Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB/A
(Amendment
No.1)
(mark
one)
x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE FISCAL YEAR ENDED JULY 31,
2005
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD
FROM
_______TO _________
|
Commission
File Number: 1-15687
ATSI
COMMUNICATIONS, INC.
(Name
of Small Business Issuer as Specified in Its Charter)
Nevada
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
74-2849995
(IRS
Employer Identification No.)
|
|
|
|
8600
Wurzbach, Suite 700W
San
Antonio, Texas
(Address
of Principal Executive Offices)
|
|
78240
(Zip
Code)
|
(210)
614-7240
(Issuer’s
Telephone Number, Including Area Code)
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, Par Value $0.001 Per Share
Series
H Convertible Preferred Stock, Par Value $0.001 Per Share
(Title
of Class)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements
for
the past 90 days. xYes
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained herein, and
will not 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. o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act) Yes o No
x
Registrant’s
revenues for its recent fiscal year were $6,011,472
As
of
October 20, 2005, the aggregate market value of the voting common equity held
by
non-affiliates of the Registrant was $3,824,594
based on
the closing price of
$0.34
per
share on October
20, 2005
as
reported on the over-the-counter bulletin board.
There
were 11,248,807 shares of Registrant’s Common Stock outstanding as of
October 20, 2005.
|
|
|
Page
|
PART
I
|
|
|
3
|
|
3
|
|
4
|
|
4
|
|
5
|
|
5
|
|
5
|
|
6
|
|
6
|
|
7
|
|
9
|
|
13
|
|
13
|
|
13
|
|
13
|
|
14
|
|
|
PART
II
|
|
|
|
|
14
|
|
17
|
|
24
|
|
|
|
46
|
|
|
PART
III
|
|
|
|
|
46
|
|
48
|
|
50
|
|
51
|
|
51
|
|
54
|
Purpose
of Amendment
This
Amendment No. 1 to Form 10-KSB is being filed to amend total common shares
outstanding and to amend the aggregate market value of the voting common
equity
held by non-affiliates of the Registrant as of October 20, 2005. And to
reclassify in Part II, Item 7 Consolidated Statements of Cash Flows for the
Years ended July 31, 2005 and 2004 the Non-cash issuance of common stock
for
interest from Cash-flows from Operating Activities to Non-cash Transactions
.
PART
I
We
are an
international telecommunications carrier that utilizes the Internet to provide
cost-efficient and economical international telecommunications services. Our
current operations consist primarily of providing digital voice communications
over the Internet using Voice-over-Internet-Protocol ("VoIP"). We
provide high quality voice and enhanced telecommunication services to carriers,
telephony resellers and other VoIP carriers through various agreements with
service providers in the United States, Mexico, Asia, the Middle East and Latin
America utilizing VoIP telephony services. Our services are as
follows:
Carrier
Services: We
provide VoIP termination services to United States and Latin American
telecommunications companies who lack transmission facilities, require
additional capacity or do not have the regulatory licenses to terminate traffic
in Mexico, Asia, the Middle East and Latin America. Typically these
telecommunications companies offer their services to the public for domestic
and
international long distance services.
Network
Services:
We
provide private communication links and VoIP gateway services to multi-national
and Latin American carriers and enterprise customers who use a high volume
of
telecommunications services to communicate with their U.S. offices or businesses
and need greater dependability than is currently available through their own
telecommunication network. These services include data, voice and fax
transmission between multiple international offices and branches as well as
Internet and collocation services in the United States.
Communication
Services:
We
provide retail local phone service and international VoIP long distance service
to the U.S. Hispanic market throughout Texas, mainly in the Rio Grande Valley.
Our local phone service includes access to a landline and value-added services
such a caller ID and call waiting. These services are offered to our customers
on both a prepaid and postpaid basis. Additionally, we provide prepaid domestic
and long-distance services; under these services we allow our customers to
access our prepaid VoIP network platform. The customer will access this platform
and be able to complete the call by using their local phone number as their
“PIN” or personal identification number.
On
August
1, 2004, we acquired a
Competitive Local Exchange Carrier (“CLEC”) based in South Texas. This
acquisition served as a gateway to reach out to the Hispanic communities
residing along the US and Mexico border. Our strategy is to provide reliable
and
affordable local and long distance services to the underserved Hispanic
community through Texas. Our entry to the retail services under our TeleFamilia
brand and subsidiary will allow us to leverage our existing international VoIP
network with additional services that have the potential to deliver higher
margins than our wholesale international VoIP services. We have deployed various
postpaid and prepaid retail services and generated approximately $94,500 in
retail services revenue during the fiscal year ended July 31, 2005.
Additionally,
during the third quarter of Fiscal year 2005, we expanded our
NexTone’
Communications Session Controller (soft-switch) by 50% to enhance our VoIP
network. This network expansion has allowed us to route our traffic more
efficiently, improve our call processing, monitor quality of service and enable
us to share port resources with our customers. The NexTone technology has
allowed us to be more competitive and to improve our margins in our wholesale
international telecommunication services. As a result of these enhancements
to
our VoIP Network our customer base has grown to approximately 45 customers
and
our revenue increased from $1,254,000 during the year ended July 31, 2004 to
$6,011,000 for the year ended July 31, 2005.
We
have
had operating losses for almost every quarter since we began operations in
1994.
Our
operating losses from continuing operations were approximately $2,224,000 and
$8,485,000, for the years ending July 31, 2005 and 2004, respectively.
Additionally, we had a working capital deficit of approximately $5,428,000
at
July 31, 2005. We
have
experienced difficulty in paying our vendors and lenders on time in the past,
and we expect this trend to continue over the next 12 months as we continue
to
rebuild our operations. Moreover, we are currently pursuing various alternatives
including equity offerings, exchanging some portion or all of our debt for
equity, and restructuring our debt to extend the maturity. However, in the
event
we fail to execute on our current plan or that circumstances currently unknown
or unforeseen by us arise, we may not succeed in re-capitalizing the Company
or
be able to obtain additional funding to allow us to meet our
obligations.
Due
to
the recurring losses, negative cash flows generated from our operations and
our
substantial working capital deficit, our auditor’s opinion on our financial
statements as of July 31, 2005 calls attention to substantial doubts about
our
ability to continue as a going concern. This means that there is substantial
doubt that we will be able to continue in business through the end of our next
fiscal year, July 31, 2006. In order to remain a going concern, we intend to
attract new customers to generate additional revenues and/or generate cash
from
debt or equity offerings. There is no assurance that we will be able to obtain
sufficient additional customers or funding to continue as a going concern.
As
a
result of the recurring losses negative cash flows from operations and our
substantial working capital deficit, during the fiscal year ended July 31,
2005
management continued to pursue different avenues for funding and we entered
into
various short-term convertible promissory notes in the aggregate amount of
$514,000. These funds have allowed the Company to pay those operating and
corporate expenses that were not covered by our current cash inflows from
operations. We will continue to require additional funding until the cash
inflows from operations are sufficient to cover the monthly operating expenses.
There is no assurance that we will be successful in securing additionally
funding over the next twelve months.
ATSI
Communications, Inc., a Nevada corporation, was formed in 2004 as the successor
to the business originally incorporated in 1994 as a Canadian holding company,
Latcomm International, Inc., with a Texas operating subsidiary, Latin America
Telecomm, Inc. Both corporations were renamed “American TeleSource
International, Inc.” in 1994. In May 1998, the Canadian corporation completed a
share exchange with a newly formed Delaware corporation, also called American
TeleSource International, Inc., which resulted in the Canadian corporation
becoming the wholly owned subsidiary of the Delaware Corporation. Our
stockholders voted to change our name from American TeleSource International,
Inc. to ATSI Communications, Inc. in 2003 and to reincorporate in the State
of
Nevada by merger into our wholly owned subsidiary in 2004. We own 49% of ATSI
Comunicaciones S.A de C.V. (ATSICOM), a Mexican corporation, that holds a
30-year concession, allowing for the sale of voice and data services, long
distance transport, and the operation of a telecommunications network in
Mexico.
During
our fiscal year ending July 31, 2005:
· |
On
August 1, 2004, we acquired a
Competitive Local Exchange Carrier (“CLEC”) based in South Texas. This
acquisition served as a gateway to reach out to the Hispanic communities
residing along the US and Mexico border. Our strategy is to provide
reliable and affordable local and long distance services to the
underserved Hispanic community through Texas utilizing our VoIP
infrastructure.
|
· |
We
expanded our NexTone’
Communications Session Controller (soft-switch) by 50% to enhance
our
Voice over Internet Protocol (VoIP) network. This network expansion
has
allowed us to route our traffic more efficiently, improve our call
processing, monitor quality of service and enable us to share port
resources with our customers. The NexTone technology has allowed
us to be
more competitive and to improve margins in our wholesale international
telecommunication services. As a result of these enhancements to
our VoIP
Network our customer base has grown to approximately 45 customers
and our
revenue increased from $1,254,000 during the year ended July 31,
2004 to
$6,011,000 for the year ended July 31, 2005.
|
We
provide three types of services: Carrier Services, Network Services and
Communication Services.
We
provide VoIP termination services to United States and Latin American
telecommunications companies who lack transmission facilities, require
additional capacity or do not have the regulatory licenses to terminate traffic
in Mexico, Asia, the Middle East and Latin America. We also provide 800
toll-free voice origination services from Mexico.
Typically these telecommunications companies offer their services to the public
for local and international long distance services. Revenues from this service
accounted for approximately 81% of our total revenue in the year ended July
31,
2004 (“fiscal 2004”) and 96% of our total revenue in the year ended July 31,
2005 (“fiscal 2005”). The percentage of our total volume of carrier services
traffic sent by customers can fluctuate dramatically, on a quarterly, and
sometimes, daily basis. Historically, a handful of customers have accounted
for
a majority of the total carrier services volume, although not necessarily the
same customers from period to period. During fiscal 2005, we entered into
various reciprocal agreements with our customers that allow them to transport
and terminate traffic over our network and allowed us to transmit and terminate
traffic over their networks. These reciprocals agreements with our customers
were not for a specific period of time or volume of minutes. Under the
reciprocal agreements, both parties were given a set of rates for services
and
each party would decide the volume of minutes it would send to be process.
Therefore on a month-to-month basis there was not a required volume commitment
of minutes from each party and the parties were free to re-route their traffic
away to a lower priced provider.
We
provide private communication links and VoIP gateway services to multi-national
and Latin American carriers and enterprise customers who use a high volume
of
telecommunications services to communicate with their U.S. offices or businesses
and need greater dependability than is currently available through the foreign
telecommunication networks. These services include data, voice and fax
transmission between multiple international offices and branches as well as
Internet and collocation services in the United States. During
fiscal 2005 we provided network services to Bell Canada, a Canadian corporation
on a month-to-month basis and generated approximately $23,000 per month in
revenue. As of May 2005 we are no longer providing these services to the Bell
Canada. We currently provide network Services to World Data, a Mexican
corporation on a month-to-month basis and generate approximately $1,500 per
month in revenue. There is no assurance that we will continue to generate this
level of revenue in the future or that we will be able to enter into a long-term
contract with World Data or any other customer.
We
compete with MCI and AT&T,
as well as the former telecommunication monopolies in the Latin American
countries, in providing network services. Factors contributing to our
competitiveness include reliability, network quality, speed of installation,
and
in some cases, geography, network size, and hauling capacity. We are at a
competitive disadvantage with respect to larger carriers who are able to provide
networks for corporations that encompass more countries in Latin America, as
well as Europe, Asia and other parts of the globe. As a result of these
disadvantages we do not expect a significant increase in revenue from this
source in the near future.
We
provide local phone service and international VoIP long distance service to
the
U.S. Hispanic market in Texas, through our wholly owned subsidiary, Telefamilia
Communications, Inc. Our local phone service includes value-added services
such
a caller ID and call waiting.
On
August
1, 2004, we acquired a
Competitive Local Exchange Carrier (“CLEC”) based in South Texas. This
acquisition served as a gateway to reach out to the Hispanic communities
residing along the US and Mexico border. Revenues
from this service accounted for approximately 1.5% of our total revenue in
the
year ended July 31, 2005. We
have
deployed various postpaid and prepaid retail services and generated
approximately $94,500 in retail services revenue during the fiscal year ended
July 31, 2005
The
basic
technology of traditional telecommunications systems was designed for slow
mechanical switches. Communications over the traditional telephone network
are
routed through circuits that must dedicate resources to each call from its
inception until the call ends, regardless of whether anyone is actually talking
on the circuit. This circuit-switching technology incurs a significant cost
per
call and does not efficiently support the integration of voice with data
services. Data networks, however, were designed for electronic switching. They
break the data stream into small, individually addressed packages of data
(“packets”) that are routed independently of each other from the origin to the
destination. Therefore, they do not require a fixed amount of bandwidth to
be
reserved between the origin and destination of each call and they do not waste
bandwidth when it is not being used for actual transmission of information.
This
allows multiple voice or voice and data calls to be pooled, resulting in these
networks being able to carry more calls with an equal amount of bandwidth.
Moreover, they do not require the same complex switching methods required by
traditional voice telephone networks, instead using a multiplicity of routers
to
direct each packet in the direction of its destination and they automatically
route packets around blockages, congestion or outages.
Packet
switching is a method of transmitting messages that can be used within a data
network or across networks, including the public Internet. The Internet itself
is not a single data network owned by any single entity, but rather a loose
interconnection of networks belonging to many owners that communicate using
the
Internet Protocol (“IP”). By converting voice signals to digital data and
handling the voice signals as data, it can be transmitted through the more
efficient switching networks designed for data transmissions and through the
Internet using the IP. The transmission of voice signals as digitalized data
streams over the Internet is known as Voice over Internet Protocol or “VoIP”. A
VoIP network has the following advantages over traditional
networks:
· |
Integration
of Voice and Data:
VoIP networks allows for the integration of voice, data traffic and
images
into the same network.
|
· |
Simplification:
An
integrated infrastructure that supports all forms of communication
allows
more standardization and less equipment management. The result is
a fault
tolerant design.
|
· |
Network
Efficiency:
The integration of voice and data fills up the data communication
channels
efficiently, thus providing bandwidth consolidation and reduction
of the
costs associated with idle bandwidth. The sharing of equipment and
operations costs across both data and voice users can also improve
network
efficiency since excess bandwidth on one network can be used by the
other,
thereby creating economies of scale for voice (especially given the
rapid
growth in data traffic). An integrated infrastructure that supports
all
forms of communication allows more standardization and reduces the
total
equipment complement. This combined infrastructure can support dynamic
bandwidth optimization and a fault tolerant design. The differences
between the traffic patterns of voice and data offer further opportunities
for significant efficiency improvements.
|
· |
Co-existence
with traditional communication mediums: IP
telephony can be used in conjunction with existing PSTN switches,
leased
and dial-up lines, PBXs and other customer premise equipment (CPE),
enterprise LANs, and Internet connections. IP telephony applications
can
be implemented through dedicated gateways, which in turn can be based
on
open standards platforms for reliability and scalability.
|
· |
Cost
reduction:
Under the VoIP network, the connection is directly to the Internet
backbone and as a result the telephony access charges and settlement
fees
are avoided.
|
The
growth of voice on the Internet was limited in the past due to poor sound
quality caused by technical issues such as delays in packet transmission and
by
bandwidth limitations related to Internet network capacity and local access
constraints. However, the continuing addition of data network infrastructure,
recent improvements in packet switching and compression technology, new software
algorithms and improved hardware have substantially reduced delays in packet
transmissions and the effect of these delays. Nevertheless, certain VoIP routes
into countries with limited or poor Internet infrastructure continue to lack
the
consistent quality required for voice transport and termination.
A
number
of large long distance carriers have announced Internet telephony service
offerings. Smaller Internet telephony service providers have also begun to
offer
low-cost Internet telephony services from personal computers to telephones
and
from telephones to telephones. Traditional carriers have substantial investments
in traditional telephone network technology, and therefore have been slow to
embrace Internet technology.
We
believe that the infrastructure required for a global network is too expensive
for most companies to deploy on their own. This mandates that the network be
a
combination of gateways owned by different operators. For a network to achieve
optimal functionality and quality, however, the gateways need to be
interoperable, or able to communicate with one another. Interoperability
continues to be a challenge for VoIP providers and recently, technological
solutions have emerged that support interoperability between different protocols
and/or gateways. Cisco appears to have emerged as a dominant supplier of VoIP
gateways and other manufacturers often seek to make their equipment
interoperable with Cisco.
Long
distance telephone calls transported over the Internet are less expensive than
similar calls carried over the traditional telephone network primarily because
the cost of using the Internet is not determined by the distance those calls
need to travel. Also, routing calls over the Internet is more cost-effective
than routing calls over the traditional telephone network because the technology
that enables Internet telephony is more efficient than traditional telephone
network technology. The greater efficiency of the Internet creates cost savings
that can be passed on to the consumer in the form of lower long distance rates
or retained by the carrier as higher margins.
By
using
the public Internet, VoIP providers like ATSI are able to avoid direct payment
for transport of communications, instead paying for large “pipes” into the
public Internet, billed by bandwidth rather than usage, which transmits calls
to
a distant gateway. The Internet, which has its origins in programs devised
by
the Department of Defense to provide multiple routes and therefore redundancy
which was largely immune from the failure of a single network element, provides
great redundancy and can be “self healing” in the event of an outage in a
particular network element or transmission path. Moreover, adding an additional
entry or exit point (a Point of Presence or “PoP”) does not require any
expensive or time consuming reconfiguration or reprogramming of existing network
elements. The new element is simply installed with a specific IP address and
it
can send or receive information from any other IP address on the
Internet.
The
long
distance telephony market and the Internet telephony market are highly
competitive. There are several large and numerous small competitors, and we
expect to face continuing competition based on price and service offerings
from
existing competitors and new market entrants in the future. The principal
competitive factors in our market include price, quality of service, coverage,
customer service, reliability, and network size/capacity. Our competitors
include major and emerging telecommunications carriers in the U.S. and foreign
telecommunications carriers. The financial difficulties of many
telecommunications providers are rapidly altering the number, identity and
competitiveness of the marketplace, and we are unable to determine with
certainty the eventual result of the consolidation occurring in our
industry.
During
the past several years, a number of companies have introduced services that
make
Internet telephony or voice services over the Internet available to other
carriers. All major telecommunications companies either presently or could
potentially route traffic to destinations worldwide and compete or can compete
directly with us. Other Internet telephony service providers focus on a retail
customer base and may in the future compete with us in the carrier services
business. In addition, companies currently in related markets have begun to
provide voice over the Internet services or adapt their products to enable
voice
over the Internet services. These related companies may potentially migrate
into
the Internet telephony market as direct competitors.
Carriers
buying wholesale termination into Mexico, while cost conscious, are increasingly
demanding high reliability and quality in service delivery. Sustainability
and
growth in this segment depends on specific competitive advantages that companies
may possess in specific markets. Competitive advantages like proper licenses,
network redundancy, favorable termination agreements, or the presence of a
business infrastructure and relationships in the specific terminating market.
The Company competes with the dominant providers, such as Qwest and MCI, as
well
as other, smaller providers for international long distance services to Mexico.
The Company believes that in contrast to the dominant providers, it has a much
more focused and cost competitive strategy that targets select higher margin
telecommunication niches utilizing VoIP technology. Certain carriers provide
termination services in Mexico at lower prices (e.g., $0.015 to $0.06) because
they contract with other carriers that “leak” into the local network using
unlicensed IP points of presence. These carriers, however, have several
disadvantages including: (i) generally poor quality, (ii) limited
capacity, and (iii) poor reliability, since Mexican authorities
periodically shut down their operations. Additionally, there are a few market
trends that affect our wholesale product’s competitiveness in the market. First,
unauthorized, non-conventional operators continue to have a major impact by
offering prices below real costs. Second, the elimination of settlement rates
in
Mexico continues to drive down costs. The result of this trend is a significant
reduction in revenue per minute. The combination of non-conventional termination
and the new settlement rates have reduced U.S to Mexico termination prices
from
an average price of $0.27 per minute in 1998 to a current $0.045 per minute.
Many
of
our competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we have.
