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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
TELTRAN INTERNATIONAL GROUP, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION 11-3172507
OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE PENN PLAZA, SUITE 4632
NEW YORK, NEW YORK 10119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 643-1283
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
Not applicable Not applicable
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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PART I
BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION GENERAL
Teltran International Group, Ltd. (the "Company") was originally
incorporated in Utah as Spectratek Incorporated in July 1983, and was
subsequently reincorporated in Delaware as Teltran International Group, Ltd. on
October 6, 1997. In 1993 we formed a wholly owned subsidiary, Teltran
International, Inc. ("Teltran International"), and we use Teltran International
to engage in the international telecommunications business. Since 1998 our
primary business is acting as 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 monopoly 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 and. The Internet
telephony industry began in 1995, when experienced Internet users began to
transfer voice messages from one PC to another. Subsequently, software was
introduced which allowed PC users to place international calls via the Internet
to other PC users for the price of a local call. Initially, the growth of
Internet Telephony was constrained due to the poor sound quality of the calls
and because calls were mainly limited to those placed from one PC 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 has also helped to alleviate capacity
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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.
BUSINESS HISTORY
Initially the Company intended to concentrate its efforts on establishing
and operating a global messaging business. Pursuant to that strategy it intended
to provide its 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 its
global messaging service the Company also intended to provide enhanced fax
services including fax broadcasting. The Company postponed its efforts to
provide global messaging services because of its inability at the time to obtain
financing for equipment and due to the new telecommunications opportunities
presented by Internet telephony. It derived insignificant revenues from the
provision of global messaging services for clients through April 1998. After
April 1998, the Company focused its efforts on exploiting opportunities in
Internet Telephony and derived revenues providing services as a refile hub for
OzEmail Interline Pty, Limited ("OzEmail"). OzEmail is a subsidiary of OzEmail
Limited, an Internet provider in Australia.
THE OZEMAIL SYSTEM
OzEmail has assembled a consortium of companies in various countries as
affiliates to establish an Internet network for the transmission and receipt of
its service worldwide. "Voice Over Internet Protocol" is the name of OzEmail's
version of Internet telephony. It is comprised of the proprietary hardware and
software technology developed by OzEmail for the transmission, routing and
connection of communications, including voice telephony, fax and other
transmissions, through the Internet and other conventional systems such as
public switched networks. The proprietary hardware consists of equipment known
as a voice interface node or VIN. The VIN contains OzEmail's proprietary
software and is installed for the receipt of voice transmissions, the conversion
of such transmissions to digital data and the routing of such transmissions over
the Internet. The VIN is also used to reconnect the digital data to voice
transmission on receipt. VINs are also called gateways.
OzEmail licenses the proprietary software, VINs and other trade secrets to
affiliates to provide or establish a network in the country in which an
affiliate is located. OzEmail joins affiliates in various countries 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
this. Each affiliate is required to market the OzEmail service in its territory
offering origination calling services through OzEmail systems. Each local
affiliate is required to pay a fee to OzEmail for all international services of
the affiliate's customers routed through the OzEmail network. The heart of the
system is the VIN, each of which is capable of handling up to twenty-four
simultaneous calls. Each affiliate is required to purchase sufficient VINs from
OzEmail to service its customers. As a VIN can only handle a finite number of
calls, several VINs may be required for each customer. Generally, the customer
of an affiliate is a telecom wholesaler or a pre-paid calling card service
calling center or other entity seeking to provide international calling to its
customers.
The typical structure of a call placed through the OzEmail system is as follows:
o the client of an affiliate's customers originates a local call to
our facility;
o the call is digitized into Internet Protocol and delivered to the
Internet through our VIN;
o on the Internet, the call connects to a VIN of an affiliate located
in a foreign country where it is converted to analog in the foreign
domestic local telephone network; and
o the call is received by the individual in the foreign country.
All the calls are processed by the control node of OzEmail which is also
used for billing, rating and verification purposes. If no affiliate has been
appointed in the country of destination, the call will be routed through a
refile provider in a third country for the least expensive routing.
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OZEMAIL/TELTRAN
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.
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 the OzEmail Internet system utilizing OzEmail technology
and protocols to clients in the United States. In such 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 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 the Company began service to Netherlands Antilles and South Africa for
two clients. The provision of affiliate services to an additional customer in
the United States to the Netherlands Antilles and South Africa have already been
contracted for although we have yet to provide service under that contract. We
have also, subject to final approval of written contracts, received permission
from OzEmail to act as an affiliate in Pakistan, Israel, Bangladesh and the
United Kingdom. If such contracts are finalized, we will be able, subject to
local legislation, to originate outgoing, and terminate incoming, calls through
the OzEmail system in such countries. If we become an affiliate to any such
country, because we are also an affiliate in the United States, it is possible
that we will be able to both originate and terminate calls over the OzEmail
system among these countries. This would provide us with 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 affiliate
arrangements.
