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 December 31, 1998
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 Office)
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 / X / No / /
(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:
DECEMBER 31, 1998
COMMON VOTING STOCK - 15,545,785
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NOTE 1:
- --------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to form 10-QSB. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations, and
cash flows for all periods presented have been made. The results of operations
for the three month period ended December 31, 1998 are not necessarily
indicative of the operating results that may be expect for the entire year ended
June 30, 1999. These financial statements should be read in conjunction with
the Company's June 30, 1998 financial statements and accompanying notes thereto.
NOTE 2:
- --------
Earnings per common share and common equivalent share are computed by
dividing net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. The 10% convertible
debentures are considered to be common stock equivalents. Consequently, the
number of shares issuable, assuming full conversion of these debentures as of
the beginning of the year is added to the number of common shares. A fully
diluted earnings per share is computed assuming conversion of all debentures.
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.
NONE; NOT APPLICABLE.
<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 estimates; 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 quarter ended December 31, 1998, the Company provided long distance
service as a reseller. The Company's focus on long distance service has become
a profitable segment, and continues to provide quality telecommunications
services for its customers. The Company has been able to negotiate a one-rate
for Local Access Transport Areas LATAs, which has been successful and made the
Company competitive in larger target-marketed areas. The Company anticipates
continued profitability in this business segment and growth within its other
telecommunication segments.
Results of Operations
Quarter Ended December 31, 1998 Compared to Quarter Ended December 31, 1997.
Revenues for the quarter ended December 31, 1998 increased to $4,152,602
from $1,173,705 during quarter ended December 31, 1997. The increase in revenue
is from the continued growth of the basic 1 Plus and 800 long distance service.
The Company has purchased new accounts and has increased the Company's customer
base through the use of outside telemarketers, which in turn, has significantly
increased revenues.
Selling expenses for the quarter ended December 31, 1998 increased to
$86,059 from $40,173 during quarter ended December 31, 1997. The increase in
selling expenses was a result of the increase in marketing costs expended by the
Company. The Company was able to negotiate a lower cost per customer throughout
their telemarketing out-source. The Company has increased is telemarketing
campaign to build a strong customer base.
General and administrative expenses for quarter ended December 31, 1998
increased to $234,018 from $197,019 during quarter ended December 31, 1997. The
increase was a result of the higher cost of billing services through the Local
Exchange Carrier (LEC). The amount of the LEC billing charges is principally a
result of the volume of customer calls made through the LEC.
Interest expense for the quarter ended December 31, 1998 decreased to
$13,500 from $31,554.00 during quarter ended December 31, 1997. The decrease in
interest expense was a result of the decease in the amount of debt outstanding.
Net earnings for the quarter ended December 31, 1998 was $895,618.00
Compared to $166,550 for quarter ended December 31, 1997.
<PAGE>
Liquidity
The Company has funded its working capital requirements primarily from cash
provided by operating activities. Cash provided by operating activities
increased for the quarter ended December 31, 1998 by $24,383. The principle
source of revenue is generated from the sales of long distance service to the
Company's customers.
Capital Resources
Cash flows used by investing activities was $9,973 for the quarter ended
December 31, 1998. The Company continues to purchase additional computer
equipment to upgrade and replace incompatible equipment to adhere to internal
requirements for the Year 2000.
Cash flows used for financing activities was $88,950 in the quarter ended
December 31, 1998. This cash outflow was attributable to payment of $43,950
under notes payable to the control group. In addition, the Company has begun to
pay down notes payable to unrelated third party on terms negotiated with note
holders. During the quarter the Company paid $45,000 under note terms. The
total amounts of notes negotiated are approximately $380,000.
Settlement of Notes and Interest
The Company is has been delinquent on paying the principal and interest
amounts due from 1993 pre-bankruptcy notes payables. The Company has negotiated
the balance due with note holders and has begun to make payments to the note
holders by $45,000.
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. The Company's management and Integretel
(IGT) service providers are taking steps to modify their equipment and software
programs.
