UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] Quarterly Report Pursuant To Section 13 Or 15(D) Of The Securities
Exchange Act Of 1934
For The Quarterly Period Ended MARCH 31, 2006
[ ] Transition Report Pursuant To Section 13 Of 15(D) Of The Securities
Exchange Act Of 1934
For The Transition Period From ___________ To ___________
Commission file number 0-25703
GTC TELECOM CORP.
(Exact Name of Small Businees Issuer as Specified in its Charter)
NEVADA 88-0318246
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification No.)
3151 AIRWAY AVE., SUITE P-3, COSTA MESA, CALIFORNIA 92626
(Address of Principal Executive Offices) (Zip Code)
714-549-7700
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address And Former Fiscal Year,
If Changed Since Last Report)
---------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Title of each class of Common Stock Outstanding at April 30, 2006
----------------------------------- -----------------------------
Common Stock, $0.001 par value 30,034,446
Transitional Small Business Disclosure Format
(Check one);
Yes [ ] No [X]
INDEX.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet at March 31, 2006 (Unaudited) - As Restated
Condensed Consolidated Statements of Operations and Other Comprehensive Loss (Unaudited)
for the three and nine months ended March 31, 2006 and 2005 - As Restated
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended
March 31, 2006 and 2005 - As Restated
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
EXPLANATORY NOTE
This First Amended Quarterly Report on Form 10-QSB/A discloses and
discusses the impact and effect of a restatement of our previously filed
financial statements for the quarter ended March 31, 2006; and amends Items 1
and 2 of Part I of our Quarterly Report on Form 10-QSB previously filed on May
13, 2006. This restatement is necessary due to the fact that in our original
filing, the stock of our subsidiary, Perfexa India, that is owned by our
principals and employees was classified as affiliate-owned and included with
majority-owned stock. However, upon further review by our management, we
believe a more accurate classification of this stock ownership is as
unaffiliated stock and included with minority owned stock. As a result, our
management decided to restate our financial statements to reflect this
reclassification.
This First Amended Quarterly Report on Form 10-QSB/A for the quarter ended March
31, 2006 amends and restates only those items of the previously filed Quarterly
Report on Form 10-QSB which have been affected by the restatement. In order to
preserve the nature and character of the disclosures set forth in such items as
originally filed, no attempt has been made in this amendment (i) to modify or
update such disclosures except as required to reflect the effects of the
restatement or (ii) to make revisions to the Notes to the Consolidated Financial
Statements except for those which are required by or result from the effects of
the restatement. For additional information regarding the restatement, see Note
11 to our Consolidated Financial Statements included in Part I - Item I. No
other information contained in our previously filed Form 10-QSB for the quarter
ended March 31, 2006 has been updated or amended.
ITEM 1. FINANCIAL STATEMENTS
GTC TELECOM CORP.
CONDENSED CONSOLIDATED BALANCE SHEET - AS RESTATED
March 31,
2006
-------------
(Unaudited)
ASSETS
Cash $ 500
Accounts receivable, net of allowance for doubtful accounts of
approximately $9,000 at March 31, 2006 421,480
Deposits 30,822
Prepaid expenses 27,271
-------------
Total current assets 480,073
Property and equipment, net 414,959
Other assets 82,669
-------------
Total assets $ 977,701
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 2,244,537
Accrued payroll and related taxes 328,841
Obligation under capital leases 10,210
Notes payable, net of discounts totaling $1,001,668 2,361,983
Deferred income 4,560
-------------
Total current liabilities 4,950,131
Long-term liabilities:
Obligation under capital leases, net of current portion 13,476
Notes payable, net of current portion 65,423
-------------
Total Liabilities 5,029,030
Commitments and contingencies
Minority interest in consolidated subsidiary 274,970
Stockholders' deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized;
none issued and outstanding --
Common stock, $0.001 par value; 100,000,000 shares authorized;
30,034,446 shares issued and outstanding at March 31, 2006 30,034
Additional paid-in-capital 11,629,788
Note receivable officer (60,306)
Accumulated other comprehensive income 82,451
Accumulated deficit (16,008,266)
-------------
Total stockholders' deficit (4,326,299)
-------------
Total liabilities and stockholders' deficit $ 977,701
=============
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
GTC TELECOM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS - AS RESTATED
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------------------------------------------
2006 2005 2006 2005
------------------------------------------------------------------
Revenues:
Telecommunications $ 1,373,655 $ 2,153,735 $ 4,557,182 $ 6,085,513
Internet services 85,856 136,669 297,015 443,018
BPO services 157,875 47,668 322,549 129,560
------------------------------------------------------------------
Total revenues 1,617,386 2,338,072 5,176,746 6,658,091
------------------------------------------------------------------
Cost of sales:
Telecommunications 599,780 904,222 2,048,237 2,772,196
Internet services 25,449 40,676 87,143 139,903
BPO services 75,939 28,728 172,995 86,184
------------------------------------------------------------------
Total cost of sales 701,168 973,626 2,308,375 2,998,283
------------------------------------------------------------------
Gross profit 916,218 1,364,446 2,868,371 3,659,808
------------------------------------------------------------------
Operating expenses:
Payroll and related 602,533 575,271 1,740,414 1,765,572
Selling, general, and administrative 701,715 995,977 2,383,332 2,775,461
------------------------------------------------------------------
Total operating expenses 1,304,248 1,571,248 4,123,746 4,541,033
------------------------------------------------------------------
Operating loss (388,030) (206,802) (1,255,375) (881,225)
Interest expense, net (472,033) (270,941) (1,449,448) (851,021)
Other Income, net 13,540 -- 1,475 --
------------------------------------------------------------------
Loss before provision for income taxes and minority interest (846,523) (477,743) (2,703,348) (1,732,246)
Provision for income taxes 907 1,833 8,703 9,369
------------------------------------------------------------------
Loss before minority interest (847,430) (479,576) (2,712,051) (1,741,615)
Minority interest in loss of consolidated subsidiaries, net
of taxes (16,024) 9,797 1,612 42,818
------------------------------------------------------------------
Net loss available to common stockholders (863,454) (469,779) (2,710,439) (1,698,797)
Foreign currency translation adjustment 12,955 (3,337) (23,853) (32,741)
------------------------------------------------------------------
Comprehensive loss $ (850,499) $ (473,116) $ (2,734,298) $ (1,731,538)
==================================================================
Basic and diluted net loss available to common
stockholders per common share $ (0.03) $ (0.02) $ (0.09) $ (0.07)
==================================================================
Basic and diluted weighted average common shares
outstanding 29,960,557 23,426,622 29,708,587 22,713,575
==================================================================
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
GTC TELECOM CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - AS RESTATED
(UNAUDITED)
Nine Months Ended
March 31,
------------------------------
2006 2005
------------------------------
Cash Flows From Operating Activities:
Net loss $ (2,710,439) $ (1,698,797)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization 217,663 227,951
Bad debt expense 328,171 287,304
Amortization of debt discount 1,106,874 --
Loss on sale of equipment 10,286 --
Foreign Currency transaction loss 16,943 --
Estimated fair market value of stock issued for services 11,156 --
Estimated fair market value of stock in subsidiary issued
to employees for compensation 93,715 --
Estimated fair market value of stock issued in
connection with notes payable 4,705 20,827
Estimated fair market value of options granted to
employees for compensation -- 82,687
Minority interest in loss of consolidated subsidiaries (1,612) (42,818)
Changes in operating assets and liabilities:
Accounts receivable and other current assets 95,489 (481,767)
Accounts payable and accrued expenses 110,032 1,628,843
Accrued payroll and related taxes 94,981 18,490
------------------------------
Net cash provided by/(used in) operating activities (622,036) 42,720
------------------------------
Cash Flows From Investing Activities:
Purchases of property and equipment (15,025) (29,463)
------------------------------
Net cash used in investing activities (15,025) (29,463)
------------------------------
Cash Flows From Financing Activities:
Principal repayments on notes payable (334,879) (80,491)
Principal payments under capital lease obligations (7,848) (10,641)
Principal borrowings on notes payable, net of fees of $141,825 875,425 --
Proceeds from issuance of stock of subsidiary 93,315 --
Proceeds from sale of stock -- 60,000
------------------------------
Net cash provided by/(used in) financing activities 626,013 (31,132)
------------------------------
Effect of exchange rate on cash 11,048 (32,741)
------------------------------
Net decrease in cash -- (50,616)
Cash at beginning of period 500 73,572
------------------------------
Cash at end of period $ 500 $ 22,956
==============================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $14,184 $6,902
======= ======
Income taxes $ 8,703 $9,369
======= ======
See accompanying notes to condensed consolidated financial statements for other
non-cash investing and financing activities.
