U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
For the transition period from _____________________ to ______________________
Commission file number 0-18654
AmeriConnect, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 48-1056927
(State of other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
6750 West 93rd Street, Suite 110, Overland Park, KS 66212
(Address of principal executive offices)
(Zip Code)
(913) 341-8888
(Issuers's telephone number, including area code
(Former name, former address and former fiscal year, if changed
since last report)
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 ____
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date
As of November 1, 1995, the Issuer had outstanding 6,211,317 shares of Common
Stock and 705,433 shares of Class A Common Stock.
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
<PAGE>
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
<CAPTION>
AMERICONNECT, INC.
Consolidated
Balance Sheets
ASSETS September 30, December 31
1995 1994
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 574,457 $ 405,942
Accounts receivable, net of allowance of
$333,248 at 1995 and $288,614 at 1994 2,163,200 2,223,298
Accounts receivable-trade, with affiliates 12,651 9,869
Notes and accounts receivable - agents,
including accrued interest, net of allowance
of $260,000 at 1995 and $100,000 at
1994 (Note 6) 193,824 408,688
Notes receivable - director/shareholder
(Note 2) 14,500 11,500
Deferred income taxes (Note 4) 250,000 250,000
Prepaid commissions -- 37,278
Other current assets 38,992 37,210
Total current assets 3,247,624 3,383,785
NON-CURRENT ASSETS
Equipment and software, net of accumulated
depreciation and amortization of $207,562
at 1995 and $154,176 at 1994 153,840 124,632
Deferred income taxes (Note 4) 250,000 250,000
Deposits 23,722 20,039
TOTAL ASSETS $3,675,186 $3,778,456
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICONNECT, INC.
Consolidated
Balance Sheets
September 30, December 31,
1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 3) $2,192,943 $2,090,678
Note payable (Note 3) 343,317 --
Sales tax payable 142,181 131,653
Accrued office closing costs 5,343 18,692
Other accrued liabilities 7,083 30,565
Total current liabilities 2,690,867 2,271,588
NON-CURRENT LIABILITIES
Customer deposits 6,765 14,265
Deferred income -- 13,384
Total liabilities 2,697,632 2,299,237
COMMITMENTS AND CONTINGENCIES (Note 3) -- --
STOCKHOLDERS' EQUITY (Note 5)
Class A common stock, par value $.00001 per
share; 10,000,000 shares authorized;
issued 6,675,433 shares 67 67
Common stock, par value $.01 per share;
20,000,000 shares authorized; issued
6,391,567 shares 63,916 63,166
Additional paid-in capital 3,643,865 3,642,364
Accumulated deficit (2,728,431) (2,224,515)
Treasury stock - class A common, at cost;
5,970,000 shares (60) (60)
Treasury stock - common, at cost;
180,250 shares (1,803) (1,803)
Total stockholders' equity 977,554 1,479,219
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,675,186 $3,778,456
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICONNECT, INC.
Consolidated
Statements of Earnings
(Unaudited)
For The Three Months For the Nine Months
Ended September 30, Ended September 30,
<S> <C> <C> <C> <C>
1995 1994 1995 1994
REVENUES
Sales $4,177,064 $4,335,971 $13,067,791 $12,882,742
Sales to affiliates 21,435 16,518 62,969 43,176
Total revenues 4,198,499 4,352,489 13,130,760 12,925,918
COSTS AND EXPENSES
Direct operating costs 3,487,873 3,226,121 10,293,096 9,561,710
Selling, administrative
and general expenses 1,215,695 961,581 3,297,760 2,828,549
Depreciation and
amortization 18,810 11,349 53,386 27,284
Total costs
and expenses 4,722,378 4,199,051 13,644,242 12,417,543
Operating income
(loss) (523,879) 153,438 (513,482) 508,375
OTHER INCOME (EXPENSE)
Interest income 4,215 9,741 16,786 18,255
Interest expense (3,106) (1,900) (6,346) (16,820)
Loan fees -- -- (1,251) (2,081)
Miscellaneous 377 5,094 377 6,355
Total other income
(expense) 1,486 12,935 9,566 5,709
NET INCOME (LOSS)
BEFORE INCOME TAXES (522,393) 166,373 ($503,916) 514,084
Income tax expense
(Note 4) -- 5,325 -- 10,905
NET INCOME (LOSS) ($522,393) $161,048 ($503,916) $503,179
Net income (loss)
per common and common
equivalent share ($.071) $0.02 ($.068) $0.07
Weighted average common
and common equivalent
shares outstanding
(Note 5) 7,366,999 6,789,750 7,366,999 6,789,750
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICONNECT, INC.
