qumi_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

Form 10-Q

_____________________

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

QUAMTEL, INC.

(Exact name of small business issuer as specified in its charter)

Nevada		000-31757		98-0233452
(State of Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

14911 Quorum Drive, Suite 140, Dallas, Texas 75254

(Address of Principal Executive Office) (Zip Code)

(972) 361-1980

(Issuer’s telephone number, including area code)

Check whether the issuer (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 þ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	¨			Accelerated filer	¨
Non-accelerated filer	¨			Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of each of the issuer's classes of common equity as of July 30, 2010 is 19,216,175.

QUAMTEL, INC.

Table of Contents

		Page

Part I – FINANCIAL INFORMATION

ITEM 1.	FINANCIAL INFORMATION		3

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		14

ITEM 3.	QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK		19

ITEM 4T.	CONTROLS AND PROCEDURES		19

Part II – OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS		20

ITEM 1A	RISK FACTORS		20

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		20

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		20

ITEM 4.	(REMOVED AND RESERVED)		20

ITEM 5.	OTHER INFORMATION		20

ITEM 6.	EXHIBITS		20

SIGNATURES			21

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION

Quamtel, Inc.
Consolidated Balance Sheets

	June 30, 2010			December 31, 2009
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	136,026		$	94,003
Accounts receivable, net		18,031			30,367
Income tax receivable		11,678			11,678
Inventory		34,740			61,750
Prepaid expenses and deposits		122,733			449,704
Total current assets		323,208			647,502

Restricted cash		150,000			-
Property and equipment, net		387,288			404,472
Intangible assets		2,722,351			2,653,109

TOTAL ASSETS	$	3,582,847		$	3,705,083


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	518,197		$	383,234
Accrued expenses		137,540			113,901
Unearned revenue		309,203			445,347
Advances from related party		665,298			758,781
Stock-based payable		260,000			26,000
Current portion of notes payable		326,774			250,336
Total current liabilities		2,217,012			1,977,599

Noncurrent portion of notes payable		1,075,236			14,496

TOTAL LIABILITIES		3,292,248			1,992,095

Shareholders' equity:
Common stock - $0.001 par value; 200,000,000 shares authorized;
19,031,175 and 18,662,175 shares issued and outstanding at
June 30, 2010 and December 31, 2009, respectively		19,031			18,662
Preferred stock - $0.001 par value; 50,000,000 shares authorized;
no shares issued and outstanding		-			-
Additional paid-in capital		4,272,154			3,624,338
Stock repurchase		(100,000	)		-
Retained earnings (deficit)		(3,900,586	)		(1,930,012	)
Total shareholders' equity		290,599			1,712,988

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	3,582,847		$	3,705,083

The accompanying notes are an integral part of these consolidated financial statements.

Quamtel, Inc.
Consolidated Income Statement (Unaudited)
For the Three and Six Months Ended June 30, 2010 and 2009


	Three Months						Six Months
	2010			2009			2010			2009

Revenues	$	472,155		$	688,071		$	1,175,903		$	1,400,921

Cost of sales		445,835			382,609			936,598			790,203

Gross profit		26,320			305,462			239,305			610,718

Operating expenses:
Compensation, consulting and related expenses		731,712			246,743			1,399,382			475,806
General and administrative expenses		264,307			152,774			609,538			276,200
Depreciation and amortization		28,463			20,351			62,648			36,421
Total operating expenses		1,024,482			419,868			2,071,568			788,427

Loss from operations before income taxes		(998,162	)		(114,406	)		(1,832,263	)		(177,709	)

Other expense:
Loss on disposition of assets		72,625			-			72,625			-
Interest and financing expense		30,347			873			65,686			3,465
Total other expense		102,972			873			138,311			3,465

Loss before income taxes		(1,101,134	)		(115,279	)		(1,970,574	)		(181,174	)

Income tax expense (benefit)		-			-			-			(971	)

Net loss	$	(1,101,134	)	$	(115,279	)	$	(1,970,574	)	$	(180,203	)


Basic and diluted loss per share:

Loss from operations before income taxes	$	(0.06	)	$	(0.11	)	$	(0.10	)	$	(0.18	)
Income tax expense (benefit)		-			-			-			(0.00	)

Loss per share	$	(0.06	)	$	(0.11	)	$	(0.10	)	$	(0.18	)

Weighted average number of shares outstanding		19,020,735			1,020,000			18,913,495			1,020,000

The accompanying notes are an integral part of these consolidated financial statements.

Quamtel, Inc.
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Six Months Ended June 30, 2010


							Retained
	Common Stock				Additional Paid-		Earnings
	Shares		Amount		in Capital		(Deficit)			Total

Balance as of December 31, 2009		18,662,175	$	18,662	$	3,624,338	$	(1,930,012	)	$	1,712,988

Common stock issued for services		169,000		169		394,791		-			394,960
Common stock issued for cash		165,000		165		164,810		-			164,975
Common stock issued for domain name acquisition		35,000		35		88,215		-			88,250
Net loss for the period				-		-		(1,970,574	)		(1,970,574	)

Balance as of June 30, 2010		19,031,175	$	19,031	$	4,272,154	$	(3,900,586	)	$	390,599

The accompanying notes are an integral part of these consolidated financial statements.