In March 2006, the Company converted $140,000 of accounts payable into a term
note.
During the nine month period ended March 31, 2006, the Company financed the
purchase of equipment totaling $30,874 with notes payable.
In July 2005, the Company issued 1,823,530 shares of restricted common stock
pursuant to the issuance of a note payable with a principal amount of $911,765.
During the nine month period ended March 31, 2005, the Company financed the
purchase of equipment totaling $37,125 with notes payable.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
GTC TELECOM CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - MANAGEMENT'S REPRESENTATION:
The management of GTC Telecom Corp. and its subsidiaries (the "Company" or
"GTC") without audit has prepared the condensed consolidated financial
statements included herein. The accompanying unaudited condensed financial
statements consolidate the accounts of the Company and its wholly and/or
majority owned subsidiaries and have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information. Certain information and note disclosures normally
included in the condensed consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted. In the opinion of the management of the Company, all
adjustments considered necessary for fair presentation of the condensed
consolidated financial statements have been included and were of a normal
recurring nature, and the accompanying condensed consolidated financial
statements present fairly the financial position as of March 31, 2006, the
results of operations for the three and nine months ended March 31, 2006 and
2005, and cash flows for the nine months ended March 31, 2006 and 2005.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the audited consolidated financial statements and notes for
the year ended June 30, 2005, included in the Company's Form 10-KSB/A filed with
the Securities and Exchange Commission on November 1, 2005. The interim results
are not necessarily indicative of the results for a full year.
NOTE 2 - DESCRIPTION OF BUSINESS:
GTC - GTC provides various services including, telecommunication services, which
includes wireless, and long distance telephone, Internet related services,
including Internet Service Provider access, and business process outsourcing
("BPO") services. GTC Telecom Corp. was organized as a Nevada Corporation on
May 17, 1994 and is currently based in Costa Mesa, California. The Company is
quoted on the Over-The-Counter Bulletin Board under the symbol "GTCC".
The Company has formed four wholly owned subsidiaries, of which only one is
active (see below), that offer different products and services. They are
managed separately because each business requires different technology and/or
marketing strategies.
The four subsidiaries are: CallingPlanet.com, Inc., ecallingcards.com, Inc.,
Curbside Communications, Inc., and Perfexa Solutions, Inc.
CallingPlanet.com, Inc. was set up to offer international calling using a PC to
phone connection. It is currently inactive. ecallingcards.com, Inc. was set up
to offer prepaid calling cards purchased over the internet. It is currently
inactive. Curbside Communications, Inc., currently inactive, has been set up
for future strategic purposes.
PERFEXA - Perfexa Solutions, Inc. ("Perfexa" or "Perfexa-U.S."), a majority
owned subsidiary of the Company, currently provides customer service for the
Company's telecommunication and Internet users. Perfexa's Information
Technology ("IT") group currently develops IT solutions for GTC's customer care
needs and the integration of GTC's customer care system with those of Perfexa's
New Delhi Center. Additionally, Perfexa offers outsourced call center and IT
development services to third parties.
NOTE 3 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GOING CONCERN - The accompanying condensed consolidated financial statements
have been prepared assuming the Company will continue as a going concern, which
contemplates, among other things, the realization of assets and satisfaction of
liabilities in the normal course of business. As of March 31, 2006, the Company
has negative working capital of $4,470,058, an accumulated deficit of
$16,008,266, and a stockholders' deficit of $4,326,299. In addition, through
March 31, 2006, the Company historically had losses from operations and a lack
of profitable operational history, among other matters, that raise
doubt about its ability to continue as a going concern. The Company hopes to
increase revenues from additional revenue sources and/or increase margins
through continued negotiations with Sprint (see Note 7) and other cost cutting
measures. In the absence of significant increases in revenues and margins, the
Company intends to fund operations through additional debt and equity financing
arrangements. The successful outcome of future activities cannot be determined
at this time and there are no assurances that if achieved, the Company will have
sufficient funds to execute its intended business plan or generate positive
operating results.
These circumstances raise doubt about the Company's ability to continue as a
going concern. The accompanying condensed consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
PRINCIPLES OF CONSOLIDATION - The accompanying condensed consolidated financial
statements include the accounts of GTC Telecom Corp. and its subsidiaries,
CallingPlanet.com, Inc., ecallingcards.com, Inc., Curbside Communications, Inc.,
and Perfexa Solutions, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
MINORITY INTEREST - Minority interest represents the minority stockholders'
proportionate share of the equity of Perfexa Solutions, Inc. At March 31, 2006
and June 30, 2005, the Company owned approximately 97% of Perfexa Solutions,
Inc.'s common stock. The Company's controlling interest requires that Perfexa
Solutions, Inc.'s operations be included in the condensed consolidated financial
statements of the Company. The 3% equity interest of Perfexa Solutions, Inc.
that is not owned by the Company at March 31, 2006 and June 30, 2005 is shown as
minority interest in consolidated subsidiary in the accompanying condensed
consolidated financial statements.
In addition, approximately 25% of Perfexa India is owned by outside investors
as of March 31, 2006. See Note 8 below for additional information.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. Significant estimates made by management
are, among others, provisions for losses on accounts receivable, realizability
of long-lived assets, estimates for deferred income tax asset valuations, and
valuation estimates for securities, options, and warrants issued.
COMPREHENSIVE INCOME - SFAS 130, "Reporting Comprehensive Income," establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Total comprehensive loss
represents the net change in stockholders' equity during a period from sources
other than transactions with stockholders and as such, includes net earnings.
For the Company, the components of other comprehensive loss are the changes in
the cumulative foreign currency translation adjustments and are recorded as
components of stockholders' deficit.
TRANSLATION OF FOREIGN CURRENCIES - GTC uses the U.S. dollar as its functional
and reporting currency while the Company's foreign subsidiary uses the Indian
Rupee as its functional currency. Assets and liabilities of the foreign
subsidiary are translated into U.S. dollars at year-end or period-end exchange
rates, and revenues and expenses are translated at average rates prevailing
during the year or other period presented. In accordance with SFAS No. 52,
"Foreign Currency Translation", net exchange gains or losses resulting from such
translation are excluded from net loss, but are included in comprehensive loss
and accumulated in a separate component of stockholders' deficit. The Company
recorded a foreign translation loss of $23,859 and $32,741 for the nine months
ended March 31, 2006 and 2005, respectively. Transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency
other than the functional currency are included in the results of operations as
incurred. Foreign currency transactions losses included in other income on the
accompanying condensed consolidated statements of operations totaled $16,943 and
$0 for the nine months ended March 31, 2006 and 2005, respectively.
STOCK-BASED INCENTIVE COMPENSATION - The Company has two stock-based employee
compensation plans. The Company accounts for those plans under the recognition
and measurement principles of Accounting Principles Board ("APB") Opinion No.25,
Accounting for Stock Issued to Employees, and related interpretations.
Stock-based employee compensation cost approximating $82,687 is reflected in net
loss for the nine month period ended March 31, 2005 as certain options granted
under those plans
had an exercise price less than the market value of the underlying common stock
on the date of grant. No such expense has been recorded during the nine month
period ended March 31, 2006.
The following table illustrates the effect on loss and loss per common share as
if the Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock Based
Compensation, for all of its stock-based employee compensation plans.
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------
Net loss available to common stockholders:
As reported $ (863,454) $ (469,779) $ (2,710,439) $ (1,698,797)
Deduct total stock-based employee compensation expense
determined under fair based method for all awards (33,000) (69,000) (99,000) (183,000)
-------------- -------------- -------------- --------------
Pro-forma $ (896,454) $ (538,779) $ (2,809,439) $ (1,881,797)
============== ============== ============== ==============
Basic and diluted net loss available to common stockholders
per common share
As reported $ (0.03) $ (0.02) $ (0.09) $ (0.07)
============== ============== ============== ==============
Pro-forma $ (0.03) $ (0.02) $ (0.09) $ (0.08)
============== ============== ============== ==============
LOSS PER SHARE - Statement of Financial Accounting Standards ("SFAS") No. 128
("SFAS 128"), "Earnings Per Share" requires that basic earnings per share be
computed by dividing income available to common shareholders by the
weighted-average number of common shares assumed to be outstanding during the
period of computation. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive. Using the treasury stock method, no shares were deemed to be potential
additional common shares for the three month periods ended March 31, 2006 and
2005, and the nine month periods ended March 31, 2006 and 2005, because exercise
prices of options, warrants and convertible debt were equal to or in excess of
the average trading price during the reporting period. Pro forma per share data
has been computed using the weighted average number of common shares outstanding
during the periods.