Consolidated
Statements of Cash Flows
(Unaudited)
<S> <C> <C>
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1995 1995
Cash flows from operating activities:
Net income (503,916) $503,179
Adjustments to reconcile net income
to cash provided by/(used in)
operating activities:
Depreciation and amortization 53,386 27,284
Provision for doubtful accounts 376,555 160,530
(Increase) decrease in assets:
Accounts receivable-trade (156,457) (1,061,755)
Accounts receivable - trade from
related parties (2,782) --
Other current assets 35,496 (85,588)
Deposits (3,683) (8,048)
Increase (decrease) in liabilities:
Accounts payable - trade 102,265 490,820
Sales tax payable 10,528 --
Accrued office closing costs (13,349) (11,405)
Other accrued liabilities (23,482) 108,544
Customer deposits (7,500) --
Deferred income (13,384) --
Net loss from disposal of assets -- 1,129
Net cash provided by (used
in) operating activities (146,323) 124,689
Cash flows from investing activities:
Purchase of equipment and software (82,593) (74,376)
Notes receivable - directors (3,000) --
Notes receivable - agents (20,000) (206,500)
Payment on agents notes receivable 74,864 (1,500)
Net cash used in investing
activities (30,729) (279,376)
Cash flows from financing activities:
Proceeds from bank loan 4,130,000 1,000,000
Payments on bank loan (3,786,683) (1,000,000)
Sale of stock to employee 2,250 --
Sale of stock to officer/director -- 297,000
Net cash provided by financing
activities 345,567 297,000
Net increase in cash 168,515 142,313
Cash at beginning of period 405,942 122,599
Cash at end of period 574,457 264,912
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest paid $5,370 $16,820
Income taxes $3,340 $ 6,600
See accompanying notes to financial statements
</TABLE>
<PAGE>
AMERICONNECT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY: AmeriConnect, Inc. and its wholly owned subsidiary,
AmeriConnect, Inc. of New Hampshire, (collectively, the "Company") resell long
distance telecommunications services primarily to individuals and small to
medium-sized businesses. AmeriConnect, Inc. of New Hampshire was formed June
28, 1993, in order to do business in the state of New Hampshire.
The consolidated balance sheet as of September 30, 1995, the
consolidated statements of earnings for the three and nine month periods ended
September 30, 1995 and 1994, and the consolidated statements of cash flows for
the nine months ended September 30, 1995 and 1994 have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and cash flows at September 30,
1995, and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
December 31, 1994 annual report to shareholders. The results of operations
for the periods ended September 30, 1995, and September 30, 1994, are not
necessarily indicative of the operating results for the full year.
Certain balances from the Company's December 31, 1994 financial
statements have been reclassified to conform to the presentation of the
September 30, 1995 financial statements.