As
a result, certain of these competitors may be able to adopt more aggressive
pricing policies that could hinder our ability to market our services. We
believe that our key competitive advantages are our ability to deliver reliable,
high quality voice service over the Internet in a cost-effective manner. We
cannot provide assurances, however, that these advantages will enable us to
succeed against comparable service offerings from our competitors. A large
number of telecommunications companies, including MCI and Qwest currently
provide wholesale voice telecommunications service which competes with our
business. These companies, which tend to be large entities with substantial
resources, generally have large budgets available for research and development,
and therefore may further enhance the quality and acceptance of the transmission
of voice over the Internet.
Our
strategy is to position ourselves to take advantage of the demonopolization
of
the Latin American telecommunications markets, as well as the increasing demand
for international communications services between these markets and the United
States. Historically, telecommunications services in Latin America have been
provided by state-run companies, operating as a legal or
de
facto
monopoly. Although these companies failed to satisfy the demand for services
in
their countries, the regulatory scheme effectively precluded competition by
foreign carriers. Currently, there is a trend toward demonopolization of the
telecommunications industry in Latin America, and many of these countries are
in
various stages of migration toward a competitive, multi-carrier market. Many
Latin American countries produce a significant number of immigrants to the
United States, or are becoming homes to U.S. based corporations seeking lower
labor costs. At the same time that Latin American markets have been opening
up,
the demand for telecommunications services between the United States and Latin
America (particularly Mexico) has been strengthened by:
· |
the
rapid growth of the Latino segment of the United States population
|
· |
Mexico’s
status as the top calling partner with the United States
|
· |
increase
in trade and travel between Latin America and the United States
|
· |
the
build-out of local networks and corresponding increase in the number
of
telephones in homes and businesses in Latin countries
|
· |
proliferation
of communications devices such as faxes, mobile phones, pagers, and
personal computers
|
· |
declining
rates for services as a result of increased competition.
|
Our
strengths include our knowledge of, and relationships within, the
telecommunications industry in the United States and certain countries within
Latin America, particularly Mexico. Our management and employees have in-depth
knowledge of the Mexican culture, business environment and telecommunications
industry. As a result, we have been able to obtain a key long distance
concession through our 49% ownership in ATSICOM that allows us to both generate
and carry traffic within Mexico and between Mexico and the United States.
Regulation
of Internet Telephony
Our
operations are subject to federal, state and foreign laws and regulations.
The
use
of the Internet to provide telephone service is a fairly recent market
development. At present, we are not aware of any domestic, and only aware of
a
few foreign, laws or regulations that prohibit voice communications over the
Internet.
United
States.
We
believe that, under U.S. law, the Internet-related services that we provide
constitute information services as opposed to regulated telecommunications
services, and, as such, are not currently actively regulated by the Federal
Communications Commission (FCC) or any state agencies charged with regulating
telecommunications carriers. Nevertheless, aspects of our operations may be
subject to state or federal regulation, including regulation governing universal
service funding, disclosure of confidential communications and excise tax
issues. We cannot provide assurances that Internet-related services will not
be
actively regulated in the future. Several efforts have been made in the U.S.
to
enact federal legislation that would either regulate or exempt from regulation
services provided over the Internet. Increased regulation of the Internet may
slow its growth, particularly if other countries also impose regulations. Such
regulation may negatively impact the cost of doing business over the Internet
and materially adversely affect our business, operating results, financial
condition and future prospects.
The
FCC
has considered whether to impose surcharges or other common carrier regulations
upon certain providers of Internet telephony, primarily those which, unlike
us,
provide Internet telephony services directly to end users. While the FCC has
presently refrained from such regulation, the regulatory classification of
Internet telephony remains unresolved. Additionally, the FCC has expressed
an
intention to further examine the question of whether certain forms of
phone-to-phone VoIP services are information services or telecommunications
services. The two are treated differently in several respects, with certain
information services being regulated to a lesser degree. The FCC has noted
that
certain forms of phone-to-phone VoIP services bear many of the same
characteristics as more traditional voice telecommunications services and lack
the characteristics that would render them information services. The FCC has
indicated that the mechanisms for contributing to the Universal Service Fund,
issues as to applicability of access charges and other matters will be
considered in that context.
If
the
FCC were to determine that certain Internet-related services including Internet
telephony services are subject to FCC regulations as telecommunications
services, the FCC could subject providers of such services to traditional common
carrier regulation, including requirements to make universal service
contributions, and pay access charges to local telephone companies. A decision
to impose such charges could also have retroactive effect, which could
materially adversely affect us. It is also possible that the FCC may adopt
a
regulatory framework other than traditional common carrier regulation that
would
apply to Internet telephony providers. Any such determinations could materially
adversely affect our business, financial condition, operating results and future
prospects to the extent that any such determinations negatively affect the
cost
of doing business over the Internet or otherwise slow the growth of the
Internet. Congressional dissatisfaction with FCC conclusions could result in
requirements that the FCC impose greater or lesser regulation, which in turn
could materially adversely affect our business, financial condition, operating
results and future prospects.
State
regulatory authorities may also retain jurisdiction to regulate certain aspects
of the provision of intrastate Internet telephony services. Several state
regulatory authorities have initiated proceedings to examine the regulation
of
such services. Others could initiate proceedings to do so.
Other
regulations affecting the Internet in the United States.
Congress
has recently adopted legislation that regulates certain aspects of the Internet,
including online content, user privacy and taxation. In addition, Congress
and
other federal entities are considering other legislative and regulatory
proposals that would further regulate the Internet. Congress has; for example,
considered legislation on a wide range of issues including Internet spamming,
database privacy, gambling, pornography and child protection, Internet fraud,
privacy and digital signatures. Various states have adopted and are considering
Internet-related legislation. Increased U.S. regulation of the Internet may
slow
its growth, particularly if other governments follow suit, which may negatively
impact the cost of doing business over the Internet and materially adversely
affect our business, financial condition, results of operations and future
prospects. Legislation has also been proposed that would clarify the regulatory
status of VoIP service. The Company has no way of knowing whether legislation
will pass or what form it might take.
Regulations
pertaining to our retail operations.
In
the
United States, services provided through our retail operations are subject
to
the provisions of the Communications Act of 1934, as amended, the FCC
regulations, and the applicable laws and regulations of the various states
and
state regulatory commissions.
As
a
carrier offering services to the public, we must comply with the requirements
of
common carriage under the Communications Act of 1934, including the offering
of
service on a nondiscriminatory basis at just and reasonable rates, and obtaining
FCC approval prior to any assignment of authorizations or any transfer of legal
or actual control of the company.
We
are
subject to various specific common carrier telecommunications requirements
set
forth in the FCC’s rules, including operating, reporting and fee requirements.
Both federal and state regulatory agencies have broad authority to impose
monetary and other penalties on us for violations of regulatory
requirements.
Domestic
Service Regulation. We are considered a non-dominant
domestic interstate carrier subject to minimal regulation by the FCC. We are
not
required to obtain FCC authority to initiate or expand our domestic interstate
operations, but we are required to obtain FCC approval to transfer control
or
discontinue service and to file various reports and pay various fees and
assessments. Among other things, interstate common carriers must offer service
on a nondiscriminatory basis at just and reasonable rates. In addition, as
a
non-dominant carrier, we are subject to the FCC’s complaint jurisdiction.
All
interstate telecommunications carriers are required to contribute to the federal
universal service programs. The FCC currently is considering revising its
universal service funding mechanism. We cannot predict the outcome of these
proceedings or their potential effect on us. Although we currently do not
provide VoIP services to the end user or consumer, VOIP services we may provide
to the consumer in the future is not currently subject to direct regulation
by
the FCC or state regulatory commissions to the extent that they qualify as
“enhanced” or “information” services. The FCC defines enhanced services as
services that (1) employ computer processing applications that act on the
format, content, code, protocol or similar aspects of the subscriber’s
transmitted information, (2) provide the subscriber additional, different or
restructured information, or (3) involve subscriber interaction with stored
information. In 1998, in a non-binding report, the FCC observed that
“computer-to-computer” VOIP may be appropriately considered to be unregulated
but that “phone-to-phone” VOIP may lack the characteristics that would render
them unregulated “information” services. In February 2004, the FCC ruled that
free computer-to-computer VOIP service is not “telecommunications service” and
that it is an interstate “information service.” Although this order clarifies
some of the relevant VOIP issues, the FCC has not yet issued a formal decision
as to whether other variations of VOIP services should be subject to traditional
common carrier telecommunications service regulation or whether any of the
VOIP
services should be subject to universal service contribution and access charge
obligations. In March 2004, the FCC released a Notice of Proposed Rulemaking
(“NPRM”) regarding VOIP service. The NPRM specifically addresses the regulatory
classification and jurisdiction of VOIP; the application of access charges;
and
how to preserve key public policy objectives such as universal service,
911/emergency services, law enforcement surveillance requirements, and the
needs
of persons with disabilities. In November 2004, the FCC ruled that services
provided by a particular VOIP provider are interstate in nature, and not subject
to entry regulations of the various state Public Service Commissions. The FCC,
however, declined to rule on whether the service is a regulated
telecommunications service or an unregulated information service. In addition,
in December 2004, the United States Court of Appeals for the 8th
Circuit
ruled that such VOIP provider’s service is an information service and not
subject to state regulation. The FCC continues to examine the appropriate
regulatory treatment of VOIP. While initial indications from the FCC suggest
that any regulation of VOIP will be limited in nature, the future regulatory
treatment of other variations of VOIP by the FCC and state regulatory bodies
continues to be uncertain. Furthermore, Congressional dissatisfaction with
the
FCC’s treatment of IP telephony could result in legislation requiring the FCC to
impose greater or lesser regulation. Changes to, and further clarifications
of,
the treatment of VOIP services could result in the imposition of burdensome
regulation and fees on some of our services and/or increase certain of our
operating costs.
State
Regulation. Our intrastate long distance operations
are
subject to various state laws and regulations, including, in most jurisdictions,
certification and tariff filing requirements. Telefamilia Communications, Inc.
(Telefamilia), a wholly owned subsidiary of ours, maintains the necessary
certificate and tariff approvals, where approvals are necessary, to provide
intrastate long distance service in Texas. Telefamilia also maintains the
necessary certificate to provide local services in Texas. Texas requires prior
approval or notification for certain stock or asset transfers or
for
the issuance of securities, debt or for name changes. As a certificated carrier,
consumers may file complaints against us at the public service commissions.
Certificates of authority can generally be conditioned, modified, canceled,
terminated, or revoked by state regulatory authorities for failure to comply
with state law and/or the rules, regulations and policies of the state
regulatory authorities. Fines and other penalties also may be imposed for such
violations. Public service commissions also regulate access charges and other
pricing for telecommunications services within each state. The RBOCs and other
LECs have been seeking reduction of state regulatory requirements, including
greater pricing flexibility, which, if granted, could subject us to increased
price competition. We may also be required to contribute to universal service
funds in Texas.
International.
The
regulatory treatment of Internet telephony outside of the U.S. varies widely
from country to country. A number of countries that currently prohibit
competition in the provision of voice telephony also prohibit Internet
telephony. Other countries permit but regulate Internet telephony. Some
countries will evaluate proposed Internet telephony service on a case-by-case
basis and determine whether it should be regulated as a voice service or as
another telecommunications service. Finally, in many countries, Internet
telephony has not yet been addressed by legislation or regulation. Increased
regulation of the Internet and/or Internet telephony providers or the
prohibition of Internet telephony in one or more countries could materially
adversely affect our business, financial condition, operating results and future
prospects.
Other
General regulations
The
Telecommunications Act of 1996 (the “Telecom Act”), which became law in February
1996, was designed to dismantle the monopoly system and promote competition
in
all aspects of telecommunications. The FCC has promulgated and continues to
promulgate major changes to their telecommunications regulations. One aspect
of
the Telecom Act that is of particular importance to us is that it allows Bell
Operating Companies or BOCs to offer in-region long distance service once they
have taken certain steps to open their local service monopoly to competition.
Given their extensive resources and established customer bases, the entry of
the
BOCs into the long distance market, specifically the international market,
will
create increased competition for us.
Although
we do not know of any other specific new or proposed regulations that will
affect our business directly, the regulatory scheme for competitive
telecommunications market is still evolving and there could be unanticipated
changes in the competitive environment for communications in general. For
example, the FCC is currently considering rules that govern how Internet
providers share telephone lines with local telephone companies and compensate
local telephone companies. These rules could affect the role that the Internet
ultimately plays in the telecommunications market.
The
International Settlements Policy governs settlements between top tier U.S.
carriers’ and foreign carriers’ costs of terminating traffic over each other’s
networks. The FCC recently enacted certain changes in our rules designed to
allow U.S. carriers to propose methods to pay for international call termination
that deviate from traditional accounting rates and the International Settlement
Policy. The FCC has also established lower benchmarks for the rates that U.S.
carriers can pay foreign carriers for the termination of international services
and these benchmarks may continue to decline. These rule changes have lowered
the costs of our top tier competitors to terminate traffic in the United States
and are contributing to the downward pricing pressure facing us in the carrier
market.
Mexico
The
Secretaría de Comunicaciones y Transportes or the SCT and COFETEL (Comisión
Federal de Telecomunicaciones or Federal Telecommunications Commission) have
issued ATSICOM a 30-year license granted in June 1998 to install and operate
a
public network. Under this license, ATSI Comunicaciones S.A de C.V. is required
to meet the following:
General
requirements
· |
Maintain
approximately $10 million in registered and subscribed capital.
|
· |
Install
and operate a network in Mexico. The Mexican government will need
to
approve the operating plan before it is implemented; additionally
the
Mexican government will need to approve any future changes to the
operating plan before it can be implemented.
|
· |
Continuously
develop and conduct training programs for its staff.
|
· |
The
Concessionaire at all times needs to have an assigned individual
responsible for the technical functions to operate the concession.
|
Concession
services requirements
· |
The
Concessionaire is required to provide continuous and efficient services
at
all times to its customers.
|
· |
The
Concessionaire must establish a complaint center and correction facilities
center. We are required to report to the Mexican Government on a
monthly
basis the complaints received and the actions taken to resolve the
problems.
|
Tariff
Requirements
· |
The
Concessionaire will only be authorized to invoice its customer’s tariffs
rates that have been approved by the Mexican
government.
|
Verification
and Information requirements
· |
The
Concessionaire is required to provide audited financial statements
on a
yearly basis that includes a detailed description of the fixed assets
utilized in the network and accounting reporting by region and location
of
where the services are being provided.
|
· |
The
Concessionaire is required to provide quarterly reports and updates
on the
expansion of the network in Mexico and a description of the training
programs and research and development programs.
|
· |
The
Concessionaire is required to provide statistic reports of traffic,
switching capacity and other parameters in the
network.
|
Guarantee
requirements
The
Concessionaire is required to have a bond/ insurance policy for approximately
$500,000, where the Mexican Federal Treasury Department will be the beneficiary
in the event the Mexican government revokes the concession license.
We
rely
on various suppliers to provide services in connection with our communication
services. We depend on various Global VoIP companies to complete our voice
over
Internet (VoIP) traffic between US, Mexico,
Asia, the Middle East and Latin America. Our critical
suppliers include, Bestel, Anuera Communciations, Inc. and WireGlobe
Communications.
As
of
July 31, 2005, we had 5 employees, all of whom performed operational, technical
and administrative functions. We believe our future success will depend to
a
large extent on our continued ability to attract and retain highly skilled
and
qualified employees. We consider our employee relations to be good. None of
these aforementioned employees belong to labor unions.
Our
executive office is located at 8600 Wurzbach Rd. Suite 700W, San Antonio, Texas,
consisting of 3,042 square feet. The lease for this facility will expire on
April 30, 2006. We pay annual rent of $42,560. Management believes that our
leased facilities are suitable and adequate for their intended use.
On
October 31, 2002, we filed a lawsuit in the United States District Court for
the
Southern District Court of New York against several individuals and financial
institutions, including the holders of our Series D and E Redeemable Preferred
Stock, for, among other things, stock fraud and manipulation. On February 25,
2005, Judge Lewis A. Kaplan issued a memorandum opinion and order dismissing
the
complaint as to all defendants with prejudice. We plan to appeal that decision
once a final judgment has been entered. On July 9, 2004, we filed a separate
but
related lawsuit in the same court against Sam Levinson and Uri Wolfson. On
April
27, 2005, the court entered a final judgment dismissing that action with
prejudice based on the February 25, 2005 decision in the first action. On May
25, 2005, we appealed the dismissal of the second action to the United States
Court of Appeals for the Second Circuit. On September 9, 2005 we appealed the
dismissal of the first action to the United States Court of Appeals for the
Second Circuit. Our attorneys are also in the process of investigating whether
any other institutions participated in the manipulation of the company's stock
and to advise us whether to pursue other legal proceedings. Currently we cannot
predict the outcome of this litigation or
the
financial impact on our ongoing operations.
On
February 3, 2005 Helen G. Schwartz, Trustee for ATSI Communications, Inc. (a
Texas corporation) and TeleSpan, Inc. filed in the U.S. Bankruptcy Court for
the
Western District of Texas an Adversary Proceeding against ATSI Communications,
Inc., a Nevada corporation alleging that ATSI-Nevada had received preferential
payments as defined by the U.S. Bankruptcy Code in the amount of $510,836.
On
March 31, 2005, ATSI filed its response denying any such payments were received
by ATSI Nevada, formerly ATSI Delaware. On August 29, 2005 the U.S. Bankruptcy
Court for the Western District of Texas dismissed this proceeding against ATSI
Communications, Inc., a Nevada Corporation for lack of merit.
On
March
28, 2005, we entered into a Settlement Agreement, which resolved all claims
in
the case filed in the 407th
Judicial
District Court of Bexar County Texas by with James C. Cuevas, Raymond G. Romero,
Texas Workforce Commission and ATSI-Texas for unpaid wages. The Board of
Directors met on April 28, 2005 and approved the Settlement Agreement. As part
of the settlement, we subsequently issued 169,280 shares of our common
stock.
In
January 2004, we filed a petition in the 150th
Judicial
District of Bexar County, Texas against Inter-tel.net, Inc. and Vianet
Communications, Inc. d/b/a Inter-tel.net seeking declaratory relief that ATSI
Communications, Inc. is not bound by the Carrier Services Agreement between
Vianet Communications, Inc. and ATSI-Texas. On February 27, 2004 the Bankruptcy
Court in the ATSI-Texas Bankruptcy case allowed Vianet Communications, Inc.
to
amend its claim against ATSI-Texas that was pending in the Bankruptcy of
ATSI-Texas and assert its claim for breach of contract against ATSI. The
Bankruptcy Court then ordered the lawsuit to be remanded back to state court
for
hearing. On August 10, 2005 a settlement was reached with Vianet Communications.
As part of the settlement, we issued 200,000 warrants to purchase ATSI stock,
the exercise price on the warrants range from $0.12 to $0.23. Additionally,
we
issued 200,000 shares of Series H preferred Stock that can be converted into
1.2
shares of common stock after it’s been held for (1) one year and into 1.5 shares
of common stock if held for (2) two years.
On
June
17, 2005, ATSI Communications, Inc. filed an arbitration claim against Ntera
Holdings, Inc. for $100,000 and attorney’s fees. The claim is associated with a
dispute over supposed debt incurred under a Reciprocal Network Carrier Service
Agreement between the parties. On July 7, 2005 Ntera Holdings, Inc. filed a
counterclaim. Under the arbitration claim we are not disputing all of the
alleged indebtedness but we are alleging the offset of services and that the
payment should be in the form of exchange of services, as implied in the
Reciprocal Network Carrier Service Agreement with Ntera Holdings, Inc. Currently
we can not predict the result of the arbitration or the financial impact on
our
ongoing operations.
We
may
become a party to future claims and legal proceedings arising in the ordinary
course of business. Due to the inherent uncertainty of litigation, the range
of
possible loss, if any, cannot be estimated with a reasonable degree of precision
and there can be no assurance that the resolution of any particular claim or
proceeding would not have an adverse effect on our results of operations in
the
period in which it occurred.
NONE
PART
II.
(a) |
Market
for Common Equity
|
Our
common stock is quoted on the OTC Bulletin Board under the symbol “ATSX”. From
May 9, 2003 through July 31, 2004 our common stock traded in the pink sheets
under the symbol “ATSC”. Prior to January 15, 2003, our common stock was quoted
on the AMEX under the symbol “AI”. Our Series H Preferred Stock is not traded on
any market. The following table sets forth the high and low bid prices for
our
common stock from August 1, 2003 through July 31, 2005 as reported by OTC
bulletin board. Price quotations on the OTC bulletin board reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not necessarily
represent actual transactions. All stock prices for Fiscal 2004 have been
adjusted to reflect the 1:100 reverse split effective on May 24,
2004.
