<PAGE>
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 March 31, 1997
[ ] 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
--- --- --- ---
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not applicable.
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:
August 28, 1997
9,222,981
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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.
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<TABLE>
NET TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Balance Sheets
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash in bank $ 8,698 $ 15,742
Prepaid expenses 11,738 17,485
Total Current Assets 20,436 33,227
PROPERTY AND EQUIPMENT
Leasehold improvements 5,000 -
Office equipment 17,363 17,363
Furniture 5,925 5,925
Less - accumulated depreciation (5,989) (5,196)
Property and Equipment - net 22,299 18,092
OTHER ASSETS 41,727 25,476
TOTAL ASSETS $ 84,462 $ 76,795
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 54,183 $ 40,846
Accrued expenses 5,500 4,384
Note payable - current portion - 19,312
Total Current Liabilities 59,683 64,542
LONG-TERM DEBT 228,000 65,688
Total Liabilities 287,683 130,230
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; par value $0.001; 50,000,000 authorized,
8,318,892 issued and outstanding 8,319 8,319
Additional paid-in capital 849,920 849,920
Subscriptions receivable (358,998) (358,998)
Deficit accumulated during the development
stage (702,462) (552,676)
Total Stockholders' Equity (Deficit) (203,221) (53,435)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 84,462 $ 76,795
</TABLE>
<TABLE>
NET TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
From
Inception on
October 24,
For the Three Months Ended 1994 Through
March 31, March 31,
1996 1997 1997
<S> <C> <C> <C>
NET SALES $ 9,764 $ 10,036 $ 50,354
EXPENSES
Depreciation and amortization 809 793 5,989
General and administrative 26,432 159,029 510,586
Total Expenses 27,241 159,822 516,575
LOSS FROM OPERATIONS (17,477) (149,786) (466,221)
OTHER EXPENSE
Interest expense - - 13,869
Total Other Expense - - 13,869
LOSS BEFORE DISCONTINUED OPERATIONS (17,477) (149,786) (480,090)
DISCONTINUED OPERATIONS - - (222,372)
NET LOSS $ (17,477) $ (149,786) $ (702,462)
LOSS PER SHARE $ (0.00) $ (0.02)
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,318,892 8,318,892
</TABLE>
<TABLE>
NET TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage
<S> <C> <C> <C> <C>
Balance, December 31, 1995 5,434,158 $5,435 $ 126,866 $ (100,438)
Issuance of common stock
for cash at various
dates at approximately
$0.14 per share 565,362 565 78,134 -
Common stock issued in
recapitalization 2,000,000 2,000 (2,000) -
Issuance of common stock
for cash at various
dates at $1.00 per share 47,000 47 46,953 -
Issuance of common stock
for cash at $0.10
per share on July 3, 1996 50,000 50 4,950 -
Issuance of common stock
in failed acquisitions 222,372 222 222,150 -
Options granted at $0.06
per share - - 372,867 -
Net loss for the year ended
December 31, 1996 - - - (452,238)
Balance, December 31, 1996 8,318,892 8,319 849,920 (552,676)
Net loss for the three
months ended March 31,
1997 (Unaudited) - - - (149,786)
Balance, March 31, 1997
(Unaudited) 8,318,892 $8,319 $849,920 $ (702,462)
</TABLE>
<TABLE>
NET TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
From
Inception on
October 24,
For the Three Months Ended 1994 Through
March 31, March 31,
1996 1997 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (17,477) $ (149,786) $ (702,462)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 809 793 5,989
Loss on rescinded acquisition (750) - 222,372
Issuance of stock options - - 13,869
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (4,122) - -
(Increase) decrease in receivable-
related parties - - -
(Increase) decrease in prepaid
expenses - 5,747 (11,738)
(Increase) decrease in other assets (4,200) (16,251) (41,727)
Increase (decrease )in accounts
payable 9,512 13,337 56,837
Increase (decrease) in accrued
expenses 113 1,116 5,500
Increase (decrease) in payable to
officer (972) - (2,654)
Net Cash Used in Operating
Activities (17,087) (145,044) (454,014)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (5,000) (28,288)
Net Cash Used in Investing
Activities $ - $ (5,000) $ (28,288)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans $ - $143,000 $ 228,000
Sale of common stock 49,331 - 263,000
Net Cash Provided from
Financing Activities 49,331 143,000 491,000
NET INCREASE (DECREASE) IN CASH 32,244 (7,044) 8,698
CASH BEGINNING OF PERIOD 22,380 15,742 -
CASH END OF PERIOD $ 54,624 $ 8,698 $ 8,698
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
CASH PAID FOR
Interest $ - $ - $ -
Income taxes $ - $ - $ -
NON CASH FINANCING
Issuance of stock options $ - $ - $ 372,867
</TABLE>
NET TELECOMMUNICATIONS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the Registrant s December
31,1996 Annual Report on Form 10KSB. The results of operations for the
periods ended March 31, 1997 and 1996 are not necessarily indicative of
operating results for the full years.
