UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the fiscal year ended JUNE 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File Number: 1-13134
AMERICAN NORTEL COMMUNICATIONS, INC.
(Name of small business issuer as specified in its charter)
WYOMING 87-0507851
State of Incorporation IRS Employer Identification Number
7201 EAST CAMELBACK ROAD, SUITE 320, SCOTTSDALE, AZ 85251
(Address of principal executive offices)
Issuer's telephone number: (480) 945-1266
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB
State issuer's revenues for its most recent fiscal year: $ 17,103,286
State the aggregate market value of the voting and non-voting common equity held
by non- affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
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12b-2 of the Exchange Act.)
As of July 31, 1999, there were 7,847,612 common shares outstanding at a
weighted average market price per share of $.72 cents at an aggregated value of
$5,650,281 and total number of votes were 7,847,612.
*The common share price is the average trading price on the NASDAQ OTC.
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<PAGE>
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PART I
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ITEM 1. Description of Business.
ITEM 2. Description of Property.
ITEM 3. Legal Proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
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PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters.
ITEM 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ITEM 7. Financial Statements and Supplementary Data.
ITEM 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclos-ures.
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PART III
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ITEM 9. Directors and Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
ITEM 10. Executive Compensation.
ITEM 11. Security Ownership of Owners and Management.
ITEM 12. Certain Relationships and Related Transactions.
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PART IV
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ITEM 13. Exhibits, Financial Statement Schedules, and Reports.
<PAGE>
PART I
ITEM 1.
DESCRIPTION OF BUSINESS
Overview
American Nortel Communications, Inc. ("ANC" or "Company") is a reseller of
1-Plus and 1-800 long-distance telecommunications services. ANC resells to
customers long distance telephone time that it purchases or leases from other
long distance carriers. The Company's volume of sales grew substantially in the
fiscal year ended June 30, 1999 ("Fiscal 1999") and the Company had gross
revenues of $17,103,286 during Fiscal 1999 as compared to gross revenues of
$4,646,222 during the prior Fiscal year.
ANC resells long distance telephone services to both small business and
residential customers. As a reseller it purchases or leases long distance time
from other carriers and resells that time to its customers. ANC is charged for
the time it uses beyond certain minimum requirements and in turn charges its
customers a certain amount per minute. To a large extent, ANC's profits are
dependent upon the spread between its cost per minute and the amount it charges
its customers. ANC out-sources its sales and marketing to telemarketers and it
pays those telemarketers a certain amount for each new customer obtained. The
Company does not direct-bill its customers, but rather utilizes the Local
Exchange Carriers (LEC) which provide local area telephone service to the
Company long-distance customers, for billing and collections. LECs receive a
fee based upon a certain percentage of amount collected. Management believes
that the practice of billing through LECs has substantial advantages since it
increases the likelihood and promptness of collections.
ANC's method of operations has certain advantages and disadvantages. Because it
purchases long-distance services from others and uses third parties for sales
and marketing, ANC has low capital requirements, equipment costs, rent and
salaries. On the other hand, ANC is dependent upon others whom it does not
control to provide essential services to ANC and its ability to contract for
such services at competitive rates. With regard to its cost of obtaining long
distance time, there is presently a surplus of lines and capacity held by
carriers who sell long distance usage time to ANC on a bulk basis, and ANC
believes that such surplus will continue in the foreseeable future.
ANC's revenues have increase from the sale of long distance internationally.
The Company has been successful in promoting and selling long distance services
at a competitive rate for international calling. ANC's customer base has
increased for long distance calls to Russia and Asian Countries. The company
generates a percentage of its revenues from international calling.
<PAGE>
Competition
The long distance telephone industry is intensely competitive. There are many
large and small competitors in the industry, many of which share the same target
market as ANC. Many of the Company's competitors have much larger resources,
and are more established and have a larger customer base than ANC. There are
also a large number of resellers, many of who operate in a manner similar to
ANC. Competition among resellers and other providers of long-distance services
generally is conducted on the basis of price. Prices have been decreasing over
the last several years, sometimes dramatically, for a variety of communication
services. Customers have become more sophisticated and price conscious. They
are likely to switch services when new competitor communication packages become
available, and switching from one service provider to another typically has few,
if any, cost implications for a customer. ANC constantly obtains new customers
to replace its customer account attrition. Other sources of competition may be
developing because of new offerings by telecommunication providers, such as
cable television industry, Internet telephony, and voice and data communication.
Regulatory Background
The Company and its industry are subject to regulations by the U.S. Federal
Communications Commission.
The existing domestic long distance telecommunications industry was principally
shaped by a 1984 court decree that required the divestiture by AT&T of its 22
Bell operating companies, organized those companies under seven regional Bell
operating companies and divided the country into some 200 Local Access Transport
Areas or LATAs. The incumbent local exchange carriers, which include the seven
regional Bell operating companies as well as independent local exchange
carriers, were given the right to provide local telephone service, local access
service to long distance carriers and long distance service within Local Access
Transport Areas, but the regional Bell operating companies were prohibited from
providing long distance service between Local Access Transport Areas. The right
to provide long distance service was given to AT&T and the other interexchange
carriers. Conversely, interexchange carriers were prohibited from providing
local telephone service.
The Telecommunications Act enacted in 1996 significantly altered the
telecommunications industry. The regional Bell operating carriers are now
permitted to provide long distance service originating (or in the case of "800"
service, terminating) outside the local services areas or offered in conjunction
with other ancillary services, including wireless services. Following
application to the FCC, and upon a finding by the FCC that the regional Bell
operating companies face facilities-based competition and has satisfied a
congressionally-mandated "competitive checklist" of interconnection and access
obligations, a the Bell operating carrier may provide long distance service
within its local service area. Having opened the interexchange market to the
Bell operating companies, the Telecommunications Act also removes all legal
barriers to competitive entry by interexchange and other carriers into the local
telecommunications market and directs Bell operating companies to allow
competing telecommunications service providers, such as the Company, to
interconnect their facilities with the local exchange network, to acquire
network components on an unbundled basis and to resell local telecommunications
services. The practical result of regulatory actions was to give resellers of
long distance services, such as the Company, access to potential customers
directly through the local area exchange network.
<PAGE>
Legislative, judicial and, technology factors have helped to create the
foundation for smaller long distance providers, such as the Company, to emerge
as alternative long distance service. The FCC has required all Interexchange
carriers to allow the resale of their services. In recent years, national and
regional network providers have substantially upgraded the quality and capacity
of their domestic long distance networks, resulting in significant excess
transmission capacity for voice and data communications. The Company believes
that, as a result of digital fiber optic technology and installation of fiber
optic transmission networks, excess capacity has been, and will continue to be,
an important factor in long distance telecommunications. The Company believes
that resellers and the smaller long distance service providers represent a
source of such traffic to carriers with excess capacity. Thus, resellers have
become an integral part of the long distance telecommunications industry.
Industry Evolution
Resellers represent a paradox in the telecommunications marketplace. They
are simultaneously a source of revenues to the major long distance providers and
yet resellers represent a risk to the product quality, reputation and pricing of
the major providers. Not only do long distance service resellers receive legal
protection to compete with the network based major carriers, but also the
resellers' sale of network based carrier excess capacity represents a source of
additional traffic for such carriers. The Company believes that the three major
carriers and most regional carriers have a substantial excess telecommunication
transmission capacity and that the constant technological and facility upgrading
will continue, with resultant excess capacity in the carriers' network for the
foreseeable future.
Resellers exist primarily due to their ability to offer substantially
discounted long distance toll rates, and increasingly, discounted calling card
rates and other discounted services, to their prime target markets, which are
small and medium sized businesses. The main target market for most resellers
consists of business which have long distance bills that are less than $25,000
per month. This customer segment is generally not as profitable as other
markets for wholesale or major carriers to serve and the major carriers have
focused on the larger businesses, generally those who are currently paying more
than $25,000 a month in long distance charges.
Traditionally, many resellers originated as customer base groups or
aggregators of customers, and their operations generally are marked by
relatively low overhead and low capital investment in property, plant &
equipment. Resellers often offer services that larger carriers are not prepared
to offer, such as customized location billing, non-telecom billing services,
international call-back, customized calling cards, multiple carrier service at
single locations with single invoices, and split dedicated service. Although
new entrants face some regulatory barriers, the costs of overcoming these are
low. With low entry barriers, a significant portion of the telecommunications
market is still open to significant competition on a price and service basis.