Fiscal
2004
|
|
High
|
|
Low
|
|
First Quarter
|
|
$
|
2.00
|
|
$
|
2.00
|
|
Second
Quarter
|
|
$
|
1.00
|
|
$
|
1.00
|
|
Third
Quarter
|
|
$
|
1.00
|
|
$
|
1.00
|
|
Fourth
Quarter
|
|
$
|
6.00
|
|
$
|
1.25
|
|
|
|
|
|
|
|
|
|
Fiscal
2005
|
|
|
High
|
|
|
Low
|
|
First Quarter
|
|
$
|
1.20
|
|
$
|
0.56
|
|
Second
Quarter
|
|
$
|
1.25
|
|
$
|
0.48
|
|
Third
Quarter
|
|
$
|
0.92
|
|
$
|
0.21
|
|
Fourth
Quarter
|
|
$
|
0.32
|
|
$
|
0.16
|
|
As
of
July 31, 2005, we had approximately 8,169 common shareholders of record. This
amount does not include shares held in street name.
We
have
never paid any cash dividends on our common stock. Additionally, the terms
of
our Series A, Series D and Series E Preferred Stock restrict us from paying
dividends on our common stock until such time as all outstanding dividends
have
been fulfilled related to each series of preferred stock. There are presently
a
total of $1,296,237 in unpaid dividends payable on outstanding series of
preferred stock. Consequently, we do not anticipate paying any cash dividends
in
the foreseeable future.
(d) |
Securities
issued under Equity Compensation
Plans
|
The
following table provides information relating to the grant of stock, options,
and warrants pursuant to equity based compensation plans as of July 31, 2005.
A
description of each equity compensation plan adopted by the Company is included
in the Notes to the Consolidated Financial Statements contained in this
report.
Plan
Category
|
|
Number
of Securities to be Issued upon Exercise of Outstanding Options,
Warrants
and Rights
|
|
Weighted-average
Exercise Price of Outstanding Options, Warrants and
Rights
|
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in column
(a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
Compensation Plans Not
Approved
by Security Holders
|
|
|
303,140
|
|
|
|
|
|
1,054,149
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
303,140
|
|
|
|
|
|
1,054,149
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
Sales
of Unregistered Securities
|
During
the year ended July 31, 2004, prior to the reincorporation to the state of
Nevada, ATSI issued 400,965 common shares. Of this total, 101,786 shares were
issued as a result of the conversions of ATSI’s Series F Preferred Stock and
accumulated dividends, 297,974 shares were issued as a result of the conversion
of ATSI’s Series G Preferred Stock and accumulated dividends, and 1,205 shares
were issued as a result of the conversion of ATSI’s Series A Preferred Stock.
All shares were exempt from registration pursuant to Section 3(a)(9) of the
Securities Act of 1933 as an exchange for other securities issued by the Company
in which no person was paid any consideration.
Also
during the year ended July 31, 2004, 165 shares were issued for services
rendered to ATSI. These shares were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 since they were issued in a transaction
not
involving a public offering.
On
May 6,
2004 ATSI’s stockholders approved the reincorporation of ATSI in Nevada through
the merger of the Company into a wholly owned subsidiary, ATSI Merger
Corporation. As a result of the merger, ATSI’s stockholders of record as of May
24, 2004 received one (1) share of New ATSI Common Stock and ten (10) shares
of
New ATSI Series H Convertible Preferred Stock for each 100 shares of Old ATSI
Common Stock surrendered. As a result of the merger ATSI exchanged 143,751,710
common shares of the Old ATSI for 1,437,517 shares of the New ATSI Common stock
and 14,385,000 shares of the New ATSI Series H Convertible Preferred Stock.
These shares were exempt from registration pursuant to Rule 145 and Rule 414
under the Securities Act of 1933 as an exchange for the purpose of changing
the
domiciling the Company.
On
August
1, 2004, we issued 40,000 shares of our common stock for the acquisition of
Hinotel, Local Exchange Carrier (“CLEC”) based in South Texas. These shares were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act because of the limited size of the group, the direct relationship
between us and the individuals to whom they were issued, the absence of public
solicitation or advertising, and restrictions on resale of the
shares.
On
October 1, 2004, we issued 687,600 shares of our common stock for the settlement
of debt of approximately $859,500 with Alfonso Torres Roqueni; this debt was
associated with the acquisition of the concision license in July 2000. These
shares were issued pursuant to an exemption from registration under Section
4(2)
of the Securities Act because of the limited size of the group, the direct
relationship between us and the individuals to whom they were issued, the
absence of public solicitation or advertising, and restrictions on resale of
the
shares.
On
October 26, 2004, we issued 30,000 shares of our common stock for the settlement
of a note payable of approximately $250,000 with Infraestructura
Espacial, S.A de C.V. and Tomas Revesz, a former ATSI director. These
shares were issued pursuant to an exemption from registration under Section
4(2)
of the Securities Act because of the limited size of the group, the direct
relationship between us and the individuals to whom they were issued, the
absence of public solicitation or advertising, and restrictions on resale of
the
shares.
On
April
28, 2005, we issued 169,280 shares of our common stock in settlement of all
claims made by James C. Cuevas, Raymond G. Romero, Texas Workforce Commission
and ATSI-Texas for unpaid wages. These shares were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act because
of
the limited size of the group, the direct relationship between us and the
individuals to whom they were issued, the absence of public solicitation or
advertising, and restrictions on resale of the shares.
SPECIAL
NOTE: This Annual Report on Form 10-KSB contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended
and
Section 21E of the Securities and Exchange Act of 1934, as amended. “Forward
looking statements” are those statements that describe management’s beliefs and
expectations about the future. We have identified forward-looking statements
by
using words such as “anticipate,”“believe,”“could,”“estimate,”“may,”“expect,”
and “intend.” Although we believe these expectations are reasonable, our
operations involve a number of risks and uncertainties, including those
described in the Additional Risk Factors section of this Annual Report Form
10-KSB and other documents filed with the Securities and Exchange Commission.
Therefore, these types of statements may prove to be incorrect.
The
following is a discussion of the consolidated financial condition and results
of
operations of ATSI Communications, Inc., for the fiscal years ended July 31,
2005 and 2004. It should be read in conjunction with our Consolidated Financial
Statements, the Notes thereto and the other financial information included
elsewhere in this annual report on Form 10-KSB. For purposes of the following
discussion, fiscal 2005 or 2005 refers to the year ended July 31, 2005 and
fiscal 2004 or 2004 refers to the year ended July 31, 2004.
Sources
of revenue and direct cost
Sources
of revenue:
Carrier
Services: We
currently provide transmission and termination services to U.S. and Foreign
telecommunications companies who lack transmission facilities, require
additional capacity or do not have the regulatory licenses to terminate traffic
in Mexico, Asia, the Middle East and Latin America. Typically
these telecommunications companies offer their services to the public for local
and international long distance services.
Network
Services: We
provide private communication links and VoIP gateway services to multi-national
and Latin American carriers and enterprise customers who use a high volume
of
telecommunications services to communicate with their U.S. offices or businesses
and need greater dependability than is currently available through the foreign
telecommunication networks. These services include data, voice and fax
transmission between multiple international offices and branches as well as
Internet and collocation services in the United States.
Communication
Services:
We
provide retail local phone service and international VoIP
long
distance service to the U.S. Hispanic market throughout Texas, mainly in the
Rio
Grande Valley. Our local phone service includes access to a landline and
value-added services such a caller ID and call waiting. These services are
offered to our customers on both a prepaid and postpaid basis. Additionally,
we
provide prepaid domestic and long-distance services; under these services we
allow our customers to access our prepaid VoIP network platform. The customer
will access this platform and be able to complete the call by using their local
phone number as their “PIN” or personal identification number.
Direct
Cost:
Carrier
Services: We
incur
transmission and termination charges from our suppliers and the providers of
the
infrastructure and network. The cost is based on a per minute rate and volume
of
minutes transported and terminated through the network. Additionally, we incur
a
fixed Internet bandwidth charges and per minute billing charges. In some cases
we incur installation charges from certain carriers; these installation costs
are passed on to our customers for the connection to our VoIP
network.
Network
Services:
Under
the network services, we incur bandwidth charges. The bandwidth charges are
incurred as part of the connection links between the customer’s different remote
locations and sites to transmit data, voice and Internet services. We also
incur
collocation charges that are passed through to our customers.
Communication
Services:
We incur
charges for local telephone service and related features from the local exchange
carrier. Additionally, we incur a cost per minute and platform fees from our
suppliers for long distance services and platform access based on the number
of
accounts and calls accessed by our customers.
Results
of Operations
The
following table sets forth certain items included in our results of operations
in thousands of dollar amounts and as a percentage of total revenues for the
years ended July 31, 2005 and 2004.
|
|
Years
ended July 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
Carrier
services
|
|
$
|
5,782
|
|
|
96
|
%
|
$
|
1,020
|
|
|
81
|
%
|
Network
services
|
|
|
229
|
|
|
4
|
%
|
|
234
|
|
|
19
|
%
|
Total
operating revenues
|
|
|
6,011
|
|
|
100
|
%
|
|
1,254
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services (exclusive of depreciation and amortization, shown
below
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
347
|
|
|
6
|
%
|
|
183
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative Expense
|
|
|
517
|
|
|
9
|
%
|
|
584
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
and professional fees
|
|
|
417
|
|
|
7
|
%
|
|
303
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
issuance of common stock and warrants for services
|
|
|
1,047
|
|
|
17
|
%
|
|
7,055
|
|
|
563
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock-based compensation, employees
|
|
|
474
|
|
|
8
|
%
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
expense
|
|
|
–
|
|
|
0
|
%
|
|
702
|
|
|
300
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
4
|
|
|
0
|
%
|
|
4
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
112
|
|
|
2
|
%
|
|
20
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,224
|
)
|
|
-37
|
%
|
|
(8,485
|
)
|
|
-677
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
forgiveness income
|
|
|
460
|
|
|
8
|
%
|
|
257
|
|
|
0
|
%
|
Gain
on disposal of investment
|
|
|
12,104
|
|
|
201
|
%
|
|
|
|
|
0
|
%
|
Other
income (expense)
|
|
|
(44
|
)
|
|
-1
|
%
|
|
(241
|
)
|
|
-19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
10,296
|
|
|
171
|
%
|
|
(8,469
|
)
|
|
-675
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
preferred stock dividends
|
|
|
(709
|
)
|
|
-12
|
%
|
|
(306
|
)
|
|
-24
|
%
|
Net
income (loss) to applicable to common shareholders
|
|
$
|
9,587
|
|
|
159
|
%
|
|
($8,775
|
)
|
|
-700
|
%
|
Year
Ended July 31, 2005 Compared to Year ended July 31, 2004
Operating
revenues.
Consolidated operating revenues increased by 379% between periods from $1.3
million for the year ended July 31, 2004 to $6.0 million for the year ended
July
31, 2005.
Carrier
services revenues increased by approximately $4.7 million, or 466% from the
year
ended July 31, 2004 to the year ended July 31, 2005. Our VoIP carrier traffic
increased from approximately 25.8
million minutes during the year ended July 31, 2004 to
approximately 149 million minutes during the year ended July 31, 2005. The
increase in revenue and carrier traffic can mainly be attributed to the growth
in VoIP carrier services since the implementation of the NexTone VoIP
soft-switch during the last quarter of fiscal 2004.
Network
services revenues decreased approximately 2% or $5,000 from the year ended
July
31, 2004 to the year ended July 31, 2005. The decrease in network services
revenue is primarily due to termination of the network service agreement with
our major customer for this service. As
a
result we expect a reduction of network service revenue by $22,000 per month.
Communication
services revenues increased by 1% or $94,500 from the year ended July 31, 2004
to the year ended July 31, 2005. The increase in local and long distance retail
services is primarily due to the acquisition in August
1,
2004, of a Competitive Local
Exchange Carrier (“CLEC”) based in South Texas. This acquisition has served as a
gateway to reach out to the Hispanic communities residing along the US and
Mexico border and allowed our local and long distance retail services to grow
from $0 during fiscal 2004 to $94,500 for the year ended July 31, 2005.
Cost
of Services (Exclusive of depreciation and amortization).
The
consolidated cost of services increased by approximately $4.6 million, or 429%
from the year ended July 31, 2004 to the year ended July 31, 2005. The increase
in cost of services is a direct result of the increase in carrier services
revenue and network services revenue. As mentioned above, our carrier traffic
increased from approximately 25.8 million minutes during the year ended July
31,
2004 to approximately 149 million minutes in the year ended July 31, 2005,
thus
increasing our cost of services between periods.
Selling,
General and Administrative (SG&A) Expenses.
SG&A expenses decreased by approximately $67,000, or 11% from the year ended
July 31, 2004 to the year ended July 31, 2005. The decrease is attributable
to
an adjustment of $108,648 in salaries and wages and a reversal of an
over-accrual for services previously recognized.
Legal
and professional Fees.
Legal
and professional fees increased by approximately $114,000, or 38% from the
year
ended July 31, 2004 to the year ended July 31, 2005. The increase is
attributable to the recognition of approximately $225,000 in professional fees
associated with a marketing campaign that commenced during the first quarter
of
fiscal 2005.
Non-cash
issuance of common stock and warrants for services.
Non-cash issuance of common stock and warrants for services decreased by
approximately $6 million from the year ended July 31, 2004 to the year ended
July 31, 2005. This decrease is primarily due to recognition of approximately
$7
million in non-cash compensation expense, this expense was recognized during
the
forth quarter of fiscal 2004 and was associated with the consulting agreements
entered into with certain individual affiliates of Recap Marketing &
Consulting, LLP.
Non-cash
stock-based compensation, employees.
Non-cash compensation expense to employees increased by $474,000 from the year
ended July 31, 2004 to the year ended July 31, 2005. This increase is attributed
to the recognition of approximately $474,000 in non-cash compensation expense
associated with the grant of stock options and stock grants to our employees
and
board of directors.
Impairment
Expense. Impairment
expense decreased by 100% or $702,000 from the year ended July 31, 2004 to
the
year ended July 31, 2005. During the year ended July 31, 2004, in accordance
with U.S. GAAP we determined
that the estimated cash flows expected from the concession license was less
than
the recorded value. As a result we recorded
an impairment loss of approximately $702,000 to reduce the recorded value of
the
concession license. During the year ended July 31, 2005 we did not recognized
any impairment expense.
Bad
debt expense. Bad
debt
expense remained consistent at $4,000 over the year ended July 31, 2004 and
the
year ended July 31, 2005. During the year ended July 31, 2005 we recognized
$4,000 in bad debt expense associated with the write-off of a carriers services
customer that ceased operations.
Depreciation
and Amortization.
Depreciation and amortization increased by $92,000 from the year ended July
31,
2004 to the year ended July 31, 2005. The increase is attributed to the
recognition of depreciation expense and amortization on the NexTone VoIP
soft-switch that was acquired during the last quarter of fiscal
2004.
Operating
income (loss).
The
Company’s operating income (loss) decreased by approximately $6.3 million or 74%
from the year ended July 31, 2004 to the year ended July 31, 2005. This decrease
is primarily due to recognition of approximately $7 million in non-cash
compensation expense, this expense was recognized during the forth quarter
of
fiscal 2004 and was associated with the consulting agreements entered into
with
certain individual affiliates of Recap Marketing & Consulting, LLP.
Additionally, during
the
year ended July 31, 2004, in accordance with U.S. GAAP we determined
that the estimated cash flows expected from the concession license was less
than
the recorded value. As a result we recorded
an impairment loss of approximately $702,000 to reduce the recorded value of
the
concession license. During the year ended July 31, 2005 we did not recognized
any impairment expense.
Debt
forgiveness income. Our
debt
forgiveness income increased by approximately $203,000 from the year ended
July
31, 2004 to the year ended July 31, 2005. During the year ended July 31, 2005,
we negotiated and exchanged various liabilities for equity. These settlements
were related to the settlement of the $859,500 liability with Alfonso Torres
Roqueni, the former owner of the concession license acquired in July 2000,
and
the settlement of a $250,000 note payable with Infraestructura Espacial, S.A
de
C.V. and Tomas Revesz, a former ATSI director. The debt forgiveness income
was
based on the difference between the market price of ATSI equity at the time
of
issuance and the market price calculated at the time of the settlement of the
debt.
Gain
on disposal of investment. During
the year ended July 31, 2005, ATSI recognized a gain on disposal of investment
of approximately $12,104,000. The gain on disposal of investment was associated
with the disposal of ATSI’s subsidiaries, American TeleSource International,
Inc. (ATSI Texas) and TeleSpan, Inc. (TeleSpan). These entities filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on February 4, 2003
and
February 18, 2003 respectively. The court ordered joint administration of both
cases on April 9, 2003 and on May 14, 2003 the court converted the cases to
Chapter 7. The two bankrupt subsidiaries have ceased operations.
Other
income (expense).
Other
income (expense) decreased by approximately $197,000 or 82% from the year ended
July 31, 2004 to the year ended July 31, 2005. The decrease in other income
(expense) is attributed to the decrease in loss in investment in ATSICOM of
approximately $85,000 recognized during the year ended July 31, 2004 associated
with our portion of the losses on our investment in ATSICOM. During the year
ended July 31, 2005 the Company did not incurred any loss in
ATSICOM.
Preferred
Stock Dividends.
Preferred Stock Dividends expense increased by approximately $403,000 between
periods, from $306,000 for the year ended July 31, 2004 to $709,000 during
the
year ended July 31, 2005. The increase in preferred stock dividend expense
can
be attributed to the recognition of $557,000 of dividend expense associated
with
the Redeemable Preferred Series H Stock, as per the certificate of designation
the Redeemable Preferred Series H stockholders earns a 20% premium after is
been
held under the shareholders name for 1 year from the reincorporation in May
2004.
Net
income (loss) to Common Stockholders.
The net
(loss) for the year ended July 31, 2005 decreased to $9,587,000 net income
or
$1.34 per share from $8,775,000 net (loss) or $7.31 (loss) per share for the
year ended July 31, 2004. The decrease in net (loss) to common stockholders
is
mainly attributed to the recognition of a gain on disposal of investment of
$12,104,000. The gain on disposal of investment was associated with the disposal
of ATSI’s subsidiaries, American TeleSource International, Inc. (ATSI Texas) and
TeleSpan, Inc. (TeleSpan). These entities filed for protection under Chapter
11
of the U.S. Bankruptcy Code on February 4, 2003 and February 18, 2003
respectively. The court ordered joint administration of both cases on April
9,
2003 and on May 14, 2003 the court converted the cases to Chapter 7. The two
bankrupt subsidiaries have ceased operations. The gain on disposal of investment
was offset slightly by the recognition of $1,047,000 in non-cash warrant expense
and $474,000 in non-cash stock based compensation expense associated with the
stock options and stock grants awarded to the company employees and board of
directors. Also, there was an increase in depreciation and amortization of
approximately $203,000 from the year ended July 31, 2004 to the year ended
July
31, 2005.
Liquidity
and Capital Resources
The
Company’s financials statements for the year ended July 31, 2005 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. For the year ended July 31, 2005, the Company reported a net income
of
$9,587,000 and has a stockholders deficit as of July 31, 2005 of approximately
$5.8 million. In addition, the Company has a working capital deficiency of
$5.4
million as of July 31, 2005.
Cash
used in operating activities:
During
the year ended July 31, 2005, operations consumed approximately $561,000 in
cash, although, the Company recognized a net income of $10.3 million for 2005.
The net income for fiscal 2005 is attributed to the recognition of $12,104,000
associated with a gain on disposal of investment and the recognition of $460,000
of debt forgiveness income associated with the settlement of various debts.
Additionally, the company recognized $474,000
in non-cash compensation expense associated with the stock grants and stock
options awarded to the employees and board of directors. And we recognized
$1,047,000 in non-cash warrant expense associated with the consulting services
agreement entered into during fiscal 2005. We also recognized an increase in
accounts payable and accrued liabilities of approximately $73,000 and $160,000,
respectively; these increases are related to the recognition of various invoices
associated with the carrier services cost of goods. Also, we recognized an
increase in accounts receivables of $145,000 associated with the billing to
our
customers during the last week of fiscal 2005. We also recognized an increase
in
prepaid expenses for $18,000 related to the prepayments/retainers to our
attorneys for legal services.