OzEmail requires its affiliates to purchase a sufficient number of VINs 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 have
purchased twelve VINs for an aggregate cost of $108,000 to service our existing
United States clients at present levels. We believe our twelve VINs will be
sufficient to handle the call volumes we currently handle. If, however 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 VINs. New VINs presently cost approximately $9,000 per unit. We house
all of our VINs at a technical facility operated by an unaffiliated party
located close to our office in New York City.
OZEMAIL AGREEMENTS
Our affiliate arrangements consist of two three-year agreements, each
expiring May 19, 2002. The first agreement is the Interconnectivity and Support
Agreement which enlists us as a non-exclusive United States affiliate into
OzEmail's international consortium of companies. As a United States affiliate,
we are authorized to operate the OzEmail system in the United States and to
transmit calls over the Internet worldwide through OzEmail's interconnected
systems. As an affiliate we must purchase the necessary VINs from OzEmail to
provide that service. OzEmail collects a service fee equal to 9% of the call
origination fee charged by an originating affiliate to its customer. Affiliates
in the OzEmail system are also obligated to provide termination services to
other OzEmail affiliates in other countries. Affiliates providing such
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. OzEmail collects the fees from the
originating affiliate and, after deducting a service charge, remits the fee to
the terminating affiliate. The second agreement is the USA Intellectual Property
License Agreement which grants us a non-exclusive license for three years to use
OzEmail's software, hardware, intellectual property, advertising/promotional
material, etc. to perform services under the Interconnectivity and Support
Agreement. This Agreement requires us to pay a 1% royalty to OzEmail for use of
its software. We also entered into a Telecommunications Service Agreement
permitting us to act as an OzEmail refile hub.
OTHER POSSIBLE ARRANGEMENTS
The Company regards itself as a telecommunications reseller and may enter
into arrangements for the resale of telecommunications time not involving
OzEmail network. Future arrangments may involve entirely different providers or
a combination of OzEmail and other providers.
GOVERNMENT REGULATION
The Company is licensed as an international reseller pursuant to
Section 214 of the Federal Communication Act. This regulation does not impose
significant restrictions on the Company's daily operations. The Company,
however, is also affected by foreign regulators or foreign government owned
telephone systems. The Company or its affiliates may be required to obtain
permission in connection with its
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client contracts. It will also be subject to foreign regulations if it is able
to establish affiliates in foreign countries. For example, some countries may
limit the origination or termination of calls to and from their jurisdictions.
The United Kingdom regulates the award of premium-rate telephone services.
MARKETING/CUSTOMERS
The Company will market its resale service as part of the OzEmail network
to other carriers, wholesalers, call centers, international phone card providers
and others. During 1998 the Company's principal customer was OzEmail pursuant to
the refile arrangement. During 1998 the Company received approximately 79.3% of
its revenues from OzEmail. The Company does not anticipate that it will derive
significant refile revenues from OzEmail in the future. As a result of resale
arrangements entered into by the Company, the Company does not believe it is
dependent upon OzEmail as a refile customer. The Company derived 17.1% of its
revenues in 1998 from Telecom 2000 for providing it with domestic long distance
capacity. This arrangement has terminated.
The Company markets its service through its executive officers, one of whom
is the vice president of sales and marketing. The Company has also entered into
non-exclusive arrangements with agents who will receive a commission from the
revenues generated by any customer of the Company introduced by an agent.
COMPETITION
Currently, the Company competes with numerous other long distance resellers
and providers. The Company believes its significant competition will be other
independent resellers and providers including providers of competing voice
telephony systems. Other competitors may include large telephone carriers such
as AT&T, MCI/WorldCom and Sprint, other providers of international long distance
services such as STAR Telecommunications, Inc., and corporate alliances that
provide wholesale carrier services, such as "Global One". In addition, the
Company has a non exclusive affiliate arrangement with OzEmail, therefore
OzEmail is free to appoint other affiliates which may result in the Company
facing substantial competition from within the OzEmail system. Many of the
Company's competitors are significantly larger and have substantially greater
market presence, as well as greater financial, technical, operational, marketing
and other resources and experience than the Company.
The Company competes 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 the Company to reduce its
prices and profit margins if its competitors are able to procure rates or enter
into service agreements that are comparable to or better than those the Company
obtains, or are able to offer other incentives to existing and potential
customers.
EMPLOYEES
The Company has seven full-time employees in New York, six 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. The Company also utilizes consultants.
