<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2000.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
GLOBAL TELEPHONE COMMUNICATION, INC.
(Exact name of Small Business Issuer in Its Charter)
NEVADA 87-0285729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
SUITE 1800, 10 SOUTH RIVERSIDE PLAZA, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
1-877-901-4824 (GTCI)
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
------------------- ------------------------------
<S> <C>
n/a n/a
</TABLE>
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001
(Title of Class)
<PAGE>
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date: As of May 11, 2000,
there were 18,488,275 shares of common stock outstanding.
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
No. Title Page No.
<S> <C> <C>
PART I
Item 1. Financial Statements............................................................................1
Item 2. Management's Discussion and Analysis or Plan of Operation......................................15
PART II
Item 1. Legal Proceedings..............................................................................18
Item 2. Changes in Securities..........................................................................18
Item 3. Defaults upon Senior Securities................................................................18
Item 4. Submission of Matters to a Vote of Security
Holders........................................................................................18
Item 5. Other Information..............................................................................18
Item 6. Exhibits and Reports on Form 8-K...............................................................18
Signatures.....................................................................................19
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GLOBAL TELEPHONE COMMUNICATION, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND DECEMBER 31, 1999
1
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 917,503 $ 1,485,896
Restricted cash 850,000 850,000
Notes receivable - related party, net 50,500 50,500
Investments 3,443 2,657
----------------- -----------------
Total Current Assets 1,821,446 2,389,053
----------------- -----------------
FIXED ASSETS, NET 39,498 36,825
----------------- -----------------
OTHER ASSETS
Goodwill 1,466,667 -
Deposits 1,495 1,495
----------------- -----------------
Total Other Assets 1,468,162 1,495
----------------- -----------------
TOTAL ASSETS $ 3,329,106 $ 2,427,373
================= =================
</TABLE>
2
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 39,889 $ 143,883
Accrued expenses 167,945 166,811
Notes payable 365,328 543,631
Shareholder payable 1,289 1,289
----------------- -----------------
Total Current Liabilities 574,451 855,614
----------------- -----------------
LONG-TERM DEBT - -
----------------- -----------------
TOTAL LIABILITIES 574,451 855,614
----------------- -----------------
COMMITMENTS
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, 18,488,275 and 16,788,275 shares issued
and outstanding, respectively 18,488 16,788
Additional paid-in capital 11,382,965 8,834,665
Other comprehensive income (loss) (4,242) (1,402)
Deficit accumulated during the development stage (8,642,556) (7,278,292)
----------------- -----------------
Total Stockholders' Equity 2,754,655 1,571,759
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,329,106 $ 2,427,373
================= =================
</TABLE>
3
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
For the Inception on
Three Months Ended March 10,
March 31, 1970 Through
------------------------------- March 31,
2000 1999 2000
------------- ------------- ---------------
<S> <C> <C> <C>
REVENUES $ - $ 1,000 $ 4,705
------------- ------------- ---------------
OPERATING EXPENSES
General and administrative 1,232,159 231,781 5,220,660
Depreciation and amortization expense 135,782 854 2,620,044
------------- ------------- ---------------
Total Operating Expenses 1,367,941 232,635 7,840,704
------------- ------------- ---------------
OPERATING LOSS (1,367,941) (231,635) (7,835,999)
------------- ------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 7,290 - 14,293
Interest expense (3,613) (5,512) (20,961)
------------- ------------- ---------------
Total Other Income (Expense) 3,677 (5,512) (6,668)
------------- ------------- ---------------
Loss Before Discontinued Operations (1,364,264) (237,147) (7,842,667)
(LOSS) FROM DISCONTINUED OPERATIONS - - (251,441)
GAIN (LOSS) ON DISCONTINUED OPERATIONS - 56,083 (548,448)
------------- ------------- ---------------
NET LOSS $ (1,364,264) $ (181,064) $ (8,642,556)
============= ============= ===============
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments (2,840) (351) (4,242)
------------- ------------- ---------------
Total Other Comprehensive Income (Loss) $ (1,367,104) $ (181,415) $ (8,646,798)
============= ============= ===============
Continuing Operations $ (0.08) $ (0.02)
Discontinued operations - 0.01
------------- -------------
NET LOSS PER SHARE OF COMMON STOCK $ (0.08) $ (0.01)
============= =============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 17,599,264 12,265,078
============= =============
</TABLE>
4
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Common Stock Additional Comprehensive During the
------------------------------- Paid-in Income Development
Shares Amount Capital (Loss) Stage
-------------- -------------- -------------- ----------------- ----------------
<S> <C> <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>
