SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File No.__________
NETVOICE TECHNOLOGIES CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 91-1986538
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3201 WEST ROYAL LANE, SUITE 160
IRVING, TEXAS 75063
--------------------------------------------------------------
(Address of principal executive offices, including zip code)
(972) 788-2988
--------------------------------------------------------------
(Registrants telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports 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. Yes X No
--- ---
As of May 15, 2000, 12,836,600 shares of Common Stock were outstanding
and 636,500 shares were contingently issuable shares.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibits to the following documents filed with the Securities and
Exchange Commission have been incorporated by reference in Part II of this
Quarterly Report on Form 10-Q:
1. Annual Report on Form 10-KSB, dated as of April 13, 2000
NETVOICE TECHNOLOGIES CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Default Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
(UNAUDITED) (AS RESTATED,
AUDITED SEE
NOTE 7)
CURRENT ASSETS:
Cash and cash equivalents $ 2,564,174 $ 20,085
Restricted cash 327,320
Accounts receivable - trade 303,857 190,733
Prepaid expenses 98,893 86,505
------------ ------------
Total current assets 3,294,244 297,323
PROPERTY AND EQUIPMENT, NET 2,895,004 860,534
OTHER ASSETS 237,955 300,787
------------ ------------
TOTAL $ 6,427,203 $ 1,458,644
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 2,747,429 $ 1,519,154
Accrued expenses 267,108 180,082
Notes payable and current portion of capital lease obligations 3,726,638 3,659,905
Unearned revenue 95,000 30,000
------------ ------------
Total current liabilities 6,836,175 5,389,141
LONG-TERM DEBT 458,581 223,056
------------ ------------
Total liabilities 7,294,756 5,612,197
COMMITMENTS AND CONTINGENCIES (See Notes)
STOCKHOLDERS' DEFICIT:
Preferred stock; 50,000,000 shares authorized at $0.001 par value,
none issued
Common stock, 100,000,000 shares authorized at $0.001 par value;
12,836,600 and 10,741,600 shares issued and outstanding,
respectively 12,837 10,742
Paid-in capital 8,082,894 2,940,739
Unearned compensation (237,179) (366,814)
Accumulated deficit (8,726,105) (6,738,220)
------------ ------------
Total stockholders' deficit (867,553) (4,153,553)
------------ ------------
TOTAL $ 6,427,203 $ 1,458,644
============ ============
See notes to consolidated condensed unaudited financial statements.
-3-
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
MARCH 31,
2000 1999
(UNAUDITED)
REVENUES $ 409,808 $ 124,201
EXPENSES:
Direct expenses 625,572 152,966
General and administrative expenses 1,467,518 538,084
------------ ------------
Total expenses 2,093,090 691,050
------------ ------------
OPERATING LOSS (1,683,282) (566,849)
OTHER INCOME (EXPENSE):
Interest income 10,814
Interest expense (315,417) (71,343)
------------ ------------
Total other expense (304,603) (71,343)
------------ ------------
NET LOSS $ (1,987,885) $ (638,192)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.16) $ (0.07)
============ ============
WEIGHTED AVERAGE BASIC AND DILUTED SHARES OUTSTANDING 12,224,400 9,672,475
============ ============
See notes to consolidated condensed unaudited financial statements.
-4-
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 2000
COMMON STOCK
--------------------
PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
BALANCE, JANUARY 1, 2000 (RESTATED) 10,741,600 $10,742 $2,940,739 $ (366,814) $(6,738,220) $(4,153,553)
Restricted shares (44,000) granted to
employees 163,000 (163,000) -
Options exercised 12,500 13 6,237 6,250
Shares sold as part of private placement
memorandum at $4.25, net of
issuance costs 1,200,000 1,200 4,973,800 4,975,000
Amortization of unearned compensation 292,635 292,635
Restricted shares issued to officers,
directors and employees 882,500 882 (882) -
Net loss (1,987,885) (1,987,885)
---------- ------- ---------- ----------- ---------- ----------
BALANCE, MARCH 31, 2000 (Unaudited) 12,836,600 $12,837 $8,082,894 $ (237,139) $(8,726,105) $ (867,553)
========== ====== ========== =========== ========== ==========
See notes to consolidated condensed unaudited financial statements.