Cash
provided used in investing activities:
During
the year ended July 31, 2005, the Company made various payments for $8,000
related to the acquisition of some telecommunications equipment acquired during
fiscal 2005. Additionally, during the quarter ended October 31, 2004,
ATSI
entered into an Asset Purchase Agreement with Hinotel, Inc., a Hispanic owned
Competitive Local Exchange Carrier (“CLEC”) based in South Texas. The assets
purchase under the agreement included Hinotel’s customer base, a customer
management and billing system, and supplier contracts. The transaction also
included the assignment and transfer of the CLEC license in the State of Texas.
The purchase price of the assets was $31,500, paid in 40,000 shares of ATSI
common stock and $7,500 in cash.
Cash
provided by financing activities:
During
the year ended July 31, 2005 we made principal payments on our capital lease
obligation for approximately $2,000 and we received $918,000 from the exercise
of warrants and $514,000 from proceeds from various notes payables. In addition,
as result of the exercise of warrants we also recognized payments of $918,000
on
our notes payable.
Overall,
our net operating, investing and financing activities during the year ended
July
31, 2005 provided a decrease of approximately $65,000 in cash balances. We
intend to cover our monthly operating expenses with our remaining available
cash. Additionally, we will continue to pursue additional equity offerings
to
cover our deficiencies in cash reserves. However, there is no assurance that
we
will be able to secure the equity offerings required to supplement our
deficiencies in cash reserves.
Our
working capital deficit at July 31, 2005 was approximately $5.4 million. This
represents a decrease of approximately $13,519,000 from our working capital
deficit at July 31, 2004. The decrease can primarily be attributed to the
recognition of a gain on disposal of investment of $12,104,000. The gain on
disposal of investment was associated with the disposal of ATSI’s subsidiaries,
American TeleSource International, Inc. (ATSI Texas) and TeleSpan, Inc.
(TeleSpan). These entities filed for protection under Chapter 11 of the U.S.
Bankruptcy Code on February 4, 2003 and February 18, 2003 respectively, these
bankrupt subsidiaries ceased all operations. Additionally, the decrease in
working capital deficit is also attributed to the settlement of various
liabilities through the issuance of common stock. These
settlements were associated with the settlement of $859,500 liability with
Alfonso Torres Roqueni, the former owner of the concession license acquired
in
July 2000 and the settlement of a $250,000 note payable with Infraestructura
Espacial, S.A de C.V. and Tomas Revesz, a former ATSI director.
Our
current liabilities include:
· |
$103,454
owed to Attorneys for legal services rendered during fiscal 2004.
|
· |
$1,186,000
associated with the Series D Cumulative preferred stock. Of this
balance,
$942,000 is associated with the full redemption of this security
and
$244,000 is related to the accrued dividends as of July 31, 2005.
|
· |
$1,351,000
associated with the Series E Cumulative preferred stock. Of this
balance,
$1,058,000 is associated with the full redemption of this security
and
$293,000 is related to the accrued dividends as of July 31, 2005.
During
the fiscal year ended July 31, 2003, the Company was de-listed from
AMEX
and according to the terms of the Series E Cumulative preferred stock
Certificate of Designation, if the Company fails to maintain a listing
on
NASDAQ, NYSE or AMEX the Series E preferred stockholder could request
a
mandatory redemption of the total outstanding preferred stock. As
of the
date of this filing we have not received such redemption
notice.
On
October 31, 2002, we filed a lawsuit in the United States District
Court
for the Southern District Court of New York against several individuals
and financial institutions, including Rose Glen Capital and Shaar
Fund,
the holders of our Series D and E Redeemable Preferred Stock, for,
among
other things, stock fraud and manipulation. On February 25, 2005,
Judge
Lewis A. Kaplan issued a memorandum opinion and order dismissing
the
complaint as to defendants that included the holders of our Series
D and E
Redeemable Preferred Stock. We plan to appeal that decision once
a final
judgment has been entered. These liabilities combined for a total
of
approximately $2,537,000. Accounting rules dictate that these liabilities
must remain on our books under Current Liabilities until the lawsuit
is
resolved in the judicial system or otherwise. At this time we cannot
predict the outcome or the time frame for this to
occur.
|
We
also
have approximately $1,152,000 of current liabilities (net of assets) associated
to the discontinued operations of the retail services unit. This balance is
composed primarily of approximately $453,000 owed to the Mexican taxing
authorities related to a note assumed through the acquisition of Computel and
approximately $699,000 related to income taxes owed as of July 31,
2005.
Ongoing
operations
We
believe that, based on our limited access to capital resources and our current
cash balances, financial resources may not be available to support our ongoing
operations for the next twelve months or until we are able to generate income
from operations. These matters raise substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going concern is
dependent upon the ongoing support of our stockholders and customers, our
ability to obtain capital resources to support operations and our ability to
successfully market our services.
As
outlined in Note 4 to the financial statements, we have incurred amounts of
debt
to finance our working capital requirements. During the year ended July 31,
2005, we borrowed a total of $984,000 from Recap Marketing & Consulting, LLP
to fund our operating expenses and other corporate expenses. This debt was
applied to the payment of warrants issued to certain individual affiliates
of
Recap Marketing & Consulting, LLP.
We
will
continue to pursue cost cutting or expense deferral strategies in order to
conserve working capital. These strategies will limit the implementation of
our
business plan and increase our future liabilities. We are dependent on our
operations and the proceeds from future debt or equity investments to fund
our
operations and fully implement our business plan. If we are unable to raise
sufficient capital, we will be required to delay or forego some portion of
our
business plan, which will have a material adverse effect on our anticipated
results from operations and financial condition. Alternatively, we may seek
interim financing in the form of private placement of debt or equity securities.
Such interim financing may not be available in the amounts or at the time when
is required, and will likely not be on the terms favorable to the
Company.
|
Page
|
|
|
|
|
|
|
|
25
|
|
26
|
|
27
|
|
28
|
|
29
|
|
30
|
|
31
|
To
the
Board of Directors and Stockholders
ATSI
Communications, Inc.
San
Antonio, Texas
We
have
audited the consolidated balance sheet of ATSI
Communications, Inc. and subsidiaries (“ATSI”) as of July 31, 2005 and the
related consolidated statements of operations, comprehensive loss, stockholders’
deficit and cash flows for the years ended July 31, 2005 and 2004. These
consolidated financial statements are the responsibility of ATSI’s management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit 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, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
ATSI as
of
July 31, 2005 and the consolidated results of their operations and their cash
flows for the years ended July 31, 2005 and 2004 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
ATSI will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, ATSI has a working capital deficit, has
suffered recurring losses and has a stockholders’ deficit. These conditions
raise substantial doubt about ATSI’s ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
MALONE
& BAILEY, PC
www.malone-bailey.com
Houston,
Texas
September
9, 2005
ATSI
COMMUNICATIONS, INC.
|
AND
SUBSIDIARIES
|
|
(in
thousands, except share
information)
|
|
|
July
31,
|
|
|
|
2005
|
|
ASSETS |
|
|
|
CURRENT
ASSETS: |
|
|
|
Cash
and cash equivalents
|
|
$
|
29
|
|
Accounts
receivable
|
|
|
170
|
|
Prepaid
& other current assets
|
|
|
44
|
|
Total
current assets
|
|
|
243
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
228
|
|
Less
- Accumulated depreciation
|
|
|
(90
|
)
|
Net
property and equipment
|
|
|
138
|
|
Total
assets
|
|
$
|
381
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
|
604
|
|
Accrued
liabilities
|
|
|
986
|
|
Current
portion of obligation under capital leases
|
|
|
3
|
|
Notes
payable
|
|
|
104
|
|
Note
payable - related party
|
|
|
16
|
|
Convertible
debentures
|
|
|
275
|
|
Series
D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares
issued
and outstanding
|
|
|
1,182
|
|
Series
E Cumulative Preferred Stock, 10,000 shares authorized, 1,170 shares
issued and outstanding
|
|
|
1,345
|
|
Liabilities
from discontinued operations, net of assets
|
|
|
1,152
|
|
Total
current liabilities
|
|
|
5,667
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
Notes
payable
|
|
|
500
|
|
Obligation
under capital leases, less current portion
|
|
|
9
|
|
Other
|
|
|
8
|
|
Total
long-term liabilities
|
|
|
517
|
|
Total
liabilities
|
|
|
6,184
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT:
|
|
|
|
|
Preferred
stock, $0.001 par value, 10,000,000 shares authorized
|
|
|
|
|
Series
A Cumulative Convertible Preferred Stock, 50,000 shares authorized,
3,750
issued and outstanding
|
|
|
–
|
|
Series
H Convertible Preferred Stock, 16,000,000 shares authorized,
13,912,372
issued and outstanding
|
|
|
14
|
|
Common
stock, $0.001, 150,000,000 shares authorized, 10,397,222 issued
and
outstanding
|
|
|
10
|
|
Additional
paid in capital
|
|
|
71,916
|
|
Accumulated
deficit
|
|
|
(78,249
|
)
|
Other
comprehensive income
|
|
|
502
|
|
Total
stockholders' deficit
|
|
|
(5,803
|
)
|
Total
liabilities and stockholders' deficit
|
|
$
|
381
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
|
|
|
|
ATSI
COMMUNICATIONS, INC.
|
AND
SUBSIDIARIES
|
|
(In
thousands, except per share
amounts)
|
|
|
Years
ended July 31,
|
|
|
|
2005
|
|
2004
|
|
OPERATING
REVENUES:
|
|
|
|
|
|
Services
|
|
|
|
|
|
Carrier
services
|
|
$
|
5,782
|
|
$
|
1,020
|
|
Network
services
|
|
|
229
|
|
|
234
|
|
Total
operating revenues
|
|
|
6,011
|
|
|
1,254
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
|
|
5,664
|
|
|
1,071
|
|
Selling,
general and administrative
|
|
|
517
|
|
|
584
|
|
Legal
and professional fees
|
|
|
417
|
|
|
303
|
|
Non-cash
issuance of common stock and warrants for services
|
|
|
1,047
|
|
|
7,055
|
|
Non-cash
stock-based compensation, employees
|
|
|
474
|
|
|
|
|
Impairment
expense
|
|
|
|
|
|
702
|
|
Bad
debt expense
|
|
|
4
|
|
|
4
|
|
Depreciation
and amortization
|
|
|
112
|
|
|
20
|
|
Total
operating expenses
|
|
|
8,235
|
|
|
9,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(2,224
|
)
|
|
(8,485
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
27
|
|
|
7
|
|
Debt
forgiveness income
|
|
|
460
|
|
|
257
|
|
Gain
on disposal of investment
|
|
|
12,104
|
|
|
0
|
|
Gain/(loss)
from sale of assets
|
|
|
–
|
|
|
25
|
|
Loss
on an unconsolidated affiliate
|
|
|
|
|
|
(107
|
)
|
Interest
expense
|
|
|
(71
|
)
|
|
(166
|
)
|
Total
other income
|
|
|
12,520
|
|
|
16
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
|
10,296
|
|
|
(8,469
|
)
|
|
|
|
|
|
|
|
|
LESS:
PREFERRED DIVIDENDS
|
|
|
(709
|
)
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
|
$
|
9,587
|
|
|
($8,775
|
)
|
|
|
|
|
|
|
|
|
BASIC
INCOME (LOSS) PER SHARE
|
|
$
|
1.34
|
|
|
($7.31
|
)
|
|
|
|
|
|
|
|
|
DILUTED
INCOME (LOSS) PER SHARE
|
|
$
|
0.41
|
|
|
($7.31
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
7,128,847
|
|
|
1,199,892
|
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to financial
statements
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|
(In
thousands)
|
|
|
Years
ended July 31,
|
|
|
|
2005
|
|
2004
|
|
Net
income (loss) to common stockholders
|
|
$
|
9,587
|
|
|
($8,775
|
)
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) to common stockholders
|
|
$
|
9,587
|
|
|
($8,775
|
)
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
ATSI
COMMUNICATIONS, INC.
|
AND
SUBSIDIARIES
|
|
(
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
Cumulative
|
|
Total
|
|
|
|
Preferred
Stock (A)
|
|
Preferred
Stock (H)
|
|
Common
Stock
|
|
Additional
|
|
Accumulated
|
|
receivable
from
|
|
Translation
|
|
Stockholders'
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Paid
In Capital
|
|
Deficit
|
|
officers
|
|
Adjustment
|
|
(DEFICIT)
|
|
BALANCE,
JULY 31, 2003
|
|
|
4
|
|
|
0
|
|
|
–
|
|
|
|
|
|
1,036,393
|
|
$
|
1
|
|
$
|
61,125
|
|
|
($80,076
|
)
|
$
|
0
|
|
$
|
502
|
|
|
(18,445
|
)
|
Shares
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
929
|
|
|
1
|
|
|
861
|
|
|
|
|
|
|
|
|
|
|
|
862
|
|
Shares
issued for cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567
|
|
|
1
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Conversion
of redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401
|
|
|
0
|
|
|
313
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
Reincorporation
to Nevada
|
|
|
|
|
|
|
|
|
14,386
|
|
|
14
|
|
|
(14
|
)
|
|
(0
|
)
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
Warrant
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,053
|
|
|
|
|
|
|
|
|
|
|
|
7,053
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,469
|
)
|
|
|
|
|
|
|
|
(8,469
|
)
|
BALANCE,
JULY 31, 2004
|
|
|
4
|
|
|
0
|
|
|
14,386
|
|
|
14
|
|
|
1,038,275
|
|
$
|
3
|
|
$
|
69,179
|
|
|
($88,545
|
)
|
$
|
0
|
|
$
|
502
|
|
|
(18,843
|
)
|
Shares
issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,417
|
|
|
1
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
607
|
|
Shares
issued to Purchase Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
0
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
Shares
issued for P/S Conversion
|
|
|
|
|
|
|
|
|
(473
|
)
|
|
(0
|
)
|
|
473
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Shares
issued for Debt Conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,188
|
|
|
1
|
|
|
943
|
|
|
|
|
|
|
|
|
|
|
|
944
|
|
Exercise
of Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,280
|
|
|
4
|
|
|
914
|
|
|
|
|
|
|
|
|
|
|
|
918
|
|
Warrant
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
872
|
|
|
|
|
|
|
|
|
|
|
|
872
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(709
|
)
|
|
|
|
|
|
|
|
|
|
|
(709
|
)
|
Option
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,296
|
|
|
|
|
|
|
|
|
10,296
|
|
BALANCE,
JULY 31, 2005
|
|
|
4
|
|
|
0
|
|
|
13,912
|
|
|
14
|
|
|
1,045,754
|
|
$
|
10
|
|
$
|
71,916
|
|
|
($78,249
|
)
|
$
|
0
|
|
$
|
502
|
|
|
(5,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|
(In
thousands)
|
|
|
Years
ended July 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
10,296
|
|
$
|
(8,469
|
)
|
Adjustments
to net income (loss):
|
|
|
|
|
|
|
|
Gain
on disposal of investment
|
|
|
(12,104
|
)
|
|
|
|
Debt
forgiveness income
|
|
|
(460
|
)
|
|
(257
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Impairment
Loss
|
|
|
–
|
|
|
702
|
|
Depreciation
and amortization
|
|
|
112
|
|
|
19
|
|
Loss
on an unconsolidated affiliate
|
|
|
|
|
|
107
|
|
Non-cash
issuance of stock grants and options, employees
|
|
|
474
|
|
|
|
|
Non-cash
issuance of common stock and warrants for services
|
|
|
1,047
|
|
|
7,055
|
|
Provision
for losses on accounts receivable
|
|
|
4
|
|
|
4
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Increase
in
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(145
|
)
|
|
(21
|
)
|
Prepaid
expenses and other
|
|
|
(18
|
)
|
|
(31
|
)
|
Increase
/ (Decrease) in
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
73
|
|
|
272
|
|
Accrued
liabilities
|
|
|
160
|
|
|
162
|
|
Net
cash used in operating activities
|
|
|
(561
|
)
|
|
(457
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of property & equipment
|
|
|
(8
|
)
|
|
(130
|
)
|
Cash
proceeds from sale of ATSICOM
|
|
|
|
|
|
187
|
|
Investment
in joint venture in ATSICOM
|
|
|
|
|
|
(47
|
)
|
Acquisition
of business
|
|
|
(8
|
)
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(16
|
)
|
|
10
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
918
|
|
|
410
|
|
Payments
on notes payable
|
|
|
(918
|
)
|
|
(9
|
)
|
Proceeds
from the exercise of warrants
|
|
|
514
|
|
|
|
|
Principal
payments on capital lease obligation
|
|
|
(2
|
)
|
|
|
|
Net
cash provided by financing activities
|
|
|
512
|
|
|
401
|
|
DECREASE
IN CASH
|
|
|
(65
|
)
|
|
(46
|
)
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
94
|
|
|
140
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
29
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
NON-CASH
TRANSACTIONS
|
|
|
|
|
|
|
|
Issuance
of common stock for conversion of debt
|
|
$
|
890
|
|
|
|
|
Issuance
of common stock for purchase of intangible assets
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
ATSI
COMMUNICATIONS, INC.
AND
SUBSIDIARIES
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description
of Business: ATSI
Communications, Inc. (“ATSI”) was incorporated in Nevada on May 24, 2004. ATSI
is an international telecommunications carrier that utilizes the Internet to
provide economical international telecommunications services to carriers and
telephony resellers around the world. ATSI’s continuing operations consist of
VoIP wholesale business and network services. ATSI provides transmission and
termination services to U.S. and Foreign telecommunications companies who lack
transmission facilities, require additional capacity or do not have the
regulatory licenses to terminate traffic in Mexico, Asia, the Middle East and
Latin America.
Reclassifications.
Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Principles
of Consolidation.
The
consolidated financial statements have been prepared on the accrual basis of
accounting under accounting principles generally accepted in the United States
(GAAP). All significant intercompany balances and transactions have been
eliminated in consolidation.
Use
of Estimates.
In
preparing financial statements, management makes estimates and assumptions
that
affect the reported amounts of assets and liabilities in the balance sheet
and
revenue and expenses in the statement of expenses. Actual results could differ
from those estimates.
Cash
and Cash Equivalents.
For
purposes of the statement of cash flows, ATSI considers all highly liquid
investments purchased with an original maturity of three months or less to
be
cash equivalents.
Revenue
Recognition. ATSI
derives revenue from both Carrier Services and Network Services. Revenue
is recognized when persuasive evidence of an arrangement exists, service or
network capacity has been provided, the price is fixed or determinable,
collectibility is reasonably assured and there are no significant obligations
remaining.
Carrier
Service:
ATSI
provides transmission and termination services to U.S. and Foreign
telecommunications companies who lack transmission facilities, require
additional capacity or do not have the regulatory licenses to terminate traffic
in Mexico, Asia, the Middle East and Latin America.
Typically
these telecommunications companies offer their services to the public for local
and international long distance services.
Carrier
service revenue is derived through transporting and terminating minutes of
telecommunications traffic over ATSI’s owned or leased VoIP network (Voice over
Internet Protocol). ATSI recognizes revenue in the period the service is
provided, net of revenue reserves for potential billing credits. Such disputes
can result from disagreements with customers regarding the duration, destination
or rates charged for each call.
Network
Services:
ATSI
provides
private communication links and VoIP gateway services to multi-national and
Latin American carriers and enterprise customers who use a high volume of
telecommunications services to communicate with their U.S. offices or businesses
and need greater dependability than is currently available through the foreign
telecommunication networks. These services include data, voice and fax
transmission between multiple international offices and branches as well as
Internet and collocation services in the United States.
ATSI
recognizes network services revenue during the period the service is
provided.
Communication
Services:
ATSI
provides retail local phone service and international VoIP long distance service
to the U.S. Hispanic market throughout Texas, mainly in the Rio Grande Valley.
Our local phone service includes access to a landline and value-added services
such a caller ID and call waiting. These services are offered to our customers
in both prepaid and postpaid basis. Additionally, ATSI provides prepaid domestic
and long-distance services; under these services ATSI allows our customers
to
access our prepaid VoIP network platform. The customer will access this platform
and be able to complete the call by using their local phone number as their
“PIN” or personal identification number. The revenues derived from prepaid local
telephone and long-distance are billed monthly in advance and are recognized
the
following month when services are provided. Additionally, revenues derived
from
postpaid local telephone and long-distance services are recognized monthly
as
services are provided.