Quamtel, Inc.
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2010 and 2009


	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,970,574	)	$	(180,203	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		62,648			36,421
Loss on disposition of assets		72,625			-
Noncash compensation and consulting expense		654,960			-
Changes in operating assets and liabilities net of assets and liabilities acquired:
Accounts receivable		12,336			(2,673	)
Inventory		27,010			-
Prepaid expenses and deposits		326,971			27,220
Income tax payable		-			(971	)
Accounts payable		134,963			79,505
Accrued expenses		23,639			45
Unearned revenue		(136,144	)		26,593
Net cash used in operating activities		(791,566	)		(14,063	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment		(98,505	)		(112,182	)
Acquisition of intangible assets		(26,577	)		-
Increase in restricted cash		(150,000	)
Net cash used in investing activities		(275,082	)		(112,182	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuances		164,975			20,000
Proceeds from issuance of notes payable		1,400,000			-
Advances from (repayments to) related party		(93,483	)		110,948
Cash paid to redeem common stock		(100,000	)		-
Repayment of notes payable		(262,821	)		(4,041	)
Net cash provided by financing activities		1,108,671			126,907

Net increase in cash		42,023			662

Cash and cash equivalents at beginning of period		94,003			11,562
Cash and cash equivalents at end of period	$	136,026		$	12,224


Supplemental cash flow information:
Cash paid for taxes	$	-		$	-
Cash paid for interest	$	59,999		$	2,592

Noncash investing and financing activities:
Issuance of common stock for intangible assets	$	88,250		$	-

The accompanying notes are an integral part of these consolidated financial statements.

QUAMTEL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Quamtel, Inc., formerly known as Atomic Guppy, Inc., XTX Energy, Inc. and Glen Manor Resources Inc., (the “Company”) was incorporated on November 16, 1999 under the laws of the State of Nevada. Prior to the closing of the share exchange agreement described below, the Company was a “shell” corporation as that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act, as well as SEC Release Number 33-8407.

On January 13, 2009, the Company executed a Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which the shareholders of WQN, Inc. were entitled to receive a total of 15,000,000 post-split shares of the Company’s common stock. All conditions for closing were satisfied or waived, and the transaction closed on July 28, 2009. As a result of the Exchange, the shareholders of WQN, Inc. owned approximately 91% of the outstanding common stock of Quamtel. In conjunction with closing the Share Exchange Agreement, certain outstanding obligations of Quamtel including officers and director’s compensation, notes and amounts payable to officers and directors and third party loans outstanding, were exchanged for 1,275,000 post-split share s of Quamtel’s common stock.

As a result of the Share Exchange Agreement, WQN, Inc. became a wholly-owned subsidiary of Quamtel, through which its operations are now conducted. On September 8, 2009, Quamtel filed an amendment to its Articles of Incorporation concluding a one-for-ten reverse split of its common stock and increasing its authorized stock to 200,000,000 common shares and 50,000,000 preferred shares.

The Share Exchange Agreement has been accounted for as a reverse merger, and as such the historical financial statements of WQN, Inc. are being presented herein as those of the Company. Also, the capital structure of the Company for all periods presented herein is different from that appearing in the historical financial statements of the Company due to the recapitalization accounting.

On December 9, 2009, the Company acquired all of the outstanding membership interests of Mobile Internet Devices, LLC, a Florida limited liability company (“Mobile Devices”), for a combination of common stock, stock warrants, and a royalty based on future earnings and new subscribers of the acquired company. Mobile Devices was subsequently renamed and reorganized as Data Jack, Inc., a Texas corporation (“Data Jack”).

The financial information presented herein should be read in conjunction with the financial statements of Quamtel for the year ended December 31, 2009, as presented in the Company’s Form 10-K filed on March 31, 2010. The accompanying financial statements for the three and six months ended June 30, 2010 and 2009 are unaudited but, in the opinion of management, include all adjustments (which are normal and recurring in nature) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. Therefore, the results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of operating results to be expected for the full year or future interim periods .

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are detailed in Quamtel’s financial statements for the year ended December 31, 2009 as presented in the Company’s Form 10-K filed on March 31, 2010.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred operating losses and negative cash flows from operations since the Share Exchange Agreement, has incurred a retained earnings deficit of $3,900,586 through June 30, 2010, and has been dependent on issuances of debt and equity instruments to fund its operations. The Company intends to increase its future profitability and seek new sources or methods of financing or revenue to pursue its business strategy. However, there can be no certainty that the Company will be successful in this strategy. These factors raise substantial doubt about the Company’s abilit y to continue as a going concern. Accordingly, the Company's independent auditors added an explanatory paragraph to their opinion on the Company's consolidated financial statements for the year ended December 31, 2009, based on substantial doubt about the Company's ability to continue as a going concern.

