United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 2)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Period Ended April 30, 2001
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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.)
700 South Flower, Suite 2950
Los Angeles, California 90017
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(Address of principal executive offices) (Zip Code)
(213) 627-7599
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(Registrant's telephone number, including area code)
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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 [ ]
As of June 12, 2001, 11,416,590 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 (Restated) (Restated)
------ April 30, October 31,
2001 2000
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(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 565,103 $ 73,867
Trade accounts receivable, net of allowance for
doubtful accounts of $930,766 at April 30, 2001
and October 31, 2000 467,768 455,819
Prepaid expenses and other 97,243 116,785
Investment in available for sale
marketable securities 11,000 -
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Total current assets 1,141,114 646,471
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PROPERTY AND EQUIPMENT, net 1,319,633 1,539,544
PROPERTY AND EQUIPMENT HELD FOR SALE 320,307 320,307
ADVERTISING CREDITS, net 2,453,027 2,453,027
OTHER ASSETS 193,493 205,473
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF
COMPANY ACQUIRED, net of accumulated amortization
of $165,859 at April 30, 2001 and $104,148 at
October 31, 2000 1,906,816 937,327
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TOTAL ASSETS $ 7,334,390 $ 6,102,149
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES
Current portion of long-term debt, net of debt
discount of none and $315,988 at April 30,
2001 and October 31, 2000, respectively $ - $ 684,012
Note payable to shareholder 755,958 346,000
Current portion of capital lease obligation 79,293 102,472
Trade accounts payable 2,980,687 3,930,315
Accrued liabilities 149,257 365,765
Deferred revenue 77,005 47,190
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Total current liabilities 4,042,200 5,475,754
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LONG-TERM DEBT, net of debt discount of $399,439 600,561 -
at April 30, 2001
CAPITAL LEASE OBLIGATION, net of current portion 118,616 118,615
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, 44,169,100 shares authorized;
$.001 par value; 11,506,590 shares issued and
11,494,568 shares outstanding at April 30, 2001
and 9,895,090 shares issued and 9,883,068
outstanding at October 31, 2000 11,506 9,895
Additional paid-in capital 36,719,352 33,838,158
Accumulated deficit (34,080,479) (33,262,907)
Accumulated other comprehensive income (loss) (5,416) (5,416)
Treasury stock, 12,022 common shares at cost (54,870) (54,870)
Note receivable - common stock (17,080) (17,080)
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Total shareholders' equity 2,573,013 507,780
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,334,390 $ 6,102,149
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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,
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2001 2000 2001 2000
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(Restated) (Restated) (Restated) (Restated)
REVENUES
Revenues $ 903,639 $ 2,823,704 $ 1,794,258 $ 6,630,471
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Total revenues 903,639 2,823,704 1,794,258 6,630,471
COSTS AND EXPENSES
Cost of revenue 609,367 3,109,052 1,276,373 7,472,725
Sales & marketing 223,001 278,569 425,575 786,783
Non-cash sales and marketing expense - 1,937,184 258,616 1,937,184
General & administrative 598,259 1,741,938 1,211,609 2,682,034
Depreciation and amortization 155,612 159,342 302,502 274,447
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Total costs and expenses 1,586,239 7,226,085 3,474,675 13,153,173
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Operating income (loss) (682,600) (4,402,381) (1,680,417) (6,522,702)
OTHER INCOME (EXPENSES)
Financing fees (159,207) (240,260) (475,195) (240,260)
Interest income (expense), net (12,730) (16,899) (15,514) 20,052
Write off of investment in marketable
securities (435,820) - (435,820) -
Other income related to settlement
of disputes 97,186 - 1,789,373 -
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Total other income (expense) (510,571) (257,159) 862,844 (220,208)
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NET LOSS BEFORE INCOME TAXES (1,193,171) (4,659,540) (817,573) (6,742,910)
PROVISION FOR INCOME TAXES - - - -
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NET INCOME (LOSS) $(1,193,171)$(4,659,540) $ (817,573) $(6,742,910)
========== ========== ========= ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share $ (0.11) $ (0.55) $ (0.08) $ (0.83)
Dilutive impact of stock options,
warrants and convertible debentures - - - -
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Diluted earnings (loss) per share $ (0.11) $ (0.55) $ (0.08) $ (0.83)
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SHARES USED IN THE CALCULATION OF PER
SHARE AMOUNTS:
Basic common shares 10,571,756 8,353,496 10,230,024 8,120,228
Dilutive impact of stock options,
warrants and convertible debentures - - - -
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Dilutive common shares 10,571,756 8,353,496 10,230,024 8,120,228
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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 CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