To date, resellers have been able to quickly build sizable customer bases on
marketing and telemarketing strengths. In many cases, rapid growth has strained
some reseller's ability to manage their growing revenues and their general
business enterprise. Therefore, their ability to attract capital to finance
receivables, improve facilities and equipment, and develop management and
systems infrastructure, will be the difference between resellers that survive as
independent companies and those that are acquired or fail.
<PAGE>
The Company believes that the major carriers and some of the regional carriers
will continue to derive a portion of their revenues from their wholesalers and
resale market. The Company believes that opportunities for future growth of its
business exists in high gross profit product/service area segments, including
prepaid calling cards, international services, cellular and wireless services,
video and data transmission, web-sight and internet-access, 800 number service,
voice mail and electronic mail. Within the resale market as a whole, switchless
resellers, such as the Company, appear to have experienced in recent periods a
higher percentage growth than have facilities-based carriers in all the segments
previously mentioned. However, more switchless resellers will become
facilities-based as they acquire small companies and as their traffic increase
in geographic zones, which will increase their ability to purchase or lease a
switch. More traffic flowing in a given area would enhance a reseller's ability
to make a switch economically viable and more profitable for that geographic
zone. Should this trend continue, there would be substantially fewer resellers
that are switchless in the next five to ten years.
Service and Products
The Company offers a basic 1 plus and 800 long distance services. ANC
success as a provider of these basic services depends significantly on the
volume discounts it has been able to negotiate with its underlying carriers.
The Company charges its customers on the basis of minutes or partial
minutes of usage at rates which vary with the distance, duration, time of day of
the call, and type of call. Rate charges for a call are not affected by the
particular transmission facilities selected for the call transmission, but are
affected by the type of call a user may select. All billing is done through the
local exchange carrier ("LEC"). The Company offers a flat-rate long distance
calling service throughout the United States; these providers' rates usually are
the same per minute rate regardless of the call's origin or destination.
Billing occurs in six-second increments.
Growth Strategy
The Company intends to increase market share in each market it serves
through the acquisition of strategic competitive firms providing value-added
services to the core businesses of the Company. The Company is not presently a
party to any acquisition agreement, nor has the Company completed any such
acquisition. Marketing tactics will be employed to not only conserve resources,
but to increase credibility and visibility in the targeted marketplace.
Strategic planning to be used includes editorial coverage in industry specific
media along with general interest publications.
<PAGE>
The Company plans to promote value-added services or product areas that
will be the focus of the Company's marketing strategy. By providing customized
systems and value-added services, the Company can also provide many of the
regular long distance products that are tied into the system without excessively
discounting the price of the long distance. However, a discount for the long
distance will generally be used to promote the sale of long distance services
along with the value-added products and services. To a large extent, ANC's
profits are dependent upon the spread between its cost per minute and the amount
it charges its customers. Telemarketing is the Company's principal recurring
expense and is its principal sales and marketing expense. ANC out-sources its
marketing efforts to telemarketers and it pays those telemarketers a certain
amount for each new customer obtained.
American Nortel is a Wyoming corporation that was formed in 1979. In
September 1994, American Nortel and its subsidiary Nortel Communications, Inc.,
filed petitions under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court, District of Utah, Central Division (Case Numbers 948-24604 and
948-24605). The proceedings were later converted to Chapter 7 liquidation
proceedings, and dismissed on February 7, 1996. American Nortel sold its Nortel
Communications subsidiary in June 1996 for nominal consideration to an affiliate
of former directors. During the pendancy of the bankruptcy proceedings, in June
1995, a controlling stock interest in the company was sold to Wilcom, Inc.,
which is currently the majority stockholder of the Company. In June 1995, the
Company's operations were dormant. Following dismissal of its bankruptcy
proceeding in February 1996, the Company engaged in several business ventures,
principally the issuance of prepaid long distance phone cards which it bartered
for goods and services, principally real estate properties. These ventures were
not successful, and the Company rescinded the barter transactions in 1997, at
which time it commenced it present business of reselling long distance
telecommunications services.
Additional Information
The Company intends to provide to its stockholder's an annual report
including audited financial statements.
The Company files reports and other materials with the Securities and
Exchange Commission. These documents may be inspected and copied at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.,
20549. You can obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. You can also get copies of
documents that the Company files with the Commission through the Commission's
internet site at www.sec.gov.
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<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's offices are located in Scottsdale, Arizona. The Company
leases 1700 square feet of office space on a month to month basis for
approximately $25,000 annually. The Company is presently reviewing available
office space in the Phoenix, Arizona metropolitan area, and expects to lease new
office space in the near future. The Company had eight employees and
approximately eight full-time equivalent employees at July 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
ANC has been named as defendant in the following:
Hartzog Conger Cason vs. ANC - The suit is discussed in Note 8 of the Financial
Statements. The Company is a defendant in four lawsuits in which the plantiffs
have made claims aggregating approximately $500,000. ANC was delinquent paying
the principal and interest amounts due under the terms of the convertible notes
payable. The note holders 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 were $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 was granted in September 1998. The Court determined that interest is
payable at the 9% rate specified in the agreement without penalty.
A judgement in favor of Southwest Securities, Inc. for all amounts claimed due
and owing was granted in May 1999. The Court determined that interest is
payable at the 9% rate specified in the agreement without penalty.
In 1996, ANC was advised that the Securities Division of the Arizona
Corporation Commission had begun an investigation of ANC. The Securities
Division will neither confirm nor deny that the investigation is on-going, and
the Securities Division advised ANC that any investigation, which would be in
the preliminary stages, would be kept confidential and not necessarily be any
indicator of wrongdoing. ANC has had no further contact on this matter from the
Division since November 3, 1997.
In addition to the foregoing, ANC is a party to legal proceedings and
other various claims and law suits in the normal course of its business which,
in the opinion of management, are not individually or collectively material to
its business or financial condition.
<PAGE>
Long Distance Service Agreements
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. The agreement automatically renewed on December 9, 1998, as
neither party had given notice of terminations prior to that renewal date. 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 Company's 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
under this agreement. IGT is the only provider of this service to the Company.
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
charge backs 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 is $3,000,000. Subsequently, it was
increased to $4,000,000 in June 30, 1999.
On April 24, 1997 ANC entered into a Reseller Agreement with Total Network
Services, a division of Cable and Wireless. The agreement was for an additional
24 months and was renewed (with no stated termination date). It 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, 1999, the Company's actual
utilization has exceeded the minimums. Total Network Services is currently the
only provider of this service to the Company.
On June 24, 1997 ANC entered into a Contract of Sale with Global Telecom
International, Inc. to purchase the GTI 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.
<PAGE>
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 pays a fee for 1000
verified customers generated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted no matters to a vote of its security holders during
the fiscal year ended June 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
ANC common stock is traded in the over-the-counter market, and quoted in
the National Association of Securities Dealers Inter-Dealer Quotation System
("Electronic Bulletin Board") under the symbol "ARTM".
The following table sets forth for the periods indicated the high and low
bid quotations for the Company's Common Stock. These quotations represent
inter-dealer quotations, without adjustment for retail mark-up, markdown or
commission and may not represent actual transactions.
At June 30, 1999, there were 15,163,785 shares of common stock of the
Company outstanding. There were approximately 754 record holders of common
stock on that date.
<TABLE>
<CAPTION>
HIGH BID LOW BID
<S> <C> <C>
FISCAL 1999
Quarter Ended June 30, 1999 .85 .58
Quarter Ended March 31, 1999 1.25 .62
Quarter Ended December 31, 1998 .16 .04
Quarter Ended September 30, 1998 .10 .04
FISCAL 1998 HIGH BID LOW BID
Quarter Ended June 30, 1998 .59 .25
Quarter Ended March 31, 1998 .77 .48
Quarter Ended December 31, 1997 .94 .54
Quarter Ended September 30, 1997 .87 .37
</TABLE>
<PAGE>
The Company has never paid dividends on any of its shares. The Company
does not anticipate paying dividends at any time in the foreseeable future and,
any profits will be used in the Company's business. The terms of debt
instruments do and will limit the payment of dividends on Common Stock. The
Transfer Agent and Registrar for the common stock is American Stock Transfer
located New York, NY.
