Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB/A
(Mark
One)
[X] |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 For
the quarterly period ended October 31,
2005
|
[
]
|
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 001-15687
ATSI
COMMUNICATIONS, INC.
(Exact
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 78240
(Address
of Principal Executive Offices)
|
|
(210)
614-7240
(Issuer’s
Telephone Number, Including Area
Code)
|
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:
Class
|
Outstanding
As Of December 11, 2005
|
|
|
Common
Stock, $.001 par
|
13,142,289
|
Transitional
Small Business Disclosure Format: Yes [ ] No [X]
ATSI
COMMUNICATIONS, INC.
AND
SUBSIDIARIES
QUARTERLY
REPORT ON FORM 10-QSB/A
FOR
THE QUARTER ENDED OCTOBER 31, 2005
INDEX
PART
I. FINANCIAL INFORMATION
|
Page
|
|
|
Item
1. Financial Statements (Unaudited)
|
|
|
|
Consolidated
Balance Sheets as of October 31, 2005 and July 31, 2005
|
1
|
Consolidated
Statements of Operations for the Three Months Ended October 31, 2005
and
2004
|
2
|
Consolidated
Statements of Comprehensive Loss for the Three Months Ended
October 31, 2005 and 2004
|
3
|
Consolidated
Statements of Cash Flows for the Three Months Ended October 31, 2005
and
2004
|
4
|
Notes
to Consolidated Financial Statements
|
5
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
10
|
|
|
Item
3. Controls and Procedures
|
17
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1. Legal Proceedings
|
17
|
|
|
Item
2. Unregistered Sales of Equity Securities and use of
proceeds
|
18
|
|
|
Item
3. Default upon senior securities
|
18
|
|
|
Item
6. Exhibits
|
18
|
Statement
Regarding This Amendment
This
amendment to the Form 10-QSB for the period ended October 31, 2005, as
previously filed on December 15, 2005 includes restated financial statements
to
properly reflect warrants issued to consultants, the
conversion features of the Note Payable to Franklin Cardwell & Jones and the
accounting of the 9% Convertible Debentures and associated
warrants.
As
a
result of these discussions, warrants issued to consultants, the
conversion features of the Note Payable to Franklin Cardwell & Jones and the
9% Convertible Debentures and associated warrants have
been
accounted for as derivative instrument liabilities instead as equity.
Additionally, the embedded conversion
features of the Note Payable to Franklin Cardwell & Jones and the
embedded
conversion
features of the 9% Convertible Debentures and warrants related
to the debt, have been bifurcated from the debt and accounted for separately
as
derivative instrument liabilities. We have added footnote 6 further explaining
the derivative instrument liabilities and provided information on subsequent
changes. In addition, we have modified the estimated volatility used in the
Black-Scholes option pricing model used to value the warrants issued to
consultants, the warrants issued to the 9% Convertible
Debentures holders and
the
conversion features embedded in our Note Payable to Franklin, Cardwell &
Jones and 9%
Convertible Debentures.
We
are
required to record the fair value of the conversion features and the warrants
on
our balance sheet at fair value with changes in the values of these derivatives
reflected in the consolidated statement of operations as “Gain (loss) on
embedded derivative liability.” The
effect
of the (non-cash) changes related to accounting separately for these derivative
instrument liabilities and modifying the estimated volatility, on our
consolidated statement of operations for the quarter ended October 31, 2005,
was
a decrease in our net loss attributable to common shareholders of $48,132.
The
cumulative effect on our consolidated balance sheet as of October 31, 2005
was a
decrease in stockholders' equity of $421,000.
We
have
also recorded an additional liability and a corresponding adjustment of $404,774
to additional paid in capital to present our Series E Convertible Preferred
Stock at its full redemption value of $1,463,000.
In
all
other material respects, this Amended Quarterly Report on Form 10-QSB/A is
unchanged from the Quarterly Report on Form 10-QSB previously filed by the
Company on December 15, 2005. This amendment should also be read in conjunction
with our amended Annual Report on Form 10-KSB/A for the fiscal year ended July
31, 2005, the quarter ended April 30, 2005 and January 31, 2006, together with
any subsequent amendments thereof.
PART
1. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (RESTATED)
(in
thousands, except share information)
|
|
|
October
31,
|
|
|
July
31,
|
|
|
|
|
2005
|
|
|
2005
|
|
ASSETS
|
|
|
(unaudited)
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3
|
|
$
|
29
|
|
Accounts
receivable
|
|
|
229
|
|
|
170
|
|
Prepaid
& other current assets
|
|
|
28
|
|
|
44
|
|
Total
current assets
|
|
|
260
|
|
|
243
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
231
|
|
|
228
|
|
Less
- accumulated depreciation
|
|
|
(112
|
)
|
|
(90
|
)
|
Net
property and equipment
|
|
|
119
|
|
|
138
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
379
|
|
$
|
381
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
612
|
|
$
|
606
|
|
Accrued
liabilities
|
|
|
1,008
|
|
|
1,033
|
|
Current
portion of obligation under capital leases
|
|
|
3
|
|
|
3
|
|
Notes
payable, related party
|
|
|
16
|
|
|
16
|
|
Notes
payable, Franklin, Cardwell & Jones
|
|
|
77
|
|
|
77
|
|
Convertible
debentures
|
|
|
234
|
|
|
234
|
|
Series
D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares
issued
and outstanding
|
|
|
1,193
|
|
|
1,182
|
|
Series
E Cumulative Preferred Stock, 10,000 shares authorized, 1,170 shares
issued and outstanding
|
|
|
1,767
|
|
|
1,749
|
|
Derivative
financial instrument liabilities (Note 6)
|
|
|
29
|
|
|
24
|
|
Liabilities
from discontinued operations, net of assets
|
|
|
-
|
|
|
1,152
|
|
Total
current liabilities
|
|
|
4,939
|
|
|
6,076
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
500
|
|
|
500
|
|
Obligation
under capital leases, less current portion
|
|
|
8
|
|
|
9
|
|
Other
|
|
|
7
|
|
|
8
|
|
Total
long-term liabilities
|
|
|
515
|
|
|
517
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
5,454
|
|
|
6,593
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT:
|
|
|
|
|
|
|
|
Series
A Cumulative Convertible Preferred Stock, 50,000 shares
authorized, 3,750
shares issued and
outstanding
|
|
|
-
|
|
|
-
|
|
Series
H Convertible Preferred Stock, 16,000,000 shares authorized,
13,769,866
and 13,912,372 shares issued and outstanding,
respectively
|
|
|
14
|
|
|
14
|
|
Common
stock, $0.001, 150,000,000 shares authorized, 11,557,883
and 10,397,222
shares issued and outstanding,
respectively
|
|
|
12
|
|
|
10
|
|
Additional
paid in capital
|
|
|
66,854
|
|
|
66,458
|
|
Accumulated
deficit
|
|
|
(71,956
|
)
|
|
(73,196
|
)
|
Other
comprehensive income
|
|
|
1
|
|
|
502
|
|
Total
stockholders' deficit
|
|
|
(5,075
|
)
|
|
(6,212
|
)
|
Total
liabilities and stockholders' deficit
|
|
|
379
|
|
|
381
|
|
See
accompanying summary of accounting policies and notes to financial statements.
