SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended: March 31, 2000
GS TELECOM LIMITED
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(Exact name of registrant as specified in its charter)
Colorado 0-13313 36-3296861
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(State or other (Commission IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
Enterprise House, Ocean Village, Southampton, SO14 3XD,
United Kingdom of Great Britain
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 44 870 710 6390
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No ____
Number of outstanding shares of the registrant's no par value common stock as of
March 31, 2000: 49,723,414
<PAGE>
PART I - FINANCIAL STATEMENTS
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GS TELECOM LTD
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $22,998 $51
Cash held in escrow 422,349 -
Accounts receivable - 3,833
Prepaid and other current assets 161,558 20,029
----------------- -----------------
Total current assets 606,905 23,913
PROPERTY AND EQUIPMENT, net of accumulated 5,094 1,191
depreciation of $2,290 and $1,191, respectively
LICENSE, net of accumulated amortization of $21,542 and nil, respectively 213,458 60,000
----------------- -----------------
TOTAL $825,457 $85,104
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Convertible and demand notes payable $588,900 $588,900
Loans from shareholders 235,972 163,642
Payable to affiliates and related parties - 281,416
Accounts payable 39,935 581,227
Accrued expenses 105,248 254,507
Accrued salaries and wages 82,220 130,797
Accrued interest payable 119,942 72,947
Bank overdraft - 1,387
----------------- -----------------
Total current liabilities 1,172,217 2,074,823
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 100 million shares 2,865,155 1,380,357
authorized: 49,723,414 and 60,056,414 shares
issued and outstanding, respectively
Accumulated deficit (3,211,915) (3,390,634)
Accumulated other comprehensive income - 20,558
----------------- -----------------
Total stockholders' (deficit) (346,760) (1,989,719)
----------------- -----------------
TOTAL $825,457 $85,104
================= =================
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See Accompanying Notes
<PAGE>
<TABLE>
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GS TELECOM LTD
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
------------- ----------- ----------- -------
<S> <C> <C> <C> <C>
General and administrative expense $ 287,671 $ 141,517 $ 662,469 $ 275,422
Interest expense 21,821 - 66,928 -
---------- ---------- ---------- ----------
Loss from continuing operations (399,706) (141,517) (729,397) (275,422)
INCOME FROM DISCONTINUED OPERATIONS - - 908,116 -
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($309,492) ($141,517) $178,719 ($275,422)
========== ========== ========== ==========
BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE:
FROM CONTINUING OPERATIONS ($0.01) ($0.01) ($0.02) ($0.02)
FROM DISCONTINUED OPERATIONS $0.00 $0.00 $0.02 $0.00
---------- ---------- ---------- ----------
BASIC AND DILUTED LOSS PER SHARE ($0.01) ($0.01) $0.00 ($0.02)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 45,376,535 16,854,234 47,444,871 16,866,706
========== ========== ========== ==========
</TABLE>
See Accompanying Notes
<PAGE>
<TABLE>
<CAPTION>
GS TELECOM LTD
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
March 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $178,719 ($275,422)
Adjustments to reconcile net income (loss) to net
cash provided by operating
activities:
Common stock issued for services 179,018 20,500
Depreciation 1,099 881
Amortization 21,542 -
Effect of foreign currency transactions (20,558) (4,565)
Changes in operating assets and liabilities:
Cash held in escrow (422,349) -
Receivables 3,833 (3,391)
Inventories - (26,902)
Prepaid and other current assets (15,529) (2,216)
Accounts payable (541,292) (40,193)
Accrued expenses (149,259) -
Accrued salaries and wages (48,577) -
Accrued interest payable 46,995 50,055
Bank overdraft (1,387) -
Other - 857
Net cash flows provided by (used in) operating activities (767,745) (280,396)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (5,002) (2,381)
Purchases of intangibles - (188)
Net cash flows used in investing activities (5,002) (2,569)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash of subsidiary at date of acquisition - 36,173
Proceeds from shareholder loans 247,330 -
Cash proceeds from issuance of common stock 829,780 243,000
Payments to affiliates and related parties (281,416) -
Advances from affiliates and related parties - 10,296
--------- ---------
Net cash flows (used in) provided by financing activities 795,694 289,469
--------- ---------
NET INCREASE (DECREASE) IN CASH 22,947 6,504
CASH AT BEGINNING OF PERIOD 51 (1,378)
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CASH AT PERIOD END OF PERIOD $22,998 $5,126
========= =========
</TABLE>
See Accompanying Notes
SUPPLEMENTAL CASH FLOW INFORMATION:
During the period the Company issued 350,000 shares of common stock with a
carrying value of $175,000 for the repayment of a shareholder loan.