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 its growth;
litigation; changes in regulations; competition in the long distance
telecommunications market; the Company's ongoing contractual relationship with
its long distance carriers and other service providers; dependence upon key
personnel; changes in rates of customer attrition; the adoption of new, or
changes in, accounting policies or 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.
On April 23, 1999, the Company invested and purchased for the achievement
of investment and acquisition goals 1,000,000 shares of Dauphin Technology, Inc.
(DNTK). The acquisition price was $578,000. Dauphin Technology is a
manufacturer of laptop computers and components.
Results of Operations
Fiscal Year End June 30, 1999 Compared to Fiscal Year End June 30, 1998.
Revenues for Fiscal 1999 increased 73% to $17,103,286 from $4,646,222
during Fiscal 1998. The increase in revenue is principally the result of growth
the basic 1 Plus and 800 long distance service, and an increase in international
long distance calling. The Company has purchased new accounts and has also
increased its customer base through the use of outside telemarketers, which in
turn, has significantly increased revenues. The Company has also increased its
market share in large call volume areas and has concentrated on international
calling which has higher profit margin, and which is not being directly affected
by the intense competition in the U.S. domestic long distance market. During
Fiscal 1999, approximately 62% of revenue related to international calling,
compared to approximately 44% during Fiscal 1998.
<PAGE>
Selling expenses for the Fiscal 1999 increased to $994,863 from $207,716
during Fiscal 1998. The increase was principally the result of expended
telemarketing, which is the Company's primary means of attracting new customers.
The Company has increased its telemarketing campaign to build its customer base.
General and administrative expenses for Fiscal 1999 increased 34% to
$1,221,880 from $801,785 during Fiscal 1998. The increase was principally due
to the Company's commencement of a cash salary for the CEO, who previously was
paid stock for services. The Company also increased its customer service
personal to provide a bi lingual assistance to non-English speaking customers in
connection the Company's international calling programs.
Interest expense for Fiscal 1999 decreased 73% to $28,757 from $107,522
during Fiscal 1998. The decrease in interest expense was a result of lower debt
outstanding.
Income tax benefit for the Company has been recorded as a net deferred tax
asset of $1,050,000 reflecting the benefit of the net operating loss carry
forwards, which expire from 2009 through 2012. Realization depends on
generating sufficient taxable income before expiration of the loss carry
forward. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carry forward
period are reduced.
At June 30, 1999 the Company had net operating loss carry forwards of
$6,449,000. The Company generated income of $3,048,000 for June 30, 1999 and
utilized $3,048,000 of its net operating loss carry forwards to reduce its 1999
income tax expense to zero. This left unused net operating losses of
$3,401,000. Realization of the future tax benefits related to these net
operating loss carry forwards, as a deferred tax asset, is dependent on many
factors, including the Company's ability to generate taxable income within the
net operating loss carry forward period. The Company has considered these
factors in reaching its conclusion as to the valuation allowance for financial
reporting purposes for June 30, 1999. The Company has concluded that the
valuation allowance is no longer needed.
In Fiscal 1999, the Company has extraordinary income of $736,340. The
increase was due to the restructuring of debts the Company renegotiated. The
Company renegotiated an aggregate of $1,077,989 of outstanding debts, including
payment of accrued but unpaid interest.
<PAGE>
Net earnings for fiscal 1999 was $4,097,599, for $.27 per basic shares and
$.27 diluted per share, compared to $466,459, for $.04 per basic shares and $.03
diluted per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements primarily from cash
provided by operating activities; working capital at June 30, 1999 is
$1,182,773; the ending cash balance at June 30, 1999 is $717,851. The Company
is able to sustain its viability from cash generated from operations. Cash
provided by operating activities increased for the Fiscal 1999 by $1,182,773
compared to $445,990 from Fiscal 1998. The principle source of revenue is
generated from the sales of long distance service to the Company's customers.
The Company has payments of $219,000 to reduce debt, and payments are made
quarterly and the term to pay by December 31, 1999. This debt reduction will be
funded from revenues generated from current operations.
Cash flows used by investing activities was $883,291 for the Fiscal 1999
compared to $176,388 for Fiscal 1998. The Company continues to purchase
additional computer equipment to upgrade and replace incompatible equipment to
adhere to internal requirements for the Year 2000. The company has advanced
funds for the purchase of marketable securities of Daulphine Stock for
investment purposes only. The Company cash outflow from advances to control
group of $213,370 in Fiscal 1999 compared to $148,650 in Fiscal 1998.
Cash flows provided for financing activities was $270,845 in Fiscal 1999
compared to $155,000 from Fiscal 1998. The Company had cash inflow from debt
restructuring of $239,000. This debt restructuring was from obligations from
pre-bankruptcy obligations 1992, and was re-negotiated and will be paid in full
by second quarter 2000 as stated in the renegotiated maturity provisions in the
amount of $219,000. The Company had cash inflow from sales of treasury stock
for $50,595. The Company will pay the maturity provisions from the
re-negotiated debt from operating cash flow. This net cash inflow was net of
payments of convertible debentures of $18,750.
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 provider have taken steps to modify and upgrade equipment and
software programs to be prepared for the Year 2000 conversions.
<PAGE>
The Year 2000 issue also affects the Company's internal systems
including the Company's information technology (IT) and non -IT systems.
Currently the Company has purchased information systems internally to comply
with the requirements for the Year 2000. The cost of purchasing these systems
has not been material, and has been expensed as incurred. Management currently
believes that all material internal systems are compliant for the year 2000.
The Company's service provider IGT is compliant with Year 2000 readiness and has
assured the Company that their information systems are Year 2000 compliant in
all material effects. The Company believes that its most significant risk with
respect to Year 2000 issues relates to the performance and readiness status of
the numerous parties through whom long distance calls can be routed. A
reasonable worse case Year 2000 scenario will be the failure of the
telecommunications system that negatively affects the Company's ability, or the
ability of any third party through which long distance calls are routed, to
provide access to the domestic or international telecommunications systems that
the Company's customers need to complete their calls to the desired destination.
The impact of these failures cannot be estimated at this time, and the Company
will be dependent, if such failures occur, on the contingency plans of its third
party providers, because the Company does not have back up systems or other
means of completing customer calls in the event of a worst case scenario.
ITEM 7. FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Nortel Communications, Inc.
Scottsdale, Arizona
We have audited the accompanying balance sheets of American Nortel
Communications, Inc., (the "Company"), as of June 30, 1997 and 1996 and the
related statements of operations, cash flows and stockholders' deficiency for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had counsel been able to render an opinion
regarding certain contingencies disclosed in Note 12, the financial statements
referred to above present fairly, in all material respects, the financial
position of American Nortel Communications, Inc. as of June 30, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Commencing in fiscal 1996, the Company entered into numerous material barter
transactions, described in Note 2, to acquire assets in exchange for
long-distance telephone services. Additional transactions were entered into in
fiscal 1997. During fiscal 1997, Company management rescinded these
transactions. At the time of the recision, a substantial number of minutes
committed were either unissued or unactivated. Additionally, a substantial
number of activated minutes were revoked. The effects of these transactions are
identified on the balance sheet and on the statement of operations as gains and
losses from discontinued operations.
Significant material contingencies exist as of June 30, 1997 and are more fully
described in Note 12. Significant contingencies result from the issuance of
common stock to the Company's management and other third parties, default on
debt obligations and, the Company's delinquency in its public filings.
/s/ LaVoie, Clark, Charvoz & May, P.C.
