U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTELY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quartely period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
FOR THE TRANSITION PERIOD FROM JANUARY 1, 1997 TO MARCH 31, 1997
--------------- ---------------
COMMISSION FILE NO. 1-13134
AMERICAN NORTEL COMMUNICATIONS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
WYOMING 87-0507851
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or organization)
7201 EAST CAMELBACK ROAD, SUITE 320
SCOTTSDALE, AZ 85251
(Address of Principal Executive)
Issuer's Telephone Number: (602) 945-1266
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), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes / / No / X /
(2) Yes / X / No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registration filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
NOVEMBER 30, 1998
COMMON VOTING STOCK - 15,545,785
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
NONE; NOT APPLICABLE.
ITEM 2. CHANGES IN SECURITIES.
NONE; NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE; NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE; NOT APPLICABLE.
ITEM 5. OTHER INFORMATION.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. EXHIBITS
(A)FINANCIAL DATA SCHEDULE
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AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE BALANCE SHEET
AS OF MARCH 31, 1997 AND 1996
ASSETS
1997 1996
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash in Bank. . . . . . . . . . . . . . . . . $ 29,635.20 4,319.74
Prepaid Expenses. . . . . . . . . . . . . . . 150,000.00 -
Intangible Debt Issue . . . . . . . . . . . . 28,400.00 -
Cable and Wireless. . . . . . . . . . . . . . - -
Accounts Receivable . . . . . . . . . . . . . 90,962.95 -
---------------- ---------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . 298,998.15 4,319.74
PROPERTY AND EQUIPMENT:
Telecommunications Property . . . . . . . . . 39,707.20 37,564.20
Equipment . . . . . . . . . . . . . . . . . . - -
LESS: Accumulated Depreciation. . . . . . . . . (14,939.00) (5,952.00)
---------------- ---------------
TOTAL PROPERTY AND EQUIPMENT. . . . . . . . 24,768.20 31,612.20
OTHER ASSETS:
Investment Through Barter . . . . . . . . . . 1,904,860.00 -
Other Assets. . . . . . . . . . . . . . . . . - 235,114.34
Due to Related Party. . . . . . . . . . . . . 98,919.69 -
---------------- ---------------
TOTAL OTHER ASSETS. . . . . . . . . . . . . 2,003,779.69 235,114.34
--------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 2,327,546.04 271,046.28
=============== =============
LIABILITIES
CURRENT LIABILITIES:
Trade Accounts Payable. . . . . . . . . . . . 889,179.93 151,750.52
Trade Accounts Payable - Other. . . . . . . . 424,327.00 -
Federal Payroll Taxes Payable . . . . . . . . 44,073.17 11,347.30
Notes Payable . . . . . . . . . . . . . . . . 856,191.90 675,000.00
Accrued Interest Payable. . . . . . . . . . . 305,489.00 280,628.00
---------------- ---------------
TOTAL CURRENT LIABILITIES . . . . . . . . . 2,519,261.00 1,118,725.82
LONG-TERM LIABILITIES:
Converted Debentures. . . . . . . . . . . . . 292,500.00 -
Unearned Phone Card Revenue . . . . . . . . . 1,582,532.30 -
---------------- ---------------
TOTAL LONG-TERM LIABILITIES . . . . . . . . 1,875,032.30 -
--------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . 4,394,293.30 1,118,725.82
STOCKHOLDERS' EQUITY
Preferred Stock . . . . . . . . . . . . . . . 198,000.00 -
Common Stock. . . . . . . . . . . . . . . . . 20,920,677.00 20,294,032.00
Treasury Stock. . . . . . . . . . . . . . . . (149,100.00)
Retained Earnings(Loss) . . . . . . . . . . . (23,036,324.26) (21,141,711.54)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . (2,066,747.26) (847,679.54)
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $ 2,327,546.04 271,046.28
=============== =============
</TABLE>
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AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENT OF INCOME AND EXPENSE
FOR THE PERIOD ENDING MARCH 31, 1997 AND 1996
1997 1996
3RD QUARTER YEAR TO DATE 3RD QUARTER YEAR TO DATE
<S> <C> <C> <C> <C>
INCOME
Airtime Income . . . . . . . . . . $ 209,642.86 360,552.77 243,272.00 308,071.97
COST OF SALES. . . . . . . . . . . . 174,439.08 419,415.72 63,719.70 77,975.70
GROSS PROFIT . . . . . . . . . . . . 35,203.78 (58,862.95) 179,552.30 230,096.27
SELLING EXPENSES . . . . . . . . . 93,544.25 313,385.48 2,440.13 8,458.59
GENERAL & ADMINISTRATIVE . . . . . 43,770.88 174,909.95 82,607.62 186,810.22
-------------- ------------ ------------- -----------
TOTAL EXPENSES . . . . . . . . . 137,315.13 488,295.43 85,047.75 195,268.81
EARNINGS (LOSS) FROM OPERATIONS. (102,111.35) (547,158.38) 94,504.55 34,827.46
OTHER INCOME (EXPENSE)
Other Income . . . . . . . . . . . - - - -
Amortization Expense . . . . . . . - - - -
Interest Expense . . . . . . . . . (55,941.90) (86,941.90) (30,713.00) (92,139.00)
Loss on Abandonment. . . . . . . . (21,493.69) (217,589.85) - -
Loss on Discontinued Operations. . (9,868.22) (43,188.81) - -
-------------- ------------ ------------- -----------
TOTAL OTHER INCOME . . . . . . . (87,303.81) (347,720.56) (30,713.00) (92,139.00)
NET INCOME (LOSS). . . . . . . . . . $ (189,415.16) (894,878.94) 63,791.55 (57,311.54)
============== ============ ============= ===========
COMMON VOTING SHARES . . . . . . . 9,071,500 4,689,500
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AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED MARCH 31, 1997 AND DECEMBER 31, 1996
3RD QTR 2ND QTR
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(189,415.16) (652,528.84)
Adjustments to reconcile net income to net cash provided by operating
activities.
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 2,000.00 2,000.00
Expenses related to common stock. . . . . . . . . . . . . . . . . . - -
Expenses related to barter trades . . . . . . . . . . . . . . . . . (71,000.00) (596,293.00)
(Increase) decrease in:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . (46,962.95) (44,000.00)
Unearned phone card revenue . . . . . . . . . . . . . . . . . . . . - 1,200,965.00
Increase (decrease) in:
Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . - 424,327.00
Barter payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 58,141.09 (482,652.00)
Interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . 24,750.00 13,500.00
Payroll taxes payable . . . . . . . . . . . . . . . . . . . . . . . 2,476.84 11,196.91
------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES. . . . . . . . (220,010.18) (123,484.93)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment . . . . . . . . . . . . . . . . . - -
------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES. . . . . . . . - -
CASH FLOWS FROM FINANCING ACTIVITIES
Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,700.00) (43,900.00)
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 151,191.90 30,000.00
Proceeds from issuing common stock. . . . . . . . . . . . . . . . . . 91,000.00 (102,155.00)
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . . (32,100.00) -
Intangible debt issue costs . . . . . . . . . . . . . . . . . . . . . 9,800.00 (38,200.00)
Convertible debentures. . . . . . . . . . . . . . . . . . . . . . . . - 292,500.00
------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES. . . . . . . . 210,191.90 138,245.00
------------- -------------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . (9,818.28) 14,760.07
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . 39,453.48 24,693.41
------------- -------------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 29,635.20 39,453.48
============= =============
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<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
1. NATURE OF OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
USE OF ESTIMATES AND RECLASSIFICATIONS
NATURE OF OPERATIONS
The Company has existed in various forms since 1979 and has evolved from a
mining exploration and development business to a telecommunications business.
The Company has been known as American Nortel Communications, Inc. ("ANC") since
1992 and became a Wyoming corporation in 1993. ANC currently operates only in
the telecommunications business, providing long distance telephone service in
combination with additional related services in the United States and a number
of foreign countries.
Prior to September 14, 1994, ANC conducted almost all of its telecommunications
business through NorTel Communications, Inc. ("NorTel-US"), a wholly owned
subsidiary in Salt Lake City, Utah. All subsidiaries, including NorTel-US, were
not active and were sold for nominal consideration or were dissolved.
On September 14, 1994, ANC and NorTel-US filed petitions under Chapter 11 of the
U.S. Bankruptcy Code, under case numbers 948-24604 and 948-24605 respectively in
the U.S. Bankruptcy Court, District of Utah, Central Division. ANC's bankruptcy
proceeding was subsequently converted to a Chapter 7 proceeding and was
thereafter dismissed on February 7, 1995. NorTel-US was sold June 27, 1995 for
nominal consideration to an affiliate of former directors, leaving ANC as the
sole surviving entity.
ANC's common stock was approved for listing on the Boston Stock Exchange
effective June 22, 1994. However, it was delisted on January 20, 1995 for
failure to meet maintenance requirements. The common stock had previously been
listed for trading on the Vancouver Stock Exchange from September 18, 1980 until
August 14, 1994. ANC's common stock is also traded in the over-the-counter
market and is quoted under the NASDAQ symbol "ARTM".
The Company was dormant when ANC's current President, Chief Executive Office,
and Board Chairman, William P. Williams, Jr. achieved control of the Company on
June 27, 1995. On that day, the former officers and directors resigned and
assigned their rights under certain agreements to Mr. Williams.
Subsequently, the Company has utilized various methods, including the infusion
of capital, barter trading, and the establishment of ANC as a "LEC" billed long
distance carrier to reestablish the financial viability of the Company. The
Company attempted to use prepaid phone cards to barter for goods and services,
not requiring the expenditure of cash. However, ANC encountered numerous
difficulties with this strategy, which is largely responsible for the delays in
filing the required financial statements with the Securities and Exchange
Commission ("SEC").