5
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Common Stock Additional Comprehensive During the
------------------------------- Paid-in Income Development
Shares Amount Capital (Loss) Stage
-------------- -------------- -------------- ----------------- ----------------
<S> <C> <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
$0.04 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>
6
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Common Stock Additional Comprehensive During the
------------------------------- Paid-in Income Development
Shares Amount Capital (Loss) Stage
-------------- -------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 4,155,793 $ 4,156 $ 717,183 $ - $ (1,135,721)
Common stock issued to acquire
subsidiaries at $0.50 per share 6,950,000 6,950 3,468,050 - -
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 4,754,164 - (1,558,346)
Common stock issued to acquire
subsidiaries at $1.40 per share 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 - -
Foreign currency translation
adjustment - - - (1,402) -
Net loss for the year ended
December 31, 1999 - - - - (5,719,946)
-------------- -------------- -------------- ----------------- ----------------
Balance, December 31, 1999 16,788,275 $ 16,788 $ 8,834,665 $ (1,402) $ (7,278,292)
-------------- -------------------------------------------------- ----------------
</TABLE>
7
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Common Stock Additional Comprehensive During the
------------------------------- Paid-in Income Development
Shares Amount Capital (Loss) Stage
-------------- -------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 16,788,275 $ 16,788 $ 8,834,665 $ (1,402) $ (7,278,292)
Common stock issued to acquire
subsidiary valued at $2.50 per
share (unaudited) 500,000 500 1,249,500 - -
Common stock issued for cash at
$1.25 per share (unaudited) 400,000 400 499,600 - -
Common stock issued for cash at
$1.00 per share (unaudited) 800,000 800 799,200 - -
Foreign currency translation
adjustment (unaudited) - - - (2,840) -
Net loss for the three months
ended March 31, 2000 (unaudited) - - - - (1,364,264)
-------------- -------------- -------------- ----------------- ----------------
Balance, March 31, 2000 (unaudited) 18,488,275 $ 18,488 $ 11,382,965 $ (4,242) $ (8,642,556)
============== ============== ============== ================= ================
</TABLE>
8
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
For the Inception on
Three Months Ended March 10,
March 31, 1970 Through
------------------------------- March 31,
2000 1999 2000
------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,364,264) $ (181,064) $ (8,642,556)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation expense 135,782 854 202,692
Allowance for bad debts - - 49,500
Common stock and options
issued for services and expenses
paid on behalf of the Company - - 1,495,064
Goodwill expensed - - 3,475,000
Foreign currency translation adjustment (2,840) (351) (4,242)
Changes in operating assets and liabilities:
Increase (decrease) in restricted stock - - (850,000)
Increase (decrease) in inventories (786) - (3,443)
(Increase) decrease in accounts
receivable - - (105,928)
(Increase) decrease in other assets - - (180,873)
Increase (decrease) in deposits for 504 - - (785)
Increase (decrease) in accounts payable (103,994) 131,794 42,496
Increase (decrease) in accrued expenses 1,134 (8,296) 178,374
------------- ------------- ---------------
Net Cash (Used) by Operating Activities (1,334,968) (57,063) (4,344,701)
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary (350,000) - (350,000)
Cash paid out of discontinued operations - - (1,205,413)
Purchase of fixed assets (5,122) - (253,845)
------------- ------------- ---------------
Net Cash (Used) by Investing Activities (355,122) - (1,809,258)
------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable (178,303) - (178,303)
Increase in notes payable - 284,111 995,101
Common stock issued for cash 1,300,000 940,000 6,254,664
------------- ------------- ---------------
Net Cash Provided by Financing Activities $ 1,121,697 $ 1,224,111 $ 7,071,462
------------- ------------- ---------------
</TABLE>
9
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
For the Inception on
Three Months Ended March 10,
March 31, 1970 Through
------------------------------- March 31,
2000 1999 2000
------------- ------------- ---------------
<S> <C> <C> <C>
NET INCREASE (DECREASE ) IN CASH AND
CASH EQUIVALENTS $ (568,393) $ 1,167,048 $ 917,503
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,485,896 16,390 -
------------- ------------- ---------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 917,503 $ 1,183,438 $ 917,503
============= ============= ===============
CASH PAID FOR:
Interest $ 3,613 $ 5,512 $ 79,195
Income taxes $ - $ - $ -
NON-CASH FINANCING
ACTIVITIES:
Common stock and options issued for
services rendered and expenses
paid on behalf of the Company $ - $ - $ 1,495,064
Common stock issued for subsidiaries $ 1,250,000 $ 840,000 $ 5,565,000
Common stock rescinded for subsidiaries $ - $ - $ (2,000,000)
Common stock issued for debt $ - $ - $ 86,665
</TABLE>
10
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position of operations and cash flows
at March 31, 2000 and 1999 and for all periods presented have been
made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's December 31, 1999 audited consolidated
financial statements. The results of operations for periods ended March
31, 2000 and 1999 are not necessarily indicative of the operating
results for the full years.
