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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
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 [NO FEE REQUIRED
For the transition period from ______________ to _____________
Commission file number: 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Name of small business issuer specified in its charter)
Delaware 64-0708107
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3490 Piedmont Road, Suite 600, Atlanta, Georgia 30305
(Address of principal executive offices, including zip code)
1121 Alderman drive - Suite 200, Alpharetta, Georgia 30202
(Former address of principal executive offices)
404-233-3277
(Issuer's telephone number, including area code)
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:
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. [ ]
The number of shares outstanding of the issuer's common stock as of April 12,
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 April 12, 1999 was $8,776,695.
Transactional 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
The Company was incorporated as a Florida corporation on December 31, 1984,
under the name Phoenix Hi-Tech, Inc. The Company completed its 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 reincorporation of the Company in
Delaware.
In September, 1993, the Company acquired all of the equity securities of
Global Wats One, Inc. and TeleFriend, Inc. (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 the nutritional division of the
Company (its former business) and sold the Company's nutritional marketing
company, Marketshare 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 products line for royalties from sales of
the nutritional products based on a percentage of gross sales. 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. Since the culmination of these transactions,
the Company has devoted all of its resources to its telecommunications business.
In the first quarter of 1998, the Company entered into an agreement under which
an unaffiliated third party has acquired all of the Company's interest in the
nutritional products.
THE BUSINESS PLAN
The Company's 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
Company currently has no revenues. The Plan is to concentrate the Company's
marketing and sales efforts on its Carrier Services Businesses. Fulfillment of
the Company's Plan requires the Company to obtain a significant portion of the
financing that it believes will be essential to carry out its business plan. No
assurance can be given that the Company will be able to procure such financing
at terms acceptable to the Company or at all. See "Business - Management Team."
The Company has spent considerable effort in the investigation of new
technologies that may afford the Company an advantage in the marketplace.
Management believes that these new technologies will play an important part in
achieving and retaining market share, and the Company has formulated its plan
accordingly.
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Following the company's decision to abandon deployment of its own switches,
it repositioned its focus to developing or acquiring new technologies. To
compliment this direction and take advantage of the company's expertise in
carrier sales that it had developed as a facility based carrier; it entered into
a series of international marketing agreements. The company had envisioned these
sales being commenced in the fourth quarter of 1998 and the first quarter of
1999; however, the company is dependent on its carrier partners ability to
perform. Both major agreements were subject to network delays. However, the
company anticipates that traffic will be carried by mid-second quarter of 1999.
The company entered into an agreement to act as the primary marketing arm
of CyberAir Communications, Inc. ("Cyber"). Cyber is engaged in deploying an
international network through a series of favorable 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. Cyber will be adding
additional countries as contracts are finalized.
The company also entered into a contract with Pangea Worldwide, Inc., to
market both voice and data long distance to China. Pangea's underlying carrier
suffered switch difficulty resulting in a complete restructure of their network
in November of 1998. The company has been informed that the work is nearing
completion and should anticipate the ability to have its customers begin network
testing as early as May 15, 1999.
The company also entered into a license agreement with Utility
Communications, Inc., for its proprietary wireless technology. In order to
facilitate this technology, it is necessary to deploy a set-top box to
compliment the subscriber's television set. The company will need to capitalize
the completion of the set-top box customization as well as inventory and
marketing expenses. This product is dependent on the company's ability to raise
the necessary capital.
On February 2, 1999, announced today that it has entered into a preliminary
agreement to acquire Bentley House Furniture Company ("BHFC"), a Philippine
holding company with interests in: telecommunications; agricultural; mining;
timber export; and furniture manufacturing. BHFC has net assets in excess of
US$120,000,000. The company is making those assets available for the purpose of
establishing the credit facilities necessary for the combined companies to
realize their new joint business plan.
BHFC has existing facilities for the milling and finishing of raw timber as
well as a "state of the art" furniture facility, designed and financed with the
assistance of Sumitomo Corporation, with whom BHFC has an international
agreement. 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. The factory has a certified
output capacity of 10,000 finished pieces per month. The company utilizes
mahogany, teak and other hardwood timber from its plantations to
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supply hotels and resorts under construction with timber and interior furniture.
