<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1687 COLE BLVD., GOLDEN, COLORADO 80401
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 205-3500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock $0.001 Par Value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 24, 1997, the aggregate market value of the voting stock
held by nonaffiliates of the Registrant was $44,187,299 (based on the closing
sales price as reported on the American Stock Exchange).
The number of shares outstanding of the Registrant's Common Stock,
$0.001 par value, was 25,900,036 at March 24, 1997.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for the annual meeting of stockholders
held on September 26, 1996 (the "1996 Proxy"), which is incorporated by
reference herein.
Part II incorporates certain information by reference from the
Registrant's Registration Statement on Form S-3 (file no. 333-20923), as amended
(the "Registration Statement on Form S-3"), which was filed with the Securities
and Exchange Commission (the "Commission") on January 31, 1997, and is
incorporated by reference herein.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Registrant's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the sections entitled
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and in the section entitled "Risk Factors" included
within the Registrant's Registration Statement on Form S-3 incorporated by
reference herein.
PART II
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for, and as
of the end of, the years ended December 31, 1996, 1995, 1994, 1993 and 1992
have been derived from the consolidated financial statements of the Company,
which statements have been audited by Grant Thornton LLP, independent certified
public accountants. This data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ............................................. $ 36,502 $ 53,905 $ 74,405 $ 75,855 $ 99,307
Cost of revenue ..................................... 27,352 39,381 52,650 53,776 73,438
-------- -------- -------- -------- --------
Gross profit ......................... 9,150 14,524 21,755 22,079 25,869
Selling, general and administrative expenses ........ 9,438 15,851 21,075 22,323 31,115
Depreciation and Amortization ....................... 254 538 678 1,126 4,358
Relocation expenses ................................. -- -- -- -- 1,133
Acquisition expenses ................................ -- -- -- -- 1,309
Loss on abandonment of fixed assets ................. -- -- -- 1,020 15
Aborted bond offering expenses ...................... -- -- -- -- 246
-------- -------- -------- -------- --------
9,692 16,389 21,753 24,469 38,176
-------- -------- -------- -------- --------
Operating income (loss) ......................... (542) (1,865) 2 (2,390) (12,307)
Other income (expense):
Interest income ................................. 40 19 36 103 85
Interest expense ................................ (42) 186 (425) (261) (626)
Miscellaneous income (expense) .................. (11) (10) 43 (7) 4
-------- -------- -------- -------- --------
(13) (177) (346) (164) (537)
-------- -------- -------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting change ........... (555) (2,042) (344) (2,554) (12,844)
Income tax benefit (expense) ........................ -- 494 (16) (500) --
-------- -------- -------- -------- --------
Income (loss) before cumulative effect of
accounting change ................................. (555) (1,548) (360) (3,054) (12,844)
Cumulative effect of change in amortization of
deferred commissions .............................. -- -- 123 -- --
-------- -------- -------- -------- --------
Net income (loss) .................... $ (555) $ (1,548) $ (483) $ (3,054) $(12,844)
======== ======== ======== ======== ========
Net income (loss) attributable to common shares:
Net income (loss) ................................ $ (555) $ (1,548) $ (483) $ (3,054) $(12,844)
Preferred dividends .............................. (262) (268) (232) (594) (1,206)
-------- -------- -------- -------- --------
$ (817) $ (1,816) $ (715) $ (3,648) $(14,050)
======== ======== ======== ======== ========
Loss per common share:
Loss before cumulative effect of accounting
change ............................................ $ (0.08) $ (0.15) $ (0.04) $ (0.24) $ (0.68)
Cumulative effect of accounting change .............. -- -- (0.01) -- --
-------- -------- -------- -------- --------
Net loss per common share ........................... $ (0.08) $ (0.15) $ (0.05) $ (0.24) $ (0.68)
======== ======== ======== ======== ========
BALANCE SHEET DATA (at end of period):
Working capital (deficit) ........................... $ 370 $ 1,478 $ 1,409 $ 10,252 $ (7,786)
Total assets ........................................ 11,340 17,317 17,568 33,028 45,794
Long term debt ...................................... -- -- -- -- 2,213
Stockholders' equity (deficit) ...................... (2,825) 3,668 4,512 19,188 18,172
</TABLE>
The Company has not, since 1983, declared or paid any dividends on its
Common Stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to the historical information contained herein, the
following discussion contains certain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the section
entitled "Business" and the section entitled "Risk Factors" included in the
Registration Statement on Form S-3 incorporated by reference herein. The
following discussion reflects the merger with AmeriConnect, Inc. (the
"AmeriConnect Merger") on a pooling of interests basis and is based upon and
should be read in conjunction with the Company's consolidated financial
statements and the notes thereto included elsewhere in this Annual Report.
GENERAL
The Company entered the telecommunications industry as a switchless
long distance reseller in 1985, and the Company grew internally on the efforts
of its sales and marketing force during the following decade. Additionally,
since May
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1995, the Company has completed 10 acquisitions of companies or customer bases,
thereby strengthening the Company's customer base, product and service
offerings and sales distribution. The largest of these acquisitions include:
Bright Telecom L.P. ("Bright"), a San Francisco-based international call-back
company, Tele-Trend, a switchless reseller based in Denver, and a portion of
the customer base of ISI Telecommunications, Inc. ("ISI"), a switched reseller,
all of which were completed in the last half of 1995. In January 1996, the
Company acquired ACI and, in October 1996, the Company completed the
AmeriConnect Merger. See "Item 1--Business--Acquisitions and Mergers."
Phoenix believes it has amassed sufficient size and scope to achieve
significant cost savings through deployment of its Network, consisting of
switching equipment in major metropolitan areas and transmission facilities
between these switches. In contrast to some other IXC's who are investing
substantial capital to build networks, the Company is deploying its Network
without substantial capital investment. This has been made possible by the
increasing availability of capacity on switching and transmission equipment on
a leased basis from other telecommunications providers. The ability to lease
rather than purchase this capacity, and to expand capacity on an "as needed"
basis, creates a significant opportunity for Phoenix to rapidly deploy its
Network, while preserving most of the Company's capital spending budget for the
acquisition of additional customer traffic that may be shifted onto the
Company's Network. By leasing capacity on switching equipment and transmission
facilities, Phoenix intends to fully-deploy and substantially load its planned
Network by the end of 1997. Phoenix has entered into agreements to lease
switches from US One and other vendors on an as-needed basis and to lease
fixed-cost IMTs from Comdisco and LDDS/WorldCom. The Network also includes
three switches (located in Colorado Springs, Minneapolis and Phoenix) which
were acquired by the Company in connection with the acquisition of ACI in
January 1996 and may include additional switches acquired in the future through
acquisitions. The Company expects deployment of the Network to significantly
reduce the Company's average per minute line costs and provide an important
competitive advantage compared to resellers and other IXCs without comparable
networks.
Phoenix currently has agreements with major long distance carriers,
such as LDDS/WorldCom, Sprint, Frontier, AT&T and others, to carry the majority
of its long distance traffic. During the planned 12 month transition period as
the Network is being deployed, and afterward on a limited basis, the Company
will continue to use these vendors to carry traffic. The Company's agreements
with vendors specify minimum volume usage requirements, but, in contrast to
many of its competitors, such requirements scale down over the next 18 months,
thereby freeing traffic to be loaded on the Network. Accordingly, minimum
volume usage requirements under these agreements, where they exist, should not
limit the Company's ability to load a substantial portion of its traffic on the
Network as it is deployed.
The Company derives revenue through sales of telecommunications
services to its customers including, (i) "1 plus" and (800) service and (ii)
dedicated service and private lines. Revenues are based upon rates set by the
Company and billed to its customers for the services utilized. The Company's
other revenues are primarily derived from calling cards, Internet access,
international call-back and conference calling.
The Company's cost of revenues consists of amounts paid to switching
services providers and to carriers for bundled switching and transmission
services. Switching services rates are fixed on a contractual, per minute
basis. The rates the Company pays for bundled switching and transmission
service vary depending on which underlying carrier is used for service and the
volume of traffic on such carriers.
