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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 September 30, 1997
Commission File Number 0-22351
VIRTUAL TELECOM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0162893
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(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
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(Address of Principal Executive Offices) (Zip Code)
41-22-879-0879
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(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 X No
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As of November 20, 1997 the Registrant had 4,998,330 shares of its common stock,
par value $0.001, issued and outstanding.
Transitional Small Business Disclosure Format: Yes No X.
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Page 1 of 10 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
SEPT. 30, DEC. 31,
1997 1996
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(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 124,363 $ 219,139
Trade accounts receivable 20,262 0
Advances to stockholder and related party 48,861 38,645
Prepaid expenses and other receivables 137,609 23,836
Total current assets 331,095 281,620
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Property and equipment, net 1,266,710 634,472
Other assets 30,737 32,838
Total assets $ 1,628,542 $ 948,930
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 114,337 $ 298,635
Accrued liabilities 36,073 37,171
Current portion of capital lease obligations 113,768 10,849
Advances and convertible loans from
Stockholders and related parties 403,344 590,507
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Total current liabilities 667,522 937,162
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Long term capital lease obligations,
Net of current maturities 232,496 10,707
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Total liabilities 900,018 947,869
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STOCKHOLDERS' EQUITY:
Common Stock 4,998 3,940
Preferred Stock 284 284
Additional paid-in capital 3,027,004 994,465
Accumulated deficit (2,419,623) (1,063,088)
Cumulative translation adjustment 115,861 65,460
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Total stockholders' equity 728,524 1,061
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Total liabilities and
Stockholders' equity $ 1,628,542 $ 948,930
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The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
2
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VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1997 1996 1997 1996
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SALES $ 46,566 $ 0 $ 47,398 $ 0
EXPENSES:
General and administrative 312,796 177,267 900,944 249,413
Research and development 158,029 21,303 482,147 36,857
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Total operating expenses 470,825 198,570 1,383,091 286,270
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LOSS FROM OPERATIONS 424,259 198,570 1,335,693 286,270
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Interest income/(expense) (7,704) (10,909) (20,842) (12,556)
Net income (loss) 431,963 209,479 1,356,535 298,826
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Weighted average number of
common shares 4,998,330 0 4,998,330 0
Net income (loss) per
common Share $ (0.09) $ 0.00 $ (0.27) $ 0.00
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The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
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VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1997 1996
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Cash Flows from Operating Activities:
Net Loss $(1,356,535) $ (298,826)
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Adjustments to reconcile net loss to
Net cash Used in operating activities:
Depreciation and amortization 69,082 12,588
Interest accrued on loans payable 32,173 12,556
Capitalization of interest (6,656) 0
Increase (decrease) resulting from changes in:
Prepaid expenses and other receivables (138,239) 0
Accounts payable (248,669) (3,285)
Accrued liabilities 63,273 5,912
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Net cash used-in operating activities $(1,585,571) $ (271,055)
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Cash Used-in Investing Activities:
Purchase of equipment (406,066) (3,171)
Deferred costs, Virtual Telecom, Inc. 0 (82,106)
Advances to stockholder and related party (6,777) 0
Collection of stock subscriptions
Receivable 0 40,000
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Net Cash Used-in Investing Activites $ (412,843) $ (45,277)
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Cash Flows from Financing Activities:
Conversion of bridge loans 199,867 0
Issuance of stock 1,829,634 0
Advances from stockholders and related
parties (99,745) 469,300
Reimbursements of advances from stockholders
and related parties (72,080) (63,154)
Interest accrued on advances to related
parties 1,654 0
Payment of capital lease obligations 3,783 (12,231)
Bank overdraft 0 (1,217)
Net cash provided by financing activities $1,863,113 $ 392,698
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Effect of Exchange Rate Changes on Cash
and cash equivalents $ 40,525 $ 8,326
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Net Increase (decrease) in Cash and
Cash Equivalents $ (94,776) $ 84,692
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Cash and Cash Equivalents at Beginning
of Period 219,139 0
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Cash and Cash Equivalents at End of Period $ 124,363 $ 84,692
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The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
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VIRTUAL TELECOM, 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 September 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 nine months ended September 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 nine months ended September
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. In addition, the Company made a payment of $50,000 in
accrued interest on the note. As of September 30, 1997 a total of $5,167 was
due in accrued interest.
