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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB/A3
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
GLOBAL TELEPHONE COMMUNICATION, INC.
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(Exact name of Small Business Issuer in Its Charter)
NEVADA 87-0285729
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3838 CAMINO DEL RIO NORTH, SUITE 333, SAN DIEGO CA 92108-1789
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(Address of principal executive offices) (Zip Code)
1-800-668-9880
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
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n/a n/a
Securities registered under Section 12(g) of the Exchange Act:
COMMON EQUITY, PAR VALUE $.001
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(Title of Class)
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GLOBAL TELEPHONE COMMUNICATION, INC.
FORM 10-SB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
No. Title Page No.
<S> <C> <C>
PART 1
Item 1. Description of Business................................................................1
Item 2. Management's Discussion and Analysis or Plan of Operations.............................8
Item 3. Description of Property...............................................................17
Item 4. Security Ownership of Certain Beneficial Owners and
Management............................................................................17
Item 5. Directors, Executive Officers, Promoters and Control Persons..........................18
Item 6. Executive Compensation................................................................21
Item 7. Certain Relationships and Related Transactions........................................22
Item 8. Description of Securities.............................................................23
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters..................................................24
Item 2. Legal Proceedings.....................................................................24
Item 3. Changes in Disagreements with Accountants.............................................25
Item 4. Recent Sales of Unregistered Securities...............................................25
Item 5. Indemnification of Directors and Officers.............................................29
PART F/S
Financial Statements..................................................................30
PART III
Item 1 Index to Exhibits.....................................................................31
Item 2 Description of Exhibits...............................................................31
Signatures............................................................................34
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The Registrant was incorporated on March 10, 1970 for the purpose of
raising capital to develop and possibly put into production certain oil and
mineral deposits. The Registrant was unable to raise development money and the
Registrant's operations ceased and the mineral deposits were abandoned.
On June 4, 1997 the Registrant acquired Krystar International Ltd.
(Krystar) in exchange for 6,000,000 shares of common stock. Krystar had
proprietary ownership of a technology that transported minerals using Boundary
Air/Laminar Flow Technology. On September 24, 1997, the Board of Directors of
the Registrant discontinued the operations of Krystar and the 6,000,000 shares
of common stock were cancelled.
On June 23, 1997, the Registrant acquired all of the outstanding shares
of Chow's Consulting Corporation for 90,000 common shares of its common stock.
The only asset of Chow's was a mining claim that has since been deemed worthless
and Chow's was dissolved.
On October 14, 1997 the Registrant changed its name from Dynasty Oil
and Minerals Corporation to Global Telephone Communication, Inc., in line with a
change in its strategic direction. The Registrant's current focus is to seek and
develop opportunities in the IT (Information Technology), telecommunications,
and Internet industries. To capitalize on management's industry experience and
relationships, the Registrant will favor opportunities in Southeast Asia, with
an emphasis on the People's Republic of China (China.)
On February 9, 1998, the Registrant acquired all of the issued and
outstanding shares of an operating multimedia company, Planet City Graphics
Corp. (Planet City), a private company incorporated under the laws of British
Columbia, Canada, with offices in Vancouver, BC. The Registrant issued a total
of 1,500,000 common shares in exchange for all the issued and outstanding shares
of Planet City. This acquisition was rescinded on October 1, 1999 as of the date
of acquisition. The Registrant returned all shares of Planet City and received
back and cancelled the 1,500,000 shares previously issued.
On February 9, 1998, the Registrant also acquired all of the issued and
outstanding shares of another operating multimedia company, Webworks Multimedia
Corporation (Webworks), a private company incorporated under the laws of British
Columbia, Canada, with offices in Vancouver, BC. The Registrant issued a total
of 500,000 common shares in exchange for all the issued and
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outstanding shares of Webworks. This acquisition was rescinded on October 1,
1999 as of the date of acquisition. The Registrant returned all shares of
Webworks and received back and cancelled the 500,000 shares previously issued.
Both Planet City and Webworks are in the businesses of Web graphic
design and hosting and systems integration. However, these entities failed to
operate profitably and the Registrant has decided that these operations do not
complement its current business direction and thus, disposed of these
operations. (See Item 2 Management's Discussion and Plan of Operation for more
details.)
On March 24, 1998, the Registrant changed its domicile from the State
of Utah to the State of Nevada.
On April 16, 1998, the Registrant entered into a Share Exchange
Agreement (Regent Agreement) with Regent Luck Holdings Ltd. (Regent), a
corporation registered and headquartered in Hong Kong, whereby the Registrant
acquired all the issued and outstanding shares of Regent by issuing and
exchanging 4,950,000 common shares of the Registrant with the shareholders of
Regent, which constituted approximately 63% of the Registrant's then outstanding
shares.
Regent has a 90% interest in a joint venture company, Shenzhen Global
Net Computer Information Co. Ltd. (Shenzhen Global), organized under the laws of
China, which has an Exclusive Agency Agreement with Shenzhen Newsnet Co., Ltd.
(Newsnet), a wholly-owned subsidiary of China Telecom. The 10% minority owner is
Shenzhen Xin Yun Da Electronics Co. Ltd., a company owned by citizens of China.
The telecommunications business in China is highly regulated by the
central Government's Telecommunications Bureau. A Chinese company must get
authorization from many different levels of government before entering the
telecommunications business. The first step is to obtain Joint Venture approval
from the Foreign Merchant Investment Bureau. To qualify for this level of
approval, an applicant must provide a Joint Venture Feasibility Report, a Joint
Venture Contract, and a Joint Venture Corporate Charter. This approval, along
with all aforesaid documents are then forwarded to the National Industrial and
Commercial Administrative Bureau for a business license. Newsnet has granted the
necessary approvals to operate in the six cities in which it currently intends
to conduct business. Additional approvals will be sought at the time the
Registrant decides to expand to other cities.
On June 8, 1998, the Shenzhen Global joint venture was given the
approvals in accordance with China Sino-Foreign Equity Joint Venture Enterprise
Law and by Shenzhen Foreign Investment Bureau (No. 1998 0520).
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The business scope of this license includes computer software development,
Internet Protocol (IP) product development along with the related technical
consulting, computer systems integration and Internet service provider (ISP).
The China National Industrial and Commercial Administrate Bureau issued the
Joint Venture business license on July 28, 1998 effective for 12 years. The cost
of the license itself from the Chinese government was $200.
Newsnet is a subsidiary of China Telecom and is the biggest ISP in the
city of Shenzhen with a subscriber base of over 60,000. Newsnet entered into an
exclusive agency agreement with Shenzhen Global, which gives Shenzhen Global the
rights to act as exclusive agents to conduct all of Shenzhen Newsnet's
telecommunications and internet business and services in Shenzhen, Guangdong
Province and in six of the biggest cities in China. The term of the agency
agreement is for 12 years with options to renew, subject to further
negotiations. Profits will be shared on a 69%-31% basis in favor of Shenzhen
Global for the first 18 months and 55%-45% thereafter. As part of the Regent
Agreement, the Registrant agreed to provide funds as capital for the Shenzhen
Global joint venture in the amount of $1,300,000. As of September 30 1999, the
Registrant had provided approximately $975,000 and as of December 31 1999, the
Registrant had provided the balance of $325,000 to Shenzhen Global.
With respect to the Shenzhen Global Joint Venture, the Registrant will
be engaged in the delivery of web-based e-mail, voice over Internet Protocol,
systems integration, Internet access and content, and other information
technology Internet value added applications.
These products and services will be delivered under licenses provided
directly from China Telecom, the dominant carrier in China, or through its
wholly owned subsidiaries. The services will be delivered to commercial,
residential and educational users through the Public Switched Telephone network
and will have their origin on Internet service platforms owned jointly or
independently by the Registrant.
Currently, Newsnet is a leading Internet service provider in Southern
China with a 60% market share in the City of Shenzhen. On a national scale,
Newsnet holds a 2% market share. For all six cities, the major competition is
from the ISP arm of China Telecom (HK) Limited (China Telecom). Newsnet is
targeting an average market share of 30% for each city. Customers usually base
their purchase decisions on quality, timing and the range of services that are
offered.
On March 9, 1999, the Registrant acquired 51% of the issued and
outstanding shares of Pacific Asset International Ltd. (Pacific Asset), a Hong
Kong corporation, in exchange for 600,000 shares of the Registrant's common
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stock representing approximately 4% of the Registrant's then issued common
stock. Pacific Asset was expected to provide the Registrant access to
institutional and banking e-commerce business in Asia and the Registrant planned
to assist Pacific Asset in the development of its business in the
telecommunications and information technology sector. As at December 31, 1999,
however, Pacific Asset had not delivered its shares to the Registrant. As a
result, as of January 13, 2000, the Registrant rescinded its agreement with
Pacific Asset. On March 9, 1999, Pacific Asset had no assets and no liabilities,
and as of the date hereof, there have been no business transactions between the
Registrant and Pacific Asset.
On September 15, 1999, the Registrant entered into an agreement with
International Communications Enterprises Ltd. (ICE), a company operating and
incorporated in the United Kingdom, to provide funding for a Joint Venture
between ICE and First Telecom (FT) of Hong Kong. The primary purpose of the
Joint Venture will be to originate and terminate telephone traffic in China. The
Registrant has made an investment of approximately $243,500 to acquire 25% of
the gross revenue due to ICE from all activities generated by the ICE/FT venture
on a monthly basis. (See Item 2 Management Discussion and Plan of Operation for
more details).
On October 21, 1999, the Registrant entered into a second joint venture
with ICE as a financial partner to assist it in the development and distribution
of promotional commemorative prepaid calling cards relating to sports figures.
Initially the program is directed primarily towards the leading drivers of
Formula 1 race car teams. ICE has several contracts in place as of the date
hereof including one with the Yamaha race car team. (See Item 2 Management
Discussion and Plan of Operation for more details). In addition, as of the date
hereof, the Registrant has loaned approximately $200,000 to ICE pursuant to an
unsecured promissory note payable on July 4, 2000 bearing interest at an annual
rate of 10% from July 1, 2000 to the date of payment.
On January 29, 2000, the Registrant completed the acquisition of 70% of
Cyber 2000 Ltd. (Cyber 2000), a Hong Kong company. Cyber 2000 is engaged in the
business of developing Voice over Internet Protocol (VoIP) and is expected to
become a provider of VoIP re-sale services with major international telephony
carriers. The Registrant acquired its interest in Cyber 2000 for an aggregate
purchase price consisting of $1,300,000 in cash and 500,000 restricted shares of
the Registrant's common stock. As of the date hereof, $850,000 has been provided
in cash and 500,000 restricted shares of the Registrant's common stock,
representing 2.9% of the Registrant's then issued and outstanding common stock,
have been issued.
On March 20, 2000, Cyber 2000, in cooperation with Teleinfo Co. Ltd.
(Teleinfo), a wholly owned subsidiary of China Telecom signed a Service
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Agreement with AT&T Asia/Pacific Group (AT&T) in Hong Kong. Under this
Agreement, AT&T is expected to provide a number of professional and management
services to implement Cyber 2000's VoIP Program in China and the US, including
project management, global clearing house and MIS (Management Information)
services. AT&T will also provide and install gateways to the Company's network,
including international Internet Phone circuits from Hong Kong to the US. AT&T
is expected to be able to use its extensive project management expertise to help
Cyber 2000 to quickly establish a high performance International Internet Phone
Backbone Network in Asia and implement its planned expansion program in offering
various services to carriers and enterprises in China, the US and other
countries. Cyber 2000 has also established a cooperation arrangement with
Teleinfo pursuant to which Teleinfo will work with Cyber 2000 in this project to
provide various supports in marketing and technical programs.
The Internet and information technology industries are relatively new
and subject to rapid change. Regulatory and political issues in Asia pose many
potential problems. The size of the Asian market, and the low cost of entry into
these new industries are attracting an increasing number of new entrants.
Weaknesses in infrastructure further complicate the task of building reliable
and responsive systems. Intense competition from existing and potential
competitors with longer operating histories, greater brand name recognition,
larger customer bases and greater financial, technical and marketing resources,
may adversely affect the Registrant's ability to secure a viable position in the
marketplace.
During 1998 and 1999 the Registrant publicly announced:
- the marketing of Year 2000 software solutions;
- its Global Positioning System (GPS) project;
- its plans to acquire an ISP company and
- various marketing agreements.
The Registrant has not pursued any of these due to the following reasons:
In November of 1998 the Registrant's management team decided that it
would become a provider of Year 2000 (Y2K) software solutions for China.
Management believed that this was complimentary to the Registrant's core
information technology business. As a result of this business decision, on March
4, 1999 the Registrant entered into a Marketing Agreement with Planet City to
market Planet City's Y2K solutions (the Millennium Bug Compliance Kit) in China
and on April 21, 1999 the Registrant entered into two Agency Agreements with
Manful Commerce Co. Ltd. and Beijing JinXunDa Telecommunications Technology
Development Co. Ltd. to supply the Millennium Bug Compliance Kit to the Chinese
Government. Subsequently, the Y2K solution was sent to
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China for testing. After failing the required tests, the Registrant terminated
all contracts involving this product, without penalty, and subsequently
terminated its relationship with Planet City.
With respect to the GPS project, on June 10, 1999 the Registrant's
joint venture company, Beijing Global Net Communication Technology Co., Ltd.,
received Chinese governmental approval and the required business licenses to
provide GPS in China. However, the Registrant has elected to postpone further
efforts in this area due to limited resources.
On June 14, 1999 the Registrant signed a conditional Memorandum of
Agreement to enter into a joint venture with Beijing Tian Guang Information
Communication Services Ltd. (BTGIC), a Chinese company with a valid permit from
the State Information Technologies Ministry to operate as an ISP in the cities
of Beijing, Shanghai and Guangzhou. The Registrant was to issue 1,200,000 shares
of its common stock for a 65% equity interest in BTGIC. After the Registrant's
management team completed its due diligence, it determined that this joint
venture would not be beneficial to the Registrant at the agreed upon terms and
conditions, and the agreement was terminated.
On January 8, 1999 the Registrant announced that it had entered into a
teaming agreement with Veronex Technologies, Inc. to jointly pursue business
opportunities in China. On February 24, 1999 the Registrant announced that it
had entered into a marketing agreement with iBiz Technology Corp., to market
iBiz technology and products in the Pacific Rim. The anticipated business
opportunities have not yet developed sufficiently to pursue these projects.
The Registrant has structured operations in accordance with current
local and foreign governmental regulations.
While there can be no certainty, the Registrant believes that the
regulatory environment will continue to support the Registrant's current and
planned activities. However, any reversal of current government willingness to
continue to approve such activities could have a serious material negative
effect on the business prospects of the Registrant.
The Registrant has spent approximately $50,000 over the past two years
in developing relationships and opportunities and obtaining licenses and
approvals.
The available telecommunication and information technology market is
substantial and underserved. The Registrant will not be reliant upon any small
number of major customers in any of its markets.
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The Registrant believes there is minimal, if any, cost to the
Registrant for compliance with current environmental laws.
The Registrant currently employs eight full time employees and expects
the total number of employees to reach twenty or more within six months.
The Registrant plans to market its products and services both directly
and indirectly. A direct sales force will be developed to market the
Registrant's services and products. Furthermore, the Registrant will use its
contacts and relationships in China to further develop and market the
Registrant's products as they are developed.
This Registration Statement became automatically effective as of 60
days from the date of filing and consequently, the Registrant is required to
file annual reports in accordance with the Securities Act of 1934.
The Registrant has been advised that the Division of Enforcement of
the SEC has commenced an investigation regarding a company (and its
principal) that provided investor relations services to the Registrant during
a portion of 1999. The Registrant has been informed by the SEC that it is not
a target of such investigation. The Registrant is cooperating voluntarily
with the Division of Enforcement in connection with such investigation.
The public may read and copy any materials filed with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC.
The address of that site is (http://www.sec.gov). The Registrant's Internet
address is www.globaltci.com.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The disposition of Krystar was affected by discontinuing operations and
canceling 6,000,000 shares of common stock of the Registrant issued in
connection with this exchange transaction. While there was no impact of this
discontinued operation in 1998, there was loss from discontinued operations of
$87,429 in 1997.
From February 1998 through March of 1999, the Registrant made four
acquisitions pursuant to share exchange agreements. The first two of these
acquisitions, Planet City and Webworks were rescinded on October 1, 1999 due to
the following business decisions and events:
Originally, on February 17, 1998 the Registrant concluded negotiations
with two multimedia companies, Planet City and Webworks. The scope of the
business was to develop Internet based telecommunications application software,
products and services. The Registrant acquired combined assets of $220,000 in
exchange for a total of 2,000,000 shares of the Registrant's common stock.
Shortly thereafter, in March 1998, the Registrant was approached with joint
venture opportunities in China. Due to the underdeveloped telecommunications
market in China, the Registrant's management team believed that it was a prudent
business decision to change the scope of the business. The Registrant then
acquired its subsidiary, Regent, to pursue these opportunities.
