SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to
The Securities Exchange Act of 1934
For the fiscal year ended June 30, 1999
Commission file number 0-13313
GS TELECOM LIMITED
(Exact name of registrant as specified in its charter)
Colorado 0-13313 36-3296861
- -------- ------- ----------
(State or other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
First Floor Southbank House, Black Prince Road, London SE1 7SJ
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 44-1481 252 701
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
----- -----
As of June 30, 1999, there were 60,056,414 shares of common stock, of no par
value, outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: None
Name of each exchange on which registered: N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Common Stock
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes __X____ No ____
State issuer's revenues for its most recent fiscal year, $0 (before
extraordinary items). Transitional Small Business Disclosure Format:
Yes No X
----- -----
<PAGE>
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 1999 was $24,510,567, based upon the closing price of
$1.437 of the common stock on June 30, 1999.
Number of outstanding shares of the registrant's no par value common stock, as
of June 30, 1999: 60,056,414.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of this Form 10-K into which the document is incorporated: (1) Any
annual report to security holders None; (2) Any proxy or information statement -
None; (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. - None.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business .................................. 1
Item 2. Properties ................................ 13
Item 3. Legal Proceedings.......................... 13
Item 4. Submission of Matters to a Vote of
Security Holders.......................... 14
PART II
Item 5. Market for Registrant's Common Stock and
Security Holder Matters .................. 14
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 15
Item 7. Financial Statements....................... 16
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... 17
PART III
Item 9. Directors and Executive Officers of the
Registrant................................. 17
Item 10. Executive Compensation...................... 21
Item 11. Security Ownership of Certain Beneficial
Owners and Management...................... 23
Item 12. Certain Relationships and Related
Transactions............................... 23
PART IV
Item 13. Exhibits, Financial Statement Schedule
and Reports on Form 8-K.................... 25
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
- -----------------------------------------
(a) General Business Plan
GS Telecom Limited (the "Company") was incorporated in Colorado on
December 19, 1983 as Teleconferencing Systems International, Inc. Activities of
the Company from June 30, 1995 until November 15, 1997 were primarily
liquidation of operating assets and settlement of obligations owed creditors and
employees as previously reported.
On November 15, 1997, the Company acquired an Isle of Man Company, also
named GS Telecom Limited, (later changed to GST Limited - "GST") by issuance of
a $150,000 convertible note payable. GST, the acquired subsidiary, had net
liabilities of $544,268. The note payable was subsequently converted into
14,500,000 shares of common stock and issued to the acquired company
stockholders.
The Company at June 30, 1999, through GST Limited (Isle of Man) had two
wholly owned subsidiaries, Guardian Smart Systems Limited ("GSS") and Total
Energy Controls (Commercial) Limited ("TECC") and a 50% holding in an associated
company, Associated Power Industries Limited ("API"). GST had an option to
acquire the remaining 50% ownership interest for three years beginning September
1, 1998. The investment in API has been accounted for using the equity method,
since the Company had insufficient board representation or other control
attributes involving API. During fiscal 1998, Management elected to write-off
its investment in API, $242,447, as a result of API's continued operating
losses. GSS'business is the design and marketing of domestic energy savings and
home management systems and TECC's business is to market and install commercial
energy saving devices. Mainly due to a lack of working capital, neither GST
Limited, GSS nor TECC was successful, and Management elected to discontinue
operations effective June 30, 1998. Accordingly, the Company has taken steps and
adopted a plan to pay obligations owned employees and others, resulting in an
estimated loss from discontinued operations in fiscal 1998 of $140,099, and
expensed un-amortized goodwill totaling $475,367. The assets and liabilities of
two subsidiaries were sold subsequent to June 30, 1999.
In September 1998, the Company entered into an Agreement to acquire the
shares of Masstech, Inc., a Delaware Corporation, which purportedly owned
certain intellectual property rights, and which had minority interests in
certain companies which were purportedly engaged in developing the intellectual
property. Subsequently, in December 1998, the Agreement was modified, by which
Masstech was not to be acquired, but the assets consisting of "Intellectual
Property Rights" and the minority interests in the companies represented to be
developing the intellectual property were to be acquired for issuance of a total
of 43,000,000 shares of common stock issued: 19,360,000 shares each to Dr.
Steven Gillam and Andrew Castle, and 4,280,000 shares to Masstech, Inc. (which
is beneficially controlled by Dr. Steven Gillam and Andrew Castle).
1
<PAGE>
On April 1, 1999, the Company acquired all the assets of Masstech,
Inc., a Delaware Corporation, consisting of Intellectual Property Rights (IPR).
This IPR was to be commercialized and developed by Universal Syntropy, a wholly
owned subsidiary company or through third party licensing agreements. The
consideration for this acquisition and transfer of these assets to the Company
is 4,280,000 shares of common stock (subject to Rule 144) which have been issued
to Masstech, Inc.
On April 1, 1999 the Company purchased from Dr. Steven Charles Gillam
and David Andrew Castle an interest of 15% in each of the following companies:
Manex Studios, LLC,,Manex Visual Effects, LLC, Manex Entertainment, Ltd., and
Mass Illusions, LLC. The consideration for this acquisition and transfer of
these assets to the Company is a total of 38,720,000 shares of common stock
(subject to Rule 144) which have been issued in two equal parts of 19,360,000 to
Dr. Gillam and Mr. Castle. The Company agreed with Dr. Gillam and Mr. Castle to
place 50% of their shares in escrow (a total of 19,360,000 shares) until the
independent and non-interested Board members agree by majority vote that the
shares should be released. A portion of the purchase consideration of the above
assets was deferred until the gross revenues for the commercialization of the
IPR and/or the share of profits received from the above companies attain or
surpass $14,000,000 cumulatively by the year ended June 30, 2001. In the event
that this gross revenue target is met then additional shares shall be issued as
follows: Masstech, Inc. - 2,320,000, Dr. Steven C. Gillam - 4,840,000, and D.
Andrew Castle - 4,840,000. In the event that these cumulative gross revenues are
exceeded before June 30, 2001 or the business of Universal Syntropy is sold or
disposed of prior to that date at a value providing a profit acceptable to the
Board of GST then the above shares shall be immediately issuable. In the event
that these cumulative revenue projections are not met at the due date for any
other reason then the Board (voting by disinterested members only) shall, in its
absolute discretion, determine such compensation, if any, in shares of common
stock of GST as may be considered appropriate and payable by the Company to all
or any of Masstech, Inc., Dr. Steven Gillam and/or Mr. D. Andrew Castle.
There is currently a lawsuit between third parties and the major
shareholder of Manex Studios, LLC, Manex Visual Effects, LLC, Manex
Entertainment, Ltd., and Mass Illusions, LLC. In any determination of any right
or entitlement of either Masstech, Inc., Dr. Steven Gillam and/or Mr. D. Andrew
Castle as specified above, neither Dr. Steven Gillam nor Mr. D. Andrew Castle
will participate in any such determination and such remaining disinterested
Directors of the Company as there may be at the appropriate time shall make the
said determination after taking third party advice on what would be considered
appropriate and such decision shall be final and binding on all parties.
Manex Interests - The IPR and the 15% limited liability company
interests in four specialty production companies ("Manex Companies") require
substantial development funding and time to realize any potential. On October
21, 1999 the Board resolved that they were not satisfied with the progress on
the commercialization of the software and intangible property rights ("IPR") and
in receiving information on the financial results of the four companies that use
the technology. Accordingly in the interests of all shareholders the Board
resolved that the number of shares exchanged for the assets should be reduced by
21.5 million shares and the Board authorized the return from escrow of the 21.5
million shares and their cancellation.
2
<PAGE>
In Spring 1999 the Company entered into Letters of Intent or Agreements
as follows:
Network UK - The Company acquired the total share capital of Network UK
Limited, an Internet Service Provider based in Manchester England, for the
consideration of (pound)100,000 (UK) and 150,000 shares of 144 restricted stock.
This acquisition was to provide critical infrastructure and an Internet portal
through which the Company could build part of its integrated platform for
e-commerce and develop its planned innovations in facilitating financial
transactions across the Internet. This Agreement was cancelled.
The Company entered into a memorandum of understanding to acquire NC
International Limited of the UK, which owns and operates Authority on line
Credit Card Authorization System. Authority provided secure credit card
authorization, in real time, over the Internet, using any currently available
browser. The consideration was to be $100,000 (US) in cash and $4 million (US)
in common shares. This Agreement was cancelled.
The Company entered into an Agreement to acquire certain ATTM card
technology from World Innovation Netcom Services ("WINS") in Spring 1999, and
attempted to fund development to WINS. The Company could not completely fund
development and has, subsequent to year end, entered into a modification of the
Agreement with WINS to provide that the Company has a license for the ATTM
technology to exploit in Europe. The planned operations for a non-operating
subsidiary, Universal Syntropy, have been cancelled concurrent with the modified
Agreement.
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 2000, the Company plans to develop the E-Commerce
businesses of the Company to include the commercialization of the ATTM card
coupled with the fast, low cost, easy to use secure credit and debit card
authorization/payment system. These provide a unique foundation that will be
able to handle a large customer E-Commerce base and can easily be expanded.