-5-
NETVOICE TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
MARCH 31,
2000 1999
(UNAUDITED)
OPERATING ACTIVITIES:
Net loss $ (1,987,885) $ (638,192)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 104,615 27,797
Amortization of unearned stock compensation 292,635 145,000
Changes in operating assets and liabilities:
Accounts receivable (113,124) 6,529
Prepaid expenses (12,388) (81,607)
Accounts payable 1,228,275 (52,843)
Accrued expenses 87,026 (12,111)
Unearned revenue 65,000
Other assets 62,832 (74,590)
------------ ------------
Net cash used in operating activities (273,014) (680,017)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (1,374,855) (27,291)
(Increase) Decrease in restricted cash and cash equivalents (327,320) 167,100
------------ ------------
Net cash (used in) provided by investing activities (1,702,175) 139,809
------------ ------------
FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net of issuance costs 4,981,250 743,500
Proceeds from long-term debt 386,027 456,396
Payments on long-term debt and capital leases (847,999) (128,300)
------------ ------------
Net cash provided by financial activities 4,519,278 1,071,596
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 2,544,089 531,388
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 20,085 7,990
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 2,564,174 $ 539,378
============ ============
SUPPLEMENTAL DISCLOSURES - Interest paid $ 210,294 $ 71,935
============ ============
NONCASH TRANSACTION:
Assets acquired through capital leases $ 764,230 $ 29,592
============ ============
Issued 370,000 compensatory shares to officers,
directors and employees $ $ 145,000
============ ============
See notes to consolidated condensed unaudited financial statements.
-6-
NETVOICE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
__________________________________________________________________________
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED CONDENSED UNAUDITED INTERIM FINANCIAL STATEMENTS - The
accompanying consolidated unaudited interim financial statements of NetVoice
Technologies Corporation and its subsidiaries (the "Company") have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and in a manner
consistent with that used in the preparation of the annual consolidated
financial statements of the Company at December 31, 1999. In the opinion
of management, the accompanying consolidated unaudited interim financial
statements reflect all adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations and cash flows for the periods presented.
Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for a full year.
In addition, the unaudited interim consolidated financial statements do not
include all information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles. These consolidated unaudited interim financial
statements should be read in conjunction with the financial statements and
related notes thereto which are included in the Company's 1999 consolidated
financial statements in its Form 10-KSB as filed with the Securities and
Exchange Commission on April 13, 2000.
BUSINESS DESCRIPTION - The Company is a provider of voice transmission
using Internet Protocol ("IP"), which allows our customers to make high-
quality, low-cost calls via traditional telephones using a technology known
as Voice over Internet Protocol.
EARNINGS PER SHARE - Basic earnings per share are computed by dividing
income (loss) available to common stockholders by the weighted average
number of common shares outstanding during the period. Diluted earnings
per share are computed by including contingently issuable shares. At March 31,
2000 and 1999, contingently issuable shares were excluded because they were
antidilutive.
PRINCIPLES OF CONSOLIDATION - The consolidated unaudited interim
financial statements included the accounts of the Company and its wholly
owned subsidiaries, NetVoice Technologies, Inc. and NetLD.com, Inc. All
significant intercompany transactions and balances between the Company and
its subsidiaries have been eliminated in consolidation.
COMPREHENSIVE INCOME - For the three months ended March 31, 2000 and
1999 comprehensive income was equal to net loss.
-7-
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
Furniture and equipment $ 115,406 $ 10,033
Computer and telephone equipment 3,009,478 975,765
----------- -----------
Total cost 3,124,884 985,798
Less accumulated depreciation (229,880) (125,264)
----------- -----------
$ 2,895,004 $ 860,534
=========== ===========
3. OTHER ASSETS
Other assets consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
Vendor security deposits $ 237,755 $ 300,587
Other 200 200
----------- -----------
$ 237,955 $ 300,787
=========== ===========
-8-
4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
Notes payable and capital lease obligations consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
Notes payable $ 3,273,196 $ 3,651,932
Loans from stockholders, no interest rate, maturing from
October 2004 to December 2004 139,415 206,672
Capital lease obligations, with interest rates of 13.47%
to 22.5%, maturing August 2003 772,608 24,357
----------- -----------
4,185,219 3,882,961
Less current portion of long-term debt (3,726,638) (3,659,905)
----------- -----------
$ 458,581 $ 223,056
=========== ===========
Notes payable are secured by a security interest in revenues from
contracts, equipment and cash reserve equal to 10% of total notes payable.