Selling, general and administrative expenses ("SG&A") consist of
personnel costs, sales commissions and marketing costs, facilities costs,
billing costs, bad debt expense and other general expenses. Sales commissions
represent the amounts paid to employees and independent contractors for the
procurement of new customers. Commissions paid are a combination of one-time
up-front payments for new customers and residual commissions paid based upon
customers' usage. One-time up-front commissions paid to independent contractors
are amortized primarily over a four year period. All other commissions are
expensed as earned. Bad debt expense is provided for on a monthly basis as a
charge to earnings based upon estimated uncollectible accounts. Accounts are
written off against the reserve when deemed to be uncollectible.
RESULTS OF OPERATIONS
The following table sets forth for the years and periods indicated the
respective percentages of revenues represented by certain items in the
Company's statements of operations.
3
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<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues .......................... 100.0% 100.0% 100.0%
Cost of revenues .................. 70.8 70.9 74.0
------ ------ ------
Gross profit ...................... 29.2 29.1 26.0
Selling, general and
administrative ................. 28.3 29.4 31.3
Depreciation and
amortization ................... 0.9 1.5 4.4
Relocation expenses ............... -- -- 1.1
Acquisition expenses .............. -- -- 1.3
Loss on abandonment of
fixed assets ................... -- 1.3 --
Aborted bond offering expenses .... -- -- 0.2
------ ------ ------
29.2 32.2 38.3
------ ------ ------
Operating income (loss) ........... -- (1.8) (12.3)
Interest income ................... -- 0.1 --
Interest expense .................. (0.5) (0.3) (0.6)
Miscellaneous income .............. -- -- --
Income tax benefit
(expense) ...................... -- (0.7) --
------ ------ ------
Loss before cumulative
effect of accounting
change ......................... (0.5) (4.0) (12.9)
Cumulative effect of change
in amortization of deferred
commissions .................... (0.2) -- --
------ ------ ------
Net income (loss) ................. (0.7)% (4.0)% (12.9)%
====== ====== ======
Preferred dividends ............... (0.3) (0.8) (1.2)
------ ------ ------
Net income (loss)
attributable to common
shares ......................... (1.0)% (4.8)% (14.1)%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues increased by $23.4 million or 30.8%, to $99.3
million for the 1996 from $75.9 million for 1995. This increase was primarily
the result of an increase in MOU of 214,484,000 minutes, to 628,352,000 minutes
for
4
<PAGE> 5
1996, from 413,868,000 minutes for 1995 which was partially offset by a
13.7% decrease in the average revenue per MOU to $.158 per MOU for 1996 from
$.183 per MOU for 1995. Revenues per MOU decreased primarily as a result of the
Company's customers utilizing more competitively priced services offered by the
Company during 1996 and the effect of acquired companies' rate structures which
generally were lower than those offered by the Company. The customers gained
from the ACI acquisition during 1996 accounted for approximately 26.8% of total
MOU in the period.
Cost of Revenues. Cost of revenues increased by $19.6 million or
36.4%, to $73.4 million for 1996 from $53.8 million for 1995. This increase was
primarily the result of an increase in MOU resulting from acquisitions. Cost of
revenues per MOU decreased 10.0% to $.117 per MOU for 1996 from $.130 per MOU
for 1995 primarily as a result of the acquisition of ACI, which had a cost per
MOU which was lower than the Company's, and, to a lesser extent, the Company
being able to place new business on its most favorably priced vendor carrier
contracts. As a percentage of revenues, cost of revenues increased to 74.0% for
1996 from 70.9% for 1995. The increase in cost of revenues as a percentage of
revenues was primarily the result of the Company providing lower-priced
services to its customers without a corresponding decrease in the cost of
providing such services. Historically, as the Company's traffic volume with its
vendor carriers has increased, it has been able to negotiate more favorable
rates with such vendor carriers, usually in conjunction with an increased
volume commitment. However, in order to pursue its long-term strategy of
deploying and loading the Network, the Company did not renegotiate any of its
material vendor carrier contracts in the first half of 1996 in order to avoid
increased vendor carrier commitments.
Selling, General and Administrative Expenses. SG&A increased by $8.8
million, or 39.4%, to $31.1 million for 1996 from $22.3 million for 1995. This
increase was primarily the result of incremental SG&A associated with the ACI
acquisition. SG&A as a percentage of revenue increased to 31.3% for 1996 from
29.4% of revenues for 1995. During 1996, the Company was incurring certain
duplicative operating costs in connection with the operation of ACI, such as
facilities expense and salaries of administrative personnel performing similar
functions. The Company consolidated its San Francisco operations into the
former ACI facilities in July 1996. During 1996, the Company incurred
approximately $1.0 million in duplicative operating costs which were eliminated
as of July 1996. The Company expects to realize further savings as it
integrates the AmeriConnect Merger in the first quarter of 1997.
Depreciation and Amortization. Depreciation and amortization increased
by $3.3 million to $4.4 million for 1996 from $1.1 million for 1995. This
increase is primarily attributable to the increased amortization of goodwill
and customer bases recorded as a result of the acquisitions discussed above.
Relocation Expenses. Relocation expenses of $1.1 million were incurred
in 1996 from the Company's relocation of its primary operations from San
Francisco to Golden, Colorado.
Acquisition Expenses. Acquisition expenses of $1.3 million were
incurred in connection with the AmeriConnect Merger and consist primarily of
transaction fees to third parties, legal and accounting fees and a contractual
severance payment to AmeriConnect's CEO.
Aborted Bond Offering Expenses. Aborted bond offering expenses relate
to legal and accounting fees in connection with a proposed bond offering the
Company began in the last half of 1996. The Company decided to discontinue the
offering in January 1997 due to unfavorable market conditions.
Interest Income. Interest income decreased by $18,000 to $85,000 for
1996 from $103,000 for 1995, as a result of lower cash balances in the
Company's interest bearing bank accounts.
Interest Expense. Interest expense increased by $364,000 to $625,000
for 1996 from $261,000 for 1995. This increase was primarily the result of
increased borrowings under the Company's credit facility. Interest expense will
increase substantially in future periods as a result of increased indebtedness
under the Company's credit facility.
Net Loss. Net loss increased by $9.8 million to a net loss of $12.8
million for 1996 from a net loss of $3.0 million for 1995 for the reasons
discussed above.
Preferred Dividends. Preferred dividend requirements increased by
$612,000 to $1,206,000 for 1996 from $594,000 for 1995 primarily as a result of
the issuance of 1,176,056 shares of Series F Preferred Stock in June 1995.
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Effective in December 1996, the Company converted the Company's outstanding
Series F Preferred Stock into Common Stock of the Company in accordance with
the terms therewith. As a result of the conversion of the Series F Preferred
Stock, the Company's preferred dividend requirements have decreased.
Net Loss Attributable to Common Shares. Net loss attributable to
common shares increased by $10.4 million to a net loss attributable to Common
Stock of $14.0 million for 1996 from a net loss attributable to Common Stock of
$3.6 million for 1995 for the reasons discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues increased by $1.5 million, or 1.9%, to $75.9
million for 1995 from $74.4 million for 1994. This increase was primarily the
result of an increase in MOU of 35,222,000 minutes, from 378,646,000 minutes
for 1994 to 413,868,000 minutes for 1995, which was partially offset by a 7.1%
decrease in the average revenue per MOU from $0.197 per MOU for 1994 to $0.183
for 1995. Revenues per MOU decreased primarily as a result of the Company's
customers utilizing more competitively priced services offered by the Company
during 1995 and the effect of acquired companies' rate structures which
generally were lower than those offered by the Company. In August 1995, the
Company acquired Bright, Tele-Trend and selected customers from ISI. The
customers gained from these acquisitions accounted for approximately 5.1% of
total MOU for 1995.
