<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1999
REGISTRATION NO. 333-75885
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 4 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELTRAN INTERNATIONAL GROUP, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE (4813) 11-3172507
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
ONE PENN PLAZA, SUITE 4632
NEW YORK, NEW YORK 10119
(212) 643-1600
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
OFFICES AND PLACE OF BUSINESS)
------------------------
BYRON R. LERNER, PRESIDENT
ONE PENN PLAZA, SUITE 4632
NEW YORK, NEW YORK 10119
(212) 643-1600
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
MICHAEL D. DIGIOVANNA, ESQ.
PARKER DURYEE ROSOFF & HAFT
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 599-0500
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
8,965,116 SHARES
TELTRAN INTERNATIONAL GROUP, LTD.
COMMON STOCK
------------------------
This is an offering of up to 8,965,116 shares of our common stock made by
those of our shareholders who are named under the caption "Principal and Selling
Stockholders."
INVESTING IN TELTRAN'S COMMON STOCK IS RISKY. SEE "RISK FACTORS P. 5."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Our common stock is quoted on the OTC Electronic Bulletin Board. On
December 29, 1999 the average bid and asked price of the common stock was $7.94
per share.
We have retained no underwriters in connection with this offering.
December 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 5
Where You Can Find More Information........................................................................ 6
Use of Proceeds............................................................................................ 7
Capitalization............................................................................................. 7
Selected Financial Data.................................................................................... 8
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 9
Market Information......................................................................................... 13
Business................................................................................................... 14
Management................................................................................................. 25
Executive Compensation..................................................................................... 26
Certain Transactions....................................................................................... 28
Principal and Selling Stockholders......................................................................... 30
Plan of Distribution....................................................................................... 33
Description of Securities.................................................................................. 35
Legal Matters.............................................................................................. 36
Experts.................................................................................................... 36
Offering Information....................................................................................... 36
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
TELTRAN INTERNATIONAL GROUP, INC.
We are primarily engaged in the international telecommunications business
through our wholly owned subsidiary Teltran International, Inc. We currently
provide international long distance telephone services to customers in the
United States and the United Kingdom and are in the process of establishing
relationships to provide services for customers in other countries as well. We
also operate an Internet portal website at http://www.Teltran.com and, through a
joint venture corporation, intend to operate an additional website for the sale
of music and related paraphernalia. We have also acquired an Internet service
company in the U.K. Information contained on our websites is not part of this
prospectus.
Our executive offices are located at One Penn Plaza, Suite 4632, New York,
NY 10119 and our telephone number is (212) 643-1600.
SUMMARY OF THE OFFERING
The numbers indicated below representing the number of shares offered by
the selling stockholders and the number of shares of common stock to be
outstanding after the offering include:
o shares subject to outstanding options and warrants including options and
warrants which are not presently exercisable
o The maximum number of shares that we may require to be purchased by
investors under existing agreements
o The maximum number of shares which should be issued as an adjustment to
particular investors if the price of our stock should fall.
The number indicated below representing shares outstanding before the
offering excludes all of the above.
<TABLE>
<S> <C>
Securities offered by the selling
stockholders........................... 8,965,116 shares of common stock
Common stock outstanding before the
offering............................... 15,568,825
Common stock to be outstanding after the
offering............................... 17,152,868 shares
Use of proceeds........................... Except upon exercise of options, we will not receive proceeds. Any
proceeds from this source will be used for working capital purposes.
Symbol for common stock................... TLTG.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Market for common stock................... Our shares are currently listed for trading on the Electronic
Bulletin Board.
</TABLE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
--------------------- ----------------------
1997 1998 1998 1999
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Consolidated revenues............................... $ -0- $ 535,197 $ 449,304 $2,815,908
Cost of sales....................................... -0- 244,832 220,383 420,000
Expenses............................................ 827,780 709,357 394,536 1,198,750
Income (loss) from operations....................... (827,780) (418,992) (165,615) 197,149
Net income (loss)................................... (828,244) (449,339) (183,705) 157,923
Income (loss) per share............................. $ (.90) $ (.06) $ (.03) $ .01
--------- --------- --------- ----------
Shares used in computing net income (loss) per
share............................................ 915,637 7,697,295 6,929,082 11,698,334
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (81,923) $(280,880) $ (168,444) $8,033,454
Total assets............... 44,137 157,168 347,446 8,657,632
Total long-term debt....... 260,880 1,245 19,196 1,245
--------- --------- ---------- ----------
Total stockholders'
equity (deficit)........ $(302,312) $(244,439) $ (187,640) $8,032,209
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. Before
investing in our common stock you should carefully consider the following risk
factors and the other information in this prospectus.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY. Until April 1998 we were a development stage company and
derived no revenues. We sustained net losses of $828,244 during 1997 and
$449,339 during 1998. Even though we had net income of $157,923 during the
nine-month period ended September 30, 1999, there can be no assurance that we
will remain profitable.
TELTRAN HAS EXPERIENCED AND MAY IN THE FUTURE EXPERIENCE DELAYS,
POSTPONEMENTS AND INTERRUPTIONS IN SERVICE UNDER NEW ARRANGEMENTS. To provide
Internet voice telephony we must obtain equipment so that our delivery system
satisfies each of the parties on a call. We must also make arrangements with the
local telephone carriers in each country into which our calls are sent to
receive and terminate the calls. We have recently experienced delays in
commencing our first two Internet voice telephony service contracts due to
inadequate equipment in various terminating countries, the incompatibility of
third party equipment that forced us to modify our equipment, and failure on the
part of some terminating countries' local telephone companies to act in a timely
fashion or to give us their cooperation. All of these problems were resolved but
we believe that in the future we may, in similar circumstances, experience
delays in timely commencing any arrangements entered into. In addition, the
inability of affiliates in receiving countries to handle call volume at high
levels, through lack of equipment or otherwise, may reduce the volume we send
into those countries. Finally, clients may postpone or interrupt services, as
has recently occurred with a new client.
5
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We recently became obligated to file annual, quarterly and special reports,
proxy statements, and other information with the SEC. We have filed quarterly
reports for the fiscal quarters ended March 31, 1999, June 30, 1999 and
September 30, 1999. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our periodic reports,
proxy statements, and other information can be inspected at the offices of
Nasdaq at 1735 K Street, NW, Washington, DC 20006.
You may obtain a copy of any of our future filings, without charge, by
writing or calling us at:
Teltran International Group, Ltd.
One Penn Plaza, Suite 4632
New York, NY 10019
(212) 643-1600
If you would like to request these filings from us, please do so at least
five business days before you have to make an investment decision.
6
<PAGE>
USE OF PROCEEDS
We will not receive proceeds from the sale of the shares offered by means
of this prospectus. We will use any proceeds we receive from the exercise by
holders of warrants or options as working capital.
CAPITALIZATION
The following table sets forth our actual capitalization at September 30,
1999. You should read this section in conjunction with our financial statements
and related notes appearing elsewhere in this prospectus.
<TABLE>
<S> <C>
Preferred stock, $.001 par value; 5,000,000 shares authorized; none issued and
outstanding..................................................................... --
Common stock, $.001 par value; 50,000,000 shares, authorized; 13,371,283 shares
issued and outstanding.......................................................... $ 13,371
Additional paid-in capital........................................................ 22,484,841
Accumulated deficit............................................................... (14,466,003)
-----------
Total stockholders' equity........................................................ $ 8,032,209
-----------
-----------
</TABLE>
- ------------------
The above information does not reflect
o the issuance of shares upon exercise of options or warrants
o shares which were issued subsequent to September 30, 1999
o additional shares which may be issued to private placement purchasers after
the effective date of this prospectus or as a result of any adjustment to the
purchase price paid by these investors.
7
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial is derived from our audited financial
statements.
You should also read our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements which are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- -----------------------------------
1997 1998 1998 1999
--------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Consolidated revenues.............................. $ -- $ 535,197 $ 449,304 $2,815,908
Cost of sales...................................... -- 244,832 220,383 420,000
Expenses........................................... 827,780 709,357 394,536 1,198,750
Income (loss) from operations...................... (827,780) (418,992) (165,615) 197,149
Net income (loss).................................. (828,244) (449,339) (183,705) 157,923
Income (loss) per share(1)......................... $ (0.90) $ (0.06) $ (.03) $ .01
--------- ---------- ---------- ----------
Shares used in computing net income (loss) per
share........................................... 915,637 7,697,295 6,929,082 11,698,334
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (81,923) $(280,880) $ (168,444) $8,033,454
Total assets............... 44,137 157,168 347,446 8,657,632
Total long-term debt....... 260,880 1,245 19,196 1,245
--------- --------- ---------- ----------
Total stockholders' equity
(deficit)............... $(302,312) $(244,439) $ (187,640) $8,032,209
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the financial statements and related notes contained elsewhere in this
prospectus.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
various known and unknown risks and uncertainties and Teltran cautions you that
any forward-looking information provided by or on behalf of Teltran is not a
guarantee of future performance. Our actual results could differ from those
anticipated by the forward-looking statements due to a number of factors, some
of which are beyond Teltran's control, including:
o the volatile and competitive nature of the telecommunications and
Internet industry;
o changes in domestic and foreign economic and market conditions;
o the effect of federal, state and foreign regulation on Teltran's business
in general and on the telecommunications and Internet industries;
o failure of Teltran, its vendors or other third parties to achieve Year
2000 compliance;
o changes in technology;
o reduced telecommunication rates;
o delays of third parties in commencing service; and
o the impact of recent and future acquisitions on Teltran's business and
financial condition.
Teltran does not undertake any obligation beyond the requirements of the
federal securities laws to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any statement is made or
to reflect the occurrence of unanticipated events.
PLAN OF OPERATIONS
Prior to April 1998 we were essentially a start-up venture. During 1998
most of our revenues were derived from acting as an OzEmail refile hub in the
United States. During 1999 these revenues were fully replaced by our successful
efforts of promoting our Teltran Internet telephony service as well as
establishing businesses for our web portal. Therefore comparisons between 1998
and 1999 will be of limited value.
During 2000 our plan of operation is to:
o enter into and implement arrangements to provide wholesale customers
throughout the world with Internet telephony. We have already entered
into several agreements to provide these services and others are
scheduled to commence in the fourth quarter. We are negotiating
additional similar arrangements. Each of these
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<PAGE>
arrangements requires us to expend money for equipment purchases and the
payment of various fees.
o seek to enter into arrangements to provide Internet telephony in
additional countries in a manner that will enable us to participate in
revenues on both ends of a call. We have recently finalized agreements to
originate and terminate traffic in Pakistan. We have also established
international telephone operations in the United Kingdom through
ChannelNet, our newly acquired entity in England.
o utilize ChannelNet switching to reduce the costs of worldwide
terminations.
o develop marketing strategies with Norweb, a national telecom network
operator in the UK, and utilize our alliance with them to expand our
Internet telephony network.
o enhance our portal by providing additional related business services.
These including offering banner ads, sponsorship agreements and other
types of advertising. We will also develop additional sales affiliate
arrangements on our portal and continue to run live Internet chats on a
monthly basis.
o operate our joint venture, RecordsToGo.com, for the sale an auction of
music. The venture is in the process of obtaining partner/affiliate
agreements with a variety of music and non-music websites and will be
marketing RecordsToGo.com worldwide.
o operate Internet Protocols Ltd., our newly acquired subsidiary in the
United Kingdom.
o promote and market our new Internet service provider service through our
web portal, www.Teltran.com. The service will be competitively priced and
will offer unlimited Internet access, free e-mail and free home pages to
all users.
o expand our sales staff to resell our UniDial services to commercial
accounts. UniDial operates as an independent network of
telecommunications resellers. UniDial services will also be marketed to
individuals via our www.Teltran.com web portal.
o promote and market our new "Fax over IP" service to our customers. This
service allows users to send and receive faxes over the Internet at a
reduced cost.
o hire new employees as needed because of increased activity.
o continue to augment other aspects of our telecommunications business.
We cannot assure you that we will be able to successfully implement our
plan.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
Our revenues were approximately $2,800,000 for the nine months ended
September 30, 1999 while we received $449,000 for the nine months ended
September 30, 1998. The increase in revenues is attributed to telecommunication
services provided by our domestic subsidiary and recently acquired U.K.
subsidiary. We anticipate increased revenues as a result of our recently
acquired U.K. subsidiaries,
10
<PAGE>
continuing services to our principal domestic customers and from our strategic
alliances.
Our operating expenses during the nine months ended September 30, 1999 were
approximately $1,199,000 compared to approximately $394,000 during the
comparable period in 1998. The increased expenses were primarily attributable to
an increase in salary expense and rent due to expanding our staff and office
space. In addition, our professional fees increased due to our overseas
acquisitions and increased filing requirements.
LIQUIDITY
We had a working capital of approximately $7,800,000 as of September 30,
1999 compared to a negative working capital of approximately $208,000 as of
September 30, 1998. The increase in capital resulted from receipt of proceeds
from our placements totaling $1,890,000 and an increase in receivables and
prepaid expenses in 1999. Since December 31, 1998 we received gross proceeds of
$650,000 from the sale of convertible notes and exercise of warrants. All the
notes have been converted into equity and we have been able to repay and
terminate our factoring arrangement. In June 1999 we completed a private
placement of shares of common stock and received approximately $1,240,000. Upon
effectiveness of this registration statement and in the absence of adverse
changes these purchasers are obligated to pay us another $400,000 for additional
shares. We completed an additional private placement in December 1999 and
received approximately $4,550,000.
In most instances capital requirements of our core business are not
significant. To commence any new service, we will be required to purchase
gateways, presently costing between $10,000 and $17,000 each. Additional
gateways may be required based on call volume after commencement of service, but
these will only be purchased if revenues justify the purchase. We may also
purchase other equipment. There are additional start-up costs for each new
contract. Indeed, we believe we will have significant equipment expenses. In
most instances we believe that costs associated with these capital expenditures
may be obtained from funds available and from cash flow. There may be instances,
however, where a new contract or service because of its size may require
significant capital expenditures. In those instances we may have to seek debt or
equity funding. There is no assurance that we will be able to obtain funding on
terms favorable to us. We also may have to contribute up to $300,000 to the
joint venture corporation we own with Antra Holding Group, Inc. We have to make
minimum cash payments of approximately $185,000 to our two principal executive
officers.
We may have to pay additional costs if we form joint ventures to establish
foreign affiliations and to pay for the salaries of executives to manage and
operate the ventures.
A substantial portion of our current assets consist of shares of Antra
Holding Group, Inc. In April 1999, we exchanged 2,205,000 of our shares for
2,000,000 shares of Antra. At the time of the exchange, Antra's shares had a
market value of $3.00. Our holdings of Antra's shares are carried on our
financial statements, under current assets, as a $6,000,000 investment. The
shares of Antra are classified as marketable securities because Teltran owns
less than 20% of Antra; the investment is carried using the lower-of-cost-or
market method (as opposed to the "equity method"). Although these shares may not
be sold until
11
<PAGE>
April 2000, the investment is classified under current assets because the shares
will be eligible for resale under Rule 144 in less than 12 months.
We believe funds obtained and to be obtained from the sale of shares under
present arrangements and cash flow from operations will be sufficient for
working capital purposes at our present levels through the year 2000.
CHANGES IN CAPITAL AND ACCUMULATED DEFICIT
Paid-in capital increased by approximately $20,482,482 during the
nine-month period ended September 30, 1999. Of this increase, $12,367,190 was
attributable to the stock dividends we issued in June and September 1999. Under
generally accepted accounting principles, we offset this entry by adding
$12,368,450 to the accumulated deficit and $1,260 to capital stock. As a result,
there is no overall effect on stockholder's equity on account of the
transaction. An additional $5,998,000 was added to paid-in capital with respect
to the shares we issued to Antra in April 1999 in exchange for an equivalent
amount of our shares. Additional entries were made to reflect amounts allocated
for the issuance of additional shares: $674,484 for shares issued upon
conversion of notes; $244,732 for shares issued upon the exercise of warrants;
$188,905 for shares issued in connection with the ChannelNet acquisition; and
$1,008,190 for other shares, including shares issued in the private placement in
June 1999. An adjustment of $981 was made to reflect the rounding of fractional
shares issuable in the two stock dividends.
Our deficit increased by $12,211,508 notwithstanding our consolidated net
income of $157,923 for the period. The decrease was almost entirely attributable
to the stock dividends, as discussed above. An offsetting adjustment of $981 was
made to reflect the rounding of fractional shares issuable in the two stock
dividends.
YEAR 2000 DISCLOSURE
With the new millennium approaching, many businesses and institutions are
reviewing and modifying their computer systems to ensure they accurately process
transactions relating to the Year 2000 and beyond, This effort is necessary
because many existing computer systems and microprocessors with date functions,
including those in non-information technology equipment and systems, use only
two digits to identify a year in the date field and assume that the first two
digits of the year are always "19." Consequently, on January 1, 2000, computers
that are not Year 2000 compliant may read the year as 1900. Computer systems
that calculate, compare or sort using the incorrect date may malfunction causing
disruption of operations, including a temporary inability to process
transactions, send invoices or engage in other normal business activities. Our
failure to address potential Year 2000 malfunctions in our computer and
non-information technology equipment and systems could have resulted in our
suffering business interruptions, financial loss, harm to our reputation and
legal liability.
We have completed a thorough audit of our Year 2000 state of readiness
including seeking and receiving representations from OzEmail and our Internet
service providers. As a result we have determined that our business is fully
Year 2000 compliant. Although we cannot predict with complete accuracy, we
nevertheless anticipate no potential liabilities or stoppages in our business as
a result of the new millennium.
12
<PAGE>
MARKET INFORMATION
Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "TLTG."
Set forth below are the high and low closing bid quotations for our common
stock for the periods indicated as reflected on the electronic bulletin board.