ATSI
COMMUNICATIONS, INC.
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS (RESTATED)
(In
thousands, except per share amounts)
(unaudited)
|
|
Three
months ended October 31,
|
|
|
|
2005
|
|
|
2004
|
|
OPERATING
REVENUES:
|
|
|
|
|
|
|
|
Carrier
services
|
|
$
|
2,313
|
|
$
|
769
|
|
Network
services
|
|
|
9
|
|
|
73
|
|
|
|
|
|
|
|
|
|
Total
operating revenues
|
|
|
2,322
|
|
|
842
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
|
|
2,240
|
|
|
772
|
|
Selling,
general and administrative expense (exclusive of legal and professional
fees, non cash stock compensation to employees and warrants for
services,
shown below)
|
|
|
149
|
|
|
210
|
|
Legal
and professional fees
|
|
|
27
|
|
|
239
|
|
Non-cash
issuance of common stock and warrants for services
|
|
|
64
|
|
|
40
|
|
Non-cash
stock-based compensation, employees
|
|
|
180
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
22
|
|
|
23
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
2,682
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
OPERATING
(LOSS)
|
|
|
(360
|
)
|
|
(442
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Debt
forgiveness income
|
|
|
-
|
|
|
460
|
|
Loss
on derivative instrument liabilities
|
|
|
(26
|
)
|
|
(1,830
|
)
|
Interest
expense
|
|
|
(26
|
)
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
Total
other income (expense), net
|
|
|
(52
|
)
|
|
(1,404
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS FROM CONTINUING OPERATIONS
|
|
|
(412
|
)
|
|
(1,846
|
)
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS (NOTE 4)
|
|
|
|
|
|
|
|
Gain
on disposal of discontinued operations
|
|
|
1,652
|
|
|
-
|
|
NET
INCOME FROM DISCONTINUED OPERATIONS
|
|
|
1,652
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS):
|
|
|
1,240
|
|
|
(1,846
|
)
|
|
|
|
|
|
|
|
|
LESS:
PREFERRED DIVIDENDS
|
|
|
(41
|
)
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
|
|
1,199
|
|
|
(1,884
|
)
|
|
|
|
|
|
|
|
|
BASIC
INCOME (LOSS) PER SHARE
|
|
$
|
0.11
|
|
|
($0.52
|
)
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
|
($0.04
|
)
|
|
($0.52
|
)
|
From
discontinued operations
|
|
$
|
0.15
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
DILUTED
INCOME (LOSS) PER SHARE
|
|
$
|
0.04
|
|
|
($0.52
|
)
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
|
($0.01
|
)
|
|
($0.52
|
)
|
From
discontinued operations
|
|
$
|
0.05
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
10,945,338
|
|
|
3,598,383
|
|
See
accompanying summary of accounting policies and notes to financial
statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (RESTATED)
(In
thousands)
(unaudited)
|
|
Three
months ended October 31,
|
|
|
|
2005
|
|
|
2004
|
|
Net
income (loss) to common stockholders
|
|
$
|
1,199
|
|
|
($1,884
|
)
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(501
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) to common stockholders
|
|
$
|
698
|
|
|
($1,884
|
)
|
See
accompanying summary of accounting policies and notes to financial
statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (RESTATED)
(In
thousands)
(unaudited)
|
|
Three
months ended October 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
1,240
|
|
|
($1,846
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Gain
in disposal of discontinued operations
|
|
|
(1,652
|
)
|
|
-
|
|
Debt
forgiveness income
|
|
|
-
|
|
|
(460
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
22
|
|
|
23
|
|
Non-cash
issuance of stock grants and options, employees
|
|
|
180
|
|
|
-
|
|
Non-cash
issuance of common stock and warrants for services
|
|
|
64
|
|
|
40
|
|
Loss
on derivative instrument liabilities
|
|
|
26
|
|
|
1,830
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(59
|
)
|
|
(131
|
)
|
Prepaid
expenses and other
|
|
|
15
|
|
|
(20
|
)
|
Accounts
payable
|
|
|
67
|
|
|
90
|
|
Accrued
liabilities
|
|
|
29
|
|
|
108
|
|
Net
cash used in operating activities
|
|
|
(68
|
)
|
|
(366
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of property & equipment
|
|
|
(3
|
)
|
|
(6
|
)
|
Acquisition
of business
|
|
|
-
|
|
|
(8
|
)
|
Net
cash used in investing activities
|
|
|
(3
|
)
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
286
|
|
Payments
on notes payable
|
|
|
-
|
|
|
14
|
|
Proceeds
from the exercise of warrants
|
|
|
46
|
|
|
-
|
|
Principal
payments on capital lease obligation
|
|
|
(1
|
)
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
45
|
|
|
300
|
|
DECREASE
IN CASH
|
|
|
(26
|
)
|
|
(80
|
)
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
29
|
|
|
94
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
3
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
-
|
|
|
-
|
|
Cash
paid for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NON-CASH
TRANSACTIONS
|
|
|
|
|
|
|
|
Issuance
of common stock for conversion of debt
|
|
$
|
58
|
|
$
|
733
|
|
Issuance
of common stock for purchase of fixed & Intangible
assets
|
|
|
-
|
|
|
24
|
|
Conversion
of preferred stock to common stock
|
|
|
17
|
|
|
206
|
|
Fair
value of the derivative instrument
|
|
|
-
|
|
|
-
|
|
Change
in derivative liabilities on warrants exercised
|
|
|
22
|
|
|
945
|
|
See
accompanying summary of accounting policies and notes to financial statements.
ATSI
COMMUNICATIONS, INC.
AND
SUBSIDIARIES
NOTES
TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements of ATSI Communications,
Inc.