When the transaction is complete, the combined company plans to form The
Mindanao Telecommunications Company for the purpose of providing voice, data and
video services, both conventionally and via the internet, to the major island of
Mindanao, population in excess of 16,000,000. The exact time for the
introduction of such service was not disclosed.
BHFC is located in the "Trade Free Zone" in Mindanao's largest city, Davao,
which is part of the BIMP-EAGA Borderless Trade Agreement between Brunei,
Indonesia, Malaysia and the Philippines. Similar to NAFTA, BIMP-EAGA serves a
combined population of over 400 million people.
On March 29, the company closed its reverse merger with the delivery of
99.8% of Bentley House Furniture Company stock to the escrow attorney. GTMI has
developed a schedule of resolutions for its present outstanding debts and
lawsuits in anticipation of breaking escrow. Following breaking escrow, the name
of the corporation will be changed to "Bentley House International Group and
there will be requested a change in its symbol to "BHIG"
Operations, Contracts and Projects of BHFC, include:
Joint ventures with contracts for construction of government employee homes.
These include the National Police, Armed Forces of the Philippines and the
Department of Interior and Local Government. Construction will commence during
the second quarter of 1999. The Government has certified the issuance of US$14
million dollars in bonds to cover the first portion of the construction costs.
The houses will be constructed on BHFC's properties, which are subdivided.
Construction permits have been issued on over 20,000 housing lots.
Contracts with San Antonio Housing Systems & Technology Inc. and Canadian
Company, Monterey Corporation through their Philippine Corporation Integrated
Philcan Inc.. Both companies build rapid construction modular housing, have
factories in the Philippines, and are fully licensed and accredited with the
Philippine Government.
Pending contracts with hotels specifically being constructed for the 2000
Olympics. These are located in Tagayay, Manila, Redfern in Sydney, with other
condo-tels and boutique hotels which are completed in Makati City are awaiting
BHFC's New York Designer to submit final renderings and layouts.
THE COMPANY'S MANAGEMENT TEAM
An important element of the Company's plan to expand its Telecommunications
Business is its complement of skilled personnel. In addition to the Company's
executive officers, as of March 31, 1999, the Company has identified and hired a
group of skilled telecommunications business professionals. As part of its
downsizing and restructuring, however, the Company has outsourced a number of
functions and activities in its efforts to become profitable. See "Directors,
Executive Officers, Promoters and Control Persons;
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Compliance with Section 16(a) of the Exchange Act." These business professionals
includes:
Roderick A. McClain is Chairman of the Board, Chief Executive Officer and
President of the Company and has 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.
Geoffrey F. McClain is Senior Vice-President and has 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.
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 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.
Paul Graham, Director of International Sales. Mr. Graham joined the Company
in December 1996. Prior to joining the Company, for three years he was 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. Previously he built and operated The
Racquetball Spa, a premier multi-faceted fitness center and racquetball club in
Connecticut.
EMPLOYEES
As of March 31, 1999, the Company had 6 full time employees, including four
executive personnel. 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 loss of the services of key personnel could have a material
adverse effect on the Company's business. Since there is intense competition
for qualified personnel knowledgeable of the Company's industry, no assurance
can be given that the Company will be successful in retaining and recruiting
needed key personnel.
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's interstate tariff permits it to
provide and bill for telecommunications services between the states. The
Company's FCC International 214 authority enables the Company to provide
telecommunications services from the United States to termination points outside
the country.
SPECIFIC LICENSING REQUIREMENTS
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.
The Company is also subject to the FCC's prior approval requirements for a
transfer of control or assignment of its international authority.
RISK FACTORS
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.
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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:
Impaired Financial Condition. Although the Company was formed in 1984, it
has many of the characteristics of a development stage company, currently has no
revenues, and is subject to all of the risks inherent in the establishment of
new businesses. The Company has generated only losses from operations since the
beginning of 1995. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the operation of a new
business. Revenues generated from the Company's operations are not adequate to
meet the Company's operating expenses. The Company has generated significant.
