INTERIM SUMMARY PROGRESS REPORT: B-TEL

INTERIM SUMMARY PROGRESS REPORT: B-TEL

22 January 2007

The Chairperson

USAASA OPERATIONS COMMITTEE

C/o Senior Manager, Legal and Corporate Affairs,

Everite House, 2^nd Floor

20 De Korte Street

BRAAMFONTEIN, 2017

Attention: Mr. Thupatlase

Re: B-TEL INTERIM SUMMARY PROGRESS REPORT

1. Background

This summary of the Interim Report (1^st July 2006 to 31 December 2006) should be read in conjunction with the Composite Report (1^st March 2005 to 30^th June 2006) submitted to your Board - Operations Committee. It provides a summary report and feedback on the implementation of action items stated in our last report.

2. Purpose

§ To provide business highlights and lowlights for the period between the last report to date;

§ To further appeal for the financial grant for the implementation of the Rollout Plan;

3. Business Highlights

3.1 MVNO Agreement

a) b) Arrangements have been made with Vodacom to review the limitation conditions in the current agreement. Positive response has been received in some aspects that will enable B-Tel to make returns from this agreement, viz.:

§ amendments on Charges;

§ more Incentives and Discounts;

§ workshop on MVNO;

§ training Programmes,

b) Negotiations on High Sites and Facility Leasing are ongoing.

3.2 Telkom SA Ltd.

a) The following contracts were signed with Telkom:

§ the Interconnection Agreement; and

§ the Fixed Link Agreement.

N.B. These Links will be deployed to cover the “less profitable” areas in the North West and South West of the region in order to take advantage of the discounts and cross-subsidise uptake connections: Hoopstad, Hertzogville, Boshof, Wesselsbron and Winburg, Glen, Theunissen, Branford, Soutpan, Dealesville .

b) The B-Tel “BUA CARD”, a “PIN” - Long Distance and International Call Card, is operative at considerable higher discounts negotiated.

c) Negotiations on High Sites and Facility Leasing are ongoing

4. Presentations

a) Presentation to the prospective investors, venture capitalist, commercial banks, government departments (provincial and local) were made in an endeavour to secure new business opportunities in the ASGISA Rollout Programme in Bloemfontein.

b) Presentation to the Lejweleputswa Development Agency Board on:

§ Awareness of B-Tel presence

§ Initiating business opportunities

Responses

§ Fast Communication Systems (Pty) Ltd. proposed an offer for a percentage equity in B-Tel but later aborted the process, Dated, October 2006 to January 2007;

§ VIVA Wireless (Pty) Ltd. / Lutiek Distributors CC. contract for Wholesale Procurements and Distribution of B-Tel Products, at a final stage and await finalisation of contract.

5. Rollout Strategies Plan

a)Technology of Choice

§ board reviewed its preference of technology (CDMA) and opted for the WiFi application;

§ application for the frequency/spectrum ready;

§ application for Signalling Code ready

§ approval for Type of Equipment ready;

b)Network Infrastructure

§ Management is currently finalising the Design of the Network Backbone Infrastructure to provide services to:

o the Connectivity with other Providers (Telkom, Mobiles, VANS, Municipalities’ PTN’s, etc.);

o the Internet Broadband Connectivity with Banks, Corporate Business, SOHO, etc), connecting from Bloemfontein;

o the OSS / BSS;

o the International IP to IP Gateways.

c) Business Opportunities

§ Negotiations are currently on with the new business ventures of millions of rands on Wholesale Resale Procurements of B-Tel Products and NDA’s are signed to conclude the envisaged business transaction;

§ Negotiations are currently on with the “illegal operators” who own High Sites (base stations) for B-Tel to buy such already built infrastructure and deploy network (equipment and technology);

N.B. These High Sites and Tower cover the North Eastern and the South Eastern part of the Region: Bothaville, Odendaalsrus, Welkom & Reebieckstad, Hennenman, Virginia, and Venterberg.

- Still confidential information

§ Negotiations are currently on with the “illegal service providers” in the region who are buying from these “illegal operators” in an attempt to secure buying Bandwidth from B-Tel other than closing them down;

- Still confidential information

§ Quotations for the Equipment needed is available and further RFP’s are being sorted;

§ Revised Tariff Plan is completed and ready for submission for approval, this plan includes both the post-paid and prepaid connections;

§ Geographical Numbering Plan is complete and ready for submission for approval;

d)Human Resource and Systems

§ Technical and Engineering

o Outsourced Contracts of Service Level Agreements are secured for each of these skills.

§ Project Manager and Regulatory Manager

o A contract with a qualified personnel in these fields are secured in-house;

§ Financial and Management Systems

o A contract with a qualified Firm of Accountants called Loannis Eliades Financial Services (Pty) Ltd. is secured to enable and facilitate Financial Reports and Advise Management on:

§ Board approved Budgets and New Ventures;

§ Procurements and Forecasts;

§ Financial Projections based on Contracts;

§ Strategies and Risk & Assets Management;

§ SARS Accounts; and

§ Monthly Reports as well as the enforcement of…

o Policies and Procedures are in place to address issues of Corporate Governance.

e)Reshuffling of Staff to suite the new Rollout Plan is in place.

6. B-Tel Financial Requirements:

§ Switch;

§ Telkom Connectivity Equipment;

§ Wi-Fi Equipment;

§ Payment of Purchase of the Existing Infrastructure;

§ Payment of the Construction and Lease of High Sites and Towers;

§ Buying of the Existing Internet Clientele (Good Will).