NOTE 2 - NOTE RECEIVABLE - DIRECTOR/SHAREHOLDER
During 1994 and early 1995, the Company made loans totalling $14,500 to
a director/shareholder. These loans are due and payable on December 31, 1995,
and are secured by 19,000 shares of the Company's common stock. Interest (due
at maturity) is charged at 2 1/2% over the published prime rate found in The
Wall Street Journal.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company has a contract with Sprint Communications, L.P. ("Sprint")
to provide telecommunications services for the Company's customers. The
agreement covers the pricing of the services for a term of two years beginning
September 1995. The Company has a monthly minimum usage commitment of
$1,000,000 through August 1996 and $1,200,000 from September 1996 to August
1997. In the event the Company's customers use less than the minimum
commitment in any month, the difference is due and payable by the Company to
Sprint in the following month. For the month of September 1995, the Company
did not meet the minimum billing requirement, but obtained a waiver releasing
the Company from the shortfall.
The Company has a contract with WilTel, Inc. ("WilTel") to provide
telecommunications services at discounted rates which will vary based upon the
amount of usage by the Company. The term of this usage commitment is thirty-
nine (39) months. The Company's agreement with WilTel calls for a minimum
monthly usage commitment of $50,000 through January 1998. In the event the
Company's customers use less than the minimum commitment in any month, the
difference is due and payable by the Company to WilTel in the following month.
The Company was in compliance with the contractual requirements of the
agreement throughout the quarter ended September 30, 1995.
<PAGE>
The Company has a revolving credit facility which allows for maximum
borrowings by the Company of the lesser of $1,000,000 or 50% of eligible (less
than 61 days old) receivables. Interest is payable monthly at the
bank's prime rate (8.75% at September 30, 1995) plus 1%. Under the terms of
the credit facility, the Company is required to meet certain financial
covenants. The line is secured by all of the Company's accounts receivable.
During the third quarter of 1995, the Company used this facility for short
term borrowings and had $343,317 outstanding at September 30, 1995.
NOTE 4 - INCOME TAXES
A valuation allowance was established to reduce the deferred tax asset
to the amount that will more likely than not be realized.
The valuation allowance was adjusted for the nine month period ended
September 30, 1995, and the year ended December 31, 1994, as follows:
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
<S> <C> <C>
Valuation allowance, beginning of period $591,512 $688,200
Valuation adjustment 231,461 (96,688)
Adjustment in allowance due to
change in circumstances -- --
Valuation allowance, end of period $822,973 $591,512
</TABLE>
NOTE 5 - COMMON STOCK, WARRANTS AND OPTIONS
PUBLIC OFFERING: In its initial public offering in 1989, the Company
issued 828,000 units, each of which consisted of five shares of previously
unissued common stock, par value $.01 per share, and five redeemable Class A
Warrants at a price per unit of $5.00. Each of the Class A Warrants, which
were transferable separately immediately upon issuance, entitled the holder to
purchase for $1.00 one share of common stock and one redeemable Class B common
stock purchase warrant ("Class B Warrant"). Each Class B Warrant entitled the
holder to purchase one share of common stock at $1.50. The Class A Warrants
and Class B Warrants expired unexercised on May 29, 1994. The warrants are
not common stock equivalents for the purposes of the earnings per share
computations. (See Note 1). In addition, the Company granted the underwriter
and finder options to purchase 57,600 and 14,400 units, respectively, at $6.00
per unit exercisable over a period of four years commencing one year from the
date of the prospectus.
MISSING STOCK CERTIFICATES: Prior to the Company's initial public
offering, the stockholders of record as of March 29, 1989, executed escrow
agreements which required the placement in escrow of 150,000 shares of
outstanding common stock and 5,970,000 shares of outstanding Class A common
stock pending the achievement of certain earnings objectives. These earnings
objectives were not met and, consequently, all of the shares subject to the
escrow agreement were retired and have been accounted for as treasury stock
since December 31, 1992. In addition, in connection with the execution of a
voting trust agreement in 1989, certificates representing 3,014,751 shares of
Class A common stock were issued in the name of a voting trust in substitution
for the certificates held by some of the stockholder-parties to the voting
trust agreement. This voting trust expired in June of 1992. During the first
quarter of 1992, however, the Company learned that the escrow agent associated
with the escrow agreements asserts that it has never received the stock
certificates representing the shares subject to the escrow agreements. During
the same period, the Company discovered that the certificates representing
2,975,751 of the shares transferred to the voting trust were never delivered
to the Company for cancellation. The Company has been unable to locate the
original share certificates or the certificates issued to the voting trust.
