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EX-32 - CERTIFICATION - Unified Signal, Inc. | quam_ex32.htm |
EX-31 - CERTIFICATION - Unified Signal, Inc. | quam_ex31.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 10-Q
_____________________
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: March 31, 2012
or
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______ to ________
QUAMTEL, INC.
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(Exact name of small business issuer as specified in its charter)
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Nevada
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000-31757
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90-0781437
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||
(State of Other Jurisdiction
of Incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.)
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14911 Quorum Drive, Suite 140, Dallas, Texas 75254
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(Address of Principal Executive Office) (Zip Code)
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(972) 361-1980
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(Issuer’s telephone number, including area code)
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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 þ 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
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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þ
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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 CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common equity as of May 15, 2012 is 70,209,987.
QUAMTEL, INC.
Table of Contents
Page
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Part I – FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL INFORMATION
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3
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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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14
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ITEM 3.
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QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
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18
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ITEM 4.
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CONTROLS AND PROCEDURES
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18
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Part II – OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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20
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ITEM 1A
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RISK FACTORS
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20
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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20
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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21
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ITEM 4.
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MINE SAFETY DISCLOSURES
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21
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ITEM 5.
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OTHER INFORMATION
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21
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ITEM 6.
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EXHIBITS
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21
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SIGNATURES
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22
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ITEM 1. FINANCIAL INFORMATION
INDEX TO FINANCIAL STATEMENTS
Page
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Condensed Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011
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4
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Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011
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5
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Unaudited Condensed Consolidated Statement of Stockholders’ Deficiency for the three months ended March 31, 2012
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6
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Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011
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7
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Notes to the Unaudited Condensed Consolidated Financial Statements
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8
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3
Quamtel, Inc.
Condensed Consolidated Balance Sheets
March 31,
2012
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December 31, 2011
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|||||||
(Unaudited)
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ASSETS
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Current assets:
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||||||||
Cash and cash equivalents
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$ | - | $ | 92,999 | ||||
Accounts receivable, net
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3,000 | 3,000 | ||||||
Inventory
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50,272 | 72,591 | ||||||
Prepaid expenses and deposits
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83,841 | 91,340 | ||||||
Total current assets
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137,113 | 259,930 | ||||||
Restricted cash
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150,000 | 150,000 | ||||||
Property and equipment, net
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298,000 | 319,374 | ||||||
Goodwill and other intangibles
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1,045,380 | 1,057,496 | ||||||
TOTAL ASSETS
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$ | 1,630,493 | $ | 1,786,800 | ||||
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
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||||||||
Current liabilities:
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||||||||
Accounts payable
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$ | 794,035 | $ | 751,750 | ||||
Accrued expenses
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156,008 | 121,470 | ||||||
Unearned revenue
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171,039 | 191,399 | ||||||
Advances from related party
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1,140,846 | 1,083,429 | ||||||
Stock-based payable
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432,350 | 644,350 | ||||||
Current portion of notes payable
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723,591 | 692,417 | ||||||
Total current liabilities
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3,417,869 | 3,484,815 | ||||||
TOTAL LIABILITIES
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3,417,869 | 3,484,815 | ||||||
Shareholders' (deficiency):
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||||||||
Common stock - $0.001 par value; 200,000,000 shares authorized;
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||||||||
66,689,987 and 54,559,987 shares issued and 66,589,987 and 54,459,987
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outstanding at March 31, 2012 and December 31, 2011, respectively
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66,690 | 54,560 | ||||||
Preferred stock - $0.001 par value; 50,000,000 shares authorized;
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no shares issued and outstanding
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- | - | ||||||
Additional paid-in capital
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17,357,942 | 14,825,525 | ||||||
Treasury stock, 100,000 shares
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(100,000 | ) | (100,000 | ) | ||||
Accumulated (deficit)
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(19,112,008 | ) | (16,478,100 | ) | ||||
Total shareholders' (deficiency)
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(1,787,376 | ) | (1,698,015 | ) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
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$ | 1,630,493 | $ | 1,786,800 |
The accompanying notes are an integral part of these unauditied condensed consolidated financial statements.
