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, 2000
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
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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: $ 22,783,749
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: As of August 31, 2000, there were
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7,621,470 common shares outstanding at a weighted average market price per share
of $.562 cents at an aggregated value of $4,283,266.
*The common share price is the average trading price on the NASDAQ OTC.
--------------------------------------------------------------------------------
<PAGE>
PART I
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
PART II
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 Disclosures.
PART III
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.
PART IV
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, 888 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 increased in the fiscal
year ended June 30, 2000 ("Fiscal 2000") and the Company had gross revenues of
$22,783,749 during Fiscal 2000 as compared to gross revenues of $17,103,286
during the prior Fiscal year.
ANC resells long distance telephone services to both 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, and its results of operations are directly affected by
competition, which in recent years has lowered the amount resellers such as the
Company can charge 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 telephone services to
the Company long-distance customers, and performs 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 a substantial advantage
since it increases the likelihood and promptness of the Company's 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 capacity held by carriers who
sell long distance usage time to ANC on a bulk basis, and ANC believes that such
surplus and other service offerings will continue in the foreseeable future.
ANC's revenues have increased 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.
<PAGE>
Competition
The long distance telephone industry is highly competitive. There are
numerous competitors in the industry, many of which share the same market as
ANC. Many of the Company's competitors have larger capital resources, and are
more established and have a larger customer base than ANC due to extreme
competition in the market place there are presently few resellers remaining.
However, they operate in a manner similar to ANC. There are also a large number
of resellers, many of whom 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 charged to users of long distance services have
decreased over the last several years 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 has little or no cost
implications to the customers. Other sources of competition may be developing
because of new offerings by providers, such as cable television providers,
Internet service providers, and high-speed voice and data communication
providers. In addition, long distance service offered by the LEC's will
increase the Company's attrition of customers and revenues.
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 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. Subsequently, the right to provide long distance service has been given
to other interexchange carriers.
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
and 888" 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 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 other long distance service providers represent a
source of such traffic to carriers with excess capacity, as well as other
service offerings.
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.
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 value added services that other 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 continue to be difficulties faced by resellers.
<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, wireless
services, voice and data transmission, web-site and internet service packaging,
800 and 888 number service, voice mail and electronic email. 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 increases 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.
Service and Products
The Company offers a basic 1 plus and 800, 888 long distance services.
ANC's 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 of ANC's billing for its
customers' use of ANC provided long distance calling is done through the
customer's local exchange carrier ("LEC"). The Company offers a flat-rate long
distance calling service throughout the United States. Billing to the Company's
occurs in six-second increments.
Billing Service Agreements
The Company's 1 plus and 800, 888 long distance customers utilize the LEC's
billing service integrators. These integrators have been approved by various
LECs to provide billing, collection and related services through the LECs. ANC
has entered into a customer billing service agreements with Integretel, Inc.
("IGT") for these services. Under this agreement, the service providers bill
and collect long distance charges to the Company's customers through LEC
billings. These amounts, net of reserves for bad debts, billing adjustments,
telephone company fees and the integrator's fees, are remitted to the Company on
a monthly basis.
<PAGE>
Long Distance Service Agreements
On December 9, 1996 ANC entered into a Billing Services Agreement 1 plus
800, 888 service with Integretel Incorporated ("IGT") whereby IGT provides 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.
On December 19, 1996, the Company entered into a Master Agreement for
Purchase and Sale of Accounts with IGT, which in substance is a factoring
agreement. The terms of the agreement provide for advances at the lesser of the
maximum purchase obligation of $5,000,000 or at a percentage of the total
receivables that is based on historical uncollectible account data. Interest is
charged monthly at a rate equal to the prime rate plus six percent applied to
the average daily balance during the preceding month. An administrative fee
equal to one tenth of one cent for each transaction record submitted to IGT is
also charged monthly. In addition, an annual facility fee in an amount equal to
one percent of the maximum purchase obligation is due on the anniversary date of
the agreement. The advances and related fees are repaid by customer payments
remitted directly to the factor. The agreement is secured by all accounts
receivable whether or not specifically purchased by the factor. The balance at
June 30, 2000 represents funds advanced in excess of customer payments received
by factor and allowance reserve maintained by factor.
On April 24, 1997 ANC entered into a Reseller Agreement with Total Network
Services, a division of Cable and Wireless. The agreement was initially for a
term of 24 months and has been renewed (with no stated termination date). This
agreement requires ANC to purchase a minimum monthly amount of long distance
service of $50,000. Through June 30, 2000, the Company's actual utilization has
exceeded the minimum. Total Network Services is currently the only provider of
this service to the Company.
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 terminable by either party upon 120 days notice.
<PAGE>
Growth Strategy
The Company has determined to change its 1 plus and 800, 888 long
distance strategy. ANC has determined that profit margins from the long
distance service offerings that it has achieved in the past, has narrowed to an
unacceptable extent. The long distance market as a whole has experienced a
decrease in profit margins due to the very aggressive pricing competition that
has characterized the industry during the last several years. ANC has changed
its business endeavors to reflect the dynamic telecommunications market. ANC
has decreased its marketing efforts in long distance service offerings and has
dedicated that portion of its operating budget to investments in other
companies, particularly in early companies that are in need of working capital.
Investments in Marketable Securities
Investments in marketable securities consisted of the following at June 30,
2000:
Gross Unrealized Fair
Cost Gains Losses Value
----------- ----------- ---------- -----------
Equity securities $ 2,978,520 $ 4,990,092 $ (21,561) $ 7,947,051
The Company has invested in common stock and related warrants of
several publicly traded companies. At June 30, 2000, the Company's investment
in marketable securities is made in seven different companies. The investment
in one such company's securities represents approximately 40% of the estimated
aggregate fair value of all investments in marketable securities at June 30,
2000.
Proceeds from sales of equity securities were $2,232,888 and realized
gains were $1,670,979 for the year ended June 30, 2000. Subsequent to June 30,
2000, the market value of the investments had decreased $2,078,367. At June 30,
2000, the Company held stocks of the following companies:
Dauphin Technologies, Inc. ("DNTK"). DNTK designs manufactures and
markets mobile hand-held, pen based computers, as well as other electronic
devises for home and business use. DNTK primary product line is a handheld
computer developed with the multi-sector mobile user in mind. This product
incorporates an upgradeable processor, user upgradeable memory and hard disk,
various modules and mobile devices.
