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 September 30, 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:
NOVEMBER 30, 1998
COMMON VOTING STOCK - 15,545,785
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash in Bank. . . . . . . . . . . . . . . . . $ 729,348.46 7,286.33
Prepaid Expenses. . . . . . . . . . . . . . . 322,941.03 48,488.65
Intangible Debt Issue . . . . . . . . . . . . 16,200.00 28,400.00
Accounts Receivable . . . . . . . . . . . . . 1,115,716.24 108,133.31
---------------- ---------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . $ 2,184,205.73 192,308.29
PROPERTY AND EQUIPMENT:
Telecommunications Property . . . . . . . . . 1,650.00 -
Equipment . . . . . . . . . . . . . . . . . . 30,760.18 39,707.20
Computer Equipment. . . . . . . . . . . . . . 31,203.43 -
Furniture and Fixtures. . . . . . . . . . . . 4,660.00 -
LESS: Accumulated Depreciation. . . . . . . . . (14,118.13) (16,939.00)
---------------- ---------------
TOTAL PROPERTY AND EQUIPMENT. . . . . . . . 54,155.48 22,768.20
OTHER ASSETS:
Investment Through Barter . . . . . . . . . . - 47,977.94
Other Assets. . . . . . . . . . . . . . . . . 6,666.94 53,700.50
Due from related party. . . . . . . . . . . . 232,919.69 99,119.69
---------------- ---------------
TOTAL OTHER ASSETS. . . . . . . . . . . . . 239,586.63 200,798.13
---------------- ---------------
TOTAL ASSETS. . . . . . . . . . . . . . . . $ 2,477,947.84 415,874.62
================ ===============
LIABILITIES
CURRENT LIABILITIES:
Trade Accounts Payable. . . . . . . . . . . . 1,051,722.97 331,287.44
Trade Accounts Payable - Other. . . . . . . . 439,327.00 439,327.34
Federal Payroll Taxes Payable . . . . . . . . 6,376.35 39,450.46
Notes Payable . . . . . . . . . . . . . . . . 695,000.00 805,809.33
Accrued Interest Payable. . . . . . . . . . . 396,489.00 342,489.00
---------------- ---------------
TOTAL CURRENT LIABILITIES . . . . . . . . . 2,588,915.32 1,958,363.57
LONG-TERM LIABILITIES:
Converted Debentures. . . . . . . . . . . . . 18,750.00 93,750.00
Unearned Phone Card Revenue . . . . . . . . . - 39,929.30
---------------- ---------------
TOTAL LONG-TERM LIABILITIES . . . . . . . . 18,750.00 133,679.30
---------------- ---------------
TOTAL LIABILITIES . . . . . . . . . . . . . 2,607,665.32 2,092,042.87
STOCKHOLDERS' EQUITY
Preferred Stock . . . . . . . . . . . . . . . - 198,000.00
Common Stock. . . . . . . . . . . . . . . . . 21,920,002.00 21,344,130.00
Treasury Stock. . . . . . . . . . . . . . . . (117,000.00) (270,000.00)
Retained Earnings(Loss) . . . . . . . . . . . (21,932,719.48) (22,948,298.25)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . (129,717.48) (1,676,168.25)
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $ 2,477,947.84 415,874.62
================ ===============
<FN>
See the accompanying notes to these financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENT OF OPERATIONS
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
1ST QUARTER YEAR TO DATE 1ST QUARTER YEAR TO DATE
<S> <C> <C> <C> <C>
INCOME
Airtime Income. . . . . . . . . . . . . $3,105,225.31 3,105,225.31 382,403.92 382,403.92
COST OF SALES . . . . . . . . . . . . . . 2,254,940.12 2,254,940.12 273,951.61 273,951.61
-------------- ------------- ------------- -----------
GROSS PROFIT. . . . . . . . . . . . . . . 850,285.19 850,285.19 108,452.31 108,452.31
SELLING EXPENSES. . . . . . . . . . . . 84,053.75 84,053.75 14,862.49 14,862.49
GENERAL & ADMINISTRATIVE. . . . . . . . 191,945.00 191,945.00 58,152.42 58,152.42
-------------- ------------- ------------- -----------
TOTAL EXPENSES. . . . . . . . . . . . 275,998.75 275,998.75 73,014.91 73,014.91
EARNINGS (LOSS) FROM OPERATIONS . . . 574,286.44 574,286.44 35,437.40 35,437.40
OTHER INCOME (EXPENSE)
Interest Income . . . . . . . . . . . . 657.57 657.57
Interest Expense. . . . . . . . . . . . (13,500.00) (13,500.00) (23,114.35) (23,114.35)
-------------- ------------- ------------- -----------
TOTAL OTHER INCOME. . . . . . . . . . (12,842.43) (12,842.43) (23,114.35) (23,114.35)
NET INCOME (LOSS) . . . . . . . . . . . . $ 561,444.01 561,444.01 12,323.05 12,323.05
============== ============= ============= ===========
EARNINGS PER SHARE:
Basic Earnings Per Share. . . . . . . . . $ 0.04 -
-------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON . . . . 14,070,890 9,218,288
-------------- -------------
SHARES OUTSTANDING
Diluted Earnings Per Share. . . . . . . . $ 0.04 -
-------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON . . . . 14,076,734 - 9,532,901
-------------- ------------
AND COMMON SHARE EQUIVALENTS OUTSTANDING
<FN>
See the accompanying notes to these financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND YEAR END JUNE 30, 1998
(UNAUDITED)
1ST QTR YEAR END 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 561,444.01 466,459
Adjustments to reconcile net income to net cash provided by operating
activities.