Cost of Revenues. Cost of revenues increased by $1.2 million, or 2.1%,
to $53.8 million for 1995 from $52.6 million for 1994. This increase was
primarily the result of an increase in MOU resulting from acquisitions. Cost of
revenues per MOU decreased 6.5% to $0.130 per MOU for 1995 from $0.139 per MOU
for 1994 as a result of the Company being able to place new business on its
most favorably priced vendor carrier contracts. As a percentage of revenues,
cost of revenues remained comparable between periods at 70.9% for 1995 compared
to 70.8% for 1994.
Selling, General and Administrative Expenses. SG&A increased by $1.2
million, or 5.9%, to $22.3 million for 1995 from $21.1 million for 1994. This
increase was due in part to $423,000 of incremental SG&A as a result of the
Tele-Trend acquisition. SG&A as a percentage of revenues increased to 29.4% for
1995 from 28.3% for 1994 primarily due to the acquisition.
Depreciation and Amortization. Depreciation and amortization increased
by $448,000, or 66.1%, to $1.1 million for 1995 from $678,000 for 1994. This
increase is primarily attributable to the increased amortization of goodwill
and customer bases recorded as a result of the acquisitions of Bright and
Tele-Trend and the acquisition of selected customers from ISI, discussed above.
Interest Income. Interest income increased by $67,000 to $103,000 for
1995 from $36,000 for 1994 due to the investment of the proceeds from certain
of the Company's equity offerings.
Interest Expense. Interest expense decreased by $164,000 to $261,000
for 1995 from $425,000 for 1994 primarily due to a lower average outstanding
balance under the Company's credit facility.
Loss on Abandonment of Fixed Assets. The Company recorded a loss on
abandonment of fixed assets of $1.0 million in 1995. The loss relates to a
write off of software development costs during the fourth quarter of 1995
incurred in connection with the development of a new billing system to replace
the Company's existing systems. The Company ultimately decided to license an
outside vendor's software for its billing system. Accordingly, the cost of the
in-house software development was written off during 1995.
Income Tax Expense. Income tax expense increased by $484,000 to
$500,000 for 1995 from $16,000 for 1994. The increase relates to an increase in
the income tax valuation allowance by the Company's subsidiary, AmeriConnect,
Inc., as a result of its determination that realization of net operating losses
was doubtful due to its increasing operating losses.
Net Income (Loss). Net loss increased by $2.6 million to $3.0 million
for 1995 from a net loss of $483,000 for 1994 for the reasons described above.
6
<PAGE> 7
Preferred Dividends. Preferred dividend requirements increased by
$363,000 to $594,000 for 1995 from $231,000 for 1994 primarily due to the
issuance of the 1,176,056 shares of Series F Preferred Stock in 1995.
Net Income (Loss) Attributable to Common Shares. Net loss attributable
to common shares increased by $2.9 million to $3.6 million for 1995 from a net
loss of $715,000 for 1994 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital expenditures were $3.6 million, $589,000 and
$991,000 in 1996, 1995 and 1994, respectively. Expenditures to complete the
migration to the New Billing and Customer Care Platform are expected to be
approximately $1.0 million in 1997. The Company has financed approximately $1.4
million of the 1996 costs associated with the New Billing and Customer Care
Platform through a financing company over a three year term. The Company
believes that its strategy for implementing and operating the Network pursuant
to various contractual arrangements will allow it to pursue its operating
strategy without the necessity of making significant additional capital
expenditures to upgrade its Network.
During 1996, and during 1995, the Company spent $17.6 million and $6.2
million, respectively, on acquisitions, of which $4.6 million and $6.2 million,
respectively, was paid in cash. The cash for such acquisitions was raised
through equity offerings and short-term borrowings.
The Company's principal source of cash to fund its liquidity needs is
anticipated to be net cash flows from operating activities and borrowings under
the Company's credit facility. The credit facility allows for borrowings of up
to $10 million based upon the Company's qualified accounts receivable. The loan
balance as of December 31, 1996 was $4.7 million. The components of net cash
flows from operating activities are detailed in the consolidated financial
statements and related notes and include net income or loss adjusted for (i)
depreciation and amortization; and (ii) changes in operating assets and
liabilities. Net cash used in operating activities for 1996 was $4.0 million
compared to $1.7 million for 1995, primarily as a result of the loss incurred
for the period. Net cash used in operating activities for 1995 was $1.7
million, a decrease of $3.1 million from $1.4 million of net cash provided by
operating activities for 1994. The total net cash used by operations over the
periods discussed above has generally been a result of the losses incurred by
the Company over such periods. The Company believes that implementation of its
Network strategy will result in increasingly lower line costs over the next
year which should improve the Company's gross margins and generate positive
operating cash flows.
The Company is currently negotiating with several private investors
regarding a $3.0 to $6.0 million cash equity placement. There can be no
assurance that the Company will be able to consummate such equity placements on
terms acceptable to the Company.
SEASONALITY
The Company's revenues, and thus its potential earnings, are affected
by holiday and seasonal variations. A substantial portion of the Company's
revenues are generated by direct dial domestic long distance business
customers, and, accordingly, the Company experiences a decrease in revenues
around holidays, particularly the quarter ending December 31, when business
customers reduce their usage. The Company's fixed operating expenses, however,
do not decrease during these quarters. Accordingly, the Company has
experienced, and may continue to experience, lower revenues and earnings in its
first and fourth fiscal quarters when compared with the other fiscal quarters.
EFFECT OF INFLATION
Inflation is not a material factor affecting the Company's business.
TAX BENEFIT
As of December 31, 1996, the Company had available to offset future
Federal taxable income, net operating loss carryforwards ("NOL") of
approximately $20.4 million which expire in varying amounts from 2002 through
2011. A portion of the NOLs may be subject to limitations as a result of
provisions of the Internal Revenue Code relating to changes in ownership and
utilization of losses by successor entities.
7
<PAGE> 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and the related
report of independent accountants are included in this report beginning at page
F-1:
Report of Independent Certified Public Accountants
Balance Sheets
Statements of Operations
Statement of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
8
<PAGE> 9
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.
PHOENIX NETWORK, INC.
By: /s/ Wallace M. Hammond
----------------------------------------------
Wallace M. Hammond
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jonathan F. Beizer
----------------------------------------------
Jonathan F. Beizer
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: June 18, 1997
9
<PAGE> 10
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
PHOENIX NETWORK, INC.
AND SUBSIDIARIES
December 31, 1994, 1995 and 1996
<PAGE> 11
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Phoenix Network, Inc.
We have audited the accompanying balance sheets of Phoenix Network, Inc. (a
Delaware Corporation) and Subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Network, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note C, the Company changed its method of accounting for
deferred commissions in 1994.