The quotations reflect interdealer prices without retail mark-up, mark-down or
commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------------------------------------------------------- ------ ------
<S> <C> <C>
September 30, 1999............................................... $16.50 $6.312
June 30, 1999.................................................... 9.687 1.75
March 31, 1999................................................... 2.597 .597
December 31, 1998................................................ 1.19 .4325
September 30, 1998............................................... 1.00 .75
June 30, 1998.................................................... 2.94 1.88
March 31, 1998................................................... 3.13 .4325
December 31, 1997................................................ .125 .125
September 30, 1997............................................... .18 .11
June 30, 1997.................................................... .33 .22
March 31, 1997................................................... .65 .40
</TABLE>
As of December 29, 1999, there were approximately 297 recordholders of our
common stock, although we believe that there are more than thirty-five hundred
beneficial owners of our common stock.
DIVIDEND POLICY
We plan to retain most future earnings for use in our business.
Nevertheless we have adopted a semiannual dividend policy commencing in 2000 to
make a cash or stock distribution to holders of record as of March 31 and
September 30. We have declared a 5% stock dividend to holders of record on
September 1, 1999 to be distributed October 15. Payment of dividends is within
the discretion of our board of directors and cash dividends will depend, among
other factors, upon our earnings, financial condition and capital requirements.
13
<PAGE>
BUSINESS
GENERAL
In July 1983, we were incorporated in Utah as Spectratek Incorporated and
we subsequently incorporated as Teltran International Group Ltd in Delaware on
October 6, 1997. In 1993 we formed a wholly owned subsidiary, Teltran
International, Inc. and we use Teltran International to engage in our
international telecommunications business. Since 1998 our primary business is
acting as a seller of telecommunications time. In 1999 we began operating an
Internet portal. Prior to 1998 we were engaged in attempts to develop our
business and did not receive any significant revenues. References to "we", "us",
or "our" include Teltran International as well.
INDUSTRY BACKGROUND
During the last fifteen years, international telecommunications have
changed dramatically. Deregulation has resulted in the end of monopolies and a
proliferation of competitors. In addition, international agreements among most
industrial nations have opened telecommunication markets to competition and
foreign ownership. At the same time technology has changed adding to the overall
efficiency of telecommunication services and increasing both call volume
capacity and the quality of sound. These factors have also combined to reduce
costs significantly. With the advent of new technology came the development of
new methods of completing calls and reducing costs. One of the most prominent
methods to achieve this is called refiling, which is the routing of calls from
country A to country B for termination in country C. Because of the above
mentioned changes, the rates charged callers using re-filed calls among the
three countries is less than the rate they would otherwise pay for a connection
directly between country A and country C.
Re-filing is typically achieved through a series of resale arrangements
among carriers often involving the wholesale purchase of services on a
per-minute basis by one long distance provider from another. A single
international call may pass through the facilities of several long distance
carriers and resellers before being terminated to a local telephone user by a
carrier in the country of termination. Re-filing has caused the emergence of
alternative international providers that rely on transmission services acquired
on a wholesale basis from other long distance providers. These international
providers include entities whose business is purely to act as a reseller.
The advent and proliferation of Internet Protocol, the computer language
protocol used to transmit data over the Internet and managed networks, has added
to the options available for the delivery of international telephone service.
Internet telephony uses Internet Protocol and voice messaging equipment, or
gateways, to receive voice messages, convert them into digital data packets,
transmit them over the Internet at high speeds and retranslate them back into
voice messages with digital clarity at the call receiver's end. The Internet
telephony industry began in 1995, when experienced Internet users began to
transfer voice messages from one personal computer to another. Subsequently,
software was introduced which allowed personal computer users to place
international calls via the Internet to other personal computer users for the
price of a local call. Initially, the growth of Internet
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<PAGE>
Telephony was constrained due to the poor sound quality of the calls and because
calls were mainly limited to those placed from one personal computer to another.
However, as the industry has grown, substantial improvements have been made. New
software has substantially reduced delays and improved voice quality. The use of
private networks or Intranets to transmit calls as an alternative to the public
Internet also helped to alleviate capacity problems. Developments in hardware,
software and networks are expected to continue to improve the quality and
viability of Internet telephony.
Internet telephony provides customers with substantial savings compared to
conventional long distance calls. The total cost of an Internet telephone call
is based only on the local calls to and from the gateways of the respective
Internet providers. As a result the call bypasses the international settlements
process which requires using the more expensive transoceanic fiber networks of
traditional carriers.
FACTORS THAT AFFECT THE TELECOMMUNICATIONS INDUSTRY
There is a chance technological changes in the telecommunications industry
will make our business obsolete. We cannot guarantee that research and
developments by others will not render our operations noncompetitive or
obsolete. Our business strategy is subject to the risks inherent in the
marketing of new services using new technologies and approaches in a rapidly
evolving commercial environment. We cannot assure that unforeseen problems will
not develop with these technologies or applications, or that we will be able to
successfully address the technological challenges we encounter by entering into
alternative arrangements for generating revenues.
Our success in the international telecommunications business may depend on
factors beyond our control including the influence of domestic and foreign
governments on our industry. We believe we will generate a substantial portion
of our revenues by providing international telecommunications services to our
customers on a wholesale basis. The international nature of our operations
involves particular risks. These include changes in foreign government
regulations and telecommunications standards, dependence on foreign partners,
tariffs, taxes and other trade barriers, economic downturns and political
instability in foreign countries. Our business could also be adversely affected
by a reversal in the current trend toward deregulation, or upon a change in the
business affairs of ITXC Corp. In addition, our business is subject to various
U.S. and foreign laws, regulations, agency actions and court decisions. Our U.S.
international telecommunications services are subject to regulation by the FCC.
The FCC requires international carriers to obtain authorizations under Section
214 of the Communications Act of 1934 prior to purchasing or leasing
international facilities, or providing international service to the public. We
have obtained the necessary licensure to conduct our business. We may be
adversely affected by regulations of foreign governments as we seek to establish
local affiliates outside of the United States. Foreign regulations may also
affect affiliates that complete calls on behalf of our clients.
There are several factors unique to the telecommunications industry that
may negatively influence our operating results, including revenues, costs and
margins. Our revenues, costs and expenses may fluctuate in the future as a
result of numerous factors. Our revenues in any given period can vary due to
factors including call volume
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fluctuations, particularly in regions with relatively high per minute rates; the
addition or loss of major customers, whether through competition, merger,
consolidation or otherwise; and financial difficulties of major customers;
pricing pressure resulting from increased competition. Technical difficulties or
failures of portions of the ITXC system or other provider may impact our ability
to provide service to our customers by preventing us from delivering call
traffic. Additionally, technical difficulties with the network may cause loss.
HISTORY
Initially we intended to concentrate our efforts on establishing and
operating a global messaging business. By pursuing that strategy we intended to
provide our customers with a universal mailbox and a platform that was capable
of generating multimedia broadcasts of messages and documents received by the
client. In other words, the messages could be faxed or otherwise delivered to
various locations within an enterprise. As an adjunct to our global messaging
service we also intended to provide enhanced fax services including fax
broadcasting. We postponed our efforts to provide global messaging services
because of our inability at the time to obtain financing for equipment and due
to the new telecommunications opportunities presented by Internet telephony. We
derived insignificant revenues from the provision of global messaging services
for clients through April 1998. After April 1998, we focused our efforts on
exploiting opportunities in Internet telephony and derived revenues providing
services as a refile hub for and affiliate of OzEmail Interline Pty, Limited.
OzEmail Interline Pty Limited is a subsidiary of OzEmail Limited, a wholly owned
Australian subsidiary of MCI WorldCom, Inc. On November 30, 1999 ITXC Corp
purchased the intellectual property and contractual rights associated with the
operations of the Internet Telephony business of OzEmail Interline Pty Limited.
We are operating our Internet telephony business through the ITXC and may
establish our own systems for traffic between different countries.
INTERNET TELEPHONY
INTERNET TELEPHONY DESCRIPTION
Internet telephony is the use of the worldwide Internet system to transmit
telephone fax and other communications between two countries. This process
consists of receiving a call or transmission, usually through a local carrier,
to a switch, which contains software, which converts the voice input from the
transmission to digital data, which is then routed to another country over the
Internet. The basic equipment, which converts the transmission and routed is
called a gateway. The Internet call is directed to a receiving country. A
gateway in the receiving country performs the reverse process converting the
digital data from the Internet to a voice format. This in turn is transmitted
through local providers to the ultimate destination.
The heart of any Internet telephony Internet system is the gateway. There
are several providers of gateways, including Lucent, Cisco and Voice Tech.
OzEmail utilized their own gateway, which contained proprietary software. Each
gateway, depending on the manufacturer, is capable of handling from twenty-four
or more simultaneous calls. The gateway is also used for billing, rating and
verification purposes.
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The typical structure of a call placed through the Internet telephony
system is as follows:
o a person originates a domestic telephone call to a facility containing
gateways;
o the call is connected into a digital form and delivered to the Internet
through the gateway and is routed to the country of destination;
o the Internet transmission connects to a gateway in a foreign country
where it is converted to analog and connected to foreign domestic local
telephone network; and
o the call is received by the person to which it was directed as a normal
telephone call.
All the calls are processed by the Gateway which is also used for billing,
rating and verification purposes. The whole process is generally completed
within seconds.
INTERNET TELEPHONY SYSTEM
OzEmail, before its sale to ITXC, operated and ITXC operates an Internet
telephony network. The network consists of a consortium of companies in various
countries to act as affiliates of the network for the transmission and receipt
of service worldwide. All systems use Gateways located in various parts of the
world tied together by a network for the transmission, routing and connection of
voice, data and fax communications through the Internet. The network may also
utilize other conventional systems to organize and complete calls. In this case
of OzEmail proprietary gateways were used. Thus the network consists of
affiliates in various countries joined together to provide international
service. Each affiliate primarily furnishes origination services in its area of
affiliation but also furnishes termination service in its territory enabling
affiliates in other countries to route calls into its territory for termination
through the local affiliate over conventional public switched telephone
networks. The local affiliate receives a termination fee for the completion.
Each affiliate markets the service in its territory offering origination-calling
services through the network. Each local affiliate is required to pay a fee to
the network for all international services of the affiliate's customers routed
through the network.
If no affiliate has been appointed in the country of destination, the call
will be routed through an affiliate acting as a refile provider in a third
country for the least expensive routing.
TELTRAN RELATIONS WITH INTERNET TELEPHONY NETWORKS
In 1998 we were appointed as a refile hub for OzEmail in the United States
for calls terminating in countries without OzEmail affiliates. As a refile hub,
we received calls for the OzEmail system and directed them through the least
expensive routing to countries which have no OzEmail Internet termination. We
derived approximately $535,200 in revenues from this activity in 1998 but this
source has declined to $93,600 through the first six months of 1999. The decline
resulted from the utilization by OzEmail of a related party as a refile hub and
to a lesser extent from an increase in affiliates.
In October 1998 we were appointed a non-exclusive OzEmail affiliate in the
United States. This designation enables us to sell international voice telephone
availability through
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the OzEmail Internet system utilizing OzEmail technology and protocols to
clients in the United States. In this capacity, our main focus has been the
wholesaling of Internet telephony capacity from North America to other locations
around the world within the OzEmail network.
In the first quarter of 1999, we entered into agreements to serve as a
United States affiliate to provide call connection services from the United
States to the Netherlands Antilles and South Africa. Prior to June 1999, we did
not derive significant revenues from our affiliate operations. It took us, or
our clients, a substantial period of time to complete testing, obtain compatible
equipment and software and to complete arrangements with local telephone
companies. In June 1999 we began service to Netherlands Antilles and South
Africa for two clients. Through November we have completed calls totaling
2.5 million minutes. Generally OzEmail only permitted one affiliate in a
country. By November 1999 we obtained affiliate status in the United Kingdom and
Ireland through ChannelNet subsidiary and completed contracts with a local
entity to become an affiliate in Pakistan. Subject to final agreements we
received permission to become an affiliate in Bangladesh and Israel. In November
1999 OzEmail disposed of its Internet telephony business to ITXC. We then
entered into a new arrangement with ITXC superceding our past arrangements. We
believe the new arrangement will have substantial benefits as ITXC imposes less
restrictions upon its affiliates. Unlike OzEmail, ITXC does not limit the number
of affiliates in any country. We are now free to become an affiliate in as many
countries as we may desire. ITXC also does not require the use of proprietary
gateway. We may use any commercial gateway as long as there exists a similar
gateway in the receiving country. Finally ITXC will provide the gateway for
calls originating in a country in which we are an affiliated and terminating
with ITXC affiliate. We are required to provide other gateways. We are also free
to purchase gateways from third parties and establish our own network between
any two countries.
By establishing gateways, either as an ITXC affiliate or directly, in other
countries and sending calls through our own network for specific countries, we
would have the ability to receive revenues from both ends of a call. In most
instances we contemplate entering into arrangements with a local partner to
implement foreign arrangements.
ITXC requires its affiliates to purchase a sufficient number of gateways to
provide their services and to test them over a period of several weeks to
determine the quality of service to the particular destination. We had purchased
twelve gateways for an aggregate cost of $108,000 to service our existing United
States clients at present levels. We believe our twelve gateways will be
sufficient to handle the call volumes we currently handle. We are currently in
the process of transitioning our current Gateways from OzEmail equipment to
ITXC-owned and Teltran-owned equipment. This process is scheduled to be
completed by the end of January 2000. These are being provided at no cost. We
may receive additional gateways from ITXC at no cost as long as these gateways
are used exclusively for sending calls over the ITXC network. We also may
purchase additional gateways outright for our own use. In any event, if the
volume of calls we handle from our contracts grows to projected levels, or we
initiate call services under additional contracts, we will need to purchase
additional gateways. New gateways presently cost approximately $9,000 to $17,000
per 24 port unit, depending on the configuration required by our customers or
local telecom regulation. We house all of our gateways at a
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technical facility operated by an unaffiliated party located close to our
offices in New York City and Manchester, UK.
ITXC/OZEMAIL AGREEMENTS
Our OzEmail affiliate agreements were in effect replaced by an
agreement we signed with ITXC on November 23, 1999. Under the WWExchange Network
Services agreement and addendum we signed with ITXC, each company will provide
termination services for calls from Internet telephony or public switched
telephone networks. ITXC, at its own cost, will provide Teltran with five E-1
gateways. The contract runs through May 19, 2002, but may be terminated on 60
days' notice. The relationship established by the agreement is non-exclusive,
and either company may provide termination services for other parties. We are
authorized to originate calls that will terminate to worldwide destinations over
the ITXC Internet Telephony network and terminate calls that originate from the
ITXC network. In effect, Teltran can become both a vendor (affiliate) and
customer for ITXC. The gateways that we operate in the United States and abroad
will transmit calls over the Internet worldwide through ITXC's or our own
interconnected systems. As an affiliate or vendor for ITXC we must purchase the
necessary gateways to provide that service. ITXC will purchase and install for
us, as its customer, the gateways needed to originate calls that will terminate
within the ITXC network. Affiliates in the ITXC system are also obligated to
provide termination services to other ITXC affiliates in other countries, over
ITXC's interconnected systems. Affiliates providing termination services charge
originating affiliates a fee based on the rate the terminating affiliate has
negotiated with the local carrier to terminate the call in the jurisdiction of
its affiliation. ITXC collects the fees from the originating affiliate and,
after deducting a service charge or mark up, remits the fee to the terminating
affiliate.
OTHER POSSIBLE ARRANGEMENTS
Teltran regards itself as a telecommunications reseller and may enter into
arrangements for the resale of telecommunications time not involving the ITXC
network. Future arrangments may involve entirely different providers or a
combination of ITXC and other providers.
GOVERNMENT REGULATION
We are licensed as an international reseller under Section 214 of the
Federal Communication Act. This regulation does not impose significant
restrictions on our daily operations. We however are also affected by foreign
regulators or foreign government owned telephone systems. We or our affiliates
may be required to obtain permission in connection with our client contracts. We
will also be subject to foreign regulation if we are able to establish
affiliates in foreign countries. For example, some foreign countries may limit
the orgination or termination of calls to and from their jurisdictions. The
United Kingdom regulates the award of premium-rate telephone services.
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MARKETING/CUSTOMERS
During 1998 our principal customer was OzEmail under the refile
arrangement. During 1998 we received approximately 79.3% of our revenues from
OzEmail. We do not anticipate that we will derive significant refile revenues
from OzEmail in the future. As a result of resale arrangements entered into by
us, we do not believe we are dependent upon OzEmail as a refile customer. We
derived 17.1% of our revenues in 1998 from Telecom 2000 for providing it with
domestic long distance capacity. This arrangement has terminated.
We market our service through our executive officers, one of whom is the
vice president of sales and marketing. We have also entered into non-exclusive
arrangements with agents who will receive a commission from the revenues
generated by any of our customers introduced by an agent.
COMPETITION
Currently, we compete with numerous other long distance resellers and
providers. We believe our significant competition will be independent resellers
and providers including providers of competing voice telephony systems. Other
competitors may include large telephone carriers like AT&T, MCI/WorldCom and
Sprint, as well as other providers of international long distance services like
STAR Telecommunications, Inc., and corporate alliances that provide wholesale
carrier services, like "Global One". In addition, we have a non-exclusive
affiliate arrangement with ITXC, therefore ITXC is free to appoint other
affiliates which may result in our facing substantial competition from within
the ITXC system. Many of our competitors are likely to be significantly larger
and have substantially greater market presence, as well as greater financial,
technical, operational, marketing and other resources and experience than we do.
We compete for customers in the telecommunications markets primarily based
on price and, to a lesser extent, the type and quality of service offered.
Increased competition could force us to reduce our prices and profit margins if
our competitors are able to procure rates or enter into service agreements that
are comparable to or better than those we obtain, or are able to offer other
incentives to existing and potential customers.