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
1. NATURE OF OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, USE OF
ESTIMATES AND RECLASSIFICATIONS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company and the methods of applying
those policies that materially affect the determination of its financial
position, results of operations, or cash flows are summarized below.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, having a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION - PHONE CARD REVENUE
Generally accepted accounting principles ("GAAP") require the deferral of
revenue to match the future cost of providing service. Accordingly, the prepaid
phone cards which were bartered and sold, most of which expire within 18 to 24
months of issuance, require the deferral of revenues to be recognized as the
units of time on the cards are utilized.
During the 1996 and 1997 fiscal years management committed ANC to provide
approximately 11,354,000 and 4,661,000 units of time, respectively. Committed
units related primarily to barter trades. Committed units related to cash sales
were nominal.
ANC issued approximately 3,074,000 and 8,897,000 units of time during 1996 and
1997, respectively. As units were issued, the liability for committed units was
reduced and recorded as unearned revenues. Issued units could not be used until
the Company activated the card PIN numbers. Cards were issued related to the
barter transactions for which the PIN numbers were never activated.
As the issued and activated units were utilized, unearned revenues were reduced
and recorded as earned revenues. Approximately 265,000 and 1,260,000 activated
units were utilized during fiscal 1996 and 1997, respectively, resulting in
generated revenues of $36,000 and $171,000 in 1996 and 1997, respectively.
During 1997, the service was suspended and the related barter transactions
rescinded by ANC management. As a good faith gesture, ANC agreed to provide
limited service through another vendor until June 30, 1998. As of June 30, 1998
the program expired and was terminated with the service provider.
The company also recognizes revenue from the one-plus and 800 long distance
services.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
1. NATURE OF OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
USE OF ESTIMATES AND RECLASSIFICATIONS (CONTINUED)
All remaining units in excess of those utilized in fiscal 1998, were recorded as
gain at the end of fiscal 1997, since these revenues did not relate to service
provided and originated from barter transactions which were rescinded during
that year.
COST RECOGNITION - PHONE CARD UNITS
Costs are incurred and recognized as the purchaser utilizes the units. Costs
related to providing the recognized service revenues amounted to approximately
$22,000 and $222,000, respectively, in 1996 and 1997. Production costs of
unissued cards are not considered significant enough to record as a prepaid
expense.
MARKETING COSTS
Direct response marketing costs, primarily incurred through contracted telephone
solicitation of prospective accounts are deferred and amortized over the average
life of the new accounts generated in subsequent periods.
INCOME TAXES
The provision for income taxes includes deferred income taxes resulting from
temporary differences in the recognition of certain income and expense items for
financial reporting purposes in different periods than for tax purposes. The
Company calculates its income tax provision and deferred income taxes under SFAS
109.
The Company uses the flow-through method of accounting for investment tax
credits.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
ANC has sustained significant losses in its fiscal years ended 1995 and 1996.
The effect of these losses have been mitigated by the infusion of cash from new
equity capital and the payment of significant obligations through issuance of
the Company's common stock. The stockholders' deficiency has worsened during
these periods. Profitability from operations and favorable resolution of the
numerous claims and contingencies discussed later in these notes are required to
reduce the deficiency. If profitability is not achieved, the deficiency can
only be eliminated through the issuance of additional equity securities.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
1. NATURE OF OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, USE OF
ESTIMATES AND RECLASSIFICATIONS (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ significantly from those estimated. Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the collectability of receivables,
useful lives of property and equipment and impairment of long -lived assets.
2. NON-MONETARY TRANSACTIONS
BARTER TRADES
In December 1995, ANC began trading long distance phone time for other assets.
The Company has recorded the trades at the lower of the wholesale price of $.15
per unit value or estimated net realizable value of the property received in the
following exchanges.
FISCAL 1996 BARTER TRANSACTIONS
BARTERS TRADES FOR TANGIBLE PERSONAL PROPERTY
On February 20, 1996 L&J Liquidators agreed to accept 483,500 minutes of
long-distance phone time for office furniture, office supplies and a Nordic ski
boat for a total of $72,525 at $.15 per minute. 131,500 minutes were awarded as
a finder's fee for the Fall Creek Inn barter described below.
BARTER TRADE FOR REAL ESTATE - THE FALL CREEK INN
On March 30, 1996 the Kendel Corp agreed to accept 8,888,889 minutes of long
distance phone time for rights to the Fall Creek Inn in Branson, Missouri. ANC
also signed a five-year lease commencing April 15, 1996 and expiring March 14,
2001. The lease required ANC to pay the underlying loan payments to the
Mercantile Bank, which then was $20,069 per month. ANC also agreed to pay the
real and personal property taxes, maintenance and improvements, utilities and
insurance. Provided ANC was not in default on any rental payments, and, kept
and performed all other covenants and obligations required ANC could exercise
its option to purchase the property for the remaining principal and interest
balance due on the loan.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
2. NON-MONETARY TRANSACTIONS (CONTINUED)
On March 30, 1996 ANC took operating possession of the Inn. ANC issued
1,590,000 minutes of domestic long distance credits as of June 30, 1996 and an
additional 4,066,000 minutes during fiscal 1997. ANC also advanced cash for
operations and lease payments totaling $54,000 through June 30, 1996 and an
additional $178,000 during fiscal 1997. During 1997, the lessor repossessed
this property and the activity ceased. As of the date of the repossession,
2,477,000 minutes of long distance phone time remained unissued under the
agreement, with an additional 756,000 minutes unissued, which had been assigned
by the lessor to a third party. It is management's contention that the return
of the property to the owner effectively rescinded the obligation to supply the
minutes as agreed upon.
The lessor repossessed the property on January 31, 1997 and filed suit for
breach of contract and recovery of damages. A default judgment was initially
entered, granting Plaintiff rent, possession and damages in excess of
$3,000,000. A motion to set the default judgment aside was successful and there
has been no appeal. The Court ordered that possession be permanently
transferred to the Plaintiff leaving the Plaintiff in possession and full
ownership, with ANC no longer having an interest in the property. The case is
still pending on the issue of damages. Since either party has conducted no
discovery, Counsel is unable to evaluate the potential exposure to ANC in this
case at this time.
The leasehold, recorded at $1,200,000, was reduced by amortization of $61,000 in
fiscal 1996 prior to abandonment of the property. A valuation reserve of
$31,650 has also been recorded to reduce the value to the amount of the
remaining balance of unissued time bartered on the transaction as of June 30,
1996.
BARTER TRADE FOR REAL ESTATE - PALMDALE, CALIFORNIA LOT
On March 16, 1996 James Griffith, Jr. agreed to accept 44,444 units of domestic
long distance phone time for an undeveloped lot in Palmdale, California,
recorded at $6,667 at $.15 per minute. The trade was made through a barter
trade network transaction.
BARTER TRADE FOR AUTOMOBILE
On April 7, 1996 Joe Blanton agreed to accept 44,444 units of domestic long
distance phone time for a 1966 Jaguar Mark 10, recorded at $7,000, as the car
was subsequently sold for $7,000 cash on April 22, 1996.
BARTER TRADE FOR STOCK
On April 7, 1996 Joe Blanton. agreed to accept 11,111 units of domestic long
distance phone time for 100,000 shares of Penn Pacific Stock, recorded at $1,667
at $.15 per minute.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
2. NON-MONETARY TRANSACTIONS (CONTINUED)
BARTER TRADE FOR REAL ESTATE - POINTE ROYALE, MISSOURI PATIO HOME
On April 10, 1996 Len D. Clayton agreed to accept 1,166,667 units of domestic
long distance phone time for a patio home in Pointe Royale, Missouri, valued at
$275,000 by ANC management. ANC also agreed to assume a loan of approximately
$130,000 secured by the property. Title was to be transferred upon delivery of
long distance units. Since ANC took possession, but not ownership, ANC was
never legally named a creditor on the loan. The net investment of $145,000 has
accordingly been recorded as a deposit on a realty transaction that was
subsequently forfeited.
On April 10, 1996, when ANC took possession of the property, it issued 391,000
minutes of domestic long distance credits. During fiscal 1997 ANC issued another
770,000 minutes.
During fiscal 1997, ANC returned the property to the owner.
A valuation reserve of approximately $49,000 has been recorded to adjust the
value to the amount of the remaining balance of unissued time bartered on the
transaction as of June 30, 1996.
BARTER TRADE FOR BOAT
On April 22, 1996 C.L. Carr agreed to accept 88,889 units of domestic long
distance phone time for a 1963 35 foot Cris Craft boat for a recorded value of
$13,333 at $.15 per minute. A valuation reserve of $13,333 has been established
as of June 30, 1996 to adjust the carrying value to the amount subsequently
realized upon return of the asset to the owner.
Minutes issued are included in the Pointe Royale minutes disclosed above.
BARTER TRADE FOR ART
In May 1996 Ed Iverson agreed to accept 11,000 units of domestic long distance
phone time for five limited edition art prints recorded at $1,650 at $.15 per
minute.
BARTER TRADE FOR EQUIPMENT
On May 8, 1996 George La Goe agreed to accept 52,222 units of domestic long
distance phone time and $2,000 cash for a tractor and other equipment. ANC
issued 52,222 minutes of domestic long distance credits (including 22,222 issued
to Barter Business Network) as of June 30, 1996 prior to abandonment of the
property in fiscal 1997. An additional valuation reserve of $9,833 has been
established to reflect the amount realized on subsequent abandonment.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
2. NON-MONETARY TRANSACTIONS (CONTINUED)
BARTER TRADE FOR AUTOMOBILE
On May 15, 1996 Steve Muskett agreed to accept $5,500 in trade credits (BXI) and
$500 cash for a 1969 Lincoln Continental Mark 3, recorded at $6,000. ANC issued
12,222 minutes of domestic long distance credits to BXI for this barter trade.
The amount has been fully reserved as a subsequently abandoned asset.
