- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 000-
------------------------
GS TELECOM LIMITED
(Exact name of small business issuer as specified in its charter)
COLORADO 36-3296861
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14-16 REGENT STREET, LONDON, SWIY 4PH, UNITED KINGDOM
(Address of principal executive offices)
+44-(0) 870-710-6390
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes / / No /X/
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: AS OF MAY 15, 2001: 38,606,036
SHARES OF COMMON STOCK, NO PAR VALUE.
Transitional Small Business Disclosure Format (check
one): Yes / / No /X/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements for the Company's fiscal quarter ended
September 30, 2000 are attached to this Report, commencing at page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
Except for historical information, the material contained in this
Management's Discussion and Analysis or Plan of Operation is forward-looking.
For the purposes of the safe harbor protection for forward-looking statements
provided by the Private Securities Litigation Reform Act of 1995, readers are
urged to review the list of certain important factors set forth in "Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995" contained in the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2000 ("Fiscal 2000"), which may
cause actual results to differ materially from those described. These risks and
uncertainties include the limited revenues and significant operating losses
generated to date and the possibility of significant ongoing capital
requirements. For the purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995,
readers are urged to review the list of certain important factors set forth in
"Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995".
For purposes of the discussion contained herein, all information is reported
on a consolidated basis for the Company and its wholly-owned subsidiaries.
The report of the Company's independent accountants, BDO Stoy Hayward, on
the Company's financial statements for the fiscal year ended June 30, 2000,
includes a statement that the Company has incurred significant recurring losses
and has a substantial accumulated deficit as of the end of its fiscal year. The
auditors have stated that there is a substantial doubt about the ability of the
Company to continue as a going concern. There can be no assurances that the
Company will be able to generate any revenues or will be able to continue as a
going concern.
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. Between 1998 and 1999, the Company engaged in
a series of transactions to acquire certain intellectual property rights and
E-commerce businesses. These strategic relationships and acquisitions have
provided the Company with a technology in secure Internet payment systems. While
the Company will seek to acquire additional businesses in E-commerce, there can
be no assurance that the Company will be successful in locating such
opportunities, or having sufficient financing to complete such acquisitions, and
even if the Company completes any such acquisition of an additional E-commerce
business, there can be no assurance that such business will be profitable.
Since February 1999, the operations of the Company have been focused on
acquiring and developing businesses and technologies in E-commerce. These
businesses and technologies are inherently risky, and there can be no assurance
that any of these businesses will be commercialized successfully, or if so
commercialized, will be profitable.
2
RESULTS OF OPERATIONS
REVENUES. In the fiscal quarter ended September 30, 2000 (the "Current
Quarter"), the Company had no revenues from operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the Current Quarter, the
Company incurred an aggregate of $1,287,365 in selling, general and
administrative expenses, versus $641,290 for the fiscal quarter ended
September 30, 1999. The primary reason for the income was professional expenses
in seeking acquisitions in the E-commerce field.
NET LOSS AND LOSS PER SHARE. Net loss was $1,642,384 for the Current
Quarter, versus ($665,069) for the fiscal quarter ended September 30, 1999 (the
"Comparable Quarter"). Loss per share for the Current Quarter was ($0.04) based
on weighted average shares outstanding of 38,606,036, as compared to a loss per
share of ($0.01) based on weighted average shares outstanding of 61,327,936 for
the Comparable Quarter.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. At September 30, 2000, the Company had $2,172,435 in
current assets versus $3,023,856 in current assets at September 30, 1999. At
September 30, 2000, cash and cash equivalents amounted to $52,401, with $400,000
held in escrow; at June 30, 2000, the Company had cash and cash equivalents of
$44,700, with $400,000 held in escrow. The balance of current assets primarily
consists of prepaid expenses in both periods.
STOCKHOLDERS' EQUITY. The Company's stockholders' equity at September 30,
2000 was $3,858,912, including an accumulated deficit of ($8,928,889). At
June 30, 2000, the Company's stockholders' equity was $5,490,057, including an
accumulated deficit of ($7,286,504).
The Company will require additional working capital during its fiscal year
ending June 30, 2001 and thereafter to implement its business strategies,
including cash for (i) payment of increased operating expenses such as salaries
for additional employees; and (ii) further implementation of those business
strategies. Such additional capital may be raised through additional public or
private financing, as well as borrowings and other resources. To the extent that
additional capital is raised through the sale of equity or equity-related
securities, the issuance of such securities could result in dilution to the
Company's stockholders. No assurance can be given, however, that the Company
will have access to the capital markets in the future, or that financing will be
available on acceptable terms to satisfy the Company's cash requirements to
implement its business strategies. If the Company is unable to access the
capital markets or obtain acceptable financing, its results of operations and
financial conditions could be materially and adversely affected. The Company may
be required to raise substantial additional funds through other means. If
adequate funds are not available to the Company, it may be required to curtail
operations significantly or to obtain funds through entering into arrangements
with collaborative partners or others that may require us to relinquish rights
to certain of our technologies or product candidates that the Company would not
otherwise relinquish. While the Company has subsequently begun to receive
commercial revenues, there can be no assurances that its existing commercial
agreements will provide adequate cash to sustain its operations. If the Company
decides to expand its business faster, or to geographic areas outside of Europe
during the next twelve months, it may need to raise further capital.
