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EXCEL - IDEA: XBRL DOCUMENT - DataJack, Inc.Financial_Report.xls
EX-32 - CERTIFICATION - DataJack, Inc.qumi_ex32.htm
EX-4.2 - PROMISSORY NOTE - DataJack, Inc.qumi_ex42.htm
EX-31 - CERTIFICATION - DataJack, Inc.qumi_ex31.htm
EX-4.1 - SENIOR PROMISSORY NOTE - DataJack, Inc.qumi_ex41.htm
EX-4.3 - SENIOR PROMISSORY NOTE - DataJack, Inc.qumi_ex43.htm
EX-10.1 - CONSULTING AGREEMENT - DataJack, Inc.qumi_ex101.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:  September 30, 2012
 
or
 
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    90-0781437
(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 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 12-b2 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 o Noþ
 
APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of each of the issuer's classes of common equity as of November 20, 2012 is 109,780,656.
 


 
 

 
 
EXPLANATORY NOTE

Quamtel, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”) on the date hereof in reliance on Order Under Section 17A and Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder (the “Order”) promulgated by the Securities and Exchange Commission (the “SEC”) on November 14, 2012 (Securities Exchange Act of 1934 – Release No. 68224).
 
The Company was not able to meet the SEC mandated filing deadline for the Report due to Hurricane Sandy.  The Company’s certified public accounting firm hired to review the Report and the financial statements contained herein, RBSM LLP (“RBSM”), is located in New York, New York.  RBSM’s offices were closed during Hurricane Sandy and for approximately one week thereafter due to lack of power, heat and telephone service.  Because of Hurricane Sandy, RBSM was not able to provide its accounting review service in a timely fashion.  Because of this delay, the Company was not able to file the Report until today.
 
 
 
 

 
 
 
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
    17  
           
ITEM 3.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
    22  
           
ITEM 4.
CONTROLS AND PROCEDURES
    22  
           
Part II – OTHER INFORMATION
 
           
ITEM 1.
LEGAL PROCEEDINGS
    23  
           
ITEM 1A
RISK FACTORS
    23  
           
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    23  
           
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
    24  
           
ITEM 4.
MINE SAFETY DISCLOSURES
    24  
           
ITEM 5.
OTHER INFORMATION
    24  
           
ITEM 6.
EXHIBITS
    25  
           
SIGNATURES     26  
 
 
2

 

PART I – FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL INFORMATION

INDEX TO FINANCIAL STATEMENTS

    Page  
Condensed Consolidated Balance Sheets as of September 30, 2012 (unaudited) and December  31, 2011
    4  
Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2012 and 2011
    5  
Unaudited Condensed Consolidated Statement of Stockholders’ Deficiency for the nine months ended September 30, 2012
    6  
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011
    7  
Notes to the Unaudited Condensed Consolidated Financial Statements
    8  
 
 
3

 
 
 Quamtel, Inc.
 Condensed Consolidated Balance Sheets
 
   
September 30, 2012
   
December 31, 2011
 
   
(Unaudited)
       
             
ASSETS
           
             
Current assets:
           
 Cash and cash equivalents
  $ -     $ 92,999  
 Accounts receivable, net
    5,516       3,000  
 Inventory
    12,727       72,591  
 Prepaid expenses and deposits
    97,203       91,340  
Total current assets
    115,446       259,930  
                 
Restricted cash
    150,000       150,000  
Property and equipment, net
    245,019       319,374  
Deferred cost, net
    856,227       -  
Goodwill and other intangibles, net
    798,720       1,057,496  
                 
TOTAL ASSETS
  $ 2,165,412     $ 1,786,800  
                 
LIABILITIES AND SHAREHOLDERS'  (DEFICIENCY)
               
                 
Current liabilities:
               
 Accounts payable
  $ 894,745     $ 751,750  
 Accrued expenses
    200,101       121,470  
 Unearned revenue
    150,577       191,399  
 Advances from related party
    322,770       1,083,429  
 Stock-based payable
    265,003       644,350  
 Current portion of notes payable
    606,306       692,417  
 Current portion of convertible debt, net of discount of $49,226
    310,295       -  
 Derivative liability
    186,764       -  
Total current liabilities
    2,936,561       3,484,815  
                 
TOTAL LIABILITIES
    2,936,561       3,484,815  
                 
Shareholders'  (deficiency):
               
Common stock - $0.001 par value; 200,000,000 shares authorized;
               
104,927,105 and 54,559,987 shares issued and 104,827,105 and 54,459,987
               
outstanding at September 30, 2012 and December 31, 2011, respectively
    104,927       54,560  
 Preferred stock - $0.001 par value; 50,000,000 shares authorized;
               
no shares issued and outstanding
    -       -  
 Additional paid-in capital
    20,256,973       14,825,525  
 Treasury stock, 100,000 shares
    (100,000 )     (100,000 )
 Accumulated (deficit)
    (21,033,049 )     (16,478,100 )
Total shareholders'  (deficiency)
    (771,149 )     (1,698,015 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS'  (DEFICIENCY)
  $ 2,165,412     $ 1,786,800  

The accompanying notes are an integral part of these unauditied condensed consolidated financial statements.
 