NOTE C – RESTRICTED CASH

At June 30, 2010, restricted cash consisted of a $150,000 security deposit in the form of an irrevocable letter of credit (the “LOC”) held in escrow related to the Company’s performance under a service contract with one of its telecommunication service providers (the “Service Provider”). In accordance with the terms of the LOC, the Service Provider may draw on the LOC in the event of a payment default under the contract. The LOC’s initial term expires on April 14, 2013, and is renewable annually thereafter. Accordingly, the restricted cash balance of $150,000 as of June 30, 2010 is classified as noncurrent in the Company’s consolidated balance sheet.

NOTE D - PROPERTY AND EQUIPMENT, NET

At June 30, 2009 and December 31, 2009, respectively, property and equipment consisted of the following:


	June 30, 2010			December 31, 2009
	(Unaudited)

Computers equipment and software	$	468,009		$	519,144
Automobile		32,123			32,123
Furniture & Fixtures		12,274			12,274
Total		512,406			563,541
Less accumulated depreciation		(125,118	)		(159,069	)
Total	$	387,288		$	404,472

Depreciation expense for the six months ended June 30, 2010 and 2009 amounted to $43,063 and $36,421, respectively.

NOTE E - INTANGIBLE ASSETS

At June 30, 2010 and December 31, 2009, respectively, intangible assets consisted of the following:


	June 30, 2010			December 31, 2009
	(Unaudited)

Goodwill associated with the acquisition of WQN, Inc.	$	367,589		$	367,589
Goodwill associated with the acquisition of Data Jack, Inc.		1,919,957			1,919,957
Acquisition of 800.com domain name		317,500			317,500
Acquisition of DataJack.com domain name		56,000			56,000
Acquisition of other domain names		88,827			-
Total		2,749,873			2,661,047
Less accumulated amortization		(27,522	)		(7,938	)
Total	$	2,722,351		$	2,653,109

Amortization expense for the six months ended June 30, 2010 and 2009 amounted to $19,585 and $0, respectively.

The goodwill amounts of $367,589 and $1,919,957 were recorded primarily in connection with the WQN, Inc. acquisition in June, 2007, and the Data Jack acquisition in December, 2009, respectively.

In August 2009, the Company issued 25,000 of its common shares, valued at $67,500, to Mr. Loren Stocker to acquire an option to purchase the URL 800.com (the “800 Domain Name”). Steven Ivester, an agent of iTella, Inc., (“Assignor”), subsequently acquired the 800 Domain Name in a Bankruptcy Court auction for the sum of $250,000. The acquisition was made for the benefit of the Company. Effective September 30, 2009, in return for the Company reimbursing to Assignor his $250,000 cost, Assignor assigned to the Company all right, title and interest in and to the 800 Domain Name. The total cost of the 800 Domain Name was $317,500 which is less than its estimated fair value, and is being amortized over a period of 10 years.

In December 2009, the Company purchased the URL DataJack.com (the "DataJack Domain Name”) for a cash payment of $30,000, plus a commitment to issue 10,000 of the Company’s common shares which were valued at $26,000, which were issued on May 4, 2010. The total cost of the DataJack Domain Name was $56,000 which is less than its estimated fair value, and is being amortized over a period of 10 years.

In January 2010, the Company purchased the URL machine2machine.com and similarly-named domains (the "M2M Domain Names”) for a cash payment of $25,377, plus 25,000 of the Company’s common shares, which were valued at $62,250. The total cost of the M2M Domain Names plus other domain names purchased in 2010 was $88,827 which is less than their estimated fair value, and is being amortized over a period of 10 years.

NOTE F – RELATED PARTY TRANSACTIONS

From time to time, Steven Ivester, the Company’s former sole shareholder, who is currently the Assistant Secretary of and also a consultant to the Company through a Consulting Services Agreement with iTella, Inc., has made personal advances to the Company under an Unsecured Revolving Promissory Note (the "Unsecured Note"). The Unsecured Note has a maximum amount of $1,000,000, is repayable upon demand, is non-interest bearing and is unsecured. Advances under the Unsecured Note amounted to $665,298 and $758,781 at June 30, 2010 and December 31, 2009, respectively. See also Note E for the 800 Domain Name transaction involving Mr. Ivester.

