--------------------------------------------------------------------------------
George V. Stein
PRESIDENT
iDial Networks, Inc.
16990 Dallas Parkway, Suite 106
Dallas Texas 75248
(Name and Address of Person Authorized to Receive Notices
and Communications on Behalf of the Person Filing Statement)
--------------------------------------------------------------------------------
WITH A COPY TO:
KARL E. RODRIGUEZ, ESQ
24843 Del Prado, #318
Dana Point, CA 92629
(949) 248-9561
fax (949) 248-1688
--------------------------------------------------------------------------------
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2000
Commission File Number: 0-24962
IDIAL NETWORKS, INC.
formerly
Desert Springs Acquisitions, Inc.
Nevada 75-2863583
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
16990 Dallas Parkway Suite 106, Dallas, Texas 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 818-1058
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Yes [x] No [] (Indicate by check mark whether the Registrant (1) has filed
all report required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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.)
As of March 31, 2000, the number of shares outstanding of the Registrant's
Common Stock was 18,542,500.
1
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IDIAL NETWORKS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
2000 1999
------------ --------------
(Unaudited)
Current assets
Cash. . . . . . . . . . . . . . . . . . . . . . $ 71,309 $ 11,481
Accounts receivable - trade . . . . . . . . . . 67,850 26,614
Other receivables . . . . . . . . . . . . . . . 24,678 100,000
------------ --------------
Total current assets. . . . . . . . . . . . . 163,837 138,095
Property, net. . . . . . . . . . . . . . . . . . 201,309 255,587
Other assets
Intangibles, net. . . . . . . . . . . . . . . . 193,500 215,000
Deposits. . . . . . . . . . . . . . . . . . . . 12,354 8,855
------------ --------------
Total other assets. . . . . . . . . . . . . . 205,854 223,855
Total assets . . . . . . . . . . . . . . . . . . $ 571,000 $ 617,537
============ ==============
Current liabilities
Current portion of long-term debt . . . . . . . $ 81,558 $ 96,416
Advances from stockholder's . . . . . . . . . . 764,172 119,100
Accounts payable and accrued expenses . . . . . 537,422 347,445
Accrued consulting fees . . . . . . . . . . . . - 55,000
Accrued wages . . . . . . . . . . . . . . . . . 25,000 25,000
------------ --------------
Total current liabilities . . . . . . . . . . 1,408,152 642,961
Long-term liabilities. . . . . . . . . . . . . . 151,322 148,385
------------ --------------
Notes payable . . . . . . . . . . . . . . . . . 1,559,474 791,346
Total liabilities
Stockholders' deficit
Common stock, $.01 par value, 100,000,000. . . . 185,425 185,425
shares authorized, 18,542,500 shares issued and
outstanding
Additional paid in capital . . . . . . . . . . . 495,575 495,575
Accumulated deficit. . . . . . . . . . . . . . . (1,669,474) (854,809)
------------ --------------
Total stockholders' deficit . . . . . . . . . (988,474) (173,809)
------------ --------------
Total liabilities and stockholders' deficit. . . $ 571,000 $ 617,537
============ ==============
</TABLE>
See notes to financial statements.
2
<PAGE>
IDIAL NETWORKS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------- -------------- ------------ ------------
(uanudited) . . . . . . . . . . . . . . . . (uanudited) (uanudited) (uanudited)
Sales . . . . . . . . . . . . . . . . . . . . $ 440,366 $ 427,372 $ 814,232 $ 838,475
Cost of sales . . . . . . . . . . . . . . . . (522,965) (420,558) (854,366) (734,921)
-------------- -------------- ------------ ------------
Gross profit. . . . . . . . . . . . . . . . . (82,599) 6,814 (40,134) 103,554
Selling, general and administrative expenses. 384,649 130,208 735,600 236,742
-------------- -------------- ------------ ------------
Net operating income. . . . . . . . . . . . . (467,248) (123,394) (775,734) (133,188)
Other expense:
Interest expense. . . . . . . . . . . . . . . 28,714) (680) (38,931) (15,847)
-------------- -------------- ------------ ------------
Net loss. . . . . . . . . . . . . . . . . . . $ (495,962) $ (124,074) $ (814,665) $ (149,035)
-------------- -------------- ------------ ------------
Weighted average shares outstanding . . . . . 18,542,500 14,211,267 18,542,500 14,211,267
============== ============== ============ ============
Net loss per share, basic and diluted . . . . $ (.03) $ (.01) $ (.04) $ (.01)
-------------- -------------- ============ ------------
</TABLE>
See notes to financial statements.