 
4

 
 
 Quamtel, Inc.
 Unaudited Condensed Consolidated Statement Of Operations
 For the Three and Nine Months Ended September 30, 2012 and 2011
 
   
Three Months
   
Nine Months
 
   
2012
   
2011
   
2012
   
2011
 
                         
Revenues
  $ 629,481     $ 502,576     $ 1,889,802     $ 1,457,020  
                                 
Cost of sales
    481,995       361,896       1,495,275       993,242  
                                 
Gross profit
    147,486       140,680       394,527       463,778  
                                 
Operating expenses:
                               
 Compensation, consulting and related expenses
    512,821       2,592,870       3,345,051       4,588,242  
 General and administrative expenses
    173,314       130,917       971,282       563,994  
 Depreciation and amortization
    30,730       33,662       108,370       99,999  
      Total operating expenses
    716,865       2,757,449       4,424,703       5,252,235  
                                 
Loss from operations
    (569,379 )     (2,616,769 )     (4,030,176 )     (4,788,457 )
                                 
Other (income) expense:
                               
 Interest and financing expense
    11,750       38,666       62,965       152,978  
 Amortization of debt discount
    311,190       -       553,978       -  
 Penalty on convertible note
    174,014       -       174,014       -  
 Other (income) loss
    (52,821 )     -       (52,821 )     (25,000 )
 Gain from change in derivative liability
    (113,363 )     -       (113,363 )     -  
 Gain on disposition assets
    -       -       (100,000 )     (247,796 )
       Total other (income) expense
    330,770       38,666       524,773       (119,818 )
                                 
Loss before income taxes
    (900,149 )     (2,655,435 )     (4,554,949 )     (4,668,639 )
                                 
Income tax expense
    -       -       -       -  
                                 
Net loss
  $ (900,149 )   $ (2,655,435 )   $ (4,554,949 )   $ (4,668,639 )
                                 
                                 
Basic and diluted loss per share:
                               
                                 
Net loss per share
  $ (0.01 )   $ (0.07 )   $ (0.06 )   $ (0.16 )
                                 
Weighted average number of shares outstanding
    91,199,410       37,688,117       75,932,394       29,668,250  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5

 
 
 Quamtel, Inc.
 Unaudited Condensed Consolidated Statements of Shareholders' Deficiency
 For the Nine Months Ended September 30, 2012
 
 
   
Common Stock
   
Additional Paid-
   
Treasury
   
Accumulated
   
Total
Shareholder
 
   
Shares
   
Amount
   
in Capital
   
Stock
   
(Deficit)
   
Deficiency
 
                                     
Balances as of December 31, 2011
    54,559,987     $ 54,560     $ 14,825,525     $ (100,000 )   $ (16,478,100 )   $ (1,698,015 )
                                                 
Common stock issued for services
    3,835,000       3,835       1,663,515       -       -       1,667,350  
Common stock issued for accounts payble
    8,852,500       8,853       183,872       -       -       192,725  
Common stock issued for cash  and   settlement of stock based payable
    19,961,340       19,961       1,313,026       -       -       1,332,987  
Common stock issued for debt settlement
    200,000       200       103,749       -       -       103,949  
Common stock issued for debt conversion
    9,518,278       9,518       538,264       -       -       547,782  
Common stock issued for iTella consulting agreement amendment, as part of deferred cost
    8,000,000       8,000       712,000       -       -       720,000  
Recognition of beneficial conversion feature pursuant to modification of debt
    -       -       298,077       -       -       298,077  
Gain on sale of asset to related party
    -       -       618,945       -       -       618,945  
Net loss for nine months ended Sept. 30, 2012
    -       -       -       -       (4,554,949 )     (4,554,949 )
                                                 
Balances as of September 30, 2012
    104,927,105     $ 104,927     $ 20,256,973     $ (100,000 )   $ (21,033,049 )   $ (771,149 )
 
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
6

 
 
 Quamtel, Inc.
  Unaudited Condensed Consolidated Statements of Cash Flows
 For the Nine Months Ended September 30, 2012 and 2011
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (4,554,949 )   $ (4,668,639 )
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
                 
 Gain on write-off old debt
    (52,821 )     -  
 Gain on disposition of assets
    (100,000 )     (247,796 )
 Gain from Change in derivative liability
    (113,363 )     -  
 Depreciation and amortization
    108,370       99,999  
 Noncash interest expense
    62,711       -  
 Penalty on the convertible debt
    174,014       -  
 Noncash consulting expense
    1,747,350       3,524,250  
 Amortization of deferred cost
    152,523       -  
 Amortization of debt discount
    553,978       -  
Changes in operating assets and liabilities
               
                 
Accounts receivable
    (2,516 )     22,417  
Inventory
    59,864       (18,000 )
Prepaid expenses and deposits
    (5,863 )     15,405  
Accounts payable
    153,470       3,445  
Accrued expenses
    73,631       (44,881 )
Related party advance
    1,591       -  
Stock payable
    213,282       -  
Unearned revenue
    (40,822 )     (131,675 )
Net cash used in operating activities
    (1,569,550 )     (1,445,475 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
 Purchase of property and equipment
    (6,294 )     175,000  
 Disposition  of  assets
    100,000       -  
Net cash provided by  investing activities
    93,706       175,000  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
    Proceeds from common stock issuances
    656,608       700,850  
    Proceeds from promissory note issuances
    736,430       549,089  
    Repayment of notes payable
    (10,193 )     -  
Repayments to related party
    -       (58,203 )
Net cash provided by financing activities
    1,382,845       1,191,736  
                 