GRANT THORNTON LLP
/s/ GRANT THORNTON LLP
Denver, Colorado
March 12, 1997
F-1
<PAGE> 12
Phoenix Network, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<S> <C> <C>
1995 1996
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ($225,356 restricted in 1995) $ 8,298,003 $ 1,548,061
Accounts receivable, net of allowance for doubtful accounts
of $1,649,013 in 1995 and $3,600,830 in 1996 13,731,400 14,419,829
Deferred commissions 1,648,780 969,940
Other current assets 415,163 686,271
----------- -----------
Total current assets 24,093,346 17,624,101
Furniture, equipment and data processing systems - at cost,
less accumulated depreciation of $1,350,597 in 1995 and
$2,495,701 in 1996 886,665 5,522,771
Deferred commissions 1,454,483 414,873
Customer acquisition costs, less accumulated amortization of
$1,005,262 in 1995 and $3,145,245 in 1996 2,447,619 2,725,275
Goodwill, less accumulated amortization of $82,961 in 1995
and $1,059,613 in 1996 3,903,109 18,553,332
Other assets 243,048 953,831
----------- -----------
$33,028,270 $45,794,183
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
RENT LIABILITIES
Current maturities of note payable to finance company $ - $ 444,839
Note payable to vendor - 1,161,148
Line of credit - finance company 41,468 4,698,645
Accounts payable 13,282,599 16,686,690
Accrued liabilities 516,554 2,418,627
----------- -----------
Total current liabilities 13,840,621 25,409,949
LONG-TERM DEBT
Note payable to stockholder - 1,388,206
Note payable to finance company, less current maturities - 824,306
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, authorized 5,000,000 shares,
issued and outstanding 2,737,389 in 1995 and 546,458 in
1996, liquidation preference aggregating $15,332,780 and
$3,368,020 at December 31, 1995 and 1996, respectively 2,737 546
Common stock - $.001 par value, authorized 50,000,000
shares, issued 16,952,455 in 1995 and 25,851,894 in 1996 16,952 25,851
Additional paid-in capital 32,146,636 45,225,554
Accumulated deficit (12,976,154) (27,077,707)
Treasury stock - 1,300 shares at cost (2,522) (2,522)
----------- -----------
19,187,649 18,171,722
----------- -----------
$33,028,270 $45,794,183
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 13
Phoenix Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenue $74,404,808 $75,854,969 $ 99,307,277
Cost of revenue 52,649,359 53,775,779 73,438,757
----------- ----------- ------------
Gross profit 21,755,449 22,079,190 25,868,520
Selling, general and administrative expenses 21,074,942 22,323,202 31,114,723
Depreciation and amortization 678,038 1,125,563 4,357,720
Relocation expenses - - 1,133,158
Acquisition expenses - - 1,308,634
Loss on abandonment of fixed assets - 1,019,648 15,238
Aborted bond offering expenses - - 246,083
----------- ----------- ------------
21,752,980 24,468,413 38,175,556
----------- ----------- ------------
Operating income (loss) 2,469 (2,389,223) (12,307,036)
Other income (expense)
Interest income 36,121 103,125 84,627
Interest expense (425,222) (260,639) (625,817)
Miscellaneous income (expense) 42,897 (6,767) 4,264
----------- ----------- ------------
(346,204) 164,281 536,926
----------- ----------- ------------
Loss before income taxes and
cumulative effect of accounting change (343,735) (2,553,504) (12,843,962)
Income tax benefit (expense) (16,405) (500,000) -
----------- ----------- ------------
Loss before cumulative effect of
accounting change (360,140) (3,053,504) (12,843,962)
Cumulative effect of change in amortization of
deferred commissions (123,224) - -
----------- ----------- ------------
Net loss $ (483,364) $(3,053,504) $(12,843,962)
=========== =========== ============
Net loss attributable to common shares
Net loss $ (483,364) $(3,053,504) $(12,843,962)
Preferred dividends (231,255) (594,381) (1,206,042)
----------- ----------- ------------
$ (714,619) $(3,647,885) $(14,050,004)
=========== =========== ============
Loss per common share
Loss before cumulative effect of accounting change $ (0.04) $ (0.24) $ (0.68)
Cumulative effect of accounting change (0.01) - -
----------- ----------- ------------
Net loss per common share $ (0.05) $ (0.24) $ (0.68)
=========== =========== ============
Weighted average common shares 13,576,265 15,335,268 20,673,276
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 14
Phoenix Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three years ended December 31, 1996
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Accumulated Treasury
stock stock capital deficit stock
--------- ------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $1,610 $12,803 $12,857,297 $(9,200,859) $(2,522)
Exercise of stock options
and warrants - 738 763,141 - -
Conversion of preferred
stock into common stock (44) 277 43,686 (43,919) -
Issuance of preferred stock
upon conversion of debt 56 - 558,874 - -
Issuance of common stock - 7 4,071 - -
Net loss - - - (483,364) -
--------- ------- ----------- ------------ --------
Balance at December 31, 1994 1,622 13,825 14,227,069 (9,728,142) (2,522)
Exercise of stock options and
warrants - 418 525,914 - -
Conversion of preferred
stock into common stock (4) 24 7,200 (7,220) -
Issuance of common stock,
net of expenses - 2,685 6,314,779 - -
Issuance of preferred stock,
net of expenses, and
conversion of Series E of
Series F 1,119 - 11,071,674 - -
Preferred dividends - - - (187,288) -
Net loss - - - (3,053,504) -
--------- ------- ----------- ------------ --------
Balance at December 31, 1995 2,737 16,952 32,146,636 (12,976,154) (2,522)
Exercise of stock options and
warrants - 792 1,327,243 - -
Conversion of preferred
stock into common stock (2,191) 5,307 1,254,475 (1,257,591) -
Issuance of common stock in
connection with a business
acquisition - 2,800 10,497,200 - -
Net loss - - - (12,843,962) -
--------- ------- ----------- ------------ --------
Balance at December 31, 1996 $546 $25,851 $45,225,554 $(27,077,707) $ (2,522)
========= ======= =========== ============ ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 15
Phoenix Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION> 1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities $71,432,918 $ 72,103,864 $ 98,612,681
Cash received from customers 8,121 83,227 84,627
Interest received (69,551,595) (73,638,371) (102,047,484)
Cash paid to suppliers and employees (425,137) (259,919) (625,817)
Interest paid (20,105) (3,340) (2,245)
Cash paid for income taxes ------------ - ----------- ------------
Net cash provided by (used in) 1,444,202 (1,714,539) (3,978,238)
operating activities
Cash flows from investing activities
Note receivable - director/shareholder (11,500) (3,000) -
Purchases of furniture, equipment and
data processing systems (990,934) (589,419) (3,620,989)
Notes receivable - agents (206,995) (23,115) -
Payments on agents notes receivable 5,838 70,900 -
Customer base acquisitions - (1,553,238) (468,002)
Business acquisitions, net of cash acquired - (4,692,153) (4,085,093)
Acquisitions of other assets (123,528) - -
------------ ---------- ------------
Net cash used in investing activities (1,327,119) (6,790,025) (8,174,084)
Cash flows from financing activities
Proceeds from issuance of common stock,
net of offering costs - 6,317,464 -
Proceeds from issuance of preferred stock,
net of offering costs - 11,072,793 -
Proceeds from sale of stock to officer 297,000 - -
Proceeds from distribution of stock to director 4,078 - -
Proceeds from notes payable to bank and
finance company 3,450,000 6,143,950 6,060,358
Payments on notes payable to bank and
finance company (4,317,828) (8,686,625) (134,036)
Payments on note payable to vendor - - (1,851,977)
Payments on capital lease obligation (16,584) - -
Preferred stock dividends - (187,288) -
Proceeds from exercise of options and warrants 466,880 526,332 1,328,035
------------ ---------- ------------
Net cash provided by (used in)
financing activities (116,454) 15,186,626 5,402,380
------------ ---------- ------------
NET INCREASE (DECREASE)
IN CASH 629 6,682,062 (6,749,942)
Cash and cash equivalents at beginning of year 1,615,312 1,615,941 8,298,003
------------ ---------- - ------------
Cash and cash equivalents at end of year $ 1,615,941 $8,298,003 $ 1,548,061
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 16
Phoenix Network, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended December 31,
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Reconciliation of net loss to net cash provided by
(used in) operating activities
Net loss $ (483,364) $ (3,053,504) $(12,843,962)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Cumulative effect of change in amortization
of deferred commissions 123,224 - -
Provision for doubtful accounts 2,440,369 2,689,250 3,147,077
Abandonment of fixed assets - 1,019,648 15,238
Depreciation and amortization 678,038 1,125,563 4,357,720
Deferred taxes - 500,000 -
Changes in assets and liabilities
Accounts receivable (2,971,890) (3,751,105) (959,900)
Deferred commissions 713,839 (1,467,519) 1,718,450
Other current assets 104,449 (163,740) (217,473)
Other assets (11,494) 511 (67,893)
Accounts payable and accrued liabilities 851,031 1,386,357 872,505
----------- ------------ ------------
Net cash provided by (used in)
operating activities $ 1,444,202 $ (1,714,539) $ (3,978,238)
=========== ============ ============
Noncash financing and investing activities
- ---------------------------------------------------
Conversion of preferred stock dividends
into common stock $ 43,963 $ 7,224 $ 1,259,782
Conversion of note payable to stockholder,
including accrued interest, into preferred stock 558,930 - -
Noncash components of consideration issued
in connection with business combination
Common stock - - 10,500,000
Note payable to stockholder - - 1,388,206
Assumption of net liabilities - - 1,603,576
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 17
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996
NOTE A - DESCRIPTION OF COMPANY AND SUMMARY OF ACCOUNTING POLICIES
Phoenix Network, Inc. ("Phoenix" or the "Company") was a switchless reseller
of long distance telecommunication services designed primarily for small to
medium sized commercial accounts located throughout the United States.