The following table sets forth the computation of basic and diluted loss per
common share:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------
Net loss available to common stockholders $ (863,454) $ (469,779) $ (2,710,439) $ (1,698,797)
==============================================================
Weighted average number of common shares outstanding 29,960,557 23,426,622 29,708,587 22,713,575
Incremental shares from the assumed exercise of dilutive stock
options, warrants and convertible debt -- -- -- --
--------------------------------------------------------------
Dilutive common shares 29,960,557 22,426,622 29,708,587 22,713,575
==============================================================
Basic and diluted net loss available to common stockholders per
common share $ (0.03) $ (0.02) $ (0.09) $ (0.07)
==============================================================
SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS - In December 2004, the FASB issued
SFAS No. 123-R, "Share-Based Payment," which requires that the compensation cost
relating to share-based payment transactions (including the cost of all employee
stock options) be recognized in the financial statements. That cost will be
measured based on the estimated fair value of the equity or liability
instruments issued. SFAS No. 123-R covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. SFAS No.123-R replaces SFAS No. 123, "Accounting for Stock-Based
Compensation," and supersedes Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." As originally issued, SFAS No.
123 established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that pronouncement
permitted entities to continue applying the intrinsic-value model of APB Opinion
25,
provided that the financial statements disclosed the pro forma net income or
loss based on the preferable fair-value method.
Small Business Issuers are required to apply SFAS No. 123-R in the first annual
reporting period that begins after December 15, 2005. Thus, the Company's
consolidated financial statements will reflect an expense for (a) all
share-based compensation arrangements granted after July 1, 2006 and for any
such arrangements that are modified, cancelled, or repurchased after that date,
and (b) the portion of previous share-based awards for which the requisite
service has not been rendered as of that date, based on the grant-date estimated
fair value.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not
believed by Management to have a material impact on the Company's present or
future financial statements.
NOTE 4 - RELATED PARTY TRANSACTIONS:
NOTE RECEIVABLE OFFICER
As of March 31, 2006, the Company has net advances to an officer of $60,306 made
prior to the enactment of the Sarbanes-Oxley Act. The advances accrue interest
at 10% (no interest income has been recorded as of March 31, 2006) and are due
on demand. The Company has classified the note receivable as an increase to
stockholders' deficit in the accompanying condensed consolidated balance sheet
at March 31, 2006.
NOTE 5 - NOTES PAYABLE AND CAPITAL LEASES:
In March 2006, the Company converted $140,000 of a payable due to a third party
into a term note payable. The note provides for the Company to make monthly
payments of $6,500, including interest at a rate of 9.1%, until repaid.
In May and July 2005, the Company entered into subscription agreements, as
amended, with certain third party investors for the sale of convertible notes
("New Note"), $2,000,000 principal amount along with shares of our common stock
and warrants, resulting in gross proceeds of $1.7 million, less offering costs
of $141,825. The notes accrue simple interest of 12% per annum and may be
converted into shares of our common stock. To date, we have either paid or have
been given a deferral on payments due under the New Note. On February 10, 2006,
the Company received an additional $100,000 in financing. Although the terms of
this debt agreement have not been finalized, the terms should be similar to the
New Note.
On June 7, 2005, the Company borrowed $20,000, bearing no interest, from an
employee of the Company for working capital purposes. The borrowing was repaid
on July 22, 2005.
In May 2005, the Company restructured $927,524 in amounts due on a past due note
payable and corresponding accrued interest and penalties into a new long term
note payable, principal amount $1,200,000. The new note accrues simple interest
in the amount of 12% per annum. The Company is obligated to pay accrued
interest monthly, but then only if, after deducting all then current
obligations, the Company at that time has at least $300,000 in available cash.
On June 8, 2004, the Company borrowed $50,000 for working capital purposes from
an unrelated third party. The note was originally to be repaid plus interest of
$7,500 on September 7, 2004. In November 2005, the Company restructured the
note. Under the revised terms, the Company is required to make weekly payments
of $1,000 plus simple interest of 10% until all principal and accrued interest
is repaid. The modification was not deemed to be an extinguishment of debt, as
described in EITF Issue No. 96-19, "Debtor's Accounting for a Modification or
Exchange of Debt Instruments." As of the date of this report, the Company has
approximately $19,000 outstanding under the note.
On December 9, 2003, the Company borrowed $200,000 for working capital purposes
from an unrelated third party. The note was to be repaid plus interest of
$21,333 on April 8, 2004. On May 17, 2004, the note, as amended, was extended
to July 19, 2004. On July 1, 2005, the Company agreed to resolve all
outstanding amounts owed under the note via the payment of $30,000 plus
bi-weekly payments of $8,000. The outstanding principal and accrued interest,
which, at the time of the July 1, 2005 agreement totaled $167,000 will accrue
simple interest at the rate of 10% per annum until fully repaid. The
modification was not deemed to be an extinguishment of debt, as described in
EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of
Debt Instruments." The borrowing was repaid on May 4, 2006.
On October 2, 2002, the Company borrowed $100,000 for working capital purposes
from an unrelated third party. In November 2005, the Company restructured the
note. Under the revised terms, the Company is required to make weekly payments
of $1,000 until the outstanding balance is repaid. The modification was not
deemed to be an extinguishment of debt, as described in EITF Issue No. 96-19,
"Debtor's Accounting for a Modification or Exchange of Debt Instruments." As of
the date of this report, the Company has approximately $2,000 outstanding under
the note.
The Company maintains a revolving line of credit of $45,000 to finance the
purchase of computer equipment. The revolving line of credit provides for us to
make monthly payments of $684, including interest at a rate of approximately
14.8%. The total outstanding balance on the revolving line of credit was
$26,493 and is included in notes payable in the accompanying condensed
consolidated balance sheet at March 31, 2006. As of the date of this report,
the Company has made all payments as required in the revolving line of credit.
The Company from time to time borrows funds from the Company's Chief Executive
Officer ("CEO") for working capital purposes. Amounts accrue no interest and
are payable on demand. On April 15, 2004, the Company borrowed $12,000 from its
CEO. As of the date of this report, the Company has repaid the amount borrowed.
With the exception of the New Note and the Equipment Line of Credit, all of the
above notes are unsecured.
NOTE 6 - STOCKHOLDERS' DEFICIT:
In January 2006, the Company entered into an agreement with an outside
consultant for investor and public relations services. Pursuant to the
agreement, the Company agreed to issue to the investor relations company 350,000
shares of our restricted common stock valued at $44,625 (based on the fair
market value on the date of grant) according to the following schedule: i)
150,000 shares upon the signing of the agreement, ii) 100,000 shares on the date
six months after the date of the agreement, and iii) 100,000 on the date one
year after the date of the agreement. The value of the stock, subject to
adjustments required by EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services," will be amortized and recorded as investor
relations expense under selling, general, and administrative expenses over the
12 months of the agreement.
In November 2005, the Company issued 58,824 shares to attorneys in exchange for
legal services provided to the Company valued at approximately $4,705 (based on
the fair market value on the date of grant).
In July 2005, the Company issued 1,823,530 shares of the Company's restricted
common stock in connection with the issuance of a convertible note (see Note 5).
The Company recorded compensation expense for previously issued "in the money"
options of $82,687 in the nine month period ended March 31, 2005. The Company
recorded no such compensation expense for the nine month period ended March 31,
2006.
NOTE 7 - CONTRACTS AND CONTINGENCIES:
The Company does not own its own long distance network and currently depends
upon third parties to provide for the transmission of phone calls by its
customers and to provide the call detail records upon which the Company bases
its customer's billings. Pursuant to the terms of its agreement with Sprint, as
amended, the Company is obligated to a monthly minimum of $25,000 through July
26, 2006. For any period during which the Company fails to meet its monthly
minimum, the Company would be liable for
25% of the difference between the Company's actual usage and the stated minimum.