<PAGE>
As a result, if a stockholder attempted to transfer any of the shares subject
to the escrow agreements or the voting trust agreement in violation of such
agreements, there can be no assurance that an innocent transferee could not
successfully claim the right to the shares purportedly transferred to him or
her. The Company believes, however, that the legends affixed to each of the
missing certificates, which state that the shares are subject to the
restrictions of the voting trust agreement and the escrow agreements,
respectively, are sufficient to prevent a transferee from
acquiring a valid claim with respect to the shares represented by the missing
certificates. In addition, the Company has obtained affidavits from each
holder of the missing certificates that no such purported transfers have been
made.
STOCK OPTION PLANS: On July 29, 1988, the Company adopted a stock
option plan allowing 300,000 shares of unissued but authorized common stock
for issuance of incentive and/or non-qualified stock options. At September
30, 1995, all options had been granted under the plan, and 22,000 options had
been returned to the company by employees who resigned prior to vesting. Such
returned options are again available for use under the plan.
On May 27, 1994, the Company adopted a second stock option plan
allowing for 500,000 shares of unissued but authorized common stock for
issuance of incentive and/or non-qualified stock options. As of September 30,
1995, 458,000 options under this plan had been granted and 102,500 options had
been returned to the Company by employees who resigned prior to vesting. Such
returned options are again available for use under the plan.
Stock option transactions for the period ended September 30, 1995, are
summarized below:
<TABLE>
<CAPTION>
1988 Plan 1994 Plan Total
<S> <C> <C> <C>
Outstanding, beginning of
quarter 170,000 335,000 505,000
Granted -- 25,000 25,000
Exercised -- -- --
Cancelled -- (4,500) (4,500)
Outstanding, end of period 170,000 355,500 525,500
Price for outstanding options $0.03 - $0.50 $0.375 - $0.75 $0.03 - $0.75
</TABLE>
The expiration dates for the options issued under the 1988 Plan range
from May 1998 to December 2003. At September 30, 1995, 22,000 shares were
available for future grants under the 1988 Plan.
The expiration dates for the options issued under the 1994 Plan range
from August 2004 to June 2005. At September 30, 1995, 144,500 shares were
available for future grants under the 1994 Plan.
NOTE 6 - NOTES RECEIVABLE
The Company conducts a portion of its business through agents. Some of
these agents have borrowed from the Company in order to obtain necessary
capital to expand their operations. These borrowings are represented by short
term promissory notes. The terms of the notes permit the Company to withhold
the monthly payments from commissions due the agents, if necessary. The
interest rate for all the notes is 2 1/2% over the prime rate published by The
Wall Street Journal. In addition, accounts receivable resulting from unpaid
charges incurred by a specific agent have been classified with these notes
receivable. At September 30, 1995, and December 31, 1994, the Company
recorded $260,000 and $100,000, respectively, as an allowance for bad debt on
these notes and related accounts receivable due from a specific agent whose
<PAGE>
commissions will not be sufficient to cover these amounts. The Company is
currently involved in litigation with this agent and is aggressively pursuing
recovery of all amounts due.
NOTE 7 - PROFIT SHARING PLAN
The Company adopted a 401(k) savings plan effective January 1, 1994,
covering nearly all employees with at least six months of service. Under the
terms of the plan, employees may contribute up to 15% of their gross wages.
The Company matches 100% of the first 3% contributed by each employee. The
Company's contribution to the plan was $11,779 for the first nine months of
1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
General
The Company's financial condition and results of operations for the
three and nine month periods ended September 30, 1995, were negatively
affected primarily by the recording of significant accounting write-offs and
competitive industry conditions.