Effective January 1, 1996, as a result of the acquisition of Automated
Communications, Inc. ("ACI"), the Company became a facilities based reseller.
The Company provides its customers with long distance services utilizing the
networks of facilities-based carriers, such as American Telephone & Telegraph
Company, MCI Telecommunications Corporation, Sprint Communications, L.P., ALC
Communications Corporation, WorldCom, Inc. (formerly Wiltel, Inc.), U.S. One
Communications Corp. and others, who handle the actual transmission services.
The carriers bill Phoenix at contractual rates for the combined usage of
Phoenix's customers utilizing their network. Phoenix then bills its
customers individually at rates established by Phoenix.
The following is a summary of the Company's significant accounting policies
applied in the preparation of the accompanying consolidated financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions are eliminated
in consolidation.
Revenue Recognition
Revenue is recognized in the month in which the Company's customers complete
the telephone call.
Cash and Cash Equivalents
The Company considers demand deposits, certificates of deposit and United
States Treasury bills purchased with a maturity of three months or less as
cash and cash equivalents. The carrying amount approximates fair value
because of the short maturity of these instruments.
Deferred Commissions
Deferred commissions consist of direct commissions paid on a one-time basis
to third parties upon the acquisition of new customers. Deferred commissions
are amortized on a four-year sum of the year's digits method.
F-7
<PAGE> 18
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE A - DESCRIPTION OF COMPANY AND SUMMARY OF ACCOUNTING POLICIES
(CONTINUED)
Furniture, Equipment and Data Processing Systems
Depreciation of furniture, equipment and data processing systems is provided
utilizing the straight-line method over five years.
Customer Acquisition Costs
Customer acquisition costs represent the value of acquired billing bases of
customers and are amortized using the sum-of-the-years-digits method over a
four-year period.
Goodwill
Goodwill represents the excess of cost over the fair value of the net assets
acquired and is being amortized by the straight-line method over 20 years.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements, as well as revenue and expenses during the period.
Significant estimates made by management include the allowance for doubtful
accounts, estimated carrier credits, and the amortization periods related to
acquired customers and goodwill. Actual results could differ from those
estimates.
Income Taxes
Deferred income taxes are recognized for tax consequences of temporary
differences by applying current enacted tax rates to differences between the
financial reporting and the tax basis of existing assets and liabilities.
Reclassification
Prior years' financial statements have been reclassified to conform to
current year presentation.
F-8
<PAGE> 19
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE B - POOLING-OF-INTERESTS AND ACQUISITIONS
On October 8, 1996, Americonnect, Inc. was merged with and into Phoenix
Network, Inc. (the Company), and 2,663,810 shares of the Company's common
stock were issued in exchange for all of the outstanding common stock of
Americonnect. The merger was accounted for as a pooling-of-interests and,
accordingly, the accompanying financial statements have been restated to
include the accounts and operations of Americonnect for all periods prior to
the merger.
Separate results of the combining entities for the two years in the period
ended December 31, 1995, are as follows (amounts in 000s):
<TABLE>
<CAPTION>
December 31
-----------------
1994 1995
------- --------
<S> <C> <C>
Net sales
Phoenix $57,420 $ 58,755
Americonnect 16,985 17,100
------- --------
$74,405 $75,855
======= ========
Net income (loss)
Phoenix $ (905) $ (1,334)
Americonnect 422 (1,719)
------- --------
$ (483) $ (3,053)
======= ========
</TABLE>
In connection with the merger, approximately $1.3 million of merger costs and
expenses were incurred and have been charged to expense in the Company's
fourth quarter of 1996.
In August of 1995, the Company acquired in purchase transactions the customer
bases and substantially all of the assets and liabilities of Tele-Trend
Communications, LLC ("Tele-Trend"), a Denver based switchless reseller, and
Bright Telecom L.P. ("Bright"), an international call-back provider, for
$4,369,317 and $356,388, respectively. The operations of Tele-Trend and
Bright are included from August 1, 1995.
Additionally, during 1995, the Company acquired three customer bases at a
cost of $2,078,238. At December 31, 1995, accounts payable includes $525,000
due for the purchase of one of the customer bases.
F-9
<PAGE> 20
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE B - POOLING-OF-INTEREST AND ACQUISITIONS AND MERGERS (CONTINUED)
In January 1996, the Company acquired, in a purchase transaction, Automated
Communications, Inc. (ACI), a Golden, Colorado, facilities-based long
distance phone service carrier operating state-of-the-art switching centers
in Colorado Springs, Minneapolis, and Phoenix. Consideration for the
acquisition was in the form of $4,085,093 in cash, 2,800,000 shares of the
Company's common stock valued at approximately $10,500,000, a long-term note
of $1,388,206 bearing interest at 9%, and the assumption of net liabilities
of $1,603,576. The Company's consolidated results of operations include ACI
from January 1, 1996, the effective date of the purchase transaction. The
excess of the purchase price over the fair market value of the assets and
liabilities acquired has been allocated to customer acquisition costs
($1,950,000) and to goodwill ($15,626,875). Customer acquisition costs are
amortized over four years using the sum-of-the-years-digits method, and
goodwill is amortized on a straight-line basis over 20 years.
The following unaudited condensed pro forma information presents the results
of operations of the Company as if the acquisition of ACI and Tele-Trend had
occurred on January 1, 1995.
<TABLE>
<CAPTION>
Year ended December 31, 1995
----------------------------
<S> <C>
Revenue $104,729,000
Net loss $(4,428,000)
Net loss attributable to common shares $(5,603,000)
Net loss per common share $ (0.31)
Weighted average number of shares outstanding 18,135,000
</TABLE>
NOTE C - ACCOUNTING CHANGES
Effective January 1, 1994, the Company changed its method of accounting for
deferred commissions from the straight-line basis to the sum of the years
digits method. Additionally, the Company changed their estimate of the
period benefited from two years to four years. Management believes that
these changes more accurately match expense with the revenue generated by the
customer base. The cumulative effect of the change in accounting method was
to increase accumulated amortization at January 1, 1994 by approximately
$123,000. The effect of both changes was to reduce the 1994 amortization
expense and loss before cumulative effect of change in accounting by
approximately $242,000 ($0.02 per common share).
F-10
<PAGE> 21
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE D - FURNITURE, EQUIPMENT AND DATA PROCESSING SYSTEMS
Furniture, equipment and data processing systems consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996
--------- -----------
<S> <C> <C>
Data processing systems $1,404,833 $4,872,174
Switching equipment - 1,898,593
Furniture and fixtures 331,094 710,234
Other equipment 501,335 537,471
---------- -----------
2,237,262 8,018,472
Less accumulated depreciation (1,350,597) (2,495,701)
---------- -----------
$ 886,665 $ 5,522,771
========== ===========
</TABLE>
The loss on abandonment of assets in 1995 primarily relates to a write-off of
billing and customer service software development costs. Management decided
to minimize the risk of development and to have access to a new system on a
more timely basis and, accordingly, has decided to license an existing
billing and customer service system from a vendor at a cost of approximately
$3,000,000, of which approximately $1,500,000 has been incurred through
December 31, 1996.