Net decrease  in cash and cash equivalents
    (92,999 )     (78,739 )
                 
Cash and cash equivalents at beginning of period
    92,999       78,739  
Cash and cash equivalents at end of period
  $ -     $ -  
                 
Supplemental cash flow information:
               
 Cash paid for taxes
  $ -     $ -  
 Cash paid for interest
  $ 254     $ 38,666  
                 
Noncash investing and financing activities:
               
 Issuance of common stock for settlement of stock based payable
  $ 680,079     $ 175,000  
 Issuance of common stock for accounts payable, debt settlement
               
  and debt conversions
  $ 844,456     $ 1,858,759  
 Beneficial conversion feature credited to additional paid in capital
  $ 298,077     $ -  
 Gain on sale of assets to related party credited to additional paid in capital
  $ 618,945     $ -  
 
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
7

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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.
 
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 September 30, 2012 and for the nine months ended September 30, 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 nine month period ended September 30, 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 September 30, 2012, the Company has reported an accumulated deficit of $21,033,049 and a working capital deficit of $2,821,115 and has been dependent on issuances of debt and equity instruments to fund its operations.

The Company intends to generate future profitability and seek new sources or methods of revenue to pursue its business strategy.  If the Company 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.
 
 
8

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
 
 
NOTE D - PROPERTY AND EQUIPMENT, NET
 
At September 30, 2012 and December 31, 2011, respectively, property and equipment consisted of the following:
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
             
Computers and equipment
  $ 539,999     $ 533,705  
Furniture & Fixtures
    16,346       16,346  
Total
    556,345       550,051  
Less accumulated depreciation
    (311,326 )     (230,677 )
Total
  $ 245,019     $ 319,374  
                 
 
Depreciation expense for the nine months ended September 30, 2012 and 2011 amounted to $80,649 and $65,419, respectively.
 
Depreciation expense for the three months ended September 30, 2012 and 2011 amounted to $26,461 and $22,009, respectively.
 
All depreciation expense is recorded as operating expenses.
 
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.

NOTE E - INTANGIBLE ASSETS
 
At September 30, 2012 and December 31, 2011, respectively, intangible assets consisted of the following:
       
             
   
September 30,
   
December 31,
 
   
2012
   
2011
 
             
Goodwill associated with the acquisition of Data Jack, Inc.
  $ 669,957     $ 669,957  
Less: impairment charges
    -       -  
Goodwill, net of impairment charges
    669,957       669,957  
                 
                 
Acquisition of 800.com domain name
    -       317,500  
Acquisition of M2M domain names
    88,827       88,827  
Acquisition of DataJack.com domain name
    56,000       56,000  
Acquisition of Sparkfly.com
    25,000       25,000  
Sub total
    169,827       487,327  
Less accumulated amortization
    (41,064 )     (99,788 )
                 
Other intangibles, net of accumulated amortization
  $ 128,763     $ 387,539  
                 
Goodwill and other intangibles, net
  $ 798,720     $ 1,057,496  
                 
Amortization expense for the nine months ended September 30, 2012 and 2011 amounted to $27,721 and $34,579, respectively.
 
                 
Amortization expense for the three months ended September 30, 2012 and 2011 amounted to $4,269 and $11,653, respectively.
 
   
All amortization expense is recorded as operating expenses.
 
 
 
9

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
 
Effective June, 2012, the Company sold the 800.com domain and all of its assets to Steven Ivester. The Company recorded a gain on sale of assets in the amount of $618,945 as a result of this asset sale by crediting to additional paid in capital.

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 $138,192 and $654,155 at September 30, 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:
 
1.
Annual cash payments of  $250,000, payable monthly;
 
2.
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
 
3.
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
 
4.
Reimbursement of reasonable, related business expenses.
 
Effective April 1, 2012 and subsequently amended on June 7, 2012, 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.
 
 
10

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012

The annual payout of the contract was reduced from $250,000 to $150,000.  Also, the revenue sharing provision of the previous consulting agreement was terminated.  In consideration of the reductions of compensation, the Company accrued a $280,000 payable to the Consultant. Also, in consideration of the reduction of compensation the Company issued 8,000,000 of restricted shares.  The shares were recorded on the Company’s balance sheet at September 30, 2012 at a value of $720,000.The $1,000,000 combined total of the $280,000 payable and the $720,000 of restricted stock issuance were recorded on the Company’s balance sheet as a deferred cost. The Consultant can call the $280,000 payable on demand. For the nine months ended September 30, 2012, the Company amortized $148,148 of deferred cost related to this agreement on the income statement under consulting expense.
 
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, In’cs. compensation consists of the following:
 
1.
Annual cash payments of $150,000, payable monthly;

2.
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
 
3.
Reimbursement of reasonable, related business expenses.
 
Expenses under the Restated Consulting Services Agreement for the nine months ended September 30, 2012 and year ended December 31, 2011, respectively, were $189,578 and $429,274.

