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: December 31, 1999
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)
Enterprise House, Ocean Village, Southampton, SO14 3XD,
United Kingdom of Great Britain
-------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 44 870 710 6390
---------------
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
December 31, 1999: 48,170,457
<PAGE>
PART I - FINANCIAL STATEMENTS
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GS TELECOM LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited
DECEMBER 31, JUNE 30,
1999 1999
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 4,178 $ 51
Accounts receivable - 3,833
Prepaid and other current assets 10,901 20,029
------- ------
Total current assets 15,079 23,913
------- ------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,785 597 1,191
---- -----
LICENSE, net of accumulated
amortization of $9,792 225,208 60,000
------
$ 240,884 $ 85,104
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Convertible and demand notes payable $ 588,900 $ 588,900
Loans from shareholders 410,972 163,642
Accounts payable 67,061 581,227
Payable to affiliates and related parties - 281,416
Accrued expenses 146,600 254,507
Accrued salaries and wages 41,526 130,797
Accrued interest payable 98,112 72,947
Bank overdraft - 1,387
Total current liabilities 1,353,171 2,074,823
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 100 million shares
authorized: 46,264,414 and 60,056,414
shares issued and outstanding, respectively 1,790,134 1,380,357
Accumulated deficit (2,902,420) (3,390,634)
Foreign currency translation adjustments - 20,558
Total stockholders' (deficit) (1,112,286) (1,989,719)
$ 240,885 $ 85,104
See Accompanying Notes
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<CAPTION>
GS TELECOM LIMITED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Unaudited
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSE $ 175,463 $ (57,438) $ 374,795 $ 108,739
INTEREST EXPENSE 21,625 12,583 45,107 25,166
------- ------- ------
Profit (Loss) from continuing operations (197,088) (70,021) (419,902) (133,905)
INCOME FROM DISCONTINUED OPERATIONS 908,116 - 908,116 -
-------- -- -------- -
NET INCOME (LOSS) $ 711,028 $ (70,021) $ 488,214 $(133,905)
========== ========== ========== ===========
BASIC AND DILUTIVE NET INCOME (LOSS) PER SHARE
(LOSS) FROM CONTINUING OPERATIONS $ - $ - $ (0.01) $ (0.01)
INCOME FROM DISCONTINUED OPERATIONS 0.02 - 0.02 -
----- -- ----- -
PER SHARE NET PROFIT (LOSS) $ 0.01 $ - $ 0.01 $(0.01)
======= ==== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING 48,170,457 16,828,414 54,382,104 16,828,414
=========== =========== =========== ==========
See Accompanying Notes
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GS TELECOM LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Six Months Ended
December 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 488,214 $(133,905)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Common stock issued for services 97,750 -
Depreciation 594 -
Amortization 9,792 -
Changes in operating assets and liabilities:
Receivables 3,833 -
Prepaid and other current assets 9,128 -
Accounts payable (514,167) 55,696
Accrued liabilities (172,013) 25,166
Bank overdraft (1,387) -
------- -
Net cash flows from (used for) operating activities (78,256) 78,209
-------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Shareholder loans 247,330 -
Issuance of common stock 137,027 -
Advances from (repaid to) affiliates and related parties (281,416) -
Issuance of convertible and other notes payable - -
-- -
Net cash flows (used for) from financing activities 102,941 -
-------- -
EFFECT OF EXCHANGE RATE CHANGES ON CASH (20,558) -
-------- -
NET INCREASE (DECREASE) IN CASH 4,127 -
CASH AT BEGINNING OF PERIOD 51 -
--- -
CASH AT PERIOD END OF PERIOD $ 4,178 -
======== =======
See Accompanying Notes
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<CAPTION>
GS TELECOM LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Unaudited
Common Stock Accumulated
Shares Amount Deficit
$ $
<S> <C> <C> <C>
Balances at June 30, 1997 278,220 966,857 (966,653)
Conversion of note payable issued to
stockholders of acquired subsidiary 14,500,000 150,000 -
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 movie interests 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)
Stock issued advisors for services 2,365,000 442,255 -
Recission of stock issued advisors
for services (2,365,000) (442,255) -
Stock earned by directors for services
($.085 per share) 1,150,000 97,750 -
Stock taken out of escrow and rescind (21,500,000) - -
Stock issued for ATTM license 3,500,000 175,000 -
($0.05 per share)
Stock issued for cash
$0.10 to $0.19 per share 693,000 137,027 -
Net income for the six months - - 488,214
-- -- -------
Balances at December 31, 1999 43,899,414 $ 1,790,134 $ (2,902,420)
========== ============== ===============
See Accompanying Notes
</TABLE>
<PAGE>
GS Telecom Limited - Notes to Financial Statements - December 31, 1999
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 six months ended December 31, 1999,
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 assumprtion 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 - December 31, 1999
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
--------------
Total Cost $235,000
Less accumulated amortization to December 31, 1999 $ 9,792
---------------
Cost of ATTM License less amortization to date $225,208
=========
Note B - Stockholder Loans
During the period up to December 31, 1999, 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 six months ended December 31, 1999, stockholders loaned the
Company a total of $247,330 with interest accrued at 9% per annum. The
loans are unsecured and payable on demand.
