<PAGE>
U.S. 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 March 31, 1998
Commission File Number 0-22351
Virtual Telecom, Inc.
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(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, Ave 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 May 12, 1998 the Registrant had 5,781,309 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 8 consecutively numbered pages.
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Part I--Financial Information
Item 1. Financial Statements
VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,355,724 $ 569,264
Trade accounts receivable 73,905 65,931
Subscriptions receivable from stockholders 0 2,000,000
Prepaid expenses and other receivables 144,909 138,107
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Total Current Assets 1,574,538 2,773,302
Property and equipment, net 1,121,752 1,186,773
Other assets 28,705 25,874
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Total Assets $ 2,724,995 $ 3,985,949
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 89,536 $ 165,557
Current portion of capital lease obligations 23,769 189,526
Advances and convertible loans from stockholders and related parties 0 315,672
Accrued liabilities 171,410 242,581
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Total Current Liabilities 284,715 913,336
Long term capital lease obligations, net of current maturities 145,188 199,114
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Total Liabilities 429,903 1,112,450
Stockholders' Equity
Common Stock 5,679 5,375
Preferred Stock: Class A 69 148
Preferred Stock: Class B 1,924 1,924
Additional paid-in capital 6,381,417 6,156,642
Cumulative translation adjustment 261,033 131,707
Accumulated deficit (4,355,030) (3,422,297)
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Total Stockholders' Equity 2,295,092 2,873,499
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Total Liabilities and Stockholders' Equity $ 2,724,995 $ 3,985,949
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</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
SALES $ 95,533 $ 0
EXPENSES
General and administrative 573,248 264,805
Research and development 285,267 125,064
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Total operating expenses 858,515 389,869
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LOSS FROM OPERATIONS 762,982 389,869
OTHER EXPENSES
Interest expenses 677 4,677
Foreign exchange losses 169,074 1,759
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Net loss before taxes 932,733 396,305
============ ============
Basic and diluted weighted average number of common shares 5,527,291 4,256,857
Net loss per common share $ (0.17) $ (0.09)
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
3
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VIRTUAL TELECOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
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1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (932,733) $ (396,305)
Adjustments to reconcile net loss to
net cash used in operating activities:
Exchange loss 169,074 1,759
Depreciation and amortization 117,651 8,147
Provision for doubtful debtors 2,302 0
Interest accrued on loans payable 5,417 14,150
Capitalization of interest 0 (6,656)
Increase (decrease) resulting from changes in:
Trade accounts receivable (10,276) 0
Prepaid expenses and other receivables (6,802) (35,749)
Trade accounts payable (76,021) (247,212)
Accrued liabilities (71,171) 318,871
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Net cash used-in operating activities (802,559) (342,995)
Cash used in Investing Activities:
Purchase of equipment (52,630) (10,392)
Other non-current asset expenditures (2,831) 0
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Net cash used-in investing activities (55,461) (10,392)
Cash Flows from (used in) Financing Activities:
Issuance of stock 2,000,000 977,497
Reimbursements of advances from stockholders and related parties (96,089) (221,586)
Reimbursements of advances to related parties 0 2,108
Payment of capital lease obligations (219,683) (6,431)
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Net cash provided by financing activities 1,684,228 751,588
Effect of Exchange Rate Changes on Cash and Cash Equivalents (39,747) 43,563
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Net Increase in Cash and Cash Equivalents 786,460 441,763
Cash and Cash Equivalents at Beginning of Period 569,264 219,139
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Cash and Cash Equivalents at End of Period $1,355,724 $ 660,902
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
4
<PAGE>
VIRTUAL TELECOM, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company 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 March 31, 1998, 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 Company's December 31, 1997 audited
financial statements. The results of operations for the three months ended March
31, 1998 are not necessarily indicative of the operating results for the full
year.
NOTE 2 - CONVERTIBLE LOANS FROM STOCKHOLDERS AND RELATED PARTIES
As at December 31, 1997, the Company owed $250,000 plus accrued interest in
respect of the balance of two convertible loans received during 1996. During the
three months ended March 31, 1998, the Company converted $225,000 of the
principal to common stock, and repaid $25,000 of principal and $71,089 of
accrued interest in cash.