Subsequent to the acquisition of Planet City and Webworks, it became
apparent to management of the Registrant that the strategy and objectives of
both companies were widely divergent from the Registrant's. Further, the
resources of Planet City and Webworks did not fit well with the Registrant's
needs to exploit new telecommunications opportunities in China. For example, the
Registrant determined that the management teams of Planet City and Webworks were
unable to carry out the launching of the Registrant's Web-hosting, e-commerce
and systems integration operations in China. In addition, the computer equipment
and software owned by Planet City and Webworks needed considerable upgrading in
order to serve the needs of the Registrant. As a result, rather than allocating
further resources to these two operations, the Registrant's Board of Directors
decided in August 1999 that it was in the best interest of the Registrant to
rescind its agreements with Planet City and Webworks. On October 1, 1999, the
rescissions were completed. Management believes that these rescissions will not
have a material impact on the Registrant's short or long term liquidity.
During the years 1998 and 1999 all of the Registrant's revenues were
generated from Planet City and Webworks. During the year ended December 31,
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1999, the Registrant generated revenues of $0, a gain on the sale of securities
of $0, and operating expenses of $3,544,596, resulting in a net loss of
$3,546,791.
During the year ended December 31, 1998 the Registrant raised
$303,591 from notes payable to fund its operations.
During the year ended December 31, 1999 the Registrant raised
$4,209,500 from the sale of equity securities and $543,631 from notes payable
to fund current operations.
Regent, the Registrant's remaining subsidiary, has an office in Hong
Kong, but no revenues to date. The Regent Agreement required the Registrant
to provide $1,300,000 in development funds, all of which had been provided by
December 31, 1999. As of December 31, 1999, of the $1,300,000, $189,237 had
been spent on opening an office in Shenzhen, employee expenses, license fees
and equipment purchases.
Operations pursuant to the ISP Agency Agreement between Shenzhen
Global and Newsnet will commence in Shenzhen and then the Registrant intends
to move into five other cities (Beijing, Shanghai, Wuhan, Guangzhou and
Chongquing). The timing of the development will depend upon the success of
the Shenzhen operation. Each additional facility will cost approximately
$1,300,000 to commence operations.
The strategic partnership with Newsnet is expected to give the
Registrant certain advantages in the marketplace over its competitors,
including a direct customer base of over 60,000, more favorable terms from
China Telecom in lease-line contracts and technical support.
The Registrant has only external sources of liquidity. During the
years ended December 31, 1998, and December 31, 1999, the Registrant was
engaged primarily in fund raising activities. Pursuant to private placement
offerings, a total of $180,800 in 1998 and $4,209,500 in 1999 was raised.
On September 15, 1999 the Registrant entered into an agreement with ICE
to provide funding for a joint venture between ICE and FT (ICE/FT Joint
Venture). Under the terms of the agreement, the Registrant is to receive revenue
participation in exchange for its investment in ICE. ICE is expected to be a
provider of telephony services to business customers, with a focus on
multinational companies in the European Union. The Registrant's objective is to
become a leading provider of such services in its areas of operations. ICE has
uncovered niche telephony products for this market that it believes represent
revenue opportunities. The Registrant anticipates that the ICE/FT Joint Venture
will allow ICE to deliver voice, fax and data traffic via earth stations owned
by
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FT in China for termination into China at competitive pricing. ICE is now
seeking funding for its next stage of development in China. To date, the
Registrant has made an investment of approximately $243,500 for 25% of the gross
revenue due to ICE from all activities generated by the ICE/FT Joint Venture on
a monthly basis. The Registrant is to receive this percentage for a period of
time beginning with the first month of revenue generation and ending when ICE's
revenue participation from the ICE/FT Joint Venture has exceeded approximately
$807,000 ((pound)500,000) per month for 12 individual months. The Registrant's
gross revenue participation is to decrease to 12 1/2% of the gross revenue due
to ICE from all activities generated by the ICE/FT Joint Venture, on a monthly
basis, for the duration of the ICE/FT Joint Venture. The Registrant expects
revenues to begin in second quarter of 2000.
On October 21, 1999, the Registrant entered into a second joint venture
with ICE as a financial partner to assist it in the development and distribution
of promotional commemorative prepaid calling cards relating to sports figures.
Initially the program is directed primarily towards the leading drivers of
Formula 1 race car teams. ICE has several contracts in place as of the date
hereof including one with the Yamaha race car team. In addition, as of the date
hereof, the Registrant has loaned approximately $200,000 to ICE pursuant to an
unsecured promissory note payable on July 4, 2000 bearing interest at an annual
rate of 10% to commence on July 1, 2000.
The Registrant has paid approximately $48,400 US ((pound)30,000) for
the right of first refusal on any and all such cards that ICE may choose to
market.
The Registrant expects to invest approximately $121,000 ((pound)75,000)
per card for design, artwork, impression, printing, testing and delivery of
satisfactory network delivery and support capabilities. In exchange, the
Registrant is to receive 50% of ICE's gross revenue monthly until it has
received twice (2x) its original investment, and subsequently, 25% of gross
monthly revenues for as long as the contract is in force, including renewals.
The Registrant has completed its $121,000 ((pound)75,000) obligation to
ICE for the Yamaha contract. Two other contracts are also now being funded.
A copy of the "Revenue Sharing Agreement" for promotional calling cards
is included as an Exhibit.
There have been no seasonal aspects that caused any material changes in
the Registrant's financial statements.
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The Registrant's viability is contingent upon its ability to raise
additional funds to support development efforts. There is no assurance the
Registrant will obtain additional financing on terms it deems acceptable.
The implementation and expansion of the Registrant's business is
expected to require a commitment of substantial funds. The Registrant is
currently negotiating the placement of a subordinated debt facility
("Subordinated Loan") in the principal amount of $10,000,000 that the Registrant
expects to close by June 30, 2000. In connection with the Subordinated Loan, the
Registrant will be required to deliver a 9% Subordinated Debenture ("Debenture")
and a Warrant to Purchase Common Stock ("Warrant"). On March 31, 2000, the same
lender made available to the Registrant a bridge loan in the maximum principal
amount of $800,000. The Registrant also delivered to such lender a five year
warrant to purchase 200,00 shares of its common stock, exercisable at $2.25 per
share. The bridge loan is evidenced by a 15% Convertible Promissory Note (the
"Convertible Note"). As of the date hereof, the Registrant has received an
initial advance of principal in the amount $550,000 under the Convertible Note.
Provided no default has occurred under the Convertible Note, the Registrant may
request an additional advance of principal in the amount of up to $250,000 after
May 15, 2000.
All amounts due under the Convertible Note are due and payable upon the
earlier to occur of June 30, 2000 and the closing of the Subordinated Loan. In
the event of a default under the Convertible Note, the lender may convert the
Convertible Note into a smaller principal amount subordinated loan facility
("Conversion Loan") on substantially the same terms and conditions as the
Subordinated Loan. As a condition to the closing of the Convertible Note, the
Registrant has delivered in escrow a Debenture, Warrant and related documents
relating to the Conversion Loan. Upon a conversion of the Convertible Note into
the Conversion Loan, such documents will be delivered to the lender and the
lender will advance to the Registrant an amount equal to the difference between
the principal amount thereof and all amounts then due from the Registrant under
the Convertible Promissory Note.
The Debenture will be convertible into shares of Common Stock of the
Registrant (a minimum of 880,000 shares under the Conversion Loan and a maximum
of 2,500,000 shares under the Subordinated Loan) and will be due a maximum of 30
months after the date of issuance. The holder may convert up to a specified face
amount of the Debenture upon issuance (a minimum of $122,223 under the
Conversion Loan and a maximum of $555,556 under the Subordinated Loan) on each
monthly anniversary date thereafter (each, a "Due Date"). Any amount not
converted accumulates and may be converted thereafter. However, the holder is
prohibited from converting any amount of the Debenture that would cause the
holder's total ownership of common stock to equal five percent
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or more of the total shares outstanding. Under the Conversion Loan, the per
share conversion price will be equal to the lesser of (a) $2.50 and (b) the
lowest daily trading price of the common stock (as reported by Bloomberg) of the
twenty (20) consecutive trading days immediately preceding submission of a
notice to convert by the holder. Under the Subordinated Loan, the per share
conversion price will be equal to the lesser of (a) $4.00 and (b) the average of
the three lowest daily trading prices of the common stock (as reported by
Bloomberg) of the twenty (20) consecutive trading days immediately preceding
submission of a notice to convert by the holder. In the event the closing bid
price of the Registrant's common stock is less than a specified amount per share
at any time during the five trading days preceding a Due Date, the Registrant
will have the right to redeem for cash the monthly conversion amount of the
Debenture (in lieu of allowing the holder to convert such amount) at premiums
ranging from 105% to 108%. The Debenture will be secured by a letter of credit
in an initial principal amount equal to 75% of the principal amount of the
Debenture. The required amount of the letter of credit will decrease by a
specified amount for every $1.00 of principal reduction of the Debenture,
whether the reduction occurs by conversion or redemption.
The Warrant will be exercisable for the purchase of 40,000 shares of
Common Stock per $100,000 in principal amount of the Debenture, one third of
which will be exercisable at $2.25 per share, one third of which will be
exercisable at $3.00 per share, and one third of which will be exercisable at
$3.75. The Warrant will be exercisable at any time prior to the expiration of
five years from the date of issuance.
The Registrant will be required to register for resale all shares of
Common Stock issuable upon conversion of the Debenture and exercise of the
Warrant. Certain penalty provisions apply if a registration statement covering
the shares is not filed within 150 days or is not declared effective within 180
days of the date of issuance.
The Registrant expects to use a portion of the net proceeds of the
Subordinated Loan to develop its Voice over Internet Protocol (VoIP) and ISP
projects and to make other acquisitions that it deems beneficial to the
continuation of its business.
Specifically, Cyber 2000, in which the registrant has a 70% interest,
is developing VoIP and is expanding to become a provider of VoIP re-sale
services with major international telephony carriers and also intends to build
its own Internet Protocol backbone network. The Registrant expects to use
approximately $750,000 in 2000, $1,600,000 in 2001, and $2,550,000 in 2003 from
proceeds of the Subordinated Loan to complete this project. In addition to
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<PAGE>
capital expenditures for equipment, funds will be allocated for personnel back
office support platforms and development of additional software and products.
The Registrant believes that the foregoing financing sources will
provide sufficient funds for its operational activities for the next 12
months. Nevertheless, the Registrant intends to pursue additional funding in
the form of additional direct equity. The Registrant does not intend to
develop its own value-added products and services at this time. It will,
instead, purchase or license those products and services from third parties.
On November 15, 1999 China signed a trade agreement with the United
States that lifts trade barriers. The pact obligates China to cut tariffs an
average of 23% which promises greater access for telecommunications firms.
But China must still sign agreements with several other nations including the
European Union before it can be admitted to the World Trade Organization
(WTO), which will take additional time to resolve.
Socio-political factors and other variables will have a significant
impact the Registrant's future financial condition. Among other things, China is
seeking entry into the WTO and if it is successful, the liberalization of its
telecom markets to foreigners will have a direct effect on the Registrant's and
its subsidiaries business operations. Some of these factors are, the lowering of
tariff and non-tariff barriers for information technology products and services;
more transparency and clearer rules and regulations with respect to the telecom
industry; an increase in globalization and the free flow of information among
trading partners; access to more reliable market data; and other multilateral
arrangements and market reforms that are prerequisites for entry into the WTO.
Present indications from Beijing point to the liberalization of foreign
investment in China's Internet sector. The liberalization of the telecom sector
would allow the Registrant to provide capital and investment in other
value-added products and services within the information technology/Internet
sector such as IP Telephony and Long Distance Calling Cards that are presently
prohibited from foreign participation.
In the meantime, there are inherent risks in operating in this sector
where the rules and regulations are still uncertain. Opening of the information
technology/Internet sector to foreign participation will also mean an increase
in competition from multinational telecommunications companies in China. The
degree to which it will affect the Registrant's future operations and financial
results is uncertain and will depend on the competency of the management team in
executing its business plan and carrying out an effective implementation of the
core operations of the joint ventures.
13
<PAGE>
As a result of conducting overseas operations, the Registrant is
vulnerable to foreign exchange fluctuations. This is especially true in Asia
where currency fluctuations and devaluations are not only determined by market
forces but are also affected by the monetary and fiscal policies of foreign
governments. There are also risks associated with the laws and regulations that
apply to the repatriation of capital from overseas operations.
The success of the Registrant and its subsidiaries' operations in China
is subject to the political and economic uncertainties of that region. These
unknowns are characterized by unexpected changes in rules and regulations;
tariffs or other barriers; policy changes regarding foreign asset ownership;
changes in tax laws for foreign companies; unexpected changes in monetary or
fiscal policies; market reforms; austerity programs enacted by the government;
government subsidies that are anti-competitive in nature; currency exchange
regulations and lack of transparency in the financial markets. These and other
factors could have an adverse impact on the Registrant's business and financial
results in the future or require the Registrant to modify its current business
practices.
The market for information technology products and services is
characterized by rapidly changing technology, frequent introductions of new
products and evolving industry standards that result in product obsolescence and
short product life cycles. Accordingly, the Registrant's success is dependent
upon its ability to anticipate technological changes in the industry and to
continually identify, obtain and successfully market new products and services
that satisfy evolving technologies, customer preferences and industry
requirements within the markets that the Registrant and its subsidiaries
operate.
There can be no assurance that competitors will not market products and
services in the Chinese markets that have certain competitive advantages over
those of the Registrant and its subsidiaries.
There are also uncertainties and risks attributable to the immature
and volatile nature of the Chinese information technology market. This market
is still in its nascent stage where sufficient data and market studies are
not available for any thorough analysis in determining the viability of the
Registrant's business plan. The Registrant and its subsidiaries mainly have
to rely on the experiences of its local joint venture partners and of its own
management team to make strategic decisions with respect to its operations.
This lack of clear and reliable market information dramatically increases the
risk of the Registrant making incorrect market assumptions.
The Registrant believes that the size of the emerging market in
China contributes positively to its prospects for success and that the
current availability
14
<PAGE>
of capital seems to support present and future needs of the Registrant's
operations. Any material change in the regulatory climate in China could be
materially damaging to the Registrant's future prospects for success. The
Registrant has not had any Y2K problems in 2000.
Because they do not appear to be material, costs for Y2K compliance are
not being segregated from the Registrant's operating budget. Overall, the costs
are not expected to have a significant effect on the Company's consolidated
financial position or results of operations. The cost is not foreseen to be
significant due to the developmental nature of the business. Any costs will be
deducted from income in the period incurred.
In the event that any of the Registrant's subsidiaries do not
successfully and timely achieve Y2K compliance, the Registrant's business or
operations will be minimally affected due to the fact that all pertinent data
has been backed up. Finally, Year 2000 problems could have a ripple effect
through world economies, which could adversely affect the demand for some or all
of the Registrant's products and services. Of course, this is the case for all
operating companies worldwide.
The Registrant, as part of the certification process, had each of
its operating subsidiaries perform a Y2K "dry run", where the dates on all
computers and microprocessor-controlled equipment were set ahead to a date
within the year 2000. These dry runs identified all remaining internal Y2K
issues before any problems occurred. The Registrant performed the dry run on
a subsidiary by subsidiary basis before December 15, 1999. These procedures
do not, however, identify external Y2K problems, and they will not provide
any information as to how Y2K problems throughout world economies may affect
the Registrant.
In December 1998, the Registrant signed consulting contracts with
Lions Peak Capital Ltd. and Milan Financial Inc. These two companies have
been working with the Registrant to provide consulting services with respect
to investor relations, marketing and business development. The Registrant has
recently retained or is presently seeking new management with significant
experience in areas that are expected to contribute to the implementation of
its current operating plan.
On October 1, 1999, the Registrant appointed Thomas Brandenburg to
serve as interim Chief Executive Officer (CEO) and Robert Luth as Chief
Financial Officer. Mr. Brandenburg served as interim CEO from October 1, 1999
through December 31, 1999. Effective January 1, 2000, Mr. Brandenburg became
CEO of the Registrant. Due to personal circumstances, Mr. Luth was unable to
assume the CFO position. The Registrant is now seeking a qualified individual
15
<PAGE>
to serve in this position. In addition, on March 2, 2000, the Registrant
appointed Robert J. Andresen to serve as President.
16
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY.
The Registrant's principal office is located at 3838 Camino Del Rio
North, Suite 333, San Diego CA 92108. This office acts as the Registrant's
U.S. office and is approximately 1,300 square feet and is shared with the
Registrant's U.S. Counsel at no cost to the Registrant.
The Registrant also operates offices in Vancouver, British Columbia,
Hong Kong and Shenzhen, China.
The Vancouver office occupies approximately 1,000 square feet and is
located at Suite 910-510 Burrard Street, Vancouver BC, Canada V6C 3A8. The
Registrant leases this space for approximately $3,300 per month on a
month-to-month basis from Thomas J. Kennedy who is an officer and director of
the Registrant.
The Hong Kong office occupies approximately 1,000 square feet and is
located at 1601 Causeway Bay Plaza 1, 489 Hennessy Road, Hong Kong. The
Registrant leases this space for $800 per month on a month-to-month basis.
The Shenzhen office occupies approximately 2,000 square feet and is
located at Room 201, Tower B, Fujian Building, Caitain South Road, Fujian
District, Shenzhen city, Quondong Province, China 518026. The Registrant
leases this space for $1,500 per month on a month to month basis.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as to the shares of
common stock owned as of March 31, 2000:
I. Each person who beneficially owns so far as the Registrant has
been able to ascertain, more than 5% of the 17,788,275
outstanding shares of the Registrant.
