Attached files
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EX-32.1 - CERTIFICATION - Unified Signal, Inc. | qumi_321.htm |
EX-31.1 - CERTIFICATION - Unified Signal, Inc. | qumi_311.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
———————
FORM
10-Q
———————
þ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended: March 31,
2010
or
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from: __________ to ___________
QUAMTEL, INC. |
(Exact name of small business issuer as specified in its charter) |
Nevada
|
000-31757
|
98-0233452
|
||
(State
or Other Jurisdiction
|
(Commission
|
(I.R.S.
Employer
|
||
of
Incorporation)
|
File
Number)
|
Identification
No.)
|
14911
Quorum Drive, Suite 140, Dallas, Texas 75254
(Address
of Principal Executive Office) (Zip Code)
(972)
361-1980
(Issuer’s
telephone number, including area code)
Check
whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|||
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes ¨ No þ
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 l2, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes ¨ No ¨
APPLICABLE
ONLY TO CORPORATE ISSUERS
The
number of shares outstanding of each of the issuer's classes of common equity,
as of April 30, 2010 is 19,006,175.
QUAMTEL,
INC.
Page
|
|||||
3 | |||||
Item
1.
|
Financial
Statements
|
3 | |||
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
13 | |||
Item
3.
|
Qualitative
and Quantitative Disclosure About Market Risk
|
16 | |||
Item
4T.
|
Controls
and Procedures
|
16 | |||
PART
II - OTHER INFORMATION
|
18 | ||||
Item
1.
|
Legal
Proceedings
|
18 | |||
Item
1A.
|
Risk
Factors
|
18 | |||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18 | |||
Item
3.
|
Defaults
Upon Senior Securities
|
18 | |||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
18 | |||
Item
5.
|
Other
Information
|
18 | |||
Item
6.
|
Exhibits
|
18 | |||
SIGNATURES
|
19 |
PART
I – FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
Quamtel,
Inc.
|
Consolidated
Balance Sheets
|
March
31,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 525,601 | $ | 94,003 | ||||
Accounts
receivable, net
|
16,286 | 30,367 | ||||||
Income
tax receivable
|
11,678 | 11,678 | ||||||
Inventory
|
6,625 | 61,750 | ||||||
Prepaid
expenses and deposits
|
137,918 | 449,704 | ||||||
Total
current assets
|
698,108 | 647,502 | ||||||
Property
and equipment, net
|
424,247 | 404,472 | ||||||
Intangible
assets
|
2,731,299 | 2,653,109 | ||||||
Other
assets
|
25,000 | - | ||||||
TOTAL
ASSETS
|
$ | 3,878,654 | $ | 3,705,083 | ||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 469,951 | $ | 383,234 | ||||
Accrued
expenses
|
80,112 | 113,901 | ||||||
Unearned
revenue
|
340,589 | 445,347 | ||||||
Advances
from related party
|
479,309 | 758,781 | ||||||
Stock-based
payable
|
26,000 | 26,000 | ||||||
Current
portion of notes payable
|
222,772 | 250,336 | ||||||
Total
current liabilities
|
1,618,733 | 1,977,599 | ||||||
Noncurrent
portion of notes payable
|
867,937 | 14,496 | ||||||
TOTAL
LIABILITIES
|
2,486,670 | 1,992,095 | ||||||
Shareholders'
equity:
|
||||||||
Common
stock - $0.001 par value; 200,000,000 shares authorized;
|
||||||||
18,981,175
and 18,662,175 shares issued and outstanding at
|
||||||||
March
31, 2010 and December 31, 2009, respectively
|
18,981 | 18,662 | ||||||
Preferred
stock - $0.001 par value; 50,000,000 shares authorized;
|
||||||||
no
shares issued and outstanding
|
- | - | ||||||
Additional
paid-in capital
|
4,172,454 | 3,624,338 | ||||||
Retained
earnings (deficit)
|
(2,799,451 | ) | (1,930,012 | ) | ||||
Total
shareholders' equity
|
1,391,984 | 1,712,988 | ||||||
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 3,878,654 | $ | 3,705,083 |
The
accompanying notes are an integral part of these consolidated financial
statements.
3
Quamtel,
Inc.
|
Consolidated
Income Statements (Unaudited)
Three Months
Ended March 31, 2010 and 2009
|
2010
|
2009
|
|||||||
Revenues
|
$ | 703,748 | $ | 712,850 | ||||
Cost
of sales
|
490,762 | 407,595 | ||||||
Gross
profit
|
212,986 | 305,255 | ||||||
Operating
expenses:
|
||||||||
Compensation,
consulting and related expenses
|
667,669 | 229,063 | ||||||
General
and administrative expenses
|
345,232 | 123,426 | ||||||
Depreciation
and amortization
|
34,185 | 16,070 | ||||||
Total
operating expenses
|
1,047,086 | 368,559 | ||||||
Loss
from operations before income taxes
|
(834,100 | ) | (63,304 | ) | ||||
Other
expense:
|
||||||||
Interest
and financing expense
|
35,339 | 2,592 | ||||||
Total
other expense
|
35,339 | 2,592 | ||||||
Loss
before income taxes
|
(869,439 | ) | (65,896 | ) | ||||
Income
tax expense (benefit)
|
- | (971 | ) | |||||
Net
loss
|
$ | (869,439 | ) | $ | (64,925 | ) | ||
Basic
and diluted loss per share:
|
||||||||
Loss
from operations before income taxes
|
$ | (0.05 | ) | $ | (0.06 | ) | ||
Income
tax expense (benefit)
|
- | - | ||||||
Loss
per share
|
$ | (0.05 | ) | $ | (0.06 | ) | ||
Weighted
average number of shares outstanding
|
18,805,064 | 1,020,000 | ||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
4
Quamtel,
Inc.
