<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 September 30, 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
------------------------
(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:
January 22, 1998
9,703,006
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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.
Balance Sheets
<CAPTION>
ASSETS
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Cash in bank $ 23,308 $ 15,742
Accounts receivable - net of
allowance for uncollectible
accounts of $4,380 and $0,
respectively 24,030 -
Prepaid expenses 7,996 17,485
Total Current Assets 55,334 33,227
PROPERTY AND EQUIPMENT
Leasehold improvements 31,613 -
Office equipment 18,122 17,363
Furniture 5,925 5,925
Less - accumulated depreciation (12,575) (5,196)
Property and Equipment - net 43,085 18,092
OTHER ASSETS 422,414 25,476
TOTAL ASSETS $ 520,833 $ 76,795
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 99,028 $ 40,846
Accrued expenses 5,903 4,384
Note payable - current portion - 19,312
Total Current Liabilities 104,931 64,542
LONG-TERM DEBT 1,174,406 65,688
Total Liabilities 1,279,337 130,230
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 (1,257,745) (552,676)
Total Stockholders' Equity
(Deficit) (758,504) (53,435)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 520,833 $ 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 For the Nine Months 1994 Through
Ended September 30, Ended September 30, September 30,
1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
NET SALES $ 39,578 $ 4,535 $56,682 $ 20,390 $ 97,000
EXPENSES
Depreciation and
amortization 793 1,122 7,379 2,741 12,575
General and
administrative 318,816 44,743 754,372 109,199 1,105,929
Total Expenses 319,609 45,865 761,751 111,940 1,118,504
LOSS FROM OPERATIONS (280,031) (41,330) (705,069) (91,550) (1,021,504)
OTHER EXPENSE
Interest expense - - - - 13,869
Total Other Expense - - - - 13,869
LOSS BEFORE DISCONTINUED
OPERATIONS (280,031) (41,330) (705,069) (91,550) (1,035,373)
DISCONTINUED OPERATIONS - - - - (222,372)
NET LOSS $ (280,031) $(41,330) $705,069) $(91,550)$(1,257,745)
LOSS PER SHARE $ (0.03) $ (0.01) $ (0.08) $ (0.01)
WEIGHTED AVERAGE
SHARES OUTSTANDING 8,318,892 7,893,531 8,318,892 6,402,876
</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
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 nine
months ended September
30, 1997 (Unaudited) - - - (705,069)
Balance, September 30, 1997
(Unaudited) 8,318,892 $8,319 $ 849,920 $(1,257,745)
</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 For the Nine Months 1994 Through
Ended September 30, Ended September 30, September 30,
1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Income (loss) $(280,031) $ (41,330) $(705,069) $ (91,550)$(1,257,745)
Adjustments to
reconcile net
income (loss) to net
cash provided (used)
by operating
activities:
Depreciation and
amortization 793 1,122 7,379 2,741 12,575
Bad debt expense 4,380 - 4,380 - 4,380
Loss on rescinded
acquisition - - - (750) 222,372
Issuance of stock options - - - - 13,869
Change in assets and liabilities:
(Increase) decrease in
accounts receivable (28,410) 13,407 (28,410) 1,985 (28,410)
(Increase) decrease in
receivable-related
parties - (713) - (8,174) -
(Increase) decrease in
prepaid expenses 5,747 74 9,489 74 (7,996)
(Increase) decrease in
other assets (235,909) 1,254 (396,938) (2,946) (422,414)
Increase (decrease) in
accounts payable (12,162) (3,180) 58,182 (1,935) 99,028
Increase (decrease) in
accrued expenses (959) 1,355 1,519 1,015 5,903
Increase (decrease) in
payable to officer - 4,000 - 1,040 -
Net Cash Used in
Operating Activities (546,551) (24,011)(1,049,468) (98,500) (1,358,438)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment (15,869) (35,047) (32,372) (35,047) (55,660)
Net Cash Used in
Investing Activities $(15,869) $ (35,047) $(32,372) $(35,047) $ (55,660)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from loans $562,406 $ - $1,089,406 $ - $1,174,406
Sale of common stock - 44,000 - 122,699 263,000
Net Cash Flows from
Financing Activities 562,406 44,000 1,089,406 122,699 1,437,406
NET INCREASE (DECREASE)
IN CASH (14) (15,058) 7,566 (10,848) 23,308
CASH BEGINNING OF PERIOD 23,322 26,590 15,742 22,380 -
CASH END OF PERIOD $ 23,308 $ 11,532 $ 23,308 $ 11,532 $ 23,308
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION
Interest $ - $ - $ - $ - $ 13,869
Income taxes $ - $ - $ - $ - $ -
NON CASH FINANCING
Issuance of stock
options $ - $ - $ - $ - $ 372,867
<PAGE>
NET TELECOMMUNICATIONS, INC.
Notes to the Financial Statements
September 30, 1997 and December 31, 1996
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 10-KSB. The
results of operations for the periods ended September 30, 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.
- --------------------------------------------------------------------
Plan of Operation.
- ------------------
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 September 30, 1997, and
September 30, 1996, were $39,578 and $4,535, respectively. Total expenses
during these periods were $319,609 and $45,865, resulting in losses from
operations of $280,031 and $41,330, respectively. Loss per share in the
quarterly period ended September 30, 1997, was $0.03, as compared to a net
loss per share of $0.01 in the quarterly period ended September 30, 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.
- ----------------------------
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.
None; not applicable.
<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: 1/22/98 By /s/ Michael W. Gorts
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Michael W. Gorts
Director and President
Date: 1/22/98 By /s/ Tony Tegano
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Tony Tegano
Chairman of the Board
Date: 1-22-98 By /s/ Lonnie Ellis
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Lonnie Ellis
Director
Date: 1/22/98 By /s/ Annette Moreno
-------------- -------------------------------------
Annette Moreno
Secretary/Treasurer
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 23308
<SECURITIES> 0
<RECEIVABLES> 28410
<ALLOWANCES> 4380
<INVENTORY> 0
<CURRENT-ASSETS> 55334
<PP&E> 55660
<DEPRECIATION> 12575
<TOTAL-ASSETS> 520833
<CURRENT-LIABILITIES> 104931
<BONDS> 0
0
0
<COMMON> 8319
<OTHER-SE> (750185)
<TOTAL-LIABILITY-AND-EQUITY> 520833
<SALES> 56682
<TOTAL-REVENUES> 56682
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 761751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (705069)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (705069)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
