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First Coffee - The Saga Of GlobeTel's VoIP and WiMAX Russian Dreams
By David Sims
david@firstcoffee.biz
The news as of the first coffee this morning, and the music is Ol� Blue Eyes�s �I Got It Bad And That Ain�t Good:�
First CoffeeSM loves pouring gasoline on fires as much as the next excitement-addicted journalist, so would like to report that GlobeTel Communications is officially stating today that in accordance with the obligations placed on all Amex-listed companies under Rule 401(c) of the Rules of the American Stock Exchange yada yada yada, GlobeTel Communications Corp. �would like to state in the strongest terms that the statements and implications made by Mr. Seth Jayson in his Motley Fool article dated January 23rd, 2006, are entirely without substance and are misleading.�
Take that, you Fool. �The company rejects his attempts at guilt by association regarding persons and actions that predate any GlobeTel involvement with Advantage Telecom,� the statement continues:
�GlobeTel believes his misleading statements result in damaging implications that have the potential to seriously damage both shareholder value and the ability of GTE management to effectively conduct the company�s business.�
Well, what�s this catfight?
Things kicked off when GlobeTel stock shot up 75 percent in a single day in late December after the firm, which describes itself as a �diversified, global telecommunications and financial services company� announced a $600 million �WiMAX wireless network� deal for the �30 largest Russian cities,� Jayson recounts.
GlobeTel CEO Tim Huff predicted at the time that �Russia will, quickly and at a relatively modest cost, have a wireless infrastructure that will rival any in the industrialized world,� according to Red Herring.
Jayson wrote a commentary titled �More Hot Air From GlobeTel� on January 6 at Motley Fool. He started off with �If there�s one thing hotter than solar and/or fuel-cell-powered, blimp-borne Internet communications, it�s gotta be Russian WiMAX. At least that�s what the folks at GlobeTel would like you to believe.�
But, Jayson reminded readers, �last summer, GlobeTel announced a deal to put Internet blimps over Colombia,� as well as announcing �turnkey VoIP products,� deals for wireless networks in China, Japan, and Germany, and �many other projects that so far seem to have produced nothing more than penny-stock froth.�
Jayson�s advice for those thinking of investing in GlobeTel? �Hide that wallet.� It gets 100 percent of its revenue �from the dirty old phone biz,� Jayson says, pointing out that even there, �its margins are zero (when they�re not negative) right after the cost of goods sold. And it only loses more money as you move down the income statement.�
�According to the information I�ve got from Capital IQ, GlobeTel has lost a grand total of $43.9 million since 2000, and it�s also running cash-flow negative. It survives on loans and stock sales,� he says. Perish its dreams of being the Cisco or Nokia for VoIP.
So �until there�s some real information that makes this announcement look the least bit likely, investors should assume that this deal, like the blimp announcements, is nothing but hot air,� he concludes.
Let�s recap:
After the Russian WiMax announcement, which was �reported� in the American media pretty much as regurgitated GlobeTel press releases, on January 18th GlobeTel, calling itself a �telecom and financial services company,� announced the would sell �its holdings of Consolidated Global Investments Ltd., an Australian company, back to CGI.,� but that �all divisions are �moving ahead as planned,� according to the Associated Press: GlobeTel would �return all its shares and options in CGI and retain a $1.4 million deposit that was held for that company.�
GlobeTel got a 70 percent stake in CGI to try to get a foot in the Asian telecommunications market with a company listed on a foreign exchange, the AP said.
Then on the 23rd Jayson wrote �GlobeTel�s Australian Odyssey.� In it he notes that since his January 6th article, �questioning the reality of the impressive-sounding Russian WiMax deal that catapulted this penny stock onto the hot list at the beginning of the month, GlobeTel has been busy releasing reams of PR, as well as catching up on its regulatory filings.�
Calling GlobeTel �primarily a VoIP telephony provider that, until recently, was most notable for its years of heavy losses,� Jayson said �GlobeTel�s much-hyped foreign operating units, which are always trumpeted with promising PR, not only come under strange circumstances, but they also often do very strange things and meet with very strange ends.�
And after a little digging, Jayson found that according to GlobeTel filings over the past few quarters, �CGI�s only asset of note has been shares of GlobeTel stock. A subsidiary whose biggest asset is stock in its parent company? How does that work?�
Jayson digs more, and finds out that this Australian unit �first appears in the GlobeTel saga under the name Advantage Telecommunications.�
The first reference to ATC/CGI comes in a 2003 10-Q, and �curiously, it doesn�t mention operations of any kind,� Jayson finds: �In that filing, GlobeTel describes a �strategic investment,� a $1.2 million convertible, 12 percent note transaction � though the parties agreed that no interest would be paid, according to later filings.�
The GlobeTel press release on Sept. 22, 2003 was more impressive, claiming that this combination would create �a new force in global telecommunications� and that �ATC had operations in the U.K., Hong Kong, China, Germany, Macau, Vietnam, Sri Lanka, Bangladesh, Mauritius, Cambodia, Indonesia, Pakistan, and Taiwan,� estimating the �replacement value� of ATC�s network at $30 million and �claimed that ATC had revenues of $10 million from 2001 to 2003, ramping at a 500% clip.�
This at a time, Jayson says, in 2002 and 2003, when GlobeTel itself had annual revenues of about $11 million.
As Jayson finds, until 2002 ATC was, according to the Australian Securities and Investments Commission�s records, a publicly traded firm called �Nugold Hill Mining� Nugold/ATC/CGI was the key character in what some in the Australian press called one of the biggest embezzlements and securities frauds in Australian history.�
�Remember, GlobeTel got into the ATC venture in September of 2003,� Jayson says, pointing out that the embezzler went to the Australian cops to confess back in September of 2002.
In GlobeTel�s 2003 10-K the claims about ATC had been altered to read ATC �had operations in England and Hong Kong and had points of presence in over 15 countries.� Little different from the first claim of going operations in all those countries.
In GlobeTel�s August 2004 Q2 statement they finally admitted that ATC/CGI had no operating activities. No 500 percent growth claimed in the press release only 11 months ago, no $30 million network, no real assets, that is, other than� GlobeTel stock.
And as Jayson clearly shows, in the past few years GlobeTel �had one majority-owned subsidiary arrange to prepay its other, wholly owned, subsidiary for a license for technology that�s still months, if not years, from being proved feasible, using money it obtained by trading in the parent company�s stock, which was inflated following heavy PR regarding that same blimp technology. And now, GlobeTel is waving goodbye to that subsidiary and keeping the cash.�
Reread that a couple times, read all of Jayson�s investigations before whipping out your wallet to invest in GlobeTel�s Russo-Luxembourg venture, and you�ll understand why GlobeTel�s denouncement of Jayson�s research sounds so forced, vague, perfunctory and so utterly unable to rebut one point of Jayson�s careful, factual analysis.
If read off-site hit http://blog.tmcnet.com/telecom-crm/ for the fully-linked version. First CoffeeSM accepts no sponsored content.
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