Effective August 1, 2009 and subsequently amended, the Company executed a Restated Consulting Services Agreement with iTella, Inc., whereby iTella, Inc. provides, at the reasonable request of the Company’s management, advanced business strategy, financing, product development and marketing advice including but not limited to day to day operations. The initial term of this agreement is for five years and automatically renews for additional one year terms if approved by both parties. During this agreement’s term and at the Company’s expense, iTella, Inc. will be provided an office and administrative support in Weston, Florida. iTella, Inc.’s compensation consists of the following:

1.	Cash payments totaling $8,333 for the first two months, payable monthly;

2.	Cash payments totaling $66,667 for the next four months, payable monthly;

3.	Annual cash payments of $250,000 thereafter, payable monthly;

4.	Nine percent of the Company’s consolidated gross revenue, payable quarterly (except the first two months, in which the rate is one percent of gross revenues), subject to an annual calendar year cap of $800,000;

5.	Employees of Consultant may be eligible for grants of stock options pursuant to the Company’s Equity Incentive Plan, in such amounts as may from time to time be determined by the Company, at its sole discretion; and

6.	Reimbursement of reasonable, related business expenses.

Expenses under the Restated Consulting Services Agreement for the six months ended June 30, 2010 and year ended December 31, 2009, respectively, were $226,665 and $109,761. Prior to closing the Restated Consulting Services Agreement, Quamtel did not have expertise in the management and financing of a public company, and required the services of iTella, Inc. as outlined in the Restated Consulting Services Agreement. The Restated Consulting Services Agreement is not cancellable by either party in advance of its contractual term, except under a defined change in control.

On August 20, 2009, the Company also executed a one-year consulting agreement with Mr. Warren Gilbert, who is the president of Gilder Funding Corp., a shareholder of the Company, whereby Mr. Gilbert will provide advice and counsel regarding the Company’s financial management and strategic opportunities. As compensation, Mr. Gilbert was issued 300,000 shares of the Company’s common stock, which were registered on a registration statement on Form S-8 on November 9, 2009.

NOTE G - NOTES PAYABLE

At June 30, 2010 and December 31, 2009, notes payable consisted of the following:


	June 30, 2010			December 31, 2009
	(Unaudited)

Secured promissory note payable - shareholder and related party	$	1,215,620		$	-
Promissory note payable - shareholder		-			200,000
Notes payable - CIT Bank		37,750			35,899
Note payable - American Honda Finance Corporation		17,368			20,256
Note payable - Total Bank		1,272			8,677
Other notes payable		130,000			-

Total notes payable		1,402,010			264,832

Less current portion		(326,774	)		(250,336	)

Noncurrent portion	$	1,075,236		$	14,496

On February 27, 2010, the Company executed a $1,000,000 Senior Secured Promissory Note payable to Gilder Funding Corp., a company controlled by Mr. Warren Gilbert (the “Secured Note”) for cash. The proceeds were used to repay the $200,000 note payable to Mr. Gilbert discussed in the following paragraph, plus accrued interest. On May 21, 2010 the Secured Note was increased by $250,000 reflecting additional cash proceeds. Interest on the Secured Note is payable monthly at 15% per annum beginning April 5, 2010, requiring monthly principal and interest payments of $27,000 beginning June 15, 2010. The Secured Note is secured by substantially all of the Company’s assets.

On December 15, 2009, the Company issued an unsecured $200,000 promissory note payable to Gilder Funding Corp. for cash. This note bore interest at 18% per year and was repaid in conjunction with the Secured Note discussed in the preceding paragraph.

The CIT bank notes are associated with computer purchases in 2007, are repayable in 36 equal monthly payments through August and September 2010, are unsecured, and bear interest at 24.49% per year. The Company is currently in arrears on payments.

The American Honda Finance Corporation note is related to an automobile purchase in 2008, is repayable in 60 equal monthly payments through June 2013, is secured by the automobile, and bears interest at 9.45% per year.

The Total Bank note is associated with an insurance policy, is repayable in equal monthly payments of $1,283 through July 2010, is unsecured, and bears interest at 10.34% per year.

The other notes payable include a $30,000 advance from a person related to the Company’s President, which is non-interest bearing and is repayable on demand. The remaining $100,000 represents an advance paid by Mr. Warren Gilbert toward an anticipated future purchase of the Company’s common stock.

The noncurrent portion of notes payable at June 30, 2010 is substantially payable by the end of 2015.

See Note F for a discussion of advances to the Company under an unsecured revolving promissory note from Steven Ivester, who is the Company’s former sole shareholder and currently is the Assistant Secretary of and also a consultant to the Company through a Consulting Services Agreement with iTella, Inc.

NOTE H – FINANCING AND OTHER TRANSACTIONS

During the first six months of 2010, the Company issued 369,000 shares of common stock valued at $648,185 as follows:

●	165,000 shares were issued and sold to four accredited investors for net proceeds of $164,975.

●	100,000 shares valued at $249,000 were issued to Stuart Ehrlich, the Company’s President and Chief Executive Officer, as partial compensation for his employment in 2010.

●	24,000 shares valued at $59,760 were issued to Robert Picow as compensation for consultation services performed from time-to-time for the Company.

●	5,000 shares valued at $12,450 were issued to Marc Moore in exchange for consultation services.