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the United States Securities
and Exchange Commission (“SEC”), and should be read in conjunction with the
audited financial statements and notes thereto of ATSI Communications, Inc.
filed with the SEC on Form 10-KSB/A for the year ended July 31, 2005. In the
opinion of management, these interim financial statements contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year. Notes
to
the financial statements, which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year
ended July 31, 2005, as reported in the amended Form 10-KSB/A filed April 13,
2006, have been omitted. The Company amended this quarterly report to reflect
a
net loss for the period ended October 31, 2005, related to embedded derivatives
in certain securities. See Note 6 to the Interim Financial Statements.
Derivative
financial instruments
The
Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. Derivative financial instruments are
initially measured at their fair value. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported as charges or credits to income. For
option-based derivative financial instruments, ATSI uses the Black-Scholes
option-pricing model to value the derivative instruments. The classification
of
derivative instruments, including whether such instruments should be recorded
as
liabilities or as equity, is re-assessed at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current
or non-current based on whether or not net-cash settlement of the derivative
instrument could be required within 12 months of the balance sheet date.
NOTE
2 - 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, to stock-based employee compensation.
|
|
Three
months ended October 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Net
income (loss) to common Shareholders, as reported
|
|
$
|
1,199,000
|
|
|
($1,884,000
|
)
|
Add:
stock based compensation determined under intrinsic value based
method
|
|
|
-
|
|
|
-
|
|
Less:
stock based compensation determined under fair value based
method
|
|
|
(281,499
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Pro
forma net income (loss)
|
|
$
|
917,501
|
|
|
($1,884,000
|
)
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.11
|
|
|
($0.52
|
)
|
Pro
forma
|
|
$
|
0.08
|
|
|
($0.52
|
)
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per common share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.04
|
|
|
($0.52
|
)
|
Pro
forma
|
|
$
|
0.03
|
|
|
($0.52
|
)
|
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:
|
|
Three
Months Ended October 31,
|
|
|
|
2005
|
|
|
2004
|
|
Expected
dividends yield
|
|
|
0.00
|
%
|
|
N/A
|
|
Expected
stock price volatility
|
|
|
139
|
%
|
|
N/A
|
|
Risk-free
interest rate
|
|
|
4.42
|
%
|
|
N/A
|
|
Expected
life of options
|
|
|
3
years
|
|
|
N/A
|
|
During
the three months ended October 31, 2005, ATSI granted 2,450,000 options to
purchase common stock to employees and members of the Board of Directors with
an
exercise price of $0.16, the average closing price of ATSI’s stock on September
29, 2005. These options will vest over a period of three years. ATSI did not
recognize any expense at the time these options were granted since the exercise
price on the options was equal to the average market price at the grant date.
The compensation expense determined under the fair value option method for
these
options was $257,275.
Additionally,
during the three months ended October 31, 2005 ATSI granted 1,904,000 options
to
purchase stock to employees and members of the Board of Directors with an
exercise price of $0.16, the average closing price of ATSI’s stock on September
29, 2005. Seventy three percent
of these options vest immediately and the remaining balances vest over three
years. ATSI
did
not recognize any expense at the time these options were granted since the
exercise price on the options was equal to the average market price at the
grant
date. The compensation expense determined under the fair value option method
for
these options was $24,224.
During
the three months ended October 31, 2005, ATSI’s Board of Directors approved the
issuance of 1,125,000 shares to its employees and directors and 385,709 shares
to consultants with a market value of $180,000 and $78,066, respectively.
NOTE
3 - SETTLEMENT OF NOTE RECEIVABLE
On
October
31, 2005, ATSI Communications, Inc. and Telemarketing de Mexico S.A de C.V.
reached a “Confidential Settlement Agreement and Mutual Release”. Under the
settlement agreement the parties agreed to release all claims and liabilities
between the parties. ATSI agreed to release Telemarketing de Mexico S.A de
C.V.
of a note receivable with a balance $598,000.
ATSI
previously recognized an allowance for this receivable and the balance reflected
in our balance sheet was $0. Additionally,
as part of the settlement ATSI agreed to release 10% of ATSI
Communicaciones S.A de C.V. total outstanding common stock, that was held as
collateral on the note receivable.
NOTE
4 - GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS
During
the six months ended January 31, 2006, ATSI recognized a gain on disposal of
discontinued operations of $1,652,000. The gain on disposal of discontinued
operations was associated with the sale in October 2005 of ATSI’s Mexican
subsidiary, ATSIMex Personal S.A de C.V. This entity discontinued all operations
in May 2003. The total liabilities of this entity, net of assets, were
approximately $1,652,000 and were assumed by the purchaser. The purchase price
under the agreement was $1,000 and no other consideration was included in the
purchase agreement.
NOTE
5 - NOTES PAYABLE
On
November 1, 2004, ATSI entered into a note payable with Franklin, Cardwell
&
Jones, PC, for $103,454 associated with legal and professional services
previously rendered. As per the terms in the note, the holder at any time after
November 1, 2005 can 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. This conversion
feature was determined to be an embedded derivative and, accordingly, the
embedded derivative portion of the value of the note is attributable to the
conversion feature. The embedded derivative value at October 31, 2005, is
$13,493 and is included in Derivative Financial Instrument Liabilities on the
balance sheet. A corresponding change of $5,358 is reflected in the statement
of
operations as gain on derivative instrument liability.
On
November 1, 2005, the holder of the note elected to convert $13,454 of the
principal balance and $6,207 of the accrued interest into 66,603 common shares
of ATSI. The promissory note payable had a maturity date of December 1, 2005
and
has an annual interest rate of 6%. On December 1, 2005 Franklin, Cardwell &
Jones agreed to extend the maturity date on this note until December 1, 2006.
NOTE
6 - DERIVATIVES
ATSI
evaluated the application of SFAS 133 and EITF 00-19 for all of its
financial instruments and identified the following financial instruments as
derivatives:
1) |
Note
Payable, Franklin Cardwell and
Jones
|
2) |
9%
Convertible Debenture;
|
|
|
Warrants
to purchase common stock associated with the 2003 Debentures the
("2003
Debenture Warrants");
|
|
3)
|
Warrants
to purchase common stock in connection with consulting
agreements with two
individuals (“Consulting
Warrants”)
|
Based
on
the guidance in SFAS 133 and EITF 00-19, ATSI concluded that all of these
instruments were required to be accounted for as derivatives. SFAS 133 and
EITF
00-19 require ATSI to bifurcate and separately account for the conversion
features of the Note Payable to Franklin Cardwell and Jones, the 9% Convertible
Debentures and warrants issued to consultants as embedded derivatives.