The Company has current significant liabilities and is involved in various
matters of litigation (See Part 3 - "Litigation"). The Company also has
liabilities of more than $600,000 to the Internal Revenue Service for
undeposited payroll withholding taxes with respect to which it hopes to
negotiate an acceptable payment schedule. The Company also has a contingent
liability to IEX which could require it to return $350,000 to IEX. On March 10,
1999, the Company entered into a settlement agreement with IEX to cancel all
amounts due IEX by payment of five monthly installments of $10,000, beginning
April 15, 1999. There can be no assurances that the Company will ever achieve
profitable operations.
The recovery of the Company's assets is dependent upon future events, the
outcome of which is undeterminable, and that the successful completion of the
Company's development program and its transition, ultimately, to the attainment
of profitable operations is dependent upon obtaining adequate financing to
fulfill its development activities and achieving a level of sales adequate to
support the Company's corporate infrastructure. There can be no assurances that
such a financing can be completed on terms favorable to the Company or at all,
or that the business of the Company will ever achieve profitable operations.
Need for Additional Capital. The Company's successful transition to
profitable operations is dependent upon obtaining adequate financing to fund
current operations and to develop and maintain a market share in an industry
characterized by explosive growth. The Company's ability to operate the Carrier
Sales Business is dependent on substantial and immediate financing. In the event
the Company fails to raise additional funds from such financing, and fails to
generate any adequate revenues from operations, the Company may be unable to
compete in the telecommunications industry. There can be no assurances that any
sources of financing will be available from existing stockholders or external
sources on terms favorable to the Company, or at all, or that the business of
the Company will ever achieve profitable operations. Further, any additional
financing may be senior to the Company's Common Stock or result in significant
dilution to the holders of the Common Stock. In the event the Company does not
receive any such financing or generate profitable operations, management may
have to suspend or discontinue its business activity or certain
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components thereof in its present form or cease operations altogether.
Strong Competition. 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 will endeavor to identify or create niches in the marketplace where its
combination of packages of communications services, marketing techniques and
careful selection of areas in which to make capital investments. Even if the
Company were able to carve out a modest market by the above described means, of
which no assurance can be given, larger competitors might adapt the Company's
ideas and sell the same services at lower prices than those of the Company, with
the effect that the Company's own market might disappear.
Ability to Manage New Businesses. All of the Company's businesses are new.
With respect to the Telecommunications Business, the Company is currently only a
reseller of another Carrier's services. The Carrier Sales Business was started
in January 1997. The ability of the Company to generate revenue in 1999 and
future years, depends on its ability to manage its new businesses, each with its
own problems of growth, management, response to technical changes, pressures of
competition, need for financing and recruitment and retention and key personnel.
No assurance can be given that the management of the Company will be capable of
handling the many problems and issues attendant to the operation and projected
growth of such businesses. See "Business."
Dependence on Key Personnel. The Company is dependent upon the skills of
its management team. There is strong competition for qualified personnel in the
telecommunications industry, and the loss of key personnel or an inability to
continue to attract, retain and motivate key personnel could adversely affect
the Company's business. As of March 31, 1999, the Company is dependent for its
success on certain key executive officers, especially Roderick McClain. The loss
of the services of Roderick McClain would have an immediate adverse material
effect on the business of the Company. There can be no assurances that the
Company will be able to retain its existing key personnel or to attract
additional qualified personnel. The Company does not have key-man life insurance
on any employees of the Company. See "Business - the Company's Management Team"
and "Management."
Limited Public Market for Common Stock. There is currently a limited public
market for the Common Stock. Holders of the Company's Common Stock may,
therefore, have difficulty selling their Common Stock, should they decide to do
so. In addition, there can be no assurances that such markets will continue or
that any shares of Common Stock which may be purchased may be sold without
incurring a loss. Further, the market price for the Common Stock may be volatile
depending on a number of factors, including business performance, industry
dynamics, news announcements or changes in general economic conditions.
