Unified Signal, Inc. - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION - Unified Signal, Inc.	qumi_ex321.htm
EX-31.1 - CERTIFICATION - Unified Signal, Inc.	qumi_ex311.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, 2011

o	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 of Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer 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)

Indicate whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	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 May 23, 2011 is 25,127,737.

QUAMTEL, INC.

Table of Contents

		Page

Part I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL INFORMATION		3

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14

ITEM 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK		18

ITEM 4T.	CONTROLS AND PROCEDURES		18

Part II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		19

ITEM 1A	RISK FACTORS		19

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		20

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		20

ITEM 4.	(REMOVED AND RESERVED)		21

ITEM 5.	OTHER INFORMATION		21

ITEM 6.	EXHIBITS		21

SIGNATURES			22

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION

Quamtel, Inc.

Condensed Consolidated Balance Sheets

		March 31, 2011			December 31, 2010
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	137,129		$	78,739
Accounts receivable, net		20,553			55,654
Inventory		21,870			21,870
Prepaid expenses and deposits		32,651			113,903
Total current assets		212,203			270,166

Restricted Cash		150,000			150,000
Property and equipment, net		482,931			504,535
Goodwill and other intangibles, Net		1,067,445			1,078,845

TOTAL ASSETS	$	1,912,579		$	2,003,545


LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)

Current liabilities:
Accounts payable	$	930,700		$	994,936
Accrued expenses		155,080			146,361
Unearned revenue		409,529			363,227
Advances from related party		603,018			614,678
Stock-based payable		491,000			491,000
Notes payable		2,446,929			2,162,932
Total current liabilities		5,036,256			4,773,133

TOTAL LIABILITIES		5,036,255			4,773,132

Shareholders' equity (deficiency):
Common stock - $0.001 par value; 200,000,000 shares authorized;
24,462,237 and 23,312,237 shares issued, and 24,362,237 and 23,212,237 outstanding at
March 31, 2011 and December 31, 2010, respectively		24,462			23,312
Preferred stock - $0.001 par value; 50,000,000 shares authorized;
no shares issued and outstanding		-			-
Additional paid-in capital		9,613,324			9,289,474
Treasury stock, at cost, 100,000 shares		(100,000	)		(100,000	)
Accumulated (Deficit)		(12,661,462)			(11,982,372
Total shareholders' (deficiency)		(3,123,676	)		(2,769,586	)

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)	$	1,912,579		$	2,003,545

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Quamtel, Inc.

Condensed Consolidated Statement of Operations

Three Months ended March 31, 2011 and 2010

(Unaudited)

	2011			2010

Revenues	$	428,010		$	703,748

Cost of sales		255,765			490,762

Gross profit		172,245			212,986

Operating expenses:
Compensation, consulting and related expenses		582,052			667,669
General and administrative expenses		184,114			345,232
Depreciation and amortization		33,004			34,185
Total operating expenses		799,169			1,047,086

Loss from operations		(626,924	)		(834,100	)

Other expense:
Interest and financing expense		52,166			35,339
Total other expense		52,166			35,339

Loss before income taxes		(679,090	)		(869,439	)

Income tax expense (benefit)		-			-

Net loss	$	(679,090	)	$	(869,439	)

Basic and diluted loss per share:

Net loss per share	$	(0.03	)	$	(0.05	)

Weighted average number of shares outstanding		23,945,015			18,805,064

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Quamtel, Inc.

Condensed Consolidated Statements of Changes in Shareholders' Deficiency

For the Three Months Ended March 31, 2011

(Unaudited)


	Common Stock				Additional Paid-		Treasury			Accumulated
	Shares		Amount		in Capital		Stock			(Deficit)			Total

Balances as of December 31, 2010		23,312,237	$	23,312	$	9,289,474	$	(100,000	)	$	(11,982,372	)	$	(2,769,587	)

Common stock issued for services		200,000		200		139,800					-			140,000
Common stock issued for cash		950,000		950		184,050					-			185,000
Net loss for the year		-		-		-					(679,090	)		(679,090	)