Pursuant
to SFAS 133, ATSI bifurcated the conversion feature from the Note Payable to
Franklin Cardwell and Jones, because the conversion price is not fixed and
it’s
not convertible into a fixed number of shares. Accordingly, the embedded
derivative must be bifurcated and accounted for separately.
In
addition, ATSI bifurcated the conversion feature from the 9% Convertible
debenture and the associated warrants, since the conversion price is not fixed
and it is not convertible into a fixed number of shares.
Furthermore,
ATSI concluded that the exercise price and the number of shares to be issued
under the “Consulting Warrants” to two individuals are fixed. However, since the
9% Convertible debenture was issued prior to these warrants and these debentures
might result in issuing an indeterminate number of shares, it cannot be
concluded that the Company has a sufficient number of authorized shares to
settle these warrants. As such, the warrants were accounted for as derivative
instrument liabilities. ATSI is required to record the fair value of the
conversion features and the warrants on its balance sheet at fair value with
changes in the values of these derivatives reflected in the consolidated
statement of operations as “Gain (loss) on embedded derivative liability.” The
derivative liabilities were not previously classified as such in ATSI’s
historical financial statements. As a result, ATSI reflected these changes
in
the accompanying restated financial statements under the amended Form 10-KSB
for
the year ended July 31, 2005 and the quarterly report for the period ended
October 31, 2005.
The
impact of the application of SFAS 133 and EITF 00-19 on the balance sheet as
of
October 31, 2005 and July 31, 2005 is as follows:
|
|
Embedded
derivative liability balance
|
|
Cumulative
|
|
|
|
|
10/31/2005
|
|
|
7/31/2005
|
|
|
Net
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
Payable, Franklin Cardwell and Jones
|
|
|
13,493
|
|
|
18,851
|
|
|
(5,358
|
)
|
9%
Convertible Debenture & warrants
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Consulting
warrants
|
|
|
15,104
|
|
|
5,353
|
|
|
9,751
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
28,597
|
|
$
|
24,204
|
|
$
|
4,393
|
|
And
the
impact on the statements of operations as of October 31, 2005 and 2004 is as
follows:
Gain
(loss) on embedded derivative liabilities:
|
|
Three
months ended October 30,
|
|
|
|
2005
|
|
|
2004
|
|
Note
Payable, Franklin Cardwell and Jones
|
|
$
|
5,358
|
|
|
-
|
|
9%
Convertible Debenture & warrants
|
|
|
-
|
|
|
(3,888
|
)
|
Consulting
warrants
|
|
|
(31,291
|
)
|
|
(1,826,167
|
)
|
|
|
|
|
|
|
|
|
Total
gain (loss) on embedded derivative liabilities:
|
|
|
($25,933
|
)
|
|
($1,830,055
|
)
|
Since
the
conversion option for the Series D Preferred Stock is contingent, as a result
of
the ongoing litigation with the holders of these securities, the Series D
Preferred Stock is not within the scope of SFAS 133 and EITF 00-19. If the
contingency and lawsuit is resolved in the future and the holder becomes
able to convert, ATSI will assess whether the conversion option meets the
definition of a derivative under SFAS 133. However, as of July 31, 2003, the
Series D Preferred Stock, which is carried as a current liability, is recorded
at its stated redemption amount of $1,270 per share or approximately $942,000.
ATSI continues to accrue dividends on the Series D Preferred Stock, pending
resolution of the Company’s lawsuit. At October 31, 2005, the carrying amount of
the Series D Preferred Stock was $1,193,000, including accrued dividends of
$251,000.
Because
the conversion option for the Series E Preferred Stock is contingent, as a
result of the ongoing litigation with the holders of these securities, the
Series E Preferred Stock is not within the scope of SFAS 133 and EITF 00-19.
If
the contingency and lawsuit is resolved in the future and the holder
becomes able to convert, ATSI will assess whether the conversion option meets
the definition of a derivative under SFAS 133. However, as of July 31, 2003,
the
Series E Preferred Stock, which is carried as a current liability, is recorded
at its stated redemption amount of $1,250 per share or approximately $1,463,000.
ATSI continues to accrue an amount equivalent to dividends of 6% per annum
on
the Series E Preferred Stock, pending resolution of the Company’s lawsuit. At
October 31, 2005, the carrying amount of the Series E Preferred Stock was
$1,767,000, including accrued dividends of $304,000.
NOTE
7 - RESTATEMENT
ATSI
has
restated its 2005 and 2004 quarterly financial statements from amounts
previously reported. ATSI has
determined that certain financial instruments issued by the Company contain
features that require the Company to account for these features as derivative
instruments. Accordingly, warrants issued to consultants, the
conversion features of the Note Payable to Franklin Cardwell & Jones and the
9% Convertible Debentures and associated warrants have
been
accounted for as derivative instrument liabilities rather than as equity.
Additionally, the embedded conversion
features of the Note Payable to Franklin Cardwell & Jones and the
embedded
conversion
features of the 9% Convertible Debentures and warrants related
to the debt, have been bifurcated from the debt and accounted for separately
as
derivative instrument liabilities. Note 6 was added to disclose the derivative
instrument liabilities and provided information on subsequent changes. In
addition, ATSI has modified the estimated volatility used in the Black-Scholes
option pricing model used to value the warrants issued to consultants, the
warrants issued to the 9% Convertible
Debentures holders and
the
conversion features embedded in the note payable to Franklin, Cardwell &
Jones and 9%
Convertible Debentures.
ATSI
is
required to record the fair value of the conversion features and the warrants
on
the balance sheet at fair value with changes in the values of these derivatives
reflected in the consolidated statement of operations as “Gain (loss) on
derivative instrument liabilities.” The
effect
of the (non-cash) changes related to accounting separately for these derivative
instrument liabilities and modifying the estimated volatility, on the
consolidated statement of operations for the quarter ended October 31, 2005,
was
a decrease in the net income attributable to common shareholders of $48,133.
Basic and diluted net income attributable to common shareholders per share
for
the quarter ended October 31, 2005 remained the same at $0.11 and $0.04,
respectively. The effect on the consolidated balance sheet as of October 31,
2005 was a decrease in stockholders' equity of $421,000.
ATSI
has
also recorded an additional liability and a corresponding adjustment of $405,000
to additional paid in capital to present the Series E Convertible Preferred
Stock at its full redemption value of $1,463,000.
