<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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 September 30, 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)
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 October 1,
2000, there were 17,946,036 shares of common stock outstanding.
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
No. Title Page No.
PART I
<S> <C> <C>
Item 1. Financial Statements........................................................ 1
Item 2. Management's Discussion and Analysis or Plan of Operation................... 14
PART II
Item 1. Legal Proceedings........................................................... 16
Item 2. Changes in Securities....................................................... 16
Item 3. Defaults upon Senior Securities............................................. 16
Item 4. Submission of Matters to a vote of Security
Holders..................................................................... 16
Item 5. Other Information........................................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................ 16
Signatures.................................................................. 17
</TABLE>
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GLOBAL TELEPHONE COMMUNICATION, INC.
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
-1-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current Assets
Cash $ 675,645 $1,485,896
Restricted cash 850,000 850,000
Promissory note receivable (note 2) 1,928,986 -
Interest receivable 13,639 -
Notes receivable - related party, net 102,311 50,500
Inventories and deposits 57,361 2,657
------------ ----------
Total Current Assets 3,627,942 2,389,053
------------ ----------
Fixed Assets, Net 103,666 36,825
------------ ----------
Other Assets
Goodwill 1,200,000 -
Deposits - 1,495
------------ ----------
Total Other Assets 1,200,000 1,495
------------ ----------
TOTAL ASSETS $ 4,931,608 $2,427,373
============ ==========
</TABLE>
-2-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current Liabilities
Accounts payable $ 107,962 $ 143,883
Accrued expenses 709 166,811
Notes payable 719,138 543,631
Shareholder payable - 1,289
------------ ----------
Total Current Liabilities 827,809 855,614
------------ ----------
Long Term Debt (note 3) 3,735,000 -
------------ ----------
TOTAL LIABILITIES 4,562,809 855,614
------------ ----------
Commitments
Stockholders' Equity
Issued & outstanding 17,946 16,788
Additional Paid In Capital 10,738,906 8,834,665
Other Comprehensive Income (Loss) 1,506 (1,402)
Deficit accumulated during the development stage (10,389,559) (7,278,292)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 368,799 1,571,759
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,931,608 $2,427,373
=========== ==========
</TABLE>
-3-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended From inception on
September 30, September 30, March 10, 1970
-------------------------------- ------------------------------- through September 30,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ---------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales and services $ - $ 102,730 $ - $ 248,134 $ 4,705
Cost of sales - (81,177) - (91,412)
------------ ------------ ------------ ------------ ----------------------
GROSS PROFIT - 21,553 - 156,722 4,705
------------ ------------ ------------ ------------ ----------------------
OPERATING EXPENSES
General & administrative 778,514 626,125 3,531,297 1,197,379 7,519,798
Depreciation & amortization 135,614 13,553 407,156 44,285 2,891,418
------------ ------------ ------------ ------------ ----------------------
Total operating expenses 914,128 639,678 3,938,453 1,241,664 10,361,216
------------ ------------ ------------ ------------ ----------------------
OPERATING LOSS (914,128) (618,125) (3,938,453) (1,084,942) (10,406,511)
------------ ------------ ------------ ------------ ----------------------
OTHER INCOME (EXPENSE)
Interest income 28,305 5,043 64,641 9,399 71,644
Interest expenses (70,258) (2,897) (77,455) (11,809) (94,803)
------------ ------------ ------------ ------------ ----------------------
Total Other Income (Expense) (41,953) 2,146 (12,814) (2,410) 23,159
------------ ------------ ------------ ------------ ----------------------
Loss before discontinued
operations (956,081) (615,979) (3,951,267) (1,087,352) (10,429,670)
Gain from discontinued
operations - - - - (251,441)
Gain on discontinued operations - - - 56,083 (548,448)
Gain on recovery of shares - - 840,000 - 840,000
------------ ------------ ------------ ------------ ----------------------
NET LOSS $ (956,081) $ (615,979) $ (3,111,267) $ (1,031,269) $(10,389,559)
============ ============ ============ ============ ======================
</TABLE>
-4-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Additional Comprehensive During the
Common Stock 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
Additional Comprehensive During the
Common Stock 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 3,000,00 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
Additional Comprehensive During the
Common Stock 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)
Deficit
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Additional Comprehensive During the
Common Stock 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 - -