EMPLOYEES
We have eight full-time employees in New York, seven of whom are engaged in
executive and technical functions and one of whom is a clerical employee. We
also have five full time employees in the United Kingdom as a result of our
Channelnet acquisition. We also utilize consultants.
TECHNICAL FACILITY
We have an oral arrangement with an unaffiliated party by which our
technical equipment is housed and maintained at this party's colocation facility
in New York City located on the same block as our headquarters. All equipment,
connections and telephone lines between us and our customers and overseas
providers are located at this facility. We utilize the owner's equipment to
effect these connections.
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OMNICOM
In May 1999 we acquired all the shares of Omni Communications, Inc. Since
it was formed in May 1994, "Omnicom" has been an authorized agent of UniDial
Communications located in New York City. Omnicom had nominal assets and minimal
annual revenues. UniDial is a telecommunications reseller. Resellers buy
wholesale services from major carriers like IXC, Sprint, Internet Service
Networks and local Bell companies to provide a spectrum of services to
customers. We believe that the acquisition of OmniCom will complement our line
of telecomunications products and accelerate our entry into the area of switched
and dedicated phone services. These include 1+ outbound and toll free inbound
calls, networking, frame relay, wireless phones and service, Internet access,
debit cards, billing software, multi-media conferencing and network marketing
services. We also plan to feature UniDial services on our website,
http://www.teltran.com, in order to attract more small to mid-size businesses to
our retail marketplace. Omnicom was acquired for 126,788 shares of our common
stock. Even though the principal shareholder of Omnicom was an officer of
Teltran, we believe the acquisition was made on arm's length terms. Omnicom
presently utilizes our offices.
ANTRA/RECORDSTOGO.COM
In April 1999, we exchanged 2,000,000 of our shares for 2,000,000 shares of
Antra Holding Group Inc. As a result of the transaction Antra may be deemed a
principal stockholder of Teltran. Antra is a public company engaged through
subsidiaries in the music business. We made the exchange because we intended to
enter into ventures with Antra and because we thought that their stock was of
comparable value. To protect each party, there will be an adjustment in the
number of shares owned by an entity if there is a disparity in the relative
market value of the two entities. Antra and we have formed a corporation to
establish a website for the sale of music recordings. We each will be equal
owners in the new corporation, although we will grant a minority interest to a
supplier. The corporation has completed the basic design of the website. This
joint venture contemplates beginning testing in January 2000 and sales in
February 2000.
CHANNELNET
We acquired all of the outstanding shares of ChannelNet Ltd. common stock
on August 16, 1999, effective as of June 1, 1999, from an unaffiliated third
party in an arm's length transaction. ChannelNet was incorporated in May 1999
under the laws of England and Wales and is located in Manchester in the United
Kingdom. ChannelNet provides premium rate telecommunications services to
customers in the United Kingdom. Premium rate services are the United Kingdom
equivalent of "900" number services in the United States. The dominant services
are or will be provided primarily for Tarot card readings, voice messages,
charitable solicitations and other non-adult services. ChannelNet had
insubstantial assets and liabilities. A primary reason for the acquisition was
ChannelNet's potential as an affiliate of the ITXC network. ChannelNet is an
affiliate of ITXC in the United Kingdom and Ireland. It has also received
indication that upon presentation of a proper plan, it will be appointed an
affiliate in Turkey, Greece, Cyprus, Turkish Republic of North Cyprus, and
India. We entered into an agreement with the former stockholder of ChannelNet to
purchase telecommunications equipment that is necessary for the operation
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of the ChannelNet business. Under that arrangement we will use the equipment in
our operation of the ChannelNet business but will not acquire title to it until
we complete making payments of approximately $535,000 in the aggregate by
February 2001.
In consideration of our acquisition of the ChannelNet stock, we issued to
the former shareholder of ChannelNet 94,500 shares of our common stock and we
will be obligated to issue additional shares based upon earnings generated by
the acquired ChannelNet business operations during the period of September 1999
through February 2001. In addition, we entered into an employment agreement with
the key employee of ChannelNet for the operation of the ChannelNet business.
This agreement provides in part that we will issue to that individual shares of
our common stock based on the future earnings of the ChannelNet business.
ChannelNet has entered into an agreement with Norweb Telecom
Limited, a national telecommunications network operator in the United Kingdom,
indicating the intent of the parties to work together to develop opportunities
in Internet telephony. As a result of this relationship, traffic can originate
in the United Kingdom and Ireland for worldwide distribution over Teltran's
Internet telephony network. Furthermore, traffic originating in other parts of
the world can also be terminated in the U.K. Teltran and Norweb are exploring
additional ways to take joint advantage of their geographic reach, technical
expertise and distribution capabilities to offer additional services and to
reach additional customers.
In connection with this agreement, Norweb and ChannelNet entered into an
agreement on November 23, 1999. Under the latest agreement with Norweb,
ChannelNet will provide telecommunications services to Norweb, enabling Norweb,
in turn, to provide Voice-over-Internet Protocol services to a customer. The
contract runs for a minimum of six months. The contract calls for 3.5 million
minutes per month in the first 90 days, rising to 5 million minutes per month
after the initial 90-day period.
INTERNET PROTOCOLS LTD.
In December 1999, we acquired Internet Protocols Ltd. Internet Protocols
Ltd., which is based in the United Kingdom, commenced operations in 1999 as a
provider of equipment and services to Internet service providers. Internet
Protocols Ltd. provides Internet access services and installs wiring permitting
customers to connect their computers to the Internet or to communicate with
other computers. It seeks to enter into revenue-sharing arrangements with its
customers for providing the use of equipment to access the Internet. It also
offers to provide other services to its customers.
INTERNET PORTAL
Because it presented an opportunity that could be accomplished
inexpensively, in February 1999 we instituted a web portal. A portal is a
website which enables the user to access various other web sites without
multiple steps, therefore saving the user time. We believe that maintaining an
Internet portal will assist us in establishing a presence as an Internet service
provider. While maintaining a website is not related to our Internet telephony
business, we believe creating an Internet environment will enhance the brand
recognition of the "Teltran" name and could potentially establish us as a
well-regarded
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Internet brand. Our Internet portal contains direct links to many commercial
sites. Recently, we provided access to brokerage firms through the portal and
anticipate receiving payment from brokerage firms utilizing this service based
on customers' business introduced to the brokerage firm through the portal. We
have affiliate arrangements with retailers under which we will receive a
percentage of revenues generated by consumers accessing the site through our
portal.
Teltran now offers unlimited Internet access service for retail customers
via the www.Teltran.com web portal. Customers may sign up for a personal dial-up
Internet account which includes unlimited Internet usage, an e-mail account, a
personal home page and other features. Customers may also sign up for dedicated
connection accounts featuring high-speed access to the Internet. Advanced
features also include custom web site design and development services, web
hosting, and e-commerce solutions. Teltran will also offer Internet fax
capability.
We are also engaged in additional activity through our web portal. We have
finalized an arrangement with Antra Music Group Ltd., a subsidiary of a
principal shareholder, to establish a website, http:// www.recordstogo.com, for
the sale of music. Initially this website will be utilized as a vehicle to sell
records belonging to an unaffiliated third party. We expect www.recordstogo.com,
to increase our revenues through the sale of records, advertisements and music
merchandise and to also attract more traffic to our web portal through cross
linking.
Teltran is developing "Chat-over-IP" with LANSource Technologies on an
informal basis. LANSource is now a subsidiary of 3Com Corporation. The
"Chat-over-IP" website (http://chatoverip.com) offers an opportunity for people
interested in technological and business issues relating to "XoIP" services
(e.g., Voice-over-Internet Protocol and Fax-over-Internet Protocol). Major
vendors to the XoIP industry contribute to or sponsor the site: past sponsors
include Microsoft, 3Com, Cisco, Brooktrout and Dialogic). Teltran has no other
relationship with either LANSource or 3Com.
SEASONALITY
Our Internet telephony business is not subject to seasonal variations in
volume of calls. However, our Internet portal experienced a decline in traffic
during the summer of 1999, as compared to the preceding months. Management
believes that the decline is due largely to the increased amount of time many
Internet users spend outdoors during the warmer weather.
DESCRIPTION OF PROPERTY
Our executive offices are located at One Penn Plaza, New York, New York
10119, where, under a new lease, we occupy approximately 4,800 square feet
through March 31, 2010. The annual base rental for this space is approximately
$180,000. Teltran will be responsible for utilities and other charges.
ChannelNet occupies an office at Enterprise House, 15 Whitworth Street West, in
Manchester, U.K. The facility is leased by the former
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stockholder of ChannelNet, which is obtaining an assignment of the lease for the
premises to ChannelNet.
Internet Protocols Ltd. has a 10-year lease, commencing in early 2000, for
the space where it will house its equipment. The lease covers 1050 square feet
at the London Switch, a facilities-management center. Internet Protocols Ltd.
will have 80 racks for equipment. Internet Protocols Ltd. is permitted to
provide additional racks to its customers for a fee. Internet Protocols Ltd.
also maintains equipment at other locations, either with companies that provide
it with services or under various short-term leases.
LEGAL PROCEEDINGS
In June 1999 an action was commenced against us in the United States
District Court for the Southern District of New York entitled: Silverman et.al.
v. Spectratek, Inc. et. al. The plaintiffs included, Steven Silverman, Joseph P.
Mallon, Scott Broadbent. The defendants included Spectratek, Inc., one of our
predecessors, and Byron Lerner, our chief executive officer.
The plaintiffs claim that Spectratek issued and caused to be issued
misleading statements concerning the status of various contracts Spectratek was
prepared to enter into. As a result of these statements, the plaintiffs
purchased 156,000 shares of Spectratek's stock and suffered damages of an
unspecified amount. Teltran denies all liabilitiy since it had actually entered
into arrangements that were not consummated due to its financial condition at
the time. We do not believe we have any liability to the plaintiffs and will
vigorously defend this action. We have made a motion to dismiss this action,
which was granted in October 1999. The plaintiffs have been granted leave to
file an amended complaint.
We are not aware of any other legal proceedings, or pending legal
proceedings, to which we are party or to which our property is subject. However,
in an unrelated matter, a claim has been made by a corporation for $304,000
representing amounts advanced on our behalf to a potential reseller of
telecommunications time to us. This amount was to be held in escrow until
commencement of the contract between ourselves and the reseller by an agent
appointed by the potential reseller. The contract was aborted and the escrow
agent failed to return the escrow funds. The claimant has requested the payment
of the amount advanced with interest and alternately a participation in revenues
which it believed arose from the relationship with the reseller. The claimant
has failed to respond to our communications for the past several months.
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MANAGEMENT
Our directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Byron R. Lerner............... 55 President, Chief Executive Officer and Director
James E. Tubbs................ 39 Executive Vice President, Chief Operating Officer and Director
Peter Biagioli................ 39 Vice President of Sales and Marketing
Martin Miller................. 59 Director
</TABLE>
Byron R. Lerner has been chief executive officer and president of Teltran
since June 1997 and one of our directors since May 1996. Mr. Lerner was
Teltran's chief financial officer between May 1996 and June 1997. Between 1993
and 1995, Mr. Lerner was president of International GlobalCom, a firm he founded
which engaged in the resale of domestic and international long distance phone
time. From 1990 to 1993 Mr. Lerner was president of L&S Communications, a
reseller of domestic and international long distance telephone time.
James E. Tubbs has been our executive vice president and a director since
May 1996. Between 1994 and 1995, Mr. Tubbs was president of OmniCom, a reseller
of UniDial services; OmniCom is now a subsidiary of Teltran. From 1984 through
May 1996 he was employed as an executive in various entities controlled by Brent
Musburger, the sports broadcaster. Simultaneously Mr. Tubbs was employed in
various capacities as an executive in sports and entertainment matters by the
networks which engaged Mr. Musburger.
Peter Biagioli has been our vice president of sales and marketing since
1997. From February 1988 to January 1997 Mr. Biagioli was vice president of
worldwide commercial development for the Manifest Division TNT Express
Worldwide. During the period November 1982 to January 1988 he was employed by
Avis Rent A Car System Inc. and was a regional sales manager for the New York
Metropolitan market.
Martin Miller has been a Teltran director since November 1995. Mr. Miller,
for the past five years, has been a manager of corporate finance for Millport
Ltd., presently a Bahamian based advisor of foreign investors.
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EXECUTIVE COMPENSATION
We have retroactively adjusted the information in this section to reflect
the five percent stock dividends to holders of record on June 3, 1999 and
September 1, 1999.
Our chief executive officer received the below listed compensation during
the fiscal year ended December 31, 1998. No other executive officer's
compensation exceeded $100,000 during that year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY UNDERLYING OPTIONS
- -------------------------------------------------------------------- ---- ------- -------------------
<S> <C> <C> <C>
Byron E. Lerner 1998 $88,000 496,127 shares
President and Chief Executive Officer............................ 1997 37,500 --
</TABLE>
All of our directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. The board
of directors annually elects executive officers to hold office until the first
meeting of the board following the next annual meeting of stockholders and until
their successors are chosen and qualified.
OPTION PLAN
We have adopted our 1998 Stock Option Plan for our officers, employees and
consultants and for those of any of our subsidiaries. The option plan authorizes
the grant of options to purchase 3,307,500 shares of our common stock after
giving effect to our stock dividends. Options to purchase all 3,307,500 shares
have been granted.
The option plan is administered by the board of directors. In general, the
board, or a committee of the board, is empowered to select the persons to whom
options would be granted and to determine, subject to the terms of the option
plan, the number, the exercise period and other provisions of the options. The
options granted under the option plan are exercisable in however many
installments as may be provided in the grant.
Options granted to employees may either qualify as incentive stock options
under the Internal Revenue Code or be non-qualified options. The board may
determine the exercise price provided that, in the case of qualified options,
the price may not be less than 100% of the fair market value of our common stock
at the date of grant. In the case of qualified options granted to holders of 10%
of or more the voting power of our stock, the price may not be less than 110% of
the fair market value of our common stock at the date of grant. The aggregate
fair market value, determined at the time the option is granted, of stock with
respect to which qualified options become exercisable for the first time in any
year cannot exceed $100,000.
The options are evidenced by a written agreement containing the above terms
and other terms and conditions consistent with the option plan as the board of
directors may impose. Each option, unless sooner terminated, shall expire no
later than ten years or, in the case of qualified options granted to holders of
10% or more of the voting power of our
26
<PAGE>
stock, five years from the date of the grant, as the board of directors may
determine. The board of directors has the right to amend, suspend or terminate
the option plan at any time, provided, however, that unless ratified by our
stockholders no amendment or change in the option plan will be effective for
limited matters including increase in the total number of shares which may be
issued under the option plan or extending the term of the option plan.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTION GRANT EXERCISE PRICE EXPIRATION DATE
----------------------- -------------- ----------------
<S> <C> <C> <C>
Byron Lerner................................ 220,500 $ .33 December 8, 2008
91,877 1.51 December 8, 2008
91,875 2.59 December 8, 2008
91,875 4.31 December 8, 2008
James Tubbs................................. 220,500 $ .33 December 8, 2008
91,877 1.51 December 8, 2008
91,875 2.59 December 8, 2008
91,875 4.31 December 8, 2008
</TABLE>
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR
END OPTION VALUES
The table below provides information concerning stock option exercises
during the fiscal year ended December 31, 1998 and the value of unexercised
options at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR
END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN
UNEXERCISED OPTIONS AT THE MONEY OPTIONS
SHARES FISCAL YEAR END -------------------------
ACQUIRED ON VALUE --------------------------- NON
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE EXERCISABLE
- ------------------------------ ----------- -------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Byron Lerner.................. None None None 496,125 None $29,000
</TABLE>
The value of the in-the-money options is based on the market price of our
common stock on December 31, 1998.
On January 31, 1999 we issued options to purchase an additional 876,488
shares of common stock at $.51 per share exercisable immediately. Of these
options 275,625 were issued to each of Messrs. Lerner and Tubbs and Martin
Miller, one of our directors. In May 1999 we granted options to purchase an
additional 1,102,500 shares of our common stock at $3.49 per share. Of these,
options to purchase 275,625 shares were issued to each of Byron Lerner, James
Tubbs and Martin Miller. All the options granted in 1999 vested immediately.
27
<PAGE>
The board of directors has recently authorized the grant to Byron Lerner of
options to purchase 400,000 shares of Teltran's common stock.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Byron Lerner to serve as
our president and chief executive officer. The agreement is for a term of
37 months commencing March 1, 1999 and unless notice of non-renewal is given at
the end of first thirteen months or any later year, the term of the agreement is
extended for an additional year period. Mr. Lerner is to receive a base annual
salary of $150,000 until August 1999 when the salary increases to $180,000.
Starting in the second year of the agreement on April 1, 2000 the salary
increases to $189,000 or $200,000 if the net income as defined in the agreement
is at least $200,000. After that, the salary increases at the rate of ten
percent per annum. The agreement provides for a bonus pool which shall be equal
to 15% of net income as defined in the agreement of which Mr. Lerner will
receive forty percent (40%) of the pool. Mr. James Tubbs, Teltran's executive
vice president and chief operating officer, has entered into an identical
agreement with us.
CERTAIN TRANSACTIONS
Information in this section is retroactively adjusted to reflect the five
percent stock dividend to holders of record on June 3, 1999 and September 1,
1999.
During and prior to 1998 an affiliate of Byron Lerner and James Tubbs each
advanced $50,000 to us. In 1998 all these advances were converted into 551,250
shares of our common stock. All these advances were interest free. Mr. Lerner
has advanced approximately an additional $13,000 to us in 1998 and received an
additional 71,662 shares of common stock.
In April 1999, we and Antra Holding Group Inc. exchanged shares of each
other's stock. We own 2,000,000 shares of Antra's common stock and Antra owns
2,205,000 shares of our common stock. Antra is a public company engaged through
subsidiaries in the music business. As a result of the transaction Antra may be
deemed a principal stockholder of Teltran.
