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 March 31, 1999
( ) 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.)
3490 Piedmont Rd., Suite 600, Atlanta, Georgia 30305
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (404) 233-3277
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 stock, as of the latest practical date 75,000,000 Common Stock as of May
17, 1999
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
Global Telemedia International, Inc.
and Subsidiaries
Quarterly Report on Form 10-QSB
For Quarter Ended March 31, 1999
INDEX
Consolidated Balance Sheet as of March 31, 1999 ....................... 1
Consolidated Income Statements for the Three
Months ended March 31, 1999 and March 31, 1998 ................... 2
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1999 and March 31, 1998 .................... 3
Consolidated Statements of Shareholders' Equity for the
Three Months ended March 31, 1999 ................................. 4
Notes to Consolidated Financial Statements ............................. 5
Part I - Item 2. Management's Discussion and Analysis of Financial
Condition, Liquidity and Capital Resources, and
Results of Operations ........................................ 12
Part II - Item 1. Legal Proceedings..................................... 15
Part II - Item 4. Submission of Matters to a Vote of Security Holders... 18
Part II - Item 6. Exhibits.............................................. 18
Signatures.............................................................. 19
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
March 31, 1999
--------------
ASSETS
------
Current Assets
Accounts receivable, net of Allowance of $7,039,478 $ 34,978
Other current assets 445,022
-------------
Total Current Assets 480,000
Property and equipment, net of accumulated depreciation of $44,825 28,844
-------------
28,844
-------------
Total Assets $ 508,844
=============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
-----------------------------------------------
Current Liabilities
Overdraft $ 98,620
Accounts payable 12,827,462
Accrued expenses 1,200,393
Current portion of Capital Lease Obligation 12,790
Long-Term Capital Lease Obligation, net of current portion 16,310
-------------
Total Liabilities 19,406,074
Stockholders' Equity Deficiency
Common stock, $.004 par value, authorized 75,000,000 shares; 175,089
issued and outstanding 37,086,965
Additional paid-in capital 8,550,690
Accumulated deficit (27,623,009)
-------------
Total Stockholders' Equity Deficiency (18,897,230)
-------------
Total Liability and Stockholders' Equity Deficiency $ 508,844
=============
The accompanying notes are an integral part of these consolidated financial statements.
1
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Income Statement
(Unaudited)
Three Months ended
March 31
1999 1998
---- ----
TOTAL REVENUES: $ - $ 4,279
---------- --------------
OPERATING EXPENSES:
Communication and Marketing Services - 5,395
Selling, General and Administrative 471,798 626,857
---------- --------------
Total Operating Expenses 471,798 632,252
---------- --------------
1,259,109
--------------
Operating (Loss) (471,798) (627,973)
---------- --------------
OTHER INCOME (EXPENSES):
Interest Expense (62,747) (49,586)
Other Income (Note 5) - 10,000
---------- --------------
NET LOSS $ (534,545) $ (667,559)
========== ==============
NET LOSS PER SHARE $ (0.01) $ 0.03
========== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 44,079,184 24,262,338
========== ==============
The accompanying notes are an integral part of these consolidated financial statements.
2
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended
March 31
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (534,545) $ (667,559)
---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,695 222,683
Bad Debt 5,000
Stock issued for services 39,000 642,015
Changes in assets and liabilities:
Loss on sale of equipment
Decrease (increase) in:
Receivables (30,000) (40,000)
Other current assets (1,850)
Increase (decrease) in:
Notes payable (850,000)
Accounts payable and accrued expenses 396,189 (141,009)
---------- ---------
Total adjustments (436,115) 681,839
----------- ---------
Net cash used by operating activities (970,660) 14,280
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment - -
Acquisition of property and equipment - -
- -
Net cash used in investing activities - -
- -
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable - (13,000)
Shares issued in settlement of liabilities 916,160 31,539
Increase in stock subscription receivable - (209,889)
Proceeds from issuance of common stock 54,500 242,500
---------- ---------
Net Cash Provided by Financing Activities 970,660 51,150
---------- ---------
Net Increase in Cash (0) 65,430
Cash at Beginning of Period - -
- -
Cash at End of Period $ - $ 65,430
---------- ---------
The accompanying notes are an integral part of these consolidated financial
statements
3
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
Global Telemedia International, Inc.