Disclosure Relating to Low-Priced Stocks. The Company's Common Stock is
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currently listed for trading in the over-the-counter market on the NASD
Electronic Bulletin Board or in the "pink sheets" maintained by the National
Quotation Bureau, Inc., which are generally considered to be less efficient
markets than markets such as NASDAQ or other national exchanges, and which may
cause difficulty in conducting trades and difficulty in obtaining future
financing. 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.
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. There can be no assurances that
such registration rights will not be enforced or that the enforcement of such
registration rights will not have a material adverse effect on the market price
for the Common Stock.
Lack of Dividends on Common Stock. The Company has paid no dividends on its
Common Stock as of March 31, 1999 and there are no plans for paying dividends on
the Common Stock in the foreseeable future. The Company intends to retain
earnings, if any, to provide funds for the expansion of the Company's business.
Shares Eligible for Future Sale; Issuance of Additional Shares. Future sales
of shares of Common Stock by the Company and its stockholders could adversely
affect the prevailing market price of the Common Stock. 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. Sales of substantial amounts of Common Stock in the public
market, or the perception that such sales may occur, could have a material
adverse effect on the market price of the Common Stock. Pursuant to its
Articles of Incorporation, the Company has the authority to issue additional
shares of
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Common Stock. The issuance of such shares could result in the dilution of the
voting power of the currently issued and outstanding Common Stock.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company has a month to month operating lease at 3490 Piedmont Road,
Suite 600, Atlanta, Georgia for office space containing the Company's executive
offices. This lease is with an unaffiliated third party. The monthly rental is
$7,006.
ITEM 3. LEGAL PROCEEDINGS.
Walsh Litigation. On June 11, 1996, a complaint was filed against the Company
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by John Walsh, a former employee in the Superior Court of Fulton County, Georgia
(Civil Action No. E494660), alleging certain claims and seeking compensation in
the form of common shares of the Company's common stock pursuant to an
employment agreement between the Company and the former employee. The Company
has further filed a counter-claim against the former employee, alleging breach
of contract, breach of fiduciary responsibility under the terms of the
aforementioned agreement as well as action for tortious interference with
employment relations, violations of trade secrets and fraudulent transfer of
assets.
The Company proposed a settlement to the plaintiff. As of July 7, 1998, the
Company entered into a settlement agreement for $120,000 payable in 6 equal
monthly installments beginning July 7, 1998. The August payment was due and
payable by August 13, 1998. The failure to make this payment resulted in a
$330,000 judgement, and delivery by the escrow agent of 250,000 shares of GTMI
common stock, as security for the judgement, in accordance with the consent
order.
CAM-NET Litigation. On February 20, 1997, a complaint was filed by CAM-NET
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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 judgement against the Company for $250,000.
RBB Bank-Khalifa Litigation. On or about July 30 and August 28, 1996, the
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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 "Debentureholders"). The Company
received cash from the Debentureholders in the aggregate amount of approximately
$5,012,500, or 75% of the par principal amount of the Debentures. The
Debentures were issued in reliance on an
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exemption from registration pursuant to Regulation S under the Securities Act.
The terms of the Debentures provide that the Debentures are convertible into
shares of the Company's Common Stock based on the per share conversion price for
the Debentures of the lesser of: (x) $4.00, or (y) the average closing bid price
of the Company's Common Stock for the five (5) trading days immediately
preceding the date of notice of conversion. The entire obligation underlying
the Debentures, as of January 23, 1997, is convertible into Common Stock under
the terms of the Debentures pursuant to the formula set forth above. See
"Security Ownership of Certain Beneficial Owners and Management."
During the period from November 15, 1996 to January 3, 1997, the Company
received requests for conversion of the par principal amount of Debentures set
forth below (plus accrued interest thereon) into unrestricted shares of Common
Stock, as follows: (i) Khalifa ($333,000 to be converted at the conversion
price of $0.332 per share), (ii) RBB Bank ($250,000 to be converted at the
conversion price of $0.324 per share and $250,000 to be converted at the
conversion price of $0.354 per share), and (iii) CIBC ($50,000 to be converted
at $0.3832 per share and $50,000 to be converted at the conversion price of
$0.396 per share). CIBC's conversion requests have been withdrawn, as received
notices, dated January 10 and 14, 1997, on behalf of the Debentureholders
asserting that the failure by the Company to issue shares of Common Stock
pursuant to said conversion notices constituted an event of default under the
Subscription Documents. CIBC has advised the Company that the attorneys
purporting to give said notice of default on its behalf were not retained by it
and did not have authority to so act on its behalf. CIBC has withdrawn its
conversion requests and said unauthorized notice of default.