The Year 2000 issue also affects the Company's internal systems
including the Company's information technology (IT) and non -IT systems. The
Company is assessing the readiness for its systems for handling the Year 2000.
Currently the Company has purchased information systems internally to comply
with the requirements for the Year 2000. Management currently believes that all
material systems will be compliant for the year 2000 and the cost to address the
issues is not material. The Company's service provider IGT has assured the
Company that their information systems are Year 2000 complaint in all material
effects.
ITEM 7. EXHIBITS
The exhibits filed as part of this report are as follows:
Exhibit 11
Computation of Earnings Per Share
Exhibit 27:
Financial Data Schedule
<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: January 26, 1999 By: /S/ W.P. Williams, Jr.
----------------------------
W.P. WILLIAMS, JR., Director
Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 1998
(UNAUDITED)
ASSETS
1998 1997
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash in Bank $ 654,808.72 $ 84,042.66
Prepaid Expenses 757,875.63 255,598.54
Intangible Debt Issue 16,200.00 28,400.00
Accounts Receivable 1,873,816.82 370,930.67
---------------- ----------------
TOTAL CURRENT ASSETS $ 3,302,701.17 738,971.87
PROPERTY AND EQUIPMENT:
Telecommunications Property 1,650.00 1,650.00
Equipment 33,665.77 38,057.20
Computer Equipment 38,271.01 -
Furniture and Fixtures 4,660.00 -
LESS: Accumulated Depreciation (16,119.13) (16,939.00)
---------------- ----------------
TOTAL PROPERTY AND EQUIPMENT 62,127.65 22,768.20
OTHER ASSETS:
Investment Through Barter - 47,977.94
Other Assets 6,666.94 50,372.90
Due from related party 276,869.68 80,169.69
---------------- ----------------
TOTAL OTHER ASSETS 283,536.62 178,520.53
---------------- ----------------
TOTAL ASSETS $ 3,648,365.44 940,260.60
================ ================
LIABILITIES
CURRENT LIABILITIES:
Trade Accounts Payable 1,349,146.21 400,640.84
Trade Accounts Payable - Other 439,327.00 439,327.00
Federal Payroll Taxes Payable 13,210.61 16,627.12
Notes Payable 650,000.00 763,743.33
Accrued Interest Payable 409,989.00 355,989.00
---------------- ----------------
TOTAL CURRENT LIABILITIES 2,861,672.82 1,976,327.29
LONG-TERM LIABILITIES:
Converted Debentures 18,750.00 93,750.00
Unearned Phone Card Revenue - 31,929.30
---------------- ----------------
TOTAL LONG-TERM LIABILITIES 18,750.00 125,679.30
---------------- ----------------
TOTAL LIABILITIES 2,880,422.82 2,102,006.59
STOCKHOLDERS' EQUITY
Common Stock 22,073,002.00 21,890,002.00
Treasury Stock (270,000.00) (270,000.00)
Retained Earnings(Loss) (21,035,059.38) (22,781,747.99)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 767,942.62 (1,161,745.99)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,648,365.44 940,260.60
================ ================
</TABLE>
See the accompanying notes to these financial statements
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1998 AND YEAR END SEPTEMBER 30, 1998
(UNAUDITED)
2ND QTR 1ST QTR
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 655,616.96 $ 561,444.01
Adjustments to reconcile net income to net cash provided by operating
activities.
