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 September 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 September 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 SEPTEMBER 30, 2000
INDEX
Page
----
Part I - Item 1. Interim Financial Statements . . . . . . . . . . . . . 1
Consolidated Balance Sheets as of September 30, 2000. . . . . . . . . . 1
Consolidated Statements of Operations and Comprehensive Income
For the Three and Nine Months ended September 30, 2000
and September 30, 1999. . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 2000 and September 30, 1999 . . . . . . . . 3
Consolidated Statements of Shareholders' Equity for the
Nine Months ended September 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 5. Other Information
Part II - Item 6. Exhibits
10. Ericsson Memorandum of Understanding Regarding
Partnerships and Joint-Ownership of Products & Software
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2000
--------------------
<S> <C>
ASSETS
------
Current Assets
Accounts receivable, net of allowance $9,159,212 $ 77,546
Other current assets 826,841
--------------------
Total Current Assets 904,387
Property, plant and equipment, net of accumulated depreciation 5,837,637
of $1,201,944
Goodwill, net of accumulated amortization 37,260,963
of $1,500,836
Other assets 336,264
--------------------
Total Assets $ 44,339,251
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank overdraft $ 208,643
Accounts payable and accrued expenses 20,449,537
Notes payable 6,245,542
--------------------
Total Current Liabilities 26,903,722
Long-Term Liabilities
Long-term liabilities, net of current portion 580,724
--------------------
Total Long-Term Liabilities 580,724
--------------------
Total Liabilities 27,484,446
Minority Interest 5,412,604
Stockholders Equity
Common stock, $.004 par value
authorized 100,000,000 , 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, 400 shares issued and outstanding 2
Series B Convertible Preferred stock subscribed 6,923,600
Common Stock held in Treasury -
Additional paid-in capital 19,478,441
Accumulated deficit (12,336,627)
Accumulated other comprehensive income (2,922,989)
--------------------
Total Stockholders Equity 11,442,201
--------------------
TOTAL LIABILITY AND STOCKHOLDERS EQUITY $ 44,339,251
====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
<TABLE>
<CAPTION>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 332,896 $ 59,646 $ 1,523,150 $ 216,039
------------ ------------ ------------ ------------
COST OF GOODS SOLD 147,107 37,510 519,081 72,621
------------ ------------ ------------ ------------
GROSS PROFIT 185,789 22,136 1,004,069 143,418
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, General and Administrative 2,011,711 1,352,630 4,978,977 3,463,893
------------ ------------ ------------ ------------
Total Operating Expenses 2,011,711 1,352,630 4,978,977 3,463,893
------------ ------------ ------------ ------------
Operating Loss (1,825,922) (1,330,494) (3,974,908) (3,320,475)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest Expense (48,577) (106,089) (110,781) (233,359)
Other Income 16,387 70,495 (80,722) 70,495
Minority Interest in Subsidiary's Net Loss 186,767 - 230,434 -
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,671,345) (1,366,088) (3,935,977) (3,483,339)
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES - - - -
------------ ------------ ------------ ------------
NET LOSS (1,671,345) (1,366,088) (3,935,977) (3,483,339)
------------ ------------ ------------ ------------
Other comprehensive income, net of tax
Foreign currency translation adjustment (750,053) (5,806) (1,052,852) (18,530)
------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE LOSS $(2,421,398) $(1,371,894) $(4,988,829) $(3,501,869)
============ ============ ============ ============
NET LOSS PER SHARE $ (0.02) $ (0.02) $ (0.05) $ (0.05)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 74,939,500 74,939,500 74,939,500 66,371,931
============ ============ ============ ============
</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)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,935,977) $(3,483,339)
Adjustments to reconcile net loss to net cash provided:
Depreciation and amortization 1,769,181 903,170
Adjusted foreign currency translation 379,012 (18,530)
Minority interest (227,482) -
Changes in:
Accounts and other receivable 46,014 (34,118)
Other current assets 7,510 (219,023)
Accounts payable and accrued expenses (1,015,378) 2,268,020