●	35,000 shares valued at $88,250 were issued in connection with the Company’s acquisition of the various domain names.

●	25,000 shares valued at $36,250 were issued to Martin Lefrancois in exchange for consultation services.

●	15,000 shares valued at $37,500 were issued to Loren Stocker in exchange for consultation services.

On March 25, 2010, in order to settle certain disputes with a shareholder (the “Selling Shareholder”), the Company agreed to purchase and redeem 100,000 shares of its common stock owned by the Selling Shareholder for cash payments totaling $100,000. Of this amount, $60,000 was paid by June 30, 2010. The $40,000 balance is currently in arrears, and is included in accrued expenses on the Company’s consolidated balance sheet at June 30, 2010.

On June 7, 2010, the Company executed a one-year consulting agreement with Mr. Windel Thelusma, whereby Mr. Thelusma will provide advice and counsel regarding the Company’s financial management and strategic opportunities. As compensation, Mr. Thelusma was issued 100,000 shares of the Company’s common stock valued at $260,000 on July 9, 2010, which were registered on a registration statement on Form S-8 on November 9, 2009. The $260,000 is included in stock-based payable on the Company’s consolidated balance sheet at June 30, 2010.

NOTE I - INCOME TAXES

The components of the Company's income tax expense (benefit) are as follows:

	Six Months Ended June 30,
	2010		2009

Current benefit	$	-	$	(971	)
Deferred benefit		-		-
Net income tax benefit	$	-	$	(971	)

The reconciliation of the income tax provision at the statutory rate to the reported income tax expense is as follows:

Computed at statutory rate	34.0	%	34.0	%
Stock-related compensation and consulting expenses	-11.3	%	0.0	%
Valuation allowance	-22.7	%	-34.0	%
Total	0.0	%	0.0	%

At June 30, 2010, the Company's net deferred tax asset consisted of the following:


Net operating loss carryforward	$	828,754
Less valuation allowance		(828,754	)
Total	$	-

The Company's net operating loss carryforward for federal income tax purposes was approximately $2,438,482 as of June 30, 2010, expiring beginning in 2022. In accordance with Internal Revenue Code Section 382, the Company may be limited in its ability to recognize the benefit of future net operating loss carry-forwards. Consequently, the Company did not recognize a benefit from operating loss carry-forwards. The Company is only subject to federal income taxes.

NOTE J – COMMITMENTS AND CONTINGENCIES

Leases

The Company is obligated under a non-cancelable operating lease for its primary office facilities, which expires on February 28, 2015. The Company is also obligated under a non-cancelable operating lease for its Fort Lauderdale office facilities, which expires on February 28, 2013. Future minimum lease payments under these operating leases as of June 30, 2010 are as follows:

											2014 and
	Total		2010		2011		2012		2013		Thereafter

Dallas	$	288,624	$	30,924	$	61,848	$	61,848	$	61,848	$	72,156
Ft Lauderdale		86,613		11,550		29,589		36,090		9,384		-
	$	375,237	$	42,474	$	91,437	$	97,938	$	71,232	$	72,156

Rent expense for these operating leases (net of a month-to-month sublease for a small portion of the primary office premises in 2009) for the six months ended June 30, 2010 and 2009 was $49,405 and $31,988, respectively.

Consulting Agreements

See Note F for a discussion of the Consulting Services Agreement with iTella, Inc. and the Consulting Agreement with Mr. Warren Gilbert.

See also Note H for a discussion of the consulting agreement with Mr. Windel Thelusma.

NOTE J – SUBSEQUENT EVENT

As discussed in Note A above and the Company’s Current Report on Form 8-K dated December 14, 2009, on December 9, 2009, the Company entered into and closed a Membership Interest Purchase Agreement to acquire all of the outstanding membership interests of Mobile Internet Devices, LLC, which was subsequently renamed and reorganized as Data Jack, Inc., a Texas corporation (“Data Jack”). The sellers were DataJack, Inc., a Florida corporation owned by Keith R. Jones, and Schooner Enterprises, Inc., a Nevada corporation owned by John W. Richardson.

Effective August 4, 2010, the parties agreed to a partial rescission of such Agreement. The consideration payable for the membership interests of the Company shall be 250,000 shares of Purchaser’s restricted common stock issuable to each of the Sellers. All other consideration set forth in the original Agreement is rescinded and cancelled. Sellers shall return each and every item of consideration to Purchaser other than the aggregate of 500,000 shares described above. Additionally, Purchaser will give Sellers 25,000 additional shares of restricted stock for every 5,000 new DataJack customers that the Company acquires. A maximum of 500,000 shares may be issued under this provision.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis contains various “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward-looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with the Company’s Financial Statements and Notes to Financial Statements included in its Annual Report on Form 10-K filed on March 31, 2010.

