SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995
or
______Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Transition period from ________ to __________
Commission File No. 0-17909
PHOENIX NETWORK, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 84-0881154
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
550 California Street, 11th Floor, San Francisco, California 94104
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415) 399-3300
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.
(1) Yes x (2) No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares outstanding at
Class August 1, 1995
____________________________ _________________
Common Stock, $.001 par value 11,931,230
PHOENIX NETWORK, INC.
I N D E X
Page No.
________
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated 3
Balance Sheets
Condensed Consolidated 5
Statements of Operations
Condensed Consolidated 6
Statements of Cash Flow
Notes to Condensed Consolidated 7
Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
PART I. FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
<CAPTION>
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, 1994 June 30, 1995
__________________ ______________
<S> <C> <C>
Current assets:
Cash and cash equivalents
($326,000 restricted at
December 31, 1994 and
none at June 30, 1995) $ 1,209,999 $ 960,219
Accounts receivable, net of
allowance for doubtful accounts
of $1,164,086 at December 31, 1994
and $1,076,348 at June 30, 1995 8,825,944 9,106,590
Deferred commissions 808,240 895,018
Other current assets 209,840 605,859
___________ ___________
Total current assets 11,054,023 11,567,686
Furniture, equipment and data
processing systems, at cost
less accumulated depreciation 1,430,467 1,499,171
Deferred commissions 789,726 822,931
Customer acquisition costs,
less accumulated amortization 203,483 199,347
Other assets 312,155 134,922
______________ _____________
$13,789,854 $14,224,057
______________ _____________
______________ _____________
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
December 31,1994 June 30, 1995
<S> <C> <C>
Current liabilities:
Note payable to finance company $ 2,553,103 $ 1,800,315
Accounts payable 7,980,517 7,860,789
Accrued liabilities 223,601 395,122
____________ ___________
Total current liabilities 10,757,221 10,056,226
Stockholders' equity:
Preferred stock, $.001 par value;
authorized, 5,000,000 shares;
issued and outstanding, 1,621,476
shares at December 31, 1994 and
1,617,226 shares at June 30, 1995 1,622 1,617
Common stock, $.001 par value
authorized, 20,000,000 shares;
issued and outstanding, 11,360,245 shares
at December 31, 1994 and 11,872,105
shares at June 30, 1995 11,360 11,872
Additional paid-in capital 10,525,800 11,393,004
Treasury stock - 1,300
shares at cost (2,522) (2,522)
Accumulated deficit
from May 1, 1989 (7,503,627) (7,236,140)
_____________ ____________
Total stockholders' equity 3,032,633 4,167,831
_____________ _____________
$13,789,854 $14,224,057
_____________ _____________
_____________ _____________
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended June 30 Six months ended June 30
<S> <C> <C> <C> <C>
1994 1995 1994 1995
Revenues $14,705,153 $13,489,242 $29,108,785 $27,683,463
Cost of revenues 10,322,060 9,352,622 20,650,317 19,060,850
_____________ ___________ ____________ ___________
Gross profit 4,383,093 4,136,620 8,458,468 8,622,613
Selling, general &
administrative
expenses 4,703,115 3,920,714 9,238,105 8,189,725
___________ _________ __________ __________
Income (loss) from (320,022) 215,906 (779,637) 432,888
operations
Other income
(expense) (114,464) (69,202) (197,620) (158,181)
_____________ ____________ _____________ ____________
Net income (loss) (434,486) 146,704 (977,257) 274,707
Preferred stock
dividends (54,357) (63,701) (108,766) (126,891)
____________ _____________ ____________ ___________
Net income (loss) attributable
to common shares $(488,843) $ 83,003 $(1,086,023) $ 147,816
___________ ___________ _____________ ____________
____________ ___________ _____________ ____________
Net income (loss) per
common share $(0.04) $0.01 $(0.10) $0.01
____________ ___________ ____________ ____________
____________ ___________ ____________ ____________
Weighted average number of
shares outstanding 11,056,851 13,049,454 10,979,664 12,788,101
____________ ___________ ____________ ____________
____________ ___________ ____________ ____________
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
<CAPTION>
<S> <C> <C>
1994 1995
Cash flows from operating
activities:
Cash received from customers $26,725,110 $26,682,710
Interest received 3,845 3,648
Cash paid to suppliers and
employees (26,172,031) (26,623,473)
Interest paid (201,465) (161,828)
______________ ______________
Net cash provided by (used in)
operating activities 355,459 (98,943)
