UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
10KSB
Amendment No. 1
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Name of small business issuer in its charter)
Delaware 64-0708107
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4675 MacArthur Court, Ste. 420, Newport Beach CA. 92660
Address of principal executive offices,
3490 Piedmont Road, Suite 600, Atlanta, Georgia 30305
(Former address of principal executive offices)
949-253-9588
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
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Common stock, $0.004 par value per share
(Title of Class)
Check whether the issuer: (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuers revenues for its most recent fiscal year : $0
The number of shares outstanding of the issuer's common stock as of September
15th 1999, was 75,000,000 shares. The aggregate market value of the common stock
(43,883,473 shares) held by non-affiliates, based on the average of the bid and
asked prices ($0.20) of the common stock as of September 15th, 1999 was
$8,776,695.
Documents incorporated by reference:
Transitional Small Business Disclosure Format (Check one): Yes____ No X
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THIS ANNUAL REPORT ON FORM 10-KSB (THE "REPORT") MAY BE DEEMED TO CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). FORWARD-LOOKING STATEMENTS IN
THIS REPORT OR HEREAFTER INCLUDED IN OTHER PUBLICLY AVAILABLE DOCUMENTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), REPORTS TO THE
COMPANY'S STOCKHOLDERS AND OTHER PUBLICLY AVAILABLE STATEMENTS ISSUED OR
RELEASED BY THE COMPANY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL
OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON MANAGEMENT'S
BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT RESULTS OF
OPERATIONS. THESE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS SET FORTH
HEREIN, EACH OF WHICH COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND THE
ACCURACY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORY OF THE COMPANY
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The Company was incorporated in Florida on December 31, 1984, under the
name Phoenix Hi-Tech, Inc. The Company completed an initial public offering of
its equity securities on May 23, 1986. On October 22, 1994, the Company changed
its name to Global TeleMedia International, Inc. In September 1997, the
Company's shareholders approved the reincorporating of the Company in Delaware.
In September, 1993, the Company acquired all of the equity securities of
Global Wats One, Inc. and TeleFriend, Inc. (both collectively, "Global") of
which Roderick A. McClain, the Company's Chief Executive Officer and its
Chairman of the Board of Directors and Geoffrey F. McClain, a director of the
Company, were the principal shareholders. Roderick and Geoffrey McClain are
brothers. See "Certain Relationships and Related Transactions."
In October, 1994, the Company licensed certain assets of the nutritional
division of the Company (its former business) and sold the Company's nutritional
marketing Company, Market-share International, a wholly-owned subsidiary to L&M
Group, L.C. ("L&M"), an unaffiliated third party. On January 31, 1995, the
Company entered into a sales and license agreement with L&M pursuant to which
L&M acquired the rights to the Company's nutritional product line for royalties
from sales of the nutritional products based on a percentage of gross sales. In
1998, the Company received no royalties; in 1997, the Company received a total
of approximately $35,000 in royalties, compared to a total of approximately
$115,000 in royalties, including certain guaranteed minimum amounts, received in
1996. In the first quarter of 1998, the Company entered into an agreement under
which an unaffiliated third party acquired all of the Company's interest in the
nutritional products. Since the culmination of these transactions, the Company
has devoted all of its resources to its telecommunications business.
In 1998, the Company funded seed money and entered into an agreement to act
as the primary marketing arm of CyberAir Communications, Inc. ("Cyber"). In
1998, Cyber is engaged in deploying an international network through a series of
contracts and alliances with various government agencies and global
telecommunication companies. In the first stage, the Company is scheduled to
market U.S. origination of both voice and data long distance to Mexico, China,
India and Pakistan. Due to it's recent acquisitions the Company expects to be
in a position to utilize the technology of CyberAir by 4th quarter 1999.
The Company also funded seed money for UltraPulse Communications for the
development of "Broadband Spread Spectrum" wireless technology. On December 17,
1998, the principals of CyberAir Communications Inc., introduced the Company to
the principals of Bentley House Furniture Company Inc. (BHFC). BHFC entered into
a share exchange dialogue with the Company predicated on the contractual
agreement with CyberAir to act as its primary marketing arm (see 10QSB 9-30-98
and 10KSB 15/4/99) and the agreement to acquire UltraPulse Communications Inc.,
which had developed a broadband broadspectrum technology. The Company had
invested development capital in both CyberAir and UltraPulse to secure these
agreements.
On February 2, 1999, the Company announced that it entered into a
preliminary agreement to acquire Bentley House Furniture Company ("BHFC"), a
Philippine manufacturing Company with interests in: telecommunications,
agriculture, mining, timber export and furniture manufacturing. The acquisition
was completed on April 2nd 1999. BHFC has existing facilities for the milling
and finishing of raw timber, as well as, a new $8 million "state of the art"
furniture facility, designed and financed with the assistance of Sumitomo
Corporation, with whom BHFC has an international agreement.
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The acquisition of BHFC brought the Company an asset base and an
international business platform. BHFC, established in 1954, is a Philippine
diversified group of companies engaged in hotel and resort outfitting, furniture
export, and housing construction. Under a 25 year government contract, BHFC will
construct one million government houses with payments guaranteed by the
Philippine government National Housing Authority. The contracts also requires
BHFC to provide telecommunications, cable TV and Internet services to the
government houses.
THE BUSINESS PLAN
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The Company's previous business plan ("the plan") for a nationwide
telecommunications business has failed due to problems associated with its
switching platform and the lack of sufficient capital to implement the plan.
The plan as of December 1998, is to concentrate the Company's marketing and
sales efforts on its carrier services businesses. Fulfillment of the Company's
plan required the Company to obtain significant financing that it believed to be
essential to carry out its business plan.
The new Management's business plan incorporates the manufacturing base of
Bentley House Furniture Company. Following the completion of the Karamunsing
hotel project in the resort city of KotaKinabalu, Malaysia, BHFC has been
provisionally awarded the EcoTech Hotel currently being built in Sydney,
Australia as part of the 2000 Olympic plan. The signing of the EchoTech hotel
contract should occur in November 1999, and a letter of credit will be received
from which the Company can immediately draw funds to commence design and
furniture construction. The Company is also negotiating the outfitting of
another Australian project, the SydneySider Resort Hotel, being built in the
resort city of Tagaytay, near Manila, Philippines. As part of these agreements,
the Company would also become an equity partner in these projects.
The business plan also incorporates BHFC's 25-year contract to construct
one million government employee houses. A Canadian/Philippine "AAA" rated
Rapid-Built Modular housing builder will use a patented computer designed
technology to construct the houses. The Company has signed a $31 million dollar
contract with Integrated Philcan Inc. a subsidiary of HRS Steel in Canada for
the first stage of construction, which should commence in the 4th quarter 1999.
The contract is fully guaranteed by the Philippine National Housing Authority.
The housing contract also calls for BHFC to be the exclusive provider of local
and long distance telephone, cable TV and Internet services to those one million
government houses.
BHFC has contracted KPMG to arrange for the independent valuation of its
timber assets to conform with US GAAP prior to the addition of these assets to
the Company's books. BHFC has agreed to make its assets available for the
purpose of establishing the credit facilities necessary for the combined
companies to realize their new joint business plan. BHFC is located in the
"Trade Free Zone" in Mindanao's largest city, Davao, which is part of the
BIMP-EAGA Border-less Trade Agreement (AFTA, Asean Free Trade Agreement) between
Brunei, Indonesia, Malaysia and the Philippines and Australia. (Similar to the
US NAFTA,) BIMP-EAGA serves a combined population of over 400 million people.
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This factory is believed by the management of BHFC to be one of the largest
and most modern furniture factories in the Philippines. BHFC equipment includes
BACCI Italian shaping machines; high frequency microwave wood bending machines
and Italian automated heated spray booths and other specialized machinery. The
factory has a certified output capacity of 10,000 finished pieces per month. The
Company utilizes mahogany, teak and other hardwood timber from plantations
controlled by the Company to supply hotels and resorts under construction with
timber and interior furniture.
The construction of housing and the exclusive supply of telephone, cable
and Internet services to these homes, links the core-manufacturing platform of
BHFC with the technology available from GTMI. The income stream from these
existing businesses is expected to generate profits, which will be re-invested
in the telecom arena, reducing the need for further outside financing.
On April 2, 1999, BHFC and the Company closed their share exchange with
the delivery of 99.8% of Bentley House Furniture Company stock to the escrow
attorney. GTMI had developed a schedule of resolutions for its present
outstanding debts and lawsuits. New management has reduced the Company's debt
and resolved the majority of the lawsuits. The Company should be able to resolve
all the lawsuits by 1st quarter 2000. Following the shareholders meeting, the
name of the Company will be changed to "Bentley House International Group, Inc."
and there will be requested a change in its symbol to "BHIG"
The Company will hold a shareholders meeting in the 4th quarter of
1999. Former President Roderick McClain, as part of the share exchange
agreement, delivered majority shareholders votes by irrevocable proxy to confirm
approval for required restructuring and amendments to the Company's Certificate
of Incorporation including the name change of the Company to Bentley House
International Group, reflecting the "holding company" nature of the Company.
SUBSEQUENT EVENTS, BUSINESS COMBINATIONS
- -------------------------------------------
New Management has spent considerable effort in the investigation of new
technologies that will provide the Company a strategic advantage in the
marketplace. Management believed that these new technologies would play an
important role in achieving and retaining market share. The Company's new
management re-opened negotiations for the acquisition and/or licensing of the
"cutting edge" photon and broadband spread spectrum technology previously
offered to the Company by Ultrapulse. On April 2nd 1999, the Company, via
share exchange, acquired 100% of Bentley House Furniture Company (BHFC) in
exchange for 29,595,139 common shares and 4,000 shares of series "A" preferred
shares (series "A" preferred shares are convertible at 208,274 shares of common
stock per preferred share). 218 series "A" preferred shares, representing 5% of
the Company, were allocated for CyberAir's principals conditioned upon the
engagement of the marketing agreement and the deployment of the technology.
To clearly identify, create and fund the distinct income streams and
cultivate specialist management on the telecom side, the Company has acquired
the majority interest in a Nevada corporation named BentleyTel.com, Inc.
BentleyTel.com, has moved forward to engage UltraPulse and CyberAir in an
agreement to jointly deploy the technology throughout the Company's platform in
Australia and the BIMP-EAGA countries.
BentleyTel.com is arranging independent financing and is in the process of
finalizing the acquisitions, via a share exchange and capital, of three
international telecom / technology companies. They are, Octa4 Pty. Ltd. located
in Darwin Australia, 3G Communications Inc. located in Davao, Philippines and
DynaSem Communications Sdn. Bhd. located in Kuching, Malaysia. The acquisition
will provide the Company with income from long-distance telecommunications,
voice over Internet, e-commerce and ISP services as well as technology training
and sales of continental and international calling cards. These companies are
located in Australia, Malaysia, and the Philippines and are currently active in
long distance telecommunications, ISP (Internet) services, and deployment of
portable satellite call stations and technology training.
5
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BentleyTel.com, also committed to a share exchange of 1,000,000
BentleyTel.com shares to gain equity in NextGen Telcom Inc., a Texas
Corporation.