Allowance
for Doubtful Accounts.
Bad debt
expense is recognized based on management’s estimate of likely losses per year,
based on past experience and an estimate of current year uncollectible amounts.
There was no allowance for doubtful accounts as of July 31, 2005.
Note
receivable.
ATSI
has
an unrecorded note receivable from Telemarketing de Mexico S.A de C.V. for
the
sale of 51% of ATSI Comunicaciones S.A de C.V. Under the terms of the “Share
Purchase Agreement” dated May 24, 2003, ATSI was scheduled to receive from
Telemarketing
$20,750 per month for 24 months beginning in May 2004, contingent on ATSI
generating 20,750,000 minutes of monthly traffic through ATSICOM’s network. In
the event the ATSI was not able to reach the above-mentioned volume of monthly
minutes, the monthly payments were to be adjusted based on the percentage of
the
shortfall in minutes, until Telemarketing paid the total remaining purchase
price of $498,000. Currently, ATSI has as a collateral on this note 10% of
ATSICOM’s stock, which was part of the “Share Purchase Agreement” with
Telemarketing.
During
fiscal 2004 ATSI experienced difficulties with DialMex’s network, due primarily
to deficiencies in DialMex’s network capacity, call interruptions and limited
traffic routing selections. Additionally ATSI Comunicaciones S.A de C.V. has
not
been able to complete the required interconnections with other Mexican carriers,
to process domestic and international VoIP traffic. As result, ATSI has not
been
able to generate the monthly minutes required under the Telemarketing agreement.
Consequently, ATSI has not received any payments from Telemarketing since May
2004. Currently ATSI is in negotiations with Telemarketing and its principal
owners regarding payment of the remaining balance owed to us of approximately
$498,000.
Direct
Cost of Revenue:
Carrier
Services: Under
carrier services ATSI incurs termination charges. These charges are related
to
the fees that ATSI is charged by carriers / vendors for the termination of
phone
calls into their infrastructure and network to
terminate traffic in Mexico, Asia, the Middle East and Latin America.
The
cost
is based on a per minute rate and volume. ATSI also incurs installation charges
from various carriers; this cost is passed on to customers for the connection
to
the VoIP network from ATSI’s carriers.
Network
Services:
Under
network services, ATSI incurs satellite and fiber optic charges. The satellite
and fiber optic charges are incurred as part of the connection links between
the
customer’s different remote locations and sites to transmit data, voice and
Internet services.
Communication
Services:
ATSI
incurs charges for local telephone service and related features from the
dominant local exchange carrier. Additionally, ATSI incurs a cost per minute
and
platform fees from two suppliers for long distance services and platform access.
Property
and equipment
is
valued at cost. Additions are capitalized and maintenance and repairs are
charged to expense as incurred. Gains and losses on dispositions of equipment
are reflected in operations. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, which are one to five
years.
Impairment
of Long-Lived Assets.
ATSI
reviews the carrying value of its long-lived assets annually or whenever events
or changes in circumstances indicate that the historical cost-carrying value
of
an asset may no longer be appropriate. ATSI assesses recoverability of the
carrying value of the asset by estimating the future net cash flows expected
to
result from the asset, including eventual disposition. If the future net cash
flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset’s carrying value and fair
value.
During
the year ended July 31, 2004, in accordance with U.S. GAAP, ATSI determined
that the estimated cash flows expected from the concession license would be
less
than the recorded value. As a result, ATSI recorded
an impairment loss of approximately $702,000 to reduce the recorded value of
the
concession license.
Investment
in unconsolidated subsidiary. On
May
22, 2003 ATSI sold 51% of its interest in ATSI Comunicaciones S.A de C.V.,
(ATSI
COM) As of July 31, 2003, ATSI has a 49% interest in the profits and equity
of
ATSICOM, a Mexican Corporation, engaged in providing telecommunications
services. During fiscal 2003 ATSI recorded the investment in the unconsolidated
subsidiary in conformity with the equity method of accounting. During the year
ended July 31, 2004, ATSI has taken a conservative approach and determined
that
the estimated future cash flows expected from the concession license will be
less than its carrying value. As a result ATSI recorded an impairment loss
of
approximately $702,000 to reduce the recorded value of the concession
license. Although
there is no assurance of future value appreciation, ATSI will conduct a
valuation of its investment in the concession license annually and record the
determined value, if any, in its financial statements.
Income
taxes.
ATSI
recognizes deferred tax assets and liabilities based on differences between
the
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws that are expected to be in effect when the differences are
expected to be recovered. ATSI provides a valuation allowance for deferred
tax
assets for which it does not consider realization of such assets to be more
likely than not.
Basic
and diluted net loss per share.
The
basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Diluted net loss per
common share is computed by dividing the net loss adjusted on an "as if
converted" basis, by the weighted average number of common shares outstanding
plus potential dilutive securities. For the year ended July 31, 2004, potential
dilutive securities had an anti-dilutive effect and were not included in the
calculation of diluted net loss per common share.
Stock
based compensation.
ATSI
adopted the disclosure requirements of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation (FAS No. 123) and FAS No. 148 with
respect to pro forma disclosure of compensation expense for options issued.
For
purposes of the pro forma disclosures, the fair value of each option grant
is
estimated on the grant date using the Black-Scholes option-pricing
model.
ATSI
applies APB No. 25 in accounting for its stock option plans and, accordingly,
no
compensation cost has been recognized in ATSI financial statements for stock
options under any of the stock plans which on the date of grant the exercise
price per share was equal to or exceeded the fair value per share. However,
compensation cost has been recognized for warrants and options granted to
non-employees for services provided. The following table illustrates the effect
on net loss and net loss per share if ATSI had applied the fair value provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
|
|
Twelve
months ended July 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Net
income (loss) to common shareholders, as reported
|
|
$
|
9,587,000
|
|
|
($8,775,000
|
)
|
Add: stock
based compensation determined under intrinsic value based
method |
|
|
42,080
|
|
|
|
|
Less:
stock based compensation determined under fair value based
method
|
|
|
(1,000,493
|
)
|
|
|
|
Pro
forma net income (loss)
|
|
$
|
8,628,587
|
|
|
($8,775,000
|
)
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
1.34
|
|
|
($7.31
|
)
|
Pro
forma
|
|
$
|
1.22
|
|
|
($7.31
|
)
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per common share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.41
|
|
|
($7.31
|
)
|
Pro
forma
|
|
$
|
0.38
|
|
|
($7.31
|
)
|
The
fair
value of each option and warrant granted is estimated on the date of grant
using
the Black-Scholes option pricing model with the following
assumptions:
|
|
For
the Years Ended July 31,
|
|
|
|
2005
|
|
2004
|
|
Expected
dividends yield
|
|
|
0.00
|
%
|
|
0.00
|
%
|
Expected
stock price volatility
|
|
|
297
|
%
|
|
248
|
%
|
Risk-free
interest rate
|
|
|
3.5
|
%
|
|
2
|
%
|
Expected
life of options
|
|
|
3
years
|
|
|
1-3
years
|
|
|
|
|
|
|
|
|
|
ATSI
granted 2,104,001 options to purchase common stock to employees during fiscal
2005. Sixty percent of these options vested immediately and the remaining
balance vest over three years. ATSI recorded compensation expense of $42,000
under the intrinsic value method during the year ended July 31, 2005. The
weighted average fair value of options granted during 2005 is $0.46.
There
were no options granted to employees during fiscal 2004.
Concentration
of Credit Risk Financial
instruments that potentially subject ATSI to concentration of credit risk
consist primarily of trade receivables. In the normal course of business, ATSI
provides credit terms to its customers. Accordingly, ATSI performs ongoing
credit evaluations of its customers and maintains allowances for possible
losses, which, when realized, have been within the range of management’s
expectations. ATSI maintains cash in bank deposits accounts, which, at times,
may exceed federally insured limits. ATSI has not experienced any losses in
such
accounts and ATSI does not believe ATSI is exposed to any significant credit
risk on cash and cash equivalents.
Recently
issued accounting pronouncements.
In
December 2004, the FASB issued SFAS No.123R, “Accounting for Stock-Based
Compensation”. SFAS No.123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services. This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No.123R requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services are
performed. Prior to SFAS No.123R, only certain pro forma disclosures of fair
value were required. SFAS No.123R shall be effective for small business issuers
as of the beginning of the first interim or annual reporting period that begins
after December 15, 2005. The adoption of this new accounting pronouncement
is
not expected to have a material impact on the financial statements of ATSI
during fiscal year 2006.
ATSI
does
not expect the adoption of any other recently issued accounting pronouncements
to have a significant impact on ATSI’s results of operations, financial position
or cash flow.
NOTE
2 - GOING CONCERN
As
shown
in the accompanying financial statements, ATSI incurred recurring net losses
from operations of $2,224,000 and $8,485,000 in fiscal 2005 and 2004,
respectively, has an accumulated deficit of $78 million and a working capital
deficit of $5.4 million as of July 31, 2005. These conditions create substantial
doubt as to ATSI’s ability to continue as a going concern. Management will
continue to pursue financings that may include raising additional capital
through sale of common stock, preferred stock, or warrants. The financial
statements do not include any adjustments that might be necessary if ATSI is
unable to continue as a going concern.
NOTE
3 - PROPERTY AND EQUIPMENT
Following
is a summary of ATSI’s property and equipment at July 31, 2005 (in
thousands):
|
|
Depreciable
lives
|
|
July
31, 2005
|
|
Telecom
equipment & Software
|
|
|
1-5
years
|
|
$
|
228
|
|
Less:
accumulated depreciation
|
|
|
|
|
|
(90
|
)
|
Net-property
and equipment
|
|
|
|
|
$
|
138
|
|
For
the
years ended July 31, 2005 and 2004, depreciation and amortization totaled
approximately $112,000 and $20,000, respectively.
NOTE
4 - NOTES PAYABLE
During
the year ended July 31, 2005, ATSI borrowed a total of $514,000 from
Recap
Marketing & Consulting, LLP (“Recap”) and entered into a series of unsecured
convertible promissory notes bearing interest at the rate of 12% per annum,
with
the following maturity dates:
Origination
Date
|
|
Amount
|
|
Maturity
Date
|
|
|
|
|
|
|
|
August
23, 2004
|
|
$
|
25,000
|
|
|
August
23, 2005
|
|
August
30, 2004
|
|
|
25,000
|
|
|
August
30, 2005
|
|
September
15, 2004
|
|
|
25,000
|
|
|
September
15, 2005
|
|
September
20, 2004
|
|
|
150,000
|
|
|
September
20, 2005
|
|
October
8, 2004
|
|
|
25,000
|
|
|
October
8, 2005
|
|
October
12, 2004
|
|
|
25,000
|
|
|
October
12, 2005
|
|
October
15, 2004
|
|
|
10,000
|
|
|
October
15, 2005
|
|
October
25, 2004
|
|
|
15,000
|
|
|
October
25, 2005
|
|
November
5, 2004
|
|
|
25,000
|
|
|
November
5, 2005
|
|
November
15, 2004
|
|
|
15,000
|
|
|
November
15, 2005
|
|
December
1, 2004
|
|
|
10,000
|
|
|
December
1, 2005
|
|
December
21, 2004
|
|
|
10,000
|
|
|
December
21, 2005
|
|
January
4, 2005
|
|
|
10,000
|
|
|
January
4, 2006
|
|
February
2, 2005
|
|
|
10,000
|
|
|
February
2, 2006
|
|
February
3, 2005
|
|
|
4,000
|
|
|
February
3, 2006
|
|
February
17, 2005
|
|
|
10,000
|
|
|
February
17, 2006
|
|
March
22, 2005
|
|
|
10,000
|
|
|
March
22, 2006
|
|
April
6, 2005
|
|
|
10,000
|
|
|
April
6, 2006
|
|
May
10, 2005
|
|
|
75,000
|
|
|
May
10, 2006
|
|
July
14, 2005
|
|
|
25,000
|
|
|
July
14, 2006
|
|
TOTAL
DURING FY2005:
|
|
$
|
514,000
|
|
|
|
|
Additionally,
on November 1, 2004, ATSI entered into a note payable with Franklin Cardwell
and
Jones, PC, for $103,454 associated with legal and professional services
previously rendered. The promissory note payable has a maturity date of December
1, 2005 and has an annual interest rate of 6%. Beginning November 1, 2005,
the
holder of the note may convert all or any part of the outstanding balance and
accrued and unpaid interest to shares of ATSI’s common stock equal to the amount
converted divided by the product of (a) 0. 90 times (b) the five-day average
of
the last sales of the common stock prior to the conversion day.
NOTE
5 - CONVERTIBLE SUBORDINATED DEBENTURES
During
fiscal 2002 ATSI received $275,000 of advances without specific terms of
repayment or interest. In January 2003 ATSI issued 275 9% Convertible
Subordinated Debentures with a face value of $1,000 each, due December 2005
and
warrants to purchase 137,500 shares of common stock in exchange for the $275,000
previously advanced. Each debenture accrues interest at the rate of 9% per
annum
payable quarterly. The debentures convert into common stock at a conversion
price of $13.50 and the warrants are priced at $11.20. At July 31, 2005, ATSI
was in default of the terms of the debentures for non-payment of quarterly
interest. As of July 31, 2005, ATSI had approximately $80,070 in accrued
interest related to these debentures.
NOTE
6 - GAIN ON DISPOSAL OF INVESTMENT
During
the year ended July 31, 2005, ATSI recognized a gain on disposal of investment
of approximately $12,104,000. The gain on disposal of investment was associated
with the disposal of ATSI’s subsidiaries, American TeleSource International,
Inc. (ATSI Texas) and TeleSpan, Inc. (TeleSpan). These entities filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on February 4, 2003
and
February 18, 2003, respectively. The court ordered joint administration of
both
cases on April 9, 2003 and on May 14, 2003 the court converted the cases to
Chapter 7. The two bankrupt subsidiaries were ATSI’s primary operating companies
and they have ceased operations. These bankruptcies did not include ATSI
Communications, Inc., the reporting entity. On July 2, 2003, the U.S. Bankruptcy
Court handling the Chapter 7 cases for ATSI Texas and TeleSpan approved the
sale
of two of their subsidiaries, ATSI de Mexico S.A de C.V. (ATSI Mexico) and
Servicios de Infraestructura S.A de C.V. (SINFRA), to Latingroup Ventures,
L.L.C. (LGV), a non-related party. Under the purchase agreement LGV acquired
all
the communication center assets and assumed all related liabilities.
Additionally, under the agreement, LGV acquired the “Comercializadora”License
owned by ATSI Mexico and the Teleport and Satellite Network License and the
20-year Packet Switching Network license owned by SINFRA. The Chapter 7
Bankruptcy Trustee received $17,500, which represented all the proceeds from
the
sale of these entities. The Chapter 7 Bankruptcy Trustee has managed the
designation of these funds for the benefit of the creditors of ATSI Texas and
TeleSpan. Upon liquidation of all the assets owned by ATSI Texas and TeleSpan,
the Chapter 7 Trustee will manage all claims with the related creditors. ATSI
did not receive any creditor objections to these court proceedings.
The
following represents the pre-petition liabilities of the bankrupt subsidiaries,
net of assets (in thousands):
|
|
|
|
Accounts
payable
|
|
$
|
7,496
|
|
Accrued
liabilities
|
|
|
2,015
|
|
Notes
payable
|
|
|
386
|
|
Capital
leases
|
|
|
2,207
|
|
TOTAL
CURRENT LIABILITIES:
|
|
$
|
12,104
|
|
NOTE
7 - SETTLEMENT AND RESTRUCTURING OF DEBT
On
October 1, 2004, ATSI entered into a Settlement Agreement and Mutual release
with Alfonso Torres Roqueni, the former owner of the concession license
purchased by ATSICOM in July 2000. Under the settlement agreement amounts owed
of $1,360,000 were restructured and settled in exchange for the issuance by
ATSI
of 687,600 common shares for the payment of $860,000 of the related obligation.
The common shares were considered issued at $1.25 per share. Additionally,
on
the measurement date of April 1, 2005, the average closing price of ATSI common
stock for the ten (10) trading days immediately preceding the measurement date
was below $1.15, as a result ATSI issued an additional 59,791 common shares.
As
well as part of the settlement, ATSI issued a promissory note for the remaining
balance of $500,000. The note accrues interest at the rate of 6% per
annum
and has a maturity date of October 1, 2007, with no monthly payments. ATSI
recognized a gain of $235,000 on the settlement of this debt. As
of
July 31, 2005, ATSI had approximately $25,000 in accrued interest related to
this note.
On
October 26, 2004, ATSI entered into a Settlement Agreement and Mutual release
with Infraestructura Espacial, S.A de C.V. and Tomas Revesz, a former ATSI
director. Under the settlement agreement, ATSI issued 30,000 shares of its
common stock for the settlement of all principal and interest owed under a
note
payable in the amount of $250,000. This note was originally entered into on
March 22, 2001 and subsequently restructured on September 12, 2002. ATSI
recognized a gain of $225,000 on the settlement of this debt.
On
March
28, 2005, ATSI entered into a Settlement Agreement (at mediation) with James
C.
Cuevas, Raymond G. Romero, Texas Workforce Commission and ATSI-Texas. The
Settlement Agreement was subject to board approval. The Board of Directors
met
on April 28, 2005 and approved the Settlement Agreement, subsequently; ATSI
issued 169,280 shares of its common stock for the settlement of all unpaid
wages
in the amount of $90,000. This claim was originally filed in December 2003
by
ATSI as a cause of action in the 407th Judicial District of Bexar County, Texas
against James C. Cuevas, Raymond G. Romero, Texas Workforce Commission and
ATSI-Texas whereby ATSI was seeking judicial review on the decision issued
by
the Texas Workforce Commission were it awarded a claim for unpaid wages against
ATSI.
NOTE
8 - ACQUISITION OF A LOCAL EXCHANGE CARRIER COMPANY
On
August
1, 2004, ATSI entered into an Asset Purchase Agreement with Hinotel, Inc.,
a
Hispanic owned Competitive Local Exchange Carrier (“CLEC”) based in South Texas.
The assets purchased under the agreement included Hinotel’s customer base, a
customer management and billing system, and supplier contracts. Additionally,
the transaction included the assignment and transfer of the CLEC license in
the
State of Texas. The purchase price of the assets was $32,000 paid in 40,000
shares of ATSI common stock and $8,000 in cash.
NOTE
9 COMMITMENTS AND CONTINGENCIES
Leases:
ATSI
leases its office space with monthly payments of $3,547; the lease expires
in
March 2006. The rent expense under the operating lease was $38,760 and $41,420
for 2004 and 2005, respectively. The future minimum lease payment under the
operating lease is $42,564 for FY2006.
Litigation:
On
October 31, 2002, ATSI filed a lawsuit in the United States District Court
for
the Southern District Court of New York against several individuals and
financial institutions, including the holders of our Series D and E Redeemable
Preferred Stock, for, among other things, stock fraud and manipulation. On
February 25, 2005, Judge Lewis A. Kaplan issued a memorandum opinion and order
dismissing the complaint as to all defendants with prejudice. ATSI plans to
appeal that decision once a final judgment has been entered. On July 9, 2004,
ATSI filed a separate but related lawsuit in the same court against Sam Levinson
and Uri Wolfson. On April 27, 2005, the court entered a final judgment
dismissing that action with prejudice based on the February 25, 2005 decision
in
the first action. On May 25, 2005, ATSI appealed the dismissal of the second
action to the United States Court of Appeals for the Second Circuit. On
September 9, 2005, ATSI appealed the dismissal of the first action to the United
States Court of Appeals for the Second Circuit. Our attorneys are also in the
process of investigating whether any other institutions participated in the
manipulation of the company's stock and to advise us whether to pursue other
legal proceedings. Currently ATSI cannot predict the outcome of this litigation
or the financial impact on our ongoing operations.
On
February 3, 2005 Helen G. Schwartz, Trustee for ATSI Communications, Inc. (a
Texas corporation) and TeleSpan, Inc. filed in the U.S. Bankruptcy Court for
the
Western District of Texas an Adversary Proceeding against ATSI Communications,
Inc., a Nevada corporation alleging that ATSI-Nevada had received preferential
payments as defined by the U.S. Bankruptcy Code in the amount of $510,836.