|
Consolidated
Statements of Changes in Shareholders' Equity
(Unaudited)
|
Three
Months Ended March 31, 2010
|
Common Stock |
Additional
Paid-in
Capital
|
Retained
Earnings
(Deficit)
|
||||||||||||||||||
Shares
|
Amount
|
Total
|
||||||||||||||||||
Balance
as of December 31, 2009
|
18,662,175 | $ | 18,662 | $ | 3,624,338 | $ | (1,930,012 | ) | $ | 1,712,988 | ||||||||||
Common
stock issued for services
|
129,000 | 129 | 321,081 | - | 321,210 | |||||||||||||||
Common
stock issued for cash
|
165,000 | 165 | 164,810 | - | 164,975 | |||||||||||||||
Common
stock issued for domain name acquisition
|
25,000 | 25 | 62,225 | - | 62,250 | |||||||||||||||
Net
loss for the period
|
- | - | (869,439 | ) | (869,439 | ) | ||||||||||||||
Balance
as of March 31, 2010
|
18,981,175 | $ | 18,981 | $ | 4,172,454 | $ | (2,799,451 | ) | $ | 1,391,984 |
The
accompanying notes are an integral part of these consolidated financial
statements.
5
Quamtel,
Inc.
|
Consolidated
Statements of Cash Flows (Unaudited)
|
For
the Three Months Ended March 31, 2010 and 2009
|
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (869,439 | ) | $ | (64,925 | ) | ||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
and amortization
|
34,185 | 16,070 | ||||||
Noncash
compensation and consulting expense
|
321,210 | - | ||||||
Changes
in operating assets and liabilities net of assets
|
||||||||
and
liabilities acquired:
|
||||||||
Accounts
receivable
|
14,080 | 3,498 | ||||||
Inventory
|
55,125 | - | ||||||
Prepaid
expenses and deposits
|
311,787 | 19,179 | ||||||
Income
tax payable
|
- | (971 | ) | |||||
Accounts
payable
|
86,717 | 71,683 | ||||||
Accrued
expenses
|
(33,788 | ) | 10,809 | |||||
Unearned
revenue
|
(104,758 | ) | 17,893 | |||||
Net
cash provided by (used in) operating activities
|
(184,881 | ) | 73,236 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchase
of property & equipment
|
(44,524 | ) | (80,558 | ) | ||||
Acquisition
of intangible assets
|
(25,377 | ) | - | |||||
Deposit
paid
|
(25,000 | ) | ||||||
Net
cash used in investing activities
|
(94,901 | ) | (80,558 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from common stock issuances
|
164,975 | 20,000 | ||||||
Proceeds
from issuance of notes payable
|
1,050,000 | - | ||||||
Net
advances from (repayments to) related party
|
(279,472 | ) | (10,575 | ) | ||||
Repayment
of notes payable
|
(224,123 | ) | (527 | ) | ||||
Net
cash provided by financing activities
|
711,380 | 8,898 | ||||||
Net
increase in cash
|
431,598 | 1,576 | ||||||
Cash
and cash equivalents at beginning of period
|
94,003 | 11,562 | ||||||
Cash
and cash equivalents at end of period
|
$ | 525,601 | $ | 13,138 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for taxes
|
$ | - | $ | - | ||||
Cash
paid for interest
|
$ | 20,825 | $ | 2,592 | ||||
Noncash
investing and financing activities:
|
||||||||
Issuance
of common stock for intangible assets
|
$ | 62,250 | $ | - | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
6
QUAMTEL,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE
A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Quamtel, Inc., formerly known as Atomic
Guppy, Inc., XTX Energy, Inc. and Glen Manor Resources Inc., (the “Company”) was
incorporated on November 16, 1999 under the laws of the State of
Nevada. Prior to the closing of the share exchange agreement
described below, the Company was a “shell” corporation as that term is defined
in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, as well as
SEC Release Number 33-8407.
On
January 13, 2009, the Company executed a Share Exchange Agreement (the
“Share Exchange Agreement”), pursuant to which the shareholders of WQN, Inc.
were entitled to receive a total of 15,000,000 post-split shares of the
Company’s common stock. All conditions for closing were satisfied or waived, and
the transaction closed on July 28, 2009. As a result of the
Exchange, the shareholders of WQN, Inc. owned approximately 91% of the
outstanding Common Stock of Quamtel. In conjunction with closing the Share
Exchange Agreement, certain outstanding obligations of Quamtel including
officers and director’s compensation, notes and amounts payable to officers and
directors and third party loans outstanding, were exchanged for 1,275,000
post-split shares of Quamtel’s common stock.
