Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
[Mark
One]
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
quarterly period ended April 30, 2007
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 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.)
|
|
|
|
3201
Cherry Ridge
Building
C, Suite 300
San
Antonio, Texas 78230
(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 o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o
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 June 13, 2007
|
|
|
Common
Stock, $.001 par
|
37,109,225
|
Transitional
Small Business Disclosure Format: Yes o
No x
ATSI
COMMUNICATIONS, INC.
AND
SUBSIDIARIES
QUARTERLY
REPORT ON FORM 10-QSB
FOR
THE QUARTER ENDED APRIL 30, 2007
INDEX
|
|
Page
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1. Financial Statements (unaudited)
|
|
|
|
|
|
Consolidated
Balance Sheets as of April 30, 2007 and July 31, 2006
|
|
3
|
Consolidated
Statements of Operations for the Three and Nine Months Ended April
30,
2007 and 2006
|
|
4
|
Consolidated
Statements of Comprehensive Income (Loss) for the Three and Nine
Months
Ended April 30, 2007 and 2006
|
|
5
|
Consolidated
Statement of Changes in Stockholders’ Deficit for the Nine Months Ended
April 30, 2007
|
|
6
|
Consolidated
Statements of Cash Flows for the Nine Months Ended April 30, 2007
and
2006
|
|
7
|
Notes
to Consolidated Financial Statements
|
|
8
|
|
|
|
Item
2. Management’s Discussions and Analysis or Plan Of
Operations
|
|
11
|
|
|
|
Item
3. Controls and Procedures
|
|
19
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
|
Item
1. Legal Proceedings
|
|
19
|
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
|
20
|
|
|
|
Item
3. Default Upon Senior Securities
|
|
20
|
|
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
|
20
|
|
|
|
Item
5. Other Information
|
|
20
|
|
|
|
Item
6. Exhibits
|
|
20
|
PART
1. FINANCIAL INFORMATION
|
|
|
|
|
|
ITEM
1. FINANCIAL STATEMENTS
|
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
CONSOLIDATED
BALANCE SHEETS
|
(In
thousands, except share and per share amounts)
|
(Unaudited)
|
|
|
April
30,
|
|
July
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
597
|
|
$
|
36
|
|
Certificates
of deposit
|
|
|
202
|
|
|
-
|
|
Accounts
receivable, net of allowance for bad debt of $76 and $0,
respectively
|
|
|
852
|
|
|
621
|
|
Prepaid
& other current assets
|
|
|
51
|
|
|
33
|
|
Total
current assets
|
|
|
1,702
|
|
|
690
|
|
|
|
|
|
|
|
|
|
LONG-TERM
ASSETS:
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
100
|
|
|
-
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
385
|
|
|
284
|
|
Less
- accumulated depreciation
|
|
|
(243
|
)
|
|
(182
|
)
|
Net
property and equipment
|
|
|
142
|
|
|
102
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,944
|
|
$
|
792
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
814
|
|
$
|
677
|
|
Accounts
payable, related parties
|
|
|
-
|
|
|
42
|
|
Line
of credit, CSI Business Finance
|
|
|
-
|
|
|
150
|
|
Accrued
liabilities
|
|
|
508
|
|
|
2,389
|
|
Current
portion of obligation under capital leases
|
|
|
3
|
|
|
3
|
|
Notes
payable
|
|
|
770
|
|
|
50
|
|
Notes
payable, related party
|
|
|
-
|
|
|
106
|
|
Convertible
debentures
|
|
|
138
|
|
|
74
|
|
Total
current liabilities
|
|
|
2,233
|
|
|
3,491
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
51
|
|
|
500
|
|
Convertible
debentures
|
|
|
177
|
|
|
234
|
|
Obligation
under capital leases, less current portion
|
|
|
4
|
|
|
6
|
|
Other
|
|
|
4
|
|
|
4
|
|
Total
long-term liabilities
|
|
|
236
|
|
|
744
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,469
|
|
|
4,235
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIT:
|
|
|
|
|
|
|
|
Series
A Cumulative Convertible Preferred Stock, $0.001, 50,000 shares
authorized, 0 and 2,750 shares issued and outstanding, respectively
|
|
|
-
|
|
|
-
|
|
Series
D Cumulative Preferred Stock, $0.001, 3,000 shares authorized, 742
shares
issued and outstanding
|
|
|
1
|
|
|
1
|
|
Series
E Cumulative Preferred Stock, $0.001, 10,000 shares authorized, 1,170
shares issued and outstanding
|
|
|
1
|
|
|
1
|
|
Series
H Convertible Preferred Stock, $0.001, 16,000,000 shares authorized,