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 2,001.13 96,294
Expenses paid with common stock . . . . . . . . . . . . . . . . . . 90,000.00 349,850
Losses on sale of assets. . . . . . . . . . . . . . . . . . . . . . - 5,875
(Increase) decrease in:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . (564,522.24) (496,233)
Unearned phone card revenue . . . . . . . . . . . . . . . . . . . . - (39,929)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . (227,028.03) (17,943)
Increase (decrease) in:
Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . 798,645.97 62,332
Accrued Interest. . . . . . . . . . . . . . . . . . . . . . . . . . 13,500.00 54,000
Accrued Payroll Taxes . . . . . . . . . . . . . . . . . . . . . . . (3,486.65) (34,715)
--------------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES. . . . . . . . 670,554.19 445,990
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment . . . . . . . . . . . . . . . . . (18,828.61) (27,738)
--------------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES. . . . . . . . (18,828.61) (27,738)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on notes payable. . . . . . . . . . . . . . . . . . . . . . . - (155,000)
Loans from control group. . . . . . . . . . . . . . . . . . . . . . . (69,901.12) 48,500
Repayment to control group. . . . . . . . . . . . . . . . . . . . . . - (197,150)
--------------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES. . . . . . . . (69,901.12) (303,650)
--------------- ---------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . . . 581,824.46 114,602
CASH AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . . 147,524.00 32,922
--------------- ---------
CASH AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 729,348.46 147,524
=============== =========
Cash paid during the year for interest. . . . . . . . . . . . . . $ - 19,800
--------------- ---------
<FN>
See the accompanying notes to these financial statements
</TABLE>
<PAGE>
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 September 30, 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 September 30, 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 September 30, 1998 Compared to Quarter Ended September 30, 1997.
Revenues for the quarter ended September 30, 1998 increased to $3,105,225
from $382,404 during quarter ended September 30, 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 September 30, 1998 increased to
$84,053 from $14,862 during quarter ended September 30, 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 to
build a strong customer base.
General and administrative expenses for quarter ended September 30, 1998
increased to $191,945 from $58,152 during quarter ended September 30, 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 September 30, 1998 decreased to
$13,500 from $23,114 during quarter ended September 30, 1997. The decrease in
interest expense was a result of the decease in the amount of debt outstanding.
Net earnings for the quarter ended September 30, 1998 was $561,444 compared
to $12,323 for quarter ended September 30, 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 September 30, 1998 by $224,564. 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 $18,828 for the quarter ended
September 30, 1998. The Company purchased new computer equipment to upgrade and
replace incompatible equipment to adhere to internal requirements for the Year
2000.
Cash flows used for financing activities was $69,901 in the quarter ended
September 30, 1998. This cash outflow was attributable to notes receivables to
control group.
Settlement of Notes and Interest
The Company is delinquent on paying the principal and interest amounts due
from 1993 pre-bankruptcy notes payables. The note holders have filed suit
against ANC and the surety company. On April 7, 1998 a judgment was entered
against the Company 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.
A judgment in favor of Express Services, Inc. for all amounts claimed due
and owing (approximately $200,00) was granted in September 1998. After Fiscal
1998, the Company has made payments on the notes and intends to pay the
remainder from working capital.
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 10.1
Material Contracts:
Integretel Agreement
The agreement dated December 9, 1996 between the registrant and Integretel
has 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. Integretel is
the only provider of this service to the Company and therefore is a material
contract.
<PAGE>
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 14, 1999 by: /S/ W.P. Williams, Jr.
W.P. WILLIAMS, JR., Director
Chief Executive Officer
<PAGE>
BILLING SERVICES AGREEMENT (ONE PLUS (L*))
THIS BILLING SERVICES AGREEMENT-ONE PLUS ("Agreement") is entered into as
of the 9th day of December, 1996 ("Effective Date"), by and between INTEGRETEL,
INCORPORATED ("IGT"), a California corporation and AMERICAN NORTEL
COMMUNICATIONS, INC., ("Customer").
RECITALS
WHEREAS, Customer is the provider of presubscribed 1+ services and
---------------------------
Customer represents and warrants that such services DO NOT Include any
entertainment and/or information value; and
WHEREAS, IGT is engaged in the business of providing telephone company
billing and collection and associated services to the telecommunications
industry; and
WHEREAS, IGT is willing to provide its services to Customer and Customer
desires to obtain such services from IGT upon the terms and conditions stated
herein;
NOW, THEREFORE, the parties hereto, in Consideration of mutual covenants
and agreements contained herein, do hereby agree as follows:
1, DEFINITION. For purposes of this Agreement, the following terms shall
have the meaning set forth below:
(a) "Basic Services" shall mean generally:
(i) the submission of Customer's Billing Transactions to the Telcos; (ii) the
collection of funds from the Telcos with respect to Customer's Billing
Transactions;
(iii} the remittance to Customer of funds to which it is entitled; and
<PAGE>
(iv) the provision of bill inquiry service to End-Users accounts in
response to direct contact from End-Users or through Telco referral as more
specifically described in Exhibit E herein; and
(v) handling of written disputes from End-Users either directly or by
referral to Customer, including but not limited to, disputes directed through
regulatory agencies.