3
<PAGE>
IDIAL NETWORKS, INC.
STATEMENT OF ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Additional
Members' Capital Common Stock Paid-in
Amount Shares Amount Capital
------------------ ------------ -------- -------------
Balance, December 31, 1998. . . . . . . . . . . . . . . $ 300 - $ - $ -
Reorganization. . . . . . . . . . . . . . . . . . . . . (300) 1,000 1 299
Issuance of common stock in exchange for accrued wages. - 11,385,000 11,300 153,700
Issuance of common stock for consulting services. . . . - 3,930,000 40,150 22,850
Exchange of common stock. . . . . . . . . . . . . . . . - 2,541,500 127,124 (127,124)
Stock issued for retirement of debt . . . . . . . . . . 85,000 850,000 850 55,250
Stock issued for fixed assets . . . . . . . . . . . . . - 190,000 1,900 123,100
Stock issued for intangible asset . . . . . . . . . . . - 250,000 2,500 162,500
Stock issued for consulting services. . . . . . . . . . - 10,000 100 6,500
Stock issued for cash . . . . . . . . . . . . . . . . . - 150,000 1,500 98,500
Net loss. . . . . . . . . . . . . . . . . . . . . . . . - - - -
------------------ ------------ -------- -------------
Balance, December 31, 1999. . . . . . . . . . . . . . . - 18,542,500 185,425 495,575
Net loss (unaudited). . . . . . . . . . . . . . . . . . - - - -
------------------ ------------ -------- -------------
Balance, June 30, 2000 (unaudited). . . . . . . . . . . $ - 18,542,500 $185,425 $ 495,575
================== ============ ======== =============
</TABLE>
See notes to financial statements.
4
<PAGE>
IDIAL NETWORKS, INC.
STATEMENT OF ACCUMULATED DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 1999
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated Total Stockholders'
Deficit (Deficit)
--------------------- ----------
Balance, December 31, 1998. . . . . . . . . . . . . . . $ (294,049) $(293,749)
Reorganization. . . . . . . . . . . . . . . . . . . . . - -
Issuance of common stock in exchange for accrued wages. - 165,000
Issuance of common stock for consulting services. . . . - 63,000
Exchange of common stock. . . . . . . . . . . . . . . . - -
Stock issued for retirement of debt . . . . . . . . . . - 56,100
Stock issued for fixed assets . . . . . . . . . . . . . - 125,000
Stock issued for intangible asset . . . . . . . . . . . - 165,000
Stock issued for consulting services. . . . . . . . . . - 6,600
Stock issued for cash . . . . . . . . . . . . . . . . . - 100,000
Net loss. . . . . . . . . . . . . . . . . . . . . . . . (560,760) (560,760)
--------------------- ----------
Balance, December 31, 1999. . . . . . . . . . . . . . . (854,809) (173,809)
Net loss (unaudited). . . . . . . . . . . . . . . . . . (814,865) (814,865)
--------------------- ----------
Balance, June 30, 2000 (unaudited). . . . . . . . . . . $ (1,669,474) $(988,474)
===================== ==========
</TABLE>
See notes to financial statements.
5
<PAGE>
IDIAL NETWORKS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
June 30,
------------------
2000 1999
------------------ ----------
(Unaudited)
Cash flows from operating activities
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (814,665) $(149,035)
------------------ ----------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 149,679 35,645
Changes in assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (41,236) (81,885)
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,322 -
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,692 132,827
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,715) 60,000
------------------ ----------
318,742 146,587
------------------ ----------
Net cash used in operating activities . . . . . . . . . . . . . . . . (495,923) (2,448)
------------------ ----------
Cash flows from investing activities
Purchase of property and equipment. . . . . . . . . . . . . . . . . . . . . (73,901) (182,180)
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,499) (845)
------------------ ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . (77,400) (183,025)
------------------ ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt. . . . . . . . . . . . . . . . . . 759,532 32,225
Net repayments on advances from member. . . . . . . . . . . . . . . . . . . (58,450) (25,995)
Payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . (67,931) -
------------------ ----------
Net cash provided by financing activities . . . . . . . . . . . . . . 633,151 6,230
------------------ ----------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . 59,828 (179,243)
Cash, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . 11,481 118,493
------------------ ----------
Cash, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,309 $ (60,750)
================== ==========
</TABLE>
See notes to financial statements.