Common stock
returned per Mutual
Recission Agreement (unaudited) (600,000) (600) (839,400) - -
Common stock issued for
services at $1.65 per share(unaudited) 50,000 50 82,450 - -
Foreign Currency
Translation (unaudited) - - - 2,908 -
Common stock issued for
services (unaudited) at average of $0.76
Per share 7,761 8 5,891
Cost of convertible promissory
notes (unaudited) (see note 3) 107,000
Net loss for the nine
months ended September 30, 2000 (3,111,267)
------------ ------- ----------- ------------- -------------
Balance September 30, 2000 (unaudited) 17,946,036 $17,946 $10,738,906 $ 1,506 $(10,389,559)
============ ======= =========== ============= =============
</TABLE>
-8-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended From inception on
September 30, September 30, March 10, 1970
----------------------------- ------------------------------ through September 30,
2000 1999 2000 1999 2000
---------- ----------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (956,081) $ (615,979) $(3,111,267) $ (1,031,269) $ (10,389,559)
Adjustments to reconcile net loss to
net cash used by operating activities:
Gain on recovery of shares 0 - (840,000) - (840,000)
Depreciation expense 135,614 13,553 407,156 44,285 474,066
Allowance for bad debts - 49,500 - 49,500 49,500
Common stock & options issued for
services and expenses paid on
behalf of the Company 5,899 - 88,399 - 1,583,463
Cost of options granted 107,000 107,000 107,000
Goodwill expensed - - - - 3,475,000
Foreign Currency translation
adjustment - - 2,908 (351) 1,506
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash - - - - (850,000)
(Increase) in inventories & deposits 17,214 13 (54,704) (2,445) (57,361)
(Increase) in accounts receivable (51,806) (324,654) (51,811) (373,253) (157,734)
(Increase) in other assets - (125,663) - (43,785) (180,873)
(Increase) in deposits for 504 1,495 - 1,495 - 710
(Increase) in promissory note
receivable (1,928,986) - (1,928,986) - (1,928,986)
(Increase) in interest receivable (13,639) - (13,639) - (13,639)
Increase (decrease) in accounts payable (90,175) 10,761 (35,921) 1,830 110,570
Increase (decrease) in accrued expenses (287,561) 113,110 (166,101) 104,814 11,139
(Decrease) in shareholder payable (5) 225,963 (1,289) 225,963 (1,289)
---------- -------- ---------- ---------- ----------
Net cash (used) by operations (3,061,031) (653,396) (5,596,760) (1,024,711) (8,606,487)
---------- -------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of subsidiary - - (350,000) - (350,000)
Cash paid from discontinued operations - - - - (1,205,413)
Purchase of fixed assets (47,860) 71,558 (73,997) (75,394) (322,726)
---------- -------- ---------- ---------- ----------
Net cash (used) by investing activities (47,860) 71,558 (423,997) (75,394) (1,878,139)
---------- -------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bridge loan - - 800,000 - 800,000
Proceeds from private loan 285,000 - 535,000 - 535,000
Proceeds from convertible debenture 3,200,000 - 3,200,000 - 3,200,000
Repayment of notes payable (325,879) (22,396) (624,494) (22,396) (624,494)
Increase (decrease) in notes payable - (69,256) - 150,956 995,101
Common stock issued for cash - 565,380 1,300,000 1,908,313 6,254,664
---------- -------- ---------- ---------- ----------
Net Cash provided by financing activities 3,159,121 473,728 5,210,506 2,036,873 11,160,271
---------- -------- ---------- ---------- ----------
</TABLE>
-9-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended From inception on
September 30, September 30, March 10, 1970
----------------------------- ------------------------------ through September 30,
2000 1999 2000 1999 2000
---------- ----------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 50,230 $ (108,110) $ (810,251) $ 936,768 $ 675,645
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 625,415 1,061,268 1,485,896 16,390 -
---------- ----------- ----------- ------------ ---------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 675,645 $ 953,158 $ 675,645 $ 953,158 $ 675,645
========== =========== =========== ============ =====================
CASH PAID FOR:
Interest $ 70,258 $ 2,897 $ 77,455 $ 11,809 $ 153,037
Income taxes $ - $ - $ - $ - $ -
NON-CASH FINANCING
ACTIVITIES:
Common stock and options issued for
services rendered and expenses paid
on behalf of the Company $ 5,898 $ - $ 88,398 $ - $1,583,462
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
Common stock canceled due to
Mutual Recession Agreement $ - $ $ (840,000) $ $ (840,000)
</TABLE>
-10-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 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 September 30, 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
September 30, 2000 and 1999 are not necessarily indicative of the
operating results for the full years.
NOTE 2 - MATERIAL EVENTS
RECISSION OF PACIFIC ASSET INTERNATIONAL, LTD.AND CANCELATION OF COMMON
STOCK
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.
On June 26, 2000, the 600,000 shares that were the subject of a Mutual
Recission Agreement were legally canceled and removed from the
shareholders' list. Consequently the shares have been cancelled and the
resulting loss of $840,000 that was expensed in the year ended December
31, 1999 has been reversed and shown as a "gain on recovery of
reserves".