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4
Quamtel, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2012 and 2011
2012
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2011
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Revenues
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$ | 653,380 | $ | 428,010 | ||||
Cost of sales
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495,582 | 255,765 | ||||||
Gross profit
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157,798 | 172,245 | ||||||
Operating expenses:
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Compensation, consulting and related expenses
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2,286,170 | 582,052 | ||||||
General and administrative expenses
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520,945 | 184,114 | ||||||
Depreciation and amortization
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39,254 | 33,004 | ||||||
Total operating expenses
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2,846,369 | 799,169 | ||||||
Loss from operations
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(2,688,571 | ) | (626,924 | ) | ||||
Other (income) expense:
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Interest and financing expense
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45,337 | 52,166 | ||||||
Gain on disposition of assets
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(100,000) | - | ||||||
Total other (income) expense
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(54,663 | ) | 52,166 | |||||
Loss before income taxes
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(2,633,908 | ) | (679,090 | ) | ||||
Income tax expense
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- | - | ||||||
Net loss
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$ | (2,633,908 | ) | $ | (679,090 | ) | ||
Basic and diluted loss per share:
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Net loss per share
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$ | (0.04 | ) | $ | (0.03 | ) | ||
Weighted average number of shares outstanding
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62,961,553 | 23,945,015 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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5
Quamtel, Inc.
Unaudited Condensed Consolidated Statement of Shareholders’ deficiency
Three Months Ended March 31, 2012
Total
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Common Stock
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Additional Paid-
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Treasury
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Accumulated
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Shareholder
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Shares
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Amount
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in Capital
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Stock
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(Deficit)
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Deficiency
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Balances as of December 31, 2011
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54,559,987 | $ | 54,560 | $ | 14,825,525 | $ | (100,000 | ) | $ | (16,478,100 | ) | $ | (1,698,015 | ) | ||||||||||
Common stock issued for services
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3,075,000 | 3,075 | 1,532,475 | - | - | 1,535,550 | ||||||||||||||||||
Common stock issued for accounts payble
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377,500 | 378 | 71,347 | - | - | 71,725 | ||||||||||||||||||
Common stock issued for cash and settlement of stock based payable
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7,677,500 | 7,677 | 760,656 | - | - | 768,333 | ||||||||||||||||||
Common stock issued for debt settlement
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200,000 | 200 | 103,749 | - | - | 103,949 | ||||||||||||||||||
Common stock issued for debt conversion
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800,000 | 800 | 64,190 | - | - | 64,990 | ||||||||||||||||||
Common stock held in treasury
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- | - | - | - | - | - | ||||||||||||||||||
Net loss for three months ended March 31, 2012
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(2,633,908 | ) | (2,633,908 | ) | ||||||||||||||||||||
Balances as of March 31, 2012
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66,689,987 | $ | 66,690 | $ | 17,357,942 | $ | (100,000 | ) | $ | (19,112,008 | ) | $ | (1,787,376 | ) | ||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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6
Quamtel, Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
For Three Months Ended March 31, 2012 and 2011
2012
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2011
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss
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$ | (2,633,908 | ) | $ | (679,090 | ) | ||
Adjustments to reconcile net loss to net cash
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used in operating activities:
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Gain on disposition of assets
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(100,000 | ) | - | |||||
Depreciation and amortization
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39,254 | 33,004 | ||||||
Noncash consulting expense
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1,535,550 | 140,000 | ||||||
Changes in operating assets and liabilities
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Accounts receivable
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- | 35,101 | ||||||
Inventory
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22,319 | - | ||||||
Prepaid expenses and deposits
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7,499 | 81,252 | ||||||
Accounts payable
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42,760 | (64,236 | ) | |||||
Accrued expenses
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34,538 | 8,720 | ||||||
Related party advance
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128,667 | - | ||||||