------------ ------------
Net cash used by operating activities (2,977,120) (583,820)
------------ ------------
Cash flows from investing activities
Investment in note receivable-DEI (406,206) -
Acquisition of fixed assets (750,284) -
Other assets 61,214 (92,821)
------------ ------------
Net cash used in investing activities (1,095,276) (92,821)
------------ ------------
Cash flows from financing activities
Proceeds from loans 496,638 416,785
Repayment on debt (3,396,143) -
Additional paid in capital 153,453 -
Proceeds from stock subscriptions 6,395,700 161,000
------------ ------------
Net cash provided by financing activities 3,649,648 577,785
------------ ------------
Net decrease in cash (422,748) (98,856)
------------ ------------
Cash at beginning of the period 214,105 181
------------ ------------
Cash at end of the period $ (208,643) $ (98,675)
============ ============
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
COMMON STOCK PREFERRED STOCK
--------------------------------- ---------------------------------------
SERIES
COMMON A SERIES B SERIES B
STOCK CONVERT- CONVERTIBLE CONVERTIBLE
SUB- IBLE PAR PREFERED STOCK
SHARES PAR VALUE SCRIBED STOCK VALUE STOCK SUBSCRIBED
---------- ---------- --------- -------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 74,939,500 $ 299,758 $ 42,500 4,000 $ 16 $ 485,400
Series A Convertible Preferred Stock Subscription 4,848,758
Additional paid in capital contributed
Common Stock Subscribed converted
to Series B Convertible Preferred Stock Subscription (42,500)
Treasury stock issued to pay-off liabilities
Series B Convertible Preferred Stock issued for
services 2
Foreign currency translation adjustment, net of tax
Series A Convertible Preferred Stock Subscription 1,589,442
Additional paid in capital contributed
Foreign currency translation adjustment, net of tax
Net Loss
---------- ---------- --------- -------- ------ -------- ------------
Balance, September 30, 2000 74,939,500 $ 299,758 $ - 4,000 $ 16 $ 2 $ 6,923,600
========== ========== ========= ======== ====== ======== ============
ACCUMU-
STOCK- LATED
HOLDER OTHER TOTAL
ADDITIONAL NOTE ACCUMU- COMPRE- STOCK-
PAID IN RECEIV- LATED HENSIVE TREASURY HOLDERS'
CAPITAL ABLE DEFICIT INCOME STOCK EQUITY
----------- -------- ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $18,942,589 $ - $ (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 149,917 149,917
Common Stock Subscribed converted
to Series B Convertible Preferred Stock Subscription (42,500)
Treasury stock issued to pay-off liabilities 182,400 87,600 270,000
Series B Convertible Preferred Stock issued for
services 199,998
Foreign currency translation adjustment, net of tax -
Series A Convertible Preferred Stock Subscription 1,589,442
Additional paid in capital contributed 3,537 3,537
Foreign currency translation adjustment, net of tax (1,052,852) (1,052,852)
Net Loss (3,735,977) (3,735,977)
----------- -------- ------------- ------------ ---------- ------------
Balance, September 30, 2000 $19,478,441 $ - $(12,336,627) $(2,922,989) $ - $11,442,201
=========== ======== ============= ============ ========== ============
</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 SEPTEMBER 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND ORGANIZATION
Global Telemedia International, Inc. (the "Company" or "GTMI") ( www.gtmi.com )
------------
was re-incorporated in Delaware on November 8, 1996. GTMI is 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 acquirer and GTMI as the acquiree.
The accompanying consolidated financial statements include the historical
results of BHFC and the consolidated results of GTMI as of the date of the
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 NAFTA,
BIMP-EAGA is located in the Pacific Rim and serves a combined population of over
400 million people who are mostly English speaking.
BHFC provides the Company with a manufacturing base, whereby furniture and wood
products can be produced 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, Philippines, Australia, and Malaysia through BTC's
wholly-owned subsidiaries.
The operations of BTC include Internet services, e-commerce, telecommunications,
computer sales and computer training. BTC is currently developing and
co-developing, billing software and financial software for its ISP, VoIP,
Smart-e-Card products, and certain telecommunication and e-commerce products
which BTC expects to bring to the market in the fourth quarter 2000.