3
PART II
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. The
plaintiffs filed suit in the United States District Court, Northern District of
California seeking injunctive relief 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. While the Company has identified an alternative
name, the Company has not yet taken any corporate action to effect the name
change.
(b) 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. While the Company believes that it has meritorious
defenses to any such claims, it is cooperating fully with the investigation.
Currently, it is uncertain whether any action will be filed, or if such action
is filed, what the basis for such action will be. 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. Such consequence would have a material
adverse effect on the business and financial condition of the Company.
(c) The Company learned in May 1999 that certificates allegedly representing
shares of its common stock were issued improperly, having not been authorized by
the Company's transfer agent nor approved properly by the Company's Board of
Directors. The Company has determined that all such certificates are invalid and
has so notified the Securities and Exchange Commission, Depository Trust
Corporation, and the Company's 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. The Company has placed a stop transfer on such shares and is pursuing
its remedies against the perpetrators of this scheme. The Company is actively
pursuing appropriate legal action against such perpetrators in relation to
misrepresentations and the unauthorized distribution of stock.
(d) In April 2001, the Company, the Company's subsidiary, Snowstorm
Developments, and two of the Company's directors, John Mitchell and Tim Roberts,
were named as co-defendants in a lawsuit brought by Payment Resources
International, Inc. ("PRI"). The lawsuit was brought in the High Court of
Justice, in the Queen's Bench Division in London. The Company and Snowstorm are
named as defendants as allegedly having received funds that belonged to PRI. The
Company and Snowstorm believe that they have meritorious defenses to such claims
and are pursuing such defenses vigorously.
ITEM 2. CHANGES IN SECURITIES
(a) None.
(b) None.
(c) None.
(d) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATIONS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K
None.
5
GS TELECOM LIMITED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AS OF AND FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and June 30, 2000
(Audited)................................................. F-2
Consolidated Statements of Operations for the three months
ended September 30, 2000 and 1999 (Unaudited)............. F-3
Consolidated Statements of Comprehensive Income for the
three months ended September 30, 2000 and 1999
(Unaudited)............................................... F-4
Consolidated Statements of Cash Flows for the three months
ended September 30, 2000 and 1999 (Unaudited)............. F-5
Notes to Consolidated Financial Statements.................. F-6
F-1
GS TELECOM LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN US$)
SEPTEMBER 30, 2000 JUNE 30, 2000
(UNAUDITED) (AUDITED)
------------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 52,401 $ 44,700
Cash held in escrow......................................... 400,000 400,000
Accounts receivable, net of allowance for doubtful accounts
of $4,878 and nil, respectively........................... -- 5,005
Prepaid expenses............................................ 1,720,034 2,574,151
---------- ----------
TOTAL CURRENT ASSETS........................................ $2,172,435 $3,023,856
LONG-TERM ASSETS:
Acquired technology, net of amortization of $566,716 and
$297,647, respectively.................................... $2,662,099 $2,931,168
License rights, net of amortization of $187,934 and
$138,911, respectively.................................... 792,566 841,589
Property and equipment, net of depreciation of $5,410 and
$3,604, respectively...................................... 27,192 24,680
---------- ----------
TOTAL LONG-TERM ASSETS...................................... $3,481,857 $3,797,437
---------- ----------
TOTAL ASSETS................................................ $5,654,292 $6,821,293
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Convertible notes payable................................... $ 208,500 $ 208,500
Demand notes payable........................................ 212,400 212,400
Loan from shareholders...................................... 216,030 227,266
Accounts payable............................................ 280,638 155,554
Amounts due to affiliate.................................... 422,754 --
Accrued expenses............................................ 143,478 228,219
Accrued salaries and wages.................................. 159,563 171,460
Accrued interest payable.................................... 158,080 127,837
---------- ----------
TOTAL CURRENT LIABILITIES................................... $1,801,440 $1,331,236
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock (no par value; 100,000,000 shares authorized,
38,606,036 shares issued)................................. -- --
Additional paid-in capital.................................. 12,771,053 12,771,053
Cumulative translation adjustment........................... 10,688 5,508
Accumulated deficit......................................... (8,928,889) (7,286,504)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY.................................. 3,852,852 5,490,057
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $5,654,292 $6,821,293
========== ==========
See accompanying notes to consolidated financial statements
F-2
GS TELECOM LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN US$)
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
Selling, general and administrative expenses................ $(1,292,243) $ (641,290)
Depreciation and amortization............................... (319,898) (297)
----------- ------------
TOTAL OPERATING EXPENSES.................................. (1,612,141) (641,587)
----------- ------------
Loss from operations........................................ (1,612,141) (641,587)
Net interest expense........................................ (30,243) (23,482)
----------- ------------
NET LOSS.................................................. $(1,642,384) $ (665,069)
=========== ============
Net loss per share, basic and diluted....................... $ (0.04) $ (0.01)
=========== ============
Weighted average shares outstanding basic and diluted....... 38,606,036 61,327,936*
* 21,500,000 and 16,500,000 shares were rescinded on
October 21, 1999 and April 27, 2000 respectively.