Stock payable
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178,000 | - | ||||||
Unearned revenue
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(20,360 | ) | 46,302 | |||||
Net cash used in operating activities
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(765,681 | ) | (398,947 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES
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Purchase of property and equipment
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(5,764 | ) | - | |||||
Disposition of assets
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100,000 | - | ||||||
Net cash provided by investing activities
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94,236 | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from common stock issuances
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378,333 | 185,000 | ||||||
Proceeds from convertible debt issuances
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- | 283,998 | ||||||
Proceeds from (payments for) promissory note issuances
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200,113 | - | ||||||
Advances from (repayments to) related party
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- | (11,660 | ) | |||||
Net cash provided by financing activities
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578,446 | 457,338 | ||||||
Net (decrease) increase in cash
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(92,999 | ) | 58,390 | |||||
Cash and cash equivalents at beginning of period
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92,999 | 78,739 | ||||||
Cash and cash equivalents at end of period
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$ | - | $ | 137,129 | ||||
Supplemental cash flow information:
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Cash paid for taxes
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$ | - | $ | - | ||||
Cash paid for interest
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$ | 181 | $ | - | ||||
Noncash investing and financing activities:
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Issuance of common stock for settlement of stock based payable
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$ | 390,000 | $ | - | ||||
Issuance of common stock for accounts payable, debt settlement
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and debt conversions
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$ | 240,664 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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7
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
NOTE A – BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Description of Business
The Company was incorporated in 1999 under the laws of Nevada as a communications company offering, through its subsidiaries, a comprehensive range of mobile broadband and communications products and.
The Company offers secure nationwide mobile broadband wireless data transmission services primarily under the DataJack brand. Through DataJack, the Company offers low cost, no contract, mobile broadband with various data plans. The Company’s DataJack service is offered primarily through two devices - the DataJack MiFi Mobile Hotspot that can connect up to 5 Wi-Fi enabled devices and the DataJack USB, a Plug and Play USB Device.
The Company’s communication products include an international calling service delivered under the brand WQN, through the Company’s subsidiary, WQN, Inc. (“WQN”), and an enhanced toll free service delivered under the brand “800.com.” The Company also sells a prepaid international calling service, “EasyTalk,” that delivers low cost international calls to consumers and businesses from anywhere in the United States or Canada to over 196 countries globally.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 are unaudited. These unaudited condensed consolidated 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2011 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”) on April 13, 2012.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies are detailed in Company’s consolidated financial statements for the year ended December 31, 2011 as presented in the Company’s Form 10-K filed with the SEC on April 13, 2012.
Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated 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, 2012, the Company has reported an accumulated deficit of $19,112,008 and a working capital deficit of $3,280,756 and has been dependent on issuances of debt and equity instruments to fund its operations.
8
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
The Company intends to generate future profitability and seek new sources or methods of revenue to pursue its business strategy. If the Company’s financial resources from operations are insufficient, the Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due, or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.
The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE D - PROPERTY AND EQUIPMENT, NET
At March 31, 2012 and December 31, 2011, respectively, property and equipment consisted of the following:
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||||||||
March 31,
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December 31,
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|||||||
2012
|
2011
|
|||||||
Computers and equipment
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$ | 539,469 | $ | 533,705 | ||||
Furniture & Fixtures
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16,346 | 16,346 | ||||||
Total
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555,815 | 550,051 | ||||||
Less accumulated depreciation
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(257,815 | ) | (230,677 | ) | ||||
Total
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$ | 298,000 | $ | 319,374 |
Effective March 13, 2012, the Company sold substantially all of its RocketVoip assets which had no carrying value prior to the sale for $100,000. As a result of this sale, the Company is no longer in the retail, subscriber based voice over IP (VoIP) business. The Company recorded a $100,000 gain on sale of assets from the sale of RockVoip.