and Subsidiaries
Consolidated Statement of Shareholders' Equity
March 31, 1999
(Unaudited)
Additional Total
Common Stock Issued Paid-in Shareholders'
Shares Par Value Capital Deficit Equity
---------------------------------------------------------------------------------------
Balance, December 31, 1998 41,792,740 $ 160,641 $ 7,555,478 $ (27,088,464) $ (19,372,345)
Shares Issued to Consultants 268,168 1,073 37,927 - 39,000
Sale of Stock 533,333 2,133 52,367 - 54,500
Conversion of Note Payable 2,810,620 11,242 904,918 - 916,160
Net Loss - - - (534,547) (534,547)
---------------------------------------------------------------------------------------
Balance, March 31, 1999 45,404,861 $ 175,089 $ 8,550,690 $ (27,623,011) $ (18,897,232)
=======================================================================================
The accompanying notes are an integral part of these consolidated financial statements
4
Global Telemedia International, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
as of March 31, 1999
(Unaudited)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries, as well as less than majority owned entity which
it controls. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Property 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, and
five years for computer equipment. 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.
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.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that effect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Significant estimates in the financial statements include the assumption the
Company will continue as a going concern. The assumption could change in the
near term.
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.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X promulgated by the Securities and Exchange Commission. Such
financial statements do not include all disclosures required by
5
generally accepted accounting principles for annual financial statement
reporting purposes. 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, 1997, 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, 1997 and
December 31, 1998. 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.
The periods presented are the three months ended March 31, 1999 and 1998,
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.
2. Notes Payable
Notes payable consist of the following at March 31, 1999
Current:
Various demand notes, interest rates 7% -12%............... $ 584,500
Floating rate convertible debentures, due August 15, 1998.. 4,416,000
Floating rate notes, due on demand......................... 250,000
----------
$5,250,500
==========
3. Fair Value of Financial Instruments
Significant financial instruments consist of accounts payable, notes payable, or
accrued expenses that are either demand or due through 1999. The Company does
not currently have the funds required to settle these amounts. As a result, the
Company is unable to estimate the timing and ultimate form of the settlement of
these liabilities. It believes that if the current holders were to sell such
instruments to other parties, the sales price would be substantially less than
the carrying value.
4. Commitments and Litigation
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
Walsh Litigation. See Form 10-KSB filed April 15, 1999 for a complete discussion
- ----------------
of this matter. The Company proposed a settlement to the plaintiff. As of July
7, 1998, the Company entered into a settlement agreement for $120,000 payable in
6 equal monthly installments beginning July 7, 1998. The August payment was due
and payable by August 13, 1998. The failure to make this payment resulted in a
$330,000 judgement, and delivery by the escrow agent of 250,000 shares of GTMI
common stock, as security for the judgement, in accordance with the consent
order.
As of May 19, 1999, the Company entered into a settlement agreement for
$270,833.29 payable in 13 equal monthly installments beginning May 27, 1999, and
the first day of each month thereafter beginning June 1, 1999.
6
CAM-NET Litigation. On February 20, 1997, a complaint was filed by CAM-NET
- ------------------
Communications Network, Inc. ("CN") in federal court for the Northern District
of Georgia, (197-CV-0448). The complaint sought recovery on two promissory
notes in the total principal amount of $250,000, together with interest thereon
to February 17, 1997 of $21,071.70, additional interest to date of payment,
attorney's fees, costs and expenses.
Although the Company was successful in reaching a compromise settlement of this
action, its inability to make payment of the settlement amount in January 1998
resulted in a summary judgement against the Company for $250,000.
RBB/Khalifa Litigation. See Form 10-KSB filed April 15, 1999 for a complete
- ----------------------
discussion of this matter. On July 29, 1998, the court affirmed its November 20,
1997 order that the Company issue 2,496,761 shares of stock to the plaintiffs.
