U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 33-2279-D
NET TELECOMMUNICATIONS, INCORPORATED
------------------------------------
(Name of Small Business Issuer in its Charter)
NEVADA 87-0297202
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
101 Convention Center Drive, Suite P125
Las Vegas, Nevada 89109
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(Address of Principal Executive Offices)
Issuer's Telephone Number: (702) 734-1160
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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.
(1) Yes X No (2) Yes X No
--- --- --- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:
December 10, 1996
Common Voting Stock - 9,265,738
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
The Financial Statements of the Registrant required to be filed with
this 10-QSB Quarterly Report were prepared by management, and commence on
the following page, together with Related Notes. In the opinion of management,
the Financial Statements fairly present the financial condition of the
Registrant.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash in bank $ 57,162 $ 22,380
Accounts receivable 172,694 5,808
Receivable - related party (Note 3) 22,827 5,120
Prepaid expenses 1,600 74
Loans receivable, less an allowance of
$8,000 each period (Note 5) - -
Total Current Assets 254,283 33,382
PROPERTY AND EQUIPMENT (Note 1)
Office equipment 56,481 10,118
Leasehold improvements 43,800 -
Furniture 2,000 -
Less - accumulated depreciation (7,296) (2,024)
Property and Equipment - net 94,985 8,094
OTHER ASSETS (Note 1) 310,595 -
TOTAL ASSETS $ 659,863 $ 41,476
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Consolidated Balance Sheets (Continued)
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 71,660 $ 2,606
Accrued expenses 239,574 452
Note payable - current portion (Note 6) 3,000 -
Payable to company officers and employees
(Note 3) 7,643 6,555
Total Current Liabilities 321,877 9,613
LONG-TERM DEBT (Note 6) 11,000 -
Total Liabilities 332,877 9,613
STOCKHOLDERS' EQUITY
Common stock; par value $0.001; 50,000,000
authorized, 9,274,000 and 7,133,416 issued
and outstanding, respectively 9,274 7,134
Additional paid-in capital 443,568 125,167
Accumulated deficit (125,856) (100,438)
Total Stockholders' Equity 326,986 31,863
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 659,863 $ 41,476
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $ 740,359 $ - $ 756,410 $ -
COST OF SALES 141,779 - 145,833 -
GROSS MARGIN 598,580 - 610,577 -
EXPENSES
General and administrative 537,302 43,511 597,077 78,383
Bad debt expense - - 1,575 -
Depreciation and amortization 22,980 - 24,599 -
Total Expenses 560,282 43,511 623,251 78,383
INCOME (LOSS) BEFORE OTHER
INCOME (EXPENSES) 38,298 (43,511) (12,674) (78,383)
OTHER INCOME (EXPENSES) (13,495) - (12,744) -
NET INCOME (LOSS) $ 24,803 $(43,511) $(25,418) $ (78,383)
EARNINGS (LOSS)
PER SHARE $ 0.00 $ (0.00) $ (0.00) $ (0.00)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, October 24,
1994 - $ - $ - $ -
Shares issued to initial
stockholders for services
valued at $1,000, October
24, 1994 5,871,447 5,872 (4,872) -
Net loss from inception
to December 31, 1994 - - - (1,000)
Balance, December 31,
1994 5,871,447 5,872 (4,872) (1,000)
Issuance of common stock
in exchange for debt
November 1995 at an
approximate price of
$0.10 per share 588,710 589 59,411 -
Issuance of common stock
for cash at various dates
approximately $0.11 per
share 673,259 673 70,628 -
Net loss for the year ended
December 31, 1995 - - - (99,438)
Balance, December 31,
1995 7,133,416 7,134 125,167 (100,438)
Issuance of common stock
for cash at various dates
at approximately $0.17 per
share 466,584 466 78,233 -
Common stock issued in
recapitalization 400,000 400 (400) -
Issuance of common stock
for cash at various dates
at $1.00 per share 44,000 44 43,956 -
Issuance of common stock
to acquire 100% of
Sierra-Net, Inc. 730,000 730 96,370 -
Issuance of common stock
to acquire 100% of Global
Tours, Inc. 500,000 500 242 -
Net loss for the nine
months ended September
30, 1996 - - - (25,418)
Balance, September 30,
1996 9,274,000 $ 9,274 $ 443,568 $(125,856)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) $ 24,803 $(43,511) $ (25,418) $(78,383)
Adjustments to reconcile
net income (loss) to net
cash provided (used) by
operating activities:
Depreciation and
amortization 22,980 24,599 - -
Unrealized gain - - (750) -
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable (135,573) - (146,995) -
(Increase) decrease in
receivable -
related parties (302) (3,582) (7,763) (3,582)
(Increase) decrease in
prepaid expenses 74 - 74 -
(Increase) decrease in
other assets 5,450 - 5,450 -
Increase (decrease )in
accounts payable 16,934 13,823 18,179 86,305
Increase (decrease) in
accrued expenses 4,075 (4,070) 43,736 (4,070)
Increase (decrease) in
payable to officer 2,200 - (760) 2,802
Net Cash Provided (Used)
in Operating Activities (19,359) (37,340) (89,648) 3,072
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of marketable
securities - - (4,200) -
Cash acquired through
investment in subsidiary - - 30,880 -
Purchase of office
equipment (38,949) (5,793) (38,949) (10,917)
Net Cash Used in