9
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
NOTE E - INTANGIBLE ASSETS
At March 31, 2012 and December 31, 2011 respectively, intangible assets consisted of the following:
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March 31,
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December 31,
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|||||||
2012
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2011
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Goodwill associated with the acquisition of Data Jack, Inc.
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$ | 669,957 | $ | 669,957 | ||||
Less: impairment charges
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- | - | ||||||
Goodwill, net of impairment charges
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669,957 | 669,957 | ||||||
Acquisition of 800.com domain name
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317,500 | 317,500 | ||||||
Acquisition of M2M domain names
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88,827 | 88,827 | ||||||
Acquisition of DataJack.com domain name
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56,000 | 56,000 | ||||||
Acquisition of Sparkfly.com
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25,000 | 25,000 | ||||||
Sub total
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487,327 | 487,327 | ||||||
Less accumulated amortization
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(111,904 | ) | (99,788 | ) | ||||
Other intangibles, net of accumulated amortization
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$ | 375,423 | $ | 387,539 | ||||
Goodwill and other intangibles, net
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$ | 1,045,380 | $ | 1,057,496 | ||||
Amortization expense for the three months ended March 31, 2012 and 2011 amounted to $12,116 and $11,400, respectively.
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The goodwill amounts of $669,957 were recorded with the Data Jack acquisition in December, 2009.
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 $590,268 and $654,155 at March 31, 2012 and December 31, 2011, 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 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:
10
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
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1.
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Annual cash payments of $250,000, payable monthly;
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2.
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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), and subject to an annual calendar year cap of $800,000;
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3.
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Employees of Consultant may be eligible for grants of stock options pursuant to the Company’s 2009 Equity Incentive Plan, in such amounts as may from time to time be determined by the Company, at its sole discretion; and
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4.
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Reimbursement of reasonable, related business expenses.
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Expenses under the Restated Consulting Services Agreement for the three months ended March 31, 2012 and year ended December 31, 2011, respectively, were $121,304 and $429,274.
As of March 31, 2012 and December 31, 2011, advances from iTella (a related party) were $1,140,846 and $1,083,429, which include balances outstanding under the Unsecured Note and unpaid consulting fees.
NOTE G - NOTES PAYABLE
At March 31, 2012 and December 31, 2011, notes payable consisted of the following:
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||||||||
2012
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2011
|
|||||||
Promissory note payable - shareholders
|
$ | 675,620 | $ | 536,990 | ||||
Note payable - Abundance Partners LLC
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- | 102,413 | ||||||
Note payable - Dell Computer
|
42,821 | 42,821 | ||||||
Note payable - AFS/IBEX Bank
|
5,150 | 10,193 | ||||||
Total short-term notes payable
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$ | 723,591 | $ | 692,417 |
Promissory notes payable - shareholders
As of March 31, 2012 and December 31, 2011, the Company had short-term unsecured promissory notes from various shareholders totaling $675,620 and $536,990, respectively. The unsecured advances do not accrue interest.
Note payable - Abundance Partners LLC
On January 23, 2012, the Company settled the outstanding note payable due to Abundance Partners LP by issuing 200,000 shares of its common stock.
11
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
Other Notes Obligations
The Dell Financial note is related to a disputed computer purchase in 2007. The note bears interest at 24.49% per year.
The AFS/IBEX (formally Total Bank) note is associated with an insurance policy, is repayable in equal monthly payments of $1,741 through June 2012, is unsecured, and bears interest at 8.5% per year.