Cash flows from investing activities:
Purchases of furniture and equipment
and data processing systems (460,814) (188,372)
Acquisition of customer base - (70,168)
Acquisition of other assets (5,000) -
____________ ____________
Net cash used in investing
activities (465,814) (258,540)
Cash flows from financing activities:
Proceeds from (payment on) note
payable to finance company (247,988) (752,788)
Proceeds from exercise of common
stock options 210,012 132,972
Payments on capital lease
obligations (12,399) -
Proceeds from issuance of common
stock - 727,519
______________ _____________
Net cash provided by (used in)
financing activities (50,375) 107,703
______________ ______________
Net decrease in cash (160,730) (249,780)
Cash at beginning of period 1,492,713 1,209,999
______________ _____________
Cash at end of period $1,331,983 $ 960,219
______________ _____________
______________ _____________
</TABLE>
<TABLE>
PHOENIX NETWORK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Six months ended June 30,
<CAPTION>
<S> <C> <C>
1994 1995
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities:
Net income (loss) $ (977,257) $ 247,707
Adjustments
Provision for doubtful
accounts 896,952 720,107
Depreciation and
amortization 325,652 274,024
Changes in assets and
liabilities
Accounts receivable (2,383,675) (1,000,753)
Deferred commissions 616,980 (119,983)
Other assets (111,152) (298,838)
Accounts payable and
accrued expenses 1,987,959 51,793
____________ ____________
Net cash provided by (used in)
operating activities $ 355,459 $ (98,943)
Schedule of noncash financing activity
Conversion of preferred stock
into common stock $ 27,472 $ 7,221
The accompanying notes are an integral part of these statements.
PHOENIX NETWORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. These statements should be read in conjunction
with the financial statements and notes thereto included in the
Registrant's Form 10-K for year ended December 31, 1994.
NOTE B - CAPITAL STOCK
In May 1995, the Company closed a private placement of its common
stock which raised $727,519, net of fees and expenses. The Company
sold 385,000 units, at $2.20 per unit,in an off-shore financing
pursuant to Regulation S under the Securities Act of 1933. A unit
consists of one share of common stock and a five year warrant for
one half share of common stock. Two warrants can be exercised to
purchase one share of common stock at $2.20 per share. In
connection with the transaction, the placement agent was issued a
five year warrant to purchase 38,500 units at $2.42 per unit.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
For the quarter ended June 30, 1995 revenues decreased to
$13,489,242 compared with revenues of $14,705,153 for the
comparable period of the prior year. The decrease in the
billed revenue between periods was due to a decline in the
average per minute rate and a decline in the total minutes
billed to customers between periods. The average rate decline
was a result of the Company offering its customers more
competitively priced services over the past twelve months
causing the average per minute rate for the Company's services
to decrease by 4.8% between periods. Total billed minutes to
customers decreased by 3.6% between periods. This was due
primarily to the loss of one large customer which accounted
for 3.3% of the minutes billed for the quarter ended June 30, 1994
and 1.2% of the corresponding revenue. During the first half of
1995 the Company has taken steps to improve its existing direct
sales office and independent distributor marketing channels and
has added a new telemarketing program to increase its customer
base. As a result of these efforts, new customer activations have
increased by 24% for the quarter ended June 30, 1995 compared to
the prior year's quarter. Management believes it will begin to
see the benefit of this increase in new customer activations in
the third quarter of 1995. For the six months ended June 30, 1995,
revenues decreased 4.9% from the comparable period of the prior
year due to the same reasons as the quarterly comparison.
Cost of revenues for the three months ended June 30, 1995 decreased
to $9,352,622 from $10,322,060 in the prior year's period which, as
a percentage of revenue, declined to 69.3% compared to 70.2% for the
prior year's period. For the six month period, cost of revenues
declined to 68.9% from 70.9%. The Company utilizes the services of
AT&T, Sprint, WilTel and Allnet as its primary carriers. The cost
of service varies between carriers and, correspondingly, the rate
the Company charges its customer will vary depending on which carrier
the customer is placed for service. During 1994 and 1995, the
Company has been placing the majority of its new customers on the
carriers providing the most favorable rates to the Company.