APRIL 30,
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2001 2000
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(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (817,573) $(6,742,910)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Stock and warrants issued for services 258,616 -
Financing fees and amortization of
debt discount 333,355 240,260
Non cash interest expense 141,840 -
Write off of investment in marketable
securities 435,820 -
Other income related to settlement
of disputes (1,789,373) -
Compensation related to issuance of
stock warrants - 1,937,184
Depreciation and amortization 302,502 274,447
(Increase) decrease in:
Trade accounts receivable (11,949) 11,147
Accounts receivable - other - (19,393)
Inventory - 82,539
Prepaid expenses and other 28,341 89,630
Other assets 10,000 (84,344)
Increase (decrease) in:
Trade accounts payable 386,441 2,851,966
Accrued liabilities (216,508) 29,764
Deferred revenue 29,815 (173,834)
Other payable - (80,000)
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Net cash provided by (used in) operating
activities (908,673) (1,583,544)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (21,215) (198,630)
Payments on note receivable - 300,000
Cash in DTI at acquisition date - 69,137
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Net cash provided by (used in) investing
activities (21,215) 170,507
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments on note payable - (724,000)
Payments on shareholder note payable (189,619) (54,000)
Proceeds from notes payable 1,000,000 1,000,000
Proceeds from shareholder note payable 599,577 -
Payments on capital leases (23,178) (47,991)
Change in restricted cash - 937,733
Issuance of common shares for cash - 490,970
Proceeds from exercise of stock options 34,344 -
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Net cash provided by (used in) financing
activities 1,421,124 1,602,712
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 491,236 189,675
Cash and cash equivalents at beginning of period 73,867 846,141
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Cash and cash equivalents at end of period $ 565,103 $ 1,035,816
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SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING
AND FINANCING ACTIVITIES
Cash paid for interest $ - $ 20,894
Conversion of debt to equity 1,000,000 -
Additional shares issued as
purchase consideration 1,031,200 -
Convertible debt issued with below market
conversion feature 329,931 -
The accompanying notes are an integral part of these consolidated financial
statements.
DIAL-THRU INTERNATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements of Dial-Thru International
Corporation and its subsidiaries included in this Form 10-Q are unaudited.
Accordingly, they 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, 2001 and 2000 have been included. Operating results
for the six month period ended April 30, 2001 are not necessarily indicative
of the results that may be expected for the year ending October 31, 2001.
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 year ended October 31, 2000.
On November 2, 1999, the Company acquired substantially all of the business
and assets of Dial-Thru International Corporation, a California corporation,
now known as DTI-LIQCO, Inc., along with the rights to the name "Dial-Thru
International Corporation." On January 19, 2000, the Company changed its
name from ARDIS Telecom & Technologies, Inc. to Dial-Thru International
Corporation("DTI").
During fiscal 1998 and 1999, the Company's operations included mainly sales
and distribution of prepaid domestic and international calling cards
to wholesale and retail customers. Starting January 2000 following the
acquistion of Dial Thru, the Company changed its focus from prepaid calling
cards to becoming a full service, facility-based provider of communication
products to small and medium size businesses, both domestically and
internationally. The Company now 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 "VoIP" Network to effectively deliver the
products to the end user.
In addition to helping companies 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.
DTI is also introducing "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.
NOTE B - EARNINGS (LOSS) PER SHARE
The shares issuable upon the exercise of stock options and warrants, and
convertible debentures are included in earnings (loss) per share to the
extent that they are dilutive.
NOTE C - REVENUE RECOGNITION AND COSTS OF REVENUES
Revenues from prepaid services sold where the Company operates its own
switch are recognized from customer usage. The Company sells products to
retailers and distributors at a fixed price. When the retailer or
distributor is invoiced, referred revenue is recognized. The Company
recognizes revenue, and reduces the deferred revenue account as the
customer utilizes calling time or upon expiration of cards containing
unused calling time.
Revenues generated by international re-origination and dial-thru services
are based on minutes of customer usage. The Company records payments
received in advance as deferred revenue until such services are provided.
NOTE D - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company has an outstanding receivable from a customer of approximately
$435,000, all of which has been reserved.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. Accounts are guaranteed by the Federal
Deposit Insurance Corporation ("FDIC") up to $100,000. At April 30, 2001
the Company had approximately $350,000 in excess of FDIC insured limits.
