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Previous: MARCI INTERNATIONAL IMPORTS INC, 10-K, 1997-08-18 |
Next: FONE AMERICA INC, 10QSB, 1997-08-18 |
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
OR
_ TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT OF 1934.
Commission File Number 33-3746-LA
FONE AMERICA, INC.
(Name of small business issuer in its charter)
NEVADA 91-1355620
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12323 SW 66TH AVENUE PORTLAND, OREGON 97223
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (503) 620-2400
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 __
As of April 30, 1997 there were 14,551,000 shares of Common Stock
($0.01 par value) outstanding.
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Condensed Balance Sheets as of 3
March 31, 1997 (Unaudited) and
September 30, 1996
Condensed Statements of Operations 4
(Unaudited) for the Three Months and
Six Months Ended March 31, 1997 and
1996
Condensed Statements of Cash Flows 5
(Unaudited) for the Six Months Ended
March 31, 1997 and 1996
Notes to Condensed Financial 6
Statements
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
Part II. Other Information
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of 8
Security Holders
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
2
Fone America, Inc.
Condensed Balance Sheets
thousands of dollars, except share amounts
March 31, September 30,
1997 1996
Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 13 $ 1,653
Accounts receivable, net 1,239 679
Deposits and other 347 416
Total currents assets 1,599 2,747
Plant, property and equipment, net 4,051 4,736
Notes receivable 462 72
Other assets 20 20
Total assets $ 6,132 $ 7,575
Liabilities and shareholders' equity (deficit)
Current liabilities:
Notes payable $ 578 $ 580
Accounts payable 4,281 3,756
Other accrued liabilities 1,015 1,037
Current portion of long-term obligation 500 791
Total current liabilities 6,375 6,164
Long-term obligations, net of current portion 4,686 4,704
Net deferred tax liabilities 428 428
Shareholders' equity (deficit):
Common stock, $.001 par value, authorized 15 15
20,000,000 shares; issued and outstanding
145,551,000;(14,540,000 at September 30, 1996)
Additional paid-in capital 1,044 1,043
Retained deficit (6,415) (4,779)
Total shareholders' deficit (5,357) (3,721)
Total liabilities and shareholders' equity $ 6,132 $ 7,575
Notes to the financial statements as of September 30, 1996 substantially
apply to the March 31, 1997 interim financial statements and are not
repeated here in their entirety.
3
Fone America, Inc.
Condensed Statements of Operations
(Unaudited)
thousands of dollars/shares, except per share amounts
Three months Six months
ended March 31, ended March 31,
1997 1996 1997 1996
Revenues $ 609 $ 4,701 $ 3,251 $10,373
Cost of revenues 595 3,889 3,067 8,642
Gross margin 14 813 184 1,730
Operating expenses:
Sales, general & administrative 554 702 1,362 1,398
Non-recurring contract termination expense - - 297 -
New product introduction & test marketing 67 - 81 -
Income(loss)from continuing operations (607) 111 (1,556) 332
Other income (expense):
Interest expense (26) (217) (224) (443)
Gain (loss) on sale of assets 143 - 143 -
Net loss from continuing operations (490) (106) (1,636) (111)
Net income (loss) from discontinued operations - 10,628 - (6,006)
Net loss $ (490) $10,522 $(1,636)$(6,117)
Net loss per share $ (0.034) $(0.006)$(0.113)$(0.008)
Weighted average shares outstanding 14,540 15,040 14,542 15,040
Notes to the financial statements as of September 30, 1996 substantially
apply to the March 31, 1997 interim financial statements and are not
repeated here in their entirety.
4
FONE AMERICA, INC.
Condensed Statements of Cash Flows
(Unaudited)
Six months ended
thousands of dollars March 31,
1997 1996
Cash flows from operating activities:
Net loss from continuing operations $ (1,636) $ (110)
Net cash used for discontinued operations - (6)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization 514 745
Amortization of reorganization value 0 70
Non-recurring non cash gain on sale of assets (143) -
Changes in assets and liabilities:
Notes Receivable (60) -
Accounts receivable, net (560) (640)
Accounts payable 525 266
Deposits and other 68 6
Other accrued liabilities (22) 159
Net cash (used for) provided by operating activities (1,314) (1,314)
Cash flows from investing activities:
Equipment purchases (16) (77)
Changes in other assets - (142)
Net cash used for investing activities (16) (220)
Cash flows from financing activities:
Proceeds from notes payable - related party 60 -
Repayments of notes payable (61) (137)
Repayments of long-term debt (19) (66)
Repayments of capitalized lease obligations (291) (690)
Proceeds from issuance of common stock 1 60
Net cash used for finanacing activities (310) (833)
Decrease in cash and cash equivalents (1,640) (563)
Cash and cash equivalents at beginning of period 1,653 1,960
Cash and cash equivalents at end of period $ 13 $ 1,396
Supplemental disclosure of cash flow information:
Cash paid for interest $ 158 $ 413
Notes to the financial statements as of September 30, 1996 substantially
apply to the March 31, 1997 interim financial statements and are not
repeated here in their entirety.