Balances as of March 31, 2011		24,462,237	$	24,462	$	9,613,324	$	(100,000	)	$	(12,661,462	)	$	(3,123,676	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Quamtel, Inc.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2011 and 2010

(Unaudited)

	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(679,090	)	$	(869,439	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		33,004			34,185
Noncash consulting expense		140,000			321,210
Changes in operating assets and liabilities net of assets
and liabilities acquired:
Accounts receivable		35,101			14,080
Inventory		-			55,125
Prepaid expenses and deposits		81,252			311,787
Accounts payable		(64,236	)		86,717
Accrued expenses		8,720			(33,788	)
Unearned revenue		46,302			(104,758	)
Net cash used in operating activities		(398,947	)		(184,881	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment		-			(44,524	)
Acquisition of intangible assets		-			(25,377	)
Deposit paid					(25,000	)
Net cash used in investing activities		-			(94,901	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuances		185,000			164,975
Proceeds from promissory note issuances		283,998			1,050,000
Advances from (repayments to) related party		(11,660	)		(279,472	)
Repayment of notes payable		-			(224,123	)
Net cash provided by financing activities		457,338			711,380

Net increase in cash		58,390			431,598

Cash and cash equivalents at beginning of period		78,739			94,003
Cash and cash equivalents at end of period	$	137,129		$	525,601


Supplemental cash flow information:
Cash paid for taxes	$	-		$	-
Cash paid for interest	$	-		$	20,825

Noncash investing and financing activities:
Issuance of common stock for intangible assets	$	-		$	62,250

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE A – BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Description of Business

The Quamtel Inc. (“the Company”) provides prepaid and postpaid enhanced telecommunications services with an emphasis on transporting calls that originate from the United States and Canada and terminate in other 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 virtually 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and 2010 are unaudited. These financial statements have been prepared in accordance with the instructions to Form 10-Q, and therefore, do not include all the information necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2010 financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are detailed in Company’s financial statements for the year ended December 31, 2010 as presented in the Company’s Form 10-K filed on May 17, 2011.

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial statements.

NOTE C – LIQUIDITY

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has reported historical losses from operations. As of March 31, 2011, the Company has reported an accumulated deficit of $(12,661,462) and a working capital deficit of $(4,824,053), and has been dependent on issuances of debt and equity instruments to fund its operations.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company intends to increase its future profitability and seek new sources or methods of revenue to pursue its business strategy. If the Company’s financial resources from operations are insufficient, the Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due, or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE D - PROPERTY AND EQUIPMENT, NET

At March 31, 2011 and December 31, 2010, respectively, property and equipment consisted of the following:

	March 31, 2011			December 31, 2010
	(Unaudited)

Computers and equipment	$	622,813		$	622,813
Automobile		32,123			32,123
Furniture & Fixtures		16,346			16,346
Total		671,282			671,282
Less accumulated depreciation		(188,351	)		(166,747	)
Total	$	482,931		$	504,535

Depreciation expense for the three months ended March 31, 2011 and 2010 amounted to $21,604 and $24,749, respectively.

NOTE E - INTANGIBLE ASSETS

At March 31, 2011 and December 31, 2010, respectively, intangible assets consisted of the following:

	March 31, 2011			December 31, 2010
	(Unaudited)

Goodwill associated with the acquisition of Data Jack, Inc.	$	669,957		$	669,957
Domain names		462,327			462,327
Total		1,132,284			1,132,284
Less accumulated amortization		(64,839	)		(53,439	)
Total	$	1,067,445		$	1,078,845

Amortization expense for the three months ended March 31, 2011 and 2010 amounted to $11,400 and $9,436, respectively.

The goodwill amounts of $669,957 and $462,327 were recorded with the Data Jack acquisition in December, 2009.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

NOTE F – 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 $603,018 and $614,678 at March 31, 2011 and December 31, 2010, respectively.