As of September 30, 2012 and December 31, 2011, advances from iTella (a related party) were $322,770 and $1,083,429, which include balances outstanding under the Unsecured Note and unpaid consulting fees.

Effective June 21, 2012, the Company sold the 800.com domain and all of its assets to 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., for $850,000. The Company did not receive any cash in the transaction. As consideration for the sale of the 800.com, the Company reduced a liability payable to Steven Ivester by $850,000 and the gain on the sale of the domain of $618,945was credited to additional paid in capital.
 
 
11

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
 
NOTE G - NOTES PAYABLE
 
   
September 30, 2012
   
December 31, 2011
 
             
Promissory note payable - shareholders
  $ 547,803     $ 536,990  
Note payable - Abundance Partners LLC
    -       102,413  
Note payable - Dell Computer
    -       42,821  
Note payable - Vanderbur
    40,000       -  
Note payable - AFS/IBEX Bank
    18,503       10,193  
                 
Total short-term notes payable
  $ 606,306     $ 692,417  
 
Promissory notes payable - shareholders

As of September 30, 2012 and December 31, 2011, the Company had short-term unsecured   promissory notes from various shareholders totaling $547,803 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.
 
Note payable – Gene and Lois Vanderbur
 
On June 22, 2012, the Company entered into a $25,000, zero percent, note payable with Gene and Lois Vanderbur. The principal of the note is due and payable on or before December 22, 2012.  The Company was required to pay a $5,000 participation fee to execute the note and the Company issued the bearer 62,500 shares of  Quamtel common stock as additional cost of entering the note.  The terms of the note will allow the Company to add additional $25,000 tranches of debt up to a maximum of $100,000.  The total loan cost of $8,750 was capitalized to deferred cost. As of September 30, 2012 $4,375 was amortized to non-interest expenses.
 
On September 7, 2012, the Company entered into a $15,000, zero percent, note payable with Gene and Lois Vanderbur. The principal of the note is due and payable on or before October 20, 2012.  The Company has committed to pay a $5,000 participation fee to execute the note and the Company issued the bearer 20,000 shares of  Quamtel common stock as additional cost of entering the note.
 
At September 30, 2012, the Company owed a combined total of $40,000 for the two Vanderbur notes.
 
 
 
12

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
 
Note payable – Family Trust Under The Gerald Sperling Grantor Retained Annuity Trust and Warren Gilbert

On September 28, 2012, the Company entered into a $700,000 secured note payable with the Family Trust Under The Gerald Sperling Grantor Retained Annuity Trust and Warren Gilbert (Payees). The principal of the note carries a 12% interest rate per annum until paid.

The Company had received $25,000 in September 2012 and the parties to the Note Payable are still working on the detail terms and conditions as of September 30, 2012 and subsequent to the filing date of this report. The $25,000 received in September 2012 has been included within the above table under “Promissory note payable – shareholders”.  In addition, the Company received $417,000 subsequent to September 30, 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.  On September 30, 2012, the Company wrote-off the $42,821 note payable balance to “Other Income”.

The AFS/IBEX (formally Total Bank) note is associated with an insurance policy, is repayable in equal monthly payments of $2,234 through September 2013, is unsecured, and bears interest at 8.5% per year. The outstanding principal and interest of  the AFS/IBEX note at September 30, 2012 is $18,503.
 
Convertible notes payable – St George Investments

On March 30, 2012, the Company entered into a convertible promissory note with St George Investments (the “St George Note”) for a principal balance of $465,000. The note was originally a short-term note payable to Warren Gilbert, one of the primary shareholders of the Company. On March 30, 2012, Warren Gilbert sold the note to St. George Investments for an amount which was not disclosed to the Company. The St George Investments note conversion notice contains a Beneficial Conversion Feature (BCF).

A beneficial conversion feature (BCF) arises when the conversion price of a convertible instrument is less than the fair value of the instrument or instruments into which the convertible instrument is convertible. Accounting guidance applicable to a BFC is found in two issues of the Emerging Issues Task Force (EITF).    The first issue, EITF No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, became effective in May 1999. In November 2000, the EITF issued EITF No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments.    The primary purpose of EITF 00-27 is to provide application guidance for EITF 98-5 in the face of issues encountered in practice relating to valuation, timing and classification.
 
In accordance with the accounting guidance found in EITF 98-5 and 00-27, the Company recorded a BCF of $298,077 in the financial statements for the period ended June 30, 2012. The Company recorded this amount as a credit to additional paid in capital with offsetting amounts of $187,500 to other expense and $110,577 to debt discount, a contra liability account, which has been written off during the period ended September 30, 2012. The interest expense above is BFC interest due at the conversion of the note payable on April 1, 2012 and the debt discount amount represents the BFC interest allocation until the maturity of the note on September 1, 2012 prior to the variable conversion features become effective on September 2, 2012. The Company also charged $135,127 of the unamortized debt discount at the maturity date, September 30, 2012 and charged to other expense in relation to the St George note for the nine months ended September 30, 2012.