During the period the Company issued 3,500,000 shares of common stock with a
carrying value of $175,000 for the purchase of a license.
During the period the Company issued 240,000 shares of common stock with a
carrying value of $120,000 for consulting services to be expensed over the term
of the contract.
During the period the Company issued 3,123,000 shares of common stock with a
carrying value of $37,788 for consulting services to be expensed over the term
of the contract.
<PAGE>
GS Telecom Limited - Notes to Financial Statements - March 31, 2000
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
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB
and do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all material adjustments,
consisting of only normal recurring adjustments considered necessary
for a fair presentation, have been included. These statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended June 30, 1999.
The results of operations for the nine months ended March 31, 2000, are
not necessarily indicative of the results for the remainder of the
fiscal year ending June 30, 2000.
Discontinued Operations
-----------------------
On November 17, 1999 the Company sold, to Meronvine Limited, its
interest in GST Limited ("GST") including its two U.K. wholly owned
subsidiaries: Guardian Smart Systems Limited ("GSS") and Total Energy
Controls (Commercial) Limited ("TECC") and its interest in Associated
Power Industries Limited ("API").
Consideration paid by Meronvine for the subsidiaries was assumption of
outstanding debts which previously had been carried in the consolidated
financials. Accordingly, the Company realized income from discontinued
operations of approximately $908,000.
License Agreement for use of ATTM card
--------------------------------------
On October 15, 1999 the Company signed a license with World Innovation
Netcomm Services Inc. (WINS), to use their Asset Transfer Teleminute
Manager (ATTM) technology.
The license agreed is an exclusive license for Europe and a world-wide
license for e-commerce applications. The license is for 5 years and
renewable annually. 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 subsequently registered shares of common stock
to the licensor. The shares were issued in November 1999.
<PAGE>
GS Telecom Limited - Notes to Financial Statements - March 31, 2000
The estimated cost of the ATTM license as stated in the financial
statements is made up as follows:
3.5 mil. shares priced at $0.05 per share
at October 15, 1999 $175,000
Deposit Paid $ 60,000
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Total Cost $235,000
Less accumulated amortization to March 31, 2000 $ 21,542
---------------
Cost of ATTM License less amortization to date $213,458
=========
Note B - Stockholder Loans
During the period up to March 31, 2000, three stockholders had loaned
the Company a total of $410,972 with interest accrued at 9% per annum.
The loans are unsecured and payable on demand.
Note C - Stockholders' Equity
Stock Issued for Cash
---------------------
During the nine months ended March 31, 2000, a sum of $829,780 was
raised by issuing stock for cash at prices up to 50 cents. Of the cash
raised, $400,000 was placed with WINS as a refundable deposit to allow
activation of GS Telecom ATTM cards.
Stock Issued to Advisors
------------------------
During the quarter ended March 31, 2000, the Board agreed to issue 2
million shares to Argonaut Associates as part of an agreement whereby
Argonaut Associates provided financial services to the Company. Mr.
John Mitchell, a member of Argonaut Associates, was elected to the
Board as Finance Director. Argonaut Associates subsequently agreed to
take all fees in the form of stock, which results in a pre-payment to
Argonaut Associates of $100,000 at March 31, 2000.
The Board agreed to issue 1 million shares to Marketing and PR
consultants as part of their agreement. Stock issued for services are
valued at 20% of the average share price during the period.
There was an error in the first quarter filing showing 2.365 million
stock being issued to certain financial advisors which was corrected
in the second quarter filing. These stocks were never actually
authorized or issued so are no longer shown in the consolidated
statement of changes in Stockholders' Equity.
Three shareholders with loans to the Company agreed to take stock at
50 cents as partial payment of their loans reducing the outstanding
loans by $175,000.
<PAGE>
GS Telecom Limited - Notes to Financial Statements - March 31, 2000
Note D - Contingencies
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, prior to the installation of the Company's present
management, certain certificates purported to represent 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 distribution.
<PAGE>
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations for the Three Month Period Ended March 31, 2000 Compared
--------------------------------------------------------------------------------
to Same Period Ended March 31, 1999
--------------------------------------
As a result of the discontinuance of trading operations in the UK, the
Company had no sales revenues and no gross profits. The Company had no business
operations at March 31, 2000 but intended to continue its investment agreement
regarding ATTM technology and licensing for which it signed an agreement. For
the same period in 1999, the net sales were $0.
In the quarter ended March 31, 2000, the Company incurred general and
administrative expenses of $287,670 and $21,821 in interest expense, resulting
in an operating loss of ($309,499). For the same period in 1999, the Company
incurred $141,517 of general and administrative costs which resulted in an
operating loss of ($141,517).