Stock Issued to Advisors
------------------------
The Board has resolved not to issue any shares to advisors in
connection with the acquisition of the minority interests in four
special effects film production units and the associated software IPR
until the likelihood of the value of these assets being realised has
been determined. Accordingly, during the quarter ended December 31,
1999, which had been recorded in the quarter ended September 30, 1999.
Stock Issued to Directors
-------------------------
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. Subsequently the Board approved the issue of an
additional 50,000 shares to the Chairman of the Board. All this stock
was actually issued in November 1999. However, the Company is accruing
the compensation related to the services pro-rata during fiscal 2000
($1,150,000 through December 31, 1999).
<PAGE>
GS Telecom Limited - Notes to Financial Statements - December 31, 1999
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.
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 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
December 17, 1999, for failing to comply with the Court Order. The
Company obtained on December 13, 1999 the agreement in writing of more
than 55% of its shareholders to the immediate change of name. As a
result the Court agreed to give the Company until February 2000 to
complete all formalities.
<PAGE>
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations for the Three Month Period ended December 31, 1999
- --------------------------------------------------------------------------------
Compared to Same Period Ended December 31, 1998
- -----------------------------------------------
As a result of the discontinuance of operations in the UK, the Company
had no sales revenues and no gross profits. The Company had no operations at
December 31, 1999 but intended to continue its investment agreement regarding
ATTM technology and licensing for which it signed an agreement within the
quarter. For the same period in 1998, the net sales were none.
In the quarter ended December 31, 1999, the Company incurred general
and administrative expenses of $197,088 resulting in a operating loss of
($197,088). For the same period in 1998, the Company incurred $70,021 of such
costs which resulted in an operating loss of ($70,021).
The Company had an extraordinary gain of $908,116 from relief of debt
resulting from the sale of its discontinued operations. This resulted in net
income of $711,028 in the period end and $.02 share extraordinary gain.
The Company made $.01 per share in the three month period as a result
of the extraordinary gain compared to a loss of ($.0) per share in the same
period in 1998.
Results of Operations for the Six Month Period Ended December 31, 1999 Compared
- --------------------------------------------------------------------------------
to Same Period Ended December 31, 1998
- --------------------------------------
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 1998,
the net sales were $0.
In six months ended December 31, 1999, the Company incurred general and
administrative expenses of $419,902 resulting in an operating loss of ($419,902)
For the same period in 1998, the Company incurred $133,905 of such costs which
resulted in an operating loss of ($133,905).
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 $.01 per share gain in the six month period from the
extraordinary gain compared to a loss of ($.01) per share in the same period in
1998.
Liquidity and Capital Resources
- -------------------------------
At period end, the Company had $4,178 cash capital and current and
total assets of $240,884. The Company had $1,353,171 in current liabilities at
period end. In light of the deficit, ($1,112,287) in current assets and
operating capital, the Company will be forced to either borrow or make private
<PAGE>
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 and intends to file it in February 2000.
(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.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - None.
Item 6. Exhibits and Reports on Form 8 - K
a. 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 December 31,
1999 (incorporated by reference): December 31, 1999
<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: February 16, 2000
GS TELECOM LIMITED
/s/ C.P. Gervaise-Brasier
--------------------------
C.P. Gervaise-Brasier
President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 4178
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15079
<PP&E> 597
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<TOTAL-ASSETS> 240884
<CURRENT-LIABILITIES> 1353171
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0
0
<COMMON> 1790134
<OTHER-SE> (2902420)
<TOTAL-LIABILITY-AND-EQUITY> 240885
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<TOTAL-COSTS> 0
<OTHER-EXPENSES> 175463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21625
<INCOME-PRETAX> (197088)
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</TABLE>