After limited initial development capital funding, these component parts are
planned to be self-financing with profits and positive cash flows.
In February 1999, the Company engaged Union Trading Financial, Ltd., of
Geneva, Switzerland, to conduct a "best efforts" underwriting to raise the sum
of $25 million, to finance the acquisition of selected technologies, including
the ATTM Card, Universal Syntropy, and to incubate the development and marketing
of these technologies. The Agreement was cancelled in May 1999.
In March 1999, a "report" was made by Barrington Financial Securities,
believed by the Company at the time to be an "independent analyst" and a press
release and research report was issued. On April 8, 1999, the Company learned
that Barrington is an affiliate of Union Trading. The Company rescinded any
projections of income and issued a press release about the non-independence of
Barrington.
From February 1999 the operations of the Company were focused on
acquiring and developing businesses and technologies in E-Commerce. The policy
of the Board is that the Company should be a low overhead Company whose aim is
to acquire and integrate established profitable and positive cash flow
businesses which have proven technologies addressed at and able
3
<PAGE>
to exploit the world wide and growing E-Commerce and Internet markets. It is not
the policy of the Company to be a Research and Development Company. The Company
has no business operations as of the date of this report or at June 30, 1999.
Disclosure Items:
(a) Investigation by Securities & Exchange Commission
On April 19, 1999, the United States Securities and Exchange Commission
commenced a Formal Investigation as to whether the Company issued securities in
violation of registration requirements and issued press releases containing
materially false information. Presently, it is uncertain whether any action will
be filed, the grounds for said action, or the potential consequences thereof. In
the event of a successfully prosecuted SEC action, the Company could suffer
civil and criminal sanctions and substantial fines as well as other remedies
including injunction against further violation of securities laws and rules.
(b) Unauthorized Issue of Shares
The Company learned in May 1999 that certificates were issued for
common shares of GS Telecom, Ltd. which were in the 6000 number series and were
neither countersigned by American Share Transfer and Trust, Inc. (the prior
transfer agent) nor by Colonial Stock Transfer Co., Inc. (the current transfer
agent). The Company has determined that all such certificates are invalid and
has so notified the Securities & Exchange Commission, Depository Trust
Corporation, and its current transfer agent, Colonial Stock Transfer Co, Inc.
From the current information available, it appears that invalid certificates,
totaling approximately 800,000 shares have been submitted for transfer. From its
investigation, it appears to the Company that Union Trading Financial Limited
and one Werner Wassler were involved in the unauthorized issuance.
The Company has severed all relationships with Union Trading Financial,
Ltd./Werner Wassler and/or any of their associates or affiliates which have
become known to GST.
The Company is considering appropriate legal action to be taken
specifically against Union Trading Financial, Ltd. and its associates/affiliates
in relation to misrepresentations and the unauthorized distribution of stock.
DEBT OF THE COMPANY
Notes Payable
The notes payable at June 30, 1999 are summarized as:
Unsecured 9% notes payable to an
individual dated February 19, 1998
and March 31, 1998, payable on
demand. $212,400
8% convertible notes payable issued
November 20, 1997, due September 30, 2000. $376,500
-------
Total $588,900
========
4
<PAGE>
All the notes are classified as a current liability because the Company
has an outstanding dispute with the note holders.
During fiscal 1999, the Company and holders of $588,900 in notes
payable became involved in a dispute. The Company charged the note holders with
non-performance in providing promised funding. The note holders have threatened
legal proceedings for recovery of amounts due, but the parties are continuing
settlement discussions.
The Holders of the Notes have the option to convert one hundred percent
(100%) of the original principal amount of the Note issued to the Holder at any
time after the 120th day following the date of issue, into shares of the
Company's Common Stock at a conversion price equal to the lower of $2 per share
or at twenty five percent (25%) less than the average closing bid price of the
Company's Common Stock for the five (5) consecutive trading days ending on the
trading day immediately preceding the date thereof. Notwithstanding the
foregoing, if, after the effectiveness of the Registration Statement or if an
exemption is available from registration, the closing bid price of the Company's
Common Stock reaches four dollars for the five (5) consecutive trading days
ending on the trading day immediately preceding the date thereof, the Company
shall have the option of forcing conversion up to Fifty Percent (50%) of the
original principal amount of the Notes originally issued to the Holder, and if,
after such effectiveness, the closing bid price of the Company's Common Stock
reaches eight dollars, the Company shall thereafter have the option of forcing
conversion up to One Hundred Percent (100%) of the original principal amount of
the Notes issued to the Holder. Up to the date of this Report the Company has
received no request for conversion.
During fiscal 1999, three stockholders loaned the Company a total of
$161,776 with interest accrued at 9% per annum (an unpaid total of $1,866 at
June 30, 1999). The loans are unsecured and payable on demand.
During fiscal 1998, three former directors and/or officers loaned the GST
Limited, Isle of Man subsidiary a total of $288,048 of which $281,416 is
outstanding at June 30, 1999. These unsecured advances are non-interest bearing
and due on demand.
Plan of Seeking Other Business Opportunities
The Company's purpose will be to seek, investigate and, if such
investigation warrants, acquire an interest in business opportunities presented
to it by persons or firms who or which desire to seek the perceived advantages
of a corporation which is registered under the Securities Exchange Act of 1934
(the "Exchange Act"). The Company will not restrict its search to any specific
business, industry or geographical location and the Company may participate in a
business venture of virtually any kind or nature. This discussion of the
proposed business is purposefully general and is not meant to be restrictive of
the Company's virtually unlimited discretion to search for and enter into
potential business opportunities. Management anticipates that it may be able to
participate in only one potential business venture because the Company has
nominal assets and limited financial resources. See "Financial Statements." This
lack of diversification should be considered a substantial risk to shareholders
of the Company because it will not permit the Company to offset potential losses
from one venture against gains from another.
The Company may seek a business opportunity with entities which have
recently commenced operations, or which wish to utilize the public marketplace
in order to raise additional capital in order to expand into new products or
markets, to develop a new product or service or for other corporate purposes.
The Company may acquire assets and establish wholly-owned subsidiaries in
various businesses or acquire existing businesses as subsidiaries.
5
<PAGE>
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and extremely risky. Due to general
economic conditions, rapid technological advances being made in some industries
and shortages of available capital, management believes that there are numerous
firms seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, providing liquidity (subject
to restrictions of applicable statutes) for all shareholders and other factors.
Potentially, available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex.
The Company has, and will continue to have, no capital with which to
provide the owners of business opportunities with any significant cash or other
assets. However, management believes that the Company will be able to offer
owners of acquisition candidates the opportunity to acquire a controlling
ownership interest in a publicly registered company without incurring the cost
and time required to conduct an initial public offering. The owners of the
business opportunities will, however, incur significant legal and accounting
costs in connection with the acquisition of a business opportunity, including
the costs of preparing Form 8-Ks, 10-Qs or 10-KSBs, agreements and related
reports and documents. The Exchange Act specifically requires that any merger or
acquisition candidate comply with all applicable reporting requirements, which
include providing audited financial statements to be included within the
numerous filings relevant to complying with the Exchange Act. Nevertheless, the
officers and directors of the Company have not conducted market research and are
not aware of statistical data which would support the perceived benefits of a
merger or acquisition transaction for the owners of a business opportunity.
The analysis of new business opportunities will be undertaken by, or
under the supervision of, the officers and directors of the Company, none of
whom is a professional business analyst. Management intends to concentrate on
identifying preliminary prospective business opportunities which may be brought
to its attention through present associations of the Company's officers and
directors, or by the Company's shareholders. In analyzing prospective business
opportunities, management will consider such matters as the available technical,
financial and managerial resources; working capital and other financial
requirements; history of operations, if any; prospects for the future; nature of
present and expected competition; the quality and experience of management
services which may be available and the depth of that management; the potential
for further research, development or exploration; specific risk factors not now
foreseeable but which then may be anticipated to impact the proposed activities
of the Company; the potential for growth or expansion; the potential for profit;
the perceived public recognition or acceptance of products, services or trades;
name identification; and other relevant factors. Officers and directors of the
Company will meet personally with management and key personnel of the business
opportunity as part of their investigation. To the extent possible, the Company
intends to utilize written reports and personal investigation to evaluate the
above factors. The Company will not acquire or merge with any company for which
audited financial statements cannot be obtained within a reasonable period of
time after closing of the proposed transaction.
Management of the Company, while not especially experienced in matters
relating to the new business of the Company, shall rely upon their own efforts
and, to a much lesser extent, the efforts of the Company's shareholders, in
accomplishing the business purposes of the Company. It is not anticipated that
any outside consultants or advisors, other than the Company's legal counsel and
accountants, will be utilized by the Company to effectuate its business purposes
described herein. However, if the Company does retain such an outside consultant
or advisor, any cash fee
6
<PAGE>
earned by such party will need to be paid by the prospective merger/acquisition
candidate, as the Company has no cash assets with which to pay such obligation.
The Company will not restrict its search to any specific kind of firms,
but may acquire a venture which is in its preliminary or development stage,
which is already in operation or which is in essentially any stage of its
corporate life. It is impossible to predict at this time the status of any
business in which the Company may become engaged, in that such business may need
to seek additional capital, may desire to have its shares publicly traded or may
seek other perceived advantages which the Company may offer.