As a
result of the Share Exchange Agreement, WQN, Inc. became a wholly-owned
subsidiary of Quamtel, through which its operations are now conducted. On
September 8, 2009, Quamtel filed an amendment to its Articles of
Incorporation concluding a one-for-ten reverse split of its common stock and
increasing its authorized stock to 200,000,000 common shares and 50,000,000
preferred shares.
The Share
Exchange Agreement has been accounted for as a reverse merger, and as such the
historical financial statements of WQN, Inc. are being presented herein as those
of the Company. Also, the capital structure of the Company for all periods
presented herein is different from that appearing in the historical financial
statements of the Company due to the recapitalization accounting.
On
December 9, 2009, the Company acquired all of the
outstanding membership interests of Mobile Internet Devices, LLC, a
Florida limited liability company (“Mobile Devices”), for a combination of
common stock, stock warrants, and a royalty based on future earnings and new
subscribers of the acquired company. Mobile Devices was subsequently
renamed and reorganized as Data Jack, Inc., a Texas corporation (“Data
Jack”).
The
financial information presented herein should be read in conjunction with the
financial statements of Quamtel for the year ended December 31, 2009, as
presented in the Company’s Form 10-K filed on March 31, 2010. The
accompanying financial statements for the three months ended March 31, 2010 and
2009 are unaudited but, in the opinion of management, include all adjustments
(which are normal and recurring in nature) necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. Interim results are not necessarily indicative of results for
a full year. Therefore, the results of operations for the three months ended
March 31, 2010 are not necessarily indicative of operating results to be
expected for the full year or future interim periods.
7
QUAMTEL,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE B
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant
accounting policies are detailed in Quamtel’s financial statements for the year
ended December 31, 2009 as presented in the Company’s Form 10-K filed
on March 31, 2010.
NOTE
C - PROPERTY AND EQUIPMENT, NET
At March 31, 2009 and December 31, 2009,
respectively, property and equipment consisted of the
following:
March
31,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
Computers
and equipment
|
$ | 563,668 | $ | 519,144 | ||||
Automobile
|
32,123 | 32,123 | ||||||
Furniture
& Fixtures
|
12,274 | 12,274 | ||||||
Total
|
608,065 | 563,541 | ||||||
Less
accumulated depreciation
|
(183,818 | ) | (159,069 | ) | ||||
Total
|
$ | 424,247 | $ | 404,472 |
Depreciation
expense for the three months ended March 31, 2010 and 2009 amounted to
$24,749 and $16,070,
respectively.
|
NOTE
D - INTANGIBLE ASSETS
At
March 31, 2010 and December 31, 2009, respectively, intangible assets
consisted of the following:
|
||||||||
March
31,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
Goodwill
associated with the acquisition of WQN, Inc.
|
$ | 367,589 | $ | 367,589 | ||||
Goodwill
associated with the acquisition of Data Jack, Inc.
|
1,919,957 | 1,919,957 | ||||||
Acquisition
of 800.com domain name
|
317,500 | 317,500 | ||||||
Acquisition
of DataJack.com domain name
|
56,000 | 56,000 | ||||||
Acquisition
of other domain names
|
87,627 | - | ||||||
Total
|
2,748,673 | 2,661,047 | ||||||
Less
accumulated amortization
|
(17,374 | ) | (7,938 | ) | ||||
Total
|
$ | 2,731,299 | $ | 2,653,109 | ||||
Amortization
expense for the three months ended March 31, 2010 and 2009 amounted to
$9,436 and $0, respectively.
|
The
goodwill amounts of $367,589 and $1,919,957 were recorded primarily in
connection with the WQN, Inc. acquisition in June, 2007, and the Data Jack
acquisition in December, 2009, respectively.
In
August 2009, the Company issued 25,000 of its common shares, valued at
$67,500, to Mr. Loren Stocker to acquire an option to purchase the URL 800.com
(the “800 Domain Name”). Steven Ivester, an agent of iTella, Inc., (“Assignor”),
subsequently acquired the 800 Domain Name in a Bankruptcy Court auction for the
sum of $250,000. The acquisition was made for the benefit of the Company.
Effective September 30, 2009, in return for the Company reimbursing to
Assignor his $250,000 cost, Assignor assigned to the Company all right, title
and interest in and to the 800 Domain Name. The total cost of the 800 Domain
Name was $317,500 which is less than its estimated fair value, and is being
amortized over a period of 10 years.
In December 2009, the Company
purchased the URL DataJack.com (the "DataJack Domain Name”) for a cash payment
of $30,000, plus a commitment to issue 10,000 of the Company’s common shares
which were valued at $26,000. The shares have not yet been issued,
and the liability is reflected as a stock-based payable on the Company’s
consolidated balance sheet at March 31, 2010. The total cost of the
DataJack Domain Name was $56,000 which is less than its estimated fair value,
and is being amortized over a period of 10 years.
