<PAGE>
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-22351
VIRTUAL TELECOM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0162893
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12, AV DES MORGINES, 1213 PETIT-LANCY 1, GENEVA, SWITZERLAND N/A
- ------------------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
41-22-879-0879
---------------------------
(Issuer's telephone number)
NOT APPLICABLE
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Former Name, Former Address and Former Fiscal Year
(If Changed Since Last Report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
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 No X
--- ---
As of August 14, 1997 the Registrant had 4,994,000 shares of its common stock,
par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X .
--- ---
Page 1 of 8 consecutively numbered pages.
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PART 1
FINANCIAL INFORMATION
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Item 1. FINANCIAL STATEMENTS
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VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1997 1996
----------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 168,111 $ 219,139
Subscription receivable 500,000 0
Advances to stockholder and related party 44,204 38,645
Prepaid expenses and other receivables 86,348 23,836
Total current assets 798,663 281,620
----------- -----------
Property and equipment, net 906,878 634,472
Other assets 32,135 32,838
Total assets $ 1,737,676 $ 948,930
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,724 $ 298,635
Accrued liabilities 70,193 37,171
Current portion of capital lease obligations 3,180 10,849
Advances and convertible loans from stockholders
and related parties 466,791 590,507
----------- -----------
Total current liabilities 545,888 937,162
----------- -----------
Long term capital lease obligations, net of current maturities 8,272 10,707
----------- -----------
Total liabilities 554,160 947,869
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STOCKHOLDERS' EQUITY:
Common stock 4,994 3,940
Preferred stock 284 284
Additional paid-in capital 3,006,999 994,465
Accumulated deficit (1,947,075) (1,063,088)
Cumulative translation adjustment 118,314 65,460
----------- -----------
Total Stockholders' equity 1,183,516 1,061
----------- -----------
Total liabilities and
stockholders' equity $ 1,737,676 $ 948,930
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements
2
<PAGE>
VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-----------------------------------------------------
1997 1996 1997 1996
<S> -----------------------------------------------------
<C> <C> <C> <C>
SALES $ 832 $ 0 $ 832 $ 0
EXPENSES:
General and Administrative 280,997 53,746 547,561 72,146
Research and Development 199,052 8,144 324,116 15,554
---------- --------- --------- -------
Total Operating Expenses 480,049 61,890 871,677 87,700
---------- --------- --------- -------
LOSS FROM OPERATIONS 479,217 61,890 870,845 87,700
---------- --------- --------- -------
OTHER INCOME (EXPENSE):
Interest income/(expense) (8,465) (1,627) (13,142) (1,647)
Net income (loss) 487,682 63,517 883,987 89,347
---------- --------- --------- -------
Weighted average number of
common shares 4,994,000 0 4,994,000 0
Net income (loss) per common share $ (0.10) $ 0.00 $ (0.18) $ 0.00
---------- --------- --------- -------
---------- --------- --------- -------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
3
<PAGE>
VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-----------------------------
1997 1996
-----------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (883,987) $ (89,636)
----------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 18,962 9,476
Interest accrued on loans payable 23,971 4,500
Capitalization of interest (6,656) 0
Increase (decrease) resulting from changes in:
Prepaid expenses and other receivables (562,512) (561)
Accounts payable (292,911) 354
Accrued liabilities 33,022 9,705
----------- ---------
Net cash used-in operating activities $(1,670,111) $ (66,162)
----------- ---------
Cash Used-in Investing Activities:
Purchase of equipment (319,345) (3,171)
Deferred costs, Virtual Telecom, Inc. 0 (82,106)
Advances to stockholder and related party (6,690) 0
Collection of stock subscriptions receivable 0 40,000
----------- ---------
Net cash used-in investing activites $ (326,035) $ (45,277)
----------- ---------
Cash Flows from Financing Activities:
Conversion of bridge loans 199,867 0
Issuance of common stock 1,809,633 0
Advances from stockholders and related parties (99,745) 343,240
Reimbursements of advances from stockholders
and related parties 0 (63,154)
Interest accrued on advances to related parties 1,131 0
Payment of capital lease obligations (9,302) (9,157)
Bank overdraft 0 (1,217)
Net cash provided by financing activities $ 1,901,584 $ 269,712
----------- ----------
Effect of Exchange Rate Changes on Cash and cash equivalents $ 43,534 $ 2,036
----------- ---------
Net Increase (decrease) in Cash and Cash Equivalents $ (51,028) $ 160,309
----------- ---------
Cash and Cash Equivalents at Beginning of Period 219,139 0
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Cash and Cash Equivalents at End of Period $ 168,111 $ 160,309
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
4
<PAGE>
HARRIER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Registrant
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at June 30, 1997, and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these unaudited condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Registrant's December 31, 1996
audited financial statements. The results of operations for the three and six
months ended June 30, 1997 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - CONVERTIBLE LOANS FROM STOCKHOLDERS AND RELATED PARTIES
In May 1996 and December 1996, the Company received bridge loans of $300,000 and
$200,000 respectively, with principal and interest accrued at 12%, due one year
from the date such loans were made. The loans are convertible into common
shares of the Company at the option of the borrower. If the Company elects to
pay in common stock, the common stock will be valued at 75% of the average
public market price for a 90 day period preceding the repayment date. In
connection with these loans, the Company paid 1.25% of the loan's principal in
loan origination fees. During the six months ended June 30, 1997, the Company
issued 133,333 shares of its common stock at a price of $1.50 per share as
payment for $200,000 of the loan. The remaining $300,000 is due December 1997.