The Company may terminate the agreement upon ninety (90) days written notice
provided that the Company pays a termination fee equal to 50% of the aggregate
minimum revenue requirement for the remaining term of the contract if the
Company terminates for convenience or by default of the Company prior to the
expiration date which was $62,500 as of March 31, 2006. Sprint may terminate
the agreement upon thirty (30) days written notice and then only in the event
that the Company is in material breach of the agreement. However, in cases of
nonpayment, Sprint may elect to immediately terminate the Agreement.
GTC does not currently have its own Internet Network. Currently, the Company
provides its Internet Service Provider Access services pursuant to an agreement
with a third party company for the provisioning of the Company's Internet
Service Provider Access service. The Company is not obligated to any monthly
minimums under its agreement with its underlying Internet service provider.
NOTE 8 - PERFEXA SUBSIDIARY:
In November 2005, the Company's foreign subsidiary, Perfexa Solutions Private
Limited ("Perfexa India"), completed a private offering of 530,000 shares of its
common stock to third-party investors at the price of 2 Rupees per share,
resulting in gross proceeds of $24,315.
In September 2005, Perfexa India, initiated a private offering of its common
stock to third-party investors at a price of 12 Rupees per share. 250,000
shares were sold, resulting in gross proceeds of $69,000.
CONTINGENT LIABILITY
Office Maintenance - Perfexa India is in dispute with its landlord contending
that the contractual amount for maintenance services is excessive to the actual
amount the landlord incurred for these services. Per the building maintenance
agreement, the landlord is required to supply audited financial statements to
support the amounts charged for maintenance services. To date, the landlord has
not provided this support. The difference between what we have been billed and
what we have paid and recorded amounts to approximately $57,000. We believe
that it is more likely than not that we will not have to pay this additional
amount, so we have not included this liability in the accompanying condensed
consolidated financial statements.
NOTE 9 - BUSINESS SEGMENT INFORMATION:
Segment and geographical information is assigned by region based upon management
responsibility for such items. The following table presents information about
the Company's operations by geographical area for the three and nine months
ended March 31, 2006 and 2005.
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------------------------------------
2006 2005 2006 2005
--------------------------------------------------------------
REVENUES
--------
Telecommunications and Internet $ 1,459,511 $ 2,290,404 $ 4,854,197 $ 6,528,531
BPO
Perfexa-U.S. 157,875 47,668 322,549 129,560
Perfexa-India -- -- -- --
-------------- -------------- -------------- --------------
Total $ 1,617,386 $ 2,338,072 $ 5,176,746 $ 6,658,091
============== ============== ============== ==============
COST OF SALES
-------------
Telecommunications and Internet $ 625,229 $ 944,898 $ 2,135,380 $ 2,912,099
BPO
Perfexa-U.S. 75,939 28,728 172,995 86,184
Perfexa-India -- -- -- --
-------------- -------------- -------------- --------------
Total $ 701,168 $ 973,626 $ 2,308,375 $ 2,998,283
============== ============== ============== ==============
OPERATING INCOME/(LOSS)
-----------------------
Telecommunications and Internet $ 98,393 $ 359,007 $ 342,147 $ 787,949
BPO
Perfexa-U.S. (111,577) (241,115) (569,224) (730,078)
Perfexa-India (374,846) (324,694) (1,028,298) (939,096)
-------------- -------------- -------------- --------------
Total $ (388,030) $ (206,802) $ (1,255,375) $ (881,225)
============== ============== ============== ==============
CAPITAL EXPENDITURES
--------------------
Telecommunications and Internet $ -- $ 16,239 $ -- $ 40,849
BPO
Perfexa-U.S. -- 1,293 -- 1,293
Perfexa-India 13,413 -- 15,025 24,446
-------------- -------------- -------------- --------------
Total $ 13,413 $ 17,532 $ 15,025 $ 66,588
============== ============== ============== ==============
Identifiable assets are assigned by region based upon management responsibility.
The following table presents information about the Company's identifiable assets
by geographic region:
March 31, 2006 June 30, 2005
-------------------------------
ASSETS
------
Telecommunications and Internet $ 495,997 $ 996,406
BPO
Perfexa-U.S. 20,197 25,416
Perfexa-India 461,507 609,327
--------------- --------------
Total $ 977,701 $ 1,631,149
=============== ==============
NOTE 10 - SUBSEQUENT EVENT:
On May 9, 2006, the Company borrowed $100,000, bearing no interest, from an
unrelated third party, for working capital purposes. The note provides for the
Company to repay $25,000 on May 19, 2006, $25,000 on May 26, 2006, and the
balance of $50,000 on August 5, 2006. Because of the short term of this note,
imputed interest is not deemed to be significant.
NOTE 11 - RESTATEMENT:
Subsequent to February 21, 2007 and after the Company had filed its Quarterly
Report on Form 10-QSB for the three and nine month periods ended March 31, 2006
and 2005, management determined the stock of Perfexa India, one of the Company's
subsidiaries, that is owned by its principals and employees should be included
with minority interest. Additionally, we noted that certain of those shares were
issued to such employees for services and the fair value of such services was
not correctly recorded. Finally, the Company was not correctly recording foreign
currency transactions gains and losses for receivables and payables denominated
in foreign currencies. The effect of these corrections increased the minority
interest capital balances and correspondingly allocated additional amounts to
these minority interest holders. These corrections resulted in changes to net
loss before minority interest, minority interest in consolidated subsidiaries,
the minority interest holders balance, accumulated other comprehensive loss, and
accumulated deficit. Accordingly, the accompanying consolidated balance sheet
and statements of operations for the periods described in the preceding sentence
have been retroactively adjusted as summarized below:
As Previously Retroactive
Effect of Correction of Minority Interest Reported Adjustment As Restated
- ---------------------------------------------------- ---------------------------------------------
At March 31, 2006
- -----------------
- Minority interest in consolidated subsidiaries $ 51,752 $ 223,218 $ 274,970
- Accumulated other comprehensive income/(loss) $ 143,787 $ (61,336) $ 82,451
- Accumulated deficit $ (15,846,384) $ (161,882) $(16,008,266)
- Total stockholder's deficit $ (4,103,081) $ (223,218) $ (4,326,299)
Three Months Ended March 31, 2006
- ---------------------------------
- Net loss before minority interest $ (845,037) $ (2,393) $ (847,430)
- Minority interest $ 14,669 $ (30,693) $ (16,024)
---------------------------------------------
- Net loss available to common stockholders $ (830,368) $ (33,086) $ (863,454)
- Foreign currency translation $ 10,562 $ 2,393 $ 12,955
---------------------------------------------
- Comprehensive loss $ (819,806) $ (30,693) $ (850,499)
- Loss Per Share $ (0.03) $ -- $ (0.03)
Nine Months Ended March 31, 2006
- --------------------------------
- Net loss before minority interest $ (2,607,048) $ (105,003) $ (2,712,051)
- Minority interest $ 41,563 $ (39,951) $ 1,612
---------------------------------------------
- Net loss available to common stockholders $ (2,565,485) $ (144,954) $ (2,710,439)
- Foreign currency translation $ (31,035) $ 7,176 $ (23,859)
---------------------------------------------
- Comprehensive loss $ (2,596,520) $ (137,778) $ (2,734,298)
- Loss Per Share $ (0.09) $ -- $ (0.09)
The reclassification adjustments described above do not affect the previously
reported balance sheet or results of operations for the three and nine months
ended March 31, 2005.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENTS:
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Quarterly Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company's actual
financial condition, operating results and business performance may differ
materially from that projected or estimated by the Company in forward-looking
statements. The differences may be caused by a variety of factors, including
but not limited to adverse economic conditions, intense competition, including
intensification of price competition and entry of new competitors and products,
adverse federal, state and local government regulation, inadequate capital,
unexpected costs and operating deficits, increases in general and administrative
costs, lower sales and revenues than forecast, loss of customers, customer
returns of products sold to them by the Company, disadvantageous currency
exchange rates, termination of contracts, loss of suppliers, technological
obsolescence of the Company's products, technical problems with the Company's
products, price increases for supplies and components, inability to raise
prices, failure to obtain new customers, litigation and administrative
proceedings involving the Company, the possible acquisition of new businesses
that result in operating losses or that do not perform as anticipated, resulting
in unanticipated losses, the possible fluctuation and volatility of the
Company's operating results, financial condition and stock price, inability of
the Company to continue as a going concern, losses incurred in litigating and
settling cases, adverse publicity and news coverage, inability to carry out
marketing and sales plans, loss or retirement of key executives, changes in
interest rates, fluctuations in foreign currency, inflationary factors and other
specific risks that may be alluded to in this Quarterly Report or in other
reports issued by the Company. In addition, the business and operations of the
Company are subject to substantial risks that increase the uncertainty inherent
in the forward-looking statements. The inclusion of forward looking statements
in this Quarterly Report should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
GENERAL OVERVIEW
Our principal line of business is to provide wireless and long distance
telephone, and value-added services for small and medium-sized businesses and
residential customers throughout the United States. Our strategy has been to
build a subscriber base without committing capital or management resources to
construct our own network and transmission facilities. This strategy has
allowed us to add customers without being limited by capacity, geographic
coverage, or configuration of any particular network that we might have
developed.