We have entered into an agreement with Antra which requires an adjustment
in the shares delivered in connection with the above-described exchange. If on
the first business day of the year 2000 either Antra's shares or our shares are
trading less than 20% below the market price of the other party's shares, the
party whose shares are trading lower must issue additional shares to the other
party.
We are also completing arrangements to form a joint venture corporation
with a subsidiary of Antra to market records with Antra through a website to be
established on the Internet using our portal. This new corporation will be owned
equally by Antra and ourselves. We each will be equally responsible for funding
and share equally in losses and profits. This venture initially will market
records owned by an independent third party.
As of May 1999 we acquired all the shares of Omni Communications Inc. This
company is an authorized agent of UniDial Communications. We issued 126,788
shares of our common stock to the sellers, of which James Tubbs received 110,250
shares. Mr. Tubbs is an officer and director of Teltran. We did not obtain a
fairness opinion.
28
<PAGE>
The board of directors has recently authorized the grant to Byron Lerner of
options to purchase 400,000 shares, with an exercise price of $4.00 per share,
as compensation. The options are exerciseable over a period of two years.
RECENT SECURITIES TRANSACTIONS
On August 16, 1999, in exchange for 94,500 shares of our common stock, we
acquired all of the outstanding shares of Channelnet Ltd. common stock,
effective June 1, 1999. Channelnet has been providing premium-rate
telecommunications services to customers in the United Kingdom as well as being
an ITXC affiliate in the United Kingdom and Ireland. It has also received
indication that upon presentation of a proper plan, it will be appointed an
affiliate in Turkey, Greece, Cyprus, Turkish Republic of North Cyprus, and
India. Upon the closing of the acquisition, Byron Lerner and James Tubbs,
officers and directors of Teltran, became directors of ChannelNet.
In June 1999 we issued a total of 332,324 shares of common stock in
connection with a private placement of our securities. Five investors acquired
326,024 shares at $3.81 per share. If the price of our common stock is selling
below specified levels after the offering, we may have to issue additional
shares to these investors. The purchasers of 286,650 of the shares are required
to purchase an additional number of shares after this registration statement is
declared effective provided that there is no material change adversely effecting
Teltran. An additional 6,300 shares were issued to a finder and an additional
815,355 warrants to purchase our common stock at $5.71 per share were issued to
finders. In November 1999, Teltran sold an additional 625,000 shares for $8.00
per share and issued warrants to purchase 2,600,000 shares at prices ranging
from $8.00 to $10.25 per share. If the market price of Teltran's shares
approximately 60 days after a registration statement covering the shares
issuable upon exercise of the warrants is less than the stated exercise price,
the actual exercise price of these warrants will be reduced. Some of the persons
named in the prospectus as selling stockholders acquired additional shares and
warrants. These additional shares, including the shares issuable upon exercise
of the additional warrants, are not being offered in this prospectus and
registration statement.
In April, 1999 we agreed to issue options to purchase shares of our common
stock to Corrie Ltd. and Craighouse Ltd. if their assistance proved successful
in obtaining international communication arrangements. These options, if issued,
may entitle the holder or holders to purchase an aggregate maximum of 450,000
shares of common stock. While the conditions for these options have not
occurred, we believe there is a strong possibility that these options will be
issued. Neither of these entities or their principals are related to Teltran.
As of December 18, 1999, Teltran acquired all of the issued and outstanding
shares of Internet Protocols Ltd., a company engaged in rendering services to
Internet service providers and others. Internet Protocols Ltd. enters into
arrangements under which it shares revenue or charges a fee for use of its
equipment. Teltran issued 1,481,566 shares in connection with the acquisition.
We have also purchased shares of Internet Protocols Ltd. directly from the
company for approximately $3,000,000 payable in installments through August
2000. The ultimate purchase price for the shares acquired from the former
shareholder may be
29
<PAGE>
increased or decreased depending upon the valuation of Internet Protocols Ltd.
in November 2000. One-half of the shares issued to the former shareholder were
deposited in escrow covering indemnification and possible downward revaluation.
At the time of the acquisition, Teltran issued an additional 83,886 shares in
escrow, which may be used to satisfy approximately $550,000 of indebtedness of
Internet Protocols Ltd. to its former stockholder.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of December 18, 1999, information
concerning the beneficial ownership of our common stock and as adjusted by any
sale by
o each person who beneficially owns more than five percent of our
outstanding common stock,
o each of our directors,
o each of the executive officers named in the summary compensation table,
o all our directors and executive officers as a group and
o each selling stockholder
Information in the table reflects our recent 5% dividends to stockholders
of record on June 3, 1999 and September 1, 1999. Share ownership includes both
shares beneficially owned and shares a person has the right to acquire under any
option or warrant which is presently exercisable or which may be exercised
within sixty days. In the case of the ownership of holders who are not officers
or directors or 5% owners, the table may not include free trading shares which
the holders may acquire.
In the following table:
o the number reported in the column headed "shares offered" credited to
each of Byron Lerner, James Tubbs and Peter Biagioli includes shares
subject to options not exercisable within sixty days, which is why these
shares are not included in the column reporting "shares beneficially
owned."
o the number of shares reported as "beneficially owned" by each of Autostat
Anstalt Schaan, Balmore Funds, Nesher, Inc. and Berkeley Group Ltd.
includes the number of shares set forth in column A, below, which were
purchased by each of them at $4.00 per share. The "beneficially owned"
numbers also include additional shares we may require each of these
people to purchase at a price to be determined after this date. The
shares listed below in column B represent the maximum number of shares
that we could issue to each person. In addition, the table includes
shares that may be issued to each of these persons subsequent to this
date as an adjustment if
30
<PAGE>
the price of our common stock falls below a specified price. These shares
are indicated in column C below.
<TABLE>
<CAPTION>
A B C
---------- --------- ----------
<S> <C> <C> <C>
Autostat Anstalt Schaan.................................... 115,809 96,508 115,914
Balmore Funds S.A.......................................... 115,809 96,508 115,914
Nesher, Inc................................................ 18,529 15,441 18,529
Berkeley Group Ltd......................................... 37,059 30,883 37,058
</TABLE>
If additional shares are not purchased, however, or the number of shares
sold is less than the number of shares listed in column B, the balance of the
shares will be returned to us. Likewise, if there is no adjustment or an
adjustment for a fewer number of shares is made, the shares listed in column C,
or any lesser balance of them, will be returned to us.
o with regard to the shares reported as "beneficially owned" by each of
Balmore Funds S.A., J. Hayut, Hyett Capital Ltd, Talbiya B. Investments
Ltd. and Libra Finance S.A., the reported numbers include shares of
common stock we may issue under warrants and shares issued as fees in
connection with the transaction described above. The numbers of shares
included are set forth in column A below. The values in the "beneficially
owned" column also include the shares of common stock listed in
column B, below, which are subject to warrants to be granted if we sell
more shares to the investor in the transaction described in the previous
bullet point. The shares listed in column C below, represent additional
shares that will be issued if we sell more shares to these investors. If
we do not sell additional shares, none of the shares referred to in
columns B and C will be issued.
<TABLE>
<CAPTION>
A B C
-------- -------- --------
<S> <C> <C> <C>
Balmore Funds S.A............................................... 567,744 249,060 --
J. Hayut........................................................ 18,529 7,721 1,197
Hyett Capital Ltd............................................... 95,621 39,842 675
Talbiya B. Investments Ltd...................................... 89,811 19,922 --
Libra Finance S.A............................................... 21,000 -- 420
</TABLE>
In December 1999, Teltran sold an additional 625,000 shares in a private
placement. A substantial portion of these shares were purchased by some of the
same institutions that purchased or received shares in the prior offering
described above in this section. Balmore Funds, S.A. and Autostat Anstalt Schaan
each purchased an additional 212,500 shares. Talbiya B. Investments Ltd.
purchased 31,250 shares and Nesher, Inc. purchased 18,750 shares. Balmore
received warrants to purchase an additional 1,925,000 shares. Talbiya received
warrants to purchase an additional 162,500 shares and Nesher received warrants
to purchase an additional 37,500 shares.
Balmore Funds S.A. owns 328,309 issued and outstanding shares, or
approximately 2.1%, of our common stock. The bulk of Balmore's apparent
ownership is in the form of warrants. Under an agreement with Teltran, Balmore
is not allowed to exercise warrants if its total ownership of shares at any time
would exceed 4.99% of Teltran's outstanding shares. Therefore, despite what
appears to be Balmore's ownership of over twenty-one percent (21%) of Teltran's
common stock, Balmore is actually a holder of less than 5%.
31
<PAGE>
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- --------------------------
SHARES PERCENT OF SHARES PERCENT OF
IDENTITY OF STOCKHOLDER BENEFICIALLY SHARES SHARES BENEFICIALLY SHARES
OR GROUP OWNED OUTSTANDING OFFERED OWNED OUTSTANDING
- --------------------------------------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Byron Lerner
(President, Director)............... 1,148,805 7.4% -- 1,148,805 7.4%
James Tubbs
(Executive Vice President,
Director)........................... 1,201,726 7.7 -- 1,201,726 7.7%
Martin Miller
(Director).......................... 538,650 3.5 -- 538,650 3.5%
Peter Biagioli
(Vice President of
Sales & Marketing).................. 264,600 1.7 -- 264,600 1.7%
Broadford Limited...................... 230,423 1.5 230,423 -- --
Staffin Limited........................ 230,423 1.5 230,423 -- --
Southern Provinces, Ltd................ 230,423 1.5 230,423 -- --
Fir Enterprises Limited................ 358,313 2.3 358,313 -- --
Percival Investments Ltd............... 358,313 2.3 358,313 -- --
Birch Enterprises Limited.............. 358,313 2.3 358,313 -- --
World Telecom Ltd...................... 358,313 2.3 358,313 -- --
Calgary Limited........................ 330,750 2.1 330,750 -- --
Montaque Securities International
Ltd................................. 280,862 1.8 280,862 -- --
Sumburgh Limited....................... 230,423 1.5 230,423 -- --
Salen Limited.......................... 330,188 2.1 330,188 -- --
Coastal Provinces Ltd.................. 275,625 1.8 275,625 -- --
Aran Limited........................... 175,298 1.1 175,298 -- --
Callanish Limited...................... 330,750 2.1 330,750 -- --
Carbost Limited........................ 358,313 2.3 358,313 -- --
Carlowey Limited....................... 358,313 2.3 358,313 -- --
Craignure Limited...................... 220,500 1.4 220,500 -- --
Sleat Limited.......................... 214,987 1.4 214,987 -- --
Newco Management Services Ltd.......... 220,500 1.4 220,500 -- --
Brodick Limited........................ 358,313 2.3 358,313 -- --
Austost Anstalt Schaan................. 540,625 3.5 328,125 212,500 1.4
Balmore Funds S.A...................... 3,312,429 21.3 1,174,929 2,137,500 13.7
Trident Chambers,
P.O. Box 146
Road Town Tortola
British Virgin Islands
Nesher, Inc............................ 108,750 0.7 52,500 56,250 0.4
United Securities...................... 56,250 0.7 56,250 -- --
Berkeley Group Ltd..................... 105,000 0.4 105,000 -- --
Libra Finance S.A...................... 22,638 0.7 22,638 -- --
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
-------------------------- --------------------------
SHARES PERCENT OF SHARES PERCENT OF
IDENTITY OF STOCKHOLDER BENEFICIALLY SHARES SHARES BENEFICIALLY SHARES
OR GROUP OWNED OUTSTANDING OFFERED OWNED OUTSTANDING
- --------------------------------------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
J. Hayut............................... 30,319 0.1 30,319 -- --
Hyett Capital Ltd...................... 137,759 0.9 137,759 -- --
Talbiya B. Investments Ltd............. 303,614 2.0 109,864 193,750
Antra Holding Group Inc................ 2,205,000 14.2 -- 2,205,000 14.2
1515 Locust Street,
Philadelphia, PA 19102
All Officers and Directors
(4 persons)......................... 3,238,306 20.8 -- 3,238,306 20.8
</TABLE>
The above assumes all of the shares being offered will be sold. Because the
selling stockholders may sell all, some or none of the shares that he, she or it
holds, the actual number of shares that will be held by the selling stockholders
upon or prior to termination of this offering may vary. The selling stockholders
may have sold, transferred or otherwise disposed of all or a portion of their
shares since the date on which they provided the information regarding their
common stock in transactions exempt from the registration requirements of the
Securities Act. Additional information concerning the selling stockholders may
be set forth from time to time in prospectus supplements to this prospectus.
PLAN OF DISTRIBUTION
The selling stockholders, or, subject to applicable law, their pledgees,
donees, distributees, transferees or other successors in interest may sell the
shares from time to time. These sales may be made on the over-the-counter market
or foreign securities exchange, in privately negotiated transactions or
otherwise or in a combination of transactions at prices and at terms then
prevailing or at prices related to the then current market price, or at
privately negotiated prices. In addition, any shares covered by this prospectus
which qualify for sale in compliance with Section 4(1) of the Securities Act or
Securities and Exchange Commission Rule 144 may be sold under those provisions
rather than by means of this prospectus. Among other ways, the shares may be
sold in one or more of the following types of transactions:
o a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by that broker or
dealer for its account by means of this prospectus;
o an exchange distribution in accordance with the rules of an exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
33
<PAGE>
o face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the
selling stockholders may arrange for other brokers or dealers to
participate in the resales.
In connection with distributions of the shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers. In
connection with these transactions, broker-dealers may engage in short sales of
the shares registered in connection with this prospectus in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders may also sell shares short and deliver the shares to close out
their short positions. The selling stockholders may also enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares registered in connection with this prospectus, which
the broker-dealer may resell by means of this prospectus. The selling
stockholders may also pledge the shares registered in connection with this
prospectus to a broker or dealer and upon a default, the broker or dealer may
effect sales of the pledged shares by means of this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders in amounts
to be negotiated in connection with the sale. These brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with these sales and any
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Information as to whether underwriters who may be selected by the selling
stockholders, or any other broker-dealer, is acting as principal or agent for
the selling stockholders, the compensation to be received by underwriters who
may be selected by the selling stockholders, or any broker-dealer, acting as
principal or agent for the selling stockholders and the compensation to be
received by other broker-dealers, in the event the compensation of these other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this prospectus. Any dealer or
broker participating in any distribution of the shares may be required to
deliver a copy of this prospectus, including a prospectus supplement, if any, to
any person who purchases any of the shares from or through that dealer or
broker.
Each of the selling shareholders has executed an agreement according to
which they confirm the method of distribution set forth in this prospectus and
agree not to sell the shares if the associated registration statement is not
current.
We have advised the selling stockholders that during if at any time they
may be engaged in a distribution of the shares they are required to comply with
Regulation M under the Exchange Act. The selling shareholders have acknowledged
this advice by separate agreement in which they have agreed to comply with that
regulation. In general, Regulation M precludes the selling stockholders, any
affiliated purchasers and any broker-dealer or other person who participates in
a distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. What constitues a
"distribution" is defined in the rules as an offering of securities that is
distinguished from ordinary trading activities and depends on the "magnitude of
the offering and the presence of special
34
<PAGE>
selling efforts and selling methods." Regulation M also prohibits any bids or
purchases made in order to stabilize the price of a security in connection with
the distribution of that security.
It is anticipated that the selling stockholders will offer all of the
shares for sale. Further, because it is possible that a significant number of
shares could be sold at the same time by means of this prospectus, those sales,
or the possibility of them, may have a depressive effect on the market price of
our common stock.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 50,000,000 shares of our common stock, par value
$0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per
share. As of December 18, 1999, 15,568,825 shares of common stock were
outstanding after giving effect to our five percent (5%) stock dividends. No
shares of preferred stock are currently outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of common stock are entitled to receive
dividends when, as and if declared by the board of directors out of funds
legally available for those dividends.
In the event of our liquidation, dissolution or the winding up of our
business, the holders of common stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the common stock. Holders of shares of common stock have no
conversion, preemptive or other subscription rights. There are no redemption
provisions applicable to the common stock. All of the outstanding shares of
common stock are fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes the issuance of "blank check"
preferred stock with whatever designation, rights and preferences as may be
determined from time to time by our board of directors. Accordingly, the board
is empowered, without stockholder approval, to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of common stock. The
preferred stock could be utilized, under particular circumstances, as a method
of discouraging, delaying or preventing a change in control. Although we
currently do not intend to issue any shares of preferred stock, there can be no
assurance that we will not do so.
35
<PAGE>
TRANSFER AGENT
The transfer agent for the common stock is North American Transfer Co., 147
Merrick Road, Freeport, New York 11520.
LEGAL MATTERS
The validity of the securities being offered by means of this prospectus
will be passed upon for us by Parker Duryee Rosoff & Haft, A Professional
Corporation, New York, New York. Michael D. DiGiovanna, a shareholder in Parker
Duryee Rosoff & Haft, has been elected to serve as a member of our Board of
Directors subject to our qualifying for trading of our shares on NASDAQ. There
can be no assurance that we will qualify for NASDAQ.
EXPERTS
Our financial statements as at December 31, 1997 and December 31, 1998
included in this prospectus, have been audited by Liebman Goldberg &
Drogin LLP, independent certified public accountants as set forth in their
report appearing elsewhere in this prospectus. The financial statements are
included in this prospectus and in the registration statement in reliance upon
that report and upon the authority of that firm as experts in auditing and
accounting.
The financial statements of our subsidiary, ChannelNet, Ltd., included in
this prospectus, have been audited by David Nugent & Co., independent certified
chartered accountants, as set forth in their report appearing elsewhere in this
prospectus. These financial statements are included in this prospectus and
registration statement in reliance upon that report and upon the authority of
that firm as experts in auditing and accounting.