In January 2010, the Company purchased
the URL machine2machine.com and similarly-named domains (the "M2M Domain Names”)
for a cash payment of $25,377, plus 25,000 of the Company’s common shares which
were valued at $62,250. The total cost of the M2M Domain Names was $87,627
which is less than its estimated fair value, and is being amortized over a
period of 10 years.
8
QUAMTEL,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE E – RELATED PARTY TRANSACTIONS
From time to time, Steven Ivester, the
Company’s former sole shareholder, who is currently the Assistant Secretary of
and also a consultant to the Company through a Consulting Services Agreement
with iTella, Inc., has made personal advances to the Company under an Unsecured
Revolving Promissory Note (the "Unsecured Note"). The Unsecured Note has a
maximum amount of $1,000,000, is repayable upon demand, is non-interest bearing
and is unsecured. Advances under the Unsecured Note amounted to
$479,309 and $785,781 at March 31, 2010 and December 31, 2009,
respectively. See also Note D for the 800 Domain Name transaction involving
Mr. Ivester.
Effective
August 1, 2009 and subsequently amended, the Company executed a Restated
Consulting Services Agreement with iTella, Inc., whereby iTella, Inc. provides,
at the reasonable request of the Company’s management, advanced business
strategy, financing, product development and marketing advice including but not
limited to day to day operations. The initial term of this agreement is for five
years, and automatically renews for additional one year terms if approved by
both parties. During this agreement’s term and at the Company’s expense, iTella,
Inc. will be provided an office and administrative support in Weston,
Florida. iTella, Inc.’s compensation consists of the following:
1.
|
Cash
payments totaling $8,333 for the first two months, payable
monthly;
|
2.
|
Cash
payments totaling $66,667 for the next four months, payable
monthly;
|
3.
|
Annual
cash payments of $250,000 thereafter, payable monthly;
|
4.
|
Nine percent
of the Company’s consolidated gross revenue, payable quarterly (except the
first two months, in which the rate is one percent of gross
revenues), subject to an annual calendar year cap of
$800,000;
|
5.
|
Employees
of Consultant may be eligible for grants of stock options
pursuant to the Company’s Equity Incentive Plan, in such
amounts as may from time to time be determined by the Company, at its sole
discretion; and
|
6.
|
Reimbursement
of reasonable, related business
expenses.
|
Expenses
under the Restated Consulting Services Agreement for the three months ended
March 31, 2010 and year ended December 31, 2009, respectively, were
$121,671 and $109,761. Prior to closing the Restated Consulting
Services Agreement, Quamtel did not have expertise in the management and
financing of a public company, and required the services of iTella, Inc. as
outlined in the Restated Consulting Services Agreement. The Restated Consulting
Services Agreement is not cancellable by either party in advance of its
contractual term, except under a defined change in control.
On August
20, 2009, the Company also executed a one-year consulting agreement with Mr.
Warren Gilbert, who is the president of Gilder Funding Corp., a shareholder of
the Company, whereby Mr. Gilbert will provide advice and counsel regarding the
Company’s financial management and strategic opportunities. As compensation, Mr.
Gilbert was issued 300,000 shares of the Company’s common stock, which were
registered on a registration statement on Form S-8 on November 9,
2009.
9
QUAMTEL,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE
F - NOTES PAYABLE
At
March 31, 2010 and December 31, 2009, notes payable consisted of the
following:
|
||||||||
March
31,
2010
|
December
31,
2009
|
|||||||
(Unaudited)
|
||||||||
Secured
promissory note payable - shareholder
|
$ | 1,000,000 | $ | - | ||||
Promissory
note payable - shareholder
|
- | 200,000 | ||||||
Notes
payable - CIT Bank
|
36,858 | 35,899 | ||||||
Note
payable - American Honda Finance Corporation
|
18,829 | 20,256 | ||||||
Note
payable - Total Bank
|
5,022 | 8,677 | ||||||
Other
note payable
|
30,000 | - | ||||||
Total
notes payable
|
1,090,709 | 264,832 | ||||||
Less
current portion
|
(222,772 | ) | (250,336 | ) | ||||
Noncurrent
portion
|
$ | 867,937 | $ | 14,496 | ||||
On
February 27, 2010, the Company executed a $1,000,000 Senior Secured Promissory
Note payable to Gilder Funding Corp., a company controlled by Mr. Warren Gilbert
(the “Secured Note”) for cash. The proceeds were used to repay the
$200,000 note payable to Mr. Gilbert discussed in the following paragraph, plus
accrued interest. Interest on the Secured Note is payable monthly at
15% per annum beginning April 5, 2010, with the principal and any unpaid
interest due on or before February 27, 2016. The Secured Note is secured by
substantially all of the Company’s assets.
On December 15, 2009, the Company
issued an unsecured $200,000 promissory note payable to Gilder Funding Corp. for
cash. This note bore interest at 18% per year and was repaid in
conjunction with the Secured Note discussed in the preceding
paragraph.