During the period ended March 31, 2006, we experienced significant bad debt and
reduced margins on the local telephone product. As a result, we have exited the
local telephone market. There were no significant expenses in relation to
exiting this line of business.
We also provide Internet related services such as Internet access via Dial-Up.
Our services are marketed nationwide, through sales affiliates, affinity groups,
independent sales agents and telemarketing.
Our revenues consist of revenues from the sale of telecommunications, Internet,
and BPO services. Telecommunication revenues are generated primarily from
monthly recurring charges for wireless service and when customers make wireless
and long distance telephone calls from their business or residential telephones.
Internet related services are typically billed at a flat rate and are billed in
advance. Revenues are recognized in the period earned. BPO services revenues
are billed each month based on a client contract that provides for either a
dedicated or per minute rate as the services are rendered.
Cost of sales consists of telecommunications service costs and the costs of
providing Internet access, and BPO services. Wireless and long distance
telecommunications service costs are based on our customers' long distance
usage. We pay our carriers based on the type of call, time of call, duration of
call, the terminating telephone number, and terms of our contract in effect at
the time of the call. BPO service cost of sales consists of labor and its
related support costs directly associated with a service contract. General and
administrative expenses consist of the cost of customer acquisition (including
costs paid for third-party verification), customer service, billing, cost of
information systems and personnel required to support our operations and growth.
Depending on the extent of our future growth, we may experience significant
strain on our management, personnel, and information systems. We will need to
implement and improve operational, financial, and management information
systems. In addition, we are implementing new information systems that will
provide better record keeping, customer service and billing. However, there can
be no assurance that our management resources or information systems will be
sufficient to manage any future growth in our business, and the failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.
RESULTS OF OPERATIONS OF THE COMPANY
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
REVENUES - Revenues decreased by $720,686 or 30.8% to $1,617,386 in the
three months ended March 31, 2006 from $2,338,072 in the three months ended
March 31, 2005. The decrease was due to a decrease in telecommunications
revenues of $780,080 and a decrease in Internet revenues of $50,813, offset
partially by the increase in BPO revenues of $110,207. As of March 31, 2006,
the Company had approximately 71,000 telecommunications customers and 1,967
Internet customers, with usage of long distance services of approximately
18,085,000 minutes for the three months ended March 31, 2006 as compared with
89,190 long distance customers and 3,780 Internet customers as of March 31,
2005, with usage of long distance services of approximately 25,312,000 minutes
for the three months ended March 31, 2005.
We believe that the reduction in minutes are a result of several recent
competitive pressures including: the increase in the number of low-priced long
distance calling plans currently available, the expansion of bundled local/long
distance services offered by Local Exchange Carriers and/or Competitive Local
Exchange Carriers, and the migration of traditional long distance usage to
cellular long distance and internet usage. In addition, the difficulties we
recently experienced as a result of our change in underlying providers in July
2004 may have contributed to this reduction in minutes. In an effort to
increase revenue, we have stepped up our outbound telemarketing campaigns and
are exploring alternative marketing campaigns.
Additionally, we are continuing to focus on developing third party revenue
for our Perfexa subsidiary. During the quarter ended December 31, 2003, we
began widespread marketing of our BPO services to third parties and have begun
securing client contracts for these services. Perfexa generated third-party
revenues of $157,875 and $47,668 for the three months ended March 31, 2006 and
2005, respectively.
COST OF SALES - Cost of sales decreased by $272,458 or 28.0% to $701,168 in
the three months ended March 31, 2006 from $973,626 in the three months ended
March 31, 2005. The decrease was primarily due to the decrease in carrier costs
associated with decreased telecommunications service revenues of $304,442. In
addition, for the three months ended March 31, 2006, the costs associated with
Internet services decreased $15,227 and the costs associated with BPO services
increased $47,211. As a percentage of revenue, cost of sales increased to 43.4%
from 41.6%, resulting in a gross margin of 56.6% as compared to 58.4% for the
three months ended March 31, 2006 and 2005, respectively.
Perfexa incurred third-party cost of sales of $75,939 and $28,728 for the
three months ended March 31, 2006 and 2005, respectively.
OPERATING EXPENSES - Operating expenses decreased by $267,000 or 17.0% to
$1,304,248 in the three months ended March 31, 2006 from $1,571,248 in the three
months ended March 31, 2005 primarily due to the Company's reduction in
revenues.
Operating expenses, individually net of Perfexa related costs, for the
three months ended March 31, 2006 were comprised primarily of $205,762 in
payroll and related expenses paid to employees; billing
related costs of $123,992; rent of $33,550; bad debt of $53,754; depreciation
expense of $12,101; and $306,730 of other operating expenses, primarily sales
commissions, internal telephone usage, costs of third party verification for
newly acquired customers, internet support costs and audit and legal costs.
Perfexa related operating expenses for the three months ended March 31,
2006 were comprised primarily of $396,771 in payroll and related expenses paid
to employees; rent of $67,037; depreciation expense of $57,642; and $47,376 of
other operating expenses, primarily corporate expense allocations, and office
maintenance and supplies.
Operating expenses, individually net of Perfexa related costs, for the
three months ended March 31, 2005 were comprised primarily of $235,227 in
payroll and related expenses paid to employees; billing related costs of
$163,515; rent of $36,162; bad debt of $184,615; depreciation expense of
$24,076; amortization of previously issued options to employees valued at
approximately $27,562; and $315,342 of other operating expenses, primarily sales
commissions, internal telephone usage, costs of third party verification for
newly acquired customers, internet support costs and audit and legal costs.
Perfexa related operating expenses for the three months ended March 31,
2005 were comprised primarily of $340,044 in payroll and related expenses paid
to employees; rent of $63,785; depreciation expense of $47,929; and $132,991of
other operating expenses, primarily corporate expense allocations, and office
maintenance and supplies.
INTEREST EXPENSE - Net interest expense increased by $201,092 to $472,033
for the three months ended March 31, 2006 from $270,941 for the three months
ended March 31, 2005. The increase was primarily due to debt discounts being
amortized to interest expense totaling $368,955 during the three months ended
March 31, 2006 with no corresponding expense during the same period in fiscal
2005.
NET LOSS - Net loss increased $393,675 to $863,454 or $0.03 loss per common
share for the three months ended March 31, 2006, from a net loss of $469,779, or
$0.02 loss per common share, for the three months ended March 31, 2005.
ASSETS AND LIABILITIES - Assets decreased by $653,448 to $977,701 as of
March 31, 2006 from $1,631,149 as of June 30, 2005. The decrease was due to net
decreases in accounts receivable of $426,040, prepaid expenses of $50,533, and
property and equipment of $193,338, net of increases in deposits of $10,000, and
other assets of $6,463. Liabilities increased by $1,100,459 to $5,029,030 as of
March 31, 2006 from $3,928,571 as of June 30, 2005. The increase was due to
increases in payroll and payroll related liabilities of $94,981; and notes
payable of $1,043,294 due primarily to principal repayments, net of decreases in
accounts payable and accrued expenses of $29,968, primarily for amounts owed to
Sprint (associated with customer usage), and obligations under capital lease of
$7,848, associated with the decrease in telecommunications service costs,
internet service provider access fees and customer services operations as a
result of the decrease in customers.