NOTE H– FINANCING AND OTHER TRANSACTIONS
During the first quarter of 2012, the Company issued 12,130,000 shares of common stock valued at $2,544,547 as follows:
●
|
1,677,500 shares were issued and sold to 4 accredited investors for net proceeds of $378,333;
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|
●
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3,000,000 shares valued at $1,500,000 were issued to employees as partial compensation for their employment in 2012;
|
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●
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75,000 shares valued at $35,550 were issued to consultants for services rendered;
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●
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200,000 shares valued at $103,949 were issued to one debt holder in settlement of debt valued at $103,949;
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●
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6,000,000 shares valued at $390,000 were issued to three shareholders to reduce the stock payable liability;
|
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●
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377,500 shares valued at $71,725 were issued to reduce accounts payable and related party balances; and,
|
|
●
|
800,000 shares valued at $64,990 were issued to 1 debt holder for conversion of short term notes.
|
NOTE I – COMITTMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is involved in numerous lawsuits. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. Described hereunder are new lawsuits filed against the Company during the reported period:
12
On August 19, 2011, Abundance Partners LP (“APL”) filed a complaint against us the Company its wholly owned subsidiary, Syncpointe, Inc., in the United States District Court, Southern District of New York (the “Court”). APL’s complaint alleged, among other things, that the Company and Syncpointe failed to comply with the terms of, and were in default under, a certain loan and security agreement with APL, as amended, because the Company failed to pay APL certain amounts allegedly due under the loan agreement. APL sought a judgment against the Company and Syncpointe, jointly and severally, in an amount estimated by APL to be at least $99,884. On January 23, 2012, the Company and APL settled this matter and it was dismissed with prejudice by the Court on February 14, 2012. Pursuant to the settlement agreement the Company issued to APL 200,000 shares of its common stock valued at $103,949.
On September 21, 2011, Mary Kratka, doing business as StockVest (“StockVest”), filed a complaint against the Company in the Circuit Court of the Ninth Judicial Circuit in and for Osceola County, Florida (the “Circuit Court”). StockVest’s complaint alleged, among other things, that the Company failed to comply with the terms of, and are in default under, a certain contract with StockVest because the Company failed to issue to StockVest 200,000 restricted shares of its common stock. StockVest sought a judgment against the Company in the amount of $130,000. On February 7, 2012, the Company and StockVest settled this matter and it was dismissed with prejudice by the Circuit Court on February 17, 2012. Pursuant to the settlement agreement the Company agreed to issue to StockVest 25,000 shares of its common stock valued at $13,250.
We are a defendant in an action styled Robert Picow vs. Quamtel, Inc. and Steven Ivester, in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida. Picow asserts he is entitled to damages as a consequence of an alleged breach of a consulting agreement and for an alleged interference with his ability to trade his Quamtel shares. We believe the claims to be without merit and will aggressively defend same. We have not yet filed a response.
NOTE J - SUBSEQUENT EVENTS
On April 2, 2012, the Company issued 120,000 shares of common stock to Marc Moore in return for his service as a member of the Company’s Board of Directors.
On April 20, 2012, the Company issued 200,000 shares of common stock to Jerrold Burden in return for consulting services performed in relation to an investor relation campaign.
On April 27, 2012, the Company issued 700,000 shares of common stock to two accredited investors in return for cash proceeds of $140,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Management’s Discussion and Analysis contains various “forward-looking statements” within the meaning of the federal securities laws, 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 quarterly 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 unaudited condensed consolidated financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2012.
Overview
We were incorporated in 1999 under the laws of Nevada as a communications company offering, through our subsidiaries, a comprehensive range of mobile broadband and communications products and services that are designed to meet the needs of individual consumers, businesses, government subscribers and resellers. Our operations are organized to meet the needs of our targeted subscriber groups through focused communications solutions that incorporate the capabilities of our mobile broadband and communications services.
We offer secure nationwide mobile broadband wireless data transmission services primarily under the DataJack brand. Through DataJack, we offer low cost, no contract, mobile broadband with various data plans. Our DataJack service is offered primarily through two devices - the DataJack MiFi Mobile Hotspot that can connect up to 5 Wi-Fi enabled devices and the DataJack USB, a Plug and Play USB Device. Approximately $400,000 of revenue and a net loss of approximately $127,000 were generated from our Data Jack subsidiary in 2011.