NOTE E - LINE OF CREDIT - FINANCE COMPANY
In September 1995, the Company renewed its Loan and Security Agreement (the
"Agreement") with a finance company to make available to the Company a line
of credit of up to $10,000,000. The Company may borrow up to the lesser of
$10,000,000 or its borrowing base, which is defined as a percentage of its
eligible receivables. The term of the Agreement is three years, expiring
October 1998, with automatic renewal options. There are penalties for early
termination by the Company. Borrowings bear interest at .75% over the
"reference rate," as defined. In connection with the renewal, fees and
transaction costs of $80,972 were incurred, which are being amortized on a
straight-line basis over three years. The loan is collateralized by the
Company's accounts receivable, equipment, general intangibles and other
personal property assets. Among other provisions, the Company must maintain
certain minimum financial covenants, is prohibited from paying dividends
without the approval of the finance company, and is subject to limits on
capital expenditures. As of December 31, 1996, the Company was in violation
of certain financial covenants. The finance company has waived the covenant
violations in connection with a restructuring of the line of credit
agreement. At December 31, 1996, $4,698,645 was outstanding under the line
and the interest rate was 10%.
F-11
<PAGE> 22
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE E - LINE OF CREDIT - FINANCE COMPANY (CONTINUED)
Average daily outstanding borrowing for the year ended December 31, 1996 was
$859,044 at a weighted average interest rate of 10%. The highest month-end
balance outstanding for the year ended December 31, 1996 was $4,698,645.
NOTE F - LONG-TERM DEBT
During 1996, the Company entered into a note payable with a finance company to
fund the cost of new billing and customer service software. The note
agreement requires twelve quarterly payments of $138,854 plus accrued interest
at 10.5% commencing July, 1996 through July, 1999.
In addition, as part of the acquisition of Automated Communications, Inc., on
January 1, 1996, the Company issued a 9% note payable for $1,388,206 to a
current stockholder, which is payable in annual installments through 2001.
Future minimum payments on long-term debt at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ended Note payable Note payable
December 31, to finance company to stockholder Total
------------ ------------------ -------------- ----------
<S> <C> <C> <C>
1997 $ 444,839 $ - $ 444,839
1998 491,019 231,414 722,433
1999 333,287 231,414 564,701
2000 - 231,414 231,414
2001 - 693,964 693,964
---------- ---------- ----------
$1,269,145 $1,388,206 $2,657,351
========== ========== ==========
</TABLE>
NOTE G - LEASES
The Company has operating leases for office space and equipment which expire
on various dates through 2000, and which require that the Company pay certain
maintenance, insurance and other operating expenses. Rent expense for the
years ended December 31, 1994, 1995 and 1996 was $856,797, $1,028,462 and
$1,331,911, respectively.
F-12
<PAGE> 23
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE G - LEASES (CONTINUED)
Future minimum lease payments for years ending December 31, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $2,506,223
1998 1,580,685
1999 1,392,208
2000 547,812
2001 191,302
----------
$6,218,230
==========
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company has contracts with its major vendors to provide
telecommunications services to its customers. The agreements cover the
pricing of the services and are for various periods. Among other provisions,
the agreements contain minimum usage requirements which must be met to
receive the contractual price and to avoid shortfall penalties. The Company
is currently in compliance with the contractual requirements. Total future
minimum usage commitments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year ending
December 31, Commitment
------------ -----------
<S> <C>
1997 $33,000,000
1998 18,500,000
1999 1,000,000
-----------
Total $52,500,000
===========
</TABLE>
F-13
<PAGE> 24
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE I - CAPITAL STOCK
Preferred Stock
The Company's certificate of incorporation authorizes it to issue up to
5,000,000 shares of $.001 par value preferred stock. At December 31, 1996, the
Company's authorized preferred stock is allocated as follows:
<TABLE>
<CAPTION>
Authorized Issued and
shares outstanding
---------- -----------
<S> <C> <C>
Reserved shares:
Series A 300,000 98,625
Series B 200,000 114,500
Series C 1,000,000 -
Series D 666,666 333,333
Series F 1,200,000 -
Undesignated shares 1,633,334 -
--------- -------
Total 5,000,000 546,458
========= =======
</TABLE>
Series A Preferred Stock ("Series A") outstanding consists of 98,625 shares.
The shares are entitled to 9% cumulative dividends, voting rights and are
convertible into common stock subject to certain anti-dilution provisions. In
connection with the initial offering, the Company also issued a warrant for
62,200 shares of common stock with an exercise price of $2.50 per share to an
investment banking firm, controlled by an individual, who was subsequently
elected to the Company's Board of Directors. The warrant expires in February
1997. During 1994, 16,000 shares of Series A were converted into 70,996 shares
of common stock. During 1995, 3,000 shares of Series A were converted into
14,449 shares of common stock. During 1996, 3,125 shares of Series A were
converted into 16,664 shares of common stock. The conversions also include
unpaid dividends. At December 31, 1996, the outstanding Series A shares were
convertible into 405,864 shares Series of common stock.
Series B Preferred Stock ("Series B") outstanding consists of 114,500 shares.
The shares are entitled to 9% cumulative dividends, voting rights and are
convertible into shares of common stock subject to certain anti-dilution
provisions. In connection with the initial offering, the Company issued a
warrant to an investment banking firm, controlled by one of the Company's
directors, for 69,750 shares of common stock, with an exercise price of $2.00
per share. The warrant expires in February 1997. During 1995, 1,250 shares of
Series B were converted into 9,749 shares of common stock. During 1996, 11,750
shares of Series B were converted into 98,717 shares of common stock. The
conversions also include unpaid dividends. At December 31, 1996, the
outstanding Series B shares are convertible into 763,333 shares of common stock.
F-14
<PAGE> 25
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE I - CAPITAL STOCK (CONTINUED)
In November 1992, the Company issued 1,000,000 shares of its Series C
Preferred Stock ("Series C") to one of its major vendors as collateral for
amounts due the vendor for services provided. The Company was released from
all collateral requirements during 1996 and the preferred stock reverted back
to the Company.
Series D Preferred Stock outstanding consists of 333,333 shares. The shares
are entitled to 6% non-cumulative dividends, when and if declared by the
Board of Directors and only after payment of dividends on previously issued
series of preferred stock. These shares are non-voting and are convertible
into common stock subject to certain anti-dilution provisions. In connection
with the initial offering, the Company issued a warrant to an investment
banking firm, controlled by one of the Company's directors, for 22,000 shares
of common stock, with an exercise price of $1.50 per share. The warrant
expires in December 1997. At December 31, 1996, the outstanding Series D
Preferred shares are convertible into 333,333 shares of common stock.
In September 1994, the Company issued 55,893 shares of Series E Preferred
Stock at $10 per share under an agreement to convert a note payable to
stockholder, with a principal balance of $500,000 and accrued interest of
$58,930. In connection with the issuance of the stock, the Company issued
the stockholder a five-year warrant for 100,000 shares of the Company's
common stock which was canceled when the Series E shares were converted to
Series F Preferred Stock (see below).
During the period July 1995 through October 1995, the Company raised
approximately $11,024,207, net of offering costs of $129,963, through a
private placement of 1,115,417 shares of its Series F Preferred Stock at $10
per share. Additionally, the holder of the Company's Series E Preferred
Stock exchanged their Series E shares, plus accumulated and unpaid dividends
of $47,467, for 60,639 shares of Series F Preferred Stock. The Series F
shares are entitled to 9% cumulative dividends, voting rights, demand
registration rights for the underlying common shares after six months and are
convertible initially into 4,704,224 shares of common stock, subject to
anti-dilution provisions. The holders of the Series F also received warrants
for the purchase of 470,422 shares of common stock with an exercise price of
$3.00 per share which expire in October 2000. The Series F shareholders have
the right to place two directors on the Company's board (the "Series F
Directors") and the Company is subject to certain covenants requiring it to
obtain the consent of the Series F Directors for certain transactions
including mergers, acquisitions and incurring additional indebtedness in
excess of $20,000,000. During December 1996, the outstanding Series F
Preferred shares were converted into 5,191,064 shares of common stock. This
conversion also included unpaid dividends.