NOTE 3 - ISSUANCE OF COMMON STOCK AND WARRANTS
During the nine months ended September 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 nine months ended September 30, 1997, the Company issued 500,000
shares in a private placement offering at a price of $1.65 per shares.
During the nine months ended September 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.
5
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NOTE 4 - FIXED ASSETS AND CONTRACTUAL COMMITTMENTS
In September 1996, Virtual Telecom S.A. signed a four year Partnership
Outsourcing Agreement with Digital Equipment Corporation, for the provision
of computer equipment and maintenance.
In addition, Virtual Telecom S.A. has contractual commitments for the
servicing of the equipment acquired above. As of September 30, 1997 there are
three years remaining on the contract which amount to approximately $230,000.
NOTE 5- SUBSEQUENT EVENTS
Subsequent to September 30, 1997, the Company has completed its network
infrastructure permitting commencement of operations.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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Virtual Telecom, Inc., a Delaware corporation ("Company"), was recently
organized to engage in the business of developing and marketing various
Internet content-based products and, secondarily, to act as an Internet
Service Provider ("ISP") providing access to the Internet. The Company's
initial content-based products offered over the Internet consist of the
delivery of financial data from securities and commodities exchanges
worldwide on a real-time and near real-time basis. During 1996 and the first
quarter of 1997, the Company acquired and implemented the hardware,
consisting of routers and servers, and leased telephone lines through which
it offers its financial data service and access to the Swiss market. During
the second fiscal quarter, the Company conducted pilot operations. The
Company commenced full commercial operations during the quarter ended
September 30, 1997. Unless the context otherwise requires, all references to
the Company include its wholly-owned subsidiary, Virtual Telecom SA, a Swiss
corporation.
The Company's results of operations for three months ended September 30,
1997 included revenues of $46,566 and a net loss of $(431,963). As of
September 30, 1997, the Company had a working capital deficit of $(336,427),
which has subsequently been increased by the Company's losses from operations
since that date. The Company has financed its operations to date through the
sale of its equity securities and has received gross proceeds of $1,825,000
from the sale of its equity securities during the nine months ended September
30, 1997. See Note 3 to the unaudited condensed financial statements. As of
the date of this report, the Company is seeking to acquire capital through
the sale of its debt or equity securities. If the Company is unable to raise
additional capital, the Company may not be able to continue its present level
of operations.
The Company's plan of operations for the next twelve months include,
subject to the receipt of additional capital, a full-scale roll-out of its
on-line financial database products targeted at professional users in the
Swiss banking, investment and corporate markets. Subsequent to the roll-out
to the Swiss market, the Company intends to expand its operations to other
key European markets. 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 in its early stage
commencement of operations concluded financial database products contracts
with 12 banking or trading enterprises providing for recurring revenue to
the Company in the aggregate amount of $10,000 per month. In addition, the
Company has concluded ISP network service contracts with 12 corporate clients
providing for
7
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recurring revenue to the Company in the aggregate amount of $4,000 per month.
The Company is in an advanced stage of negotiations with approximately 30
potential corporate clients, each of which has solicited offers for the
Company's provision of financial data base products or ISP network service or
both.
This report 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 registration
statement, 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
investor not to place undue reliance on any such forward-looking statements
all of which speak only as of the date made.
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PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
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Inapplicable.
Item 2. CHANGES IN SECURITIES
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Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
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Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Inapplicable.
Item 5. OTHER INFORMATION
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Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FROM 8-K.
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(a) EXHIBITS
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Inapplicable.
(b) REPORTS OF FORM 8-K
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Inapplicable.
9
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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: November 20, 1997 By /s/ Neil Gibbons
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Neil Gibbons - Chief Executive Officer
/s/ Daniel Huber
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Daniel Huber
Chief Financial Officer
10
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 124,363
<SECURITIES> 0
<RECEIVABLES> 20,262
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 331,095
<PP&E> 1,266,710
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,628,542
<CURRENT-LIABILITIES> 667,522
<BONDS> 0
0
284
<COMMON> 4,998
<OTHER-SE> 723,242
<TOTAL-LIABILITY-AND-EQUITY> 1,628,542
<SALES> 46,556
<TOTAL-REVENUES> 46,556
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 470,825
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,704
<INCOME-PRETAX> (431,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (431,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (431,963)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> 0
</TABLE>