Negotiations are in progress and information confidential;

§ Setting up of BSS / OSS Office;

§ Administration Cash Flow.

7. Business Lowlights

a) Low Trading

The following were the causes for low trading:

§ Due Diligence

Mismanagement issues of previous management required current management to review management systems in place in order to ensure compliance with general accepted management norms and corporate governance.

§ Legal issues

A number of legal actions had to be litigated. These included Labour Court, Summons and Judgements.

§ Poor Tariff Plan v/s MVNO

The approved tariff plan had to be reviewed as it was not competitive in the market place. It also failed to address market entry characteristics such as lower pricing and customer incentives. The Tarff Plan did not correlate with the MVNO

§ MVNO

Negotiations around the unfavourable conditions on the MVNO were initiated around June 2006 and we only received response around October 2006. This has impeded on trading which was 60%/40% revenue stream in favour of Vodacom.

§ Spectrum Allocation Delays v/s Technology of Choice

As a result of the first Technology of Choice (CDMA) preference and delays in the allocation of the spectrum, B-Tel had to change strategy and this also impeded on trading.

§ Creditors and Consequences

In view of the preceding point above, B-Tel incurred cumulative costs that could not be serviced, and as the result creditors had to resort to legal action.

With the non payment of staff salaries, some personnel resigned and some got demoralised. These salaries are still outstanding.

In addition to the above, B-Tel offices are closed pending payments.

§ B-Tel Compliance for Second Issue of the Grant

Management has contracted the services of an independent Firm of Accountant, mentioned above, to insure compliance with the Financial Management Systems.

8. Project Implementation Plan

B-Tel Management is confident that, given the summarized Progress Report and Rollout Plan articulated above, these plans will be implemented as follows:

a) Telkom SA Ltd.

§ Fixed Link Agreement will be completed by mid March 2007.

§ Interconnection Agreement will be implemented seven (7) days from the first day of rollout of the Fixed Link Agreement.

b) Infrastructure Backbone Design

§ To completed by end of January 2007 and deployed seven (7) days after ICASA approval targeted for mid March 2007;

§ Purchasing of Equipment and Switch is projected to be fourteen (14) days from date of approval by ICASA;

c) BSS / OSS Office

§ To be completed by mid March 2007

d) Project Launch and Switching

§ The Project is projected for launch on Friday, 30^th March 2007 followed by switching on Monday, 2^nd April 2007.

9. Conclusion

In view of the foregoing and the Report of March 2005 to June 2006, B-Tel Management construes this Report, (dating from July 2006 to December 2006, and the latest information to date), as a Recovery Plan Phase actioning which endeavours to demonstrate B-Tel’s Road Map, implementable in the time frames indicated above.

It should be borne in mind that this Recovery Plan has been drawn from the leadership and the resilience, faith and sacrifices of individuals resourced from Board, Management and General Staff. A full report is due by end April 2007.

The company guarantees the processes of Internal Controls and Recruitment, Development, Retaining of required skill (good appointment) and Compliance with Corporate Governance and compliance with License Conditions.

The Board and Management remain committed to the course and will continue to do so in order to fulfill its Business and Political Mandate. Time, Space and Content presented in this report be is supposed to indicate why B-Tel deserves financial support for another leaf of life.

N.B.: All Information classified as “in progress” and “confidential”, as well as all supportive documents, are available on completion and on demand.

Thank You.

On behalf and for B-Tel Board and Management

Owen Monoang

Executive Chairperson.

15 February 2006

The Secretary

The Portfolio Committee Communications

RSA Parliament

Cape Town

RSA Attn.: Mr. Oliphant

Dear Sir/ Madam

Re.: B-Tel Composite Report March 2005 to January 2007

Further to the USALOF presentation to your honorable Portfolio Committee on Tuesday, 13 February 2007 in Cape Town, herewith is our Report as requested.

We thought to submit same Reports as they are, which are in either in the possession and knowledge of both Stakeholders (and the supporting Documents thereof, where possible), other that reinventing the wheel.

Attached, please find the following attachments: -

1. Board Letter to Stakeholders #;

2. Application for Subsidy and B-Tel Annual Report #;

3. Application Letter for 2^nd Trench of R5m #;

4. Report according USAASA Reporting Standards #;

5. Summary of Progress Report – January 2007 **; and

6. Telkom Letter **.

… # submitted to USAASA and ICASA

… ** submitted to USAASA

Please be pleased to note that albeit these prescribed communiqués to the said Stakeholders, no acknowledgement of receipt or interaction on these were ever called with us.

Please further note that in the report, mention is made on the TAX on Grant that we must pay to SARS amounting to over a million rand.

It is with these grave situations that we request your good office to assist B-Tel and other USALs family to help resolve the impasse with the urgency and expediency in deserves.

I trust that you will find this in order.

Yours Faithfully

Owen Monoang

B-Tel Executive Chairperson

Copied:

1. USAASA Chairperson; Ms Cassandra Gabbriel

2. ICASA Chairperson; Mr. Paris Mashile

Re: Submission of the Annual Report, Application for the Second Trench of the R5 millionAllocated to B-Tel (Bokamoso Consortium), and the Recovery Plan

1. Introduction

B-Tel Telecommunications (Bokamoso Consortium) Board of Directors and B-Tel Management accept accountability for any Material Breaches committed with respect to the License Conditions and the USA Subsidy Agreement Conditions and hereby pray to be pardoned. However, should there be anyone within the Board, Shareholders, Management, etc., found to have benefited and self-enriched himself or herself improperly and illegally, then criminal and/or civil applicable laws should apply.