Investing Activities $(38,949) $ (5,793) $(12,269)$(10,917)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from loans $ 14,000 $ - $ 14,000 $ -
Sale of common stock 44,000 20,000 122,699 20,000
Net Cash Provided from
Financing Activities 58,000 20,000 136,699 20,000
NET INCREASE (DECREASE)
IN CASH (308) (23,133) 34,782 12,155
CASH BEGINNING OF PERIOD 57,470 35,288 22,380 -
CASH END OF PERIOD $57,162 $12,155 $57,162 $12,155
CASH PAID FOR
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ - $ -
SUPPLEMENTAL INFORMATION
Stock issued to acquire
Global Tours, Inc. $135,000 $ - $ 135,000 $ -
Stock issued to acquire
Sierra-Net, Inc. $197,100 $ - $ 197,100 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 1996 and December 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The accompanying consolidated financial statements include the
accounts of Net Telecommunications, Inc. (Net Tel) and its three
wholly-owned subsidiaries, Long Distance International (LDI), Sierra-Net,
Inc. (Sierra), and Global Tours, Inc. (Global). Collectively,
they are referred to herein as "the Company." All significant
intercompany accounts and transactions have been eliminated.
Net Tel was originally incorporated under the laws of the State of
Nevada under the name of Silver Ledge, Inc. Net Tel has been in the
business of manufacturing and selling steel and steel related products
such as wood burning stoves. In connection with the reorganization
described below, Net Tel has disposed of its steel related business
and changed its name to Net Telecommunications, Inc.
LDI was incorporated under the laws of the State of Nevada on October
24, 1994. LDI started its operations in May of 1995 primarily as a
reseller of long distance telephone services.
Net Tel issued 6,000,000 shares of common stock in exchange for all
the outstanding shares of LDI and 1,600,000 shares to various
consultants in connection with the exchange. The consolidated
financial statements have been prepared as a recapitalization of LDI
and all significant inter-company transactions have been eliminated.
The Company started its operations in May of 1995 primarily as a
reseller of long distance services. Effective July 1, 1996, Net Tel
issued 730,000 shares of its common stock for 100% of Sierra-Net, Inc.
Also, effective July 1, 1996, Net Tel issued 500,000 shares of its
common stock for 100% of Global Tours, Inc. Both acquisitions have
been recorded under the purchase method in the accompanying
consolidated financial statements.
Sierra-Net, Inc. was incorporated on April 1, 1995 in the State of
Nevada. Sierra provides Internet access services to individuals and
businesses in the States of Nevada and California.
Global Tours, Inc. was incorporated on February 27, 1995 in the State
of Nevada. Global sells discount travel voucher packages through
telemarketing.
b. Accounting Method
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has elected a December 31
year end.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 1996 and December 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months
or less to be cash equivalents.
d. Earnings (Loss) Per Share
The computation of earnings (loss) per share of common stock is based
on the weighted average number of shares outstanding during the
periods presented.
e. Income Taxes
Due to no net income at September 30, 1996 and December 31, 1995, no
provision for income taxes has been made. There are no deferred
income taxes resulting from income and expense items being reported
for financial accounting and tax reporting purposes in different
periods.
f. Property and Equipment
The cost of the property and equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is
computed using accelerated methods.
g. 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.
h. Other Assets
Other assets include goodwill resulting from the purchase of Global
Tours, Inc. and Sierra Net, Inc. in the amount of $309,720. Goodwill
is amortized over a five year period. Accumulated amortization of
goodwill was $15,486 at September 30, 1996.
NOTE 2 - COMMON STOCK TRANSACTIONS
At inception of the Company, initial stockholders were issued shares
of the Company's common stock for services valued at $1,000. On
November 23, 1994, shares of common stock of the Company were
exchanged for $60,000 of debt.
During 1995 and 1996, the Company sold additional shares of its common
stock for cash. During 1995, shares were sold for $71,301 and during
the nine months ended September 30, 1996, additional shares of stock
were sold for $122,699.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 1996 and December 31, 1995
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company shares office space and employee services with another
organization that is related by management and stock ownership. At
September 30, 1996 and December 31, 1995, this same related
organization owed the Company $22,827 and $5,120, respectively.
Certain officers of the Company, one of which is also a stockholder,
have paid expenses on behalf of the organization which were
unreimbursed and due to them at September 30, 1996 and December 31,
1995. The amounts owed were $7,643 at September 30, 1996 and $6,555
at December 31, 1995.