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, 2011 and year ended December 31, 2010, respectively, were $121,287 and $467,044. 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 December 15, 2009, the Company issued an unsecured $200,000 promissory note (the “2009 Gilbert Note”) to Gilbert for cash. The 2009 Gilbert Note bore interest at 15.9% per year, and unpaid principal and interest was repayable in full on June 15, 2010. Under the terms of the 2009 Gilbert Note, Gilbert was to be paid $40 toward the Note for each Data Jack unit sold, plus a $5.00 bonus payment (in addition to interest) on each Data Jack unit sold up to 5,000 units. No such payments were due or made. The 2009 Gilbert Note, with accrued interest, was repaid in full on February 27, 2010 from proceeds of the 2010 Secured Gilder Note (defined below).

On August 20, 2009, the Company issued and sold $300,000 in principal amount of an unsecured convertible note to Gilbert, receiving net proceeds of $300,000. This note bore interest at 18% and was converted into 115,000 shares of the Company’s common stock at a conversion price of $2.70 per share on September 10, 2009. In connection with his purchase of this convertible note, on August 20, 2009, Gilbert also received six-year warrants to purchase 54,000 shares of the Company’s common stock exercisable at a price of $2.70 per share. On May 9, 2011, Gilbert signed an agreement with the Company rescinding and cancelling these warrants as of their issue date, August 20, 2009.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On August 20, 2009, the Company also executed a one-year consulting agreement with Gilbert. Gilbert is the president of Gilder Funding Corp., a shareholder of the Company. Pursuant to the terms of this agreement, Gilbert provided advice and counsel regarding the Company’s financial management and strategic opportunities. As compensation, Gilbert was issued 300,000 shares of the Company’s common stock, which were registered with the SEC in a registration statement on Form S-8 on November 9, 2009.

On February 27, 2010, the Company executed a $1,000,000 Senior Secured Promissory Note payable to Gilder Funding Corp. (“Gilder”), a company that is a shareholder of the Company and controlled by Gilbert (the “2010 Secured Gilder Note”) for cash. The proceeds of the 2010 Secured Gilder Note were used, in part, to repay the 2009 Gilbert Note, with accrued interest. Interest on the 2010 Secured Gilder Note is 15% per annum, and beginning April 5, 2010, the Company was required to make monthly payments on the 2010 Secured Gilder Note in the amount of $23,789.93 per month, with any remaining outstanding principal and any accrued but unpaid interest due on or before February 27, 2016. The 2010 Secured Gilbert Note is secured by substantially all of the Company’s assets. Effective May 24, 2010, the Company and Gilder amended the 2010 Secured Gilder Note to increase the principal amount to $1,250,000, with the Company receiving the additional $250,000 in cash. Effective June 15, 2010, monthly payments were increased to $27,000; and the maturity date was changed to February 27, 2015. The Company made three monthly payments of $27,000 under the 2010 Secured Gilder Note and has since begun making monthly payments of $11,000. Because of this reduced monthly payment, the Company is in default of the terms of the 2010 Secured Gilder Note and, as such, at the option of Gilder, the entire unpaid principal balance and the accrued and unpaid interest are due and payable on demand, with past due principal bearing interest from the date of default at the maximum rate allowed by law. Gilder, under a security agreement with the Company, holds a first priority lien and security interest in all of the assets of the Company, which secures the performance of the Company’s obligations under the 2010 Secured Gilder Note. The Company has requested that Gilder waive these default provisions and has received his oral commitment to do so.

On December 13, 2010, the Company issued an unsecured $250,000 promissory note to Gerald and Seena Sperling (the “2010 Sperling Note”), together a shareholder of the Company (the “Sperlings”), for cash. The 2010 Sperling Note bore interest at 3% per year and was payable in full, with interest, on February 25, 2012. At December 31, 2010, the outstanding principal and interest on the Note was $250,349. On March 10, 2011, the Company replaced and cancelled the 2010 Sperling Note with a new note (the “2011 Sperling Note”) in the amount of $500,000 in exchange for an additional $250,000 in cash from the Sperlings. As a result of this transaction, the 2010 Sperling Note was deemed paid in full. The 2011 Sperling Note bears interest at 3% per year and is payable in full, with interest, on March 10, 2013.

On December 16, 2010, the Sperlings made a short term loan to the Company of $75,000. This loan was made pursuant to an oral agreement, bore no interest and was repaid in full prior to the end of the year.