The Company has instructed the transfer agent to issue the shares and the
transfer agent has issued the shares. The terms of the convertible debentures
provide that as of August 15, 1998, the balance of the notes automatically
convert, including accrued and unpaid interest, into approximately 13.6 million
shares of common stock,. However, the litigation continues in progress and the
issues related to the automatic conversion of the convertible debentures and
other claims for damages remain the subject of the litigation.
Trident Litigation. See Form 10-KSB filed April 15, 1999 for a complete
- ------------------
discussion of this matter. As of March 1, 1999, the Company has entered into
discussions with Trident in an effort to settle the litigation. No assurances
can given at this time that any settlement will be reached. Discovery in this
case is proceeding.
WorldCom Litigation. See Form 10-KSB filed April 15, 1999 for a complete
- -------------------
discussion of this matter. Trial on the merits of this case has been postponed
and not yet rescheduled. The Company has proposed a settlement of all issues
remaining in this case.
On February 5, 1999, the Company entered into a mediation with the intent to
settle all the issues. The Company has proposed a settlement of all issues
remaining in this case. Trial on the merits of this case has been postponed and
not yet rescheduled.
Southern Signatures Litigation. There have been no new developments in this
- ------------------------------
matter since the Company filed its Form 10-KSB on April 15, 1999, which
contains a complete discussion of this matter.
The Creative Network, Inc. Litigation. On February 27, 1998, a complaint was
- -------------------------------------
filed against the Company by The Creative Network, Inc. ("Creative") in the
State Court of Dekalb County, Georgia (Civil Action No. 98A4211-1), alleging
that certain monies are owed on account, being the amount of $61,561.47. The
Company filed an answer to this complaint on March 26, 1998, and filed its first
responses to the plaintiff's first discovery requests on April 9, 1998.
Creative has filed a motion for summary judgement which has been granted for the
amount of $61,541 plus interest.
Metropolitan Fiber Systems Litigation. Metropolitan filed a complaint claiming
- -------------------------------------
the principal sum of $88,547.16 on June 11, 1998 in the State Court of DeKalb
County under Case No. 98A45706-5. The Company submitted an answer to the
complaint on August 17, 1998. The matter has been set down on the April 6, 1999
trial calendar. There is a motion to compel further and better responses to
plaintiff's discovery pending a settlement proposal which has been
7
communicated to Plaintiff's attorneys and a response is awaited. The amount
offered in settlement is $10,000.00.
K&S International Communications, Ltd. Arbitration The Company is involved in
- --------------------------------------------------
an arbitration proceeding with Extelcom Corporation (a/k/a K&S International
Communications, Ltd."K&S") with respect to a former agreement under which each
party was to provide services to the other. The Company believed that
Extelcom's claims were without substantial merit. Based upon a technical
default, an award was entered against the Company in May 1998 for $2.5 million.
While the Company was prepared to petition the court in Miami Florida to vacate
the award based on the grounds that it was erroneously entered, management
believed that the award might not be overturned. Therefore, on April 1, 1999,
the Company entered into a settlement agreement with K&S for $325,000, to be
paid in 13 installments of $25,000, beginning May 1, 1999, with a thirty day
grace period. If these payments are not promptly made, the $2.5 million Final
Judgement will be entered.
Freed & Berman, P.C., Litigation. Freed & Berman filed a complaint claiming
- ---------------------------------
the sum of $37,562.91 on April 9, 1998 in the Superior Court of Fulton County
under Case No. E-61447. The Company entered into a Consent Order on July 23.
Consequently, the Company is making $5,000.00 semi-monthly installments. The
Company has paid $10,000.00 thus far.
Silfen, Segal, Fryer & Shuster, P.C. Litigation. The Plaintiff, a professional
- -----------------------------------------------
corporation, filed a complaint claiming the sum of $4,826.13 on July 29, 1998 in
the State Court of Fulton County, under case no. 98VS1427874. The Plaintiff
entered a consent judgement in the amount of $5,052.70, on March 2, 1999.