Sonoma Financial Corporation/Victormaxx Technologies, Inc. ("VMAX"). VMAX
incorporates financial service companies that operate a chain of stores devoted
to providing low documentation, short-term consumer loans. VMAX is one of the
largest payday advance operations in the Chicago area.
American Educational Products, Inc. ("AMEP"). AMEP manufactures and
distributes products that increase teachers' effectiveness in the classroom
facilitates students' learning through inquiry and discovery, and encourage
parental participation in their child's education. AMEP manufactures and
distributes educational products to educational institutions, wholesalers,
individual educators, and consumers.
<PAGE>
PTN Media, Inc. ("PTNM"). PTNM is an interactive media content provider
focusing on providing branded content using a combination of new and traditional
media. PTNM initial web-site focus on fashion, beauty, style, fitness, and
related subjects. PTNM currently provides this content on its interactive web
site www.fashionwindow.com.
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Med Com USA, Inc. ("EMED"). EMED enables paperless electronic verifications
and transactions, a web health care portal, and online purchase of home medical
equipment through its operating units.
Cynet, Inc. ("CYNE"). CYNE is an Internet business applications solutions
provider integrating convergent messaging with Internet services. CYNE's
products and services include convergent messaging, which includes fax, data,
voice, email and wireless messaging, and Internet services, which includes
custom application development, e-commerce development, web content creation,
web hosting and internet access.
Morgan Cooper, Inc. ("MCII"). MCII is primarily involved in design
contemporary style clothing. The Morgan Cooper collections are designed to
provide the consumer with fresh and updated looks by combining classic and
contemporary styling, in both fabrics and leathers, with special attention to
unique details and fit to appeal to their target market who desire high quality,
designer clothes at competitive prices.
The entities in which the Company has investments are generally small,
under capitalized corporations whose stock is traded in the over-the-counter and
NASDQ markets. The issuers may have limited operating histories and limited
revenues. ANC intends to continue to expand its investment holdings as well as
seeking an active investment to offset the reduction in profit margins.
However, the Company has not presently identified the business in which it
intends to invest the Company's resources in an effort to mitigate the effects
of the declining profitability in the long distance reseller business.
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 February 1996
the bankruptcy proceedings were dismissed. Presently, ANC is in the business of
long distance telecommunications services offerings.
<PAGE>
Additional Information
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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ITEM 2. DESCRIPTION OF PROPERTY
The Company's offices are located in Scottsdale, Arizona. The Company
leases 1700 square feet of office space for approximately $25,000 annually. The
Company entered into a three-year lease in May 2000. The Company had six
employees and approximately six full-time equivalent employees at July 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
ANC is a party to legal proceedings and other various claims and lawsuits
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.
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, 2000.
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.
<PAGE>
<TABLE>
<CAPTION>
HIGH BID LOW BID
FISCAL 2000
<S> <C> <C>
Quarter Ended June 30, 2000 $ 2.375 $ 0.750
Quarter Ended March 31, 2000 3.875 1.156
Quarter Ended December 31, 1999 1.300 0.600
Quarter Ended September 30, 1999 1.030 0.580
FISCAL 1999 HIGH BID LOW BID
Quarter Ended June 30,1999 $ 1.300 $ 0.380
Quarter Ended March 31, 1999 0.640 0.120
Quarter Ended December 31, 1998 0.350 0.070
Quarter Ended September 30, 1998 0.265 0.080
</TABLE>
At June 30, 2000, there were 15,237,643 shares of common stock of the
Company outstanding. There were approximately 754 record holders of common
stock on that date.
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.
Sales of Unregistered Securities
On January 9, 1999, ANC issued 300,000 shares of common stock to
consultants and officer, Eva Williams. The total value of these shares was
determined to be $27,000, which represents the average of the bid and asked
price of ANC's common stock on the date ANC became obligated to issue the
shares. The shares were issued in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this report are forward looking statements that
involve risks and uncertainties. Among the factors that could cause actual
results to differ materially from those described in such forward looking
statements are the following: the Company's ability to manage 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, and operate its information systems; and the Company's success in
offering additional communications products and services.
Fiscal 2000 Operations
During the fiscal year ended June 30, 2000, the Company has purchased
and sold stock in the following companies:
On April 23, 1999 the Company purchased 1,060,069 common shares of
Dauphin Technologies, Inc. ("DNTK") at $.530 per share. During fiscal 2000 the
Company sold 872,500 shares at an average of $2.200 per share. DNTK designs
manufactures and markets mobile hand-held, pen based computers, as well as other
electronic devises for home and business use. DNTK's primary product line is a
handheld computer developed with the multi-sector mobile user in mind. This
product incorporates an upgradeable processor, user upgradeable memory and hard
disk, various modules and mobile devises. The average of the bid and asks price
of DNTK common stock as of June 30, 2000 was $6.220 per share according to the
over-the-counter market.
On July 1999 the Company purchased 1,500,000 common shares of Sonoma
Financial Corporation/Victormaxx Technologies, Inc. ("VMAX") at $.140 per share.
During fiscal 2000 the Company sold 42,000 shares at an average of $.250 per
share. VMAX incorporates financial service companies that operate a chain of
stores devoted to providing low documentation, short-term consumer loans. VMAX
is one of the largest payday advance operations in the Chicago area. The
average of the bid and asked price of the VMAX stock as of June 30, 2000 was
$.0900 per share according to the over-the-counter market.
On October 22, 1999 the Company purchased 19,400 common shares of American
Educational Products, Inc. ("AMEP") at an average of $10.500 per share. AMEP
manufactures and distributes products that increase teachers' effectiveness in
the classroom facilitates students' learning through inquiry and discovery, and
encourage parental participation in their child's education. AMEP manufactures
and distributes educational products to educational institutions, wholesalers,
individual educators, and consumers. The average of the bid and asked price of
the AMEP stock as of June 30, 2000 was $9.750 per share according to the NASDQ
market.