It is anticipated that the Company will incur expenses in the
implementation of its business plan described herein. Because the Company has no
capital with which to pay these anticipated expenses, present management of the
Company will pay these charges with their personal funds, as interest free loans
to the Company. However, the only opportunity which management has to have these
loans repaid will be from a prospective merger or acquisition candidate.
Management has agreed among themselves that the repayment of any loans made on
behalf of the Company will not impede, or be made conditional in any manner, on
consummation of a proposed transaction.
The Colorado Revised Statutes of the Company provide that the Company
may indemnify officers and/or directors of the Company for liabilities, which
can include liabilities arising under the securities laws. Therefore, assets of
the Company could be used or attached to satisfy any liabilities subject to such
indemnification.
Acquisition of Opportunities
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, reorganization, joint
venture or licensing agreement with another corporation or entity. It may also
acquire stock or assets of an existing business. On the consummation of a
transaction, it is probable that the present management and shareholders of the
Company will no longer be in control of the Company. In addition, the Company's
directors may, as part of the terms of the acquisition transaction, resign and
be replaced by new directors without a vote of the Company's shareholders or may
sell their stock in the Company. Any and all such sales will only be made in
compliance with the securities laws of the United States and any applicable
state.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of its transaction, the Company may agree to register all or
a part of such securities immediately after the transaction is consummated or at
specified times thereafter. If such registration occurs, of which there can be
no assurance, it will be undertaken by the surviving entity after the Company
has successfully consummated a merger or acquisition and the Company is no
longer considered a "shell" company. Until such time as this occurs, the Company
will not attempt to register any additional securities. The issuance of
substantial additional securities and their potential sale into any trading
market which may develop in the Company's securities may have a depressive
effect on the value of the Company's securities in the future, if such a market
develops, of which there is no assurance.
7
<PAGE>
While the actual terms of a transaction to which the Company may be a
party cannot be predicted, it may be expected that the parties to the business
transaction will find it desirable to avoid the creation of a taxable event and
thereby structure the acquisition in a so-called "tax-free" reorganization under
Sections 368(a)(1) or 351 of the Internal Revenue Code (the "Code"). In order to
obtain tax-free treatment under the Code, it may be necessary for the owners of
the acquired business to own 80% or more of the voting stock of the surviving
entity. In such event, the shareholders of the Company would retain less than
20% of the issued and outstanding shares of the surviving entity, which would
result in significant dilution in the equity of such shareholders.
As part of the Company's investigation, officers and directors of the
Company will meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis or verification of
certain information provided, check references of management and key personnel
and take other reasonable investigative measures, to the extent of the Company's
limited financial resources and management expertise. The manner in which the
Company participates in an opportunity will depend on the nature of the
opportunity, the respective needs and desires of the Company and other parties,
the management of the opportunity and the relative negotiation strength of the
Company and such other management.
With respect to any merger or acquisition, negotiations with target
company management are expected to focus on the percentage of the Company which
target company shareholders would acquire in exchange for all of their
shareholdings in the target company. Depending upon, among other things, the
target company's assets and liabilities, the Company's shareholders will in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any merger or acquisition. The percentage ownership may be
subject to significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's then-shareholders. If required to so do under
relevant law, management of the Company will seek shareholder approval of a
proposed merger or acquisition via a Proxy Statement.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate written agreements. Although the terms
of such agreements cannot be predicted, generally such agreements will require
some specific representations and warranties by all of the parties thereto, will
specify certain events of default, will detail the terms of closing and the
conditions which must be satisfied by each of the parties prior to and after
such closing, will outline the manner of bearing costs, including costs
associated with the Company's attorneys and accountants, will set forth remedies
on default and will include miscellaneous other terms.
The Company will not acquire or merge with any entity which cannot
provide independent audited financial statements within a reasonable period of
time after closing of the proposed transaction. The Company is subject to all of
the reporting requirements included in the Exchange Act. Included in these
requirements is the affirmative duty of the Company to file independent audited
financial statements as part of its Form 8-K to be filed with the Securities and
Exchange Commission upon consummation of a merger or acquisition, as well as the
Company's audited financial statements included in its annual report on Form
10-KSB (or 10-K, as applicable). If such audited financial statements are not
available at closing, or within time parameters necessary to insure the
Company's compliance with the requirements of the Exchange Act, or if the
audited financial statements provided do not conform to the representations made
by the candidate to be acquired in the closing documents, the closing documents
will provide that the proposed transaction will be voidable, at the discretion
of the present management of the Company. If such
8
<PAGE>
transaction is voided, the agreement will also contain a provision providing for
the acquisition entity to reimburse the Company for all costs associated with
the proposed transaction.
Competition
The Company will remain an insignificant participant among the firms
which engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than the
Company. In view of the Company's combined extremely limited financial resources
and limited management availability, the Company will continue to be at a
significant competitive disadvantage compared to the Company's competitors.
Certain Risks
The Company's business is subject to numerous risk factors, including
the following:
History of Operating Losses and Minimal Assets and Revenue. The Company has
had a history of operating losses and has not had any earnings from operations.
The Company has no significant assets or financial resources. The Company will,
in all likelihood, sustain operating expenses without corresponding revenues, at
least until the consummation of a business combination or development of
business. This may result in the Company incurring a net operating loss which
will increase continuously until the Company can consummate a business
combination with a business opportunity. There is no assurance that the Company
can identify such a business opportunity and consummate such a business
combination.
Speculative Nature of Company's Proposed Operations. The success of the
Company's proposed plan of operation will depend to a great extent on the
operations, financial condition and management of any identified business
opportunity. While management intends to seek business combination(s) with
entities having established operating histories, there can be no assurance that
the Company will be successful in locating candidates meeting such criteria. In
the event the Company completes a business combination, of which there can be no
assurance, the success of the Company's operations may be dependent upon
management of the successor firm or venture partner firm and numerous other
factors beyond the Company's control.
Scarcity of and Competition for Business Opportunities and
Combinations. The Company is and will continue to be an insignificant
participant in the business of seeking mergers with, joint ventures with and
acquisitions of small private and public entities. A large number of established
and well-financed entities, including venture capital firms, are active in
mergers and acquisitions of companies which may be desirable target candidates
for the Company. Nearly all such entities have significantly greater financial
resources, technical expertise and managerial capabilities than the Company and,
consequently, the Company will be at a competitive disadvantage in identifying
possible business opportunities and successfully completing a business
combination. Moreover, the Company will also compete in seeking merger or
acquisition candidates with numerous other small public companies.
9
<PAGE>
No Agreement for Business Combination or Other Transaction; No
Standards for Business Combination. The Company has no arrangement, agreement or
understanding with respect to engaging in a merger with, joint venture with or
acquisition of, a private or public entity except as described in the "Business"
section preceding this. There can be no assurance that the Company will be
successful in identifying and evaluating suitable business opportunities or in
concluding a business combination. Management has not identified any particular
industry or specific business within an industry for evaluation by the Company.
There is no assurance that the Company will be able to negotiate a business
combination on terms favorable to the Company. The Company has not established a
specific length of operating history or a specified level of earnings, assets,
net worth or other criteria which it will require a target business opportunity
to have achieved, and without which the Company would not consider a business
combination in any form with such business opportunity. Accordingly, the Company
may enter into a business combination with a business opportunity having no
significant operating history, losses, limited or no potential for earnings,
limited assets, negative net worth or other negative characteristics.
Continued Management Control; Limited Time Availability. While seeking
a business combination, management anticipates devoting only part-time to the
business of the Company. None of the Company's current officers has entered into
a written employment agreement with the Company and none is expected to do so in
the foreseeable future. The Company has not obtained key man life insurance on
any of its officers or directors. Notwithstanding the combined limited
experience and time commitment of management, loss of the services of any of
these individuals would adversely affect development of the Company's business
and its likelihood of continuing operations.
Conflicts of Interest - General. Certain of the officers and directors
of the Company are directors and/or principal shareholders of other blank check
companies and, therefore, could face conflicts of interest with respect to
potential acquisitions. In addition, officers and directors of the Company may
in the future participate in business ventures which could be deemed to compete
directly with the Company. Additional conflicts of interest and non-arms length
transactions may also arise in the future in the event the Company's officers or
directors are involved in the management of any firm with which the Company
transacts business. The Company's Board of Directors has adopted a policy that
the Company will not seek a merger with, or acquisition of, any entity in which
management serve as officers or directors, or in which they or their family
members own or hold a controlling ownership interest.
Reporting Requirements May Delay or Preclude Acquisition. Sections 13
and 15(d) of the Exchange Act require companies subject thereto to provide
certain information about significant acquisitions, including certified
financial statements for the company acquired, covering one, two or three years,
depending on the relative size of the acquisition. The time and additional costs
that may be incurred by some target entities to prepare such statements may
significantly delay or essentially preclude consummation of an otherwise
desirable acquisition by the Company. Acquisition prospects that do not have or
are unable to obtain the required audited statements may not be appropriate for
acquisition so long as the reporting requirements of the Exchange Act are
applicable.