STOCKHOLDERS' DEFICIT - Stockholders' deficit increased by $1,943,437 to
$4,326,299 as of March 31, 2006 from $2,382,862 as of June 30, 2005. The
increase was attributable to a net loss of $2,710,439 in the nine months ended
March 31, 2006; and a cumulative translation adjustment of $23,859, net of an
increase in the fair market value of stock issued pursuant to notes payable of
$775,000, the fair market value of stock issued for services of $11,156, and the
fair market value of stock issued in connection with notes payable of $4,705.
NINE MONTHS ENDED MARCH 31, 2006 COMPARED TO NINE MONTHS ENDED MARCH 31, 2005
REVENUES - Revenues decreased by $1,481,345 or 22.2% to $5,176,746 in the nine
months ended March 31, 2006 from $6,658,091 in the nine months ended March 31,
2005. The decrease was due to a decrease in telecommunications revenues of
$1,528,331 and a decrease in Internet revenues of $146,003, offset partially by
the increase in BPO revenues of $192,989. As of March 31, 2006, the Company had
approximately 71,000 telecommunications customers and 1,967 Internet customers,
with usage of long distance services of approximately 60,191,000 minutes for the
nine months ended March 31, 2006 as compared with 89,190 long distance customers
and 3,780 Internet customers as of March 31, 2005, with usage of long distance
services of approximately 82,576,000 minutes for the nine months ended March 31,
2005.
We believe that the reduction in customer counts and minutes are a result of
several recent competitive pressures including: the increase in the number of
low-priced long distance calling plans currently available, the expansion of
bundled local/long distance services offered by Local Exchange Carriers and/or
Competitive Local Exchange Carriers, and the migration of traditional long
distance usage to cellular long distance and internet usage. In addition, the
difficulties we recently experienced as a result of our change in underlying
providers in July 2004 may have contributed to this reduction in customer counts
and minutes. In an effort to increase revenue, we have stepped up our outbound
telemarketing campaigns and are exploring alternative marketing campaigns.
Additionally, we are continuing to focus on developing third party revenue for
our Perfexa subsidiary. During the quarter ended December 31, 2003, we began
widespread marketing of our BPO services to third parties and have begun
securing client contracts for these services. Perfexa generated third-party
revenues of $322,549 and $129,560 for the nine months ended March 31, 2006 and
2005, respectively.
COST OF SALES - Cost of sales decreased by $689,908 or 23.0% to $2,308,375 in
the nine months ended March 31, 2006 from $2,998,283 in the nine months ended
March 31, 2005. The decrease was primarily due to the decrease in carrier costs
associated with decreased telecommunications service revenues of $723,959 for
the nine months ended March 31, 2006. In addition, for the nine months ended
March 31, 2006, the costs associated with Internet services decreased $52,760,
and the costs associated with BPO services increased $86,811. As a percentage
of revenue, cost of sales decreased to 44.6% from 45.0% resulting in a gross
margin of 55.4% as compared to 55.0% for the nine months ended March 31, 2006
and 2005, respectively.
Perfexa incurred third-party cost of sales of $172,995 and $86,184 for the nine
months ended March 31, 2006 and 2005, respectively.
OPERATING EXPENSES - Operating expenses decreased by $417,287 or 9.2% to
$4,123,746 in the nine months ended March 31, 2006 from $4,541,033 in the nine
months ended March 31, 2005 primarily due to the Company's shift of customer
service and information technology development to its Perfexa subsidiary.
Operating expenses, individually net of Perfexa related costs, for the nine
months ended March 31, 2006 were comprised primarily of $680,918 in payroll and
related expenses paid to employees; billing related costs of $412,000; rent of
$102,395; bad debt of $328,171; depreciation expense of $45,596; and $807,590 of
other operating expenses, primarily sales commissions, internal telephone usage,
costs of third party verification for newly acquired customers, internet support
costs and audit and legal costs.
Perfexa related operating expenses for the nine months ended March 31, 2006 were
comprised primarily of $1,059,496 in payroll and related expenses paid to
employees; rent of $185,963; depreciation expense of $172,067; and $329,550 of
other operating expenses, primarily corporate expense allocations, and office
maintenance and supplies.
Operating expenses, individually net of Perfexa related costs, for the nine
months ended March 31, 2005 were comprised primarily of $769,936 in payroll and
related expenses paid to employees; billing related costs of $497,704; rent of
$118,539; bad debt of $287,304; depreciation expense of $88,003; amortization of
previously issued options to employees valued at approximately $82,687; and
$984,310 of other operating expenses, primarily sales commissions, internal
telephone usage, costs of third party verification for newly acquired customers,
internet support costs and audit and legal costs.
Perfexa related operating expenses for the nine months ended March 31, 2005 were
comprised primarily of $995,636 in payroll and related expenses paid to
employees; rent of $190,933; depreciation expense of $139,948; and $386,033 of
other operating expenses, primarily corporate expense allocations, and office
maintenance and supplies.
INTEREST EXPENSE - Net interest expense increased by $598,427 to $1,449,448 for
the nine months ended March 31, 2006 from $851,021 for the nine months ended
March 31, 2005. The increase was primarily due to debt discounts being
amortized to interest expense totaling $1,106,874 during the nine months ended
March 31, 2006 with no corresponding expense during the same period in fiscal
2005.
NET LOSS - Net loss increased $1,011,642 to $2,710,439 or $0.09 loss per common
share for the nine months ended March 31, 2006, from a net loss of $1,698,797,
or $0.07 loss per common share, for the nine months ended March 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL - Currently, billings from accounts receivable are sufficient to
meet our monthly operating requirements. However, the amounts actually
collected from our customers is not sufficient to fully pay all of our monthly
operating expenses (see "Cash Flows from Operating Activities" below).
Recently, we restructured approximately $7.7 million in accrued liabilities
consisting of notes payable, accrued interest and other outstanding accounts
payable, into new short and long term debt (see below) that resulted in the
elimination of approximately $6.9 million in accrued liabilities. Consequently,
beginning in September 2005, we were required to begin making monthly principal
and interest payments on these new obligations where we previously did not.
Although this financing reduced our overall debt, it did not materially increase
our cash flow. As a result, we may not have sufficient cash flow to fully
support daily operations and service our debt obligations and will need to
increase revenues and customers as detailed above, as well as decrease bad debt,
or acquire alternate financing.
CASH FLOWS FROM OPERATING ACTIVITIES - Net cash used in operating
activities of $622,036 for the nine months ended March 31, 2006 was primarily
due to net loss of $2,710,439; minority interest of $1,612, offset partially by
changes in operating assets and liabilities, principally increases in accounts
payable and accrued expenses of $110,032, accrued payroll and related taxes of
$94,981, and accounts receivable and other current assets of $95,489; the loss
on sale of equipment of $10,286; the amortization of debt discount of
$1,106,874; depreciation and amortization expense of $217,663; the increase in
bad debt expense related to accounts receivable of $328,171; the estimated fair
market value of stock in subsidiary issued to employees for compensation of
$93,715, foreign currency transaction loss of $16,943, the fair market value of
stock issued for services of $11,156, and the fair market value of stock issued
in connection with notes payable of $4,705.
During the period ended March 31, 2006, we experienced significant bad debt
and reduced margins on the local telephone product. As a result, we have exited
the local telephone market. There were no significant expenses in relation to
exiting this line of business. We anticipate that this will increase our cash
flows from operating activities.
CASH FLOWS FROM INVESTING ACTIVITIES - Net cash used in investing
activities of $15,025 for the nine months ended March 31, 2006 funded purchases
of property and equipment.
CASH FLOWS FROM FINANCING ACTIVITIES - Net cash provided by financing
activities of $626,013 in the nine months ended March 31, 2006 was primarily due
to net borrowing on notes payable of $875,425, and net proceeds from the
issuance of stock of subsidiary totaling $93,315, offset partially by principal
repayments on notes payable of $334,879, and principal repayments under capital
lease obligations of $7,848.
OUTSTANDING DEBT OBLIGATIONS AND RECENT DEBT RESTRUCTURINGS - On May 9,
2006, the Company borrowed $100,000, bearing no interest, from an unrelated
third party, for working capital purposes. The note provides for the Company to
repay $25,000 on May 19, 2006, $25,000 on May 26, 2006, and the balance of
$50,000 on August 5, 2006.
In March 2006, the Company converted $140,000 of a payable due to a third party
into a term note payable. The note provides for the Company to make monthly
payments of $6,500, including interest at a rate of 9.1%, until repaid.