BARTER TRADE FOR REAL ESTATE - RIDGEDALE, MISSOURI LOTS
On June 5, 1996 Heritage West, Inc. agreed to accept 116,000 units of domestic
long distance phone time for six undeveloped lots in Ridgedale, Missouri, valued
at $17,400 at $.15 per minute. The units were to be ordered within 24 months of
the agreement date and expire 18 months after the issue date. The deed was not
assigned to ANC until July 1, 1996 and there is no evidence it was legally
recorded. The minutes tendered in fiscal 1996 were recorded as a deposit on a
realty transaction.
ANC issued 16,000 minutes of domestic long distance credits as of June 30, 1996
and an additional 63,000 minutes during fiscal 1997 prior to return of the
property. As of the date the property was returned 37,000 minutes of long
distance phone time were still due the owner under the agreement. A valuation
reserve of $2,400 was recorded to adjust the value to the amount of the
remaining balance of committed but unissued time bartered on the transaction as
of June 30, 1996.
BARTER TRADE FOR BICYCLES
On June 26, 1996 the Equitas Group, Inc. agreed to accept 73,560 units of
domestic long distance phone time for 222 bicycles located in a warehouse near
Dallas, Texas, recorded at $11,034 at $.15 per minute. A valuation reserve has
been established at June 30, 1996 to fully recognize the loss on subsequent
abandonment.
STOCK TRANSACTIONS
The Company has entered into numerous transactions where it traded its stock for
assets or services. These transactions are disclosed under the caption "Common
Stock Issued".
3. PREPAID EXPENSES
Prepaid expenses consist of a $75,000 management fee paid to Wilcom, Inc. for
fiscal 1997, paid in June, 1996 by the issuance of ANC stock at $.15 per share.
Also included is $75,000 compensation paid to Eva Williams, (the wife of William
P. Williams, Jr.) for fiscal 1997 and 1998, paid in June 1996 by the issuance of
ANC stock at $.15 per share.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists primarily of telecommunications
equipment, net of accumulated depreciation. Depreciation is calculated using the
straight-line method over a five year estimated useful life.
5. BARTER ACCOUNTS AND INVESTMENTS
BARTER ACCOUNTS
Barter accounts consist of phone cards placed with five barter groups, net of a
valuation reserve of approximately $33,000, to reflect the subsequent loss on
abandonment of these deposited amounts.
INVESTMENTS ACQUIRED THROUGH BARTER
Investments acquired through barter consists of assets, discussed in Note 2,
acquired in transactions which were not rescinded, but were later abandoned.
The assets, all tangible personal property, are stated net of a valuation
reserve of approximately $119,000.
INVESTMENTS ACQUIRED THROUGH BARTER, RESCINDED
Investments acquired through barter consist of the Fall Creek Inn leasehold and
other deposits on realty transactions, discussed in Note 2, which were
subsequently rescinded by ANC in fiscal 1997. These assets are stated net of
accumulated amortization of $61,000 and a valuation reserve of approximately
$64,000.
6. INVESTMENT IN AFFILIATE
Investment in affiliate consists of 400,000 shares of ANC common stock placed on
deposit with the Continental Indoor Soccer League in accordance with terms of a
franchise agreement further discussed in Note 10, "The Anaheim Splash". The
asset is stated net of a valuation reserve of $200,000 to reflect the probable
loss of this asset.
7. BARTER TRADE COMMITMENTS
Barter trade commitments consist of the value of the committed but unissued
long-distance units traded for various assets, discussed more fully in Note 2.
During fiscal 1997 the remaining commitment, totaling $687,000, was offset
against the rescinded barter assets in determining the net loss on abandonment.
8. NOTES PAYABLE
CONVERTIBLE NOTES PAYABLE
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
8. NOTES PAYABLE (CONTINUED)
9% convertible secured notes due December 31, 1996 with interest payable
quarterly, convertible into common stock of ANC at $4.00 per share, with
warrants (which expired December 31, 1995) to purchase
CONVERTIBLE NOTES PAYABLE
up to 78,125 common shares at $4.00 per share, originally secured by guarantee
bond (10% per annum) purchased from a surety company:
Herman Meinders $100,000
Express Services, Inc.,
formerly BancOklahoma Trust Company 450,000
Southwest Securities, Inc. (Gerald Eason) 50,000
Marguerite Colton 25,000
9% convertible secured notes due December 31, 1998 with quarterly interest
payments, escalating to 18.2% in years 2 through 6, convertible into 6,000
shares of common stock of ANC at $5.00 per share, with warrants (which expired
September 7, 1997) to purchase 6,000 common shares at $5.00 per share,
originally secured by guarantee bond (10% per annum) purchased from a surety
company:
Earle F. Waters, Trust 25,000
EF Waters & Eleanor M Waters, Trust 25,000
--------
Total convertible notes $675,000
========
On August 7, 1996, Wilcom issued 10,000 shares of its stock in ANC to Mr.
Meinders as payment for interest on his note.
Accrued but unpaid interest on the above notes totaled $253,739 and $188,489 as
of June 30, 1996 and 1995 respectively.
SETTLEMENT OF NOTES AND INTEREST
ANC is delinquent on paying the principal and interest amounts due under the
note terms. The note holders have filed suit against ANC and the surety
company. On April 7, 1998 a judgment was entered against ANC in favor of Herman
Meinders and Marguerite Colton. The respective amounts of the judgments are
$144,529 and $33,876 including interest at 9% per annum.
The claim of Express Services is pending with no current trial setting.
However, it is anticipated that judgment will be entered in favor of Express
Services, Inc. for all amounts claimed due and owing. A claim on the Eason note
has yet been asserted but ANC counsel anticipates that at some point suit will
be filed and judgment will be established for all amounts claimed due.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
8. NOTES PAYABLE (CONTINUED)
The court determined that interest is payable at the 9% rate specified in the
agreement without penalty. ANC is attempting to negotiate the retirement of the
other notes.
9. PROVISION FOR INCOME TAXES AND DEFERRED INCOME TAXES
There is no current or deferred tax expense or benefit for income taxes for the
years ended June 30, 1996 and 1995. The Company realized net operating losses
in 1996 and 1995.
The deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, if appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss period. The Company has considered these
factors in reaching its conclusion as to the valuation allowance for financial
reporting purposes.
At June 30, 1996 the Company has unused net operating losses of $10,600,000
expiring from 2009 through 2011. No deferred tax asset has been recorded as the
Company has provided a valuation allowance in the full amount of the benefit
until such time as deferred tax liabilities are realized or future earnings are
considered likely.
10. COMMITMENTS AND CONTINGENCIES:
LITIGATION
ANC is named as defendant in the following suits:
CLIC International Corporation vs. W.P. & Eva Williams, dba ANC - The suit,
claiming damages in an amount less than $30,000 is related to a barter trade of
phone cards for light bulbs for the Fall Creek Inn, was filed during fiscal 1997
and is recorded as a disputed claim. The suit is pending but accrued as of June
30, 1997.
KPMG Peat Marwick vs. Certified Surety Group, Ltd. and ANC - The suit, claiming
damages in the amount of $30,000 is for services rendered by KPMG related to its
audit of the June 30, 1993 ANC financial statements. The amount, which is being
disputed by ANC management, has been accrued as of June 30, 1995.
Kendel Corp. vs. ANC - The suit is discussed in detail in Note 2, "Fall Creek
Inn". The suit is pending.
Lantern Bay, Inc. and Richmond Heights vs. ANC - The suit is discussed in detail
in Note 2, "Palace View". The Lantern Bay portion was settled in fiscal 1998
for $15,000 and properly accrued as of June 30. 1997.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Records Retrieval vs. ANC - The suit is discussed in detail in Note 15, "Long
Distance Service Agreements." The suit was settled in fiscal 1998 for
approximately $42,000 and properly accrued as of June 30, 1997.
Hartzog Conger Cason vs. ANC - The suit is discussed in detail in Note 8,
"Settlement of Notes and Interest". Certain of the note holders have received
judgment and others are pending.
LONG DISTANCE SERVICE AGREEMENTS
On September 20, 1995 ANC entered into a Lightswitch Services Agreement with
Electric Lightwave, Inc. ("ELI") whereby ELI agreed to provide switched services
to ANC. The term of the agreement was for one year with continuation on a
month-to-month basis thereafter. During the six-month "ramp-up" period, ANC was
billed for actual usage. After the ramp-up period they were billed the greater
of the minimum usage (50,000 per month) or actual minutes of use. Additionally,
a surcharge of $.01 was to be charged if the minimum commitment was not met.
In March 1996 ANC entered into an Agreement with Vancouver Telephone Company
("VTC") whereby ANC provided long-distance services to VTC through its carrier,
ELI. Through June 30, 1996 VTC had paid approximately $6,000 to ANC under the
agreement and an additional $14,000 through November 1996. The fiscal 1996
revenue was greater than 10% of the revenues of ANC.
LEASES
The Company has entered into lease obligations for office space for its
corporate headquarters in Scottsdale, Arizona and its support center in Salt
Lake City, Utah. The Scottsdale agreement, dated April 1, 1997 expired on March
31, 1998 and has been extended for six months. The Utah agreement dated January
1996 expired on March 31, 1997. Under terms of the agreements ANC pays monthly
rents totaled approximately $2,000. The Company paid rents of $18,000 and
$23,000 during the 1996 and 1997 fiscal years respectively.
As discussed above under the caption "Barter transactions", the Company entered
into agreements to lease a hotel and other rental properties. The leases, which
were for periods from two to five years, contained provisions to apply the lease
payments to the purchase of the properties. The Company resulting in forfeiture
of its property interests subsequently terminated these transactions. These
terminations resulted in litigation with the lessors that are further discussed
under the caption "Barter Trades". Under these leases, rents totaling $65,000
in 1996 and $161,000 in 1997 were paid prior to the forfeitures. Additionally,
$15,000 was paid subsequent to 1997 for settlement of a default claim.