On January 13, 2009, Quamtel, Inc. (formerly Atomic Guppy, Inc.) (“Quamtel”) and WQN, Inc., a Texas corporation (“WQN”) (individually and collectively also referred to as the “Company”) executed a Share Exchange Agreement (the “Share Exchange Agreement”), pursuant to which the shareholders of WQN were entitled to receive a total of 15,000,000 post-split shares of common stock. All conditions for closing were satisfied or waived, and the transaction closed on July 28, 2009. As a result of the Exchange, the shareholders of WQN own approximately 91% of the outstanding common stock of Quamtel. In conjunction with closing the Share Exchange Agreement, certain outstanding obligations of Quamtel including officers and director ’s compensation, notes and amounts payable to officers and directors and third party loans outstanding, were exchanged for 1,275,000 post-split shares of Quamtel’s common stock.

As a result of the Share Exchange Agreement, WQN became a wholly-owned subsidiary of Quamtel, through which its operations will be conducted. On September 8, 2009, Quamtel filed an amendment to its Articles of Incorporation concluding a one-for-ten reverse split of its common stock, and increasing its authorized stock to 200,000,000 common shares and 50,000,000 preferred shares.

Overview

WQN was formed as a Texas corporation in June 2007, when it acquired an operating business that was originally founded in 1996. WQN provides prepaid and postpaid enhanced telecommunications services with an emphasis on transporting calls that originate from the United States and Canada and terminate to specific regions of the world. Customers utilize WQN’s Voice Over Internet Protocol (“VoIP”) network to place quality international calls at discounted rates. The voice quality of WQN’s VoIP calls is nearly the same as an international telephone call carried over a traditional telephone line. A substantial portion of WQN’s revenue is derived from the sale of prepaid service to customers calling from the United States to India. WQN’s products and services are provisioned and sold online via its websi tes.

Data Jack was formed in February 2009, and its revenues prior to the Company’s acquisition were $96,113. Data Jack specializes in delivering nationwide mobile 3G data coverage for a competitive fixed monthly price, through a proprietary USB device connected to any computer with a Windows or Mac operating system.

Results of Operations for the Six Months ended June 30, 2010 Compared to the Same Period in 2009

Revenues

Our revenues for the six months ended June 30, 2010 and 2009 were $1,175,903 and $1,400,921, respectively. Revenues decreased primarily because the retail rates to India, one of the Company’s primary markets, have been rapidly declining due to increased competition. This trend is expected to continue, in turn putting further downward pressure on revenues and margins. Data Jack revenues were $200,514 for six months ended June 30, 2010 (none in the corresponding 2009 period, since Data Jack was acquired in December 2009), partially offsetting the India-based revenue decline.

Revenues are derived primarily from our prepaid international calling services and our consumer based internet telephony and wireless internet access services. Inflation has not had a material effect on net sales and revenues or on income from continuing operations during the past two fiscal years.

Cost of Sales and Gross Profit

Cost of sales was $936,598 and $790,203 for the six months ended June 30, 2010 and 2009, respectively. This resulted in gross profit of $239,305 (20.4%) and $610,718 (43.6%) for the respective 2010 and 2009 periods. The decreased gross margin in 2010 was due to lowering our effective sales prices on our India traffic due to competitive market pressures, while our vendor cost reductions have not kept pace. Our aggregate gross profit decline during the six months ended June 30, 2010 versus the corresponding 2009 period was otherwise due primarily to our decreased revenues during that period.

Operating Expenses

Operating expenses were $2,071,568 and $788,427 for the six months ended June 30, 2010 and 2009, respectively. Compensation and consulting expenses increased from $475,806 to $1,399,382 during these periods due primarily to the $654,960 noncash compensation and consulting services as described in Note H to the Company’s consolidated financial statements, and to a lesser extent the iTella, Inc. consulting agreement entered into in 2009, as described in Note F to the Company’s consolidated financial statements. General and administrative (“G&A”) expenses increased from $276,200 in the 2009 period to $609,538 in 2010, primarily due to increased legal and audit fees associated with the Share Exchange Agreement and becoming a publicly reporting company, and generally increased advertising, rent and travel expenses.

Other Expenses

Interest and financing expenses increased from $3,465 to $65,686 for the six months ended June 30, 2010 versus the corresponding 2009 period, due primarily to the secured and unsecured promissory notes payable discussed in Note F to the Company’s consolidated financial statements.

During the six months ended June 30, 2010, we disposed of computer-related equipment with a net book value of $72,625 due to its replacement.

Net Income (Loss)

The revenue and gross margin decreases coupled with the operating and other expense increases noted above combined to result in a net loss of $1,970,574 and $180,203, in the 2010 and 2009 periods, respectively.

Results of Operations for the Three Months ended June 30, 2010 Compared to the Same Period in 2009

Revenues

Our revenues for the three months ended June 30, 2010 and 2009 were $472,155 and $688,071, respectively. Revenues decreased primarily because the retail rates to India, one of the Company’s primary markets, have been rapidly declining due to increased competition. This trend is expected to continue, in turn putting further downward pressure on revenues and margins. Data Jack revenues were $51,274 for three months ended June 30, 2010 (none in the corresponding 2009 period, since Data Jack was acquired in December 2009), partially offsetting the India-based revenue decline.