BENTLEYTEL.COM, INC., GROUP OF COMPANIES-DESCRIPTION
- --------------------------------------------------------
The BentleyTel.com Group of Companies include:
a) Octa4 Pty. Ltd an Australian Internet Service Provider who will also
provide long distance and International telecommunications.
Established in 1991, Octa4 is offering ISP to 4,000 + members, it has
a new national network offering ISP, virtual ISP and VIOP (voice over
the Internet) and e-commerce to every state. Octa4 provides services
to 50% of Australia's e-commerce in 1998. Octa4 also developed the
"Centrebet", Internet international betting system.
b) 3G Communications Inc., located in Davao, Philippines largest City, is
a Philippine based long distance telecommunications Company which owns
and operates 26 mobile satellite long distance calling stations. The
stations are also capable of handling ATM secure data transaction
transmissions from rural banks. 3G plans to deploy up to 100 satellite
calling stations in Mindanao.
c) DynaSem Communications Inc., located in the Business city of Kuching,
is a Malaysian technology training company which was acquired for the
purpose of technology transfer between the companies including
training of personnel in VIOP, ISP, secure data transfer and
e-commerce. DynaSem is part of the BIMP-EAGA e-commerce/ Multi-media
super corridor.
d) BentleyTel.com has agreed to exchange 1,000,000 shares with NextGen
Telcom Inc. NextGen is a high-tech marketing company which focuses on
building distribution systems for companies involved in domestic and
international long distance, prepaid phone cards, Internet access and
website design. Upon the successful completion of the share exchange,
NextGen will draw on its expertise in telecommunications marketing to
establish and implement an international distribution network, which
will feature BentleyTel.com products and services.
In the 4th quarter 1999, BentleyTel.com should be in a position to
commence providing voice and data services, both conventionally and via the
Internet, to the BIMP-EAGA countries with a combined population of over 400
million. The group of companies making up BentleyTel.com are currently
generate several million dollars annually and these earnings will be
significantly enhanced by the transfer of technology and networking between the
respective companies. The companies acquired will change their names to
BentleyTel.com and contribute their particular knowledge of the
telecommunications industry to the Company.
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BentleyTel.com is preparing for an initial public offering in mid 2000.
On October 27th 1999, BentleyTel.com executed its share exchange with the
above mentioned companies. As part of the agreements, BentleyTel will provide
capital to subsidiaries companies for business development and operations.
BentleyTel.com should be able to report significant revenues in the 4th quarter
1999.
OPERATIONS, CONTRACTS AND PROJECTS OF BHFC:
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Joint venture contracts for construction of government employee homes: The
contracts include housing for the Philippine National Police, Armed Forces of
the Philippines and the Department of Interior and Local Government.
Subdivisions are complete with permits to construct and permits to sell.
Horizontal works and construction will commence during the 4th quarter of 1999.
Construction contracts have been signed with San Antonio Housing Systems &
Technology Inc., and Canadian company, HRS Steel, through their "AAA" rated
subsidiary in the Philippines, Integrated Philcan Inc. Both companies produce
Rapid-Built modular houses and have factories in the Philippines. The companies
are fully licensed and accredited with the Philippine Government.
Land conversion project, a 50,000 acre project, commissioned by the
Philippine under a Presidential Proclamation awarded BHFC the reforestation
rights to convert the original mahogany teak, and other hardwood forest into
palm oil and coffee commercial plantation. BHFC will extract the original timber
and replant fruit bearing trees, at a ratio of 450% positive over existing
standing timber. This will result in the recovery of a large quantity of
hardwood which will be removed and processed by BHFC over the next 8-10 years
resulting in hardwood sales, furniture manufacturing and export and housing
components. BHFC is the Managing Partner of the project and Jonathon
Bentley-Stevens is the Attorney-in-Fact for the duration of the project. The
project is contracted to expand up to 500,000 acres over the next 48 years.
CHANGES IN MANAGEMENT
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An important element of the Company's plan to broaden its business base is
the recruitment of skilled personnel. In addition to the Company's current
executive officers and directors the Company is in the process in executing
consulting agreements which will convert into long term employment contracts as
the company grows. The New management are targeting individuals who have over 20
years experience in the business and have started many like companies
successfully in the past.
Roderick A. McClain was Chairman of the Board, Chief Executive Officer and
President of the Company and had been a Director of the Company since 1993. Mr.
McClain, in 1991, founded Global Wats One, Inc., which was acquired by the
Company in 1993. Mr. McClain attended the University of Tennessee. Mr. McClain
resigned as a Director and Officer of the Company on April 1st 1999.
Geoffrey F. McClain was senior vice-president and had been a Director of
the Company since August 1995. Mr. McClain is the brother of the Company's
Chief Executive Officer, Roderick A. McClain. Mr. McClain received a BBA in
Finance from the University of Miami. Mr. McClain was an original founder of
Global Wats One, Inc., which was acquired by the Company in September 1993. Mr.
McClain resigned as a Director and Officer of the Company on April 1st 1999.
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Herbert S. Perman has served as Chief Financial Officer from 1995 through
May 31, 1997 and was appointed as Director of the Company in 1995. From June 1,
1997, Mr. Perman served as Executive Vice President, and as of May 1, 1998, Mr.
Perman once again assumed the position of Chief Financial Officer of the
Company. Mr. Perman received a BS from the City College of New York and a J.D.
from Brooklyn Law School. From 1994 through October 1995, Mr. Perman was a
consultant to the long distance and prepaid telephone industry. From 1989 to
1994, Mr. Perman was director of marketing for PDQ Notes, Inc. a medical
software Company. Mr. Perman was licensed as a certified public accountant and
attorney in the state of New York but is not active as either. Mr. Perman
resigned as a Director of the Company on April 1st 1999, and CFO of the Company
on July 21, 1999.
THE NEW MANAGEMENT
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Effective April 2nd 1999, Jonathon Bentley-Stevens is the Chief Executive
Officer and President of the Company. He is also the President of Bentley House
International Corporation (Seychelles) and Chief Executive Officer of BHFC. He
is the author of the Bentley-Tricap Ancestral Land Development Plan, currently
in use in the Philippines as a platform for infrastructure and technological
development.
Effective April 2nd 1999, Regina S. Peralta is the Executive Vice President
and Director of the Company. She is also President of Bentley House Furniture
Company and Vice President of BHTC Sdn. Bhd, a GTMI subsidiary and the Brunei
Marketing division, and was a Board member of the Philippine Chamber of
Furniture Industries.
Effective June 21, 1999, Rene Fruto is the Chief Operating Officer of GTMI.
He is the former Vice Chairman of Marina Bank, Marina Del Rey, Managing Director
of Marina State Bank, President of First Central Bank NA, Executive Vice
President of Trans National Bank and Executive Vice President of Pan American
National Bank. He is a CPA and holds a B.Sc. in Accounting and a Masters degree
in banking and finance.
Effective July 22nd 1999, David Tang CPA is the Chief Financial Officer.
Mr. Tang, formerly with Price Waterhouse, has implemented strategies to reduce
the Company's debt. Additionally he will be implementing international
reporting procedures to provide effective financial reporting from the
international operating divisions.
Effective April 2nd 1999, Helen T. Rivilla is the Secretary of the Company.
She is an international attorney practicing law both in the USA and the
Philippines. She is well versed in international commerce.
Effective June 30th 1999, Ambassador Ramon A. Tirol was appointed a
Director of the Company. He is an attorney, and will focus on structuring
international telecommunication and trade agreements in the Asian-Pacific
region. He is a former Philippine Ambassador to Brunei and a former Commercial
Attach to Bonn, Germany.
Effective June 30, 1999, Roberto S. Sebastian B.Sc. is the Vice President
representing the Philippines, and a Director of the Company. He was Philippine
Ambassador to the World Trade Organization, and former Secretary of Agriculture
of the Philippines, Chairman for the Area Development Project (GATT Legislation)
He is also President of Marsman-Drysdale Estate Plantation Inc. He brings his
international network and marketing skills to the Company. He will oversee the
plantation development and international export operations of BHFC, now a wholly
owned subsidiary of GTMI.
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Effective April 2nd 1999, YAM (His Royal Highness) PG.ANAK HJ. ABDUL
WADOOD BOLKIAH BIN PLSCN PG ANAK ABDUL AZIZ, Prince Wadood Bolkiah is the eldest
nephew of the Sultan of Brunei, effective is Vice President and Director of the
Company. He is the Chairman of the Brunei National Broadcast Media, BK Vision
BSB Broadcast Media; Sebkcomm Technology, Communication, in Brunei and Chairman
of BK Network Advertising Marketing Promotions BSB Brunei.
Effective June, 30th 1999, Gen. Renato S. de Villa B.Sc., is a Director of
the Company Gen. De Villa, 4-Star General Chief of Staff and former Secretary of
Defense in the Philippines is also Chairman of the Board of Bentley House
Furniture Company, He was a Presidential candidate in 1998 and holds an MA in
Business Management and a Bachelor of Science in Economics.
Joemari D. Gerochi, B.Sc. MBAEffective June 30th, 1999, is a Director of
the Company. He was consultant to the World Bank on Agriculture and Philippines
GATT-UR representative. He was Federal Undersecretary of Agriculture until 1998
and holds a Bachelor of Science in Economics and a Masters in Business
Administration.
Paul Graham, Atlanta sales manager, he joined the Company in December 1996.
Prior to joining the Company, he built and operated The Racquetball Spa, a
premier multi-faceted fitness center and racquetball club in Connecticut. He was
for three years national sales director for Voyager Networks, Inc. where his
responsibilities included management and training of Company sales agents as
well as the development of Company sales and marketing strategy. Mr. Graham has
been retained by the Company to specialize in marketing agreements and strategic
alliances.
EMPLOYEES
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As of September 30th, 1999, the Company had 247 full-time employees,
including executive personnel and approximately 100 contractual employees. See
"Business - Management Team" and "Management's Discussion and Analysis or Plan
of Operation."
The Company intends to hire additional personnel as the development of the
Company's business and additional financing for operations makes such action
appropriate. The change of key personnel has had no adverse effect on the
Company's business. The Company has retained qualified personnel knowledgeable
of the Company's industry as consultants to re-build the telecom business and
such personnel have agreed to become full time executive staff as soon as
revenues permit.
GOVERNMENT REGULATION
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The Company intends to provide telecommunications services subject to the
rules and regulation of both state and federal regulatory agencies. Interstate
telecommunications services are governed by the rules and regulations of the
FCC, while intrastate telecommunications services (or services provided within a
state's geographic boundaries) are governed by the particular state regulatory
authorities having jurisdiction within that state. During the last quarter of
1995 and the first three quarters of 1996, the Company applied for and received
authority to act as a Carrier for domestic and international telecommunications.
The Company was licensed in most US states and its FCC International 214
authority enables the Company to provide telecommunications services from the
United States to termination points outside the country.
