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U.S. Securities and Exchange Commission
Washington, D.C. 20549
____________________
FORM 10-QSB
____________________
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
For the transition period from _____________ to _______________
____________________
Commission File No. 1-13134
____________________
AMERICAN NORTEL COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Wyoming 87-0507851
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7201 East Camelback Road, Suite 320
Scottsdale, AZ 85251
(Address of principal executive offices)
(480) 945-1266
(Issuer's telephone number)
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.
Yes X No
--- ---
The number of shares of the issuer's common equity outstanding as of April
30, 2001 was 15,273,785 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
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1
AMERICAN NORTEL COMMUNICATIONS, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED MARCH 31, 2001
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets
March 31, 2001 (unaudited) and June 30, 2000 . . . . 3
Statements of Operations
For the Three Months and Nine Months Ended
March 31, 2001 (unaudited) and 2000 (unaudited). . . 4
Statements of Cash Flows
For the Three Months and Nine Months Ended
March 31, 2001 (unaudited) and 2000 (unaudited). . . 5
Notes to the Financial Statements . . . . . . . . . . .6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . .9-14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 16
SIGNATURES
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE BALANCE SHEET
AS OF MARCH 31, 2001 AND JUNE 30, 2000
(UNAUDITED)
ASSETS
MARCH 31, 2001 JUNE 30, 2000
CURRENT ASSETS:
Cash and Cash Equivalents $ 559,224 $ 1,405,002
Trade Accounts Receivable 2,836,497 5,734,828
Investments in marketable securities 2,886,987 7,947,051
Prepaid Expenses 162,819 143,129
Notes Receivable 300,909 80,509
Deferred Income Taxes 395,240 59,232
------------- -------------
TOTAL CURRENT ASSETS 7,141,677 15,369,751
PROPERTY AND EQUIPMENT:
Furniture and Fixtures 4,660 4,660
Equipment & Computer Equipment 78,948 77,449
Telecommunications Property 1,650 1,650
LESS: Accumulated Depreciation and Amortization (57,582) (46,782)
------------- -------------
TOTAL PROPERTY AND EQUIPMENT 27,676 36,977
OTHER ASSETS:
Other Assets 6,667 6,667
Escrow Deposits 125,000
TOTAL OTHER ASSETS 131,667 6,667
-------------- --------------
TOTAL ASSETS 7,301,020 15,413,395
============= =============
LIABILITIES
CURRENT LIABILITIES:
Trade Accounts Payable 17,688 761,608
Trade Accounts Payable - Other 301,689 362,189
Accrued Expenses 127,329 149,658
Notes Payable 148,923 50,000
Accrued Interest 61,048 52,938
Factoring Arrangement 926,735 2,383,956
Income Taxes Payable 1,158,002 1,079,947
------------- -------------
TOTAL CURRENT LIABILITIES 2,741,414 4,840,296
DEFERRED INCOME TAXES - - 1,852,997
-------------- --------------
TOTAL LIABILITIES 2,741,414 6,693,293
STOCKHOLDERS' EQUITY
Common Stock, no par value, 50,000,000 shares authorized. 21,980,202 21,980,202
15,273,785 shares issued and 15,273,785
shares outstanding.