OFFERING INFORMATION
You should rely only on the information contained in this prospectus. To
understand this offering fully, you should read this entire prospectus
carefully, including the financial statements and notes. We have included a
brief overview of the most significant aspects of the offering itself in the
prospectus summary. However, individual sections of the prospectus are not
complete and do not contain all of the information that you should consider
before investing in our common stock. We have not authorized anyone to provide
you with information different from that contained in this prospectus. We are
offering to sell, and seeking offers to buy, shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of the common stock.
36
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
PART I FINANCIAL INFORMATION
Report of Independent Auditors................................................................ F-1
Consolidated Balance Sheets at December 31, 1998 and 1997..................................... F-2
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997........................................................... F-3
Consolidated Statements of Stockholders' Deficit for the years
ended December 31, 1998 and 1997........................................................... F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997........................................................... F-5
Notes to Consolidated Financial Statements.................................................... F-6--F-11
Consolidated Balance Sheets at September 30, 1999 and 1998.................................... F-12
Consolidated Statements of Operations for the nine months
ended September 30, 1999 and 1998.......................................................... F-13
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998.......................................................... F-14
Notes to Consolidated Financial Statements.................................................... F-15
Notes to Unaudited Pro Forma Consolidated Statement of Operations............................. F-16
Unaudited Pro Forma Consolidated Statement of Operations...................................... F-17
</TABLE>
37
<PAGE>
CHANNELNET LIMITED
FINANCIAL STATEMENTS
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Company Information.............................................................................. F-18
Directors' Report................................................................................ F-19
Director's Responsibilities...................................................................... F-20
Auditors' Report................................................................................. F-21
Profit and Loss Account.......................................................................... F-22
Balance Sheet.................................................................................... F-23
Notes............................................................................................ F-24--F-25
</TABLE>
The following page does not form part of the statutory accounts
<TABLE>
<S> <C>
Detailed trading and profit and loss account.................................................... Appendix 1
</TABLE>
38
<PAGE>
LIEBMAN GOLDBERG & DROGIN LLP
Certified Public Accountants
591 Stewart Avenue, Suite 450
Garden City, New York 11530
-------------
Tel (516) 228-6600
Fax (516) 228-6664
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Teltran International Group, Ltd. and Subsidiaries
We have audited the consolidated balance sheets of Teltran International
Group, Ltd. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the years then ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Teltran
International Group, Ltd. and Subsidiaries as of December 31, 1998 and 1997 and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
February 22, 1999
Garden City, New York
F-1
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................................... $ 5,389 $ 3,646
Accounts receivable....................................................... 94,296 --
Deferred financing costs--net of amortization............................. 19,797 --
------------ ------------
Total current assets................................................... 119,482 3,646
------------ ------------
Other Assets:
Goodwill--net of amortization............................................. 37,588 40,273
Organization expense--net of amortization................................. 98 218
------------ ------------
Total other assets..................................................... 37,686 40,491
------------ ------------
Total assets........................................................... $ 157,168 $ 44,137
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Convertible debentures payable............................................ $ 180,488 $ --
Loan payable.............................................................. 50,000 50,000
Due to factor............................................................. 65,193 --
Accounts payable, accrued expenses and taxes payable...................... 104,581 35,081
Corporation taxes payable................................................. 100 488
------------ ------------
Total current liabilities.............................................. 400,362 85,569
------------ ------------
Long-Term Liabilities:
Notes payable............................................................. -- 250,000
Loans payable--stockholders'.............................................. 1,245 10,880
------------ ------------
Total long-term liabilities............................................ 1,245 260,880
------------ ------------
Total liabilities...................................................... 401,607 346,449
------------ ------------
Commitments and Contingencies
Stockholders' Deficit:
Preferred stock, $.001 par value per share, 5,000,000 shares authorized
and -0- shares issued and outstanding..................................
Common stock, $.001 par value per share, 50,000,000 shares authorized and
7,697,295 and 915,637 shares issued and outstanding in 1998 and 1997
respectively........................................................... 7,697 916
Additional paid in capital in excess of par value......................... 2,002,359 1,501,928
Deficit................................................................... (2,254,495) (1,805,156)
------------ ------------
Total stockholders' deficit............................................ (244,439) (302,312)
------------ ------------
Total liabilities and stockholders' deficit............................ $ 157,168 $ 44,137
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Sales................................................................ $ 535,197 $ --
Cost of Sales:
Purchases............................................................ 244,832 --
--------- ---------
Gross profit............................................................ 290,365 --
--------- ---------
Expenses:
Salaries............................................................. 143,356 371,379
Outside services..................................................... 271,850 112,032
Professional fees.................................................... 49,531 21,274
Fees--other.......................................................... 9,384 1,003
Payroll taxes........................................................ 14,878 28,386
Leasing expense...................................................... 11,446 --
Travel............................................................... 93,701 21,219
Insurance............................................................ 28,863 33,573
Rent................................................................. 48,834 36,532
Office expense....................................................... 3,435 170,618
Miscellaneous........................................................ 3,908 4,275
Telephone............................................................ 6,088 27,369
Amortization expense................................................. 24,083 120
--------- ---------
Total expenses.................................................... 709,357 827,780
--------- ---------
Loss from operations.................................................... (418,992) (827,780)
Interest expense........................................................ 29,959 --
--------- ---------
Loss before provision for income taxes.................................. (448,951) (827,780)
Provision for income taxes.............................................. 388 464
--------- ---------
Net loss................................................................ $(449,339) $(828,244)
--------- ---------
--------- ---------
Net loss per share of common stock based upon 7,697,295 and 915,637
(weighted average) shares issued, respectively....................... $ (0.06) $ (0.90)
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
---------------------- IN EXCESS OF
SHARES AMOUNT PAR VALUE DEFICIT
----------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Balance--March 1, 1996........................... 5,145,491 $ 5,145 $ 588,550 $ (550,478)
March, 1996 Teltran Merger.................... 10,000,000 10,000
July, 1996 issuance of 3,166,667 shares....... 3,166,667 3,167 946,833
Adjustment re: merger elimination entries..... 31,273
Net loss for the year......................... (457,707)
----------- -------- ----------- -----------
Balance--January 1, 1997......................... 18,312,158 18,312 1,535,383 (976,912)
Adjustment re: promissory note................ (50,851)
Reverse stock split 1:20 - December 1,
1997....................................... (17,396,521) (17,396) 17,396
Net loss for the year......................... (828,244)
----------- -------- ----------- -----------
Balance--December 31, 1997....................... 915,637 916 1,501,928 (1,805,156)
Issuance of shares in consideration of joint
venture termination........................ 6,000,000 6,000 284,000 --
Issuance of shares re: conversion of debt..... 281,658 281 116,931 --
Issuance of shares re: payment of
stockholder's loans........................ 500,000 500 99,500 --
Net loss for the year......................... -- -- -- (449,339)
----------- -------- ----------- -----------
Balance--December 31, 1998....................... 7,697,295 $ 7,697 $ 2,002,359 $(2,254,495)
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................................................ $(449,339) $(828,244)
Adjustment to reconcile net loss to net cash (used in) operating activities:
Amortization expense............................................................. 24,083 120
(Increase) in accounts receivable................................................ (94,296) --
(Increase) in deferred financing costs........................................... (55,875) --
Cash advances from factor (net of repayments).................................... 65,193 --
Increase in accounts payable and accrued expenses................................ 69,112 5,613
--------- ---------
Net cash (used in) operating activities....................................... (441,122) (822,511)
--------- ---------
Cash Flows from Financing Activities:
Issuance of convertible debentures............................................... 180,488 --
Cash received from issuance of common stock...................................... -- 602,300
Conversion of convertible debenture--stock issued................................ 119,512 --
(Decrease) in loan payable....................................................... (50,000) --
Proceeds from loan payable....................................................... 50,000 --
(Decrease) in notes payable...................................................... (250,000) --
Decrease in loans payable--stockholders'......................................... 102,865 --
Issuance of stock for notes payable.............................................. 290,000 --
Cash received as advances from investors......................................... -- 199,149
--------- ---------
Net cash provided by financing activities..................................... 442,865 801,449
--------- ---------
Net increase (decrease) in cash..................................................... 1,743 (21,062)
Cash--January 1,.................................................................... 3,646 24,708
--------- ---------
Cash--December 31,.................................................................. $ 5,389 $ 3,646
--------- ---------
--------- ---------
Supplemental Disclosures:
Income tax....................................................................... $ 625 $ 464
--------- ---------
--------- ---------
Interest paid.................................................................... $ 29,959 $ --
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--OPERATIONS:
Nature of Business:
Teltran International Group, Ltd. through its wholly owned Subsidiary
Teltran International, Inc. (the "Company") provides services for state of the
art telecommunications.
Effective March 1, 1996, the shareholders of Teltran International Inc.
("the Subsidiary"), a Delaware corporation, completed a stock exchange with
Spectratek Inc., a Utah corporation, whereby all the common shares of the
subsidiary, were exchanged for 10,000,000 common shares of Spectratek, par value
$.001. The 10,000,000 shares represented approximately 67% of the then total
issued and outstanding 15,145,491 shares of Spectratek Inc.
On October 6, 1997, Spectratek merged with Teltran International Group,
Ltd., a newly formed Delaware corporation with the surviving entity.
Except as otherwise indicated by the context, references to "the Company"
refer to Teltran International Group, Ltd. and the subsidiary.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary. Intercompany balances and transactions have
been eliminated.
Development Stage Activities and Operations:
Prior to April 1998, the Company was a development stage activity. Since
the Company now has continuing business revenues, comparative financial
information does not include losses accumulated during the development stage
period not part of the financial statement period.
At December 31, 1998, the Company has a net operating loss carryforward of
approximately $2,254,000 after limitations based on changes in ownership.
Basic loss per share was computed by dividing the Company's net loss by the
weighted average number of common shares outstanding during the period. There is
no presentation of diluted loss per share as the effect of common stock options,
warrants and convertible debt amounts are antidilutive. The weighted average
number of common shares used to calculate loss per common share during 1998 and
1997 was 7,697,295 and 915,637 respectively.
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share". The Statement established standards for computing
and
F-6
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
presenting earnings per share (EPS). It replaced the presentation of primary EPS
with a presentation of basic EPS and also requires dual presentation of basic
and diluted EPS on the face of the income statement. The Statement was
retroactively applied to the 1997 loss per share but did not have any effect.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those amounts.
Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value information, whether or not recognized in
the balance sheet, where it is practicable to estimate that value. The carrying
value of cash, cash equivalents, accounts receivable and notes payable
approximates fair value.
Impairment of Long-Lived Assets:
The Company has not completed it's evaluation of the adoption of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." However, management believes any such effect will not be
material.
Revenue Recognition:
Telecommunication revenues from services provided are recognized and billed
as services are performed.
Major Customer:
During the year ended December 31, 1998, approximately 70% of the company's
revenue was from one customer. Also, 65% of accounts receivable are from this
customer who also was factored.
F-7
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Goodwill:
Goodwill is stated at cost and is amortized on a straight line basis over a
life of 15 years. Amortization expense is $2,685, for the year ended
December 31, 1998.
Stock Options:
The Company recognizes compensation for stock options granted to employees
in accordance with Accounting Principles Board Opinion No. 25.
NOTE 3--NOTES RECEIVABLE:
In July 1996, the Company issued 3,166,667 shares of common stock to investors
for the sum of $950,000. During the year ended December 31, 1996, the Company
received $347,700 and the balance of $602,300 was received during the year ended
December 31, 1997.
NOTE 4--DUE TO FACTOR:
In May 1998, the Company entered into a factoring agreement; financing the
accounts receivable of their major customers. At December 31, 1998, the
outstanding balance due to the factor, represents approximately 70% of the
customers' open balance. Advances from the factor totaled $509,036 (before
customer repayments) from May, 1998 to December, 1998 and were used to pay
operating expenses as well as vendor purchases. In February 1999, the Company
terminated the factoring agreement and paid the outstanding balance in full.
NOTE 5--NOTES PAYABLE:
In August 1998, the Company issued $300,000 of convertible debentures due
August 14, 1999 to non-related parties. The debentures accrued interest at 10%.
The debentures are convertible into the Company's stock at $1.25 or 70% of the
lowest closing bid price of the common stock, 30 trading days preceding the
conversion date. During the period August through December 1998, $119,512 of
debentures were converted to 269,158 shares of common stock. In connection with
the transaction, the Company issued 30,000 warrants to purchase 30,000 shares of
common stock at $1.25 per share. Financing costs of this transaction were
deferred, and are being amortized to the convertible debentures maturity date.
Prior to 1998, the Company received a loan in the amount of $50,000. The
loan was from a non-related party (Fiscal Concepts, Inc.) and the note stated
that no interest was to be paid. During 1998, the repayment due date was
extended. The loan is due upon notification from the maker or upon the
anniversary date of the renegotiation. Since it is anticipated that this loan
will be repaid within one year and there is not interest due; imputed interest
in accordance with APB#21 has not been calculated.
F-8
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 5--NOTES PAYABLE:--(CONTINUED)
In November 1997, the Company entered into a joint venture agreement with a
group of unrelated foreign investors which provided for their participation of
future profits of the Company in return for cancellation of indebtedness. In
June 1998, the Company issued on aggregate of 6,000,000 shares to these
investors in consideration of the termination of the joint venture.
NOTE 6--STOCKHOLDERS' DEFICIT:
During the period August 1998 to December 31, 1998, the Company issued
269,158 shares of its common stock upon the conversion of $119,512 of the
debentures referred to in Note 5.
The Company also issued 500,000 shares of its common stock to related
parties of an officer and an officer as repayment of $100,000 advanced to the
Company during the year.
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share". The Statement established standards for computing
and presenting earnings per share (EPS). It replaced the presentation of primary
EPS with a presentation of basic EPS and also requires dual presentation of
basic and diluted EPS on the face of the income statement. The Statement was
retroactively applied to the 1997 loss per share but did not have any effect.
Upon completion of the reincorporation on October 6, 1997, the Company's
capitalization consisted of 50,000,000 shares of common stock and 5,000,000
shares of preferred stock. On December 1, 1997, the shareholders approved a
reverse one for twenty common stock split. The stock split has been reflected
retroactively in the accompanying financial statements and all applicable
references as to the number of common shares and per share information.
NOTE 7--COMMITMENTS AND CONTINGENCIES:
The Company was a development stage company and had no significant revenues
and limited financing during the first three months of 1998. Additionally, the
Company, as shown in the accompanying consolidated financial statements, has an
accumulated deficit of $2,254,495 at December 31, 1998 and incurred a net loss
of $449,339 during the year ended December 31, 1998. Subsequent to June 30,
1998, the Company is no longer a development stage company since revenues are
continuing.
The Company rents its facility under a lease agreement through August 31,
2003.
F-9
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 7--COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
Future minimum lease payments under these agreements for the years ended
December 31, are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 90,500
2000............................................................ 90,500
2001............................................................ 90,500
2002............................................................ 98,644
2003............................................................ 98,644
--------
$468,788
--------
--------
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 was $48,834 and
$36,532, respectively.
NOTE 8--STOCK COMPENSATION PLAN:
During the year ended December 31, 1998, the company granted 1,180,000
stock options, with a life of 10 years, to certain officers/directors, employees
and non-employees that may be exercised at prices ranging from $.375 to $5.00
per share. Subsequent to December 31, 1998, the Company pursuant to the plan,
granted 795,000 additional stock options, also with a 10 year life, to certain
employees and non-employees that may be exercised at a price of $.59 per share.
These options vested immediately upon the date of issuance.
The following table summarizes certain information relative to stock
options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INCENTIVE STOCK OPTIONS SHARES EXERCISE PRICE
- ------------------------------------------------------------------ --------- ----------------
<S> <C> <C>
Granted........................................................... 1,180,000 $ 1.69
Exercised......................................................... 0 --
---------
Outstanding--December 31, 1997.................................... 0 --
Expired/cancelled................................................. 0 --
Granted........................................................... 0 --
---------
Outstanding--December 31, 1998.................................... 1,180,000 1.69
---------
---------
Exercisable--December 31, 1998.................................... 497,500 1.69
---------
---------
</TABLE>
The Company recognizes compensation for stock options granted to employees
in accordance with APB#25 and has adopted SFAS # 123, Accounting for Stock Based
Compensation for non-employees. The fair value of options granted in 1997 was
estimated as of the grant date with the following assumptions: no dividend for
all years, risk-free interest rate of 6%, expected life of ten years and
expected amount to be exercised at 100%. The Intrinsic value method does not
recognize compensation cost in the financial statements when options are
granted. Had the Company determined compensation based on the fair value at the
F-10
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 8--STOCK COMPENSATION PLAN:--(CONTINUED)
grant date for its stock options, the Company's net loss would have been
increased to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
Net Loss:
<S> <C>
As reported..................................... $ (449,339)
=============
Pro-forma....................................... $ (553,514)
=============
Net loss per share:
As reported..................................... $ (0.06)
-------------
Pro-forma....................................... $ (0.07)
-------------
</TABLE>
NOTE 9--SUBSEQUENT EVENT:
In January 1999, the Company issued $550,000 principal amount of
convertible debentures due to non-related parties. The debentures accrue
interest at 10%, and are convertible into the Company's common stock at prices
related to market. Subsequent to the issuance of the debentures, all the
debentures were converted into shares.