Programs Abroad-Travel Alternatives, Inc Litigation. The Plaintiff has filed a
- ---------------------------------------------------
complaint against the company and others in State Court of Fulton County,
Georgia on October 2, 1998 (Civil Action No 98VS145081F) claiming damages in the
amount of $18,749.00. The Company submitted an answer to the complaint on
November 9, 1998.
BT Office Products International Litigation. The Plaintiff has filed a complaint
- -------------------------------------------
against the company in State Court of DeKalb County, Georgia on September 8,
1998 (Civil Action No 98A48500-2) alleging that certain monies are owed on
account, being the amount of $2,722.78 plus interest. The Company filed an
answer on October 26, 1998. Plaintiff's attorneys applied for a consent
judgement on March 5, 1999 in the principal amount plus interest.
Boone Electric Litigation. The Plaintiff has filed a complaint against the
- -------------------------
company and others in State Court of Fulton County, Georgia on May 16, 1998
(Civil Action No 98V5140008C) alleging that certain monies are owed for services
rendered and goods supplied in the amount of $1,454.00. The Company filed an
answer on June 29, 1998. This matter has been set down on the March 29, 1999
calendar call. No further information on this matter is yet available.
Thomason Printing Company, Inc. Litigation. Judgement was granted against the
- ------------------------------------------
Company on February 24, 1998, in the amount of $5,053.00 by the Fulton County
Magistrate Court (Civil Action File No. 97M50060655). The Company has been
served with post-judgement discovery.
8
ESKCO, INC. Litigation. Judgement was granted against the in the amount of
- ----------------------
$10,000.00 by the State Court of Fulton County (Civil Action File No. 98-VS-
142534D). The Company has been served with post-judgement discovery.
Boise Cascade Office Products, Inc. Litigation. Judgement was granted against
- ----------------------------------------------
the Company during February, 1999, in the amount of $4,360.59 by the State Court
of Dekalb County (Civil Action File No. 98-A-46730-4).
Absolute Packaging Needs Litigation. The Plaintiff has filed a complaint
- ------------------------------------
against the Company on January 13, 1999, in the amount of $2,624.32 in the
Magistrate Court of Dekalb County (Civil Action File No. 99M065249). Judgement
has been granted against the Company.
Xpresso Internet Group Litigation. The Plaintiff has filed a complaint against
- ---------------------------------
the Company on June 5, 1998 in the amount of $2,450.00 in the District Court,
State of Rhode Island, Newport, (civil action file no. 98-470)
Lindsey, Bradley & maloy Litigation. Judgement was granted against the Company
- -----------------------------------
on October 12, 1998 in the amount of $34,568.59 by the Circuit Court for
Hamilton County, Tennessee (civil action 98C1263) and domesticated in Georgia on
December 6, 1998.
See Form 10-KSB filed April 15, 1999.
9
5. Subsequent Events
Bentley House Furniture Company Acquisition. On February 2, 1999, announced
- -------------------------------------------
today that it has entered into a preliminary agreement to acquire Bentley House
Furniture Company ("BHFC"), a Philippine holding company with interests in:
telecommunications; agricultural; mining; timber export; and furniture
manufacturing. BHFC has net assets in excess of US$120,000,000. The company is
making those assets available for the purpose of establishing the credit
facilities necessary for the combined companies to realize their new joint
business plan.
BHFC has existing facilities for the milling and finishing of raw timber as well
as a "state of the art" furniture facility, designed and financed with the
assistance of Sumitomo Corporation, with whom BHFC has an international
agreement. This factory is believed by the management of BHFC to be one of the
largest and most modern furniture factories in the Philippines. BHFC equipment
includes BACCI Italian shaping machines; high frequency microwave wood bending
machines and Italian automated heated spray booths. The factory has a certified
output capacity of 10, 000 finished pieces per month. The company utilizes
mahogany, teak and other hardwood timber from its plantations to supply hotels
and resorts under construction with timber and interior furniture.