NOTE 3 - ISSUANCE OF COMMON STOCK AND WARRANTS
During the six months ended June 30, 1997 the Company issued issued 133,333
shares for a total of $200,000 as payment in lieu of cash for a note payable to
stockholders and related parties. (See NOTE 2)
During the six months ended June 30, 1997, the Company issued 500,000 shares in
a private placement offering at a price of $1.65 per shares
During the six months ended June 30, 1997, the Company issued 200,000 units at a
price of $5.00 per unit. Each unit consists of two (2) shares of common stock
and one (1) common stock warrant. The warrants are exercisable at a price of
$3.50 per share.
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company has completed its network
infrastructure permitting commencement of operations.
5
<PAGE>
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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The Company was organized in September 1996 to engage in the business of
developing and marketing various Internet content-based products and,
secondarily, to act as an ISP providing dial-up access to the Internet. The
Company's initial content-based products currently offered over the Internet
consist of the delivery of financial data from securities and commodities
exchanges world-wide on a real time and near real-time basis. The Company
presently markets its services and products in Switzerland. The Company
commenced commercial operations in March 1997 and, as of the date of this
report statement, has not incurred significant revenues from operations.
Following the acceptance of its Internet products and services by the Swiss
market, the Company intends to expand its operations throughout Europe.
The Company has financed its activities to date through the sale of its
securities. The Company recently concluded the sale of 500,000 common shares at
a price of $1.65 per share for proceeds of $ 825,000 (See NOTE 3). In addition,
the Company is in the process of selling 500,000 units at a price of $5.00 per
unit. Each unit consists of 2 shares of common stock and one common stock
warrant. As of June 30, 1997, the Company has sold 200,000 units. (See NOTE 3)
The Company's plan of operation for the next 12 months includes the
full-scale roll-out of its ISP and financial services products to the Swiss
market. In the opinion of management, the Company requires an additional
$500,000 of capital in order to sustain its operations over the next 12
months and fund the full scale roll-out of its ISP and financial data service
to the Swiss market, the receipt of which there can be no assurance.
Subsequent to the acceptance of its Internet products and services by the
Swiss market, the Company intends to expand its operations throughout Europe
and is presently conducting preliminary analysis of certain target European
markets outside of Switzerland. The Company will require additional capital
to finance the cost of development of Internet services in other geographic
locations and intends to finance those costs, in part, by joint venturing the
development of Internet related operations in those areas with local
businesses which will be responsible for contributing capital to the venture
as well as technical or marketing support. As of the date of this report, the
Company has plans to expand its Internet related operations into the German
market and is in advanced-stage negotiations with the third parties for the
development of such operations.
The results of operations for the six months ended June 30, 1996 are for
Virtual Telecom S.A. only as Virtual Telecom, Inc. was not yet established.
This statement contains various forward-looking statements that are based
on the Company's beliefs as well as assumptions made by and information
currently available to the Company. When used in this report the words
"believe," "expect," "anticipate," "estimate" and similar expressions are
intended to identify forward-looking statements. Such statements are subject
to certain risks, uncertainties and assumptions, including, without
limitation, the Company's recent commencement of commercial operations and
the risks and uncertainties concerning the acceptance of its services and
products by the Swiss market; the Company's present financial condition and
the risks and uncertainties concerning the availability of additional capital
as and when required; technological changes; increased competition; and
general economic conditions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, or
projected. The Company cautions potential investors not to place undue
reliance on any such forward-looking statements all of which speak only as of
the date made.
6
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Inapplicable.
Item 2. CHANGES IN SECURITIES
Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Inapplicable.
Item 5. OTHER INFORMATION
Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FROM 8-K.
(a) EXHIBITS
Inapplicable.
(b) REPORTS OF FORM 8-K
Inapplicable.
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VIRTUAL TELECOM, INC.
Dated: August 14, 1997 By /S/ NEIL GIBBONS
-----------------------------
Neil Gibbons - Chief Executive Officer
/S/ DANIEL HUBER
-----------------------------
Daniel Huber
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 168,111
<SECURITIES> 0
<RECEIVABLES> 544,204
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 798,663
<PP&E> 906,878
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,737,676
<CURRENT-LIABILITIES> 545,788
<BONDS> 0
0
284
<COMMON> 4,994
<OTHER-SE> 118,314
<TOTAL-LIABILITY-AND-EQUITY> 1,737,676
<SALES> 832
<TOTAL-REVENUES> 832
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 480,049
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,465
<INCOME-PRETAX> (487,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (487,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (487,682)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> 0
</TABLE>