The CIT bank notes are associated with
computer purchases in 2007, are repayable in 36 equal monthly payments through
August and September 2010, are unsecured, and bear interest at 24.49%
per year. The Company is currently in arrears on payments.
The American Honda Finance Corporation
note is related to an automobile purchase in 2008, is repayable in 60 equal
monthly payments through June 2013, is secured by the automobile, and bears
interest at 9.45% per year.
The Total Bank note is associated with
an insurance policy, is repayable in equal monthly payments of
$1,283 through July 2010, is unsecured, and bears interest at 10.34%
per year.
The Other note payable represents an
advance from a person related to the Company’s President, is non-interest
bearing, and is repayable on demand.
The noncurrent portion of notes payable
at December 31, 2009 is substantially payable by the end of 2011.
See Note E for a discussion of advances
to the Company under an unsecured revolving promissory note from Steven Ivester,
who is the Company’s former sole shareholder and currently is the Assistant
Secretary of and also a consultant to the Company through a Consulting Services
Agreement with iTella, Inc.
10
QUAMTEL,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE
G – FINANCING AND OTHER TRANSACTIONS
In
the first quarter of 2010, the Company issued 319,000 shares of common stock
valued at $548,435 as follows:
·
|
165,000
shares were issued and sold to four accredited investors for net proceeds
of $164,975.
|
·
|
100,000
shares valued at $249,000 were issued to Stuart Ehrlich, the Company’s
President and Chief Executive Officer, as partial compensation for his
employment in 2010.
|
·
|
24,000
shares valued at $59,760 were issued to Robert Picow as compensation for
minor consultation services performed from time-to-time for the
Company.
|
·
|
5,000
shares valued at $12,450 were issued to Marc Moore in exchange for
consultation services.
|
·
|
25,000
shares valued at $62,250 were issued in connection with the Company’s
acquisition of the M2M Domain
Names.
|
NOTE
H - INCOME TAXES
The
components of the Company's income tax expense (benefit) are as
follows:
|
||||||||
Three
Months Ended March 31,
|
||||||||
2010
|
2009
|
|||||||
Current
benefit
|
$ | - | $ | (971 | ) | |||
Deferred
benefit
|
- | - | ||||||
Net
income tax benefit
|
$ | - | $ | (971 | ) | |||
The
reconciliation of the income tax provision at the statutory rate to the
reported income tax expense is as follows:
|
||||||||
Computed
at statutory rate
|
34.0 | % | 34.0 | % | ||||
Stock-related
compensation and consulting expenses
|
-12.6 | % | 0.0 | % | ||||
Valuation
allowance
|
-21.4 | % | -34.0 | % | ||||
Total
|
0.0 | % | 0.0 | % | ||||
At
March 31, 2010, the Company's net deferred tax asset consisted of the
following:
|
||||||||
Net
operating loss carryforward
|
$ | 567,843 | ||||||
Less
valuation allowance
|
(567,843 | ) | ||||||
Total
|
$ | - | ||||||
The
Company's net operating loss carryforward for federal income tax purposes
was approximately $1,671,096 as of March 31, 2010, expiring beginning in
2022. In accordance with Internal Revenue Code Section 382, the Company
may be limited in its ability to recognize the benefit of future net
operating loss carry-forwards. Consequently, the Company did not
recognize a benefit from operating loss carry-forwards. The Company
is only subject to federal income taxes.
|
11
QUAMTEL,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
NOTE
I – COMMITMENTS AND CONTINGENCIES
Leases
The
Company is obligated under a non-cancelable operating lease for its primary
office facilities, which expires on February 28, 2015. The Company is also
obligated under a non-cancelable operating lease for its Fort Lauderdale office
facilities, which expires on February 28, 2013. Future minimum lease
payments under these operating leases as of March 31, 2010 are as
follows:
2014
and
|
||||||||||||||||||||||||
Total
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
|||||||||||||||||||
Dallas
|
$ | 304,164 | $ | 46,398 | $ | 61,864 | $ | 61,864 | $ | 61,864 | $ | 72,175 | ||||||||||||
Ft
Lauderdale
|
92,388 | 17,325 | 29,589 | 36,090 | 9,384 | - | ||||||||||||||||||
$ | 396,552 | $ | 63,723 | $ | 91,453 | $ | 97,954 | $ | 71,248 | $ | 72,175 |
Rent
expense for these operating leases (net of a month-to-month sublease for a small
portion of the primary office premises in 2009) for the three months ended March
31, 2010 and 2009 was $25,191and $13,812 respectively.
Consulting
Agreement
See Note
E for a discussion of the Consulting Services Agreement with iTella, Inc. and
the Consulting Agreement with Mr. Warren Gilbert.
12
ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s
Discussion and Analysis contains various “forward looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), regarding future events or the future financial
performance of the Company that involve risks and uncertainties. Certain
statements included in this Form 10-Q, including, without limitation,
statements related to anticipated cash flow sources and uses, and words
including but not limited to “anticipates”, “believes”, “plans”, “expects”,
“future” and similar statements or expressions, identify forward looking
statements. Any forward-looking statements herein are subject to certain risks
and uncertainties in the Company’s business, including but not limited to,
reliance on key customers and competition in its markets, market demand, product
performance, technological developments, maintenance of relationships with key
suppliers, difficulties of hiring or retaining key personnel and any changes in
current accounting rules, all of which may be beyond the control of the Company.