BENTLEYTEL.COM, INC., GROUP OF COMPANIES-DESCRIPTION
--------------------------------------------------------
The BentleyTel.com Group of Companies (www.bentleytel.com)now includes:
------------------
a) Octa4 Pty. Ltd., now BentleyTel.com Australia ("BTC-AUS"),
(www.bentleytel.com ) is an Australian ISP and has the only private National
------------------
Frame Relay network in Australia. BTC-AUS uses Ericsson Tigris switches (points
of presence "POP"s) and delivers service throughout Australia. Acquired in
October 1999, Octa4 has over 4,000 ISP clients. In November 1999, a consortium
comprised of COMPAQ, NEC, CABLE & WIRELESS, OPTUS, and BTC-AUS was
successful in winning a five year $110 million Australian Government
contract, BTC-AUS is a member of this consortium. Pursuant to the contract,
BTC-AUS will provide the Virtual Private Network ("VPN") and Cable &
Wireless and Optus will provide LAN/WAN systems. In addition, BentleyTel has
developed software to enable government employees to securely access
government files from remote locations. On September 1, 2000 BentleyTel took
over the dial-up and Internet hosting for the Australian Northern Territory
government. The five year contract has doubled the BTC-AUS ISP client base and
management expects this contract to generate recurring gross revenues of
$100,000 per month. This figure is expected to increase as more government
workers participate in on-line services.
BTC-AUS is currently the only Australian company capable of delivering ISP,
VPN, and VoIP services on a national scale. This service enables every state in
Australia to be connected. Established in 1991, BTC-AUS is headed by Felino
Molina, a former university physics lecturer. On August 14 2000, BTC-AUS
launched its VoIP services at the ISPCON 2000 convention held in Melbourne
Australia. BTC-AUS has developed software for real-time credit card clearing,
which has been in use by major banks in Australia for nearly one year.
BTC-AUS has also developed and maintained a fully interactive software platform
including encryption used by CentreBet, Inc., an Internet international web
hosted gaming site, which is licensed by the Australian Government(
www.centrebet.com ). Management estimates that 50% of Australia's e-commerce
-----------------
currently run on software platforms previously developed by BTC-AUS.
b)3G Communications, Inc., now BentleyTel.com Philippines ("BTC-PHLS"),
located in Davao, Philippines, has been in operation since 1995. President,
Socrates Palabyab has been the key figure in roll out programs for several
major Philippine telecommunication companies. Acquired in October 1999, 3G
Communications had 18 locations for delivery of telecommunications. As a
subsidiary of BentleyTel.com, BTC-PHLS has deployed 56 GSM Digital wireless
tele-centers and Kiosks throughour the Philippines. With partnerships and
strategic alliances with Globe, Digital, Philcom, Philtel and PLDT, BTC-PHLS
is the primary provider of telecommunication services to towns with a combined
population of approximately 2.5 million. BentleyTel 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 SEPTEMBER 30, 2000
(UNAUDITED)
c) DynaSem Communications, Inc., ("DynaSem") Now BentleyTel.com
Malaysia ("BTC-My"), is located in the city of Kuching, Malaysia, and has been
engaged in the business of computer sales and technology training since
1996. President Dr. Morni Kambri will guide the Company's entry into the
Malaysian Multi-media Super Corridor (MSC). (www.mdc.com.my ) The MSC consist of
--------------
a 20-mile long 1-mile fiber-optic technology development corridor capable of
data transfers of up to 10 gigabytes. Committee members are made up of senior
executives from NEC, Microsoft, Netscape, Siemans, Sun MicroSystems, Oracle and
other significant companies. Currently, over 320 companies are participating in
the MSC. BTC-My will assist with the transfer of technology among the other
BentleyTel.com companies and to train BentleyTel.com personnel in VOIP, ISP,
secure data transfer and e-commerce. DynaSem/ BTC-My, is also affiliated with
the Tun Abdul Razak University which has 12 campuses.
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 by each of the subsidiaries to support
their business development and operations.
Given BTC's expected growth and continued need for capital, BentleyTel.com
is preparing to file its SB-2 for listing on the NASDAQ and intends to
offer rights to the Company's shareholders prior to any public offering of
BentleyTel.com, Inc.'s stock. BentleyTel.com intends to finalize its audit
and file its SB-2 by late 2000.
The majority shareholders owning the 3,878 shares of GTMI's 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, with no conversion possible until mid May 2001. Based on growth and
other factors as described in the agreement, the holders have agreed not to
convert more than 5% of their preferred stock in any given three-month period.
The amount of shares to be converted is limited to 5% or less, prorated
based on the Company's actual performance for the quarter as measured against
projected benchmarks for net income, sales growth and performance.
