SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2002
Commission file number: 0-26813
inCALL SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 91-1932068
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(State of Incorporation) (IRS Employer ID No.)
2764 Lake Sahara Drive, Suite 115, Las Vegas, NV 89117
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Address of Principal Executive Offices - Zip Code
(866) 628-5278
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Registrant's telephone number, including area code
iCall Systems, Inc.
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(former name, if changed since last report)
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
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As of March 31, 2002, there were 5,822,592 shares of the Issuer's common
stock outstanding.
INDEX
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2002
(unaudited) and December 31, 2001................................ 3
Unaudited Statements of Operations for the three
months ended March 31, 2002 and 2001
and from Oct 13, 1999 (inception)................................ 4
Unaudited Statements of Cash Flows for the three
months ended March 31, 2002 and 2001
and from Oct 13, 1999 (inception) ............................... 5
Notes to Unaudited Interim Financial Statements..................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................... 1?
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................... 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
ITEM 5. OTHER INFORMATION........................................... 15
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K............................. 15
EXHIBITS.................................................... 15
REPORTS ON FORM 8-K......................................... 16
SIGNATURES.................................................. 16
inCALL SYSTEMS, INC.
(formerly iCall Systems, Inc.)
(a development stage company)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2002 2001
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(Unaudited)
ASSETS
CURRENT
Cash and cash equivalents $ 14,191 $ 130,066
Accounts receivable 76,277 12,439
Prepaid expenses 129,010 64,759
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219,478 207,264
ADVANCES TO ICCP 1 1
FIXED ASSETS (Note 3) 114,341 92,582
VOIP TECHNOLOGY (Note 4) 600,000 -
GOODWILL (Note 5) 633,317 633,317
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$1,567,137 $ 933,164
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accrued liabilities $ 146,961 $ 82,696
Due to related parties 3,701 -
Convertible notes payable (Note 6) 1,005,320 892,243
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1,155,982 974,939
DEFERRED INCOME TAX 14,833 14,833
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1,170,815 989,772
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COMMITMENTS AND CONTINGENCIES (Notes 1 and 9)
STOCKHOLDERS' EQUITY
Capital stock (Note 7)
Authorized: 65,000,000 common shares with $0.001
par value; 10,000,000 Preferred A shares
Issued and outstanding: 5,822,592
(December 31, 2001 - 5,456,926) common shares 1,323 957
Additional paid-in capital 1,663,133 854,161
Obligation to issue shares (Note 5) 215,002 215,002
Deficit accumulated during development stage (1,483,136) (1,126,728)
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396,322 (56,608)
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$1,567,137 $ 933,164
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The accompanying notes are an integral part of these interim consolidated
financial statements
inCALL SYSTEMS, INC.
(formerly iCall Systems, Inc.)
(a development stage company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
October 13, 1999
(inception)to
Three months ended March 31 March 31,
2002 2001 2002
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(Note 1)
REVENUE $ 117,000 $ - $ 117,000
COST OF REVENUE 62,366 - 62,366
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GROSS MARGIN 54,634 - 54,364
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EXPENSES
Consulting 95,753 - 208,804
Depreciation 7,000 - 18,445
General and administrative 244,447 - 646,014
Interest 13,842 3,564 41,085
Investor relations 50,000 - 146,708
Write down of advances to ICCP - 339,999 532,499
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411,042 343,563 1,593,555
OPERATING LOSS (356,408) (343,563) (1,468,303)
INCOME TAX - DEFERRED - - (14,833)
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NET LOSS FOR THE PERIOD $ (356,408) $ (343,563) $(1,483,136)
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BASIC NET LOSS PER SHARE $ (0.07) $ (0.01)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,481,304 25,000,000
The accompanying notes are an integral part of these interim consolidated
financial statements
inCALL SYSTEMS, INC.
(formerly iCall Systems, Inc.)