The Company has taken the position that RBB Bank and Khalifa have not complied
with the terms of the subscription documents (the "Subscription Documents")
executed in connection with the issuance of the Debentures, and that until RBB
Bank and Khalifa are in such compliance, RBB Bank and Khalifa have not fulfilled
their obligations under the Subscription Documents, and no shares may be issued
pursuant to the purported conversion requests.
The Company has not received a copy of a Schedule 13D with respect to RBB Bank.
Further, the Company has not received a copy of any filing which may be required
pursuant to Section 16 of the Exchange Act for either RBB Bank or Khalifa, and
believes that the information set forth in Khalifa's Form 13D does not correctly
reflect his beneficial ownership of Common Stock.
The Company has requested RBB Bank and Khalifa to provide satisfactory evidence
that they are not subject to, or have met, the filing requirements of Sections
13(d) and 16, the Regulation S exemption remains available and any shares which
may be issued in connection with a conversion request are not subject to resale
restrictions for "affiliates" of an issuer under Rule 144 promulgated under the
Securities Act. RBB Bank and Khalifa have failed and refused to provide the
requested evidence.
The Company has expressed its willingness, at this stage, to issue the
conversion shares to RBB Bank and Khalifa with a restrictive legend, at such
time as terms of the Subscription
12
<PAGE>
Documents.
On January 22, 1997, RBB Bank and Khalifa (collectively, "Plaintiffs") filed a
complaint in the United States District Court for the Northern District of
Georgia, Atlanta Division (Civil Action No. 1 97-CV-0179) against the Company.
Subsequently, RBB Bank and Khalifa filed a first amended complaint
("Complaint"). The Complaint alleges claims for declaratory and injunctive
relief, breach of contract and attorneys fees, with respect to the request of
RBB Bank and Khalifa to convert $333,000 and $500,000, respectively, par
principal amount of Debentures into shares of the Company's Common Stock
pursuant to the Subscription Documents. The complaint seeks injunctive relief
against the Company to issue the shares to Plaintiffs in accordance with the
conversion requests, injunctive relief declaring the full principal amount of
the Debentures to be due and owing in the amount of more than $1,250,000 and
$1,333,333 to RBB Bank and Khalifa, respectively, with interest, and for an
unstated amount of compensatory damages, attorney's fees, costs and expenses.
The Company has filed an answer with affirmative defenses and counterclaims to
the above action. The Company alleges claims for violation of the Securities
Exchange Act of 1934 and fraud against RBB Bank and Khalifa in connection with
alleged misrepresentations and omissions and violations of the Federal
Securities Laws by RBB Bank and Khalifa in representations made by them in the
Subscription Documents and their subsequent conduct, which caused the Company
damage in a presently undetermined amount. The Company also asserts a claim for
rescission in connection therewith. The Company also seeks exemplary and
punitive damages, attorney's fees, costs and expenses.
On November 20, 1997, the District Court, among other things, granted
plaintiffs' motion for partial summary judgement with respect to its request for
specific performance, ordered that the Company issue shares of stock to
plaintiffs in accordance with the Subscription Agreement, dismissed the
Company's counterclaims for fraud and breach of contract and denied plaintiffs'
request for a preliminary injunction as moot. The Company promptly filed a
motion for reconsideration and the District Court denied that motion on January
5, 1998. The Company then filed a Notice of Appeal with the Eleventh Circuit
Court of Appeals. The appeal was dismissed as premature and by motion dated
March 19, 1998, the Company has asked that the District Court, pursuant to Rule
54(b) of the Federal Rules of Civil Procedure, enter a final judgement with
respect to plaintiffs' claim for specific performance and, in such judgement,
make an express determination that there is no just reason for the delay so that
an appeal might be perfected. The plaintiffs have opposed this motion. A pre-
trial brief has been filed with respect to the remaining claims of the
plaintiffs.