<PAGE>
On October 26, 1999 the Company purchased 250,000 common shares of PTN
Media, Inc. ("PTNM") at $2.000 per share. PTNM is an interactive media content
provider focusing on providing branded content using a combination of new and
traditional media. PTNM initial web-site focus on fashion, beauty, style,
fitness, and related subjects. PTNM currently provides this content on its
interactive web site www.fashionwindow.com. The average of the bid and asked
---------------------
price of the stock as of June 30, 2000 was $3.690 per share according to
over-the-counter market.
On November 15, 1999 the Company purchased 1,111,111 common shares and
received in January 2000 an additional 300,000 shares of Med Com USA, Inc.
("EMED") at a $.450 per share. EMED enables paperless electronic verifications
and transactions, a web health care portal, and online purchase of home medical
equipment through its operating units. The average of the bid and asked price
of the stock as of June 30, 2000 was $2.110 per share according to the NASDQ
market.
On June 2000 the Company purchased 750,000 common shares of Cynet, Inc.
("CYNE") at $1.000 per share. CYNE is an Internet business applications
solutions provider integrating convergent messaging with Internet services.
CYNE's products and services include convergent messaging, which includes fax,
data, voice, email and wireless messaging, and Internet services, which includes
custom application development, e-commerce development, web content creation,
web hosting and internet access. The average of the bid and asked price of the
stock as of June 30, 2000 was $1.250 per share to the over-the-counter market.
On June 2000 the Company purchased 500,000 common shares of Morgan Cooper,
Inc. ("MCII") at $1.500 per share. MCII is primarily involved in design
contemporary style clothing. The Morgan Cooper collections are designed to
provide the consumer with fresh and update looks by combining classic and
contemporary styling, in both fabrics and leathers, with special attention to
unique details and fit to appeal to their target market who desire high quality,
designer clothes at competitive prices. The bid and asked price of the stock,
as of June 30, 2000 was $2.750 per share the over-the-counter market.
FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
Set forth below and elsewhere in this Annual Report and in the other
documents we file with SEC, including the most recent Form 10-KSB and Form
10-QSB, are risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements
contained in the Annual Report.
<PAGE>
Carrying Value of Financial Instruments
The carrying values of financial instruments include cash and cash
equivalents, accounts receivables, account payable and notes payable,
approximate fair value because of the short maturity of these instruments. The
carrying value of long-term debt approximates its fair value, as estimated by
using discounted future cash flows based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.
Fluctuations in Fair Values
ANC maintains investment portfolio holdings of various issuers, types, and
maturities. These securities are generally classified as available for sale,
and consequently, are recorded on the balance sheet at fair value with
unrealized gains or losses reported as a separate component of an accumulated
other comprehensive income, net of tax. Part of this portfolio includes
minority equity investments in several publicly traded companies, the values of
which are subject to market price volatility. These investments are inherently
risky as the market for the technologies or products they have under development
are typically in the early stages and may never materialize. The Company could
lose the entire investment in these companies.
Uncertainties Associated with Selling Assets
A significant element of ANC's business plan involves selling, in public or
private offerings, portions of the company's stock it has acquired. ANC ability
to engage in any such transactions, the timing of such transactions and the
amount of proceeds from such transactions are dependent on market and other
conditions largely beyond ANC's control. Accordingly, there can be no assurance
that ANC will be able to engage in such transactions in the future or that when
ANC is able to engage in such transactions they will be at favorable prices. If
ANC were unable to liquidate portions of its portfolio companies at favorable
prices, ANC business, financial condition and results of operations could be
adversely affected.
The following table analysis presents the hypothetical change in fair
values of public equity investments held that are sensitive to changes in the
stock market. These equity securities are held for purposes other than trading.
The modeling technique used measure the hypothetical change in fair values
arising from selected hypothetical changes in each stock's price. Stock price
fluctuations of plus or minus 15%, plus or minus 35%, and plus or minus 50% were
selected based on the probability of their occurrence.
<PAGE>
This table estimates the fair values of the publicly traded corporate
equities at a 12-month time horizon: (in millions)
<TABLE>
<CAPTION>
Valuation of security Fair value Valuation of security
given X% decrease in each as of given X% increase in each
stock price's June 30, 2000 stock's price
--------------------------- ---------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(50%) (35%) (15%) 15% 35% 50%
Corporate Equities $3.973 $5.165 $6.754 $7.947 $9.139 $10.728 $11.920
</TABLE>
*Corporate Equities in comparison to ANC's shares outstanding.
$7,947,051/ 15,237,643 shares outstanding
$.5215 corporate equities to ANC's shares outstanding
<PAGE>
ANC's portfolios consist of securities with characteristics that most
closely match S & P index or companies traded on the NASDAQ exchange and OTC:
Bullitin Board exchange. The NASDAQ Composite index has shown a 15% movement in
each of the last three years, a 35% movement in one of the last three years, and
a 50% movement in none of the last three years.
ANC Expects Gross Margins to Decline Over Time
The Company expects that gross margins may be adversely affected and ANC
has determined that profit margins from the long distance service offerings that
it has profited in the past, has fluctuated. The long distance market as a
whole has experienced a decrease in profit margins due to increased competition
and competitive price offerings. A geographic mix, as well as the mix of
configurations within telecommunications offerings may also impact the gross
margins. ANC has changed its business endeavors to reflect the dynamic
telecommunications market. ANC has creased its marketing efforts in long
distance service offerings and has dedicated that portion of its operating
budget to the investment in other companies. While long distance margins are
decreasing ANC continues to look for profitable telecommunications
opportunities; however there is no assurances that this can be done, and
presently ANC has no acquisitions in progress.
ANC Dependence on Key Personnel
ANC performance is substantially dependant on the performance of its
executive officers and other key employees and its ability to attract, train,
retain and motivate high quality personnel, especially highly qualified
technical and managerial personnel. The loss of services of any executive
officers or key employees could have a material adverse effect on its business,
results of operations or financial condition. Competition for talented
personnel is intense, and there can be no assurance that ANC will be able to
continue to attract, train, retain or motivate other highly qualified technical
and managerial personnel in the future.