(b) "Billing Contracts" shall mean those billing and collection agreements
-------------------
entered into between IGT and certain telephone companies and/or certain third
parties who contract directly with such telephone companies as identified on
Exhibit A.
(c) "Billing transaction(s)" shall mean the use by End-Users of
-------------------------
Customer's services which give rise to billable transactions submitted by
Customer to IGT for billing and collection.
(d) "Billing Transaction Data" - shall mean the data summarizing or
----------------------------
evidencing Customer's Billing Transactions.
(e) "END-USER(S)" shall mean the users of Customer's Services.
-------------
(f) "IGT Reserve" shall mean any additional reserve amounts that IGT
--------------
reasonably determines is necessary to protect IGT's business exposure rating to
the collection of Customer's Billing Transactions. Such additional reserve
amounts are generally required when the quality or quantity of Billing
Transactions varies measurably from expectation.
(g) "Major Telcos" shall mean U.S. West, Pacific Telesis, Ameritech, Bell
---------------
Atlantic, Nynex, Bell South, Southwestern Bell, GTE or any others as designated
by IGT.
(h) "Recourse" shall mean a post billing adjustment where an End-User
----------
challenges charges, It generally occurs within sixty (60) days of a deposit
cycle but may also be delayed. Recourse is authorized by the Telcos as provided
in the Billing Contracts or by IGT in accordance with the guidelines in Exhibit
E.
(i) "Reserves" shall mean collectively the Telco Holdback and IGT Reserves.
----------
<PAGE>
(j) "Subscriber Inquiry Services" shall mean the bill inquiry services
-------------------------------
which IGT provides to End-Users in response to direct contact from End-Users or
through Telco referrals, as more fully described on Exhibit E attached hereto.
(k) "Taxes" shall mean all federal, state or local sales, use, excise,
gross receipts or other taxes imposed on or with respect to Customer's
Billing Transactions.
(l) "Taxes" shall mean those telephone companies listed on Exhibit A,
-------
attached hereto, as may be amended by IGT from time to time, with which IGT has
entered into Billing Contracts either directly or indirectly through third
parties who contract directly with such telephone companies.
(m) "Telco Holdback" shall mean an amount of offset against Customer's
-----------------
Billing Transactions to cover Customer's reasonable share of the Telco Reserve.
(n) "Telco Holdback Rate"2 shall mean the percentage rate of Customer's
------------------------
Billing Transactions required for the Telco Holdback amount and is based on
either:
(i) The current Telco Reserve Rate which is subject to unilateral change
without notice; or
(ii) IGT's analysis of Telco supplied account write-off detail as
applicable to Customer's specific End-User accounts; or
(iii) An initial start rate of six percent (6%) for those Telcos capable of
providing account write-off detail but for which Customer specific history has
not yet been established.
(o) "Telco Reserve" shall mean an amount withheld by the Telco, in
----------------
anticipation of uncollectables, based on IGT's aggregate customer mix.
(p) "Telco Reserve Rate" shall mean the percentage of gross billings
----------------------
reserved by the Telco and is determined by the Telco based on the results of
Telco True-ups and their internal calculation methodologies.
(q) "Telco True-up" shall mean the process by which a Telco, from time to
---------------
time:
<PAGE>
(i) determines whether Telco Reserve amounts for uncollectible End-User
accounts were in excess or less than the amount of the Telco's actual realized
bad debt ("RBD") for a particular period, and
(ii) collects from or refunds to IGT, as the case may be, any difference
between the reserves held beck by the Telco and the RBD,
(r) "True-up" shall mean the process by which IGT reconciles the Telco
Heldback held from Customer's funds and the RBD as it fairly relates to
Customer's Billing Transactions. Such True-up shall be conducted in accordance
with IGT's internal methodology and shall be based on the time periods and data
supplied to IGT through the Telco True-up process.
(s) "Unbillables"shall mean Billing Transactions designated by a Telco as
-------------
not billable based on their own internal editing process.
(t) "Uncollectibles" shall mean Billing Transactions designated by a Telco
----------------
as not collectible based on their own Internal editing process.
2. IGT SERVICES. IGT, as a limited, agent for Customer, agrees to provide
--------------
the Basic Services to Customer in accordance with the terms and conditions
contained herein. Customer acknowledges and agrees that IGT is not deemed a
trustee or fiduciary in its performance of this Agreement.
3. CUSTOMER SUBMISSION OF BILLING TRANSACTIONS TO lGT.
---------------------------------------------------------
(a) Customer acknowledges and agrees that at least seventy-five percent
(75%) of the submitted Billing Transactions will be billable within one or more
of the Major Telcos.