NOTE 4 - INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" (SFAs 109). SFAS 109 is an
asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences,
SFAS 109 generally considers all expected future events other than
enactments of changes in the tax law or rates. For tax purposes, the
Company has available at December 31, 1995 a net operating loss
carryforward for federal income tax purposes of approximately $108,000
which will expire in 2011. The tax benefit of the net operating loss
carrryforwards is offset by a valuation allowance of the same amount
due to the uncertainty that the carryforwards will be used before they
expire.
NOTE 5 - AGREEMENTS
The Company has entered into an agreement with LCI International, Inc.
(LCI). LCI appointed the Company as a non-exclusive representative
to promote the sale of and solicit orders for LCI long distance
telephone services. The Company receives commissions for the sale of
the above services at 10% of monthly collected revenue for 12 months.
After 12 months the commission rate varies from 5% to 15% based on
various monthly collected revenue levels per different types of name
long distance services as outlined in the agreement and its
amendments.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 1996 and December 31, 1995
NOTE 5 - AGREEMENTS (Continued)
The Company has also entered into an agreement with Metrocom
Corporation (Metrocom). Metrocom appointed the Company as a non-exclusive
representative to sell and solicit orders for Metrocom long
distance telephone services. The Company also gets commissions on
this agreement based on a complicated commission schedule with rates
from 5% to 30% as outlined in the agreement per certain volume levels
of orders obtained. During the nine months ended September 30, 1996
and the year ended December 31, 1995, 97% and 100%, respectively, of
the commissions received were from LCI.
The Company has consultant agreements with individuals and other
organizations to pay commissions of 5% to 6% on billed long distance
minus taxes and discounts.
The Company has agreements with two former employees. Under the
agreement, funds advanced to the employees after their termination
were to be treated as loans and repaid at future dates through payroll
deductions when hired again. The advances were recorded as loans
receivable at September 30, 1996 and December 31, 1995 in a total
amount of $8,000. Due to the uncertainty as to collectibility a
valuation allowance was applied against the loans in the balance
sheets at September 30, 1996 and December 31, 1995.
NOTE 6 - NOTE PAYABLE
The Company entered into a non-interest bearing note payable on
September 18, 1996 for $15,000. The Company is obligated to pay a
monthly installment of $1,000 for 15 months. At September 30, 1996,
$14,000 remained unpaid. The note matures on November 19, 1997.
NOTE 7 - GOING CONCERN
The Company has experienced losses of $9,932 and $99,438 for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively. The Company has yet to generate sales or revenue to
cover operations to date, and it can't be assured that sales will be
enough to cover future expenses. In light of the above circumstances,
the ability of the Company to continue as a going concern is
substantially in doubt. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Management believes their plans will provide the Company with the
ability to continue in existence. Management completed a corporate
reorganization. The Company also plans to take steps to reduce
expenses and enhance sales. However, there can be no assurance, that
the Company will achieve profitability or positive cash flow.
<PAGE>
NET TELECOMMUNICATIONS, INC.
(Formerly Silver Ledge, Inc.)
Notes to the Consolidated Financial Statements (Unaudited)
September 30, 1996 and December 31, 1995
NOTE 8 - CONTINGENCIES
In connection with the limited offering of the Company's common stock
(see Note 2), an offer was made to a resident of the State of
Pennsylvania, without filing the required Notice with the Pennsylvania
Securities Commission to claim the appropriate exemption. A Recission
Offer was sent to this person. The person has returned the Recission
Offer and has rejected it.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
None; not applicable.
Item 2. Changes in Securities.
----------------------
None; not applicable.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None; not applicable.
Item 5. Other Information.
------------------
None; not applicable.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated July 5, 1996
Current Report on Form 8-K, dated August 1, 1996
Current Report on Form 8-K, dated August 24, 1996
SIGNATURES
Pursuant to the requirements 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.
NET TELECOMMUNICATIONS, INCORPORATED
Date: 12-12-96 /s/ Michael W. Gorts
-------- -------------------------------
Michael W. Gorts, President and
Director
Date: 12/12/96 /s/ Douglas Staite
-------- ------------------------------
Douglas Staite, Secretary/Treasurer
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090357
<NAME> BRANDEN T. BURNINGHAM
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 57,162
<SECURITIES> 0
<RECEIVABLES> 172,694
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 254,283
<PP&E> 102,281
<DEPRECIATION> 7,296
<TOTAL-ASSETS> 659,863
<CURRENT-LIABILITIES> 321,877
<BONDS> 0
0
0
<COMMON> 9,274
<OTHER-SE> 317,712
<TOTAL-LIABILITY-AND-EQUITY> 659,863
<SALES> 756,410
<TOTAL-REVENUES> 756,410
<CGS> 145,833
<TOTAL-COSTS> 145,833
<OTHER-EXPENSES> 635,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (25,418)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,418)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,418)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