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SPECIFIC LICENSING REQUIREMENTS
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The terms and conditions of the Company's telecommunications services are
subject to government regulation. Federal laws and FCC regulations generally
apply to interstate telecommunications, while intrastate services are regulated
by the relevant state authorities. Federal Regulation. The Company is
classified by the FCC as a non-dominant carrier, and therefore is subject to
minimal federal regulation. The FCC generally does not exercise direct
oversight over cost justification and the level of charges for service of
non-dominant Carriers, such as the Company, although it has the statutory power
to do so. Non-dominant carriers are required by statute to offer interstate and
international services under rates, terms and conditions that are just,
reasonable and not unduly discriminatory. The FCC imposes only minimal reporting
requirements on non-dominant carriers, although the Company is subject to
certain reporting, accounting and record keeping obligations.
FORWARD LOOKING STATEMENTS.
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This Report may be deemed to contain forward-looking statements within the
meaning of the Reform Act. Forward-looking statements in this Report or
hereafter included in other publicly available documents filed with the
Commission, reports to the Company's stockholders and other publicly available
statements issued or released by the Company involve known and unknown risks,
uncertainties and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements to differ from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. Such future results are based upon
management's best estimates based upon current conditions and the most recent
results of operations. These risks include, but are not limited to, risks set
forth herein, each of which could adversely affect the Company's business and
the accuracy of the forward-looking statements contained herein.
There is a limited public market for the Company's Common stock.
Persons who may own or intend to purchase shares of Common stock in any
market where the Common stock may trade should consider the following risk
factors, together with other information contained elsewhere in the Company's
reports, proxy statements and other available public information, as filed with
the Securities and Exchange Commission, prior to purchasing shares of the Common
stock:
SUPPLEMENTARY DATA
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Although the Company was formed in 1984, it had many of the
characteristics of a development stage Company. Since the acquisition of Bentley
House Furniture Company, change of management, the formation of BentleyTel.com
and subsequent international Company acquisitions, all of which own their
proprietary equipment, the Company has become an asset based manufacturing,
construction and telecommunications corporation. The Company has been
pre-approved for financing in the amount of $12.5 million. The amount comprises
a mezzanine loan of $2.5 million with a long term loan of $10 million for hotel
and housing construction. In addition the Company is negotiating an additional
financing via a 2-year convertible redeemable debenture for $5 million @ $10.00
per share or 85% of the share value at the date of conversion.
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The new management has significantly reduced the companies current
liabilities and has resolved the majority of the Company's litigation by cash
settlement, bank instrument or part cash and stock on conditions favorable to
the Company. The previous management failed to remit payroll withholding taxes
which resulted in the Company's liability of more than $600,000 to the Internal
Revenue Service. New management has remitted a cash payment of $300,000 and is
engaged in a workout program with the IRS regarding the balance.
The new management will engage in recovery of the Company's assets and is
committed to capitalizing on any previous arrangements for technology which have
not yet been utilized. The implementation of new management's business plan
and development program will result ultimately, in the attainment of profitable
operations. The Company is confident on obtaining adequate financing to fulfill
its development activities and achieving a level of international sales adequate
to support the Company's international expansion.
The Company is working to obtain financing which should enable it to make
a successful transition to profitable operations. Management's mission is to
develop and maintain a market share in an industry characterized by explosive
growth. The Company's ability to operate as a national and international
carrier is now less dependent on financing and more reliant on the solid
platforms of joint ventures which the Company has entered into and hard assets
which the company owns.
COMPETITION.
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The telecommunications industry is characterized by strong competition from
companies of all sizes and capacities for technological and marketing
innovation. Most of the Company's competitors have more significant operating
histories, larger and more varied customer bases, better known names in the
marketplace, greater technical resources, longer relationships with licensed
carriers and far better financial resources. The Company has however identified
the BIMP-EAGA countries of Brunei, Indonesia, Philippines, Malaysia and
Australia as growth areas which enjoy significantly higher calling costs. The
Company, with an intimate knowledge of the marketplace can offer the public a
unique combination of communications services. This strategy should allow
BentleyTel.com to succeed at providing low-cost telecommunications to the
marketplace while providing a healthy margin for the Company.
ABILITY TO MANAGE NEW BUSINESSES.
- -------------------------------------
The core businesses which make up BHFC have been in existence for 45 years,
25 years and 23 years, respectively, and the majority of personnel have been
retained. With respect to the telecommunications business, the Company is not
only a re-seller of another carrier's services but a true potential partner for
major carriers. Through its subsidiary, BentleyTel.com, the Company has its own
hardware already deployed in the emerging East-Asian market including Australia.
See "Business."
KEY PERSONNEL.
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The Company is dependent upon the skills of its new management teams.
Every subsidiary has an experienced team of executives with many years in their
respective industries. The key members are Presidents or Executive Vice
presidents of the various subsidiaries. As such the key members have either
formed or built-up the business or are long time senior employees with stock in
the Company and therefore should demonstrate loyalty in building up and
expanding the infrastructure development and Telecom industry in their country.
The Company will buy key-man life insurance for senior management and key
employees of the Company. See "Business - the Company's Management Team" and
"Management."
11
<PAGE>
Limited Public Market for Common stock. There is currently a limited
public market for the Common stock, due to a lack of awareness regarding the
significant restructuring of the Company. In that regard the Company has
retained KCSA Worldwide, with offices at 800 Second Avenue, New York to act in
the areas of public and investor relations and corporate and marketing
communications. The Company believes KCSA will provide superior public relations
and marketing support needed in the development of a market for the sale of
common stock. Further, the market price for the common stock may continue to
be volatile depending on a number of factors, including new business
performance, industry dynamics, news announcements, significant international
revenue, commencement of housing construction and changes or improvements in
the general economy.
Disclosure Relating to Low-priced Stocks. The Company's common stock is
currently listed for trading in the over-the-counter market on the NASD
Electronic Bulletin which is generally considered to be less efficient markets
than markets such as NASDAQ, AMEX or other national exchanges. The Company's
securities are subject to the "penny stock rules" adopted pursuant to Section 15
(g) of the Exchange Act. The penny stock rules apply to non-NASDAQ companies
whose common stock trades at less than $5.00 per share or which have tangible
net worth of less than $5,000,000 ($2,000,000 if the Company has been operating
for three or more years). Such rules require, among other things, that brokers
who trade "penny stock" to persons other than "established customers" complete
certain documentation, make suitability inquiries of investors and provide
investors with certain information concerning trading in the security, including
a risk disclosure document and quote information under certain circumstances. In
addition, NASDAQ has announced its intentions to make its trading rules for
"penny stocks" even more stringent. Many brokers have decided not to trade
"penny stock" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited and may decline further due to the pending additional
NASDAQ rules. The new management's strategy is to re-list on the NASDAQ or
another major exchange by 1st quarter 2000. The Company qualifies in all areas
other than stock price. The Company has announced a reverse split of its stock
in order to qualify in this area. The Company believes its earnings and new
business can support the stock following the reverse split.
Certain Registration Rights. The Company has entered into various
agreements pursuant to which certain holders of the Company's outstanding common
stock have been granted the right, under various circumstances, to have Common
stock that is currently outstanding registered for sale in accordance with the
registration requirements of the Securities Act upon demand or "piggybacked" to
a registration statement which may be filed by the Company. Of the issued and
outstanding Common stock as of April 12, 1999, a total of 2,389,932 shares may
be the subject of future registration statements pursuant to the terms of such
agreements. In addition, as of April 12, 1999, there are warrants to acquire
7,025,767 shares of Common stock which may be exercised through January 31,
2000, and which carry certain piggyback registration rights. Any such
registration statement may have a material adverse effect on the market price
for the Company's Common stock resulting from the increased number of free
trading shares of common stock in the market
DIVIDENDS ON COMMON STOCK.
- -----------------------------
The Company has paid no dividends on its Common stock as of March 31, 1999.
The Company does however plan to pay dividends on the Common stock in the
future. The Company will explore a plan to pay dividends as soon as a profit
benchmark is achieved and expansion plans permit.
12
<PAGE>
Shares Eligible for Future Sale. The Company has announced a reverse split
of its shares subject to a shareholders meeting to be held in the 4th quarter of
1999. The exact level of reverse split is still the subject of evaluation. As of
April 12, 1999, 2,389,932 shares may be the subject of future registration
statements pursuant to the terms of certain agreements between the Company and
certain of its stockholders. However, the Company believes a reverse split is
expected to stabilize the market and give the shares a better value and reduce
the effect of shares issued pursuant to warrants or options.
The Company also reserved 218 shares of series "A" preferred shares to be
issued to the principals of CyberAir Communications Inc., Chairman, Charles
Lewis and President Robert Dietreich. The shares will be issued upon
confirmation of the primary marketing agreement and satisfactory demonstration
of the CyberAir technology. Upon issuance, these shares will be restricted as
CyberAir principals are considered affiliates
MAJOR EXCHANGE LISTING
- ------------------------
The Company intends to apply for listing on a major exchange by 1st quarter
2000.
ITEM 2. DESCRIPTION OF PROPERTIES.
- --------------------------------------
a) In August 1999, the Company has entered into a month to month operating
lease at 4675 MacArthur Court, Suite 420, Newport Beach, CA 92660. The
monthly rental is $3,450 and the lease is with an unaffiliated third party.
The Company has built an office/factory complex, located in the tax and
duty free zone in Davao City Philippines. The eight acre compound contains
a three acre facility to manufacture furniture. This secure compound totals
8 acres with 3 acres under roof. This eight million dollar two story
facility houses the Company's Pacific corporate offices and manufacturing
facility. The facility manufactures and exports high quality hotel and
resort furniture.
b) The Company has an 8.5 acre telephone pole manufacturing facility , BHFC
Creosoting Inc. purchased in 1998 and located in Butuan city, Philippines.
It features a private loading pier and ship-side facilities. This facility
was built and in operation since 1976. It manufactures telephone poles
primarily for the Philippine government.
c) Company has a 50% interest in Bunsaco Inc. a former Mitsui sawmill in
Butuan City, which is fully licensed and operating. Round logs are
transported from the plantation to this mill which processes the logs into
boards and sells the boards to the local market and supplies the furniture
factory.
ITEM 3. LEGAL PROCEEDINGS as at 9-30/99
- ---------------------------------------------
Walsh Litigation. On June 11, 1996, a complaint was filed against the
-----------------
Company by John Walsh, a former employee in the Superior Court of Fulton County,
Georgia (Civil Action No. E494660), In August 1999, the parties accepted a
settlement of $305,000 $5,000 was paid in cash, $200,000 will be paid in cash
and $100,000 in stock following the shareholders meeting. Following final
payment the Company will recover the 250,000 shares held in escrow.
13
<PAGE>
CAM-NET Litigation. On February 20, 1997, a complaint was filed by CAM-NET
------------------
Communications Network, Inc. ("CN") in federal court for the Northern District
of Georgia, (197-CV-0448). The complaint sought recovery on two promissory
notes in the total principal amount of $250,000, together with interest thereon
to February 17, 1997 of $21,071.70, additional interest to date of payment,
attorney's fees, costs and expenses.
Although the Company was successful in reaching a compromise settlement of
this action, its inability to make payment of the settlement amount in January
1998 resulted in a summary judgment against the Company for $250,000. The
Company has entered into a negotiated cash settlement in this matter.