Tucson, Arizona
June 30, 1998
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
BALANCE SHEETS
As of June 30,
----------------------------
ASSETS 1999 1998
- -------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 717,851 $ 147,524
Trade accounts receivable - Note 3 2,940,854 551,194
Investment in marketable equity securities - Note 6 636,041
Prepaid expenses - Note 4 413,642 95,913
------------- -------------
Total Current Assets 4,708,388 794,631
Deferred Tax Asset - Note 13 1,160,000
Property and Equipment - Note 5 50,943 37,328
Other Assets:
Advances to control group - Note 11 376,390 163,020
Other 6,667 22,867
------------- -------------
TOTAL ASSETS $ 6,302,388 $ 1,017,846
============= =============
LIABILITIES AND STOCKHOLDERS' (EQUITY) DEFICIENCY
- --------------------------------------------------------------
Liabilities:
Current Liabilities:
Accounts payable $ 1,481,137 $ 253,077
Disputed claims - Note 7 410,327 439,327
Accrued payroll taxes 91,449 9,863
Accrued interest - Note 8 40,000 382,989
Income taxes payable 110,000
Notes payable - Note 8 664,000 695,000
------------- -------------
Total Current Liabilities 2,796,913 1,780,256
Unearned Revenue 56,041
Convertible Debentures - Note 9 93,750
-------------
TOTAL LIABILITIES 2,852,954 1,874,006
Commitments and Contingencies - Note 10
Stockholders' (Equity) Deficiency - Note 12:
Common Stock, no par value; 50,000,000 shares authorized;
15,230,643 and 13,911,874 shares issued and 15,163,785 and
13,845,016 shares outstanding for 1999 and 1998, respectively 21,912,402 21,755,002
Additional Paid-In Capital 50,595
Accumulated Deficit (18,396,563) (22,494,162)
Treasury Stock, 66,858 shares at cost (117,000) (117,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) 3,449,434 (856,160)
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 6,302,388 $ 1,017,846
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENTS OF INCOME
Years Ended June 30,
------------------------
199 1998
----------- -----------
<S> <C> <C>
REVENUES:
- ---------------------------------------------------------------
Long-distance telecommunications $17,103,286 $ 4,646,222
Cost of long-distance services 12,546,527 3,057,624
----------- -----------
Gross Profit 4,556,759 1,588,598
EXPENSES:
- ---------------------------------------------------------------
Selling 994,863 207,716
General and administrative 1,221,880 801,785
Interest, net 28,757 107,522
Other 5,116
----------- -----------
2,245,500 1,122,139
----------- -----------
INCOME FROM OPERATIONS 2,311,259 466,459
Income Tax Benefit - Note 13 1,050,000
-----------
Net Income Before Extraordinary Item 3,361,259 466,459
Extraordinary Item - Restructuring of debt, net of tax - Note 8 736,340
-----------
NET INCOME $ 4,097,599 $ 466,459
=========== ===========
BASIC EARNINGS PER SHARE:
Net Income Before Extraordinary item $ 0.22 $ 0.04
=========== ===========
Net Earnings Per Share $ 0.27 $ 0.04
=========== ===========
Weighted Average Shares Outstanding 14,957,000 12,350,000
=========== ===========
DILUTED EARNINGS PER SHARE:
Net Income Before Extraordinary Item - Note 15 $ 0.22 $ 0.03
=========== ===========
Net Earnings Per Share - Note 15 $ 0.27 $ 0.03
=========== ===========
Weighted Average Shares Outstanding - Note 15 14,957,000 13,764,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock Common Stock Additional
----------------------- -------------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Capital Deficit Stock
----------- ---------- ------------ ------------ -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 1, 1997 3,300,000 $ 198,000 9,371,618 $21,218,402 $(22,960,621) $(270,000)
Shares issued for convertible
debentures, net 436,152 123,750
Shares issued for services 60,000 1,200
Shares issued for
management fees 1,000,000 340,000
Shares issued for interest
expense 11,246 9,850
Shares issued for assets 58,000 29,000
Amortization of debt issue
costs (12,200)
Preferred stock converted
to common (3,300,000) (198,000) 3,300,000 198,000
Treasury stock canceled (392,000) (153,000) 153,000
Net income 466,459
----------- ---------- ------------ ------------ -------- ------------- ----------
Balances at June 30, 1998 13,845,016 21,755,002 (22,494,162) (117,000)
Shares issued for convertible
debentures, net 308,769 75,000
Shares issued for services 10,000 5,400
Shares issued for
management fees 1,000,000 50,000
Other 27,000
Treasury stock purchased (16,700)
Treasury stock sold 67,295
Sale of treasury stock
above cost $ 50,595 (50,595)
Net income 4,097,599
----------- ---------- ------------ ------------ -------- ------------- ----------
Balances at June 30, 1999 $15,163,785 $21,912,402 $ 50,595 $(18,396,563) $(117,000)
=========== ========== ============ ============ ======== ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Years Ended June 30,
------------------------------
1999 1998
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
- ------------------------------------------------------
Net income $ 4,097,599 $ 466,459
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 983,807 96,294
Expenses paid with common stock 82,400 349,850
Loss on sale of assets 5,875
Extraordinary item (736,340)
Bad debt expense 134,942
Deferred tax asset (1,160,000)
Changes in assets and liabilities:
Trade accounts receivable (2,524,602) (496,233)
Unearned revenue 56,041 (39,929)
Prepaid expenses (1,281,271) (17,943)
Other assets 16,200
Accounts payable 1,277,504 62,332
Accrued payroll taxes 81,586 (34,715)
Accrued interest 44,907 54,000
Income tax payable 110,000
------------
Net Cash Provided By Operating Activities 1,182,773 445,990
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------------------------
Purchase of property and equipment (33,880) (27,738)
Purchase of marketable equity securities (636,041)
Advances to control group (384,966) 48,500
Repayments from control group 171,596 (197,150)
------------ ----------
Net Cash Used For Investing Activities (883,291) (176,388)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable 600,000
Payments on convertible debentures (18,750)
Payments on notes payable (361,000) (155,000)
Treasury stock sales 67,295
Treasury stock purchases (16,700)
------------
Net Cash Provided By (Used For) Financing Activities 270,845 (155,000)
------------ ----------
Increase in cash 570,327 114,602
Cash at beginning of year 147,524 32,922
------------ ----------
Cash at end of year $ 717,851 $ 147,524
============ ==========
Cash paid during the year for interest $ 11,400 $ 19,800
============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
1. NATURE OF OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
USE OF ESTIMATES AND RECLASSIFICATIONS
NATURE OF OPERATIONS
American Nortel Communications, Inc. (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 as a reseller of 1-Plus and 1-800 long distance
telecommunication services to both small business and residential customers in
all areas of the United States. The Company targets markets that have a high
volume of calls and international calls. The Company purchases or leases long
distance time from other carriers and resells that time to its customers. The
Company does not direct-bill its customers, but rather utilizes the Local
Exchange Carriers (LEC) which provide local area telephone service to the
Company's long distance customers, for billing and collections.
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 passed on through a lower rate structure. Additionally, industry competitors
may have a greater capital base to sustain them through periods of reduced
prices.
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. NorTel-US was sold June 27, 1996 for
nominal consideration to an affiliate of former directors, leaving ANC as the
sole surviving entity.
ANC's common stock was listed for trading on the Vancouver Stock Exchange from
September 18, 1980 until August 14, 1994. ANC's common stock was approved for
listing on the Boston Stock Exchange effective June 22, 1994, but was delisted
on January 20, 1996 for failure to meet maintenance requirements. ANC's common
stock is also traded in the over-the-counter market and is quoted under the
NASDAQ symbol "ARTM".
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company, and the methods of applying
those policies which 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 - Long-Distance Service - Revenue is recorded when service
- ---------------------------------------------
is rendered, which is measured when a long-distance call is completed and is
recorded net of an allowance for certain revenues which the Company estimates
will be refunded, rebated, uncollectable or not billable.
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, which is normally six to
eight months.
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.
Fair Value Of Financial Instruments - The carrying amounts for cash, investments
- -----------------------------------
in marketable securities, trade accounts receivable, advances to control group,
accounts payable, disputed claims, accrued liabilities and notes payable
approximate their fair value due to the short maturity of these instruments.
The fair value of convertible debentures are determined based on the Company's
estimated current rates to enter into similar financial instruments. The
Company has determined that the recorded amounts approximate fair value.
Common Stock Transactions - Transactions in the Company's common stock issued
- ---------------------------
for the acquisition of assets, products or services are accounted for at fair
value. Fair value is determined based on the Company's traded closing price on
the date of the transaction or the fair value of the asset, product or service
received, whichever fair value is more readily determinable.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
Equity Instrument Transactions - The Company has issued warrants for the
- --------------------------------
acquisition of services. These transactions are recorded at fair value. Fair
value is determined by the fair value of the services received, if reliably
measured, or the fair value of the warrants. The fair value of the warrants is
based on the stock price on the earlier of the date of which the performance
commitment of the vendor is reached or the date at which the vendor's
performance is complete.