The notes bear interest at a rate of 13.35% per annum, payable on the first
day of each quarter during the term. All principal and unpaid accrued
interest is due and payable nine months from issuance. The notes are due
from April 2000 to September 2000. The note holder has the right to extend
the terms of the notes for an additional nine months at the same terms.
5. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT MEMORANDUM - In February 2000, the Company effected
a private placement of 1,200,000 shares of its common stock for $5,100,000,
excluding issuance cost of approximately $125,000. Subscribers may not
sell, transfer or otherwise dispose of the shares unless it is in
compliance with Rule 144 of the Securities Act of 1933.
STOCK SPLIT - In February 2000, the Company declared a 2-for-1 stock
split of all outstanding shares for all stockholders of record as of March 14,
2000. Retroactive effect has been given to the stock split in stockholders'
equity accounts as of March 31, 2000 and 1999, and December 31, 1999 and in
all share and per-share data in the accompany consolidated unaudited interim
financial statements.
-9-
6. STOCK OPTIONS
During the first quarter of 2000, the Company granted certain
executives and employees approximately 784,000 options to acquire common
stock at an exercise price equal to the fair market value at the date of grant.
During the first quarter of 2000, two former executives of the Company
exercised 12,500 options for $12,500.
7. RESTATEMENT
Subsequent to the issuance of the Company's consolidated financial
statements as of and for the year ended December 31, 1999, the Company's
management determined that the cost for the purchase of a customer list
from a company owned by a shareholder in June 1999 should have been
accounted for as a capital distribution, and the proceeds from the sale
of such customer list and the excess of the proceeds from the sale of
another customer list over its amortized carrying cost, both having been
sold to another minority shareholder in December 1999, should have been
accounted for as capital contribution. As a result, the 1999 financial
statements will be restated from amounts previously reported to
appropriately account for this transaction.
A summary of the significant effects of the restatement on the 1999 balance
sheet is as follows:
AS PREVIOUSLY AS
REPORTED RESTATED
Balance sheet
Paid-in Capital $ 2,881,479 $ 2,940,739
Accumulated Deficit (6,673,589) (6,738,220)
The restatement in 1999 had no effect on the Company's statement of
operations for the three-month period ended March 31, 1999.
8. SUBSEQUENT EVENTS
On April 25, 2000 the Company began a private placement memorandum to
accredited investors in the amount of $7.0 million for 1,000,000 shares of
our common stock. As of May 12, 2000, we have received subscription
agreements for approximately $2.0 million. The Private Placement will
remain open until June 6, 2000, unless management elects to discontinue the
offering prior to that date.
******
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
THIS DOCUMENT INCLUDES STATEMENTS THAT MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE COMPANY WOULD LIKE TO
CAUTION READERS REGARDING CERTAIN FORWARD-LOOKING STATEMENTS IN THIS
DOCUMENT AND IN ALL OF ITS COMMUNICATIONS TO SHAREHOLDERS AND OTHERS, PRESS
RELEASES, SECURITIES FILINGS, AND ALL OTHER COMMUNICATIONS. STATEMENTS
THAT ARE BASED ON MANAGEMENT'S PROJECTIONS, ESTIMATES AND ASSUMPTIONS ARE
FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE,"
"INTEND," AND SIMILAR EXPRESSIONS GENERALLY IDENTIFY FORWARD-LOOKING
STATEMENTS. WHILE THE COMPANY BELIEVES IN THE VERACITY OF ALL STATEMENTS
MADE HEREIN, FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED UPON A NUMBER
OF ESTIMATES AND ASSUMPTIONS THAT, WHILE CONSIDERED REASONABLE BY THE
COMPANY, ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES AND KNOWN AND UNKNOWN RISKS.