RBB Bank-Khalifa Litigation. On or about July 30 1996 and August 28, 1996,
---------------------------
the Company issued the aggregate par principal amount of $6,683,333 of certain
3% Convertible Debentures, due August 15, 1998 (the "Debentures"), as follows:
(i) RBB Bank Aktiengesselschaft ("RBB Bank") ($4,000,000), (ii) Mohammed Ghaus
Khalifa ("Khalifa") ($1,333,333), and (iii) Canadian Imperial Bank of Commerce
("CIBC") ($1,350,000) (collectively, the "Debenture holders"). The Company
has finalized a negotiated settlement of these disagreements providing for
payment of $1,000,000 to Khalifa, and $3,417,667 to RBB Bank over a period of 6
months commencing after the shareholders meeting. The settlement calls for
conversions every 45 days, at market rate in either cash, or stock at the
Company's choice.
Trident Litigation. On October 8, l997, the Company filed a complaint in
-------------------
the Superior Court of Fulton County, State of Georgia (Civil Action #E-62102)
against Trident Communications Corp., Wail H. Alkhatib and Daniel G. Kuttab
(collectively, "Trident") alleging breach of contract, both oral and written,
fraud, unjust enrichment, and detrimental reliance among its counts. On June
9, 1999, the Company entered into a settlement agreement with Trident, pursuant
to which, Trident has paid $112,400.00, and 950,000 of Trident's shares were
recovered by the Company
WorldCom/WilTel Litigation. On August 29, 1997, a complaint was filed
---------------------------
against the Company by WorldCom Network Services, Inc. d/b/a WilTel in the State
Court of Dekalb County, Georgia (Action No. 97A-36948-3) seeking recovery of
approximately $6 million for payment of services rendered as well as fees for
attorneys and court costs. New management has entered into dialogue with
Worldcom and both parties have agreed to postpone any legal action The Company
will present a plan to pay-off the liability by purchasing national and
international long-distance from WorldCom at favorable rates.
K&S International Communications, Ltd Arbitration. The Company was
-----------------------------------------------------
involved in an arbitration proceeding with Extelcom Corporation (a/k/a K&S
International Communications, Ltd."K&S") with respect to a former agreement
under which each party was to provide services to the other. The Company
believes that Extelcom's claims are without substantial merit but due to the
nature of the arbitration process, at the end of 1997 elected to increase its
litigation reserves by an amount in excess of $1,000,000 for the potential
liability claim by Extelcom. Based upon a technical default, an award was
entered against the Company in May 1998 for $2.5 million. The Company has
settled the matter with the payment of $325,000 via a bank instrument, due on
December 31st 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ----------------------------------------------------------------------
There have not been any matters submitted to a vote of Security Holders.
PART II
ITEM 5. MARKET FOR COMMON STOCK EQUITY AND RELATED STOCKHOLDER MATTERS.
- --------------------------------------------------------------------------------
As of September April 12th 1999, the authorized capital stock of the
Company consisted of 75,000,000 shares of common stock, par value $0.004 per
share (the "Common stock") and 10,000,000 shares of preferred stock, par value
$0.004 per share (the "Preferred Stock"). As of April 12, 1999, there were
issued and outstanding 75,000,000 shares of common stock, options and warrants
to purchase 7,025,767 shares of common stock at prices ranging from $0.10 to
$2.50.
14
<PAGE>
The Company's common stock has been listed for trading in the
over-the-counter Bulletin Board ("OTCB") market since July, 1995 and is quoted
on the OTCB or in the "pink sheets" maintained by the National Quotation Bureau,
Inc. under the symbol "GTMI." The number of shares of common stock issued and
outstanding as of April 12, 1999, was approximately 75,000,000. The bid and
asked sales prices of the common stock, as traded in the OTCB market, on
September 30th 1999, were approximately $ 0.21 and $0.21 respectively. The
quarterly range of high and low bid prices for the past two years were as
follows:
Bid Prices Asked Prices
High Low High Low
Year Ended December 31, 1997
1st Quarter 0.938 0.625 0.969 0.453
2nd Quarter 1.156 0.469 1.219 0.500
3rd Quarter 0.750 0.370 0.781 0.400
4th Quarter 0.625 0.380 0.656 0.410
Year Ended December 31, 1998
1st Quarter 0.290 0.070 0.380 0.080
2nd Quarter 0.720 0.300 0.730 0.310
3rd Quarter 0.455 0.125 0.465 0.130
4th Quarter 0.380 0.125 0.390 0.133
1st Quarter Ended March 13, 1999
0.364 0.125 0.375 0.130
These prices are based upon quotations between dealers, without adjustments
for retail mark-ups, markdowns or commissions, and therefore may not represent
actual transactions.
The transfer agent for the Company is American Stock Transfer and Trust
Company.
Discussions of sales of unregistered stock over the last 3 years.
The Company's securities are now traded on the OTCBB, an electronic trading
system under the general oversight of National Association of Securities Dealers
an involve self-regulated markets in the company's stock, which are legally
required to be registered broker dealers. The OTCBB is a quotation service which
displays real-time quotes, last-sale prices, and volume information for domestic
and certain foreign securities. The regulations applicable to stocks trading on
the OTCBB have recently been upgraded to impose significant new financial
reporting requirements on such companies. Subject to a phase-in period starting
June, 1999, market makers will not be permitted to quote stock prices on the
OTCBB unless the issuer has registered with the Securities and Exchange
Commission (SEC) or other applicable agency, and submitted the required periodic
reports, including the form 10KSB, and other applicable reports to other such
agency.
Information required by item 701 of Regulation SB.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
- ---------------------------------------------------------------------------
This Report, including the disclosures below, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used herein, the terms "anticipates," "expects," "estimates," "believes"
and similar expressions, as they relate to the Company or its management, are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements may differ materially from those expressed
or implied by such forward-looking statements. Factors that could cause or
contribute to such material differences include the factors disclosed in the
"Risk Factors" section of this Report, which readers of this Report should
consider carefully.
15
<PAGE>
OVERVIEW OF PRESENTATION.
- ---------------------------
The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data and the Consolidated Financial
Statements and Notes thereto included elsewhere herein.
The Company, which was formed on December 31, 1984 has primarily engaged in
the provision of telecommunications services to individuals and small
businesses. Such telecommunications services included, but were not limited to,
domestic and international long distance, prepaid calling cards, interactive
voice mail and other enhanced voice recognition services. During 1998 the
Company operated two separate, but related, businesses: (i) the
telecommunications business; (ii) the carrier sales business; In February 1998,
the Company suspended operations of its Vision 21, Inc. network marketing
subsidiary and the provision of telecommunications services to individuals and
small businesses as part of its restructuring to focus on its wholesale lines of
business.
On October 1, 1996, at the point when the Company had become certified as a
carrier in a number of jurisdictions, the Company entered into a 45-month
agreement with WilTel Communications, Inc. ("WilTel") pursuant to which WilTel
agreed to provide the Company with certain telecommunications services. WilTel
was able to supply the Company with unlimited capacity to transmit calls both
domestically and overseas. WilTel is one of the major long distance carriers in
the United States and was the principal provider to the Company of long distance
service. In August 1997, WilTel discontinued all services under its agreement
WilTel also provided, among other things, transmission services for
customers' calls, that the customer initiates by transmitting calls through the
Company's switches. WilTel also provided special 800 access lines, dedicated
lines for high volumes of traffic and other services, which were designed to
permit the Company to package its services competitively in the market. The
Company's minimum monthly commitment to WilTel of $250,000 started at the end of
June 1997; however, the monthly minimums have not been asserted as an issue in
the litigation discussed under "Legal Proceedings."
As of November 15, 1996, the Company acquired substantially all of the
assets of the business of Finish Line Collectibles, Inc. and two related
corporations ("Finish Line"), pursuant to the terms of an asset purchase
agreement (the "Finish Line Agreement"). The consideration was the assumption
by a wholly owned subsidiary of liabilities related to the business equal to
$694,000.
The Company had anticipated that the collectible calling cards sold by
Finish Line Collectibles, Inc. would feature the enhanced services available
through the Company's workhorse platforms. In addition, the Finish Line product
line was to have offered an added collectible feature to the Enhanced Services
Program of Vision 21. In July 1997, due to failure of Finish Line to meet
projected revenue targets and the continuing losses associated with Finish Line
operations, a Chapter 11 bankruptcy petition was filed by the Company's
wholly-owned subsidiary and all operations were discontinued. During 1997, the
Company recorded losses of approximately $523,000 related to this business.
16
<PAGE>
As of January 2, 1997, the Company acquired substantially all of the assets
and assumed certain liabilities related to the Internet service provider
business of Log On America, Inc. ("LOA"). The consideration for the acquisition
was assumption of liabilities of approximately $241,000. In the fourth quarter
of 1997, the Company determined that it did not have sufficient resources to
finance LOA's expansion costs, and elected to sell all of the stock of LOA to a
group led by LOA management. In a transaction closed in January 1998 the
Company received as consideration a twelve-month interest-bearing note for
$100,000 and a full release and indemnification from all future liabilities of
LOA. The Company recorded a gain of approximately $246,000 on the disposal of
this business.
The Company is also the sole shareholder of Vision 21 Travel Pros, Inc.
("Travel Pros"), incorporated in July 1997. Vision 21 marketed the services of
Travel Pros which offered group tour, cruise and corporate incentive travel
packages. Travel Pros also marketed its services directly to corporations,
trade associations and similar entities. The Company suspended operations of
Vision 21 Travel Pros, Inc. in late 1998. New management does not intend to
infuse any capital into this non-performing entity.
The Company was a sole shareholder of Vision 21, a stand-alone business
and the primary means by which the Company marketed telecommunications products
to the retail marketplace. In addition to communications products, the Vision
21 business consisted of a network of independent distributors ("Distributors")
who market telecommunications services and products, at arms length developed by
the Company and other third parties. New management does not intend to infuse
any capital into this non-performing entity.
After a period of test marketing in 1995 and 1996, the Company based on the
marketplace's response, believed that it had successfully refined the business,
especially the compensation plan, for nationwide launching. However, revenues
for the fourth quarter 1997 and first quarter of 1998 were minimal due to the
continuing problems with the Company's telecommunications network
infrastructure, the inability of the IEX switches to deliver planned services
and Vision 21's lack of sufficient capital to promote the travel services
business. As part of its restructuring and down-sizing strategy, in February
1998 the Company decided not to continue its operations with Vision 21, and
decided to concentrate on its integrated wholesale lines of business. Vision 21
has been inoperative since that time.
All of the Company's businesses were substantially new in 1997 and as a
result significant losses were incurred as the Company attempted to pursue a
multifaceted business plan. Due to capital constraints and other circumstances,
the Company has refocused its efforts and streamlined its operations. The
Carrier Sales Business was started in January, 1997, however these operations
were on hold, pending the Companies ability to resolve certain litigation and
enter into separate carrier service agreements.
FINANCES AND RESTRUCTURING
- ----------------------------
Since the share exchange with BHFC, the Company has been successful at
obtaining capital through fully paid private placements in the amount of
$170,000, and director's loan of $124,000. Directors are preparing to infuse
another $500,000 - $1 million to assist the company in interim restructuring.
The Company has received a pre-approval for a long-term loan in the amount of
$12.5 million from New York finance brokers, United Institutional Investments.