Cost of Sales and Gross Profit

Cost of sales was $445,835 and $382,609 for the three months ended June 30, 2010 and 2009, respectively. This resulted in gross profit of $26,320 (5.6%) and $305,462 (44.4%) for the respective 2010 and 2009 periods. The decreased gross margin in 2010 was due to lowering our effective sales prices on our India traffic due to competitive market pressures, while our vendor cost reductions have not kept pace. Our aggregate gross profit decline during the six months ended June 30, 2010 versus the corresponding 2009 period was otherwise due primarily to our decreased revenues during that period.

Operating Expenses

Operating expenses were $1,024,482 and $419,868 for the three months ended June 30, 2010 and 2009, respectively. Compensation and consulting expenses increased from $246,743 to $731,712 during these periods due primarily to the $333,750 noncash compensation and consulting services as described in Note H to the Company’s consolidated financial statements, and to a lesser extent the iTella, Inc. consulting agreement entered into in 2009, as described in Note F to the Company’s consolidated financial statements. General and administrative (“G&A”) expenses increased from $152,774 in the 2009 period to $264,307 in 2010, primarily due to increased legal and audit fees associated with the Share Exchange Agreement and becoming a publicly reporting company, and generally increased advertising, rent and travel expenses.

Other Expenses

Interest and financing expenses increased from $873 to $30,347 for the three months ended June 30, 2010 versus the corresponding 2009 period, due primarily to the secured and unsecured promissory notes payable discussed in Note F to the Company’s consolidated financial statements.

During the three months ended June 30, 2010, we disposed of computer-related equipment with a net book value of $72,625 due to its replacement.

Net Income (Loss)

The revenue and gross margin decreases coupled with the operating and other expense increases noted above combined to result in a net loss of $1,101,134 and $115,279, in the 2010 and 2009 periods, respectively.

Liquidity and Capital Resources

Cash and cash equivalents were $136,026 at June 30, 2010. Our net cash used in operating activities for the six months ended June 30, 2010 was $791,566, due primarily to our cash-based net loss during this period, partially offset by a decrease in our prepaid expenses and deposits, and other working capital changes. Our primary sources of funding have been through the proceeds of the $1,250,000 secured promissory note payable received in the first six months of 2010 as discussed in Note G to the Company’s consolidated financial statements, and from advances from a former shareholder under an unsecured, revolving, non-interest bearing promissory note payable with a maximum amount of $1,000,000 as described in Note F to the Company’s consolidated financial statements, and sales of common stock and other notes payable for c ash. Advances under the unsecured revolving promissory note totaled $665,298 at June 30, 2010.

At June 30, 2010, restricted cash consisted of a $150,000 security deposit in the form of an irrevocable letter of credit held in escrow related to the Company’s performance under a service contract with one of its telecommunication service providers, as discussed in Note C to the Company’s consolidated financial statements.

Our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred operating losses and negative cash flows from operations since the Share Exchange Agreement, has incurred a retained earnings deficit of $3,900,586 through June 30, 2010, and has been dependent on issuances of debt and equity instruments to fund its operations. The Company intends to increase its future profitability and seek new sources or methods of financing or revenue to pursue its business strategy. However, there can be no certainty that the Company will be successful in this strategy. These factors raise substantial doubt about the Company’s abilit y to continue as a going concern. Accordingly, the Company's independent auditors added an explanatory paragraph to their opinion on the Company's consolidated financial statements for the year ended December 31, 2009, based on substantial doubt about the Company's ability to continue as a going concern.

These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. In this regard, the Company’s management is proposing to raise any necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital.

On February 27, 2010, the Company executed a $1,000,000 Senior Secured Promissory Note payable to Gilder Funding Corp., a company controlled by Mr. Warren Gilbert (the “Secured Note”) for cash. The proceeds were used to repay the $200,000 note payable to Mr. Gilbert discussed in Note G to the Company’s consolidated financial statements, plus accrued interest. On May 21, 2010 the Secured Note was increased by $250,000 reflecting additional cash proceeds. Interest on the Secured Note is payable monthly at 15% per annum beginning April 5, 2010, requiring monthly principal and interest payments of $27,000 beginning June 15, 2010. The Secured Note is secured by substantially all of the Company’s assets.

Partial Rescission of Acquisition Agreement

As discussed in the Company’s Current Report on Form 8-K dated December 14, 2009, on December 9, 2009, we entered into and closed a Membership Interest Purchase Agreement to acquire all of the outstanding membership interests of Mobile Internet Devices, LLC, which was subsequently renamed and reorganized as Data Jack, Inc., a Texas corporation (“Data Jack”). The sellers were DataJack, Inc., a Florida corporation owned by Keith R. Jones, and Schooner Enterprises, Inc., a Nevada corporation owned by John W. Richardson.

