SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 31, 1999
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AvTel Communications, Inc.
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(Exact name of registrant as specified in its charter)
Commission File No. 0-27580
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Delaware 87-0378021
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Bath Street, Santa Barbara, California 93101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 805-884-6300
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==============================================================
(Former Name or Former Address, if changed since last report)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
On March 31, 1999, Registrant issued a press release announcing its
financial results for the year and fourth quarter ended December 31, 1998.
Registrant's press release also noted that Registrant had engaged a financial
advisor to assist Registrant in arranging up to $15 million in private
equity-based financing. The press release is attached as Exhibit 99.1 to this
Current Report and is incorporated herein by this reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
C. EXHIBITS.
Exhibit 99.1 Press Release dated March 31, 1999, regarding (i) Registrant's
financial results for the year and fourth quarter ended December 31, 1998, and
(ii) Registrant's engagement of a financial advisor in connection with a
proposed private placement of equity securities.
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, hereunto duly authorized.
AVTEL COMMUNICATIONS, INC.
By: /S/ ANTHONY E. PAPA
-----------------------------------------
Anthony E. Papa
Chief Executive Officer
Date: April 1, 1999
EXHIBIT INDEX
Exhibit 99.1 Press Release dated March 31, 1999, regarding (i) Registrant's
financial results for the year and fourth quarter ended December 31, 1998, and
(ii) Registrant's engagement of a financial advisor in connection with a
proposed private placement of equity securities. (Begins on Page 5).
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Contact:
Mary McCarthy, Investor Relations
(714) 914-5495; [email protected]
AvTel Reports Year and Fourth Quarter 1998 Results
Corporate Data, Voice, and Internet Revenue Increase 69%; Lower Margin
Residential Long Distance Revenue Declined
- --Signed Engagement Letter to Raise Up to $15 Million of Equity Financing--
SANTA BARBARA, Calif.--(BUSINESS WIRE)--March 31, 1999--AvTel Communications
Inc. (NASDAQ: AVCO), a provider of integrated voice, data and Internet services,
today announced a net loss of $2.1 million, or $0.22 per share on 10.0 million
basic and diluted shares for the three month period ending December 31, 1998
compared to a net loss of $10.2 million or $1.09 per share on approximately 9.4
million basic and diluted shares for the same period of 1997.
For the year ended December 31, 1998, AvTel reported a net loss of $7.1 million
or $0.74 per share on 9.6 million basic and diluted shares compared to a net
loss of $10.2 million or $1.23 per share on approximately 8.3 million basic and
diluted shares for the year ended December 31, 1997.
"While our strategy to grow our data networking and Internet business as a
primary source of revenue continues to demonstrate positive results, top line
performance throughout 1998 was negatively impacted by the expected reduction in
less profitable residential long distance revenue at the Company's wholly owned
subsidiary Matrix Telecom," said Anthony E. Papa, Chairman of the Board and
Chief Executive Officer.
Revenue for the three-month period and year ended December 31, 1998 were $9.7
million and $44.0 million respectively compared to $12.1 million and $51.4
million for the same periods in 1997.
"The decline in total revenue throughout 1998 is attributable to residential
long distance telephone service attrition and competitive pricing pressure.
Although we experienced this rapid decrease in overall long distance revenue in
1998, our long distance revenue generated by corporate customers grew by 15% and
the volume of corporate customer voice minutes of usage grew by 27% in the
fourth quarter over the third quarter 1998," added Mr. Papa.
Reviewing the year Mr. Papa commented, "We continue to develop our focus on our
core business units: Business Markets and Channel Markets. Our Business Markets
group provides `integrated enterprise-wide network solutions' to corporate
customers and our Channel Markets team sells Internet access bundled with long
distance telephone service and other telecom products through distributors and
resellers. We began to see the results of this focus in the fourth quarter of
1998. Gross revenue from corporate customers served by our Business Markets
group grew by 120% to $2.6 million in fourth quarter over third quarter 1998.
The Business Markets group was established to capitalize on data, voice and
Internet integration complexities affecting corporate enterprises." "In mid
1998," he continued, "our Matrix Telecom subsidiary was reorganized to form our
Channel Markets group. Today, this group is a nationwide provider of Internet
access and bundled telecom services through distributors, agents, resellers and
affinity organizations. We terminated direct mail and direct telemarketing
activities of our residential long distance services in early 1998, including
termination of the Company's dial around (1010-XXX) product marketing efforts.