NOTE E - ACQUISITION
On November 2, 1999, the Company consummated the acquisition of
substantially all of the assets and business of Dial-Thru International
Corporation (the "Seller"), a California corporation. The acquisition was
effected pursuant to the terms of an Asset Purchase Agreement between the
Company, a wholly owned subsidiary of the Company, the Seller and John
Jenkins, the sole shareholder of the Seller. The Company issued to the
Seller an aggregate of 1,000,000 shares of common stock, recorded a total
purchase price of $937,500 using the Company's common stock price at the
time the acquisition was announced, and agreed to issue an additional
1,000,000 shares of its common stock upon the acquired business achieving
specified goals. In March 2001, the additional 1,000,000 shares of common
stock were issued to the Seller in accordance with the terms of the Asset
Purchase Agreement, and recorded an addition to the purchase price of
$1,031,200 using the Company's common stock price at the time of approval of
the issuance. The acquisition was accounted for as a purchase. Goodwill
initially recorded in the acquisition will be amortized over a period of 10
years beginning November 1999. Incremental goodwill is being amortized over
its remaining life, approximately 8.5 years. The results of operations of
the acquired entity are included in the consolidated operations of the
Company from November 1, 1999.
NOTE F - CONVERTIBLE DEBENTURES
In February 2000, the Company executed non-interest bearing convertible
note agreements (the "Agreements") with nine accredited investors, which
provided financing of $1,000,000. The notes were payable on the earlier of
one year from the date of issuance or the Company's consummation of a debt
or equity financing in excess of $5,000,000. If the notes were not repaid
within 90 days of issuance, they were convertible into shares of common
stock at $4.00 per share while remaining outstanding. The Company
recorded financing fees of approximately $117,000 in February 2000 related
to these notes for the difference in the conversion price of $4.00 and the
market price of $4.47 on the date the notes were approved by the Board of
Directors. The Company also issued to the holders of the notes warrants to
acquire an aggregate of 125,000 shares of common stock at an exercise price
of $3.00 per share, which expire five years from the date of issuance.
In February 2000, the Company recorded deferred financing fees of
approximately $492,000. This amount represents the Company's estimate of
the fair value of these warrants at the date of grant using the Black-
Scholes pricing model with the following assumptions: applicable risk-free
interest rate based on the current treasury-bill interest rate at the grant
date of 6%; dividend yields of 0%; volatility factors of the expected market
price of the Company's common stock of 1.62; and an expected life of the
warrants of three years. The Company is amortizing these fees over the
initial maturity of these notes of one year. The amount is fully amortized
as of April 30, 2001. Under the terms of the agreement, additional warrants
to acquire up to an aggregate of 125,000 shares of common stock at an
exercise price of $2.75 per share were issued to the holders of the notes
upon conversion of the debt to equity as discussed below. During March 2001,
terms of the convertible notes were modified and the debt was converted into
400,000 common shares. Additionally, in connection with the conversion,
the warrants to purchase 250,000 shares of common stock were modified to
allow for an exercise price of $0.01 per share and 150,000 additional
warrants with as exercise price of $3.00 per share were issued to the note
holders. In connection with the grant of the additional 150,000 warrants to
the note holders, the Company recorded additional debt discount of
approximately $142,000 which was immediately expensed as financing fees as
the warrants were exercisable at the date of grant. This amount was
calculated using the Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate at the grant date of 5%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common
stock of 1.47; and an expected life of the warrants of three years.
On April 11, 2001, the Company executed a 6% Convertible Debenture (the
"Convertible Debenture") with Global Capital Funding Group L.P, which
provided financing of $1,000,000. Note maturity date is April 11, 2003. The
conversion price equals 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) 80% of the average of the five(5) lowest volume
weighted average sales price as reported by Bloomberg L.P. during the twenty
(20) Trading Days immediately preceding but not including the date of the
related Notice on Conversion ("the "Formula Conversion Price"). In an event
of default the amount declared due and payable on the Convertible Debenture
shall be at the Formula Conversion Price. The Company has calculated the
beneficial conversion feature embedded in the Convertible Debenture in
accordance with Emerging Issues Task Force (EITF) #00-27 and recorded
$329,931 as a deferred financing fee. This fee is being amortized over the
two-year life of the Convertible Debenture. During the six months ended
April 30, 2001, the Company recorded approximately $14,000 as interest
expense. The Company also issued to the holder of the Convertible Debenture
warrants to acquire an aggregate of 100,000 shares of common stock at an
exercise price of $0.89 per share, which expire on April 11, 2006. The
Company recorded deferred financing fees of approximately $80,000 related to
the issuance of the warrants. This amount represents the relative fair value
of the warrants in accordance with EITF #00-27, using the Black-Scholes
pricing model with the following assumptions: applicable risk-free interest
rate based on the current treasury-bill interest rate at the grant date of
6%; dividend yields of 0%; volatility factors of the expected market price
of the Company's common stock of 1.53; and an expected life of the warrants
of five years. The warrant is being amortized over the two-year life of the
Convertible Debenture. For the year six months ended April 30, 2001, the
Company has recorded financing fees of $3,600 relating to the warrants.