SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
Form 10-QSB
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2001 OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________ to ____________
Commission File Number: 000-27699
ePHONE Telecom, Inc.
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(Exact name of small business issuer as specified in its charter)
Florida 98-020-4749
- --------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1145 Herndon Parkway
Herndon, Virginia 20170-5535
--------------------------------------------------------------
(Address of principal executive offices and Zip (Postal) Code)
(703) 787-7000
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes _X_ ; No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the Company has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. YES n/a NO n/a
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of March 31, 2001, the
Company had outstanding 17,853,848 shares of Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: (check one): Yes ; No X
---- ----
ePHONE Telecom, Inc.
FORM 10 - QSB
For the Period Ended March 31, 2001
INDEX
PART I. FINANCIAL INFORMATION.............................................1
Item I. Financial Statements (unaudited)
Balance sheet - March 31, 2001 and December 31, 2000 .....................2
Statements of operations - three months
ended March 31, 2001 and 2000 and for the period April 30, 1996
(inception) to March 31, 2001 ..........................................3
Statements of cash flows - three months
ended March 31, 2001 and 2000 and for the period April 30, 1996
(inception) to March 31, 2001 ............................................4
Notes to financial statements ............................................5
Item II. Management's Discussion and Analysis or Plan of Operation .......8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................10
Item 2. Changes in Securities.........................................10
Item 3. Defaults Upon Senior Securities...............................10
Item 4. Submission of Matters to a Vote of Security-Holders...........10
Item 5. Other Information.............................................10
Item 6. Exhibits and Reports on Form 8-K..............................10
Signatures................................................................10
ePHONE Telecom, Inc.
(A Development Stage Company)
Balance Sheets
(unaudited)
March 31 December 31,
2001 2000
----------- -----------
Current Assets:
Cash and cash equivalents ................................................. $ 469,147 $ 1,525,978
Investment in marketable securities ....................................... 1,363,653 2,170,908
Restricted cash ........................................................... -- 579,435
Accounts receivable ....................................................... 134,848 39,200
Inventory ................................................................. 533,047 553,218
Other receivables ......................................................... 7,516 18,893
----------- -----------
Total Current Assets ................................................. 2,508,211 4,887,632
Property and Equipment, net .................................................... 1,053,777 999,902
Array Telecom Lease, net ...................................................... 1,472,378 1,663,942
Investment in ePHONE Technologies, Inc. ....................................... 185,000 185,000
Other Assets ................................................................... 122,543 102,543
----------- -----------
Total Assets ................................................................... $ 5,341,909 $ 7,839,019
=========== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable .......................................................... $ 278,960 $ 309,258
Accrued liabilities ....................................................... 744,762 1,169,244
Customer advances ......................................................... 25,853 25,853
----------- -----------
Total Current Liabilities ............................................ 1,049,575 1,504,355
----------- -----------
Deferred royalty obligation ................................................... 546,667 410,000
Stockholders' Equity:
Common stock, par value $0.001
Authorized: 150,000,000 at March 31, 2001
and December 31, 2000
Issued and Outstanding: 17,853,848 and 17,453,848
at March 31, 2001 and December 31, 2000, respectively................ 17,854 17,454
Additional paid in capital ................................................ 21,326,787 21,204,687
Accumulated other comprehensive income .................................... 4,191 22,221
Deficit accumulated during the development stage .......................... (17,603,165) (15,319,698)
----------- -----------
Total Stockholders' Equity ................................ 3,745,667 5,924,664
----------- -----------
Total Liabilities and Stockholders' Equity ..................................... $ 5,341,909 $ 7,839,019
=========== ===========
See accompanying notes to financial statements.
1
ePHONE Telecom, Inc.
(A Development Stage Company)
Statements of Operations
(unaudited)
Three Months Ended April 6,1998
March 31, (inception) to
2001 2000 March 31, 2001
---------- -------- -----------------
Net revenues ..................... $ 419,200 $ -- $ 1,009,023
Operating expenses
Cost of revenues .............. 272,392 -- 683,942
Sales and marketing ........... 682,551 142,080 2,755,399
General and administrative..... 1,721,823 568,860 7,496,078
General and administrative -
non-cash compensation ...... 122,500 -- 7,959,070
------------ ------------ ------------
Total operating expenses $ 2,799,266 710,940 18,894,489
------------ ------------ ------------
Loss from operations.............. (2,380,066) (710,940) (17,885,466)
Interest and other (income), net (96,599) -- (290,301)
------------ ------------- -------------
Net Loss ......................... $ (2,283,467) $(710,940) $ (17,595,195)
============ ============= =============
Loss per share -(basic and diluted)$ (0.13) $ (0.05)
============ =============
Weighted average number of common
shares outstanding................ 17,489,404 13,286,756
============ =============
See accompanying notes to financial statements.
