operations and capital
requirements as presently planned over the next twelve months. However, we are
actively pursuing additional funds through the issuance of debt and equity
instruments, and we believe sufficient capital resources will in fact be
obtained to fund our operations and cash requirements over the next twelve
months.
In October 2003, we engaged Fordham Financial Management, Inc. to act as the
Company's exclusive Placement Agent with respect to the sale by the Company on
any "best efforts" basis of up to 150,000 shares of the Company's Series A
Convertible Redeemable Preferred (the "Shares") to be offered for sale as
described in an Offering Circular dated October 17, 2003 (the "Memorandum") to
be provided to investors, at a purchase price of $16.67 per Share. The minimum
purchase shall be 3,000 shares equivalent to $50,000 with the Placement Agent
having the right to waive the minimum purchase requirement in its discretion.
Fordham Financial shall receive at each closing a commission equal to 10% or
$1.67 per Share sold.
Item 3. Controls and Procedures.
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer and
the Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon the evaluation, they concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company required to be included in
this report. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of the evaluation.
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PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
There was no new litigation to report during the period ended September 30,
2003, and there are no new developments related to previously reported
litigation. For legal proceedings regarding previously reported litigation,
refer to the discussion in our Annual Report on Form 10-KSB for the year ended
December 31, 2002.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Document Description
2 Agreement and Plan of Exchange (filed as Annex A to our
Special Meeting Proxy Statement on Schedule 14A and
incorporated herein by reference)
3.1 Articles of Incorporation (filed as Exhibits 3.1, 3.2 and
3.3 to our Registration Statement on Form 10-SB and
incorporated herein by reference)
3.2 Bylaws (filed as Exhibit 3.4 to our Registration Statement
on Form 10-SB and incorporated herein by reference)
31.1 Certification Pursuant to 18 U.S.C. ss.1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
- Chief Executive Officer
31.2 Certification Pursuant to 18 U.S.C. ss.1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
- Chief Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 - Chief Executive Officer
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 - Chief Financial Officer
(b) Form 8-K.
We did not file a Report on Form 8-K during the quarter ended September 30,
2003.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBETEL COMMUNICATIONS CORP.
Registrant
By: /s/ Timothy Huff
Timothy Huff, Chief Executive Officer
Dated: November 19, 2003
By: /s/ Thomas Y. Jimenez
Thomas Y. Jimenez, Chief Financial Officer
Dated: November 19, 2003
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