6
<PAGE>
IDIAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------------------------
Organization and Business
---------------------------
In April 1999, Woodcomm, LLC was reorganized changing from an LLC to a Nevada
Corporation, Woodcomm International, Inc. (WCI).
In December 1999, Desert Springs Acquisition Corporation (Desert Springs)
acquired all of the issued and outstanding common shares of WCI in exchange for
15,316,000 shares of common stock of Desert Springs. For financial reporting
purposes, the business combination was accounted for as an additional
capitalization of the Company (a reverse acquisition with WCI as the acquirer).
WCI is considered the surviving entity. The historical financial statements
prior to the merger are those of WCI. Desert Springs only assets and
liabilities consisted of a liability for $80,346. The liabilities were not
assumed in the merger.
In January 2000, Desert Springs Acquisition Corp moved its state of
incorporation to Nevada by merger of the Colorado corporation with and into
iDial Networks, Inc. (a Nevada corporation). The predecessor Company, Woodcomm,
LLC was established in May 1997 in the state of Nevada. The Company began
commercial operations in June 1998 as a facilities-based wholesale provider of
international long-distance telephone services into South East Asia from the
United States.
The Company is providing Internet-based voice telecommunication to customers
around the world. It operates selected communication services, including phone
cards and Internet enabled telephony. The Internet triggered calls combine the
flexibility of a computer (on-line billing and call records) with the low
tariffs of USA based carriers via calling centers or direct from home anywhere
in the world.
Basis of Presentation
-----------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
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 quarter ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2000. For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-KSB.
7
<PAGE>
IDIAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
Concentration of Credit Risk
-------------------------------
The Company's financial instruments that are exposed to concentration of credit
risk consist primarily of cash and accounts receivable. Additionally, the
Company maintains cash balances in bank deposit accounts, which, at times, may
exceed federally insured limits. During the year ended December 31, 1999,
predominantly all of the Company's sales were generated form two companies and
receivables from these companies consisted of $20,611 or 77% of total trade
accounts receivable. During the year ended December 31, 1998, predominantly all
of the Company's sales were generated from one company and receivables consisted
of $82,614 or 95% of total trade accounts receivable.
Loan Origination Fees
-----------------------
The December 31, 1998 loan origination fees were direct costs incurred for the
origination of loans that were deferred and amortized to interest expense using
the interest method over the contractual terms of the loans. During 1999, the
loan origination fees were expensed in connection with the settlement of the
related debt through the transfer of common stock.
Advertising Costs
------------------
The Company expenses advertising costs as incurred.
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
------------------------
Property and equipment are stated at cost; equipment under capital lease is
stated at the lower of fair market value or net present value of minimum lease
payments at inception of the leases. Depreciation is computed using the
straight-line method over the estimated useful lives or lease terms of the
related assets of three to five years.
Intangible Asset
-----------------
Intangible asset consists of trademarks and rights of a particular phone card
and is stated at cost. Amortization is computed using the straight line over
the estimated useful life of the asset of five years.
8
<PAGE>
IDIAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
Revenue Recognition
--------------------
Revenue is recognized upon the completion of long distance telephone service
based on the duration of the telephone call.
Fair Value of Financial Instruments
---------------------------------------
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value as of
December 31, 1999, as a result of the relatively short maturity of these
instruments.
The fair value of the notes receivable approximate the carrying value as both
the stated rate and discount rate on the notes approximate the estimated current
market rate.
Long-Lived Assets
------------------
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
in its assessment of whether or not long-lived assets have been impaired. At
December 31, 1999, the Company determined no impairment was appropriate.
Income Taxes
-------------
During 1998, the Company was organized as an LLC. No tax was paid by the LLC as
each member is allocated their respective share of the Company's income or loss
for the year in accordance with federal and state tax laws. Accordingly, no tax
provision is included in the financial statements for the year ended December
31, 1998.
Effective April 1999, the Company was reorganized, changing from an LLC to a C
Corporation. As a result, the Company recognizes deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the difference
between the financial statements and tax basis of assets and liabilities using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
9
<PAGE>
IDIAL NETWORKS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
Basic and Diluted Net Loss Per Share
------------------------------------------
The Company computes net loss per share in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions
of SFAS 128 and SAB 98, basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding for the period.