The loan consists of a $2.5 million mezzanine loan to be used to further reduce
the existing debt and $10 million in construction loans for the housing
projects.
17
<PAGE>
The Company has approved a term sheet in New York with The Malachi Group
(NASD & NYSE) for the placement of a 2 year $5 million convertible debenture at
US$10.00 per share. This debenture is redeemable by the Company at 115% .
As part of the restructuring, the Company acquired a Nevada corporation
called BentleyTel.com, Inc. BentleyTel will assume the further financing for
the development of UltraPulse and other technologies. The Company will own the
majority of the shares of BentleyTel.com, and additional BentleyTel.com shares
will be exchanged for 100% of the shares of Octa4 Pty. Ltd. 3G Communications
Inc. and DynaSem Communications Sdn. Bhd. This group of companies are engaged in
providing and developing Internet services, voice over the Internet, e-commerce,
secured funds transfer, long-distance and international long distance, and
technology training and support.
BentleyTel.com's management has approved a share exchange with NextGen
Telcom. NextGen is a high tech marketing company which focuses on building
distribution systems for companies involved in domestic and international long
distance, prepaid phone cards, Internet access and website design. Upon the
successful completion of the share exchange, NextGen will draw on its expertise
in telecommunications marketing to establish and implement an international
distribution network which will feature BentleyTel.com products and services.
BentleyTel.com will have National and International phone cards and related
products available for sale to the public in the 4th quarter 1999. These cards
will also be available in the BIMP-EAGA countries in early 2000. Additional
financing is being sought to finance the telecommunication operations and
related services as well as the operations in hotels, furniture and government
housing construction.
The Company has resolved most of its litigation and hopes to able to
resolve the remaining litigation within 180 days. The Company will generate
revenue in the fourth quarter of 1999 and future years. The income and resulting
profits are dependent the Company's ability to manage its core construction
businesses, and its telecommunication divisions. The strategy of the Company was
to develop a strategic alliance with various technology companies through
mergers and acquisitions. Acquisitions were made of companies possessing
substantial market share in their industries and technological advantages. The
current management of BHFC have been in the same business for over 18 years.
YEAR 2000 COMPLIANCE.
- -----------------------
The Company's administrative operations have been reviewed for Year 2000
Compliance. All divisions of the Company are Year 2000 compliant. Some remaining
operations, such as non-essential personal computers and non-financial software
products, can be easily upgraded at nominal cost and inconvenience. The Company
has consulted an external consultant with respect to the Company's internal
accounting software system, and has purchased new equipment to ensure it is Year
2000 compliant.
The following discussion reflects the financial condition and results of
operations of the Company for the years ended December 31, 1998 and 1997.
Because of these material changes to the Company and new management these past
results are not indicative of future performance.
18
<PAGE>
RESULTS OF OPERATIONS FOR PERIOD ENDED DECEMBER 31 1998 AND 1997.
The Company's revenues decreased from $ 11,674,739 in 1997 to $0 in 1998, a
decrease of 100%. This decrease in sales was largely attributable to the lack
of revenues associated with the Company's canceled prepaid calling card contract
with Trident Communications Corp., which, in turn, led to litigation and
substantial increases in the reserve for bad debts.
During 1998, as compared with 1997, the cost of services sold decreased
from $12,649,083 to $2,034,495, and the Company's operating loss decreased from
$18,097,395 to $8,158,059. The decrease in cost of services was due primarily
to the loss of revenue from the Trident Communications Corp. contract and the
inability of the Company to act as a licensed telecommunications carrier for
certain other contracts. In addition, the various costs associated with
developing the portfolio of services for the Vision 21 business resulted in
additional losses.
During May 1997, the Company began to recognize revenues associated with
the testing and ramp-up phases of a significant contract which called for
monthly minimum revenues of $10 million at full capacity. That contract
accounted for over 90% of the Company's third quarter 1997 revenues and over 75%
of 1997 annual revenues. As of September 30, 1997, the Company has canceled the
contract due to the customer's failure to pay amounts owed. See Item 3 - Legal
Proceedings.
Selling, general and administrative expenses decreased to $4,336,139 in
1998 as compared to $15,470,878. The decrease during 1998 was primarily the
result of decreased levels of operations in the wholesale carrier business, the
suspension of operations of the Company's Vision 21, Inc, as well as the
suspension of the initial phase of the Company's enhanced services platform.
The Company incurred additional legal and professional fees of approximately
$460,000 during 1998.
Interest expense for 1998 was $2,409,825 as compared to $525,847 for 1997.
This increase relates directly to interest paid on debt financing and write-offs
of prepaid debt financing costs obtained during 1997 and 1998. As a result of
the Company's cumulative operating losses, the Company has not paid income tax
since inception. In addition, the Company is approximately five quarters behind
on federal and state payroll taxes, however, $300,000 has been paid towards
unpaid withholding taxes. The Company is negotiating with the IRS for the
payment of the balance of approximately $300,000 in installments. Discussions
are currently underway with the applicable federal and state agencies to pay
these balances off. As of December 31, 1998, the Company had net operating loss
carry forward totaling approximately $40,720,000.
Utilization of the Company's net operating loss may be subject to limitation
under certain circumstances and accordingly the Company has elected to fully
reserve against these deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES.
- -----------------------------------
The Company has historically financed its operations principally through
the sale of equity and debt securities and through funds provided by operating
activities. The Company believes that other than existing financing from
long-term loans and redeemable convertible notes, the income from core
businesses will be sufficient to finance the expansion and development of the
Company.
As of December 31, 1998, the Company had notes and interest payable
totaling $ 8,781,218, accrued but unpaid expenses totaling $1,236,621, and
current accounts payable totaling $14,029,302.
The Company's total assets have been increased to $300,128 as at 12/31/1998
As of March 31, 1999, the Company's negative cash flow was approximately
$150,000 per month. New management has significantly reduced that figure to
less than $50,000 per month by the resignation of the former management ,
employing consultants and moving the Company to a more efficient headquarters in
MacArthur Court, Newport Beach. The Company expects to have sufficient finances
to operate and grow the business. Company policy dictates that it receives
a letter of credit from all contracts undertaken by the construction divisions.
19
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
--------------------------------
The financial statements required by this Item 7 are being submitted with
this filing together with submission of Management's discussion and analysis or
plan of operation
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ----------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- -----------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
- ---------------------------------------------------------
The directors of the Company currently have terms which will end at the
next annual meeting of the stockholders of the Company or until their successors
are elected and qualify, subject to their prior death, resignation or removal.
Officers serve at the discretion of the Board of Directors
<TABLE>
<CAPTION>
Name Position Age
- --------------------------------- ----------------------------------------------- ---
<S> <C> <C>
Jonathon Bentley-Stevens Chairman of the Board 45
Director, Chief Executive
Officer and President
Regina S. Peralta Executive Vice President 39
and Director
YAM (his royal highness) PG.ANAK Vice President, Director 30
HJ. ABDUL WADOOD BOLKIAH BIN
PLSCN PG ANAK ABDUL AZIZ, Prince Wadood Bolkiah
David Tang, CPA Chief Financial Officer 39
Rene Fruto Chief Operating Officer 52
Ambassador Ramon A. Tirol, Director 70
Roberto S. Sebastian B.Sc. MBA, Director 53
Gen. Renato S. de Villa B.Sc. MBA Director 55
Joemari D. Gerochi, B.Sc. MBA. Director 48
</TABLE>
Compliance with Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Section 16(a) of the Exchange Act requires the Company's
directors and executive officers and beneficial holders of more than 10% of the
Company's Common stock to file with the Commission initial reports of ownership
and reports of changes in ownership and reports of changes in ownership of such
equity securities of the Company. Based solely upon a review of such forms, or
on written representations from certain reporting persons that no other reports
were required for such persons, except for those reports discussed in the next
paragraph, the Company believes that all reports required pursuant to Section
16(a) with respect to its executive officers, directors and 10% beneficial
stockholders for the ended December 31, 1998 were timely filed.
20
<PAGE>
CIBC and Khalifa have filed Form 13D in respect of their acquisition of
certain 3% debentures issued by the Company, but the Company has not received
copies of any filings by CIBC, Khalifa or RBB Bank of any filings which may be
required under Section 16 of the Exchange Act. See "Legal Proceedings."
ITEM 10. EXECUTIVE COMPENSATION.
- -----------------------------------
Effective January 27, 1997, the Company entered into a revised and restated
employment agreement with McClain, as the Chief Executive Officer of the
Company, the terms of which are as follows: (a) the term of the employment
agreement is ten years from the effective date, which term is automatically
renewed by one month at the end of each month; (b) the base salary is $125,000
annually, increased by ten percent each year; (c) a performance bonus equal to
7.5% of the net income before taxes of the Company for any year; (d) a revenue
bonus equal to 10,000 shares of the Company's Common stock for each increment of
$250,000 by which the Company's gross monthly revenues exceed those of the prior
month, starting from a base of $450,000; (e) 1,000 shares of a class of
convertible preferred stock to be authorized by the Company, subject to terms of
such class of preferred stock as are agreed to by the parties hereto; (f) any
other bonus, supplemental or incentive compensation as may be approved by the
Board of Directors; (g) non-qualified options to acquire up to 1,600,000 shares
of the Company's Common stock at an exercise price of $0.41 per share; and
(h) a trigger to receive all unpaid compensation, whether or not earned, upon
the occurrence of a change in control of the Company. For purposes of the
employment agreement, change in control (25%) of either the outstanding shares
of Common stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally, or (ii) the approval by the
stockholders of the Company of a reorganization, merger or consolidation, in
which persons who were stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own or
control more than fifty percent (50%) of the combined voting power entitled to
vote generally in the election of directors of the surviving corporation of such
reorganization merger or consolidation of the Company or of the sale of all or
substantially all of the Company's assets, PURSUANT TO THE RESIGNATION OF
RODERICK MCCLAIN ON MARCH 31ST 1999, THE BOARD OF DIRECTORS HAS CANCELED ALL
NON-EXERCISED OPTIONS.
The Company entered into an employment agreement with Herbert S. Perman
("Perman"), dated October 1, 1995, amended February 1, 1996 and amended October
22, 1998. Pursuant to the Perman Agreement, which expires on December 31, 2002,
Perman was employed as the Company's Chief Financial Officer and is compensated
with an annual salary, as of October 22, 1998, of $115,000, a one-time grant of
150,000 shares of the Company's Common stock and a one-time grant of options to
acquire 50,000 shares of the Company's Common stock at an exercise price of
$1.00 per share. Mr. Perman's options for the 50,000 shares expired in 1997.
In addition, Mr. Perman shares in the Company's Executive Stock Bonus Plan,
which provides for the issuance of shares of Common stock upon increase of gross
monthly revenues over a base of $450,000. On March 3, 1998, the Board of
Directors granted Mr. Perman options to acquire 350,000 at an exercise price of
$0.10 per share. PURSUANT TO THE RESIGNATION OF HERB PERMAN THE BOARD OF
DIRECTORS HAS CANCELED ALL NON-EXERCISED OPTIONS.