On December 16, 2010, the Sperlings invested an additional $500,000 in the Company and received 1,300,000 shares for $325,000 of that investment, or $0.25 per share. The Sperlings will receive an additional 700,000 shares for the remaining $175,000 of their investment.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE G - NOTES PAYABLE

At March 31, 2011 and December 31, 2010, notes payable consisted of the following:

	March 31, 2011			December 31, 2010
	(unaudited)
Promissory note payable - shareholders	$	2,301,944		$	2,014,934
Note payable - Abundance Partners LLC		86,684			84,763
Note payable - Dell Computer		40,951			40,951
Note payable - American Honda Finance Corporation		12,749			14,321
Note payable - Total Bank		4,601			7,963

Total notes payable		2,446,929			2,162,932

Less current portion		(2,446,929	)		(2,162,932	)

Noncurrent portion	$	0		$	0

Secured Promissory Note Payable - Shareholder

On February 27, 2010, the Company executed a $1,000,000 Senior Secured Promissory Note payable to Gilder Funding Corp. (“Gilder”), a company that is a shareholder of the Company and controlled by Gilbert (the “2010 Secured Gilder Note”) for cash. The proceeds of the 2010 Secured Gilder Note were used, in part, to repay the 2009 Gilbert Note, with accrued interest. Interest on the 2010 Secured Gilder Note is 15% per annum, and beginning April 5, 2010, the Company was required to make monthly payments on the 2010 Gilder Note in the amount of $23,789.93 per month, with any remaining outstanding principal and any accrued but unpaid interest due on or before February 27, 2016. The 2010 Secured Gilbert Note is secured by substantially all of the Company’s assets. Effective May 24, 2010, the Company and Gilder amended the 2010 Secured Gilder Note to increase the principal amount to $1,250,000, with the Company receiving the additional $250,000 in cash. Effective June 15, 2010, monthly payments were increased to $27,000; and the maturity date was changed to February 27, 2015. The Company made three monthly payments of $27,000 under the 2010 Secured Gilder Note and has since begun making monthly payments of $11,000. Because of this reduced monthly payment, the Company is in default of the terms of the 2010 Secured Gilder Note and, as such, at the option of Gilder, the entire unpaid principal balance and the accrued and unpaid interest are due and payable on demand, with past due principal bearing interest from the date of default at the maximum rate allowed by law. Gilder, under a security agreement with the Company, holds a first priority lien and security interest in all of the assets of the Company, which secures the performance of the Company’s obligations under the 2010 Secured Gilder Note.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company has requested a waiver from Gilder of the default provisions of the 2010 Secured Gilbert Note and has received oral commitments to such waiver, subject to negotiations. The Company cannot provide assurance, however, that the terms of such waiver will be acceptable to it. Even if the terms of such waiver are acceptable, the Company may not be able to satisfy those terms in the future or be able to pursue its strategies within the constraints of that agreement. These circumstances could materially and adversely impair the Company’s liquidity and, among other factors, raise substantial doubt regarding its ability to continue as a going concern.

At March 31, 2011, the outstanding principal and interest on the Note was $1,281,804.

Unsecured promissory note payable

On March 10, 2011, the Company replaced and cancelled the 2010 Sperling Note with a new note (the “2011 Sperling Note”) in the amount of $500,000 in exchange for an additional $250,000 in cash from the Sperlings. As a result of this transaction, the 2010 Sperling Note was deemed extinguished. The 2011 Sperling Note bears interest at 3% per year and is payable in full, with interest, on March 10, 2013. At March 31, 2011, the outstanding principal and interest on the Note was $502,899.

During the year ended December 31, 2010, the Company obtained short-term unsecured advances from four shareholders. The unsecured advances accrue interest at rates between 0% and 0% per annum. At December 31, 2010, the outstanding principal and interest on the Note was $516,990.