THE ANAHEIM SPLASH
As previously disclosed, ANC owned the Anaheim Splash for a brief period of time
in fiscal 1996. ANC management entered into certain agreements in connection
with this ownership. On February 16, 1996,
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ANC management entered into an agreement to acquire the franchise from the
Continental Indoor Soccer League (the "CISL") which required, among other
things, the placement of $400,000 worth of ANC common stock as a security
deposit and $10,000 as an advance payment against the player compensation
assessment. ANC tendered
400,000 shares of ANC common stock as payment for the security deposit.
However, since the market price of the stock was less than the deposit
requirement, the CISL has requested, through counsel, that additional shares be
surrendered to them. Under terms of the agreement, there is a deferred league
operating assessment of approximately $88,000 and additional player compensation
assessments of $150,000. On March 1, 1996, ANC also entered into a ten-year
lease agreement with the Arrowhead Pond. The lease terms include liquidated
damages of $25,000 in the event of termination.
In approximately April of 1996, ANC assigned its rights under these agreements
to Mr. Gary Sparks. ANC has no written agreement to substantiate this
assignment. CISL counsel verbally confirmed that Mr. Sparks had indeed stepped
into ANC's position and operated the team for approximately one year. CISL
counsel also commented that Mr. Sparks did not assume any obligations that ANC
may have incurred in connection with its ownership or termination of the above
agreements. He also indicated that the CISL may move to liquidate the stock in
settlement of any outstanding obligations. Presently, the CISL has made no
attempts to liquidate the stock and ANC has requested its' stock transfer agent
to place a "stop transfer" notation on its stock register.
An analysis of the current market price of ANC stock indicates that a
liquidation of the stock would most likely yield proceeds sufficient to satisfy
the minimum commitments as specified in the agreements. In the event such
proceeds are insufficient, the CISL could make additional assessment to ANC.
Accordingly, ANC has fully reserved these deposits to reflect the anticipated
loss on abandonment.
Although no litigation has resulted from termination of these agreements, CISL
counsel could provide no assurance that such claim may be made in the future if
the liquidated proceeds are insufficient.
ACTIONS OF THE BOARD
Significant blocks of stock have been issued to officers and their affiliates as
disclosed under the caption "Common Stock Issued". It is not possible to
determine the effect, if any, of bringing current the required 1934 Act filings
and the financial statements and disclosures contained therein, may have on the
actions of current or former shareholders of the Company affected by these
transactions.
EFFECTS OF DELINQUENT FILINGS ON MARKET ACTIVITY
The Company is delinquent in its filings under the 1934 Act. The last filing
was the March 31, 1996 Form 10-QSB which requires substantial revision to its
disclosures and previously reported financial statements contained therein.
Significant trading of ANC stock has occurred by both related and
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
unrelated parties during the period subsequent to its filing. It is not
possible to determine the effect, if any, of bringing current the required 1934
Act filings and the financial statements and disclosures
EFFECTS OF DELINQUENT FILINGS ON MARKET ACTIVITY
contained therein, may have on the actions of current or former shareholders of
the Company affected by these revisions.
EFFECTS OF PRESS RELEASES ON MARKET ACTIVITY
In an attempt to mitigate the effects of not providing current 1934 Act filings,
ANC management has periodically announced certain information that it believed
would be beneficial to shareholders. As a result of these press releases,
market activity may have occurred, including the buying and selling of ANC stock
by both related and unrelated parties. Certain information contained in press
releases, based on information available to management at the time, and
contained information that has been substantially revised through the audit
process. Subsequent releases, containing the corrected information, have not
yet been released to the public. It is not possible to determine the effect, if
any, of bringing the required 1934 Act filings and the financial statements and
disclosures contained therein, may have on the actions of current or former
shareholders of the Company who made investment decisions based on those
releases.
EFFECTS OF DELINQUENT FILINGS ON RULE 144 AND REG. S STOCK ISSUANCES
As discussed more thoroughly under "Capital Transactions", representation
letters have been provided which contain assertions that the Company satisfied
the current public information conditions contained in the 1933 Securities Act.
The Company has been delinquent in its public filings but has attempted to keep
the public informed through press releases while it makes a concerted effort to
become current in its filings. Company Counsel is determining the factual
issues of this matter and is currently unable to determine the materiality of
violations, if any, or their impact on the financial statements of the Company.
INVESTIGATIONS
During 1997, the company was advised that the Securities Division of the Arizona
Corporation Commission had begun an investigation of the Company. The Division
personnel will neither confirm nor deny that an investigation is proceeding.
Such investigations, in the preliminary stages, are kept confidential and are
not necessarily indicators of wrongdoing.
RISK OF COMPETITION AND REGULATION
The Company is operating in an extremely competitive market in which their
customer base is subject to turnover resulting from solicitation by carriers
offering lower rates. Additionally, carriers with higher volumes may be able to
negotiate lower rates for the cost of their service provided which, in turn, can
be
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
passed on through a lower rate structure. Additionally, industry competitors
may have a greater capital base to sustain them through periods of reduced
prices.
RISK OF YEAR 2000 PROBLEMS
The Company and its service provider utilize software that truncates the year to
a two-digit field. Accordingly, when the date passes the year 2000, errors may
occur in the calculation and processing of data significant to the revenue
recognition of the Company. ANC management and the service provider are taking
steps to modify these programs before any such problems are encountered. In the
event they are not successful in their efforts, the revenue stream of the
Company may suffer significant adverse effects.
RISK FROM PHONE-CARD CANCELLATIONS
As previously discussed, ANC management decided to not activate service on
certain phone cards from barter trades. Additionally, they decided to suspend
service on phone cards that had been activated. As a result of a billing
dispute with the carrier, service was suspended for approximately 6 months while
ANC worked to establish service with another carrier. To mitigate the adverse
reaction to cancellation of the cards, ANC management authorized service to all
properly validated cardholders through June 30, 1998 at which time the service
was finally terminated. Management believes that the validated claims of all
cardholders have been satisfied by the above action and asserts that no
additional claims have been made.
11. RELATED PARTY TRANSACTIONS
On June 27, 1995 the ANC Board of Directors, consisting of William P. Williams,
Jr., rescinded the Amended Managers Agreement and the Earn-Out Preferred Share
Agreement as discussed under the note caption "Preferred Stock" and canceled the
3,300,000 shares of Preferred A Series One Preferred Stock issued to the former
officers and directors of ANC. The shares were redesignated and reissued to
Wilcom, Inc. for services rendered related to the reorganization of the Company.
Although the recision was reflected in the previously issued financial
statements for the year ended June 30, 1995, the reissuance of the shares for
services was omitted from those statements. The shares were transacted at $.06
per share, the same prices as other common shares issued for services at
approximately the same date.
Under the agreement, Wilcom was also granted warrants to purchase 440,000 common
shares at $1.00 per share prior to June 28, 1999. The purchase price was
subsequently reduced to $.02 per share through action of the current Board of
Directors and the warrants exercised on October 17, 1995.
As authorized by a previous warrant agreement, Shelton Financial, Inc., a
wholly-owned entity of Company management, purchased 400,000 common shares on
October 26, 1995 at $.02 per share. The
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
11. RELATED PARTY TRANSACTIONS (CONTINUED)
agreement, entered into in 1992, had set the exercise price at $3.00 per share.
The price was subsequently reduced to $.02 per share through action of the
current Board of Directors.
On July 1, 1995 ANC entered into a Management Services and Consulting Agreement
with Wilcom, Inc. who engaged William P. Williams, Jr. to render services to ANC
as Director, Chief Executive Officer and President
for twelve months. The terms of the agreement provided for payment of 2,000,000
shares of ANC common stock and options to purchase another 2,000,000 shares at
100.25% of the closing bid price on July 1, 1995 (1/16th), exercisable through
June 30, 1998. The shares and options delivered under the agreement were to be
free trading shares registered under Form S-8.
On July 16, 1995 the Board approved the issuance of 2,000,000 shares to Wilcom,
Inc. as compensation for 1996 under the above agreement.
On May 13, 1996 the Board approved the issuance of 500,000 shares to Wilcom,
Inc. as compensation for 1997. Since restricted stock was issued, the
transaction price was recorded at $.15 per share (60% of the $.25 market price)
giving effect to the trading restrictions on marketability.
On May 15, 1996 the Board approved the issuance of 750,000 shares to Eva
Williams as compensation for 1996. Since restricted stock was issued, the
transaction price was recorded at $.15 per share (60% of the $.25 market price)
giving effect to the trading restrictions on marketability. The Board
subsequently determined that the stock would be issued as compensation for the
three-year period 1996 - 1998 as compensation for her services for officer.
This resulted in prepaid compensation of $75,000 as of June 30, 1996 and $37,500
as of June 30, 1997.
On July 10, 1997 the Board approved the issuance of 1,000,000 shares at $.34 per
share to Wilcom, Inc. for management services rendered during fiscal 1998.
Additionally, 3,300,000 shares were issued to Wilcom, Inc. in exchange for the
3,300,000 shares of convertible preferred shares that were issued in June 1995,
as discussed above.
FLOW OF FUNDS TO AND FROM WILLIAMS/WILCOM/SHELTON
Eva Williams, the Secretary of the Company, is the sole shareholder of Wilcom,
Inc., the majority shareholder of ANC. William P. Williams, the Company's
President and CEO, is the spouse of Eva and the sole shareholder of Shelton
Financial, Inc., also a shareholder of ANC. Williams, Wilcom and Shelton have
all advanced funds to and received funds from ANC. They have also paid
obligations on behalf of ANC. It is not practicable to segregate the flow of
funds between these three entities and ANC and accordingly they are reported in
the aggregate. The advances to and from this related group and ANC are reported
in the cash flows statement.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
12. CAPITAL TRANSACTIONS
PREFERRED STOCK
As discussed above, the previously authorized, issued and outstanding Preferred
A Series One Preferred Stock issued to former officers and directors was
canceled, reestablished, redesignated and reissued to Wilcom, Inc. as Preferred
A Series One Convertible, Preferred Stock. The stock has the relative rights,
preferences and
limitations as follows:
Dividends - The holders are entitled to dividends declared by the Board and are
entitled to participate with the holders of Common Stock in any dividend
distributions on a prorata basis.
