U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to _______
Commission file number 0-15818
GLOBAL TELEMEDIA INTERNATIONAL, INC.
(Name of small business issuer in its charter)
DELAWARE 64-0708107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4675 MacArthur Court, Suite 710, Newport Beach, California, 92660
(Address of principal executive offices)
Issuer's telephone number (949) 253-9588
Check whether the issuer (1) 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 (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 74,939,500 shares of Common
Stock as of June 30,2000.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-QSB
FOR QUARTER ENDED JUNE 30, 2000
INDEX
Page
----
Part I - Item 1. Interim Financial Statements . . . . . . . . . . . . . 1
Consolidated Balance Sheets as of June 30, 2000, and December 31, 1999 . 1
Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months ended June 30, 2000 and June 30, 1999. . 2
Consolidated Statements of Cash Flows for the Six
Months ended June 30, 2000 and June 30, 1999 . . . . . . . . . . . . . 3
Consolidated Statements of Shareholders' Equity for the
Six Months ended June 30, 2000 . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 5
Part I - Item 2. Management's Discussion and Analysis or Plan of
Operation . . . . . . . . . . . . . . . . . . . . . . 12
Part II - Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 16
Part II - Item 4. Submission of Matters to a Vote of Security Holders . 17
Part II - Item 6. Exhibits
1. Land Conversion Project memorandum of Understanding and
Joint Venture Agreement with Kapatiran Agro-Industrial
Co-operative settlement (KAICS)
2. Cambridge marketing Group Agreement
3. Data Exchange, Inc., Software Development Agreement
4. Moore Business Service, Inc. Agreement
5. Big Wheel Marketing agreement
6. Message Pilot Joint Marketing Agreement
27. Financial Data Schedule
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2000
---------------
ASSETS
------
Current Assets
<S> <C>
Cash $ 216,992
Accounts receivable, net of allowance of $9,159,214 142,609
Other current assets 832,443
---------------
Total Current Assets 1,192,044
Property, plant and equipment, net of accumulated depreciation 7,343,468
of $1,329,807
Goodwill, net of accumulated amortization 37,761,242
of $2,261,066
Other assets 422,976
---------------
Total Assets $ 46,719,730
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable $ 20,624,719
Accrued expenses 1,262,845
Notes payable 6,535,015
---------------
Total Current Liabilities 28,422,579
Long-Term Liabilities
Long-term liabilities, net of current portion 618,094
---------------
Total Long-Term Liabilities 618,094
---------------
Total Liabilities 29,040,673
Minority Interest 5,608,436
Stockholders' Equity
Common stock, $.004 par value
authorized 75,000,000, 74,939,500 shares issued and outstanding 299,758
Preferred stock authorized 9,991,000 shares -
Series A Convertible Preferred stock, $.004 par value,
authorized 5,000, 4,000 shares issued and outstanding 16
Series B Convertible Preferred stock, $.004 par value,
authorized 4,000, 0 shares issued and outstanding
Series B Convertible Preferred stock subscribed 5,334,158
Common Stock held in Treasury -
Additional paid-in capital 19,274,906
Accumulated deficit (10,665,281)
Accumulated other comprehensive income (2,172,936)
Common stock subscription -
---------------
Total Stockholders' Equity 12,070,621
---------------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $ 46,719,730
===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
<TABLE>
<CAPTION>
4
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TOTAL REVENUES: $ 581,915 $ 157,513 $ 1,190,254 $ 157,513
------------ ------------ ------------ ------------
COST OF GOODS SOLD 212,635 36,233 371,974 36,233
------------ ------------ ------------ ------------
GROSS PROFIT 369,280 121,280 818,280 121,280
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, General and Administrative 1,484,152 1,417,300 3,072,545 2,174,009
------------ ------------ ------------ ------------
Total Operating Expenses 1,484,152 1,417,300 3,072,545 2,174,009
------------ ------------ ------------ ------------
Operating (Loss) (1,114,872) (1,296,020) (2,254,265) (2,052,729)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest Expense (28,581) (21,000) (62,204) (64,523)
Other Income 6,682 - 8,171 -
Minority Interest in Subsidiary's Net Income 48,874 - 43,667 -
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES $(1,087,897) $(1,317,020) $(2,264,631) $(2,117,252)
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES $ - $ - $ - $ -
------------ ------------ ------------ ------------
NET LOSS $(1,087,897) $(1,317,020) $(2,264,631) $(2,117,252)
============ ============ ============ ============
Other comprehensive income, net of tax
foreign currency translation adjustment (14,190) (10,002) (302,799) (12,724)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $(1,102,087) $(1,327,022) $(2,567,430) $(2,129,976)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE $ (0.01) $ (0.02) $ (0.03) $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 74,939,500 74,939,500 74,939,500 62,190,338
