GBIT---earnings
May 21, 1998
GLOBAL INTELLICOM INC (GBIT)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the operating results of the Company's continuing operations for the three
months ended March 31, 1998, which include the operations of Natcom Automated Solution, Inc. acquired in the third quarter
of 1997, with the three months ended March 31, 1997. Also included is a discussion and analysis of the Company's financial
condition and liquidity as of March 31, 1998. The information and comparative data presented herein reflect the discontinuance
and elimination of Speech Solutions and of Nevcor's aggregator operations.
THE QUARTER ENDED MARCH 31, 1998 (UNAUDITED) AS COMPARED WITH THE QUARTER
ENDED MARCH 31, 1997 (UNAUDITED).
NET SALES. Net sales from continuing operations increased by $1,396,584 (17.6%) from $7,931,441 in the prior quarter to
$9,328,025 in the quarter ended March 31, 1998. The increase is attributable to increased sales efforts and sales staff.
GROSS PROFIT. The Company's gross profit for the quarter ended March 31, 1998 increased to $3,167,394 from
$595,307, a 432% increase. Overall gross profit as a percentage of net sales for the quarters ended March 31, 1998 and
March 31, 1997 increased as a result of a variety of reasons, including
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
growth in higher margin sales of cabling, services and systems integration and a discontinuance of lower margin computer
equipment sales.
OPERATIVE INCOME. Operating income improved to $185,548 from an operating loss of ($1,865,775) as the result of the
increase in gross profit.
OPERATING EXPENSES. Operating expenses for the quarter ended March 31, 1998 rose to $2,981,846 from $2,461,082,
a 21.2% increase. The increase of $520,764 in operating expenses is primarily attributable to the establishment of sales offices
and the acquisition of ASDI. In the second quarter expenses are being significantly reduced through a decrease in staff.
PROVISION FOR INCOME TAX. The income tax benefit was $445,889 for the quarter ended March 31, 1998, compared
to a benefit of $748,000 for the same period in 1997. The Company has determined to increase its deferred tax assets by
$500,000 as a result of the increased gross profit due to the discontinuance of computer equipment sales. The Company
anticipates that the increased gross profits will provide income allowing it to utilize its deferred tax asset.
NET INCOME (LOSS) PER COMMON SHARE. As a result of the factors discussed above, net income from continuing and
discontinued operations for the quarter ended March 31, 1998 was $536,167 and net income per share was $0.06 as
compared to a net loss of ($1,669,007) and net loss per share of ($0.23) for the same period in 1997.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash balance as of March 31, 1998 was $75,791 and its working capital deficit amounted to ($4,016,520).
Net cash used in operating activities during the three months ended March 31, 1998 was $2,426,339. The decrease in the
Company's cash position and cash flow is a result of cash used in a reduction of accounts payable.
The Company does not have significant commitments for capital expenditures as of March 31, 1998 and no significant
commitments are anticipated for the remainder of the 1998 calendar year.
Since inception, the Company has been actively engaged in making acquisitions of related businesses. Under existing acquisition
agreements, the Company has a variety of commitments, as described below.
In accordance with the agreements relating to the acquisition of Nevcor, the Company is required to pay a contingent payment
based upon 1/2% of Nevcor and Vircom's net sales, quarterly during 1996, and monthly after January 1, 1997. The Company
believes that no payments are required subsequent to the discontinuance of Nevcor. (See "Legal Proceedings" in the Company's
1997 annual report filed on Form 10-K.)
The acquisition and related employment agreements pursuant to which the Company acquired Natcom in 1995 required the
Company to make various installment payments. Effective as of December 31, 1997, the Company negotiated the termination of
such agreements and accepted the resignation of Natcom's President. The termination arrangements provide for a total payment
to the former Natcom shareholders of $177,000, which payment may be made by the issuance of an aggregate of 85,500
shares of the Company's Common Stock. The Company has also agreed to issue an aggregate of 150,000 shares of Common
Stock to certain former Natcom officers in consideration of such officer's entering into binding non-compete agreements. The
non-compete shares vest over a two-year period and the non-competition agreements expire December 31, 1999.
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Future commitments for the Company's acquisition of the InSync business include a promissory note, guaranteed by the
Company, for $1,486,084, (the "First Note") bearing interest at 9% per annum and a second promissory note, guaranteed by
the Company, for $470,000 (the "Second Note"). Under the terms of the First Note, interest starts to accrue on March 16,
1997. Payments under the First Note are to be made 45 days after the close of each fiscal quarter, commencing with the quarter
ended June 30, 1997, in the amount of 2% of InSync's net sales. If, at the end of each subsequent 12-month period beginning
with the 12 months ended June 30, 1998, the sum of the quarterly Note payments is less than the interest accrued over the
previous four quarters, plus 10% of the original principal amount, an adjustment payment will be made to cover any shortfall.
The Second Note contains substantially the same terms as the First Note, except that payments do not commence until the
earlier of December 31, 2001, or upon payment in full of the First Note.
During the first quarter of 1998 and continuing into April of 1998, the Company instituted various programs by which it has
sharply reduced its operating expenses. In implementing such programs, the Company has laid off approximately 81 employees,
reducing its work force from approximately 204 to approximately 123. The Company has also relocated its Vircom TG
subsidiary from West Chester, PA to smaller more economical space in Exton, PA and is negotiating the termination of its lease
at the InSync premises and a move to smaller, more economical space. In addition, the Company has restructured its healthcare
and benefit plans to allow its employees improved coverage at more favorable rates to the Company.
The Company had working capital deficits of ($6,783,555) and ($4,016,520) at December 31, 1997 and March 31, 1998,
respectively. Through the sale of Convertible Preferred Stock during the first quarter, the Company has added net financing
proceeds of $2,466,000 to its working capital, supplemented by another $1,780,000 of net proceeds from the sale of 6%
Convertible Debentures on April 30. The Company anticipates that it may require additional equity or debt financing to maintain
present operating levels and to allow for growth. In addition, as a result of internal restructuring, staff reductions and other
measures, the Company expects that continuing operations during the remainder of 1998 will generate net income and positive
cash flow and will contribute to a strengthening of the Company's working capital position and liquidity later in the year.
However, there can be no assurance that such additional financing will be available, and that anticipated improvements in
operating results and cash flow will occur, If such events do not occur, the Company may not be able to sustain its current
operating levels, with the result that the Company's financial condition, operations and prospects would be materially and
adversely affected.
INFLATION. The impact of inflation on the Company's operations has not been significant to date. There can be no assurance
that a high rate of inflation in the future would not have an adverse effect on the Company's operations.
GLOBAL INTELLICOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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