5
ITEM 1. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation The accounting and reporting
policies of Fone America, Inc. conform to generally accepted
accounting principles. The condensed consolidated financial
statements for the six months ended March 31, 1997 are unaudited
and do not include all information or footnotes necessary for a
complete presentation of financial condition, results of
operations and cash flows. The interim financial statements
include all adjustments, consisting only of normal recurring
accruals, which in the opinion of management are necessary in
order to make the financial statements not misleading. These
financial statements should be read in conjunction with the
company's September 30, 1996 audited financial statements which
are included in the Company's Registration Statement on Form SB-2
dated February 7, 1997. The results of operations for the six
months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the entire year ending September 30,
1997.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements Certain statements in this
report are not statements of historical fact, and are instead
"forward-looking statements" (as such term is defined in the
Private Securities Litigation Reform Act of 1995). These
statements can be identified by the use of forwarding-looking
terms such as "should", "anticipates", "believes", or "would", or
by discussions of strategies or events that have not, by their
nature, occurred yet. Management wishes to caution the reader
that these forward-looking statements, such as the statements
concerning the Company's efforts to raise additional equity
capital, are only predictions and not statements of historical
fact. These can be no assurance that the future results will be
achieved, or that actual results will vary materially as a
result of the risks facing the Company, including but not limited
to those risks discussed in the registration statement filed by
the Company and declared effective by the SEC on February 7,
1997.
General The Company's revenue through March 31, 1997 has
primarily been generated from the continuation of the sales of
prepaid telephone calling cards (telecards) and initial revenues
from the sale of prepaid cellular telephones, prepaid pagers and
recharge cards for both. The largest source of telecard revenue
was the DriveLine program most of which was interrupted by the
end of the Sales Agency Agreement with a major sales agent. This
agent caused most of the locations involved in the program to
discontinue the DriveLine card in October 1996. The agent's
action is the subject of legal action. See Legal Proceedings in
PART II.
The Company began a short term contract to provide wholesale
telecard services to a Washington-based customer and continued to
offer its own Mensajera and FoneBux products to approximately 150
locations. The Portland test marketing of the prepaid cellular
products began in November and continued through February 1997.
After testing was completed, the Company began to offer the
products to retail locations and other distributors in the
Northwest region.
Results of Operations Revenues for the quarter were only
13% of the same period in the prior year marking a reduction of
$4,092,280. Gross margins also showed a significant decline from
$812,841 to $13,814. The declining revenue was due to the loss
of the locations due to damages suffered with the end of the
Sales Agency Agreement. See Legal Proceedings in Part II. As
revenue fell, the company reduced staffing in Customer Service
but margin suffered due to less favorable transmission rates
associated with lower volumes against commitment levels.
Sales, general, and administration expenses were pared by
21% over the same quarter in the prior fiscal year by reducing
personnel, however the revenue level was not sufficient to
achieve break-even. Nevertheless, the Company continued to
introduce its new products in an effort to rebuild a revenue
base. The net loss for the quarter just ended worsened by
$394,756 from the prior year.
Cash declined by $1,639,906 over the past six months with
much of the change due to recasting the currency in the vending
machines from "cash" to "Accounts Receivable" which increased by
$560,145. Accounts Payable also increased due to the slow down
in cash collections due to the end of the Sales Agency Agreement
by $525,711.
Liquidity and Capital Resources During the six months
ended March 31, 1997 the Company used net cash of $1,313,782 in
operating activities due primarily due to the net loss from
continuing operations of $<1,636,366>. Investing activities
required $15,780 since no additional vending machines were placed
in service. Net cash used by financing activities was $310,344
with most of this being a result of the paydown in leases on
vending machines. As a result of the above, the net cash used
for the six months was $1,639,906 while working capital declined
by $937,470 over the same period.