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 the 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 and
advances, estimated liabilities for litigation settlements and disputed claims,
the valuation allowance for deferred tax assets, and the amortization period for
deferred marketing costs.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements in
order to conform to the 1999 presentation.
2. NON-MONETARY TRANSACTIONS
The Company has entered into transactions where it issued its common stock for
assets, products or services. These transactions are disclosed in Note 12.
3. TRADE ACCOUNTS RECEIVABLE
The Company entered into a customer billing service and master agreement for
purchase and sale of accounts receivable with Integretel. See Note 10
COMMITMENTS AND CONTINGENCIES, Long Distance Service Agreements. Under these
agreements, Integretel has advanced $2,805,069 and $1,188,134 at June 30, 1999
and 1998, respectively, for purchase of accounts without recourse. Because
these advances, in substance, are purchases of receivables under the agreement,
they have been netted against trade accounts receivable. Trade accounts
receivable at June 30, 1999 and 1998 have been reduced by an allowance for
doubtful accounts of $167,000 and $32,000, respectively.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
4. PREPAID EXPENSES
At June 30, 1999 and 1998, prepaid expenses consisted mostly of unamortized
deferred direct response marketing costs.
5. PROPERTY AND EQUIPMENT
Property and equipment, at cost, at June 30 consists of:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Telecommunications equipment $ 1,650 $ 1,650
Other equipment and furniture 81,675 47,795
--------- ---------
83,325 49,445
Less accumulated depreciation (32,382) (12,117)
--------- ---------
$ 50,943 $ 37,328
========= =========
</TABLE>
Depreciation is calculated using the straight-line method over five to seven
year estimated useful lives. Depreciation expense was $20,265 and $7,303 for
the fiscal years ending June 30, 1999 and 1998, repectively.
6. INVESTMENT IN MARKETABLE EQUITY SECURITIES
The Company's investments in marketable equity securities are held for an
indefinite period and thus are classified as available for sale. These
securities consist of stock held in one Company. The investment is recorded at
fair value which approximated cost at June 30, 1999. Therefore, there are no
material unrealized holding gains or losses at June 30, 1999. Subsequent to
June 30, 1999, the market value of this investment had decreased substantially
but management feels that this decline is temporary.
7. DISPUTED CLAIMS
At June 30, 1999 and 1998 the Company had disputes with certain vendors in the
amount of $410,327 and $439,327, respectively. The Company entered into
agreements for various services with these vendors. However, the Company
concluded that the performance of these vendors did not meet the requirements of
the agreements and is withholding payment for these services pending resolution
with these vendors.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
8. NOTES PAYABLE
Convertible Notes Payable - Substantially Restructured
- -----------------------------------------------------------
The following convertible notes were substantially restructured resulting in an
extraordinary gain. See discussion below in this Note.
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
9% convertible secured notes due December 31, 1996 with interest
payable quarterly, convertible into common stock of ANC at
4.00 per share, originally secured by guarantee bond (10% per annum)
purchased from a surety company:
Herman Meinders, an individual $ 45,000 $100,000
Express Services, Inc. 100,000 450,000
Southwest Securities, Inc. 24,000 50,000
Marguerite Colton, an individual 25,000
9% convertible secured notes due December 31, 1998 with interest
payable quarterly, escalating to 18.2% in years 2 through 6,
convertible into 6,000 shares of common stock of ANC at $5.00 per
share, originally secured by guarantee bond (10% per annum)
purchased from a surety company:
Earle F. Waters, Trust 25,000 25,000
Earle F. Waters & Eleanor M. Waters, Trust 25,000 25,000
-------- --------
Total Convertible Notes Payable 219,000 675,000
Other Notes Payable
- ---------------------------------------------------------------------
10% loan payable to a related party under a verbal agreement,
principal and interest due in January 2002 20,000 20,000
12% note payable to an individual, principal and interest due
July 31, 1999, unsecured. 100,000
30% note payable to a company, payable and fully amortizing at
26,000 per week from May 1999 through October 1999. Secured
by a second lien on ANC's trade receivables and a first priority
lien on substantially all of the remainder of ANC's assets. 325,000
--------
$664,000 $695,000
======== ========
</TABLE>
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
Accrued but unpaid interest on the notes totaled $40,000 and $328,989 as of June
30, 1999 and 1998, respectively.
Settlement of Litigation - Convertible Notes Payable and Accrued Interest
- --------------------------------------------------------------------------------
Thereon
- -------
ANC was delinquent paying the principal and interest amounts due under the terms
of the convertible notes payable described above. The note holders 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 were $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 was granted in September 1998. The Court determined that interest is
payable at the 9% rate specified in the agreement without penalty.
A judgement in favor of Southwest Securities, Inc. for all amounts claimed due
and owing was granted in May 1999. The Court determined that interest is
payable at the 9% rate specified in the agreement without penalty.
Extraordinary Item - Restructuring of Debt
Subsequent to the above judgments, the Company entered into agreements with the
note holders, except Earle F. Waters, Trust and Earle F. Waters & Eleanor M.
Waters, Trust, to restructure these notes by substantially modifying the terms
of the notes and accrued interest. The principal amount of the notes was
reduced by $270,000 and $387,896 of accrued interest was reduced for a total
gain from this restructuring of $657,896. Under the terms of this agreement,
the Company is required to pay quarterly installments ranging from $7,500 to
$25,000, not including interest. If the Company defaults on the above
settlements, the original judgements may be enforced.
Also included in the extraordinary item on the income statement is $78,444 of
trade payables and disputed claims also extinguished.
As more fully discussed in Note 13 INCOME TAX BENEFIT AND DEFERRED INCOME TAX
ASSET, the Company had net operating loss carry forwards that had not been given
asset recognition in prior years. This extraordinary gain utilized some of the
net operating loss carry forwards. Thus the tax effect of the extraordinary
gain was offset by the tax effect of recognizing the net operating loss carry
forwards resulting in a net tax effect of zero.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
9. CONVERTIBLE DEBENTURES
The Company issued $230,000 of debentures to Canadian Advantage LP, delivered to
their general partner. These debentures, dated April 8, 1997, resulted in the
receipt of $201,500 net funds. The difference of $28,500 was for a finders fee.
Interest was 10% per annum 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.
In accordance with the conversion provisions, 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. The August 7 conversion was honored by the Company on August 19, 1998
by issuing 308,769 shares totaling $75,000 plus accrued interest.
The Company issued $62,500 of debentures to a Netherlands entity, De Affiliatie
B.V., for which the Company received net proceeds totaling $44,000 on May 29,
1997. The debentures were discounted 20% and a finders fee of $6,000 was paid
netting to $44,000. In accordance with the conversion provisions, the investor
requested conversion of $31,250 to common stock on July 17, 1997 at $.30 per
share which was honored by the Company resulting in the issuance of 104,167
shares of common stock.
The Company issued $12,500 of debentures to a Swiss entity, EBC Zurich AG, for
which the Company received net proceeds totaling $8,800 on April 28, 1997. The
debentures were discounted 20% and a finders fee of $1,200 was paid netting to
the $8,800. In accordance with the conversion provisions, the investor
requested conversion of $12,500 to common stock on June 23, 1997 at $.325 per
share which was 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.
10. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENT
On January 1, 1999 the Board of Directors and the President/CEO entered into an
employment agreement that pays him an annual salary of $500,000.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
LITIGATION
ANC is a defendant in Kendel Corp. vs. ANC. This lawsuit is a claim of breach
of contract. The Company has accrued $40,088 as a disputed claim. Counsel has
determined that an evaluation regarding any additional financial exposure can
not be made at this time because no discovery has been performed.
LONG DISTANCE SERVICE AGREEMENTS
In an attempt to generate new accounts ANC contracted with the following firms:
On October and November 1996, ANC entered into marketing agreements with Thomas
& Quinlan, E.A.I. Marketing, and On Target Marketing, whereby these
telemarketers agreed to provide ANC with telemarketing services.
On January 16, 1997 ANC entered into a service agreement with Records Retrieval,
Inc 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 was given by ANC to terminate the agreement.