NOTE 3 - ISSUANCE OF COMMON STOCK
During the three months ended March 31, 1998, the Company issued 145,161 shares
of its common stock in conversion of $225,000 of loan principal at a price of
$1.55 per share.
During the three months ended March 31, 1998, 79,438 shares of Series A
Preferred stock were converted into 158,876 common shares.
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.
Virtual Telecom S.A. has contractual commitments for the servicing of the
equipment acquired above. As of March 31, 1998 there are two and a half years
remaining on the contract, which amounts to approximately $220,000 per annum.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Virtual Telecom, Inc., a Delaware corporation ("Company"), was
organized to engage in the business of developing and marketing various
financial information services utilizing Internet-standard technologies and,
secondarily, providing network access services to the Internet to corporate
clients, especially those using the financial information services provided by
the Company. The Company's initial products consist of the delivery of financial
data and other information from securities and commodities exchanges and other
sources worldwide on a real-time and near real-time basis. Unless the context
otherwise requires, all references to the Company include its wholly owned
subsidiary, Virtual Telecom SA, a Swiss corporation.
During 1996 and the first half of 1997, the Company acquired and
implemented the hardware, consisting of routers and servers, and
telecommunications network links through which to offer its financial data
services and corporate Internet access to the Swiss market. The Company
commenced pilot commercial operations during the quarter ended September 30,
1997. As of the date of this report, the Company has completed the preparation
of various marketing materials and is about to commence the implementation of a
major marketing plan targeted at finance professionals in Switzerland.
The Company's results of operations for three months ended March 31,
1998 include revenue of $95,533 and a net loss of $932,734. Revenue for the
quarter ended March 31, 1998 reflects a 45% increase from that of the previous
quarter, and is roughly two-thirds comprised of network service related sales.
Operating expenditure for three months ended March 31, 1998 reflects the
continuing improvement of the technical platform and Swiss-wide network, the
setting up of adequate support systems and resources to service anticipated
client requirements, as well as the preparation of marketing materials for the
roll out of the Company's financial information products. As of March 31, 1998,
the Company had working capital of $1,289,823 and stockholders' equity of
$2,295,092.
The Company's plan of operations for the next twelve months includes a
full-scale rollout of its financial information services targeted at
professional users in the Swiss banking, investment and corporate markets.
Subsequent to the rollout to the Swiss market, the Company intends to expand its
operations to other key European markets. Furthermore, the Company will continue
to seek opportunities to add content to its existing products through the
creation of partnering arrangements with other financial information providers.
With regard to the Company's officers, Mark Benn was recruited to the
position of Chief Financial Officer with effect from April 1, 1998, allowing
Daniel Huber, founder and previous incumbent, to concentrate on marketing and
operational activities.
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 and marketing operations and the
risks and uncertainties concerning the acceptance of its services and products
by the Swiss market; 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.
6
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings.
Inapplicable.
Item 2. Changes in Securities and Use of Proceeds
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 Form 8-K.
(a) Exhibits
27.1 Financial Data Schedule
(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.
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(Registrant)
Dated: May 12, 1998 By /s/ Neil Gibbons
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Neil Gibbons
Chief Executive Officer
/s/ Mark Benn
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Mark Benn
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,355,724
<SECURITIES> 0
<RECEIVABLES> 87,392
<ALLOWANCES> 13,487
<INVENTORY> 0
<CURRENT-ASSETS> 1,574,538
<PP&E> 1,441,435
<DEPRECIATION> 319,683
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 284,715
<BONDS> 0
0
1,993
<COMMON> 5,679
<OTHER-SE> 2,287,420
<TOTAL-LIABILITY-AND-EQUITY> 2,724,995
<SALES> 95,533
<TOTAL-REVENUES> 95,533
<CGS> 0
<TOTAL-COSTS> 285,267
<OTHER-EXPENSES> 573,248
<LOSS-PROVISION> 2,302
<INTEREST-EXPENSE> 677
<INCOME-PRETAX> (932,733)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (932,733)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