2
ePHONE Telecom, Inc.
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
April 6, 1998
Three Months Ended (Inception) to
March 31, March 31, 2001
------------------------- -----------------
2001 2000
---- ----
Cash Flows from Operating Activities:
Net loss .................................................... $ (2,283,467) $ (710,940) $(17,595,165)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and Amortization........................... 242,097 17,560 939,364
Fair value of stock issued charged to operations ...... 122,500 -- 4,692,779
Stock option benefits charged to operations ............ -- -- 3,266,291
Deferred royalty expense .............................. 136,667 -- 546,667
Realized gain ......................................... (33,757) -- (33,757)
Changes in operating assets and liabilities:
Accounts receivable and other receivables (84,271) -- (142,364)
Inventory............................................ 20,171 -- (533,047)
Other assets......................................... (20,000) -- (122,543)
Accounts payable .................................... (30,298) 123,385 278,961
Accrued liabilities ................................. (424,482) 242,444 744,762
Due to related parties .............................. -- 4,900 --
Customer deposits.................................... -- -- 25,853
----------- ----------- -----------
Net cash flows used in operating activities ................. (2,354,840) (322,651) (7,932,199)
=========== =========== ===========
Cash flow from investing activities:
Purchase of fixed assets ............................... (104,408) (463,890) (1,261,931)
Purchase of Array telecom license ...................... -- (2,207,440) (2,218,589)
Purchase of investments................................. -- -- (2,798,687)
Redemption of marketable securities .................... 822,982 -- 1,472,982
Deposit to restricted cash, net......................... 579,435 (1,000,120) --
Investment in ePHONE Technologies, Inc.................. -- -- (170,000)
----------- ----------- -----------
Net cash flows provided by (used in) investing activities ... 1,298,009 (3,671,450) (4,976,225)
=========== =========== ===========
Cash flow from financing activities:
Proceeds from issuance of common stock ................. -- 250,000 1,228,000
Proceeds from issuance of special warrants, net ........ -- 7,219,036 12,149,571
----------- ----------- -----------
Net cash flows provided by financing activities ............. -- 7,469,036 13,377,571
=========== =========== ===========
Net (decrease) increase in cash and cash .................... (1,056,831) 3,474,935 469,147
equivalents
Cash and cash equivalents, beginning of period .............. 1,525,978 82,747 --
----------- ----------- -----------
Cash and cash equivalents, end of period .................... $ 469,147 $ 3,557,682 $ 469,147
=========== =========== ===========
See accompanying notes to financial statements.
3
ePHONE Telecom, Inc.
(A Development Stage Company)
Notes to Financial Statements
(unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ePHONE Telecom, Inc. was incorporated in 1996 under the laws of the State of
Florida, and is traded on the OTC Electronic Bulletin Board operated by the
National Association of Securities Dealers, Inc. under the trading symbol
"EPHO".
The Company's vision is to become a global telecommunications carrier providing
a full complement of telecommunications services, including phone-to-phone
one-step dialing, using Voice over Internet Protocol ("VoIP") technology. Using
a call origination approach that involves its own Customer Premise Equipment
("CPE"), and a combination of its own dedicated Internet Protocol ("IP")
network, the public Internet and the public switched telephone network ("PSTN"),
the Company plans to develop the capacity to provide voice and fax transmission
and other telephony features at high quality and low cost.
The Company has prepared the accompanying unaudited financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission.
These financial statements should be read together with the financial statements
and notes in the Company's 2000 Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. The accompanying financial statements reflect all
adjustments and disclosures, which in our opinion are necessary for fair
presentation. All such adjustments are of a normal recurring nature. The results
of operations for the interim periods are not necessarily indicative of the
results of the entire year.