Results of Operations
Fiscal Year End June 30, 2000 Compared to Fiscal Year End June 30, 1999.
Revenues for Fiscal 2000 increased 33.00% to $22,783,749 from $17,103,286
during Fiscal 1999. The increase in revenue is principally the result of
increases in revenues from the Company's basic 1 Plus and 800, 888 long distance
service, and an increase in international long distance calling. 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 competition in the U.S. domestic long distance
market.
Selling expenses for the Fiscal 2000 decreased 12.30% to $872,525 from
$994,863 during Fiscal 1999. The decrease was principally the result of a
decrease in marketing effort. The Company has dedicated the marketing budget to
corporate equities investment strategies.
<PAGE>
General and administrative expenses for Fiscal 2000 increased 36.03% to
$1,622,225 from $1,221,880 during Fiscal 1999. The increase was due to the
Company entering into an employment agreement for the CEO.
Interest expense for Fiscal 2000 increased 307.41% to $619,719 from $28,757
during Fiscal 1999. The increase in interest expense was a result of margin
interest from First Research Investment and Four Star Financial Inc. for the
holding and purchase of corporate stock equities. These loans had been paid in
full at June 30, 2000. The increase is also a result of classifying the
factoring interest expense from a cost of sale to be included in the separately
stated interest expense.
Gain on the sale of investments for Fiscal 2000 was $1,670,979. The
original purchase price of the corporate equities securities was $504,425 and
the total proceeds from the sale of DNTK and VMAX shares held by the Company was
$2,175,404.
At June 30, 2000 the Company had net operating loss carry forwards of
$3,401,000. The Company generated income of $4,799,622 for June 30, 2000 and
utilized $3,401,000 of its net operating loss carry forwards to reduce its 2000
income tax expense to 969,947. The Company's provision for income tax
represents the deferred tax benefit recognized in 1999 as additional income. In
Fiscal 2000, the Company utilized all remaining net operating loss carryforwards
and recognized in the provision the deferred tax benefit in 1999 as part of its
provision for income taxes.
Net earnings for Fiscal 2000 was $2,840,906 or $.18 per basic share and
$.18 diluted per share, compared to $4,097,599, or $.27 per basic share and $.27
diluted per share for Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements primarily from cash
provided by operating activities; working capital at June 30, 2000 is
$2,751,631; the ending cash balance at June 30, 2000 is $1,405,002. The Company
is able has been able to sustain its operations from cash generated from
operations and cash generated from investment in corporate equities securities
activities. Cash provided by operating activities increased for the Fiscal 2000
to $2,751,631 compared to $1,182,773 from Fiscal 1999. The Company's source of
revenue is generated from the sales of long distance service to the Company's
customers. The additional source of revenue is generated from the Company's
investment in corporate equities securities. The increase in operating
activities is primarily due to gain on the sale of corporate equities held by
the Company and the accounting for income taxes.
<PAGE>
Cash flows used for investing activities was $1,074,867 for Fiscal 2000
compared to $883,291 for Fiscal 1999. The Company continues to purchase
investments of corporate equity securities available-for-sale. The Company note
receivable from control group was $642,778 in Fiscal 2000 compared to $384,966
in Fiscal 1999, has been paid in full before the fiscal year end June 30, 2000.
Cash flows used for financing activities was $989,613 in Fiscal 2000
compared to cash flows provided for financing activities was $270,845 in Fiscal
1999. The Company had cash outflow for the payment of $500,000 debt, which
resulted from debt restructuring of pre-bankruptcy obligations going back to
1992. The pre-bankruptcy debt was re-negotiated and paid in full with accrued
interest during Fiscal year end June 30, 2000.
ITEM 7. FINANCIAL STATEMENTS
AMERICAN NORTEL COMMUNICATIONS, INC.
FINANCIAL STATEMENTS AS OF
JUNE 30, 2000
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
American Nortel Communications, Inc.
Scottsdale, Arizona:
We have audited the accompanying balance sheet of American Nortel
Communications, Inc. (the "Company"), as of June 30, 2000 and the related
statements of operations, comprehensive income, stockholders' equity and cash
flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Nortel Communications,
Inc. as of June 30, 2000 and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
September 15, 2000
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
BALANCE SHEET
JUNE 30, 2000
-------------------------------------------------------------------------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,405,002
Accounts receivable (net of $148,080 allowance) 5,734,828
Investments in marketable securities 7,947,051
Prepaid expenses 143,129
Notes receivable 80,509
Deferred income taxes 59,232
-------------
Total current assets 15,369,751
PROPERTY AND EQUIPMENT, net 36,977
OTHER ASSETS 6,667
-------------
TOTAL ASSETS $ 15,413,395
=============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 761,608
Accrued liabilities 149,658
Disputed claims 362,189
Accrued interest 52,938
Note payable 50,000
Factoring arrangement 2,383,956
Income taxes payable 1,079,947
-------------
Total current liabilities 4,840,296
-------------
DEFERRED INCOME TAXES 1,852,997
STOCKHOLDERS' EQUITY:
Common stock, no par value, 50,000,000 shares authorized,
15,510,643 shares issued and 15,273,785 shares outstanding 21,980,202
Paid in capital 51,795
Accumulated deficit (15,555,657)
Treasury stock, 236,858 shares at cost (759,773)
Unrealized gain on investments held for sale 3,003,535
-------------
Total stockholders' equity 8,720,102
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,413,395
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
-------------------------------------------------------------------
<S> <C>
NET SALES $22,923,118
------------
COST OF SALES
Cost of sales 16,751,371
------------
Gross profit 6,171,747
------------
OPERATING EXPENSES
General and administrative expenses 1,622,225
Sales and marketing expenses 872,525
Depreciation and amortization 14,400
------------
Total operating expenses 2,509,150
------------
OPERATING INCOME 3,662,597
------------
OTHER (INCOME) AND EXPENSES
Interest income (88,675)
Interest expense and factoring charges 619,719
Other expense 2,910
Realized gains on sales of marketable securities (1,670,979)
------------
Total other expenses (1,137,025)
------------
INCOME BEFORE INCOME TAXES 4,799,622
------------
INCOME TAX PROVISION 1,958,716
------------
NET INCOME $ 2,840,906
============
NET INCOME PER COMMON SHARE
Basic $ 0.18
============
Diluted $ 0.18
============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 15,412,114
============
Diluted 15,673,875
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED JUNE 30, 2000
-------------------------------------------------------------------
<S> <C>
NET INCOME $2,840,906
OTHER COMPREHENSIVE INCOME