Throughout previous quarters, the Company had recorded credits due from
one of their telecommunications providers which the Company believed at the
time should be applied to reduce usage costs. During the quarter ended
September 30, 1995, approximately $200,000 of these previously recorded
credits were determined to be uncollectible and were written off. This write-
off inflated direct operating costs and reduced overall margins for the
quarter and nine month period ended September 30, 1995. The Company does not
anticipate any further write downs in previously recorded credits.
In 1994, the Company signed an agreement with an agent representing
more than 25,000 residential customers. In order to facilitate the movement
of these customers, the Company loaned $141,000 to the agent as an advance
against future commissions and paid certain start-up costs on the agent's
behalf. While the Company billed these customers for approximately $1,000,000
in long distance usage during 1994, due to circumstances beyond the Company's
control, the payment performance was well below, and the attrition rate well
above what the Company typically experiences with respect to small and medium-
sized business customers. As a result, bad debt expense was in excess of the
normal expected rate, and agent commissions were insufficient to pay off the
loans which became due in December 1994. As of September 30, 1995, the total
amount due from the agent, including the loans was approximately $414,000. As
of December 31, 1994, the Company had recorded $100,000 as an allowance
against the start-up costs due from the agent and uncollected billings due
from the customers represented by this agent. During the quarter ended
September 30, 1995, the Company determined that all start-up costs and
billings from this agent are doubtful and, accordingly, an additional $160,000
allowance was required. The additional $160,000 allowance negatively impacted
sales, general and administrative expenses for the quarter and nine month
period ended September 30, 1995. These residential long distance users are no
longer customers of the Company. The Company is currently involved in
litigation with this agent and is aggressively pursuing recovery of all
amounts due.
During the third quarter, revenue per minute dropped by approximately
6%, and revenues decreased $153,990 or approximately 4%, despite an increase
in minutes of use of 785,000 minutes or approximately 3%. This reflects the
competitive nature of the long distance market. In response to these
conditions, the Company intends to continue its efforts to increase revenues
by securing new agents and increasing sales through aggressive promotional
campaigns. There can be no assurance, however, that such efforts will be
successful.
<PAGE>
Third Quarter Results 1995 Compared to Third Quarter Results 1994
Total Revenues. Total revenues decreased from $4,352,489 in the third
quarter 1994 to $4,198,499 in the third quarter 1995, a decrease of $153,990
or approximately 4%. The decrease is due mainly to the loss in late 1994 of
an agent that represented a large number of residential customers. This
customer base did not exist during the third quarter of 1995.
Direct Operating Costs. Direct operating costs increased from
$3,226,121 in the third quarter 1994 to $3,487,873 in the third quarter 1995,
an increase of $261,752 or approximately 8%. This increase is attributable
primarily to increased usage (in minutes) by the Company's customers. As a
percentage of revenues, direct operating costs increased from approximately
74% in the third quarter of 1994 to approximately 83% in the third quarter of
1995. The increase in direct operating costs was caused in large part by the
previously mentioned $200,000 write-off of credits requested from a supplier.
Excluding the effects of the write-off in the third quarter of 1995, direct
operating costs increased $61,752 or approximately 2% and were approximately
78% of revenues. The increase in direct operating costs as a percentage of
revenues, as adjusted, results primarily from competitive pressures, which
reduced the revenue per minute charged to the Company's customers while the
rates charged by the Company's major underlying carrier remained constant.
Effective September 1, 1995, a new contract with such carrier lowered the
Company's costs.
Selling, Administrative and General Expenses. The Company's selling,
administrative and general expenses increased from $961,581 in the third
quarter 1994 to $1,215,695 in the third quarter 1995, an increase of $254,114
or approximately 26%. Excluding the write-off of the $160,000 allowance for
doubtful amounts due from an agent, selling, administrative and general
expenses increased $94,114 or approximately 10%. As a percentage of revenue,
selling, administrative and general expenses increased from approximately 22%
in the third quarter 1994 to approximately 29% in the third quarter 1995.