Preferences on Liquidation - The holders are entitled to receive the residual
assets on a prorata basis with the holders of the Common Stock.
Voting Rights - The holders are entitled to one vote for each share of Preferred
Stock.
Conversion Rights - Each share is convertible at any time after the bid price
for the Common Stock has averaged more than $1.00 for thirty consecutive trading
days into one share of Common Stock.
Other Rights - The holders must approve certain expenditures, certain other
preferred issuances, certain asset dispositions and mergers.
COMMON STOCK ISSUED
PROVISIONS OF RULE 144
Rule 144 of the Securities Act of 1933 allows for limited trading of a company's
stock without registration provided that the Company and the shareholder comply
with certain provisions. This is referred to as Rule 144 stock. The Rule
requires that the shares bear a legend notifying the holder of the restriction,
that the stock be held for at least two years if issued to an unrelated party
and at least three years if issued to a related party. After the three-year
period the related party could dispose of limited quantities of the stock
restricted by the reported shares outstanding or the average trading volume of
the shares. To remove the restrictive legend, the issuer is required to satisfy
certain current public information conditions of Rule 144 (c).
The Rule was amended in 1997 to shorten the required holding periods from three
to two and two to one years respectively and now "piggybacks" the calculation
period from the date of first issuance by the Company.
RULE 144 RESTRICTED SHARES FOR CASH
During the years ended June 30, 1996 and 1997 and subsequently ANC sold
restricted shares for cash:
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
12. CAPITAL TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Shares Range Proceeds
--------- ----------- ---------
<S> <C> <C> <C>
FY96 1,165,000 $ .21 - .50 $ 314,625
FY97 272,000 $.25 - 1.00 214,300
</TABLE>
THE FOLLOWING MATERIAL "NON-MONETARY" TRANSACTIONS INVOLVED RULE 144 RESTRICTED
ANC STOCK:
<TABLE>
<CAPTION>
Date Description Shares Each Total
- ------------------ --------------------------------- --------- -----------
<S> <C> <C> <C> <C>
June 3, 1996 . . . Wilcom, Inc. 1997 mgmt fees 500,000 $ .15 $ 75,000
June 17, 1996. . . Eva Williams, 1996 - 1998
Officer compensation 750,000 $ .15 $ 112,500
September 25, 1996 Zion Company, payment on
Ehrenberg property 40,000 $ .50 $ 20,000
February 5, 1997 . John Lee, loan fee 1,000 $1.00 $ 1,000
February 5, 1997 . Don Whittler, loan fee 5,000 $1.00 $ 5,000
March 4, 1997. . . Glenn Crotts, loan fee 30,000 $1.00 $ 30,000
May 8, 1997. . . . H.R. Colvin, loan fee 20,000 $1.00 $ 20,000
May 13, 1997 . . . MRG Enterprises, consulting fee 25,000 $ .75 $ 18,750
May 13, 1997 . . . Zion Company, additional payment
on Ehrenberg property 28,000 $ .75 $ 21,000
August 6, 1997 . . Stephen Roberts, legal fees
per 1996 agreement 60,000 $ .02 $ 1,200
October 29, 1997 . Wilcom, Inc. Preferred stock
Conversion (1995 agreement) 3,300,000 $ .06 $ 198,000
Wilcom, Inc., 1998 mgmt fees 1,000,000 $ .34 $ 340,000
November 20, 1997. Don Whittler, interest on loan 11,246 $ .70 $ 7,872
January 21, 1998 . Global Telecom, for purchase
of long distance accounts 58,000 $ .50 $ 29,000
</TABLE>
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
12. CAPITAL TRANSACTIONS (CONTINUED)
In addition, Wilcom also exchanged some of its shares for payment of ANC
obligations:
<TABLE>
<CAPTION>
Date Description Shares Each Total
- -------------- ------------------------------- ------- ----- -------
<S> <C> <C> <C> <C>
July 16, 1996. Stock issued
for investor services 200,000 $ .30 $60,000
July 16, 1996. Stock issued
for investor services 300,000 $ .30 $90,000
August 7, 1996 Stock issued to Herman Meinders
for interest on note 10,000 $ .50 $ 5,000
</TABLE>
PROVISIONS OF REGULATION S
Regulation S of the Securities Act of 1933 allows issuance of unregistered
shares to foreign investors. Prior to amendment of the regulations in 1997 the
investor was required to hold the shares for at least 40 days before selling the
shares on the US market. The shares were issued with restrictive legend. To
remove the restrictive legend after the 40-day period, the issuer is required to
satisfy certain current public information conditions.
During 1997 the regulation was amended, extending the holding period to conform
to that required by Rule 144 and requiring the issuers to report the issuance of
such shares.
REG. S RESTRICTED SHARES ISSUED FOR CONVERTIBLE DEBENTURES:
During the years ended June 30, 1997 and 1998 ANC issued restricted shares for
convertible debentures:
<TABLE>
<CAPTION>
Shares Range Total
------- ---------- --------
<S> <C> <C> <C>
FY97 181,118 $ .42 $ 76,069
FY98 436,152 .27 - .35 125,278
</TABLE>
CONVERSIONS OF UNRESTRICTED STOCK
During the years ended June 30, 1997 and 1998 various owners of ANC common stock
submitted Forms 144 with respect to the conversion of at least 100,000 and
2,327,000 restricted shares of common stock, respectively. Representation
letters stating, among other things, that the Company satisfied the current
public information conditions contained in Rule 144(c) accompanied the Forms.
ANC has been delinquent in its 1934 Act filings since the March 31, 1996 Form
10-QSB but has provided other contemporaneous information to the market through
its press releases.
The Company has referred factual issues relating to these matters to Counsel for
review and determination. At this time it has not been determined if any, or
how many, or when, such restricted shares may have been sold in reliance upon
Rule 144, or if such sales were made exclusively in reliance
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
12. CAPITAL TRANSACTIONS (CONTINUED)
upon Rule 144. Until those facts are determined Counsel is unable to determine
if the Company or the consequences of such violations committed any violations
of the 1933 Securities Act to any sellers or the Company. Counsel is unable to
assess the materiality of any possible violations or the financial impact of
possible violations on the financial statements of the Company. As soon as a
reasonable assessment of facts is made, should violations be indicated, the
Company intends to make appropriate and necessary action to resolve these
issues.
SALES OF WILCOM UNRESTRICTED SHARES
Wilcom, Inc., the majority shareholder, was issued restricted shares as
discussed above under related party transactions. Wilcom has converted and sold
100,000 and 1,030,000 shares in fiscal 1997 and 1998, respectively, to freely
trading shares which it believes to be within the holding period and other
trading limitations required by Rule 144. These amounts are included in the
disclosure in the preceding paragraph.
SHAREHOLDER DISPUTES
As reported in previously published statements, some individuals have claimed
that they paid for stock they have not received. Management asserts that this
did not result in any litigation and has been resolved to the satisfaction of
the parties.
13. NON-CASH TRANSACTIONS ELIMINATED FROM CASH FLOWS
BARTER TRANSACTIONS ELIMINATED AT JUNE 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Property and equipment. . . . . . $ (7,481)
Valuation account . . . . . . . 4,987
Barter accounts . . . . . . . . . (32,980)
Valuation account . . . . . . . 32,980
Investments - bartered. . . . . . (378,067)
Valuation account . . . . . . . 371,400
Investments - bartered, rescinded (1,389,625)
Valuation account . . . . . . . 313,225
Amortization. . . . . . . . . . 61,000
Account payable - barter. . . . . 1,093,400
Unearned phone card revenue . . . 381,567
------------
Barter transaction total. . . . . $ 450,406
============
</TABLE>
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
13. NON-CASH TRANSACTIONS ELIMINATED FROM CASH FLOWS (CONTINUED)
STOCK TRANSACTIONS ELIMINATED:
<TABLE>
<CAPTION>
<S> <C>
Prepaid consulting paid with stock . . $ (75,000)
Prepaid compensation paid with stock . (75,000)
Anaheim Splash deposit paid with stock (200,000)
Accounts payable paid in stock . . . . 125,000
Investment fees paid with Wilcom stock 25,000
ANC stock issued to Wilcom . . . . . . (8,800)
ANC stock issue to Shelton . . . . . . (8,000)
Common stock issued. . . . . . . . . . 383,050
Compensation paid with stock . . . . . (166,250)
</TABLE>
14. OTHER GAINS AND LOSSES
LOSS ON DISCONTINUED OPERATIONS
As previously discussed, during fiscal 1996, ANC abandoned its investment in the
Anaheim Splash. Prior to the abandonment, ANC received proceeds from ticket
sales totaling approximately $26,000 and incurred expenses paid through cash and
barter of approximately $17,000. The CISL may liquidate the 400,000-share
deposit to meet the obligations incurred by ANC as a result of entering into and
then defaulting on its agreements with the CISL and the Anaheim Pond. Some of
the recorded $200,000 loss on abandonment could, when the amount is determined,
be more properly classified as loss from discontinued operations but would have
no effect on either the loss from continued operations or net loss of the
Company.
As previously discussed, during fiscal 1997, ANC abandoned its investments in
bartered assets, primarily real estate, including an operating motel and other
leased condominium units. Fiscal 1996 operations related to property management
consists of the following components:
<TABLE>
<CAPTION>
<S> <C>
Revenues. . . . . . . . . . . . . . . . . . . . . . $ 83,000
----------
Expenses:
Operating leases. . . . . . . . . . . . . . . . . 65,000
Leasehold amortization. . . . . . . . . . . . . . 61,000
Other operating expenses. . . . . . . . . . . . . 72,000
----------
Total expenses. . . . . . . . . . . . . . . . . . . 198,000
----------
Loss on discontinued property management operations $(115,000)
==========
</TABLE>
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
14. OTHER GAINS AND LOSSES (CONTINUED)
Additionally, ANC sustained fiscal 1996 expenses of approximately $23,000
related to its discontinued barter operations.