Unrealized gain from available-for-sale investments
(net of income taxes of $1,964,996) 2,947,494
----------
Total Other Comprehensive Income 2,947,494
----------
COMPREHENSIVE INCOME $5,788,400
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 2000
--------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ PAID-IN ACCUMULATED ------------------- UNREALIZED
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT GAINS TOTAL
---------- ------------ ---------- ------------- -------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JULY 1, 1999 15,163,785 $21,912,402 $ 50,595 $(18,396,563) 66,858 $(117,000) $ 56,041 $3,505,475
Stock issued for cash,
exercised warrants 40,000 42,000 42,000
Stock issued for
compensation
previously accrued 300,000 27,000 27,000
Stock received as
payment on note (170,000) 170,000 (642,773) (642,773)
Cancellation of shares
previously issued (60,000) (1,200) 1,200 -
Unrealized gain
from investments
available-for-sale 2,947,494 2,947,494
Net income 2,840,906 2,840,906
----------- ------------ ---------- ------------- ------- ---------- ---------- ----------
BALANCE JUNE 30, 2000 15,273,785 $21,980,202 $ 51,795 $(15,555,657) 236,858 $(759,773) $3,003,535 $8,720,102
=========== ============ ========== ============= ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2000
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,840,906
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,400
Deferred income taxes 988,769
Realized gain on sale of marketable securities (1,670,979)
Other non-cash income (3,500)
Changes in assets and liabilities:
Accounts receivable 11,095
Prepaid expenses 270,513
Accounts payable (719,529)
Accrued liabilities 85,209
Accrued interest 12,938
Disputed claims (48,138)
Income tax payable 969,947
------------
Net cash provided by operating activities 2,751,631
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (2,960,429)
Proceeds from sale of marketable securities 2,232,888
Advances on note receivable from officer (408,383)
Repayments on note receivable from officer 142,000
Advances on notes receivable (80,509)
Purchase of property and equipment (434)
------------
Net cash used in investing activities (1,074,867)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 500,000
Payments on notes payable (1,110,500)
Proceeds from issuance of common stock 42,000
Repayments to factor (421,113)
------------
Net cash used in financing activities (989,613)
------------
INCREASE IN CASH AND EQUIVALENTS 687,151
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 717,851
------------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,405,002
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NORTEL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS, (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2000
<S> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 606,781
==========
Income taxes paid $ - 0 -
==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Unrealized gain from investments available-for-sale $4,912,490
==========
Cancellation of common stock previously issued $ 1,200
==========
Treasury stock acquired from officer in exchange for note receivable $ 642,773
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
AMERICAN NORTEL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2000
--------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
American Nortel Communications, Inc. (the "Company") operates in the
telecommunications business, providing long distance telephone service as a
reseller of 1-Plus and 1-800 long distance telecommunication services to 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. Local Exchange Carriers ("LECs") that
provide local area telephone service to the Company's long distance customers
are utilized for billing and collections.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents include all short-term highly liquid investments that
--------------------------
are readily convertible to known amounts of cash and have original maturities of
three months or less. At times cash deposits may exceed government insured
limits. At June 30, 2000, cash deposits exceeded those insured limits by
$519,650.
Investments in marketable securities consist of corporate equity securities
---------------------------------------
which are stated at market value. The Company currently classifies all
investment securities as available-for -sale. Unrealized gains and losses on
such securities, net of the related income tax effect, are excluded from
earnings and reported as a separate component of stockholders' equity until
realized. Realized gains and losses are included in earnings and are derived
using the specific identification method for determining the cost of securities
sold.
Customer acquisition costs represent the direct response marketing costs that
----------------------------
are incurred through contracted telephone solicitation as the primary method by
which customers subscribe to the Company's services. The Company capitalizes
and amortizes the costs of direct-response advertising on a straight-line basis
over eight months. The amortization lives are based on estimated attrition
rates. The unamortized balance is included in prepaid expenses. The Company
paid $565,000 for these marketing costs and amortization of the capitalized
costs was $814,000 for the year ended June 30, 2000.
The Company also incurs advertising costs that are not considered
direct-response advertising. These other advertising costs are expensed when
incurred. Advertising expense for the year ended June 30, 2000 was $58,537.
Property and equipment are recorded at cost and depreciated on a straight-line
------------------------
basis over the estimated useful lives of the assets ranging from 3 to 5 years.
Depreciation expense for the year ended June 30, 2000 was $14,400.
<PAGE>
Revenue recognition - The Company's revenue is generated by long distance calls
--------------------
made by its customers. Revenue is billed and recognized monthly based on the
number of long distance minutes used. The Company utilizes outside companies to
transmit billing data which is forwarded to LECs that provide local telephone
service. Monthly long distance fees are included on the telephone bills of the
customers. The Company recognizes revenue based on net billings accepted by the
LECs.
Income taxes - The Company provides for income taxes based on the provisions of
-------------
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which, among other things, requires that recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date of
the financial statements.
Financial instruments - Financial instruments consist primarily of cash,
----------------------
accounts receivable, notes receivable and obligations under accounts payable,
accrued expenses, and note payable. The carrying amounts of cash, accounts
receivable, notes receivable, accounts payable, and accrued expenses approximate
fair value because of the short maturity of those instruments. The Company
derives the fair value of its investments in marketable securities based on
quoted market prices. The fair value of the $50,000 note payable could not be
estimated because the note is past due and the Company has had difficulties
locating the note holder to settle the balance.