(b) Customer shall submit to IGT its Billing Transaction Data in the format
set forth on Exhibit B or other mutually agreed upon format. Customer shall
submit such information in a timely manner consistent with the schedule set
forth in Exhibit C.
(c) IGT reserves the right to refuse to accept any and all of Customer
Billing Transactions that are not formatted as set forth above or are not
submitted in a timely manner consistent with Exhibit C.
<PAGE>
4. IGT EDIT.
----------
(a) Upon IGT's receipt of Customer's Billing Transaction Data as set forth
above, IGT shall subject such information to its proprietary edit process. This
edit process will screen the call information for compliance with Telco, legal,
regulatory and other requirements set forth herein before the information is
forwarded to the Telcos. IGT shall have sole discretion to determine whether
Customer's Billing Transaction Data meets IGT's screening criteria. If any of
Customer's Billing Transactions ere found by that edit process to fail to meet
the applicable requirements, IGT shall return such transactions to Customer and
shall not charge Customer any fee with respect to such rejected Billing
Transactions. IGT shall have no further responsibility for any such returned
Billing Transactions.
(b) Any Billing Transactions submitted to IGT which were initiated by
End-User's that reside in an area where IGT has no Billing Contract with the
Telco servicing such area, wilt be edited and returned to Customer. Customer
agrees and acknowledges that IGT may unilaterally amend, from time to time,
Exhibit A hereto by adding or deleting Telcos. IGT shall provide written notice
to Customer of any changes.
5. TELCOSUBMISSION. EDIT.& COLLECTION.
-------------------------------------
(a) In accordance with the schedule set forth in Exhibit C, as updated from
time to time, IGT shall submit to the Telcos those Billing Transactions of
Customer that have passed the screening of IGT's edit process. The applicable
Telco may subject Customer's Billing Transactions submitted to it by IGT to its
own edit process and .thereby refuse to bill certain transactions even though
the transaction passed the IGT edit. After receipt of notice by the Telco that
certain Billing Transactions are Unbillable and have been rejected by the Telcos
edit process, IGT may take steps to correct the problem and resubmit the
Unbillable, or rejected, Billing Transactions to the Telcos if IGT, in its sole
discretion, believes that the Problem can be corrected by reasonable efforts.
Customer agrees to fully cooperate with IGT in making any such necessary
corrections. Transactions rejected and returned to IGT in an electronic format
by the Telco which IGT determines not to resubmit will be returned to
<PAGE>
Customer and IGT shall have no further responsibility for such returned
transactions. Customer shall, however, be charged IGT fees with respect to
Billing Transactions rejected by Telcos.
(b) Subject to terms and conditions set forth herein and in accordance with
the Billing Contracts, IGT shall collect funds from the Telcos with respect to
the Billing Transactions and promptly remit, less deductions and fees.
6. DEDUCTIONNS FROM BIILLING TRANSACTIONS.
------------------------------------------
(a) In addition to any fees payable to IGT pursuant to this Agreement, IGT
shall withhold from sums otherwise owing to Customer for Customer's Billing
Transactions an amount necessary to offset Unbillables, Recourse, Reserves and
any True-Up shortfall (referred to collectively as "Offsets"). In the event such
Offsets are in excess of the funds otherwise due to Customer, IGT shall invoice
Customer for such excess amount and Customer shall pay such amounts within
fifteen (15) days of invoice.
(b) IGT shaIl exercise reasonable efforts to provide supporting detail for
all Offsets in a manner consistent with the detail supplied to IGT from the
Telcos. In the event that supporting detail is of a form that it cannot be
provided to Customer, IGT shall make it available for Customer's review, upon
Customer's written request, at IGT's premises during normal business hours.
(c) In the event a Telco applies a deduction that cannot be supported with
specific detail, IGT shall apply an Offset to Customer based, at IGT's
discretion, either on (i) Customer specific information available for similar
deductions; or
(ii) Customer's proportional share of the total billings for the Telco and
period affected.
(d) Customer acknowledges that while IGT may be responsible to the Telcos
for any shortfalls, Customer is ultimately responsible for such sums once IGT
has paid the Telcos out of the Reserves. IGT shall invoice Customer for any such
shortfall, and Customer shell pay IGT within fifteen (15) days of the date of
the invoice.
<PAGE>
7. TAXES.
------
With respect to Taxes arising from Customer's Billing Transactions
submitted to Telcos by IGT, certain Telcos shall pay such taxes directly to the
appropriate taxing authority. Other Telcos remit such tax funds to IGT with
instructions for payment of the taxes by IGTCustomer and IGT acknowledge that
IGT shall not be responsible for the accuracy of the tax determination by the
Telcos or the failure of the Telcos to properly remit such taxes. IGT shall,
however, exercise reasonable efforts to assist Customer in resolving any dispute
concerning taxes, Additionally, unless calculated by the Telcos, IGT Shall not
be responsible in anyway for any intrastate taxes payable on Billing
Transactions that may be paid outside of such state. The Customer agrees to
indemnify and hold IGT harmless from and against any liability or loss, as to
the Customer's services resulting from any taxes, penalty, interest, additions
to tax, surcharges or other charges or expenses payable or incurred by IGT.