II. Each director.
III. Each of the officers named in the summary compensation table.
IV. All the directors and officers as a group unless otherwise
indicated in the footnotes below on the table is subject to
community property laws where applicable, the persons as to whom
the information is given has sole investment power over the
shares of common stock.
17
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL BENEFICIAL OWNER NUMBER OF SHARES PERCENT
---- -------------------------- ---------------- -------
<S> <C> <C> <C>
1. Sino Concourse Limited(1) Mr. Yip & Mr. Lum 1,875,000 10%
2. Sinoway Technology Ltd.(2) Mr. Joseph Li 1,825,000 10%
3. Braveheart Inc.(3) Mr. Roger Burns & 1,494,000 8.3%
Mr. Jeffery Mill
4. Ricky Ming Wah Ng 1,250,000 7.0%
5. Terry Wong 588,000 3.3%
6. Thomas J. Kennedy -0- 0%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following table sets forth information regarding the directors, executive
officers, promoters and control persons of the Registrant as of December 31,
1999:
<TABLE>
<CAPTION>
NAME AGE POSITION TERM SERVED SINCE
---- --- -------- ---- ------------
<S> <C> <C> <C> <C>
1. Thomas C. Brandenburg 64 CEO & Director 2yrs 10/99
2. Terry Wong(4) 40 President, Chief Operating 2yrs 10/97
Officer & Director
3. Thomas J. Kennedy 50 Secretary, Treasurer & 2yrs 10/97
Director
</TABLE>
The following table sets forth information regarding the directors, executive
officers, promoters and control persons of the Registrant as of the date hereof:
- ---------------------
(1) Sino Concourse Limited, is a Hong Kong limited liability company of which
Mr. Yip owns 80% and Mr. Lum owns 20%.
(2) Mr. Joseph Li is 100% owner of the issued and outstanding shares of
Sinoway Technology Ltd., a Hong Kong limited liability company.
(3) Messrs. Roger Burns and Jeffery Mill were the beneficial owners of the
Registrant's common stock which was issued as collateral for a financing
transaction. As of January 1, 2000, the transaction was rescinded and the
shares were returned to the Registrant and cancelled.
(4) Mr. Wong resigned as President of the Registrant as of March 2, 2000 and
Mr. Robert J. Andresen was appointed as President on the same day.
18
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION TERM SERVED SINCE
---- --- -------- ---- ------------
<S> <C> <C> <C> <C>
1. Thomas C. Brandenburg 64 CEO & Director 2yrs 10/99
2. Robert J Andresen 53 President & Director 2yrs 03/00
3. Thomas J. Kennedy 50 Secretary, Treasurer & 2yrs 10/97
Director
4. Terry Wong 40 Vice Chairman & Director 2yrs 10/97
</TABLE>
THOMAS C. BRANDENBURG
Mr. Brandenburg became a director of the Registrant on October 1, 1999.
He served as interim CEO of the Registrant from October 1, 1999 until December
31, 1999 and has served as CEO since January 1, 2000.
Prior to joining the Registrant, Mr. Brandenburg founded US Network
Corporation Inc., the first company to negotiate territory wide term and volume
based resale contracts with any US Regional Bell Operating Company (RBOC)
concluding contracts with Nynex and Ameritech. Prior to his five-year
involvement with that firm, he was the founding chairman of Litel, Inc. from
1984-1988. He commenced his involvement in the communications industry in 1978,
providing equity to an MCI reseller, United Networks Corp. in Dallas and
subsequently selling the company to US Tel. From 1974-1978 Mr. Brandenburg
served as President and CEO of Rocky Mountain Industries managing and operating
oil ventures in California and Canada, an auto leasing company, a specialty
steel company and land development activities. Prior to this, he was the Senior
Vice President of Graham Loving & Company, a private brokerage firm. He held a
ten year position as Senior Superintendent for Zurich American Insurance Group
from 1960 to 1970.
Mr. Brandenburg holds a Bachelors and Masters of Art in Literature
from the University of Notre Dame.
ROBERT J. ANDRESEN
Mr. Andresen has served as Director and Chief Operating Officer of the
Registrant since January 10, 2000 and as President since March 2, 2000.
Prior to joining the Registrant, Mr. Andresen served as Regional Vice
President for two major voice/data network companies, WILTEL from 1991 to 1993
and WANG LABS from 1987 to 1991, and as General Manager for US Network Inc., a
major reseller of local RBOC services from 1995 to 1997. He was recruited by the
Registrant, away from Focal Communications, a competitive local exchange carrier
where he was responsible for the sales and customer
19
<PAGE>
support in the New York Metro territory. He has directed the design and
implementation of major computer and telecom systems for municipalities and
private sector firms representing long-term projects of up to $15 million.
Robert Andresen holds a Master of Business Administration in Finance
from Long Island University and a Bachelor of Arts in Psychology from
Brooklyn College. He is a Certified Electronics Technician of the U.S. Marine
Corps.
TERRY WONG
Mr. Wong has been a Director of the Registrant since March 1998, and
has served as President of the Registrant from March 1998 until March 2,
2000, when he became Vice Chairman.
Mr. Wong was the President of Fortune Maple Capital Ltd. (Hong
Kong/Canada) from 1989 to 1997. During this time he was instrumental in
setting up major telecommunications projects in North Eastern China and
developing a strategic joint-venture partnership with China's Post and
Telecom real estate development projects in Canada and China in excess of $80
million. He was also involved in investments in high-growth, high-technology
companies in both Asia and North America. From 1984 to 1994, he held the
position of director of sales and marketing for Tak Kee Stevedoring and
Shipping (Hong Kong) where he was responsible for increasing sales for the
company at an annual average rate of 65% during the ten year period and
opened major markets for the company in both China and Malaysia. Mr. Wong
received a BA Commerce degree, with a focus on finance, from Simon Fraser
University, Vancouver, BC in 1982 and was enrolled in the Master of Economics
program the following year.
THOMAS J. KENNEDY
Mr. Kennedy has served as a Director and Secretary and Treasurer of
the Registrant since March 1998.
Mr. Kennedy has been practicing as a barrister, solicitor and
management consultant since 1991. Between 1981 and 1991, Mr. Kennedy was Vice
Chairman of the Workers Compensation Review Board. Prior to this, he served
as a prosecutor for the Canadian Department of Justice, Vancouver regional
office. From 1991 to present, he has held the position of Director for three
public companies: Global Tree Technologies Inc., Rock Resources Inc. and
Nu-Lite Industries Ltd. Mr. Kennedy received a Bachelor of Commerce and
Business Administration degree in 1973 and a Bachelor of Law degree in 1974
from the University of BC in Vancouver and was admitted to the Law Society of
BC in 1975.
20
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
Mr. Terry Wong, the President, and Mr. Thomas Kennedy, the Secretary
and Treasurer, were the only full time executive officers of the Registrant
during the period ended December 31, 1999. Mr. Brandenburg served as interim
CEO from October 1, 1999 to December 31, 1999. Effective January 1, 2000, Mr.
Brandenburg became CEO. Mr. Andresen became President effective March 2, 2000.
No executive officer or director of the Registrant received any cash
or non-cash compensation in excess of $100,000 in the years ended December
31, 1999 or 1998. The following sets forth information concerning all cash
and non-cash compensation awarded to the Registrant's executive officers in
excess of $100,000 for the year ended December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------- ----------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------- ------------------------ ---------------------
AWARDS PAYOUTS
------------------------ ---------------------
SECURITIES
RESTRICTED UNDER-
OTHER STOCK LYING ALL OTHER
ANNUAL AWARD(S) OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ---------------------------------- -------- ------------ --------- -------------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Brandenburg, CEO 1999 0(1) 0 89,900(2) 0 0 0 0
- ---------------------------------- -------- ------------ --------- -------------- ------------ ------------ --------- -----------
Thomas Kennedy 1999 0 0 0 0 0 0 0
Director
- ---------------------------------- -------- ------------ --------- -------------- ------------ ------------ --------- -----------
Terry Wong 1999 0 0 0 0 0 0 0
President
- ---------------------------------- -------- ------------ --------- -------------- ------------ ------------ --------- -----------
</TABLE>
- ---------------------
(1) Under the terms of his employment agreement with the Registrant, Mr.
Brandenburg did not receive a salary in the year ended December 31, 1999.
(2) Represents fees paid in 1999 for services as a consultant and interim CEO.
21
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
- ---------------------------------------------- -------------------- ------------------- ----------------- ------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR ($/SH)
- ---------------------------------------------- -------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Thomas C. Brandenburg 1,000,000 76.92% $1.56 09/23/2002
-------------------- ------------------- ----------------- ------------------
Terry Wong 200,000 15.38% $1.25 09/28/2002
-------------------- ------------------- ----------------- ------------------
Thomas Kennedy 100,000 7.69% $1.25 09/28/2002
- ---------------------------------------------- -------------------- ------------------- ----------------- ------------------
</TABLE>
Under the terms of his employment agreement with the Company, Mr.
Brandenburg received a one-time signing bonus of $95,000, which will be paid in
2000. Mr. Brandenburg is entitled to receive base annual compensation of not
less than $360,000 during the three year term of his employment agreement with
the Registrant, and has been receiving his base compensation since January 1,
2000. In addition, the Board of Directors of the Company has approved a grant to
Mr. Brandenburg of options to acquire 1,000,000 shares of common stock, which
are exercisable at an exercise price of $1.65 per share and expire on September
23, 2002. Such options are required to be granted under an incentive stock
option plan that qualifies under Section 422A of the Internal Revenue Code to be
adopted by the Registrant subject to any required stockholder approval. The
Registrant has not adopted such a plan as of the date hereof.
Under his employment agreement with the Registrant, Mr. Andresen
will receive a one-time signing bonus of $50,000, which will be paid in 2000.
Mr. Andresen is entitled to receive base annual compensation of not less than
$200,000 during the three year term of his employment agreement, and has been
receiving his base compensation since January 10, 2000. In addition, the
Board of Directors of the Company has approved a grant to Mr. Andresen of
warrants or nonqualified options to acquire 500,000 shares of common stock.
Such warrants or nonqualified options will be exercisable at an exercise
price to be determined by the Board of Directors of the Registrant.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant leases office space in Vancouver B.C. from one of its
officers and directors, Thomas Kennedy. The Vancouver office occupies
approximately 1,000 square feet and is located at Suite 910-510 Burrard
Street, Vancouver BC, Canada V6C 3A8. The Registrant leases this space for
approximately US$3,300 per month on a month-to-month basis. There were no
other transactions during the last two years, or proposed transactions, to
which
22
<PAGE>
the Registrant was or is to be a party, in which any director, executive
officer, nominee for directorship, security holder or immediate family member
had a direct or indirect material interest as defined by Rule 404 of Regulation
S-B.
ITEM 8. DESCRIPTION OF SECURITIES.
(A) COMMON STOCK: At December 31, 1999, the Registrant had
16,788,275 shares of the common stock outstanding. The Registrant's
certificate of Amendment of Articles of Incorporation, filed March 24, 1998
authorized the issuance of up to 25,000,000 of the Registrant's common equity
shares with a par value of $0.001. Holders of shares of the common stock are
entitled to one vote for each share on all matters to be voted on by the
shareholders. Holders of common stock have no cumulative voting rights.
Holders of shares of common stock are entitled to share proratably in
dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion, from funds legally available therefore.
In the event of a liquidation, dissolution or winding up of the
Registrant, the holders of shares of common stock are entitled to share pro
rata all assets remaining after payments in full of all liabilities. Holders
of common stock have no preemptive rights to purchase the Registrant's common
stock. All of the outstanding shares of common stock are fully paid and
non-assessable.
(B) PREFERRED STOCK: The Registrant is also authorized to issue
5,000,000 shares of preferred stock with a par value of $0.01. The
Registrant's Board of Directors may fix and determine the designations,
rights, preferences or other rights, preferences or other variations of each
class or series of the preferred stock. At this time the Registrant has not
issued any preferred stock.
23
<PAGE>
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND OTHER
STOCKHOLDER MATTERS.
(A) MARKET INFORMATION: The Registrant's common stock trades on the
NASDAQ Pink Sheets under the symbol GTCI. The Registrant's common stock price as
of the close of business on March 31, 2000 was $1.83 per share.
(B) PRICE RANGE: The following is the range of the high and low bids
for the Registrant's common stock for each quarter within the last two fiscal
years as determined by the over-the counter market. Quotations reflect
inter-dealer prices, without retail market, mark-down or commission and may
not represent actual transactions.
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
- --------------- -------------- -------------- -------------- -------------- --------------- --------------
QUARTER HIGH BID LOW BID HIGH BID LOW BID HIGH BID LOW BID
- --------------- -------------- -------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MARCH $6.00 1 1/2 9/16 3/8 1 31/32 1 3/32
JUNE $3.06 1 1/8 15/16 7/16 3 27/32 1 11/16
SEPT. 11/12 1 1/8 13/16 5/16 2 7/16 1 1/2
DEC. 1 7/16 1 1/8 13/32 2 5/16 1 11/16
- --------------- -------------- -------------- -------------- -------------- --------------- --------------
</TABLE>
(C) HOLDERS: The Registrant has approximately 329 common stock
shareholders.
(D) DIVIDENDS: The Registrant has never paid a cash dividend. It is
the present policy of the Registrant to retain any extra profits to finance
growth and development of the business. Therefore, the Registrant does not
anticipate paying cash dividends on its common stock in the foreseeable
future.
ITEM 2. LEGAL PROCEEDINGS.
The Registrant is not involved in any legal proceedings.
24
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Registrant's principal independent accountant has not resigned,
declined to stand for re-election, nor were they dismissed. The principal
accountant's report on the financial statements for the last two years
contains no adverse opinion or disclaimer of opinion, nor were they modified
as to uncertainty, audit scope, or accounting principles. There have been no
disagreements with any former accountants or any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
(A) RECENT SALES: The Registrant had the following stock issuances as
described below. All such shares were sold by the officers and directors of the
Registrant and no underwriters were utilized.
1. On June 23, 1997, 90,000 shares of common stock were issued in
exchange for all of the issued and outstanding shares of Chow's
Consulting Corporation.
2. On October 23, 1997, 3,000,000 shares of common stock at $.01
per share pursuant to Regulation D, Rule 504 Offering for a
total offering of $30,000.
3. On January 16, 1998, 1,140,142 shares of common stock at $.50
per share pursuant to a Regulation D, Rule 504 Offering for a
total offering of $570,071. Of this offering, a total of
$180,800 was for cash and the balance of $389,271 was for the
cancellation of debt.
4. On February 9, 1998, 1,500,000 shares of common stock were
issued in exchange for all of the issued and outstanding shares
of Planet City Graphics Corp.
5. On February 9, 1998, 500,000 shares of common stock were issued
in exchange for all of the issued and outstanding shares of
Webworks Multimedia Corporation.
6. On April 16, 1998, 4,950,000 shares of common stock were issued
in exchange for all of the issued and outstanding shares of
Regent Luck Holdings Limited. The Share Exchange Agreement
called for the issuance of a total of 5,000,000 shares, but due
to an oversight on the
25
<PAGE>
part of the Registrant's Stock Transfer Agent, only 4,950,000
shares were in fact issued.
7. On January 16, 1999, 700,000 shares of common stock at $.25 per
share pursuant to a Regulation D, Rule 504 Offering for a total
offering of $175,000.
8. On January 20, 1999, 1,574,000 shares of common stock at $.50
per share pursuant to a Regulation D, Rule 504 Offering for a
total offering of $784,500.
9. On January 20, 1999, 80,000 shares of common stock pursuant to
Regulation D Rule, 504 Offering to settle $40,000 worth of debt
owed to Koo and Partners for the Company's legal fees for 1998.
10. On March 9, 1999, 600,000 shares of common stock were issued
in exchange for 51% of the issued and outstanding shares of
Pacific Asset International Ltd.
11. On March 15, 1999, 200,000 shares of common stock at $1.00 per
share for a total offering of $200,000.
12. On March 19, 1999, 200,000 shares of common stock at $1.00 per
share for a total offering of $200,000.
13. On March 26, 1999, 100,000 shares of common stock at $1.00 per
share for a total offering of $100,000.
14. On April 16, 1999, 200,000 shares of common stock at $1.00 per
share for a total offering of $200,000.
15. On June 14, 1999, 277,778 shares of common stock at $.72 for a
total offering of $200,000.
16. On June 28, 1999, 1,494,000 shares were issued as collateral for
a loan amount to be determined by the Registrant's trading share
price at the time of funding. The loan was not funded and the
collateral shares were cancelled on January 31, 2000.
17. On July 27, 1999, 69,444 shares of common stock at $.72 per
share for a total offering of $50,000.
18. On August 3, 1999, 69,445 shares of common stock at $.72 per
share for a total offering of $50,000.
26
<PAGE>
19. On August 30, 1999, 25,000 shares of common stock at $2.00 per
share for a total offering of $50,000.
20. On September 20, 1999, 125,000 shares of common stock at $.80
per share for a total offering of $100,000.
21. On October 13, 1999, 100,000 shares of common stock at $1.00 per
share for a total offering of $100,000.
22. On October 20, 1999, 212,766 shares of common stock at $.94 per
share for a total offering of $200,000.