Use of Estimates- The preparation of financial statements in conformity with
------------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net income per share is calculated using the weighted average number of shares
----------------------
of common stock outstanding for the year. The Company has adopted the provisions
of SFAS No. 128 Earnings Per Share.
Stock-Based Compensation - Statements of Financial Accounting Standards No.
-------------------------
123, Accounting for Stock-Based Compensation, ("SFAS 123") established
accounting and disclosure requirements using a fair-value based method of
accounting for stock-based employee compensation. In accordance with SFAS 123,
the Company has elected to continue accounting for stock based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." The proforma effect
of the fair value method is discussed in Note 12.
3. ACCOUNTS RECEIVABLE
The Company has entered into a customer billing service agreement with
Integretel, Inc. (IGT) on December 9, 1996 and was amended on July 28, 1997,
whereby IGT provides billing and collection and related services. The Company
uses an outside company to compile billing information which is provided
directly to IGT for its monthly billings. Billings submitted are "filtered" by
IGT and the LEC's. Net accepted billings are recognized as revenue and accounts
receivable. IGT and the LEC's charge fees for their services which are netted
against the gross accounts receivable balance. IGT also applies holdbacks for
the remittances of potentially uncollectible accounts. The Company estimates
uncollectible account balances and provides an allowance for such estimates.
The Company factors its accounts receivable with recourse (Note 6).
<PAGE>
4. INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities consisted of the following at June 30,
2000:
Gross Unrealized Fair
Cost Gains Losses Value
------------ ----------- ---------- -------------
Equity securities $ 2,978,520 $ 4,990,092 $ (21,561) $ 7,947,051
The Company has invested in common stock and related warrants of several
publicly traded companies. At June 30, 2000, the Company's investment in
marketable securities is made in seven different companies. The investment in
one such company's securities represents approximately 40% of the estimated
aggregate fair value of all investments in marketable securities at June 30,
2000.
Proceeds from sales of equity securities were $2,232,888 and realized gains were
$1,670,979 for the year ended June 30, 2000. Subsequent to June 30, 2000, the
market value of the investments had decreased $2,078,367.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2000:
Office furniture $ 4,660
Computer equipment 77,449
Telecommunications equipment 1,650
------------
Total 83,759
Less accumulated depreciation and amortization (46,782)
------------
Property and equipment - net $ 36,977
============
6. ADVANCES FROM FACTOR
On December 19, 1996, the Company entered into a Master Agreement for Purchase
and Sale of Accounts with IGT which in substance is a factoring agreement. The
terms of the agreement provide for advances at the lesser of the maximum
purchase obligation of $5,000,000 or at a percentage of the total receivables
that is based on historical uncollectible account data. Interest is charged
monthly at a rate equal to the prime rate plus six percent applied to the
average daily balance during the preceding month. An administrative fee equal
to one tenth of one cent for each transaction record submitted to IGT is also
charged monthly. In addition, an annual facility fee in an amount equal to one
percent of the maximum purchase obligation is due on the anniversary date of the
agreement. The advances and related fees are repaid by customer payments
remitted directly to the factor. The agreement is secured by all accounts
receivable whether or not specifically purchased by the factor. The balance at
June 30, 2000 represents funds advanced in excess of customer payments received
by factor and allowance reserve maintained by factor.
<PAGE>
7. DISPUTED CLAIMS
The Company is in dispute with certain vendors regarding their performance in
accordance with service agreements. 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.
These liabilities were incurred over a period of several years. The ultimate
resolution of these liabilities could not be determined at June 30, 2000.
8. NOTE PAYABLE
The Company had issued 9% convertible secured notes due December 31, 1998 with
interest payable quarterly, escalating to 18.2% in years 2 through 6. The notes
are convertible into 6,000 shares of the Company's common stock at $5.00 per
share. The Company has attempted but has been unsuccessful in locating the
payee. The Company has continued to accrue interest on the note.
9. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes for
the year ended June 30, 2000 consisted of the following:
Current tax provision (benefit) $ 2,129,947
Deferred tax provision (benefit) ( 171,231)
---------------
Total income tax provision (benefit) $ 1,958,716
===============
There was a net long-term deferred tax liability at June 30, 2000 of $1,852,997.
There was a net current deferred tax asset of $59,232 at June 30, 2000. Those
balances are comprised of the following:
Allowance for doubtful accounts $ 59,232
===============
Accrued compensation $ 111,999
Unrealized gains on investments (1,964,996)
---------------
$ 1,852,997
===============
The Company utilized the tax benefit of $1,160,000 from net operating loss
carryforwards of $3,408,000 in the year ended June30, 2000.
A reconciliation for the differences between the effective and statutory income
tax rates is as follows:
2000
----
Federal statutory rates $ 1,631,872 34%
State income taxes - net of federal benefit 383,970 8%
Other (57,126) (1)%
Effective rate $ 1,958,716 41%
====================
<PAGE>
10. LEASE
The Company leases its office space under an operating lease expiring in
April 2001. Rent expense was approximately $26,000 for the year ended June 30,
2000. Minimum annual lease payments for the year ended June 30, 2001 are
approximately $22,000. The lease contains one 2-year renewal option.
11. NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of
shares of common stock outstanding during the year. The Company has adopted
SFAS No. 128 Earnings Per Share. The following presents the computation of
basic and diluted earnings per share from continuing operations:
<TABLE>
<CAPTION>
Per
Income Shares Share
---------- ---------- ------
<S> <C> <C> <C>
Net Income $2,840,906
BASIC EARNINGS PER SHARE:
Income available to Common
Shareholders $2,840,906 15,412,114 $ 0.18
EFFECT OF DILUTIVE SECURITIES $ *
DILUTED EARNINGS PER SHARE $2,840,906 15,673,875 $ 0.18
<FN>
*-less than $0.01 per share
</TABLE>
The effect of dilutive securities for the year ended June 30, 2000, includes
stock options assumed exercised for which the market value exceeds the exercise
price, less shares which would have been purchased by the Company with the
related proceeds. The effect of dilutive securities in the year ended June 30,
2000 is less than $0.01 per share.