Note payable - Abundance Partners LLC

As a result of the August 18, 2010 acquisition of Syncpointe LLC, the Company entered into an agreement effective November 4, 2010 with Abundance Partners LP (“Abundance”) and Syncpointe relating to the $80,000 principal balance on a secured $100,000 loan, bearing interest at 6% per annum, that Abundnace made to Syncpointe LLC on June 3, 2010 (the “Abundance Loan”). Pursuant to the terms of this agreement, the Company issued to Abundance 25,000 shares of its unregistered common stock in lieu of an equity interest in Syncpointe and paid a $25,000 default fee due under the Abundance Loan which went into default on July 3, 2010. Additionally, Syncpointe agreed to apply 15% of the cash proceeds to Syncpointe or the Company from any loan or sale of equity towards paying down the balance of the loan plus accrued but unpaid interest (the “Required Payments”), and agreed to pay off the balance of the Abundance Loan, plus interest, on or before March 31, 2011 (the “Maturity Date”). Abundance agreed to reduce the 18% default interest rate to 12%, retroactive to July 3, 2010, and the parties further agreed that if the Abundance Loan went into default again, the interest rate would increase to 18%, retroactive to July 3, 2010. The Company agreed that its Collateral (as that term is defined in the original Abundance Loan agreement) would be included with the Syncpointe Collateral as part of the security interest under that agreement and that such security interest would be subordinated to the first priority interest granted under the 2010 Secured Gilder Note (defined below). Because the Required Payments were not made and the Abundance Loan was not repaid in full by the Maturity date, the Abundance Loan is currently in default.

QUAMTEL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Company has requested a waiver from Abundance of the default provisions of the Abundance Loan and has received oral commitments to such waiver, subject to negotiations. The Company cannot provide assurance, however, that the terms of such waiver will be acceptable to it. Even if the terms of such waiver are acceptable, the Company may not be able to satisfy those terms in the future or be able to pursue its strategies within the constraints of that agreement. These circumstances could materially and adversely impair the Company’s liquidity and, among other factors, raise substantial doubt regarding its ability to continue as a going concern.

Other Notes Obligations

The CIT bank notes are associated with computer purchases in 2007, are repayable in 36 equal monthly payments through August and September 2010, and bear interest at 24.49% per year.

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.

NOTE H– FINANCING AND OTHER TRANSACTIONS

In the first quarter of 2011, the Company issued 1,150,000 shares of common stock valued at $325,000 as follows:

● 950,000 shares were issued and sold to four accredited investors for net proceeds of $185,000.

● 200,000 shares valued at $140,000 were issued to Stuart Ehrlich, the Company’s President and Chief Executive Officer, as partial compensation for his employment in 2011.

NOTE I – SUBSEQUENT EVENTS

From April 1, 2011 through April 30, 2011, the Company sold 1,455,000 shares of its common stock in private transactions to a number of investors at an average price of $0.25 per share.

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.

When used in this yearly report, the terms the “Company” “Quamtel,” “we,” “our,” and “us” refers to Quamtel, Inc. a Nevada corporation.

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 for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission on May 17, 2011.

Background

On January 13, 2009, Quamtel (formerly Atomic Guppy, Inc.) and WQN, Inc., a Texas corporation (“WQN”) executed a Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which the shareholders of WQN received a total of 15,000,000 post-split shares of our common stock in exchange for all of their shares of WQN stock (the “Exchange” or “Merger”). All conditions for closing were satisfied or waived, and the Merger closed on July 28, 2009. As a result of, and at the time of, the Exchange, the shareholders of WQN owned approximately 91% of our then outstanding common stock. In conjunction with closing the Merger, 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 our common stock.

As a result of the Exchange, WQN became our wholly-owned subsidiary, through which our operations are conducted. On September 8, 2009, we filed an amendment to our Articles of Incorporation concluding a one-for-ten reverse split of our common stock and increasing our authorized stock to 200,000,000 common shares and 50,000,000 preferred shares.

On December 9, 2009, we acquired all of the outstanding membership interests of Mobile Internet Devices, LLC, a Florida limited liability company (“Mobile Devices”), in exchange for 500,000 shares of our unregistered common stock, and up to 500,000 additional unregistered common stock shares contingent upon Mobile Devices achieving specified levels of new customers in the future. Mobile Devices was subsequently renamed and reorganized as Data Jack, Inc., a Texas corporation (“Data Jack”).