21
<PAGE>
The Company entered into an employment agreement with Geoffrey McClain,
dated May 25, 1995, amended February 1, 1996, amended February 1, 1997 and
October 22, 1998. Pursuant to the Geoffrey McClain Agreement, which expires
December 31, 2002. Geoffrey McClain was employed as the Company's Senior
vice-president and is compensated with an annual salary, as of February 1, 1997,
of $98,000. In addition, Geoffrey McClain shares in the Company's Executive
Stock Bonus Plan, which provides for the issuance of shares of Common stock upon
increase of gross monthly revenues over a base of $450,000. On March 3, 1998,
the Board of Directors granted Geoffrey McClain options to acquire 750,000 at an
exercise price of $0.10 per share. PURSUANT TO THE RESIGNATION OF GEOFFREY
MCCLAIN THE BOARD OF DIRECTORS HAS CANCELED ALL NON-EXERCISED OPTIONS.
PURSUANT TO THE RESIGNATION OF RODERICK MCCLAIN, GEOFFREY MCCLAIN AND HERB
PERMAN ON MARCH 31ST 1999, ALL EMPLOYMENT AGREEMENTS WERE CANCELED WHICH
INCLUDED BONUSES AND BENEFITS.
SUMMARY COMPENSATION TABLE.
- ----------------------------
The following table sets forth certain information concerning compensation
of certain of the Company's executive officers, including the Company's Chief
Executive Officer and all executive officers whose total annual salary and bonus
exceeded $100,000, for the years ended December, 1998 and 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name and Other Restricted Securities LTIP All Other
Principal Year Salary Bonus Compen- Awards Options/ Payouts Compen-
Position ($) ($) sation ($) SARs (#) ($) sation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jonathon Bentley-Stevens 1999 0 0 0 0 0 0 0
CEO (Paid by BHFC Philippines)
Roderick A. McClain 1998 151,250 0 0 0 0 0 0
CEO
Roderick A. McClain 1997 137,000 0 0 0 0 0 0
CEO
</TABLE>
OPTION/SAR GRANTS TABLE DURING LAST FISCAL YEAR.
- -----------------------------------------------------
No options or SARs were granted to the named executives in 1998.
OPTION REPRICINGS (now canceled)
- -----------------------------------
The following table sets forth certain information with respect to the
repricing during 1997 of stock options previously granted to the named
Executives:
<TABLE>
<CAPTION>
Length of
Securities Market Price Option Term
Underlying Number of Stock Exercise Price Remaining on
of Options/SARs at Time of at Time of New Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) Amendment ($) Price ($) Amendment
<S> <C> <C> <C> <C> <C> <C>
R.A. McClain 3/3/98 1,600,000 $ 0.075 $ 0.41 $ 0.10 8 years
</TABLE>
22
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of April 12, 1999, the Company had issued and outstanding 75,000,000
Shares of Common stock. The following table reflects, as of April 12, 1999,
the beneficial Common stock ownership of: (a) each director of the Company,
(b) each current executive officer named in the summary compensation table in
this Form 10-KSB, (c) each person known by the Company to be a beneficial owner
of five percent (5%) or more of its Common stock, and (d) all executive
officers and directors of the Company as a group:
Name and Address of Beneficial Owner Number of Shares Percent
- ------------------------------------- ---------------- -------
Roderick A. McClain 1,2 2,690,568 3.59
Allyson Rodriguez 1,2 2,690,568 3.59
Geoffrey F. McClain 1,5 1,030,820 1.37
Herbert S. Perman 1,6 500,000 0.67
Bentley House Furniture Company, Inc. 29,595,139 39.46
RBB Bank Aktiengesellschaft 3 10,543,210 14.06
All Directors and Officers as a Group 4 4,221,388 5.63
# Pursuant to the rules of the Commission, shares of Common stock which an
individual or group has a right to acquire within 60 days pursuant to the
exercise of options or warrants are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
(1) The address for each of these persons is the Company's principal executive
office, located at 4674 MacArthur Court, Suite 420, Newport Beach, CA.
92660.
(2) Mr. Roderick McClain and Ms. Rodriguez are husband and wife. Includes
spouse's shares (1,090,568)
(3) Includes up to 10,543,210 shares of Common stock which under a joint
agreement can not be converted after the Shareholders meeting and then
partial conversion or cash payment every 45 days over a period of 6 months.
The address for RBB Bank Aktiengesellschaft provided to the Company is
Burgring 16, 8010 Groz, Austria. See "Legal Proceedings - RBB Bank-Khalifa
Litigation."
(4) INCLUDES 1,521,388 SHARES OF COMMON STOCK.
(5) Includes options to acquire 750,000 shares of Common stock pursuant to
Board of Directors action on March 3, 1998
(6) Includes options to acquire 350,000 shares of Common stock pursuant to
Board of Directors action on March 3, 1998
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------------
On January 30, 1996, the Company issued 200,000 shares of its Common stock
to Roderick McClain, purportedly pursuant to a "change in control" provision
contained in Roderick McClain's employment agreement, dated May 15, 1995. On
October 7, 1996, the disinterested members of the Board of Directors of the
Company determined that such shares had been improperly issued, and such shares
were canceled as of the date of purported issuance.
23
<PAGE>
The Company, through an affiliate of which the Company is the 100%
beneficial owner, previously owned a building located at 1121 Alderman Drive,
Alpharetta, Georgia 30202, which space served as the Company's headquarters
through March 1998. In connection with obtaining financing for the purchase of
the building, the Company formed a Georgia limited liability Company ("LLC") to
take title to the building. In order to meet a requirement of the limited
liability Company statute, each of three individuals, including Roderick McClain
and Geoffrey McClain, took title to 25% of the stock of the LLC. All such stock
is held in trust for the benefit of the Company, and all equitable interest in
the LLC, including the rights to current profits and proceeds from the sale of
assets, belongs to the Company. As part of the Company's restructuring efforts
and downsizing, the Company no longer needed the amount of office space provided
at 1121 Alderman Drive. To the satisfaction of all parties, the Company
surrendered its equity interest in the building to the mortgage holder in
exchange for a release from certain building improvement liabilities, a
three-month period of free rent and the cancellation of the Company's lease
liability.
On December 31, 1997, open account advances made by the Company to Roderick
McClain totaled $226,386Effective December 31, 1997, Roderick A. McClain
executed a demand promissory note, bearing interest at eight percent per annum
for such amount. During 1998, the Company accrued interest increasing the
amount to $244,497.
The Company believes that the above-described transactions are as fair to
the Company as could have been made with unaffiliated parties. The Company
requires that transactions between the Company and its officers, directors,
employees or stockholders or persons or entities affiliated with officers,
directors, employees or stockholders be on terms no less favorable to the
Company than it could reasonably obtain in arms-length transactions with
independent third parties. Such transactions were approved by a majority of the
disinterested directors of the Company.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------------
A. Financial Statements
The financial statements required by this Item 13 are being submitted with
this filing. Company will also include submission of Management's discussion and
analysis or plan of operation
B. Reports on Form 8-K
None
C. Other Exhibits
23 Consent of Tauber & Balser, P.C.
27 Financial Data Schedule.
As attached
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- ----------------------------------------------------
The Company is currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington
D.C. 20549; at its New York Regional Office, Room 1400, 7 World Trade Center,
New York, New York, 10048; and at its Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2411, and copies of such materials
can be obtained from the Public Reference Section at prescribed rates. The
Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
24
<PAGE>
Certain documents listed above as exhibits to this Report on Form 10-KSB
are incorporated by reference from other documents previously filed by the
Company with the Commission as follows:
Previous Filing Exhibit Number
Incorporated by Reference in Form 10-KSB
1. Quarterly Reports on Form 10-QSB 10.2
for the quarters ended March 31, 1998,
June 30, 1998, and September 30, 1998
2. Current Reports on Form 8-K 10.3
dated as of February 19, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLOBAL TELEMEDIA
INTERNATIONAL, INC.
Dated: November 17, 1999 By: /s/ Jonathon Bentley-Stevens
-----------------------------
Jonathon Bentley-Stevens
President/Chief Executive Officer
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated below.
GLOBAL TELEMEDIA
INTERNATIONAL, INC.
Dated: November 9, 1999 By: /s/ Jonathon Bentley-Stevens
-----------------------------
Jonathon Bentley-Stevens
President/Chief Executive Officer
Director
Dated: November 9, 1999 By: /s/ David Tang CPA
---------------------
David Tang
Chief Financial Officer
25
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
Pages
-----
<S> <C>
Independent Auditors' Report . . . . . . . . . . F-1
Consolidated Balance Sheets. . . . . . . . . . . F-2
Consolidated Statements of Operations. . . . . . F-3
Consolidated Statements of Stockholders' Deficit F-4
Consolidated Statements of Cash Flows. . . . . . F-5
Notes to Consolidated Financial Statements . . . F-7
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Global Telemedia International, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Global Telemedia
International, Inc. 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. These consolidated 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide 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 Global Telemedia
International, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company's recurring losses from
operations, limited capital resources, and litigation raise substantial doubt
about its ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Tauber & Balser, P.C.