TECHNICAL FACILITY
The Company has an oral arrangement with an unaffiliated party pursuant to
which the Company's technical equipment is housed and maintained at this party's
colocation facility in New York City located on the same block as the Company's
headquarters. All equipment, connections and telephone lines between the Company
and its customers and overseas providers are located at this facility. The
Company utilizes the owner's equipment to effect these connections.
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. UniDial is one of the nation's largest
and fastest growing telecommunications resellers. 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, in consideration for 126,788 shares of our
common stock, will complement our line of telecomunications products and
accelerate our entry into the area of switched and dedicated phone services
including 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.
CHANNELNET
We acquired all of the outstanding shares of Channelnet Ltd. common stock
on August 16, 1999, effective as of June 1, 1999. 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. In addition, Channelnet
is an affiliate of OzEmail 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. At the closing of the acquisition, we also agreed to
purchase, subject to the completion of our due diligence, an entity owned by the
former stockholder of Channelnet. We also entered into an agreement with such
former stockholder to purchase certain equipment owned by that entity that are
necessary for the operation of the Channelnet business. Pursuant to 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
pounds 370,000 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 such individual a number of
shares of our common stock based on the future actual earnings of the Channelnet
business.
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INTERNET PORTAL
Because it presented an opportunity that could be accomplished
inexpensively, in February 1999 the Company instituted a web portal. A portal is
a website which enables the user to access various other web sites without
multiple steps thereby saving the user time. The Company believes that
maintaining an Internet portal will assist it in establishing a presence as an
Internet service provider. While maintaining a website is not related to the
Company's Internet telephony business, the Company believes creating an Internet
environment will enhance the brand recognition of the Teltran name and could
potentially establish the Company as a well regarded Internet brand. The Teltran
portal contains direct links to many commercial sites. Recently, the Company
provided access to brokerage firms through the portal and anticipates receiving
payment from brokerage firms utilizing this service based on customers' business
introduced to the brokerage firm through the portal. The Company has affiliate
arrangements with retailers pursuant to the Company will receive a percentage of
revenues generated by consumers accessing the site through the Company's portal.
The Company proposes to sell advertising on its website if the "hits" or number
of times the website is visited exceeds 1,000,000 hits per month. Based on the
current level of hits, the Company will achieve the proposed number of "hits" by
early fall and, therefore, will be able to offer advertisements on its portal
commencing in the fourth quarter.
The Company is also engaged in additional activity through its web portal.
It is finalizing 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.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes contained elsewhere in this
registration statement.
GENERAL
Prior to April 1998 the Company was essentially a start-up venture. During
1998 most of its revenues were derived from acting as an OzEmail refile hub in
the United States. During 1999 these revenues diminished and the Company
devoted its efforts to promoting our affiliate arrangements with OzEmail as well
as establishing businesses for its web portal. Therefore comparisons between
1998 and 1999 will be of limited value.
During the balance of 1999 and early 2000 the Company's Plan of Operation
is to
o enter into and implement arrangements to provide wholesale customers in
the United States with Internet telephony over the OzEmail system. The
Company has already entered into three agreements to receive and deliver
calls in the United States for termination in the Netherlands Antilles
and South Africa. Two of these agreements commenced in June. In part due
to delays of our customer, we have not yet begun services under the third
agreement. The Company is currently negotiating additional similar
arrangements. Each of these arrangements requires the Company to expend
money for equipment purchases and the payment of various fees.
o become an affiliate of OzEmail in additional countries. We have received
OzEmail's permission to establish affiliates in the United Kingdom,
Bangladesh, Pakistan and Israel, subject to finalizing written contracts.
It is seeking to finalize its arrangement in Pakistan. It has also
acquired an entity in England which will enable the Company to become
an affiliate in the United Kingdom, Ireland and certain other countries.
o develop its Internet portal and provide related business services through
the Internet. The Company contemplates using its portal and to provide
revenue-generating advertising space. The Company also plans to operate
a separate website for the sale of music through its proposed joint
venture.
o augment other aspects of its telecommunications business as well.
There can be no assurance that the Company will be able to successfully
implement its plan.
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SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
The Company's revenues were approximately $541,636 for the first six
months of 1999 while the Company had revenues of approximately $128,855 in the
comparable period in 1998. This increase was due to the Company's generation
of sales of its services as an affiliate in the OzEmail system and the revenues
of Channelnet, its recent United Kingdom acquisition.
In spite of the increase in sales, the Company incurred net losses of
$445,898 in the six months of 1999 which was an increase from the net loss of
$160,396 in the six months of 1998. This increase was primarily due to
an increase in salaries, professional and other expenses which were associated
with the OzEmail affiliates business. Unless the Company obtains additional
customers or otherwise expands its revenue base its accounts receivable and
revenues may be concentrated in one or two customers.