10
<PAGE>
Lack of Market Research or Marketing Organization. The Company has
neither conducted, nor have others made available to it, results of market
research indicating that market demand exists for the transactions contemplated
by the Company. Moreover, the Company does not have, and does not plan to
establish, a marketing organization. Even in the event demand is identified for
a merger or acquisition contemplated by the Company, there is no assurance the
Company will be successful in completing any such business combination.
Lack of Diversification. The Company's proposed operations, even if
successful, will in all likelihood result in the Company engaging in a business
combination with a business opportunity. Consequently, the Company's activities
may be limited to those engaged in by the business opportunity or opportunities
which the Company merges with or acquires. The Company's inability to diversify
its activities into a number of areas may subject the Company to economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the Company's operations.
Regulation. Although the Company will be subject to regulation under
the Exchange Act, management believes the Company will not be subject to
regulation under the Investment Company Act of 1940, insofar as the Company will
not be engaged in the business of investing or trading in securities. In the
event the Company engages in business combinations which result in the Company
holding passive investment interests in a number of entities, the Company could
be subject to regulation under the Investment Company Act of 1940. In such
event, the Company would be required to register as an investment company and
could be expected to incur significant registration and compliance costs. The
Company has obtained no formal determination from the Securities and Exchange
Commission as to the status of the Company under the Investment Company Act of
1940 and, consequently, any violation of such Act would subject the Company to
material adverse consequences.
Probable Change in Control and Management. A business combination
involving the issuance of the Company's Common Stock will, in all likelihood,
result in shareholders of a private company obtaining a controlling interest in
the Company. Any such business combination may require management of the Company
to sell or transfer all or a portion of the Company's Common Stock held by them,
or resign as members of the Board of Directors of the Company. The resulting
change in control of the Company could result in removal of one or more present
officers and directors of the Company and a corresponding reduction in or
elimination of their participation in the future affairs of the Company.
Reduction of Percentage Share Ownership Following Business Combination.
The Company's primary plan of operation is based upon a business combination
with other private companies which may, in all likelihood, result in the Company
issuing securities to shareholders of any such private company. The issuance of
previously authorized and unissued shares of Common Stock of the Company would
result in a reduction in the percentage of shares owned by present and
prospective shareholders of the Company and may result in a change in control or
management of the Company.
Taxation. Federal and state tax consequences will, in all likelihood,
be major considerations in any business combination the Company may undertake.
Currently, such transactions may be structured so as to result in tax-free
treatment to both companies, pursuant to various federal and state tax
provisions. The Company intends to structure any business combination so as to
minimize the federal and state tax consequences to both the Company and the
target entity; however, there can be no assurance that such business combination
will meet the
11
<PAGE>
statutory requirements of a tax-free reorganization or that the parties will
obtain the intended tax-free treatment upon a transfer of stock or assets. A
non-qualifying reorganization could result in the imposition of both federal and
state taxes which may have an adverse effect on both parties to the transaction.
Requirement of Audited Financial Statements May Disqualify Business
Opportunities. Management of the Company believes that any potential business
opportunity must provide audited financial statements for review, for the
protection of all parties to the business combination. One or more attractive
business opportunities may choose to forego the possibility of a business
combination with the Company, rather than incur the expenses associated with
preparing audited financial statements.
Board of Director Changes
Dr. Steven Gillam and Andrew Castle were appointed as Directors in October
1998. In July 1998, Mr. Gary Botha was appointed as Director.
Ms. Joslin Bennett, appointed as a Director in January 1998, resigned
in April 1999.
Gary Botha resigned as Director after June 30, 1999.
David Innes resigned as Director in October, 1998.
In July 1999 Dr. Steven Gillam resigned as Chairman and Director.
In November 1999 Andrew Castle offered his resignation and it was
accepted by the Board. In July 1999 the following Board appointments
were made:
Mr. Francis Guy Lewis Askham as Chairman
Mr. Gervaise-Brazier as Chief Executive and
Mr. Sam Lupton as Director
(See Management Experience for detailed management experience)
Governmental Regulations
The Company has not been involved in any bankruptcy, receivership or
similar proceeding during its existence.
Research and Development
The Company spent $0 on research and development activities during the
fiscal year ended June 30, 1999 and 1998.
Environmental Regulations
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment does not have any material effect on
the on the capital expenditures, earnings and competitive position of the
Company.
12
<PAGE>
Employees
As of June 30, 1999, the Company was employing only its three directors
and one other staff member, on a part-time basis.
Status of Products: None
Competition: None
Raw Materials: None
Customer Dependence: None
Patents, Trademarks, and Licenses: None at June 30, 1999.
Government Approval: None pending.
ITEM 2. DESCRIPTION OF PROPERTY
- -----------------------------------------
(a) Properties: None
The Company currently maintains administrative offices and receives
mail at:
First Floor Southbank House, Black Prince Road, London SE1 7SJ
Telephone No: (44) 1481 252 701 Fax: (44) 1481 251103
(b) Investment Policies
The Company does not invest in, have investments in real estate or real
estate mortgages, nor does the Company have securities of or interests in
persons engaged in real estate activities.
(c) The Company does not own real estate.
ITEM 3. 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.
13
<PAGE>
(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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------
No matter was submitted to a vote of the Company's shareholders during
the year ended June 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -------------------------------------------------------------------
(a) Market Information
The following table shows the range of high and low bid quotations of
the shares of the Company's common stock for the eight fiscal quarters ended
June 30, 1999.
Period
Year Ended June 30, 1998 High Bid Low Bid
- ------------------------------------------------------------------------------
First quarter 0.00 0.00
Second quarter 0.00 0.00
Third quarter 2.00 0.00
Fourth quarter 2.87 2.00
Year Ended June 30, 1999 High Bid Low Bid
- ------------------------------------------------------------------------------
First quarter 2.60 1.87
Second quarter 1.00 0.05
Third quarter 6.94 0.38
Fourth quarter 7.94 1.25
The shares are traded in the over-the-counter market. The above
quotations were furnished by the National Quotation Bureau Incorporated. Such
quotations represent prices between dealers and do not include retail mark-ups,
markdowns, or commissions and may not represent actual transactions.
(b) Holders
As of June 30, 1999, the Company had approximately 490 shareholders of
record.
(c) Dividends
The Company has not declared cash dividends on its common stock since
its inception and the Company does not anticipate paying any cash dividends in
the foreseeable future.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following is management's discussion and analysis of certain
significant factors that affected the Company's financial condition and results
of operation during the periods in the accompanying consolidated financial
statements.
During the fiscal year the business of the Company was significantly
altered. At June 30, 1998 the Company had no business and no active operations.
At June 30, 1999 it is engaged in seeking Internet/E-Commerce business and
acquiring the necessary services and skills of management. In addition it has
entered into agreements to acquire IPR and software licenses, which were at an
incomplete stage.
Liquidity
The Company had a net cash balance of $51 at June 30, 1999, and no
other liquid assets. Receivables amount to $3,833.
The Company has actively sought operations in E-Commerce as described
above. It anticipates seeking acquisition or merger candidates in the future.
During fiscal 1999, three stockholders loaned the Company a total of
$163,642, with interest accrued at 9% per annum (an unpaid total of $1,866 at
June 30, 1999). The loans are unsecured and payable on demand. Since June 30,
1999 shareholders have increased their loans to the Company to $401,930.
The Company's outstanding debt level, including for both years the Loan
Notes of $588,900 and the accrued interest thereon, increased to $2,074,823 from
$1,597,557 in the fiscal year ended June 30, 1998.
Working capital increased from a deficit of ($ 1,577,310) at June 30, 1998,
to a deficit of ($2,050,910) at June 30, 1999.
An offer, was made in November 1999, to purchase GST Limited (of the
Isle of Man) and its subsidiaries. Since the terms of the offer had the effect
of relieving the Company of all the UK liabilities and with the GST assets being
minimal, the offer was accepted. The result is that the assets and liabilities
of the UK operations, effective for the 2000 fiscal year, will no longer be
consolidated with those of the Company, with the attendant improvement in the
debt and equity position of the Company. The financial effect of this sale is
that net liabilities will be reduced by approximately $800,000 and accumulated
deficit by the same amount.
Capital Resources
The Company has no capital resources as of June 30, 1999 or the date of
this report.
The Company has no other known material commitments for capital
expenditures. Other than the need to raise significant funds to develop any
business the Company has no additional plans, agreements, or commitments
concerning any transaction, which would require the Company to use a significant
amount of capital. The Company has no sources of capital at year-end.
15
<PAGE>
Results of Operations
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1999 TO YEAR ENDED JUNE 30, 1998.
Revenues collected in the year ended June 30, 1999 was in the amount of
$0, which compared to revenues for the year ended June 30, 1998, of $65,431. The
Company had a cost of sales of $0 for year ended June 30, 1999, compared to cost
of sales of $134,645 in year ended June 30, 1998. General and administrative
expense for the years ended June 30, 1999 and 1998 were $ 618,584 and $826,397
respectively. Total losses before discontinued operations were ($670,457) in
1999 and ($895,611) in 1998. The net loss for the year ended June 30, 1999 was
($ 670,457). For the year ended June 30, 1998 the net loss was ($1,753,524)
after ($857,913) of losses from discontinued operations.