(a development stage company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
October 13, 1999
(inception)to
Three months ended March 31 March 31,
2002 2001 2002
---------- ---------- -----------
(Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (356,409) $ (343,563) $(1,483,137)
Adjustments to reconcile net
loss to net cash used in
operating activities
- depreciation 7,000 - 18,445
- stock-based compensation 60,937 - 251,666
- non-cash expenses 53,400 - 53,400
- deferred income taxes - - 14,833
- accrued interest on convertible
notes 13,077 3,564 40,320
- write down of advances to ICCP - 339,999 532,499
- accounts receivable (63,838) - (76,277)
- prepaid expenses (14,251) - (79,010)
- accounts payable 109,267 - 183,090
- due to related parties 3,701 - 12,573
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CASH USED IN OPERATING ACTIVITIES (187,116) - (531,598)
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CASH FLOWS FROM INVESTING ACTIVITIES
- acquisition of fixed assets (28,759) - (48,711)
- advances to Internet Call Centre
Pte Ltd. ("ICCP") - (340,000) (532,500)
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CASH FLOWS FROM INVESTING ACTIVITIES (28,759) (340,000)
(581,211)
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CASH FLOWS FROM FINANCING ACTIVITIES
- proceeds from convertible notes
payable 100,000 340,000 965,000
- proceeds from issuance of common
shares for cash - - 162,000
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CASH FLOWS FROM FINANCING
ACTIVITIES 100,000 340,000 1,127,000
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(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (115,875) - 14,191
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 130,066 - -
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CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 14,191 $ - $ 14,191
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OTHER NON-CASH TRANSACTIONS:
During the period the Company issued 7,666 common shares at $2.40 per share
for services, 28,000 common shares at $2.50 per share for settlement of
$45,000 of debt and for $25,000 services of which $10,000 is prepaid;
30,000 common shares at $2.00 per share for $60,000 of services of which
$40,000 is prepaid; and 300,000 common shares at $2.00 per share for
acquisition of VOIP technology.
The accompanying notes are an integral part of these interim consolidated
financial statements
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
inCall Systems, Inc. was incorporated as Altrex Incorporated on October 20,
1998, under the laws of the State of Nevada. The Company changed its name
to iCall Systems Inc. on January 22, 2001 to inCall Systems, Inc. on
February 8, 2002.
The Company is in its development stage and to date its activities have
been limited to capital formation and the development of its call centre
business. By agreement dated July 30, 2001 the Company acquired the
business and assets of 1st Call Pte Ltd., a Singapore-based call centre
provider. Refer to Note 5. On November 1, 2001 the Company commenced
business operations in Singapore through its new subsidiary inCall Systems
Pte Ltd. In February 2002 the Company acquired the assets and VOIP
technology developed by Vocalscape Communications Ltd. Refer to Note 4.
The Company is currently engaged in the strategic combining of internet
call centre providers into a larger organization, or network, which can
effectively compete with regional and national service providers.
The interim consolidated financial statements have been prepared on the
basis of a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. At March 31,
2002 the Company has a working capital deficiency of $936,504 and has
incurred losses since inception raising substantial doubt as to the
Company's ability to continue as a going concern. The Company's continued
operations are dependent on its ability to obtain additional financing,
settling its outstanding debts and ultimately to attain profitable
operations.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of
Regulation S-B. They do not include all information and footnotes required
by generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there have been no
material changes in the information disclosed in the notes to the financial
statements for the year ended December 31, 2001 included in the Company's
Annual Report on Form 10-KSB filed with the Securities and Exchange
Commission. The interim unaudited financial statements should be read in
conjunction with those financial statements included in the Form 10-KSB.
In the opinion of Management, all adjustments considered necessary for a
fair presentation, consisting solely of normal recurring adjustments, have
been made. Operating results for the three months ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements are presented in United States
dollars and are prepared in accordance with accounting principles generally
accepted in the United States.
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, inCall Systems Pte Ltd. incorporated in
Singapore which commenced operations on November 1, 2001, and inCall
Systems Sdn Bhd incorporated in Malaysia on December 12, 2001. All
significant intercompany balances and transactions are eliminated on
consolidation.
Revenue recognition
Income is recognized when services are rendered.
Cash and cash equivalents
Cash and cash equivalents consists of cash on deposit and highly liquid
short-term interest bearing securities with maturities at the date of
purchase of three months or less.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses for
the periods that the financial statements are prepared. Actual amounts
could differ from these estimates.