Our acceptance of accountability and request for pardon therefore, is predicted not on the fact that we are fraudulently and criminally responsible for any deviation from the above obligations, but for reasons beyond our control. The report does however demonstrate that B-Tel did take off in the direction of providing telecommunication services; even though there have been challenges experienced, in this first phase, which indeed has been a learning curve.

This report therefore serves as a Portfolio of Evidence of the challenges facing Bokamoso Consortium Board of Directors and B-Tel Management in particular and the USALs in general.

Bokamoso Consortium Board of Directors’ and B-Tel Managements’ accept ultimate accountability for the current situation. Some of the challenges outlined in this report should have been anticipated, and accordingly institutions, mechanisms, processes and procedures for development, oversight and periodic reviews should have been put in place. Pro-active and affirmative assessment and/or evaluations of the USALs would have allowed the USALs to track, assess, review and rectify their performance. These would have provided the opportunity to recognize the need for tools to structure and deal with the complex reality of organizations and the environment.

Be that as it may, it is reasonable to assume that most problems encountered by Bokamoso Consortium Board of Directors and B-Tel Management are not wholly unique. B-Tel as an organization will obviously grow and develop over time, and that it will face different types of crises which will evolve through different stages, but will more or less develop along predictable lines. This should give all the stakeholders some sense of the types of challenges that may be encountered and the kinds of patterns of causes they may expect.

Hereunder, Bokamoso Consortium Board of Directors and B-Tel Management attempt to present some of the most critical factors that singly or collectively conspired, placed constraints and created demands for Bokamoso Consortium Board of Directors and B-Tel Management in particular, and USALs in general. Most of these critical factors range from leadership behavior to the impact of the environment. Many of these constraints include limitations imposed by scarce capital, inability to acquire skilled human resource, limitations in government regulation, fierce competition in the market, etc.

2. Reasons for Failure to Comply with the Terms and Conditions of the License Agreement (ICASA) and the Subsidy Agreement (USA)

2.1 Ethics and Compliance policies and procedures that enhance the integrity and ethical culture of any Company through incorporating effective governance, compliance, risk management and integrity into all business practices were non existent;

2.2 Failure by the Board to appreciate that Corporate Governance looks at the institutional and policy framework of the Company from its very beginnings in entrepreneurship, through its governance structures, regulatory regime and Company Law. The Board therefore failed to manage, direct and control the Company according to the behests of statute;

2.3 The Board of Directors was dominated by founder members with significant equity ownership, and apparently with little if at all prior work experience serving as Board of Directors. There is evidence of some founder members having significant power, which led them to hold incompatible functions, that is, the Chairperson of the Board and the CEO of the company being the same person;

2.4 Failure by Management to adhere to disciplined and strong entrepreneurial culture and ethical values that takes into account the principles of corporate social responsibility. Both the Board and former Management lacked proper understanding of key business risk responsibility, and as a result they failed to properly address risks by ensuring that internal controls exist and are working to mitigate risks;

2.5 Refusal by the former CEO to cooperate with the Board resulted in him adopting an insubordinate attitude and refused to report to the Board, and had failed to set-up comprehensive incident management tools to address the apparent demands for enhanced governance and the reduction of risks. This raised concerns and called into question his role and credibility, this resulted in his suspension and subsequent 24 hour notice of resignation;

2.6 Pressures of financial strain and distress due to inadequate working capital has contributed in hindering and preventing access to skilled human capital and this may have provided incentives for non compliance;

2.7 A combination of ‘I will not attitude’ and ‘I cannot syndrome’ led the CEO to fail to implement cost-effective internal controls, and the Board failed to challenge Management to ensure that a baseline level of internal controls are present;

2.8 Compliance was hindered substantially by factors such as incompetence, negligence, lack of knowledge on Corporate Governance and lack of cooperation and reporting by Management;

2.9 Some of the causal factors have been unstable shareholding and Directorship environment caused by internal disputes and strife. Several key findings can be generalized from a detailed analysis of this phenomenon, which describes the nature of our internal control environment, issues related to individuals involved and what has finally been the consequences to the Company;

2.10 Failure to resolve differences in a professional and civilized manner. Formation of cliques and cabals, lies and gossip, back mouthing and blackmailing became the central focus of value laden activities while completely loosing grasp of the bigger picture;

2.11 Lack of ownership of infrastructure, spectrum, limited funding, and relying on MVNO contracts, using well advanced Competitor’s infrastructure and the cost of the interconnection regime has exacerbated Bokamoso Consortium’s competitiveness and made it an Agent of those who take advantage of this dispensation to make profits at Bokamoso’s expense;

3. Remedial Action and the Recovery Plan Board and Management is embarking upon

3.1. Sourcing Strategy and Knowledge Management

The Board has been able to acquire a competent regulatory, corporate and human resource person. This function will be designed to fulfill these responsibilities and will, to the extent appropriate, coordinate its activities with all departments that have a bearing on these aspects. The goal being sustained individual and business performance through ongoing learning, unlearning and adaptation. These will be considered along with appropriate retention strategies.

3.2 Corporate Governance and legislation

The USALs Corporate Governance Workshop organized jointly by the DOC, ICASA and the USA on the 23^rd June 2006, has provided an extensive updated analysis of Corporate Governance principles and structures. The workshop was extremely valuable and it has also provided the Board with a baseline from which to compare its practices and implement changes where necessary.