Atlanta, Georgia
August 5, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,189 $ -
Accounts receivable . . . . . . . . . . . . . . . . . . . 112,400 -
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 150,000 -
------------- -------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 267,589 -
PROPERTY & EQUIPMENT, net of accumulated
depreciation of $41,130 and $26,357 in 1998 and 1997,
respectively. . . . . . . . . . . . . . . . . . . . . . . 32,539 47,312
------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $ 300,128 $ 47,312
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft. . . . . . . . . . . . . . . . . . . . . . $ - $ 48,730
Accounts payable. . . . . . . . . . . . . . . . . . . . . 14,029,302 11,358,907
Accrued interest. . . . . . . . . . . . . . . . . . . . . 2,680,718 339,819
Other accrued expenses. . . . . . . . . . . . . . . . . . 1,236,621 1,624,285
Notes payable . . . . . . . . . . . . . . . . . . . . . . 6,100,500 6,473,878
------------- -------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 24,047,141 19,845,619
------------- -------------
STOCKHOLDERS' DEFICIT
Common stock, $.004 par value; authorized 75,000,000
shares; 41,732,240 and 22,170,700 shares issued and
outstanding in 1998 and 1997, respectively. . . . . . . 166,929 88,666
Additional paid-in capital. . . . . . . . . . . . . . . . 8,678,151 4,857,061
Note receivable from stock sale . . . . . . . . . . . . . - (310,000)
Accumulated deficit since October 1, 1995, in addition to
$13,188,000 eliminated in quasi-reorganization. . . . . (32,592,093) (24,434,034)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . (23,747,013) (19,798,307)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT . . . . . . . . $ 300,128 $ 47,312
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Additional Stockholder Total
Common Stock Paid-in Note Accumulated Stockholders'
---------- ----------
Shares Par Value Capital Receivable Deficit Deficit
---------- ---------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996. . . . . . . . . . . 16,242,386 $ 64,953 $ 1,971,700 $ - $ (6,336,639) $ (4,299,986)
Note receivable from sale of stock. . . . . . . - - - (310,000) - (310,000)
Sale of stock . . . . . . . . . . . . . . . . . 1,010,000 4,040 375,960 - - 380,000
Shares issued to consultants. . . . . . . . . . 1,215,895 4,864 641,529 - - 646,393
Shares issued to employees for compensation . . 135,550 542 6,235 - - 6,777
Exercise of warrants. . . . . . . . . . . . . . 2,200,000 8,800 935,210 - - 944,000
Conversion of notes payable . . . . . . . . . . 1,366,869 5,467 926,427 - - 931,894
Net loss. . . . . . . . . . . . . . . . . . . . - - - - (18,097,395) (18,097,395)
---------- ---------- ----------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1997. . . . . . . . . . . 22,170,700 88,666 4,857,061 (310,000) (24,434,034) (19,798,307)
Write-off of note receivable from sale of stock - - - 310,000 - 310,000
Sale of stock . . . . . . . . . . . . . . . . . 6,444,987 25,797 432,942 - - 458,739
Shares issued to consultants. . . . . . . . . . 205,000 820 52,280 - - 53,100
Shares issued to employees for compensation . . 210,000 840 133,360 - - 134,200
Exercise of warrants. . . . . . . . . . . . . . 3,121,544 12,486 395,441 - - 407,927
Shares issued to consultants upon exercise
of warrants. . . . . . . . . . . . . . . . . 6,139,190 24,557 1,569,747 - - 1,594,304
Conversion of notes payable . . . . . . . . . . 3,440,819 13,763 1,237,320 - - 1,251,083
Net loss. . . . . . . . . . . . . . . . . . . . - - - - (8,158,059) (8,158,059)
---------- ---------- ----------- ------------- ------------- --------------
BALANCE, DECEMBER 31, 1998. . . . . . . . . . . 41,732,240 $ 166,929 $ 8,678,151 $ - $(32,592,093) $ (23,747,013)
========== ========== =========== ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . $(8,158,059) $(18,097,395)
------------ -------------
Adjustments:
Depreciation and amortization:
Depreciation. . . . . . . . . . . . . . . . . . 14,773 510,947
Amortization of discount on notes payable . . . 570,455 815,667
Write off of goodwill . . . . . . . . . . . . . - 241,122
Bad debts . . . . . . . . . . . . . . . . . . . . 395,933 7,309,917
Stock issued for services . . . . . . . . . . . . 1,781,604 653,170
Gain on sale of intangible asset. . . . . . . . . (500,000) -
Loss (gain) on disposal of building and equipment (10,000) 1,126,326
Gain on disposal of subsidiary. . . . . . . . . . - (246,035)
Changes in:
Accounts receivable . . . . . . . . . . . . . . (198,333) (7,131,591)
Inventory . . . . . . . . . . . . . . . . . . . - 479,322
Other current assets. . . . . . . . . . . . . . (150,000) 150,317
Accounts payable. . . . . . . . . . . . . . . . 2,670,395 10,518,476
Accrued interest. . . . . . . . . . . . . . . . 2,340,899 170,301
Other accrued expenses. . . . . . . . . . . . . (319,914) 879,214
------------ -------------
Total Adjustments . . . . . . . . . . . . . . 6,595,812 15,477,153
------------ -------------
NET CASH USED BY OPERATING ACTIVITIES . . . . . . . . (1,562,247) (2,620,242)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment . . . . . . . - (77,872)
Return of deposit for purchase of equipment . . . . - 650,000
Proceeds from sale of intangible asset. . . . . . . 500,000 -
Proceeds from sale of equipment . . . . . . . . . . 10,000 20,283
------------ -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES . . . . . . 510,000 592,411
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable . . . . . . . . . . . . 239,500 782,432
Proceeds from issuance of common stock. . . . . . . 866,666 1,394,980
Payments on notes payable . . . . . . . . . . . . . - (219,351)
Decrease in bank overdraft. . . . . . . . . . . . . (48,730) -
------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . 1,057,436 1,958,061
------------ -------------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . 5,189 (69,770)
CASH, BEGINNING OF YEAR . . . . . . . . . . . . . . . - 69,770
------------ -------------
CASH, END OF YEAR . . . . . . . . . . . . . . . . . . $ 5,189 $ -
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH INFORMATION
Cash paid for interest . . . . . . . . . . . . . . . . . $ 1,176 $ 7,823
========== ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Details of acquisition:
Fair value of assets acquired. . . . . . . . . . . . . . $ - $ 92,186
Goodwill established . . . . . . . . . . . . . . . . . . $ - $ 149,182
Liabilities assumed. . . . . . . . . . . . . . . . . . . $ - $ 241,368
Details of disposal:
Goodwill written off . . . . . . . . . . . . . . . . . . $ - $ 241,122
Net liabilities written off. . . . . . . . . . . . . . . $ - $ 241,122
Conversion of notes payable for common stock . . . . . . . $1,251,083 $ 931,894
Issuance of common stock for note receivable . . . . . . . $ - $ 335,000
Acquisition of equipment for common stock. . . . . . . . . $ - $ 840,000
Return of equipment and common stock issued on acquisition - (840,000)
---------- ------------
$ - $ -
========== ============
Acquisition of equipment through assumption of liabilities $ - $ 1,077,000
Return of equipment for liabilities owed . . . . . . . . . - (1,077,000)
---------- ------------
$ - $ -
========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company has been engaged in the marketing of long distance telephone and
related services to individuals and other customers throughout the United
States. Due to a change in business focus and a lack of sufficient capital to
implement its business plan, the Company generated no revenues during 1998 and
there can be no assurance that the Company will continue as a going concern (see
Note 10). In March 1999, the Company acquired Bentley House Furniture Company,
Inc. (see Note 11). Through this acquisition, the Company's business focus is
to raise additional capital through financing and private placements to develop
business opportunities in telecommunications, agriculture, mining, timber
export, and furniture manufacturing to markets in the United States and Asia.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk consist of accounts receivable, which are uncollateralized.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets.
GOODWILL
The Company classified as goodwill the cost in excess of fair value of the net
identifiable assets acquired from the Collectible Calling Card Business and
Internet Access acquisitions. The unamortized goodwill related to these
entities was written off upon their disposal in 1997.
STOCK-BASED COMPENSATION
The Company follows Statement of Financial Accounting Standard (SFAS) No. 123
"Accounting for Stock-Based Compensation." Under SFAS 123, the Company
recognizes compensation for services rendered by employees and consultants using
a fair value methodology.
F-6
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect 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 may differ from these estimates. Significant
estimates in the financial statements include the assumption the Company will
continue as a going concern. This assumption could change in the near term.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common shares
outstanding during each period. Dilutive potential common shares include stock
options and warrants and convertible debentures. For 1998 and 1997, these
shares were not considered in the calculation of net loss per share as they were
anti-dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 consolidated financial
statements to conform to the 1998 consolidated financial statement presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Equipment . . . . . . . . . . $63,669 $63,669
Furniture and fixtures. . . . 10,000 10,000
------- -------
73,669 73,669
Less accumulated depreciation 41,130 26,357
------- -------
$32,539 $47,312
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997 was $14,773
and $162,335, respectively.
F-7
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
3. NOTES PAYABLE AND LITIGATION
Notes payable consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Various demand notes, interest rate 0% - 18% . . . . . . . . . $ 669,500 $ 645,000
3% convertible debentures. . . . . . . . . . . . . . . . . . . 5,266,000 5,828,878
9% note payable to a corporation, due April 1999, in default,
convertible into shares of the Company's common
stock in accordance with the note provisions, secured
by a security interest in a prepaid expense of the
Company and personally guaranteed by the President/
CEO of the Company . . . . . . . . . . . . . . . . . . . . . 165,000 -
---------- ----------
$6,100,500 $6,473,878
========== ==========
</TABLE>
During April 1996, the Company sold $250,000 of various floating rate notes.
These notes are payable on demand and were in default at December 31, 1998 and
1997.
In November 1997, the Company entered into a note payable to a corporation in
the amount of $250,000. This note payable was due in January, 1998 and is
currently in default.
From July 30, 1996 through August 28, 1996, the Company sold $6,683,333 of 3%
convertible debentures at a discount with an effective interest rate of
approximately 14.5%. The unamortized discount at December 31, 1998 and 1997 was
$0 and $570,455, respectively. The convertible debentures were to mature August
15, 1998 and could be paid in cash or in common stock.
During the period from November 15, 1996 through January 3, 1997, the Company
received a number of requests for conversion of the par principal amount plus
accrued interest of the 3% convertible debt into unrestricted shares of common
stock. The Company took the position that the debenture holders had not
complied with the terms of the Subscription Documents and, accordingly, did not
issue shares pursuant to the requests.
F-8
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
3. NOTES PAYABLE AND LITIGATION (CONTINUED)
In July 1999, the Company and the debt holders entered into a settlement
agreement by which the Company will convert the remaining balance of the
convertible debt into freely trading shares of the Company's common stock
pursuant to the original conversion terms as set forth in the convertible
debenture agreements. This conversion will be done gradually with a maximum
conversion of $1,000,000 of debentures every forty-five days, beginning within
one week of the authorization by the Company's stockholders to issue these
additional shares to satisfy this obligation. As part of this agreement, the
Company will issue 500,000 shares of its common stock to the debenture holders
as a one time penalty and in satisfaction of outstanding damages claims. These
shares are to be issued in two installments of 250,000 shares at the beginning
and end of the debenture conversions.
As part of the agreement, in the event that the Company does not promptly take
all necessary steps to obtain the approval of the Securities and Exchange
Commission for the authorization and issuance of the shares, or in the event
that approval of the shareholders of the Company is not obtained for the
authorization and issuance of the shares, a judgment will be issued against the
Company in favor of the debt holders in the total amount of $7,896,166.
4. INCOME TAXES
Deferred income taxes and the related valuation allowances result from the
potential tax benefits of tax carryforwards. The Company has recorded a
valuation allowance to reflect the uncertainty of the ultimate utilization of
the deferred tax assets as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets. . . $16,289,000 $12,573,000
Less valuation allowance 16,289,000 12,573,000
----------- -----------
Net deferred tax assets. $ - $ -
=========== ===========
</TABLE>
The valuation allowance at December 31, 1996 approximated $5,334,000.
Following is a reconciliation of applicable U.S. federal income tax rates
(credits) to the effective tax rates included in the consolidated statements of
operations:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
U.S. federal income tax rate. . . . . . . . . . . (34.0)% (34.0)%
State income tax rate, net of federal tax benefit (3.6) (3.6)
Tax loss carryforwards. . . . . . . . . . . . . . 37.6 37.6
------- -------
0.0% 0.0%
======= =======
</TABLE>
F-9
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
4. INCOME TAXES (CONTINUED)
At December 31, 1998, the Company had available unrecognized net operating loss
carryforwards for income tax reporting purposes as follows:
<TABLE>
<CAPTION>
Net Operating
Year Loss Carry Year
Arose Forward Expires
- ----------- -------------- -------
<S> <C> <C>
1987. . . . $ 107,000 2002
1988. . . . 906,000 2003
1989. . . . 1,320,000 2004
1990. . . . 2,280,000 2005
1991. . . . 619,000 2006
1992. . . . 309,000 2007
1993. . . . 22,000 2008
1994. . . . 1,315,000 2009
1995. . . . 1,884,000 2010
1996. . . . 5,702,000 2011
1997. . . . 18,098,000 2012
1998. . . . 8,158,000 2018
--------------
Total $ 40,720,000
==============
</TABLE>
In addition, the Company has $1,244,327 of capital loss carryforwards, which
expires in 2000 and can be used to offset capital gains, if any.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
Significant financial instruments consist of accounts payable, accrued expenses,
and notes payable that are either due on demand, due in 1999, or are expected to
be converted into common stock as discussed in Note 3. The Company does not
have the funds required to settle these amounts currently. As a result, the
Company is unable to estimate the timing and ultimate form of the settlement of
a substantial portion of these liabilities. It believes that if the current
holders were to sell such instruments to other parties, the sales price would be
substantially less than the carrying value.