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (2,264,631) (7,117,256)
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization 1,171,224 420,948
Foreign currency translation adjustment (302,799) (12,724)
Minority interest (31,649) -
Changes in:
Accounts and other receivable (19,049) (21,271)
Other assets (179,264) (118,381)
Accounts payable and accrued expenses 222,648 1,833,684
----------- -----------
Net cash used by operating activities (1,403,520) (15,000)
----------- -----------
Cash flows from investing activities
Note receivable-DEI (250,000) -
Acquisition of fixed assets (727,107) -
----------- -----------
Net cash used in investing activities (977,107) -
----------- -----------
Cash flows from financing activities
Proceeds from loans 469,483 -
Repayment on debt (3,042,144) -
Additional paid in capital 149,917 -
Proceeds from stock subscriptions 4,806,258 15,000
----------- -----------
Net cash provided by financing activities 2,383,514 15,000
----------- -----------
Net increase in cash 2,887 -
----------- -----------
Cash at beginning of the period 214,105 181
----------- -----------
Cash at end of the period 216,992 181
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
Common stock Preferred stock
------------------------------------ -------------------------------------
Series B
Common Series A Convertible Additional
Stock Convertible Stock Paid in
Shares Par value Subscribed Stock Par Value Subscribed Capital
---------- ---------- ------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 74,939,500 $ 299,758 $ 42,500 4,000 $ 16 $ 485,400 $18,942,589
Series A Convertible
Preferred Stock Subscription 4,848,758
Additional paid in capital contributed 149,917
Common Stock Subscribed
converted to Series B (42,500)
Treasury stock issued to pay-off
liabilities 182,400
Additional paid in capital contributed
Foreign currency translation
adjustment, net of tax
Net Loss
---------- ---------- ------------ ----------- ---------- ------------ -----------
Balance, June 30, 2000 74,939,500 $ 299,758 $ - 4,000 $ 16 $ 5,334,158 $19,274,906
========== ========== ============ =========== ========== ============ ===========
Accumulated
Other Total
Accumulated Comprehensive Treasury Stockholders'
Deficit Income Stock Equity
------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ (8,400,650) $ (1,870,137) $ (87,600) $ 9,411,876
Series A Convertible
Preferred Stock Subscription 4,848,758
Additional paid in capital contributed 149,917
Common Stock Subscribed
converted to Series B (42,500)
Treasury stock issued to pay-off
Liabilities 87,600 270,000
Additional paid in capital contributed -
Foreign currency translation
adjustment, net of tax (302,799) (302,799)
Net Loss (2,264,631) (2,264,631)
------------- --------------- ---------- ---------------
Balance, June 30, 2000 $(10,665,281) $ (2,172,936) $ - $ 12,070,621
============= =============== ========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Global Telemedia International, Inc. (the "Company" or "GTMI") was incorporated
in Delaware in November 8, 1996 and has been engaged in the marketing of long
distance telephone and related services to individuals, businesses and other
customers throughout the United States.
On April 2, 1999, GTMI acquired Bentley House Furniture Company, Inc., a
Philippine Corporation ("BHFC'). The merger was accounted for as a reverse
acquisition whereby BHFC was treated as the accounting acquirer and GTMI as the
accounting acquiree. The accompanying consolidated financial statements include
the historical results of BHFC and the consolidated results of GTMI as of the
date of merger.
BHFC is located in the "Free Trade Zone" in Mindanao's largest city, Davao,
which is part of the BIMP-EAGA (AFTA, Asian Free Trade Agreement) between
Brunei, Indonesia, Malaysia, the Philippines and Australia. Similar to the
NAFTA, BIMP-EAGA is located in the Pacific Rim and serves a combined population
of over 400 million mostly English speaking people.
The BHFC factory is believed by management 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,
Italian automated heated spray booths and other specialized machinery. The BHFC
factory has a certified output capacity of 10,000 finished pieces per month.
BHFC utilizes mahogany, teak and other hardwood timber from plantations
controlled by BHFC to supply hotels and resorts under construction with timber
and interior furniture.
BHFC allows the Company to have a manufacturing base, whereby furniture and wood
products can be manufactured for the housing and resort industries. Management's
plans are to reinvest any profits from this line of business into the
telecommunications arena.
In October 1999, GTMI acquired 55.1% of BentleyTel.com, Inc. (BTC), a Nevada
Corporation. Through this acquisition, the Company now has operations in the
United States, the Philippines, Australia, and Malaysia through BTC's wholly
owned subsidiaries.
The operations of BTC include internet services, e-commerce, telecommunications,
and computer sales and training. The Company, through BTC is currently
developing and co-developing certain telecommunication and e-commerce products
which the Company expects to bring to the market as soon as possible.