The workshop highlighted those insights and additional perspectives applicable, relevant and has implications for the Board, Management and Audit Committee members; and proved helpful and stimulated greater awareness of opportunities for improvement. This has led to the adoption of ‘Corporate Governance for USALs’ presented in terms of the IDC Corporate Governance requirements, which was presented by Andries Louw from the USA and a consideration of changes that will promote a higher quality of Corporate Governance. It therefore explained and added guidance.

The Board is for instance, now aware of the potential complications arising from incompatible job functions and personal factors, which are conditions that can present either benefits or risks. The Board has accepted that the Chairperson of the Board should not be the CEO at the same time.

3.3 Internal Controls

The critical importance of an organization’s internal control environment can not be overstated. The Board, in consultation with Management, is in the process of developing and effecting internal controls that are designed to provide reasonable assurance regarding the achievement of the Company’s mission statement and objectives in the following categories:

3.3.1 Effectiveness and efficiency of operations;

3.3.2 Reliability of Financial Reporting

3.3.3 Compliance with applicable laws and the regulatory regime

An Independent Audit Committee is in the process of being set-up. Its duties and responsibilities will, among others, be to play a critical role to the integrity of the Company’s processes of reporting. They will exercise vigilance, informed insight and due diligence, particularly with respect to financial reporting and risk management. Furthermore, the ethical dimension of financial reporting will receive more emphasis and internalization.

Cooperation between the Board and Management is currently taking place to ensure the establishment and maintenance of internal controls that will provide reasonable assurance that non-compliance with the Terms and Conditions of Signed Contracts is prevented or subjected to early detection through monthly reports and reviews. Prevention and early detection will be internalized. Reviews, monitoring and enforcement of compliance will be part of an ongoing assessment of the meaningfulness and effectiveness of internal controls. The Board accepts and understands the fact that Compliance is mandatory, and this will require change from current practices.

3.4. Education, Training and Development

Clearly, to grow talent, one has to first attract, nurture, develop and retain human resource that give its best and obviously expect that its passion should be fed, stimulated and compensated. Within Bokamoso Consortium and B-Tel, there is a severe skills shortage in the Telecommunications Industry, Business Administration, Professional Management, Strategic Marketing, Financial Management, general Business Acumen etc.

Fostering the development of skills that can help analytical reasoning, problem solving and dispute resolution, and the exercise of sound judgment that enables Bokamoso Consortium Board of Directors and B-Tel Management to grapple realistically and successfully with this novel USALs situation, can be influenced meaningfully and effectively through education, training and development of the internal value chain.

Lack of understanding of the legal and regulatory framework and compounded by the reality of daily existence and survival resulted in the Bokamoso Consortium Board of Directors and B-Tel Management negligently failing to understand that USALs are expected to report on Corporate Governance, fulfillment of obligations relating to the Roll-out Targets of the License Agreement and the Subsidy Agreement, as part of their Annual Report and the Qualifying Criteria for future subsidies.

4. Action Decisions Designed to Reverse the Downward Spiral, Kick-Start and Preserve an Upward Trend

4.1 Creation of Congruent Relationships among the following Roles and Responsibilities

· The Board of Directors

· Management

· Risk Management Officers

· Independent Auditors Committee

· Audit Committee Officers

· Stakeholders (ICASA, USA and DOC)

4.2 Immediate Establishment of Internal Auditors that will add value by:

· Reviewing critical control systems and risk management processes;

· Performing an effectiveness review of Management’s risk assessments and internal controls;

· Providing advice in the design and improvement of control systems and risk management strategies;

4.3 Internalize the following Enterprise Risk Management Underlying Principles

· Every entity exists to realize value or return on investment for its shareholders;

· Value is created, preserved, or may be eroded by Management decisions in all activities, from setting strategy to operating the enterprise’s day-to-day activities;

· A strong system of internal control is essential to effective enterprise risk management.

4.4 The Strategy and Congruence between Key and Basic Organizational Components

The Company’s strategy has been reviewed in light of organizational resources, individual behavior, environmental impact and history, so as to make it consistent with its environment, that is, the fit between the Company and its larger environment, and to ensure congruent relationships amongst the various key and basic organizational components and the tasks necessary to implement the strategy. For Bokamoso Consortium Board of Directors and B-Tel Management, the critical dynamic will be the fit or congruence amongst for example, the task, the individual, organizational arrangements and the informal organization.

5. Strong and Effective Deterrence, enforcement and censure is warranted

Proactive enforcement actions could represent one of the most comprehensive interventions that could help avoid non-compliance and guide Bokamoso Consortium’s Board of Directors and B-Tel Management’s future efforts to combat this problem.

While non-compliance has severe consequences for the Company e.g. insolvency and bankruptcy, in addition to financial penalties which are likely to be imposed, individuals involved are neither subjected to legal suits nor in financial penalties to the individuals concerned personally. It is our view that those who are found to have acted in an improper and therefore legally liable, must be pursued

In Bokamoso Consortium’s Board of Directors and B-Tel Management’s case, when we suspended the individual involved, with a view to take corrective action, the individual merely resigned from his CEO position and his PA was subsequently dismissed, they both have gone away with impunity. To date there has been no guaranteed accuracy of B-Tel’s financial statements. The audit report hitherto has been nothing but an explanation that provides reasonable, but not absolute assurance that the financial statements are free of material misstatements arising as a result of either fraud or error.

The Board has appreciated that the management of organizational behavior, which is its primary responsibility, is central to the management task; and that this task involves the capacity to understand the behavior patterns of individuals amongst other things, to predict what behavioral responses will be elicited by various managerial actions, and finally to use this understanding and these predictions to achieve control.