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997
The Company's revenues were approximately $535,000 for 1998 while it
received no revenues in 1997. Over 70% of our revenues in 1998, or $374,500,
were derived from OzEmail for acting as a refile hub. Revenues to be derived
from this activity have declined in 1999.
The Company's operating expenses during 1998 were approximately $709,400
compared to approximately $827,800 during the prior year. The reduced expenses
were primarily attributable to decline in salary expense in 1998 resulting from
a reduction in staff.
Since the Company did not commence income producing operations until 1998,
it does not believe that either 1997 or 1998 are any indication of its future
operations. The Company anticipates that the year 1999 will be the first full
year of operations and that going forward its revenues will be derived from
businesses not conducted in 1998.
The minimum monthly payments for the balance of the year to the Company
under new agreements will exceed total revenues in 1998. Based on these
agreements and other activities the Company believes that it will have
substantially increased revenues in 1999 as it begins to derive revenues from
its voice telephony operations.
LIQUIDITY
We had a working capital of approximately $7,177,795 as at June 30, 1999
compared to a negative working capital of approximately $280,880 as at
December 31, 1998. The increase in capital resulted from receipt of proceeds
from our placements totalling $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.
In most instances capital requirements of our core business are not
significant. To commence any new service, we will be required to purchase voice
interface nodes (VINs), presently costing $9,000 per VIN. Additional VINs may be
required based on call volume after commencement of service, but these will only
be purchased if revenues justify the purchase. There are additional start-up
costs for each new contract. 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 such
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 as our contribution to the proposed joint
venture with Antra Music Group. We have to make minimum cash payments of
approximately $185,000 to our two principal executive officers.
We may have to pay additional costs when we form joint ventures to
establish foreign OzEmail affiliations and to pay for the salaries of executives
to manage and operate such ventures.
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 until September 30, 2000.
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 1900. Computer systems that
calculate, compare or sort using the incorrect data 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, reputational harm 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.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive offices are located at One Penn Plaza, New York,
New York 10019, where it leases approximately 2,400 square feet through
February 28, 2003. The annual base rental for this space is approximately
$90,000. Channelnet, together with a related company, occupies an office at
Enterprise House, 15 Whitworth Street West, in Manchester, U.K. The facility is
leased by the former stockholder of Channelnet, which is obtaining an assignment
of the lease for the premises to Channelnet.
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The Company's telecommunication equipment is located and maintained at a
separate facility owned by a third party. See Item 1--"Description of
Business--Technical Facility."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of August 8, 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,
and
o all our directors and executive officers as a group.
The Company has filed a registration statement covering the sale of
substantially all of the Company's common stock owned by the individuals
listed below. The address of each of these individuals is c/o Teltran
International Group, Ltd., One Penn Plaza, Suite 4632, New York, New York 10119.
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 pursuant
to any option or warrant which is presently exercisable or which may be
exercised within sixty days.
<TABLE>
<CAPTION>
BENEFICIAL
NAME NUMBER OF OWNERSHIP
SHARES PERCENTAGE
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<S> <C> <C>
Byron Lerner(1)......................... 1,148,805 8.6%
James Tubbs(1).......................... 1,201,726 8.9
Martin Miller(2)........................ 538,650 4.0
Peter Biagioli(3)....................... 264,600 2.0
Antra Holding Group Inc. ............... 2,205,000 16.3
All Officers and Directors
(4 persons)(1)(2)(3).................. 3,238,306 20.4%
</TABLE>
(1) Includes currently exercisable options to purchase up to 863,626 shares
of common stock
(2) Includes currently exercisable options to purchase up to 538,650 shares
of comnmon stock
(3) Includes currently exercisable options to purchase up to 264,600 shares
of common stock
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Byron R. Lerner...................................... 55 President, Chief Executive Officer and Director
Executive Vice President, Chief Operating Officer and
James E. Tubbs....................................... 39 Director
Peter Biagioli....................................... 39 Vice President of Sales and Marketing
Martin Miller........................................ 58 Director
</TABLE>
Byron R. Lerner has been Chief Executive Officer and President of the
Company since June 1997 and a director of the Company since May 1996.
Mr. Lerner was Chief Financial Officer of the Company 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 Executive Vice President and a director of the
Company since May 1996. Between 1994 and 1995, Mr. Tubbs was President of
OmniCom, a reseller subsidiary of UniDial. From 1984 through May 1996 he was
employed as an executive in various entities controlled by Brett Mussburger,
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. Mussburger.
Peter Biagioli has been Vice President of Sales and Marketing of the
Company 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 director of the Company since November 1995.
Mr. Miller , for the past five years, has been a manager of corporate finance
for Millport Ltd., presently a Bahamian based investment advisor of foreign
investors.