6. RELATED PARTY TRANSACTIONS AND BUILDING FORFEITURE
The Company has a note receivable from its President/CEO in the amount of
$226,000 at December 31, 1998 and 1997. The note bears interest at 8% and is
due on demand. His ability to repay this debt is currently dependent upon the
success of the Company. As a result, the receivable has been fully reserved.
In addition, the Company has a $65,000 note payable to the wife of its
President/CEO at December 31, 1998 and 1997.
F-10
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
6. RELATED PARTY TRANSACTIONS AND BUILDING FORFEITURE (CONTINUED)
The Company, through an affiliate of which the Company was the 100% beneficial
owner, owned a building that served as the Company's headquarters. In connection
with obtaining financing for the purchase of the building, the Company formed a
Georgia limited liability company ("LLC") to take title to the building. The
Company contributed capital of $850,000 to the LLC in 1996. In order to meet a
requirement of the limited liability company statute, each of three individuals,
including Roderick McClain and Geoffrey McClain, took title to 25% of the stock
of the LLC. All such stock was held in trust for the benefit of the Company.
During 1997, the Company forfeited its entire interest in the LLC to the
noteholder of the building in exchange for the cancellation of the Company's
lease liability. Because the Company controlled this LLC, its accounts were
included in the consolidated financial statements.
During 1998, the Company granted options to two officers/directors of the
Company to purchase 1,100,000 shares of the Company's common stock at a price of
$.10 per share. These options expire January 2000.
During 1997, the Company granted options to an officer/director of the Company
to purchase 1,600,000 shares of the Company's common stock at a price of $.10
per share. These options expire January 2007.
7. ACQUISITIONS AND BANKRUPTCY
In July 1997, the Company filed a Chapter 11 Bankruptcy petition related to one
of its subsidiaries and all operations of this subsidiary were discontinued.
The Company has recorded a loss of $523,000 in the 1997 financial statements
related to the closing of this business.
On January 2, 1997, the Company acquired substantially all of the assets of an
Internet service provider. The consideration for the acquisition was assumption
of net liabilities of approximately $241,000. In the fourth quarter of 1997,
the Company sold the company back to the original management of the Internet
service provider for a $100,000 note. The Company recorded a gain of
approximately $246,000 on the disposal of this business.
8. COMMITMENTS AND LITIGATION
The Company has employment agreements with certain officers, which expire at
various times through 2005. Subsequent to the balance sheet date, these
officers resigned their positions with the Company, effectively terminating
their employment agreements and releasing the Company from any further liability
under these contracts.
The Company is involved in various lawsuits which arose in disputes with vendors
for non-payment of services received. Amounts claimed due under the lawsuits,
including accrued interest, are included in accounts payable and accrued
interest at December 31, 1998 and 1997.
F-11
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
8. COMMITMENTS AND LITIGATION (CONTINUED)
In October 1997, the Company filed a complaint against a major customer to
recover $10,000,000 for payment of services rendered but not paid. With this
suit, the Company also requested the return of 2,168,767 of its shares issued to
this customer. In June 1999, the two parties to the dispute entered into a
settlement agreement by which the customer agreed to pay to the Company the sum
of $112,400 and return 950,000 shares of the Company's common stock held in its
possession. In exchange for such payment and return of shares, the Company
agreed to release any restrictions on the shares and reissue replacement
certificates as needed for 1,218,767 shares of the Company's common stock.
In May 1998, the Company entered into a letter of intent with UltraPulse
Communications, Inc. ("UCI") to acquire 51% of their outstanding common stock.
As part of the agreement, the Company will have a five-year option to acquire an
additional 49% of UCI's outstanding common stock. UCI is a privately held
company that holds the exclusive licensing rights for the development,
production and marketing of its wireless telecommunications technology. In
addition, the Company has committed to provide financing to UCI in the amount of
$10,000,000 on a deposit and a performance based schedule to be determined
following the evaluation of the functioning technology. The agreement is
subject to due diligence by both parties and the execution of a final agreement.
9. OPTIONS AND WARRANTS
At December 31, 1998 and 1997, the Company had stock options and warrants
granted to employees and non-employees for compensation. Stock options and
warrants expire from two to ten years from the grant date with no vesting
period. A summary of the Company's stock option and warrant activity for the
years ended December 31, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
1998 1997
-------------------------------- --------------------------------
Weighted Average Weighted Average
Outstanding Exercise Price Outstanding Exercise Price
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Balance, beginning of year. . 4,137,500 $ 1.33 2,393,500 $ 2.31
Granted . . . . . . . . . . . 12,978,289 $ 0.17 4,350,000 $ 0.31
Exercised . . . . . . . . . . (9,260,734) $ 0.15 (2,200,000) $ 0.45
Cancelled/expired . . . . . . (829,288) $ 3.56 (405,000) $ 1.04
------------- -------------
Balance, end of year. . . . . 7,025,767 $ 0.34 4,137,500 $ 1.33
============= =============
Weighted-average fair value
of options/warrants granted
during the year . . . . . . $ .07 $ .16
============= =============
</TABLE>
F-12
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
9. OPTIONS AND WARRANTS (CONTINUED)
The Company measures compensation cost using the fair value-based accounting
method prescribed in SFAS No. 123. The Company estimates the fair value of each
option/warrant at the grant date using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1998 and
1997, respectively: no dividend yield for each year; expected volatility of 33%
and 56%; expected option/warrant life of 2 years for 1998 and 3 years for 1997;
and risk free interest rates of 4.72% and 5.98%.
The following table summarizes stock options and warrants outstanding and
exercisable at December 31, 1998 and 1997:
Weighted
Options Average
and Average Exercise
Exercise Price Range Warrants Life Price
- ---------------------- ---------- ------- --------
1998 Outstanding and Exercisable
-----------------------------------
$0.10 - $2.50 7,025,767 3.10 $0.34
1997 Outstanding and Exercisable
-----------------------------------
$0.10 - $5.00 4,137,500 5.77 $1.33
10. GOING CONCERN
The Company's consolidated financial statements for the years ended December 31,
1998 and 1997 have been prepared on the assumption that the Company will
continue as a going concern, which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. The Company
incurred a net loss of $8,158,059 and $18,097,395 for the years ended December
31, 1998 and 1997, respectively, and has a working capital deficiency of
$23,779,552 and $19,845,619 and an equity deficiency of $23,747,013 and
$19,798,307 at December 31, 1998 and 1997, respectively. In addition, as
discussed in Note 8, there is ongoing litigation that could potentially affect
the Company's financial position. Also, the Company is in arrears on its
payroll tax liabilities. The consolidated financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Management is actively involved in attempting to raise additional capital
through financing sources and private placements. However, no assurance can be
given that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve profitability or positive cash
flow.
F-13
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
11. SUBSEQUENT EVENTS
ACQUISITION OF BENTLEY HOUSE FURNITURE COMPANY, INC.
On March 18, 1999, the Company entered into an agreement to purchase Bentley
House Furniture Company, Inc. (BHFC), a Philippine corporation. Pursuant to the
agreement, the Company will issue 29,595,139 shares of its common stock and
4,000 shares of Series A preferred stock in exchange for all of the issued and
outstanding common stock of BHFC.
The Series A preferred stock is voting stock with a par value of $.004 per
share. Each share of the preferred stock is convertible into 208,274 shares of
fully-paid and non-assessable common stock. The Series A preferred stock shall
bear no dividends, and the holders of the Series A preferred stock shall be
entitled to liquidation preferences on the same proportionate basis as holders
of the common stock.
The Company will account for the acquisition as a reverse acquisition under the
purchase method of accounting. As such, the assets and liabilities of the
acquiror, Global Telemedia International, Inc., will be revalued at their fair
market value as of the date of the acquisition. Any excess purchase price over
the fair market value of the net tangible assets of Global Telemedia
International, Inc. at the date of acquisition will be amortized over a period
not to exceed 40 years.
Summarized below is the unaudited condensed balance sheet of Bentley House
Furniture Company, Inc. as of December 31, 1998 and its unaudited condensed
statement of operations for the year ended December 31, 1998.
<TABLE>
<CAPTION>
BALANCE SHEET
ASSETS
<S> <C>
Cash . . . . . . . . . . . . . . . . . . . . $ 181
Advances to shareholder. . . . . . . . . . . 465,492
Property and equipment, net. . . . . . . . . 6,275,897
----------
Total assets . . . . . . . . . . . . . . . $6,741,570
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses. . . . $2,480,934
Loans payable. . . . . . . . . . . . . . . . 2,616,975
Stockholders' equity . . . . . . . . . . . . 1,643,661
----------
Total liabilities and stockholders' equity $6,741,570
==========
</TABLE>
F-14
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
11. SUBSEQUENT EVENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
<S> <C>
NET SALES. . . . . . $ 104,700
COST OF GOODS SOLD . 31,187
----------
GROSS PROFIT . . . . 73,513
OPERATING EXPENSES . 552,803
----------
LOSS FROM OPERATIONS (479,290)
OTHER CHARGES, NET . (484,701)
----------
NET LOSS . . . . . . $(963,991)
==========
</TABLE>
12. FOURTH QUARTER ADJUSTMENTS
Significant adjustments made in the fourth quarter of 1998:
<TABLE>
<CAPTION>
<S> <C>
Additional accrual of accounts payable, including interest,
related to various lawsuits with vendors. . . . . . . . . . . . . . . . . . . $4,487,067
Increase in valuation of compensation for stock issued for services during 1998 $ 676,800
</TABLE>
F-15
<PAGE>
TAUBER & BALSER, P.C.
Certified Public Accountants
3340 Peachtree Road, N.E.
Suite 250
Atlanta, GA 30326
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference of our report dated August 5, 1999
included in the December 31, 1998 Form 10-KSB for Global Telemedia
International, Inc.
/s/ Tauber & Balser, P.C.
Atlanta, Georgia
November 12, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5189
<SECURITIES> 0
<RECEIVABLES> 112400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 150000
<PP&E> 73669
<DEPRECIATION> 41130
<TOTAL-ASSETS> 300128
<CURRENT-LIABILITIES> 24047141
<BONDS> 0
0
0
<COMMON> 166929
<OTHER-SE> (23913942)
<TOTAL-LIABILITY-AND-EQUITY> 300128
<SALES> 0
<TOTAL-REVENUES> 112400
<CGS> 0
<TOTAL-COSTS> 2034495
<OTHER-EXPENSES> 3940206
<LOSS-PROVISION> 395933
<INTEREST-EXPENSE> 2409825
<INCOME-PRETAX> (8668059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8668059)
<DISCONTINUED> 510000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8158059)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