Through the above mentioned acquisitions, the Company's business focus is to
raise additional capital to develop 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 majority owned subsidiaries. All
inter-company 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 years 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 are located in the United States, Australia, the
Philippines and Malaysia. Significant inter-company 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 SEPTEMBER 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 September 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 of 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 SEPTEMBER 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. The Company's main Pacific Rim revenue source is
derived from Australia, whose relatively stable currency should serve to
mitigate the effects on income caused by uncertain economic events in Malaysia
or the Philippines. 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
nine months ended September 30, 2000 and 1999, respectively. These
reclassifications have no effect on the net income for any of the periods.
STOCK OPTIONS
In November ,2000 the Company granted options to purchase 300,000 shares of the
Company's common stock at a price of $.50 to outside consultants. These options
expire August 30,2003.
AUTHORIZED SHARE CAPITAL
In October 2000, the Company amended its Certificate of Incorporation to
increase the total number of shares the corporation has authority to issue to
One Hundred and Ten Million (110,000,000)shares, consisting of One Hundred
Million (100,000,000) shares of Common Stock, par value $0.004 and Ten Million
(10,000,000) shares of Preferred Stock par value $0.004.
8
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2000
(UNAUDITED)
2. NOTES PAYABLE
Notes payable consisted of the following at September 30, 2000:
Various 0% to 10.45% notes payable to related parties $ 220,647
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 re-pricing,
secured by the real estate mortgage of the Company's
land and other properties in the Philippines 624,199
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% 739,171
unsecured note payable, due January 15, 2000 8,500
Unsecured notes payable to suppliers 0% due in 2010 645,249
------------
6,826,266
Less: current maturities (6,245,542)
------------
$ 580,724
============
The following are maturities of notes payable:
Year Ended September 30,
--------------------------
2001 $6,245,542
2002 64,525
2003 64,525
2004 64,525
2005 64,525
and there
after 322,624
----------
$6,826,266
==========
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 of September 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 September 21, 2000, the bank in the Philippines holding the lien on
the factory agreed to release the property from foreclosure for a redemption
amount of $3,785,570. As of September 30, 2000, the Company had paid the bank a
total of $3,070,863. The bank has released the title of the property to the
Company. The remaining balance of approximately $700,000 has been restructured
on terms proposed by the Company and agreed to by the bank.
9
<PAGE>
GLOBAL TELEMEDIA INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 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 against
--------------------
GTMI 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. As of September 30, 2000,
interest accrued is $89,264. The Company has offered a split payment cash
settlement in this matter.
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.
Subsequent to the shareholders meeting held on October 7, 2000 the company
complied with the agreement by issuing 1,690,331 shares to RBB Bank and 563,443
shares to Khalifa.
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 (No. 97A-36948-3) WilTel seeks recovery
of approximately $9,067,737 plus $4,896,578 in interest. On October 29, 2000,
the Company negotiated and accepted a settlement of the outstanding debt for a
payment of $500,000 on a non-interest bearing promissory note due 60 days from
the date of execution and $2.5 million paid over 2 years commencing 30 days
after the initial payment of $500,000. The Company recorded a total liability
of $11,098,910 on their financial statements relating to this litigation.
Worldcom has agreed to satisfy the litigation in the following manner: a) a
non-interest bearing Promissory Note for $500,000 to be paid in one payment
within 60 days; b) $2,500,000 Promissory Note payable over twenty-four months at
12.5% interest, secured by guarantee selected by Worldcom; c) 2,500,000 common
shares in the form of warrants with a five year $0.01 price option. Final
documentation reflecting this settlement is being prepared at the time and is
expected to be executed on terms outlined here.
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. Former Management failed
to appear at the arbitration and a $2,500,000 judgment was awarded against GTMI
with subsequent interest increasing the award to $3,000,000. On October 4th,
2000 management successfully settled this debt by paying $340,000 to K&S and
issuing 500,000 registered shares of common stock and 350,000 shares of common
restricted rule 144 stock in full and final resolution of this matter.
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 September 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 SEPTEMBER 30, 2000
(UNAUDITED)
Simultaneously with the closing of the Acquisition Agreement, an escrow
agreement ("Escrow Agreement") was created and then amended on July 1,1999, so
that if during the escrow period, GTMI filed chapter 11 or Chapter 7 or for
other creditor protection, 3,878 shares of Series A Convertible Preferred
shares of GTMI held in escrow would 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 majority shareholders of GTMI to vote and to receive
any dividends paid on the stock held in escrow.