Recently Issued Accounting Pronouncements
--------------------------------------------
During April 1998, Statement of Position 98-5, "Reporting in the Costs of
Start-Up Activities" was issued. SOP 98-5 was required to be adopted by the
first quarter of 1999. The Company had no effect on operations upon adoption of
SOP 98-5.
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
This Form 10-Q contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Specifically, all statements other than statements
of historical facts included in this report regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend," and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements (the "cautionary
statements") reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties and assumptions related to
various factors including, without limitation, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
product introductions and acceptance, technological change, changes in industry
practices and one-time events. Although the Company believes that expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.
10
<PAGE>
IDial Networks, Inc. ("We", "Our", "Us" and sometimes the "Company") are an
established Application Service Provider (ASP) of Internet Protocol (IP)
Telephony communications. Through a reverse merger in December 1999, we became
publicly traded with the symbol (OTCBB:IDNW). Our web address is
www.iDialnetworks.com
We compete in a business sector known as Voice Over IP (VoIP), which is
experiencing explosive growth and is projected to reach $60 billion in revenues
by 2005, according to Ovum Research. The Internet phenomenon continues, with
International Data Corporation projecting nearly 400 million global users by the
end of 2002. E-Marketer estimates that 9.4 billion e-mail messages are delivered
daily, and TeleGeography projects the international long distance market to grow
to $79 billion by the end of 2001, comprised of 143 billion minutes of LD calls.
All these factors have enabled the more efficient VoIP technology to begin to
change the face of global communications.
The Company has integrated the economics of VoIP technology with the convenience
of conventional telephony to enable web initiated telephone services. With this
Dial technology, we are able to offer consumers and businesses telephony
services at costs approaching the wholesale rates of carriers. Unlike some
competitors who offer PC to phone services, iDial's web based services are
provisioned via the Internet but all calls are currently made phone to phone.
The majority of PC owners do not have microphones and telephony software and
thus prefer the more familiar telephone for verbal communications. When the
market dictates, iDial will offer PC to Phone and PC to PC telephony services.
11
<PAGE>
The Company delivers high-quality traditional and VoIP telephony services to
consumers and businesses, with the following benefits:
Low Cost. Telephone calls are a fraction of the cost of traditional Long
distance service.
High Voice Quality. We offer high voice quality by integrating traditional
telephony and packet-switching technologies.
Ease of Use and Access. Designed for convenience and ease of access From
anywhere in the world, an internet connection and a standard Internet browser
such as Netscape or Microsoft Internet Explorer is all that is required. Lacking
an Internet connection, the customer medial a toll-free or local access number
from any telephone or fax machine in the US to access our network as well.
One-Click Online Calling. iDial services enable users to speak with anyone
worldwide with a single click of a button. On-line retailers could use this
technology to connect customers to sales representatives when browsing their web
sites and increase the likelihood of consummating the on-line sale.
Reliable/flexible Service. The technologically advanced design allows for the
expansion of the network capacity by the simple addition of switches, and the
ability to seamlessly reroute traffic if problems arise.
Ease of Payment and Online Account Access. iDial customers are able to make
calls by opening a prepaid account using credit cards, wire transfers or checks,
and can access their accounts via the Internet to view their call history,
account balances, or to increase their prepaid amounts.
Customer Support. The Company offers real-time customer support in multiple
languages, and the integrated billing and call management system provides
service representatives with immediate access to customer accounts.
Product Description. The Company currently offers traditional prepaid phone
cards and VoIP services based on iDial technology under the following brand
names for which various trade and service marks are registered:
NetPhoneCard - Web initiated worldwide phone calls with US dial tone and low
tariffs.
Phone-Me-Now - An iDial e-commerce tool. A Phone-Me-Now button is placed on a
website that allows a customer to initiate a call to his phone from a
representative of the company that is hosting the site.
CellPhoneCard - Based upon ANI recognition of a subscriber's cellular phone,
subscribers benefit from low international tariffs when nationwide calling is
included in the subscriber's cellular rate plan.
CheapPhoneCard - Internet purchased phone cards for USA usage.
12
<PAGE>
Product Development. The company has additional VoIP products and services in
development, targeting specific business to business markets, as well as
consumers. It is anticipated these products will be completed and in service
within the next 12 months. They include:
Conference Calling with up to 8 participants
SendaCall - Prepaid calls sent within a virtual greeting card bye-mail to
recipients anywhere in the world, allowing recipient to place free call to
sender.
Web based International Call Center for use by iDial Call Center Agents who will
have complete virtual call center capabilities from their web connection
allowing web based call setup, billing and reporting.