ITEM 6. EXECUTIVE COMPENSATION.
Information in this section has been retroactively adjusted to reflect
the five percent stock dividends to holders of record on June 3, 1999 and
September 1, 1999.
The following table sets forth information concerning compensation paid or
accrued by the Company or its subsidiaries for services rendered during the
fiscal year ended December 31, 1998 to the Company's Chief Executive Officer. No
other executive officer's compensation exceeded $100,000 during such fiscal
year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
FISCAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS (#)
- --------------------------- ------ ------- ---------------------
<S> <C> <C> <C>
Byron E. Lerner President and Chief
Executive Officer................................... 1998 $88,000 496,127 shares
1997 37,500 --
</TABLE>
All of the Company's directors hold office until the next annual meeting
of stockholders and the election and qualification of their successors.
Executive officers are elected annually by the Board of Directors 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.
9
<PAGE>
OPTION PLAN
The Company has adopted a 1998 Stock Option Plan (the "Option Plan") for
officers, employees and consultants of the Company and any of its subsidiaries
authorizing the grant of options to purchase 3,307,500 shares of the Company's
common stock all of which have been issued. As of May 31, 1999, options to
purchase 1,975,000 shares of common stock were outstanding and options to
purchase 1,025,000 shares of common stock were available for grant.
The 1998 Option Plan is administered by the board of directors. In general,
the board, or a Committee thereof, 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 such options.
The options granted under the Option Plan are exercisable in such installments
as may be provided in the grant.
Options granted to employees may be either incentive stock options under
the Internal Revenue Code ("ISOs") or non ISOs. The board may determine the
exercise price provided that, in the case of ISOs, such price may not be less
than 100% (110% in the case of ISOs granted to holders of 10% of the voting
power of the Company's stock) of the fair market value of the Company's common
stock at the date of grant. The aggregate fair market value determined at time
of option grant of stock with respect to which ISOs 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 such other terms and conditions consistent with the Option Plan as the
Committee may impose. Each option, unless sooner terminated, shall expire no
later than ten (10) years (five years in the case of ISOs granted to holders of
10% of the voting power of the Company's stock) from the date of the grant, as
the Committee may determine. The Committee has the right to amend, suspend or
terminate the Option Plan at any time, provided, however, that unless ratified
by the Company's stockholders no amendment or change in the Plan will be
effective for limited maters including increase in the total number of shares
which may be issued under the Plan or extending the term of the Option Plan.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES EXPIRATION
UNDERLYING OPTION GRANTED EXERCISE PRICE 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>
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.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-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 the
common stock on December 31, 1998.
10
<PAGE>
In addition, on January 31, 1999 the Company 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, directors of the Company. In May 1999 the Company
granted options to purchase an additional 1,102,500 shares of its 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 of the options granted
in 1999 vested immediately.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Byron Lerner,
president and chief executive officer of the Company. 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 year thereafter, 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. The salary increases thereafter 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 a maximum of six (6%) of such pool. Mr. James Tubbs, a
vice president and chief operating officer, has entered into an identical
agreement with the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
All information in this section has been retroactively adjusted to reflect
the Company's 5% stock dividends to holders of record as of June 3, 1999 and
September 1, 1999.
During and prior to 1998 affiliates of Byron Lerner and James Tubbs
advanced the Company $50,000 each. In 1998 all these advances were converted
into 551,250 shares of the Company's Common Stock. All these advances were
interest free. Mr. Lerner has advanced approximately an additional $13,000 to
the Company in 1998 and received an additional 71,662 shares of common stock.
In April 1999, the Company and Antra Holdings Group Inc. exchanged shares
of each company's respective shares. The Company thus now owns 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 the
Company.
The Company has 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
the Company's 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.
The Company is also completing arrangements to form a joint venture
corporation with Antra to market records with a subsidiary of Antra through a
website to be established on the Internet using the Company portal. This new
corporation will be owned equally by Antra and the Company. We will each 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 the Company acquired all the shares of Omni Communications
Inc. "OmniCom" is an authorized agent of UniDial Communications. UniDial is one
of the nation's fastest growing telecommunications resellers. 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 the Company. The Company did not
receive a fairness opinion.
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 as of June 1, 1999. Channelnet has been providing premium rate
telecommunications services to customers in the United Kingdom as well as being
an OzEmail 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.
In June 1999 the Company issued a total of 332,324 shares of common
stock in connection with a private placement of its securities. Five investors
acquired 326,024 shares at $3.81 per share. If the price of our common stock is
selling below certain 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 in our
Company. 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 April, 1999 we agreed to issue options to purchase shares of our common
stock to certain entities 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 551,250 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.