In May and July 2005, we entered into subscription agreements, as amended,
with certain third party investors for the sale of convertible notes, $2,000,000
principal amount along with shares of our common stock and warrants, resulting
in gross proceeds of $1.7 million, less offering costs of $141,825. The notes
accrue simple interest of 12% per annum and may be converted into shares of our
common stock. To date, we have either paid or have been given a deferral on
payments due under this note. On February 10, 2006, we received an additional
$100,000 in financing. Although the terms of this debt agreement have not been
finalized, the terms should be similar to the New Note.
On June 7, 2005, the Company borrowed $20,000, bearing no interest, from an
employee of the Company for working capital purposes. The borrowing was repaid
on July 22, 2005.
In May 2005, we restructured $927,524 in amounts due on a past due note
payable and corresponding accrued interest and penalties into a new long term
note payable, principal amount $1,200,000. The new note accrues simple interest
in the amount of 12% per annum. We are obligated to pay accrued interest
monthly, but then only if, after deducting all then current obligations, we at
that time have at least $300,000 in available cash.
On June 8, 2004, the Company borrowed $50,000 for working capital purposes
from an unrelated third party. The note was originally to be repaid plus
interest of $7,500 on September 7, 2004. In November 2005, the Company
restructured the note. Under the revised terms, the Company is required to make
weekly payments of $1,000 plus simple interest of 10% until all principal and
accrued interest is repaid. As of the date of this report, the Company has
approximately $19,000 outstanding under the note.
On December 9, 2003, we borrowed $200,000 for working capital purposes from
an unrelated third party. The note was to be repaid plus interest of $21,333 on
April 8, 2004. On May 17, 2004, the note, as amended, was extended to July 19,
2004. On July 1, 2005, we agreed to resolve all outstanding amounts owed under
the note via the payment of $30,000 plus bi-weekly payments of $8,000. The
outstanding principal and accrued interest, which, at the time of the July 1,
2005 agreement totaled $167,000 will accrue simple interest at the rate of 10%
per annum until fully repaid. The borrowing was repaid on May 4, 2006.
On October 2, 2002, the Company borrowed $100,000 for working capital
purposes from an unrelated third party. In November 2005, the Company
restructured the note. Under the revised terms, the Company is required to make
weekly payments of $1,000 until the outstanding balance is repaid. As of the
date of this report, the Company has approximately $2,000 outstanding under the
note.
We maintain a revolving line of credit of $45,000 to finance the purchase
of computer equipment. The revolving line of credit provides for us to make
monthly payments of $684, including interest at a rate of approximately 14.8%.
The total outstanding balance on the revolving line of credit was $26,493 and is
included in notes payable in the accompanying condensed consolidated balance
sheet at March 31, 2006. As of the date of this report, we have made all
payments as required in the revolving line of credit.
EQUITY TRANSACTIONS - In January 2006, the Company entered into an
agreement with an outside consultant for investor and public relations services.
Pursuant to the agreement, the Company agreed to issue to the investor relations
company 350,000 shares of our restricted common stock valued at $44,625 (based
on the fair market value on the date of grant) according to the following
schedule: i) 150,000 shares upon the signing of the agreement, ii) 100,000
shares on the date six months after the date of the agreement, and iii) 100,000
on the date one year after the date of the agreement. The value of the stock,
subject to adjustments required by EITF Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," will be amortized and recorded as
investor relations expense under selling, general, and administrative expenses
over the 12 months of the agreement.
In November 2005, the Company issued 58,824 shares to attorneys in exchange
for legal services provided to the Company valued at approximately $4,705 (based
on the fair market value on the date of grant).
In July 2005, the Company issued 1,823,530 shares of the Company's
restricted common stock in connection with the issuance of a convertible note.
INTERCOMPANY ACTIVITIES - Since inception, Perfexa-U.S. and its Indian
subsidiary Perfexa-India have relied upon us for funding and for administrative
services required in the development of their business plan. Perfexa is
obligated to reimburse us for such advances and their share of such expenses.
As of March 31, 2006, we have advanced Perfexa-U.S. $8,498,254 in cash and
equipment, of which $661,504 was for the purchase of equipment and $7,836,750
for operating expenses. In addition, we have allocated $2,080,503 of shared
administrative expenses to Perfexa-U.S. Cash and equipment
advances accrue interest of 10% per annum and are due upon demand. Shared
administrative expenses accrue no interest and are also due upon demand. Such
amounts have been eliminated in consolidation.
Pursuant to a Master Services Agreement between Perfexa-US and us, Perfexa
provides call center and IT development services to us on a cost plus 5% basis.
As of March 31, 2006, Perfexa-U.S. has billed us $3,818,333 for such services.
Such amount has been eliminated in consolidation.
As of March 31, 2006, Perfexa-U.S. owes us $4,525,734, net of $434,690
repaid by Perfexa-U.S. from funds raised and $3,818,333 in amounts billed for
services rendered. Such amount has been eliminated in consolidation.
PERFEXA SOLUTIONS
In November 2005, the Company's foreign subsidiary, Perfexa Solutions
Private Limited ("Perfexa India"), completed a private offering of 530,000
shares of its common stock to third-party investors at the price of 2 Rupees per
share, resulting in gross proceeds of $24,315.
In September 2005, Perfexa India, initiated a private offering of its
common stock to third-party investors at a price of 12 Rupees per share.
250,000 shares were sold, resulting in gross proceeds of $69,000.
CONTINGENT LIABILITY
Office Maintenance - Perfexa India is in dispute with its landlord contending
that the contractual amount for maintenance services is excessive to the actual
amount the landlord incurred for these services. Per the building maintenance
agreement, the landlord is required to supply audited financial statements to
support the amounts charged for maintenance services. To date, the landlord has
not provided this support. The difference between what we have been billed and
what we have paid and recorded amounts to approximately $57,000. We believe
that it is more likely than not that we will not have to pay this additional
amount, so we have not included this liability in the accompanying condensed
consolidated financial statements.
CAPITAL EXPENDITURES
We expect to purchase approximately $100,000 of additional equipment on top
of the purchases already made in connection with the expansion of our business.
In addition, as previously discussed, we expanded our operations into the
Republic of India through our Perfexa subsidiary. We expect to continue funding
this expansion with an additional $200,000 to Perfexa primarily for leasehold
improvements, equipment (computer and telephone), furniture and fixtures, and
deposits. Because we presently do not have the capital for such expenditures,
we will have to raise these funds. (See Financing in this section).
OFF-BALANCE SHEET ARRANGEMENTS
We do not currently have any off-balance sheet arrangements.
SUBSIDIARIES
We have formed four wholly owned subsidiaries, of which only one is active
(see below), that offer different products and services. They are managed
separately because each business requires different technology and/or marketing
strategies.
The four subsidiaries are: CallingPlanet.com, Inc., ecallingcards.com,
Inc., Curbside Communications, Inc., and Perfexa Solutions, Inc.
CallingPlanet.com, Inc. was set up to offer international calling using a
PC to phone connection. It is currently inactive. ecallingcards.com, Inc.
offers prepaid calling cards purchased over the internet. It is currently
inactive. Curbside Communications, Inc., currently inactive, has been set up
for future strategic purposes. Perfexa Solutions, Inc. offers business process
outsourcing services.
GOING CONCERN
The Company's independent certified public accountants have stated in their
report included in the Company's 2005 Form 10-KSB/A, that the Company has
incurred operating losses in the last two years, has a working capital deficit
and a significant stockholders' deficit. These conditions, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
INFLATION
We believe that inflation has not had a material effect on our results of
operations.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires us to make judgments, assumptions and estimates that affect the
amounts reported in our condensed consolidated financial statements and the
accompanying notes. The amounts of assets and liabilities reported on our
balance sheet and the amounts of revenues and expenses reported for each of our
fiscal periods are affected by estimates and assumptions, which are used for,
but not limited to, the accounting for revenue recognition, accounts receivable,
doubtful accounts, deferred tax asset valuation allowances, and valuation of
securities, options, and warrants issued. Actual results could differ from
these estimates. The following critical accounting policies are significantly
affected by judgments, assumptions and estimates used in the preparation of the
financial statements:
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Significant estimates made by us are, among others,
provisions for losses on accounts receivable, realizability of long-lived
assets, estimates for deferred income tax asset valuations, and valuation
estimates for securities, options, and warrants issued.