8. SERVLCE FEES AND OTHER DEDUCTIONS.
--------------------------------------
(a) IGT Fees. For Basic Service, IGT shall receive and Customer shall pay,
---------
primarily by means of IGT withholding such sums from its disbursements to
Customer, a fee for each of Customer's Billing Transactions submitted to a
Telco, and a fee for each subsequent inquiry performed with respect to such
Billing Transactions. The IGT fee shall only be assessed once with respect to
any particular Billing Transaction, unless the Billing Transaction [s rejected
by the Telco due to a matter relating to Customer's processing of the Billing
Transactions or Customer's failure to meet legal or regulatory criteria, in
which case IGT shall be entitled to another fee for any such Billing Transaction
resubmitted to the Telcos, IGT's fees shall be as set forth in Exhibit G. IGT
may adjust its fees on sixty (60) days prior written notice to Customer,
provided, however, that said adjustment shall not exceed ten percent (10%) per
year.
(b) Recourse Adjustments. In addition to any Billing Transactions rejected
---------------------
by the Telcos, a Telco or IGT may contemporaneously or subsequently impose a
Recourse
<PAGE>
adjustment to Customer's Billing Transactions by a deduction made to the
settlement amount relating to submitted Billing Transactions of Customer.
Recourse adjustment information available to IGT in a usable electronic format
shall be provided to Customer. Such information will not be supplied to Customer
if not available in electronic format.
(c). "Telco Fees". IGT shall deduct from any sums collected on behalf of
-------------
Customer an amount, as set forth in Exhibit A under the beading "Charge", to
offset the charge for Billing Transactions imposed by Telcos. Such funds shall
be used to pay Telco processing fees and any related costs and charges with
respect to the Billing Transactions. A Telco fee is not deducted for
transactions that are rejected by the Telco or determined to be unbillable by
the Telco. Telco fees subject to change without notice.
(d) Legal Process Expenses.In the event IGT is served with legal process
-------------------------
arising from IGT's service to Customer and IGT is not a party to the action, IGT
may, at its sole discretion, assess Customer for its reasonable time and
expenses incurred in responding to said process. IGT shall invoice Customer, and
Customer shall pay the invoice within thirty (30) days of the date of the
invoice. If Customer fails to pay the invoice in a timely manner, IGT may offset
the amount due.
(e) Interest.IGT reserves the right to charge Customer interest on any
---------
delinquent balance at the lesser of eighteen percent (18%) per year or the
maximum amount permitted by law.
9. REMITTAL OF CUSTOMER FUNDS.The Telcos will remit to IGT funds arising
-----------------------------
from Customer's Billing Transactions submitted to the Telcos. Customer shall be
entitled to such funds subject to the deductions stated in Sections 6, and g.
Weekly, IGT shall transfer to Customer the funds to which Customer is entitled
hereunder, as adjusted, collected the prior calendar week. The transfer of any
such funds in excess of $10,000 may be made by wire transfer. Customer shall be
responsible to provide IGT accurate Written wire transfer instructions.
Remittances under $10,000 may be via check sent by forty eight {48) hour
<PAGE>
delivery service, where available, to Customers address set forth below.
Customer shall be responsible to provide IGT written notice of any change of
such address.
10. REPORTS.
(a) IGT agrees to provide Customer with IGT's standard transaction report
per the delivery schedule sat forth on Exhibit D. Customer may request that IGT
provide additional reports or a different formatted report. To the extent IGT
can comply with such request in a reasonable manner, IGT shall supply such
reports at an additional charge to the Customer, which charge shall be
determined solely by IGT based upon the time end expense IGT shall incur in
generating that report. On a mutually agreed schedule, IGT shall provide
Customer access to the acknowledgments IGT receives from Telcos with respect to
Customer's BilIing Transactions. Customer may request such information more
frequently, but in such instances, such access or copies shall be provided on an
"as available" basis and at an additional cost to the Customer as determined
solely by IGT based upon the time and expenses incurred in complying with such a
request.
(b) Customer acknowledges and understands that the individual Telcos may or
may not provide definitive detail to IGT for Billing Transactions the Telco
deems to be Unbillable, Uncollectable, or Recoursed. Customer hereby
acknowledges and agrees that it shall not hold IGT to a higher standard of
accounting pertaining to detail as provided by the individual Telco. Customer
further acknowledges and agrees that the IGT methodology associated with the
determination of Customer's share of Uncollectibles, Unbillables end Recourse is
reasonable and appropriate given the complexity and detail received from the
individual Telco. Service Fees and Other Deductions, as contained in Section 9
herein, shall be calculated accordingly.
(c) Customer agrees that it is solely responsible for inspecting and
reviewing all reports provided by IGT within thirty (30) days of receipt by
Customer, Customer's failure to report any errors or inconsistencies with
respect to such reports shall constitute acceptance by Customer.
<PAGE>
11. BILLlNG APPEARANCE. When mandated by applicable regulatory authorities,
-------------------
and where it is possible for the applicable Telco to do so, Customer's Billing
Transaction shall appear on such Telco subscriber's bills on IGT's bill page
identified as charges from "___________________" no more than 20 characters,
including spaces).
