SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended Commission File Number
September 30, 1999 0-13313
GS TELECOM LIMITED
------------------------
(Exact name of registrant as specified in its charter)
Colorado 36-3296861
- -------- --------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
First Floor Southbank House, Black Prince Road, London SE1 7SJ
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(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code: 44-1481 252 701
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Indicate by check mark whether the registrant (1) has 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 the filing
requirements for at least the past 90 days.
Yes X No
---- -----
Number of outstanding shares of the registrant's no par value common stock, as
of September 30, 1999: 63,168,914.
<PAGE>
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, JUNE 30,
1999 1999
---------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,603 $ 5103
Accounts receivable 3,768 3,833
Prepaid and other current assets 20,263 20,029
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Total current assets 25,634 23,913
------- ------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $1,488 894 1,191
------ ---- -----
DEPOSIT 60,000 60,000
------- ------
Total assets $ 86,528 $ 85,104
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Convertible and demand notes payable $ 588,900 $ 588,900
Loans from shareholders 401,930 163,642
Accounts payable 564,157 581,227
Payable to affiliates and related parties 276,697 281,416
Accrued expenses 233,818 254,507
Accrued salaries and wages 53,294 130,797
Accrued interest payable 85,529 72,947
Bank overdraft 1,364 1,387
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Total current liabilities 2,205,689 2,074,823
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STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 100 million shares authorized:
63,168,914 and 60,056,414 shares issued and outstanding, respectively 1,901,102 1,380,357
Accumulated deficit (4,055,703) (3,390,634)
Foreign currency translation adjustments 35,440 20,558
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Total stockholders' (deficit) (2,119,161) (1,989,719)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 86,528 $ 85,104
========= ========
</TABLE>
See accompanying notes.
F-1
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
September 30,
-----------------------------------
---------------- ----------------
1999 1998
---------------- ----------------
<S> <C> <C>
COMPENSATION, GENERAL AND ADMINISTRATIVE EXPENSE $ 641,587 $ 68,690
INTEREST EXPENSE 23,482 12,583
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Loss from continuing operations 665,069 81,273
-------- ------
NET INCOME (LOSS) $ (665,069) $ (81,273)
=========== ==========
BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE $ (0.011) $ (0.005)
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 61,327,936 16,828,414
=========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
September 30,
-----------------------------------
---------------- ----------------
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (665,069) $ (81,273)
Adjprovided by operating activities (loss) to net cash
Common stock issued for services 490,068 -
Depreciation and amortization 297 -
Changes in operating assets and liabilities:
Receivables 65 -
Prepaid and other current assets (234) -
Accounts payable (17,070) 27,848
Accrued liabilities (85,610) 12,583
Bank overdraft (23) -
---- -
Net cash flows from (used for) operating activities (277,576) (40,842)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Shareholder loans 238,288 -
Issuance of common stock 30,677 -
Advances from (repaid to) affiliates and related parties (4,719) 40,842
Issuance of convertible and other notes payable - -
-- -
Net cash flows (used for) from financing activities 264,246 40,842
-------- ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 14,882 -
------- -
NET INCREASE (DECREASE) IN CASH 1,552 -
CASH AT BEGINNING OF PERIOD 51 -
------ -------
CASH AT PERIOD END OF PERIOD $ 1,603 $ -
======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Common Stock Accumulated
-------------------------------------
-------------------------------------
Shares Amount Deficit
------------------ ------------------ -------------------
<S> <C> <C> <C>
Balances at June 30, 1999 60,056,414 $ 1,380,357 $ (3,390,634)
Stock issued to financial advisors for services
($.187 per share) 2,365,000 442,255 -
Stock earned by directors for services
($.085 per share) 562,500 47,813 -
Stock issued for cash ($.166 per share) 185,000 30,677 -
Net (loss) - - (665,069)
---------- -------- ---------
Balances at September 30, 1999 63,168,914 $ 1,901,102 $ (4,055,703)
=========== ============ =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
GS TELECOM LIMITED
Notes to Financial Statements
Note A - Organization and Business
GS Telecom Limited (the "Company") was incorporated in Colorado on December 19,
1983. The Company is engaged in seeking internet/electronic commerce business
and acquiring the necessary services and skills of management.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
material adjustments, consisting of only normal recurring adjustments considered
necessary for a fair presentation, have been included. These statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Form 10-KSB for the year ended June 30, 1999.