23. On November 29,1999, 1,050,000 shares of common stock at $1.20
per share for a total offering of $1,260,000.
24. On December 20, 1999, 6,383 shares of common stock was issued
for stock offering costs.
25. On December 29, 1999, 250,000 shares of common stock at $1.00
per share for a total offering of $250,000.
26. On December 30, 1999, 52,524 shares of common stock were issued
for settlement of a promissory note of $86,665.
27. On December 31, 1999, 250,000 shares of common stock at $1.00
per share for a total offering of $250,000.
28. On January 14, 2000, 500,000 shares of common stock were issued
at $1.00 per share for a total offering of $500,000.
29. January 28, 2000, 500,000 shares of common stock were issued
for 70% of Cyber 2000 Limited.
(B) EXEMPTIONS FROM REGISTRATION:
With respect to the issuance of the 3,000,000 common shares listed at
Item 4(a)2, the 1,140,142 shares listed at Item 4(a)3, the 700,000 common shares
listed at Item 4(a)7 and the 1,574,000 common share listed at Item 4(a)8, such
issuances were made in reliance on the private placement exemptions provided by
Section 4(2) of the Securities Act of 1933 as amended, (the "Act"), SEC
Regulation D,
27
<PAGE>
Rule 504 of the Act and Nevada Revised Statutes Sections 78.211, 78.215,
73.3784, 78.3785 and 78.3791 (collectively the "Nevada Statutes").
With respect to the issuance of the 90,000 common shares listed at Item
4(a)1, the 1,500,000 common shares listed at Item 4(a)4, the 500,000 common
shares listed at Item 4(a)5, the 4,950,000 common shares listed at Item 4(a)6,
the 80,000 shares listed at Item 4(a) 9, the 600,000 common shares listed at
Item 4(a)10, the 200,000 common shares listed at Item 4(a)11, the 200,000 common
shares listed at Item 4(a)12, the 100,000 common shares listed at Item 4(a)13,
the 200,000 shares listed at Item 4(a)14 the 277,778 shares listed at Item
4(a)15, the 1,494,000.shares listed at Item 4(a)16, the 69,444 shares listed at
Item 4(a)17, the 69,445 shares listed at Item 4(a)18, the 25,000 shares listed
at Item 4(a)19, the 125,000 shares listed at Item 4(a)20, the 100,000 shares
listed at Item 4(a)21, the 212,766 shares listed at Item 4(a)22, the 1,050,000
shares listed at Item 4(a)23, the 6,383 shares listed at Item 4(a)24, the
250,000 shares listed at Item4(a)25, the 52,524 shares listed at Item 4(a)26,
the 250,000 shares listed at Item 4(a)27, the 500,000 shares listed at
Item4(a)28 and the 500,000 shares listed at Item 4(a)29 such issuances were made
in reliance upon the private placement exemptions provided by Section 4(2) of
the Act and the Nevada Statutes.
In each instance, each of the purchasers of such shares had access to
sufficient information regarding the Registrant so as to make an informed
investment decision. More specifically, each purchaser signed either a written
Subscription Agreement, a Share Exchange Agreement, a Share Purchase Agreement
or a Collateral Loan Agreement, with respect to their financial status and
investment sophistication wherein they warranted and represented, among other
things, the following:
1. That they had the ability to bear the economic risks of investing in
the shares of the Registrant.
2. That they had sufficient knowledge in financial, business, or
investment matters to evaluate the merits and risks of the investment.
3. That they had a certain net worth sufficient to meet the suitability
standards of the Registrant.
4. That the Registrant has made available to them, their counsel and their
advisors, the opportunity to ask questions and that they have been
given access to any information, documents, financial statements, books
and records relative to the Registrant and an investment in the shares
of the Registrant.
28
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and Bylaws of the Registrant provide
for indemnification of the Registrant's officers and directors for
liabilities arising due to certain acts performed on behalf of the Registrant
that are not a result of any act or omission by any such director or officer:
provided, however, that the foregoing provision shall not eliminate or limit
the liability of directors or officers (i) for acts or omissions which
involve intentional misconduct, fraud or a knowing violation of the law, or
(ii) the payment of dividends in violation of section 78.300 of the Nevada
Revised Status. Although the state statutes allow for indemnification of
officers and directors, the SEC rules prohibit indemnification of officers
and directors of publicly held companies.
29
<PAGE>
PART F/S
The following financial statements are submitted pursuant to the
information required by Item 310 of Regulation S-B:
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NO. DESCRIPTION
---- -----------
<S> <C>
FS-1 Global Telephone Communication, Inc. and
Subsidiaries Consolidated Financial Statements for
Years Ended December 31, 1999 and 1998.
FS-2 Planet City Graphics Corporation Financial
Statements December 31, 1997.
FS-3 Webworks Multimedia Corporation Financial
Statements December 31, 1997.
</TABLE>
30
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
The exhibits listed and described below in Item 2 are filed herein
as the part of this Registration Statement.
ITEM 2. DESCRIPTION OF EXHIBITS.
The following documents are filed herein as Exhibit Numbers 2, 3,
5, 6 and 7 as required by Part III of Form 1-A:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2 CHARTER AND BY-LAWS
2.1 Articles of Merger Merging Global Telephone
Communication, Inc. (a Utah Corporation) into Global
Telephone Communication, Inc. (a Nevada Corporation)
2.2 Articles of Incorporation of Global Telephone
Communication, Inc.
2.3 Articles of Amendment and Restatement to Articles of
Incorporation of Dynasty TMT Corp.
2.4 Articles of Amendment to Articles of Incorporation of
Dynasty TMT Corp.
2.5 Articles of Amendment to the Articles of Incorporation
of Dynasty TMT Corp.
2.6 Articles of Incorporation of Dynasty Ore and Minerals
Corporation
2.7 By-Laws of Global Telephone Communication, Inc.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
NONE INSTRUMENTS REFINING THE RIGHTS OF SECURITY HOLDERS
NONE VOTING TRUST AGREEMENTS
6 MATERIAL CONTRACTS
6.1 Share Exchange Acknowledgement - of Webworks
Multimedia Corp.
6.2 Share Exchange Acknowledgements - Planet City
Graphics Corp.
6.3 Share Exchange Agreement with Regent Luck Holdings
Ltd.
6.4 Amendment of Share Exchange Agreement with Regent
Luck Holdings Ltd.
6.5 Joint Venture Agreement between Shenzhen Xun Yun Yun
Da Electronics Co. Ltd. and Regent Luck Holdings Ltd.
for Shenzhen Global Net Computer Information Co. Ltd.
6.6 Agency Agreement between Shenzhen Newsnet Information
Co. and Shenzhen Global Net Computer Information Co.
Ltd.
6.7 Telecommunication Business Operation Approval of
Peoples Republic of China for Shenzhen Newsagent Co.
Ltd.
6.8 Share Exchange Agreement with Pacific Asset
International Ltd.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
6.9 Consulting Agreement with Lions Peak Capital ltd.
6.10 Consulting Agreement with Milan Financial Inc.
6.11 Revenue Participation and Option to Purchase Agreement
6.12 Mutual Rescission Agreement Between Global Telephone
Communication, Inc. and Planet City Graphics Corp.
6.13 Mutual Rescission Agreement Between Global Telephone
Communication, Inc. and Webworks Multimedia
Corporation
6.14 Yamaha Promotional Calling Card Program
6.15 First Continental Capital L.P. Revenue Participation
Agreement
6.16 Employment Agreement with Robert J. Andresen
6.17 Employment Agreement with Thomas C. Brandenburg
6.18 15% Convertible Promissory Note
27 FINANCIAL DATA SCHEDULE
</TABLE>
33
<PAGE>
SIGNATURES
In accordance with Section 12 the Securities and Exchange Act of
1934 the Registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLOBAL TELEPHONE
COMMUNICATION, INC.
DATED: May 11, 2000 BY: /s/ ROBERT ANDRESEN
-------------------
ROBERT ANDRESEN
President
34
<PAGE>
EXHIBIT FS-1
GLOBAL TELEPHONE COMMUNICATION,
INC. AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS FOR YEARS ENDED
DECEMBER 31, 1999 AND 1998
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
PART F/S
The following financial statements are submitted pursuant to the
information required by Item 310 of Regulation S-B:
4. FINANCIAL STATEMENTS
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report........................................................................... F-2
Consolidated Balance Sheets............................................................................ F-3
Consolidated Statements of Operations.................................................................. F-5
Consolidated Statements of Stockholders' Equity........................................................ F-6
Consolidated Statements of Cash Flows.................................................................. F-9
Notes to the Consolidated Financial Statements.........................................................F-11
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Global Telephone Communication, Inc. and Subsidiaries
(A Development Stage Company)
Vancouver, British Columbia, Canada
We have audited the accompanying consolidated balance sheet of Global Telephone
Communication, Inc. and Subsidiaries (a development stage company) as of
December 31, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998 and from inception on March 10, 1970 through December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Global
Telephone Communication, Inc. and Subsidiaries (a development stage company) as
of December 31, 1999 and the results of their consolidated operations and their
cash flows for the years ended December 31, 1999 and 1998 and from inception on
March 10, 1970 through December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has no significant operating
results to date, which raises substantial doubt about its ability to continue as
a doing concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
April 11, 2000
F-2
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
CURRENT ASSETS
Cash $ 1,485,896
Restricted cash (note 3) 850,000
Notes receivable - related party, net 50,500
Investments 2,657
-----------------
Total Current Assets 2,389,053
-----------------
FIXED ASSETS, NET (Note 10) 36,825
-----------------
OTHER ASSETS
Deposits 1,495
-----------------
Total Other Assets 1,495
-----------------
TOTAL ASSETS $ 2,427,373
=================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 143,883
Accrued expenses (Note 3) 166,811
Notes payable (Note 3) 543,631
Shareholder payable (Note 4) 1,289
-----------------
Total Current Liabilities 855,614
-----------------
LONG-TERM DEBT -
-----------------
TOTAL LIABILITIES 855,614
-----------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY
Preferred stock: 5,000,000 shares authorized of
$1.00 par value, -0- shares issued and outstanding
Common stock: 25,000,000 shares authorized of
$0.001 par value, 16,788,275 shares issued
and outstanding, respectively 16,788
Additional paid-in capital 5,359,665
Deficit accumulated during the development stage (3,804,694)
-----------------
Total Stockholders' Equity 1,571,759
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,427,373
=================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception on
March 10,
For the Years Ended 1970 Through
December 31, December 31
1999 1998 1999
------------- ------------- ---------------
<S> <C> <C> <C>
REVENUES $ - $ 4,705 $ 4,705
------------- ------------- ---------------
OPERATING EXPENSES
General and administrative 3,535,707 407,554 3,989,903
Depreciation expense 8,889 373 9,262
------------- ------------- ---------------
Total Operating Expenses 3,544,596 407,927 3,999,165
------------- ------------- ---------------
OPERATING LOSS (3,544,596) (403,222) (3,994,460)
------------- ------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 7,003 - 7,003
Interest expense (9,198) (8,150) (17,348)
------------- ------------- ---------------
Total Other Income (Expense) (2,195) (8,150) (10,345)
------------- ------------- ---------------
Loss Before Discontinued Operations (3,546,791) (411,372) (4,004,805)
GAIN FROM DISCONTINUED OPERATIONS (Note 5) 848,891 (11,253) (251,441)
GAIN ON DISCONTINUED OPERATIONS 451,552 - 451,552
------------- ------------- ---------------
NET LOSS $ (2,246,348) $ (422,625) $ (3,804,694)
============= ============= ===============
Continuing Operations $ (0.36) $ (0.04)
Discontinued operations 0.13 (0.01)
------------- -------------
NET LOSS PER SHARE OF COMMON STOCK $ (0.23) $ (0.05)
============= =============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 9,964,098 7,836,836
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid-in Development
Shares Amount Capital Stage
---------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, March 10, 1970 - $ - $ - $ -
Common stock issued for cash at
$16.00 per share during 1970 1,906 2 30,498 -
Common stock issued for services
rendered at $6.40 per share
during 1970 1,578 1 10,099 -
Common stock issued for cash
at $32.00 per share during 1971 4,075 4 130,396 -
Common stock issued for services
rendered at $15.52 per share during
the period of inception through 1983 11,641 12 180,581 -
Common stock issued for services
rendered at $6.40 per share
during 1988 2,817 3 18,027 -
Net loss from inception on
March 10, 1970 through
December 31, 1991 - - - (369,623)
---------------- ------------- ------------- -----------------
Balance, December 31, 1991 22,017 22 369,601 (369,623)
Net loss for the year ended
December 31, 1992 - - - (552)
---------------- ------------- ------------- -----------------
Balance, December 31, 1992 22,017 22 369,601 (370,175)
Net loss for the year ended
December 31, 1993 - - - (100)
---------------- ------------- ------------- -----------------
Balance, December 31, 1993 22,017 22 369,601 (370,275)
Common stock issued for services
rendered at $6.40 per share on
August 1, 1994 43,750 44 279,956 -
Net loss for the year ended
December 31, 1994 - - - (280,100)
---------------- ------------- ------------- -----------------
Balance, December 31, 1994 65,767 $ 66 $ 649,557 $ (650,375)
---------------- ------------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
--------------------------------- Paid-in Development
Shares Amount Capital Stage
---------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 65,767 $ 66 $ 649,557 $ (650,375)
Net loss for the year ended
December 31, 1995 - - - (4,053)
---------------- ------------- ------------- -----------------
Balance, December 31, 1995 65,767 66 649,557 (654,428)
Expenses paid on the Company's
behalf by a shareholder - - 716 -
Common stock issued for cash at
$0.01 per share on July 23, 1996 1,000,000 1,000 39,000 -
Fractional shares issued in
conjunction with a 1-for-80 reverse
stock split 33 - - -
Fractional shares issued in conjunction
with a 3-for-1 forward stock split 34 - - -
Net loss for the year ended
December 31, 1996 - - - (347,222)
---------------- ------------- ------------- -----------------
Balance, December 31, 1996 1,065,834 1,066 689,273 (1,001,650)
Common stock issued to acquire
Chow's Consulting Corporation
on April 30, 1997 recorded at
predecessor cost of $0.00 90,000 90 (90) -
Fractional shares canceled in
conjunction with a 1-for-6
reverse stock split (41) - - -
Common stock issued for cash
at $0.01 per share 3,000,000 3,000 28,000 -
Net loss for the year ended
December 31, 1997 - - - (134,071)
---------------- ------------- ------------- -----------------
Balance, December 31, 1997 4,155,793 $ 4,156 $ 717,183 $ (1,135,721)
---------------- ------------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
--------------------------------- Paid-in Development
Shares Amount Capital Stage
---------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 4,155,793 $ 4,156 $ 717,183 $ (1,135,721)
Common stock issued to acquire
subsidiaries 6,950,000 6,950 (6,950) -
Common stock issued for cash
at $0.50 per share 1,140,142 1,140 568,931 -
Net loss for the year ended
December 31, 1998 - - - (422,625)
---------------- ------------- ------------- -----------------
Balance, December 31, 1998 12,245,935 12,246 1,279,164 (1,558,346)
Common stock issued to acquire
subsidiaries 600,000 600 839,400 -
Common stock issued for cash from $0.50
to $2.00 ($0.78 average) per share 5,483,433 5,483 4,204,017 -
Stock offering costs paid 6,383 6 (56,753) -
Rescinded acquisitions (2,000,000) (2,000) (1,998,000) -
Debt converted to equity at
$1.65 per share 52,524 53 86,612 -
Discount on options - - 505,625 -
Common stock issued for services at
$1.25 per share 400,000 400 499,600 -
Net loss for the year ended
December 31, 1999 - - - (2,246,348)
---------------- ------------- ------------- -----------------
Balance, December 31, 1999 16,788,275 $ 16,788 $ 5,359,665 $ (3,804,694)
================ ============= ============= =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception on
March 10,
For the Years Ended 1970 Through
December 31, December 31
1999 1998 1999
------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,246,348) $ (422,625) $ (3,804,694)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation expense 9,072 57,836 66,908
Allowance for bad debts 49,500 - 49,500
Common stock and options
issued for services and expenses
paid on behalf of the Company 1,005,625 - 1,495,064
Changes in operating assets and liabilities:
Increase (decrease) in restricted stock (850,000) - (850,000)
Increase (decrease) in inventories (2,657) - (2,657)
(Increase) decrease in stock
offering costs - 8,204 -
(Increase) decrease in accounts
receivable (100,000) (5,928) (105,928)
(Increase) decrease in other assets - (180,873) (180,873)
Increase (decrease) in deposits for 504 (785) (170,780) (785)
Increase (decrease) in accounts payable (11,658) 151,033 146,490
Increase (decrease) in accrued expenses 164,179 (30,931) 177,240
------------- ------------- ---------------
Net Cash (Used) by Operating Activities (1,983,072) (594,064) (3,009,735)
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid out of discontinued operations (1,205,413) - (1,205,413)
Purchase of fixed assets (39,685) (209,038) (248,723)
------------- ------------- ---------------
Net Cash (Used) by Investing Activities (1,245,098) (209,038) (1,454,136)
------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 544,921 95,180 995,101
Common stock issued for cash 4,152,753 570,071 4,954,664
------------- ------------- ---------------
Net Cash Provided by Financing Activities $ 4,697,674 $ 665,251 $ 5,949,765
------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception on
March 10,
For the Years Ended 1970 Through
December 31, December 31
1999 1998 1999
------------- ------------- ---------------
<S> <C> <C> <C>
NET INCREASE (DECREASE ) IN CASH AND
CASH EQUIVALENTS $ 1,469,504 $ (137,851) $ 1,485,894
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 16,390 154,241 -
------------- ------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,485,894 $ 16,390 $ 1,485,894
============= ============= ===============
CASH PAID FOR:
Interest $ 9,198 $ 66,384 $ 75,582
Income taxes $ - $ - $ -
NON-CASH FINANCING
ACTIVITIES:
Common stock and options issued for
services rendered and expenses
paid on behalf of the Company $ 1,005,625 $ - $ 1,495,064
Common stock issued for subsidiaries $ 840,000 $ - $ 840,000
Common stock rescinded for subsidiaries $ (2,000,000) $ - $ (2,000,000)
Common stock issued for debt $ 86,665 $ - $ 86,665
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Global Telephone
Communication, Inc. The Company was incorporated on March 10,
1970 for the purpose of raising capital to develop and possibly
mine certain oil and mineral deposits. The Company was unable to
raise development money and the Company's operations ceased and
the mineral deposits were abandoned. The Company has been seeking
new business opportunities believed to hold a potential profit.