MANY OF THE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT EVENTS AND THE
COMPANY'S ACTUAL RESULTS AND COULD CAUSE ITS ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY,
OR ON BEHALF OF, THE COMPANY. SOME OF THE FACTORS THAT COULD CAUSE ACTUAL
RESULTS OR FUTURE EVENTS TO DIFFER MATERIALLY INCLUDE THE COMPANY'S
INABILITY TO FIND SUITABLE ACQUISITION CANDIDATES OR FINANCING ON TERMS
COMMERCIALLY REASONABLE TO THE COMPANY, INABILITY TO FIND SUITABLE
FACILITIES OR PERSONNEL TO OPEN OR MAINTAIN NEW BRANCH LOCATIONS,
INTERRUPTIONS OR CANCELLATION OF EXISTING SOURCES OF SUPPLY, THE PRICING OF
AND DEMAND FOR DISTRIBUTED PRODUCTS, THE PRESENCE OF COMPETITORS WITH
GREATER FINANCIAL RESOURCES, ECONOMIC AND MARKET FACTORS, AND OTHER
FACTORS. PLEASE SEE THE "RISK FACTORS" IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR A DESCRIPTION OF SOME, BUT NOT ALL,
RISKS, UNCERTAINTIES AND CONTINGENCIES.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes thereto which
are included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1999 filed with the Securities and Exchange Commission.
OVERVIEW
We are a provider of voice transmission using Internet Protocol
("IP"), which allows our customers to make high-quality, low-cost telephone
calls via traditional telephones using a technology known as Voice over
Internet Protocol ("VoIP").
We began offering our long distance and Internet services during the
past year as part of our current business plan. We have aggressively been
deploying VoIP gateways in 25 markets located throughout the United States
with leading manufacturers such as Cisco Systems, Inc. ("Cisco") and
leading Internet backbone suppliers. Currently, Cisco supplies us with
much of the equipment involved in establishing our VoIP gateways and
building our network.
-11-
IP transmission uses a technology called "packet-switching" to break
voice and fax calls into discrete data packets, route them over the
Internet or a managed network and reassemble them into their original form
for delivery to the receipt. Traditional long distance calls, in contrast,
are made using a technology called "circuit switching" which carries these
calls over traditional telephone networks. Circuit switching requires a
dedicated connection between the caller and the recipient that must remain
open for the duration of the call. In contrast, packet-switching
technology allows data packets representing multiple conversations to be
carried over the same line. This greater efficiency creates significant
network cost savings that can be passed on to the consumer in the form of
lower long distance and other telephony product rates.
We have filed a patent application for a communications enabled
browser and have filed a trademark application for the mark "CAB" as
applied to the browser software. Both of these applications are currently
pending approval.
REVENUE FROM OPERATIONS
Currently, all of our revenues are derived from long distance services
and internet services sold over our IP network. One of the Company's
initial strategies is to continue to acquire existing customer bases
concentrated in specific geographical areas which complement our current
markets and convert them to our VoIP network. We also anticipate deriving
revenues through direct sales by our existing employees, independent agents
and selling through Internet service providers ("ISPs") to their existing
customer base. In the future, in order to diversify, we plan to introduce
a variety of value added services utilizing our VoIP network including:
* dial-up Internet access;
* unified messaging;
* prepaid calling; and
* video services.
Revenues from operations for the three months ended March 31, 2000
were derived from sales to wholesale voice customers and wholesale Internet
customers. Margins from both our revenue sources are not currently
sufficient to cover our network costs that include leased bandwidth,
connection to the Internet, and local lines within a local calling area.
Expansion of our network and the addition of services will have to be
financed by an increase in traffic and additional financings. We expect
this trend to continue for a period of time as we continue to concentrate
on the expansion of our VoIP network and customer traffic. In the third
quarter of 2000, we plan to offer Internet services and voice over the same
facilities to corporate customers.
We will continue to expand its network to handle projected volume.
The Company's cost drops by approximately 25% by converting the network
from a DS-1 level to DS-3 level. This coupled with converging various
products (voice, video, data, Internet) over the same
-12-
network are the key ingredients to approach profitability. The Company, as
it continues to grow and build network, is not expected to be profitable in
the foreseeable future.
There are little or no seasonal changes in the revenue stream of the
business.
COST STRUCTURE
Our costs and expenses include:
* network costs;
* selling and marketing;
* general and administrative; and
* interest and depreciation.