12. STOCKHOLDERS' EQUITY
During the year ended June 30, 2000, warrants were exercised for 40,000 shares
of common stock in the amount of $42,000.
The Company issued 300,000 shares of common stock at $0.09 per share to an
officer who is the spouse of the CEO and majority shareholder as payment for
services rendered in a previous year.
The Company cancelled 60,000 shares of common stock previously issued and valued
at $1,200 during the year ended June 30, 2000. The shares were originally
issued for future legal services and those services were never received.
<PAGE>
Stock Options and Warrants
The Company issues stock options from time to time to executives and key
employees. The Company has a qualified stock option plan for its key employees,
consultants and independent contractors. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," and continues to account for
stock based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, no compensation cost has been recognized for the stock
options granted. There were 1,268,534 options granted in the year ended June
30, 2000.
Net income - as reported $ 2,840,906
Net income - pro forma $ 2,587,199
Income per share - as reported $ 0.18
Income per share - pro forma $ 0.17
Under the provisions of SFAS No. 123, the number of proportionately vested
options granted of 338,276 for the year ended June 30, 2000, were used to
determine net earnings and earnings per share under a pro forma basis. There
were 1,268,534 options granted in the year ended June 30, 2000.
During the year ended June 30, 2000, the Company adopted a stock option plan for
key employees and outside directors. Options are to be granted at the
discretion of a non-employee committee of the board of directors. The plan
reserves 1,750,000 shares for the granting of options.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for year ended
June 30, 2000:
Dividend yield None
Volatility 1.074
Risk free interest rate 6.00%
Expected asset life 5 years
A summary of activity for the Company's stock options and warrants is presented
below:
<PAGE>
<TABLE>
<CAPTION>
OPTIONS Exercise Price
------- --------------
<S> <C> <C>
Options outstanding at July 1, 1999 0
Granted 1,268,534 $ 1.00
Exercised 0
Terminated/Expired 0
Options outstanding at June 30, 2000 1,268,534 $ 1.00
------------
Options available for grant at June 30, 2000 481,466
Price per share of options outstanding $ 1.00
Options exercisable at June 30, 2000 338,276
Weighted average remaining
contractual lives 10.00 years
Weighted average exercise price
of options granted $ 1.00
Weighted Average fair value of
options granted during the year $ 0.75
</TABLE>
The Company has the following common stock warrants outstanding at June 30,
2000:
<TABLE>
<CAPTION>
Warrants Price EXPIRATION
-------- ----- -------------
<S> <C> <C> <C>
Warrants outstanding at July 1, 1999 50,000 $1.05 November 2001
500,000 $1.25 March 2000
550,000
---------
Expired (500,000) $1.25
Exercised (40,000) $1.05
---------
Warrants outstanding at June 30, 2000 10,000 $1.05 November 2001
=========
</TABLE>
<PAGE>
13. RELATED PARTY TRANSACTIONS
The Company advanced funds during the year ended June 30, 2000 to two entities
for which the Company's President and Secretary are the sole shareholders. One
of these entities is the majority shareholder of the Company. The Company
reacquired 170,000 shares of its common stock in exchange for the balance of the
advances made and note receivable of approximately $642,000 or at $3.78 per
share. The number of shares was determined on the basis of the trading price of
the Company's common stock at the date of transaction. The shares are recorded
as treasury stock at June 30, 2000. The note bore interest at 8%.
The Company paid $30,000 in consulting fees to the spouse of beneficial majority
shareholder during the year ended June 30, 2000.
During the year ended June 30, 2000, the Company sold certain investments made
by the Company represented by 428,571 shares of common stock of an investee to
the Company's President for $60,000 equaling the Company's cost and market value
at the date of the transaction.
14. CONCENTRATION OF CREDIT RISK
The Company maintains approximately 62% of its investments in marketable
securities with three brokerage firms. Accounts at each firm are insured up to
$500,000 by the Security Investor Protection Corporation (SIPC). At June 30,
2000 investment values exceeded the insured limit by $3,719,401. Approximately
78% of the fair value of marketable securities is comprised of securities of
three entities.
All of the Company's accounts receivable balance is held and collectible through
a single entity that provides the billing and collection services for the
Company.
15. COMMITMENTS AND CONTINGENCIES
On June 1, 2000 the Company entered into a new three-year employment agreement
with its President and Chief Executive Officer. The agreement provides for a
base salary and certain benefits plus an annual bonus up to $200,000. The bonus
is to be paid in cash in increments of $10,000 for each one percent increase in
the pre-tax profits of the Company measured in relation to the prior fiscal
year's pre-tax profit beginning with the year ended June 30, 2000. Pre-tax
profit shall include unrealized gains and losses but shall exclude any
extraordinary items. If the increase in pre-tax profits for any fiscal year
exceeds twenty percent, the excess dollar amount of pre-tax profits shall be
carried forward to the following year or years. In addition, the agreement
provides for an annual retirement benefit, in the form of a nonqualified
Supplemental Executive Retirement Plan ("SERP"), equal to three percent of the
President's final average compensation multiplied by his total years of service
with the company. This benefit shall commence at age 65 and shall be payable
for 20 years. The President also received options to acquire 1,268,534 shares of
common stock under the agreement. The agreement also contains termination
provisions and a one-year non-competition clause and may be extended for
additional one-year terms.
The Company is involved in several legal proceedings incident to the ordinary
course of business. One such matter was settled subsequent to June 30, 2000
resulting in an award payable by the Company for $33, 000 which has been accrued
in the accompanying balance sheet. Management believes that the probable
resolution of other such contingencies will not materially affect the financial
position, results of operations or cash flows of the Company.
* * * * * *
<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, 1999 and 1998 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, 1999
<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,
--------------------------
1999 1998
------------ ------------
REVENUES:
--------
<S> <C> <C>
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
------------ ----------
CASH FLOWS FROM OPERATIONS
--------------------------
<S> <C> <C>
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>
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.
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.
<PAGE>
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.
4. PREPAID EXPENSES
At June 30, 1999 and 1998, prepaid expenses consisted mostly of unamortized
deferred direct response marketing costs.