12. SUBSCRIBER INQUIRIES. The Billing Contracts, in some instances, provide
---------------------
that the Telco will handle certain subscribers billing inquiries with respect to
Billing Transactions submitted by IGT to that Telco. Upon request, IGT shall
provide a description of such arrangement to Customer for any Telco pertinent to
Customer's Billing Transactions, subject to any confidentiality requirement
between IGT and such Telco. Additionally, IGT shall provide subscriber inquiry
services, as described in Exhibit E, based on direct inquiries or referrals from
the Telco. Customer agrees to fully cooperate with the applicable Telco and IGT
with respect to any subscriber inquiries including, without limitation,
providing originating number locations, applicable rate tables, and the name of
an internal contact person to resolve such inquiries.
13. CUSTOMER WARRIENTIES. Customer warrants to IGT that it is, and
---------------------
throughout the Term of this Agreement shall be, in compliance with all
applicable federal, state, and Iocal regulatory requirements applicable to any
Billing Transactions submitted by the Customer to IGT. Specifically, Customer
warrants that it is in compliance with all certification requirements, tariffs,
rate caps, and validation requirement applicable to Customer's Billing
Transactions. Customer agrees to provide written proof of such compliance to IGT
within five (5) days of IGT's request. Customer acknowledges that IGT shall have
the right to immediately suspend any and all obligations and IGT shall have no
liability to Customer hereunder in the event IGT does not receive satisfactory
written proof of such compliance. Customer agrees to advise IGT in writing as
soon as reasonably possible of any instances where it is not in compliance with
such regulatory requirements. Customer agrees to indemnify and hoId IGT harmless
from any and all third party claims that may arise with regard to the Billing
Transactions or the provision of services hereunder.
<PAGE>
14. IGT WARRANTY. IGT warrants that it is in compliance with all applicable
-------------
federal and state regulations with respect to the services to be rendered
'hereunder and it shall maintain such compliance throughout the Term of this
Agreement. This warranty is in lieu of any other warranty, whether express,
implied or statutory.
15. LIMITATION OF LIABILITY.IN NO EVENT WILL IGT BE LIABLE FOR ANY LOSS OF
------------------------
PROFITS, LOSS OF USE, LOSS OF GOODWILL, CONSEQUENTIAL, SPECIAL OR PUNITIVE
DAMAGES REGARDLESS OF THE FORM OF ANY CLAIM, WHETHER IN CONTRACT OR IN TORT OR
WHETHER FROM BREACH OF THIS AGREEMENT, IRRESPECTIVE OF WHETHER IGT HAS BEEN
ADVISED OR SHOULD BE AWARE OF THE POSSIBILITY OF SUCH DAMAGES. CUSTOMER HEREBY
ACKNOWLEDGES AND AGREES THAT IG'PS LIABILITY WITH RESPECT TO THE PERFORMANCE OF
IGT'S SERVICES SHALL BE LIMITED TO THE AMOUNT OF IGT FEES PAID BY CUSTOMER FOR
THE AFFECTED BILLING TRANSACTIONS FOR ANY FAILURE TO PERFORM ITS SERVICES
HEREUNDER. CUSTOMER FURTHER AGREES TO INDEMNIFY AND HOLD IGT HARMLESS FOR ANY
AND ALL CLAIMS THAT MAY ARISE FROM ANY THIRD PARTIES RELATING TO OR RESULTING
FROM THE SERVICES PROVIDED HEREUNDER.
16. ASSIGNMENT OF PROCEEDS.In the event Customer wishes to assign to a
-------------------------
third party any of its rights to any sums owing to it by IGT hereunder, Customer
shall so notify IGT of such assignment by means of, and subject to the terms of
the form attached hereto as Exhibit F, IGT shall have no obligation with respect
to any assignment or payment direction of Customer which does not conform with
Exhibit F. Further, IGT shall have no obligation to enter into any understanding
or agreement with any third party with respect to such assignment.
17. TERM AND TERIMANATION OFTHE AGREEMENT.The term of this Agreement shall
--------------------------------------
be for a period of two (2) years from the Effective Date ("Term") and shall
automatically renew for successive periods of two (2) years unless terminated by
written
<PAGE>
notice from either party at least ninety (90) days prior to scheduled
termination. Additionally, this Agreement may be terminated by either party
effective immediately in the event that the other party:
(a) defaults on any payment obligation hereunder and fails to cure such
payment default within ten (10) business days of written notice of such payment
default to the defaulting party by the non-defaulting party; or
(b) defaults with respect to any other material provision of this Agreement
and fails to cure such default within thirty (30) days of written notice of such
default to the defaulting party by the non-defaulting party.
18. EFFECT OF TERMINATION.
------------------------
(a) Termination of this Agreement shall terminate all the rights and
obligations of the parties hereunder, except that:
(i) neither Customer nor IGT shall be released of its respective
obligations to pay any sums of money due or payable or accrued under this
Agreement;
(ii) confidential information, as defined in Section 21, and any copies
shall be returned to the Disclosing Party within thirty (30) days of termination
of this Agreement and the Receiving Party shall keep such confidential
information confidential for two (2) years from the date of termination and
(iii) in the event the termination is a result of the default or breach by
a party, the other party shall be entitled to pursue any and all rights and
remedies it has to redress such default, breach or inequity.