In
all
other material respects, the financial statements are unchanged. Following
is a summary of the restatement adjustments:
|
|
For
the three months ended October 31, 2005
|
|
|
For
the three months ended October 31,
2004
|
|
|
(in
thousands, except share
information)
|
|
|
|
As
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
Summary
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
379
|
|
|
-
|
|
$
|
379
|
|
$
|
369
|
|
|
-
|
|
$
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-petition
Liabilities of bankrupt subsidiaries, net of assets
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
12,104
|
|
|
-
|
|
|
12,104
|
|
Accounts
payable
|
|
|
612
|
|
|
-
|
|
|
612
|
|
|
595
|
|
|
-
|
|
|
595
|
|
Accrued
liabilities
|
|
|
953
|
|
|
55
|
|
|
1,008
|
|
|
660
|
|
|
20
|
|
|
680
|
|
Current
portion of obligation under capital leases
|
|
|
3
|
|
|
-
|
|
|
3
|
|
|
3
|
|
|
-
|
|
|
3
|
|
Notes
payable, related party
|
|
|
16
|
|
|
-
|
|
|
16
|
|
|
16
|
|
|
-
|
|
|
16
|
|
Notes
payable
|
|
|
|
|
|
|
|
|
|
|
|
691
|
|
|
-
|
|
|
691
|
|
Notes
payable, Franklin Cardwell & Jones
|
|
|
104
|
|
|
(27
|
)
|
|
77
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Convertible
debentures
|
|
|
275
|
|
|
(41
|
)
|
|
234
|
|
|
275
|
|
|
(41
|
)
|
|
234
|
|
Series
D Cumulative Preferred Stock
|
|
|
1,193
|
|
|
-
|
|
|
1,193
|
|
|
1,149
|
|
|
-
|
|
|
1,149
|
|
Series
E Cumulative Preferred Stock
|
|
|
1,362
|
|
|
405
|
|
|
1,767
|
|
|
1,292
|
|
|
405
|
|
|
1,697
|
|
Derivative
financial instrument liabilities
|
|
|
-
|
|
|
29
|
|
|
29
|
|
|
-
|
|
|
2,233
|
|
|
2,233
|
|
Liabilities
from discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,152
|
|
|
-
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
4,518
|
|
|
421
|
|
|
4,939
|
|
|
17,937
|
|
|
2,617
|
|
|
20,554
|
|
|
|
For
the three months ended October 31, 2005
|
|
|
For
the three months ended October 31,
2004
|
|
|
|
(in
thousands, except share information)
|
|
|
|
As
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
515
|
|
|
-
|
|
|
515
|
|
|
520
|
|
|
-
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A preferred stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Series
H preferred stock
|
|
|
14
|
|
|
-
|
|
|
14
|
|
|
14
|
|
|
-
|
|
|
14
|
|
Common
stock
|
|
|
12
|
|
|
-
|
|
|
12
|
|
|
5
|
|
|
-
|
|
|
5
|
|
Additional
paid in capital
|
|
|
72,279
|
|
|
(5,425
|
)
|
|
66,854
|
|
|
69,950
|
|
|
(5,726
|
)
|
|
64,224
|
|
Accumulated
deficit
|
|
|
(76,960
|
)
|
|
5,004
|
|
|
(71,956
|
)
|
|
(88,559
|
)
|
|
3,109
|
|
|
(85,450
|
)
|
Other
comprehensive income
|
|
|
1
|
|
|
-
|
|
|
1
|
|
|
502
|
|
|
-
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholder's deficit
|
|
|
(4,654
|
)
|
|
(421
|
)
|
|
(5,075
|
)
|
|
(18,088
|
)
|
|
(2,617
|
)
|
|
(20,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholder's deficit
|
|
$
|
379
|
|
|
-
|
|
$
|
379
|
|
$
|
369
|
|
|
-
|
|
$
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
statements of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,322
|
|
|
-
|
|
$
|
2,322
|
|
$
|
842
|
|
|
-
|
|
$
|
842
|
|
Operating
expenses & depreciation expense
|
|
|
2,670
|
|
|
12
|
|
|
2,682
|
|
|
1,284
|
|
|
-
|
|
|
1,284
|
|
Operating
loss
|
|
|
(348
|
)
|
|
(12
|
)
|
|
(360
|
)
|
|
(442
|
)
|
|
-
|
|
|
(442
|
)
|
Other
Income
|
|
|
(16
|
)
|
|
(36
|
)
|
|
(52
|
)
|
|
429
|
|
|
(1,833
|
)
|
|
(1,404
|
)
|
Net
income (loss) from continuing operations
|
|
|
(364
|
)
|
|
(48
|
)
|
|
(412
|
)
|
|
(13
|
)
|
|
(1,833
|
)
|
|
(1,846
|
)
|
Net
income from discontinued operations
|
|
|
1,652
|
|
|
|
|
|
1,652
|
|
|
|
|
|
|
|
|
|
|
Preferred
Dividends
|
|
|
(41
|
)
|
|
-
|
|
|
(41
|
)
|
|
(38
|
)
|
|
-
|
|
|
(38
|
)
|
Net
income (loss) to common stockholders
|
|
$
|
1,247
|
|
|
(48
|
)
|
$
|
1,199
|
|
|
($51
|
)
|
|
(1,833
|
)
|
|
($1,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings (loss) per share
|
|
$
|
0.11
|
|
$
|
0.00
|
|
$
|
0.11
|
|
|
($0.01
|
)
|
|
($0.51
|
)
|
|
($0.52
|
)
|
From
continuing operations
|
|
|
($0.04
|
)
|
$
|
0.00
|
|
|
($0.04
|
)
|
|
($0.01
|
)
|
|
($0.51
|
)
|
|
($0.52
|
)
|
From
discontinued operations
|
|
$
|
0.15
|
|
$
|
0.00
|
|
$
|
0.15
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.00
|
|
Diluted
Earnings (loss) per share
|
|
$
|
0.04
|
|
$
|
0.00
|
|
$
|
0.04
|
|
|
($0.01
|
)
|
|
($0.51
|
)
|
|
($0.52
|
)
|
From
continuing operations
|
|
|
($0.01
|
)
|
$
|
0.00
|
|
|
($0.01
|
)
|
|
($0.01
|
)
|
|
($0.51
|
)
|
|
($0.52
|
)
|
From
discontinued operations
|
|
$
|
0.05
|
|
$
|
0.00
|
|
$
|
0.05
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.00
|
|
NOTE
8-SUBSEQUENT EVENTS
On
November 4, 2005 ATSI entered into a credit facility agreement with CSI Business
Finance, Inc. Under the agreement, CSI Business Finance, Inc. committed to
lend
up to $150,000 secured by ATSI’s monthly receivables. The agreement expires on
November 4, 2006 and it has an annual interest rate of 18%. As part of the
transaction ATSI paid an application, legal and documentation fee of $6,000
and
a brokerage fee of $20,000 to Corporate Strategies, Inc. As of January 31,
2006
we have fully drawn the available credit facility of $150,000.