-11-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 2 - MATERIAL EVENTS (continued)
UNSECURED PROMISSORY NOTE
The Company converted an outstanding bridge loan facility in the
original principal amount of $800,000 into a subordinated convertible
debenture in the maximum original principal amount of $3,200,000. As of
September 30, 2000, the Company has received aggregate advances under
the subordinated debenture of $1,150,000. The unfunded balance of the
subordinated debenture, less certain fees due thereunder, is evidenced
by a note from the debenture holder to the Company. As of September 30,
2000, the amount of such note from the debenture holder to the Company
was $1,928,986. Both the convertible debenture and the promissory note
receivable bear interest at 9% per annum.
In connection with the financing discussed above, 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.
The debenture holder may convert $177,778 of unpaid principal and
accrued interest into common stock of the Company each month.
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. Since unpaid
principal and accrued interest is due on December 31, 2003, the
debenture has been shown as a long term debt.
WRITE OFF OF ICE LOANS.
The Company has loaned an aggregate of approximately $485,813 to ICE
pursuant to unsecured promissory notes. The Company previously
determined that the collectibility of these notes was doubtful and
wrote off this amount because ICE had no history of being able to sell
prepaid calling cards or provide telephone services and the Company was
unable to predict whether such sales or services would be possible in
the future or whether they would ever be profitable. ICE, which is an
English limited liability company, subsequently entered into a
voluntary liquidation.
-12-
<PAGE>
GLOBAL TELEPHONE COMMUNICATION, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 3 - LONG TERM DEBT
On May 23, 2000 the Company executed a promissory note in the amount of
$250,000. The note bears interest at prime plus .5% per annum.
Accumulated interest and principal is repayable on May 22, 2003 and
consequently the note payable has been shown as a long term debt. The
promissory note is convertible into shares of the company. The note is
convertible at the option of the note holder into shares of the Company
at a conversion rate equal to the lower of i) $1.30 per share or ii)
80% of the five day trailing average price of the Company's common
stock on the date notice of conversion is delivered to the Company. In
addition, the promissory note holder has been granted 500,000 warrants.
These warrants have an exercise price of $1.30 or 80% of the five day
trailing average of the Company's stock on the date notice of exercise
is delivered to the Company. As a result this note has been shown as a
long term debt.
Between August 3 and August 23, 2000 the company executed nine
promissory notes totaling $285,000. These notes all bear interest at
prime plus 1.5% per annum. Accumulated interest and principal is
repayable 3 years after the date of each note (August 3, 2003-August
23, 2003). As a result all these notes have been shown as long term
debt.The nine promissory notes are convertible at the option of the
note holder into shares of the Company at a conversion rate equal to
the lower of prices ranging from $0.70 to $1.09 or 80% of the 5 day
trailing average price of the company's common stock on the date notice
of conversion is delivered to the Company. In addition, each promissory
note holder has been granted warrants (total of 285,000 warrants for
all nine promissory notes). These warrants have exercise prices ranging
from $0.70 to $1.09 or 80% of the five day trailing average of the
Company's stock on the date notice of exercise is delivered to the
Company.
NOTE 4 - 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, 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.
-13-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
the safe harbor provisions of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended, that are based
on management's beliefs and assumptions and current expectations, estimates and
projections. Statements that are not historical facts are forward-looking
statements. The words "anticipate," "believe," "could," "estimate," "expect,"
"project," "intend" and similar words are forward-looking statements. These
statements are subject to certain risks, uncertainties and assumptions and
related factors that could cause actual results to differ materially from those
projected. Although we believe that these expectations, estimates and
projections are reasonable, we can give no assurance that they will prove to be
correct, and readers are cautioned not to place undue reliance on these
forward-looking statements.
RESULTS OF OPERATIONS
During the period from June 30, 2000 to September 30, 2000, we did not
engage in any significant operations except development activities and we did
not receive any revenues from operations. Specifically, we continued to develop
our business plan to build a global telecommunications network focused on the
efficient delivery of data, voice, video and wireless broadband traffic. In
China, we began construction of our network in Shenzhen, Guangdong Province and
continued our efforts to expand our Internet service provider (or ISP) platform
to five additional cities in China and to develop VoIP infrastructure between
those cities, the Pacific Rim and the Middle East. Through Cyber 2000, we also
continued our efforts to build a fully-integrated Asia-North America Internet
protocol (or IP) backbone network geared for international communication.
We are continuing to negotiate the placement of a subordinated debt
facility in the maximum principal amount of $10,000,000 (Subordinated Loan).
In the interim, the same lender has provided us an $800,000 bridge loan,
which was subsequently converted into $3,200,000 principal amount
subordinated loan facility. As of September 30, 2000, we have currently drawn
down aggregate advances of $1, 150,000 under this facility to fund current
operations, for working capital and to fund certain borrowing costs. The
unfunded principal amount of this subordinated debt facility less certain
fees and accrued interest is evidenced by a promissory note from the lender
to us. It is anticipated that the advances we have drawn down will be repaid
(and the lender's promissory note evidencing the unfunded portion of this
facility will be satisfied) by conversion into the Subordinated Loan. In
connection with the closing of the bridge loan, we delivered to the lender a
five-year warrant to purchase 200,000 shares of our common stock, exercisable
at $2.25 per share. We cannot provide any assurance that we will be
successful in satisfying the requirements for funding the Subordinated Loan
or that the Subordinated Loan will in fact be funded.