On
March 31, 2005, ATSI filed its response denying any such payments were received
by ATSI Nevada, formerly ATSI Delaware. On August 29, 2005 the U.S. Bankruptcy
Court for the Western District of Texas dismissed this proceeding against ATSI
Communications, Inc., a Nevada Corporation for lack of merit.
On
March
28, 2005, ATSI entered into a Settlement Agreement, which resolved all claims
in
the case filed in the 407th
Judicial
District Court of Bexar County Texas by with James C. Cuevas, Raymond G. Romero,
Texas Workforce Commission and ATSI-Texas for unpaid wages. The Board of
Directors met on April 28, 2005 and approved the Settlement Agreement. As part
of the settlement, ATSI subsequently issued 169,280 shares of our common
stock.
In
January 2004, ATSI filed a petition in the 150th
Judicial
District of Bexar County, Texas against Inter-tel.net, Inc. and Vianet
Communications, Inc. d/b/a Inter-tel.net seeking declaratory relief that ATSI
Communications, Inc. is not bound by the Carrier Services Agreement between
Vianet Communications, Inc. and ATSI-Texas. On February 27, 2004 the Bankruptcy
Court in the ATSI-Texas Bankruptcy case allowed Vianet Communications, Inc.
to
amend its claim against ATSI-Texas that was pending in the Bankruptcy of
ATSI-Texas and assert its claim for breach of contract against ATSI. The
Bankruptcy Court then ordered the lawsuit to be remanded back to state court
for
hearing. On August 10, 2005 a settlement was reached with Vianet Communications.
As part of the settlement, ATSI issued 200,000 warrants to purchase ATSI stock,
the exercise price on the warrants range from $0.12 to $0.23. Additionally,
ATSI
issued 200,000 shares of Series H preferred Stock that can be converted into
1.2
shares of common stock after it’s been held for (1) one year and into 1.5 shares
of common stock if held for (2) two years.
On
June
17, 2005, ATSI filed an arbitration claim against Ntera Holdings, Inc. for
$100,000 and attorneys fees. The claim is associated with a dispute over
supposed debt incurred under a Reciprocal Network Carrier Service Agreement
between the parties. On July 7, 2005 Ntera Holdings, Inc. filed a counterclaim.
Under the arbitration claim, ATSI is not disputing all of the alleged
indebtedness but ATSI is alleging the offset of services and that the payment
should be in the form of exchange of services, as implied in the Reciprocal
Network Carrier Service Agreement with Ntera Holdings, Inc. Currently ATSI
can
not predict the result of the arbitration or the financial impact on our ongoing
operations.
We
may
become a party to future claims and legal proceedings arising in the ordinary
course of business. Due to the inherent uncertainty of litigation, the range
of
possible loss, if any, cannot be estimated with a reasonable degree of precision
and there can be no assurance that the resolution of any particular claim or
proceeding would not have an adverse effect on our results of operations in
the
period in which it occurred.
NOTE
10 - EQUITY
Common
stock
During
the year ended July 31, 2005, ATSI issued 4,280,290 shares of common stock
related to the exercise of warrants. (See note 11). Additionally, during the
year ended July 31, 2005, ATSI issued 472,630 common shares associated with
the
redemption of 472,630 shares of Series H Convertible Preferred Stock.
During
fiscal 2005, ATSI issued 516,780 shares of common stock valued at $175,202
for
legal and consulting services rendered during the year by various
individuals.
On
August
1, 2004, ATSI issued 40,000 shares of common stock valued at $24,000 for the
acquisition of Hinotel, Inc., a Hispanic owned Competitive Local Exchange
Carrier (“CLEC”) based in South Texas. (See note 8)
On
October 1, 2004, ATSI issued 747,391 shares of common stock associated with
the
Settlement Agreement and Mutual release entered with Alfonso Torres Roqueni,
the
former owner of the concession license purchased by ATSICOM in July 2000. The
Settlement was for the amounts owed of approximately $860,000.
On
October 26, 2004, ATSI issued 30,000 shares of common stock associated with
the
Settlement Agreement and Mutual release with Infraestructura Espacial, S.A
de
C.V. and Tomas Revesz, a former ATSI director. The settlement included all
principal and interest owed under a note payable in the amount of $250,000.
On
October 31, 2004, ATSI issued 131,000 shares of common stock valued at $95,050
for the settlement of debt associated with legal services previously rendered.
On
March
11, 2005, ATSI issued 80,625 shares of common stock valued at $45,150 for the
maintenance of equipment and consulting services rendered during the
year.
On
March
28, 2005, ATSI issued 169,280 shares of common stock associated with the
Settlement Agreement (at mediation) with James C. Cuevas, Raymond G. Romero
and
Texas Workforce Commission. The Settlement was for all unpaid wages in the
amount of $90,000.
No
dividends were paid on ATSI’s common stock during fiscal 2005 and
2004.
Preferred
Stock
The
terms
of ATSI’s Series A, Series D, Series E and Series H preferred stock restrict
ATSI from declaring and paying dividends on ATSI’s common stock until such time
as all outstanding dividends have been fulfilled related to the preferred stock.
The outstanding Series A, Series D, Series E and Series H preferred stock have
liquidation preference prior to common stock and ratably with each
other.
Series
A Preferred Stock
During
Fiscal 2005 there were no conversions of the Series A Preferred stock and 3,750
shares of Series A Preferred Stock remain outstanding. As of July 31, 2005,
ATSI
has accrued approximately $212,500 for dividends associated with the Series
A
Preferred Stock.
The
Series A Preferred Stock and any accumulated, unpaid dividends may be converted
into Common Stock for up to one year at the average closing price of the Common
Stock for twenty (20) trading days preceding the Date of Closing (the “Initial
Conversion Price”). On each Anniversary Date up to and including the fifth
Anniversary Date, the Conversion price on any unconverted Preferred Stock,
will
be reset to be equal to 75% of the average closing price of the stock for the
then twenty (20) preceding days provided that the Conversion price can not
be
reset any lower than 75% of the Initial Conversion Price. As these conversion
features are considered a “beneficial conversion feature” to the holder, ATSI
allocated approximately $3.6 million of the approximate $5.0 million in proceeds
to additional paid-in capital as a discount to be amortized over various periods
ranging from ninety days to a twelve-month period. During fiscal year 2001
the
remaining beneficial conversion feature was fully amortized. The Series A
Preferred Stock is callable and redeemable by ATSI at 100% of its face value,
plus any accumulated, unpaid dividends at ATSI’s option any time after the
Common Stock of ATSI has traded at 200% or more of the conversion price in
effect for at least twenty (20) consecutive trading days, so long as ATSI does
not call the Preferred Stock prior to the first anniversary date of the Date
of
Closing.
Series
D Preferred Stock
The
Series D Preferred Stock accrues cumulative dividends at the rate of 6% per
annum payable quarterly. As of July 31, 2005, 742 shares of Series D Preferred
Stock remain outstanding, for which ATSI accrued approximately $240,000 for
dividends. Additionally, on January 24, 2003 ATSI received a demand redemption
letter from the Series D Preferred holders. ATSI has not issued these shares;
it
is the position of ATSI that the investor’s shares are not owed. Further ATSI
has filed a lawsuit against one or more parties to whom the investors share
are
allegedly owed. ATSI is seeking damages from the parties involved for stock
manipulation and fraud.
The
Series D Preferred Stock and any accumulated, unpaid dividends may be converted
into Common Stock for up to two years at the lesser of a) the market price
on
the day prior to closing or b) 83% of the five lowest closing bid prices on
the
ten days preceding conversion.
The
terms
of ATSI’s Series D Preferred Stock allow for mandatory redemption by the holder
upon certain conditions. The Series D Preferred Stock allows the holder to
elect
redemption upon the change of control of ATSI at 120% of the sum of $1,300
per
share and accrued and unpaid dividends. Additionally, the holder may elect
redemption at $1,270 per share plus accrued and unpaid dividends if ATSI refuses
to honor conversion notice or if a third party challenges conversion. As
mentioned earlier on January 24, 2003, ATSI received a redemption letter. As
a
result ATSI adjusted Series D Preferred Stock to the full redemption amount
of
approximately $942,000 by recording an additional amount of dividend expense
of
approximately $284,000.
Series
E Preferred Stock
As
of
July 31, 2005, 1,170 shares of Series E Preferred Stock remain outstanding
and
accrued dividends of approximately $287,000.
The
Series E Preferred Stock may be converted into Common Stock for up to three
years at the lesser of a) the market price - defined as the average of the
closing bid price for the five lowest of the ten trading days prior to
conversion or b) the fixed conversion price - defined as 120% of the lesser
of
the average closing bid price for the ten days prior to closing or the October
12, 2000 closing bid price. Of the approximate $1.5 million of proceeds assigned
to the first issuance of Series E Preferred Stock approximately $802,000 was
allocated to additional paid-in capital as a discount to be amortized over
the
lesser of the period most beneficial to the holder or upon exercise of the
conversion feature. In accordance with the agreement, the conversion price
was
reset on February 11, 2001 to the then defined “market price”. The reset of the
conversion price resulted in additional “beneficial conversion feature” of
approximately $188,000, which was allocated to additional paid-in capital as
a
discount and recognized during fiscal 2001. No beneficial conversion expense
was
required to be recognized related to the second and third issuance of Series
E
Preferred Stock.
The
terms
of ATSI’s Series E Preferred Stock allow for mandatory redemption by the holder
upon certain conditions. The Series E Preferred Stock allows the holder to
elect
redemption at $1,250 per share plus 6% per annum if: 1) ATSI refuses conversion
notice, 2) an effective registration statement was not obtained by prior to
March 11, 2001, 3) bankruptcy proceedings are initiated against ATSI, 4) The
Secretaría de Comunicaciones y Transportes of the SCT limits or terminates the
scope of the concession or, 5) if ATSI fails to maintain a listing on NASDAQ,
NYSE or AMEX.
Series
H Preferred Stock
During
fiscal 2005 472,628 shares of Series H Convertible Preferred Stock were redeemed
for 472,628 shares of common stock. As of July 31, 2005 13,912,372 shares of
Series H Convertible Preferred Stock remained outstanding and accrued dividends
of $556,000.
On
May 6,
2004 ATSI’s stockholders approved the reincorporation of ATSI into a wholly
owned subsidiary, ATSI Merger Corporation in Nevada. As a result of the merger,
ATSI’s Stockholders of record as of May 24, 2004 received one (1) share of New
ATSI Common Stock and ten (10) shares of New ATSI Series H Convertible Preferred
Stock for each 100 shares of Old ATSI Common Stock surrendered. During fiscal
2004, 14,385,000 shares of the New ATSI Series H Convertible Preferred Stock
were issued.
Pursuant
to ATSI’s Certificate of Incorporation, ATSI’s board of directors may issue, in
series, 16,000,000 of the New ATSI Series H Convertible Preferred shares, with
a
par value of $0.001.
NOTE
11 - WARRANTS AND STOCK OPTIONS
On
October 13, 2003, ATSI entered into consulting agreements for twelve months
with
certain individual affiliates of Recap Marketing and Consulting LLC. (Recap)
that provided for the issuance of compensation warrants to purchase a total
of
3,900,000 shares of ATSI’s common stock at prices as indicated in the following
table. These warrants expire on November 30, 2005. At issuance ATSI recognized
$7,053,000 of non-cash compensation expense associated with the issuance of
these warrants.
COMMON
SHARES
|
|
EXERCISE
PRICE
|
|
|
|
|
|
2,000,000
|
|
$
|
0.01/share
|
|
800,000
|
|
$
|
0.25/share
|
|
850,000
|
|
$
|
0.50/share
|
|
250,000
|
|
$
|
0.75/share
|
|
During
the year ended July 31, 2005, individual affiliates of Recap elected to exercise
4,280,290 warrants and Recap forgave notes in the amount of $918,000 as the
conversion price. The exercise price of the warrants ranged from $0.01 per
share
to $0.50 per share.
On
November 1, 2004, ATSI extended the consulting agreements for an additional
six
months with certain individual affiliates of Recap that provided for the
issuance of compensation warrants to purchase a total of 1,000,000 shares of
ATSI’s common stock at price of $0.50 per share. These warrants expire on
October 31, 2005. At signing of the extension to the consulting agreements
ATSI
recognized $591,000 of non-cash compensation expense associated with the
issuance of these warrants.
On
March
1, 2005, ATSI amended the extension to the consulting agreement with certain
individuals’ affiliates of Recap and extended the agreement for an additional 12
months. The amendment to the agreements allows for the repricing of 1,250,000
compensation warrants at a new exercise price’s ranging from $0.30 per share to
$0.40 per share. At signing of the amendment to the extension of the consulting
agreement, ATSI recognized $220,000 of
non-cash compensation expense associated with the issuance of these
warrants.
On
June
1, 2005, ATSI entered into mutual release and termination agreement with certain
individuals’ affiliates of Recap. The mutual release and termination agreement
allows for the repricing of 783,500 compensation warrants at a new exercise
price’s ranging from $0.17 per share to $0.25 per share. At signing of the
mutual release and termination agreement, ATSI recognized $61,375 of
non-cash compensation expense associated with the issuance of these
warrants.
Modification
of Non-Employee Awards Accounted for Under FAS 123
ATSI
granted 1,250,000 warrants to outsiders in March 2005 and the amendment to
the
agreement allowed for the repricing of the warrants, as a result of the
modification of these warrants ATSI recognized $220,000 of
non-cash compensation expense. Additionally,
on June 1, 2005, ATSI entered into a mutual release and termination agreement
with certain individuals’ affiliates of Recap. The mutual release and
termination agreement allows for the repricing of 783,500 compensation warrants.
At signing of the mutual release and termination agreement, ATSI recognized
$61,375 of
non-cash compensation expense associated with the issuance of these
warrants.
The
repricing of these warrants in March 2005 and June 2005 triggered a modification
of the original awarded warrants. A modification of the terms of an award that
makes it more valuable shall be treated as an exchange of the original award
for
a new award. In substance, the entity repurchases the original instrument by
issuing a new instrument of greater value, incurring additional compensation
cost for that incremental value. The incremental value shall be measured by
the
difference between (a) the fair value of the modified option determined in
accordance with the provisions of this section and (b) the value of the old
option immediately before its terms are modified, determined based on the
shorter of (1) its remaining expected life or (2) the expected life of the
modified option.
Following
is a summary of warrant activity for the years ended July 31, 2005
and 2004
(Excluding warrants issued under the 2004 Stock Compensation plan):
|
|
Year
Ending July 31,
|
|
|
|
2005
|
|
2004
|
|
Warrants
outstanding, beginning
|
|
|
19,874
|
|
|
45,088
|
|
Warrants
issued
|
|
|
|
|
|
|
|
Warrants
expired
|
|
|
(19,874
|
)
|
|
(25,214
|
)
|
Warrants
exercised
|
|
|
|
|
|
|
|
Warrants
outstanding, ending
|
|
|
|
|
|
19,874
|
|
During
fiscal 2005 no options were granted or exercised under the 2003, 2002, 1998
and
1997 Stock Option Plans adopted during those years. Additionally, all options
previously granted under these plans were forfeited during fiscal
2005.
In
May
2004, ATSI’s board of directors adopted the 2004 Stock Compensation Plan. The
2004 Stock Compensation Plan authorizes the grant of up to 7.5 million of
warrants, stock options, restricted common stock, non-restricted common stock
and other awards, or a combination, to employees, directors, consultants and
certain other persons. The 2004 Stock Compensation Plan is intended to permit
ATSI to retain and attract qualified individuals who will contribute to ATSI’s
overall success of ATSI. The exercise price of all of the warrants, stock
options, restricted common stock, non-restricted common stock and other awards
will vary based on the market price of the shares of common stock as of the
date
of grant. The warrants, stock options, restricted common stock, non-restricted
common stock and other awards vest pursuant based in the individual security
granted.
In
January 2005, the Board of directors granted the issuance of 2,104,000 stock
options to ATSI’s employees and Board of Directors. The exercise price of the
stock options granted was set at $0.46 per option. In addition, 60% of the
options vested immediately and the remaining options will vest over the next
three years. Additionally, the Board of Directors granted 900,000 stock grants
to ATSI’s employees and Board of Directors. Furthermore, during the year ended
July 31, 2005, the Board of Directors granted the issuance and repricing of
3,033,500 warrants to consultants for services rendered, the warrants exercise
price range from $0.17 to $0.50. As of July 31, 2005 4,280,286 warrants have
been exercised at an average exercised price of $0.21 and 303,140 warrants
remained outstanding at an average exercise price of $0.25
Additionally,
during fiscal 2005 the Board of Directors granted the issuance of 516,780 common
shares for legal services and consulting services performed during the year.
The
average exercise price of the common stock issued was set at $0.34.
During
fiscal 2004, the Board of directors granted the issuance of 3,900,000 warrants
to consultants for services rendered, the warrants exercise price range from
$0.01 to $0.75. During fiscal 2004 566,574 warrants were exercised at an average
exercised price of $0.01.
A
summary
of the status of ATSI’s 1997, 1998, 2000 and 2004 Stock Option Plans for the
fiscal 2005, and 2004 changes during the periods are presented
below:
|
|
Years
Ended July 31,
|
|
1997
Stock Option Plan
|
|
2005
|
|
2004
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
–
|
|
$
|
|
|
|
20
|
|
$
|
58
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
58
|
|
Outstanding,
end of year
|
|
|
|
|
$
|
|
|
|
|
|
$
|
58
|
|
Options
exercisable at end of year
|
|
|
|
|
|
|
|
|
(20
|
)
|
$
|
58
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
$
|
N/A
|
|
|
|
|
|
N/A
|
|
1998
Stock Option Plan
|
|
2005
|
|
2004
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
3,559
|
|
$
|
56
|
|
|
3,559
|
|
$
|
56
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,559
|
)
|
|
56
|
|
|
|
|
|
|
|
Outstanding,
end of year
|
|
|
|
|
$
|
|
|
|
3,559
|
|
$
|
56
|
|
Options
exercisable at end of year
|
|
|
|
|
|
|
|
|
3,559
|
|
$
|
56
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
$
|
N/A
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000
Stock Option Plan
|
|
2005
|
|
2004
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
28,767
|
|
$
|
48
|
|
|
38,100
|
|
$
|
45
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(28,767
|
)
|
|
48
|
|
|
(9,333
|
)
|
|
48
|
|
Outstanding,
end of year
|
|
|
|
|
$
|
–
|
|
|
28,767
|
|
$
|
48
|
|
Options
exercisable at end of year
|
|
|
|
|
|
|
|
|
22,466
|
|
$
|
47
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
$
|
N/A
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Stock Option Plan
|
|
2005
|
|
2004
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
3,004,000
|
|
|
0.46
|
|
|
57,786
|
|
|
0.95
|
|
Exercised
|
|
|
(900,000
|
)
|
|
0.46
|
|
|
(57,786
|
)
|
|
0.95
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end of year
|
|
|
2,104,000
|
|
$
|
|
|
|
|
|
$
|
|
|
Options
exercisable at end of year
|
|
|
1,328,000
|
|
$
|
0.46
|
|
|
|
|
$
|
|
|
Weighted
average fair value of options granted during the year
|
|
|
|
|
$
|
0.46
|
|
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Stock Compensation Plan (WARRANTS)
|
|
2005
|
|
2004
|
|
|
|
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding,
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
3,333,426
|
|
$
|
0.25
|
|
|
|
|
$
|
|
|
Granted
|
|
|
2,183,500
|
|
|
0.32
|
|
|
3,900,000
|
|
|
0.21
|
|
Exercised
|
|
|
(4,280,286
|
)
|
|
0.21
|
|
|
(566,574
|
)
|
|
0.21
|
|
Forfeited
|
|
|
(933,500
|
)
|
|
0.56
|
|
|
|
|
|
|
|
Outstanding,
end of year
|
|
|
303,140
|
|
$
|
0.25
|
|
|
3,333,426
|
|
$
|
0.25
|
|
Warrants
exercisable at end of year
|
|
|
303,140
|
|
$
|
0.25
|
|
|
|
|
$
|
|
|
Weighted
average fair value of warrants granted during the year
|
|
|
|
|
$
|
0.32
|
|
|
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the year ending July 31, 2005 all options granted but not exercised under the
1997, 1998 and 2000 Stock Option Plan were forfeited. The weighted average
remaining contractual life of the stock options outstanding at July 31, 2005
is
approximately 9 years and for warrants granted under the 2004 Stock Option
Plan
is 1 year.