Our communication products include an international calling service delivered under the brand WQN, through our subsidiary, WQN, Inc. (“WQN”), and an enhanced toll free service delivered under the brand “800.com.” Our prepaid international calling service, “EasyTalk,” focuses on convenient features and the delivery of low cost international calls to consumers and businesses. WQN’s global network offers customers secure, instant activation and immediate access to the service while eliminating the need to use a PIN or switch long distance carriers. Other features include 24 hour online and over the phone recharge, speed dial, PIN-less dialing and online access to account balance, call history and purchase history. EasyTalk can be accessed using your mobile, home or business phone from anywhere in the United States or Canada and can be used to place calls to over 196 countries globally.
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Recent Developments
Effective March 13, 2012, we sold substantially all of its RocketVoip assets which had no carrying value prior to the sale for $100,000. As a result of this sale, we are no longer in the retail, subscriber based voice over IP (VoIP) business. We recorded a $100,000 gain on sale of assets from the sale of RockVoip.
Results of Operations for the Three Months ended March 31, 2012 Compared to the Same Period in 2011
Revenues
Our revenues for the three months ended March 31, 2012 and 2011 were $653,380 and $428,010, respectively. Revenues for the three months ended March 31, 2012 increased over the same period in 2011 by more than 50% due to a $259,000 increase in Data Jack revenues in the current quarter over the same quarter last year. We have been directing more marketing resources into growing the Data Jack business.
Cost of Sales and Gross Profit
Cost of sales totaled $495,582 and $255,765 for the three months ended March 31, 2012 and 2011, respectively. This resulted in gross profit of $157,798 (24%) and $172,245 (40%) for the respective 2012 and 2011 periods. The higher gross margin in 2011 compared to 2012 was caused by an non-recurring credit received from a vendor totaling approximately $58,000 which increased our reported gross profit percentage by approximately 13% for the three months ended March 31, 2011.
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Operating Expenses
Operating expenses were $2,846,369 and $799,169 for the three months ended March 31, 2012 and 2011, respectively.
Compensation and consulting expenses were $2,286,170 and $582,052 for the three months ended March 31, 2012 and 2011, respectively. Compensation and consulting expenses are primarily a result of the issuance of common shares for consulting services.
General and administrative (“G&A”) expenses increased from $184,114 in the 2011 period to $520,945 in 2012. The increase in G&A expenses in the current quarter was due to increased legal expenses and higher sales and marketing expenses related to Data Jack.
Other Income and Expense
Interest, financing and other expenses decreased from $52,166 for the three months ended March 31, 2011 to $45,337 for the three months ended March 31, 2012. The Company also recorded a $100,000 gain on sale of assets from the sale of RockVoip on March 13, 2012.
Net Loss
An increase in compensation, consulting, marketing and legal expenses offset by increased other income resulted in a net loss of $2,633,908 for the three months ended March 31, 2012, compared to a net loss of $679,090 for the same period in 2011.
Liquidity and Capital Resources
Cash and cash equivalents were a deficit of $0 at March 31, 2012. Our net cash used in operating activities for the three months ended March 31, 2012 was $765,681, due primarily to our cash-based net loss during this period.
Our primary sources of funding for the three months ended March 31, 2012 have been (i) gross proceeds of $378,333 from the sale of our common stock to accredited investors, (ii) gross proceeds in the amount of $100,000 from the sale of our RocketVoip assets, and (iii) short-term non-interest bearing loans of $200,113 from four of our accredited investors.
At March 31, 2012, 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.
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 during the past two years, have incurred an accumulated deficit of $19,112,008 through March 31, 2012, and have been dependent on issuances of debt and equity instruments to fund our operations. We intend to generate 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, 2011, based on substantial doubt about our ability to continue as a going concern.
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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, 2012.
Capital Needs
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:
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1.