The combined company plans to form The Mindanao Telecommunications Company for
the purpose of providing voice, data and video services, both conventionally and
via the internet, to the major island of Mindanao, population in excess of
16,000,000. The exact time for the introduction of such service has not been
disclosed.
On March 29, the company closed its reverse merger with the delivery of 99.8% of
Bentley House Furniture Company stock to the escrow attorney. GTMI has developed
a schedule of resolutions for its present outstanding debts and lawsuits in
anticipation of breaking escrow. Following breaking escrow, the name of the
corporation will be changed to "Bentley House International Group and there will
be requested a change in its symbol to "BHIG"
UltraPulse Acquisition. On May 11, 1998, the Company entered into a letter of
- ----------------------
intent with UltraPulse Communications Incorporated ("UCI") under which the
Company will acquire 51% of the outstanding equity securities of UCI. UCI is a
privately held company that holds exclusive license, from its principal
shareholder, Terence W. Barrett, Ph.D., for the development, production and
marketing of wireless communications products using a new form of ultrafast,
extremely high data rate technology that will permit, among other things, the
following: 1) Wireless data rates in excess of 155 megabytes per second without
compression; 2) the linkage of office, educational and medical complex buildings
with affordable wireless systems comparable to current high data rate fiber-
optic ATM or STM technology; 3) reliable WAN, LAN and PBX communications which
are minimally effected by building structures and can operate at rates greater
than 10 megabytes per second; and 4) size, weight, power and cost advantageous
superior to competing technologies.
The letter of Intent provides that the Company will provide financing to UCI in
the amount of $10 million under a schedule to be determined in the final
agreement. The agreement will be subject to due diligence by both parties and
the execution of the final agreement. As part of the agreement, the Company
will have a five-year option to acquire an additional 49% of the outstanding
equity of UCI.
10
CyberAir Communications, Inc. The company entered into an agreement to act as
- -----------------------------
the primary marketing arm of CyberAir Communications, Inc. ("Cyber"). Cyber is
engaged in deploying an international network through a series of favorable
contracts and alliances with various government agencies and global
telecommunication companies. In the first stage, the company is scheduled to
market U.S. origination of both voice and data long distance to Mexico, China,
India and Pakistan. Cyber will be adding additional countries as contracts are
finalized.
Under an initial contract, beginning June 1999, GTMI will sell CyberAir traffic,
originating in the U.S. and terminating in Mexico.
Utility Communications, Inc. The company also entered into a license agreement
- ---------------------------
with Utility Communications, Inc., for its proprietary wireless technology. In
order to facilitate this technology, it is necessary to deploy a set-top box to
compliment the subscriber's television set. The company will need to capitalize
the completion of the set-top box customization as well as inventory and
marketing expenses. This product is dependent on the company's ability to raise
the necessary capital.
11
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.
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, equity
funding, and cash flow generated from operations to support capital expenditures
and possible future acquisitions. The Company intends to be an acquirer of 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 months ended March 31, 1999 and 1998
Operating (loss)
Revenues for the three months ended March 31, 1999 and March 31, 1998 were
insignificant. The revenue decreases were primarily associated with decreased
levels of operations in the wholesale carrier business and the suspension of the
operations of the Company's Vision 21, Inc. subsidiary. The Company has decided
to concentrate its efforts on the three components of its wholesale operations,
the Telecommunications, Carrier Sales and Satellite Services businesses. The
Company currently has no revenues from any of these three businesses.
As of March 31, 1999, no revenues were being generated from the wholesale
carrier business. The Company is in the process of implementing third party
strategic relationships necessary to facilitate traffic under expected revenue
contracts. See footnote 5 to financial statements - Subsequent Events. There
can be no assurance that the Company will be successful in generating revenues.
12
General and administrative costs for the three months ended March 31, 1999 and
March 31, 1998 were approximately $472,000 and $627,000 respectively. The
entire decrease during these periods of 1999 resulted from the Company's
decision to scale back its operations until meaningful revenue contracts can be
signed and implemented.