0 and
11,802,353 shares issued and outstanding, respectively
|
|
|
-
|
|
|
12
|
|
Common
stock, $0.001 par value, 150,000,000 shares authorized, 37,093,225
and
16,444,768 shares issued and outstanding, respectively
|
|
|
37
|
|
|
16
|
|
Additional
paid in capital
|
|
|
72,044
|
|
|
68,775
|
|
Accumulated
deficit
|
|
|
(72,609
|
)
|
|
(72,249
|
)
|
Other
comprehensive income
|
|
|
1
|
|
|
1
|
|
Total
stockholders' deficit
|
|
|
(525
|
)
|
|
(3,443
|
)
|
Total
liabilities and stockholders' deficit
|
|
$
|
1,944
|
|
$
|
792
|
|
See
accompanying summary of accounting policies and notes to the consolidated
financial statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(In
thousands, except share and per share amounts)
|
(Unaudited)
|
|
|
Three
months ended April 30,
|
|
Nine
months ended April 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
OPERATING
REVENUES:
|
|
|
|
|
|
|
|
|
|
Carrier
services
|
|
$
|
8,109
|
|
$
|
4,047
|
|
$
|
21,645
|
|
$
|
9,253
|
|
Communication
services
|
|
|
27
|
|
|
39
|
|
|
87
|
|
|
91
|
|
Network
services
|
|
|
4
|
|
|
5
|
|
|
13
|
|
|
17
|
|
Total
operating revenues
|
|
|
8,140
|
|
|
4,091
|
|
|
21,745
|
|
|
9,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
|
|
7,647
|
|
|
3,899
|
|
|
20,175
|
|
|
8,908
|
|
Selling,
general and administrative expense (exclusive of legal and professional
fees)
|
|
|
317
|
|
|
209
|
|
|
1,271
|
|
|
828
|
|
Legal
and professional fees
|
|
|
84
|
|
|
72
|
|
|
199
|
|
|
153
|
|
Bad
debt expense
|
|
|
29
|
|
|
-
|
|
|
76
|
|
|
-
|
|
Depreciation
and amortization expense
|
|
|
24
|
|
|
23
|
|
|
62
|
|
|
72
|
|
Total
operating expenses
|
|
|
8,101
|
|
|
4,203
|
|
|
21,783
|
|
|
9,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
39
|
|
|
(112
|
)
|
|
(38
|
)
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on derivative instrument liabilities
|
|
|
-
|
|
|
88
|
|
|
-
|
|
|
(8
|
)
|
Debt
forgiveness income
|
|
|
-
|
|
|
11
|
|
|
-
|
|
|
50
|
|
Other
income
|
|
|
4
|
|
|
-
|
|
|
4
|
|
|
-
|
|
Interest
expense
|
|
|
(257
|
)
|
|
(26
|
)
|
|
(326
|
)
|
|
(81
|
)
|
Total
other income (expense), net
|
|
|
(253
|
)
|
|
73
|
|
|
(322
|
)
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
|
|
(214
|
)
|
|
(39
|
)
|
|
(360
|
)
|
|
(639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,652
|
|
INCOME
FROM DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(214
|
)
|
$
|
(39
|
)
|
$
|
(360
|
)
|
$
|
1,013
|
|
LESS:
PREFERRED DIVIDEND
|
|
|
(7
|
)
|
|
(23
|
)
|
|
(45
|
)
|
|
(82
|
)
|
ADD:
REVERSAL OF PREVIOUSLY RECORDED PREFERRED DIVIDEND
|
|
|
600
|
|
|
-
|
|
|
828
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
|
$
|
379
|
|
$
|
(62
|
)
|
$
|
423
|
|
$
|
931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
INCOME (LOSS) PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
(0.06
|
)
|
From
discontinued operations
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.13
|
|
Total
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
INCOME (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
(0.02
|
)
|
From
discontinued operations
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.05
|
|
Total
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
37,005,780
|
|
|
14,819,277
|
|
|
24,712,414
|
|
|
12,876,351
|
|
DILUTED
|
|
|
39,842,780
|
|
|
14,819,277
|
|
|
27,549,414
|
|
|
30,647,375
|
|
See
accompanying summary of accounting policies and notes to the consolidated
financial statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
(In
thousands)
|
(Unaudited)
|
|
|
Three
months ended April 30,
|
|
Nine
months ended April 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(214
|
)
|
$
|
(39
|
)
|
$
|
(360
|
)
|
$
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$
|
(214
|
)
|
$
|
(39
|
)
|
$
|
(360
|
)
|
$
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying summary of accounting policies and notes to the consolidated
financial statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF STOCKHOLDERS DEFICIT
(inthousands,
except share amounts)
(unaudited)
|
|
Preferred(A)
|
|
Preferred(D)
|
|
Preferred(E)
|
|
Preferred(H)
|
|
Common
|
|
Additional
Paid-in
|
|
Retained
|
|
OtherComp.