NOTE 2 - MATERIAL EVENTS
COMMON STOCK ISSUANCE
On January 14, 2000, the Company issued 500,000 shares of common stock
at $2.50 per share for a total of $1,250,000 as part of the
consideration for 3000 shares of Nano. On February 9, 2000, the Company
issued 400,000 shares of common stock at $1.25 per share for a total
consideration of $500,000. During March 2000, the Company issued
800,000 shares of common stock at $1 per share for a total
consideration of $800,000.
ACQUISITION OF NANO TECHNOLOGY LTD.
On January 28, 2000, the Company's wholly owned subsidiary, Global
Telephone Communication (BVI) Inc., GTCI (BVI), a British Virgin
Islands company, arranged to acquire 70% of the shares of Nano
Technology Ltd. (Nano), a British Virgin Islands company. Nano owns
100% of the issued and outstanding capital stock of Cyber 2000 Ltd.
(Cyber 2000), a Hong Kong company. Nano's only activity is to hold the
ownership interest in Cyber 2000.
- 3,000 shares of Nano were acquired from existing shareholders
in exchange for $350,000 cash and 500,000 shares of the
Company's common stock valued at $2.50 per share for a total
consideration of $1,600,000 which is allocated to goodwill and
is amortized over a three-year life using the straight-line
method;
- A further 4,000 shares of Nano were acquired by way of a share
subscription agreement whereby GTCI (BVI) would pay $1,000,000
to Nano for 4,000 new shares.
As of March 31, 2000, $500,000 of the subscription is unpaid. Such
unpaid amount is due to an affiliate and is eliminated in
consolidation.
The purchase price will be allocated as follows:
<TABLE>
<S> <C>
Purchase price $ 1,600,000
Subscription for new shares 1,000,000
-------------------
Total cost of shares $ 2,600,000
===================
Allocated as to cash held by Nano $ 1,000,000
Goodwill $ 1,600,000
</TABLE>
11
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 2 - MATERIAL EVENTS (Continued)
ACQUISITION OF NANO TECHNOLOGY LIMITED (Continued)
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 Nano for investment of approximately $2.6
million in cash and stock.
Cyber 2000 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.
RECISSION OF PACIFIC ASSET INTERNATIONAL, LTD.
A Mutual Rescission Agreement to rescind the acquisition of PAI was
effective on January 13, 2000, however, the Company did not receive the
signed agreement until April 2000. And thus, it could not assume on
January 13, 2000 that the acquisition was rescinded. Although the
Mutual Rescission Agreement has been signed, the Company is awaiting
the return of the 600,000 shares of common stock. Until those shares
are returned, the Company has placed a stop on the shares and has shown
PAI as a loss from discontinued operations on its December 31, 1999
financial statements.
UNSECURED PROMISSORY NOTE
The Company is currently negotiating the placement of a subordinated
debt facility ("Subordinated Loan") in the principal amount of
$10,000,000 that the Company expects to close after the Company has
satisfied all applicable requirements for listing the common stock and
its common stock has been accepted for trading on the NASDAQ bulletin
board. There is no assurance that the Company will be successful on a
timely basis in meeting these contingencies. In connection with the
Subordinated Loan, the Company will be required to deliver a 9%
Subordinated Debenture ("Debenture") and a Warrant to Purchase Common
stock ("Warrant").