6. Conclusion

We hope that our attempt has been able to at least scratch the surface in providing for Bokamoso Consortium’s Board of Directors and B-Tel’s Management and our stakeholders, a set of appropriate diagnostic, evaluative and action decisions.

During all these trying times, Bokamoso Consortium’s Board of Directors, and the current B-Tel’s Management, persistently continued to engage statutory bodies, in their attempts to rescue this enterprise; bodies like the SAPS, Department of Trade and Industry (DTI), the Commission for Conciliation Mediation and Arbitration (CCMA), the Labor Court and the High Court.

Precisely because of lack of cooperation from the previous CEO, Bokamoso Board of Directors and the current B-Tel Management would like to extent their heartfelt gratitude to the DOC, ICASA, and the USA, for their assistance in assisting to effect a smooth transition of the CEO’s responsibilities, by providing information and necessary documents to fairly complete this Report.

We accept and understand that the task is daunting but the determination, commitment and the will to sacrifice and risk is part of the rules of the game.

B-TEL TELECOMMUNICATIONS (Pty) Ltd. (BOKAMOSO CONSORTIUM) COMPOSITE REPORT FROM MARCH 2005 TO JUNE 2006

1. Operational Report by the Board

1.1 Ownership and Control of Licensee, particularly the percentage held by Women

There are no significant changes in Ownership of the company. One company joined as a shareholder, namely Raohang Letlhabile Trading & Enterprise CC. This is a CC Company and consists of 8 Shareholders.

The percentage held by women in B-Tel was slightly diluted at the last AGM meeting held on the 12 November 2005. The Board is in the process of handling this situation through a Special General Shareholders Meeting (SGSM) to be convened by September 2006, to finalize this matter and any other related matters. Shareholders, Ownership and Trustees have slightly changed from what has been previously submitted, and the changes are reflected in the relevant sections of this report. However, the current Legal, Regulatory and the Market Environment necessitate the overhaul and revision of our current Shareholders Agreement, this is anticipated to be done in the SGSM mentioned above.

The insignificant changes mentioned above relate to resignations by some Members of the Board Directors which has not affected Ownership and Control of B-Tel, the resignation letters are attached.

Licensee’s legal name is Bokamoso Consortium. Desert Charm Trading 15 (Pty) Ltd., Registration Number 2002/008102/07, has since been changed to B-Tel Telecommunications (Pty) Ltd. maintaining the same registration number. Documents relating to the Change of Company Name are contained in the Bundle of Documents (BD) under Table of Contents.

1.2 Bokamoso Consortium Shareholding, Board Participation and Corporate

Governance

Currently the Board consists of 6 Board Members, that is, 2 Women and 4 Males. Attached is the copy of the AGM Minutes and are provided for, amongst other things, information on dilution of shares and the number of Shareholders and Directors. Also attached are a copy of the CM29 and a copy containing the Directorate and Shareholding as per the Share Register.

Following is a table of shareholding according to Women, Youth and Disabled Groups.

COMPANY SHAREHOLDER NAME	REGISTR. NO	REP. DIRECTOR to the BOARD	STATUS	Women	Disabled	Youth	Men
Impact Plus CC t/a Boiteko	2002/022675/23	None	Removed	4	1	0	6
Ahanang Trading CC	2002/105210/23	None	Removed	9	0	0	1
Bokamoso Trust	IT1153/04	Keneilwe M. Moselesele	Active	89	139	36	60
Capstone 1617 CC t/a Togetherness	2003/063969/23	Matitoane E.M	Active	9	0	0	0
Cen Comm (Pty) Ltd	2002/004926/07	None	Removed	15	0	0	29
Cool Ideas (Pty) Ltd	2002/020481/07	None	Resigned	25	1	19	16
D. Rampai	Independent	None	Removed	0	0	0	1
Fast Pulse 350 (Pty) Ltdt/a Mahatammoho	2002/005817/07	Monaheng J. Monaheng	Active	13	3	10	25
Founder - Promoter	Independent	K.F. Finger None	Resigned	1	0	0	0
Founder - Promoter	Independent	MD Mokhethi None	Resigned	0	0	0	1
Founder - Promoter	Independent	O.P Monoang Active	Active	0	0	0	1
Goldenspot Trading 81 CC t/a Dinaledi	2002/018747/23	Mpolekeng Senooane	Active	10	0	0	0
New Heights 441 (Pty) Ltd	2003/06539/07	None	Resigned	17	0	0	2
Novel Ideas Trading 109 CC	2002/010325/23	None	Removed	9	1	2	1
Raohang Letlhabile Trading Enterprise CC	2004/099914/23	N.A Senje	Active	1	0	0	8
Strikers Communications CC	2002/018873/07	Monoang P.M	Active	2	0	0	8

Proposed Distribution of 35% Reserved Shares will be as Follow:

1.2.1 Women

Proposed Shareholding for 3 x Women on

X% of 35

Directors Shareholding

Women Equity Partner

Warehousing

Total

Share Allocation

54%

1.2. Men

Proposed Shareholding for Men

on X% of 35

Directors Shareholding

Men Equity Partner

Warehousing

Total

Share Allocation

16%

1.2.2. Equity Partner

Proposed Shareholding for Equity Partners

on X% of 35

Investor

Total

Share Allocation

25%

1.2.4. Bokamoso Consortium

Proposed Share Warehousing on X% of 35	Bokamoso Consortium	Total Reserved
Share Allocation	5	5%

B-Tel had problems with the first subscription share allocations which have led to a change in issued share capital. The company has shareholder loans. However, the improper manner in which they were created and administered gave rise to conflicts between the Shareholders and the Board.