Depreciation and amortization 2,001.00 2,001.13
Expenses paid with common stock - 90,000.00
(Increase) decrease in:
Trade accounts receivable (1,086,196.60) (564,522.24)
Prepaid expenses (432,851.22) (227,028.03)
Increase (decrease) in:
Trade accounts payable 865,479.02 798,645.97
Accrued Interest 13,500.00 13,500.00
Accrued Payroll Taxes 6,834.26 (3,486.65)
--------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 24,383.42 670,554.19
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (9,973.17) (18,828.61)
--------------- -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (9,973.17) (18,828.61)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes payable (45,000.00) -
Loans from control group (43,949.99) (69,901.12)
--------------- -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (88,949.99) (69,901.12)
NET INCREASE (DECREASE) IN CASH (74,539.74) 581,824.46
CASH AT BEGINNING OF PERIOD 729,348.46 147,524.00
--------------- -------------
CASH AT END OF PERIOD $ 654,808.72 $ 729,348.46
=============== =============
</TABLE>
See the accompanying notes to these financial statements
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENT OF OPERATIONS
FOR THE PERIOD ENDING DECEMBER 31, 1998 AND 1997
(UNAUDITED)
FISCAL YEAR 1999 FISCAL YEAR 1998
2ND QUARTER YEAR TO DATE 2ND QUARTER YEAR TO DATE
<S> <C> <C> <C> <C>
INCOME
Airtime Income $4,152,601.58 7,257,826.89 $1,173,705.43 1,556,109.35
COST OF SALES 2,925,684.00 5,180,814.12 723,651.34 997,602.95
-------------- -------------- -------------- -------------
GROSS PROFIT 1,226,727.58 2,077,012.77 450,054.09 558,506.40
SELLING EXPENSES 86,059.12 170,112.87 40,173.32 53,786.31
GENERAL & ADMINISTRATIVE 234,018.43 425,963.43 197,019.00 255,171.42
-------------- -------------- -------------- -------------
TOTAL EXPENSES 320,077.55 596,076.30 237,192.32 308,957.73
EARNINGS (LOSS) FROM OPERATIONS 906,650.03 1,480,936.47 212,861.77 249,548.67
OTHER INCOME (EXPENSE)
Other Income 218.82 218.82 (430.11) (430.11)
Interest Income 2,248.82 2,906.39 (14,327.60) (15,577.10)
Interest Expense (13,500.00) (27,000.00) (31,553.80) (54,668.15)
-------------- -------------- -------------- -------------
TOTAL OTHER INCOME (11,032.36) (23,874.79) (46,311.51) (70,675.36)
-
NET INCOME (LOSS) $ 895,617.67 1,457,061.68 $ 166,550.26 178,873.31
============== ============== ============== =============
EARNINGS PER SHARE:
Basic Earnings Per Share $ 0.06 $ 0.02
-------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON 14,381,606 10,757,316
-------------- --------------
SHARES OUTSTANDING
Diluted Earnings Per Share $ 0.06 $ 0.02
-------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON 14,387,450 11,071,929
-------------- --------------
AND COMMON SHARE EQUIVALENTS OUTSTANDING
</TABLE>
See the accompanying notes to these financial statements
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
1998 1997
2ND QUARTER 2ND QUARTER
<S> <C> <C>
BASIC EARNINGS PER SHARE: (NOTE 2)
Common shares outstanding, beginning of period 15,153,785 9,867,770
Effects of weighting shares:
Weighted common shares issued (772,179) 889,546
------------- ----------
Weighted average number of common shares 14,381,606 10,757,316
============= ==========
outstanding
Net Income $ 895,617.67 166,550.26
============= ==========
Earnings Per Share $ 0.06 0.02
============= ==========
DILUTED EARNINGS PER SHARE: (NOTE 2)
Common shares outstanding, beginning of period 15,153,785 9,867,770
Effects of weighting shares:
Weighted common shares issued (772,179) 889,546
10% Convertible Debentures 5,844 314,613
------------- ----------
Weighted average number of common shares and
common equivalent shares outstanding 14,387,450 11,071,929
============= ==========
Net Income $ 895,617.67 166,550.26
============= ==========
Earnings Per Share $ 0.06 0.02
============= ==========
</TABLE>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 654809
<SECURITIES> 0
<RECEIVABLES> 1873817
<ALLOWANCES> 0
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<PP&E> 78247
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<BONDS> 650000
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0
0
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<CGS> 2925874
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<INCOME-CONTINUING> 906650
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</TABLE>