The
following table summarizes information about stock options and warrants
outstanding for all plans at July 31, 2005:
|
|
Options
and Warrants Outstanding
|
|
Options
and Warrants Exercisable
|
|
Range
of Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
$0.46
|
|
|
2,140,000
|
|
$
|
0.46
|
|
|
9.50
|
|
|
1,328,000
|
|
$
|
0.46
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25
|
|
|
303,140
|
|
$
|
0.25
|
|
|
0.80
|
|
|
303,140
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE
12 - INCOME TAXES
Deferred
tax assets are comprised of the following as of July 31, 2005:
|
|
|
|
|
Net
operating loss carry-forward
|
|
$
|
11,491,000
|
|
Valuation
allowance
|
|
|
(11,491,000
|
)
|
Total
deferred tax asset
|
|
$
|
–
|
|
ATSI
conducts a periodic examination of its valuation allowance. Factors considered
in the evaluation include recent and expected future earnings and ATSI’s
liquidity and equity positions. As of July 31, 2005, ATSI has determined that
a
valuation allowance is necessary for the entire amount of deferred tax assets.
At
July
31, 2005, ATSI had net operating loss carry-forwards related to U.S. operations
of approximately $35 million with expiration dates ranging from 2009
through 2024.
NOTE
13 - EARNINGS (LOSS) PER SHARE
In
accordance with SFAS No. 128, “Earnings Per Share,” basic earnings per share has
been computed based upon the weighted average of common shares outstanding.
Diluted earnings per share gives effect to outstanding convertible preferred
shares, warrants and stock options, unless their effect is anti-dilutive.
Earnings (loss) per common share has been computed as follows:
|
|
Year
ended July 31,
|
|
|
|
2005
|
|
2004
|
|
Net
income (loss) to be used to compute income (loss) per
share:
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
10,296,000
|
|
$
|
(8,469,000
|
)
|
Less
preferred dividends
|
|
|
(709,000
|
)
|
|
(306,000
|
)
|
|
|
|
|
|
|
|
|
Net
income (loss) attributable to common Shareholders -
Basic
|
|
$
|
9,534,000
|
|
$
|
(8,775,000
|
)
|
Add
back preferred dividends
|
|
|
709,000
|
|
|
–
|
|
Net
income (loss) attributable to common shareholders -Diluted
|
|
$
|
10,296,000
|
|
$
|
(8,775,000
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of shares:
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
7,128,847
|
|
|
1,199,892
|
|
Effect
of conversion of preferred shares
|
|
|
xxx
|
|
|
|
|
Effect
of warrants and options
|
|
|
xxx
|
|
|
|
|
Weighted
average common shares outstanding assuming dilution
|
|
|
xxx
|
|
|
1,199,892
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per common share
|
|
$
|
1.34
|
|
$
|
(7.31
|
)
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per common share
|
|
$
|
0.45
|
|
$
|
(7.31
|
)
|
|
|
|
|
|
|
|
|
NOTE
14 - RISKS AND UNCERTAINTIES AND CONCENTRATIONS
ATSI
is
subject to regulations by the United States and Mexican Government. And
according to ATSI’s concession requirements, ATSI is required to maintain
approximately $10 million in capital. As of July 31, 2005, ATSICOM has not
met
this requirement. Currently, Telemarketing, ATSI’s equity partner in ATSICOM is
in negotiations with the Mexican government on meeting this
requirement.
ATSI’s
business is dependent upon key pieces of equipment, switching and transmission
facilities capacity from ATSI’s carriers. Should ATSI experience service
interruptions from ATSI’s underlying carriers, equipment failures there would
likely be a temporary interruption of ATSI’s services, which could adversely or
materially affect ATSI’s operations. ATSI believes that suitable arrangements
could be obtained with other carriers to provide transmission capacity. Although
there can be no assurance that such arrangement could be obtained or obtained
when needed.
NOTE
15 - RELATED PARTY TRANSACTIONS
In
December 2002, ATSI entered into a note payable with a related party, a director
of ATSI, Mr. John R. Fleming, in the amount of $25,000. The note called for
12
monthly payments of $2,163.17 including interest, commencing on February 1,
2003. The note has an interest rate of 7% annually and a maturity date of
January 1, 2004. During fiscal 2004 ATSI made payments towards this note in
the
amount of $9,000. As of July 31, 2005 the principal balance is $16,000 and
the
accrued interest is $3,700. Additionally, at July 31, 2005, ATSI had a payable
of approximately $42,519 for board fees and related expenses.
NOTE
16 - SUBSEQUENT EVENTS
On
August
29, 2005 the U.S. Bankruptcy Court for the Western District of Texas dismissed
all claims from Helen G. Schwartz against ATSI Communications, Inc., a Nevada
Corporation for lack of merit. As mentioned in note 9, on February 3, 2005
Helen
G. Schwartz, Trustee for ATSI Communications, Inc. (a Texas corporation) and
TeleSpan, Inc. filed in the U.S. Bankruptcy Court for the Western District
of
Texas an Adversary Proceeding against ATSI Communications, Inc., a Nevada
corporation alleging that ATSI-Nevada had received preferential payments as
defined by the U.S. Bankruptcy Code in the amount of $510,836. On March 31,
2005, ATSI filed its response denying any such payments were received by ATSI
Nevada, formerly ATSI Delaware.
On
August
10, 2005 a settlement was reached between ATSI Communications, Inc. with Vianet
Communications. As mentioned in note 9, in January 2004, ATSI filed a petition
in the 150th
Judicial
District of Bexar County, Texas against Inter-tel.net, Inc. and Vianet
Communications, Inc. d/b/a Inter-tel.net seeking declaratory relief that ATSI
Communications, Inc. is not bound by the Carrier Services Agreement between
Vianet Communications, Inc. and ATSI-Texas. On February 27, 2004 the Bankruptcy
Court in the ATSI-Texas Bankruptcy case allowed Vianet Communications, Inc.
to
amend its claim against ATSI-Texas that was pending in the Bankruptcy of
ATSI-Texas and assert its claim for breach of contract against ATSI. The
Bankruptcy Court then ordered the lawsuit to be remanded back to state court
for
hearing. As part of the settlement, ATSI issued 200,000 warrants to purchase
ATSI stock, the exercise price on the warrants range from $0.12 to $0.23.
Additionally, ATSI issued 200,000 shares of Series H preferred Stock that can
be
converted into 1.2 shares of common stock after it’s been held for (1) one year
and into 1.5 shares of common stock if held for (2) two years. As part of the
settlement during fiscal 2005, ATSI recognized approximately $53,000 in
settlement expense associated with the value of the warrants and Series H
preferred stock issued.
NONE.
Evaluation
of Disclosure Controls and Procedures
The
Company has adopted and implemented disclosure controls and procedures designed
to provide reasonable assurance that all reportable information will be
recorded, processed, summarized and reported within the time period specified
in
the SEC’s rules and forms. Under the supervision and with the participation of
the Company's management, including the Company's President and Chief Executive
Officer and the Company’s Controller and Principal Financial Officer, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e)
as of
the end of the period covered by this report. Based on that evaluation, the
President and Chief Executive Officer and the Controller and Principal Financial
Officer have concluded that these disclosure controls and procedures are
effective as of the end of the period covered by this report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company's internal control over financial reporting
during the fourth fiscal quarter covered by this report that have had a material
affect or are reasonably likely to have a material affect on internal control
over financial reporting. The registered public accounting firm that audited
the
financial statements included in this report has issued an attestation report
on
management’s assessment of the Company’s internal control over financial
reporting.
PART
III
Business
Experience
The
following table contains the name, age of our directors and executive
officers.
Name
|
|
Age
|
|
Position
Held
|
Arthur
L. Smith
|
|
40
|
|
President,
Chief Executive Officer and Director
|
Ruben
Caraveo
|
|
37
|
|
Vice
President, Sales and Operations
|
Antonio
Estrada
|
|
31
|
|
Corporate
Controller
|
John
R. Fleming
|
|
51
|
|
Interim
Executive Chairman of the Board
|
Murray
R. Nye
|
|
52
|
|
Director
|
|
|
|
|
|
Arthur
L. Smith
has
served as our Chief Executive Officer and Director since May 2003. Mr. Smith
also served as the President of ATSI de Mexico S.A de C.V. from August 2002
to
April 2003, as our Chief Executive Officer and a Director from June 1996 to
July
2002 and as our President since our formation in June 1996 to July 1998. Mr.
Smith also served as President, Chief Operating Officer and a director of
ATSI-Canada since its formation in May 1994. From December 1993 until May 1994,
Mr. Smith served in the same positions with Latcomm International Inc., which
amalgamated with Willingdon Resources Ltd. to form ATSI-Canada in May 1994.
Mr.
Smith has also served as President and Chief Executive Officer of American
TeleSource International, Inc., a Texas corporation (“ATSI-Texas”), one of our
principal operating subsidiaries, since December 1993. From June 1989 to
December 1993, Mr. Smith was employed as director of international sales by
GeoComm Partners, a satellite-based telecommunications company located in San
Antonio, providing telecommunications services to Latin America. Mr. Smith
has
over 15 years’ experience in the telecommunications industry.
Ruben
R. Caraveo
has
served as our Vice President of Sales and Operations since May 2003. Mr. Caraveo
is responsible for Carrier Sales and the delivery of Carrier Services for both
the U.S. and Mexico. Mr. Caraveo served as our Vice President of Operations
from
May 2001 to January 2003. Prior to joining ATSI, Mr. Caraveo served as Vice
President of Operations and Engineering at Vycera Communications where he was
responsible for overseeing all daily operations, including network engineering,
marketing, and the network trouble reporting and resolution departments. His
prior experience also includes positions with Worldtel Interactive, Frontier,
and WorldCom. Mr. Caraveo is armed with more than 15 years’ telecommunications
industry experience, specializing in the areas of Network Engineering, Data
and
Systems Analysis, Product Marketing, and Systems Development. Mr. Caraveo
attended California State University, Northridge, School of
Engineering.
Antonio
Estrada has served
as
our Corporate Controller since May 2003. From January 2002 through January
2003,
Mr. Estrada served as our Director of International Accounting and Treasurer.
From January 2001 to January 2002, Mr. Estrada served in various roles within
ATSI, including International Accounting Manager and general Accountant. Prior
to joining ATSI in 1999 he served as a Senior Accountant for the Epilepsy
Association of San Antonio and South Texas. Mr. Estrada graduated from the
University of Texas at San Antonio, with a Bachelors of Business Administration,
with a concentration in Accounting.
John
R. Fleming
has
served as our Interim Executive Chairman of the Board since August 2002 and
as
one of our Directors since January 2001. Mr. Fleming is the principal and
founder of Vision Corporation, an early-stage investment company that focuses
on
communications technologies, service and hardware. Prior to forming Vision
Corporation, Mr. Fleming served as President, International of IXC
Communications, Inc. from April 1998 to December 1999. Immediately prior to
that
he served as IXC’s President of Emerging Markets from December 1997, as
Executive Vice President of IXC from March 1996 through November 1997 and as
Senior Vice President of IXC from October 1994 through March 1996. He served
as
Vice President of Sales and Marketing of IXC from its formation in July 1992
until October 1994. Prior to that, Mr. Fleming served as Director of Business
Development and Director of Carrier Sales of CTI from 1986 to March 1990 and
as
Vice President of Marketing and Sales of CTI from March 1990 to July 1992.
Mr.
Fleming was a Branch Manager for Satellite Business Systems from 1983 to 1986.
Murray
R. Nye
has
served as one of our Directors since its formation in June 1996. Mr. Nye also
served as of the Chief Executive Officer and a director of ATSI-Canada from
its
formation in May 1994. From December 1993 until May 1994, Mr. Nye served in
the
same positions with Latcomm International Inc., which company amalgamated with
Willingdon Resources Ltd. to form ATSI-Canada in May 1994. From 1992 to 1995,
Mr. Nye served as President of Kirriemuir Oil & Gas Ltd. From 1989 until
1992, Mr. Nye was self-employed as a consultant and Mr. Nye is again currently
self-employed as a consultant. Mr. Nye serves as a director of D.M.I.
Technologies, Inc., an Alberta Stock Exchange-traded company.
Audit
Committee and Audit Committee Financial Expert
The
Company does not presently have an audit or compensation committee or other
board committee performing equivalent functions. All functions of the audit
committee and compensation committee are performed by the Company’s Board of
Directors. The Company does not have an audit committee financial expert because
none of its current directors have the necessary training or experience to
qualify as a financial expert.
Recent
developments with ATSI Board of Directors
On
October 20, 2005 the Board of Directors accepted the voluntary resignation
of
Michael G. Santry as a member of the board. Mr. Santry resigned to pursue other
business interests. There were no disagreements with Mr. Santry. The vacancy
caused by Mr. Santry’s resignation will either be filled by a candidate
receiving a vote of a majority of the Board or the seat could remain vacant
until the next election of directors at the corporation's next annual
stockholder meeting.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors and executive officers and persons who own more than 10% of a
registered class of the Company’s equity securities to file various reports with
the Securities and Exchange Commission concerning their holdings of, and
transactions in, securities of the Company. Copies of these filings must be
furnished to the Company. Based on a review of the copies of such forms
furnished to the Company and other information, the Company believes that,
during the fiscal year ended July 31, 2005, the following individuals failed
to
report transactions in the Company’s equity securities or reported transactions
late:
Name
and Position
|
|
Number
of Transactions Not Reported
|
|
Number
of Reports Filed Late
|
|
Number
of Transactions Reported Late
|
|
|
|
|
|
|
|
|
|
Arthur
L. Smith, President and Director
|
|
|
0
|
|
|
6
|
|
|
5
|
|
Ruben
R. Caraveo, Vice President
|
|
|
0
|
|
|
7
|
|
|
6
|
|
Antonio
Estrada, Controller
|
|
|
0
|
|
|
5
|
|
|
4
|
|
John
R. Fleming
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Murray
R. Nye
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
Code
of Ethics
ATSI
Communications, Inc. adopted an
Executive Code of Ethics that applies to the Chief Executive Officer, Chief
Financial Officer, Controller and other members of our management team. The
Board of Directors approved the code of Ethics on December 7, 2004. The
Executive Code of Ethics may be viewed on our Website, www.atsi.net.
Upon
request, a copy of the Executive Code of Ethics will be provided without charge
upon written request to ATSI Communications, Inc., 8600
Wurzbach Road, Suite 700W., San Antonio, TX 78240
Summary
Compensation Table
The
following table sets forth information concerning the compensation earned during
the Company’s last three fiscal years by the Company’s Chief Executive Officer
and each of the Company’s four most highly compensated executive officers whose
total cash compensation exceeded $100,000 for services rendered in all
capacities for the fiscal year ended July 31, 2005 (collectively, the “Named
Executive Officers”).
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Payouts
|
|
|
|
Name
And Principal Position
|
|
Fiscal
Year
|
|
Salary
($)
|
|
Stock
Grant
($)
|
|
Other
Annual Compensation
($)(1)
|
|
Restricted
Stock
Awards
($)
|
|
Securities
Underlying
Options/
SARs
(#)
|
|
LTIP
Payout
($)
|
|
All
Other Compens-ation
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur
L. Smith (2)
|
|
|
2005
|
|
$
|
128,000
|
|
$
|
31,500
|
|
|
|
|
|
|
|
$
|
193,200
(5
|
)
|
|
|
|
|
|
|
CEO
& President
|
|
|
2004
|
|
$
|
128,000
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruben
Caraveo (3)
|
|
|
2005
|
|
$
|
115,000
|
|
$
|
26,250
|
|
|
|
|
|
|
|
$
|
172,500
(5
|
)
|
|
|
|
|
|
|
Vice
President, Operations
|
|
|
2004
|
|
$
|
115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio
Estrada (4)
|
|
|
2005
|
|
$
|
80,000
|
|
$
|
26,250
|
|
|
|
|
|
|
|
$
|
159,620
(5
|
)
|
|
|
|
|
|
|
Corporate
Controller
|
|
|
2004
|
|
$
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Certain
of the Company’s executive officers receive personal benefits in addition
to salary. The Company has concluded that the aggregate amount
of such
personal benefits does not exceed the lesser of $5,000 or 10% of
annual
salary and bonus for any Named Executive Officer.
|
(2) |
Mr.
Smith has served as CEO & President and Director of ATSI Nevada
(Formerly a Delaware Corp.) since May
2003
|
(3) |
Mr.
Caraveo has served as Vice President of Sales and Operations of
ATSI
Nevada since May 2003.
|
(4) |
Mr.
Estrada has served as Corporate Controller of ATSI Nevada since
May 2003.
|
(5) |
Stock
options granted during Fiscal 2005 have an exercise price of $0.46
|
Aggregate
options exercisable and unexercisable during Fiscal 2005
The
following table reflects the Company’s officer’s shares covered by both
exercisable and unexercisable stock options as of July 31, 2005.
|
|
Shares
Acquired
On
Exercise
|
|
Value
Realized
|
|
Number
of Securities Underlying Unexercised Options at
FYE(#)
|
|
Value
of Unexercised In-the-Money Options at FYE ($)
|
|
Name
|
|
(#)
|
|
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Arthur
L. Smith
|
|
|
|
|
|
|
|
|
272,000
|
|
|
148,000
|
|
|
|
|
|
|
|
Ruben
Caraveo
|
|
|
|
|
|
|
|
|
241,000
|
|
|
134,000
|
|
|
|
|
|
|
|
Antonio
Estrada
|
|
|
|
|
|
|
|
|
213,000
|
|
|
134,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPENSATION
OF DIRECTORS
ATSI
Directors are reimbursed their reasonable out-of-pocket expenses in connection
with their travel to and attendance at meetings of the Board of Directors.
In
addition, each Director that is not an officer of the Company receives 1,500
shares of Common Stock for each meeting of the Board attended in person and
$250
for each meeting attended by telephone. In January 2005, ATSI issued a total
of
400,000 shares of our common stock as part of the stock grant, valued at
$84,000, to outside directors.
Aggregate
options exercisable and unexercisable during Fiscal 2005
The
following table reflects the Company’s director’s shares covered by both
exercisable and unexercisable stock options as of July 31, 2005.
|
|
Shares
Acquired
On
Exercise
|
|
Value
Realized
|
|
Number
of Securities Underlying Unexercised Options at
FYE(#)
|
|
Value
of Unexercised In-the-Money Options at FYE ($)
|
|
Name
|
|
(#)
|
|
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
John
Fleming
|
|
|
|
|
|
|
|
|
175,000
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murray
Nye
|
|
|
|
|
|
|
|
|
175,000
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table lists the beneficial ownership of shares of our Common Stock
and
Series A Preferred Stock by (i) all persons and groups known by the Company
to
own beneficially more than 5% of the outstanding shares of our Common Stock
or
Series A Preferred Stock, (ii) each director and nominee, (iii) the Named
Executive Officers, and (vi) all directors and officers as a group. Information
with respect to officers, directors and their families is as of July 31, 2005
and is based on the books and records of the Company and information obtained
from each individual. Information with respect to other stockholders is based
upon the Schedule 13D or Schedule 13G filed by such stockholders with the
Securities and Exchange Commission. Unless otherwise stated, the business
address of each individual or group is the same as the address of the Company's
principal executive office and solely the person indicated beneficially owns
all
shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
|
|
%
OF
|
|
PREFERRED
|
|
%
OF
|
|
TOTAL
VOTING
|
|
%
OF
|
|
NAME
OF INDIVIDUAL OR GROUP
|
|
STOCK
|
|
CLASS
(1)
|
|
STOCK
|
|
CLASS
(2)
|
|
INTEREST
|
|
CLASS
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5%
STOCKHOLDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter
Blindt
|
|
|
0
|
|
|
*
|
|
|
500
|
|
|
13.3
|
%
|
|
743
|
|
|
*
|
|
30
E. Huron #5407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL 60611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
Corcoran
|
|
|
0
|
|
|
*
|
|
|
500
|
|
|
13.3
|
%
|
|
743
|
|
|
*
|
|
6006
W. 159th Street
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bldg.