Paid In Capital 51,795 51,795
Treasury Stock, 236,858 shares at cost (759,773) (759,773)
Unrealized gain on investments held for sale. (1,269,614) 3,003,535
Accumulated deficit (15,443,004) (15,555,657)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 4,559,606 8,720,102
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,301,020 $ 15,413,395
============== ==============
See the accompanying notes to these unaudited financial statements
3
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
FISCAL QUARTER 2001 FISCAL QUARTER 2000
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
INCOME
Revenue $ 1,859,173 $ 6,967,147 $ 5,293,884 $ 18,098,778
COST OF SALES 1,314,758 5,648,327 4,303,524 13,645,400
-------------- ------------- -------------- -------------
GROSS PROFIT 544,414 1,318,820 990,359 4,453,378
SELLING EXPENSES 11,294 159,716 211,975 771,104
GENERAL & ADMINISTRATIVE 363,313 1,006,367 270,739 935,411
-------------- ------------- -------------- -------------
TOTAL EXPENSES 374,607 1,166,083 482,713 1,706,515
EARNINGS (LOSS) FROM OPERATIONS 169,808 152,738 507,646 2,746,864
OTHER INCOME (EXPENSE)
Other Income - - 1,659,474 1,670,979
Interest Income 15,907 50,636 2,891 7,168
Interest Expense (8,141) (15,534) (33,701) (47,785)
-------------- ------------- -------------- -------------
TOTAL OTHER INCOME 7,766 35,102 1,628,664 1,630,362
NET INCOME BEFORE INCOME TAXES 177,574 187,839 2,136,310 4,377,226
Provisions for Income Taxes Benefit (Expense) (51,810) (75,186) (85,000) (230,000)
NET INCOME (LOSS) $ 125,764 $ 112,653 $ 2,051,310 $ 4,147,226
============== ============= ============== =============
EARNINGS PER SHARE:
BASIC EARNINGS PER SHARE BEFORE INCOME TAXES $ 0.01 $ 0.01 $ 0.13 $ 0.27
-------------- ------------- -------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------- -------------- -------------
SHARES OUTSTANDING
BASIC EARNINGS PER SHARE $ 0.01 $ 0.01 $ 0.13 $ 0.27
-------------- ------------- -------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------- -------------- -------------
SHARES OUTSTANDING
DILUTED EARNINGS PER SHARE BEFORE INCOME TAXES $ 0.01 $ 0.01 $ 0.13 $ 0.27
-------------- ------------- -------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------- -------------- -------------
AND COMMON SHARE EQUIVALENTS OUTSTANDING
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.01 $ 0.13 $ 0.27
-------------- ------------- -------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------- -------------- -------------
AND COMMON SHARE EQUIVALENTS OUTSTANDING
See the accompanying notes to these unaudited financial statements
4
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2001 2000 2000
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 125,764 $ 112,653 $ 2,051,310 $ 4,147,227
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES.
Depreciation and amortization 3,600 10,800 3,600 10,800
Consultants paid with common stock - - - 27,000
(Increase) decrease in assets
Trade accounts receivable 332,292 2,898,331 184,787 (436,824)
Prepaid and other current assets 26,534 (19,690) (68,556) 92,024
Deferred tax asset 19,641 (2,869) - -
Increase (decrease) in liabilities
Trade accounts payable (415,120) (1,387,169) (1,583) (704,051)
Accrued liabilities 8,141 (26,297) 2,397 62,643
Income Taxes Payable 32,169 78,053 85,000 230,000
Accrued expenses 12,109 14,359 (29,766) 4,501
------------- -------------- ------------- ------------
NET CASH PROVIDED IN OPERATING ACTIVITIES 145,130 1,678,171 2,227,187 3,433,318
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable equity securities (125,000) (1,524,222) 534,825 (821,316)
Advances to shareholder - (235,000) (203,500) (233,500)
Sale of Common stock - - - (11,506)
Notes Receivables (35,000) (35,000) - -
Purchases of property and equipment - (1,499) (434) (4,644)
------------- -------------- ------------- ------------
NET CASH USED BY INVESTING ACTIVITIES (160,000) (1,795,721) 330,891 (1,070,966)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments on notes payable (73,235) (728,230) (553,000) (664,819)
------------- -------------- ------------- ------------
NET CASH USED BY FINANCING ACTIVITIES (73,235) (728,230) (553,000) (664,819)
NET DECREASE IN CASH (88,105) (845,780) 2,005,078 1,697,533
CASH AT BEGINNING OF PERIOD 647,327 1,405,002 410,306 717,851
------------- -------------- ------------- ------------
CASH AT END OF PERIOD $ 559,222 $ 559,222 $ 2,415,384 $ 2,415,384
============= ============== ============= ============
See the accompanying notes to these unaudited financial statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
1. Basis of Presentation
The accompanying unaudited financial statements represent the financial position
of American Nortel Communications, Inc. as of March 31, 2001, and March 31,
2000, and include our results of operations and cash flows for the three months
and nine months period ended March 31, 2001 and2000. These statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-QSB. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements. In the
opinion of management, all adjustments to these unaudited financial statements
necessary for a fair presentation of the results for the interim period
presented have been made. The results for the three and nine month ended March
31, 2001 and 2000 may not necessarily be indicative of the results for the
entire fiscal year. These financial statements should be read in conjunction
with our Form 10-KSB for the year ended June 30, 2000, including specifically
the financial statements and notes to such financial statements contained
therein.