The common shares reserved for issuance upon the conversion of Series A, B
and D Preferred Stock have been registered with the Securities and Exchange
Commission.
At December 31, 1996, the Company had cumulative, unpaid dividends on Series
A and B Preferred Stock of $340,945 ($3.45 per share) and $395,825 ($3.45 per
share), respectively.
F-15
<PAGE> 26
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE I - CAPITAL STOCK (CONTINUED)
Common Stock
In May 1995, the Company closed a private placement of its common stock which
raised $727,519, net of offering costs of $119,481. 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 38,500 units at $2.42 per unit. The
Company closed another private placement of its common stock under Regulation
S in September 1995. In this transaction, the Company sold 2,300,000 shares
of common stock for $2.75 per share. Proceeds to the Company, net of
offering costs of $735,055, were $5,589,945.
Stock Options and Warrants
The Company has various stock option plans accounted for under APB Opinion 25
and related interpretations. The options generally have a term of 10 years
when issued, and generally vest over 2-4 years. No compensation cost has
been recognized for the plans. Had compensation cost for the plan been
determined based on the fair value of the options at the grant dates
consistent with the method of Statement of Financial Accounting Standards
123, Accounting for Stock-Based Compensation ("SFAS 123"), the Company's net
loss and loss per common share would have been increased to the pro forma
amounts indicated below. Pro forma results for 1995 and 1996 may not be
indicative of pro forma results in future periods because the pro forma
amounts do not include pro forma compensation cost for options granted prior
to January 1, 1995.
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Net loss
As reported $(3,647,885) $(14,050,004)
Pro forma (3,787,774) (14,474,477)
Loss per common share
As reported $(0.24) $(0.68)
Pro forma (0.25) (0.70)
</TABLE>
F-16
<PAGE> 27
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE I - CAPITAL STOCK (CONTINUED)
Stock Options and Warrants (Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: no expected
dividends; expected volatility of 55%; weighted average risk-free interest
rate of 6%; and expected lives of five years.
In 1987, the Company granted certain directors stock options to purchase up
to 900,000 shares of common stock at a price of $0.10 per share, expiring no
earlier than ten (10) years from the grant date. At December 31, 1995,
options for 500,000 shares remain outstanding.
The Company's 1989 Stock Option Plan authorizes the grant of incentive stock
options or supplemental stock options for up to 3,500,000 shares of common
stock. The exercise price of each incentive stock option shall be not less
than 100% of the fair market value of the stock on the date the option is
granted. The exercise price of each supplemental stock option shall be not
less than eighty-five percent (85%) of the fair market value of the stock on
the date the option is granted.
In November, 1992, the Board of Directors approved the 1992 Non-Employee
Directors' Stock Option Plan. Under the Plan, 480,000 shares of common stock
have been reserved for issuance to non-employee directors of the Company.
Options are granted annually based upon length of service at fair market
value at date of grant.
The Company's subsidiary, Americonnect, had two stock option plans. All
options have been converted into options for the Company common stock and are
included in the following summary. The options were granted at prices from
$0.08 to $2.06 per share of Company common stock.
F-17
<PAGE> 28
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE I - CAPITAL STOCK (CONTINUED)
Stock Options and Warrants (Continued)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996, and changes during each of the three years in the period
ended December 31, 1996 is presented below.
<TABLE>
<CAPTION>
Weighted
Number average price
of shares per share
---------- -------------
<S> <C> <C>
Outstanding at January 1, 1994 2,453,492 $1.21
Exercised (412,876) 1.13
Granted 1,125,433 3.30
Canceled (505,984) 3.08
----------
Outstanding at December 31, 1994 2,660,065 1.58
Exercised (382,851) 1.16
Granted 898,414 2.58
Canceled (156,458) 2.43
----------
Outstanding at December 31, 1995 3,019,170 1.91
Exercised (724,567) 1.64
Granted 1,017,500 3.27
Canceled (177,951) 3.23
----------
Outstanding at December 31, 1996 3,134,152 2.32
==========
</TABLE>
<TABLE>
<CAPTION>
Range Options
------------- ----------
<S> <C> <C>
Exercisable at December 31, 1994 $0.08 - $6.88 1,244,797
Exercisable at December 31, 1995 $0.08 - $6.38 1,797,977
</TABLE>
<TABLE>
<CAPTION>
Weighted
average
Range Options Proceeds exercise price
------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Exercisable at December 31, 1996 $0.10 - $0.10 500,000 $ 50,000 $0.10
$0.72 - $1.90 475,367 567,341 1.19
$2.08 - $4.13 617,636 1,741,067 2.82
$4.88 - $6.88 40,977 258,074 6.30
------------- --------- ----------
1,633,980 $2,616,482 1.60
</TABLE>
Weighted average fair value of options granted during 1995 and 1996 is $1.42
and $1.70 per share, respectively.
F-18
<PAGE> 29
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE I - CAPITAL STOCK (CONTINUED)
Stock Options and Warrants (Continued)
The following information applies to options outstanding at December 31,
1996:
<TABLE>
<S> <C> <C> <C> <C>
Range of exercise prices $0.10 - $0.10 $0.72 - $1.90 $2.08 - $4.13 $4.88 - $6.88
Options outstanding 500,000 476,338 2,043,685 114,129
Weighted average exercise
price $ 0.10 $1.19 $3.02 $ 4.39
Weighted average remaining
contractual life (years) 1 7 9 6
Options exercisable 500,000 475,367 617,636 40,977
Weighted average exercise
price $ 0.10 $1.19 $2.82 $ 6.30
</TABLE>
Common shares subject to warrants are summarized below:
<TABLE>
<CAPTION>
Number Price
of shares per share
------------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1994 386,533 $1.50 - $7.00
Granted 125,000 $3.25
---------
Outstanding at December 31, 1994 511,533 $1.50 - $7.00
Exercised (34,675) $2.42
Granted 720,672 $2.42 - $3.00
Canceled (100,000) $3.25
---------
Outstanding at December 31, 1995 1,097,530 $1.50 - $7.00
Exercised (58,825) $2.42
Granted - -
Canceled - -
---------
Outstanding at December 31, 1996 1,038,705 $1.50 - $7.00
=========
</TABLE>
All warrants are exercisable at grant.
F-19
<PAGE> 30
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE J - LOSS PER COMMON SHARE
Loss per common share is based upon the weighted average number of common and
dilutive common equivalent shares outstanding. The preferred dividend
requirements on the preferred stock are deducted in computing loss per common
share. The effect of outstanding options and warrants are antidilutive for
all periods presented.
NOTE K - INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using current enacted tax rates. A valuation
allowance is established to reduce net deferred tax assets to their estimated
realizable value.
As of December 31, 1996, the Company has available to offset future Federal
taxable income, net operating loss carryforwards (NOLs) of approximately
$20,400,000 which expire in varying amounts from 2002 through 2011. The NOLs
may be subject to limitations as a result of provisions of the Internal
Revenue Code relating to changes in ownership and utilization of losses by
successor entities.
The Company's effective income tax rate is different from the Federal
statutory income tax rate because of the following factors:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Federal tax rate applied to loss before taxes (34.0)% (34.0)% (34.0)%
State tax rate applied to allowable carry-
forward losses (5.7) (5.9) (4.6)
Valuation allowance for deferred taxes 44.4 59.9 38.6
------ ----- -----
Effective tax rate 4.7% 19.6% - %
====== ===== ====
</TABLE>
F-20
<PAGE> 31
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE K - INCOME TAXES (CONTINUED)
Deferred federal and state tax assets and valuation allowance are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
Current
Allowance for bad debts $704,000 $1,326,000
Noncurrent
Noncurrent assets 291,000 1,187,000
Net operating loss carryforward 4,934,000 8,496,000
----------- ------------
5,225,000 9,683,000
----------- ------------
5,929,000 11,009,000
Valuation allowance (5,929,000) (11,009,000)
---------- ------------
$ - $ -
========== ============
</TABLE>
In 1993, the Company's subsidiary, Americonnect, Inc., reduced its valuation
allowance by $500,000 due to changes in circumstances subsequent to adoption
of SFAS No. 109. The changes in circumstances related to increased cash
flows, increased profitability, and anticipated continued increases. Due to
operating losses in 1995, Americonnect was no longer able to determine if it
would more likely than not realize the deferred asset. As a result of this
change in estimate, the valuation allowance was increased by $500,000.