Due to the resolution of the major litigation thus removing the likelihood of
GTMI filing for creditor protection, management expects to now take the
necessary legal steps to finalize the escrow arrangement during the fourth
quarter of 2000.
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 re-valued 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 $1,192,545 in amortization expense for the nine
months ended September 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 SEPTEMBER 30, 2000
(UNAUDITED)
ACQUISITION OF BENTLEYTEL.COM, INC.
--------------------------------------
On October 12, 1999, the Company completed an agreement to purchase
BentleyTel.com, Inc., ("BTC"), a Nevada corporation. Pursuant to the
agreement("Share Exchange"), 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 BTC's issued and outstanding common stock. In order to
complete the purchase, the President/CEO of GTMI surrendered 97 shares, which
he personally owned, and the Company re-issued 97 shares of 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. 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. Due
to settlement of major litigation, GTMI management would seek to finalize the
escrow arrangements during the fourth quarter 2000.
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 $308,292 in amortization
expense for the nine month period ended September 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.
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. THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2000 AND 1999
OVERVIEW OF PRESENTATION.
---------------------------
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 and 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 9,500,000
shares and the Company received approximately $7,000,000 to meet the Company's
financial needs. No assurance can be given that such funds will now be
available.
Subsequent to the end of 1999, the Company executed a $10 million equity
investment agreement. However, due to the unavailability of authorized but
un-issued shares of common stock, the Company was not able to utilize this
facility. 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 an 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, a decision was made not to pay
for the exploitation of the technology.
The Company owns 55.1% of the shares of BentleyTel.com, where 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 VoIP voice over a private frame relay national network. DynaSem
is a computer sales and IT training company, and 3G Communications owns and
operates 56 satellite tele-centers and kiosks offering long distance,
international calling, fax and e-mail services.
BentleyTel.com originally planned to release its Smart-e-CardTM in the
second quarter 2000, however, the BTC decided to delay the release of its
multi-purpose debit/ATM/Phonecard/E-commerce / e-funds transfer card until the
platform was expanded to include machine and national distribution. In the
subsequent period, the BTC decided to implement international long distance
0+ calling services from its 56 tele-centers and kiosks. BTC 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 by the end of the year.
GTMI has resolved all of its remaining major litigation left as a
legacy by the previous management. The Company has generated revenue since
fourth quarter of 1999 and has had a significant increase in revenue in the
third quarter 2000 as compared to the same quarter last year. The strategy of
the Company has been to develop strategic alliances with various technology
companies through joint ventures, 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 SEPTEMBER 30, 2000 AND 1999.
The following discussion reflects the results of operations of the Company
for the period ended September 30, 2000 and 1999. Because of material changes
to the Company, including new management, these past result are not indicative
of future performance.
The Company's revenues for the three and nine months ended September 30,
2000, increased by $273,250 and $1,307,111, to $332,896 and $1,523,150,
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 nine months ended September 30, 2000 were
$147,107 and $519,081, 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 $22,136 to approximately
$185,789 and from $143,418 to $1,004,069 for the three and nine months ended
September 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.
Selling, general and administrative expenses for the three and nine months
ended September 30, 2000 increased by $659,081 and $1,515,084 to $2,011,711 and
$4,978,977, 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 $1,769,181 and $903,170 for the nine months ended September
30,2000 and 1999, respectively.
The Company incurred additional legal and professional fees of approximately
$694,000 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. The Company also owes federal and state
payroll taxes incurred in 1996 to 1998, however, $345,100 has been paid towards
these withholding taxes. The Company has negotiated with IRS to payoff the
overdue balance over 22 months, the remaining balance as of September 30, 2000,
is approximately $440,000 which includes accrued interest and penalties.
As of December 31, 1999, the Company had a 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
with the National Housing Authority and in a joint venture 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. Management decided to focus on providing cash for technology and
development of its proprietary products and expects to commence furniture and
housing contracts as soon as funding permits.
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 September 30, 2000, the Company had total liabilities including
accrued interest, notes payable, current accounts payable and accrued but unpaid
expense approximating $27.5 million, a substantial decrease from total
liabilities of $31.5 million as of December 31, 1999. Management has
substantially resolved all major litigation against the Company and has
finalized settlements on the Company's debt totaling over $20,000,000. The
various settlements will discharge approximately $8.5 to $10 million of debt.