Network costs primarily consist of costs associated with the routing
and termination of our customers' traffic. The costs include:
* leased bandwidth and connection to the Internet;
* leased network equipment;
* local lines used to carry calls to and from our network locations; and
* our network facilities.
We expect these costs to increase into the future as we further expand
our network in the United States and throughout the world. The majority of
these costs are fixed. The Company will continue to incur network costs in
order to continue to grow revenue. The network will have to be expanded to
handle additional volume in excess of approximately 50,000,000 minutes per
month.
Sales and marketing expenses include the expenses anticipated to be
associated with acquiring customers, establishing brand recognition,
commissions paid to our sales personnel, advertising costs and customer
referral fees. We expect sales and marketing expenses to increase over
time as we aggressively market our products and services.
During the first quarter of 2000, sales and marketing expenses
increased as a result of new personnel and the start of various marketing
campaigns. Sales and marketing expenses are expected to increase both in
terms of absolute dollars and as a percentage of revenue as our revenue
grows. We expect to spend significant capital to build brand recognition
to the extent possible due to our relatively small size. Much of our sales
and marketing expenses are anticipated to be expanded to obtain strategic
relationships with a variety of agents, publications, portals, content
providers, and other key customer destinations on the Web.
-13-
General and administrative expenses consist of the salaries of our
employees and associated benefits, and the cost of travel, business
entertainment, rent and utilities. A large portion of our general and
administrative expenses is allocated to operations and customer support.
Customer support expenses include the costs associated with customer
service and technical support, and consist primarily of the salaries and
employment costs of the employees responsible for those efforts. We expect
operations and customer support expenses to increase over time to support
new and existing customers. We expect general and administrative costs to
increase to support our growth, particularly as we establish a larger
organization to implement our business plan. We plan to incur additional
costs for research and development, though they are not expected to
increase as a percentage of revenue. Over time, we expect these relatively
fixed general and administrative expenses to decrease as a percentage of
revenue, primarily as a consequence of increased revenues.
Interest expense includes the cost incurred for commissions
(recognized over the life of the notes) on the issuance of the short-term
notes and interest on the notes. The notes have a term of nine-months with
an interest rate of 13.35%. During the three months ended March 31, 2000,
we had net interest expense in the aggregate amount of $315,417. Interest
payable on the Notes in 2000 will be approximately $445,000, assuming the
Notes are repaid in full on their respective due dates, and not extended by
the option of the several payees for nine (9) months.
Depreciation primarily relates to our computer and telephone
equipment. We depreciate our computer and telephone equipment over its
estimated five-year useful life using the straight-line method. In
addition, we will be adding more originating and terminating VoIP Gateways
as traffic volumes justify. We expect depreciation to increase in absolute
terms as we grow our networks to support new and acquired customers, but to
decrease as a percentage of total revenue. In February of 2000, we have
entered into a letter of intent with Cisco for $25.0 million in funding
with the majority to be used for equipment purchases over the next two
years. See "Management's Discussion and Analysis or Plan of Operation -
Liquidity and Capital Resources" for a more detailed discussion of the
letter of interest.
-14-
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO MARCH 31, 2000
============================================================================================
Three Months Ended March 31,
2000 1999
------------ ------------
Revenues..................................................... $ 409,808 $ 124,201
Expenses:
Direct Costs............................................... 625,572 152,966
General and Admin. Expenses................................ 1,467,518 538,084
--------- -------
Total Expenses.............................................. 2,093,090 691,050
--------- -------
Operating Loss............................................... (1,683,282) (566,849)
Other Income (Expenses): Net Interest........................ (304,603) (71,343)
-------- -------
Net Loss..................................................... $ (1,987,885) $ (638,192)
============ ============
============================================================================================
Revenue increased from $124,201 for the three months ended March 31,
1999 to $409,808 for the three months ended March 31, 2000. The increase
is a result of our business moving from the start-up phase into an
operational entity. Of revenue generated in 2000, revenue from wholesale
voice sales over our VoIP network accounted for approximately 98%. The
remainder was the result of wholesale Internet and prepaid services.