2. Summary of Significant Accounting Policies
The Company's accounting policies, the methods of applying those policies, which
affect the determination of its financial position, results of operations and
cash flows are summarized below:
Advertising and Marketing Costs
----------------------------------
Advertising production costs, except for costs associated with marketing, are
charged to operations when incurred. Marketing costs are related to
direct-response marketing and costs are capitalized as required by SOP 93-7 and
amortized. 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 eight to
twelve months.
Cash and Cash Equivalents
----------------------------
Cash and cash equivalents include all short-term 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.
Concentration of Credit Risk
-------------------------------
We maintain cash balances in two banks in Phoenix, Arizona, which have an
average balance of $250,000. The Federal Depository Insurance Corporation
(FDIC) insures accounts at each institution up to $100,000. We maintain
investment balances with two brokerage firms. The Security Investor Protection
Corporation (SPIC) insures accounts at these firms up to $500,000.
6
Income Taxes
-------------
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS 109"), 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.
Revenue Recognition
--------------------
Our revenues are derived principally from long distance telephone service.
Revenue is recorded when service is rendered. Service is rendered when a long
distance telephone call is completed. Revenue is recorded net of an allowance
for certain amounts, which we estimate, will be refunded, rebated,
uncollectable, or not billable. Net billings result from gross submittals
reduced by billing records rejected by the LEC's and adjusted for resubmittals.
Revenue is reported gross of fees charged by the billing company and the LEC's.
Fair Value of Financial Instruments
---------------------------------------
The amounts for investments in marketable securities, trade accounts receivable,
trade accounts payable, accrued liabilities and notes payable, approximate their
fair value due to the short maturity of these instruments. We have determined
that the recorded amounts approximate fair value.
Net Income Per Share
-----------------------
Net loss per share is calculated using the weighted average number of shares of
common stock outstanding during the year. We have adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Use of Estimates
------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This may affect the reported amounts of assets and liabilities and disclosure of
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.
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, we have elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25. 1,000,000 options
were not considered in the diluted earnings per share because exercise price
greater than market price.
Recently Issued Accounting Standards
---------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is effective
for fiscal years beginning after June 15, 2000 (as amended). This statement
establishes accounting and reporting standards requiring that derivative
instruments be recorded on the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company has not completed evaluating the
impact of implementing SFAS No. 133. However, it is not expected to have a
significant impact on the Company.
7
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. SAB No.
101 summarizes the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company believes
it had previously applied the concepts of SAB 101 and the adoption of SAB No.
101 did not have a material effect on the Company's revenues or revenue
recognition policy.
3. COMPREHENSIVE INCOME
Comprehensive income/(loss) includes only unrealized gains and losses from the
holdings of investments in marketable securities.
Nine months Nine months
Ended ended
March 31, March 31,
2001 2000
NET (LOSS) INCOME $ 112,653 $ 4,147,226
OTHER COMPREHENSIVE INCOME:
Unrealized gain (loss) from available-for-sale investments (1,269,613) 0
(net of income tax benefit of $221,139 and $----------)
------------- -----------
Total other comprehensive income (1,269,613) 0
------------- -----------
COMPREHENSIVE (LOSS) INCOME $ (1,269,613) $ 0
============= ===========
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and our plans and expectations. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below in this Form 10-QSB under the heading "Special Note on
Forward-Looking Statements.
THE COMPANY
American Nortel Communications, Inc. ("ANC", "we" or "our" refers to "the
Company") is a Wyoming corporation founded in 1979 and is a reseller of 1-Plus
and 1-800, 888 long-distance telecommunications services. ANC resells to its
customers long distance telephone time that it purchases or leases from other
long distance carriers.
In September 1994, the Company 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. The Company sold its Nortel
Communications subsidiary in June 1996 for nominal consideration to an affiliate
controlled by its 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 our majority stockholder. In February 1996,
the bankruptcy proceedings were dismissed and the Company resumed business as a
seller of long distance communications services.