BENTLEYTEL.COM, INC., GROUP OF COMPANIES-DESCRIPTION
--------------------------------------------------------
The BentleyTel.com Group of Companies (www.bentleytel.com)now includes:
-------------------
a) Octa4 Pty. Ltd. is an Australian ISP and has the only private National
Fiber Optic Ericsson Tigris ISP, VPN, VoIP capable network connecting every
state of Australia. Established in 1991, Octa4, Headed by Felino Molina, former
University Physics Lecturer, offers VPN, secure Virtual Private Networks to
businesses, and ISP to 4,000 + members as well as offering ISP, virtual ISP, VPN
(Virtual Private Networks) and e-commerce to every Australian state, the Company
in planning to enable its VoIP services in mid 2000. Octa4, developed a
Real-Time Credit card clearing platform, which has been in use by the largest
banks in Australia for almost one year. Its clients account for almost 50% of
Australia's e-commerce. Octa4, located on the web at www.BentleyTel.com has
also developed the secure "Centrebet" an Internet international web hosted
betting system, which can be viewed at www.centrebet.com. In November 1999, as
a member of a consortium with COMPAQ, NEC, CABLE & WIRELESS and OPTUS,
BentleyTel.com (Octa4) was successful in winning a 5 year $110 million
Australian Government contract. BentleyTel.com will provide the VPN, (Virtual
Private Network) and Cable & Wireless and Optus will provide LAN/WAN systems.
BentleyTel has developed secure software to enable Government employees to
access Government files from remote locations. In June 1 2000 BentleyTel took
over the dial-up and Internet hosting for the Australian Northern Territory
Government. The five year contract should bring in revenue of $100,000 per month
and ramp up significantly as government workers come on line. This contract is
expected to double the BentleyTel ISP client base.
b)3G Communications, Inc., located in Davao, Philippines. 3G has operated
since 1995 and is headed by Socrates Palabyab, who has been the key figure in
roll out programs for the major Philippine telecoms. 3G owns and operates 56
mobile satellite long distance tele-centers. When 3G was acquired it had 18
sites, now as BentleyTel.com (Phils) it has deployed 56 satellite tele-centers
and Kiosks in Mindanao. 3G-BentleyTel.com Phils is currently nine (9) months
ahead of schedule, completing 70% of the year's roll-out in the first quarter of
2000. 3G has partnerships or strategic alliances with Globe, Digital, Philcom,
Philtel and PLDT. 3G now is the dominant telecom provider to 56 towns with a
combined population of approximately 1.5 million. 3G also offers enhanced
services such as e-mail, telegram, fax and other B2B and B2C products.
5
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
c) DynaSem Communications, Inc., ("DynaSem") located in the city of
Kuching, Malaysia, and on the world-wide web at www.mdc.com.my, is a computer
sales and technology training company. Headed by Dr. Morni Kambri,
BentleyTel.com Malaysia will assist with technology transfers between the
BentleyTel.com companies and to train BentleyTel.com personnel in VOIP, ISP,
secure data transfer and e-commerce. It is anticipated that the acquisition of
DynaSem will facilitate the Company's entry into the Malaysian Multi-media Super
Corridor (MSC). The MSC is building a 20 mile long 1 mile wide 2-10 gig per
second fiber optic technology development corridor. The chairman of the
Committee is Bill Gates and over 320 companies including Microsoft, NEC,
Netscape, Siemans, Sun MicroSystems, Oracle and many more are already
participating in the MSC. BentleyTel is committed to interacting with those
companies. BentleyTel.com Malaysia is associated with the Tun Abdul Razak
University which has 12 campuses.
The group of companies now comprising BentleyTel.com have all maintained
a 100% growth rate in recent years. It is anticipated that the transfer of
technology and networking between the companies will significantly increase the
Company's earnings over time.
On October 27, 1999, BentleyTel.com completed the share exchanges with the
above mentioned companies. Pursuant to the share exchanges, BentleyTel.com
agreed to provide capital, as required to each of the subsidiaries to support
their business development and operations.
Given the expected growth and continued need for capital, BentleyTel.com
intends to conduct an initial public offering of BentleyTel.com stock by late
2000.
The majority shareholders owning the 4,000 shares of GTMI Series A
Convertible Preferred Stock have signed a memorandum of agreement restricting
the conversion of the Series A Convertible Preferred Stock over a period of
five years based on growth and other factors as described in the agreement. The
agreement prevents the holders of Series A from converting more than 5% of their
preferred stock in any given three-month period. The amount of shares permitted
to be converted is prorated based on the Company's actual performance for the
quarter as measured against projected benchmarks for net income, sales growth
and performance.
Through these acquisitions, the Company's business focus is to raise additional
capital to develop business opportunities in telecommunications, agriculture,
mining, timber import and export, and furniture manufacturing in the United
States, Asia and Australia.
INTERIM INFORMATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
However, there has been no material change in the information disclosed in the
consolidated financial statements included in the Company's Form 10-KSB for the
year ended December 31, 1999, except as disclosed herein. Accordingly, the
information contained herein should be read in conjunction with the consolidated
financial statements and related disclosures contained in the Company's Form
10-KSB for the year ended December 31, 1998 and December 31, 1999. The
accompanying financial statements reflect, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the interim periods presented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries that are located in the United States,
Australia, the Philippines and Malaysia. Significant intercompany accounts and
transactions have been eliminated in the consolidation. Minority interest
represents the minority shareholders' proportionate share of their equity or
income (loss) of the Company's majority-owned subsidiary, BentleyTel.com, Inc.