During the period June 30, 2000 to September 30, 2000, we completed
nine private placements pursuant to note and warrant purchase agreements. In
connection with these transactions, we issued convertible promissory notes to
investors in the aggregate original principal amount of $285,000. We also
delivered to the lenders three-year warrants to purchase an aggregate of 285,000
shares of our common stock (as such number may be adjusted in certain
circumstances), exercisable (i) at a prices ranging from $.70-$1.09 per share or
(ii) an amount per share equal to 80% of the five day trailing average of the
Company's common stock on the date of exercise. The shares to be issued in
connection with such transactions are at a discount from the market price of our
common stock (i.e. are "in the money") and, accordingly, an additional expense
equal to 20% of the principal value of the promissory notes has been recorded in
connection with the conversion option and a further expense equal to 20 % of the
five day trailing average of the Company's common stock on the date of exercise
will be recorded in connection with the exercise of the warrants.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General and administrative (G&A) expenses were $725,606 for the three
months ended September 30, 2000 and $3,478,389 for the nine months ended
September 30, 2000, as compared to $626,125 and $1,197,379, respectively,
for the same periods in 1999.
During the third quarter of 2000, legal and accounting expenses totaled
approximately $66,828, payroll costs totaled approximately $227,936, office
expenses totaled approximately $165,028, finance charges totaled approximately
$17,354, investor relations costs totaled approximately $11,645, consulting
costs totaled approximately $81,571, travel and entertainment costs totaled
approximately $53,486, rent totaled approximately $17,372. The cost of options
granted on the issuance of convertible promissory notes was $107,000, which is
represented by options to convert $585,000 of promisssory notes into stock at
20% below the trading price of our Common Stock on the day of conversion.
During this period, we also wrote off the aggregate amount of $27,295
from an uncollectible promissory note due from International Communication
Enterprises Ltd. (ICE). We doubted the collectibility of this note and wrote
this amount because ICE had no history of being able to sell prepaid calling
cards or provide telephone services and we were unable to predict whether such
sales or services will be possible in the future or whether they will be
profitable. ICE, which is an English limited liability company, subsequently
entered into a voluntary liquidation.
During the three months ended September 30, 2000, we recovered $49,909
from the reserve for uncollectible bad debts. The increase in G&A expense is
primarily attributed to the cost of the options granted during the quarter.
During the three months ended September 30, 2000, we raised an
aggregate of $285,000 through the issuance of convertible promissory notes,
$350,000 under the bridge loan as described above, and $719,138 in short term
bank financing. During the nine months ended September 30, 2000, we raised an
aggregate of $1,300,000 from the issuance of stock, $535,000 through the
issuance of convertible promissory notes, $1,150,000 under the bridge loan as
described above, and $719,138 in short term bank financing. For the
corresponding three month period ended September 30, 1999, we raised an
aggregate of $565,380 from the issuance of stock and $43,290 in short term bank
financing, and for the corresponding nine month period ended September 30, 1999,
we raised an aggregate of $1,908,313 from the issuance of stock and $43,290 in
short term bank financing. We used the proceeds of such financing transactions
for working capital needs. Our current ratio at September 30, 2000 was 0.85
compared to 0.99 at September 30, 1999.
Our operating activities used cash of approximately $1,011,031 and
$3,546,760 for the three months and the nine months ended September 30, 2000,
respectively, compared to $653,396 and $1,024,711, respectively for the same
periods in 1999. During the three months and the nine months ended September 30,
2000, we had operating losses before depreciation and amortization of
approximately $725,606 and $3,478,389, respectively, as compared to $626,125 and
$1,197,379, respectively, for the same periods in 1999.
As a result of the above activities and our increased operating costs,
we experienced an increase in cash of $50,230 for the three months ended
September 30, 2000.
BUSINESS RISK
Because of management's broad discretion with respect to the
acquisition of assets, properties or businesses, GTCI 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. We can provide no
assurance that any allocation of such proceeds will allow it to achieve its
business objectives.
The continuation and development of our 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 commercial
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 Company'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 our joint ventures.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no changes since the Company'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.
None
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
27 Financial Data Schedule
(b) Reports on Form 8-K - None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Company caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL TELEPHONE
COMMUNICATION INC.
DATE: November 16, 2000 BY: /s/ Robert J. Andresen
-----------------------------------
Robert J. Andresen
President & Chief Operating Officer
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