Results of Operations for the Nine Month Period Ended March 31, 2000 Compared to
--------------------------------------------------------------------------------
Same Period Ended March 31, 2000
--------------------------------
As a result of the discontinuance of trading operations in the UK, the
Company had no sales revenues and no gross profits. For the same period in 1999,
the net sales were $0.
In the nine months ended March 31, 2000, the Company incurred general and
administrative expenses of $662,466 and interest expense of $66,928, resulting
in an operating loss of ($729,402). For the same period in 1999, the Company
incurred $275,422 of such costs which resulted in an operating loss of
($275,422).
The Company had an extraordinary gain of $908,116 from relief of debt
resulting from the sale of its discontinued operations and $.02 per share
extraordinary gain.
The Company had $.01 per share gain in the nine month period from the
extraordinary gain compared to a loss of ($.01) per share in the same period in
1999.
Liquidity and Capital Resources
-------------------------------
At period end, the Company had $22,998 cash capital and current and
total assets of $825,457. The Company had $1,172,214 in current liabilities at
period end. In light of the deficit, ($346,757) in current assets and operating
capital, the Company will be forced to either borrow or make private placements
of stock or debt in order to fund and any operations an debt repayment. No
assurance exists as to the ability to make private placements of stock or borrow
funds.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings -
(a) The Company is a defendant in a lawsuit entitled GST
Telecommunications, Inc. and GST Telecom, Inc. vs. GS Telecom, LTD, in which
plaintiffs sought an Injunction and damages for trademark infringement. The
Company consented to judgment and agreed to use a disclaimer: "GS Telecom, LTD
is not affiliated in any way with GST Telecommunications, Inc. or GST Telecom,
Inc." in press releases, advertising, or promotion materials. The Company agreed
to change its name within four months after judgment. The Court entered
Judgement 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 Court denied the Petition. The Company intends to attempt to
change its name as soon as a Section 14c Proxy Statement is filed, cleared, and
mailed to shareholders of the Company. Legal processes have taken longer than
anticipated, but the issue is close to finalization.
(b) The Company has been notified that it is the subject of a Formal
Investigation by the Securities & Exchange Commission relating to matters
occurring from January 1999 to date. No prediction can be made of any result or
outcome. An adverse decision or result of the investigation could be material to
the Company and could result in civil and criminal penalties, sanctions, and
fines.
Item 2. Changes in securities - None.
Item 3. Senior Securities
Notes Payable
8% convertible notes issued November 20, 1997
due September 30, 2000 $376,500
9% Unsecured Notes payable on demand issued on
February 19, 1998 and March 31, 1998 $212,400
Total: $588,900
--------
As a result of a dispute, neither interest nor capital payments
required under the terms of the Notes have been made which resulted in a
technical default. As a result of an agreement, in December 1998, between the
Noteholders and the Company, the default situation was waived until June 1999.
The notes are in default at the date of this report.
Terms of Conversion
The convertible Noteholders have the option to convert the original
principal amount of the notes ($376,500) into common stock at the lower of $2
per share or 75% of the average closing bid price of the stock for trading five
<PAGE>
days prior exercise. Notwithstanding the foregoing, if, after the effectiveness
of a registration statement or if an exemption is available from registration,
the closing bid price of the common stock reaches $4 per share for five
consecutive trading days, the Company has the option to require conversion of up
to 50% of the original principal, and if the closing price reaches $8 per share,
the Company has the option of requiring conversion of all the original
principal. The holders have notified the Company of their election to convert
the notes to stock in February 2000.
Subsequent to March 31, 2000, the note holders have agreed to convert part of
their loan notes amounting to $167,000.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - Subsequent to March 31, 2000, the Board agreed to
modify the Agreement with MassTech concerning the acquisition of a minority
interest in certain companies. As a result of this modification, approximately
15 million shares will be rescinded bringing the total outstanding shares down
to approximately 35 million.
The Company made a refundable $25,520 investment in a software system to link
ATTM cards to live internet conferences. This sum is refundable if the system
proves uncommercial as determined by Xethos.
Item 6. Exhibits and Reports on Form 8 - K
a. The following are filed as Exhibits to this Quarterly Report. The
numbers refer to the Exhibit Table of item 601 of regulation S-K: None
b. Reports on Form 8-K filed during the three months ended March 31,
2000 (incorporated by reference): March 3, 2000
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 25, 2000
GS TELECOM LIMITED
/s/ C.P. Gervaise-Brasier
--------------------------
C.P. Gervaise-Brasier
President and CEO
GS Telecom LTD is not affiliated in any way with GST Telecommunications, Inc. or
GST Telecom, Inc.