This lead to the 2004/5 Audited Financial Statements not being adopted by the AGM due to the unaccounted paid claims and the inability to reconcile the movements in respect to their loan accounts.

Before the AGM, the Board instituted an Internal Investigation. However, the report of such investigation was not accepted, as the then Chairperson and the CEO who were the subject of such investigation, conducted the investigation. The Board then approached the Department of Trade and Industry (DTI) to intervene and investigate the alleged irregularities. A copy of the referral is attached.

The AGM replaced the old Chairperson with a new one in November 2005 due to serious Corporate Governance problems, for example, no Succession Plan, no Board Charter and no Ethical Code of Conduct that have been adopted by the Board. The non-cooperation of the predecessor CEO/Chairperson’s office exacerbated the situation.

The new Chairperson was subsequently elected as the Managing Director (MD) of the Company. This was as the result of the 24 hour notice of resignation by the CEO, without any handover. The

basis of this appointment was largely guided by the availability of the candidate to lead Management, knowledge of Company background and B-Tel business environment, among other factors.

Further, these problems can be attributed to a lack of relevant skills and expertise at Management level, and lack of training at the Board and Shareholder levels which resulted into bad appointments. The new Board and Management is putting in place good Corporate Governance Systems and Controls in order to eliminate existing problems. These will be tabled for ratification at the coming SGSM.

Attached is a schedule of the Board Meetings and Resolutions.

1.3 High Court Case

A High Court case against B-tel for “a Final Liquidation Order” has been lodged by former Bid Committee Members. The Board and Management decided to oppose this Notice of Motion for the liquidation of the Company, and dispose of this affidavit. In this regard the services of lawyers were engaged. The Notice of Motion and the Opposing Affidavit are attached. It is however with great pleasure to report that this case has since been withdrawn and the relevant documentation is attached.

1.4 State of B-Tel Management

1.4.1 B-Tel Management and Staff

B-Tel Management consists of 4 people, 2 females and 2 males. B-Tel Staff, excluding management, consists of 6 female staff Members. The total operational employees of B-Tel consist of 10 employees, 8 females and 2 males.

Management is in the process to secure top skills and expertise with relevant education and/or experience through its Recruitment and Selection Policy. The recruitment of persons with requisite skills and expertise is dependent upon the ability of the Company to pay market related salaries and its ability to retain them.

The envisaged Operational structure is contained in the Business Plan.

1.4.2 Management and/or Employee issues and Corrective Actions.

1.4.2.1 The CEO

The CEO resigned after being suspended. The Board took a resolution to suspend the CEO after an investigation was launched firstly, into the Financial Affairs, Human Resource Affairs and his general conduct and relationship with the Board, particularly with respect to his insubordinate refusal to report to the Board.

Secondly, failure to put in place Internal Controls and Obligatory Policies, including fulfilment of the License Agreement and the Subsidy Agreement created an untenable situation. An application for review in terms of the Labour Relations Act (LRA) has been applied for regarding his constructive dismissal allegations. The Filling Sheet, the Notice of Motion and the Founding Affidavit are attached, and the Case No. is JR 1369/06.

1.4.2.2 The Personal Assistant (PA) to the CEO.

The PA to the CEO was charged for Irregular Behaviour, Insubordination and Incompetence. An outside Chairperson was engaged, and she was allowed legal representation and was found guilty and dismissed. She subsequently referred the matter to the CCMA for conciliation and arbitration, where, in the middle of the arbitration she decided to withdraw the case.

The Company Closing Arguments, the Finding and Sanction by the Chairperson as well as the CCMA Award are attached.

1.4.2.3 Other Litigations

The Company is currently experiencing a situation where a number of companies and people are putting in claims. Management valuable time is consumed in fighting these legal battles most of the time. These are some of the legal, financial, tax, marketing and sales reasons that serve as motivations as to why B-Tel has not met the Rollout Plan and deviated from the terms and conditions of the Subsidy Agreement and thereby not meeting the License Conditions. These are the areas where the B-Tel needs support, capital and the services of experienced people.

1.5 Legal, Regulatory and Business Environment

B-Tel has a Legal, Regulatory, IT and Human Capital challenges. The Company has had to outsource some of the its responsibilities due to lack of skills but is working on securing fulltime personnel with the necessary expertise and experience.

B-Tel has also encountered serious problems of Cash Flow to meet Operational Costs (fixed and variable) and this may be attributed to misappropriation and over spending, including Tax obligations due to the lack of clarity of the taxable nature of the R5 million Subsidy.

B-Tel does not provide Post-Paid Services and Fixed Line Services. Public Pay Telephones are provided for through the BUA Card capable for Long and International Distance Calls on existing touch dial landline telephone equipment.

1.5.1 The B-Tel Talk Shop, Number of Subscribers to Date, Types of Packages

B-Tel launched a shop to resell Vodacom Mobile Cellular Telecommunication Services in Welkom and certain dealers have already been identified. Currently B-Tel has connected about 2 300 active subscribers to Viacom’s network.

The B-Tel Talk Shop is selling Prepaid Starter-Packs, Airtime Vouchers, BUA Cards, Cell Phone Packages and Cell Phone Accessories. The B-Tel Talk Shop is also providing Faxing and Photocopying Services. A future project for the B-Tel Talk Shop is to give the service of Public Internet Access, including Voice over Internet. The short-term focus is to increase the number of active subscribers and gross airtime revenue.