Fixed assets
Fixed assets are recorded at cost. Depreciation is computed at the
following rates over the estimated useful lives of the assets:
Computer equipment 30% declining balance
Computer software 1 year straight-line
Furniture and fixtures 6 years straight-line
Office equipment 6 years straight-line
Leasehold improvements 6 years straight-line
VOIP technology 5 years straight-line
Goodwill and other intangible assets
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the
accounting for purchased goodwill and intangible assets. Under SFAS 142,
goodwill and intangible assets with indefinite lives will no longer be
amortized and will be tested for impairment annually. The Company has
adopted the provisions of SFAS 142 for acquisition of goodwill and other
intangible assets after June 30, 2001. The adoption of SFAS 142 has no
impact on the results of operations for any periods previously reported.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees", ("APB No. 25") and complies
with the disclosure provisions of Statement of Financial Accounting
Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). Under APB No. 25, compensation expense is recognized based on the
difference, if any, on the date of grant between the estimated fair value
of the Company's stock and the amount an employee must pay to acquire the
stock. Compensation expense is recognized immediately for past services
and pro-rata for future services over the option-vesting period.
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance with
SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force
in Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring or in Conjunction with Selling Goods or
Services" ("EITF 96-18"). Costs are measured at the estimated fair market
value of the consideration received or the estimated fair value of the
equity instruments issued, whichever is more reliably measurable. The
value of equity instruments issued for consideration other than employee
services is determined on the earlier of a performance commitment or
completion of performance by the provider of goods or services as defined
by EITF 96-18.
The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25
("FIN 44"), which provides guidance as to certain applications of APB 25.
FIN 44 is generally effective July 1, 2000 with the exception of certain
events occurring after December 15, 1998.
Financial instruments
The Company's financial instruments include cash and cash equivalents,
accounts payable and capital lease obligations. The fair values of these
financial instruments approximate their carrying values. Management
believes that the fair value of the debt approximates its carrying value.
Income taxes
The Company follows the liability method of accounting for income taxes.
Under this method, future tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax balances. Future tax assets and liabilities are measured
using enacted or substantially enacted tax rates expected to apply to the
taxable income in the years in which those differences are expected to be
recovered or settled. The effect on future tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
date of enactment or substantive enactment. A valuation allowance is
provided for deferred tax assets if it is more likely than not that the
Company will not realize the future benefit, or if the future deductibility
is uncertain.
Net Loss per Common Share
Basic earnings per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. Dilutive earnings per share
reflect the potential dilution of securities that could share in the
earnings of the Company. The accompanying presentation is only of basic
loss per share as the potentially dilutive factors are anti-dilutive to
basic loss per share.
Foreign currency transactions
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", foreign denominated monetary assets and
liabilities are translated to their United States dollar equivalents using
foreign exchange rates that prevailed at the balance sheet date. Revenue
and expenses are translated at average rates of exchange during the year.
Related translation adjustments are reported as a separate component of
stockholders' equity, whereas gains or losses resulting from foreign
currency transactions are included in results of operations.
NOTE 3 - FIXED ASSETS
March 31, December
31,
2002 2001
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Computer equipment and software $ 88,527 $ 64,517
Furniture and fixtures 7,912 3,163
Office equipment 22,897 22,897
Leasehold improvements 13,450 13,450
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132,786 104,027
Less: accumulated depreciation (18,445) (11,445)
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$ 114,341 $ 92,582
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NOTE 4 - VOIP TECHNOLOGY
By agreement dated February 5 ,2002 and completed March 26, 2002 the
Company acquired voice over internet protocol technology ("VOIP") developed
by Vocalscape Communications Ltd. from Blackwater Gold Corp, a British
Columbia, Canada company for $600,000 plus related equipment for $15,000.
The consideration was by way of $15,000 cash and 300,000 common shares of
the Company at $2.00 per share. As further consideration, for 24 months,
inCall will pay a royalty of 2% of gross revenue reported by the Company
and thereafter for 36 months the Company will pay a royalty of 1% of the
gross revenue reported by the Company, subject to a maximum of $250,000 per
year. The Company has the right to repurchase the 300,000 shares at a
price of $2.20 per share in the first year and at $2.40 per share in the
second year.
NOTE 5 - ACQUISITION OF BUSINESS ASSETS OF 1st CALL PTE LTD.
On July 30, 2001 the Company acquired all of the business assets of 1st
Call Pte Ltd. ("1st Call"), a Singapore-based call centre provider of
outsourced customer interactive services in Asia, in exchange for 478,261
shares of restricted common stock of the Company valued at $1.50 per share
for a purchase price of $717,391.