The Company has also experienced unusually high levels of consulting and legal
expenses associated with financing matters and ongoing litigation. The Company
does not anticipate incremental increases in general and administrative costs in
conjunction with anticipated future revenue growth.
Net loss from operations for the three months ended March 31, 1999 and March 31,
1998 were approximately $535,000 and $668,000 respectively. The entire decrease
during these periods of 1999 resulted from the Company's operational scaleback
in the current year.
Other income (expenses)
Interest expense for the three months ended March 31, 1999 and March 31, 1998
was approximately $63,000 and $50,000 respectively. The decrease was due to the
elimination of high cost short-term notes payable and the mortgage note on the
Company's prior building. The Company will continue to explore the most
effective utilization of financial leverage as well as alternative means of
raising additional capital to enhance long-term growth and maximize shareholder
value.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overdraft position increased to $98,620 at March 31, 1999 from an
overdraft position at December 31, 1998. Principal sources of funds during the
three months ended March 31, 1999 consisted of (i) proceeds from the issuance of
common stock ($54,500). The proceeds received from the sale of shares involved
private negotiated transactions at prices ranging from $.09 to $.20 per share.
The funds received to date have been used for working capital purposes. The
primary use of funds during the three months ended March 31, 1999 consisted of
operating activities.
As of March 31, 1999, the Company had convertible debentures payable totaling
$4,416,000, accrued but unpaid expenses totaling $1,200,393, and accounts
payable totaling $12,827,462. The terms of the convertible debentures provide
that as of August 15, 1998, the convertible debentures automatically convert,
including accrued and unpaid interest, into approximately 13.6 million shares
of common stock, in accordance with the terms of the convertible debentures.
However, the convertible debentures are the subject of litigation currently in
process, and the issues related to the automatic conversion of the convertible
debentures and other claims for damages remains the subject of the litigation.
The increase in accounts payable and accrued expenses resulted substantially
from the Company's unpaid obligations for operating expenses.
The Company has historically financed its operations principally through the
sale of equity and debt securities and through funds provided by operating
activities.
The successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's corporate
infrastructure. Management believes that the Company can sustain operations only
by
13
the infusion of substantial amounts of financing. Inability to obtain such
financing could force the Company to cease all business operations. There can be
no assurances that such financing can be completed on terms favorable to the
Company or at all, or that the Company will ever achieve profitable operations
or be able to continue in business.
In the Company's 10-KSB filing on April 15, 1999, the Company's auditors
included an explanatory paragraph in their Report of Independent Certified
Public Accountants to the effect that recovery of the Company's assets are
dependent upon future events, the outcome of which is indeterminable, and that
the successful completion of the Company's development program and its
transition, ultimately, to the attainment of profitable operations is dependent
upon obtaining adequate financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost corporate
infrastructure. There can be no assurances that such financing can be
completed on terms favorable to the Company or at all, or that the Company will
ever achieve profitable operations.
YEAR 2000 COMPLIANCE
The Company's administrative operations have been reviewed for Year 2000
Compliance. Normal upgrades will result in essential operations being Year 2000
compliant. Some remaining operations, such as non-essential personal computers
and non-financial software products, can be easily upgraded at nominal cost and
inconvenience. The Company has consulted an external consultant with respect to
the Company's internal accounting software system, and has been advised that the
cost of upgrading to a Year 2000 compliant system will be less than $500.
14
Part II. Other Information
Item 1. Legal Proceedings
See Form 10-KSB filed April 15, 1999
The Company has employment agreements with certain officers and key employees,
which expire at various times through 2007.
Walsh Litigation. See Form 10-KSB filed April 15, 1999 for a complete discussion
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of this matter. The Company proposed a settlement to the plaintiff. As of July
7, 1998, the Company entered into a settlement agreement for $120,000 payable in
6 equal monthly installments beginning July 7, 1998. The August payment was due
and payable by August 13, 1998. The failure to make this payment resulted in a
$330,000 judgement, and delivery by the escrow agent of 250,000 shares of GTMI
common stock, as security for the judgement, in accordance with the consent
order.