OVERVIEW OF BUSINESS
ANC resells long distance telephone services to both business and
residential customers. As a reseller, ANC purchases or leases long distance time
from other long distance 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 difference 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 been intense. Increased
competition has lowered the amount resellers can charge customers. ANC
out-sources its sales and marketing to telemarketers and it pays those
telemarketers compensation for each new customer obtained. We do not direct-bill
our customers, but rather we utilize the Local Exchange Carriers (LEC's), which
provide telephone services to our long-distance customers, and perform billing
and collections for us. LEC's receive a fee based upon a certain percentage of
amounts collected. The Company's management believes that the practice of
billing through LECs has a substantial advantage because it increases the
likelihood and promptness of our collections.
We have recently determined to change our strategy of reselling 1 plus 800
and 888 long distance telephone services. The Company's management has
determined that the profit margins from long distance telephone service have
narrowed and are continuing to narrow to an unacceptable extent. We believe the
long ditance service market, as a whole, has experienced a decrease in profit
margins due to the aggressive pricing competition that has characterized the
industry during the last several years. LECs have also experienced competition
with Competitive Local Exchange Carriers ("CLECs"). As a result of this
increase in competition, we have experienced a decrease in profits. Because of
our reduced profitability, we have ceased marketing efforts in long distance
telephone service offerings and are examining other business strategies and
opportunities, which could add to our profitability.
9
Investment in Marketable Securities.With excess cash from operations, We
---------------------------------------
have made investments in other companies, particularly early stage companies.
These issuers may have limited operating histories and revenues.
Investments in marketable securities consisted of the following at March
31, 2001:
Gross Unrealized Fair
Cost Gains Losses Value
---------- -------- ---------- ----------
Equity securities $4,156,601 $150,055 $1,419,669 $2,886,987
We have also invested in common stock and related warrants of several
publicly traded companies. At March 31, 2001, the Company's investment
portfolio consisted of marketable securities of seven different companies. The
investment in one such company's securities represents approximately 41% of the
estimated aggregate fair value of the Company's investment portfolio as of March
31, 2001.
At March 31, 2001, the investment portfolio consisted of 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'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 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.
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's initial web site focuses on fashion, beauty, style, fitness, and
related subjects. PTNM currently provides this content on its interactive web
site www.fashionwindow.com.
---------------------
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 include custom
application development, e-commerce development, web content creation, web
hosting and internet access.
10
Morgan Cooper, Inc. ("MC"). MC was primarily involved in designing
contemporary style clothing. The MC collections were 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 that desire high quality, designer
clothes at competitive prices. ANC is in control the direction of MC and that
direction is being analyzed.
Although the Company has made investments in several publicly traded
corporations, the Company is actively seeking other business opportunities to
offset the reduced profit margins in its long distance telephone reseller
business.
At the quarter ending March31, 2001 the Company deposited $125,000 in
escrow as the Company disputed the ownership, operation, and continued business
of MC and it entered into a settlement agreement with MC, pursuant to which Mr.
And Mrs. Cooper would resign from the Board of Directors and as officers of MC
and W.P. Williams will be appointed as MC's Board of Director and Chief
Executive Officer. The Company relied on the representations of Mr. and Mrs.
Cooper and disbursed $125,000 for the purchase of 6,400,000 shares of MC subject
to its due diligence and completion of the transaction. Subsequently, the
agreements closed on April 14,
RESULTS OF OPERATIONS
Revenues were $1,859,173 and $6,967,147 for three and nine month periods
ended March 31, 2001, respectively, compared to $5,293,884 and $18,098,778 for
three and nine month periods ended March 31, 2000, respectively. The decrease
in revenue was principally the result of a decrease in revenues from our basic 1
Plus and 800, 888 long distance telephone service. We have decreased our
marketing efforts and have experienced attrition in our customer base. We have
maintained our call volumes in the telecommunications industry. However, we have
experienced a continued increase in competition in the U.S. domestic market, and
continue to seek business opportunities to alleviate the potential effects of
cost competition in the domestic telecommunication market. Subsequently, we
have acquired MC and are planning to place an operating company in MC's
operations.
.