The business combination has been accounted for using the purchase method
of accounting as follows:
Assets acquired at fair value:
Fixed assets $ 84,074
Goodwill and other intangibles 633,317
Purchase price $ 717,391
During 2001 the Company issued 334,926 shares in connection with this
acquisition. The remaining 143,335 shares have not been issued and have
been recorded as an obligation to issue shares totaling $215,002.
Management has determined that as of March 31, 2002 no impairment of
goodwill has occurred.
NOTE 6 - CONVERTIBLE NOTES PAYABLE
During the year ended December 31, 2001 the Company obtained loans secured
by convertible notes in the amount of $440,000 with Update Ltd. ("Update").
The notes bear simple annual interest at 6%, with principal and interest
due on September 20, 2002. The notes give Update the option of converting
into restricted common shares at a conversion price equal to the lesser of
75% of the average closing price for the five trading days prior to
conversion or $1.25 per share. In the event of a default, (interest not
paid or debenture not paid at maturity) interest will continue to accrue on
the total amount then due at an annual interest rate of 12% plus a
collection fee of $10,000.
The Company also obtained additional loans secured by convertible notes for
an additional $525,000 with Update ($35,000 on June 19, 2001, $50,000 on
July 1, 2001, $40,000 on October 3, 2001, $20,000 on October 17, 2001,
$140,000 on November 15, 2001, $140,000 on December 12, 2001, $50,000 on
March 5, 2002 and $50,000 on March 25, 2002). These notes have ten-month
terms from the funding date with simple annual interest at 6%, payable
monthly. The notes give Update the option of converting into restricted
common shares at a conversion price equal to the lesser of 60% of the
average closing price for the five trading days prior to conversion or
$1.25 per share. In the event of a default, (interest not paid or
debenture not paid at maturity) interest will continue to accrue on the
total amount then due at an annual interest rate of 12% plus a collection
fee of $10,000.
All of the notes contain a restriction on future financings that the
Company shall not issue common stock for a price of less than $1.50 per
share without the written permission of the Lender for as long as any
principal remains outstanding. Further, the Company pledged all of its
assets as collateral for the loan. The Company also agreed to file a
General Security Agreement ("GSA"), or GSA-equivalent, to register this
security claim. As at March 31, 2002, interest of $40,320 has been accrued
and included in the balance owing.
NOTE 7 - CAPITAL STOCK
During the period the Company issued 30,000 common shares in exchange for
legal services of $40,000 and investor relations of $20,000, 7,666 common
shares in exchange for consulting fees of $18,400, and 28,000 common shares
in exchange for investor relations services valued at $70,000, of which
$45,000 had been incurred prior to December 31, 2001.
In addition, the Company issued 600,000 common shares for certain assets
and voice over internet protocol technology valued at $600,000. Refer to
Note 4.
Stock options
During 2001 the Company granted options to acquire a total of 1,100,000
shares of the Company's common stock to certain officers, directors and
employees of the Company and its subsidiaries. The options were granted at
an exercise price of $2.00 per share and vest evenly over periods ranging
from 6 months to 24 months from the date of each grant.
The following table summarizes information about stock options outstanding
as at March 31, 2002:
Options Outstanding Options Vested
Weighted
Market price at Number Average Number
Exercise Price Date of Grant Outstanding remaining Life Outstanding
-------------------------------------------------------------------------
$2.00 $2.35 600,000 9.14 years 433,333
$2.00 $2.40 500,000 9.52 years 250,000
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1,100,000 9.31 years 683,333
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of APB No. 25 and complies with the
disclosure provisions of SFAS No. 123. In accordance with SFAS No. 123 the
Company applies the fair value method using the Black-Scholes option-
pricing model in accounting for options granted to consultants. In
addition, the Company has adopted the provisions of FIN 44.
The 1,100,000 options were granted to employees, officers and directors at
less than market value of the Company's common stock with a total intrinsic
value, being the excess of the quoted market price of the common stock over
the exercise price at the date the options are granted, of $410,000. In
accordance with the provisions of ABP No. 25, this additional compensation
will be recognized over the vesting period of the options of which $60,937
has been recorded in the quarter ended March 31, 2002.