LOSS ON ABANDONMENT:
During fiscal 1996, ANC recorded losses on assets held but subsequently
abandoned in fiscal 1997. The losses, discussed more specifically in Note 2,
consist of losses on tangible personal property of approximately $47,000 and
losses on real estate of approximately $64,000. During fiscal 1996 ANC also
recorded a loss on the Anaheim Splash of $200,000.
15. FISCAL 1997 BARTER TRANSACTIONS
BARTER TRADE FOR REAL ESTATE - GRAND CAYMAN LOTS
On May 3, 1996 Caribbean Realty Management, Ltd. agreed to accept 1,800,000
units of domestic long distance phone time for eight undeveloped lots on the
Grand Cayman Island, valued at $270,000 at $.15 per minute. The units were to
be ordered within 24 months of the agreement date and expire 18 months after the
date the units were issued. Since no consideration had been given by ANC until
fiscal 1997 it was recorded as a fiscal 1997 transaction.
ANC issued 1,170,000 minutes of domestic long distance credits during fiscal
1997 prior to discovery that the owner did not have satisfactory title to the
property. As of the date the project was terminated, 630,000 minutes of
committed long distance phone time had not been tendered. ANC sustained a loss
on abandonment of $270,000 during 1997.
BARTER TRADE FOR REAL ESTATE - LANTERN BAY, MISSOURI CONDOMINIUMS
On June 18, 1996 Eddie Hunter agreed to accept 133,332 units of domestic long
distance phone time for three condominiums in Lantern Bay, Missouri, valued at
$215,000 at $.15 per minute plus assumed debt. The financing was to be in the
form of a two-year lease/purchase agreement equivalent to the debt service on
the underlying debt of approximately $195,000. Since no consideration had been
given by ANC until fiscal 1997 it was recorded as a fiscal 1997 transaction.
ANC issued 133,332 minutes during fiscal 1997 prior to abandonment of the
property. During fiscal 1997, ANC returned the property. ANC issued 30,000
additional minutes for settlement of damages asserted by the owner. ANC
sustained a loss on abandonment of $20,000 during 1997.
BARTER TRADE FOR REAL ESTATE - PALACE VIEW CONDOS, MISSOURI CONDOMINIUMS
On June 26, 1996 Lantern Bay Condos, Inc. agreed to accept 440,000 units of
domestic long distance phone time for three condominiums in Palace View Condos,
Missouri, valued at $472,664 at $.15 per minute plus debt assumed. The
financing was to be in the form of a two-year lease/purchase agreement
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
15. FISCAL 1997 BARTER TRANSACTIONS (CONTINUED)
equivalent to the debt service on the underlying debt of $406,664. Since ANC
did not tender consideration until fiscal 1997 it was recorded as a fiscal 1997
transaction.
On June 28, 1996 ANC took possession of the property. ANC issued 440,000
minutes during fiscal 1997 prior to abandonment of the property. During fiscal
1997, the owner repossessed the property and filed suit for breach of contract
and recovery of damages. The suit was dismissed without prejudice and ANC
management subsequently settled the claim for $15,000. ANC sustained a loss on
abandonment of $66,000 during 1997.
BARTER TRADE FOR REAL ESTATE - PALACE VIEW CONDOS, MISSOURI CONDOMINIUMS
On June 26, 1996 Richmond Heights, Inc. agreed to accept 440,000 units of
domestic long distance phone time for three condominiums in Palace View Condos,
Missouri, valued at $430,893 at $.15 per minute plus assumed debt. The
financing was to be in the form of a two-year lease/purchase agreement
equivalent to the debt service on the underlying debt of $364,893. Since ANC
did not tender consideration until fiscal 1997 it was recorded as a fiscal 1997
transaction.
On June 28, 1996 ANC took possession of the property. ANC issued 440,000
minutes during fiscal 1997 prior to abandonment of the property. During fiscal
1997, the owner repossessed the property and filed suit for breach of contract
and recovery of damages. The suit was dismissed without prejudice but has not
been refiled or settled. ANC sustained a loss on abandonment of $66,000 during
1997.
BARTER TRADE FOR REAL ESTATE - KENTUCKY LOTS
On June 14, 1996 Barter Systems, Inc. agreed to accept approximately 158,000
units of domestic long distance phone time for 17 undeveloped lots in Kentucky,
valued at $23,700 at $.15 per minute. The title transfer was to take place when
the units were delivered. Since ANC did not tender consideration until fiscal
1997 it was recorded as a fiscal 1997 transaction
ANC issued approximately 100,000 minutes during fiscal 1997 prior to return of
the property. As of the date the property was returned 58,000 minutes of long
distance phone time remained unissued under the agreement. ANC sustained a loss
on abandonment of approximately $24,000 during 1997.
BARTER TRADE FOR REAL ESTATE - KINGMAN, ARIZONA LOTS
On June 26, 1996 the Equitas Group, Inc. agreed to accept 80,000 units of
domestic long distance phone time for 18 five acre parcels of undeveloped land
near Kingman, Arizona, valued at $12,000 at $.15 per minute. All units were to
be ordered within 18 months of the agreement. Warranty title to the lots was to
be conveyed upon delivery of the units. Since ANC did not tender consideration
until fiscal 1997 it was recorded as a fiscal 1997 transaction
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
15. FISCAL 1997 BARTER TRANSACTIONS (CONTINUED)
ANC issued 80,000 minutes during fiscal 1997 prior to abandonment of the
property. ANC sustained a loss on abandonment of $12,000 during 1997.
BARTER TRADE FOR REAL ESTATE - EHRENBURG, ARIZONA LAND
On June 28, 1996 the Curtis Family Trust agreed to accept 1,250,000 units of
domestic long distance phone time and 40,000 shares of ANC common stock for 20
acres of undeveloped land near Ehrenburg, Arizona, valued at $307,500 at $.15
per minute. The stock was to be freely tradable by October 31, 1996 and ANC was
to furnish additional shares (to bring the aggregate share value up to $120,000)
if the price was less than $3 per share. Since ANC did not tender consideration
until fiscal 1997 it was recorded as a fiscal 1997 transaction.
ANC issued 1,250,000 minutes during fiscal 1997 prior to abandonment of the
property. On September 25, 1996 ANC issued 40,000 restricted shares to the Zion
Company (Curtis Family Trust). It also issued 28,000 additional shares in May
1997 in accordance with the agreement provisions. ANC sustained a loss on
abandonment of $188,500 during 1997, net of $40,000 realized on sale of acreage.
BARTER TRADE FOR ART
On March 15, 1997 Original Masterworks, Inc. agreed to accept 12,222,000 minutes
of prepaid domestic long-distance service for 110 pieces of museum quality art.
No minutes were issued and no art received under the agreement and ANC
management terminated the transaction. According to ANC management, the deal
was abandoned when the appraisal did not support the claimed value of the art.
16. FISCAL 1997 NOTES PAYABLE
On December 20, 1996 ANC entered into an agreement with Don Wittler, whereby Mr.
Wittler would loan $20,000 to ANC. The loan would be made under terms of a
one-year note with interest at 5% per month, payable monthly. Mr. Wittler
received 5,000 shares of ANC common stock for entering into the agreement. The
loan was repaid in its entirety in fiscal 1998.
On December 27, 1996 ANC entered into an agreement with John Lee, whereby Mr.
Lee would loan $10,000 to ANC. The loan would be made under terms of a one-year
note with interest at 5% per month, payable monthly. Mr. Lee received 1,000
shares of ANC common stock for entering into the agreement. The loan was repaid
in its entirety in fiscal 1998.
During January 1997, ANC entered into a verbal agreement a related party,
whereby the party loaned $20,000 to ANC. The loan is for five years with a
balloon payment including interest at 10%.
On February 10, 1997 ANC entered into an agreement with Glenn Crotts, where Mr.
Crotts would advance up to $200,000 to ANC for the sole and only purpose of
purchasing long distance customer accounts. The advances would be made under
terms of a one-year, multiple advance note with interest at
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
16. FISCAL 1997 NOTES PAYABLE (CONTINUED)
10% per annum, payable monthly. The first advance of $50,000 on February 10,
1997 was to purchase accounts from Nortel, Inc. under terms of a contract dated
January 29, 1997. The agreement provides that collections on billings for
Integretel would collect the accounts purchased with the cash flow applied to
interest and principal. Mr. Crotts received 30,000 shares of ANC common stock
for entering into the agreement. Additionally, Wilcom pledged 500,000 shares of
its ANC stock as security for the loan. The maximum amount advanced under the
agreement was $100,000 that was repaid in its entirety in fiscal 1998.
On March 3, 1997 ANC entered into an agreement with H.R. Colvin, whereby Mr.
Colvin would advance up to $100,000 to ANC. The advances would be made under
terms of a one-year, multiple advance note with interest at 12% per annum,
payable monthly. Mr. Colvin received 20,000 shares of ANC common stock for
entering into the agreement. The maximum amount advanced under the agreement
was $25,000 that was repaid in its entirety in fiscal 1998.
DISPUTED LIABILITIES WITH VENDORS
The liabilities to the following vendors are being disputed by ANC as of June
30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Thomas & Quinlan. . . . . $ 93,461
E.A.I. Marketing. . . . . 14,000
On Target Marketing, Inc. 30,282
Records Retrieval, Inc. . 48,138
Electric Lightwave. . . . 175,358
--------
Total disputed claims . . $361,239
========
</TABLE>
17. LONG DISTANCE SERVICE AGREEMENTS
ANC has contracted with the following firms:
On October and November 1996 ANC entered into a marketing agreements with Thomas
& Quinlan ("T&Q"), E.A.I. Marketing ("EAI"), and On Target Marketing ("OTM"),
d.b.a. Jones Boys, where these telemarketers agreed to provide ANC with
telemarketing services.