14
<PAGE>
The Company's tangible fixed assets increased to approximately $7.08 million as
of September 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 nine months ended September 30,
2000 were $1,671,345 and $3,935,977. Net losses for the three and nine month
ended September 30, 1999 were $1,366,088 and $3,483,339.
Amortization and depreciation totaled for the three and nine months ended
September 30, 2000 were approximately $597,692 and $1,769,181. Amortization and
depreciation totaled the three and nine month ended September 30, 1999, were
$397,515 and $903,170.
PART II. OTHER INFORMATION: MATERIAL CONTRACTS
----------------------------------------
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 execution 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 claimed to centralize electronic communication by streamlining
points of contact.
The Company had previously entered into a co-development agreement with DEI to
assist in developing The Message Pilot. Pursuant to this agreement the Mr.
Stevens infused cash and software development time to develop Message Pilot.
However, on August 19, 2000, the President of DEI, Ken Heffner informed the
Company that they were amending the platform of Message Pilot to suit another
vendor and that that vendor would receive Message Pilot prior to the
availability to GTMI. This event caused Management to suspend funding and
assistance to DEI. The Company will seek legal remedies to recover the funds and
expenses already invested.
On September 25th, 2000 BTC-AUS signed a 3-year memorandum of understanding with
Ericsson to continue to develop e-commerce and billing software development.
The memorandum includes joint-ownership of products and software developed under
this relationship. Ericsson has agreed to co-develop an enhanced billing system
allowing for an expansive range of services, including a universal access system
and unified messaging. The memorandum enhances the long-standing relationship
established between BTC-AUS and Ericsson. Together Ericsson and BTC-AUS will
create the first public access VoIp system in Autralia. Under the memorandum,
Ericsson will be responsible for identifying new markets, develop joint
marketing programs to sell the new service. Ericsson will hold the role of Chief
Technology Partner, system integrator, main contractor and preferred supplier
under this agreement. Ericsson will also provide their line of advanced
unified messaging products to the Company for global distribution.
BTC 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 BTC 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 BTC 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 to qualified B2B and B2C clients identified by Cambridge Marketing.
15
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
See Form 10-KSB/A filed September 30, 2000.
CAM-NET Litigation. On February 20, 1997, a complaint was filed against
--------------------
GTMI 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. As of September 30, 2000,
interest accrued is $89,264. The Company has offered a split payment cash
settlement in this matter.
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.
Subsequent to the shareholders meeting held on October 7, 2000 the company
complied with the agreement by issuing 1,690,331 shares to RBB Bank and 563,443
shares to Khalifa.
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 (No. 97A-36948-3) WilTel seeks recovery
of approximately $9,067,737 plus $4,896,578 in interest. On October 29, 2000,
the Company negotiated and accepted a settlement of the outstanding debt for a
payment of $500,000 on a non-interest bearing promissory note due 60 days from
the date of execution and $2.5 million paid over 2 years commencing 30 days
after the initial payment of $500,000. The Company recorded a total liability
of $11,098,910 on their financial statements relating to this litigation.
Worldcom has agreed to satisfy the litigation in the following manner: a) a
non-interest bearing Promissory Note for $500,000 to be paid in one payment
within 60 days; b) $2,500,000 Promissory Note payable over twenty-four months at
12.5% interest, secured by guarantee selected by Worldcom; c) 2,500,000 common
shares in the form of warrants with a five year $0.01 price option. Final
documentation reflecting this settlement is being prepared at the time and is
expected to be executed on terms outlined here.
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. Former Management failed
to appear at the arbitration and a $2,500,000 judgment was awarded against GTMI
with subsequent interest increasing the award to $3,000,000. On October 4th,
2000 management successfully settled this debt by paying $340,000 to K&S and
issuing 500,000 registered shares of common stock and 350,000 shares of common
restricted rule 144 stock in full and final resolution of this matter.
ITEM 3.
None.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
10. Ericsson Memorandum of Understanding Regarding
Partnerships and Joint-Ownership of Products & Software
17
<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: November 14,2000
/s/ David Tang
-----------------------------------
David Tang, Chief Financial Officer
Date: November 14, 2000
18
<PAGE>