The same lender that proposes to make the Subordinated Loan has also
extended a bridge loan facility to the Company in the original
principal amount of $800,000 (the "Bridge Loan"). The Bridge Loan was
initially evidenced by a 15% Convertible Promissory Note (the
"Convertible Note") and the Convertible Note was subsequently converted
into a $3,200,000 principal amount subordinated loan facility
("Conversion Loan") on substantially the same terms and conditions as
the Subordinated Loan. The lender has not advanced any amount to the
Company in excess of the original principal amount of the Bridge Loan
and the unfunded amount of the Conversion Loan is evidenced by a
promissory note from the lender to the Company. It is anticipated that
the Conversion Loan will be repaid (and the promissory note evidencing
the unfunded portion thereof will be satisfied) by conversion into the
Subordinated Loan. In connection with the Bridge Loan, the Company
delivered to the lender a five-year warrant to purchase 200,000
shares of its common stock, exercisable at $2.25 per share.
12
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 2 - MATERIAL EVENTS (Continued)
UNSECURED PROMISSORY NOTE (Continued)
The Debenture will be convertible into shares of common stock of the
Company (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 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 Company's common stock is less than a specified amount per
share at any time during the five trading days preceding a Due Date,
the Company 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 $3.75. The Warrant will be exercisable at
any time prior to the expiration of five years from the date of
issuance.
The Company 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 with 150 days or is not
declared effective within 180 days of the date of issuance.
13
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 2 - MATERIAL EVENTS (Continued)
ADDITIONAL ICE FINANCING
The Company 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 Company has paid approximately $48,400 for the right of first
refusal on any and all phone cards that the ICE may choose to market.
The Company expects to invest approximately $121,000 per card for
design, artwork, impression, printing, testing and delivery of
satisfactory network delivery and support capabilities. In exchange,
the Company is to receive 50% of ICE's gross revenue monthly until it
has received twice its original investment, and subsequently, 25% of
gross monthly revenues for as long as the contract is in force,
including renewals.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS-CAUTIONARY STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SPECIFICALLY, ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT, REGARDING THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND PLANS AND OBJECTIVES OF
MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE,"
"BELIEVE," "COULD," "ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR PHRASES OF
SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY OR THE COMPANY'S MANAGEMENT, ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE
CURRENT VIEW OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS AND RELATED FACTORS INCLUDING,
WITHOUT LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, INTEREST RATES, CURRENCY FLUCTUATIONS,
GOVERNMENT REGULATION AND SUPERVISION, POLITICAL EVENTS, THE OPERATION OF THE
COMPANY'S NETWORKS, TRANSMISSION COSTS, PRODUCT INTRODUCTIONS AND ACCEPTANCE,
TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER
FACTORS DESCRIBED HEREIN ("CAUTIONARY STATEMENTS"). ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO BE CORRECT. BASED UPON CHANGING CONDITIONS,
SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR
INTENDED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTED
TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE APPLICABLE CAUTIONARY STATEMENTS.
RESULTS OF OPERATIONS
In the later part of 1999, the Registrant retained new senior
management and determined to focus on developing and pursuing its
telecommunications opportunities in China and Europe. As a result, among other
things, the Registrant rescinded, as of October 1, 1999, the practice of its two
Canadian multimedia subsidiaries, Planet City Graphics Corp. and Webworks
Multimedia Corporation, which were originally acquired in related transactions
on February 9, 1998.
Furthermore, on March 9, 1999, the Registrant entered into a Share Exchange
Agreement providing for the acquisition of 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 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. The Registrant subsequently determined the
Registrant would not be able to provide such assistance and that it would not be
in the best interest of the Registrant to continue its relationship with Pacific
Asset. In addition, the shareholders of Pacific Asset
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failed to deliver their shares to the Registrant in accordance with the terms of
the Share Exchange Agreement. For the foregoing reasons, the exchange
transaction was rescinded pursuant to a Mutual Rescission Agreement dated as of
January 13, 2000 between the Registrant and the shareholders of Pacific Asset.
As part of the Registrant's focus on developing its business in China,
on September 15, 1999, the Registrant entered into an agreement with
International Communications Enterprises Ltd. (ICE) to provide funding for a
joint venture between ICE and First Telecom of Hong Kong (FT). The primary
purpose of the joint venture will be to originate and terminate telephone
traffic in China. The Registrant 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 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.
As of December 31, 1999, the Registrant fulfilled its obligation to
provide $1,300,000 in development funds to its Hong Kong based subsidiary,
Regent Luck Holdings Ltd. (Regent). These funds were provided as paid in capital
for Regent's 90% interest in Shenzhen Global Net Computer Information Co. Ltd.,
which has an Exclusive Agency Agreement with Shenzhen Newsnet Co. Ltd., a
wholly-owned subsidiary of China Telecom.