Loss per share for year ended June 30, 1999 was ($0.01) and ($0.01) per
share, before and after discontinued operations, respectively, compared to
($.11) and ($0.22) per share for year ended June 30, 1998.
The management of the Company does not believe that inflation has had
any material effect on the Company during the years ended June 30, 1999 and
1998.
Year 2000 Issues
Year 2000 problems result primarily from the inability of some computer
software to properly store, recall or use data after December 31, 1999. These
problems may affect may computers and other devices that contain embedded
computer chips. The Company's operations, however, do not rely extensively on
information technology ("IT") systems. The IT software and hardware systems the
Company operates are all publicly available, pre-packaged systems that are
readily replaceable with other functionally similar systems. Accordingly, the
Company does not believe that it will be materially affected by Year 2000
problems in its IT software and hardware systems.
The Company relies on non-IT systems that may suffer from Year 2000
problems including telephone systems and facsimile and other office machines.
Moreover, the Company relies on third-parties that may suffer from Year 2000
problems that could affect the Company's operations, including banks, government
offices and utilities. In light of the Company's substantially reduced
operations, the Company does not believe that such non-IT systems or third-party
Year 2000 problems will affect the Company in a manner that is different or more
substantial than such problems affect other similarly situated companies or
industry generally. Consequently, the Company does not currently intend to
conduct a readiness assessment of Year 2000 problems or to develop a detailed
contingency plan with respect to Year 2000 problems that may affect the
Company's IT and non-IT systems or third-parties.
ITEM 7. FINANCIAL STATEMENTS
- --------------------------------------
The response to this Item is included as a separate Exhibit to this
report. Please see pages F-1 through F-13.
16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
In connection with audits of two most recent fiscal years and any
interim period preceding resignation, no disagreements exist with any former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure, which disagreements if not
resolved to the satisfaction of the former accountant would have caused them to
make reference in connection with their reports to the subject matter of the
disagreement(s).
The audit report by Oatley Bystrom & Hansen for the years ended June
30, 1999 and 1998, contained an opinion which included a paragraph discussing
uncertainties related to continuation of the Registrant as a going concern.
The principal accountants' reports on the financial statements for any
of the past two years contained no adverse opinion or a disclaimer of opinion
nor was qualified as to uncertainty, audit scope, or accounting principles
except for the "going concern" qualification specified above.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- -------------------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
- --------------------------------------------------
(a) Identification of Directors.
The present term of office of each director will expire at the next
Annual Meeting of Shareholders. The name, position with the Company, age of each
director and the period during which each director has served are as follows:
Name and Position in the Company Age Director Since
Mr. Francis Guy Lewis Askham, Chairman 68 July 29, 1999
Mr. Colin P Gervaise-Brazier, Chief Executive 56 July 29, 1999
Mr. Sam Lupton, Director 46 July 29, 1999
Mr. Andrew Castle, Director 47 October 1998
Resigned in November
1999
Mr. Gary Botha, Director and Secretary 58 July 1998
Resigned in October
1999
Ms Joslin Bennett 49 January 1998,
Resigned in April
1999
Dr Steven Gillam, Former Chairman 46 October 1998
President and CEO Resigned in July
1999
There was no arrangement or understanding between any director and any
other person pursuant to which any director was selected as such.
17
<PAGE>
Identification of Executive Officers.
Each executive officer will hold office until his successor is duly
elected and qualified or until his resignation or until he shall be removed in
the manner provided by the Company's bylaws. The Company's executive officers,
their ages, position with the Company and periods during which they have served
are as follows:
Name and Position in the Company Age Officers Since
- ---------------------------------------------------------------------
Mr. Colin P Gervaise-Brazier,
Chief Executive and President 56 July 29, 1999
Dr. Steven Gillam 46 October 1998
(Chairman of the Board and President Resigned in July 1999
at June 30, 1999 but since resigned)
Andrew Castle 46 October 1998
(CEO at June 30, 1999 but since resigned) Resigned in November 1999
Business Experience
The following is a brief account of the business experience for at
least the last five years of each director and executive officer of the Company
at June 30, 1999:
Mr. Francis Guy L Askham, age 68, has been Chairman and Director of GS
Telecom since August 1999. Mr. Askham attended Hurst Pierpoint College from 1944
through 1948. He became a Chartered Accountant in 1954. He has been a Business
Consultant from 1982 to date. He is currently a Director and Chairman of Wilshaw
Plc and Deputy Chairman of Southampton Leisure Holdings Plc and non-executive
Director of International Energy Group Ltd.
Mr. Colin Gervaise-Brazier, age 56, is CEO and Director of GS Telecom
since July 1999. He attended Elizabeth College, Guersey Channel Islands and
obtained a GCSE in 1961 in English Literature and Language and attended Vauxhall
College in Business Management studies. From 1995 to 1997 he has been General
Manager and Sales Manager of Vale Garage, Ltd. From 1989 to 1994 he was a
Director of OCS Bureau, Ltd. He was appointed as a Director of GS Telecom, Ltd.
in August 1999. He is CEO of Torbay Holdings, Inc., appointed in 1999.
Sam Lupton, age 46, is the Secretary and Director of GS Telecom, Ltd.
since July 1999. He was educated at Downing College, Cambridge, UK, and
graduated with an M.A. (Hous) in Natural Services. He was recruited into AT&T in
1994 from Cable & Wireless (UK). He was responsible for service development and
profit responsibility for all voice systems. He launched VPN (SDN) services and
brought long distance & freephone (800) services to market. Mr. Lupton left AT&T
in 1997 to become an Independent Consultant. As an Independent Consultant he
covered a number of assignments during 1997 to 1999 including: IPO and flotation
of Telecom Plus Plc on OFEX in UK; Private placement for Eurocall Limited, a
large UK telecom reseller; Development of Speedial in Ireland to provide
telecoms and added value services to residential customers.
Dr. Steven Gillam, age 46, became Chairman, President, and a Director of
the Company in October 1998. He has been Chairman of Jectabor Limited since
1987. He is founding director of North Derbyshire Doctors Limited. He has been a
practicing physician since 1979. He received
18
<PAGE>
his education with a Doctorate from St. George's Hospital Medical School in
London in 1975. He is Chairman of Manex Entertainment, Manex Visual Effects, and
Manex Studios businesses which he co-founded since 1997. Dr. Gillam resigned as
a Director, President and Chairman in July 1999.
D. Andrew Castle, age 46, became a CEO and Director of the Company in
October 1998. He received his education at Kings College with an LLB degree in
1975. He has been Chief Executive of Manex Group since 1998. He acted as
Acquisitions Director for Grand Heritage Hotels Group in 1998. He has been a
corporate consultant to Fox Brooks Marshall, a Manchester U.K. law firm since
1993. Prior to 1993, he was a practicing solicitor in the U.K. He has been a
Director of Manchester Exchange Trust LTD since 1998, a Director of Manchester
Exchange Investment Company since 1998, a Director of Manex Brokers, Ltd., and
Manex Investments and Manex Corporate Services since 1998. Mr. Castle offered
his resignation in November 1999, and the Board accepted it.
Gary Botha, age 57, was appointed as a Director in July 1998. Mr. Botha
received his education at Glenwood High School and Natal University with a
degree in Accountancy in 1963. He became a chartered accountant (South Africa)
in 1965. He wass a partner with Whinney Murray & Co., Chartered Accountants (now
Ernst & Young) from 1973 to 1977. From 1977 to 1982 he was Finance Director of
AW Galadari (Holdings) Limited of Dubai and Singapore. From 1983 to 1986 he was
Chief Executive Officer of Asian Real Estate Development, Inc. Since 1987 he has
been a private business consultant in the U.K. Mr. Botha resigned as Director
and Secretary in October 1999.
Family Relationships. There are no family relationships between the executive
officers and directors of the Company.
Involvement in Legal Proceedings. See Item 3 - Legal Proceedings.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires that the Company's officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
stockholders are required by regulation to furnish to the Company copies of all
Section 16(a) forms they file.
1. The following people did not file any reports under Section 16(a)
during the most recent fiscal year:
a. David Innes Former President and Director (at June
30, 1998)
b. Gordon Bliss Former Director resigned during year
c. Joslin Bennett Former Director resigned during year
d. Marshall Kaye Former Director resigned during year
e. Andrew Castle Director, CEO (resigned after year end)
f. Gary Botha Secretary and Director (resigned after
year end)
g. Steven Gillam President and Director (resigned after
year end)
19
<PAGE>
2. For each person, listed by subparagraph letter above:
Number of late Number of Known failures
reports transactions not reported to file forms
on a timely basis
a. 3 January 1998 - 1 Forms 3, 4, and 5
b. 2 unknown Forms 3 and 5
c. 2 unknown Forms 3 and 5
d. 2 unknown Forms 3 and 5
e. 2 April 1, 1999, Oct. 1998 Forms 3, 4 and 5
f. 2 April 1, 1999, Oct. 1998 Forms 3 and 5
g. 2 April 1, 1999, Oct. 1998 Forms 3, 4 and 5
Conflicts of Interest
Members of the Company's management are associated with other firms
involved in a range of business activities. Consequently, there are potential
inherent conflicts of interest in their acting as officers and directors of the
Company. Insofar as the officers and directors are engaged in other business
activities, management anticipates it will devote only a minor amount of time to
the Company's affairs.