F-11
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash....................................................................... $ 498,048 $ 28,297
Accounts receivable........................................................ 1,715,707 223,413
Investment................................................................. 6,000,000 --
Prepaid expenses........................................................... 163,350 8,278
Loans and exchanges........................................................ 29,200 --
Deferred financing costs--net of amortization.............................. -- 47,057
------------- -----------
Total current assets.................................................... 8,406,305 307,045
------------- -----------
Fixed Assets:
Machinery & equipment, net of accumulated depreciation..................... 29,138 --
------------- -----------
Other Assets:
Goodwill--net of amortization.............................................. 222,166 40,273
Organization expense--net of amortization.................................. 23 128
------------- -----------
Total other assets...................................................... 222,189 40,401
------------- -----------
Total assets............................................................ $ 8,657,632 $ 347,446
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Convertible debentures payable............................................. $ -- $ 290,000
Loan payable............................................................... 50,000 50,000
Accounts payable, accrued expenses and taxes payable....................... 574,078 82,042
Due to factor.............................................................. -- 93,748
Corporation taxes payable.................................................. 100 100
------------- -----------
Total current liabilities............................................... 624,178 515,890
------------- -----------
Long-Term Liabilities:
Loans payable--stockholders'............................................... 1,245 19,196
------------- -----------
Total long-term liabilities............................................. 1,245 19,196
------------- -----------
Total liabilities....................................................... 625,423 535,086
------------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000,000 shares authorized and
-0- issued and outstanding
Common stock, $.001 par value per share, 50,000,000 shares authorized
13,371,283 and 6,929,082 issued and outstanding, respectively........... 13,371 6,929
Additional paid in capital in excess of par value.......................... 22,484,841 1,794,292
Deficit.................................................................... (14,466,003) (1,988,861)
------------- -----------
Total stockholders' equity (deficit).................................... 8,032,209 (187,640)
------------- -----------
Total liabilities and stockholders' equity.............................. $ 8,657,632 $ 347,446
------------- -----------
------------- -----------
</TABLE>
F-12
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Revenues:
Sales........................................................................... $ 2,807,749 $ 449,304
Miscellaneous................................................................... 8,159 --
----------- ---------
2,815,908 449,304
Cost of Sales:
Purchases....................................................................... 1,420,009 220,383
----------- ---------
Gross profit....................................................................... 1,395,899 228,921
----------- ---------
Expenses:
Salaries........................................................................ 545,746 56,787
Professional fees............................................................... 227,746 137,486
Fees other...................................................................... 70,039 2,800
Payroll taxes................................................................... 18,102 5,756
Leasing expense................................................................. 8,397 8,259
Travel.......................................................................... 86,013 87,825
Insurance....................................................................... 27,886 16,411
Rent............................................................................ 102,049 41,292
Office expense.................................................................. 21,861 21,032
Miscellaneous................................................................... 12,538 1,915
Registration fees............................................................... 12,469 --
Business development............................................................ 2,923 --
Telephone....................................................................... 52,724 7,688
Contributions................................................................... 1,450 --
Advertising..................................................................... 6,505 --
Amortization expense............................................................ 2,302 7,285
----------- ---------
Total expenses............................................................... 1,198,750 394,536
----------- ---------
Income (loss) from operations................................................... 197,149 (165,615)
Interest expense............................................................. 36,753 17,703
----------- ---------
Income (loss) before provision for income taxes................................. 160,396 (183,318)
Provision for income taxes...................................................... 2,473 387
----------- ---------
Net income (loss)............................................................... $ 157,923 $(183,705)
----------- ---------
----------- ---------
Net income (loss) per share of common stock based upon 11,698,334 and 6,929,082
(weighted average) shares issued, respectively................................ $ 0.01 $ (0.03)
----------- ---------
----------- ---------
</TABLE>
F-13
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss)................................................................. $ 157,923 $(183,705)
Adjustment to reconcile net income (loss) to net cash (used in) operating
activities:
Amortization expense........................................................... 2,302 7,285
(Increase) in accounts receivable.............................................. (1,619,216) (223,413)
(Increase) in loans and exchanges.............................................. (29,200) --
(Increase) in prepaid expenses................................................. (163,350) (8,278)
Decrease (increase) in deferred financing costs................................ 19,797 (55,875)
Cash (repayments) received--factor............................................. (65,193) 93,748
Increase in accounts payable, accrued expenses and taxes payable............... 469,497 46,573
----------- ---------
Net cash (used in) operating activities..................................... (1,227,440) (323,665)
----------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets....................................................... (29,138) --
----------- ---------
Cash Flows from Financing Activities:
(Decrease) Increase of convertible debentures payable.......................... (180,488) 290,000
(Decrease) in notes payable.................................................... -- (250,000)
Loans from stockholders and others............................................. -- 8,316
Conversion of convertible debenture--stock issued.............................. 676,319 10,000
Exercise of warrants........................................................... 244,937 290,000
Private placement.............................................................. 1,008,469 --
----------- ---------
Net cash provided by financing activities................................... 1,749,237 348,316
----------- ---------
Net increase in cash.............................................................. 492,659 24,651
Cash January 1.................................................................... 5,389 3,646
----------- ---------
Cash September 30,................................................................ $ 498,048 $ 28,297
----------- ---------
----------- ---------
Supplemental Disclosures:
Income tax..................................................................... $ 780 --
----------- ---------
----------- ---------
Interest paid.................................................................. $ 749 --
----------- ---------
----------- ---------
</TABLE>
F-14
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the nine month period ended September 30,
1999 is not necessarily indicative of the results to be expected for the full
year.
2. MATERIAL EVENTS
During the nine months ended September 30, 1999, the following events
occurred:
In the six months ended June 30, 1999, the company issued 1,835,033 shares
of common stock which represented the conversion of $850,000 of convertible
debentures issued August 1, 1998 and due August 1, 1999. Relating to the same
transaction, the company issued 167,500 shares when warrants that were issued as
part of the convertible debenture transaction were exercised.
In June 1999 the company issued 316,499 shares in a private placement
transaction; the net proceeds to the company were $1,154,969.
In April, 1999, Teltran and Antra Holding Group Inc. exchanged shares of
their company's shares. Teltran owns 2,000,000 shares of Antra's common stock
and Antra owns 2,205,000 shares of our common stock (based upon two 5% stock
dividends in June and September 1999). Antra is a public company engaged through
subsidiaries in the music business. As a result of the transaction, Antra may be
deemed a principal stockholder of Teltran. Each Company exchanged shares which
were valued at $3 per share representing $6,000,000.
The agreement with Antra requires an adjustment in the shares delivered in
connection with the above described exchange if on the first business day of the
year 2000 either Antra's shares or our shares are trading less than 20% below
the market price of the other party's shares, the party whose shares are trading
lower must issue additional share to the other party.
Both Companies are also completing arrangements to form a joint venture
corporation with a subsidiary of Antra, to market records with Antra through a
website to be established on the Internet using the Teltran portal. The new
corporation will have equal ownership by Antra and Teltran after granting a
minority interest to a supplier. Each will be equally responsible for funding
and share equally in losses and profits. This venture initially will market
records owned by an independent third party.
In a transaction effective June 1, 1999, the Company issued 94,500 common
shares to acquired 100% of Channel Net, Ltd.
585,000 common shares, representing a previously declared 5% stock
dividend, were issued during the quarter ended June 30, 1999.
675,456 common shares, representing a declared 5% stock dividend, were
issued during the quarter ended September 30, 1999.
F-15
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated financial statement of
operations for Teltran International Group, Ltd. and Subsidiaries consists of
actual operating results for the nine months ended September 30, 1999 for
Teltran and four months ended September 30, 1999 for ChannelNet (acquisition
date June 1, 1999 to September 30, 1999). The nine month proforma statement of
operations includes the actual operating results for Teltran for that period and
the four months ended (June 1, 1999 to September 30, 1999) September 30, 1999
for ChannelNet, Limited. ChannelNet, Limited was acquired effective June 1, 1999
and began business on that date as well. Usually, proforma information includes
the prior year end statement of operations. However, since ChannelNet, Limited
was not in existence prior to June 1, 1999, the proforma statement of operations
for the year ended December 31, 1998 is the Teltran historical statement of
operations for that period. That statement is presented as part of their audited
financial statement.
In a transaction effective June 1, 1999, Teltran issued 94,500 shares of
its common stock to acquire 100% of ChannelNet, Ltd. Teltran will be obligated
to issue additional shares based upon earnings generated by the acquired
subsidiary during the period September, 1999 through February, 2001.
The purchase price was determined as follows:
94,500 common shares @ $2.00 per share = $189,000 (fair market value)
The purchase price was allocated as follows:
<TABLE>
<S> <C>
In U. S. Dollars
Accounts receivable...................................................... $ 8,795
Accounts payable......................................................... (6,598)
------------
Net assets............................................................ 2,197
Purchase price........................................................... 189,000
------------
Goodwill................................................................. $ 186,803
------------
------------
</TABLE>
(a) Amortization of Goodwill:
$186,803 over a 40 year life = $389/month
(b) Miscellaneous adjustment to reflect net assets of ChannelNet prior to
acquisition (May, 1999 transaction of sales and expenses that did not
belong to Teltran).
F-16
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ------------------------
TELTRAN CHANNEL NET ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales.......................................... $ 420,399 $ 2,387,350 $ -- $2,807,749
Miscellaneous.................................. 8,159 8,159
----------- ----------- ------- ----------
428,558 2,387,350 -- 2,815,908
Cost of Sales:
Purchases...................................... 354,621 1,016,388 1,420,009
----------- ----------- ------- ----------
Gross profit...................................... 73,937 1,370,962 -- 1,395,899
----------- ----------- ------- ----------
Expenses:
Salaries....................................... 416,421 129,325 -- 545,746
Professional fees.............................. 217,246 10,500 -- 227,746
Fees--other.................................... 70,039 -- -- 70,039
Payroll taxes.................................. 18,102 -- -- 18,102
Leasing expense................................ 8,397 -- -- 8,397
Travel......................................... 81,762 4,251 -- 86,013
Insurance...................................... 27,886 -- -- 27,886
Rent........................................... 102,049 -- -- 102,049
Office expense................................. 11,687 10,174 -- 21,861
Miscellaneous.................................. 9,144 1,197 2,197(b) 12,538
Registration fees.............................. 12,469 -- -- 12,469
Business development........................... 2,923 -- -- 2,923
Telephone...................................... 101,724 -- -- 52,724
Contributions.................................. 1,450 -- -- 1,450
Advertising.................................... 6,505 -- -- 6,505
Amortization expense........................... 746 -- 1,556(a) 2,302
----------- ----------- ------- ----------
Total expenses.............................. 1,088,550 155,447 3,753 1,198,750
----------- ----------- ------- ----------
Income (loss) from operations..................... (1,014,613) 1,215,515 (3,753) 197,149
Interest expense............................ 36,753 -- -- 36,753
----------- ----------- ------- ----------
Income (loss) before provision
for income taxes............................... (1,051,366) 1,215,515 (3,753) 160,396
Provision for income taxes........................ 2,473 -- -- 2,473
----------- ----------- ------- ----------
Net income (loss)................................. $(1,053,839) $ 1,215,515 $(3,753) $ 157,923
----------- ----------- ------- ----------
----------- ----------- ------- ----------
</TABLE>
F-17
<PAGE>
CHANNELNET LIMITED
COMPANY INFORMATION
31.5.1999
Incorporated in England on 13th May 1999
Number 3772561
<TABLE>
<S> <C>
DIRECTORS B. Lerner Esq. (appointed 16.08.99)
J. Tubbs Esq. (appointed 16.08.99)
M. Thompson Esq. (appointed 09.08.99)
REGISTERED OFFICE Enterprise House
15 Whitworth Street West
MANCHESTER
M1 5GS
BANKERS Whiteway Laidlaw
ACCOUNTANTS Darent Business Services
Accountants
51 Leigh Road
Boothstown Worsley
MANCHESTER
M28 1HP
AUDITORS David Nugent & Co.
Chartered Certified Accountants
& Registered Auditors
51 Leigh Road
Boothstown Worsley
MANCHESTER
M28 1HP
</TABLE>
F-18
<PAGE>
CHANNELNET LIMITED
DIRECTORS' REPORT
31.5.1999
The directors present their report and the financial statements for the
period ended 31.5.1999.
PRINCIPAL ACTIVITY
The principal activity of the company is the supply of telecommunications
services.
YEAR 2000
Our business depends on a computerised accounting system to record the
transactions. We can confirm that our system has been guaranteed as being year
2000 compliant. However we could be at risk if other parties do not adequately
deal with the issue.
We have assessed the possibility of related failures in our significant
suppliers and customers all of whom inform us that they are dealing with the
problem. It is impossible to guarantee that no year 2000 problems will remain.
However the directors feel that they will be able to deal promptly with any
failures that may occur.
DIRECTORS
The directors of the company during the period 13th May 1999 to 31st May
1999 and their interests in the shares of the company as recorded in the
register of directors interests were as follows
<TABLE>
<CAPTION>
31.5.1999
ORDINARY
SHARES
----------
<S> <C>
B. Lerner Esq. (appointed 16.08.99).............................. --
J. Tubbs Esq. (appointed 16.08.99)............................... --
M. Thompson Esq. (appointed 09.08.99)............................ --
</TABLE>
AUDITORS
David Nugent & Co were appointed as Auditors of the company of 7th August
1999 and have agreed to offer themselves for re-appointment as auditors of the
company.
SMALL COMPANY EXEMPTIONS
This report has been prepared in accordance with the special provisions of
Part VII of the Companies Act 1985 relating to small companies.
applicable to small companies.
On behalf of the board
Director
Enterprise House
15 Whitworth Street West
MANCHESTER
11 5GS
9th August 1999
F-19
<PAGE>
CHANNELNET LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
We are required under company law to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements we are required to:
o select suitable accounting policies and apply them consistently;
o make reasonable and prudent judgements and estimates;
o prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in
business.
We are also responsible for:
o keeping proper accounting records;
o safeguarding the company's assets;
o taking reasonable steps for the prevention and detection of fraud.
On behalf of the board
Director
19th August 1999
F-20
<PAGE>
CHANNELNET LIMITED
AUDITORS' REPORT
AUDITORS' REPORT TO THE MEMBERS OF
CHANNELNET LIMITED
We have audited the financial statements on pages 5-8 which have been
prepared under the accounting policies set out on page 7.
RESPECTIVE RESPONSIBLITIES OF DIRECTORS AND AUDITORS
As described on page 3, the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material missatatement, whether caused by fraud or error or other
irregularity. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs as at 31.5.1999 and of its profit for the period
13th May 1999 to 31st May 1999 and have been properly prepared in accordance
with the provisions of the Companies Act 1985 applicable to small companies.
David Nugent & Co.
Chartered Certified Accountants
& Registered Auditors
MANCHESTER
19th August 1999
F-21
<PAGE>
CHANNELNET LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999
<TABLE>
<CAPTION>
1999
NOTE pounds
---- ---------
<S> <C> <C>
Turnover 2 4,678
Net operating expenses
Administrative expenses (3,155)
---------
Profit on ordinary activities
before taxation 1,523
Taxation 4 (152)
---------
Profit on ordinary activities
after taxation 1,371
retained for the 13th May 1999 to 31st May 1999 9
---------
---------
</TABLE>
Movements in reserves are shown in note 9.
None of the company's activities were acquired or discontinued during the above
financial period.
There are no recognised gains and losses in 1999 other than the profit for the
period 13th May 1999 to 31st May 1999.
F-22
<PAGE>
CHANNELNET LIMITED
BALANCE SHEET
AT 31.5.1999
<TABLE>
<CAPTION>
1999
-----------------
NOTE pounds pounds
---- ------- -------
<S> <C> <C> <C>
Current assets
Debtors 5 5,497
-------
5,497
Creditors: amounts falling due
within one year 6 (4,125)
-------
Net current assets 1,372
-------
Total assets less current liabilities 1,372
-------
-------
Capital and reserves
Called up share capital 8 1
Profit and loss account 9 1,371
-------
Total shareholders' funds 7 1,372
-------
-------
</TABLE>
These accounts have been prepared in accordance with:
(a) The special provisions of Part VII of the Companies Act 1985: and
(b) The Financial Reporting Standard for Smaller Entities.
The accounts were approved by the board of Directors on 19th August 1999.
Director
F-23
<PAGE>
CHANNELNET LIMITED
NOTES ON FINANCIAL STATEMENTS
31.5.1999
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
accounting rules.
The company has taken advantage of the exemption from preparing a cash flow
statement conferred by Financial Reporting Standard No. 1 on the grounds that it
is entitled to the exemptions available in Section 246 to 247 of the Companies
Act 1985 for small companies.
Deferred taxation
Deferred taxation is provided on the liability method in respect of the
taxation effect of all timing differences to the extent that tax liabilities are
likely to crystallise in the foreseeable future.
2. TURNOVER
Turnover represents the amount derived from the provision of goods and
services which fall within the company's ordinary activities stated net of value
added tax.
In the opinion of the directors, none of the turnover of the company is
attributable to geographical markets outside the UK. (1999 nil)
3. OPERATING PROFIT
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Operating profit is stated after charging
Auditors' remuneration........................................................... 250
-----
-----
</TABLE>
4. TAXATION
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Corporation tax on profit on ordinary activities at 10%.......................... 152
-----
-----
</TABLE>
5. DEBTORS
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Amounts falling due within one year
Other debtors.................................................................... 5,497
-----
5,497
-----
-----
</TABLE>
F-24
<PAGE>
6. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Other creditors.................................................................. 4,125
-----
4,125
-----
-----
</TABLE>
7. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Profit for the financial period 13th May 1999 to 31st May 1999................... 1,371
New share capital subscribed..................................................... 1
-----
Net addition to shareholders' funds.............................................. 1,372
Opening shareholders' funds...................................................... --
-----
Closing shareholders' funds...................................................... 1,372
-----
-----
</TABLE>
8. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1999
------------------
NUMBER OF
SHARES POUNDS
--------- -----
<S> <C> <C>
Authorised........................................................ 1,000 1,000
----- -----
----- -----
Allotted called up and fully paid
Ordinary Shares of pounds 1 each.................................. 1 1
----- -----
----- -----
</TABLE>
9. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Retained profit for the period 13th May 1999 to 31st May 1999.................... 1,371
-----
-----
</TABLE>
F-25
<PAGE>
APPENDIX 1
CHANNELNET LIMITED
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999.