|
|
|
|
|
|
Shares
|
|
Par
|
|
Shares
|
|
Par
|
|
Shares
|
|
Par
|
|
Shares
|
|
Par
|
|
Shares
|
|
Par
|
|
Capital
|
|
(Deficit)
|
|
Income/Loss
|
|
Totals
|
|
Balances;
July 31, 2006
|
|
|
2,750
|
|
$
|
-
|
|
|
742
|
|
$
|
1
|
|
|
1,170
|
|
$
|
1
|
|
|
11,802,420
|
|
$
|
12
|
|
|
16,444,403
|
|
$
|
16
|
|
$
|
68,775
|
|
|
(72,249
|
)
|
|
1
|
|
|
(3,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issuedfor Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,366,85
5
|
|
|
1
|
|
|
309
|
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commonshares
issuedfor PreferredStockConversion
|
|
|
(2,750
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,802,420
|
)
|
|
(12
|
)
|
|
16,261,847
|
|
|
16
|
|
|
1,137
|
|
|
|
|
|
|
|
|
1,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
|
1
|
|
|
34
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of previouslyrecordedpreferreddividen d
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
828
|
|
|
|
|
|
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockoptionexpense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
fromexerciseof options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
1
|
|
|
16
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
ConversionFeature, private placement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issuedfor conversionof notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,770,12
0
|
|
|
2
|
|
|
630
|
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(360
|
)
|
|
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances;
April 30, 200 7
|
|
|
-
|
|
$
|
-
|
|
|
742
|
|
$
|
1
|
|
|
1,170
|
|
$
|
1
|
|
|
-
|
|
$
|
-
|
|
|
37,093,225
|
|
$
|
37
|
|
$
|
72,044
|
|
|
(72,609
|
)
|
|
1
|
|
|
(525
|
)
|
See
accompanying summary of accounting policies and notes to the consolidated
financial statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
(In
thousands)
|
(Unaudited)
|
|
|
Nine
months ended April 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(360
|
)
|
$
|
1,013
|
|
Adjustments
to reconcile net income (loss) to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Gain
in disposal of investment
|
|
|
-
|
|
|
(1,652
|
)
|
Debt
forgiveness income
|
|
|
-
|
|
|
(50
|
)
|
Depreciation
and amortization
|
|
|
62
|
|
|
72
|
|
Issuance
of stock grants and options, employees for services
|
|
|
422
|
|
|
180
|
|
Issuance
of common stock and warrants for services
|
|
|
38
|
|
|
151
|
|
Provisions
for losses on accounts receivables
|
|
|
76
|
|
|
-
|
|
Loss
on derivative instrument liabilities
|
|
|
-
|
|
|
8
|
|
Amortization
of debt discount
|
|
|
151
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(308
|
)
|
|
(234
|
)
|
Prepaid
expenses and other
|
|
|
(17
|
)
|
|
22
|
|
Accounts
payable
|
|
|
(1
|
)
|
|
296
|
|
Accrued
liabilities
|
|
|
54
|
|
|
48
|
|
Net
cash provided by (used) in operating activities
|
|
|
117
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Investment
in certificates of deposit
|
|
|
(302
|
)
|
|
|
|
Purchases
of property & equipment
|
|
|
(101
|
)
|
|
(4
|
)
|
Net
cash used in investing activities
|
|
|
(403
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
350
|
|
|
50
|
|
Payments
on notes payable, related party
|
|
|
(106
|
)
|
|
-
|
|
Payments
on notes payable
|
|
|
(78
|
)
|
|
-
|
|
Payments
on advances from shareholders
|
|
|
(148
|
)
|
|
-
|
|
Proceeds
from advances from shareholders
|
|
|
713
|
|
|
-
|
|
Issuance
of common stock, cost of financing services
|
|
|
67
|
|
|
-
|
|
Proceeds
from factoring line of credit
|
|
|
-
|
|
|
150
|
|
Processing
fees, factoring line of credit
|
|
|
-
|
|
|
(26
|
)
|
Proceeds
from the exercise of stock options
|
|
|
16
|
|
|
-
|
|
Proceeds
from the exercise of warrants
|
|
|
35
|
|
|
54
|
|
Principal
payments on capital lease obligation
|
|
|
(2
|
)
|
|
(2
|
)
|
Net
cash provided by financing activities
|
|
|
847
|
|
|
226
|
|
|
|
|
|
|
|
|
|