Cost of sales were $1,314,758 and $5,648,327 for three and nine month
periods ended March 31, 2001, compared to $4,303,524 and $13,645,400 for three
and nine month periods ended March 31, 2000. Our cost of sales has decreased in
relation to the decrease in revenues, as our revenues have decreased due to
attrition of our customer base. Our cost of sales has decreased due to
decreased costs from our long distance telephone service provider and all other
providers. Our cost of sales is comprised of long-distance fees to long distance
service providers, telemarketing costs, allowances for bad debt, cost of
factoring arrangement, and billing costs. Billing costs include fees for
services provided by LECs and other outside parties, billing integrators that
transfer and organize our customer acquisition, billing, and collection data.
Selling expenses were $11,294 and $159,716 respectively, for three and nine
months ended March 31, 2001, compared to $211,975 and $771,104 for three and
nine months periods ended March 31, 2000. Selling expenses were primarily the
costs associated with the cost of acquiring customers. Our selling costs have
decrease because we have ceased all marketing for new long distance customers.
We have decreased our marketing efforts as competition in the U.S. domestic
long-distance markets increased in order to redirect those revenues to other
business opportunities.
General and administrative expenses were $363,313 and $1,006,367 for the
three and nine months periods ended March 31, 2001 compared to $270,739 and
$935,411 for the three and nine months periods ended March 31, 2000. These costs
are primarily related to customer service staffing and professional fees. The
increase in these costs is related to the increase in professional services in
researching and providing financial and legal due diligence to confirm the
soundness of the new potential business activities that management has pursued.
The costs also include executive compensation and employee benefit costs.
11
Interest income, net of interest expense was $7,766 and $35,102 for the
three and nine months period ended March 31, 2001, respectively, compared to
interest expenses, net of interest income, of $30,810 and $40,617 for the three
and nine months period ended March 31, 2000. Interest income and dividend income
have increased as a result of our increase in investment activities.
Net Income was $125,764 or $.01 per diluted share, and $112,653, or $.01
per diluted share, for the three and nine month periods ended March 31, 2001, as
compared to $2,051,310, or $.13 per diluted share, and $4,147,226, or $.27 per
diluted share, for the three and nine month periods ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $1,678,171 for the nine months
period ended March 31, 2001, compared to $3,433,318 for the nine month period
ended March 31, 2000. We have funded our working capital requirements primarily
from our revenue generated from providing long distance telephone service as a
long distance reseller. Cash from operating activities for the nine month
period ended March 31, 2001 was utilized to increase our prepaid expenses of
$19,690 and accrued expenses of $14,359 and to decrease trade accounts
receivables of $2,898,331, trade accounts payables of $1,387,169, and accrued
liabilities of $26,297. Cash from operating activities for the nine month
period ended March 31, 2000, increased trade accounts receivables of $436,824,
accrued liabilities of $62,643, and accrued interest of $4,501 and by decreases
in prepaid expenses of $92,024 and trade accounts payables of $704,051.
Cash used by investing activities was $1,795,721 for the nine months period
ended March 31, 2001. We purchased marketable securities of $1,524,222,
purchased computer equipment of $1,499; advanced $235,000 to a controlled group,
and lent to business affiliates $35,000. Cash used by investing activities was
$1,070,996 for the nine months ended March 31, 2000. We purchased marketable
securities of $821,316, purchased equipment of $4,644 and made advances to a
shareholder of $233,500.
Cash used from financing activities was utilized to repay our credit
facility with RFC Capital, Inc. in the form of notes payable of $728,230 for the
nine months period ended March 31, 2001. Cash used from financing activities
was utilized to repay our credit facility with RFC Capital, Inc. in the form of
notes payable of $664,819 for the nine months period ended March 31, 2000.
Operating Restrictions. We intend to conduct our business so as to not
-----------------------
become a regulated investment company under the Investment Company Act of 1940
(the "1940 Act"). Accordingly, we do not expect to be subject to the provisions
of the 1940 Act, including those that prohibit certain transactions among
affiliated parties. The 1940 Act exempts issuers primarily engaged, directly or
indirectly, through a wholly-owned subsidiary or subsidiaries, in a business
other than that of investing, reinvesting, owning or holding or trading in
securities. The United States Securities and Exchange Commission ("SEC") may
also, upon application by an issuer, find by order that the issuer is primarily
engaged in the business or businesses other than investing, reinvesting, owning
or holding or trading in securities.