Cell Phone packages consist of a Cell Phone, Free Starter Pack and free R20 Airtime Voucher. A Starter Pack and R20 Airtime Voucher for R20 are also being sold, thus giving the Starter Pack for free. This is done for marketing purposes in order to get more connections and getting people used to the idea of another Cell Phone Network.

About 100 Dealers have already been created through out the DC18 terrestrial borders. Currently B-Tel has connected about 2 300 active subscribers on Viacom’s network through Talk Shop off sales total of 3 412 Starter Packs.

The Lejweleputswa district is one of the Under Serviced Areas with the highest potential, and that therefore, there is a chance that other competitors such as the SNO, SENTECH or VANS providers, such as ISPs etc., may elect to compete in the area, especially in the light of the emerging new regulatory environment, that is, in terms of the Electronic Communications Act. The Network Rollout Plan and Investment Business Case are currently under discussion, and in principle the Board has embraced a CDMA network rollout.

1.5.3 MVNO - Partners and issues relating to Roaming, Interconnection, Facility Leasing, etc;

B-Tel’s agreement with Vodacom allows B-Tel to “use” Viacom’s Public Land Mobile Network PLMN Facility Leasing arrangements. Interconnection Fees were negotiated by Vodacom between Vodacom, Telkom and MNT (no Interconnection Arrangements exist between B-Tel and Cell C. Roaming and other fees are payable by B-Tel to Vodacom. A copy of MVNO is attached and is confidential.

A copy of interconnection tariff fees between B-Tel and all other service providers is attached for reference. These tariffs are extremely unreasonable, and make no business sense towards B-Tel, particularly in its infancy stage of starting business.

The possibility for B-Tel to make profit is nearly impossible with these rates, and with the Vodacom contract, B-Tel is actually making a loss of 31c per call per minute on certain calls, notwithstanding the competitor’s massive discounts they provide during certain ours and days on pre-paid.

In an endeavour to renegotiate the Vodacom-B-Tel MVNO Contract, Management has met Vodacom with a view to review the Contract and the matter is receiving attention, however a lasting solution would be that there needs to be a set of interconnection fees designed specifically for all USALs that will favour the USALs so as to give them a chance to survive.

Vodacom currently tracks customers for B-Tel as a service and the future plan to track customers as per the new RICA Law will be using the Shared Service Group (SSG). B-Tel will obviously need to monitor movement on their network and that they will need to invest in technology through the SSG.

Currently the marketing section has an idea for a school promotion that was already approved by the Board that may be able to bring in very high monthly revenue. This project has not yet been launched, as it needs a big starting capital of approximately half a million rand. Phase 1 and Phase 2 of the plan are already completed.

There hasn’t been any sufficient training provided by this MVNO partner, except that previous Personal Assistant to the previous CEO went on a short training session in Cape Town and that there was one or two other training courses for staff Members. It is, however, the current Management’s view that in future, training needs will have to be aligned to the Business Plan and that the HR Department will be handling training scheduling according to this perspective in future.

2. Corporate Governance Report by the Company Secretary

The Board appointed PricewaterhouseCoopers Inc. (PWC) to keep minutes of all Board and Shareholders meetings, and the letter of engagement is attached. Following is the report from PWC as the Company Secretary. The original document is also attached.

2.1 Annual General Meeting

The Annual General Meeting for 2004 and 2005 financial years were held on 12 November 2005. Directors were appointed during the meeting by the shareholders.

2.2 Board of Directors

The Board of Directors was appointed by the shareholders. The Board consists of shareholding executive and non executive directors. During the year under review, Mr. Mokhethi was both the Chairperson of the Board and CEO of the Company.

2.3 Corporate Governance Committees

While the Audit Committee, the Remuneration Committee and the Risk Management Committee are required in order to comply with Corporate Governance, none of them exist.

2.4 Regular Meetings of the Board

The Board holds regular meetings. At least four meetings are held per year.

2.5 Statutory Records

A Share register is maintained. Minutes of meetings are prepared capturing all decisions taken by the Board. A register of interests in contracts is not maintained. Memorandums and Articles of Association exist.

2.6 Documented Policies and Procedures

Procedures and policy manuals were not presented to us.

2.7 Accounting Practices

The Company does not have an Internal Auditor.

2.8 Budget

A budget could not be provided to us. A budget should be prepared every year. Income and expenses should be monitored monthly. All variances should be investigated and explained to the Board.

2.9 Going Concern

The Company suffered a loss of R1 910 228 for the period under review. Stricter control should be exercised by Management to limit losses. An attempt should be made to manage the Company into a profit situation

2.10 Expenses

Expenses incurred are not in agreement with the USA specifications. A further grant will not be obtained if qualifying assets equal to the previous grant have not been purchased.

3. Audit Committee Report

As stated above the audit committee is non-existent.

This and other Names Nominations into Committees are to be discussed at Board level and to be ratified at the SGSM.

4. Audited Financial Statements

There are no approved Audited Financial Statements. Copies of B-Tel’s Unaudited Management Financial Statements from 2004/5 February and up to June 2006 as well as the Audited Financial Statements Drafts, for the respective years, are attached.

The Company is having a Tax problem of more than a million rand. The R5 million grant was received in January 2006, a month before the Financial Year-End and is posted to Gross Income which is taxable as part of the Income Statement. The matter has still not been satisfactory resolved, as it was left unattended until recently. Presently the Company does not have sufficient funds to address this problem and cannot get the next trench of money as one of the conditions is a Tax Clearance Certificate. This complicates the financial picture even deeper. Discussions were entered into with SARS, but SARS insisted that this money is taxable, as it is a Gross Income.