The St George Note bears interest at the rate of 8% per annum, compound daily. All interest and principal must be repaid on September 30, 2012. The St George Note is convertible into common stock, at St George Investments’ option, at a fixed conversion price of $0.375 per share from March 30, 2012 until September 1, 2012, and commencing September 2, 2012 the conversion price will be at a 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. Upon the occurrence of an event of default, (i) the outstanding balance shall increase to 112.5% of the outstanding balance immediately prior to the occurrence of such event of default; provided, however, that such increase may not be applied more than twice, and (ii) this St George Note shall accrue interest until the outstanding balance is repaid in full at the rate of 1% per month (or 12% per annum), compounding daily, whether before or after judgment.

The St George Investments shall have the option, in its sole discretion, to return all or any part of the conversion shares or cancelled shares to the Company by providing one or more written notices thereof to the Company but not exceed 953,846 shares.  The St George Investments converted total of $400,987 of accrued interest, penalty and principal amount during the nine months ended September 30, 2012 and returned $58,486 or 953,846 shares of conversion made in September 2012.

The Company has identified the embedded derivatives related to the above described Convertible Note Payable. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the above described Convertible Note Payable and to fair value as of each subsequent reporting date (see Note H).
 
 
13

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012

Convertible notes payable – JMJ Financial

On August 22, 2012, the Company entered into a convertible promissory note with JMJ Financial (the “JMJ Note”) for a principal balance of $220,000. The principal sum of the note consisted of $200,000 of consideration paid, plus a $20,000 original issue discount (OID) or 10% OID.  The note has a provision which allows the Company to draw down the available principal over time.   At September 30, 2012 the Company had drawn down $55,000.

The JMJ Note is interest free if repaid in full on or before 90 days from the Effective Date (date delivery of the first payment to the Company) and a one-time interest charge of 10% shall be applied to the principal sum if the Company does not repay the JMJ Note on or before 90 days from the Effective Date.  The maturity date is one year from the Effective Date of each payment received by the Company and is the date upon which the principal sum of this JMJ Note, as well as any unpaid interest and other fees, shall be due and payable.  The JMJ Note is convertible into common stock, at JMJ Financial’s option at any time after the Effective Date, at the conversion price of lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion.  In the event of any default, the outstanding principal amount of this JMJ Note, plus accrued  but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration, shall become, at JMJ Financial’s election, immediately due and payable in cash at the Mandatory Default Amount.

The Company has identified the embedded derivatives related to the above described Convertible Note Payable. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the above described two Convertible Note Payable and to fair value as of each subsequent reporting date (see Note H).

The table below summarizes the convertible notes payable, less the debt discount, at September 30, 2012:

   
September 30,
2012
   
December 31,
2011
 
             
Note payable - JMJ Financial
  $ 55,000     $ -  
Note payable - St. George Investment
    304,521       -  
Total
  $ 359,521     $ -  
Less: Discount on loans
    (49,226 )     -  
                 
Total convertible notes payable
  $ 310,295     $ -  

NOTE H – DERRIVATIVE LIABILITIES

The Company entered into two Convertible Promissory Notes in March 2012, the St George Note and August 2012, the JML Note that mature from September 30, 2012 to August 22, 2013, respectively.  These convertible notes bear various interest rates and can be convertible into the Company’s common shares, at the holders’ option, at the conversion rates of 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion for the St George Note and at the lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion for the JML Note.
   
The Company has identified the embedded derivatives related to these convertible notes. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of these convertible notes and to fair value as of each subsequent reporting date.
 
 
14

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
 
At the inception of these convertible notes, the Company determined the aggregate fair value of $300,127 of embedded derivatives.  The fair values of the embedded derivatives were determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 151% to 189%, (3) weighted average risk-free interest rate of 0.14 % to 0.19%, (4) expected life of 0.08 to 0.99 year, and (5) estimated fair value of the Company’s common stock of $0.065 to $0.125 per share.
 
The determined fair value of these debt derivatives of $300,127 at inception dates were charged as a debt discount up to the net proceeds of the convertible note with the remainder $115,000 charged to the operations during 2012 as non-cash interest expense.
 
At September 30, 2012, the Company marked to market the fair values of these debt derivatives and determined a fair value of $186,764. The Company recorded a gain from change in fair value of debt derivatives of $113,363. The fair values of the embedded derivatives were determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 158% to 193%, (3) weighted average risk-free interest rate of 0.14% to 0.17%, (4) expected life of 0.00 to 0.89 year, and (5) estimated fair value of the Company’s common stock of $0.015 to $0.0349 per share.
 
NOTE I – FINANCING AND OTHER TRANSACTIONS

During the first nine months of 2012, the Company issued 50,367,118 shares of common stock valued at $4,564,793 as follows:
 
         11,811,340 shares were issued and sold to 14 accredited investors for net proceeds of $652,908;

●         3,510,000 shares valued at $1,614,300 were issued to employees as partial compensation for their employment in 2012;

●         325,000 shares valued at $53,050 were issued to consultants for services rendered;
 
●         200,000 shares valued at $103,949 were issued to one debt holder in settlement of debt valued at $103,949;

●         8,150,000 shares valued at $680,079 were issued to eight shareholders to reduce the stock payable liability;

●         377,500 shares valued at $71,725 were issued to reduce accounts payable and related party balances;

●         8,475,000 shares valued at $121,000 were issued to a related party for prepaid consulting expenses;

●         8,000,000 shares valued at $720,000 were issued to a related party for restructuring an consulting agreement; and,

●         9,518,278 shares valued at $547,782 were issued to 4 debt holder for conversion of short term notes.
 