7
The Company is not now operating at a high enough level to
support its overhead and staffing and management is making every
effort to build the new product revenue quickly to replace the
lost telecard revenue while attempting to restructure its debt.
There is no assurance that management will be successful in these
efforts.
It is also the Company's intention to ask the shareholders
to approve an increase in the number of shares of stock
authorized after the conversion period is completed and/or a
revenue split. This would result in the Company having
additional shares which might be used to secure outside capital.
There is no assurance that a market for such additional shares
will exist in the future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Prospectus (Form SB-2) dated
February 7, 1997 for a complete discussion of its legal
proceedings. In addition the Company was involved in a series of
temporary restraining orders caused by the end of the Sales
Agency contract and the discontinuation of the Cash Deposit Trust
Agreement. The orders expired and were released in January by
the court. A three person arbitration panel has been formed and
it is anticipated that the hearing will occur in August -
September 1997 in the litigation against DAT Services. In
February 1997, an out-of-court settlement of the legal proceeding
against a debtor was reached with the debtor paying $50,000 and
signing a note for all amounts due to the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In connection with the annual shareholders meeting held
February 11, 1997 a proxy was sent to all shareholders soliciting
their votes for a slate of directors and for the naming of an
outside auditor. The management recommendations were passed in
both matters. At the meeting an additional motion making minor
modifications to the By-Laws was also passed. A complete copy of
the By-Laws was provided as an Exhibit to the 10-QSB of December
31, 1996 and is incorporated by reference.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
8
Signatures
In accordance with the requirements of the Securities Exchange
Act of 1934, as amended, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
Fone America, Inc.
Date: May 14, 1997
James L. Forney
/s/ James L. Forney
As Chief Financial Officer on behalf of
of Registrant, and as Registrant's Principal
Financial & Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE YEAR(S) ENDED 09/30/95 AND 09/30/96 AND COMPANY
PREPARED FINANCIAL STATEMENTS FOR THE PERIODS ENDED 03/31/96 AND 03/31/97 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000809928
<NAME> FONE AMERICA, INC.
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996 SEP-30-1996 SEP-30-1995
<PERIOD-END> MAR-31-1997 MAR-31-1996 SEP-30-1996 SEP-30-1995
<CASH> 12,811 1,396,266 1,652,717 1,959,569
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,238,964 1,475,267 678,819 832,574
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 1,598,845 3,412,594 2,747,079 3,339,173
<PP&E> 7,684,491 7,776,728 7,995,975 7,449,238
<DEPRECIATION> 3,633,034 2,241,612 3,260,035 1,628,372
<TOTAL-ASSETS> 6,132,093 11,342,691 7,575,310 12,853,078
<CURRENT-LIABILITIES> 6,374,993 5,925,865 6,164,227 6,318,793
<BONDS> 4,685,742 3,902,284 4,704,407 4,963,675
0 0 0 0
0 0 0 0
<COMMON> 14,551 15,040 14,540 14,040
<OTHER-SE> (5,371,249) 1,499,501 (3,735,920) 1,556,570
<TOTAL-LIABILITY-AND-EQUITY> 6,132,093 11,342,691 7,575,310 12,853,078
<SALES> 3,251,228 10,372,644 18,562,162 18,552,711
<TOTAL-REVENUES> 3,394,514 10,372,644 18,562,162 18,552,711
<CGS> 3,066,980 8,642,226 15,395,035 15,011,915
<TOTAL-COSTS> 4,806,975 10,040,294 21,838,671 17,008,343
<OTHER-EXPENSES> 0 0 (63,448) 70,670
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 223,905 443,273 1,277,603 510,584
<INCOME-PRETAX> (1,636,366) (110,063) (4,490,664) 963,114
<INCOME-TAX> 0 0 767,089 (65,494)
<INCOME-CONTINUING> (1,636,366) (110,063) (5,257,753) 1,028,608
<DISCONTINUED> 0 (6,006) (94,237) (439,604)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (1,636,366) (116,069) (5,351,990) 589,004
<EPS-PRIMARY> (.113) (.008) (.362) .045
<EPS-DILUTED> (.113) (.008) (.362) .027
<F1>
<FN>
<F1>Notes to the financial statements as of September 30, 1996 substantially
apply to the March 31, 1997 interim financial statements and are not
repeated here in their entirety.
</FN>
</TABLE>
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