PROPERTY, PLANT AND EQUIPMENT
Purchased property and equipment are recorded at cost, and depreciated using the
straight-line method over the estimated useful lives of the assets, commencing
when the assets are installed or placed in service. The estimated useful lives
are ten years for furniture and fixtures, seven years for office equipment, five
years for computer equipment, ten years for transportation equipment, twenty
years for machinery, twenty years for improvements, and thirty years for plant
construction costs. The cost of installed equipment includes expenditures for
installation. Capital Leases are recorded at lower of fair market value or the
present value of future minimum lease payment. Assets recorded under capital
leases and leasehold improvements are depreciated over the shorter of their
useful lives or the term of the related lease.
6
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
GOODWILL
Goodwill represents the excess of the purchase price over the estimated fair
values of tangible and intangible assets acquired from the reverse acquisition
of the BHFC and the acquisition of its foreign operating subsidiaries through
the Company's 55% holding in BentleyTel.com, Inc. Goodwill is amortized on a
straight-line basis over 20 years. The carrying amount of goodwill is
periodically reviewed using estimated undiscounted net cash flows of the
business acquired over the remaining amortization period. Management believes
that there has been no impairment of the goodwill recorded in the Company's
consolidated financial statements as of June 30, 2000.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock Based Compensation," which the Company elected to adopt as
of January 1, 1996. Under SFAS 123, the Company recognizes compensation expense
for all stock-based compensation, using a fair value methodology. This policy
is consistent with the Company's prior accounting.
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, warrants, and convertible debentures. These shares were not considered
in the calculation of net loss per share as they were anti-dilutive.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currency of its international
subsidiaries is the functional currency. In accordance with Statement of
Financial Accounting Standard No. 52, "Foreign Currency Translation," the assets
and liabilities denominated in foreign currency are translated into U.S. dollars
at the current rate of exchange existing at period-end and revenues and expenses
are translated at average monthly exchange rates. The cumulative effect
resulting from such translation is included in accumulated other comprehensive
income in the consolidated financial statements.
REVENUE RECOGNITION
Revenue from the sale of goods is recognized upon the delivery of goods to
customers. Revenue from the rendering of service is recognized upon the
delivery of the services to the customers. Revenue from the provision of
internet services over a specific period of time is recognized on an actual
usage basis in the period during which the services are utilized by the
customer.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenue and expenses during the
reporting period. The Company reviews all significant estimates effecting the
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their issuance. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash and other current assets, accounts
payable, accrued expenses, notes payable, and other liabilities approximate fair
value.
7
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
INCOME TAXES
The Company uses the liability method of accounting for income taxes specified
by SFAS No. 109, "Accounting for Income Taxes", whereby deferred tax liabilities
and assets are determined based on the difference between financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Deferred tax assets
are recognized and measured based on the likelihood of realization of the
related tax benefit in the future.
ECONOMIC ENVIRONMENT IN THE ASIA PACIFIC REGION
The economic developments in the Asia Pacific Region continue to affect the
Philippines and Malaysia and have led to fluctuating foreign exchange rates and
tight financial credit. Although the foreign exchange rates and the interest
are now leaning towards lower levels, the Company will continue to be affected
in the foreseeable future by economic events in the Asia Pacific Region. The
financial statements do not include any adjustments that might result from these
uncertainties. Related effects will be reported in the financial statements as
they become known and estimable.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to
conform with the 2000 presentation. The periods presented are the three and six
months ended June 30, 2000 and 1999, respectively. Certain reclassifications
have been made to the financial statements for prior periods to conform to the
current year presentation. These reclassifications have no effect on the net
income for any of the periods.
8
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
2. NOTES PAYABLE
Notes payable consisted of the following at June 30,2000:
Various 0% to 10.45% notes payable to related parties $ 305,211
3% convertible debenture due on demand,
in default 4,416,000
Note payable to bank with interest at the prevailing
market rate, subject to monthly repricing,
secured by the real estate mortgage of the Company's
land and other properties in the Philippines 814,707
20% note payable, convertible into shares of the
company common stock, secured by a security
interest in prepaid expense and guaranteed by the
company's former President/CEO 172,500
Various 8% to 18% unsecured notes payable,
due on demand and in default 8% 818,097
unsecured note payable, due January 15, 2000 8,500
Unsecured notes payable to suppliers 0% due in 2002 618,094
------------
7,153,109
Less: current maturities (6,535,015)
------------
$ 618,094
============
The following are maturities of notes payable:
Year Ended June 30,
---------------------
2002 $ 618,094
CONVERSION OF DEBENTURE
-------------------------
a) 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, which is at the lesser of $4.00 per share or the average
closing bid price of the Company's common stock for the 5 trading days
immediately preceding the date of conversion. 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 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 in satisfaction of outstanding damage claims. These shares
are to be issued in two installments of 250,000 shares at the beginning and end
of the debenture conversions. The Company will have the right to redeem
outstanding debentures for cash at face value in whole or in part.
As part of the agreement, in the event that the Company does not promptly take
all necessary steps to obtain the approval 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. As of June 30, 2000, no debentures
have been converted into common stock, since as of the date of the report, no
additional shares have been authorized.
b) On June 21, 2000, a bank in the Philippines has agreed to release
certain property in the Philippines from foreclosure for a redemption amount of
$3,785,570.