Excluding the write-off of the $160,000 allowance for doubtful amounts due
from an agent, selling, administrative and general expenses were 25% of
revenues. The biggest single increase in this expense category was in
compensation expenses associated with the Company's strategy of increasing
sales through expanded use of sales agents. The remaining increase is
attributable to bad debt expenses, billing expenses, office occupancy expenses
and travel expenses.
Total compensation expenses for the third quarter increased from
$539,689 in the third quarter 1994 to $654,373 in the third quarter 1995, an
increase of $114,684 or approximately 21%. This increase is attributable
mainly to an increase in the number of sales personnel employed. Commission
expenses have also increased due to the Company's strategic decision to offer
more aggressive commission plans to remain competitive and attract quality
agents and sales personnel in response to increasingly competitive industry
conditions.
Total bad debt expenses for the third quarter increased from $71,700 in
the third quarter of 1994 to $176,850 in the third quarter of 1995, an
increase of $105,150 or approximately 147%. This increase resulted primarily
from the $160,000 additional reserve recorded against certain agent notes
receivable.
Fees for billing expenses increased from $109,378 in the third quarter
1994 to $159,136 in the third quarter 1995, an increase of $49,758 or
approximately 45%. This increase resulted primarily from the fact that a
portion of the billing expenses incurred during the third quarter 1994 were
recovered from an agent.
Office occupancy expenses increased from $63,953 in the third quarter
1994 to $81,528 in the third quarter 1995, an increase of $17,575 or
approximately 27%. The Company expanded its leased office space from 5,100
square feet in the second quarter of 1994 to 6,800 square feet in the first
quarter of 1995 to accommodate the increase in sales and sales support
personnel.
Travel expenses increased from $9,930 in the third quarter 1994 to
$20,863 in the third quarter 1995, an increase of $10,933 or approximately
110%. This increase is due to the fact the Company added Area Sales Directors
(ASDs) during 1995 to work with its agent network throughout the United
States. The Company has also placed two Account Executives in the Atlanta
<PAGE>
area to help expand our presence in the Southeast. While each ASD is
responsible for a specific region of the United States, significant travel is
required to visit, motivate and train existing and new agent sales personnel
as well as contact large customers throughout the regions.
Nine Month Results 1995 Compared to Nine Month Results 1994
Total Revenues. Total revenues increased from $12,925,918 for the
first nine months of 1994 to $13,130,760 for the first nine months of 1995, an
increase of $204,842 or approximately 2%. This reflects the competitive
nature of the long distance market as minutes of use increased by
approximately 7%, but revenue per minute decreased by approximately 6%.
Direct Operating Costs. Direct operating costs increased from
$9,561,710 for the first nine months of 1994 to $10,293,096 for the first nine
months of 1995, an increase of $731,386 or approximately 8%. As a percentage
of revenues, direct operating costs increased from approximately 74% for the
first nine months of 1994 to 78% for the first nine months of 1995. Direct
operating costs for the first nine months of 1994 included $150,000 in
customer appreciation credits from one of the Company's carriers. Without the
$150,000 credit, direct operating costs for the first nine months of 1994
would have been $9,711,710 or approximately 75% of revenue. Direct operating
costs for 1995 were negatively impacted by the $200,000 write-off of credits
due from a supplier. Without the $200,000 write-off, direct operating costs
for the first nine months of 1995 would have been $10,093,096 or approximately
77% of revenue. The increase in direct operating costs as a percentage of
revenues, as adjusted, results primarily from competitive pressures, which
reduced the revenue per minute charged to the Company's customers while the
rates charged by the Company's major underlying carrier remained constant.
Effective September 1, 1995, a new contract with such carrier lowered the
Company's costs.