On January 28, 2000, the Registrant acquired 70% of the issued and
outstanding shares of capital stock of Nano Technology Limited (Nano), a British
Virgin Islands company. Nano owns 100% of the issued and outstanding capital
stock of Cyber 2000 Ltd. (Cyber 2000), a Hong Kong company. Nano's only activity
is to hold the Registrant's ownership interest of Cyber 2000. 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. 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.
Cyber 2000 has also established a cooperation arrangement with Teleinfo (a
wholly owned subsidiary of China Telecom (HK) Ltd.) pursuant to which Teleinfo
will work with Cyber 2000 as part of this project to provide various supports in
marketing and technical programs. The Registrant acquired its interest in NANO
for an aggregate purchase price of $2,600,000, of which $1,350,000 was payable
in cash and the balance was payable by delivery of 500,000 restricted shares of
the Registrant's common stock valued at $2.50 per share. As of the date hereof,
a portion of the purchase price in the amount of $850,000 has been paid 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.
In the first quarter of 2000, the general and administrative costs
increased to $1,232,159, representing an increase of 531%. Legal and accounting
costs totaled approximately $185,000, consultant's costs totaled approximately
$170,000, travel and entertainment costs totaled approximately $208,000 and a
total of approximately $195,000 was spent for wages for employees. Office and
rent totaled approximately $63,000, investor relations approximately $14,000, an
allowance for doubtful accounts receivable
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approximately $342,000 and finance and bank charges approximately $10,000. In
addition $45,000 was expensed pursuant to a revenue participation agreement
with International Communications Enterprises Ltd. (ICE). During this period,
the Registrant's number of employees increased from 14 to a total of 18. Such
amounts have been expensed due to the Company's growing concern whether ICE
can successfully sell the proposed products.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, the Registrant raised $1,300,000 through the
sale of common stock as compared to the first quarter of 1999, during which the
Registrant raised approximately $940,000 through the sale of common stock. In
the year ended December 31, 1999, the Registrant raised $4,152,753 from the sale
of equity securities and $544,921 from notes payable to fund current operations.
The proceeds of such financing transactions were used for working capital needs.
The Registrant's current ratio at March 31, 2000 was 3.17 compared to 2.80 at
December 31, 1999.
The Registrant's operating activities used cash of approximately $1,334,968 for
the three months ended March 31, 2000. During this period, the Registrant had an
operating loss before depreciation and amortization of approximately $1,232,159
as compared to the first quarter of 1999, during which the Registrant had an
operating loss before depreciation and amortization of approximately $231,781.
During the year ended December 31, 1999, the Registrant had operating expenses
of $6,018,194, resulting in a net loss of $5,719,946.
In January 2000, the Registrant paid $350,000 in cash towards the acquisition of
Cyber 2000. As a result of the above activities and the Registrant's increased
operating costs, the Registrant experienced a decrease in cash of $568,393 for
the first three months of 2000.
BUSINESS RISK
Because of management's broad discretion with respect to the acquisition of
assets, properties or businesses, the Registrant may be deemed to be a growth
oriented company. Although management intends to apply substantially all of the
proceeds that it may receive through the issuance of stock or debt to suitable
acquisitions and development of acquired companies, such proceeds will not
otherwise be designated for any more specific purpose. The Registrant can
provide no assurance that any allocation of such proceeds will allow it to
achieve its business objectives.
As discussed previously, the Registrant's continuation of business is dependent
upon socio-political factors such as China's entry into the World Trade
Organization and the liberalization of foreign investment in China's Internet
sector. There are inherent risks involved in operating in China, a region where
the rules and regulations are still uncertain. The potential 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 these factors may affect the Registrant's future
operations and financial results is uncertain and will depend on the success of
the management team in executing its business plan and carrying out an effective
implementation of the core operations of the Registrant's joint ventures.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no changes since the Registrant's last report in Item
3, Legal Proceedings of Form 10-KSB for the fiscal year ended December 31, 1999.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
Form 8-K - None
(b) Reports on Form 8(K)
-Form 8-K dated February 14, 2000 reporting the acquistion of Nano
Technology Limited
-Financial statements of Nano Technology Limited
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL TELEPHONE
COMMUNICATION, INC.
DATE: , 2000 BY:
------------------ -----------------------------------
Robert J. Andresen
President & Chief Operating Officer
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