Additionally, the Company has been able to negotiate improved rates
with some of its carriers for a significant portion of its traffic
over the past year. As a result, the average price per minute the
Company pays for service has decreased by 6% between periods.
Selling, general and administrative (SG&A) expenses decreased as a
percentage of revenue from 32.0% for the quarter ended June 30, 1994
to 29.1% for the quarter ended June 30, 1995. The decrease between
periods was due primarily to a decrease in commission expense for
1995 compared to 1994. Commission expense for the quarter ended
June 30, 1994 was $1,370,767, or 9.3% of revenues, compared to
$874,373, or 6.5% of revenue, for the current year's quarter.
Commission expense for the first quarter of 1994 included $545,000
of expense related to a telemarketing program which was discontinued
in January 1994 for which there was no comparable charge in 1995.
Other components of SG&A remained relatively constant as a
percentage of revenue between periods and declined, in absolute
dollars, by approximately $286,000 between periods due primarily to
cost savings affected by the Company in the latter half of 1994.
Changes in the amounts for the six month periods ended June 30, 1994
and 1995 are due to the same reasons as the quarterly comparisons.
Liquidity and Capital Resources
Cash flows from operations for the six months ended June 30,1995
resulted in a net negative cash flow of $98,943 compared to net
positive cash flow of $355,459 for the prior year's period. The
Company has a line of credit available through a finance company
allowing for borrowings of up to $7,000,000 based on the Company's
trade receivables. The current maximum borrowings available under
the line, based on the Company's current level of receivables,
is approximately $4,900,000. There was $1,800,000 outstanding
under the line at June 30, 1995. The line of credit expires
August 26, 1995 and the Company is currently negotiating its renewal.
The Company is also in the process of raising additional equity
through a private placement of its capital stock which it expects to
close by September 1995. The Company has no material capital
expenditure commitments.
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) 11 Statement of Computation of Per Share Earnings
(b) None
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.
PHOENIX NETWORK, INC.
(Registrant)
Date 8/11/95 /s/ Wallace M. Hammond
________________________
Wallace M. Hammond
Chief Executive Officer
Date 8/11/95 /s/ Jeffrey L. Bailey
__________________________
Jeffrey L. Bailey
Chief Financial Officer
(Chief Accounting Officer)
</TABLE>
PHOENIX NETWORK, INC.
INDEX TO EXHIBITS
11 Statement of Computation of Per Share Earnings
<TABLE>
Exhibit 11
PHOENIX NETWORK, INC.
<CAPTION>
<S> <C> <C> <C> <C>
Statement of Computation of Per Share Earnings
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
6/30/94 6/30/95 6/30/94 6/30/95
Primary
Net income (loss) $(434,486) $146,704 $(977,257) $274,707
Preferred stock
dividend (54,357) (63,701) (108,766) (126,891)
___________ __________ _________ __________
Adjusted net income(loss)$(488,843) $ 83,003 $(1,086,023) $147,816
___________ __________ __________ __________
___________ __________ __________ __________
Weighted average number
of common shares
outstanding 11,056,851 11,847,360 10,979,664 11,628,181
Dilution from assumed
exercise of options and
warrants using the
treasury stock method - 1,202,094 - 1,159,920
______________ ____________ _________ ___________
Total weighted
average shares 11,056,851 13,049,454 10,979,664 12,788,101
____________ __________ ___________ ___________
____________ __________ ___________ ___________
Net income (loss) per
common share $(0.04) $0.01 $(0.10) $0.01
____________ ___________ ___________ __________
____________ ___________ ___________ __________
Fully Diluted
Net Income (loss) $(434,486) $146,704 $(977,257) $274,707
_____________ __________ ___________ ________
_____________ __________ ___________ ________
Weighted average number
of shares outstanding:
Primary 11,056,851 13,049,454 10,979,664 12,788,101
Convertible preferred 1,681,046 1,595,431 1,681,046 1,595,431
stock conversion
Dilution from assumed
exercise of options
and warrants using
the treasury stock
method 1,422,419 - 1,648,162 -
__________ _________ __________ _________
Total 14,160,316 14,644,885 14,308,872 14,383,532
__________ __________ ___________ ___________
__________ __________ ___________ ___________
Net income (loss) per
common and common
equivalent share $(0.03) $0.01 $(0.07) $0.02
__________ ___________ ___________ _________
__________ ___________ ___________ __________
</TABLE>