The above vendors have not been fully paid by ANC under these agreements. These
amounts are disclosed in Note 7. ANC disputes these amounts on the basis that
the accounts generated under this telemarketing campaign resulted in an
unacceptably high reject rate. However, on September 30, 1997, Records
Retrieval, Inc. obtained a judgment of $41,498 against ANC. The judgment bears
interest at 10% per annum and is payable in monthly installments of $3,648.
Settlements with the other vendors above have not yet been reached.
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. The agreement automatically renewed on December 9, 1998, as neither
party had given notice of termination prior to that renewal date. 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. IGT is the only
provider of this service to the Company.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
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 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 charge backs 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 is $3,000,000. Subsequent to June 30, 1999, the amount
was increased to $4,000,000.
On April 24, 1997 ANC entered into a Reseller Agreement with Total Network
Services, a division of Cable and Wireless. The agreement was for an initial
duration of 24 months and was renewed (with no stated termination date). It
provided 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. For June 30, 1999 and
1998, the actual utilization exceeded the minimum monthly payments. Total
Network Services is currently the only provider of this service to the Company.
On June 24, 1997 ANC entered into a Contract of Sale with Global Telecom
International, Inc. to purchase the GTI traffic base. On September 11, 1997 the
agreement was amended from a price of $.34 per share to $.50 per share.
ANC tendered 58,000 shares of common stock in January 1998 to consummate this
transaction.
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 pays a fee per 1,000
verified customers generated.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
LEASES
The Company entered into lease obligations for office space for its corporate
headquarters in Scottsdale, Arizona. The agreement, dated April 1, 1997 expired
on March 31, 1998 and was extended for six months and now is on a month-to-month
basis. Under terms of the agreement ANC pays monthly rents totaling
approximately $2,000. The Company had rent expense of $24,000 during 1999 and
1998, respectively.
EFFECTS OF DELINQUENT FILINGS ON MARKET ACTIVITY
The Company was delinquent in its filings of its Form 10-KSB for the years ended
June 30, 1998, 1997 and 1996. All were filed by January 1999. Significant
trading of ANC stock had occurred by both related and unrelated parties during
these periods. It is not possible to determine the effect, if any, of the
delinquency of these 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 filings.
ACTIONS OF THE BOARD
Significant blocks of stock have been issued to officers and their affiliates as
disclosed in Note 12. 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 PRESS RELEASES ON MARKET ACTIVITY
Until all the filings noted above were filed, in an attempt to mitigate the
effects of not providing current 1934 Act filings, ANC management had
periodically announced certain information, which 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 financial information contained in
press releases, based on information available to management at the time, has
been substantially revised through the audit process. It is not possible to
determine the effect, if any, the corrected financial information may have on
the actions of those who made investment decisions based on that information.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
EFFECTS OF DELINQUENT FILINGS ON RULE 144 AND REGULATION S STOCK ISSUANCE
As discussed more thoroughly in Note 12, representation letters have been
provided which contain assertions that the Company satisfied the current public
information conditions contained in the 1933 Securities Act. During the time
the Company was delinquent in its public filings, it attempted to keep the
public informed through press releases. Company Counsel is determining the
factual issues of this matter and is currently unable to determine if there are
any material violations of the 1933 Securities Act.
INVESTIGATIONS
During 1997, the Company was advised that the Securities Division of the Arizona
Corporation Commission had begun an investigation of the Company. Such
investigations, in the preliminary stages, are kept confidential and are not
necessarily an indicator of wrong doing.
RISK OF YEAR 2000 PROBLEMS
The Company and its service providers 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 providers are taking
steps to modify these programs before any such problems are encountered. In the
event they are not successful in their efforts, revenues of the Company may
suffer significant adverse effects.
11. RELATED PARTY TRANSACTIONS
On May 15, 1996 the Board approved the issuance of 750,000 shares to the
Secretary of the Company as compensation for her duties as officer of the
Company for the years 1996, 1997 and 1998. 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. This
resulted in compensation expense of $37,500 for the year ending June 30, 1998.
On July 10, 1997 the Board approved the issuance of 1,000,000 shares at $.34 per
share to Wilcom, Inc. (an affiliate through common ownership and the majority
shareholder of ANC) for management services rendered during fiscal 1998. These
shares were issued on October 29, 1997.
On October 29, 1997 the Company issued 3,300,000 shares to Wilcom, Inc. in
exchange for 3,300,000 shares of convertible preferred shares.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
On August 13, 1998 the Board approved the issuance of 1,000,000 shares at $.05
per share to Wilcom, Inc. for management services rendered during fiscal 1999.
(The $.05 per share value is 60% of the market price of $.09, reflecting a
discount for the restricted marketability of the shares).
The Company also paid in cash additional consulting fees to Wilcom, Inc. during
fiscal 1999.
Advances To Control Group
- ----------------------------
The Secretary of the Company is the sole shareholder of Wilcom, Inc., (the
majority shareholder of ANC). The Company's President and CEO is the sole
shareholder of Shelton Financial, Inc., also a shareholder of ANC. The
Secretary and President are related. These officers, Wilcom, and Shelton have
all advanced funds to and received funds from ANC. It is not practicable to
segregate the individual advances and payments between these four related
entities and ANC, and, accordingly they are reported in the aggregate. The
advances bear interest at 8% and are unsecured.
12. CAPITAL TRANSACTIONS
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. The Rule requires that the shares bear a legend
notifying the holder of any restriction. As a condition to remove the
restrictive legend, the issuer is required to satisfy certain current public
information conditions of Rule 144 (c). See Note 10 for a discussion regarding
late filings of this information.
The following material "non-monetary" transactions involved Rule 144 restricted
ANC stock:
<TABLE>
<CAPTION>
Date Description Shares Each Total
- ----------------------------------- --------------------------------- ---------- -------- ------
<S> <C> <C> <C> <C>
October 29, 1997 Wilcom, Inc. - preferred stock
conversion (1996 agreement) 3,300,000 $ .06 $198,000
Wilcom, Inc., 1998 management fees 1,000,000 .34 340,000
January 21, 1998 Global Telecom, for purchase
of long distance accounts 58,000 .50 29,000
August 26, 1998 Wilcom, Inc. 1999 management fees 1,000,000 .05 50,000
</TABLE>
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
COMMON STOCK WARRANTS
On November 7, 1996 the Company entered into an agreement with J.R. Younker &
Associates of Nova Scotia (Younker) to introduce the Company to key investment
managers and dealers throughout the world. The agreement entitled Younker and
other named parties to receive non-restrictive warrants for a total of 50,000
shares of ANC common stock at $1.05 per share. The warrants expire on November
7, 2001. Younker also received a commission on funds invested in the Company as
a result of its 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.
In March of 1999, the Company entered into an agreement with an individual to
assist the Company in the area of financial public relations. The agreement
entitled the individual to receive warrants to purchase 500,000 shares of the
Company's stock at prices ranging from $.65 to $1.25. The warrants expire in
March of 2000.
PROVISIONS OF REGULATION S
Regulation S of the Securities Act of 1933 allows issuance of unregistered
shares to foreign investors. These shares are issued with a restrictive legend.
The foreign investor is required to hold the shares for a certain period of time
before selling the shares on the US market. To remove the restrictive legend,
the issuer is required to satisfy certain current public information conditions
and report the issuance of such shares.
REGULATION S RESTRICTED SHARES ISSUED FOR CONVERTIBLE DEBENTURES
During the fiscal year ended June 30, 1999 ANC issued 308,769 of restricted
shares for convertible debentures and accrued interest for $.24 per share,
totaling $75,000. During the fiscal year ended June 30, 1998 ANC issued 436,152
restricted shares for convertible debentures and accrued interest. Shares were
issued between $.27 and $.35 per share, totaling $123,750. The per share price
was determined based on the Company's closing trading price per the OTC market
subject to the terms of the debenture agreements.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
CONVERSIONS OF UNRESTRICTED STOCK
During June 30, 1999 and 1998, various owners of ANC common stock submitted Form
144 with respect to the conversion of restricted shares of common stock to
unrestricted. The Forms were accompanied by representation letters stating,
among other things, that the Company satisfied the current public information
conditions contained in Rule 144(c). See Note 10 for discussion of delinquent
filings under the 1934 Act.