On January 16, 1997 ANC entered into a Service Agreement with Records Retrieval,
Inc ("RRI") to provide verification services for new accounts acquired by ANC's
telemarketers at the greater of $2.25 each or 65% of the projected daily
minimum. The agreement was for one year, automatically renewable from year to
year unless proper notification is given by ANC to terminate the agreement.
The above vendors accumulated unpaid charges to ANC under these agreements. The
amounts are disclosed above under the caption "disputed claims". ANC disputes
these unpaid charges on the basis that the accounts generated under this
telemarketing campaign resulted in an unacceptably high reject
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
17. LONG DISTANCE SERVICE AGREEMENTS (CONTINUED)
rate. However, on September 30, 1997, Records Retrieval obtained a judgment of
$41,498 against ANC on their portion of the obligation. The judgment bears
interest at 10% per annum and is payable in monthly installments of $3,648.
Settlements with other vendors in this dispute have not yet been reached.
In approximately December 9, 1996, ANC entered into a Sub-Reseller Agreement
with LDC Telecommunications, Inc where LDC would provide telecommunications
services to ANC.
On December 9, 1996 ANC entered into a Billing Services Agreement (One Plus
(1+)) with Integretel Incorporated ("IGT") whereby IGT would provide ANC
telephone company billing and collection and associated services to the
telecommunications industry. The agreement term is for two years, automatically
renewable in two-year increments unless appropriate notice to terminate is given
by either party. Under the agreement, IGT bills, collects and remits the
proceeds to ANC net of reserves for bad debts, billing adjustments, telephone
company fees and IGT fees. If either the transaction volume decreases by 25%
from the preceding month or less than 75% of the traffic is billable to major
telephone companies IGT may at its own discretion increase the reserves and
holdbacks. The accounts receivable balance from IGT on June 30, 1997 of
$167,108 resulted in proceeds of $137,965, net of fees of $10,340 and dilution
(bad debts and billing adjustments) of $18,803.
On December 19, 1996 ANC entered into a Master Agreement for Purchase and Sale
of Accounts with IGT whereby IGT purchases accounts from ANC for a purchase
price consisting of an advance component and a deferred component. The advance
component which is calculated by multiplying the estimated purchase price by the
advance component percentage is payable within ten days of receipt of the
transaction batch pertaining to the purchased accounts. The deferred component
is the differential of the amount actually collected by IGT and the advance
component and is payable when the amount is determined. Except for the right of
IGT to refuse to accept or reject acceptance of accounts and except for the
right of IGT to charge back amounts to ANC under certain circumstances, the sale
of accounts is without recourse and IGT assumes the full credit risk. Certain
chargebacks and fees are recourse obligations of ANC. IGT maintains both
Non-recourse and Recourse accounts comprising the Combined
account for ANC. The maximum purchase obligation of IGT to ANC was set at
$700,000 when the agreement was drafted. This was subsequently increased to
$3,000,000 as of March 31, 1998.
On January 8, 1997 ANC entered into an agreement with the Furst Group, Inc., LDC
and IGT whereby IGT would assign net proceeds from services provided by LDC on
behalf of ANC customers to Furst. Under the agreement, 78% of the net proceeds
were remitted to Furst and 22% to ANC. The agreement was terminated by ANC in
July 1997. During the duration of the agreement ANC assigned a total of
approximately $256,000 of its net proceeds to Furst. Furst has provided no
accounting to ANC of these proceeds to determine if there are any amounts that
are due ANC which would result from proceeds being withheld in excess of the
cost of services provided by LDC and Furst.
On January 9, 1997 ANC entered into a Carrier Transport Switched Services
Agreement with LDC. In accordance with the agreement, ANC granted a security
interest in certain assets of ANC which include all right, title, and interest
in the customer lists, accounts receivable, customer and account contracts, and
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
17. LONG DISTANCE SERVICE AGREEMENTS (CONTINUED)
all rights relating to such contracts serviced by the agreement and all present
and future accounts receivable attributable to such customer accounts including
the proceeds of any sale, transfer or encumbrance thereof and all awards or
payments related thereto. The security interest granted was documented in a
Security Agreement between ANC and LDC on January 9, 1997.
On February 4, 1997 ANC entered into Contract of Sale with Nortel, Inc. whereby
Nortel sold to ANC 125,000 unprovisioned ANI's for $575,000. $50,000 was payable
on February 15, 1997, $150,000 upon verification of long distance carrier
receiving a total of 50,000 ANI's and $375,000 upon verification of long
distance carrier receiving a total of 75,000 ANI's. An addendum signed on the
same day provides for payment of the first $50,000 to be made to Career
Communications Corp. Nortel, Inc. signed a release and assignment to Career
Communications Corp. related to the 125,000 unprovisioned ANI's. ANC
management subsequently terminated this agreement after the quality of the first
ANI's was below ANC standards.
On April 24, 1997 ANC entered into a Reseller Agreement with Total Network
Services, a division of Cable and Wireless. The agreement, which runs for an
initial duration of 24 months, provides for minimum monthly payments for service
of $10,000, $30,000 and $40,000 in the 2nd, 3rd and 4th months
respectively after service initiation and $50,000 thereafter through the term of
the agreement. Through June 30, 1997 and 1998 the actual utilization has
exceeded the minimums.
On June 24, 1997 ANC entered into a Contract of Sale with Global Telecom
International, Inc. to purchase 2,400 shares of GTI plus the traffic base. ANC
tendered 58,000 shares of common stock in January 1998 to consummate this
transaction. On September 11, 1997 the agreement was amended from a price of
$.34 per share to $.50 per share.
On August 1, 1997 ANC entered into a Consultant's Finders Fee Agreement with
Career Communications Corp ("CCC") for its assistance in acquiring Global
Telecom International, Inc. for $75,000 in freely tradable shares of ANC. In
accordance with the agreement, CCC was to be paid $7,500 on execution of the
agreement and $17,500 on September 4, 1997.
Effective August 1, 1997 ANC entered into an agreement with Telesolutions
("TSN") to provide data processing services related to compiling call detail
from carriers and submission of LEC billing data to Integretel. The agreement
is for one year or until either party terminates with 120 days notice.
On November 18, 1997 ANC entered into a service agreement with Accutel, Inc.
whereby Accutel would acquire and provide LEC customers to ANC, which meet
certain criteria as specified in the agreement. ANC would pay Career
Communications for such verified customers a fee for 1,000 ANI's on an as needed
basis.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
18. COMMON STOCK WARRANTS
On November 7, 1996 the Company entered into an agreement with J.R. Younker &
Associates of Nova Scotia to expose the Company to key investment managers and
dealers throughout the world. The agreement entitles Younker and other named
parties to receive non-restrictive warrants for a total of 50,000 shares of ANC
common stock at the average trading price for the last 20 days ($1.05). The
warrants expire on November 7, 2001. Younker also received a commission on
funds invested in the Company as a result of his efforts.
On December 19, 1996 the Company issued additional warrants under the above
agreement with Younker at a price of $1.05 per share, expiring on January 19,
2001.
The Company also entered into an agreement with Mr. Ray Hackney to solicit
investors. The agreement entitled Mr. Hackney to purchase shares and receive a
commission on funds invested in the Company as a result of his efforts.
On July 16, 1997 the Company entered into an agreement with MRG Enterprises,
Inc. to sell 250,000 free trading shares at $.35 and 250,000 warrants at $1.00
for one year. MRG would receive a 6% finder's fee for putting together the
deal. The agreement was mutually terminated due to the Company's inability to
provide current 1934 Act filings and MRG's inability to secure investors.
19. CONVERTIBLE DEBENTURES
In March 1997, the Company marketed $230,000 principal amount convertible
redeemable debentures due March 1, 2000. Interest was 10% per annum on the face
payable monthly in advance and was payable in cash or in stock at the Company's
discretion. The debentures were convertible at any time commencing after 45
days into shares of the Company's common stock at a price equal to the lower of
70% of the closing bid price of the stock immediately preceding closing or 70%
of the closing bid price of the stock immediately preceding the date the Company
received the conversion notice from the debenture holder.
The Company successfully placed the $230,000 debenture with Canadian Advantage
LP, Thomson Kernaghan & Co, Ltd., the general partner. The debenture, dated
April 8, 1997, resulted in the receipt of
$201,500 net funds. The debenture did not provide for issuance at a discount.
The difference between the face amount and the net funds received was for a 12%
($28,500) finders fee paid to Select Capital. In accordance with the conversion
provisions and the provisions of Regulation S of the Securities Act of 1933, the
general partner requested conversion of $75,000 to common stock on May 30, 1997
at $.42 per share, $80,000 on July 7, 1997 at $.28125 per share and $75,000 on
August 7, 1997 at $.2429. The Company honored the May 30 and July 7
conversions' issuing a total of 483,341 shares which included 9,838 shares for
interest totaling $3,047. The Company leaving a remaining debenture balance of
$75,000 plus accrued interest has not yet honored the August 7 conversion.
In April 1997, the Company also attempted to market $1,875,000 principal amount
one year 12% Series A Senior Subordinated Convertible Redeemable Debentures.
The debentures were to be sold at a 20%
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
19. CONVERTIBLE DEBENTURES (CONTINUED)
discount or $1,500,000 if the whole issue was sold. Interest was 12% per annum
on the face payable monthly in advance. Interest was payable in cash or in
stock at the Company's discretion. The first quarter's interest was payable at
the time of closing in the form of common stock under Regulation S at 20% below
the 5-day average bid at the date of the subscription. The debentures were
convertible at any time commencing after 45 days into shares of the Company's
common stock at a price equal to the lower of 80% of the closing bid price of
the stock immediately preceding closing or 80% of the closing bid price of the
stock immediately preceding the date the Company received the conversion notice
from the debenture holder. ANC granted a lien against its assets having a value
of not less than $2,250,000.