Stock Option Plan
Effective March 15, 2002, the Company adopted a stock option plan, the 2002
Stock Option Plan (the "Plan"). The plan allows for the granting of
options to acquire shares of the Company's common stock in an amount not to
exceed 25% of the shares otherwise issued and outstanding. The Plan allows
for the granting of either Incentive Stock Options or Nonqualified Stock
Options at a price not less than 80% of the market value of the Company's
common stock for terms not to exceed 10 years. The vesting of the options
granted is at the discretion of the Company's Board of Directors. The plan
permits granting of options to employees, consultants, officers and
employee directors of the Company and any of its subsidiaries.
NOTE 8 - RELATED PARTY TRANSACTIONS
During the period consulting fees totaling $50,000 were paid to three
officers and directors of the Company. At March 31, 2002 $30,000 is owing
to these parties and is recorded in accounts payable. In addition, net
cash advances of $3,701 were received from a director.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Legal proceedings
A purported complaint is pending against the Company, Signature Stock
Transfer, Inc., inCall Systems, Inc., Kevin Nichols and Jane Doe Nichols v.
Jeffrey Bunch and Tracy Bunch, for declaratory judgment, injunctive relief
and money damages, filed in the Superior Court of Washington, Spokane
County. The complaint is based upon two shareholders both claiming
ownership of certain common shares of the Company. The plaintiffs purport
to be the record and beneficial owners of these share certificates.
The Company believes it is not a valid defendant and the Company believes
the complaint is without merit and frivolous. Management currently believes
that resolving these matters will not have a material adverse impact on the
Company's financial position or its results of operations.
Interest rate risk exposure
The Company has limited exposure to any fluctuation in interest rates.
Foreign exchange risk
The Company is subject to foreign exchange risk for sales and purchases
denominated in foreign currencies. Foreign currency risk arises form the
fluctuation of foreign exchange rates and the degree of volatility of these
rates relative to the United States dollar. The Company does not actively
manage this risk.
Agreement with Hewlett Packard Malaysia Sdn Bhd
During the year the Company entered into a strategic alliance with Hewlett
Packard Malaysia Sdn Bhd ("HP") requiring the Company to advance $54,000 to
HP as prepayment for rent expense on infrastructure being provided by HP.
The rent will be $3,000 per month over the life of the agreement and no
prepaid amounts will be refunded on early termination. In addition, HP
will be entitled to participate in the Malaysian operations of the Company,
to the extent of 12% of total revenue or 49% of operating profits,
whichever is greater.
NOTE 10 - INCOME TAXES
The Company's has net operating loss carryforwards of approximately
$865,000 at March 31, 2002. These carryforwards will expire, if not
utilized, beginning in 2015. The potential tax benefit of these losses has
not been recorded as a full deferred tax asset valuation allowance has been
provided due to the uncertainty regarding the realization of these losses.
NOTE 11 - SUBSEQUENT EVENTS
Effective April 2, 2002 the Company authorized a forward split of its
common shares on a 2:1 basis resulting in an increase to the total issued
and outstanding number of shares of common stock to 11,609,852 shares.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
By agreement dated November 22, 2000 between the Company and the
shareholders of The Internet Call Centre Pte Ltd ("ICCP"), the Company
agreed to acquire all the issued and outstanding shares of ICCP in exchange
for the issuance of 6,500,000 restricted common shares, subject to certain
conditions and completion of due diligence. The Company subsequently
determined not to proceed with this acquisition, the agreement was not
consummated and the share exchange did not occur. During October 200,1 the
parties mutually agreed to formally rescind the November 22, 2000
acquisition agreement. As a result of this rescission, the Company did not
carry out any operations until November 2001. Therefore, comparisons of
its quarter-end March 2001 and 2002 operating results are not meaningful
and detailed discussions of revenue and expenses exclude comparisons to our
quarter ended March 31, 2001.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and segment data and in conjunction with
the Company's 10K filed April 15,, 2002. Results for interim periods may
not be indicative of the results for the full year.
OVERVIEW
The Company offers an integrated suite of Customer Relations Management
(CRM) services, including Internet and telephony turnkey communications
solutions, to corporations and provides them with the ability to experience
increased customer retention, revenue and profitability.