11
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
The Company is authorized to issue 50,000,000 shares of its common stock,
par value $0.001 per share (the "Common Stock"), and 5,000,000 shares of
preferred stock, par value $0.001 per share (the "Preferred Stock"). As of
September 20, 1999, 13,378,383 shares of the Common Stock were outstanding
(after giving effect to the Company's 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 therefor.
In the event of liquidation, dissolution or winding up of the Company, 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, as such, 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
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" Preferred Stock with such designation, rights and preferences as
may be determined from time to time by the Company's Board of Directors.
Accordingly, the Company's 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 certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company does not currently intend to issue
any shares of Preferred Stock, there can be no assurance that the Company will
not do so.
TRANSFER AGENT
The transfer agent for the Common Stock is North American Transfer Co., 147
Merrick Road, Freeport, New York 11520.
12
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's 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 Company's
Common Stock for the periods indicated as reflected on the electronic bulletin
board. Such 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>
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 August 23, 1998, there were approximately 246 recordholders of the
Company's Common Stock, although the Company believes that there are more than
five hundred beneficial owners of its Common Stock.
The Company plans to retain any future earnings for use in its business.
Nevertheless it has 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. The Company has declared a 5% stock dividend to holders of record
on September 1, 1999 to be distributed on October 15, 1999. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend, among other factors, upon the Company's earnings, financial condition
and capital requirements.
ITEM 2. LEGAL PROCEEDINGS.
In June 1999 an action was commenced against us in the United States
District Court for the Southern District of New York. The plaintiffs claim that
they suffered damages as a result of alleged fraudulent and negligent
misrepresentations made in 1996 concerning our prospects. 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.
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. Such 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.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None of the events described in Item 304 of Regulation S-B has occurred
within the past twenty-four months.
ITEM 4. 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.
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 at $1.25 per share in August to
various individuals to purchase shares of common stock and warrants exercisable
at $.625 per share to purchase an aggregate of 137,500 shares of common stock in
February to various individuals. All of the notes have been converted and all
shares issued.
13
<PAGE>
Warrants were also issued pursuant to Rule 504 to acquire 137,500 shares of our
common stock. All such Warrants have been exercised.
In April 1999 we issued 2,205,000 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. UniDial is one of the
nation's fastest growing telecommunications resellers. We issued 115,000 shares
of our common stock to the sellers, of which James Tubbs received 100,000
shares. Mr. Tubbs is an officer and director of our company.
In August 1999 the Company issued 94,500 shares of common stock to the sole
stockholder of ChannelNet,Inc., effective as of June 1, 1999. The Company
believes the issuance of these shares is exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
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.
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.
ITEM 5. 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.
PART F/S
See Index to Financial Statements and Financial Statements attached hereto.
14
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 -- Certificate of Incorporation
3.2 -- Certificate of Ownership and Merger of Spectratek Incorporation by Taltran International Group,
Ltd.
3.3 -- Amendment to Certificate of Incorporation
4 -- By-Laws
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
10.3 -- USA Interconnectivity and Support Agreement dated October 12, 1999 between Ozemail and Registrant
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
10.7 -- Subscription Agreement dated June 10, 1999
10.8 -- Memorandum agreement between Registrant and Antra Holdings Group, Inc.
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)
21.1 -- Subsidiary List
23 -- Consent of Liebman Goldberg & Drogin LLP
23.2 -- Consent of David Nugent & Co.
23.3 -- Consent of Parker Duryee Rosoff & Haft
27 -- Financial Data Schedule
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS.
- ------------------
* All exhibits were filed in connection with Registrant's Form SB-2
filed concurrently herewith and are incorporated by reference.
15
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, HEREUNTO DULY AUTHORIZED.
Date: September 28, 1999
TELTRAN INTERNATIONAL GROUP, LTD.
By: /s/ Byron R. Lerner
----------------------------------
Byron R. Lerner
Chief Executive Officer, President
(Principal Executive, Financial
and Accounting Officer)
16
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
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-9
Consolidated Balance Sheets at June 30, 1999 and 1998......................... F-10
Consolidated Statements of Operations for the six months
ended June 30, 1999 and 1998............................................... F-11
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998............................................... F-12
Notes to Consolidated Financial Statements.................................... F-13
Unaudited Pro Forma Consolidated Statement of Operations...................... F-14
Notes to Unaudited Pro Forma Consolidated Statement of Operations............. F-15
</TABLE>
CHANNELNET LIMITED
FINANCIAL STATEMENTS
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Company information........................................................................................ F-16
Directors' report.......................................................................................... F-17
Director's Responsiblities................................................................................. F-18
Auditors' Report........................................................................................... F-19
Profit and loss account.................................................................................... F-20
Balance sheet.............................................................................................. F-21
Notes.........................................................................................................F-22-F-23
The following page does not form part of the statutory accounts
Detailed trading and profit and loss account....................................................... Appendix 1
</TABLE>
<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 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.