HomePhoneCard - Based upon ANI recognition of a subscriber's home
phone, low international tariffs available with a local access number.
Free PC to PC calls with H.323 compliant technologies like Microsoft NetMeeting,
and marginal fees to phones worldwide.
Service to Residential and Business customers throughout the US on a direct,
post paid and billed to your credit card service.
Wireless Services - The company will continue to expand wireless development to
include areas such as Wireless Access Protocol (WAP) and Bluetooth technologies.
Growth Strategy
While a large number of VoIP companies have been formed in recent years, most
focus on the build out and development of international VoIP networks in the
effort to capture an ever shrinking high margin revenue base. Little attention
has been given to domestic VoIP with bundled service offerings. The Company
believes that in this very competitive landscape, offering many voice and data
transmission options, leasing time (or purchasing minutes) on VoIP networks will
quickly become a commodity business, as the various competitors whittle margins
to gain growth and market share. It is imperative to not only offer a quality,
nationwide network but to also be an aggressive marketing organization seeking
to provide value added products and services.
The Company intends to leverage its position in the Internet telephony market to
make communications services readily available worldwide. Its strategy includes
the following key elements:
1) Drive Usage through Resellers and Strategic Partners. The Company will
promote its services through direct sales and marketing and through
relationships with resellers and leading Internet hardware, software and content
companies. A primary strategy is to offer flat rate global long distance service
to cable subscribers in a partnership with leading cable operators.
2) Pursue Multiple Sources of Revenue. In addition to minutes- based revenue,
the Company intends to pursue new Web-based revenue opportunities from banner
and audio advertising.
13
<PAGE>
3) Enhance Brand Recognition. The Company intends to strengthen and enhance its
brand recognition by cooperatively marketing its Internet telephony services
with leading companies in other market segments.
4) Provide Unique VoIP Products and Services for Business to Business. The
Company's current suite of VoIP products will greatly enhance the e-commerce
companies.
Many e-commerce sites have discovered the necessity of having a customer service
representative talk with potential buyers. However, traditional 800 numbers are
still relatively expensive, and require some effort on the part of the buyer to
initiate the call. With iDial's "Phone-me-now" technology, a simple click of a
button will connect the buyer with the seller's representative at very low
rates. To further lower operating costs, the Company is exploring joint ventures
with customer service centers in English speaking countries where wages are
lower, and thus customer service becomes more affordable to e-commerce.
Technical Support. The Company's network operations center is located at its
corporate headquarters in Dallas, with gateway equipment also located in Los
Angeles to serve the Asian market. Customer service is provided in several
languages.
Proprietary Technology. The Company uses a combination of its own proprietary
software applications and commercially available licensed technology to conduct
Internet and telephone routing operations. The Company has developed proprietary
software, which permits a customer to purchase a virtual calling card on the Web
site using a credit card, and to have the virtual calling card account activated
while on the Web site. Also proprietary are various credit and fraud management
applications, which aid in checking credit and limiting fraudulent transactions.
Additionally, the Company has developed proprietary software that allows for the
real-time provisioning of customers on the network using a credit card and has
immediate access to multiple accounts and services serving the wireless and
residential/soho markets.
Equipment Requirements. As the Company increases its services and minutes sold,
it plans to install additional equipment in appropriate sites. The first stage
of network expansion projects will locate gateways in New York and Miami, in
addition to the existing Dallas, Los Angeles and Laos facilities. The Company
will lease existing capacity in other locations until such time as sufficient
business is generated to warrant Company owned switching equipment.
The Company has deployed VoIP technology with leading manufacturers such as
Cisco Systems and Clarent, and contracts for carriage with major Internet
backbone suppliers such as Quest and Pacific Gateway. The company will continue
to expand its network based on technologies provided by Cisco and Microsoft. The
Company engineering staff consists of five software developers located at the
Company's 90% owned Technology Center in Sri Lanka, as well as two Dallas based
technicians.
Employees. As of June 30, 2000, we employed 15 full-time and 10 part-time
employees. None of our employees are covered by collective bargaining
agreements.
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PART I - FINANCIAL INFORMATION
(2) Results of Operations Three and Six Months Ended June 30, 2000
------------------------------------------------------------------------
During the three months ended June 30, 2000 and 1999, the Partnership had net
losses of $469,248 and $123,394, based on total sales of $440,366 and $427,372,
cost of sales of $522,965 and $420,558 and selling, general and administrative
expenses of $384,649 and $130,208, respectively. For the three months ended
June 30, 2000 and 1999, the net loss per share was $.03 and $.01, respectively.