The consolidated financial statements and other information furnished
herein reflect all adjustments which are, in the opinion of management of the
Registrant, necessary for a fair presentation of the results of the interim
periods covered by this report.
Item 2. Management's Discussion and Analysis or Plan of Operation.
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Plan of Operation.
- ------------------
As of April 15, 1997, which is subsequent to the period covered by this
Report, the Company's Siemens switch is fully operational and customers are
being fully serviced. Additional customers will be solicited on an ongoing
basis. The Company began receiving revenues from these customers in July,
1997.
The Company's objective is to reach a volume of revenues that would
enable it to be classified as a second-level long distance company with annual
revenues in excess of $100 million. In order to reach this level, the Company
will continue to increase revenue, improve cash flows and increase earnings by
implementing the following business strategies.
Nationwide Origination
- ----------------------
The Company provides nationwide origination and termination of long
distance services. This enables retail, agent and wholesale reseller customers
to be added in any of the 50 United States, thereby enabling expansion to
occur on a national, rather than regional, basis.
Build Call Volume
- -----------------
In order to reach certain economics of scale, the Company will
continue to focus on building minutes of long distance traffic by region, to
defined levels, prior to establishing an independent switching system for that
region. This strategy allows the Company to build call volumes within
geographic areas without incurring large capital expenditures for switching
equipment until the call volumes meet an acceptable predefined level. Once the
Company has established the call volumes to an acceptable level, the Company
can reduce its cost of transmission by establishing a switching system.
The management of the Company is experienced at traffic engineering,
utilized to evaluate the optimum network configuration which will reduce the
Company's costs. Retail, agent and wholesale customers will receive the
benefits of a network configuration that provides for lower cost transmission
in markets where call volume is high and supported by the Company's switching
systems. In addition, due to the Company's large volume of traffic, the
Company has negotiated long distance facility arrangements that allow it to
provide a low cost per minute in the other areas in which it operates.
Consolidation to Support Marketing
- ----------------------------------
The Company has a strategic plan for acquiring small and medium-size
long distance telephone companies as a method of achieving controlled growth.
The size of the acquisition targets is a key concept in the Company's
acquisition strategy. Combining smaller and medium-size long distance
companies creates large gains in market share and immediate operating
improvements through economies of scale. The Company's plan is to use the
consolidation of other long distance companies operating throughout the United
States into a platform to serve the sales made by retail, agent and wholesale
resellers.
The Company has and will seek additional affiliations with existing
marketers of long distance telephone services, agents and wholesale resellers,
which sell to their end users' long distance telecommunications services that
utilize the Company's existing relationships and facilities. These marketing
companies supplement the Company's direct sales staff and act as the Company's
nationwide distribution channel.
Results of Operations.
- ----------------------
Net sales for the quarterly periods ended March 31, 1997, and March
31, 1996, were $10,036 and $9,764, respectively. Total expenses during these
periods were $159,822 and $27,241, resulting in losses from operations of
$149,786 and $17,477, respectively. Loss per share in the quarterly period
ended March 31, 1997, was $0.02, as compared to a net loss per share of $0.00
in the quarterly period ended March 31, 1996.
Liquidity.
- ----------
The Company has been able to meet all of its cash needs up to the time
that revenue from the sale of its services began to be received. As of the
date of this Report, management expects that the Company will be able to meet
its liquidity requirements through such revenues. It is not anticipated that
the Company will be required to raise additional capital through borrowing or
by selling additional securities during the next 12 months, although there can
be no guarantee that such activities will not become necessary in the future.