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)
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.
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. During
1998, this loan was renegotiated and terms were extended. The loan is due upon
notification from the maker or upon the anniversary date of the renegotiation.
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
F-7
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 5--NOTES PAYABLE:--(CONTINUED)
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.
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.
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.
F-8
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 8--STOCK COMPENSATION PLAN:--(CONTINUED)
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>
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-9
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................................. $ 958,354 $ 11,443
Accounts receivable............................................................... 466,311 54,665
Investment........................................................................ 6,000,000 --
Prepaid expenses.................................................................. 110,563 9,978
----------- -----------
Total current assets........................................................... 7,535,228 76,086
----------- -----------
Fixed Assets:
Machinery & equipment, net of accumulated depreciation............................ 29,138 --
----------- -----------
Other Assets:
Goodwill--net of amortization..................................................... 222,662 40,273
Organization expense--net of amortization......................................... 38 158
----------- -----------
Total other assets............................................................. 222,700 40,431
----------- -----------
Total assets................................................................... $ 7,787,066 $ 116,517
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loan payable...................................................................... $ 50,000 $ 50,000
Accounts payable, accrued expenses and taxes payable.............................. 307,433 67,276
Due to factor..................................................................... -- 35,000
Corporation taxes payable......................................................... -- 876
Customer deposits................................................................. -- 14,932
----------- -----------
Total current liabilities...................................................... 357,433 168,084
----------- -----------
Long-Term Liabilities:
Loan payable...................................................................... -- 318,500
Loans payable--stockholders'...................................................... 1,245 92,641
----------- -----------
Total long-term liabilities.................................................... 1,245 411,141
----------- -----------
Total liabilities.............................................................. 358,678 579,225
----------- -----------
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 and
12,695,827 and 915,637 issued and outstanding, respectively.................... 12,696 916
Additional paid in capital in excess of par value................................. 15,855,916 1,501,928
Deficit........................................................................... (8,440,224) (1,965,552)
----------- -----------
Total stockholders' equity (deficit)........................................... 7,428,388 (462,708)
----------- -----------
Total liabilities and stockholders' equity..................................... $ 7,787,066 $ 116,517
----------- -----------
----------- -----------
</TABLE>
F-10
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Sales................................................................................. $ 540,179 $ 128,855
Miscellaneous......................................................................... 1,457 --
--------- ---------
541,636 128,855
Cost of Sales:
Purchases............................................................................. 377,142 79,179
--------- ---------
Gross profit............................................................................ 164,494 49,676
--------- ---------
Expenses:
Salaries.............................................................................. 240,587 --
Outside services...................................................................... 40,170 118,858
Professional fees..................................................................... 72,789 7,000
Fees--other........................................................................... 70,039 --
Payroll taxes......................................................................... 10,213 --
Leasing expense....................................................................... 4,277 6,110
Travel................................................................................ 24,379 54,234
Insurance............................................................................. 19,131 12,004
Rent.................................................................................. 61,495 3,398
Office expense........................................................................ 4,206 4,780
Miscellaneous......................................................................... 10,798 --
Telephone............................................................................. 11,724 2,673
Contributions......................................................................... 1,200 --
Advertising........................................................................... -- 567
Amortization expense.................................................................. 1,851 60
--------- ---------
Total expenses..................................................................... 572,859 209,684
--------- ---------
Loss from operations.................................................................... (408,365) (160,008)
Interest expense...................................................................... 36,753 --
--------- ---------
Loss before provision for income taxes.................................................. (445,118) (160,008)
Provision for income taxes.............................................................. 780 388
--------- ---------
Net loss................................................................................ $(445,898) $(160,396)
--------- ---------
--------- ---------
Net loss per share of common stock based upon 11,378,377 and 915,637 (weighted average)
shares issued, respectively........................................................... $ (0.04) $ (0.17)
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................................................................. $ (445,898) $(160,396)
Adjustment to reconcile net loss to net cash (used in) operating activities:
Amortization expense................................................................ 1,851 60
(Increase) in accounts receivable................................................... (363,220) (54,665)
(Increase) in prepaid expenses...................................................... (110,623) (9,978)
Decrease in deferred financing costs................................................ 19,797 --
Cash repayments to factor........................................................... (65,193) --
Increase in customer deposits....................................................... -- 14,932
(Increase) in investment............................................................ (6,000,000) --
Increase in accounts payable, accrued expenses and taxes payable.................... 196,152 32,583
----------- ---------
Net cash (used in) operating activities............................................... (6,767,134) (177,464)
----------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets............................................................ (29,138) --
----------- ---------
Cash Flows from Financing Activities:
(Decrease) of convertible debentures payable........................................ (180,488) --
Cash advances from factor........................................................... -- 35,000
Loans from stockholders and others.................................................. -- 81,761
Conversion of convertible debenture--stock issued................................... 676,319 --
Exercise of warrants................................................................ 244,937 --
Private placement................................................................... 1,008,469 --
Investment.......................................................................... 6,000,000 --
Cash received as advances from investors............................................ -- 68,500
----------- ---------
Net cash provided by financing activities........................................... 7,749,237 185,261
----------- ---------
Net increase in cash................................................................ 952,965 7,797
Cash--January 1..................................................................... 5,389 3,646
----------- ---------
Cash--June 30....................................................................... $ 958,354 $ 11,443
----------- ---------
----------- ---------
Supplemental Disclosures:
Income tax.......................................................................... -- --
----------- ---------
----------- ---------
Interest paid....................................................................... $ 36,753 $ --
----------- ---------
----------- ---------
</TABLE>
F-12
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
NOTE 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 six month period ended June
30, 1999 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2--MATERIAL EVENTS
During the quarter ended June 30, 1999, the following events occurred:
a. The Company exchanged 2,000,000 shares of its common stock for
2,000,000 shares of common stock of another public corporation. The
Companies are in the process of forming a joint venture in which each
will own 50%.