On
November 4, 2005 ATSI entered into a note payable with CSI Business Finance,
Inc. for $50,000. The promissory note payable has a maturity date of November
4,
2006 and it has an annual interest rate of 18%. The
note
is secured by ATSI’s equipment, deposit accounts and accounts
receivables.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SPECIAL
NOTE: This Quarterly Report on Form 10-QSB/A 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.
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 for the three months ended October 31, 2005 and 2004. It
should be read in conjunction with our Consolidated Financial Statements, the
Notes thereto and the other financial information included in the annual report
on Form 10-KSB/A filed with the SEC on April 13, 2006. As used in this section,
the term “fiscal 2006” means the year ending July 31, 2006 and “fiscal 2005”
means the year ended July 31, 2005.
General
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.
Our
Retail business was launched during the first quarter of Fiscal 2005 through
the
acquisition 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. 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 $22,500 in retail services revenue
during the three months ended October 31, 2005.
Additionally,
during the second quarter of Fiscal 2006, we expanded our NexTone’
Communications Session Controller (soft-switch) by 65% 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 $769,000 during the quarter ended October 31, 2004
to
$2,313,000 for the quarter ended October 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 $360,000 and
$442,000, for the quarters ended October 31, 2005 and 2004, respectively.
Additionally, we had a working capital deficit of approximately $4,679,000
at
October 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
build our customer base and increase 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 quarter ended October 31, 2005
management continued to pursue different avenues for funding. During the quarter
ended October 31, 2005 we received $46,000 from the exercise of 331,084
warrants. The proceeds from the exercise of warrants 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.
Results
of Operations
The
following table sets forth certain items included in the Company’s results of
operations in dollar mounts and as a percentage of total revenues for the
three-month period ended October 31, 2005 and 2004.
|
|
Three
Months Ended October 31,
|
|
|
2005
|
|
2004
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrier services
|
|
$
|
2,313
|
|
|
100
|
%
|
$
|
769
|
|
|
91
|
%
|
Network
services
|
|
|
9
|
|
|
0
|
%
|
|
73
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenues
|
|
|
2,322
|
|
|
100
|
%
|
|
842
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services (Exclusive of depreciation and amortization, shown
below)
|
|
|
2,240
|
|
|
96
|
%
|
|
772
|
|
|
92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
82
|
|
|
4
|
%
|
|
70
|
|
|
8
|
%
|
|
|
Three
Months Ended October 31,
|
|
|
2005
|
|
2004
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Selling,
general and administrative expense (exclusive of legal and professional
fees, non cash stock compensation to employees and warrants for
services,
shown below)
|
|
|
149
|
|
|
6
|
%
|
|
210
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
and professional fees
|
|
|
27
|
|
|
1
|
%
|
|
239
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
issuance of common stock and warrants for services
|
|
|
64
|
|
|
3
|
%
|
|
40
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
stock-based compensation, employees
|
|
|
180
|
|
|
8
|
%
|
|
-
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
22
|
|
|
1
|
%
|
|
23
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(360
|
)
|
|
-16
|
%
|
|
(442
|
)
|
|
-52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
forgiveness income
|
|
|
-
|
|
|
0
|
%
|
|
460
|
|
|
0
|
%
|
Gain
(loss) on derivative instrument liabilities
|
|
|
(26
|
)
|
|
-1
|
%
|
|
(1,830
|
)
|
|
-217
|
%
|
Interest
expense
|
|
|
(26
|
)
|
|
-1
|
%
|
|
(34
|
)
|
|
-4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS FROM CONTINUING OPERATIONS
|
|
|
(412
|
)
|
|
-18
|
%
|
|
(1,846
|
)
|
|
-219
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS (NOTE 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of discontinued operations
|
|
|
1,652
|
|
|
71
|
%
|
|
-
|
|
|
0
|
%
|
NET
INCOME FROM DISCONTINUED OPERATIONS
|
|
|
1,652
|
|
|
71
|
%
|
|
-
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS):
|
|
|
1,240
|
|
|
53
|
%
|
|
(1,846
|
)
|
|
-219
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
preferred stock dividends
|
|
|
(41
|
)
|
|
-2
|
%
|
|
(38
|
)
|
|
-5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common stockholders
|
|
$
|
1,199
|
|
|
52
|
%
|
|
($1,884
|
)
|
|
-224
|
%
|
Three
Months ended October 31, 2005 Compared to Three Months ended October 31,
2004
Operating
Revenues.
Consolidated operating revenues increased 176% between periods from $842,000
for
the quarter ended October 31, 2004 to $2,322,000 for the quarter ended October
31, 2005.
Carrier
services revenues increased $1,544,000, or 201% from the quarter ended October
31, 2004 to the quarter ended October 31, 2005. Our carrier traffic increased
from approximately 16,304,526 minutes in the first quarter of fiscal 2005 to
approximately 47,943,067 minutes in the quarter ended October 31, 2005. The
increase in revenue and carrier traffic can mainly be attributed to increase
in
customers during the first quarter of fiscal 2006 compared to the first quarter
of fiscal 2005. Network services revenues decreased approximately 88% or $64,000
from the quarter ended October 31, 2004 to the quarter ended October 31, 2005.
The decrease in network services revenue is primarily due to the decrease in
network services customers and the termination of the Network Services contract
with a BC Nexxia.
Cost
of Services. (Exclusive of depreciation and amortization)
The
consolidated cost of services increased by $1,468,000 or 190% from the quarter
ended October 31, 2004 to the quarter ended October 31, 2005. The increase
in
cost of services is a direct result of the increase in carrier services revenue.
As mentioned above, our carrier traffic increased from approximately 16,304,526
minutes in the first quarter of fiscal 2005 to approximately 47,943,067 minutes
in the quarter ended October 31, 2005, thus increasing our cost of services
between quarters. Consolidated cost of services as a percentage of sales
increased from 92% in the first quarter of fiscal 2005 to 96% in the first
quarter of fiscal 2006, primarily as a result of decline in revenue from network
services and the increase in costs paid to our providers that could not be
passed on to our customers. As a result, gross margins declined from 8% of
revenue in the first quarter of fiscal 2005 to 4% of revenue in the first
quarter of fiscal 2006
Selling,
General and Administrative (SG&A) Expenses (exclusive of legal and
professional fees, non-cash stock compensation to employees and common stock
and
warrants for services).