The components of income tax benefit (expense) related to loss before
cumulative effect of accounting change are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
Current $(16,405) $ - $ -
Deferred - (500,000) -
-------- --------- ------
$(16,405) $(500,000) $ -
======== ========= ======
</TABLE>
The increase in the valuation allowance was approximately $548,000,
$1,917,000 and $5,080,000 for the years ended December 31, 1994, 1995 and
1996, respectively.
F-21
<PAGE> 32
Phoenix Network, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Years ended December 31, 1994, 1995 and 1996
NOTE L - EMPLOYEE BENEFIT PLANS
On June 1, 1993, the Company established a 401(k) tax savings plan for all
employees. Employer and participant contributions to the plan vest
immediately. The plan is a defined contribution plan covering all of its
employees. Under this plan, employees with a minimum of one year of
qualified service can elect to participate by contributing a minimum of one
percent of their gross earnings up to a maximum of 20 percent.
For those eligible plan participants, the Company will contribute an amount
equal to 100 percent of each participant's personal contribution up to an
annual maximum of $1,000. The Company's contributions to the 401(k) plan for
the year ending December 31, 1994, 1995 and 1996 were approximately $23,000,
$59,000 and $109,000, respectively.
NOTE M - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
that value:
Line of credit - Carrying amount approximates fair value because of the
short maturity of this instrument.
Long-term debt - Carrying amount approximates fair value because the
interest rate at December 31, 1996 approximates the
market rate.
NOTE N - RELATED PARTIES
Two members of the Company's Board of Directors also serve on the Board of
Directors of U.S. One Communications, with whom Phoenix has entered into an
agreement to lease capacity on switching equipment.
NOTE O - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1996, the Company recorded adjustments
increasing their net loss by approximately $1,200,000 related to receivables,
$500,000 related to deferred commissions and $300,000 related to Local
Exchange Carriers' billing charges.
F-22
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors
Phoenix Network, Inc.
In connection with our audit of the consolidated financial statements of
Phoenix Network, Inc., and Subsidiaries referred to in our report dated March
12, 1997, which is included in the Company's annual report on Form 10-K, we
have also audited Schedule II for the years ended December 31, 1994, 1995 and
1996. In our opinion, this schedule presents fairly, in all material respects,
the information to be set forth therein.
Grant Thornton LLP
/s/ Grant Thornton LLP
Denver, Colorado
March 12, 1997
<PAGE> 34
Phoenix Network, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------- ---------- ---------- -------------- -------------
Additions
Balance at charged to
beginning costs and Balance at
Description of period expenses Deductions (1) end of period
- ------------------------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
December 31, 1994 $1,117,341 $2,440,369 $2,105,010 $1,452,700
December 31, 1995 $1,452,700 $2,689,250 $2,492,937 $1,649,013
December 31, 1996 $1,649,013 $3,147,077 $1,195,260 $3,600,830
</TABLE>
(1) Write-offs of uncollectible accounts, net of recoveries.
<PAGE> 35
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Descriptions
------- ------------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company(1)
3.2 -- Bylaws of the Company(1)
10.1 -- 1989 Stock Option Plan(2)
10.2 -- Forms of option grant pursuant to the 1989 Stock Option
Plan(3)
10.3 -- 1992 Non-Employee Directors' Stock Option Plan, as
Amended(5)
10.4 -- Form of option grant pursuant to the 1992 Non-Employee
Directors' Stock Option Plan(5)
10.5 -- Series A Preferred Stock Purchase Agreement dated as of
August 17, 1990(4)
10.6 -- Series B Preferred Stock Purchase Agreement dated as of
December 27, 1991 with List of Purchasers(6)
10.7 -- Series D Preferred Stock Purchase Agreement dated as of
December 15, 1992(5)
10.8 -- Sublease and Consent between the Company and Richard
Goldman & Co. relating to the premises at One Maritime
Plaza, San Francisco, CA(4)
10.9 -- Amended and Restated Loan and Security Agreement, among
the Company, Phoenix Network Acquisition Corp.,
Americonnect, Inc. and Foothill Capital Corporation, dated
September 26, 1995 (the "Original Foothill Agreement")(12)
10.10 -- Amendment Number One to the Original Foothill Agreement,
dated October 17, 1996(12)
10.11 -- Amendment Number Two to the Original Foothill Agreement,
dated December 23, 1996(12)
10.12 -- Amendment Number Three to the Original Foothill
Agreement, dated March 12, 1997(12)
10.13 -- Office Lease Agreement with Itel Rail Corporation,
dated June 8, 1994(10)
10.14 -- Stockholders Agreement, dated October 20, 1995(7)
10.15 -- Series F Preferred Stock and Warrant Purchase Agreement,
dated October 20, 1995(7)
10.16 -- Communications Services Agreement, between the Company
and US ONE Communications Corp., dated May 22, 1996 (the
"Original US ONE Agreement")(8)
10.17 -- Amendment No. 1 to the Original US ONE Agreement, dated
October 11, 1996(12)
10.18 -- Amendment No. 2 to the Original US ONE Agreement, dated
October 11, 1996(12)
10.19 -- Amendment No. 3 to the Original US ONE Agreement, dated
January 3, 1997(12)
10.20 -- Amendment No. 4 to the Original US ONE Agreement, dated
December 30, 1996(12)
10.21 -- Amendment No. 5 to the Original US ONE Agreement, dated
March ___, 1997(12)
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
10.22 -- Telecommunications Services Agreement, between the
Company and Comdisco Disaster Recovery Services, a
Division of Comdisco, Inc., dated March 25, 1996(8)
10.23 -- Employment Agreement, between the Company and Wallace M.
Hammond, dated January 1, 1996(12)
11.1 -- Computation of earnings per share(11)
18.1 -- Letter re change in accounting principles(9)
21.1 -- Subsidiaries of Phoenix Network, Inc.(12)
23.1 -- Consent of Grant Thornton LLP
27.1 -- Financial Data Schedule(12)
</TABLE>
- ----------
(1) Filed as an Exhibit to the Company's Registration Statement on Form
S-3 (file no. 333-20923), as filed with the Commission on January 31,
1997, and amended on Form S-3/A on February 12, 1997, and incorporated
herein by reference.
(2) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 31, 1990, and incorporated herein by
reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1990, and incorporated herein by
reference.
(4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 31, 1990, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the transition period ended December 31, 1991, and incorporated herein
by reference.
(7) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995, and incorporated herein by
reference.
(8) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, and incorporated herein by reference.
(11) This data appears in the Consolidated Statement of Operations included
in the Company's Consolidated Financial Statements.
(12) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Phoenix Network, Inc.
We have issued our reports dated March 12, 1997, accompanying the consolidated
financial statements and schedule included in the annual report of Phoenix
Network, Inc. on Form 10-K as amended on Form 10-K/A for the three years in the
period ended December 31, 1996. We hereby consent to the use of our name as it
appears under the caption "Selected Financial Data" and to the incorporation by
reference of said reports in the Registration Statements of Phoenix Network,
Inc. on Forms S-8 (File Nos. 33-35844 effective July 12, 1990; 333-13709
effective October 8, 1996; 333-14437 effective October 18, 1996), Form S-3, as
amended (File No. 33-70672 effective February 25, 1994), and Form S-3, as
amended (File No. 333-20923 effective February 12, 1997).
GRANT THORNTON LLP
/s/ GRANT THORNTON LLP
Denver, Colorado
June 16, 1997