 NOTE J  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:
 
 
15

 
 
QUAMTEL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
 
The Company is 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. The Company believes the claims to be without merit and will aggressively defend same. The Company filed a response and counterclaim on or about August 3, 2012 denying the charges against it and counterclaiming defamation and breach of fiduciary duty by Mr. Picow. Additionally, the Company has demanded a jury trial on the substance of the matters. The case is now in the deposition phase.
 
We are a defendant in an action styled The Balancing Act TV, LLC vs. Quamtel, Inc., filed on July 24, 2012 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The Balancing Act TV, LLC asserts that it is entitled to damages in the amount of approximately $50,000 as a consequence of an alleged breach by us of a contract with us. We believe the claims to be without merit and have moved to dismiss this matter.  We will aggressively defend the Company against these claims.
 
NOTE K - SUBSEQUENT EVENTS

On October 4, 2012 the Company issued 100,000 shares of common stock  to Delaney Equity Group as payment for consulting services.
 
On October 5, 2012 the Company issued 363,636 shares of common stock  to  two accredited investors in return for cash proceeds of $91,500.

On October 5, 2012 the Company issued 62,500 shares of common stock to an accredited investor as payment for loan cost associated with a note which originated on June 22, 2012.

On October 15, 2012 the Company issued 10,000 shares of common stock  to William B. Lapides as payment for consulting services.
 
On October 25, 2012 the Company issued 496,486 shares of common stock  to convert debt from one debt holder .
 
On October 26, 2012 the Company issued 1,560,000 shares of common stock to an accredited investor in return for cash proceeds of $31,500.

On November 9, 2012 the Company issued 1,350,000 shares of common stock to an accredited investor in return for cash proceeds of $35,000.

On November 15, 2012 the Company issued 910,929 shares of common stock to convert debt from one debt holder .
 
 
16

 
 
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 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 herein and in our 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.
 
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 Form10-K for the fiscal year ended December 31, 2011, filed with 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 was generated from our Data Jack, Inc. subsidiary in 2011. Approximately $987,171 of revenue and a net loss of approximately $325,482 were generated from DataJack in the first nine months of 2012.
 
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 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.
 
 
17

 
 
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.
 
Effective June 21, 2012, the Company sold the 800.com domain and all of its assets to 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., for $850,000. The Company did not receive any cash in the transaction. As consideration for the sale of the 800.com, the Company reduced a liability payable to Steven Ivester by $850,000.
 
Results of Operations for the Three Months ended September 30, 2012 Compared to the Same Period in 2011
 
Revenues
 
Our revenues for the three months ended September 30, 2012 and 2011 were $629,481 and $502,576, respectively. Revenues for the three months ended September 30, 2012 increased over the same period in 2011 by 25% due to a $234,191 increase in DataJack revenues, offset by a $107,286 decrease in calling card PIN revenue in the current quarter over the same quarter last year. We have been directing more marketing resources into growing the DataJack business.  The calling card PIN revenue decreased due to increased competition and the Company’s focus on growing the DataJack business. We plan to increase marketing resources to WQN to stabilize our calling card PIN revenues.
 
Cost of Sales and Gross Profit
 
Cost of sales totaled $481,995 and $361,896 for the three months ended September 30, 2012 and 2011, respectively. This resulted in gross profit of $147,486 (23%) and $140,680 (28%) for the respective 2012 and 2011 periods. The lower gross margin in 2012 compared to 2011 was caused by increased competition and overall shrinking industry margins.
 
Operating Expenses
 
Operating expenses were $716,865 and $2,757,449 for the three months ended September 30, 2012 and 2011, respectively.
 
Compensation and consulting expenses decreased to $512,821 for the three months ended September 30, 2012 compared to $2,592,870 for the same period in 2011. Compensation and consulting expenses are primarily a result of the issuance of common shares for consulting services. In 2012, the Company reduced the number of consultants under contract, which in turn reduced compensation expense.
 
General and administrative (“G&A”) expenses were $173,314 and $130,917 for the three months ended September 30, 2012 and 2011, respectively.
 
 
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Other Income and Expense
 
Other income and expenses increased to a net expense of $330,770 for the three months ended September 30, 2012 compared to $38,666 for the three months ended September 30, 2011. The $292,104 increase is directly attributable to expenses associated with additional convertible debt taken on by the Company during the three months ending September 30, 2012.  Interest expenses decreased $11,750 for the three months ended September 30, 2012 compared to $38,666 for the three months ended September 30, 2011. In the three months ended September, 30, 2012, the Company amortized $311,190 of debt discount and recorded a $174,014 penalty related to the conversion of debt.  These expenses were offset by Vendor and Note Payable write-offs of $52,821 to Other Income and a  $113,363 gain in the change of a derivative liability.
 
Net Loss
 
A decrease in compensation and consulting expenses, off-set by increased financing expenses resulted in a net loss of $900,149 for the three months ended September 30, 2012, compared to a net loss of $2,655,435 for the same period in 2011.
 