SG&A expenses decreased $61,000, or 29% from the quarter ended October 31,
2004 to the quarter ended October 31, 2005. The decrease is attributable to
the
reduction of $45,000 in wages and contract labor associated with the operations
of the retail services during the quarter ended October 31, 2004.
Legal
and professional Fees.
Legal
and professional fees decreased $212,000, or 89% from the quarter ended October
31, 2004 to the quarter ended October 31, 2005. The decrease is attributable
to
the recognition of approximately $150,000 in professional fees associated with
a
marketing campaign that commenced during the quarter ended October 31, 2004.
Additionally, during the quarter ended October 31, 2004 we recognized
approximately $90,000 in legal fees associated to the lawsuit for stock fraud
and manipulation by various institutions, as describe in the legal preceding
section of this report. We did not incur these types of expenses during the
quarter ended October 31, 2005.
Non-cash
issuance of common stock and warrants for services.
Non-cash issuance of common stock and warrants for services increased by $24,000
from the quarter ended October 31, 2004 to the quarter ended October 31, 2005.
This increase is primarily due to recognition of non-cash compensation expense
associated with the consulting agreements entered with an individual for legal
services relating to pending litigation and consulting services associated
with
the retail services unit.
Non-cash
stock-based compensation, employees.
Non-cash compensation expense to employees increased by $180,000 from the
quarter ended October 31, 2004 to the quarter ended October 31, 2005. This
increase is attributed to the recognition of non-cash compensation expense
associated with the stock grants to our employees and board of directors.
Depreciation
and Amortization.
Depreciation and amortization decreased by $1,000 or 4% from the quarter ended
October 31, 2004 to the quarter ended October 31, 2005. The decrease is
attributed to the lower depreciable base of equipment during the first quarter
of fiscal 2006.
Operating
Loss.
The
Company’s operating loss decreased by $82,000 or 19% from the quarter ended
October 31, 2004 to the quarter ended October 31, 2005. The decrease in
operating loss is attributed to the decrease in legal and professional fees
of
$212,000 and a decrease in SG&A expenses of $61,000 between quarters. These
decrease were slightly offset by the increase in non-cash issuance of common
stock and warrant expense for services of $64,000 and the increase in non-cash
stock based compensation expense to employees of $180,000.
Debt
forgiveness income. Debt
forgiveness decreased by 100% from $460,000 during the quarter ended October
31,
2004 to $0 during the quarter ended October 31, 2005. During the quarter ended
October 31, 2004 we recognized $460,000 in debt forgiveness income associated
with the settlement of various liabilities for equity. These transactions were
related to the settlement of a $859,500 liability with Alfonso Torres Roqueni,
the former owner of the concession license that we 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
(loss) on derivative instruments liabilities, net. The
Company recognized a loss on derivative instruments of $26,000 during the
quarter ended October 31, 2005 compared to a loss of $1,830,000 during the
quarter ended October 31, 2004, a decrease of $1,804,000. The decrease is as
a
result of the net unrealized (non-cash) change in the fair value of our
derivative instrument liabilities related to certain, warrants, and embedded
derivatives in our debt instruments that have been bifurcated and accounted
for
separately.
Other
Income (expense).
Other
expense decreased by $8,000 or 24% from the quarter ended October 31, 2004
to
the quarter ended October 31, 2005. The decrease can be attributed to the
decrease in interest expense associated with the various Note payables with
Recap Marketing fully paid during fiscal 2005. As a result during the quarter
ended October 31, 2005 we did not incur any interest expense to Recap Marketing.
Net
loss from continuing operations.
Net
loss from continuing operations decreased by $1,434,000. The decease in net
loss
from continuing operations is attributed to the decrease of $1,804,000 in
derivative instrument loss between periods and the decrease in legal and
professional fees of $212,000. The decrease in net loss from continuing
operations was slightly offset by the increase in non-cash issuance of common
stock and warrant expense for services of $64,000 and the increase in non-cash
stock based compensation expense to employees of $180,000.
Net
income from discontinued operations. During
the quarter ended October 31, 2005 we recognized a gain on disposal of
discontinued operations of $1,652,000. The
gain
on disposal of discontinued operations arose from the sale of ATSI’s ownership
in ATSIMex Personal S.A de C.V. Under the share purchase agreement the buyer
acquired the total ownership and assumed all related liabilities on this entity
of $1,652,000 and as a result we recognized a gain of $1,652,000
Preferred
Stock Dividends.
Preferred Stock Dividends expense increased by $3,000 or 8% between periods,
from $38,000 for the quarter ended October 31, 2004 to $41,000 during the
quarter ended October 31, 2005. The increase in preferred dividend expense
is
attributed to the recognition of preferred dividend expense related to the
conversion of 342,514 Redeemable Preferred Series H shares to 411,004 shares
of
common stock.
Net
income (loss) to Common Stockholders.
During
the quarter ended October 31, 2005 we recognized $1,199,000 in net income to
common stockholders, this represented an improvement of $3,083,000 or 164%
from
the quarter ended October 31, 2004. The improvement in net income to common
stockholders is primarily due to the recognition of $1,652,000 in gain in
disposal of investment related to the sale of ATSIMex Personal to a Mexican
buyer. Additionally, the improvement in net income to common stockholders
between periods is attributed to the increase in gross profit margin of $12,000.
Further, the improvement in net loss from continuing operations is attributed
to
the decrease between periods of $212,000 in legal and professional fees. The
decrease in these expenses was slightly offset by the increase of $24,000 in
non-cash issuance of common stock and warrants expense for services and the
increase of $180,000 in non-cash stock based compensation expense to employees.
Liquidity
and Capital Resources
Cash
Position:
During
the quarter ended October 31, 2005, operations consumed approximately $68,000
in
cash, primarily due to the operating loss and the reduction in accounts
receivable compared to the prior period. Investing activities during the first
quarter of fiscal 2006 consumed an additional $3,000 relating to the acquisition
of two new routers to accommodate the increase in our network capacity.
Financing activities during the first quarter of fiscal 2006 generated $46,000
from the exercise of 331,084 warrants, which was offset by $1,000 relating
to
principal payments under the lease of certain equipment. Overall, our net
operating, investing and financing activities during the three months ended
October 31, 2005 provided a decrease of $26,000 in cash balances. We had a
cash
balance of $3,000 as of October 31, 2005.