BASIS OF PRESENTATION
The Company is a development stage company as defined in Statement of Financial
Accounting Standard ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises" and, since its incorporation, has engaged in organizational
activities and in the development of its VoIP technology.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions about amounts that affect the reported amounts in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
4
RECLASSIFICATIONS
Certain 2000 balances and disclosures have been reclassified to conform to the
2001 presentation.
NOTE 2 - GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets, and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements the Company has incurred losses since its inception and has an
accumulated deficit of $17,603,165 (unaudited) and $15,319,698 at March 31, 2001
and December 31, 2000, respectively.
The Company's continuation as a going concern is dependent upon its ability to
raise additional financing to successfully develop and introduce its products to
market. These factors among others may indicate that the Company will be unable
to continue as a going concern. The Company is actively pursuing additional
equity financing to provide the necessary funds for working capital and to
obtain the necessary funds for planned acquisitions and strategic partnerships.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2001 and 2000 the Company incurred costs
for management services provided by companies in which certain directors of the
Company have a controlling interest and incurred consulting fees to certain
directors of the Company totaling $39,000 and $50,000, respectively.
During the three months ended March 31, 2001, the Company paid $180,000 to
ePHONE Technologies, Inc, a related party, for consulting services.
The Company established a $20,453 reserve related to the sale of equipment to a
related party company during the three months ended March 31, 2001. In addition,
the Company paid consulting fees of $10,000 to this related party company.
NOTE 4 - MARKETABLE INVESTMENTS
The Company's available-for -sale investments consisted of debt instruments
issued by federal and state government agencies. Contractual maturities of
available-for-sale debt securities were as follows:
March 31, 2001 Market Unrealized
Cost Value Gain (Loss)
---------- ---------- ---------
Mature within one year $ 767,906 $ 776,803 $ 8,897
Mature in one to five years 591,556 586,850 (4,706)
---------- ---------- ---------
Total available-
for-sale securities $ 1,359,462 $ 1,363,653 $ 4,191
========== ========== =========
December 31, 2000 Market Unrealized
Cost Value Gain (Loss)
---------- ---------- ---------
Mature within one year $ 1,557,131 $ 1,588,929 $ 31,798
Mature in one to five years 591,556 581,979 (9,577)
---------- ---------- ---------
Total available-
for-sale securities $ 2,148,687 $ 2,170,908 $ 22,221
========== ========== =========
During the three months ended March 31, 2000, the Company redeemed $822,922 of
available-for-sale debt securities.
5
Note 5- STOCKHOLDER'S EQUITY
On February 14, 2001, the Board of Directors approved issuance of 2,225,000
stock options pursuant to the Company's 2000 Long Term Incentive Plan. The
exercise price of the options was $.50 and the vesting periods range from
immediate to 3 years.
On February 14, 2001, the Board of Directors approved the issuance of 250,000
stock options to a consultant in an exchange for services to be provided. The
stock options have an exercise price of $0.50 and expire in three years. The
vesting terms are subject to Management's discretion and have not yet been
determined. The market value of the Company's common stock at the grant date was
$0.23. The fair value associated with these options totaled $42,500 and was
recorded as non-cash compensation during the three month period ended March 31,
2000.
On March 23, 2001, the Company entered into a Settlement Agreement and Mutual
General Release (the "Settlement Agreement") with Charles Yang to resolve all
claims and disputes between the Company and Mr. Yang, including all claims
relating to Mr. Yang's employment by and separation from the Company. Pursuant
to the terms of the Settlement Agreement, the Company agreed to pay Mr. Yang
$400, 000 in cash in installments by July 23, 2001, and issue Mr. Yang 400,000
shares of the Company's common stock. The Company recorded $180,000 in expense
related to this settlement during the three month period ended March 31, 2001.
The fair value of the stock on the date of issuance was $80,000 and is recorded
as non-cash compensation in the statement of operations.
In early 2000, the Company sold a total of 13,436,316 Special Warrants, as
adjusted for redemptions and penalties, to investors. On April 1, 2001, each
Special Warrant was converted, as provided for in the special warrant agreement,
into one share of common stock and a warrant to purchase one share of common
stock at an exercise price of $1.60 per share expiring on March 31, 2002, for no
additional consideration.