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment, at cost, at June 30 consists of:
1999 1998
-------- ---------
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
======== =========
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.
<PAGE>
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.
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>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<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 per 1,000
verified customers generated.
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>
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.
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.
<PAGE>
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>
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.
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.
<PAGE>
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.
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.
<PAGE>
The benefit for income taxes for the year ended June 30, 1999 consists of:
Current:
Federal $
State 110,000
------------
110,000
Deferred:
Federal (1,160,000)
State
(1,160,000)
------------
$(1,050,000)
============
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.
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>
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
Basic:
-----
<S> <C> <C>
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 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, 1999, 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.
On May 26, 2000, the Company dismissed its principal certified public
Accountant for the past four annual audit periods, LaVoie, Charvoz & May, and
P.C. The accountant's report on the Company's financial statements for either
of the past four years contained no adverse opinion or disclaimer of opinion.
Nor were any reports on the Company's financial statements qualified or modified
as to uncertainty, audit scope, or accounting principles.
<PAGE>
The decision to dismiss accountants was recommended and approved by the
American Nortel Communications, Inc. Board of Directors.
The Company reports that, over the three past fiscal years and the
subsequent interim period, it had no disagreements with its former accountant
on:
(i) any matter of accounting principles or practices;
(ii) financial statement disclosure; or
(iii) auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreements in connection with its report. No such
scenario existed among the Company and its former accountant.
The Company also reports that it has retained as its certifying public
accountants the firm of King, Weber & Associates, P.C. ("King") the date of
King, Weber & Associates, P.C. engagement was June 21, 2000.
All decisions to engage and/or terminate the relationships between ANC,
LaVoie, and King 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. Williams 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 48 years old Chairman of the Board, President,
Chief Executive Officer
Eva Williams 47 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 9.A. DIRECTORS AND
EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS:
The Company is aware that all filings of Form 4 and 5 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. On January1, 1999, the Board of Directors entered
into a one-year Employment Agreement with Mr. Williams and pursuant to that
agreement Mr. Williams was to be paid an annual salary of $500,000. The
Employment Agreement entered into on January 1, 1999 with Mr. Williams has been
replaced with an Employment Agreement between the Company and William P.
Williams entered into on June 1, 2000 with approval of the Board of Directors.
The Board of Directors requested an outside compensation expert prepare an
appraisal of services performed and compensation required for those services.
Upon the completion of the appraisal the Board of Directors approved the
agreement prepared by the outside compensation expert and entered into the
present Employment Agreement on June 1, 2000.
<PAGE>
On June 1, 2000 the Company entered into a new three-year employment agreement
with its President and Chief Executive Officer. The agreement provides for a
base salary and certain benefits plus an annual bonus up to $200,000. The bonus
is to be paid in cash in increments of $10,000 for each one percent increase in
the pre-tax profits of the Company measured in relation to the prior fiscal
year's pre-tax profit beginning with the year ended June 30, 2000. Pre-tax
profit shall include unrealized gains and losses but shall exclude any
extraordinary items. If the increase in pre-tax profits for any fiscal year
exceeds twenty percent, the excess dollar amount of pre-tax profits shall be
carried forward to the following year or years. In addition, the agreement
provides for an annual retirement benefit, in the form of a nonqualified
Supplemental Executive Retirement Plan ("SERP"), equal to three percent of the
President's final average compensation multiplied by his total years of service
with the company. This benefit shall commence at age 65 and shall be payable
for 20 years. The President also received options to acquire 1,268,534 shares of
common stock under the agreement. The agreement also contains termination
provisions and a one-year non-competition clause and may be extended for
additional one-year terms.
The following table sets forth information concerning the compensation for
the fiscal year ended June 30, 2000, 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 Options Bonus
Compensation
<S> <C> <C> <C> <C> <C>
William P. Williams Jr. 2000 $434,500 $ -0- 1,268,534(3) 200,000
President & CEO
William P. Williams Jr. 1999 $410,000 $ 90,000(1) -0- -0-
President & CEO
Eva Williams 2000 $ 30,000 $ -0- -0- -0-
Secretary
Eva Williams 1999 -0- $ 27,000(2) -0- -0-
Secretary
</TABLE>
(1)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.
(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 granted options of 1,268,534 at an option price of $1.00 per share
to William P. Williams as part of an employment agreement entered into on June
1, 2000. The options vest based on the pre-tax profits and vest in accordance
to the employment agreement. The options expire June 7, 2010.
<PAGE>
ANC has a stock option plan for key employee and executives. The effective
date of the stock option plan is July 8, 2000. The Company has reserved
1,750,000 shares of common stock to fund the stock option plan.
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) sole Director and the Executive Officer of ANC and the
other officer of ANC (who are husband and wife), and (iii) the group of two
officers and the sole Director set forth above as a group, as of as of June
30,2000.
<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)(4) 7,616,173 50.30%
And Eva Williams
</TABLE>
(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. 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.
(4) The Company granted options of 1,268,534 at an option price of $1.00 per
share to William P. Williams as part of an employment agreement entered into on
June 1, 2000. The options vest based on the pre-tax profits and vest in
accordance to the employment agreement. The options expire June 7, 2010. The
stock options are not exercisable as of the filing of the 10-KSB for June 30,
2000.
<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. Wilcom owns a majority of ANC's issued and outstanding voting
shares.
See "Executive Compensation and Security Ownership of Owners and Mangement"
for details regarding stock option plans, stock options granted and employment
agreements for William P. Williams.
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:
(a) Exhibits
Exhibit No. Documents
3.1 Articles of Incorporation *
3.2 By-Laws of Incorporation *
10 Integretel Contract **
10.1 Employment Agreement
10.2 Stock Option Plan
10.3 Stock Option Agreement
11.1 Earnings Per Share ***
21 Subsidiaries: NONE
27 Financial Data Schedule
(b) Reports on Form 8-K
None
* 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 filing from note 11 of the Notes to
Financial Statements for June 30, 2000 included in Item 7 hereof.
<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 26, 2000
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 26, 1999
W. P. Williams
Sole Director and Chief Executive Officer
(Sole executive officer of the registrant)
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