Our
current operating expenses are expected to be approximately $70,000 per month,
including wages, rent, utilities, litigation fees and corporate professional
fees. We will require approximately $30,000 per month to cover the deficiencies
in cash from operations during Fiscal 2006. We intend to cover our initial
monthly operating expenses with our available cash and the factoring of our
receivables. We expect to continue conserving cash resources by paying executive
compensation, fees for certain consultants and professional services with shares
of our common stock. In addition, outstanding indebtedness payable to a law
firm
is being paid through conversions to common stock. Furthermore, we will continue
to pursue additional debt and equity financings to cover our deficiencies in
cash reserves. However, we presently do not have a definitive agreement in
place
to obtain such financing. Any additional debt or equity financing may not be
available in sufficient amounts or on acceptable terms. If such financing is
not
available in sufficient amounts or on acceptable terms, the Company's results
of
operations and financial condition may be adversely affected.
Additionally,
in an effort to continue to conserve cash, we are not presently paying quarterly
interest and dividends on our outstanding convertible debentures and Redeemable
Preferred stock. However, we have continued to accrue dividends and interest
on
such debentures and Redeemable Preferred stock. The increase in accrued
liabilities related to the dividends and interest in arrears contributed
approximately $56,000 in cash flow savings during the quarter ended October
31,
2005.
Our
working capital deficit at October 31, 2005 was $4,679,000. This represents
a
decrease of approximately $1,153,000 from our working capital deficit at July
31, 2005. The decrease can primarily be attributed to the recognition of a
gain
on disposal of investment of $1,652,000. The gain on disposal of investment
is
associated with the sale of ATSI’s ownership in ATSIMex Personal S.A de C.V.
Our
current liabilities include:
|
·
|
$103,454
owed to Attorneys for legal services rendered during fiscal 2004.
|
|
·
|
$1,193,000
associated with the Series D Cumulative preferred stock. Of this
balance,
$942,000 is associated with the full redemption of this security
and
$251,000 is related to the accrued dividends as of October 31,
2005.
|
|
·
|
$1,767,000
associated with the Series E Cumulative preferred stock. Of this
balance,
$1,463,000 is associated with the full redemption of this security
and
$304,000 is related to the accrued dividends as of October 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 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
|
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.
During
the three months ended October 31, 2005, we received $46,000 from the exercise
of warrants, these funds allows us to cover our operating expenses and other
corporate expenses.
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.
ITEM
3. 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 fiscal quarter covered by this report. Based on that evaluation,
the President and Chief Executive Officer and the Controller and Principal
Financial Officer have concluded that the
application of APB 25 had not been applied properly to
stock
option expense for employees resulting in an adjustment of approximately
$280,000 to correct an overstatement of option expense and additional paid
in
capital. This error was corrected prior to filing our quarterly report on Form
10-QSB. Due to the materiality of the adjustment, we determined that our
controls and procedures regarding disclosure requirements were not effective
for
the period presented. The Company monitors changes in accounting pronouncements
and reporting requirements on an ongoing basis and utilizes outside consultants
on matters requiring special accounting or reporting requirements when necessary
to provide additional assurance that the Company maintains effective disclosure
controls and procedures.
Additionally,
the President and Chief Executive Officer and the Controller and Principal
Financial Officer have identified weaknesses in the accounting for convertible
instruments and disclosure of embedded derivatives.
Specifically,
we identified deficiencies in our internal controls and disclosure controls
related to the accounting for convertible debt with conversion features
contingent upon future prices of our stock and convertible debt with detachable
warrants, primarily with respect to accounting for derivative liabilities in
accordance with EITF 00-19 and SFAS 133. We restated our consolidated financial
statements for the year ended July 31, 2005 and for each of the interim periods
ending April 30, 2005, October 31, 2005 and January 31, 2006, in order to
correct the accounting in such financial statements with respect to derivative
liabilities in accordance with EITF 00-19 and SFAS 133. Since January 2006,
we
have undertaken improvements to our internal controls in an effort to remediate
these deficiencies through the following efforts: 1) implementing a review
of
all convertible securities to identify any securities that are not conventional
convertible securities and 2) improving supervision and training of our
accounting staff to understand and implement the requirements of EITF 00-19
and
SFAS 133.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
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.
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.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On
October 25, 2005, we issued 180,772 shares of our common stock to Nextone
Communciations as a payment of $58,000 on the principal balance associated
with
the Nextone soft Switch. Additionally, we issued 69,180 and 95,238 common shares
to Vianet Communciations Inc. on August 23, 2005 and September 14, 2005,
respectively, as part of the settlement agreement in certain litigation. The
shares issued to Nextone Communciations, Inc. and Vianet Communications, Inc.
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 absence of public
solicitation or advertising, and restrictions on resale of the
shares.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
As
of
October 31, 2005, the Company was in arrears with respect to the declaration
of
the following dividends payable on outstanding shares of its Preferred
Stock:
Series
A Cumulative Preferred Stock
|
|
$
|
222,000
|
|
Series
D Cumulative Preferred Stock
|
|
|
251,000
|
|
Series
E Cumulative Preferred Stock
|
|
|
304,000
|
|
TOTAL
|
|
$
|
777,000
|
|
ITEM
6. EXHIBITS
(a) Exhibits:
The following documents are filed as exhibits to this report.
Exhibit
Number
|
Description
|
|
|
4.1
|
Agreement
to Extend Promissory Note dated December 1, 2005 between ATSI
Communications, Inc. and Franklin, Cardwell & Jones,
PC.
|
|
|
4.2
|
Secured
Promissory Note and Security Agreement dated November 4, 2005 between
ATSI
Communications, Inc. and CSI Business Finance, Inc.
|
|
|
10.1
|
Confidential
Settlement Agreement and Mutual release dated October 31, 2005 between
ATSI Communications, Inc. and Telemarketing de Mexico S.A de
C.V.
|
|
|
10.2
|
Stock
Purchase Agreement dated October 15, 2005 between ATSI Communications,
Inc. and Alejandro Sanchez Guzman (Sale of ATSIMex Personal S.A de
C.V.)
|
|
|
10.3
|
Factoring
Agreement dated November 4, 2005 between ATSI Communications, Inc.
and CSI
Business Finance, Inc.
|
|
|
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.
|
SIGNATURE
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
|
|
ATSI
COMMUNICATIONS, INC
(Registrant)
|
|
|
|
Date: April
13, 2006 |
By: |
/s/ Arthur
L.
Smith |
|
Name:
Arthur L. Smith |
|
Title:
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
Date: April
13, 2006 |
By: |
/s/ Antonio
Estrada |
|
Name:
Antonio Estrada |
|
Title:
Corporate Controller (Principal Accounting and
Principal Financial Officer)
|