Effective August 18, 2010, we acquired all of the outstanding membership interests of Syncpointe, LLC, a Missouri limited liability company (“Syncpointe”), from Half A Minute, LLC; McPheeters Communication Group, LLC; and VKS, LLC (collectively, the “Sellers”). We acquired Syncpointe in exchange for 1,000,000 shares of our unregistered common stock, with piggyback registration rights. The Sellers may receive earn-out payments equal to 12.5% of Syncpointe’s net income (as defined in the Syncpointe LLC Membership Interest Purchase Agreement) for the first 18 months that it operates as a Quamtel division.

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.

Syncpointe is a software developer focused on the development of mobile device management software. The Company’s products are geared toward global enterprise, government, and consumer markets. Syncpointe was formed in November 2008, and its revenues prior to the Company's acquistion were $0 and $89,000 during 2010 and 2009, respectively.

Results of Operations for the Three Months ended March 31, 2011 Compared to the Same Period in 2010

Revenues

Our revenues for the three months ended March 31, 2011 and 2010 were $428,010 and $703,748, respectively. Revenues have been decreasing 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 for the three months ended March 31, 2011 and 2010 were $78,376 and $149,239, respectively, partially offsetting the India-based revenue decline. Syncpointe revenues were $0 for three months ended March 31, 2011. (We recognized no revenue from Syncpointe in the corresponding 2010 period because we acquired Syncpointe in August 2010.)

Cost of Sales and Gross Profit

Cost of sales was $255,765 and $490,762 for the three months ended March 31, 2011 and 2010, respectively. This resulted in gross profit of $172,245 (40%) and $212,986 (30%) for the respective 2011 and 2010 periods. The increased gross margin in 2011 was due to a large vendor credit received in the three months ended March 31,2011. After adjusting for the vendor credits, gross margins were 26%, a 4% decrease from 2010. Our effective sales prices on our India traffic decreased due to competitive market pressures, while our vendor cost reductions have not kept pace.

Operating Expenses

Operating expenses were $799,169 and $1,047,086 for the three months ended March 31, 2011 and 2010, respectively. Compensation and consulting expenses decreased from $667,669 to $582,052 during these periods due primarily to the $181,000 decrease in the value of common shares issued for compensation and consulting services as described in Note I to the Company’s unaudited condensed consolidated financial statements.General and administrative (“G&A”) expenses decreased from $345,232 in the 2010 period to $184,114 in 2011, primarily due to Management reducing general and administrative expenses, in particular professional fees and travel expenses, to be more in line with the reduction of sales.

Other Expenses

Interest, financing and other expenses increased from $35,339 to $52,166 for the three months ended March 31, 2011 versus the corresponding 2010 period, due primarily to the interest related to the secured and unsecured promissory notes payable discussed in Note H to the Company’s unaudited condensed consolidated financial statements.

Net Loss

A reduction in stock compensation expenses along with a reduction of overall general and administrative expenses resulted in a lower net loss of $(679,090) for the three month period ended March 31, 2011 compared with a net loss of $(869,439) for the same period in 2010.

Liquidity and Capital Resources

Cash and cash equivalents were $137,129 at March 31, 2011. Our net cash used in operating activities for the three months ended March 31, 2011 was $398,948, due primarily to our cash-based net loss during this period.

Our primary sources of funding have been through the proceeds of the $1,250,000 secured promissory note payable received in 2010 (as discussed in Note H to our unaudited condensed consolidated financial statements), from advances from Steven Ivester under an unsecured, revolving, non-interest bearing promissory note payable with a maximum amount of $1,000,000 (as described in Note G to our unaudited condensed consolidated financial statements), from a $500,000 acquisition of our unregistered common stock by one of our existing stockholders, and from a $500,000 loan by another of our stockholders, $250,000 of which was funded in March 2011. Advances outstanding under the unsecured revolving promissory note totaled $516,990 as of March 31, 2011.