Capital Expenditure Commitments

We did not have any substantial outstanding commitments to purchase capital equipment at June 30, 2010.

Plan of Operations

By adjusting our operations and development to the level of capitalization, we believe that we have sufficient capital resources to meet projected cash flow requirements. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

Our future cash requirements include those associated with maintaining our status as a reporting entity. We believe that on an annual basis those costs would not exceed an average of $25,000 per month.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief operating history and lack of substantial historical operating profits, our operations have not been a source of liquidity. We will need to obtain additional capital in order to fund our operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.

Critical Accounting Policies

The application of our accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. These estimates bear the risk of change due to the inherent uncertainty attached to each estimate and are likely to differ to some extent from actual results. A description of our critical accounting policies follows:

In accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," the Company tests its intangible asset (goodwill) for impairment at least annually by comparing the fair value of this asset to its carrying value. If in the future the carrying value of our goodwill exceeds its fair value, the Company will recognize an impairment charge in an amount equal to that excess. For purposes of these tests, the excess of the fair value of the Company over the amounts assigned to its identified assets and liabilities is the implied fair value of its goodwill.

Our revenues are primarily derived from fees charged to terminate voice services over the Company's network and from related monthly recurring charges. Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call. Revenue from each customer is calculated from information received through the Company's network switches. The Company tracks the information received from the switch and analyzes the call detail records and applies the respective revenue rate for each call. Fixed revenue is earned from monthly recurring services provided to customers that are fixed and recurring in nature, and are connected for a specified period of time. Revenues are recognized as the services are provided and continue until the expiration of the contract or until cancellation of the service by the customer. Cash fees received prior to call completion are recorded on the CompanyR 17;s balance sheet as unearned revenue.

Payments Due by Period

The following table illustrates our outstanding debt, purchase obligations, and related payment projections as of June 30, 2010:

			2010								2014 and
	Total		(Remainder)		2011		2012		2013		Thereafter

Advances from related party	$	665,298	$	665,298	$	-	$	-	$	-	$	-
Notes payable (principal)		1,402,010		245,071		177,960		189,854		220,374		568,751
Subtotals		2,067,309		910,369		177,960		189,854		220,374		568,751

Purchase obligations		-		-		-		-		-		-
Operating leases		375,237		42,474		91,437		97,938		71,232		72,156
Totals	$	2,442,546	$	952,843	$	269,397	$	287,792	$	291,606	$	640,907

ITEM 3.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

As required by Rule 13a-15(b) under the Exchange Act as of June 30, 2010, our management conducted an evaluation with the participation of our President who also serves as our principal financial and accounting officer (the “Certifying Officer”) regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects a company’s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles, such that there is more than a remote likelihood that a misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected. A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of a company’s consolidated financial statements will not be prevented or detected.

Based on this evaluation and in accordance with the requirements of Auditing Standard No. 2 of the Public Company Accounting Oversight Board, our Certifying Officer concluded that our disclosure controls and procedures were ineffective as of June 30, 2010. Our President, who is our sole executive officer, is not a financial or accounting professional, and we do not have a chief financial officer or sufficient accounting staff. Until we are able to engage a qualified financial officer, and/or accounting staff, we may continue to experience material weaknesses in our disclosure controls that may adversely affect our ability to timely file our quarterly and annual reports.

Our management, including the Certifying Officer, does not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, a design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of simple err or or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. Further, the design of any system of controls is also based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations and a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

(b) Changes in Internal Control over Financial Reporting.

During the quarter ended June 30, 2010, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

See the risk factors set forth in our Annual Report on Form 10-K filed on March 31, 2010.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In the second quarter of 2010, the Company issued 50,000 shares of common stock valued at $99,750 as follows:

●	25,000 shares valued at $36,250 were issued to Martin Lefrancois in exchange for consultation services.

●	15,000 shares valued at $37,500 were issued to Loren Stocker in exchange for consultation services.

●	10,000 shares valued at $26,000 were issued in connection with the Company’s acquisition of the DataJack.com domain name.

All of these issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 on the basis of the sophistication and small number of purchasers, and the restrictions placed on the certificates representing the shares and the representation received from the purchasers.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

(REMOVED AND RESERVED)

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibit No.		Description

4.1		Amendment to Senior Secured Promissory Note dated May 21, 2010.

4.2		Consulting Agreement with Windel Thelusma dated June 7, 2010.

31.1		Certification of Principal Executive Officer and Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certification of Principal Executive Officer and Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	QUAMTEL, INC.


Dated: August 16, 2010	By:	/s/ Stuart Ehrlich
		Stuart Ehrlich
		President and Chief Executive Officer

By:	Stuart Ehrlich
	Stuart Ehrlich
	Principal Executive Officer
	and Principal Accounting Officer
	August 16, 2010