Equipped with the latest in telephony and computer technologies, the
Company provides all forms of customer contact and interaction services -
ranging from telephone, fax and email management, to live interactive
sales assistance using VoIP, text chat, co-web browsing and customer self-
service - from a single source, backed by a sophisticated knowledge base.
By agreement dated November 22, 2000 between the Company and the
shareholders of The Internet Call Centre Pte Ltd ("ICCP"), the Company
agreed to acquire all the issued and outstanding shares of ICCP in exchange
for the issuance of 6,500,000 restricted common shares, subject to certain
conditions and completion of due diligence. ICCP is a private Singapore
company, which was facilitating real-time sales and customer service for
companies doing business on the Internet. During 2001, the Company
advanced a total of $532,500 to ICCP to develop its business, however, as
the Company subsequently determined not to proceed with this acquisition,
the agreement was not consummated and the share exchange did not occur.
During October 2001, the parties mutually agreed to formally rescind the
November 22, 2000 acquisition agreement.
The Company was assigned the accounts receivables of ICCP on October 26,
2001 of approximately $70,000 as part of the rescission agreement and
recognized those accounts receivables in the fourth quarter 2001.
On July 30, 2001, the Company purchased the assets of privately held 1st
Call Pte Ltd, an 81 seat Singapore based call center provider of outsourced
call center services in Asia, in exchange for 478,261 shares of restricted
common stock of the Company valued at $1.50 per share for a purchase price
of $717,391.
This acquisition established the Company's call center facilities and
telephony expertise in Asia to service clients in preparation for planned
USA call center acquisitions. 1st Call provides its clients a range of
inbound/outbound telephony, Internet interactive chat, email and technical
help desk services. The 1st Call client list includes Cisco Systems,
Hewlett-Packard, MCI WorldCom Asia, Microsoft Singapore, and Oracle
Singapore.
The business operations and assets of 1st Call were initially integrated
with the operations of ICCP. During the fourth quarter of 2001, the
assets and operations were relocated to separate premises as part of the
terms of the ICCP rescission. Accordingly, no revenue or expenses
relating to the operations of 1st Call have been included in the financial
statements of the Company until the fourth quarter of 2001.
On November 1, 2001, iCALL Systems formed a new Singapore subsidiary called
inCall Systems Pte Ltd and secured new office premises. The Company has
moved all the assets of 1st Call Pte Ltd into the new office premises to
operate under the name of inCall. Mr. Chin Tiong Seah, who was managing
director of 1st Call, is the managing director of inCall Systems. All of
the 1st Call permanent staff accepted employment with inCall Systems. All
of the existing contracts and customers of 1st Call been have transferred
to over to inCall Systems. Additionally, certain accounts of ICCP have also
elected to transfer their business to the services of inCall Systems.
Hewlett-Packard Strategic Alliance
On September 6, 2001, the Company signed a 4-year strategic alliance
agreement with Hewlett-Packard Sales (Malaysia) Sdn Bhd ("HP"). Under the
terms of the agreement, HP Services Division will provide its clients with
the Company's integrated suite of Internet customer service solutions and
will incorporate the Company's capabilities into HP's Customer Interaction
Centers. HP has also committed to contract the Company to provide first
level technical support for HP products sold in Malaysia, which will
generate immediate revenue for the Company. In addition the HP agreement
will provide the Company with facility space, computer and office
equipment, and a ready to operate call center located in the HP data
center building in Malaysia. The Company will provide technology,
processes and management staff to operate the call center.
Additionally, HP has agreed to contract the Company to handle level 1
support calls for HP products sold in Malaysia. On December 12, 2001, the
Company formed a new Malaysian subsidiary called inCall Systems Sdn Bhd
and moved into new office premises in Hewlett-Packard's building. In
conjunction with Hewlett-Packard the Company began construction of its
Malaysian based call center.
To date Hewlett-Packard has invested approximately $220,000 dollars in the
establishment of the Malaysian center. To date, inCall Systems has
invested approximately $50,000 and intends to invest an additional $70,000
in completing the center.
Vocalscape Acquisition
February 13, 2002, the Company announced that it completed the acquisition
of the assets of privately held Vocalscape Networks Inc.