The financial statements include the accounts of the Company and its wholly
owned subsidiaries: GST Limited (Isle of Man), Guardian Smart Systems Limited,
and Total Energy Controls Limited. All intercompany transactions and balances
have been eliminated.
The results of operations for the three months ended September 30, 1999, are not
necessarily indicative of the results for the remainder of the fiscal year
ending June 30, 2000.
Note B - Basic Earnings (Loss) Per Share
Basic earnings (loss) per share of common stock are computed using the weighted
average number of shares outstanding during each period. Diluted earnings per
share are computed on the basis of the average number of common shares
outstanding plus the dilutive effect of convertible notes payable.
F-5
<PAGE>
GS TELECOM LIMITED
Notes to Financial Statements
Note C - Loans from Stockholders
During the quarter ended September 30, 1999, three stockholders loaned the
Company a total of $238,289 (requiring interest at 9% per annum). The loans are
unsecured and payable on demand.
Note D - Stockholders' Equity
Stock Issued Financial Advisors for Services
- --------------------------------------------
August 30, 1999, the Board of Directors passed a resolution to issue 2.365
million shares to a firm of financial advisors for services in connection the
purchase of software and intangible property rights and interests in four
special effects film studios. The estimated cost of the shares issued the
advisors ($442,255 or $.187 per share) is based on the trading price of the
shares on the date of the resolution.
Stock Issued Directors for Services
- -----------------------------------
August 23, 1999, the Board of Directors approved a resolution to issue a total
of 2.25 million shares to two directors and one former director for services.
The estimated cost of the shares ($.085 per share) is being recognized ratably
during fiscal 2000 as they are earned ($47,813 each quarter) and are discounted
to take into account the one-year trading restriction on the stock.
Stock Issued for Cash
- ---------------------
On August 31, 1999, a total of 185,000 shares of common stock were issued to
investors in private placements for a total of $30,677 ($.166 per share).
Note E - Events Subsequent to September 30,1999
On October 15, 1999, the Company acquired exclusive European and non-exclusive
World wide licensing rights to an Asset Transfer Teleminute Manager, Universal
Prepaid card (ATTM card) to be used in electronic commerce and other commercial
transactions. The term of the agreement is for five years, with renewal options
annually thereafter. During fiscal 1999, the Company paid a deposit of $60,000
F-6
<PAGE>
GS TELECOM LIMITED
Notes to Financial Statements
to secure the license. In addition, the agreement calls for the issuance of 3.5
million shares of common stock to the licensor, and that the Company guarantees
it a minimum monthly royalty of $80,000.
November 17, 1999, The Board of Directors signed and concluded a contract for
the sale of its UK subsidiaries (the operations of which had been discontinued
effective June 30, 1998). The terms of the sale have the effect of relieving the
Company of the UK subsidiaries' assets and liabilities. Therefore, it is
anticipated that in the second quarter consolidated net liabilities will be
reduced by approximately $800,000 and the accumulated deficit by the same
amount.
In October 1999, the Company received $27,000 for the sale of 108,000 shares to
a private investor.
F-7
<PAGE>
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Results of Operations for the Three Month Period Ended September 30, 1999
- --------------------------------------------------------------------------------
Compared to Same Period ended September 30, 1998
- ------------------------------------------------
As a result of the discontinuance of operations, the Company had no
sales revenues and no gross profits in the period in 1999 or 1998.
In quarter ended September 30, 1999, the Company incurred compensation,
general and administrative, and interest expenses of $665,069 resulting in an
operating loss of ($665,069). For the same period in 1998, the Company incurred
$81,273 of such costs which resulted in an operating loss of ($81,273).
The Company lost ($.01) per share in the three month period compared to
a loss of ($.005) per share in the same period in 1998.