During the six months ended June 30, 2000 and 1999, the Company had net losses
of $795,380 and $149,035, based on total sales of $814,232 and $838,475, cost of
sales of $854, 366 and $734,921 and selling, general and administrative expenses
of $735,600 and $236,742, respectively. For the six months ended June 30, 2000
and 1999, the net loss per share was $.04 and $.01, respectively.
Three months ended June 30, 2000, compared to the three months ended June 30,
1999.
The Company's recorded loss for the second quarter in 2000 was $476,677 compared
to $124,074 for the same quarter in 1999. This $352,603 increase in the loss
was comprised of a slight increase in sales, but a decrease in gross margin and
an increase in selling general and administrative expenses of $254,441.
The $12,944 increase in sales was due to the company developing new sales
outlets. However, along with developing new sales outlets came the additional
expenses of developing those sales and the giving away of a certain amount of
product as promotional costs.
The increase of $254,441 in selling general and administrative expense is
primarily attributable to an increase of approximately $40,000 in consulting and
an increase of approximately $50,000 in salary expense. Much of the increase in
salary expense was related to the Company's efforts to increase sales. The
Company also recorded approximately $68,000 more in depreciation and
amortization compared to the same quarter of the previous year. The remainder
of the increase is related to increases in general office expense including rent
expense on additional equipment leased under operating leases.
Six Months ended June 30, 2000 compared to the six months ended June 30, 1999
The Company's loss for the six months ended June 30, 2000 was $814,665 compared
to $149,025 for the six months ended June 30, 1999. Although sales were
consistent there was a significant increase on cost of sales. This increase was
attributable to intense competition in the market s well as problems that the
company incurred with a significant vendor during May causing the company to
utilize other vendors resulting in increased costs.
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Additionally, selling, general and administrative expenses increased $498,858
from the six months ended June 30, 1999 to the six months ended June 30, 2000.
This was primarily due to an increase $112,566 due to expansion in south-east
Asia. Depreciation and amortization increased approximately $95,000 due to an
increase in fixed and intangible assets. Approximately $67,000 of the increase
related o salary increase due to the company's effort to increase sales. The
reminder of the increase is related to increases in general office expense
including rent expense on additional equipment leases under operating leases.
Liquidity and Capital Resources
----------------------------------
During the six months ended June 30, 2000, the Company's operating cash
requirement was $495,923., attributed to a net loss of $814,665 mitigated by
non cash charges for depreciation and amortization of $149,679 . This shortfall
was primarily funded by short-term borrowings of a approximately $ 704,000 from
a shareholder of the company.
iDial currently is in the process of raising the necessary capital for
continuing operations and growth through the following activities:
1. Bank Loan - we expect to close on a facility that provides the necessary
capital for continuing operations this month. Negotiations are currently taking
place to secure the loan with stock from major shareholders of the company.
2. Acquisition - The company will pursue acquisition opportunities to
rapidly expand its revenue and profits. This will also strengthen the company
cash flow and operating position.
3. Stock Sale - The company is in the process of seeking investors to
purchase company stock and provide equity funding for the growth of the company.
4. Sales - In August 2000, the company acquired Woofnet.com, Inc. a next
generation, e-commerce company internet company that utilizes multi-media to
drive sales of consumer products and services by marrying television with the
global reach of web-based e-commerce. Woofnet.com, Inc. was acquired with
common stock valued at $8.1 million. With the recent acquisition of
Whoofnet.Com the company expects to increase it's sales over the coming months
dramatically. This increase in sales will lower our overall costs associated
with carrier costs due to higher discounts available with our increase in volume
from carriers. In addition the cash flow generated from the sales will serve to
help with continued operations of the company.
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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8 - K
None
EXHIBIT INDEX
Financial Statements and Documents
Furnished as a part of this Registration Statement
Exhibit FQ1-00 Financial Statements (unaudited) June 30, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-QSB Report for the Quarter ended March 31, 2000, has been signed below
by the following person on behalf of the Registrant and in the capacity and on
the date indicated.
August 4, 2000
IDIAL NETWORKS, INC.
formerly
Desert Springs Acquisitions, Inc.
By
/s/Mark Wood /s/George V. Stein
Mark Wood George V. Stein
chairman of the board president/ director
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