Certain of the officers and directors of the Company are directors and
principal shareholders in other blank check companies, and officers and
directors of the Company may in the future become shareholders, officers or
directors of other companies which may be formed for the purpose of engaging in
business activities similar to those conducted by the Company. Accordingly,
direct conflicts of interest may arise in the future with respect to such
individuals acting on behalf of the Company or other entities. Conflicts of
interest may arise with respect to opportunities which come to the attention of
such individuals in the performance of their duties or otherwise. The Company
does not currently have a right of first refusal pertaining to opportunities
that come to management's attention insofar as such opportunities may relate to
the Company's proposed business operations.
The officers and directors are, so long as they are officers or
directors of the Company, subject to the restriction that all opportunities
contemplated by the Company's plan of operation which come to their attention,
either in the performance of their duties or in any other manner, will be
considered opportunities of, and be made available to the Company and the
companies that they are affiliated with on an equal basis. A breach of this
requirement will be a breach of the fiduciary duties of the officer or director.
If the Company and the companies with which the officers and directors are
affiliated both desire to take advantage of an opportunity, then the Board of
Directors has agreed that said opportunity should be available to each such
company in the order in which such companies were formed. All directors may
still individually take advantage of opportunities if the Company should decline
to do so. Except as set forth above, the Company has not adopted any other
conflict of interest policy with respect to such transactions.
The Company's Board of Directors has adopted a policy that the Company
will not seek a merger with, or acquisition of, any entity in which any officer
or director serves as an officer or director or in which they or their family
members own or hold a controlling ownership interest.
20
<PAGE>
Although the Board of Directors could elect to change this policy, the Board of
Directors has no present intention to do so.
There can be no assurance that management will resolve all conflicts of
interest in favor of the Company.
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------
The Company accrued a total of $198,232 in compensation to the
executive officers as a group for services rendered to the Company in all
capacities during the fiscal year ended June 30, 1999. No cash bonuses were or
are to be paid to such persons.
The following table sets forth for the Company's fiscal year ended June
30, 1999, the compensation paid by the Company for services rendered in all
capacities to the Company to the persons who at June 30, 1999, were the
President and the Chief Executive Officer of the Company. No other executive
officers of the Company received salary and bonus from the Company in excess of
$100,000 during such fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
Name & Principal Fiscal Salary Bonus Other Restricted Securities
Position Year ($) ($) Annual Stock Under-
Comp- Award(s) lying
ensation ($) Options/
($) SARs (#)
<S> <C> <C> <C> <C> <C> <C>
Steve Gillam, 1998 $65,135 0 0 ** 0
President 1997 0 0 0 0 0
1996 0 0 0 0 0
Gary Botha, 1998 $81,030 0 0 0 0
Secretary 1997 0 0 0 0 0
1996 0 0 0 0 0
Andrew Castle, 1998 $52,067 0 0 ** 0
CEO 1997 0 0 0 0 0
1996 0 0 0 0 0
</TABLE>
**Restricted common stock shares totaling 19,360,000 each were issued on
April 1, 1999.
(See "Certain Relationship and Related Transactions"). 4,280,000 shares were
issued to Masstech, Inc. which is beneficially owned by Steven Gillam.
21
<PAGE>
Option/SAR Grants Table (None).
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR value (None).
Long Term Incentive Plans - Awards in Last Fiscal Year (None)
Stock Options
No stock options were granted or exercised Company's last fiscal year
ended June 30, 1999, and the Company has no stock options outstanding at June
30, 1999.
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION FOR FISCAL YEAR ENDED JUNE 30, 1999
(Except for compensation of Officers who are also Directors which Compensation
is listed in Summary Compensation Table of Executives).
Cash Compensation Security Grants
Name Annual Meeting Consulting Number Number of
Retainer Fees ($) Fees/Other of Securities
Fees ($) Fees ($) Shares Underlying
(#) Options/
SARs (#)
<S> <C> <C> <C> <C> <C>
a. Director, David Innes 0 0 0 0 0
b. Director, Gordon Bliss 0 0 0 0 0
c. Director, Joslin Bennett 0 0 0 0 0
d. Director, Marshall Kaye 0 0 0 0 0
e. Director, Gary Botha 0 0 0 0 0
f. Director, Andrew Castle 0 0 0 0 0
g. Director, Steven Gillam 0 0 0 0 0
</TABLE>
22
<PAGE>
ITEM 11. SECURITY, OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
(a) and (b) Security Ownership of Certain Beneficial Owners and
Management. The following table sets forth as of June 30, 1999, the number of
shares of the Company's no par value common stock owned by each person who owned
of record, or was known to own beneficially, more than 5% of the number of
shares of the Company's outstanding common stock, sets forth the number of
shares of the Company's outstanding common stock beneficially owned by each of
the Company's current directors and officers, and sets forth the number of
shares of the Company's common stock beneficially owned by all of the Company's
current directors and officers as a group:
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial Position of Beneficial Percent of
Owner of Common Stock with Company Ownership Class
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. Steve Gillam Former Chairman 23,640,000 39.1%
(Appointed Oct. 1998) President & Director
Resigned July 1999)
Mr. Andrew Castle Former CEO 19,360,000 32.2%
(Appointed Oct. 1998) and Director
(Resigned late 1999)
Mr. Gary Botha Secretary 0 0%
(Appointed July 1998) and Director
(Resigned October 1999)
Total Owned by Officers
and Directors 43,000,000 71.3%
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------------------------
(a) and (b) Transactions with Management and others and Certain
Business Relationships.
Certain assets consisting of "Intellectual Property Rights" and the
minority interests in the Manex companies represented to be developing the
intellectual property were acquired on April 1, 1999 for issuance of a total of
43,000,000 shares of common stock issued: 19,360,000 shares each to Dr. Steven
Gillam and Andrew Castle, and 4,280,000 shares to Masstech, Inc. (which is
beneficially controlled by Dr. Steven Gillam). Certain Escrow restrictions were
placed upon the shares conditioned.
The Company paid no management fees to any entity owned by a
stockholder/director/ officer in 1999 or 1998.
(c) Indebtedness of Management. No director or executive officer of the
Company and no associate of any such director or executive officer was indebted
to the Company at any time since the beginning of the Company's last fiscal year
in an amount in excess of $60,000.
24
<PAGE>
(d) Transactions with Promoters. Werner Wassler/Union Trading were
promoters, who issued or caused to be issued unauthorized, unregistered shares
of stock estimated at 800,000 shares, purportedly from the Company.
(e) A 50% interest in Associated Power Industries (API) was purchased
by the wholly owned subsidiary GST Limited of the Isle of Man. Under the
purchase agreement signed in June 1997, 50% of API was purchased for
(pound)100,000 (UK) cash and 222,626 common shares issued to the two other
Directors of API, Michael Beddingham and Robert Curley. In the acquisition by
the Company of GST Limited in 1997, David Innes, then President and Director,
was issued the following shares:
David Innes 1,057,018 shares
Raehill Investments 1,286,280 shares
Mr. Innes in 1997/8 advanced to the Company a total of (pound)65,000 (UK)
through his own Trust, Raehill Investments. He also sold Raehill 300,000 shares
at a price of (pound) .01 per share which reduced the advance by $3,000.
The Company agreed to issue common stock to the following
consultant companies who arranged the Masstech/Castle/Gillam acquisition as
follows:
Brent Trust 235,400 shares
Panacon Anstalt 2,129,600 shares
These may be issued as soon as, and if, the shares of
Masstech/Gillam/Castle are released from Escrow.
24
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------
(a) Lists of Exhibits Required by Item 601 of Regulation S-B
(3.1) Articles of Incorporation, as amended, which are hereby
incorporated herein by reference to Exhibit (3.1) to the Company's Annual Report
on Form 10-K for the fiscal year June 30, 1993.
(3.2) Bylaws as amended through October 14, 1987, which are hereby
incorporated herein by reference to Exhibit (3.2) to the Company's Annual Report
on form 10-K for the fiscal year, ended June 30, 1993.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
during the fiscal year ended June 30, 1999.
September 30, 1998*
January 21, 1999*
May 26, 1999*
June 1, 1999*
June 11, 1999*
*Previously filed and incorporated by reference as filed with the Securities and
Exchange Commission.