As of May 19, 1999, the Company entered into a settlement agreement for
$270,833.29 payable in 13 equal monthly installments beginning May 27, 1999, and
the first day of each month thereafter beginning June 1, 1999.
CAM-NET Litigation. On February 20, 1997, a complaint was filed by CAM-NET
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Communications Network, Inc. ("CN") in federal court for the Northern District
of Georgia, (197-CV-0448). The complaint sought recovery on two promissory
notes in the total principal amount of $250,000, together with interest thereon
to February 17, 1997 of $21,071.70, additional interest to date of payment,
attorney's fees, costs and expenses.
Although the Company was successful in reaching a compromise settlement of this
action, its inability to make payment of the settlement amount in January 1998
resulted in a summary judgement against the Company for $250,000.
RBB/Khalifa Litigation. See Form 10-KSB filed April 15, 1999 for a complete
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discussion of this matter. On July 29, 1998, the court affirmed its November 20,
1997 order that the Company issue 2,496,761 shares of stock to the plaintiffs.
The Company has instructed the transfer agent to issue the shares and the
transfer agent has issued the shares. The terms of the convertible debentures
provide that as of August 15, 1998, the balance of the notes automatically
convert, including accrued and unpaid interest, into approximately 13.6 million
shares of common stock,. However, the litigation continues in progress and the
issues related to the automatic conversion of the convertible debentures and
other claims for damages remain the subject of the litigation.
Trident Litigation. See Form 10-KSB filed April 15, 1999 for a complete
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discussion of this matter. As of March 1, 1999, the Company has entered into
discussions with Trident in an effort to settle the litigation. No assurances
can given at this time that any settlement will be reached. Discovery in this
case is proceeding.
WorldCom Litigation. See Form 10-KSB filed April 15, 1999 for a complete
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discussion of this matter. Trial on the merits of this case has been postponed
and not yet rescheduled. The Company has proposed a settlement of all issues
remaining in this case.
15
On February 5, 1999, the Company entered into a mediation with the intent to
settle all the issues. The Company has proposed a settlement of all issues
remaining in this case. Trial on the merits of this case has been postponed and
not yet rescheduled.
Southern Signatures Litigation. There have been no new developments in this
- ------------------------------
matter since the Company filed its Form 10-KSB on April 15, 1999, which
contains a complete discussion of this matter.
The Creative Network, Inc. Litigation. On February 27, 1998, a complaint was
- -------------------------------------
filed against the Company by The Creative Network, Inc. ("Creative") in the
State Court of Dekalb County, Georgia (Civil Action No. 98A4211-1), alleging
that certain monies are owed on account, being the amount of $61,561.47. The
Company filed an answer to this complaint on March 26, 1998, and filed its first
responses to the plaintiff's first discovery requests on April 9, 1998.
Creative has filed a motion for summary judgement which has been granted for the
amount of $61,541 plus interest.
Metropolitan Fiber Systems Litigation. Metropolitan filed a complaint claiming
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the principal sum of $88,547.16 on June 11, 1998 in the State Court of DeKalb
County under Case No. 98A45706-5. The Company submitted an answer to the
complaint on August 17, 1998. The matter has been set down on the April 6, 1999
trial calendar. There is a motion to compel further and better responses to
plaintiff's discovery pending a settlement proposal which has been communicated
to Plaintiff's attorneys and a response is awaited. The amount offered in
settlement is $10,000.00.
K&S International Communications, Ltd. Arbitration The Company is involved in
- --------------------------------------------------
an arbitration proceeding with Extelcom Corporation (a/k/a K&S International
Communications, Ltd."K&S") with respect to a former agreement under which each
party was to provide services to the other. The Company believed that
Extelcom's claims were without substantial merit. Based upon a technical
default, an award was entered against the Company in May 1998 for $2.5 million.