At March 31, 2011, restricted cash consisted of a $150,000 security deposit in the form of an irrevocable letter of credit held in escrow related to our performance under a service contract with one of our telecommunication service providers, as discussed in Note D to our unaudited condensed consolidated financial statements.

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. We have incurred operating losses and negative cash flows from operations since the Merger, have incurred an accumulated deficit of $12,661,462 through March 31, 2011, and have been dependent on issuances of debt and equity instruments to fund our operations. We intend to increase our future profitability and seek new sources or methods of financing or revenue to pursue our business strategy. However, there can be no certainty that we will be successful in this strategy. These factors raise substantial doubt about our ability to continue as a going concern. Accordingly, our independent auditors added an explanatory paragraph to their opinion on our consolidated financial statements for the year ended December 31, 2010, based on substantial doubt about our ability to continue as a going concern.

Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We expect to raise any necessary additional funds through loans and additional sales of our common stock or debt instruments. There can be no assurance that we will be successful in raising additional capital in amounts or on terms acceptable to us, if at all.

Capital Expenditure Commitments

We did not have any substantial outstanding commitments to purchase capital equipment at March 31, 2011.

Plan of Operations

We do not currently have sufficient capital resources to meet projected cash flow requirements. We will need to continue to raise capital through the issuance of new shares or by issuing new debt securities. However, any failure in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, 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 in amounts or on terms acceptable to us, if at all.

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:

In accordance with FASB ASC 350 (formerly 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.

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, 2011:

			2011								2015 and
	Total		(Remainder)		2012		2013		2014		Thereafter

Advances from related party	$	603,018	$	603,018	$	-	$	-	$	-	$	-
Notes payable (principal)		2,446,929		2,446,929		-		-		-		-
Subtotals		3,049,947		3,049,947		-		-		-		-

Purchase obligations		-		-		-		-		-		-
Operating leases		229,426		62,870		75,644		45,328		39,072		6,512
Totals	$	3,279,373	$	3,112,817	$	75,644	$	45,328	$	39,072	$	6,512

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. 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, 2011, 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 control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

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, 2011. 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.

The Company has an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis. We have not achieved the optimal level of segregation of duties relative to key financial reporting functions and we do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is management’s view that an audit committee, comprised of independent board members, and an independent financial expert is an important entity-level control over the Company's financial statements. We have not achieved an optimal segregation of duties for executive officers of the Company.

(b) Changes in Internal Control over Financial Reporting.

During the quarter ended March 31, 2011, 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.

PART II – OTHER INFORMATION

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 May 17, 2011.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the first quarter of 2011, we issued 1,150,000 shares of common stock valued at $325,000 as follows:

●

900,000 shares were issued and sold to four accredited investors for net proceeds of $185,000; and

●

200,000 shares valued at $140,000 were issued to Stuart Ehrlich, the Company’s President and Chief Executive Officer, as partial compensation for his employment in 2011

These securities were offered and sold pursuant to the exemption from the registration requirements of the federal securities laws provided by Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and Section 4(2) of the Securities Act. These securities were offered and sold only to “accredited investors,” as that term is defined by Rule 501 of Regulation D. No commissions were paid in connection with these sales.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has requested that Gilder waive these default provisions and has received his oral commitment to do so. We cannot assure you, however, that the terms of such waiver will be acceptable to us. Even if the terms of such waiver are acceptable, we may not be able to satisfy the waiver terms in the future or be able to pursue our strategies within the constraints of such terms. These circumstances could materially and adversely impair our liquidity.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.		Description

4.1		Promissory Note in the Principal Amount of $500,000 dated March 10, 2011 (1)

31.1/31.2		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1/32.2		Certification of Chief Executive Officer and Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

___________________

* This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

(1) Filed with the SEC on May 17, 2011, as Exhibit No. 4.12 to the Registrant's annual report on Form 10-K, which exhibit is incorporated herein by reference.

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 23, 2011	By:	/s/ Stuart Ehrlich
		Stuart Ehrlich
		President and Chief Executive Officer

Unified Signal, Inc. - FORM 10-Q - May 24, 2011

Attached files

Unified Signal, Inc. Reports