C 1-W
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oak
Forest, IL 60452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald
Corcoran
|
|
|
0
|
|
|
*
|
|
|
500
|
|
|
13.3
|
%
|
|
743
|
|
|
*
|
|
11611
90th Avenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St.
John, IN 46373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Migilio
|
|
|
0
|
|
|
*
|
|
|
500
|
|
|
23.0
|
%
|
|
743
|
|
|
*
|
|
13014
Sandburg Ct.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palos
Park, IL 60464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
Tessiatore
|
|
|
0
|
|
|
*
|
|
|
500
|
|
|
13.3
|
%
|
|
743
|
|
|
*
|
|
131
Settlers Dr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Naperville,
IL 60565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albert
Vivo
|
|
|
0
|
|
|
*
|
|
|
500
|
|
|
13.3
|
%
|
|
743
|
|
|
*
|
|
9830
Circle Parkway
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palos
Park, IL 60464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gary
Wright
|
|
|
0
|
|
|
*
|
|
|
750
|
|
|
20.0
|
%
|
|
1,115
|
|
|
*
|
|
3404
Royal Fox Dr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St.
Charles, IL 60174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INDIVIDUAL
OFFICERS, DIRECTORS AND NOMINEES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arthur
L. Smith
|
|
|
630,853
(4
|
)
|
|
5.4
|
%
|
|
0
|
|
|
*
|
|
|
630,853
(4
|
)
|
|
5.4
|
%
|
President,
Chief Executive Officer, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antonio
Estrada
|
|
|
328,000
(5
|
)
|
|
2.83
|
%
|
|
|
|
|
*
|
|
|
328,000
(5
|
)
|
|
2.8
|
%
|
Corporate
Controller
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruben
R. Caraveo
|
|
|
303,500
(6
|
)
|
|
2.62
|
%
|
|
0
|
|
|
*
|
|
|
303,500
(6
|
)
|
|
2.6
|
%
|
Vice
President, Sales and
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
R. Fleming
|
|
|
325,000
(7
|
)
|
|
2.80
|
%
|
|
0
|
|
|
*
|
|
|
325,000
(7
|
)
|
|
2.8
|
%
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murray
R. Nye
|
|
|
325,000
(8
|
)
|
|
2.80
|
%
|
|
0
|
|
|
*
|
|
|
325,000
(8
|
)
|
|
2.8
|
%
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL
OFFICERS AND DIRECTORS AS A GROUP
|
|
|
1,912,353
(9
|
)
|
|
18.4
|
%
|
|
0
|
|
|
*
|
|
|
1,912,353
(9
|
)
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Based
on 11,593,222 shares of Common Stock outstanding as of July 31,
2005. Any
shares represented by options exercisable within 60 days
|
|
After
July 31, 2005 are treated as being outstanding for the purpose
of
computing the percentage of class for such person but not for any
other
purpose |
(2) |
Based
on 3,750 shares of Series A Preferred Stock outstanding as of July
31,
2005.
|
(3) |
Based
on 11,593,222 shares of Common Stock outstanding as of July 31,
2005. Any
shares represented by options exercisable within 60 days
|
|
After
July 31, 2005 are treated as being outstanding for the purpose
of
computing the percentage of class for such person but not for any
other
purpose |
(4) |
Includes
272,000 shares subject to options exercisable at July 31,
2005.
|
(5) |
Includes
213,000 shares subject to options exercisable at July 31,
2005.
|
(6) |
Includes
241,000 shares subject to options exercisable at July 31,
2005.
|
(7) |
Includes
175,000 shares subject to options exercisable at July 31,
2005.
|
(8) |
Includes
175,000 shares subject to options exercisable at July 31,
2005.
|
(9) |
Includes
1,076,000 shares subject to options exercisable at July 31,
2005.
|
In
December 2002, ATSI entered into a note payable with a related party, a director
of ATSI, Mr. John R. Fleming, in the amount of $25,000. The note called for
12
monthly payments of $2,163.17 including interest, commencing on February 1,
2003. The note has an interest rate of 7% annually and a maturity date of
January 1, 2004. During fiscal 2004 ATSI made payments towards this note in
the
amount of $9,000. As of July 31, 2005 the principal balance is $16,000 and
the
accrued interest is $3,700. Additionally, at July 31, 2005, ATSI had a payable
of approximately $42,519 for board fees and related expenses.
(a) |
Exhibits.
The following documents are exhibits to this
report.
|
2.1
|
Plan
and Agreement of Merger of ATSI Communications, Inc. with and
into ATSI
Merger Corporation, dated as of March 24, 2004. (Exhibit 2.1
to Form 8-K
of ATSI filed on May 24, 2004)
|
|
|
3.1
|
Articles
of Incorporation of ATSI Merger Corporation. (Exhibit 3.1 to
Form 8-K of
ATSI filed on May 24, 2004)
|
|
|
3.2
|
Bylaws
of ATSI Merger Corporation. (Exhibit 3.2 to Form 8-K of ATSI
filed on May
24, 2004)
|
|
|
3.3
|
Articles
of Merger of ATSI Communications, Inc. with and into ATSI Merger
Corporation. (Exhibit 3.3 to Form 8-K of ATSI filed on May 24,
2004)
|
|
|
4.1
|
Securities
Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999
(Exhibit 10.33 to Registration statement on Form S-3 (No. 333-84115)
filed
August 18, 1999)
|
|
|
4.2
|
Common
Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI
dated July 2,
1999 (Exhibit 10.35 to Registration statement on Form S-3 (No.
333-84115)
filed August 18, 1999)
|
|
|
4.3
|
Registration
Rights Agreement between The Shaar Fund Ltd. and ATSI dated July
2, 1999
(Exhibit 10.36 to Registration statement on Form S-3 (No. 333-84115)
filed
August 18, 1999)
|
|
|
4.4
|
Securities
Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
September
24, 1999 (Exhibit 10.39 to Registration statement on Form S-3
(No.
333-84115) filed October 26, 1999)
|
|
|
4.5
|
Common
Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI
dated
September 24, 1999 (Exhibit 10.41 to Registration statement on
Form S-3
(No. 333-84115) filed October 26, 1999)
|
|
|
4.6
|
Registration
Rights Agreement between The Shaar Fund Ltd. and ATSI dated September
24,
1999 (Exhibit 10.42 to Registration statement on Form S-3 (No.
333-84115)
filed October 26, 1999)
|
|
|
4.7
|
Form
of letter dated December 30, 1999 from H. Douglas Saathoff, Chief
Financial Officer of American TeleSource International, Inc.
to holders of
Convertible Notes (Exhibit 4.1 to Registration statement on Form
S-3 (No.
333-35846) filed April 28, 2000
|
|
|
4.8
|
Form
of letter dated January 24, 2000 from H. Douglas Saathoff, Chief
Financial
Officer of American TeleSource International, Inc. to holders
of
Convertible Notes (Exhibit 4.2 to Registration statement on Form
S-3 (No.
333-35846) filed April 28, 2000)
|
|
|
4.9
|
Registration
Rights Agreement between American TeleSource International, Inc.
and Kings
Peak, LLC dated February 4, 2000 (Exhibit 4.4 to Registration
statement on
Form S-3 (No. 333-35846) filed April 28, 2000)
|
|
|
4.10
|
Form
of Convertible Note for $2.2 million principal issued March 17,
1997
(Exhibit 4.5 to Registration statement on Form S-3 (No. 333-35846)
filed
April 28, 2000)
|
|
|
4.11
|
Form
of Modification of Convertible Note (Exhibit 4.6 to Registration
statement
on Form S-3 (No. 333-35846) filed April 28, 2000)
|
|
|
4.12
|
Promissory
Note issued to Four Holdings, Ltd. dated October 17, 1997 (Exhibit
4.7 to
Registration statement on Form S-3 (No. 333-35846) filed April
28,
2000)
|
|
|
4.13
|
Securities
Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
February 22,
2000 (Exhibit 4.5 to Registration statement on Form S-3 (No.
333-89683)
filed April 13, 2000)
|
|
|
4.14
|
Common
Stock Purchase Warrant issued to The Shaar Fund Ltd. by ATSI
dated
February 22, 2000 (Exhibit 4.7 to Registration statement on Form
S-3 (No.
333-89683) filed April 13, 2000)
|
|
|
4.15
|
Common
Stock Purchase Warrant issued to Corporate Capital Management
LLC by ATSI
dated February 22, 2000 (Exhibit 4.8 to Registration statement
on Form S-3
(No. 333-89683) filed April 13, 2000)
|
|
|
4.16
|
Registration
Rights Agreement between The Shaar Fund Ltd. and ATSI dated February
22,
2000 (Exhibit 4.9 to Registration statement on Form S-3 (No.
333-89683)
filed April 13, 2000)
|
|
|
4.17
|
Securities
Purchase Agreement between ATSI and RGC International Investors,
LDC dated
October 11, 2000 (Exhibit 10.1 to Form 8-K filed October 18,
2000)
|
|
|
4.18
|
Registration
Rights Agreement between ATSI and RGC International Investors,
LDC dated
October 11, 2000 (Exhibit 10.5 to Form 8-K filed October 18,
2000)
|
|
|
4.19
|
Stock
Purchase Warrant between ATSI and RGC International Investors,
LDC dated
October 11, 2000 (Exhibit 10.6 to Form 8-K filed October 18,
2000)
|
|
|
4.20
|
Securities
Purchase Agreement between ATSI and “Buyers” dated March 21, 2001(Exhibit
4.31 to Annual Report on Form 10-K for the year ended July
31, 2001 filed
October 30, 2001)
|
|
|
4.21
|
Stock
Purchase Warrant between ATSI and “Buyers” dated March 23, 2001 (Exhibit
4.32 to Annual Report on Form 10-K for the year ended July
31, 2001 filed
October 30, 2001)
|
|
|
4.22
|
Securities
Purchase Agreement between ATSI and “Buyers” dated March 21, 2001(Exhibit
4.34 to Annual Report on Form 10-K for the year ended July
31, 2001 filed
October 30, 2001
|
|
|
4.23
|
Stock
Purchase Warrant between ATSI and “Buyers” dated March 21, 2001 (Exhibit
4.35 to Annual Report on Form 10-K for the year ended July
31, 2001 filed
October 30, 2001)
|
|
|
4.24
|
Convertible
Debenture Agreement (Exhibit 4.37 to Annual Report on Form
10-K for the
year ended July 31, 2003 filed November 12, 2003)
|
|
|
4.25
|
Convertible
Promissory Notes issued to Recap Marketing & Consulting, LLP. (Exhibit
4.1 to Form 10-QSB for the period Ended October 31, 2004 filed
December
15, 2004)
|
|
|
4.26
|
Convertible
Promissory Notes issued to Recap Marketing & Consulting, LLP. (Exhibit
4.1 to form 10-QSB for the period Ended January 31, 2005 filed
March 15,
2005)
|
|
|
4.27
|
Convertible
Promissory Note issued to Franklin Cardwell and Jones, PC.
dated November
1, 2004 (Exhibit 4.2 to form 10-QSB for the period Ended January
31, 2005
filed March 15, 2005)
|
|
|
4.28
|
Convertible
Promissory Notes issued to Recap Marketing & Consulting, LLP. (Exhibit
4.1 to form 10-QSB for the period Ended April 30, 2005 filed
June 14,
2005)
|
|
|
4.29
|
Convertible
Promissory Notes issued to Recap Marketing & Consulting, LLP. (Exhibit
4.1 to form 10-QSB for the period Ended July 31, 2005 filed
October 24,
2005)*
|
|
|
10.1
|
American
TeleSource International, Inc. 1998 Stock Option Plan (Exhibit
4.7 to
Registration statement on Form S-8 filed January 11,
2000)
|
|
|
10.2
|
2000
Option Plan (Exhibit 4.36 to annual Report on Form 10-K for
the year ended
July 31, 2003 filed November 12. 2000.)
|
|
|
10.3
|
Agreement
with SATMEX (Agreement #095-1) (Exhibit 10.31 to Annual Report
on Form
10-K for year ended July 31, 1998 (No. 000-23007))
|
|
|
10.4
|
Agreement
with SATMEX (Agreement #094-1) (Exhibit 10.32 to Annual Report
on Form
10-K for year ended July 31, 1998 (No. 000-23007))
|
|
|
10.5
|
Amendment
to Agreement #094-1 with SATMEX (Exhibit 10.3 to Amended Annual
Report on
Form 10-K for year ended July 31, 1999 filed August 25, 2000)
|
|
|
10.6
|
Amendment
to Agreement #095-1 with SATMEX (Exhibit10.4 to Amended Annual
Report on
Form 10-K for year ended July 31, 1999 filed August 25, 2000)
|
|
|
10.7
|
Bestel
Fiber Lease (Exhibit 10.5 to Amended Annual Report on Form
10-K for year
ended July 31, 1999 filed April 14, 2000)
|
|
|
10.8
|
Addendum
to Fiber Lease with Bestel, S.A. de C.V. (Exhibit 10.6 to
Amended Annual
Report on Form 10-K for year ended July 31, 1999 filed August
25, 2000)
|
|
|
10.9
|
Commercial
Lease with BDRC, Inc (Exhibit 10.24 to Annual Report on Form
10-K for year
ended July 31, 2003 filed November 12, 2003)
|
|
|
10.10
|
Stock
Purchase Agreement with Telemarketing (Sale of ATSICOM) (Exhibit
10.1 to
Form 8-K filed June 16, 2003)
|
|
|
10.11
|
Interconnection
Agreement TELMEX and ATSICOM (English summary) (Exhibit 10.26
to Annual
Report on Form 10-K for year ended July 31, 2003 filed November
12,
2003)
|
|
|
10.12
|
Interconnection
Agreement TELMEX and ATSICOM (English Translation) (Exhibit
10.27 to
Amended Annual Report on Form 10-K/A for the year ended July
31, 2003
filed March 2, 2004)
|
|
|
10.13
|
Carrier
Service Agreement DialMex and ATSI (Exhibit 10.27 to Annual
Report on Form
10-K for year ended July 31, 2003 filed November 12, 2003)
|
|
|
10.14
|
Confidential
Settlement Agreement and Mutual Release, Note Payable and
Lock out
agreement between ATSI and Alfonso Torres Roqueni, dated
October 1, 2004.
(Exhibit 10.1 to Form 10-QSB for the quarter ended October
31, 2004 filed
December 15, 2004)
|
|
|
10.15
|
Extension
to consulting agreements with Hunter M. A. Carr and Donald
W. Sapaugh
dated November 1, 2004. (Exhibit 10.1 to Form 10-QSB for
the quarter ended
January 31, 2005 filed March 15, 2005)
|
|
|
10.16
|
Extension
of consulting agreements (Amendment No: 1) with Hunter M.
A. Carr and
Donald W. Sapaugh dated March 1, 2005. (Exhibit 10.1 to Form
10-QSB for
the quarter ended April 30, 2005 filed June 14, 2005)
|
|
|
10.17
|
Settlement
Agreement (at mediation) with James C. Cuevas, Raymond G.
Romero, Texas
Workforce Commission and ATSI-Texas dated March 28, 2005.
(Exhibit 10.2 to
Form 10-QSB for the quarter ended April 30, 2005 filed June
14, 2005)
|
|
|
10.18
|
Order
granting Joint Motion to dismiss all claims against ATSI
Communications,
Inc. (A Nevada Corp., formerly a Delaware Corp.) by Helen
G. Schwartz,
Chapter 7 Trustee for TeleSpan, Inc. dated August 29, 2005.
(Exhibit 10.18
to annual report Form 10-KSB for the year ended July 31,
2005 filed
October 18, 2005)*
|
|
|
10.19
|
Agreement
of compromise, settlement and release between ATSI Communications,
Inc.
and Vianet, Inc. dated August 10, 2005. (Exhibit 10.19 to
annual report
Form 10-KSB for the year ended July 31, 2005 filed October
18, 2005)
*
|
|
|
10.20
|
Mutual
release and Termination Agreement between Hunter M. A. Carr
and Donald W.
Sapaugh and ATSI Communciations, Inc. dated June 1, 2005.
(Exhibit 10.20
to annual report Form 10-KSB for the year ended July 31,
2005 filed
October 18, 2005)*
|
|
|
21
|
Subsidiaries
of ATSI (Exhibit 21 to Annual Report on Form 10-K for year
ended July 31,
2004 filed November 9, 2004)
|
|
|
31.1
|
Certification
of our President and Chief Executive Officer, under Section
302 of the
Sarbanes-Oxley Act of 2002. *
|
|
|
31.2
|
Certification
of our Corporate Controller and Principal Financial Officer,
under Section
302 of the Sarbanes-Oxley Act of 2002. *
|
|
|
32.1
|
Certification
of our President and Chief Executive Officer, under Section
906 of the
Sarbanes-Oxley Act of 2002. *
|
|
|
32.2
|
Certification
of our Corporate Controller and Principal Financial Officer,
under Section
906 of the Sarbanes-Oxley Act of 2002. *
|
|
|
99.1
|
FCC
Radio Station Authorization - C Band (Exhibit 10.10 to Registration
statement on Form S-4 (No. 333-05557) filed June 7,
1996)
|
|
|
99.2
|
FCC
Radio Station Authorization - Ku Band (Exhibit 10.11 to Registration
statement on Form 10 (No. 333-05557) filed June 7,
1996)
|
|
|
99.3
|
Section
214 Certification from FCC (Exhibit 10.12 to Registration
statement on
Form 10 (No. 333-05557) filed June 7, 1996)
|
|
|
99.4
|
Comercializadora
License (Payphone License) issued to ATSI-Mexico (Exhibit
10.24 to
Registration statement on Form 10 (No. 000-23007) filed August
22,
1997)
|
|
|
99.5
|
Network
Resale License issued to ATSI-Mexico (Exhibit 10.25 to Registration
statement on Form 10 (No. 000-23007) filed August 22,
1997)
|
|
|
99.6
|
Shared
Teleport License issued to Sinfra (Exhibit 99.7 to Amended
Annual Report
on Form 10-K for year ended July 31, 1999 filed April 14,
2000)
|
|
|
99.7
|
Packet
Switching Network License issued to SINFRA (Exhibit 10.26
to Registration
statement on Form 10 (No. 000-23007) filed August 22,
1997)
|
|
|
99.8
|
Value-Added
Service License issued to SINFRA (Exhibit 99.9 to Amended
Annual Report on
Form 10-K for year ended July 31, 1999 filed April 13, 2000)
|
|
|
99.9
|
Public
Utility Commission of Texas ("PUC") approval of transfer
of the Service
Provider Certificate of Authority ("SPCOA") from Hinotel,
Inc. to ATSI's
subsidiary, Telefamilia Communications, Inc. Dated October
25, 2004.
(Exhibit 99.1 on Form 10-QSB for the quarter ended October
31, 2004 filed
December 15,
2004)
|
|
No
reports on Form 8-K were filed during the last quarter of the period
covered by this report |
The
Company paid the following fees to its principal independent accountants for
services during the fiscal years ended July 31, 2005 and July 31,
2004.
|
|
Year
Ended July 31,
|
|
Description
of Fees
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Audit
Fees
|
|
$
|
29,000
|
|
$
|
14,000
|
|
Audit
Related Fees
|
|
|
-0-
|
|
|
-0-
|
|
Tax
Fees
|
|
|
-0-
|
|
|
-0-
|
|
All
Other Fees
|
|
|
-0-
|
|
|
-0-
|
|
The
Audit
Committee has instructed Malone and Bailey PC that any fees for non-audit
services must be approved before being incurred.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
ATSI
COMMUNICATIONS, INC. |
|
|
|
|
By: |
/s/ Arthur
L. Smith |
|
|
|
Arthur
L. Smith
President 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.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Arthur L. Smith
|
|
Principal
Executive Officer and Director
|
|
November
2, 2005
|
Arthur
L. Smith
|
|
|
|
|
|
|
|
|
|
/s/
Antonio Estrada
|
|
Principal
Accounting Officer
|
|
November
2, 2005
|
Antonio
Estrada
|
|
Principal
Finance Officer
|
|
|
|
|
|
|
|
/s/
John R. Fleming
|
|
Director
|
|
November
2, 2005
|
John
R. Fleming
|
|
|
|
|
|
|
|
|
|
/s/
Murray R. Nye
|
|
Director
|
|
November
2, 2005
|
Murray
R. Nye
|
|
|
|
|