As of June 30, 2000, the Company has made payments totaling $2,970,863
towards this debt. The difference of $814,707 will be paid in six monthly
installments. The Company has indicated that they will accept these terms in
order to redeem the foreclosed property.
9
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
3. COMMITMENTS AND LITIGATION
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2009. Resignation of the former officers
and key employees resulted in the cancellation of all previous employment
agreements.
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. The company has offered a split payment
cash settlement in this matter. As at June 30, 2000, interest accrued is
$86,764.00
RBB Bank-Khalifa Litigation. On or about July 30 1996 and August 28, 1996,
---------------------------
The Company issued the aggregate 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.
The payments will commence within 30 days of the next shareholders meeting.
Management expects to hold an annual shareholders meeting by the third or fourth
Quarter of 2000.
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 $9 million for payment of services rendered as well as fees for
attorneys and court costs. New management has offered a cash settlement in this
matter.
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.) 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 negotiated a $390,000 settlement in this
matter and has paid some money towards this settlement but not the full amount
required by the settlement agreement. Extelcom is challenging the validity of
the settlement and seeking to enforce the full award. The Company will
vigorously defend the validity of the settlement.
4. BUSINESS COMBINATION
ACQUISITION OF BENTLEY HOUSE FURNITURE COMPANY, INC.
----------------------------------------------------------
Pursuant to the Agreement for the Purchase of Stock with Bentley House Furniture
Company, Inc. ("BHFC") dated March 18, 1999, ("Acquisition Agreement") , GTMI
acquired 100% of the outstanding shares of common stock of BHFC on April 2,
1999. The Company issued 29,595,139 shares of its common stock and 4,000 shares
of its Series A Convertible Preferred Stock in exchange for all the issued and
outstanding shares of BHFC common stock. Pursuant to a board resolution
ratified on June 30, 2000, the conversion factor for the Series A Convertible
Preferred has been reduced from 208,274 to 200,000 shares of common stock for
each preferred stock.
10
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
Simultaneously with the closing of the Acquisition Agreement, an escrow
agreement ("Escrow Agreement") was created then amended on July 1,1999, so that
3,878 shares of the 4,000 shares originally issued of GTMI Series A
Convertible Preferred Stock and the 200,000 shares of BHFC's common
stock would be placed in escrow for the period of one year from July 1999. The
29,595,139 shares of GTMI common stock were issued to the shareholders of BHFC.
As a condition for the release of the shares of common stock of GTMI, BHFC
Shareholders agreed to waive all and any salary or compensation for the period
of one year and to arrange funding for all of the restructuring costs and legal
fees for the same period.
The Escrow Agreement provides that if during the escrow period, GTMI files
Chapter 11 or Chapter 7 or for other creditor protection, the 3,878 shares of
Series A Convertible Preferred shares of GTMI held in escrow will be immediately
retired, 200,000 shares of BHFC's common stock, held in escrow, will be
immediately returned and the shareholders of BHFC will retain the 29,595,139
shares of common stock issued to them and no further claims will be levied
against them. The Escrow Agreement allows the new shareholders of GTMI to vote
and to receive any dividends paid on the stock held in escrow.
The acquisition was accounted for as a reverse acquisition under the purchase
method of accounting, whereby BHFC was treated as the accounting acquirer and
GTMI as the accounting acquiree. As such, the assets and liabilities of GTMI
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 and
intangible assets of GTMI at the acquisition date will be amortized over a
period of 20 years. The Company recorded a total of $31,801,176 in goodwill
related to this transaction and $795,050 in amortization expense for the six
months ended June 30, 2000.
The historical financial statements prior to April 2, 1999, will be those of
BHFC but the name of the corporation going forward will be Global Telemedia
International, Inc.
11
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
ACQUISITION OF BENTLEYTEL.COM, INC.
--------------------------------------
On October 12, 1999, the Company completed an agreement to purchase
BentleyTel.com, Inc., and its subsidiaries ("BTC"), a Nevada corporation.
Pursuant to the agreement, the Company issued 97 shares of its Series A
Convertible Preferred Stock in exchange for 20,202,578 shares of BTC, which is
approximately 55.1% of its issued and outstanding common stock. BTC's wholly
owned subsidiaries comprise of operating companies in Australia, the
Philippines, and Malaysia. In order to complete the purchase, the President/CEO
surrendered 97 shares, which he personally owned, of the Company's Series A
Convertible Preferred Stock.
An escrow agreement was also executed simultaneously with the closing of the
Share Exchange agreement. Under the escrow agreement, the Company delivered to
the escrow holder the 97 shares of Series A Convertible Preferred Stock and the
20,202,578 shares of BentleyTel.com Inc. common stock to be held in escrow
for a period of one year. The escrow provides that if during the escrow period
GTMI files Chapter 11 or 7 or for other creditor protection, the escrow holder
shall without further instruction deliver the exchanged BentleyTel.com, Inc.
stock to BentleyTel.com, Inc. and the exchanged GTMI stock to GTMI. The escrow
agreement allows the new shareholders of BTC to vote and to receive any
dividends paid on the stock held in escrow.