Factual issues relating to these matters have been referred by the Company to
Counsel. At this time it has not been determined whether any restricted shares
may have been sold in reliance upon Rule 144, or if such sales were made
exclusively in reliance upon Rule 144. Until those facts are determined Counsel
is unable to determine if any violations of the 1933 Securities Act were
committed by the Company or the consequences of such violations 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 take appropriate and
necessary actions to resolve these issues.
SALES OF WILCOM UNRESTRICTED SHARES
Wilcom, Inc., the majority shareholder, was issued restricted shares as
discussed above. Wilcom converted to freely trading shares 1,030,000 shares in
fiscal 1998, and sold them. These amounts are included in the disclosure in the
preceding paragraph.
13. INCOME TAX BENEFIT AND DEFERRED INCOME TAX ASSET
JUNE 30, 1998
There was no current or deferred tax expense or benefit for income taxes for the
year ended June 30, 1998. At June 30, 1998 the Company had net operating loss
carry forwards of $6,916,000. 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 carry forward
period. The Company had considered these factors in reaching its conclusion as
to the valuation allowance for financial reporting purposes. No deferred tax
asset was recorded at June 30, 1998 as the Company provided a valuation
allowance in the full amount of the benefit until such time as deferred tax
liabilities were realized or future earnings were considered likely.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
The Company utilized net operating loss carry forwards in 1998 in the amount of
$467,000 to reduce income tax expense to zero.
JUNE 30, 1999
At June 30, 1999 the Company had net operating loss carry forwards of
$6,449,000. The Company generated income of $3,048,000 for June 30, 1999 and
utilized $3,048,000 of its net operating loss carry forwards to reduce its 1999
income tax expense to zero. This left unused net operating losses of
$3,401,000. Realization of the future tax benefits related to these net
operating loss carry forwards, as a deferred tax asset, is dependent on many
factors, including the Company's ability to generate taxable income within the
net operating loss carry forward period. The Company has considered these
factors in reaching its conclusion as to the valuation allowance for financial
reporting purposes for June 30, 1999. The Company has concluded that the
valuation allowance is no longer needed.
The Company has recorded a net deferred tax asset of $1,050,000 reflecting the
benefit of the net operating loss carry forwards, which expire from 2009 through
2012. Realization depends on generating sufficient taxable income before
expiration of the loss carry forwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carry forward period are reduced.
The benefit for income taxes for the year ended June 30, 1999 consists of:
<TABLE>
<CAPTION>
<S> <C> <C>
Current:
Federal $
State 110,000
------------
110,000
Deferred:
Federal (1,160,000)
State
(1,160,000)
------------
$(1,050,000)
============
</TABLE>
The net deferred tax asset consists entirely of the Federal benefit. There is
no State deferred tax asset.
The Company paid no income taxes during fiscal 1999 or 1998.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
A reconciliation of the expected tax to the actual tax benefit is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
% of % of
Pre-tax Pre-tax
Amount Income Amount Income
------------ ------- ---------- ----------
<S> <C> <C> <C> <C>
Tax at the expected
federal statutory tax rate $ 1,036,000 34.0% $ 159,000 34.0%
State income tax, net 206,000 6.8 25,000 3.9
Utilization of net operating loss
carry forwards in current year (1,173,000) (38.5) (184,000) (37.9)
Deferred tax asset - change
in valuation allowance (1,159,000) (38.0)
Other 40,000 1.3
------------ ------- ---------- ----------
BENEFIT FOR INCOME TAXES $ (1050,000) (34.4)% $ 0%
============ ======= ========== ==========
</TABLE>
14. SUMMARY OF NON-CASH INVESTING AND FINANCING TRANSACTIONS
The following are non-cash investing and financing transactions eliminated in
the Statement of Cash Flows all involving common stock transactions:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Amortization of debt issue costs $12,200
Shares issued for assets 29,000
Expenses paid with stock $ 82,400 351,050
Stock issued for convertible debentures 75,000 123,750
Conversion of preferred stock 198,000
Treasury stock canceled 153,000
</TABLE>
15. EARNINGS PER SHARE
Earnings per share are calculated in accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 128 "Earnings Per Share". The following is a
reconciliation of the numerator and denominator of the basic and diluted per
share computations for the year ended June 30:
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1999 and 1998
1999 1998
----------- -----------
<S> <C> <C>
Basic:
- ----------------------------------------------------
Net income before extraordinary item
applicable to common stockholders $ 3,361,259 $ 466,459
=========== ===========
Weighted shares 14,957,000 12,350,000
=========== ===========
Basic earnings per share before extraordinary item $ .22 $ .04
=========== ===========
Diluted:
- ----------------------------------------------------
Net income before extraordinary item
applicable to common stockholders $ 3,361,259 $ 466,459
=========== ===========
Weighted shares 14,957,000 12,350,000
Common stock issuable upon conversion of:
Convertible preferred stock 1,099,000
10% Convertible debentures 315,000
-----------
Diluted shares outstanding 14,957,000 13,764,000
=========== ===========
Diluted earnings per share before extraordinary item $ .22 $ .03
=========== ===========
</TABLE>
Warrants to purchase shares at $.65 to $1.25 per share were outstanding during
1999 and 1998 but were not included in the computation of diluted earnings per
share because the warrant price was greater than the average market price of the
common shares. Also, common shares issuable upon conversion of the convertible
notes payable that were outstanding during fiscal 1998 were also not included
because the interest per common share obtainable on conversion exceeded basic
earnings per share. The warrants are outstanding at June 30, 1999.
Diluted earnings per share for 1998 has been restated to correct an error in
calculating the weighted average number of shares outstanding. The effect of
the correction of the error was to decrease diluted earnings per share for 1998
by $.01.
16. CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash balances in two banks in Phoenix, Arizona.
Accounts at each institution are insured up to $100,000 by the FDIC. At June
30, 1999 the Company's uninsured cash balances approximated $500,000. The
Company maintains its investment balances with two brokerage firms. Accounts at
these firms are insured up to $500,000 by the Security Investor Protection
Corporation (SPIC).
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
On July 31, 1997 Semple & Cooper, LLP ("Semple & Cooper"), Certified Public
Accountants, of Phoenix, Arizona, were engaged to conduct an audit of the
financial statements of ANC for the fiscal year ended June 30, 1996. Semple &
Cooper initiated an audit of the financial statements of ANC for the fiscal year
ended June 30, 1996 and continued until January 22, 1998 when ANC and Cooper &
Semple terminated the client-auditor relationship by mutual agreement. During
the two most recent fiscal years and any interim periods preceding this
engagement, ANC had not consulted Semple & Cooper regarding the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on ANC's financial
statements or any other financial presentation whatsoever, or any disagreement
or reportable event with any former accountant.
On February 9, 1998 Semple & Cooper sent a letter to ANC confirming their
resignation effective January 22, 1998. The reason for the termination was the
complexity of the audit resulting from certain barter transactions in which ANC
had engaged and difficulties Semple & Cooper had in staffing for the audit.
There were no disagreements between ANC and Semple & Cooper, whether
resolved or not resolved, on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved, would have caused them to make reference to the subject matter of the
disagreement in connection with their respective reports.
On March 2, 1998 LaVoie, Charvoz & May, P.C. ("LaVoie"), Certified Public
Accountants, of Tucson, Arizona, were engaged to conduct an audit of the
financial statements of ANC for the fiscal years ended June 30, 1998, 1997 and
1996. During ANC two most recent fiscal years and any interim periods preceding
this engagement, ANC had not consulted LaVoie regarding the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on ANC's financial
statements or any other financial presentation whatsoever, or any disagreement
or reportable event with any former accountant.
All decisions to engage and/or terminate the relationships between ANC and
Semple & Cooper, and LaVoie were made by the Chief Executive Officer and
President who constitutes the sole member of the Board of Directors. ANC has no
audit committee.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
Mr. William P. William is the sole Director and sole executive officer of
the Company. Information representing Mr. Williams, and Eva Williams, who is the
only other officer of the Company, is set forth below:
WILLIAM P. WILLIAMS 45 YEARS OLD CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF
EXECUTIVE OFFICER
EVA WILLIAMS 44 YEARS OLD SECRETARY
William P. Williams and Eva Williams are husband and wife. The Directors
of the Company hold office until successors are duly elected and qualified. The
background and principal occupations of the sole director and each officer of
the Company are as follows:
William P. Williams, Jr. has been the Chairman, Chief Executive Officer,
and President of the Company since June of 1995. From 1983 to June of 1995, he
was President and Chairman of the Board of Shelton Financial, Inc. He has a
B.A. in Business and M.B.A. from Baylor University.