NOTE 6 - MARKETING AGREEMENT
On January 19, 2001, the Company entered into a Marketing and Networking
Services Agreement with Innofone.com (INNF-a company listed in National
Quotation Bureau "pink sheets"). This Agreement allows for the two companies to
start cooperating in enhancing the Company's voice over Internet Protocol (VoIP)
network with termination traffic resulting from Innofone's marketing programs.
In addition, the Company and Innofone.com agreed to pursue new marketing
programs including personal computer to phone voice services, packaging calling
cards in Innofone's fulfillment kits and other new products and services. The
Company paid Innofone.com a set-up fee totaling $500,000. Innofone.com agreed to
repay this amount to the Company within 90 days of the agreement date. If such
amount was not repaid, the Company had the option to convert the amount into
shares of Innofone's common stock at $0.25 per share and a warrant to purchase
an additional share at $0.75 per share. The Agreement expires December 31, 2010.
On March 5, 2001, Innofone.com announced in a press release that its principal
subsidiary, Innofone Canada, Inc., was served on March 1, 2001, with a Petition
for a Receiving Order pursuant to Section 43 of the Bankruptcy & Insolvency Act
of Canada. Innofone.com stated that although a dispute exists between Innofone
Canada Inc., and the Petitioner/Creditor, the dispute should be resolved by
discussions and/or resort to the civil court process and not pursuant to
Canadian Bankruptcy legislation. Innofone.com further stated that it intends to
retain counsel in the province of Quebec to vigorously defend this action, and
will move to strike the requested Petition, because it believes the Petition is
without merit.
6
The Company and Innofone.com have agreed to extend the due date of the $500,000
set-up fee repayment six months to October 2001. Due to the uncertainty
regarding collection of this amount, Management recorded this amount as a
selling and marketing expense during the three months ended March 31, 2001. The
Company has not yet determined the impact of this development on its
relationship with Innofone.com.
NOTE 7 - MAJOR CUSTOMER
For the three months ended March 31, 2000, all of the Company's sales and
accounts receivable were to/with one customer.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
A. Plan of Operation
Management's primary focus in 2001 is to continue to build out ePHONE's network
and to begin principal business operations - the generation of voice telephony
services revenue.
ePHONE began market testing of Prepaid Calling Card services in Belgium and
Germany and is developing and testing Business Direct, Business Connect and
Residential Connect direct dial long-distance services for these cities. ePHONE
also plans to provide wholesale termination of voice traffic for a North
American partner.
During the first quarter of 2001, POPs were deployed in the following cities.
Amsterdam, Netherlands
Warsaw, Poland
ePHONE plans on expanding its network to the following cities in Europe in the
year 2001 and is working to establish a network of partners with call
origination and call termination needs.
Austria - Vienna
Denmark - Copenhagen
France - Paris
Germany - Munich
Greece - Athens
Italy - Milan and Rome
Ireland - Dublin
Portugal - Lisbon
Spain - Madrid and Barcelona
Sweden - Stockholm, and
Switzerland - Geneva
ePHONE also plans on expanding into Argentina and Uraguay in 2001 as situations
permit.
The location of the planned service deployment areas may change, and new ePHONE
cities may be added in 2001, depending on regulatory and licensing requirements
or recruitment of regional partners.
Based on existing contracts, ePHONE expects to generate its first commercial
traffic and revenues in the second quarter, and expects a monthly volume of
10,000,000 minutes by December, 2001. ePHONE expects to deploy 13 gateways by
year-end to accommodate the increase in commercial traffic on its network.
We expect to hire up to 10 additional full-time employees as we roll out our
plan of operations in 2001. Additional personnel are needed to expand our human
resources in the area of software development, system design & configuration,
installation, customer support, product marketing and accounting.
B. Liquidity and Capital Resources
ePHONE has funded operations through equity financing, and does not have a line
of credit or similar credit facility available to it.
7
ePHONE must rely on its ability to raise money through equity financing and
capital equipment loans to set up ePHONE `s global network, which is the vital
part of ePHONE `s business plan. The majority of funds raised will be allocated
to the deployment of the technology, operating costs and marketing activities.
On March 31, 2000, April 7, 2000, and April 20, 2000, ePHONE closed the sale of
the first, second, and final portion, respectively, of the Special Warrants and
received net proceeds of approximately $12,205,000. The total number of Special
Warrants ePHONE sold in this offering was 13,780,837.