Under this offering, a Netherlands entity, De Affiliate B.V., subscribed to
debentures totaling $62,500, for which the Company received net proceeds
totaling $44,000 on May 29, 1997. The proceeds received less than the 80% were
for a finders fee of 12% ($6,000) paid to Select Capital. In accordance with
the conversion provisions and the provisions of Regulation S of the Securities
Act of 1933, the investor requested conversion of $31,250 to common stock on
July 17, 1997 at $.30 per share which was subsequently honored by the Company
resulting in the issuance of 104,167 shares of common stock. The remaining
unconverted debenture balance is $31,250 plus accrued interest.
Also under this offering, a Swiss entity, EBC Zurich AG, subscribed to
debentures totaling $12,500 for which the Company received net proceeds totaling
$8,800 on April 28, 1997. The proceeds received less than the 80% were for a
finders fee of 12% ($1,200) paid to Select Capital. In accordance with the
conversion provisions and the provisions of Regulation S of the Securities Act
of 1933, the investor requested conversion of $12,500 to common stock on June
23, 1997 at $.325 per share which was subsequently honored by the Company
resulting in the issuance of 29,762 shares of common stock. There
is a disputed balance of 5,952 shares that the investor claims is due based on a
disputed differential in the conversion price per share.
The Company entered into an agreement with Select Capital to market the
debentures. The agreement was mutually canceled by Select Capital and the
Company for failure of the Company to provide current filings required by the
1934 Act and failure of Select to obtain sufficient sales of the debentures.
Select was to receive common stock and warrants to purchase common stock in
addition to a fee and expenses based on a percentage of funds received as a
result of their efforts.
20. TREASURY STOCK REPURCHASES
On August 21, 1996 ANC repurchased 66,858 shares of restricted ANC stock from
Wilcom, Inc., the majority shareholder of ANC, for $117,000, or $1.75 per share
which was the market price of free trading stock at that date.
On February 28, 1997 ANC purchased 60,000 shares of restricted ANC stock from
Sherry L Jabour for $32,100 or $.535 per share. ANC was required to repurchase
the shares as part of a settlement,
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
YEARS ENDED JUNE 30, 1997
20. TREASURY STOCK REPURCHASES (CONTINUED)
constituting return of her original $30,000 investment plus 7% interest for one
year. These shares were subsequently sold on April 25, 1997 for $30,000 without
being transferred into ANC's name. Wilcom combined 40,000 shares of its
restricted ANC stock as part of a 100,000-share transfer of restricted shares to
other shareholders. $50,000 was deposited to ANC as payment for those shares by
the respective shareholders and then paid to Wilcom.
On April 21, 1997 ANC purchased 292,000 shares of restricted ANC stock from John
Busby for $128,000, or $.44 per share. Mr. Busby previously purchased the stock
from Wilcom in August and September 1996 for $146,000 or $.50 per share.
On April 21, 1997 ANC purchased 100,000 shares of restricted ANC stock from Jeff
Holmes for $25,000, or $.25 per share. Mr. Holmes previously purchased the
shares from ANC in June 1996 for $25,000.
The above shares purchased from Busby and Holmes (392,000) were canceled on June
22, 1998.
<PAGE>
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this report are forward looking statements that
involve risks and uncertainties. Among the factors that could cause actual
results to differ materially from those described in such forward looking
statements are the following: the Company's ability to manage rapid growth;
litigation; changes in regulations; competition in the long distance
telecommunications market; the Company's ongoing relationship with its long
distance carriers; dependence upon key personnel; subscriber attrition; the
adoption of new, or changes in, accounting policies, practices, and estimates
and the application of such policies, practices, and estimate; federal and state
governmental regulation of the long distance telecommunications industry; the
Company's ability to develop its own long distance network; the Company's
ability to maintain, operate, and upgrade its information systems; and the
Company's success in offering additional communications products and services.
In the fiscal year 1996, the Company began using barter trade as another
avenue to expand business operations. The Company acquired assets through
barter trading, by the use of prepaid long distance phone cards. The Company
utilized its existing telecommunication equipment, and initiated prepaid phone
card long distance service. With the infrastructure in place, ANC negotiated
barter trading prepaid long distance telephone service in exchange for real
estate and equipment.
The objective of these transactions was to increase cash flow by enabling
the company to liquidate these assets at above phone card costs. Management
hoped to accomplish its objective by increasing net equity in the Company
thereby, increasing the Company's viability and diversifying its asset base.
By December 31, 1997, management decided to cease any further barter
trading. Preliminary projections have indicated that these transactions would
increase the Company's liquidity. However, the competition between long
distance service providers decreased the price per minute on prepaid long
distance telephone service. Therefore, ANC had to decrease the price per minute
to be competitive within the industry; thus losing the liquidity of the barter
trading that was originally forecasted by management. Subsequently, the barter
transactions proved to be non-beneficial for both parties.
Barter Trades
In December 1995, ANC began trading long distance phone time for other
assets. The Company has recorded the barter trades at the lower of the
wholesale long distance calling price of $.15 per minuets or estimated net
realizable value of the property received. See financial statement Footnote 2.
Barter Trade Analysis
When it commenced its barter trade program in December 1995, the
Company believed that investment in real estate would increase profitability,
because the Company believed that realizable market values in certain
geographical areas would increase. However, properties, which the Company
bartered for, did not increase, or actually decrease, in value from the prices
at which the Company purchased the real estate. Also, equipment that was barter
traded subsequently became obsolete and ANC was unable to receive a return on
its investment. As a consequence, ANC rescinded all barter trades by year end
June 30, 1997, because ANC believed that the assets market values had decreased
and did not want their barter traders effected by the decrease in market values
to detrimentally effect any of real estate and equipment that was barter traded.
Many of the barter rescissions were mutually agreed upon. After the rescission
of these assets transactions ANC believes any losses sustained on these
transactions were inconsequential, and it introduced ANC into an expanding and
exciting new market sector in its existing telecommunications services.
Results of Operations
Quarter Ended March 31, 1997 compared to Quarter Ended March 31, 1996.
Revenues for the quarter ended March 31, 1997 decreased to $209,642.86 from
$243,273.00 during quarter ended March 31, 1996. Decrease in revenue is from the
change in service providers and implementation of the basic "1 Plus and (800)"
long distance service.
Expenses for the quarter ended March 31, 1997 increased to $137,315.13 from
$85,047.75 during quarter ended March 31, 1996. The increase of operating
expenses was a result of management's dedication to increase marketing and the
customer base for the "1 plus and 800" long distance service.
Operating loss from discontinued operations as of March 31, 1997 were
$9,868.22 resulted from ANC rescinding the barter assets and investments,
primarily real estate, including an operating motel and other leased real
estate. In addition, during quarter March 31, 1997, ANC recorded losses on
assets held but subsequently abandoned of $21,493.69.
<PAGE>
Capital Resources
For the quarter ended March 31, 1997, ANC decreased Cash Flow from
Operations of $(220,010.18) from $(123,484.93) for period ended December 31,
1996. Cash Flows From Investing Activities had no activity. Cash Flow From
Financing Activities increase from $138,245.00 to $210,191.90.
Settlement of Notes and Interest
ANC is delinquent on paying the principal and interest amounts
due under the note terms. The note holders have filed suit against ANC and the
surety company. On April 7, 1998 a judgment was entered against ANC in favor of
Herman Meinders and Marguerite Colton. The respective amounts of the judgments
are $144,529 and $33,876 including interest at 9% per annum.
In December 1998, the claim of Express Services is pending with no
trial date set. However, it is anticipated that judgment will be entered in
favor of Express Services, Inc. for all amounts claimed due and owing. A claim
on the Eason note has yet been asserted but ANC anticipates that at some point
suit will be filed and judgment will be established for all amounts claimed due.
The court determined that interest is payable at the 9% rate specified in the
agreement without penalty. ANC is negotiating the settlement of these notes and
the retirement of other notes, and in fiscal 1997 ANC did not make any debt
service payments.
Year 2000
The Company and its service provider utilize software, which truncates
the year to a two-digit field. Accordingly, when the date passes the year 2000,
errors may occur in the calculation and processing of data significant to the
revenue recognition of the Company. ANC management and its service providers
are taking steps to modify their equipment and software programs before any such
problems are encountered.
The year 2000 issue also affects the Company's internal systems
including the Company's information technology (IT) and non -IT systems. ANC is
assessing the readiness for its systems for handling the year 2000. Although
the assessment is still underway management currently believes that all material
systems will be compliant for the year 2000 and the cost to address the issues
is not material. Nevertheless, ANC is creating contingency plans for certain
internal systems.
New Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earning Per Share"
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock. This statement requires
the presentation of basic earnings per share and diluted earnings per share.
Statement of Financial Accounting Standards No.129, "Disclosure of
Information about Capital Structure" is intended to consolidate existing
disclosure requirements into one publication to make them easier to apply. This
new standard continues the requirement to disclose certain information about an
entity's capital structure, as contained in other authoritative literature. The
adoption of this standard requires no change in the financial statements
disclosures requirements of the Company.
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No 130, "Reporting on
Comprehensive Income" establishes standards for reporting and display of
comprehensive income (all changes in equity during a period except those
resulting from investments by and distributions to owners) and its components in
financial statements. This new standard, which will be effective for the
Company for quarter ended June 30, 1998, is not currently anticipated to have
significant impact on the Company's financial statements based on the current
financial structure and operations of the Company.
Statement of Financial Accounting Standards No.131, "Disclosure about
Segments of the Enterprise and Related Information" establishes standards for
reporting information about operating segments in annual financial statements,
selected information about operating segments in interim financial reports and
disclosures about products and services, geographic area and major customers.
This pronouncement will be required to be implemented in the year ended June 30,
1999 and may result in presenting more detailed information in the notes to the
Company's financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
AMERICAN NORTEL COMMUNICATIONS, INC.
Date: December 18, 1998 By: /S/ W.P. Williams, Jr.
---------------------------
W.P WILLIAMS, JR., Director
Chief Executive Officers
<PAGE>
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