These product offerings had attracted significant competition from other telecom
industry leaders which has resulted in industry-wide lower pricing, increased
customer acquisition costs and increased customer turn-over or churn. We believe
our resources are better spent focusing on national Internet access sales with
bundled telecom packages through niche-focused distributors, agents, resellers
and affinity groups. As a result, our existing base of residential long distance
telephone services continued to churn down through the fourth quarter. Retail
price reductions, customer churn and minimal retention activity of older, lower
margin telemarketing and casual calling customers lead to a 15% reduction in
residential voice minutes of usage and a 23% reduction in consecutive quarter
residential long distance revenue. These were partially offset by other growing
businesses such as Internet sales and corporate data and voice sales."
Mr. Papa further commented, "Internet sales activity in the Channel Markets
group continues to increase into 1999. We have recently contracted or entered
negotiations with several large affinity organizations and distributors that
have begun selling bundled Internet and long distance telephone service to their
members/customers. Through a new partnership with a Tier 1 Internet carrier, we
have expanded our Internet backbone reach with dial-up coverage in more than 600
markets throughout the United States. The availability of our DSLinksm
high-speed Internet access service in California now expands from parts of
southern Los Angeles County to Lompoc. Every new agent, reseller and affinity
group agreement entered into today is for the sale of some sort of Internet and
data service bundled together with traditional voice products. Additionally, in
the fourth quarter we invested heavily in expanding our marketing/sales teams in
both Business Markets and Channel Markets by opening new sales offices and
adding personnel."
AvTel also announced today that it has engaged a financial advisor to assist
AvTel in arranging up to $15 million in equity-based financing. The engagement
contemplates the private issuance of $1.5 million of convertible preferred stock
and up to an additional $13.5 million in equity financing in the form of an
equity line of credit which extends for three years. The completion of the
financing is subject to the execution of definitive agreements with investors
and to customary closing conditions for this type of transaction. The Company
plans to use the financing for the expansion of sales and marketing in 1999,
potential acquisition activities and for general working capital purposes. These
securities, if issued, will not be registered under the Securities Act of 1933,
as amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
AvTel Communications Inc. is a provider of broadband network services
integrating voice, data and Internet services for individuals and business
customers. The company markets and sells a broad range of telecommunications and
advanced network services through independent value-added agents, resellers and
affinity groups as well as through internal direct sales professionals. The
company targets mid-size corporations, small-office home-office professionals
and select niche-focused distributors. The company is fully certified by the FCC
and registered in all 48 contiguous states and Hawaii.
In addition, the company provides Internet access through more than 600
points-of-presence (POPs) nationally and holds billing agreements with all the
regional Bell Operating Companies, GTE and other independent telephone
companies. For further information, please visit the company's Web site at:
www.avtel.com.
###
All statements in this news release other than statements of historical fact are
forward-looking statements that involve substantial risks and uncertainties.
Reference is made to the company's Annual Report on Form 10-K for the year ended
Dec. 31, 1997, and to the company's other reports filed with the Securities and
Exchange Commission for a discussion of such risks and uncertainties and other
factors that may have material effect on the company's business.
###
<PAGE>
AvTel Communications, Inc. and Subsidiaries
Selected Financial Information (in thousands except for per share data)
December 31,
1998 1997
Assets
Cash and cash equivalents .......................... $ 911 4,807
Other current assets ............................... 6,228 10,551
Total current assets ......................... 7,139 15,358
Property and equipment, net ........................ 1,685 1,792
Other assets ....................................... 5,810 1,575
Total assets ................................. $14,634 18,725
Liabilities and Stockholders' Equity
Current liabilities ................................ 10,162 9,787
Other liabilities .................................. 1,287 1,129
Total liabilities ............................ 11,449 10,916
Stockholders' equity ............................... 3,185 7,809
Total liabilities and stockholders'
equity ..................................... $14,634 18,725
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------ ------------------
1998 1997 1998 1997
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues ................................ $ 9,684 12,145 44,013 51,389
Gross margin ............................ 2,732 3,222 12,164 15,162
Operating expenses
Selling, general and administrative 4,798 4,518 18,481 16,141
Impairment loss ................... -- 9,099 -- 9,099
Depreciation and amortization ..... 301 165 1,107 680
Total operating expenses ..... 5,099 13,782 19,588 25,920
Net operating loss ...................... (2,367) (10,560) (7,424) (10,758)
Other income including income taxes ..... 234 361 297 566
Net loss ................................ $(2,133) (10,199) (7,127) (10,192)
Net loss per share - basic and diluted .. $ (0.22) (1.09)(a) (0.74) (1.23)(a)
Weighted average number of common shares 9,976 9,405 (a) 9,633 8,267 (a)
</TABLE>
(a) Amounts are presented on a proforma basis as the reverse acquisition of
AvTel by Matrix occurred as January 1, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES AS OF DECEMBER 31,
1998 AND THE RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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