Additionally, as we expanded our network, we had more locations to offer
existing customers. We expect our wholesale revenue to continue to grow,
as we continue to expand our network into additional locations. Currently,
we are expanding our points of presence ("POPs") in major markets to handle
DS-3 traffic and above if traffic warrants. The focus on the wholesale
revenue is expected to give us the ability to grow our network and
eventually begin to offer more on net locations when we enter the retail
sector. This retail sector will primarily consist of corporate customers
and various target and niche markets, such as marketing through our website
or affinity groups. We expect to continue to offer other value-added
services utilizing our network in the future.
Total direct costs increased from $152,966 for the three months ended
March 31, 1999 to $625,572 for the three months ended March 31, 2000. The
increase of costs in the three months ended March 31, 1999 over the three
months ended March 31, 2000 is a result of our business moving from the
start-up phase into an operational entity. We have continued to purchase
additional equipment to expand our VoIP network therefore direct costs have
increased. As we continue to implement several of the new wholesale
contracts, in the second quarter of fiscal year 2000, direct costs as a
percentage of revenue are expected to decrease.
General and Administrative costs increased from $538,084 for the three
months ended March 31, 1999 to $1,467,518 for the three months ended
March 31, 2000.
-15-
As we continue to build our network, expand our product offering and execute
our business plan, we expect these expenses to continue to increase. The
primary reason for this increase relates to expanded marketing efforts and
hiring of additional personnel. These costs are expected to increase as a
percentage of revenue for a period, until all necessary personnel and
systems are in place to handle future revenue and support future products.
Thereafter, we anticipate that general and administrative costs will
increase as a proportion of revenues.
Depreciation and Amortization costs increased from $27,797 for the
three months ended March 31, 1999 to $104,615 for the three months ended
March 31, 2000. Depreciation consists primarily of the depreciation of
our VoIP gateways. We depreciate this network equipment over five years
on a straight-line basis. It can be expected that depreciation will
continue to increase as we continue to expand our network. Amortization
consists of the amortization of the cost of one customer bases for the
first quarter of 1999. This base was sold in December of 1999. We
intend to acquire customer bases in the future that have synergies with
our network and business plan. These synergies include profitability,
location and type of customer.
Net Interest expense increased from $71,343 for the three months ended
March 31, 1999 to $304,603 for the three months ended March 31, 2000. This
increase is the result of the increase in the issuance of short-term notes
and the cost of our financing for capital equipment.
LIQUIDITY AND CAPITAL RESOURCES
Since January of 1998 NVT, Inc. has privately issued a series of
promissory notes. These funds were used primarily to continue the build-out
of our VoIP network, which includes equipment purchases, and for working
capital. The terms of these notes are nine-months with an interest rate of
13.35%. The notes are secured by revenues from contracts, equipment and a
10% cash reserve. The Company received a waiver from the paymaster of the
Trustee, and as of February 23, 2000, the Company has now complied with the
debt convenant requirements.
At March 31, 2000, we had approximately $3.3 million outstanding in
such notes. All of the Notes will be due and payable in or before November
2000, unless extended for nine (9) months at the option of the noteholder.
At this time, we intend to offer conversion of these notes or to repay them
in accordance with the terms of the notes with proceeds from existing funds
or future public or private offerings. Currently, there are no conversion
rights on behalf of the note holders.
From January 1999 through April 1999, we privately placed 986,500
shares of our Common Stock at $1.00 per share for a total of $986,500. Net
proceeds of the offering after expenses was approximately $960,000.
Expenses of the offering included the payment of fees to broker-dealers
($25,000) and costs of the offering including legal, accounting, printing,
marketing-related expenses, due diligence expenses, travel related
expenses, and preparation and distribution of sales literature. The net
proceeds were primarily used by our subsidiary,
-16-
NetVoice Technologies, Inc. ("NVT, Inc.") to repay short-term loans and
for working capital ($310,000), provide marketing funds ($150,000), and to
begin the building of our Internet VoIP telephony network ($500,000).
In February 2000, we sold to all accredited investors 1,200,000
shares of our Common Stock through a Private Placement Memorandum for $5.1
million. The costs of the offering were $20,000 for printing costs and
related fees. The net proceeds will primarily be used for marketing,
network expansion and working capital.