The special warrant agreements contained certain penalties in the event that
ePHONE did not meet the prescribed deadlines for registration of common stock to
be issued on the exercise of the special warrants in both Canada and the United
States. ePHONE failed to meet these deadlines, and consequently; each special
warrant holder was entitled to exercise their right to have 12.5% of their
original investment returned to them and reduce the number of special warrants
they held by the same percentage ("Redemption Right"). In addition, each special
warrant holder will receive an additional 10% of their original investment in
shares of common stock of ePHONE upon the exercise of the special warrants. As
of March 31, 2001, all special warrant holders have exercised their Redemption
Rights, with ePHONE returning $1,894,865 to these investors.
On March 31, 2000, ePHONE entered into a Strategic Alliance Agreement and a
License Agreement with Comdial Corporation ("Comdial") and Array Telecom
Corporation ("Array Telecom"), a wholly owned subsidiary of Comdial. In
connection with the Agreement and the License, ePHONE made an initial payment to
Comdial of $2,650,000. As part of the Agreement, ePHONE received the fixed
assets of Array Telecom, with a book value of approximately $431,000 and assumed
the lease of Array Telecom's Herndon, Virginia facility. The License grants
ePHONE an exclusive license for all Voice over Internet Protocol (VoIP)
technology that has been developed by Array Telecom for a period of five years.
The difference between the amount paid to Comdial and the amount recorded as
fixed assets totaled $2,219,000, and represents the value of the licensed
technology and is recorded as an intangible asset.
In connection with the License Agreement entered into with Array Telecom, ePHONE
is required to pay an additional $2,180,000 for the VoIP technology over 5 years
with minimum payments of $180,000 due in the first year and $500,000 in each of
the next four years. Additional royalty payments will be payable to the extent
that 2% of gross sales as defined in the Agreement exceed minimum payments for
the VoIP technology. As part of the arrangement, ePHONE also agreed to pay an
additional amount of $350,000 to employees of Array Telecom as compensation for
benefits forfeited by them as a result of the creation of the Strategic
Alliance.
During the three months ended March 31, 2001, operating activities consumed
$2,354,840 of cash. Investing activities provided $1,298,009 consisting of the
redemption of marketable securities, receipt of restricted cash, and net of
payments to purchase fixed assets. At March 31, 2001 ePHONE had cash and
investments totaling $1,832,800. The only significant planned operation and
investing activity outside of general operations is the minimum royalty payment
of $500,000 due to Array Telecom. Therefore, $1,332,000 of remaining cash is
available for operations, which Management believes is sufficient to enable it
to operate until at least until the third quarter of 2001, by which time it
anticipates having raised additional equity financing. However, such financing
may not be available when needed or, if available, may not be on terms favorable
to ePHONE. If additional funds are raised through issuance of equity securities,
the existing stockholders may experience significant dilution.
8
Current Liabilities at March 31, 2001 were $1,049,575, of which $744,762 was
accrued liabilities. Of the accrued liabilities, the amount of $400,000 is
related to the Yang Settlement as described in Stock Compensation Activity.
On January 19, 2001, ePHONE entered into a Marketing and Networking Services
Agreement with Innofone.com (INNF-a company listed in NASDAQ pink sheets). This
Agreement allows for the two companies to start cooperating in enhancing ePHONE
`s voice over Internet Protocol (VoIP) network with termination traffic
resulting from Innofone's marketing programs. In addition, ePHONE and
Innofone.com agreed to pursue new marketing programs including personal computer
to phone voice services, packaging calling cards in Innofone's fulfillment kits
and other new products and services. ePHONE paid Innofone.com a set-up fee
totaling $500,000. Innofone.com agreed to repay this amount to ePHONE within 90
days of the agreement date. If such amount is not repaid, ePHONE may, at its
option, convert the amount into shares of Innofone's common stock at $0.25 per
share and a warrant to purchase an additional share at $0.75 per share. The
Agreement expires December 31, 2010.
On March 5, 2001, Innofone.com announced in a press release that its principal
subsidiary, Innofone Canada, Inc., was served on March 1, 2001, with a Petition
for a Receiving Order pursuant to Section 43 of the Bankruptcy & Insolvency Act
of Canada. Innofone.com stated that although a dispute exists between Innofone
Canada Inc., and the Petitioner/Creditor, the dispute should be resolved by
discussions and/or resort to the civil court process and not pursuant to
Canadian Bankruptcy legislation. Innofone.com further stated that it intends to
retain counsel in the province of Quebec to vigorously defend this action, and
will move to strike the requested Petition, because it believes the Petition is
without merit.