INCREASE
IN CASH
|
|
|
561
|
|
|
76
|
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
36
|
|
|
29
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$
|
597
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
43
|
|
$
|
9
|
|
Cash
paid for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING TRANSACTIONS
|
|
|
|
|
|
|
|
Issuance
of common stock for conversion of debt
|
|
$
|
572
|
|
$
|
149
|
|
Issuance
of common stock for accounts payable
|
|
|
58
|
|
|
-
|
|
Issuance
of common stock for purchase of fixed assets
|
|
|
-
|
|
|
58
|
|
Conversion
of preferred stock to common stock
|
|
|
1,141
|
|
|
102
|
|
Fair
value of derivatives transferred to equity
|
|
|
-
|
|
|
22
|
|
Preferred
stock dividends
|
|
|
45
|
|
|
136
|
|
Reversal
of previously recorded preferred stock dividend
|
|
|
(828
|
)
|
|
-
|
|
Discount
for beneficial conversion feature on convertible debt
|
|
|
144
|
|
|
-
|
|
See
accompanying summary of accounting policies and notes to the consolidated
financial statements.
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements of ATSI Communications,
Inc.
(“ATSI”) 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. 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 consolidated financial statements,
which would substantially duplicate the disclosure contained in the audited
financial statements for the most recent fiscal year ended July 31, 2006, as
reported in Form 10-KSB filed on November 1, 2006, have been
omitted.
NOTE
2 - GOING CONCERN
As
shown
in the accompanying financial statements, ATSI incurred net loss from operations
of $360,000 and net loss from operations of $639,000 during the nine months
ended April 30, 2007 and 2006, respectively, has an accumulated deficit of
$73
million and a working capital deficit of $531,000 as of April 30, 2007. These
conditions create doubt as to ATSI’s ability to continue as a going concern. In
order to remain a going concern, ATSI anticipates it will generate positive
cash
flows from its operations and/or generate cash from debt or equity offerings.
There is no assurance that ATSI will be able to continue generating positive
cash flows from its operations or obtain funding to remain as a going concern.
Management plans to continue to improve its financial position through the
growth of its operations subject to its capital limitations. ATSI's ability
to
continue as a going concern is dependent upon the ongoing support of its
stockholders and customers. ATSI's ability to continue generating sufficient
income from operations to cover its operating expense and its ability to obtain
capital resources to support expansion. The financial statements do not include
any adjustments that might be necessary if ATSI is unable to continue as a
going
concern.
NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock
based compensation
Effective
February 1, 2006, ATSI began recording compensation expense associated with
stock options and other forms of equity compensation in accordance with
Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment,
as
interpreted by SEC Staff Accounting Bulletin No. 107. Prior to February 1,
2006, ATSI had accounted for stock options according to the provisions of
Accounting Principles Board Opinion No. 25;“Accounting
for Stock Issued to Employees”,
and
related interpretations, and no compensation expense was recorded for awards
granted without intrinsic value. ATSI adopted the modified prospective
transition method as permitted under SFAS No. 123(R), and, consequently, has
not
retroactively adjusted results from prior periods. Under
this modified prospective transition method, compensation cost associated with
stock options recognized during fiscal 2006 includes the amortization related
to
the remaining service periods of all stock option awards granted prior to
February 1, 2006, based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123.