12
The Company's investments in securities are currently 41% of its total
assets, exclusive of government securities and cash items (on an unconsolidated
basis). The Company intends to seek and develop other lines of business, which
would prevent us from becoming subject to the 1940 Act and will, if necessary,
make application to the SEC for an order of exemption. If for any reason the
Company was to become an investment company which is non-exempt from the 1940
Act (for example, due to a change in our assets or a change in the value of
particular assets), we would either have to restructure our assets so as not to
become subject to the 1940 Act or would have to change the way in which the
Company conducts its activities. Either of these changes could require the
Company to sell substantial portions of its assets at a time when it may not
wish to do so, and could incur significant losses as a result. Further, to
avoid becoming subject to the requirements of the 1940 Act, the Company may be
required to forego investments, which we would like to make, or otherwise act in
a manner other than which management believes would maximize its earnings.
These securities are held for investment purposes and we did not sell any
investments for the quarter ended March 31, 2001.
OTHER RISK CONSIDERATIONS
There are numerous factors that affect the Company's business and the
results of its operations. Sources of these factors include general economic and
business conditions, federal and state regulation of the Company's business
activities, the level of demand for our services, the level and intensity of
competition in the telecommunications industry and the pricing pressures that
may result, our ability to develop new services based on new or evolving
technology and the market's acceptance of those new services, our ability to
timely and effectively manage periodic product transitions, the services,
customer and geographic sales mix of any particular period, and the Company's
ability to continue to improve our infrastructure (including personnel and
systems) to keep pace with the growth in its overall business activities.
We will encounter specific transitional risks as the Company attempts to
transition from being a long-distance re-seller into other businesses. The
businesses the Company attempts to acquire may not be profitable or provide the
same cash flow as the long-distance re-seller business has provided. Further,
the Company's management may not have the expertise to manage new businesses the
Company acquires.
Because we have acquired the securities of various small publicly held
companies, which have limited liquidity, we are subject to risks related to the
value of those investments. These risks include the volatility of these
investments, the difficulty we may have in disposing of these investments, and
the risks that interest rates and other economic conditions may adversely affect
the value of these investments. At this time, we do not have an intention of
engaging in the business of investing, reinvesting, owning, holding or trading
in securities and intend to be engaged primarily, as soon as reasonably
possible, but in any event in not less than one year, in a business other than
that of investing, reinvesting, owning, holding or trading in securities. The
value of the 1940 Act of our investment securities presently exceeds the
limitation set forth in Section 3(a)(1)(C) of the 1940 Act required for us to be
classified as an investment company under the 1940 Act.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
We intend that such forward-looking statements be subject to the safe harbors
created thereby. We may make written or oral forward-looking statements from
time to time in filings with the SEC, in press releases, quarterly conference
calls or otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "project," "plans," "estimates" and similar expressions identify
forward-looking statements. Such statements reflect our current views with
respect to future events and financial performance or operations and speak only
as of the date the statements are made.
13
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our actual
results may differ materially from such statements. Factors that cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB, as well as those discussed in our Form 10-KSB
which is incorporated by reference in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded, as a representation that the
future events, plans, or expectations contemplated will be achieved. We
undertake no obligation to publicly update, review, or revise any
forward-looking statements to reflect any change in our expectations or any
change in events, conditions, or circumstances on which any such statements
based. Our filings with the SEC, including the Form 10-KSB, may be accessed at
the SEC's Web site, www.sec.gov.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ANC is involved in various legal proceedings and claims described in our
Form 10-KSB for the year ended June 30, 2000. No material developments occurred
in any of these proceedings during the quarter ended March 31, 2001. The costs
and results associated with these legal proceedings could be significant and
could affect the results of our future operations.
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ADDITIONAL INFORMATION
ANC 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 6: EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS:
None
REPORTS ON FORM 8-K:
No reports on Form 8-K were filed in the fiscal quarter ended March 31,
2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN NORTEL COMMUNICATIONS, INC.
By /s/ William P. Williams
----------------------------
William P. Williams, Chairman of the Board, Chief Executive Officer, and
President
Dated: May 11, 2001
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