REVENUE AND RELATED COST RECOGNITION - We recognize revenue during the
month in which services or products are delivered, as follows:
TELECOMMUNICATIONS RELATED SERVICES
Our telecommunications service revenues are generated primarily when
customers make wireless and long distance telephone calls from their
business or residential telephones for long distance service, monthly
recurring charges for wireless service, or by using any of our telephone
calling cards.
Telecommunication services cost of sales consists of the cost of wireless
and long distance service provided by our underlying carriers based on
usage.
INTERNET RELATED SERVICES
Internet service revenues consist of monthly fees charged to subscribers
for Internet access and are recognized in the period service access is
provided. Internet service cost of sales consists of the cost of providing
Internet access.
BPO SERVICES
BPO service revenues consist of amounts billed each month based on a client
contract that provides for either a dedicated or per minute rate as the
services are rendered. BPO service cost of sales consists of labor and its
related support costs directly associated with a service contract.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin
101 ("SAB 101"), "Revenue Recognition," which outlines the basic criteria that
must be met to recognize revenue and provide guidance for presentation of
revenue and for disclosure related to revenue recognition policies in financial
statements filed with the Securities and Exchange Commission. SAB 101 was later
superseded by SAB 104. Management believes the Company's revenue recognition
policies conform to SAB 104.
STOCK-BASED COMPENSATION - We account for stock-based compensation issued
to employees using the intrinsic value based method as prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Under the intrinsic value based method, compensation is the excess,
if any, of the fair value of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock. Compensation,
if any, is recognized over the applicable service period, which is usually the
vesting period.
SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" if
fully adopted, changes the method of accounting for employee stock-based
compensation plans to the fair value based method. For stock options and
warrants, fair value is determined using an option pricing model that takes into
account the stock price at the grant date, the exercise price, the expected life
of the option or warrant and the annual rate of quarterly dividends.
Compensation expense, if any, is recognized over the applicable service period,
which is usually the vesting period.
SFAS No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123," was issued
in December 2002 and is effective for fiscal years ending after December 15,
2002. SFAS 148 provides alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results.
The adoption of the accounting methodology of SFAS 123 is optional and we
have elected to continue accounting for stock-based compensation issued to
employees using APB 25; however, pro forma disclosures, as if we adopted the
cost recognition requirements under SFAS 123, are required to be presented.
In December 2004, the FASB issued SFAS No. 123-R, "Share-Based Payment,"
which requires that the compensation cost relating to share-based payment
transactions (including the cost of all employee stock options) be recognized in
the financial statements. That cost will be measured based on the estimated
fair value of the equity or liability instruments issued. SFAS No. 123-R covers
a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. SFAS No.123-R replaces SFAS No. 123, "Accounting
for Stock-Based Compensation," and supersedes Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." As
originally issued, SFAS No. 123 established as preferable a fair-value-based
method of accounting for share-based payment transactions with employees.
However, that pronouncement permitted entities to continue applying the
intrinsic-value model of APB Opinion 25, provided that the financial statements
disclosed the pro forma net income or loss based on the preferable fair-value
method.
Small Business Issuers are required to apply SFAS No. 123-R in the first
annual reporting period that begins after December 15, 2005. Thus, our
consolidated financial statements will reflect an expense for (a) all
share-based compensation arrangements granted after July 1, 2006 and for any
such arrangements that are modified, cancelled, or repurchased after that date,
and (b) the portion of previous share-based awards for which the requisite
service has not been rendered as of that date, based on the grant-date estimated
fair value.
TRANSLATION OF FOREIGN CURRENCIES - We use the U.S. dollar as our
functional and reporting currency while our foreign subsidiary uses the Indian
Rupee as its functional currency. Assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at year-end or period-end exchange
rates, and revenues and expenses are translated at average rates prevailing
during the year or other period presented. In accordance with SFAS No. 52,
"Foreign Currency Translation", net exchange gains or losses resulting from such
translation are excluded from net loss, but are included in comprehensive loss
and accumulated in a separate component of stockholders' deficit.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
or the Exchange Act, as of March 31, 2006, to ensure that information required
to be disclosed by us in the reports filed or submitted by us under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities Exchange Commission's rules and forms, including to
ensure that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that as of March
31, 2006, our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weaknesses described below.
In light of the material weakness described below, we performed additional
analysis and other post-closing procedures to ensure our consolidated financial
statements were prepared in accordance with generally accepted accounting
principles. Accordingly, we believe that the consolidated financial statements
included in this report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the
Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or
combination of control deficiencies that results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. We have identified the following
material weakness which has caused us to conclude that, as of March 31, 2006,
our disclosure controls and procedures were not effective at the reasonable
assurance level:
1. During the course of the review of our six months ended December 31,
2006, we discovered an error in our financial statements in our quarterly report
for the period ended December 31, 2006 as disclosed in our Form 8-K filed on
February 20, 2007. As a result of this error, we restated our interim quarters
ended September 30, 2005, December 31, 2005, and March 31, 2006; the fiscal year
ended June 30, 2006; the interim quarter ended September 30, 2006; and the
interim quarter ended December 31, 2006. Our conclusion to restate the above
periods, resulted in the Company recognizing that its controls and procedures
were not effective as of the period ended March 31, 2006 and constituted a
material weakness.
To address this material weakness, we performed additional analyses and
other procedures to ensure that the financial statements included herein fairly
present, in all material respects, our financial position, results of operations
and cash flows for the periods presented.
Remediation of Material Weakness
To remediate the material weakness in our disclosure controls and
procedures identified above, in addition to working with our independent
auditors, we have continued to refine our internal procedures to alleviate this
weakness.
Changes in Internal Control over Financial Reporting
Except as noted above, there were no changes in our internal control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There have been no other issuances of unregistered securities during the
period covered by this Report except as previously disclosed on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 22, 2006, we held our annual meeting of stockholders. Up for
consideration by the stockholders at the meeting were four proposals submitted
by our Board of Directors.
(1) The first proposal involved the election of the Company's Board of
Directors. Set forth below is the name of each director elected at the meeting
and the number of votes cast for their election, the number of votes withheld
and the number of votes voted for this proposal:
Number Of Number of Number of Number of
Name Votes "For" Votes "Against" Votes "Abstain" Shares Voted
------------------ ----------- --------------- --------------- ------------
S. Paul Sandhu 20,572,263 1,000 292,415 20,865,679
Eric A. Clemons 20,572,263 1,000 292,415 20,865,679
Gerald A. DeCiccio 20,572,263 1,000 292,415 20,865,679
(2) The second proposal up for consideration involved the approval and
amendment of GTC's Articles of Incorporation to change the Company's name to GTC
Wireless, Inc. Set forth below are the number of votes for, against, abstain
and non-votes for this proposal:
Number of Number of Number of
Votes "For" Votes "Against" Votes "Abstain" Number of Shares Voted
----------- --------------- --------------- ----------------------
20,828,429 31,100 6,150 20,865,679
(3) The third proposal up for consideration involved the amendment of GTC's
Articles of
Incorporation to effectuate a reverse split of the Company's common stock in an
amount to be determined by the Board of Directors between 1-for-2 and 1-for-10.
Set forth below are the number of votes for, against, abstain and the number of
votes voted for this proposal:
Number of Number of Number of Number of
Votes "For" Votes "Against" Votes "Abstain" Shares Voted
----------- --------------- --------------- ------------
20,053,781 711,937 99,960 20,865,679
(4) The fourth proposal involved ratifying the appointment of Squar,
Milner, Reehl & Williamson LLP as the independent registered public accountants
firm of the Company for the fiscal year ending June 30, 2006. Set forth below
are the number of votes for, against, abstain and the number of votes voted for
this proposal:
Number of Number of Number of Number of
Votes "For" Votes "Against" Votes "Abstain" Shares Voted
----------- --------------- --------------- ------------
20,592,028 267,140 6,510 20,865,679
As a majority of the shareholders, either in person or by proxy, voted in
favor of the above proposals, the proposals were duly approved and authorized by
the stockholders of the Company.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibits
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer
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.
GTC TELECOM CORP.
By: /s/ S. Paul Sandhu
----------------------
S. Paul Sandhu
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Gerald A. DeCiccio
-------------------------
Gerald A. DeCiccio
Chief Financial Officer
(Principal Accounting Officer)
Dated: April 10, 2007