Selling, Administrative and General Expenses. The Company's selling,
administrative and general expenses increased from $2,828,549 for the first
nine months of 1994 to $3,297,760 for the first nine months of 1995, an
increase of $469,211 or approximately 17%. As a percentage of revenues,
selling, administrative and general expenses increased from approximately 22%
during the first nine months of 1994 to 25% during the first nine months of
1995. The biggest single increase in this expense category was in
compensation expenses associated with the Company's strategy of increasing
sales through expanded use of sales agents. The remaining increase is
attributable to bad debt expenses, billing expenses, office occupancy expenses
and travel expenses.
Liquidity and Capital Resources
On December 31, 1994 and September 30, 1995, the Company had a net
worth of $1,479,219 and $977,554, respectively. During the first nine months
of 1994, the Company generated $124,689 cash from operations. Contributing to
the cash generated from operations during the first nine months of 1994 was a
$150,000 customer appreciation credit the Company received from one of its
carriers. In the nine month period ended September 30, 1995, the Company used
$146,323 cash in operations.
The Company has a revolving credit facility which allows for maximum
borrowings by the Company of the lessor of $1,000,000 or 50% of eligible (less
than 61 days old) receivables. Interest is payable monthly at the bank's
prime rate (8.75% at September 30, 1995) plus 1%. Under the terms of the
credit facility, the Company is required to meet certain financial covenants.
The line is secured by all of the Company's accounts receivable. During the
first nine months of 1995, the Company had used this facility for short term
borrowings and had $343,317 outstanding at September 30, 1995.
<PAGE>
The Company has a contract with Sprint to provide telecommunications
services for the Company's customers. The agreement covers the pricing of the
services for a term of two years beginning September 1995. The Company has a
monthly minimum usage commitment of $1,000,000 through August 1996 and
$1,200,000 from September 1996 to August 1997. In the event the Company's
customers use less than the minimum commitment in any month, the difference is
due and payable by the Company to Sprint in the following month. For the
month of September 1995, the Company did not meet the minimum billing
requirement but obtained a waiver releasing the Company from the shortfall.
The Company has a contract with WilTel to provide telecommunications
services at discounted rates which will vary based upon the amount of usage by
the Company. The term of this usage commitment is thirty-nine (39) months.
The Company's agreement with WilTel calls for a minimum monthly usage
commitment of $50,000 through January 1998. In the event the Company's
customers use less than the minimum commitment in any month, the difference is
due and payable by the Company to WilTel in the following month. The Company
was in compliance with the contractual requirements of the agreement as of the
quarter ended September 30, 1995.
At September 30, 1995, the Company had a ratio of current assets to
current liabilities of 1.21. Working capital at September 30, 1995 was
$556,757.
In 1994, the Company signed an agreement with an agent representing
more than 25,000 residential customers. In order to facilitate the movement
of these customers, the Company loaned $141,000 to the agent as an advance
against future commissions and paid certain start-up costs on the agent's
behalf. The Company is currently negotiating repayment of the loans and
accrued interest thereon.
The Company's business as a non-facilities based reseller of long
distance telecommunications services is generally not a capital intensive
business, and at December 31, 1994, the Company had no material commitments
for capital expenditures. The Company anticipates any additional capital
expenditures in the future will be confined to minimal purchases of office
fixtures and equipment.
Currently none of the Company's customers represents more than 2% of
the monthly revenues.
Legal Proceedings
The Company is currently involved in certain disputes that have arisen
in the ordinary course of business, including an action in the District Court
of Johnson County, Kansas filed by the Company against a former agent and a
related entity in connection with an agreement for the sale of long distance
services to residential customers. The Company is vigorously prosecuting these
actions.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized (the undersigned being its President).
AMERICONNECT, INC.
Date: December 7, 1995
/s/ Robert R. Kaemmer
Robert R. Kaemmer
President