The Company changed its name to Global Telephone Communication,
Inc. on October 14, 1997.
On June 23, 1997, the Company acquired all of the outstanding
shares of Chow's Consulting Corporation (Chow's) for 90,000
common shares of the capital stock of the Company. The only asset
of Chow's was a mining claim which has since been deemed
worthless and Chow's was dissolved.
On February 9, 1998, the Company acquired all of the issued and
outstanding shares of an operating multimedia company, Planet
City Graphics Corp. (Planet City), a private company incorporated
under the laws of British Columbia, Canada, having its office in
Vancouver, B.C. The Company issued a total of 1,500,000 common
shares in exchange for all the issued and outstanding shares of
Planet City. There was no cash consideration and the Company
accounted for the acquisition of all the shares of Planet City as
a purchase and an acquisition of a wholly-owned subsidiary. There
was no adjustment to the carrying value of the assets or
liabilities of Planet City. The acquisition was rescinded on
October 1, 1999.
On February 9, 1998, the Company acquired all of the issued and
outstanding shares of an operating multimedia company, Webworks
Multimedia Corporation (Webworks), a private company incorporated
under the laws of British Columbia, Canada, having its office in
Vancouver, B.C. The Company issued a total of 500,000 common
shares in exchange for all the issued and outstanding shares of
Webworks. There was no cash consideration and the Company
accounted for the acquisition of all the shares as a purchase and
an acquisition of a wholly-owned subsidiary. There was no
adjustment to the carrying value of the assets or liabilities of
Webworks. The acquisition was rescinded on October 1, 1999.
On March 24, 1998, the Company changed its domicile from the
State of Utah to the State of Nevada.
On April 16, 1998, the Company entered into a Share Exchange
Agreement with Regent Luck Holdings Limited (Regent), a Hong Kong
corporation, with offices in Hong Kong, whereby the Company
acquired all the issued and outstanding shares of Regent by
issuing and exchanging 4,950,000 shares of the Company to the
shareholders of Regent.
F-11
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND HISTORY (Continued)
Regent has a ninety percent (90%) ownership and interest in a
joint venture company, Shenzhen Global Net Computer Information
Co. Ltd. (SGNCI), organized under the laws of The Peoples
Republic of China, with Shenzhen Newsnet Co. Ltd.
Shenzhen Newsnet Co. Ltd. has obtained the Telecommunications
Business Operation Approval (No. GDSZ P90007) which allows it to
carry out computer information internet service.
Shenzhen Newsnet Co. Ltd. and the joint venture company, Shenzhen
Global Net Computer Information Co. Ltd. have entered into and
exclusive agency agreement for Shenzhen Global Net Computer
Information Co. Ltd. to act as exclusive agents to conduct all
telecommunications and internet business and services in
Shenzhen, Guangdong Province, PRC.
As part of the Share Exchange Agreement, the Company agreed to
provide funds as capital for the joint venture in the amount of
$1,300,000. As of December 31, 1999, the Company had met its
obligation to the joint venture.
The Company accounted for the acquisition of all the shares of
Regent as a purchase and an acquisition of a wholly-owned
subsidiary. There was no adjustment to the carrying value of the
assets or liabilities of Regent.
On March 7, 1999, the Company entered into a share exchange
agreement with Pacific Asset International Ltd. (PAI), a Hong
Kong Corporation, whereby the Company acquired 51% of the
outstanding shares of PAI by issuing and exchanging 600,000
shares of the Company's common stock to the shareholder's of PAI.
On October 1, 1999, the Company sold Planet City and Webworks
back to the original shareholders of the respective companies.
The Company returned to the shareholders all the issued and
outstanding shares of common stock of each Company in exchange
for the shares of the Company's common stock held by the
shareholders. There was no cash consideration and the Company
accounted for the disposition of all the shares of Planet City
and Webworks as discontinued operations. The statements of
operations of the Company have been adjusted to reflect the
disposition of the subsidiaries as discontinued operations
retroactively for the nine months ended September 30, 1999 and
the year ended December 31, 1998.
b. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments
with maturities of three months or less at the time of
acquisition.
F-12
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND HISTORY (Continued)
d. Basic Loss Per Share
The computations of basic loss per share of common stock are
based on the weighted average number of shares outstanding during
the period. Common stock equivalents are not included because
they are antidilutive.
e. Provision for Taxes
At December 31, 1999, the Company has net operating loss carry
forwards totaling approximately $3,700,000 that may be offset
against future taxable income through 2019. No tax benefit has
been reported in the financial statements because the Company
believes there is a 50% or greater chance the loss carryforwards
will expire unused. Accordingly, the potential tax benefits of
the loss carryforwards are offset by a valuation allowance of the
same amount.
f. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
g. Principles of Consolidation
The consolidated financial statements include those of Global
Telephone Communication, Inc. Shenzhen Global Net Computer
Information Co, Ltd., and Regent Luck Holdings Limited Ltd. No
loss has been attributed to the minority shareholder of SCNGI
because it has no basis in its shares. All material intercompany
accounts and transactions have been eliminated.
h. Marketable Securities
Marketable securities represent shares of stock which are
classified as trading securities and are carried at market value.
Any change in market value from period to period will be included
in earnings.
There are no unrealized gains or losses in either trading
securities at December 31, 1999.
i. Advertising
The Company follows the policy of charging the cost of
advertising to expense as incurred.
F-13
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND HISTORY (Continued)
j. Revenue Recognition
The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations
begin.
k. Costs of Developing Relationships, Opportunities and Acquiring
Licenses
Due to the uncertainty of the recoverability of such cost in
developing relationships, opportunities and in acquiring licenses
and approvals, these costs are expensed when incurred.
l. Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies
are translated into United States dollars at the period end
exchange rate. Non-monetary assets are translated at the
historical exchange rate and all income and expenses are
translated at the exchange rates prevailing during the period.
Foreign exchange currency translation adjustments will be
included in the stockholders' equity section.
m. Goodwill
The excess of the purchase price over the fair market value of
the assets and liabilities acquired in the purchase of PAI has
been recorded as goodwill. At December 31, 1999 the Company
recognized an impairment of the goodwill and expensed it in full.
NOTE 2 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the
Company does not have significant cash or other material assets,
nor does it have an established source of revenues sufficient to
cover its operating costs and to allow it to continue as a going
concern. It is the intent of the Company to enter the business of
internet service in China, build a fully integrated Asia-North
American Internet Protocol backbone network geared for internet
communication, the sales of phone cards internationally and to
participate in wholesale intercontinental telecommunications
transmissions. The Company intends to complete debt and equity
offerings to raise the funds to develop its businesses.
F-14
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - NOTES PAYABLE
Notes payable consisted of the following at December 31, 1999:
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
Promissory note to a bank at 6.435%,
due, secured by certificates of deposit. $ 543,631
-----------------
Total Notes Payable $ 543,631
=================
</TABLE>
NOTE 4 - STOCKHOLDER PAYABLE
The Company owes an officer of a subsidiary $1,289. The amount is
due upon demand, non interest bearing and unsecured.
NOTE 5 - INCOME (LOSS) FROM DISCONTINUED OPERATIONS
On October 1, 1999, the Board of Directors of the Company decided
to rescind the acquisitions of the Planet City and Webworks. The
following is the summary of the income (loss) from the
discontinued operations.
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Sales $ 99,921 $ 176,268
Operating expenses (112,447) (187,521)
Other income 975,172 -
Income tax expense (113,755) -
----------------- -----------------
Income (loss) from discontinued
operations $ 848,891 $ (11,253)
================= =================
</TABLE>
The Company retains no assets which were attributable to prior
operations. No income tax expense or benefit has been attributed
to the gain from the discontinued operations.
F-15
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - STOCK TRANSACTIONS
On June 26, 1996, the shareholders of the Company approved a
1-for-80 reverse stock split. The financial statements have been
restated to reflect this change retroactively to inception.
On December 12, 1996, the shareholders of the Company approved a
3-for-2 forward stock split. The financial statements have been
restated to reflect this change retroactively to inception.
On October 14, 1997, the shareholders of the Company approved a
1-for-6 reverse stock split. The financial statements have been
restated to reflect this change retroactively to inception.
On June 26, 1996, the shareholders of the Company approved a
change in the par value of its common stock to $0.001 from $0.01.
The financial statements have been restated to reflect this
change retroactively to inception.
NOTE 7 - STOCK OPTION PLAN
On October 14, 1997, the Company adopted the 1997 Stock Option
Plan (the "Plan"), initially reserving an aggregate of 166,667
shares of the Company's common stock (the "Available Shares") for
issuance pursuant to the exercise of stock options ("Options")
which may be granted to employees, officers, and directors of the
Company and consultants to the Company. The Plan provides for
annual adjustment in the number of Available Shares, commencing
December 31, 1997, to a number equal to 10% of the number of
shares outstanding on December 31 of the preceding year or
166,667 shares, whichever is greater. No options have been
granted as of December 31, 1999.
NOTE 8 - DEPOSIT FOR 504 OFFERING
On January 21, 1998, the Company completed a Rule 504 stock
offering. The Company had received $170,780 from investors in
1997. During 1998, the $170,780 was converted to common stock at
$0.50 per share.
NOTE 9 - COMMITMENTS
The Company is renting its office space for approximately $3,332
per month on a month-to-month basis.
F-16
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 10 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
Computer equipment $ 31,668
Office equipment 14,602
-----------------
Subtotal 46,270
Accumulated depreciation (9,445)
-----------------
Net property and equipment $ 36,825
=================
</TABLE>
Depreciation expense for the years ended December 31, 1999 and
1998 was $8,889 and $373, respectively.
Depreciation is computed using the straight-line method over the
estimated useful lives as follows:
<TABLE>
<S> <C>
Computer equipment 5 years
Office equipment 7 years
</TABLE>
NOTE 12 - SUBSEQUENT EVENTS
On January 14, 2000, the Company issued 500,000 shares of common
stock at $1.00 per share for a total of $500,000.
On January 28, 2000 the Company acquired 70% of Cyber 2000
Limited. This Hong Kong based company is developing voice over
internet protocol (VOIP) and is to become a provider of VOIP
re-sale services with major international telephone carriers, and
also intends to build its own internet provider backbone network.
Cyber 2000 has established arrangements with major carriers to
implement VOIP in Hong Kong and the Peoples Republic of China.
The Company acquired 70% of Cyber 2000 for investment of
approximately $2.5 million in cash and stock.
This subsidiary will be a facilities-based provider that will own
or lease a substantial portion of the property, plant and
equipment necessary to offer a broad range of integrated
communication services. Cyber 2000 will focus on international
wholesale telecommunication requirements and will sell both
origination and termination services.
F-17
<PAGE>
EXHIBIT FS-2
PLANET CITY GRAPHICS CORPORATION
FINANCIAL STATEMENTS DECEMBER 31, 1997.
<PAGE>
PLANET CITY GRAPHICS CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report............................................................................ 3
Balance Sheet........................................................................................... 4
Statements of Operations................................................................................ 6
Statements of Stockholders' Equity (Deficit)............................................................ 7
Statements of Cash Flows................................................................................ 8
Notes to the Financial Statements....................................................................... 9
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Planet City Graphics Corporation
Vancouver, British Columbia
We have audited the accompanying balance sheet of Planet City Graphics
Corporation as of December 31, 1997 and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1997 and
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Planet City Graphics
Corporation as of December 31, 1997 and the results of its operations and its
cash flows for the years ended December 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
May 1, 2000
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1997
-----------------
<S> <C>
CURRENT ASSETS
Cash $ 473
-----------------
Total Current Assets 473
-----------------
PROPERTY AND EQUIPMENT (Note 2)
Computer equipment 263,139
Computer software 21,897
Furniture and fixtures 32,010
Less: accumulated depreciation (107,160)
-----------------
Total Property and Equipment 209,886
-----------------
TOTAL ASSETS $ 210,359
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31,
1997
-----------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 5,470
Cash overdraft 50,954
Current portion of long-term lease (Note 3) 51,657
Notes payable (Note 6) 68,259
Notes payable - related parties (Note 4) 233,012
-----------------
Total Current Liabilities 409,352
-----------------
LONG-TERM DEBT
Lease obligations - long term (Note 3) 67,246
-----------------
Total Long-Term Debt 67,246
-----------------
Total Liabilities 476,598
-----------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 1,000,000 shares authorized, no par value
901 shares issued and outstanding 59
Accumulated deficit (266,298)
-----------------
Total Stockholders' Equity (Deficit) (266,239)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 210,359
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
REVENUES $ 233,631 $ 103,860
------------------ -----------------
EXPENSES
General and administrative 316,739 156,005
Depreciation 78,426 28,734
------------------ -----------------
Total Expenses 395,165 184,739
------------------ -----------------
OPERATING LOSS (161,534) (80,879)
------------------ -----------------
OTHER (EXPENSE)
Interest expense (20,808) (3,077)
------------------ -----------------
Total Other (Expense) (20,808) (3,077)
------------------ -----------------
NET LOSS $ (182,342) $ (83,956)
================== =================
BASIC LOSS PER SHARE $ (202.38) $ (93.18)
================== =================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Accumulated
-------------------------------------- -----------------
Shares Amount Deficit
------------------ ------------------ -----------------
<S> <C> <C> <C>
Balance, December 31, 1995 - $ - $ -
Common stock issued for cash 901 59 -
Net loss for the year ended
December 31, 1996 - - (83,956)
------------------ ------------------ -----------------
Balance, December 31, 1997 901 59 (83,956)
Net loss for the year ended
December 31, 1997 - - (182,342)
------------------ ------------------ -----------------
Balance, December 31, 1997 901 $ 59 $ (266,298)
================== ================== =================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------------
1997 1996
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (182,342) $ (83,956)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation expense 78,426 28,734
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses 4,006 (4,006)
Increase (decrease) in accounts payable 5,470 -
Increase (decrease) in bank overdraft (13,654) 64,608
------------------ -----------------
Net Cash (Used) Provided by Operating Activities (108,094) 5,380
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (104,867) (212,179)
------------------ -----------------
Net Cash Used by Investing Activities (104,867) (212,179)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash - 59
Proceeds from notes payable - affiliates 168,275 132,996
Payments on notes payable - shareholders - -
Payments on notes payable - affiliates - -
Payments on lease obligations 45,159 73,744
------------------ -----------------
Net Cash Provided by Financing Activities 213,434 206,799
------------------ -----------------
NET INCREASE (DECREASE) IN CASH 473 -
CASH AT BEGINNING OF YEAR - -
------------------ -----------------
CASH AT END OF YEAR $ 473 $ -
================== =================
CASH PAID DURING THE PERIOD FOR:
Interest $ 20,808 $ 3,077
Income taxes $ - $ -
</TABLE>
The accompanying notes are an integral part of these
financial statements.
8
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Notes to the Financial Statements
December 31, 1997 and 1996
NOTE 1 - HISTORY AND ORGANIZATION
Planet City Graphics Corporation (the Company) was incorporated
under the laws of British Columbia, Canada and has offices in
Vancouver, British Columbia.
On February 9, 1998, the Company was acquired by Global Telephone
Communication, Inc. (Global), a Utah corporation, whereby Global
acquired all of the Company's issued and outstanding shares for
1,500,000 shares of Global's common stock. There was no cash
consideration and Global accounted for the acquisition of all the
shares of the Company as a purchase and an acquisition of
wholly-owned subsidiary. There was no adjustment to the carrying
value of the assets or liabilities of the Company.
The Company operates primarily in the printing and publishing
industry.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
b. Provision for Taxes
At December 31, 1997, the Company had net operating loss
carryforwards of approximately $266,000 that may be offset against
future taxable income through 2013. No tax benefit has been
reported in the financial statements because the Company believes
that there is a 50% chance the net operating loss carryforwards
will expire unused, therefore the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same
amount.
c. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
d. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding at the date
of the financial statements. Fully diluted net loss per common
share is not materially different from basic loss per share.
e. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
9
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Notes to the Financial Statements
December 31, 1997 and 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Property and Equipment
Property and equipment are stated at cost. Expenditures for
ordinary maintenance and repairs are charged to operations as
incurred. Major additions and improvements are capitalized.