The Company’s actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including those
set forth therein.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) should be read in conjunction with the financial statements
included herein. Further, this quarterly report on Form 10-Q should be read
in conjunction with the Company’s Financial Statements and Notes to Financial
Statements included in its Annual Report on Form 10-K filed on
March 31, 2010.
On
January 13, 2009, Quamtel, Inc. (formerly Atomic Guppy, Inc.) (“Quamtel”)
and WQN, Inc., a Texas corporation (“WQN”) (individually and collectively also
referred to as the “Company”) executed a Share Exchange Agreement (the “Share
Exchange Agreement”), pursuant to which the shareholders of WQN were entitled to
receive a total of 15,000,000 post-split shares of Common Stock. All conditions
for closing were satisfied or waived, and the transaction closed on
July 28, 2009. As a result of the
Exchange, the shareholders of WQN own approximately 91% of the outstanding
Common Stock of Quamtel. In conjunction with closing the Share Exchange
Agreement, certain outstanding obligations of Quamtel including officers and
director’s compensation, notes and amounts payable to officers and directors and
third party loans outstanding, were exchanged for 1,275,000 post-split shares of
Quamtel’s common stock.
As a
result of the Share Exchange Agreement, WQN became a wholly-owned subsidiary of
Quamtel, through which its operations will be conducted. On September 8,
2009, Quamtel filed an amendment to its Articles of Incorporation concluding a
one-for-ten reverse split of its common stock, and increasing its authorized
stock to 200,000,000 common shares and 50,000,000 preferred shares.
On
December 9, 2009, the Company acquired all of the
outstanding membership interests of Mobile Internet Devices, LLC, a
Florida limited liability company (“Mobile Devices”), for a combination of
common stock, stock warrants, and a royalty based on future earnings and new
subscribers of the acquired company. Mobile Devices was subsequently
renamed and reorganized as Data Jack, Inc., a Texas corporation (“Data
Jack”).
Overview
WQN was
formed as a Texas corporation in June 2007, when it acquired an operating
business that was originally founded in 1996. WQN provides prepaid and postpaid
enhanced telecommunications services with an emphasis on transporting calls that
originate from the United States and Canada and terminate to specific regions of
the world. Customers utilize WQN’s Voice Over Internet Protocol (“VoIP”) network
to place quality international calls at discounted rates. The voice quality of
WQN’s VoIP calls is nearly the same as an international telephone call carried
over a traditional telephone line. A substantial portion of WQN’s revenue is
derived from the sale of prepaid service to customers calling from the United
States to India. WQN’s products and services are provisioned and sold online via
its websites.
Data Jack
was formed in February 2009, and its revenues prior to the Company’s acquisition
were $96,113. Data Jack specializes in delivering nationwide mobile
3G data coverage for a competitive fixed monthly price, through a proprietary
USB device connected to any computer with a Windows or Mac operating
system.
13
Results
of Operations for the Three Months ended March 31, 2010 Compared to the Same
Period in 2009
Revenues
Our
revenues for the three months ended March 31, 2010 and 2009 were $703,748 and
$712,850, respectively. Revenues decreased primarily because the retail rates to
India, one of the Company’s primary markets, have been rapidly declining due to
increased competition. This trend is expected to continue, in turn
putting further downward pressure on revenues and margins. Data Jack revenues
were $149,239 for three months ended March 31, 2010 (none in the corresponding
2009 period, since Data Jack was acquired in December 2009), partially
offsetting the India-based revenue decline.
Revenues
are derived primarily from our prepaid international calling services and our
consumer based internet telephony and wireless internet access services.
Inflation has not had a material effect on net sales and revenues or on income
from continuing operations during the past two fiscal years.
Cost
of Sales and Gross Profit
Cost of
sales was $490,762 and $407,595 for the three months ended March 31, 2010 and
2009, respectively. This resulted in gross profit of $212,986 (30.3%) and
$305,255 (42.8%) for the respective 2010 and 2009 periods. The decreased gross
margin in 2010 was due to lowering our effective sales prices on our India
traffic due to competitive market pressures, while our vendor cost reductions
have not kept pace. Our aggregate gross profit decline during the three months
ended March 31, 2010 versus the corresponding 2009 period was otherwise due
primarily to our decreased revenues during that period.
Operating
Expenses
Operating
expenses were $1,047,086 and $368,559 for the three months ended March 31, 2010
and 2009, respectively. Compensation and consulting expenses increased from
$229,063 to $667,669 during these three month periods due primarily to the
$321,210 noncash compensation and consulting services as described in Note G to
the Company’s consolidated financial statements, and to a lesser extent the
iTella, Inc. consulting agreement entered into in 2009, as described in Note E
to the Company’s consolidated financial statements. General and administrative
(“G&A”) expenses increased from $123,426 in the 2009 period to $345,232 in
2010, primarily due to increased legal and audit fees associated with the Share
Exchange Agreement and becoming a publicly reporting company, and generally
increased advertising, rent and travel expenses.