On July 29, 1998, the court affirmed its November 20, 1997 order that the
Company issue 2,496,761 shares of stock to the plaintiffs. The Company
instructed the transfer agent to issue the shares and the transfer agent has
issued the shares. The terms of the convertible debentures provide that as of
August 15, 1998, the balance of the notes automatically convert, including
accrued and unpaid interest, into approximately 18.8 million shares of common
stock,. However, the litigation continues in progress and the issues related to
the automatic conversion of the convertible debentures and other claims for
damages remain the subject of the litigation. Plaintiffs have recently sought an
order from the court
13
<PAGE>
requiring the issuance of an unstated amount of shares pursuant to the
conversion of certain of the debentures. This matter remains pending before the
court, and the eventual outcome is uncertain.
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. Within
this suit, the Company is requesting return of certain shares issued to Trident
in conjunction with a certain Resale Debit Card Agreement as well as $10 million
as payment for services rendered to Trident but not paid for. While no
assurances can be given, the Company anticipates that a favorable resolution
will be reached in this litigation.
As of March 1, 1999, the Company has entered into discussions with Trident in an
effort to settle the litigation. No assurances can given at this time that any
settlement will be reached.
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. This suit was amended to reflect an amount of $7.5
million. On October 2, l997, the Company filed its answer and believes that
this amount is incorrect due to apparent significant overbillings by WorldCom
and disputed amounts with its former customer, Trident Communications Corp.
While no assurances can be given, Management intends to vigorously defend this
action.
On February 5, 1999, the Company entered into a mediation with the intent to
settle all the issues. The Company has proposed a settlement of all issues
remaining in this case. Trial on the merits of this case has been postponed and
not yet rescheduled.
Southern Signatures Litigation. On January 9, 1998, a complaint was filed
- ------------------------------
against the Company by the Creative Network, Inc. in the State Court of Dekalb
County, Georgia (Civil Action 98A40942-0) alleging that the plaintiff had
furnished certain printing services to the Company on account, and alleging a
default in payment for such services. Plaintiff seeks the principal sum of
$211,383.31 pre-judgement interest and late charges, post-judgement interest,
court costs and attorney's fees. On March 6, 1998, the Company filed an Answer
alleging as defenses, among other things, that there was improper billing,
estoppel, waiver and setoff and seeking an accounting. There have been no new
developments in this matter.
The Creative Network, Inc. Litigation. On February 27, 1998, a complaint was
- -------------------------------------
filed against the Company by The Creative Network, Inc. ("Creative") in the
State Court of Dekalb County, Georgia (Civil Action No. 98A4211-1), alleging
that certain monies are owed on account, being the amount of $61,561.47. The
Company filed an answer to this complaint on March 26, 1998, and filed its first
responses to the plaintiff's first discovery requests on April 9, 1998.
14
<PAGE>
Creative has filed a motion for summary judgement which has been granted for the
amount of $61,541 plus interest.
Metropolitan Fiber Systems Litigation. Metropolitan filed a complaint claiming
- -------------------------------------
the principal sum of $88,547.16 on June 11, 1998 in the State Court of DeKalb
County under Case No. 98A45706-5. The Company submitted an answer to the
complaint on August 17, 1998.
K&S International Communications, Ltd Arbitration. The Company is 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. While the Company was prepared to
petition the court in Miami Florida to vacate the award based on the grounds
that it was erroneously entered, management believed that the award might not be
overturned. Therefore, on April 1, 1999 the Company entered into a
settlement agreement with K&S for $325,000, to be paid in 13 installments of
$25,000, beginning May 1, 1999. If these payments are not promptly made, the
$2.5 million Final Judgement will be reinstated.