While the Company was prepared to petition the court in Miami Florida to vacate
the award based on the grounds that it was erroneously entered, management
believed that the award might not be overturned. Therefore, on April 1, 1999,
the Company entered into a settlement agreement with K&S for $325,000, to be
paid in 13 installments of $25,000, beginning May 1, 1999, with a thirty day
grace period. If these payments are not promptly made, the $2.5 million Final
Judgement will be entered.
Freed & Berman, P.C., Litigation. Freed & Berman filed a complaint claiming
- ---------------------------------
the sum of $37,562.91 on April 9, 1998 in the Superior Court of Fulton County
under Case No. E-61447. The Company entered into a Consent Order on July 23.
Consequently, the Company is making $5,000.00 semi-monthly installments. The
Company has paid $10,000.00 thus far.
Silfen, Segal, Fryer & Shuster, P.C. Litigation. The Plaintiff, a professional
- -----------------------------------------------
corporation, filed a complaint claiming the sum of $4,826.13 on July 29, 1998 in
the State Court of Fulton County, under case no. 98VS1427874. The Plaintiff
entered a consent judgement in the amount of $5,052.70, on March 2, 1999.
Programs Abroad-Travel Alternatives, Inc Litigation. The Plaintiff has filed a
- ---------------------------------------------------
complaint against the company and others in State Court of Fulton County,
Georgia on October 2, 1998 (Civil Action No 98VS145081F) claiming damages in the
amount of $18,749.00. The Company submitted an answer to the complaint on
November 9, 1998.
16
BT Office Products International Litigation. The Plaintiff has filed a complaint
- -------------------------------------------
against the company in State Court of DeKalb County, Georgia on September 8,
1998 (Civil Action No 98A48500-2) alleging that certain monies are owed on
account, being the amount of $2,722.78 plus interest. The Company filed an
answer on October 26, 1998. Plaintiff's attorneys applied for a consent
judgement on March 5, 1999 in the principal amount plus interest.
Boone Electric Litigation. The Plaintiff has filed a complaint against the
- -------------------------
company and others in State Court of Fulton County, Georgia on May 16, 1998
(Civil Action No 98V5140008C) alleging that certain monies are owed for services
rendered and goods supplied in the amount of $1,454.00. The Company filed an
answer on June 29, 1998. This matter has been set down on the March 29, 1999
calendar call. No further information on this matter is yet available.
Thomason Printing Company, Inc. Litigation. Judgement was granted against the
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Company on February 24, 1998, in the amount of $5,053.00 by the Fulton County
Magistrate Court (Civil Action File No. 97M50060655). The Company has been
served with post-judgement discovery.
ESKCO, INC. Litigation. Judgement was granted against the in the amount of
- ----------------------
$10,000.00 by the State Court of Fulton County (Civil Action File No. 98-VS-
142534D). The Company has been served with post-judgement discovery.
Boise Cascade Office Products, Inc. Litigation. Judgement was granted against
- ----------------------------------------------
the Company during February, 1999, in the amount of $4,360.59 by the State Court
of Dekalb County (Civil Action File No. 98-A-46730-4).
Absolute Packaging Needs Litigation. The Plaintiff has filed a complaint
- ------------------------------------
against the Company on January 13, 1999, in the amount of $2,624.32 in the
Magistrate Court of Dekalb County (Civil Action File No. 99M065249). Judgement
has been granted against the Company.
Xpresso Internet Group Litigation. The Plaintiff has filed a complaint against
- ---------------------------------
the Company on June 5, 1998 in the amount of $2,450.00 in the District Court,
State of Rhode Island, Newport, (civil action file no. 98-470)
Lindsey, Bradley & maloy Litigation. Judgement was granted against the Company
- -----------------------------------
on October 12, 1998 in the amount of $34,568.59 by the Circuit Court for
Hamilton County, Tennessee (civil action 98C1263) and domesticated in Georgia on
December 6, 1998.
17
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit 27 - Financial Data Schedule
18
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
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Jonathon Bentley-Stevens, CEO
Date: May 20, 1999
------
/s/ Herbert S. Perman
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Herbert S. Perman, Chief Financial Officer
Date: May 20, 1999
------
19