Depreciation is computed using the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Computer equipment 5 years
Computer software 3 years
</TABLE>
Depreciation expense for the years ended December 31, 1997 and
1996 was $78,426 and $28,734, respectively.
g. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
NOTE 3 - LEASES
All non-cancelable leases with an initial term greater than one
year have been categorized as capital leases in conformity with
the definitions in Financial Accounting Standards Board Statement
No. 13, "Accounting for Leases".
<TABLE>
<CAPTION>
Period Ended Capital
December 31, Leases
-------------- ----------------
<S> <C>
1998 $ 51,657
1999 57,107
2000 10,139
2001 -
2002 -
Later years -
----------------
Total minimum lease payments $ 118,903
================
</TABLE>
10
<PAGE>
PLANET CITY GRAPHICS CORPORATION
Notes to the Financial Statements
December 31, 1997 and 1996
NOTE 4 - RELATED PARTY TRANSACTIONS
At December 31, 1997, the Company had notes payable to a
shareholder of the Company totaling $95,410. During the year ended
December 31, 1998, these notes were repaid by the Company.
At December 31, 1997, the Company had notes payable to certain
related companies totaling $163,669. During the year ended
December 31, 1998, these notes were repaid by the Company.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its offices under a lease agreement accounted
for as an operating lease on a month-to-month basis. Real estate
taxes, insurance and maintenance expenses are obligations of the
Company.
NOTE 6 - NOTES PAYABLE
The Company has notes payable to various individuals and
companies. These notes bear interest at 8% per annum, are
unsecured and are due upon demand. At December 31, 1997, the total
amount payable on these notes was $68,259.
11
<PAGE>
EXHIBIT FS-3
WEBWORKS MULTIMEDIA CORPORAITON
FINANCIAL STATEMENTS DECEMBER 31, 1997
<PAGE>
WEBWORKS MULTIMEDIA CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
C O N T E N T S
<TABLE>
<S> <C>
Independent Auditors' Report........................................................................... 3
Balance Sheet.......................................................................................... 4
Notes to the Financial Statements...................................................................... 5
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Webworks Multimedia Corporation
Vancouver, British Columbia, Canada
We have audited the accompanying balance sheet of Webworks Multimedia
Corporation as of December 31, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above present fairly, in all
material respects, the financial position of Webworks Multimedia Corporation as
of December 31, 1997 in conformity with generally accepted accounting
principles.
Jones, Jensen & Company
Salt Lake City, Utah
May 1, 2000
<PAGE>
WEBWORKS MULTIMEDIA CORPORATION
Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31,
1997
-----------------
<S> <C>
CURRENT ASSETS
Cash $ 1,441
Accounts receivable 3,233
-----------------
Total Current Assets 4,674
-----------------
PROPERTY AND EQUIPMENT (Note 2)
Furniture and equipment 686
Computer hardware 12,455
Computer software 1,679
Less: accumulated depreciation (6,799)
-----------------
Total Property and Equipment 8,021
-----------------
TOTAL ASSETS $ 12,695
=================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 2,370
Notes payable - related parties 36,957
Notes payable 46,606
-----------------
Total Current Liabilities 85,933
-----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 10,000 shares authorized, no par value
100 shares issued and outstanding 65
Accumulated deficit (73,303)
-----------------
Total Stockholders' Equity (Deficit) (73,238)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 12,695
=================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
WEBWORKS MULTIMEDIA CORPORATION
Notes to the Financial Statements
December 31, 1997
NOTE 1 - HISTORY AND ORGANIZATION
Webworks Multimedia Corporation is a private company incorporated
under the laws of British Columbia, Canada. On February 9, 1998,
Global Telephone Communication, Inc. (Global) acquired all of the
issued and outstanding shares of the Company. Global issued
500,000 shares of its common stock to the Company's shareholders
in exchange for all issued and outstanding shares of the Company.
There was no cash consideration and the acquisition of all the
share by Global was accounted for as a purchase and an acquisition
of a wholly-owned subsidiary. There was no adjustment to the
carrying value of the assets or liabilities of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
b. Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
c. Basic Loss Per Share
The computation of basic loss per share of common stock is based
on the weighted average number of shares outstanding at the date
of the financial statements. Fully diluted loss per common share
is not materially different from basic earning per share.
d. Provisions for Taxes
At December 31, 1997, the Company had net operating loss
carryforwards of approximately $73,000 that may be offset against
future taxable income through 2013. No tax benefit has been
reported in the financial statements because the Company believes
that there is a 50% chance the net operating loss carryforwards
will expire unused, therefore, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same
amount.
e. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
5
<PAGE>
WEBWORKS MULTIMEDIA CORPORATION
Notes to the Financial Statements
December 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Property and Equipment
Property and equipment are stated at cost. Expenditures for small
tools, ordinary maintenance and repairs are charged to operations
as incurred. Major additions and improvements are capitalized.
Depreciation is computed using the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and equipment 5 years
Computer equipment 3 years
Computer software 3 years
</TABLE>
Depreciation expense for the year ended December 31, 1997 was
$4,259.
g. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
NOTE 3 - RELATED PARTY TRANSACTIONS
At December 31, 1997, the Company had notes payable to a
shareholder of the Company totaling $36,957. During the year ended
December 31, 1998, these notes were repaid by the Company.
NOTE 4 - NOTES PAYABLE
The Company has notes payable to various individuals and
companies. These notes bear interest at 8% per annum, are
unsecured and are due upon demand. At December 31, 1997, the total
amount payable on these notes was $46,606.
6
<PAGE>
EXHIBIT 6.16
Employment Agreement with Robert J. Andresen
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into effective this 106 day of January, 2000 (the
"Effective Date"), by and among Global Telephone Communication, Inc., a
Nevada corporation, (hereafter referred to as the "Employer") and ROBERT
ANDRESEN, 65 Nursery Road, New Canaan, Connecticut 06840 (hereafter referred
to as the "Employee").
WITNESSETH:
WHEREAS, the Employer is a corporation engaged in the telecommunications
business and desires to employ the Employee; and
WHEREAS, the Employee is willing to accept such employment on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. POSITION AND DUTIES. Employer hereby agrecs to employ Employee on the
terms and conditions set forth herein in the position of Chief Operating
Officer. The Board of Directors may appoint Employee to additional corporate
offices. Employee shall use his best eforts and such time as may be required
to perform the duties of those positions as may be established by the Board
of Directors arid the By-Laws of Employer. Employee may concurrently with
this Agreement continue to perform consulting services in the
telecommunications industry or other industries so long as the duties to be
performed under his consulting agreements (i) do not require Employee to use
or to reveal trade secrets or confidential information of Employer as those
terms are defined in Subsection 8(a) below and (ii) do not prevent Employee
from performing his duties under this Agreement in a satisfactory manner-
Employee shall report directly to the Chief Executive Officer.
2. TERM.
a. Unless renewed by the mutual agreement of the Employer and
Employee. Employer shall employ Employee for the period beginning on
the Effective Date and ending on the third anniversary of the
Effective Date (the "Employment Period"); provided that the
Employment Period shall terminate prior to such third anniversary
(i) upon Employee's resignation, death, mental or physical
disability (as determined by the Board in its good faith judgment
pursuant to Section 7 below), (ii) by action taken by Employer at
any time prior to such third anniversary for Cause (as defined
below) or without Cause, (iii) by ACTION TAKEN BY Employee at time
prior to such third anniversary for "Good REASON" (AS DEFINED below)
or (iv) upon the Employee's election to convert the third year of
the Employment Period into a consultancy arrangement as provided for
in Section 9 below.
b. If the Employment Period is terminated (other than in accordance
with item (iv) in subsection a above) (i) by the Employer without
Cause, or (ii) by the Employee for Good Reason, Employee shall be
entitled to receive his Base Salary (as defined below) for the
remainder of the Employment Period in a lump sum within FIVE BUSINESS
days of the date of termination. The amounts payable pursuant to this
paragraph 2(b) shall not be reduced by the amount of any
<PAGE>
compensation Employee receives with respect to any other employment
during the remainder of the Employment Period. Termination of the
Employment Period pursuant to this subparagraph 2(b) shall entitle
Employee to outplacement services paid by Employer which are consistent
with his position and customary in the New Canaan, Connecticut market.
c. If the Employment Period is terminated by the Employer for Cause or
is terminated pursuant to clause (a)(i) above, Employee shall be
entitled to receive his Base Salary through the date of termination,
subject to the provisions of Section 7 below.
d. All of Employee's rights to fringe benefits and bonuses hereunder
accruing after the date of termination of the Employment Period shall
(i) continue for the remainder of the Employment Period if the
termination is pursuant to subsection (b) above and (ii) cease upon the
date of termination if termination is pursuant to subsection (c) above.
If (A) Employee is entitled to any fringe benefit following the
termination of the Employment PERIOD and (B) the Employee is ineligible
to participate in the plan providing such fringe benefits BECAUSE HE is
no longer an employee, Employer shall provide Employee a substitute
fringe benefit or cash payment to Employee that is economically
equivalent (including any "gross up" required so that the substitute
fringe benefit or the cash payment has the same after income tax
equivalence to Employee).
c. For purposes of this Agreement, "Cause" shall mean (i) a "material
breach" of this Agreement by Employee, (ii) a breach of Employee's duty
of loyalty to the Employer or any act of dishonesty or fraud with
respect to the Employer, (iii) the conviction of Employee of a felony,
a crime involving moral turpitude or other act causing material harm to
the Employer's assets, standing or reputation. For the purposes of this
Agreement, a "material breach" shall be determined by a majority of the
Board (excluding Employee if he is a member of the Board) as provided
herein. The Board shall give Employee written notice of the Board's
concern over Employee's actions or failure to act, specifying in detail
the alleged breach and the material effect of such breach on Employer
and setting the time and place for a meeting with the full board of
directors at a location within the United States- Employee shall have
15 days to prepare for such meeting with the Board, at which meeting
Employee may present any information on market competitive conditions
and any other factors bearing upon his performance or disputing the
facts related to the alleged breach. Notwithstanding the above, general
dissatisfaction with Employee's job performance or a good faith
conclusion by the Board of Directors that Employee's performance is
substandard shall not constitute "Cause". Employer's sole option if the
Board of Director's conclusion is that Employee's job performance is
substandard or if there is general dissatisfaction with Employee's job
performance shall be to discharge Employee without Cause.
f. For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following events at airy time prior to the end
of the Employment Period: (i) any non-payment, reduction or attempted
reduction in Employee's Base Salary (ii) the elimination of, or a
material reduction in, any fringe benefits required to be furnished to
Employee pursuant to Section 5 below or that are made available to
other employees but from which Employee is excluded (Provided, HOWEVER,
that Good Reason shall not occur if Employer provides to Employee a
substitute fringe benefit or cash payment to Employee
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Page 2
<PAGE>
that is economically equivalent (including any "gross up" required so
that the substitute fringe benefit or the cash payment has the same
after income tax equivalence to Employee) to the eliminated, reduced or
non provided hinge benefit; (iii) failure of Employer's stockholders to
elect and retain Employee as a member of the Board of Directors: (iv) a
material change in Employee's duties (including status, office. title,
reporting relationships or working conditions), responsibilities,
authority or duties (v) relocation of Employee's office location after
the Effective Date, WHICH the parties agree is Greenwich, Connecticut
on the Effective Date; (vi) failure of the Board of Directors to adopt
the recommendation of Thomas C. Brandenburg as to the recommendation of
the auditors for Employer or outside legal counsel for Employer; (vii)
failure of the Board of Directors to implement changes to financial
statements or procedures recommended by either the auditors or the
outside legal counsel recommended by Mr. Brandenburg for the purpose of
bringing Employer into compliance with any federal or state securities
law or regulation and to maintain such compliance; (viii) failure of
any "Successor" (as defined below) to assume, either by an enforceable
agreement or by operation of law, all of Employer's liabilities and
obligations to Employee under this Agreement or (ax) a "Change of
Control" (as defined below)
g. For purposes of this Agreement. "Successor" shall mean any successor
in interest to Employer by virtue of a Change in Control, merger,
consolidation or other business combination involving Employer.
h, For purposes of this Agreement, "Change of Control" shall mean
either of the following events:
i. the sale, transfer or exchange of all Or substantially all
of the assets of the Employer to any person or entity other
than a direct or indirect majority-owned subsidiary of
Employer:
ii. a 50% or greater change in the voting control of Employer.
Voting control shall be based upon an assumption that all
securities, warrants and options to acquire voting shares of
Employer are converted or exercised. A transfer of securities,
warrants or options among existing stockholders and issuance
of additional securities, warrants or options to existing
stockholders shall not be considered a change in the ownership
for purposes of the calculation. Provided, however, a "Change
OF Control" shall occur upon the acquisition following the
Effective Date of 50% or more of the voting control of
Employer by any person, including an existing stockholder, (as
defined in section 3 of the Securities Exchange Act of 1934)
or group, including a group containing one or more existing
stockholders, (as defined in Rule 13d-S(b) of the Securities
and Exchange Commission) or the appointment of nominees of
such person or group to a majority of the seats on the Board
of Directors of Employer.
3. o e - . During and throughout the Employment Period, Employee shall
receive compensation for services performed hereunder by payment of a base
annual salary of not less than 5200,000 (the "Base Salary").
The Base Salary to be paid the Employee hereunder shall be paid in equal
monthly or biweekly installments, as the Board of Directors of the Employer
shall determine. All salary and other cash
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Page 3
<PAGE>
compensation shall be paid in U.S. Dollars and shall be subject to U.S-, state
and local withholding taxes and payroll taxes.
Employee shall be entitled to participate in any cash or stock bonus
plan that may be adopted by the Board after the Effective Date.
Provided, however, Employer agrees to pay to Employee for each year of
the Employment Period a cash bonus in an amount as determined by the
Board of Directors. Said bonus SHALL BE paid in quarterly installments,
each installment being due no later than the thirty (30) days of the
end OF EACH calendar quarter. Immediately upon the execution of this
Agreement, Employer shall pay to EMPLOYCC a signing bonus in the gross
amount of 550,000 less ALL applicable withholding and payroll taxes.
4. STOCK (?RATIONS. Employer shall, as directed by Employee, issue as
of the Effective Date fully vested warrants or nonqualified stock
options to Employee to purchase 500,000 shares of Employer's common
stock with an exercise price equal to 125% of the fair market value of
the common stock at the date of issue of the warrants or non-qualified
options.
5. BOARD SEAT-ADDITIONAL BENEFITS. During the Employment Period,
Employer shall use its best efforts to nominate Employee to its Board
of Directors- The Employee shall be entitled to participate, after any
applicable waiting periods and subject to any underwriting standards,
in any cash or stock bonus plans, any stock option plans, any employee
welfare benefits plans or any other fringe benefit plan, whether SUCH
PLAN IS available to all employees or available only to key management
personnel, which may from time to time be established by the Board of
Directors. Nothing herein shall restrict or prohibit Employer's right
to amend, terminate or install any such plan. Notwithstanding the
above, Employer shall pay the full amount of Employee's (i) medical,
dental, vision, and prescription drug insurance premiums for family
coverage, (ii) any eo-payments and deductibles under such medical,
dental, prescription drug and vision policies and (iii) basic group or
individual term life insurance. If Employer has no group medical,
dental, prescription drug or vision insurance plans, Employer shall
reimburse Employee for his premium costs for his purchase of individual
policies with family coverage, in addition to the reimbursement of
co-payments and deductibles. The amount of life insurance to be paid
for by Employer, the proceeds of which shall be paid to beneficiaries
designated by Employee, shall be up to $250,000, the exact amount to be
elected in writing by Employee. Employer shall provide to Employee an
apartment in Vancouver, British Columbia for his exclusive use-
Employer shall also provide Employee with a rental car for his use in
Vancouver area, Employer shall reimburse Employee for round trip
airfare from Connecticut to Vancouver for trips per month.
Employer shall use its reasonable best efforts to obtain Director and
Officer Liability Insurance in an expeditious manner.
Employer shall reimburse Employee no less frequently than once per
month for all necessary and reasonable travel and other expenses
incurred by Employee in furtherance of Employer's business. 1n order to
receive such reimbursement, Employee shall be required to furnish to
Employer such documentation as is required by the Internal Revenue
Service to permit Employer to deduct such rcimbursement. Reimbursement
shall also be subject to such reasonable policies and procedures as are
established by the Board of Directors from time to time.
For all air travel required of Employee in the performance of his
duties hereunder, (i) Employee shall have the right to select a
recognized airline carrier of his choice, (ii) inter-continental air
travel tickets shall be no less THAN BUSINESS class and (iii) domestic
AIR TRAVEL TICKETS SHALL be no LESS THAN COACH with upgrade coupons.