In February 2000, we entered into a letter of intent with Cisco that
provides $25.0 million in funding. This is only a letter of intent and not
a definitive Agreement. At this time the funding is contingent and if
obtained will be used primarily to fund equipment purchases in order to
expand our network. The funding, in the form of a loan, is to be used for
equipment purchases from Cisco, soft costs to install that equipment and
for working capital. The Company will receive the funding from Cisco over
a period of 5 years and will be required to repay the principal plus
interest at a rate of approximately 5.5% over LIBOR.
As of March 31, 2000, we had approximately $2.6 million in cash and
cash equivalents. Our operating activities used cash of $273,014 for the
three months ended March 31, 2000, compared to $680,017 for the three months
ended March 31, 1999. Our cash used in operating activities was principally
for the result of the Company losses. Cash (used in) and provided by
investing activities was approximately ($1,702,175) and $139,809 for the
three months ended March 31, 2000 and 1999, respectively. Our cash used in
operating and investing activities was principally for the purchase of
telecommunications and Internet equipment. Our financing activities
generated cash of $4,519,278 and $1,071,596 for the three months ended
March 31, 2000 and 1999, respectively. The principal reason for the cash
generated was a result of additional funding from the sale of notes and a
common stock offerings in 1999 and 2000.
Our future capital requirements will depend on numerous factors, including:
* market acceptance of our services;
* brand promotions;
* the amount of resources we devote to the development of our
current and future products; and
* the expansion of our in-house sales force and marketing our services.
We may experience a substantial increase in our capital expenditures
and lease arrangements consistent with the growth in our operations and
adding additional personnel. Our current cash flow from operations is not
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months and accordingly, we have obtained and will
continue to seek additional financing. Accordingly, there can be no
assurance that we will have sufficient capital to finance potential
acquisitions or other growth oriented activities, and may issue additional
equity securities, incur debt or obtain other financing. We have no other
material capital commitments.
-17-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not currently a party to any legal proceedings, nor are we
aware of pending or threatened litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In February 2000, the Company sold 1,200,000 shares of its Common
Stock at $4.25 to 79 investors for a total of $5,100,000. No commissions
or fees were paid to any individual or entity in connection with the sales.
The shares of Common Stock issued by the Company in connection with this
offering are deemed "restricted securities" within the meaning of that term
as defined in Rule 144 of the Securities Act of 1933, as amended ("Act")
and were issued pursuant to certain "private placement" exemptions under
Section 4(2) and rule 506 of Regulation D of the Act, as promulgated by the
Securities and Exchange Commission. The sales of the Common Stock were to
"accredited" investors, as that term is defined in rule 501 of Regulation
D of the Act, and were transactions by the Company not involving any public
offering. Although not required, all such accredited investors had access
to information on the Company necessary to make an informed investment
decision. All of the aforesaid purchasers were fully informed and advised
concerning the Company, its business, financial and other matters by a
Private Placement Memorandum. All of the aforesaid securities have been
appropriately marked with a restricted legend and are "restricted
securities," as defined in Rule 144 of the rules and regulations of the
Securities and Exchange Commission. The Company's transfer agent has been
instructed to mark "stop transfer" on its ledgers to assure that these
securities will not be transferred absent registration or until the
availability of an exemption therefrom is determined. The proceeds of this
offering were used for working capital, marketing efforts and payment of
short term debt.
In February 2000, the Company declared a 2-for-1 stock split of all
outstanding shares for all stockholders of record as of March 14, 2000.
Retroactive effect has been given to the stock split in stockholders'
equity accounts as of March 31, 2000 and December 31, 1999, and in all
share and per-share data in the accompany consolidated unaudited interim
financial statements.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
There was no default upon our senior securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We will hold an Annual Meeting of Shareholders in May 19, 2000.
-18-
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
We did not file a Form 8-K report during the period subject to this
Quarterly Report.
-19-
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.
NETVOICE TECHNOLOGIES CORPORATION
Date: September 18, 2000 By: /s/ JEFFREY ROTHELL
------------------------------
Jeffrey Rothell, President,
Chief Executive Officer
Date: September 18, 2000 By: /s/ GARTH COOK
------------------------------
Garth Cook, Treasurer, Chief
Financial Officer and Chief
Accounting Officer
-20-