(www.vocalscape.com). The acquisition of Vocalscape's Voice over Intenet
Protocol (VoIP) and electronic Customer Relationship Management (eCRM)
solutions was a major milestone for inCall Systems' strategic plan for
rapid growth. In September of 2001, TMC Labs bestowed its Innovation award
and Editor's Choice award to Vocalscape's own VocalConnect citing,
"[VocalConnect] is designed to help bring resolution to the 'abandoned
shopping cart syndrome' prevalent in e-commerce. It does so by allowing the
customer to either request a Web chat session or click on the phone button
to speak directly to a Customer Service Representative."
inCall Systems acquired the assets of Vocalscape from Blackwater Gold
Corporation (BWG) for a combination of stock and cash. Under the terms of
the agreement, inCall Systems paid $15,000cash and 300,000 shares, valued
at $2.00 per inCall share, issued under Rule 144 and carrying a 24-month
legend. inCall will repurchase the shares at $2.20 per share for the first
12 months and $2.40 per share during months 13 to 24. Royalties are
payable to Blackwater Gold Corporation by inCall Systems at the rate of 2%
of gross revenue reported by inCall Systems for a 24 month period,
followed by 1% of gross revenue for a 36 month period (the maximum
cumulative royalties paid in any inCall Systems fiscal year shall not
exceed $250,000.00).
New technologies like Vocalscape's eCRM products are in the early stage of
market adoption. The Company has chosen a strategy of leveraging its newly
acquired technology through bundling agreements in order to increase
penetration and awareness in the market. These key strategic partnerships,
which allow the Company to bundle its technology with that of its
partners, serve to increase product awareness while at the same time
generating revenue at a marginal cost. The Company is introducing its eCRM
technology to the customer basis of its partners, without incurring
significant marketing costs.
LIQUIDITY AND CAPITAL RESOURCES
During 2001 the Company aligned itself with several strategic partners.
The Company believes that the achievements through March 31 2002 are
expected to produce significant revenues. However, the Company must
continue to invest in growth, infrastructure and sales and marketing. As a
result the Company expects to continue to incur operating losses through
the second quarter of 2002. Profitability is projected for the third
quarter of 2002, but there can be no assurance that the Company will
achieve profitability or, if profitability is achieved, that it will be
sustained.
In the twelve months ending December 31, 2001, the Company had financed
its operations principally through cash generated by convertible loans.
During 2001, the Company raised US $865,000 through such loans. The
Company also obtained additional loans secured by convertible notes for an
additional $50,000 on March 5, 2002 and $50,000 on March 25, 2002. The
Company maintains a cash balance that it believes will not sustain
operations into the fourth quarter of 2002. The Company continues to
explore all possibilities in securing financing sufficient to sustain
operations, complete the launch of its Value Added Reseller (VAR) program,
and proceed with call center acquisitions.
The Company faces considerable risk in completing each of its business
plan steps, including, but not limited to: a lack of funding or available
credit to continue development and undertake product and services rollout;
a lack of interest in its solutions in the market on the part of ecommerce
companies, resellers of the Company's VAR program or other customers;
and/or a shortfall of funding due to an inability to raise capital in the
securities market. Since further funding is required, and if none is
received, the Company would be forced to rely on its existing cash in the
bank or secure short-term loans. This may hinder the Company's ability to
complete its product and services development until such time as necessary
funds could be raised. In such a restricted cash flow scenario, the
Company would delay all cash intensive activities including certain
product development and strategic initiatives described above.
OPERATIONS
Revenues for the three months ended March 31, 2002 were $117,000. Revenues
were primarily generated from Company's Singapore operations. Singapore's
customer list includes Cisco, Hewlett-Packard, Sun MicroSystems and eBooks
Inc.
Cost of Sales for the three months ended March 31, 2002 was $62,366
resulting in a Gross Profit of 54,634.
Accounting and legal expenses for the three months ended March 31, 2002
were $34,186. These expenses consisted of costs associated with general
bookkeeping, accounting reviews, and legal assistance in evaluating
business opportunities.
Consulting consisted of compensation for officers and directors of the
Company who focused on seeking suitable acquisition companies, developing
business and plans financial pro forma's and fund raising activities.
Consulting expenses for the three months ended March 31, 2002 were
$95,753.
General and Administrative expenses consist primarily of rent, phone and
fax and other office expenses. General and Administrative expenses for the
three months ended March 31, 2002 were $210,261.