Freed & Berman, P.C., Litigation. Freed & Berman filed a complaint claiming
- ---------------------------------
the sum of $37,562.91 on April 9, 1998 in the Superior Court of Fulton County
under Case No. E-61447. The Company entered into a Consent Order on July 23,
which provides for payments that the Company has not yet been able to make. The
Plaintiffs are pursuing collection alternatives.
Silfen, Segal, Fryer & Shuster, P.C. Litigation. The Plaintiff, a professional
- -----------------------------------------------
corporation, filed a complaint claiming the sum of $4,826.13 on July 29, 1998 in
the State Court of Fulton County, under case no. 98VS1427874. The Plaintiff
entered a consent judgement in the amount of $5,052.70, on March 2, 1999.
Programs Abroad-Travel Alternatives, Inc Litigation. The Plaintiff has filed a
- ---------------------------------------------------
complaint against the company and others in State Court of Fulton County,
Georgia on October 2, 1998 (Civil Action No 98VS145081F) claiming damages in the
amount of $18,749.00. The Company submitted an answer to the complaint on
November 9, 1998.
BT Office Products International Litigation. The Plaintiff has filed a complaint
- -------------------------------------------
against the company in State Court of DeKalb County, Georgia on September 8,
1998 (Civil Action No 98A48500-2) alleging that certain monies are owed on
account, being the amount of $2,722.78 plus interest. The Company filed an
answer on October 26, 1998.
Boone Electric Litigation. The Plaintiff has filed a complaint against the
- -------------------------
company and others in State Court of Fulton County, Georgia on May 16, 1998
(Civil Action No
15
<PAGE>
98V5140008C) alleging that certain monies are owed for services rendered and
goods supplied in the amount of $1,454.00. The Company filed an answer on June
29, 1998.
Thomason Printing Company, Inc. Litigation. Judgement was granted against the
- ------------------------------------------
Company on February 24, 1998, in the amount of $5,053.00 by the Fulton County
Magistrate Court (Civil Action File No. 97M50060655). The Company has been
served with post-judgement discovery.
ESKCO, INC. Litigation. Judgement was granted against the in the amount of
- ----------------------
$10,000.00 by the State Court of Fulton County (Civil Action File No. 98-VS-
142534D). The Company has been served with post-judgement discovery.
Boise Cascade Office Products, Inc. Litigation. Judgement was granted against
- ----------------------------------------------
the Company during February 1999, in the amount of $4,360.59 by the State Court
of Dekalb County (Civil Action File No. 98-A-46730-4).
Absolute Packaging Needs Litigation. The Plaintiff has filed a complaint
- ------------------------------------
against the Company on January 13, 1999, in the amount of $2,624.32 in the
Magistrate Court of Dekalb County (Civil Action File No. 99M065249). The case is
scheduled for March 17, 1999.
Xpresso Internet Group Litigation. The Plaintiff has filed a complaint against
- ---------------------------------
the Company on June 5, 1998 in the amount of $2,450.00 in the District Court,
State of Rhode Island, Newport, (civil action file no. 98-470)
Lindsey, Bradley & maloy Litigation. Judgement was granted against the Company
- -----------------------------------
on October 12, 1998 in the amount of $34,568.59 by the Circuit Court for
Hamilton County, Tennessee (civil action 98C1263) and domesticated in Georgia on
December 6, 1998.
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 EQUITY AND RELATED STOCKHOLDER MATTERS.
As of April 12, 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
16
<PAGE>
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.
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 April
12, 1999, were approximately $ 0.19 and $0.205, 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
Quarter Ended March 31, 1999
1st Quarter 0.365 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.
No dividend has been declared or paid by the Company since inception. The
Company does not anticipate that any dividends will be declared or paid in the
future.
The transfer agent for the Company is American Stock Transfer and Trust
Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company is not submitting financial statements with this filing. When the
financial statements are prepared and filed, the Company will include submission
of Management's discussion and analysis or plan of operation
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The financial statements required by this Item 7 are not being submitted
with this filing. When the financial statements are prepared and filed, the
Company will include 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. Roderick A. McClain
and Geoffrey F. McClain are brothers.