Results of Operations for the Nine Months ended September 30, 2012 Compared to the Same Period in 2011
 
Revenues
 
Our revenues for the nine months ended September 30, 2012 and 2011 were $1,889,802 and $1,457,020, respectively. DataJack revenues for the nine months ended September 30, 2012 and 2011 were $987,171 and $251,913, respectively. The Company is focused on growing the DataJack business while making efforts to stabilize the calling card PIN business.
 
Cost of Sales and Gross Profit
 
Cost of sales was $1,495,275 and $993,242 for the nine months ended September 30, 2012 and 2011, respectively. This resulted in gross profit of $394,527 (21%) and $463,778 (32%) for the respective 2012 and 2011 periods. The higher gross margin percentage in 2011 was due in part to  a large vendor credit received in the three months ended March 31, 2011. After adjusting for the vendor credits, gross margins were 27% for the nine months ended September 30, 2011.
 
Operating Expenses
 
Operating expenses were $4,424,703and $5,252,235 for the nine months ended September 30, 2012 and 2011, respectively. Compensation and consulting expenses were $3,345,051 and $4,588,242 during these periods. Compensation and consulting expenses are primarily a result of the issuance of common shares for consulting services. G&A expenses increased from $563,994 in the 2011 period to $971,282 in 2012. The increase in G&A expenses in the current quarter were due to increased legal expenses and higher sales and marketing expenses related to Data Jack.
 
 
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Other Income and Expense
 
Other income and expenses increased to a net expense of $524,773 for the nine months ended September 30, 2012 compared to income of $119,818 for the nine months ended September 30, 2011. The $644,591 increase is directly attributable to expenses associated with additional convertible debt taken on by the Company during the nine months ending September 30, 2012.  Interest expenses decreased to $62,965for the nine months ended September 30, 2012 compared to $152,978 for the nine months ended September 30, 2011.  In the nine months ended September, 30, 2012, the Company amortized $553,978 of debt discount and recorded a $174,014 penalty related to the conversion of debt.  These expenses were offset by Vendor and Note Payable write-offs of $52,821  to Other Income and Expenses for the period ending September 30, 2012 compared to $25,000  for the nine months ending September 30, 2011.  The Company recorded a   $113,363 gain in the change of a derivative liability for the nine months ending September 30, 2012. The Company also recorded a $100,000 gain on disposition of assets for the nine months ended September 30, 2012 compared to a $247,796 gain on disposition of assets for the nine months ended September 30, 2011.
 
Net Loss
 
Net loss of $4,554,949 for the nine months ended September 30, 2012, compared to a net loss of $4,468,639 for the same period in 2011.
 
Liquidity and Capital Resources
 
Cash and cash equivalents were $0 at September 30, 2012. Our net cash used in operating activities for the nine months ended September 30, 2012 was $1,569,550, due primarily to our cash-based net loss during this period.
 
Our primary sources of funding for the nine months ended September 30, 2012 have been (I) gross proceeds of $656,608 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 in March 2012, and (iii) short-term non-interest bearing loans of $703,740 from eight of our accredited investors.
 
Additionally, on September 28, 2012, we entered into a $700,000 secured note payable arrangement (the “Secured Note”) with the Family Trust Under The Gerald Sperling Grantor Retained Annuity Trust and Warren Gilbert (the “Lenders”). We received $25,000 in September 2012 under the Secured Note and an additional $417,000 subsequent to September 30, 2012.  The Secured Note carries a 12% per year interest rate.  The remaining terms of the Secured Note are still under negotiation with the Lenders.

At September 30, 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 $21,033,049 through September 30, 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.
 
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.
 
 
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Capital Expenditure Commitments
 
We did not have any substantial outstanding commitments to purchase capital equipment at September 30, 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:
 
1.       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 the tests, the excess of the fair value of the Company over the amounts assigned to its identified assets and liabilities is the implied fair value of its goodwill.
 
2.       Our revenues are primarily derived from fees charged to terminate voice services over the Company's network and from related monthly recurring charges. Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call. Revenue from each customer is calculated from information received through the Company's network switches. The Company tracks the information received from the switch and analyzes the call detail records and applies the respective revenue rate for each call. Fixed revenue is earned from monthly recurring services provided to customers that are fixed and recurring in nature, and are connected for a specified period of time. Revenues are recognized as the services are provided and continue until the expiration of the contract or until cancellation of the service by the customer. Cash fees received prior to call completion are recorded on the Company’s 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 September 30, 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 September 30, 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.
 
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 September 30, 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. However, as of June 11, 2012, Leo Hinckley joined our Board of Directors as an independent director. We expect that the appointment of Mr. Hinkley will enhance our controls and procedures capabilities.
 
 
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PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
 
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:
 
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 filed a response and counterclaim on or about August 3, 2012 denying the charges against us and counterclaiming defamation against us and breach of Mr. Picow's fiduciary duties to us. Additionally, we have demanded a jury trial on the substance of the matters. This case is not in the deposition phase.
 