The Company accounted for the acquisition under the purchase method of
accounting. The Company recorded a total of $8,221,133 in goodwill which is
being amortized over 20 years. The Company recorded $205,528 in amortization
expense for the six months period ended June 30, 2000
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB (THE "REPORT") MAY BE DEEMED TO
CONTAIN FORWARD-LOOKING STATEMENTS. 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.
THIS REPORT, INCLUDING THE DISCLOSURES BELOW, CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND/OR 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.
12
<PAGE>
RESULTS OF OPERATIONS
The Company seeks to manage its business to enhance long-term growth and
shareholder value. The Company also seeks to utilize financial leverage, debt
financing, and cash flow generated from operations to support capital
expenditures and possible future acquisitions. The Company intends to develop
and market the new technologies that would (i) result in an acceptable rate of
return on such long term investments and (ii) provide adequate opportunity to
effectively implement the Company's operating strategies.
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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.
On April 2, 1999, Global TeleMedia International, Inc. acquired Bentley House
Furniture Company ,Inc. a Philippine Corporation ("BHFC"). The merger was
accounted for as a reverse acquisition whereby the BHFC was treated as the
accounting acquirer and GTMI as the accounting acquiree. The accompanying
consolidated financial statements include the historical results of BHFC and the
consolidated results of GTMI as of the date of merger. Simultaneously with the
closing of the acquisition agreement, an Escrow Agreement was created then
amended on July 1, 1999, so that 3,878 shares of the 4,000 shares originally
issued of GTMI Series A Convertible Preferred Stock and 200,000 of BHFC's common
stock would be placed in escrow for a period of one year from July 1999.
The Board of Directors has extended the escrow to December 2000.
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 585,400
for the subscription of Series B Convertible Preferred stock. The Company's
President/CEO and Vice President surrendered an aggregate of 7,210,666 shares
and the Company received $5,765,000 to meet the Company's financial needs.
Subsequent to the end of 1999, the company executed a $10 million equity
investment agreement based on shares owned by the major shareholders. The
majority shareholders, Jonathon Bentley-Stevens and Regina S. Peralta agreed to
assist the company by contributing their own shares to the equity Partner. The
majority shareholders will receive preferred stock after the shareholders
meeting and have agreed to immediately retire the newly preferred issued shares
so as not to further dilute the existing shareholders.
As part of the restructuring, the Company acquired a controlling interest
in a Nevada corporation called BentleyTel.com, Inc. A BentleyTel Board Meeting
was held in the first quarter of 2000 to examine the viability of exercising its
option of investing an initial $10 million to develop the 1997 patent of Ultra
Pulse. The non-binding agreement also includes the allocation of additional
shares to UCI, which will further dilute the existing shareholders. There can
be no estimate as to the eventual amount required to develop the Ultra Pulse
technology. Therefore, decision was made no to pay for the exploitation of the
patent.
The Company owns a 55% majority of the shares of BentleyTel.com, and additional
BentleyTel.com shares were used to acquire 100% of the shares of Octa4 Pty.Ltd.,
3G Communications Inc. and DynaSem Communications Sdn. Bhd. Octa4 is a major
ISP in Australia providing VPN (Virtual Private Networks) E-Commerce, and
e-commerce solutions, and soon VoIP voice over the Internet. DynaSem is a
computer sales and IT training company and 3G communications owns and operates
56 satellite tele-centers offering long distance and international long distance
calling.
BentleyTel.com planned to release its national and international phone
cards in 4th quarter 1999. The company decided to delay the release of a phone
card until its development of a multi-purpose debit/ATM/Phonecard/E-commerce
card platform was finalized. In the subsequent period the Company decided to
implement international long distance 0+ calling services from its 56
tele-centers and Kiosks. The company is now finalizing agreements with data
processing companies as a final step to the launch of its international
proprietary Smart-e-Card, which should be available to the public in the year
2000.
The Company has resolved a significant amount of its litigation and is
working to resolve the remaining disputes within 180 days. The Company did
generate revenue in the fourth quarter of 1999 and had a significant increase in
revenue in the second quarter 2000 as compared to the same quarter last year.
The Company intends to continue to build its revenue streams in future years.
The strategy of the Company has been to develop strategic alliances with various
technology companies through alliances, mergers or acquisitions. Acquisitions
were made of companies possessing substantial market share in their industries
and technological advantages.
13
<PAGE>
RESULTS OF OPERATIONS FOR PERIOD ENDED JUNE 30, 2000 AND 1999.
On April 2, 1999, Global Telemedia International, Inc. acquired Bentley House
Furniture Company ,Inc. a Philippine Corporation. (BHFC). The merger was
accounted for as a reverse acquisition whereby the BHFC was treated as the
accounting acquirer and GTMI as the accounting acquiree. The accompanying
consolidated financial statements include the historical results of BHFC and the
consolidated results of GTMI as of the date of merger.
The following discussion reflects the financial condition and results of
operations of the Company for the period ended June 30, 2000 and 1999.
Because of material changes to the Company and new management these past results
are not indicative of future performance.