b. The Company received $1,154,969 representing the issuance of 311,029
shares of common stock in a private placement. An additional 5,470
shares were issued in connection with the private placement.
c. 585,000 common shares representing a previously declared stock dividend
were issued during the quarter ended June 30, 1999.
d. In a transaction effective June 1, 1999, the Company issued 94,500
common shares to acquire 100% of Channel Net, Ltd.
F-13
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ -----------------------
TELTRAN CHANNEL NET ADJUSTMENT COMBINED
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Sales...................................................... $ 182,280 $ 357,899 $ -- $ 540,179
Miscellaneous.............................................. 1,457 1,457
--------- --------- ------ ---------
183,737 357,899 -- 541,636
Cost of Sales:
Purchases.................................................. 146,968 230,174 377,142
--------- --------- ------ ---------
Gross profit................................................. 36,769 127,725 -- 164,494
--------- --------- ------ ---------
Expenses:
Salaries................................................... 240,587 -- -- 240,587
Outside services........................................... 40,170 -- -- 40,170
Professional fees.......................................... 72,789 -- -- 72,789
Fees--other................................................ 70,039 -- -- 70,039
Payroll taxes.............................................. 10,213 -- -- 10,213
Leasing expense............................................ 4,277 -- -- 4,277
Travel..................................................... 24,379 -- -- 24,379
Insurance.................................................. 19,131 -- -- 19,131
Rent....................................................... 61,495 -- -- 61,495
Office expense............................................. 4,206 -- -- 4,206
Miscellaneous.............................................. 6,150 4,648 -- 10,798
Telephone.................................................. 11,724 -- -- 11,724
Contributions.............................................. 1,200 -- -- 1,200
Amortization expense....................................... 1,851 -- (389)(a) 1,462
--------- --------- ------ ---------
Total expenses.......................................... 568,211 4,648 (389) 572,470
--------- --------- ------ ---------
Income (loss) from operations................................ (531,442) 123,077 389 (407,976)
Interest expense........................................ 36,753 -- -- 36,753
--------- --------- ------ ---------
Income (loss) before provision for income taxes.............. (568,195) 123,077 389 (444,729)
Provision for income taxes................................... 780 -- -- 780
--------- --------- ------ ---------
Net income (loss)............................................ $(568,975) $ 123,077 $ 389 $(445,509)
--------- --------- ------ ---------
--------- --------- ------ ---------
</TABLE>
F-14
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS
The unaudited pro forma consolidated financial statement of operations reflects
historical information which includes the operations of Teltran and Channel Net,
Ltd. In a transaction effective June 1, 1999, Teltran issued 94,500 shares of
its common stock to acquire 100% of Channel Net, Ltd. Since the transaction was
effected within the quarter ended June 30, 1999, the balance sheet of Teltran
includes actual historical financial information of Channel Net, Ltd. and only a
pro forma statement of operations is required.
(a) The pro forma adjustment which gives effect to the acquisition in the
unaudited pro forma consolidated statement of operations is the amortization
of the excess of purchase consideration over net tangible assets acquired
on a straight-line basis over 40 years.
F-15
<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-16
<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-17
<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-18
<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-19
<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-20
<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-21
<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>
6. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Other creditors................................................................... 4,125
-----
4,125
-----
-----
</TABLE>
F-22
<PAGE>
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-23
<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