6. VACATION, During each twelve months of employment, the Employee
shall be entitled to take up to four weeks vacation. Employee shall
schedule his vacation so as to create a minimum of disruption to the
business of the Employer. Employer shall pay to Employee cash in the
amount of one
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Page 4
<PAGE>
week's annual base salary for each week of allowed vacation not taken
by Employee during each twelve month period
7. Disability. In the event Employee shall become unable by
reason of mental or physical disability to continue the proper
performance of his duties hereunder on a full-time basis, payment of
the Base Salary to Employee under the terms of this Agreement shall
continue until the earlier of (i) Employee's receipt of disability
benefits pursuant to any disability insurance, or (ii) three (3) months
from the date Employee shall become unable by reason of such disability
to continue the proper performance of his duties hereunder on a
full-time basis (in either event, the "Date of Disability"). For
purposes of termination of the Employment Period, the Date of
Disability shall be the date of termination. After such period,
Employee's rights to disability benefits, if any, shall be dependent
solely upon any existing employee disability insurance plan, or
amendments to any such disability insurance plan which may be adopted
by Employer from time to time. If Employee is not satisfied WITH the
level of disability benefits, if any, provided by Employer, he is
encouraged to procure his own personal disability insurance.
8. Non DisclosureNon Solicitation. In consideration of and in
exchange for being employed, the payment of any severance pay and other
good and valuable considerations, Employee shall not, during the
Employment Period and thereafter:
a. use any of Employer's trade secrets or
confidential information or disclose any of
Employer's trade secrets or confidential information
to anyone who is not under a non-disclosure
obligation to Employer, This non-disclosure and
non-use obligation shall continue with respect to
each trade secret and each item of confidential
information until such knowledge or information
ceases to be a Trade Secret or confidential
information by virtue of its becoming known to third
parties under no non-disclosure obligation to
Employer. The terra "trade secrets" and "confidential
information" shall mean information which is not
generally known to the public and which, if revealed
to unauthorized persons, would be detrimental to the
reputation or business interests of Employer and
includes information relating to Employer's business
operations and structure, sales, methods, practices
and techniques, technical know-how, advertising or
marketing methods and practices, customer
relationships and customer lists (including customer
names and addresses), and Employer's relationships
with suppliers, employees, customers, potential
customers, or other persons or entities doing
business with Ernployer In the event Employee so uses
or discloses trade secrets or confidential
information in violation of this subsection (a),
then, in addition to any other remedy, Employer SHALL
be entitled to a temporary restraining order,
temporary or permanent injunction, specific
performance, and other equitable relief in addition
to any other rights and remedies which then may be
available to Employer or its affiliates, without any
showing of irreparable harm or damage or the posting
of any bond.
b. for a period of one year following termination of
the Employment Period, solicit customers, suppliers
or other entities having business relations with
Employer or its affiliates for the purpose of
encouraging them to terminate their relationships
with Employer or its affiliates.
c. Encourage other employees of Employer or its
affiliates to terminate their employment with
Employer or its affiliates.
Page 5
<PAGE>
Employee acknowledges and agrees that the foregoing
restrictions are reasonable restrictions for the protection of the
goodwill and business of the Employer, and that the foregoing
restrictions do not place any undue hardship on him.
Employee further acknowledges and agrees that the Employer's
remedy at law for any breach of the obligations set forth in this
Section 8 would be inadequate and that temporary and permanent
injunctive relief may be granted in any proceeding which may be brought
to enforce the provisions of this section without the necessity of
proof of actual damage. With respect to any such provision of this
section finally determined by a court of competent jurisdiction to be
unenforceable, it is agreed that such court shall have jurisdiction to
reform this section of this Agreement and such provision(s) so that it
is enforceable to the maximum extent permitted by law, and the parties
involved in such action agree to abide by such court's determination.
If such unenforceable provision cannot be reformed, such provision
shall be deemed to be severed from this agreement but every other
provision of this section shall remain in full force and effect.
9. Consulting Agreement. At Employee's sole option, to be
exercised by Employee sending written notice to Employer prior to the
second anniversary of the Effective Date, Employee may elect to
terminate the Employment Period at the end of the SECOND year of the
Employment Period and to be a consultant to the Company during the
third year of the Employment Period. The effects of such election by
Employee shall be as follows
(i) Employee shall be deemed to have (a) terminated
the employment relationship and (b) resigned-as an officer,
both effective as of the sccond anniversary of the Effective
Date.
(ii) Employee's non-solicitation obligation under
subsection 8(b) shall run for a two year period commencing on
the second anniversary of the Effective Date
(iii) Employer and Employee shall enter into a
written consulting agreement, which shall include (A) the
economic benefits to Employee set forth in this Agreement
except to the extent fringe benefits cannot be provided to
Employee under group plans adopted by Employer due to
Employee's ceasing to be an employee, (B) granting to Employer
the right to terminate the payment of consulting fees for
Cause and (C) preserving Employer's right to seek injunctive
relief as set forth in this Agreement.
10. Employee Representations. EMPLOYEE hereby
represents and warrants to the Employer that (1) the
execution, delivery and performance of this Agreement by
EMPLOYEE. does not and will not conflict with, breach, violate
or cause a default under any contract; agreement, instrument,
order, judgment or decree to which Employee is a patty or by
which he is bound, (ii) Fmployee is not a party to or bound by
any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity
which prohibits or restricts his ability to enter into this
Agreement or perform his dutiesas contemplated hereunder, and
(iii) upon the execution and delivery of this Agreement by the
Employer, this Agreement shall be the valid and binding
obligation of Employee, enforceable in accordance with its
terms.
11. Waiver. Failure by either party to insist upon
strict compliance with any of the terms and conditions of this
Agreement shall not be deemed a waiver of any such term or
condition, nor shall any such failure at any one or more times
be DEEMED a waiver or relinquishment at any other time of any
right under the terms or conditions hereof.
12. Bene. This Agreement shall inure to the benefit
of and be binding upon the heirs, legal representatives,
successors or assigns of the parties hereto.
Page 6
<PAGE>
13. ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the
entire agreement between the parties hereto in respect of the subject
matter hereof and supersedes all prior and contemporaneous agreements
between the parties in connection with the .subject matter of this
Agreement.
No modification of this Agreement shall be effective unless the same
shall be in a writing duly executed by both parties hereto.
14. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, as such laws
apply to an employment agreement between an Illinois resident and a
corporation qualified to do business in Illinois. Any legal, equitable
or injunctive action brought by Employer to enforce us rights under
this Agreement shall be brought only in a court of appropriate
jurisdiction located within the state of Employee's primary residence
at the time such action is brought.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the Effective Date.
Global Telephone Communications
Robert Andresen Thomas C. Randenburg
Employee Its' Chief Executive Officer
Employer
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<PAGE>
EXHIBIT 6.17
Employment Agreement with Thomas C. Brandenburg
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into effective this lst day of October, 1999 (the
"Effective Date"), by and among Global Telephone Communication, Inc., a
Nevada corporation, (hereafter referred to as the "Employer") and THOMAS C.
BRANDENBURG (hereafter referred to as the "Employee").
WITNESSETH:
WHEREAS, the Employer is a corporation engaged in the telecommunications
business and desires to employ the Employee; and
WHEREAS, the Employee is willing to accept such employment on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. POSITION AND DUTIES. Employer hereby agrees to employ Employee on the
terms and conditions set forth herein in the position of Chief Executive
Officer. The Board of Directors may appoint Employee to additional corporate
offices. Employee shall use his best efforts and such time as may be required
to perform the duties of those positions as established by the Board of
Directors and the By-Laws of Employer. Employee may concurrently with this
Agreement continue to perform consulting services in the telecommunications
industry so long as the duties to be performed under his consulting
agreements (i) do not require Employee to use or to reveal trade secrets or
confidential information of Employer as those terms are defined in Subsection
8(a) below and (ii) do not prevent Employee from performing his duties under
this Agreement in a satisfactory manner. Employee shall report directly to
the Board of Directors.
2. TERM.
a. Unless renewed by the mutual agreement of the Employer and
Employee, Employer shall employ Employee for the period
beginning on the Date and ending on the third anniversary of
the Effective Date (the "Employment Period"); provided that
the Employment Period shall terminate prior to such third
anniversary (i) upon Employee's resignation, death, mental or
physical disability (as determined by the Board in its good
faith judgment pursuant to Section 7 below), (ii) by action
taken by Employer at any time prior to such third anniversary
for Cause (as defined below) or without Cause, (iii) by action
taken by Employee at time prior to such third anniversary for
"Good Reason" (as defined below) or (iv) upon the Employee's
election to convert the third year of the Employment Period
into a consultancy arrangement as provided for in Section 9
below.
b. If the Employment Period is terminated (other than in
accordance with item (iv) in subsection a above) (i) by the
Employer without Cause, or (ii) by the Employee for Good
Reason, Employee shall be entitled to receive his Base Salary
(as defined below) for the remainder of the Employment Period
in a lump sum within five business days of the date of
termination. The amounts payable pursuant to this paragraph
2(b) shall not be reduced by the amount of any compensation
Employee receives with respect to any other employment during
<PAGE>
the remainder of the Employment Period. Termination of the
Employment Period pursuant to this subparagraph 2b shall
entitle Employee to outplacement services paid by Employer
which are consistent with his position and customary in the
Chicago market.
c. If the Employment Period is terminated by the Employer for
Cause or is terminated pursuant to clause (a)(i) above,
Employee shall be entitled to receive his Base Salary through
the date of termination, subject to the provisions of Section
7 below.
d. All of Employee's rights to fringe benefits, bonuses and
relocation reimbursements hereunder accruing after the date of
termination of the Employment Period shall (i) continue for
the remainder of the Employment Period if the termination is
pursuant to subsection (b) above and (ii) cease upon the date
of termination if termination is pursuant to subsection (c)
above. If (A) Employee is entitled to any fringe benefit
following the termination of the Employment Period and (B) the
Employee is ineligible to participate in the plan providing
such fringe benefits because he is no longer an employee,
Employer shall provide Employee a substitute fringe benefit or
cash payment to Employee that is economically equivalent
(including any "gross up" required so that the substitute
fringe benefit or the cash payment has the same after income
tax equivalence to Employee).
e. For purposes of this Agreement, "Cause" shall mean (i) a
"material breach" of this Agreement by Employee, (ii) a breach
of Employee's duty of loyalty to the Employer or any act of
dishonesty or fraud with respect to the Employer, (iii) the
conviction of Employee of a felony, a crime involving moral
turpitude or other act causing material harm to the Employer's
assets, standing or reputation. For the purposes of this
Agreement, a "material breach" shall be determined by a
majority of the Board (excluding Employee if he is a member of
the Board) as provided herein. The Board shall give Employee
written notice of the Board's concern over Employee's actions
or failure to act, specifying in detail the alleged breach and
the material effect of such breach on Employer and setting the
time and place for a meeting with the full board of directors
at a location within the United States. Employee shall have 15
days to prepare for such meeting with the Board, at which
meeting Employee may present any information on market
competitive conditions and any other factors bearing upon his
performance or disputing the facts related to the alleged
breach. Notwithstanding the above, general dissatisfaction
with Employee's job performance or a good faith conclusion by
the Board of Directors that Employee's performance is
substandard shall not constitute "Cause". Employer's sole
option if the Board of Director's conclusion is that
EMPLOYEE'S JOB PERFORMANCE IS SUBSTANDARD OR IF THERE IS
general dissatisfaction with Employee's job performance shall
be to discharge Employee without Cause.
f. For purposes of this Agreement, "Good Reason" shall mean
the occurrence of any of the following events at any time
prior to the end of the Employment Period: (i) any
non-payment, reduction or attempted reduction in Employee's
Base Salary (ii) the elimination of, or a material reduction
in, any fringe benefits required to be furnished to Employee
pursuant to Section 5 below or that are made available to
other employees but from which Employee is excluded (Provided,
however, that Good Reason shall not occur if Employer provides
to Employee a substitute fringe benefit or cash payment to
Employee
Page 2
<PAGE>
that is economically equivalent (including any "gross up"
required so that the substitute fringe benefit or the cash
payment has the same after income tax equivalence to
Employee) to the eliminated, reduced or non-provided fringe
benefit; (iii) failure of Employer's stockholders to elect
and retain Employee as a member of the Board of Directors;
(iv) a material change in Employee's duties (including
status, office, title, reporting relationships or working
conditions), responsibilities, authority or duties (v)
relocation of Employee's office location after the Effective
Date, which the parties agree is Chicago, Illinois on the
Effective Date; (vi) failure of the Board of Directors to
adopt the recommendation of Employee as to the auditors for
Employer or outside legal counsel for Employer; (vii) failure
of the Board of Directors to implement changes to financial
statements or procedures recommended by either the auditors
or the outside legal counsel recommended by the Employee for
the purpose of bringing Employer into compliance with any
federal or state securities law or regulation and to maintain
such compliance; (viii) failure of any "Successor" (as
defined below) to assume, either by an enforceable agreement
or by operation of law, all of Employer's liabilities and
obligations to Employee under this Agreement or (ix) a
"Change of Control" (as defined below).
g. For purposes of this Agreement, "Successor" shall mean any
successor in interest to Employer by virtue of a Change in
Control, merger, consolidation or other business combination
involving Employer.
h. For purposes of this Agreement, "Change of Control" shall
mean either of the following events:
i. the sale, transfer or exchange of all or
substantially all of the assets of the Employer to
any person or entity other than a direct or indirect
majority-owned subsidiary of Employer;
ii. a 50% or greater change in the voting control of
Employer. Voting control shall be based upon an
assumption that all securities, warrants and options
to acquire voting shares of Employer are converted or
exercised. A TRANSFER OF SECURITIES, warrants or
options among existing stockholders and issuance of
additional securities, warrants or options to
existing stockholders shall not be considered a
change in the ownership for purposes of the
calculation. Provided, however, a "Change of Control"
shall occur upon the acquisition following the
Effective Date of 50% or more of the voting control
of Employer by any person, including existing
stockholder, (as defined in section 3 of the
Securities Exchange Act of 1934) or group, including
a group containing one or more existing stockholders,
(as defined in Rule 13d-5(b) of the Securities and
Exchange Commission) or the appointment of nominees
of such person or group to a MAJORITY OF THE SEATS ON
THE BOARD OF DIRECTORS OF EMPLOYER.
3. COMPENSATION. During and throughout the Employment Period, Employee
shall receive compensation for services performed hereunder by payment
of a base annual salary of no less than $360,000 (the "Base Salary").
The Base Salary to be paid the Employee hereunder shall be paid in
equal monthly or bi-weekly installments, as the Board of Directors of
the Employer shall determine. All salary and other cash compensation
shall be paid in U.S. Dollars and shall be subject to U.S., state and
local withholding taxes and payroll taxes.
Page 3
<PAGE>
Employee shall be entitled to participate in any cash or stock bonus
plan that may be adopted by the Board after the Effective Date.
Immediately upon the execution of this Agreement, Employer shall pay to
Employee a signing bonus of $95,000 less all applicable withholding and
payroll taxes.
4. INCENTIVE STOCK OPTIONS. The Board of Directors shall have adopted
an incentive stock option plan that qualifies under Section 422A of the
Internal Revenue Code as soon as possible, but in no event later than
the Effective Date, and shall take all steps necessary to implement
said plan, including seeking stockholder approval of the plan,
reserving shares for issuance under the plan and, if necessary,
amending the certificate of incorporation to provide for sufficient
shares of authorized stock to be reserved and issued under the plan.
Subject to any required stockholder approval, Employer shall grant to
Employee options to acquire 1,000,000 shares of Employer's common stock
with a grant price equal to 125% of fair market value of the common
stock at the time of the grant, said options to be fully vested as of
the date of the grant. Provided, however, that if the aggregate fair
market value of stock with respect to which said options are
exercisable for the first time by Employee in any one year exceeds
$100,000, the award of grants shall be staggered, the vesting schedule
shall be adjusted or the date of exercise shall be staggered, as
directed by Employee, so that the grant of options will not result in
exceeding the $100,000 limitation specified in Section 422(d) of the
Internal Revenue Code.
In the event that (i) Employer has not adopted the Incentive Stock
Option Plan and performed the other duties required by the preceding
paragraph by the Effective Date, or (ii) the fair market value of the
common stock causes part of the options to lose their status as
Incentive Stock Options because of the $100,000 limitation referenced
in the preceding paragraph then Employer shall, as directed by
Employee, issue as of the Effective Date fully vested warrants or
nonqualified stock options to Employee to purchase 1,000,000 shares of
Employer's common stock with an exercise price equal to 125% of the
fair market value of the common stock at the date of issue of the
warrants or non-qualified options.
5. BOARD SEATS-APPOINTMENTS-ADDITIONAL BENEFITS. During the Employment
Period, Employer shall use its best efforts to nominate Employee and
Robert J. Luth to its Board of Directors. Employee shall have the right
to propose the nomination of two additional outside directors which
Employer agrees to consider in good faith. The Employee shall be
entitled to participate, after any applicable waiting periods and
subject to any underwriting standards, in any cash or stock bonus
plans, any stock option plans, any employee welfare benefits plans or
any other fringe benefit plan, whether such plan is available to all
employees or available only to Key management personnel, which may from
time to time be established by the Board of Directors. Nothing herein
shall restrict or prohibit Employer's right to amend, terminate or
install any such plan. Notwithstanding the above, Employer shall pay
the full amount of Employee's (i) medical, dental, prescription drug,
and vision insurance premiums for family coverage (ii) any co-payments
and deductibles under such medical, dental, prescription drug, and
vision policies and (iii) basic group or individual term life
insurance. If Employer has no group medical, dental, prescription drug,
or vision insurance plan, Employer shall reimburse Employee for his
premium costs for his purchase of individual policies with family
coverage, in addition to reimbursement for copayments and deductibles.