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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.
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2.
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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 consolidated balance sheet as unearned revenue.
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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, 2012, 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, our Certifying Officer concluded that our disclosure controls and procedures were ineffective as of March 31, 2012. 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.
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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 consolidated 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 has 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, 2012, 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.
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ITEM 1. LEGAL PROCEEDINGS
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From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently aware of and a party to the following legal proceedings or claims that we believe will not have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results:
On August 19, 2011, Abundance Partners LP (“APL”) filed a complaint against us and our wholly owned subsidiary, Syncpointe, Inc., in the United States District Court, Southern District of New York (the “Court”). APL’s complaint alleged, among other things, that we and Syncpointe failed to comply with the terms of, and were in default under, a certain loan and security agreement with APL, as amended, because we failed to pay APL certain amounts allegedly due under the loan agreement. APL sought a judgment against us and Syncpointe, jointly and severally, in an amount estimated by APL to be at least $99,883.99. On January 23, 2012, we and APL settled this matter and it was dismissed with prejudice by the Court on February 14, 2012. Pursuant to the settlement agreement we issued to APL 200,000 shares of our common stock valued at $103,949.
On September 21, 2011, Mary Kratka, doing business as StockVest (“StockVest”), filed a complaint against us in the Circuit Court of the Ninth Judicial Circuit in and for Osceola County, Florida (the “Circuit Court”). StockVest’s complaint alleged, among other things, that we failed to comply with the terms of, and are in default under, a certain contract with StockVest because we failed to issue to StockVest 200,000 restricted shares of our common stock. StockVest sought a judgment against us in the amount of $130,000. On February 7, 2012, we and StockVest settled this matter and it was dismissed with prejudice by the Circuit Court on February 17, 2012. Pursuant to the settlement agreement we agreed to issue to StockVest 25,000 shares of our common stock valued at $13,250.
We are a defendant in an action styled Robert Picow vs. Quamtel, Inc. and Steven Ivester, in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida. Picow asserts he is entitled to damages as a consequence of an alleged breach of a consulting agreement and for an alleged interference with his ability to trade his Quamtel shares. We believe the claims to be without merit and will aggressively defend same. We have not yet filed a response.
See the risk factors set forth in our Annual Report on Form 10-K filed with the SEC on April 13, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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During the first quarter of 2012, the Company issued 12,130,000 shares of common stock valued at $2,544,547 as follows:
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1,677,500 shares were issued and sold to 4 accredited investors for net proceeds of $378,333;
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3,000,000 shares valued at $1,500,000 were issued to employees as partial compensation for their employment in 2012;
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75,000 shares valued at $35,550 were issued to consultants for services rendered;
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200,000 shares valued at $103,949 were issued to one debt holder in settlement of debt valued at $103,949;
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6,000,000 shares valued at $390,000 were issued to three shareholders to reduce the stock payable liability;
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377,500 shares valued at $71,725 were issued to reduce accounts payable and related party balances; and,
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800,000 shares valued at $64,990 were issued to 1 debt holder for conversion of short term notes.
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These securities were offered and sold pursuant to the exemption from the registration requirements of the federal securities laws provided by Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
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Effective March 13, 2012, we sold substantially all of its RocketVoip assets which had no carrying value prior to the sale for $100,000. As a result of this sale, we are no longer in the retail, subscriber based voice over IP (VoIP) business. We recorded a $100,000 gain on sale of assets from the sale of RockVoip.
ITEM 6. EXHIBITS
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Exhibit No.
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Description
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10.1
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Asset Purchase Agreement by and Between the Registrant and Windel Thelusma dated March 13, 2012*
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31.1/31.2
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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*
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32.1/32.2
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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**
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___________________
*
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Filed herewith.
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**
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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.
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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.
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Dated: May 18, 2012
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By:
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/s/ Stuart Ehrlich
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Stuart Ehrlich
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President and Chief Executive Officer
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