<TABLE>
<CAPTION>
1999
-------------
pounds pounds
----- -----
<S> <C> <C>
Turnover
Sales....................................................................................... 4,678
Less overheads
Salaries and wages.......................................................................... 2,805
Auditors' remuneration...................................................................... 250
Accountants' fees........................................................................... 100
-----
3,155
-----
Net profit for the year 1,523
-----
-----
</TABLE>
A-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Sixth of the Certificate of Incorporation of the Company provides
with respect to the indemnification of directors and officers that the Company
shall indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of
the Delaware General Corporation Law, as amended from time to time, each person
that such Sections grant the Company the power to indemnify. Article Sixth of
the Certificate of Incorporation of the Company also provides that no director
shall be liable to the corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, except with respect to
(1) a breach of the director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) liability under
Section 174 of the Delaware General Corporation Law or (4) a transaction from
which the director derived an improper personal benefit, it being the intention
of the foregoing provision to eliminate the liability of the corporation's
directors to the corporation or its stockholders to the fullest extent permitted
by Section 102(b)(7) of Delaware General Corporation Law, as amended from time
to time.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering. Other than
the SEC registration fee amounts set forth below are estimates:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,079
Printing and engraving expenses............................. 7,500
Legal fees.................................................. 35,000
Accounting fees............................................. 10,000
Miscellaneous expenses...................................... 2,000
----------
$ 67,579
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all of our unregistered
securities sold by us since December 31, 1995. All share numbers have been
adjusted retroactively to reflect a 1 for 20 reverse stock split on
December 31, 1997.
On May 1, 1996, we issued an aggregate of 500,000 shares of common stock to
the stockholders of International in exchange for all of the outstanding capital
stock of International. A total of nine shareholders received these securities.
Of these, three were officers or directors of International and the other six
were accredited, institutional investors, all of which Teltran believes are
non-United States persons.
In June 1996 we issued 158,333 shares of our common stock in accordance
with Regulation 504 of the Securities Act of 1933 for approximately $950,000.
In September, 1998 we issued 250,000 shares each to an affiliate of Byron
Lerner and to another officer and director in satisfaction of indebtedness of
$100,000. We believe the issuance of such shares is exempt from the registration
requirements pursuant to Section 4(2) of the Securities Act.
In May 1998 we issued 6,000,000 shares of our common stock to twenty
unaffiliated entities which collectively had the right to participate in our
future earnings pursuant to agreement. These investors acquired the shares for
investment. We believe the issuance of such shares is exempt from the
registration requirements pursuant to Section 4(2) of the Securities Act.
In August 1998 and February 1999 we issued convertible notes in the
aggregate principal amount of $850,000 to several foreign investors in a
transaction exempt pursuant to Rule 504. We obtained proceeds of $300,000 in the
August 1998 offering and $550,000 in February 1999 offering. In connection with
the transaction we issued warrants exercisable to $1.25 per share in August to
purchase 30,000 shares of common stock. In
II-1
<PAGE>
February 1999 we issued warrants exercisable at $.625 per share to purchase an
aggregate of 137,500 shares of common stock. All of the notes have been
converted and the corresponding shares issued. All such warrants have been
exercised prior to April 8, 1999. We received gross proceeds of approximately
$975,000 from the sale of notes and exercise of warrants.
In April 1999 we issued 2,000,000 shares of common stock to Antra Holding
Group Inc. in exchange for 2,000,000 shares of that corporation's shares. The
Company believes that the transaction was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2).
As of May 1999 we acquired all the shares of Omni Communications Inc. This
company is an authorized agent of UniDial Communications, which operates as an
independent network of telecommunications resellers. We issued 115,000 shares of
our common stock to the sellers, of which James Tubbs received 100,000 shares.
Mr. Tubb is an officer and director of our company. The Company believes the
issuance of these shares is exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) thereof. We have been advised
that the only issuance of this company's shares were to the three sellers, all
of whom were accredited investors.
In August 1999 the Company issued 94,500 shares of common stock to the sole
stockholder of ChannelNet,Ltd. The Company believes the issuance of these shares
is exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof. Prior to this acquisition by us, ChannelNet in 1999 issued
its shares to its sole stockholder in an offshore transaction. No other
ChannelNet shares were issued.
The Company issued an aggregate of 3,000,000 options between December 1998
and May 1999, all pursuant to the Company's stock plans. All of these options
were issued to officers, directors, employees and consultants to the Company all
of whom were finally familiar with the Company's operation. Of the options
issued 1,180,000 options in December 1998 with the balance issued between
January and May 1999.
The board of directors has recently authorized the grant to Byron Lerner of
options to purchase 400,000 shares, with an exercise price of $4.00 per share,
as compensation. The options are exerciseable over a period of two years.
In June 1999 the Company issued a total of 316,499 shares of its common
stock in connection with a private placement of its securities. An additional
6,000 shares were issued to a finder and an additional 776,529 warrants to
purchase our common stock at $6.00 per share were issued to finders. The
purchasers of the shares were accredited investors and the Company believes this
transactions is exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
In November 1999, Teltran sold 625,000 shares for $8.00 per share and
issued warrants to purchase 2,600,000 shares at prices ranging from $8.00 to
$10.25 per share. If the market price of Teltran's shares approximately 60 days
after a registration statement covering the shares issuable upon exercise of the
warrants is less than the stated exercise price, the actual exercise price of
these warrants will be reduced. Some of the persons named in the prospectus as
selling stockholders acquired additional shares and warrants. These additional
shares, including the shares issuable upon exercise of the additional warrants,
are not being offered in this prospectus and registration statement.
As of December 18, 1999, Teltran acquired all of the issued and outstanding
shares of Internet Protocols Ltd., a company engaged in rendering services to
Internet service providers and others. Teltran issued 1,481,566 shares in
connection with the acquisition. We have also purchased shares of Internet
Protocols Ltd. directly from the company for approximately $3,000,000 payable in
installments through August 2000. The ultimate purchase price for the shares
acquired from the former shareholder may be increased or decreased depending
upon the valuation of Internet Protocols Ltd. in November 2000. One-half of the
shares issued to the former shareholder were deposited in escrow covering
indemnification and possible downward revaluation. At the time of the
acquisition, Teltran issued an additional 83,886 shares in escrow, which may be
used to satisfy approximately $550,000 of indebtedness of Internet Protocols
Ltd. to its former stockholder.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION*
- ------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation*
3.2 -- Certificate of Ownership and Merger of Spectratek Incorporation by Teltran International Group,
Ltd.*
3.3 -- Amendment to Certificate of Incorporation*
4. -- By-Laws(a)
5.1 -- Opinion of Parker Duryee Rosoff & Haft(e)
10.1 -- 1998 Stock Option Plan*
10.2 -- Employment Agreement between Byron Lerner and Registrant*
10.2(a) -- Employment Agreement between James Tubbs and Registrant(a)
10.3 -- USA Interconnectivity and Support Agreement dated October 12, 1999*
10.4 -- USA Intellectual Property License Agreement dated October 12, 1999 between OzEmail and Registrant*
10.5 -- Telecommunication Services Agreement dated October 15, 1998 between OzEmail and Registrant*
10.6 -- Extension and Modification of OzEmail Agreement(d)
10.7 -- Subscription Agreement dated June 10, 1999(b)
10.8 -- Memorandum Agreement between Registrant and Antra Holdings Group Inc.(b)
10.9 -- (i) Exchange Agreement dated as of July 15, 1999 between Barclay Brydon Limited and Teltran
International Group, Ltd., as amended by the Closing Memorandum dated August 16, 1999(c)
(ii) Memorandum of Closing between and among Barclay Brydon Limited and Teltran International
Group, Ltd., dated August 16, 1999(c)
10.10 -- Stockholders' Agreement dated as of September 30, 1999 among Teltran International Group, Ltd.,
Antra Group Holdings, Inc., and Recordstogo.com Inc.(e)
10.11 -- Telecommunications Services Agreement between Teltran International, Inc. and Pacific Gateway
Exchange(e)
10.12 -- Telecommunications Services Agreement between Teltran International, Inc. and North American
Gateway, Inc.(e)
10.13 -- Exchange Agreement among Teltran International Group, Inc. and the Sellers named on Schedule A.(e)
10.14 -- Deferred Equipment Purchase Agreement, dated August 16, 1999, between Barclay Brydon Limited and Teltran
International Group, Limited.(f)
10.15 -- ChannelNet Limited Service Provider Agreement with Norweb Telecom Limited, dated November 23, 1999.(f)
21.1 -- Subsidiary List(d)
23.1 -- Consent of Liebman Goldberg & Drogin LLP(f)
23.2 -- Consent of David Nugent & Co.(f)
23.3 -- Consent of Parker Duryee Rosoff & Haft (included as part of Exhibit 5.1)
27 -- Financial Data Schedule*
</TABLE>
* Previously filed with the Company's Form 10-SB on March 24, 1999
(a) Filed with the Company's Amendment 1 to its Form 10-SB
(b) Filed with the Company's Amendment 1 to its Form SB-2
(c) Filed with the Company's Form 8-K, dated August 16, 1999.
(d) Filed with the Company's Amendment 2 to its Form SB-2.
(e) Filed with the Company's Amendment 3 to its Form SB-2.
(f) Filed herewith.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to Item 24 of this Part II to the Registration Statement, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against the public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON DECEMBER 30, 1999.
TELTRAN INTERNATIONAL GROUP, INC.
By: _________/s/ BYRON LERNER ________
Byron Lerner
Chief Executive Officer
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------- -------------------------------------------- -----------------
<S> <C> <C>
/s/ BYRON LERNER President, Chief Executive Officer, Director December 30, 1999
- ---------------------------------------- (Principal Executive, Financial and
Byron Lerner Accounting Officer)
/s/ JAMES TUBBS Director December 30, 1999
- ----------------------------------------
James Tubbs
/s/ MARTIN MILLER Director December 30, 1999
- ----------------------------------------
Martin Miller
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
3.1 -- Certificate of Incorporation*
3.2 -- Certificate of Ownership and Merger of Spectratek Incorporation by Teltran
International Group, Ltd.*
3.3 -- Amendment to Certificate of Incorporation*
4. -- By-Laws(a)
5.1 -- Opinion of Parker Duryee Rosoff & Haft(e)
10.1 -- 1998 Stock Option Plan*
10.2 -- Employment Agreement between Byron Lerner and Registrant*
10.2(a) -- Employment Agreement between James Tubbs and Registrant(a)
10.3 -- USA Interconnectivity and Support Agreement dated October 12, 1999*
10.4 -- USA Intellectual Property License Agreement dated October 12, 1999 between OzEmail and
Registrant*
10.5 -- Telecommunication Services Agreement dated October 15, 1998 between OzEmail and
Registrant*
10.6 -- Extension and Modification of OzEmail Agreement(d)
10.7 -- Subscription Agreement dated June 10, 1999(b)
10.8 -- Memorandum Agreement between Registrant and Antra Holdings Group Inc.(b)
10.9 -- (i) Exchange Agreement dated as of July 15, 1999 between Barclay Brydon Limited and
Teltran International Group, Ltd., as amended by the Closing Memorandum dated
August 16, 1999(c)
(ii) Memorandum of Closing between and among Barclay Brydon Limited and Teltran
International Group, Ltd., dated August 16, 1999(c)
10.10 -- Stockholders' Agreement dated as of September 30, 1999 among Teltran International
Group, Ltd., Antra Group Holdings, Inc., and Recordstogo.com Inc.(e)
10.11 -- Telecommunications Services Agreement between Teltran International, Inc. and Pacific
Gateway Exchange(e)
10.12 -- Telecommunications Services Agreement between Teltran International, Inc. and North
American Gateway, Inc.(e)
10.13 -- Exchange Agreement among Teltran International Group, Inc. and the Sellers named on
Schedule A.(e)
10.14 -- Deferred Equipment Purchase Agreement, dated August 16, 1999, between Barclay Brydon Limited and Teltran
International Group, Limited.(f)
10.15 -- ChannelNet Limited Service Provider Agreement with Norweb Telecom Limited, dated November 23, 1999.(f)
21.1 -- Subsidiary List(d)
23.1 -- Consent of Liebman Goldberg & Drogin LLP(f)
23.2 -- Consent of David Nugent & Co.(f)
23.3 -- Consent of Parker Duryee Rosoff & Haft (included as part of Exhibit 5.1)
27 -- Financial Data Schedule*
</TABLE>
* Previously filed with the Company's Form 10-SB on March 24, 1999
(a) Filed with the Company's Amendment 1 to its Form 10-SB
(b) Filed with the Company's Amendment 1 to its Form SB-2
(c) Filed with the Company's Form 8-K, dated August 16, 1999.
(d) Filed with the Company's Amendment 2 to its Form SB-2.
(e) Filed with the Company's Amendment 3 to its Form SB-2.
(f) Filed herewith.
<PAGE>
THIS AGREEMENT is made as of the 16th day of August 1999
BETWEEN
(1) BARCLAY BRYDON LIMITED, a company registered in England (registered number
3445941) ("BB") at 201 Chapel Street, Manchester M3 5EQ, and
(2) TELTRAN INTERNATIONAL GROUP, LIMITED, a Delaware Corporation ("Teltran") at
One Penn Plaza, New York, New York
Operative Provisions
1. Sale
BB agrees to sell or to procure the sale with full title guarantee and
Teltran agrees to purchase the equipment ("the Equipment") all of which is
utilized to conduct the business of Channelnet Ltd. ("Channelnet") and
Atlantic Communications Corporation, Ltd. ("Atlantic") which constitutes all
the equipment previously used by the respective business. A brief detail of
the Equipment is set out in the Schedule which is presently incomplete. The
Equipment will become the property of Teltran when Teltran has paid the
consideration set out in clause 2 in full. The sale and purchase of any of
the Equipment is conditional upon the sale and purchase of all the
Equipment.
2. Price and Payment
The consideration for the Equipment shall be three hundred and thirty
thousand pounds (pounds 330,000) exclusive of VAT.
Teltran will pay the consideration to BB (or as it may direct) as follows:
2.1 in 18 equal monthly instalments of (pounds 18,333.33) the first
payment to be made on September 16, 1999 and the final payment to be
made on February 16, 2001
<PAGE>
provided that Teltran may pay the outstanding balance in full at any
time on or before February 16, 2001.
In addition, this Agreement shall terminate if Teltran does not acquire
Channelnet.
Moreover,
3. Delivery
BB will procure that the Equipment is available at, or delivered to Exchange
House immediately upon completion of this Agreement.
4. Warranties
4.1 In addition to the warranty set forth in paragraph 1, BB warrants that
it has title to the Equipment and is able to transfer such title to
Teltran in accordance with the terms of this Agreement, and that the
Equipment as set forth above is suitable for use in the businesses of
its former subsidiary companies Channelnet and Atlantic ("the
Subsidiaries") as conducted at the date of this Agreement.
4.2 BB undertakes to procure forthwith any license, approval or other
consent required from any third party to complete the transfer of the
Equipment to Teltran and for this use of such Equipment by Teltran or
the Subsidiaries, and will indemnify and keep indemnified Teltran and
the Subsidiaries against any and all liabilities, costs, claims,
expenses, awards, damages, demands and losses which they may incur as
a result of or in connection with any failure by
<PAGE>
BB to obtain any such license, approval or other consent. Any support
agreements related to the Equipment shall also be assigned.
4.3 BB will use its best endeavours to transfer forthwith the benefit of
any guarantee, condition or warranty which may have been given by the
manufacturer of the Equipment or otherwise implied in favour of BB to
Teltran and to the extent that the same is not so transferred to hold
the same on trust for Teltran.
5. Teltran's obligations
Teltran agrees that for period from completion of this Agreement to the date
that the purchase price is paid in full in accordance with clause 2 as follows:
5.1 to use the Equipment strictly in accordance with its current user
instructions and not without the prior written permission of BB (such
permission not to be unreasonably withheld or delayed), to interfere
with, adjust, modify or misuse it in any way, and to maintain the
Equipment in accordance with all written recommendations of the
relevant manufacturer/supplier provided to Teltran;
5.2 not without the prior written permission of BB (such permission not to
be unreasonably withheld or delayed) to remove the Equipment from the
address to which the Equipment was delivered pursuant to clause 3,
provided if the location of the business address of Channelnet or
Atlantic changes, the Equipment may be removed to such location;
5.3 not to sell, mortgage or charge the Equipment by way of security or
allow the Equipment to become subject to a lien or other encumbrance
other than a lien or encumbrance created or granted by BB; and
<PAGE>
7. General
7.1 Any notices to be given under this Agreement shall be in writing and
shall be delivered by hand or sent by registered airmail post to the
party concerned at the address set out in this Agreement or any such
other address as may have been notified in writing by the relevant
party. Any such notice shall be deemed to have been received by the
addressee, if delivered by hand, upon delivery and, if posted, on the
fourth working day following the date of posting.
7.2 Teltran may assign its rights or obligations under this Agreement
provided Teltran shall remain liable hereunder. BB may not assign its
rights or any obligations under this Agreement but may assign its
rights under this Agreement provided that BB shall provide that such
assignee agrees that such rights are subject always to Teltran's
rights (including right of set off) under this Agreement.
7.3 This Agreement shall be governed in all respects by English Law and
all disputes arising in any way out of or affecting this Agreement
shall be subject to the non-exclusive jurisdiction of the English
courts.
7.4 Notwithstanding completion each of the obligations, warranties,
indemnities, agreements and undertakings contained in this Agreement
shall except in so far as full performed at completion, continue in
full force and effect.