This is a critical matter, and while B-Tel Management is challenging it, we consider it necessary for all Stakeholders to intervene and assist the Company regarding these matters. Companies like the Agricultural Development Bank for instance are exempted from tax and perhaps the USALs can explore the possibility to have such exemption extended by submitting a letter to the Minister of Finance.

For the Board and Management Recovery Plan to succeed, the Tax Clearance and Legal support will be necessary.

4.1 B-Tel’s Financial Health

B-Tel as a Company is and technically insolvent and the matter have been left for too long. B-Tel is currently contemplating retrenchments and has not been able to pay its employees from July 2006, and this is a very grim situation.

B-Tel has an estimated 2,300 subscribers and hopes to grow this number. Should this materialise, B-Tel has a chance of becoming Cash Flow positive from this segment of its business within the next year, failing which the company would need a further Working Capital injection to fund its day-to-day running expenses including sustaining cost-of-sales items such as the purchase of Starter Packs and Recharge Vouchers.

B-Tel is unlikely to be able to raise funding from Financial Institutions purely on the strength of the fact that it has a USAL Licence. While currently, there is an approved Investment Management Plan and Business Plan but B-Tel will still be unable to raise private investor funding in the immediate term, given the current uncertain status of the Company.

4.2 Working Capital and Operating Expenses

On the 11 July 2006, Management met the General Staff regarding their continued employment and that the Company was no longer able to pay their salaries and cover running expenses, including paying Fixed and Variable Expenses relating to rescuing the Company. The Company has not been making money as the Tariffs have been too high amongst other problems. Funds allocated by the USA, premised on the obligations of the License Agreement and the Subsidy Agreement Conditions, which has been misappropriated, in that it was used as Start-Up, Working Capital and Operating Expenses instead of Telecommunications Infrastructure.

The base and the image of B-Tel, as originally intended by political policy and regulatory environment, License Agreement, Subsidy Agreement Conditions and the business environment, has already been created and could not be left hanging and/or not being marketed in the intervening period. However, the availability of Capital Expenditure Budget and the long term Operational Expenditure Budget at this stage gives guidance in respect of the Company’s long term strategy, and these are attached.

4.3 Conditions required by Financial Institutions to access funding.

B-Tel Board and Management have developed a Management Investment Plan and a Business Plan through a Consultancy; copies of these documents are available as and when required. It is important to add that these documents are work in progress; they are not conclusive, as there are other business activities, in view of the new Legal and Regulatory Environment, as well the behaviour of the competitive market.

The Board and Management have met with the IDC and made a presentation for them in May 2006. However, B-Tel has found it very difficult to get funding needed to roll-out the infrastructure, as Financial Institutions are not prepared to fund an MVNO Business Model and without allocation of spectrum for the specific technology chosen. Therefore Banks have been ruled out as sources of funding.

While no Technical Partner’s contract for a technology has been signed yet, as there is still room to look at other technology partners that could satisfy the requirements of the License Conditions, CDMA is so far the preferred technology solution while hoping to conduct research in this respect, e.g. base station costs, how different technologies interface with each other, and more information on how customer migration between these technologies will work etc, so that when the funds are available the correct information could be used to guide any business forward movement.

5. Report from Independent Auditors

Find the Report from Independent Auditors attach in the Audited Financial Statement Drafts.

6. Delivery

6.1.1 Telecommunication Infrastructure Asset

i) ICASA License

ii) High Level Network Design

iii) Computer Hardware

iv) Computer Software

6.2 Infrastructure Development and Capacity Development

6.2.1 Technical Plan

B-Tel, while currently using Viacom’s network, as of March 2006 the Board principally approved CDMA technology as its technology of choice. The Business Plan is in place and B-Tel is in the process of applying for a spectrum in the 800MHz band, the application letter is attached. B-Tel needs access to the 800MHz spectrum band. We also need the spectrum to get access to funding. B-Tel is also looking at all other technologies including Voice over Internet, and all other possibilities for its business case.

6.2.2 Telecoms Spend

B-Tel has invested a total of about R1 208 000 to date, of which in the year 2005, R500 000 was paid to Siemens Business Development to develop a GSM Network/Business Plan, R50 000 to Tomorrow’s Solutions Today (TST) for a Billing Software System, which was supposed to reconfigure the raw billing information provided by Vodacom, and a sum of R 58 000 was paid to Supping Consultants for interconnection negotiations with Cell C. R600 000 was paid to Burlington Strategy Advisories for CDMA Network/Business Plan as well Management Investment Plan in the year 2006.

7. Property Plant and Equipment

This is non-existent.

8. Other Assets Elements

i) Computer Software

ii) Computer Equipment

iii) Office Equipment

iv) Office Furniture & Fittings

v) Security Systems (Shop & Head Office)

vi) Rent Deposits

vii) Telkom Deposit

viii) Security Deposit – Vodacom

ix) Customer Control Accounts

x) Investment (FNB Call Account)

xi) Investment (FNB Money Market)

9. Work in progress

Refer to GSM and CDMA Business Plans and also the CDMA Investment Plan

10. Capitalized Labour

This is non-existent.

11. Capitalized Leases

This is non-existent.

12. SSG Investments

Negotiations with an Investor, the Technical Partner and other three USALs have developed to a high level.

13. Non Capitalized Costs