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(R), to
stock-based employee compensation:
|
|
Three
months ended April 30,
|
|
Nine
months ended April 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) to common
|
|
|
|
|
|
|
|
|
|
shareholders,
as reported
|
|
$
|
379,000
|
|
|
($62,000
|
)
|
$
|
423,000
|
|
$
|
931,000
|
|
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) to common stockholders
|
|
$
|
379,000
|
|
|
($62,000
|
)
|
$
|
423,000
|
|
$
|
649,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.07
|
|
Pro
forma
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.03
|
|
Pro
forma
|
|
$
|
0.01
|
|
$
|
0.00
|
|
$
|
0.02
|
|
$
|
0.02
|
|
NOTE
4 - STOCK-BASED COMPENSATION
In
September 2005, ATSI adopted the “2005 Stock Compensation Plan” (the “Plan”).
The “Plan” authorizes the grant of up to 7.5 million warrants, stock options,
restricted common shares, non-restricted common shares and other awards to
employees, directors, and certain other persons. The “Plan” is intended to
permit ATSI to retain and attract qualified individuals who will contribute
to
the overall success of ATSI. The terms of any grants under the Plan are
determined by the Board of Directors of ATSI. Exercise prices of all of the
warrants and stock options 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 based on the terms of the individual grant.
The
issuances under the “2005 Stock Compensation Plan” during the nine months ended
April 30, 2007 are:
·
ATSI granted 1,345,000 options to purchase
common stock to its employees and members of the Board of Directors with an
exercise price of $0.21 per share, the closing price of ATSI’s common stock on
the grant date, September 25, 2006. One third of the options vested immediately
at the issuance date and the remaining two-thirds will vest equally over a
period of two years. Under the fair value option method, ATSI recognized $71,000
of compensation expense associated with the vested options at the date of grant.
ATSI will recognize the remaining $142,000 of non-cash compensation expense
related to un-vested options over the service period.
·
ATSI issued 980,000 shares of unrestricted
common stock to its employees and directors for services rendered. See Note
6
for details.
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:
Expected
dividend yield
|
|
|
0.00
|
%
|
Expected
stock price volatility
|
|
|
80
|
%
|
Risk-free
interest rate
|
|
|
4.51
|
%
|
Expected
life of options
|
|
|
7
years
|
|
A
summary
of the options as of April 30,
2007
and
the
changes during the nine months ended April 30,
2007
is
presented below:
|
|
|
|
|
|
Weighted-average
|
|
|
|
|
|
Weighted-average
|
|
remaining
contractual
|
|
2005
Stock Compensation Plan
|
|
Options
|
|
exercise
price
|
|
term
(years)
|
|
|
|
|
|
|
|
|
|
Outstanding
at July 31, 2006
|
|
|
4,354,000
|
|
$
|
0.16
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,345,000
|
|
|
0.21
|
|
|
9.0
|
|
Exercised
|
|
|
(100,000
|
)
|
|
0.16
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at April 30, 2007
|
|
|
5,599,000
|
|
|
0.17
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at April 30, 2007
|
|
|
2,837,000
|
|
$
|
0.17
|
|
|
9.0
|
|
NOTE
5 - DEBTS
On
November 3, 2006,
ATSI
issued a note payable in the amount of $250,000 to CCA Financial Services,
Inc.
This note bears an interest at the rate of 16%, provides for eleven monthly
principal and interest payments of $7,807 and a final payment at maturity of
$200,000, is secured by ATSI’s equipment, deposit accounts and accounts
receivables and matures on November 3, 2007. ATSI has the option of paying
off
the total outstanding principal balance at any time without any penalties.
In
connection with the transaction ATSI paid an application, legal and
documentation fees of $7,500.
On
November 3, 2006, ATSI entered into an accounts receivable factoring agreement
with CCA Financial Services, Inc. Under the agreement, CCA
Financial Services
committed to purchase up to $1,000,000 of ATSI’s accounts receivables. The
factoring agreement is for twelve months and ATSI can terminate this agreement
at its sole discretion at any time, subject to a $10,000 early termination
fee.