(b) The parties agree that the termination of this Agreement pursuant to
any provision or section hereof, or for any other reasons, shall not affect or
terminate any obligation or liability incurred or assumed by either party prior
to Effective Date of termination of this Agreement, and the provisions of this
Agreement shall survive its termination with respect to conclusion of any
unresolved matters or payment obligation relating to the services performed
prior to termination.
<PAGE>
(c) Upon notice of termination, in accordance with Section 18, Customer
agrees that IGT may withhold reasonable amounts as Reserves to offset any
service related costs and/or charges that may occur after settlement of
Customer's final submission of Billing Transactions. Within one hundred and
twenty (120) days of the completion of alt True-ups for Customer's final
submission period, IGT shall provide an accounting of the Reserve amount. Any
amount owing from one party to the other as a result of the True-up shall be
paid within fifteen (15) days of IGT's final accounting.
19. VOLUME CHANGES.
----------------
In the event that either (i) after the first six (6) months of the
Agreement, Customer's monthly Billing Transaction volume drops by twenty-five
percent (25%) from the proceeding month for any processing month, or (ii)
Customer's submitted client traffic is less than seventy-five percent (75%)
billable to the Major Telcos for any processing month, than IGT may apply or
increase IGT Reserves based solely on its reasonable analysis of the business
exposure created by such changes in traffic submissions.
20. CONFIDENTIALITY.
----------------
(a) As used in this Agreement, "Confidential Information" of either
Customer or IGT shall mean any written or documentary information relating to
the service or business operations of the party ("Disclosing Party") [hat is
given to the other party ("Receiving Party") pursuant to this Agreement or
otherwise if such information is marked "Confidential", bears a marking of like
import, or is identified by the Disclosing Party as "Confidential" at the time
of transmittal to or receipt by the Receiving Party. Orally disclosed
information shall be considered Confidential Information if it is identified as
such at the time of disclosure by the Disclosing Party and within twenty (20)
days after oral disclosure thereof the Disclosing Party confirms in writing to
the Receiving Party the confidential nature of such information. Confidential
Information shall also include any equipment, hardware or software (including
firmware) made available to a Receiving Party by a Disclosing Party that
<PAGE>
includes or represents a tangible manifestation of a Party's Confidential
Information, whether or not such equipment bears any confidential legend or
marking,
(b) Each party agrees that Confidential Information of the other party
which is disclosed or obtained by it hereunder or otherwise, shall subject to
the terms and conditions of this Agreement, be retained in confidence and shall
be protected to the same extent and in the same manner as Confidential
Information of the Receiving Party.
(c) Information shall not be deemed confidential, and a Receiving Party
shall have no obligation under this provision with respect to any:
(i) Information which now or hereinafter comes into the public domain
without breach of this Agreement;
(ii) Information already in the possession of or known to the Receiving
Party at the time of disclosure as evidenced by prior written documentation
thereof;
(iii) Information rightfully and lawfully received by a Receiving Party of
a third party without breach of this Agreement or any other agreement as
evidenced by existing written documentation thereof;
(iv) Information developed independently or discovered by a Receiving Party
without use of the Disclosing Party's Confidential Information as evidenced by
existing written documentation thereof;
(v) Information approved for release by written authorization of the
Disclosing Party as evidenced by existing written documentation thereof; or
(vi) Information disclosed pursuant to the requirement or request of a
governmental agency or court of competent jurisdiction to the extent such
disclosure is required by a valid law, regulation or court order and sufficient
notice is given by the Receiving Party to the Disclosing Party of any such
requirement or request to permit the Disclosing Party to seek an appropriate
protective order or exemption from such requirement or request.
<PAGE>
(d) AIl information and all tangible forms of information including, but
not limited to documents, drawings, specifications, prototypes, samples and the
like received hereunder by a Receiving Party shall remain the property of the
Disclosing Party. Upon written request by a Disclosing Party, a Receiving Party
shall return to a Disclosing Party all tangible forms of the Disclosing Party's
Confidential Information received by Receiving Party including all copies
thereof.
21. ENTIRE AGREEMENT.This Agreement and accompanying exhibits contain the
------------------
entire understanding of the parties witl3 respect to its subject matter and
supersedes all prior and contemporaneous agreements, representations and
understandings among the parties, whether oral or written, relating to the
subject matter hereof.
22. ATTORNEYS'FEES. In the event of any dispute, claim, arbitration or
---------------
legal proceeding arising out of or relating to this Agreement, the prevailing
party thereto snail be entitled to reimbursement from the other(s) of all
reasonable attorney's fees and costs incurred in connection therewith.
Reimbursement shall be due within thirty (30) days from the date that any
dispute, claim, arbitration or legal proceeding is completed.
23. SEVERABILITY. If any provision of this Agreement is found to be
-------------
invalid by any court, the invalidity of such provision shall not affect the
validity of the remaining provisions hereof.
24. CAPTIONS. The paragraph headings contained in this Agreement are for
---------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
25. NOTICES. All notices and other communications which are required or
-------
may be given hereunder shall be in writing and shall be delivered personally or
sent by mail or facsimile. All notices and other communications shall be deemed
given when actually received by a party. Notice by mail shall be directed to a
partyat its address set forth below or such other address as shall be given in
accordance with this paragraph.