We are a defendant in an action styled The Balancing Act TV, LLC vs. Quamtel, Inc., filed on July 24, 2012 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The Balancing Act TV, LLC asserts that it is entitled to damages in the amount of approximately $50,000 as a consequence of an alleged breach by us of a contract with us. We believe the claims to be without merit and have moved to dismiss this matter.  We will aggressively defend the Company against these claims.

ITEM 1A.  RISK FACTORS

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

During the first nine months of 2012, the Company issued 50,367,118 shares of common stock valued at $4,564,793 as follows:
 
●         11,811,340 shares were issued and sold to 14 accredited investors for net proceeds of $652,908;

●         3,510,000 shares valued at $1,614,300 were issued to employees as partial compensation for their employment in 2012;

●         325,000 shares valued at $53,050 were issued to consultants for services rendered;

●         200,000 shares valued at $103,949 were issued to one debt holder in settlement of debt valued at $103,949;

●         8,150,000 shares valued at $680,079 were issued to eight shareholders to reduce the stock payable liability;
 
●         377,500 shares valued at $71,725 were issued to reduce accounts payable and related party balances;

●         8,475,000 shares valued at $121,000 were issued to a related party for prepaid consulting expenses;

●         8,000,000 shares valued at $720,000 were issued to a related party for restructuring an consulting agreement; and,

●         9,518,278 shares valued at $547,782 were issued to 4 debt holder for conversion of short term notes.

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.
 
On June 22, 2012, we issued a $25,000, zero percent, senior promissory note to Gene and Lois Vanderbur (the “Vandeburs”) for a $25,000 loan from them. The principal amount of the note is due and payable on or before December 22, 2012. We were required to pay a $5,000 participation fee to execute the note and we issued to the Vandeburs 62,500 shares of our common stock as additional cost of the loan. The terms of the note were to allow us to add additional $25,000 tranches of debt up to a maximum of $100,000. On September 7, 2012, we borrowed an additional $15,000 from the Vanderburs and issued to them an additional note in the principal amount of $15,000.  The principal amount of this note is due and payable on or before October 20, 2012.  We have committed to pay a $5,000 participation fee with respect to this second note and we issued to the Vandeburs 20,000 additional shares of our common stock as additional cost of this note.  At September 30, 2012, we owed a combined total of $40,000 for the two Vanderbur notes.
 
On August 22, 2012, we issued a convertible promissory note to JMJ Financial (the “JMJ Note”) in the principal amount of $220,000. The principal sum of the note consisted of $200,000 of consideration paid to us, plus a $20,000 original issue discount (OID) or 10% OID. The note has a provision which allows us to draw down the available principal over time. At September 30, 2012 we had drawn down $55,000.

The JMJ Note is interest free if repaid in full on or before 90 days from the Effective Date (date of delivery of the first payment to us) and a one-time interest charge of 10% shall be applied to the principal sum if we do not repay the JMJ Note on or before 90 days from the Effective Date. The maturity date of each payment received by us is one year from the Effective Date of that particular payment and is the date upon which the principal sum of the JMJ Note, as well as any unpaid interest and other fees, shall be due and payable. The JMJ Note is convertible into shares of our common stock, at JMJ Financial’s option at any time after the Effective Date, at the conversion price of lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion. In the event of any default, the outstanding principal amount of the JMJ Note, plus accrued but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration, shall become, at JMJ Financial’s election, immediately due and payable in cash at the Mandatory Default Amount as defined in the JMJ Note.
 
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ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
 
Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION
 
Effective September 15, 2012, the Company named Leo Hinkley to its Board of Directors.  In return for his service as a member of the Company Board of Directors, Mr. Hinkley will receive base salary of $10,000 annually. Mr. Hinckley’s salary can increase to $25,000 annually based on certain incentives.Mr. Hinkley was also awarded 180,000 of the Company’s restricted stock which will be vested and issued over a twelve month period.
 
 
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ITEM 6.    EXHIBITS
 
Exhibit No.    Description
4.1  
Senior Promissory Note dated June 22, 2012 issued by the Registrant to Gene and Lois Vanderbur *
     
4.2  
Original Issue Discount Promissory Note dated August 22, 2012 issued by the Registrant to JMJ Financial*
     
4.3  
Senior Promissory Note dated September 7, 2012 issued by the Registrant to Gene and Lois Vanderbur*
     
10.1  
Amended and Restated Consulting Services Agreement dated as of June 7, 2012 by and between the Registrant and iTella, Inc.*
     
 
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*
 
     
 
Certification of Chief Executive Officer and Interim Chief Financial Officer, pursuant to 18 U.S.C. Section    1350, adopted pursuant to Section    906 of Sarbanes-Oxley Act of 2002**
 
101 INS
XBRL Instance Document***
101 SCH
XBRL Schema Document***
101 CAL
XBRL Calculation Linkbase Document***
101 LAB
XBRL Labels Linkbase Document***
101 PRE
XBRL Presentation Linkbase Document***
101 DEF
XBRL Definition Linkbase Document***
 
_________________
*       Filed herewith.
 
** 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.
 
*** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
 
 
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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.  
       
Dated: November 21,  2012     
By:
/s/ Stuart Ehrlich  
    Stuart Ehrlich  
    President and Chief Executive Officer, Principal Financial Officer  
       

 
 
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