Interest for the three months ended March 31, 2002 was $13,842 consisting
of accrued interest on the Company's convertible notes.
Investor relations for the three months ended to March 31, 2002 consisted
of profiling the Company in investment papers and the professional
services of investment relations firms and personnel. During the period,
expenses for investor relations were $50,000.
Total Operating Expenses for the three months ended March 31, 2002 were
$411,042, resulting in an Operating Loss of $356,408. Basic Net Loss per
Share amounted to $0.07 for the three months ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
In three months ended March 31, 2002, the Company has financed operations
principally through cash generated by convertible loans. Through March 31,
2002, the Company raised a total of $100,000 in further loans.
Net cash used in operating activities was $187,116 for the three months
ended March 31, 2002
Net cash provided by financing activities was US $71,241 for the three
months ended March 31, 2002. Net cash, provided by financing activities
for the three months ended March 31, 2001, was primarily attributable to
proceeds generated from convertible loans less the acquisition of fixed
assets, totaling $28,759.
The Company anticipates that its current cash and cash equivalents and
cash generated from operations, if any, will not be sufficient to satisfy
its liquidity requirements for at least the next 12 months. The Company
will require additional funds prior to such time and will seek to sell
additional equity or debt securities or seek alternative sources of
financing. If the Company is unable to obtain this additional financing,
it may be required to reduce the scope of its planned sales and marketing
and product development efforts, which could harm its business, financial
condition and operating results. In addition, the Company may require
additional funds in order to fund more rapid expansion, to develop new or
enhanced services or products or to invest in complementary businesses,
technologies, services or products. Additional funding may not be
available on favorable terms, if at all.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A purported complaint is pending against the Company, Signature Stock
Transfer, Inc., inCall Systems, Inc., Kevin Nichols and Jane Doe Nichols v.
Jeffrey Bunch and Tracy Bunch, for declaratory judgment, injunctive relief
and money damages, filed in the Superior Court of Washington, Spokane
County. The complaint is based upon two shareholders both claiming
ownership of certain common shares of the Company. The plaintiffs purport
to be the record and beneficial owners of these share certificates.
The Company believes it is not a valid defendant and the Company believes
the complaint is without merit and frivolous. Management currently believes
that resolving these matters will not have a material adverse impact on the
Company's financial position or its results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
-15-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) All exhibits required to be filed herein are incorporated by reference
to Registrant's Form 10-SB, previously filed with the Commission on
March 31, 2002.
(b) The Company filed the following reports on Form 8-K during the three
months ended March 31, 2002.
(1) inCall Systems acquired the assets of Vocalscape from Blackwater
Gold Corporation ("BWG") for a combination of stock and cash. Under the
terms of the agreement, inCall Systems will pay $15,000 cash and 300,000
shares, valued at $2.00 per inCall Systems' share, issued under Rule 144 of
Regulation S and will carry a 24-month restrictive legend. inCall Systems
has the right to repurchase the shares at $2.20 per share for the first 12
months and $2.40 per shares during months 13 to 24. Royalties are payable
to Blackwater Gold Corporation by inCall Systems at the rate of 2% of gross
revenue reported by inCall Systems for a 24-month period, followed by 1% of
gross revenue for a 36-month period (with the maximum cumulative royalties
paid in any inCall Systems fiscal year not to exceed $250,000).
The acquisition of Vocalscape's Voice over Internet Protocol (VoIP) and
electronic Customer Relationship Management (eCRM) solutions is a large
component of inCall Systems' strategic growth plan.
(2) The Company has received signed Proxy Cards, including signed
Waivers of Notice to the Meeting, from shareholders holding a majority of
the Company's voting shares, voting in favor of the proposed Name Change as
set forth in the Company's recent proxy materials for the Special Meeting
that was to be held on January 31, 2002. This total share count represents
a "majority" vote IN FAVOR OF THE NAME CHANGE based on the Company's issued
and outstanding shares as of the date of record (January 8, 2002).
EFFECTIVE IMMEDIATELY, THE COMPANY'S NAME HAS BEEN CHANGED FROM "ICALL
SYSTEMS, INC." TO "INCALL SYSTEMS, INC."
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.
inCall Systems, Inc.
Dated: May 22, 2002 /s/ Ron McIntyre
----------------
Ron McIntyre
President