The Company's revenues for the three and six months ended June 30, 2000,
increased by $424,000 and $1,032,000, to $582,000 and $1,190,000, respectively
over the corresponding periods in 1999. The entire increase was derived from
telecommunication and internet related operations from Company's subsidiaries in
Australia and the Pacific rim.
Costs of goods sold for the three and six months ended June 30, 2000 were
approximately $213,000 and $372,000 respectively and were significantly greater
than the comparable periods in 1999. The increase was due to the business
derived from telecommunications and internet related operations in Australia and
the Pacific rim. The Company's gross profit increased from $121,280 to
approximately $369,000 and from $121,280 to approximately $818,000 for the three
and six months ended June 30, 2000 and 1999, respectively. The increase in
gross profit was due primarily as result of the reverse acquisition with BHFC,
acquisition of telecommunication subsidiaries that make up BTC and as a result
of the Company's emphasis in developing business opportunities in e-commerce,
web-hosted products, unified messaging and other enhanced web based services.
General and administrative expenses for the three and six months ended June
30, 2000 and 1999 increased by $67,000 and $898,000, to $1,484,000 and
$3,073,000, respectively. The increase during 2000 has been primarily the
result of the reverse acquisition with BHFC, the amortization of acquired
goodwill, and as a result of the Company's emphasis in developing business
opportunities in e-commerce, web-hosted products, unified messaging and other
enhanced web based services. Amortization and depreciation from fixed assets
and goodwill totaled $1,171,224 and $420,948 for the six months ended June 30,
2000 and 1999, respectively.
The Company incurred additional legal and professional fees of approximately
$300,000 during 2000. These were mostly due to resolutions of previous
management's debts, financing matters and legal cost associated with mergers and
acquisitions.
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, $315,100 has been
paid towards unpaid withholding taxes. The Company has negotiated with IRS for
a 22 months progressive payment of the balance of approximately $315,100. As of
December 31, 1999, the Company had net operating loss carry forward totaling
approximately $42 million.
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.
-----------------------------------
BHFC maintains contracts, including joint venture contracts for the construction
of Philippine government employees' homes. The contracts have been executed on
behalf of the Philippine National Police, the Armed Forces of the Philippines,
the Department of Interior of the Philippines and several local Philippine
government arms. Subdivisions are presently delineated and nearly all necessary
permits needed to commence construction are secured. BHFC had anticipated
construction to begin during the 4th quarter of 1999, but due to insufficient
funds, construction has been delayed. BHFC expects sufficient funds in the near
future to support site development in preparation for construction pursuant to
the contracts.
The Company has historically financed its operations principally through
the sale of equity and debt securities and through funds provided by operating
activities.
As of June 30, 2000, the Company had total liabilities including accrued
interest, notes payable, current accounts payable and accrued but unpaid expense
approximating $29 million a substantial decrease from total liabilities of $31.5
million as of December 31, 1999. Management is working to settle the majority
of the remaining creditors by the end of the calendar year.
14
<PAGE>
The Company's tangible fixed assets increased to approximately $7.34
million as of June 30, 2000 as compared to $6.78 million as of December 31,
1999.
Company policy dictates that it receives a letter of credit from all
contracts undertaken by the construction divisions.
Net losses from operations for the three and six months ended June 30, 2000 were
approximately $1,087,897 and $2,264,631. Net losses for the three and six month
ended June 30, 1999 were $1,317,020 and $2,117,252.
PART II. OTHER INFORMATION: MATERIAL CONTRACTS
---------------------------------------------------------
CONSTRUCTION CONTRACTS:
-----------------------
BHFC maintains existing contracts, including joint venture contracts for
construction of Philippine government employee homes. The contracts have been
executed on behalf of the Philippine National Police, the Armed Forces of the
Philippines, the Department of Interior of the Philippines and several local
Philippine government arms. Subdivisions are presently delineated and nearly
all necessary permits needed to commence construction have been secured. BHFC
had anticipated construction to begin during the 4th quarter of 1999, but due to
insufficient funds, construction has been delayed. BHFC expects sufficient
funds in the near future to support site development in preparation for
construction pursuant to the contracts.
Construction contracts, pursuant to the development of the Philippine
employee government homes, have been executed with San Antonio Housing Systems &
Technology, Inc., a Canadian Company and Integrated Philcan, Inc., a "AAA"
rated subsidiary of HRS Steel. Both companies can produce "Rapid-Built" modular
houses and maintain factories in the Philippines. The companies are fully
licensed and accredited with and by the Philippine Government. Integrated
Philcan Inc. has opened offices in Makati, Philippines, and has advised that
the Canadian Government through CIDA has approved a $288,000 grant for the
initial training of local assembly workers.
Pursuant to a Philippine Presidential Proclamation, BHFC was awarded the
Land Conversion Project, which granted BHFC a 50,000 acre tract of land in
the Philippines to reforest and convert the original mahogany, teak, and other
hardwood forest into palm oil and coffee commercial plantations. 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 for anticipated hardwood sales and furniture
manufacturing components. BHFC is the Managing Partner of the project
and Jonathon Bentley-Stevens is the Attorney-in-Fact for the duration of
the project. By contract, the project is expected to expand up to 500,000
acres over the next 48 years. Funds derived from the project will be utilized
to acquire and expand the Company's telecom and e-commerce divisions.