(c) Financial statements of GS Telecom Limited:
Page
Reports of Independent Accountants F-1 and F-2
Balance Sheets F-3
Statement of Operations F-4
Statements of Cash Flow F-5
Statements of Shareholders' Equity F-6
Notes to Financial Statements F-7
25
<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 3, 1999
GS Telecom Limited
a Colorado corporation
By:/s/Gervaise Brazier
------------------------
CP Gervaise-Brazier,
President and CEO
By:/s/S. Lupton
------------------------
S Lupton - Secretary
DIRECTORS:
By:/s/FG Askham
-------------------------
Printed Name: FG Askham
By:/s/Gervaise Brazier
-------------------------
Printed Name: CP Gervaise-Brazier
By:/s/S. Lupton
-------------------------
Printed Name: S Lupton
26
<PAGE>
OATLEY BYSTROM & HANSEN
Greenwood Village, Colorado
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
November 15, 1999
To the Board of Directors
GS Telecom Limited
London, England
We have audited the accompanying consolidated balance sheet of GS Telecom
Limited as of June 30, 1999, and the related consolidated statements of
operations, cash flows and changes in stockholders' equity (deficit) for the
years then ended. 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 did not audit the financial
statements of GST Limited, a wholly owned Isle of Man subsidiary, which
financial statements reflect all of the revenues of the 1998 consolidated
totals. Those financial statements were audited by other auditors whose report
has been furnished to us, and in our opinion, insofar as it relates to the
amounts included for GST Limited for the year ended June 30, 1998 is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 accompanying consolidated financial statements referred to
above present fairly, in all material respects, the financial position of GS
Telecom Limited at June 30, 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been presented assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As discussed in Note A to the financial statements, the Company has
incurred significant recurring losses and has substantial working capital and
stockholders' deficits as of June 30, 1999. At June 30, 1999, the Company had no
substantial product, services or properties and requires significant additional
financing to satisfy its outstanding obligations and commence operations. Unless
the Company successfully obtains suitable significant additional financing there
is substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note A. The
financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
/s/ Oatley Bystrom & Hansen
F-1
<PAGE>
STEIN RICHARDS
Chartered Accountants
London, England
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
15th November 1999
To the Board of Directors
GS Telecom Limited
London, England
We have audited the consolidated statements of operations, cash flows and
changes in stockholders' equity (deficit) of GST Limited (Isle of Man) as of
June 30, 1998. 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 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 accompanying consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
cash flows of GST Limited (Isle of Man) for the year ended June 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been presented assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As disclosed in the financial statements, the Company discontinued
operations as of June 30, 1998. At June 30, 1998, the Company had no
substantial product, services or properties and requires significant additional
financing to satisfy its outstanding obligations and commence operations. Unless
the Company successfully obtains suitable significant additional financing there
is substantial doubt about the Company's ability to continue as a going concern.
Other than specific provisions included in the accounts, the financial
statements do not include any adjustments to reflect the possible future effect
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
STEIN RICHARDS
Chartered Accountants
Registered Auditors
/s/ Stein Richards
F-2
<PAGE>
GS TELECOM LIMITED
CONSOLIDATED BALANCE SHEET
June 30, 1999
ASSETS
CURRENT ASSETS
Cash $ 51
Accounts receivable 3,833
Prepaid and other current assets 20,029
------
Total current assets 23,913
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $1,191 1,191
-----
DEPOSITS 60,000
Total assets $ 85,104
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Convertible and demand notes payable $ 588,900
Loans from shareholders 163,642
Accounts payable 581,227
Payable to affiliates and related parties 281,416
Accrued expenses 254,507
Accrued salaries and wages 130,797
Accrued interest payable 72,947
Bank overdraft 1,387
---------
Total current liabilities 2,074,823
---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 100 million shares authorized:
60,056,414 shares issued and outstanding, respectively 1,380,357
Accumulated deficit (3,390,634)
Foreign currency translation adjustments 20,558
---------
Total stockholders' (deficit) (1,989,719)
Total liabilities and stockholders' equity (deficit) $ 85,104
========
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended June 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
NET SALES $ - $ 65,431
COST OF SALES - (134,645)
------- ---------
Gross income (loss) - (69,214)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 618,584 826,397
INTEREST EXPENSE 51,873 -
------- -------
Loss from continuing operations (670,457) (895,611)
--------- ---------
DISCONTINUED OPERATIONS:
Discontinued operations - (140,099)
Write-off investment in unconsolidated subsidiary - (242,447)
Write-off goodwill of consolidated subsidiaries - (475,367)
-------- ---------
Loss from discontinued operations - (857,913)
-------- ---------
NET INCOME (LOSS) $ (670,457) $(1,753,524)
=========== ============
BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:
(LOSS) FROM CONTINUING OPERATIONS $ (0.01) $ (0.11)
(LOSS) FROM DISCONTINUED OPERATIONS - (0.11)
------- ------
NET INCOME (LOSS) PER SHARE $ (0.01) $ (0.22)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 50,733,983 8,124,053
=========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (670,457) $(1,753,524)
Adjustments to reeconcile net income (loss) to net cash
provided by operating activities
Write-off investment in unconsolidated subsidiary - 242,447
Write-off goodwill of consolidated subsidiaries - 475,367
Common stock issued for services - 20,500
Depreciation and amortization 1,191 52,380
Changes in operating assets and liabilities:
Receivables 105 (3,938)
Prepaid and other current assets (3,720) (16,309)
Accounts payable (114,292) 695,519
Accrued liabilities 434,539 23,712
Bank overdraft 9 1,378
-------- ---------
Net cash flows from (used for) operating activities (352,625) (262,468)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (2,382) (44,947)
Deposit to acquire software license (60,000) -
Investment in unconsolidated subsidiary - (242,447)
Investment in consolidated subsidiaries - (332,800)
------- ---------
Net cash flows (used for) investing activities (62,382) (620,194)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Shareholder loans 163,642 -
Issuance of common stock 243,000 -
Advances from (repaid to) affiliates and related parties (6,632) 288,048
Issuance of convertible and other notes payable - 588,900
------- -------
Net cash flows (used for) from financing activities 400,010 876,948
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 15,048 5,510
------- ------
NET INCREASE (DECREASE) IN CASH 51 (204)
CASH AT BEGINNING OF YEAR - 204
------- -----
CASH AT PERIOD END OF YEAR $ 51 $ -
===== ===
SUPPLEMENTAL DISCLOSURES:
Net interest paid $ - $ 24,119
Non-cash investing and financing activities:
Note payable issued stockholders of acquired subsidiary - 150,000
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Accumulated
------------------------------------- ----------------------
Shares Amount Deficit
------------------ ------------------ -------------------
<S> <C> <C> <C>
Balances at June 30, 1997 278,220 $966,857 $(966,653)
Conversion of note payable issued to
stockholders of acquired subsidiary 14,500,000 150,000 -
Issuance of fractional shares from fiscal
1997 reverse stock split 194 - -
Stock issued for services 2,050,000 20,500 -
Net (loss) - - (1,753,524)
---------- ------- -----------
Balances at June 30, 1998 16,828,414 1,137,357 (2,720,177)
Stock issued to acquire intellectual property
and related software rights 43,000,000 - -
Stock issued for cash 228,000 243,000 -
Net (loss) - - (670,457)
-- -- ---------
Balances at June 30, 1999 60,056,414 $ 1,380,357 $ (3,390,634)
=========== ============ =============
</TABLE>
See accompanying notes
F-6
<PAGE>
GS Telecom Limited
Notes to Consolidated Financial Statements
Note A - Organization and Business
Organization and Nature of 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 (see Going Concern Considerations
below).
September 16, 1998, the Company entered into an agreement to acquire
Masstech, Inc., a Delaware corporation. Subsequently the agreement was
modified to provide for the purchase of Masstech's purportedly owned
software and intangible property rights ("IPR") and the minority
interests of two of Masstech's principals in four special effects film
studios that purporedly develop the technology for a total of 43
million shares. In addition, if gross revenues from the IPR and/or the
share of profits received attain or surpass $14,000,000 cumulatively by
June 30, 2001, then 12 million additional shares shall be issued to the
sellers. It is management's assessment that substantial development
funding and time is required in order to develop commercially the
acquired technology and rights. Also, there are certain significant
outstanding legal issues with respect to access and title to the IPR
and software. Accordingly, the cost of the assets acquired has not been
recorded in the accompanying financial statements.
Discontinued Operations
-----------------------
November 15, 1997, the Company acquired an Isle of Man company; also
named GS Telecom Limited (later changed to GST Limited - "GST" - also
see Note E). GST has two U.K. wholly owned subsidiaries: Guardian Smart
Systems Limited ("GSS") and Total Energy Controls (Commercial) Limited
("TECC"). GSS' business is the design and marketing of domestic energy
savings and home management systems and TECC's business is to market
and install commercial energy saving devices. Mainly due to a lack of
working capital, neither GSS nor TECC was successful, and Management
elected, effective June 30, 1998, to discontinue operations.
Accordingly, in fiscal 1998, the Company adopted a plan to pay
obligations owed employees and others, resulting in an estimated loss
from discontinued operations of $140,099, and expensed un-amortized
goodwill totaling $475,367. During fiscal 1999 these subsidiaries as
well as GST had no operations and the Company is presently undertaking
efforts to divest the entities.
The assets of the GST subsidiary previously included Associated Power
Industries Limited ("API"), a U.K. designer and manufacturer of energy
savings systems. During fiscal 1998, Management elected to write-off
its investment in API, $242,447, as a result of API's continued
operating losses.
Going Concern Considerations
----------------------------
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. The Company has incurred significant recurring
losses and has substantial working capital and stockholders' deficits
as of June 30, 1999.
F-7
<PAGE>
GS Telecom Limited
Notes to Consolidated Financial Statements
At June 30, 1999, the Company had no substantial product, services or
properties and requires significant additional financing to satisfy
outstanding obligations and to commence operations. Management's plans
to address these matters include private placements of stock, obtaining
short-term loans, and seeking suitable joint venture relationships in
technology and e-commerce fields of business.