Eva Williams has served as the Company's Secretary since July 1995. Eva
Williams is the sole shareholder of Wilcom, Inc., the majority shareholder of
ANC.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT :
The Company is aware that all filings required of Section 16(a) of the
Exchange Act of Directors, Officers or holders of 10% of the Company's shares
have not been timely and the Company has instituted procedures to ensure
compliance in the future.
ITEM 10. EXECUTIVE COMPENSATION
General. Mr. William P. Williams, Jr., serves as the Company's sole
Director and Chief Executive Officer pursuant to a Management Services and
Consulting Agreement. Through December 31, 1998, the Company issued Common
Shares to Wilcom in lieu of cash management fees in accordance with the
Management agreement with Wilcom, Inc. The agreement with Wilcom, Inc. has been
replaced with a Management Services and Consulting Agreement between the Company
and William P. Williams. On January 1, 1999, the Board of Directors and Mr.
Williams entered into an employment agreement pursuant to which Mr. Williams is
paid an annual salary of $500,000 for serving as Chief Executive Officer.
The following table sets forth information concerning the compensation for
the fiscal year ended June 30, 1999, of ANC's President and Chief Executive
Officer, and the only other executive officer of ANC ("Named Executive
Officers"):
<TABLE>
<CAPTION>
NAME & PRINCIPLE POSITION YEAR SALARY STOCK COMPENSATION
<S> <C> <C> <C>
WILLIAM P WILLIAMS 1999 $410,000 $ 90,000 (4)
PRESIDENT & CEO
WILLIAM P WILLIAMS 1998 -0- $ 340,000 (1)
PRESIDENT & CEO
EVA WILLIAMS 1999 -0- $ 27,000 (2)
SECRETARY
EVA WILLIAMS 1998 -0- $ 37,750 (3)
SECRETARY
<FN>
(1) Represents the issuance of 1,000,000 shares of ANC restricted common stock
valued at $.34 per share to Wilcom, Inc. pursuant to a Management Services and
Consulting Agreement under which Wilcom provided the executive, management and
consulting services of its president, Williams P. Williams to ANC as Director,
CEO and president of the Company for the fiscal year ending June 30, 1998.
(2) Represents issuance of 300,000 shares of ANC restricted common stock valued
at $.09 per share to Eva Williams for her services as Secretary for fiscal year
ending June 30, 1999.
(3) Represents the issuance of 250,000 shares of ANC restricted common stock
valued at $.15 per share (60% of market) to Ms. Williams as compensation for her
services as Secretary of the Company for the fiscal year ending June 30, 1998.
(4) Represents the issuance of 1,000,000 shares of ANC restricted common stock
valued at $.09 per share to Wilcom, Inc. pursuant to a Management Services and
Consulting Agreement under which Wilcom provided the executive, management and
consulting services of its president, Williams P. Williams to ANC as Director,
CEO and president of the Company for the fiscal year ended June 30, 1999.
</TABLE>
<PAGE>
ANC does not have a pension plan, retirement plan, profit sharing plan or
similar existing benefits for its directors, officers, or employees.
See "Certain Relationships and Related Transactions" for details regarding
stock and warrants issued in prior periods.
ITEM 11. SECURITY OWNERSHIP OF OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of ANC's
voting securities by (i) all persons known by ANC to own 5% or more of ANC's
voting securities, (ii) each Director and Named Executive Officer of ANC, and
(iii) the group of two officers and the sole Director set forth above as a
group, as of as of June 30, 1999.
<TABLE>
<CAPTION>
NAME # OF COMMON TOTAL # OF VOTING % OF VOTING
SHARES OWNED SECURITIES OWNED SECURITIES
<S> <C> <C> <C>
WILLIAM P WILLIAMS 7,616,173(1)(2)(3) 7,616,173 50.30%
EVA WILLIAMS 7,616,173(1)(2)(3) 7,616,173 50.30%
<FN>
(1) Includes 6,166,173 Common Shares owned of record by Wilcom, Inc. Wilcom,
Inc. is wholly owned by Eva Williams, wife of William P. Williams, Jr., the sole
director, CEO and president of ANC. By reason of Ms. Williams' ownership of
Wilcom, Inc. the shares are included as beneficially owned by her and are also
included as beneficially owned by Mr. Williams. See "Certain Relationships and
Related Transactions."
(2) Includes 400,000 shares of voting common stock owned of record by Shelton
Financial, Inc. Shelton Financial, Inc. is wholly owned by Mr. Williams.
(3) Includes 1,050,000 outstanding voting common shares owned by Eva Williams,
wife of Mr. Williams. By reason of Ms. Williams' ownership of the voting common
shares they are included as beneficially owned by her and are also included as
beneficially owned by Mr. Williams.
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William P. Williams, Jr., ANC's President, CEO and sole director, is the
spouse of Eva Williams, ANC's Secretary. Mr. Williams in his capacity as the
Company's sole director, authorized all of the transactions set forth below on
behalf of ANC, except the transactions described below that occurred on June 27,
1995, which were authorized by the prior directors of the Company. Mr. Williams
is also president of Shelton Financial, Inc., a corporation wholly owned by him
and president of Wilcom, Inc., a corporation wholly owned by his spouse. Wilcom
owns a majority of ANC's issued and outstanding voting shares.
On July 10, 1997 the Board approved the issuance of 1,000,000 shares
at $.34 per share which was the average bid and ask price as of July 10, 1997 to
Wilcom, Inc. for management services rendered under the Management Services and
Consulting Agreement during fiscal 1998. Additionally, 3,300,000 shares were
issued to Wilcom, Inc. in exchange for the 3,300,000 shares of New Preferred
that were issued in June 1995.
On July 9, 1998 the Board approved the issuance of 1,000,000 shares at
$.09 per share which was the average bid and ask price as of July 9, 1998 to
Wilcom, Inc. for management services rendered under the Management Services and
Consulting Agreement during fiscal 1999.
On January 9, 1999 the Board approved the issuance of 300,000 shares
at $.09 per share which was the average bid and ask price as of January 9, 1999
to Eva Williams for management services rendered as Secretary of ANC during
fiscal 1999.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as a part of this Annual Report:
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No. Documents
<C> <S> <C> <C>
3.1 Articles of Incorporation *
3.2 By-Laws of Incorporation *
10 Integretel Contract **
11.1 Earnings Per Share ***
21 Subsidiaries: NONE
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<FN>
* Incorporated by reference for the Registrant's annual report on Form 10-KSB
for the Fiscal Year ended June 30, 1995
** Incorporated by reference for the Registrant's annual report on Form 10-KSB
for the Fiscal Year ended June 30, 1998
*** Incorporated in the current filings as a part of the Audited Financial
Statements for June 30, 1999
</TABLE>
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN NORTEL COMMUNICATIONS INC.
By: /S/ W. P. Williams Date: September 15, 1999
W. P. Williams
Sole Director and Chief Executive Officer
In accordance with the Exchange Act this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /S/ W. P. Williams, Jr. Date: September 15, 1999
W. P. Williams
Sole Director and Chief Executive Officer
(Sole executive officer of the registrant)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 717851
<SECURITIES> 636041
<RECEIVABLES> 2805069
<ALLOWANCES> 167000
<INVENTORY> 0
<CURRENT-ASSETS> 4708388
<PP&E> 83325
<DEPRECIATION> 32382
<TOTAL-ASSETS> 6302388
<CURRENT-LIABILITIES> 2796913
<BONDS> 0
0
0
<COMMON> 21912402
<OTHER-SE> 50595
<TOTAL-LIABILITY-AND-EQUITY> 6302388
<SALES> 17103286
<TOTAL-REVENUES> 17103286
<CGS> 12546527
<TOTAL-COSTS> 12546527
<OTHER-EXPENSES> 2216743
<LOSS-PROVISION> 167000
<INTEREST-EXPENSE> 28757
<INCOME-PRETAX> 2311259
<INCOME-TAX> 0
<INCOME-CONTINUING> 2311259
<DISCONTINUED> 0
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