Other
Expenses
Interest and financing expenses
increased from $2,592 in the first quarter of 2009 to $35,339 in the first
quarter of 2010, due primarily to the secured and unsecured promissory notes
payable discussed in Note E and Note F to the Company’s consolidated
financial statements.
Net
Income (Loss)
The
revenue and gross margin decreases coupled with the operating and other expense
increases noted above, combined to result in a net loss of $869,439 and $64,952,
in the 2010 and 2009 periods, respectively.
Liquidity
and Capital Resources
Cash and
cash equivalents were $525,601 at March 31, 2010. Our net cash used in operating
activities for the three months ended March 31, 2010 was $184,881, due
primarily to our cash-based net loss during this period, partially offset by a
decrease in our prepaid expenses and deposits, and other working capital
changes. Our primary sources of funding, have been through the proceeds of the
$1,000,000 secured promissory note payable received in the first quarter of 2010
as discussed in Note F to the Company’s consolidated financial statements, and
from advances from a former shareholder under an unsecured revolving
non-interest bearing promissory note payable with a maximum amount of $1,000,000
as described in Note E to the Company’s consolidated financial statements, and
sales of common stock and other notes payable for cash. Advances under the
unsecured revolving promissory note totaled $479,309 at March 31,
2010.
14
Our accompanying consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America, which contemplates continuation of the
Company as a going concern. The Company has incurred operating losses and
negative cash flows from operations since the Share Exchange Agreement, has
incurred a retained earnings deficit of $2,799,451 through March 31, 2010, and
has been dependent on issuances of debt and equity instruments to fund its
operations. The Company intends to increase its future profitability and
seek new sources or methods of financing or revenue to pursue its business
strategy. However, there can be no certainty that the Company will be
successful in this strategy. These factors raise substantial doubt
about the Company’s ability to continue as a going
concern. Accordingly, the Company's independent auditors added an
explanatory paragraph to their opinion on the Company's consolidated financial
statements for the year ended December 31, 2009, based on substantial doubt
about the Company's ability to continue as a going concern.
These
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties. In this regard, Management is
proposing to raise any necessary additional funds through loans and additional
sales of its common stock. There is no assurance that the Company will be
successful in raising additional capital.
On February 27, 2010, the Company
executed a $1,000,000 Senior Secured Promissory Note payable to Gilder Funding
Corp., a company that is a shareholder of the Company and is controlled by Mr.
Warren Gilbert (the “Secured Note”) for cash. The proceeds were used
to repay the $200,000 note payable to Mr. Gilbert referred to in Note F to the
consolidated financial statements, plus accrued interest. Interest on
the Secured Note is payable monthly at 15% per annum beginning April 5, 2010,
with the principal and any unpaid interest due on or before February 27, 2016.
The Secured Note is secured by substantially all of the Company’s
assets.
Capital
Expenditure Commitments
We did
not have any substantial outstanding commitments to purchase capital equipment
at March 31, 2010.
Plan
of Operations
By
adjusting our operations and development to the level of capitalization, we
believe that we have sufficient capital resources to meet projected cash flow
requirements. However, if during that period or thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
Our
future cash requirements include those associated with maintaining our status as
a reporting entity. We believe that on an annual basis those costs would not
exceed an average of $25,000 per month.
We
presently do not have any available credit, bank financing or other external
sources of liquidity. Due to our brief operating history and lack of substantial
historical operating profits, our operations have not been a source of
liquidity. We will need to obtain additional capital in order to fund our
operations and become profitable. In order to obtain capital, we may need to
sell additional shares of our common stock or borrow funds from private lenders.
There can be no assurance that we will be successful in obtaining additional
funding.
15
Critical
Accounting Policies
The
application of our accounting policies, which are important to our financial
position and results of operations, requires significant judgments and estimates
on the part of management. These estimates bear the risk of change due to the
inherent uncertainty attached to each estimate and are likely to differ to some
extent from actual results. A description of our critical accounting policies
follows:
1.
|
In
accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets," the Company tests its
intangible asset (goodwill) for impairment at least annually by comparing
the fair value of this asset to its carrying value. If in the future the
carrying value of our goodwill exceeds its fair value, the
Company will recognize an impairment charge in an amount equal to
that excess. For purposes of these tests, the excess of the fair value of
the Company over the amounts assigned to its identified assets and
liabilities is the implied fair value of its
goodwill.
|
2.
|
Our
revenues are primarily derived from fees charged to terminate voice
services over the Company's network and from related monthly recurring
charges. Variable revenue is earned based on the number of minutes during
a call and is recognized upon completion of a call. Revenue from each
customer is calculated from information received through the Company's
network switches. The Company tracks the information received from the
switch and analyzes the call detail records and applies the respective
revenue rate for each call. Fixed revenue is earned from monthly recurring
services provided to customers that are fixed and recurring in nature, and
are connected for a specified period of time. Revenues are recognized as
the services are provided and continue until the expiration of the
contract or until cancellation of the service by the customer. Cash fees
received prior to call completion are recorded on the Company’s balance
sheet as unearned revenue.