See accompanying notes to consolidated financial statements
F-3
GS TELECOM LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN US$)
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
Net loss........................................... $(1,642,384) $(665,065)
Other comprehensive income (loss), cumulative
currency translation adjustments................. 5,180 --
----------- ---------
Comprehensive loss for the period.................. $(1,637,204) $(665,069)
=========== =========
See accompanying notes to consolidated financial statements
F-4
GS TELECOM LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN US$)
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,642,384) $(665,069)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 319,898 297
Common stock issued for services.......................... -- 490,068
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease in accounts receivable............................. 5,005 65
Decrease in prepaid expenses................................ 854,117 (234)
Increase in accounts payable................................ 125,081 (17,070)
Increase in accrued expenses................................ (84,742) (85,633)
Increase in accrued salaries................................ (11,897) --
Increase in accrued interest................................ 30,243 --
----------- ---------
NET CASH USED IN OPERATING ACTIVITIES....................... (404,679) (277,576)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................... (4,960) --
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES....................... (4,960) --
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................... -- 30,677
Advance from/(repaid to) affiliates......................... 422,754 (4,719)
Advances from/(repayment of) shareholder loans.............. (11,236) 238,288
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 411,518 264,246
----------- ---------
Effect of changes in exchange rates on cash................. 5,822 14,882
Increase (decrease) in cash and cash equivalents............ 7,701 1,552
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 44,700 51
----------- ---------
CASH AND CASH EQUIVALENT, END OF PERIOD..................... $ 52,401 $ 1,603
=========== =========
See accompanying notes to consolidated financial statements
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF REPORT. The consolidated balance sheet at the end of the
preceding fiscal year has been derived from the audited consolidated balance
sheet contained in the Company's Annual Report on Form 10-KSB, on file with the
Securities and Exchange Commission, and is presented for comparative purposes.
All other financial statements are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the financial position, results of operations and changes in cash
flows, for all periods presented, have been made. The results of operations for
interim periods are not necessarily indicative of the operating results for the
full year.
FOOTNOTES. Certain footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted in accordance with the published rules and regulations of the
Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB, on file with the
Securities and Exchange Commission.
ESTIMATES AND UNCERTAINTIES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results, as determined at a later date,
could differ from those estimates. Estimates relate primarily to recoverability
of the Company's tangible and intangible assets.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
ACQUIRED TECHNOLOGY. Acquired technology is the difference between the
value of the consideration paid and the value of the assets and liabilities
acquired. It is amortized through the statement of operations over a period of
three years, which is management's best estimate of its beneficial economic
life.
2. CONTINGENCIES
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. While the Company believes it has meritorious
defenses to any such claims, it is co-operating fully with the investigation.
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. Such consequences
would have a material adverse effect on the Company.
During fiscal 1999, the Company and holders of $420,900 in notes payable
became involved in the dispute. The Company has 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. 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
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
2. CONTINGENCIES (CONTINUED)
current liability because of the outstanding dispute. During fiscal 2000,
$168,000 of these notes were converted into 1,535,622 shares of common stock.
During fiscal 1999, prior to the installation of the Company's present
management, certain certificates purporting to represent approximately 800,000
shares of the Company's common stock were invalidly distributed by third
parties. The Company has placed a stop transfer on such shares and is pursuing
remedies against the perpetrators of the scheme.
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. 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 court entered judgment on
April 22, 1999. While the Company has identified an alternative name, it has not
yet taken any corporate action to effect such name change.
F-7
SIGNATURE
In accordance with 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.
GS TELECOM LIMITED.
By: /s/ JOHN MITCHELL
-----------------------------------------
John Mitchell
CHIEF EXECUTIVE OFFICER
By: /s/ F.G.L. ASKHAM
-----------------------------------------
F.G.L. Askham
CHIEF FINANCIAL OFFICER
Date: May 21, 2001