The amount of life insurance to be paid for by Employer, the proceeds
of which shall be paid to beneficiaries designated by Employee, shall
be up to $250,000, the exact amount to be elected in writing by
Employee.
Employer shall use its reasonable best efforts to obtain Director and
Officer Liability Insurance in an expeditious manner.
Employer shall reimburse Employee no less frequently than once per
month for all necessary and reasonable travel and other expenses
incurred by Employee in furtherance of Employer's business. In order to
receive such reimbursement, Employee shall be required to furnish to
Employer such documentation as is required by the Internal Revenue
Service to permit Employer to deduct such
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reimbursement. Reimbursement shall also be subject to such reasonable
policies and procedures as are established by the Board of Directors
from time to time.
For all air travel required of Employee in the performance of his
duties hereunder, (i) Employee shall have the right to select a
recognized airline carrier of his choice, (ii) inter-continental air
travel tickets shall be no less than business class and (iii) domestic
air travel tickets shall be no less than coach with upgrade coupons.
6. VACATION. During each twelve months of employment, the Employee
shall be entitled to take up to four weeks vacation. Employee shall
schedule his vacation so as to create a minimum of disruption to the
business of the Employer. Employer shall pay to Employee cash in the
amount of one week's annual base salary for each week of allowed
vacation not taken by Employee during each twelve month period.
7. DISABILITY. In the event Employee shall become unable by reason of
mental or physical disability to continue the proper performance of his
duties hereunder on a full-time basis, payment of the Base Salary to
Employee under the terms of this Agreement shall continue until the
earlier of (i) Employee's receipt of disability benefits pursuant to
any disability insurance, or (ii) three (3) months from the date
Employee shall become unable by reason of such disability to continue
the proper performance of his duties hereunder on a full-time basis (in
either event, the "Date of Disability"). For purposes of termination of
the Employment Period, the Date of Disability shall be the date of
termination. After such period, Employee's rights to disability
benefits, if any, shall be dependent solely upon any existing employee
disability insurance plan, or amendments to any such disability
insurance plan which may be adopted by Employer from time to time. If
Employee is not satisfied with the level of disability benefits, if
any, provided by Employer, he is encouraged to procure his own personal
disability insurance.
8. NON DISCLOSURE-NON SOLICITATION. In consideration of and in exchange
for being employed, the payment of any severance pay and other good and
valuable considerations, Employee shall not, during the Employment
Period and thereafter:
a. use any of Employer's trade secrets or confidential
information or disclose any of Employer's trade secrets or
confidential information to anyone who is not under a
non-disclosure obligation to Employer. This non-disclosure and
non-use obligation shall continue with respect to each trade
secret and each item of confidential information until such
knowledge or information ceases to be a Trade Secret or
confidential information by virtue of its becoming known to
third parties under no non-disclosure obligation to Employer.
The term "trade secrets" and "confidential information" shall
mean information which is not generally known to the public
and which, if revealed to unauthorized persons, would be
detrimental to the reputation or business interests of
Employer and includes information relating to Employer's
business operations and structure, sales, METHODS, PRACTICES
AND TECHNIQUES, technical know-how, advertising or marketing
methods and practices, customer relationships and customer
lists (including customer names and addresses), and Employer's
relationships with suppliers, employees, customers, potential
customers, or other persons or entities doing business with
Employer.
In the event Employee so uses or discloses trade secrets or
confidential information in violation of this subsection (a),
then, in addition to any other remedy, Employer shall be
entitled to a temporary restraining order, temporary or
permanent injunction, specific performance, and other
equitable relief in addition to any other rights and remedies
which then may be available to Employer or its
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<PAGE>
affiliates, without any showing of irreparable harm or damage
or the posting of any bond.
b. for a period of one year following termination of the
Employment Period, solicit customers, suppliers or other
entities having business relations with Employer or its
affiliates for the purpose of encouraging them to terminate
their relationships with Employer or its affiliates.
c. Encourage other employees of Employer or its affiliates to
terminate their employment with Employer or its affiliates.
Employee acknowledges and agrees that the foregoing restrictions are
reasonable restrictions for the protection of the goodwill and business
of the Employer, and that the foregoing restrictions do not place any
undue hardship on him.
Employee further acknowledges and agrees that the Employer's remedy at
law for any breach of the obligations set forth in this Section 8 would
be inadequate and that temporary and permanent injunctive relief may be
granted in any proceeding which may be brought to enforce the
provisions of this section without the necessity of proof of actual
damage. With respect to any such provision of this section finally
determined by a court of competent jurisdiction to be unenforceable, it
is agreed that such court shall have jurisdiction to reform this
section of this Agreement and such provision(s) so that it is
enforceable to the maximum extent permitted by law, and the parties
involved in such action agree to abide by such court's determination.
If such unenforceable provision cannot be reformed, such provision
shall be deemed to be severed from this agreement but every other
provision of this section shall remain in full force and effect.
9. CONSULTING AGREEMENT. At Employee's sole option, to be exercised by
Employee sending written notice to Employer prior to the second
anniversary of the Effective Date, Employee may elect to terminate the
Employment Period at the end of the second year of the Employment
Period and to be a consultant to the Company during the third year of
the Employment Period. The effects of such election by Employee shall
be as follows:
(i) Employee shall be deemed to have (a) terminated the
employment relationship AND RESIGNED AS AN OFFICER,
BOTH EFFECTIVE AS OF THE SECOND ANNIVERSARY OF the
Effective Date.
(ii) Employer shall no longer be required to use its best
efforts to secure for Employee a seat on the Board
of Directors.
(iii) Employee's non-solicitation obligation under
subsection 8(b) shall run for a two-year period
commencing on the second anniversary of the
Effective Date.
(iv) Employer and Employee shall enter into a written
consulting agreement, which shall include (A) the
economic benefits to Employee set forth in this
Agreement except to the extent fringe benefits
cannot be provided to Employee under group PLANS
ADOPTED BY EMPLOYER DUE TO EMPLOYEE'S ceasing to be
an employee, (B) granting to Employer the right to
terminate the payment of consulting fees for Cause
and (C) preserving Employer's right to seek
injunctive relief as set forth in this Agreement.
10. EMPLOYEE REPRESENTATIONS. Employee hereby represents and warrants
to the Employer that (i) the execution, delivery and performance of this
Agreement by Employee does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Employee is a party or by which he is bound, (ii) Employee is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity which prohibits or
restricts his ability to enter into this Agreement or perform his
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<PAGE>
duties as contemplated hereunder, and (iii) upon the execution and delivery of
this Agreement by the Employer, this Agreement shall be the valid and binding
obligation of Employee, enforceable in accordance with its terms.
11. WAIVER. Failure by either party to insist upon strict compliance
with any of the terms and conditions of this Agreement shall not be
deemed a waiver of any such term or condition, nor shall any such
failure at any one or more times be deemed a waiver or relinquishment
at any other time of any right under the terms or conditions hereof.
12. BENEFIT.This Agreement shall inure to the benefit of and be binding
upon the heirs, legal representatives, successors or assigns of the
parties hereto.
13. ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the
entire agreement between the parties hereto in respect of the subject
matter hereof and supersedes all prior and contemporaneous agreements
between the parties in connection with the subject matter of this
Agreement.
No modification of this Agreement shall be effective unless the same
shall be in a writing duly executed by both parties hereto.
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<PAGE>
14. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, as such laws
apply to an employment agreement between an Illinois resident and a
corporation qualified to do business in Illinois. Any legal, equitable
or injunctive action brought by Employer to enforce its rights under
this Agreement shall be brought only in a court of appropriate
jurisdiction located within the state of Employee's primary residence
at the time such action is brought.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the Effective Date.
Global Telephone Communication, Inc.,
Employer
By:
Thomas A. C. Brandenburg
Employee Print Name:
Its:
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<PAGE>
EXHIBIT 6.18
15% CONVERTIBLE PROMISSORY NOTE
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS
GLOBAL TELEPHONE COMMUNICATION, INC.
15% CONVERTIBLE PROMISSORY NOTE
DUE JUNE 30, 2000
$800,000 New York, New York
March 31, 2000
FOR VALUE RECEIVED, the undersigned, GLOBAL TELEPHONE COMMUNICATION,
INC, a Nevada corporation (the "BORROWER"), hereby promises to pay to the order
of PINEHURST/L.O.F., LLC (the "LENDER"), a Cayman Islands limited liability
company, or its registered assigns (the "HOLDER"), the principal sum of EIGHT
HUNDRED THOUSAND DOLLARS ($800,000), or such lesser principal sum as may have
been advanced by the Lender and not repaid by the Borrower, on June 30, 2000
(the "MATURITY DATE"), with interest thereon from time to time as provided
herein.
The books and records of the Lender shall be presumptive evidence as to
the dates and amounts of each advance reflected thereon and the aggregate unpaid
principal amount of this Note.
1. ADVANCES. An initial advance of principal ("INITIAL ADVANCE") in
the amount of FIVE HUNDRED FIFTY THOUSAND DOLLARS ($550,000) shall be made to
the Borrower by the Lender on the date hereof. Provided no default has occurred
and is continuing hereunder, the Borrower may at any time after May 15, 2000 and
prior to the Maturity Date request an additional advance of principal
("ADDITIONAL ADVANCE") in the amount of up to TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000). Any such request for an Additional Advance shall be in writing and
shall be accompanied by a certificate signed by the President or a Vice
President of the Borrower certifying that the Borrower has delivered in escrow
executed copies of all Debenture Documents (as hereinafter defined) required in
connection with such additional advance pursuant to Section 8(c) below. The
Lender shall thereupon promptly advance such additional principal amount to the
Borrower.
2. INTEREST. The Borrower promises to pay interest on the principal
amount of this Note at the rate of 15% per annum. Interest on this Note shall
accrue from and including the date of issuance through and until repayment of
the principal and payment of all accrued interest in full. Interest shall accrue
and be computed on the basis of a 360-day year of twelve 30-day months.
3. PAYMENT. The principal amount of this Note, with interest there
on to the date of payment, shall be due and payable on the earlier to occur of
the Maturity Date and the date that is five days after the Borrower and Lender
have entered into a refinancing transaction (the "REFINANCING TRANSACTION") for
TEN MILLION DOLLARS ($10,000,000) on substantially the same terms as are set
forth in the Debenture Documents.
4. OPTIONAL PREPAYMENT. The Borrower, at its option, may prepay all
or any portion of this Note at any time, by paying an amount equal to the
outstanding principal amount of this Note, or the portion of this Note called
for prepayment, together with interest accrued and unpaid thereon to the date
fixed for prepayment, without penalty or premium; PROVIDED, HOWEVER, that
notwithstanding any such prepayment the Lender shall have the right to make a
subordinated debt investment in the Borrower on the terms set forth in the
Debenture Documents in the event the Borrower and the Lender have not entered
into to the Refinancing Transaction. All optional prepayments under this
Section 4 shall include payment of accrued interest on the principal amount so
prepaid.
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<PAGE>
5. AMENDMENT. Amendments and modifications of this Note may be made
only in writing signed by the Borrower and the Holder.
6. DEFAULTS AND REMEDIES.
(a) EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall occur if:
(i) the Borrower shall default in the payment of the
principal of or interest on this Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise; or
(ii) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(a) relief in respect of the Borrower or any of its subsidiaries, or of a
substantial part of its property or assets, under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any of its subsidiaries, or for a substantial part of its
property or assets, or (c) the winding up or liquidation of the Borrower or any
of its subsidiaries; and such proceeding or petition shall continue undismissed
for 60 days, or an order or decree approving or ordering any of the foregoing
shall be entered; or
(iii) the Borrower or any of its subsidiaries shall (a)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or similar law,
(b) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described in
paragraph (ii) of this Section 6(a), (c) apply for or consent to the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any of its subsidiaries, or for a substantial part of their
property or assets, (d) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (e) make a general assignment
for the benefit of creditors, (f) become unable, admit in writing its inability
or fail generally to pay its debts as they become due or (g) take any action for
the purpose of effecting any of the foregoing.
(b) ACCELERATION. If an Event of Default occurs under
Section 6(a)(ii) or (iii), then the outstanding principal of and all accrued
interest on this Note shall automatically become immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. If any other Event of Default occurs and is continuing
the Holder, by written notice to the Borrower, may declare the principal of and
accrued interest on this Note to be immediately due and payable. Upon such
declaration, such principal and interest shall become immediately due and
payable. The Holder may rescind an acceleration and its consequences if all
existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration,
and if the rescission would not conflict with any judgment or decree.
7. CONVERSION. Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default, the Holder may but shall not
be required to elect, upon notice in writing to the Borrower and payment to the
Borrower of the Conversion Amount (as hereinafter defined), to convert this Note
to a subordinated loan pursuant to the terms of the Debenture Documents. As used
in this Note, the term "CONVERSION AMOUNT" shall mean an amount equal to the
difference between the principal amount stated in the Convertible Subordinated
Debenture which is included in the Debenture Documents and all amounts due from
the Borrower hereunder on the date of conversion.
8. FEE. The Borrower shall pay a closing fee to the Lender in the
amount of FIFTY THOUSAND DOLLARS ($50,000), which fee shall be deducted from the
proceeds of the Initial Advance.
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<PAGE>
9. CONDITIONS. It shall be a condition to the obligation of the
Lender to make the Initial Advance (and, as applicable, each Additional Advance)
hereunder that
(a) WARRANTS. The Borrower shall have delivered to the
Lender warrants (the "WARRANTS") to purchase an aggregate of 200,000 shares of
common stock, par value $.001 per share, of the Borrower. The exercise price of
the Warrants shall be $2.25 per share and they shall be exercisable for a period
of five years from the date of issuance. In the event that the Borrower requests
an Additional Advance, the Borrower shall, within five business days from the
date of such Additional Advance, issue additional Warrants in a PRO RATA amount
equal to 40,000 Warrants per ONE HUNDRED THOUSAND DOLLARS ($100,000) in
additional principal amount of such Additional Advance.
(b) DEBENTURE DOCUMENTS. The Borrower shall have executed
and delivered in escrow, pursuant to an escrow agreement in form and substance
satisfactory to the Borrower and the Lender, definitive documents relating to a
subordinated debt investment in the Borrower (the "SUBORDINATED DEBT DOCUMENTS")
in an initial principal amount of TWO MILLION TWO HUNDRED THOUSAND DOLLARS
($2,200,000) substantially in the form attached hereto as Exhibit A. In the
event that the Borrower requests an Additional Advance, the Borrower shall, as a
condition thereto, execute and deliver in escrow replacement Subordinated Debt
Documents in a principal amount equal to four (4) times the aggregate principal
amount of this Note to be outstanding after the making of such Additional
Advance.
10. SUITS FOR ENFORCEMENT. Upon the occurrence of any one or more
Events of Default, the Holder of this Note may proceed to protect and enforce
its rights hereunder by suit in equity, action at law or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note, or may proceed to enforce the payment of this Note, or to enforce any
other legal or equitable right of the Holders of this Note. The Borrower agrees
to pay all reasonable expenses and costs, including attorney fees and costs of
collection, which may be incurred by the Holder in connection with the
enforcement of any of Borrower's obligations hereunder or by representatives of
the Holder with respect to any bankruptcy or insolvency proceedings of the
Borrower.
11. REMEDIES CUMULATIVE. No remedy herein conferred upon the
Holder is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
12. REMEDIES NOT WAIVED. No course of dealing between the Borrower
and the Holder or any delay on the part of the Holder in exercising any
rights hereunder shall operate as a waiver of any right.
13. REPLACEMENT OF NOTE. On receipt by the Borrower of an affidavit
of an authorized representative of the Holder stating the circumstances of the
loss, theft, destruction or mutilation of this Note (and in the case of any such
mutilation, on surrender and cancellation of such Note), the Borrower, at its
expense, will promptly execute and deliver, in lieu thereof, a new Note of like
tenor. If required by the Borrower, such Holder must provide indemnity
sufficient in the reasonable judgment of the Borrower to protect the Borrower
from any loss which they may suffer if a lost, stolen or destroyed Note is
replaced.
14. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Borrower shall bind its successors and assigns, whether so expressed or not.
15. NOTICES. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier (with
receipt confirmed), courier service or personal delivery at the addresses
specified below:
If to the Borrower:
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<PAGE>
Global Telephone Communications, Inc.
510 Burrard Street, Suite 910
Vancouver, BC
Canada V6C 3A8
Attn: Thomas C. Brandenburg
Fax: (604)699-3565
If to the Lender:
Pinehurst/L.O.F., LLC
JE Matthew LLC
600 Central Avenue, Suite 214
Highland Park, Illinois 60035
Att: Howard Spivack
Fax: (847) 681-1541
All such notices and communications shall be deemed to have been duly given
when: delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; if mailed, five Business Days
after being deposited in the mail, postage prepaid; or if telecopied, when
receipt is acknowledged.
16. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING EFFECT TO GOL
SECTION 5-1401).
17. SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
18. HEADINGS. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof
GLOBAL TELEPHONE COMMUNICATION, INC.
By:
-------------------------------------
Name:
Title:
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