TECHNOLOGY CONTRACTS:
In January, 2000 GTMI entered into negotiations with Data Exchange International
("DEI"), a Texas corporation, to acquire one hundred percent of the outstanding
shares of DEI. Such negotiations resulted in the preparation of an acquisition
agreement in June, 2000, by and among DEI, GTMI, GTMI Merger Subsidiary,
Jonathon Bentley-Stevens and Regina S. Peralta pursuant to which GTMI agreed to
acquire 100% of the outstanding shares of DEI using Mr. Bentley-Stevens' and
Ms. Peralta's shares of GTMI Common and Series A Preferred Stock for the
acquisition consideration. DEI, which would become a subsidiary of GTMI, has
pending an application for a patent for The Message Pilot System. The Message
Pilot System centralizes electronic communication by streamlining points of
contact. Using telecommunications technology, The Message Pilot System combines
all contact information (including e-mail addresses and telephone numbers) into
one subscriber telephone number to facilitate faster and easier communication.
Pursuant to the acquisition agreement, Ken Heffner, the current Chief Executive
Officer of DEI, would join the Board of Directors of GTMI and Mr.
Bentley-Stevens would join the Board of Directors of DEI following the proposed
merger of the companies. Ken Heffner and his wife, Ellen Heffner, together, own
425,000 of the 915,750 shares of DEI Common Stock issued and outstanding, 40,000
options granted pursuant to DEI's stock option plan and 20,000 of the 90,000
shares of DEI Preferred Stock issued and outstanding but planned, at the option
of the holder, to be converted to Common prior to the merging of the companies.
In addition, Michael Heffner, the son of Ken and Ellen Heffner holds 185,000
shares of DEI Common Stock and 60,000 stock options. Ken Heffner was appointed
Chief Technical Officer of GTMI on March 14, 2000, which was approved by the
Board of Directors of GTMI. The DEI deal has not closed yet, but it is expected
to close during the fourth quarter of the year.
15
<PAGE>
The Company has entered into a co-development agreement with Richardson, Texas
based Data Exchange, Inc. to assist in developing The Message Pilot.
Data Exchange has filed for a patent on The Message Pilot TM and BentleyTel
utilized its previously developed software to accelerate the development of the
Unified Integrated Messaging System.
The Company has also entered into a contract for the manufacture of its
proprietary Smart-e-Card with Moore Business Systems one of the largest
manufacturers of credit/debit cards. Once manufacturing is in full operation,
Moore Business Systems has committed to a 7 day fulfillment of orders for the
BentleyTel.com Smart-e-Card. The Company has paid the initial production cost
of the Smart-e-Card.
The Company has entered into a marketing agreement for the distribution and sale
of its Smart-e-Card with Big Wheel Promotions, a Dallas based marketing company
that specializes in event marketing and brand recognition. Big Wheel is an agent
for Corona Beer, Western Union and well known celebrities. The Company has
paid the initial marketing and promotion costs for the Smart-e-Card.
The Company has entered into a telemarketing agreement with Cambridge Marketing
and has paid for the development of telemarketing scripts for sale of its
Smart-e-Card and MessagePilot to qualified B2B and B2C clients identified by
Cambridge Marketing.
ITEM 1. LEGAL PROCEEDINGS
See Form 10-KSB/A filed June 30, 2000.
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. The company has offered a split payment
cash settlement in this matter. As at December 31, 1999 interest accrued
is $81,764.00
RBB Bank-Khalifa Litigation. On or about July 30, 1996 and August 28, 1996,
---------------------------
The Company issued the aggregate 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.
The payments will commence within 30 days of the next shareholders meeting.
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 $9 million for payment of services rendered as well as fees for
attorneys and court costs. New management has offered a cash settlement in this
matter.
16
<PAGE>
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.) 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 negotiated a $390,000 settlement in this
matter and has paid some money towards this settlement, but not the full amount
required by the settlement agreement. Extelcom is challenging the validity of
the settlement and seeking to enforce the full award. The Company will
vigorously defend the validity of the settlement.
ITEM 3.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
17
<PAGE>
INDEX
1. Land Conversion Project Memorandum of Understanding and Joint Venture
Agreement with Kapatiran Agro-Industrial Co-operative Settlement
(KAICS)
2. Cambridge marketing Group Agreement
3. Data Exchange, Inc., Software Development Agreement
4. Moore Business Service, Inc. Agreement
5. Big Wheel Marketing agreement
6. Message Pilot Joint Marketing Agreement
27. Financial Data Schedule
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBAL TELEMEDIA INTERNATIONAL, INC.
------------------------------------
(Registrant)
/s/ Jonathon Bentley-Stevens
-----------------------------------
Jonathon Bentley-Stevens, CEO
Date: August 21,2000
/s/ David Tang
-----------------------------------
David Tang, Chief Financial Officer
Date: August 21, 2000
19
<PAGE>