It is not anticipated that the Company will be required to purchase
any plant or significant equipment in the next 12 months.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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None; not applicable.
Item 2. Changes in Securities.
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None; not applicable.
Item 3. Defaults Upon Senior Securities.
- ------------------------------------------
None; not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
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None; not applicable.
Item 5. Other Information.
- ----------------------------
Pursuant to a Rescission Agreement dated February 11, 1997, the
Agreement and Plan of Merger by which Global Tours, Inc., a Nevada corporation
("Global") merged with and into Second Net Telecommunications Subsidiary,
Incorporated (the "Global Plan") was rescinded by the cancellation of 483,871
shares that were issued pursuant to the Global Plan, and 16,129 shares were to
remain outstanding of those issued pursuant to the Global Plan. This
rescission was fully disclosed in the Company's Current Report on Form 8-K-A1,
dated August 24, 1996, which was filed with the Securities and Exchange
Commission on March 20, 1997, and which is incorporated herein by reference.
See the Exhibit Index, Item 6 of this Report.
On February 4, 1997, the Company executed a Promissory Note and a
Loan Agreement whereby it formalized a loan of $300,000 from Bentley King
Associates, Inc., a Delaware corporation ("Bentley King"). Under the terms of
the Loan Agreement, Bentley King made three incremental payments to the
Company as follows: $55,000 on November 11, 1996; $30,000 on December 13,
1996; and $30,000 on January 17, 1997, with the balance of $185,000 to be
funded on an "as needed" basis on or before June 1, 1997. As of the date of
this Report, the Company has received the total amount of $300,000 under the
Loan Agreement, plus an additional $300,000 pursuant to a loan agreement that
has not yet been formalized.
The Bentley King loan bears interest at the rate of 10% per annum
and will be fully due and payable on October 31, 2000. Commencing on November
1, 1997, the loan will be self-amortizing for the principal and all interest
accruing to November 1, 1997, with payments to be due annually commencing on
that date.
The Loan Agreement also required that the Company form a wholly-owned
subsidiary, NTI Telecom, Inc., a Nevada corporation, ("NTI"), to acquire
equipment and operate as a telecommunications long distance service provider.
As further partial consideration, the Company granted to Bentley King options
to purchase 1,400,000 shares of its common stock at a price of $0.06 per
share, exercisable at any time during the term of the loan. If the Company
prepays the loan, the options shall be exercisable until October 31, 2000.
As further conditions of the loan, on February 4, 1997, the Company executed a
Security Agreement and a Collateral Pledge Agreement whereby the it pledged
all issued and outstanding shares of common stock of NTI as collateral for
repayment of the loan. Also on February 4, 1997, NTI executed a Guaranty
whereby it guaranteed repayment of the loan. True and correct copies of the
Promissory Note, Loan Agreement, Security Agreement, Collateral Pledge
Agreement and Guaranty are attached as exhibits to the Company's Annual Report
on Form 10-KSB for the calendar year ended December 31, 1996, which is filed
concurrently herewith.
NTI Telecom was incorporated in the State of Nevada on January 27,
1997.
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits.
Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K-A1, dated August 24, 1996, and filed
with the Securities and Exchange Commission on March 20, 1997.
<PAGE>
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: 10-7-97 By /s/ Michael W. Gorts
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Michael W. Gorts
Director and President
Date: 10/7/97 By /s/ Tony Tegano
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Tony Tegano
Chairman of the Board
Date: 10/6/97 By /s/ Lonnie Ellis
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Lonnie Ellis
Director
Date: 10/6/97 By /s/ Annette Moreno
-------------- -------------------------------------
Annette Moreno
Secretary/Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000090357
<NAME> NET TELECOMMUNICATIONS, INCORPORATED
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,698
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,436
<PP&E> 28,288
<DEPRECIATION> 5,989
<TOTAL-ASSETS> 84,462
<CURRENT-LIABILITIES> 59,683
<BONDS> 0
0
0
<COMMON> 8,319
<OTHER-SE> (211,540)
<TOTAL-LIABILITY-AND-EQUITY> 84,462
<SALES> 10,036
<TOTAL-REVENUES> 10,036
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 159,822
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (149,786)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,786)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