The Company and Innofone.com have agreed to extend the due date of the $500,000
set-up fee repayment six months to October 2001. Due to the uncertainty
regarding collection of this amount, Management has recorded this amount as a
selling and marketing expense during the three months ended March 31, 2001. The
Company has not yet determined the impact of this development on its
relationship with Innofone.com.
C. Stock Compensation Activity During 2001
On February 14, 2001, the Board of Directors approved issuance of 2,250,000
stock options pursuant to the Company's 2000 Long Term Incentive Plan. The
exercise price of the options was $.50 and the vesting periods range from
immediate to 3 years.
On February 14, 2001, the Board of Directors approved the issuance of 250,000
stock options to a consultant in an exchange for services to be provided. The
stock options have an exercise price of $0.50 and expire in three years. The
vesting terms are subject to Management's discretion and have not yet been
determined. The market value of the Company's common stock at the grant date was
$0.23. The fair value associated with these options totaled $42,500 and was
recorded as non-cash compensation during the three month period ended March 31,
2000.
As further described in Legal Proceedings, the Company entered into a Settlement
agreement with Charles Yang on March 23, 2000. Pursuant to the terms of the
agreement, the Company agreed to pay Mr. Yang $400, 000 in cash in installments
by July 23, 2001, and issue Mr. Yang 400,000 shares of the Company's common
stock. The Company recorded $180,000 in expense related to this settlement
during the three months ended March 31, 2001. The fair value of the stock issued
was $80,000 and is recorded as non-cash compensation in the statement of
operations.
D. Risk Factors
There are risks and uncertainties as described in the Company's Annual Report on
Form 10KSB facing our company. Additional risks not presently known to us or
that we currently consider insignificant may also impair our business operations
in the future. Our business, financial condition and plan of operations could be
materially adversely affected by any of the risks detailed in our Annual Report.
The trading price of shares of our common stock could decline due to these
risks.
9
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On March 23, 2001, the Company entered into a Settlement Agreement and Mutual
General Release (the "Settlement Agreement") with Charles Yang to resolve all
claims and disputes between the Company and Mr. Yang, including all claims
relating to Mr. Yang's employment by and separation from the Company. Pursuant
to the terms of the Settlement Agreement, the Company agreed to pay Mr. Yang
$400, 000 in cash in installments by July 23, 2001, and issue Mr. Yang 400,000
shares of the Company's common stock.
ITEM 2 - CHANGES IN SECURITIES
Not applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5 - OTHER INFORMATION
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Exhibits
Exhibit No.
99.1 Settlement Agreement and Mutual General Release between Charlie Yang
and ePHONE Telecom, Inc., dated March 23, 2001. (Previously filed)
(b) Reports on Form 8-K.
On April 13, the registrant filed with the Commission a current report
on form 8-K which disclosed the appointment of Carmine Taglialatela Jr.
as President and Chief Operating Officer effective April 1, 2000.
On April 16, the registrant filed with the Commission a current report
on form 8-K to disclose the Settlement Agreement and Mutual General
Release entered into between the registrant and Charles Yang, a former
President of the Company.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ePHONE Telecom, Inc.
(Registrant)
By /s/ Robert G. Clarke
- ------------------------------------------------
(Robert G. Clarke, CEO)
Date: May 11, 2001
- ------------------------------------------------
10
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Robert G. Clarke
- ------------------------------------------------
(Robert G. Clarke, CEO, Director) (Principal Executive Officer)
Date: May 11, 2001
- ------------------------------------------------
By /s/ Charlie Rodriguez
- ------------------------------------------------
(Charlie Rodriguez, Chief Financial Officer)
(Principal Financial and Accounting Officer)
Date: May 11, 2001
- ------------------------------------------------
By /s/ John Fraser*
- ------------------------------------------------
(John Fraser, Director)
Date: May 11, 2001
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By /s/ Walter Pickering*
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(Walter Pickering, Director)
Date: May 11, 2001
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By /s/ Anthony Balinger*
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(Anthony Balinger, Director)
Date: May 11, 2001
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*By: Charlie Rodriguez
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Attorney-in-Fact