7.5 This Agreement may be executed in any number of counterparts by the
different parties hereto or on separate counterparts, each of which
when executed and delivered shall constitute an original, but all of
which shall constitute one and the same instrument.
7.6 None of the rights of Teltran arising out of this Agreement shall be
varied or restricted by the giving of any time or other indulgence to
any person but shall only be affected by a specific waiver or release
by Teltran and any such waiver
<PAGE>
or release shall be specific to the matters to which it relates, shall
not be deemed to be a waiver of any subsequent breach or default and
shall in no way affect the other terms of this Agreement.
BARCLAY BRYDON LIMITED
By: /s/ Michael Thompson
--------------------------
Michael Thompson, Director
TELTRAN INTERNATIONAL GROUP, INC.
By: /s/ Byron Lerner
-----------------------------
Byron Lerner, President
<PAGE>
CHANNELNET LIMITED
SERVICE PROVIDER
AGREEMENT
IN CONNECTION WITH THE
PROVISION OF TELECOMMUNICATION SERVICES
TO
NORWEB TELECOM LIMITED
NETWORK PROVIDER
1
<PAGE>
THIS AGREEMENT is made 23rd November 1999
BETWEEN
(1) CHANNELNET LTD., whose registered office is at Enterprise House, 15,
Whitworth Street West, Manchester M1 5WG ("ChannelNET" or The Service
Provider) and
(2) NORWEB TELECOM LIMITED, whose registered office is PO Box 14, 410
Birchwood Boulevard, Birchwood, Warrington, WA3 7SA ("the Network Provider
or Norweb")
WHEREAS
The Network Provider wishes to provide Voice Over Internet Protocol (VOIP)
services to its callers and requires telecommunications services from ChannelNET
which ChannelNET shall provide subject to the following terms and conditions.
NOW IT IS HEREBY AGREED as follows:
1. DEFINITIONS
In this Agreement the following terms shall have the following meanings:
"Associated Company" means either parties' ultimate holding company or any
subsidiary thereof ("holding company" and "subsidiary" having the meanings set
out in Section 144 of the Companies Act 1989);
"Billing Period" means the period of time for the billing of Service Fees being
one calendar month.
"Call" means the successful establishment of a connection between a Caller and
ChannelNET's equipment via any public telecommunications operator's system,
enabling the conveyance of signals and messages between Callers and the
ChannelNET's equipment;
"Caller" means a customer of any public telecommunications operator who is to be
charged for calls to the Service Provider at a rate in excess of the normal rate
of tariff applied by the operator in question to the generality of national
public telephone calls.
"Code of Practice" means and includes the prevailing edition of the ICSTIS Code
of Practice for Premium Services and any amendment or substitution thereof made
from time to time, and any other Code of Practice introduced required or
approved by the Director General or other competent authority which applies to
or otherwise affects the Services;
"Director General" means the Director General of Telecommunications.
"Minimum Period" means a period of six months from the Service Commencement
Date;
"Service Commencement Date" means the 23rd Day of November 1999;
"Service Fees" means those fees payable by the Network Provider, calculated at
the rate set out in appendix 1 plus value added tax thereon.
"Service Fees Statement" means a statement of Service Fees payable to
ChannelNET, to be prepared by Norweb in accordance with Clause 3.2 hereof,
setting out details of the number and length of calls made by Callers and
Service Fees due to ChannelNET in respect of the
2
<PAGE>
Billing Period, and "Interim Statement" means a statement in the same form as
the Service Fees Statement but prepared in respect of a different period of
time;
"Services" means VOIP or other services as the Service Provider shall make
available to Callers including any information contained therein.
2. SERVICE PROVIDER'S OBLIGATIONS
2.1 Subject to the other terms and conditions hereof the Service Provider
shall make available the Services to Callers as from the Service
Commencement Date.
2.2.1 a quality and content and are advertised, promoted, operated and presented
in a manner so as not to bring or be likely to bring the Network operators
name, or that of its Associated Company into disrepute and contain nothing
which is likely in the light of generally prevailing standards of decency
and propriety to cause offense to Callers or members of the public
generally.
2.3 The Service Provider shall be responsible at its sole expense for all
advertising and promotion of the Services. In all such advertising and
publicity material the Service Provider shall also:-
(a) state in a reasonably legible form the charges (including VAT) which
Callers must make to the public telecommunication operators in order
to access and use the Services including, if applicable, the different
charging rates which may apply for calls made at different periods
during the day, as published from time to time by public
telecommunications operators pursuant to their obligations contained
respectively in their licences;
(b) comply with any requirements Norweb may from time to time have in
relation to presentation of the Service Provider's telephone numbers
and geographical coverage;
(c) not state nor imply any approval or preference by Norweb of the
Service Provider, the Services or any part thereof.
2.4 The Service Provider shall not operate the Services (including but not
limited to use of any special number for access to the Services) in a way
which, nor include in the Services or any part thereof any information or
material which:
(a) is defamatory, offensive or abusive or of an obscene or menacing
character; or
(b) constitutes a violation or infringement of the rights of any person,
firm or company (including, but not limited to rights of
confidentiality or copyright); or
(c) would make the Services unlawful or involve or facilitate the
commission of a criminal offense or other wrong actionable in the UK;
and the Service Provider shall indemnify and hold harmless Norweb against all
liability, costs, losses and expenses arising out of or in any way connected
with any failure by the Service Provider so to do.
2.5 Without prejudice to the generality of the foregoing, in the event that
ICSTIS and/or the Director General and/or other relevant authority form
the view or determine, that the Service Provider is in actual or potential
breach of the Code of Practice or any applicable law, the
3
<PAGE>
Service Provider shall comply with any instructions or recommendations
issued by ICSTIS and/or the Director General and/or other relevant
authority. The Service Provider shall also contribute to the necessary
compensation funds as operated by ICSTIS and/or the Director General
and/or or other relevant authority.
2.6 The Service Provider shall at all times comply with obligations and
regulations imposed by law in the UK as they may affect the Services and
shall also upon the request of Norweb at any time provide such information
and take such steps as may be necessary in order to enable Norweb to
comply with all regulations conditions and obligations from time to time
imposed by law upon Norweb in relation to the Services
2.7 The Service Provider shall in connection with the equipment it operates in
order to provide the Services ensure that it complies at all times with
the relevant provisions of the Telecommunications Act 1984, and any
license granted thereunder which governs the running of a
telecommunications system by the Service Provider and shall as necessary
comply at all times with the relevant provisions of the Consumer Credit
Act 1974, the Financial Services Act 1986, the Data Protection Act 1986,
as amended or replaced and any other applicable legislation.
2.8 The Service Provider shall take such steps as are reasonably necessary to
ensure access to the Services and in particular to ensure that sufficient
lines, ports and other apparatus are available to meet all reasonably
expected demand thereof, taking account of the fact that access to the
Services may be achievable through the systems of other public
telecommunication operators. Furthermore Norweb shall have the right in
its discretion to suspend, bar or restrict access to the Services if at
any time the number of calls or attempted calls to the Service Provider
causes or is liable to cause congestion or other disruption within any
part of the Norweb System.
2.9 In any case where the Service Provider is at his request allocated a
special telephone number applicable to the Services the Service Provider
shall be responsible for all necessary investigations and inquiries as to
the legitimacy of use of such number and Norweb shall have no liability
whatsoever with respect to the number chosen and its use by the Service
Provider.
2.10 For the purpose of Clause 2.2 and 2.6 Norweb opinion shall be final and
binding as to what brings or is likely to bring Norweb's name into
disrepute. As to what is likely to cause offence to Callers and what is
defamatory, abusive, obscene or menacing the opinion of ICSTIS shall be
final and binding. In relation to any Code of Practice, and without
prejudice to Norweb's own discretion and opinion, the opinion of ICSTIS or
other relevant body responsible for its administration as to whether or
not there has been a breach thereof shall be deemed to be final and
binding.
3. SERVICE FEES AND PAYMENT OBLIGATIONS
3.1 The Network Provider shall (subject as provided in this Clause) pay to
ChannelNET the Service Fees as set out in appendix 1 per minute plus vat
thereon.
3.2 The Service Fees shall be calculated by Norweb who shall prepare a Service
Fees Statement which shall be delivered to the Service Provider following
the end of the Billing Period to which the Services Fees Statement
relates. The Network Provider shall ensure that payment of Service Fees to
ChannelNET is effected within thirty days of the delivery of the Service
Fees Statement. Provided that Norweb may withhold payment if any part of
the service is alleged to be fraudulent, illegal or contrary to the Code
of Practice. If subsequent to a payment being made, an upstream public
telecommunications operator withholds payments to Norweb relating
4
<PAGE>
to calls because of alleged fraud, illegality or breach of the Code of
Practice (other than by Norweb) then Norweb shall be entitled to give
notice to the Service Provider and withhold an equivalent amount from any
further service fees due to the Service Provider until payment is received
by Norweb from the upstream public telecommunications operator.
3.3 Unless otherwise specifically agreed in writing by the parties, all
Service Fees payable shall be calculated by reference to data recorded or
logged by Norweb and not be reference to any data recorded or logged by
the Service Provider.
4. DURATION, SUSPENSION AND TERMINATION
4.1 This Agreement shall come into force on the date hereof and shall continue
subject to the terms hereof unless terminated by either party giving to
the other not less than three month's prior written notice to expire at
the end of the Minimum Period or at the end of any month thereafter.
4.2 Notwithstanding anything to the contrary express or implied elsewhere in
the Agreement Norweb (without prejudice to its other rights) may terminate
this Agreement forthwith in the event that:
(a) a voluntary arrangement is proposed or approved or an administration
order is made, or a receiver or administrative receiver is appointed
of any of the Service Provider's assets or undertaking or a
winding-up resolution or petition is passed or preserved (other than
for the purpose of amalgamation or reconstruction) or if any
circumstances arise which entitle the Court or a creditor to appoint a
receiver, administrative receiver or administrator or to present a
winding-up petition or make a winding up order;
(b) the Service Provider shall default in due performance or observance of
its obligations under Clause 2.2; or
(c) the Service Provider shall default in due performance or observance of
any other material obligation under this Agreement or any other
agreement with Norweb or an Associated Company and (in the case of a
remediable breach) fails to remedy such default within a reasonable
time (not less than 30 days) specified by Norweb in its written notice
so to do; or
(d) Norweb is directed by the Director General or other competent
authority, to cease to facilitate or allow the provision of the
Services; or
(e) Norweb has reason to suspect fraud or deception has occurred or is
likely to occur in future in connection with the Services.
4.3 Without prejudice to its rights of termination at any time under Clause
4.2 Norweb shall have the right by notice in writing to the Service
Provider to require immediate suspension of the Services and to suspend
operation of this Agreement and performance and observance of its
obligations to the Service Provider hereunder in the event of either --
(a) the issue of a formal recommendation to that effect ICSTIS (or any
other person or body responsible for administration of a relevant Code
of Practice) or
(b) occurrence of any of the matters specified in Clause 4.2 until Norweb
shall give further notice of cessation of such suspension or give
notice of termination under Clause 4.2. During the period of such
suspension Norweb shall also have the right to suspend its services
under this Agreement and/or allocate a
5
<PAGE>
telephone number or numbers to the Service Provider which is different
from that previously used for calls by Callers to the Service
Provider.
(c) Norweb is required to do so to avoid a breach of its licence
5. CONFIDENTIALITY
Each party hereto undertakes to the other that it shall keep, and shall procure
that its directors and employees shall keep secret and confidential and shall
not use or disclose to any other person any information or material of a
technical or business nature relating in any manner to the business, products or
services of the other party which the first party may receive or obtain in
connection with or incidential to performance of this Agreement.
PROVIDED THAT THE FIRST PARTY SHALL NOT BE PREVENTED FROM
(a) using any general knowledge, experience and skills not treated by the
other party as confidential or which do not properly belong to the other
party and which the first party may have acquired or developed at any time
during this Agreement;
(b) using the information or material referred to above to the extent such
information or material comes into the public domain otherwise than
through the default or negligence of the first party; and
(c) disclosing the information to any court or regulatory agency (including
the Director General) or as required by the rules or procedures of a
relevant recognised stock or investment exchange
6. FORCE MAJEURE
Neither party shall be held in breach of its obligations hereunder nor liable to
the other for any loss or damage which may be suffered by the other party due to
any cause beyond its reasonable control including without limitation any act of
God, failure, interruption or shortage of power supplies, flood, drought,
lightning or fire, strike, lock-out, trade dispute or labour disturbance, act or
omission of Government, highways authorities, other telecommunications operator
or other competent authority, war, military operations or riot.
7. GENERAL
7.1 Assignment etc.
7.1.1 Each party shall have the right to assign, sub-contract or otherwise
delegate all or any of its rights and obligations hereunder to any
Associated Company upon notification to the Network Provider.
7.1.2 Subject to clause 7.1.1, the Network Provider shall not assign,
sub-contract or otherwise deal with or permit any other person to exercise
or enjoy all or any of its rights and obligations under this Agreement
without the prior written consent of ChannelNet, such consent not to be
unreasonably witheld or delayed.
7.2 Notices
(a) Any notice, invoice or other document which may be given by Norweb under
this Agreement shall be desired to have been duly given if left at or sent
by registered post (whether by letter or, where the parties agree, by
magnetic tape or any other form), telex or facsimile transmission
(confirmed by letter sent by registered post) or,
6
<PAGE>
where the parties expressly agree, by electronic mail, to the Service
Provider's registered office or any other address notified to Norweb in
writing by the Service Provider as an address to which notices, invoices
and other documents may be sent.
(b) ChannelNET's address for the service of any notice by the Network Provider
under this Agreement shall be such address as is shown on the last invoice
rendered to the Service Provider or such address as ChennelNET shall
notify the Network Provider in writing for that purpose.
(c) Any such communication shall be deemed to have been made to the other
party on the day on which such communication ought to have been received
in due course of registered post, telex or facsimile transmission. Any
communication by electronic mail shall be deemed to have been made on the
day on which the communication is first stored in the other party's
electronic mail-box.
7.3 No Waiver
Failure by either party to exercise or enforce any rights conferred by
this Agreement shall not be deemed to be a waive of any such right nor
operate so as to bar the exercise or enforcement thereof or of any other
right on any occasion.
7.4 Entire Agreement
(a) This Agreement represents the entire understanding between the parties in
relation to the subject-matter hereof and supersedes all other agreements
and representations made by either party, whether oral or written and,
subject as provided in Clause 7.5, this Agreement may only be modified if
such modification is in writing and signed by a duly authorised
representative of each party hereto.
(b) This Agreement shall prevail over any inconsistent terms or conditions
referred to in the Service Provider's application or in correspondence or
elsewhere and any conditions or stipulations to the contrary are hereby
excluded and extinguished.
7.5 Regulatory
Norweb shall have the right by notice in writing to the Service Provider
to modify this Agreement at any time so as to comply with any regulations,
determinations or other requirements applicable to or imposed upon by any
competent authority.
7.6(a). Notwithstanding anything to the contrary in this Agreement, Norweb
shall not, except in respect of death or personal injury caused by the
negligence of Norweb, be liable to the Service Provider by reason of any
non-fraudulent representation or implied warranty, condition or other term
or any duty at common law, or under the express terms of this Agreement,
for anything indirect or consequential loss or damage (including without
limitation loss of profits, loss of income, loss of business, loss of
revenue, loss of goodwill, loss of anticipated savings, loss of data or
losses calculated by reference to profits, income, business, revenue,
goodwill, anticipated savings or data) and whether occasioned by the tort
(including negligence) or breach of statutory duty of Norweb or its
employees or agents or otherwise) arising out of or in connection with any
act or omission of
7
<PAGE>
by reference to profits, income, business, revenue, goodwill, anticipated
savings or data) and whether occasioned by the tort (including negligence)
or breach of statutory duty of Norweb or its employees or agents or
otherwise) arising out of or in connection with any act or omission of
Norweb relating to Norweb's obligations arising under this Agreement.
(b) Norweb shall not be liable to the Service Provider (whether in contract,
for breach of warranty, tort including negligence, breach of statutory
duty, non fraudulent misrepresentation, under any indemnity or otherwise
howsoever) for any loss, damages, costs, expenses, claims or liabilities
for which the Service provider may be liable to any third party as a
result of any failure by Norweb, its subcontractors or agents to perform
any of Norweb's obligations arising under this Agreement or in accordance
with this Agreement.
(c) Unless expressly stated in this Agreement, all warranties, conditions and
other terms (whether implied by statute, common law, or arising from a
previous course of conduct or trade custom or usage or otherwise
howsoever) are excluded from this Agreement.
7.7 Governing Law
This Agreement shall be governed by and construed and interpreted in
accordance with English law, and the parties hereby submit to the
jurisdiction of the English courts.
IN WITNESS whereof the duly authorised representatives of the parties have
hereunto set their hands the day and year first above written.
SIGNED for and on behalf )
of CHANNELNET LIMITED )
)/s/ illegible
-------------------------------
SIGNED for and on behalf )
NORWEB LIMITED )
)/s/ illegible
-------------------------------
8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Teltran International Group, Ltd.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated February 22, 1999, relating to the audited financial statements of
Teltran International Group, Ltd. and any reference to our firm under the
caption "Experts" in the Registration Statement.
LIEBMAN GOLDBERG & DROGIN LLP
DECEMBER 29, 1999
GARDEN CITY, NY
<PAGE>
EXHIBIT 23.2
[DAVID NUGENT & CO. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED CHARTERED ACCOUNTANT
CHANNELNET LIMITED
We hereby consent to the use of our Certified Financial Statements dated August
19th 1999 and to all references to our firm included in or made part of this
form SB-2.
/s/ DAVID NUGENT & CO.
-----------------------------------------------------------------------------
David Nugent & Co.
Chartered Certified Accountants
& Registered Auditors
December 29, 1999
Manchester
England