Liquidity and Capital Resources
- -------------------------------
At period end, the Company had $1,603 cash capital and total assets of
$86,528. The Company had $2,205,689 in current liabilities at period end. In
light of the deficit, ($2,219,161), in current assets and operating capital, the
Company will be forced to either borrow or make private placements of stock or
debt in order to fund any operations and debt repayment. No assurance exists as
to the ability to make private placements of stock or borrow funds. The Company
has no operations and no revenues, and, without capital to commence operations,
there is substantial likelihood that the Company will not be able to commence
any operations.
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings -
(a) The Company is a defendant in a lawsuit entitled GST
Telecommunications, Inc. and GST Telecom, Inc. vs. GS Telecom, LTD, in which
plaintiffs sought an Injunction and damages for trademark infringement. The
Company consented to judgment and agreed to use a disclaimer: "GS Telecom LTD is
not affiliated in any way with GST Telecommunications, Inc. or GST Telecom,
Inc." in press releases, advertising or promotional materials. The Company
agreed to change its name within four months after judgment. The Court entered
Judgment April 22, 1999. The Plaintiffs have since sought a Contempt Citation
against the Company, set for December 17, 1999, for failing to comply with the
Court Order. The Company intends to attempt to change its name as soon as this
10K is filed and a Section 14c Proxy Statement is filed, cleared and mailed to
shareholders of the Company.
(b) The Company has been notified that it is the subject of a Formal
Investigation by the Securities & Exchange Commission relating to matters
occurring from January 1999 to date. No prediction can be made of any result or
outcome. An adverse decision or result of the investigation could be material to
the Company, and could result in civil and criminal penalties, sanctions and
fines.
Item 2. Changes in Securities
August 30, 1999, the Board of Directors passed a resolution to issue
2.365 million shares to a firm of financial advisors for services in connection
the purchase of software and intangible property rights and interests in four
special effects film studios. The estimated cost of the shares issued the
advisors ($442,255 or $.187 per share) is based on the trading price of the
shares on the date of the resolution.
August 23, 1999, the Board of Directors approved a resolution to issue a
total of 2.25 million shares to two directors, Gerve Brazier (1,000,000) and Sam
Lupton (250,000), and one former director, Gary Botha (1,000,000), for services.
The estimated cost of the shares ($.085 per share) is being recognized ratably
during fiscal 2000 as they are earned ($47,813 each quarter) and are discounted
to take into account the one-year trading restriction on the stock.
On August 31, 1999, a total of 185,000 shares of common stock were
issued to investors in private placements for a total of $30,677 ($.166 per
share).
<PAGE>
Item 3. Senior Securities
Notes Payable
8% convertible notes issued November 20, 1997 due
September 30, 2000 $376,500
9% unsecured notes payable on demand issued on
February 19, 1998 and March 31, 1998 $212,400
--------
Total $588,900
========
As a result of a dispute neither interest nor capital payments required
under the terms of the Notes have been made which resulted in a technical
default. As a result of an agreement in December 1998 between the Noteholders
and the Company; the default situation was waived until June 1999. The notes are
in default at the date of this report.
Terms of Conversion
The convertible note holders have the option to convert the original
principal amount of the notes ($376,500) into common stock at the lower of $2
per share or 75% of the average closing bid price of the stock for trading five
days prior exercise. Notwithstanding the foregoing, if, after the effectiveness
of a registration statement or if an exemption is available from registration,
the closing bid price of the common stock reaches $4 per share for five
consecutive trading days, the Company has the option to require conversion of up
to 50% of the original principal, and if the closing price reaches $8 per share,
the Company has the option of requiring conversion of all of the original
principal.
Item 4. Submission of matters to a vote of securities holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. The following are filed Exhibits to this quarterly report. The
numbers refer to the Exhibit Table of item 601 of regulation S-K. None.
b. Reports on Form 8-K filed during the three months ended September
30, 1999:
August 12, 1999 (incorporated by reference)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: December 14, 1999
GS TELECOM LIMITED
A Colorado corporation
/s/ C.P. Gervaise-Brazier
---------------------------
C.P. Gervaise-Brazier
President and CEO
<TABLE> <S> <C>
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</TABLE>