Name Position Age
- ---- -------- ---
Roderick A. McClain Chairman of the Board of 51
Directors, Chief Executive
Officer and President
Geoffrey F. McClain Senior Vice President 55
and Director
Herbert S. Perman Chief Financial Officer 61
and Director
Roderick A. McClain is Chairman of the Board, Chief Executive Officer and
President of the Company and has 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.
Geoffrey F. McClain is Senior Vice-President and has 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.
18
<PAGE>
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 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.
In June 1997, the Board of Directors appointed Mr. Donald Thone and Mr.
Ronald Berkowitz as independent members of the Board. Mr. Thone and Mr.
Berkowitz were then elected by the shareholders at the Annual Meeting in
September 1997. Due to the time demands associated with the Company's
restructuring, both Mr. Thone and Mr. Berkowitz resigned from the Board on
January 28, 1998. Mr. Ranald Stewart was elected a member and Chairman of the
Board of Directors on December 18, 1997, in contemplation of the acquisition of
ITD. Coincidental with the rescission of the ITD agreements on January 20, 1998,
Mr. Stewart resigned those positions.
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, 1997 were timely filed.
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
19
<PAGE>
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) nonqualified 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, ion of the Company or of the sale of all or
substantially all of the Company's assets, On March 3, 1998, the Board of
Directors reduced the price of Mr. McClain's options to $0.10 per share.
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, 2000,
Perman is 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. These options expire on March 31, 2000.
The Company entered into an employment agreement with Geoffrey McClain,
dated May 25, 1995, amended February 1, 1996, amended February 1, 1997 and
amended October 22, 1998. Pursuant to the Geoffrey McClain Agreement, which
expires December 31, 2000, Geoffrey McClain is 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. These options expire on March 31, 2000.
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
20
<PAGE>
whose total annual salary and bonus exceeded $100,000, for the years ended
December, 1998 and 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name and Other Restricted Securities LTIP All Other
Principal Year Salary Bonus Compen- Awards Options/ Payouts Compen-
Position ($) ($) sation ($) SARs (#) ($) sation ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
- -----------------
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>
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:
21
<PAGE>
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 3490 Piedmont Road, Suite 600, Atlanta, Georgia 30305.
(2) Mr. Roderick McClain and Ms. Rodriguez are husband and wife. Includes
spouse's shares (1,090,568) and options to acquire 1,600,000 shares of Common
Stock pursuant to Mr. McClain's employment agreement with the Company.
(3) Includes up to 10,543,210 shares of Common Stock which may be convertible,
as of April 12, 1999, from $3,416,000 par principal amount of 3% Convertible
Debentures, issued in the name of RBB Bank Aktiengellschaft. 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 and options to purchase up to
2,700,000 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.
22
<PAGE>
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.
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 $226,386.. Effective 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. Management of the Company believes that the ability of Roderick
McClain to repay this obligation depends on the financial success of the Company
itself. No assurance can be given that such obligation will ever be repaid to
the Company.
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 are 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
23
<PAGE>
The financial statements required by this Item 13 are not being submitted
with this filing. When the financial statements are prepared and filed, the
Company will include submission of Management's discussion and analysis or plan
of operation
B. Reports on Form 8-K
None
C. Other Exhibits
None.
27 Financial Data Schedule.
The financial statements and the financial data schedule are not being
submitted with this filing. When the financial statements are prepared and
filed, the Company will include submission of Management's discussion and
analysis or plan of operation
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.
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
24
<PAGE>
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.
Dated: April 15, 1999 GLOBAL TELEMEDIA
INTERNATIONAL, INC.
By: /s/ Roderick A. McClain
-----------------------
Roderick A. McClain
Chief Executive Officer
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: April 15, 1999 By: /s/ Roderick A. McClain
----------------------------
Roderick A. McClain
Chief Executive Officer and
Director
Dated: April 15, 1999 By: /s/ Geoffrey F. McClain
----------------------------
Geoffrey F. McClain
Senior Vice-President and
Director
Dated: April 15, 1999 By: /s/ Herbert S. Perman
---------------------------
Herbert S. Perman
Chief Financial Officer and
Director
25