American Nortel Communications, Inc. Integratel, Incorporated
7201 E. Camelback Road Suite 320 5883 Rue Ferrari
Scottsdale, AZ 85251 San Jose, CA 95138
Attn: Attn: General Counsel
---------------------------------- -------------------------------
26. ASSIGNMENTS. Customer may not assign any of its rights or obligations
-----------
hereunder without the prior written consent of IGT. IGT consent shall not be
unreasonably withheld.
27. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
----------------------
to the benefit of each of the parties, their successors and assigns.
28. NO AGENCY. Neither IGT nor Customer is an agent, partner., joint
----------
venturer, fiduciary or legal representative of the other party and neither IGT
nor Customer has authority to act for or incur any obligation on behalf of or in
the name of the other party other than as set forth in this Agreement.
29. AMENDMENTS. Except as Otherwise provided herein, this Agreement may be
----------
amended or modified only by a written instrument executed and delivered by all
of the parties hereto.
30. CHOICE OF LAW ANDVENUE. THE VALIDITY OF THIS AGREEMENT, ITS
----------------------
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED
AND LITIGATED
<PAGE>
EXCLUSIVELY IN AND VENUE SHALL BE PROPER ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA OR, AT THE SOLE OPTION
OF INTEGRETEL, IN ANY OTHER COURT IN WHICH INTEGRETEL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF THE PARTIES HERETO WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO .OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION.
31. THIRD PARTY RIGHTS. The parties do not intend to confer any benefit
--------------------
hereunder on any person or entity other than the parties hereto.
32. FURTHER ASSURANCES. The parties agree to do such further acts and to
-------------------
execute and deliver such additional agreements and documents as the other(s) may
reasonably request to consummate, evidence or confirm the agreements contained
herein and the matter contemplated hereby.
33. FORCE MAJEURE. Neither party shall be deemed in default of this
--------------
Agreement to the extent that any delay or failure in performance of its
obligations results, without its fault or negligence, from any cause beyond its
control, such as acts of God, acts of civil or military authority, government
regulation, embargoes, epidemics, war, terrorist acts, riots, insurrections,
fires, floods, earthquakes, nuclear accidents, strikes, power blackouts,
unusually severe weather conditions, inability to secure products or services of
other persons or transportation facilities, or act of or omission of
transportation common carriers.
34. ANNOUNCEMENTS AND RELEASES. Neither party may use the other party's
----------------------------
name in promotional or marketing advertisements, public announcements or public
disclosures nor shall either party disclose the existence or terms of this
Agreement or its subject matter, without the prior written consent of the other
party.
<PAGE>
35. CORPORATE AUTHORITY. The parties hereto represent and warrant that
--------------------
they have the capacity, power and authority to enter into this Agreement, and
met the individuals signing on behalf of both parties have the authority to
so sign.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date set forth above.
INTEGRETEL, INCORPORATED
By /s/ Timothy Gregon
---------------------------------------
Name Timothy Gregon
---------------------------------------
Title CEO
---------------------------------------
Date 01/07/1997
---------------------------------------
AMERICAN NORTEL COMMUNICATIONS, INC.
By /s/ William P. Williams
---------------------------------------
Name William P. Williams
---------------------------------------
Title CEO
---------------------------------------
Date 12/31/1996
---------------------------------------
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
1998 1997
1ST QUARTER 1ST QUARTER
<S> <C> <C>
BASIC EARNINGS PER SHARE: (NOTE 2)
Common shares outstanding, beginning of period. 13,845,016 8,769,500
Effects of weighting shares:
Weighted common shares issued. . . . . . . . 225,874 448,788
------------ ---------
Weighted average number of common shares. . . . 14,070,890 9,218,288
============ =========
outstanding
Net Income. . . . . . . . . . . . . . . . . . . $ 561,444.01 12,323.05
============ =========
Earnings Per Share. . . . . . . . . . . . . . . $ 0.04 0.00
============ =========
DILUTED EARNINGS PER SHARE: (NOTE 2)
Common shares outstanding, beginning of period. 13,845,016 8,769,500
Effects of weighting shares:
Weighted common shares issued. . . . . . . . 225,874 448,788
10% Convertible Debentures . . . . . . . . . 5,844 314,613
------------ ---------
Weighted average number of common shares and
common equivalent shares outstanding . . . . 14,076,734 9,532,901
============ =========
Net Income. . . . . . . . . . . . . . . . . . . $ 561,444.01 12,323.05
============ =========
Earnings Per Share. . . . . . . . . . . . . . . $ 0.04 0.00
============ =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 729348
<SECURITIES> 0
<RECEIVABLES> 1115716
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2184206
<PP&E> 39997
<DEPRECIATION> 14118
<TOTAL-ASSETS> 2477948
<CURRENT-LIABILITIES> 1893915
<BONDS> 695000
<COMMON> 21920002
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2477948
<SALES> 3105225
<TOTAL-REVENUES> 3105225
<CGS> 2254940
<TOTAL-COSTS> 275999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13500
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 574286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561444
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