|
Payments
Due by Period
The
following table illustrates our outstanding debt, purchase obligations, and
related payment projections as of March 31, 2010:
2010
|
2014
and
|
|||||||||||||||||||||||
Total
|
(Remainder)
|
2011
|
2012
|
2013
|
Thereafter
|
|||||||||||||||||||
Advances
from related party
|
$ | 479,309 | $ | 479,309 | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Notes
payable (principal)
|
1,090,709 | 184,421 | 175,497 | 188,469 | 218,766 | 323,556 | ||||||||||||||||||
Subtotals
|
1,570,018 | 663,729 | 175,497 | 188,469 | 218,766 | 323,556 | ||||||||||||||||||
Purchase
obligations
|
- | - | - | - | - | - | ||||||||||||||||||
Operating
leases
|
396,552 | 63,723 | 91,453 | 97,954 | 71,248 | 72,175 | ||||||||||||||||||
Totals
|
$ | 1,966,570 | $ | 727,452 | $ | 266,950 | $ | 286,423 | $ | 290,014 | $ | 395,731 |
ITEM
3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
ITEM
4T. CONTROLS
AND PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures.
As required by Rule 13a-15(b)
under the Exchange Act as of March 31, 2010, our management conducted an
evaluation with the participation of our President who also serves as our
principal financial and accounting officer (the “Certifying Officer”) regarding
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 Exchange
Act).
A significant deficiency is a control
deficiency, or combination of control deficiencies, that adversely affects a
company’s ability to initiate, authorize, record, process or report external
financial data reliably in accordance with generally accepted accounting
principles, such that there is more than a remote likelihood that a misstatement
of our annual or interim financial statements that is more than inconsequential
will not be prevented or detected. A material weakness is a significant
deficiency, or combination of significant deficiencies, that result in more than
a remote likelihood that a material misstatement of a company’s consolidated
financial statements will not be prevented or detected.
16
Based on this evaluation and in
accordance with the requirements of Auditing Standard No. 2 of the Public
Company Accounting Oversight Board, our Certifying Officer concluded that our
disclosure controls and procedures were ineffective as of March 31, 2010. Our
President, who is our sole executive officer, is not a financial or accounting
professional, and we do not have a chief financial officer or sufficient
accounting staff. Until we are able to engage a qualified financial
officer, and/or accounting staff, we may continue to experience material
weaknesses in our disclosure controls that may adversely affect our ability to
timely file our quarterly and annual reports.
Our management, including the
Certifying Officer, does not expect that our disclosure controls and procedures
will prevent all errors and all improper conduct. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, a design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of improper
conduct, if any, have been detected. These inherent limitations include the
realities that judgments and decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
persons, or by management override of the control. Further, the design of any
system of controls is also based in part upon assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations and a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
(b) Changes
in Internal Control over Financial Reporting.
During
the quarter ended March 31, 2010, there was no change in our internal control
over financial reporting (as such term is defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
17
ITEM
1. LEGAL
PROCEEDINGS
None
ITEM
1A. RISK
FACTORS
See the
risk factors set forth in our Annual Report on Form 10-K filed on March 31,
2010.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In the
first quarter of 2010, the Company issued 319,000 shares of common stock valued
at $548,435 as follows:
·
|
165,000
shares were issued and sold to four accredited investors for net proceeds
of $164,975.
|
·
|
100,000
shares valued at $249,000 were issued to Stuart Ehrlich, the Company’s
President and Chief Executive Officer, as partial compensation for his
employment in 2010.
|
·
|
24,000
shares valued at $59,760 were issued to Robert Picow as compensation for
minor consultation services performed from time-to-time for the
Company.
|
·
|
5,000
shares valued at $12,450 were issued to Marc Moore in exchange for
consultation services.
|
·
|
25,000
shares valued at $62,250 were issued in connection with the Company’s
acquisition of the M2M Domain
Names.
|
All of
these issuances were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933 on the basis of the sophistication and small number
of purchasers, and the restrictions placed on the certificates representing the
shares and the representation received from the purchasers.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM
4. (REMOVED
AND RESERVED)
None.
Exhibit No.
|
Description
|
|
4.1
|
Senior
Secured Promissory Note issued to Gilder Funding Corp. on February 27,
2010. (1)
|
|
4.2
|
Security
Agreement issued in conjunction with the Senior Secured Promissory Note
payable to Gilder Funding Corp, dated February 27, 2010.
(1)
|
|
4.3
|
Unsecured
Revolving Promissory Note issued to S. Ivester, dated March 18, 2010.
(1)
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act.*
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act.*
|
|
* | Filed herewith | |
(1) | Incorporated by reference to the 2009 Annual Report on Form 10-K as filed on March 31, 2010. |
18
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
QUAMTEL,
INC.
|
|||
Dated:
May 17, 2010
|
By:
|
/s/ Stuart Ehrlich | |
Stuart
Ehrlich
|
|||
President
and Chief Executive Officer
|
|||
19