Unless the Company successfully obtains suitable significant additional
financing there is substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effect on the
recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
Note B - Summary of Significant Accounting Policies
Principles of Consolidation
---------------------------
The financial statements include the accounts of GS Telecom Limited,
GST Limited, Guardian Smart Systems Limited and Total Energy Controls
(Commercial) Limited. All significant inter-company transactions and
balances have been eliminated.
Use of Estimates
----------------
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant areas requiring the use
of management estimates are accrual of costs of discontinued
operations, assessment of realization of goodwill and investments,
useful asset lives for depreciation and amortization, and valuation of
stock issued for services and deferred tax benefits. Actual results
inevitably will differ from those estimates, and such differences may
be material to the financial statements.
Foreign Currency
----------------
The financial statements of the Company's non-U.S. subsidiaries are
translated into U.S. dollars using current rates of exchange, with
gains or losses included in the cumulative translation adjustment
account in the stockholders' equity section of the consolidated balance
sheet. Revenues, costs and expenses denominated in foreign functional
currencies are translated at the weighted average exchange rate for the
period. Gains and losses on currency transactions (denominated in
currencies other than the local currency) are reflected in the
statement of consolidated operations.
Revenue Recognition
-------------------
Sales are recognized when products are shipped or services rendered.
F-8
<PAGE>
GS Telecom Limited
Notes to Consolidated Financial Statements
Property and Equipment
----------------------
Property and equipment are recorded at cost. Maintenance and repair
costs are charged to expense as incurred, and renewals and improvements
that extend the useful life of assets are capitalized. Depreciation is
computed using the straight-line method over the assets' estimated
useful lives as follows:
Equipment 4 years
Office equipment 4 years
Depreciation expense recorded in fiscal 1999 and 1998 was $1,191 and
none, respectively.
Goodwill
--------
Goodwill arose from the acquisition of GST in fiscal 1998 for
assumption of net liabilities totaling $332,800 and issuance of a
$150,000 convertible note payable to stockholders of the subsidiary.
Prior to June 30, 1998, goodwill was being amortized over 40 years on a
straight-line basis. As of June 30, 1998, Management elected to
discontinue the operations of GST, and accordingly, write-off the
$475,367 unamortized cost of the goodwill.
Income Taxes
------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which
incorporates the use of the asset and liability approach of accounting
for income taxes. The asset and liability approach requires the
recognition of deferred tax assets and liabilities for the expected
future consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities (see Note D).
Statement of Cash Flows Information and Supplemental Non-Cash Financing
Activities Cash and cash equivalents include cash and short-term
investments with original maturities of three months or less.
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.
The basic and the dilutive earnings per share are the same in fiscal
1999 and 1998 since the Company had net losses and the inclusion of the
effect of the convertible notes would be anti-dilutive.
F-9
<PAGE>
GS Telecom Limited
Notes to Consolidated Financial Statements
Concentrations
--------------
Substantially all activities of the Company were conducted in the U.K.
in fiscal 1999 and 1998.
Note C - Notes Payable and Loans from Stockholders and Former Directors
Unsecured 9% notes payable to an
individual dated February 19, 1998 and
March 31, 1998, payable on demand.
(See Note F.) $212,400
8% convertible notes payable issued
November 20, 1997, due September 30, 2000.
These notes are classified as a current liability
because the Company has an outstanding
dispute with the note holders (see Note F). 376,500
--------
$588,900
========
The convertible note holders have the option to convert the original
principal amount of the notes (a total of $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 bid price reaches $8 per
share, the Company has the option of requiring conversion of all of the
original principal.
During fiscal 1999, three stockholders loaned the Company a total of
$161,776, with interest accrued at 9% per annum (an unpaid total of
$1,866 at June 30, 1999). The loans are unsecured and payable on
demand. During fiscal 1998, three former directors and/or officers
loaned the GST Limited, Isle of Man subsidiary a total of $288,048.
These unsecured advances are non-interest bearing and due on demand
($1,968 repaid in fiscal 1999).
Note D - Income Taxes
As of June 30, 1999 the accumulated net operating loss carryforward
that may be offset against future taxable income, if any, totals
approximately $814,000. The loss carryforward expires in varying
amounts from 2003 through 2019.
A tax benefit has not been reported in the accompanying financial
statements for the operating loss carryforward because the Company is
uncertain as to the likelihood of utilization. Accordingly, the
approximate tax benefit of $122,000 of the loss carryforward has been
offset by a valuation allowance of the same amount, an increase of
$99,500 in fiscal 1999.
F-10
<PAGE>
GS Telecom Limited
Notes to Consolidated Financial Statements
Note E - Stockholders' Equity
Conversion of Note Payable
--------------------------
On November 15, 1997, the Company acquired GST by issuance of a
$150,000 convertible note payable to GST stockholders. On January 6,
1998, the $150,000 note payable was converted into 14,500,000 shares of
common stock (approximately $.01 per share).
Stock Issued for Services
-------------------------
On February 10, 1998, the Company issued 2,050,000 shares of common
stock to three individuals (two of whom are holders of notes payable
from the Company) for services related to the reorganization of the
Company. The value of the services were estimated at $20,500 ($.01 per
share).
Convertible Notes Payable
-------------------------
(See Note C.)
Stock Issued for Software and Property Rights
---------------------------------------------
In 1999, the Company purchased software and intangible property rights
("IPR") and the interests in four special effects film studios that use
the technology for a total of 43 million shares. As there are certain
significant outstanding issues with respect to access and title to the
IPR and software, the Company is unable to estimate their associated
value, if any. Accordingly, the cost of the assets acquired has not
been recorded in the accompanying financial statements.
Stock Issued for Cash
---------------------
During fiscal 1999, a total of 228,000 shares of common stock were
issued to investors in private placements for a total of $243,000
(prices per ranged from $.50 to $1.10).
Note F - Commitments and Contingencies
Commitments
-----------
The Company leases its present office on a month-to month basis at $850
per month. Rental expense for offices and related facilities in fiscal
1999 and 1998 was $11,963 and $25,171, respectively.
Contingencies
-------------
On April 19, 1999, the United States Securities and Exchange Commission
issued a formal private investigation as to whether the Company issued
securities in violation of registration requirements and issued press
releases containing materially false information. Presently, it is
uncertain whether any action will be filed, the grounds for said
action, or the potential consequences thereof. In the event of a
successfully prosecuted SEC action, the Company could suffer civil and
criminal sanctions and substantial fines as well as other remedies
including injunctive action against further violation of securities
laws and rules.
During fiscal 1999, the Company and holders of $588,900 in notes
payable became involved in a dispute. The Company has charged the note
F-11
<PAGE>
GS Telecom Limited
Notes to Consolidated Financial Statements
holders with non-performance in providing promised funding. The note
holders have threatened legal proceedings for recovery of amounts due,
but the parties are continuing settlement discussions. At present, the
outcome of the dispute cannot be predicted, but the Company intends to
defend its rights vigorously. These notes are classified as a current
liability because of the outstanding dispute.
During fiscal 1999, prior to the installation of the Company's present
management, certain certificates purported to represent approximately
800,000 shares of the Company's stock were invalidly distributed by
third parties. The Company is presently considering legal action
against the individuals responsible for the unauthorized distribution.
The Company is a defendant in a lawsuit entitled GST
Telecommunications, Inc. and GST Telecom, Inc. vs. GS Telecom LTD, in
which plaintiffs are seeking an injunction and damages for trademark
infringement and name infringement. On April 22, 1999, the Company
consented to a judgment in Federal District Court in San Francisco 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 also agreed
to change its name within four months after judgment. The plaintiffs
have since sought a contempt citation against the Company, set for
hearing on December 17, 1999, for failing to comply with the court
order. The Company intends to change its name as soon as its Annual
Report on Form 10-KSB and a Proxy Statement are filed with the
Securities and Exchange Commission and mailed to shareholders of the
Company.
Note G - Fair Value of Financial Instruments
The carrying amounts for accounts receivable, accounts payable and
accrued expenses approximates fair value because of the short-term
maturities of these instruments. The fair value of notes payable
approximates fair value because of the market rate of interest on the
debt.
The determinations of fair value discussed above are subjective in
nature and involve uncertainties and significant matters of judgement
and do not include income tax considerations. Therefore, the results
cannot be determined with precision and cannot be substantiated by
comparison to independent market values and may not be realized in
actual sale or settlement of the instruments.
Note H - Events Subsequent to June 30, 1999 (Unaudited)
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.
F-12
<PAGE>
During fiscal 1999, the Company paid a deposit of $60,000 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.
On 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.
On 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 August and October 1999, the Company sold a total of 293,000 shares
for $57,677.
From June 30, 1999 through September 30, 1999, shareholder loans
increased from $163,642 to $401,930.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 3833
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23913
<PP&E> 2382
<DEPRECIATION> 1191
<TOTAL-ASSETS> 85104
<CURRENT-LIABILITIES> 2074823
<BONDS> 0
0
0
<COMMON> 1380357
<OTHER-SE> (3390634)
<TOTAL-LIABILITY-AND-EQUITY> 85104
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 618584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51873
<INCOME-PRETAX> (670457)
<INCOME-TAX> 0
<INCOME-CONTINUING> (670457)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (670457)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