The factoring rate ranges from 1.00%-1.25% based on the factored amount and
number of days outstanding. The
accounts receivable factoring agreement is secured by ATSI’s accounts
receivables.
As of
April 30, 2007, ATSI did not have any factored receivables outstanding under
this agreement.
During
the nine months ended April 30, 2007, ATSI entered into various notes payable
for net proceeds of $564,600. These promissory notes mature on May 28, 2007
and
bear an annual interest rate of 12%. On
February 1, 2007, ATSI notified the holders of the notes of its intent to
convert the outstanding principal and interest into common stock. The conversion
price was set by ATSI at $0.22 per share, which was approximately 80% of the
market price at February 1, 2007. A
beneficial conversion feature for the difference between the closing price
and
the conversion price was recognized in accordance with EITF 98-5 and EITF 00-27.
The beneficial conversion feature is presented as a discount to the related
debt
or a dividend to the related equity, with an offsetting amount increasing
additional paid-in capital.
As a
result, ATSI recognized $143,723 in discount from the beneficial conversion
feature at the time of the issuance and issued 2,566,482
common
shares to the note holders. In addition, ATSI issued 238,636 shares of common
stock with a fair value of $66,818 and made a cash payment of $26,960 for
services provided by the placement agents in connection with the placement
of
the notes. As of April 30, 2007, the entire discount has been expensed by ATSI
as the result of the conversion of all notes to common shares.
On
February 7, 2007, ATSI paid off its $16,000 note payable with Mr. John Fleming,
a director of ATSI.
On
March
28, 2007, ATSI entered into a note payable in the amount of $100,000 with Wells
Fargo Bank. This
note
bears an annual interest rate of 7%, provides for twelve monthly principal
and
interest payments of $4,481, and is secured by ATSI’s certificate of deposit for
$100,000. ATSI has the option of paying off the total outstanding principal
balance at any time without any penalties.
ATSI
analyzed these instruments for derivative accounting consideration under SFAS
133 and EITF 00-19, and determined that derivative accounting is not
applicable.
NOTE
6 - COMMON STOCK
During
the nine months ended April 30, 2007:
ATSI
issued:
· |
386,855
shares of common stock valued at $104,520 for its placement agent
fees and
legal and consulting services rendered by various
individuals.
|
· |
16,149,938
shares of common stock in connection with the conversion and redemption
of
11,802,420 shares of Series H Convertible Preferred Stock and accrued
premium common shares.
|
· |
111,909
shares of common stock in connection with the conversion of 2,750
shares
of Series A Convertible Preferred Stock and accrued
dividend.
|
· |
150,000
shares of common stock upon exercise of outstanding warrants for
aggregate
proceeds of $34,500.
|
· |
66,226
shares of common stock to Richard Benkendorf as a payment of $15,226
under
a settlement agreement.
|
· |
137,412
shares of common stock to John Fleming as a payment of $42,600 under
a
settlement agreement.
|
· |
980,000
shares of common stock to its employees and directors for services
rendered. ATSI recorded compensation expense of $205,800 in its statement
of operations for the aggregate market value of the stock at the
date of
issuance.
|
· |
100,000
shares of common stock upon exercise of outstanding stock options
by one
of its employees for aggregate proceeds of
$16,000.
|
· |
2,566,482
shares of common stock in connection with the conversion of various
notes
payable in the principal amount of $564,600 and accrued interest
of
$10,292.
|
NOTE
7 - PREFERRED STOCK DIVIDEND
During
the nine months ended April 30, 2007, ATSI reversed previously recorded accrued
dividends payable on outstanding shares of Series A Convertible Preferred Stock
and Series H Convertible Preferred Stock in the amount of $828,000. The
adjustment to the accrued dividends occurred as a result of the conversion
of
2,750 shares of Series A Convertible Preferred Stock and 11,802,420 shares
of
Series H Convertible Preferred Stock into 16,261,847 shares of ATSI's common
stock. Upon
conversion of these preferred shares, ATSI reversed the balance previously
accrued for dividends with a corresponding amount recorded to common stock
at
par value and additional paid in capital. The reversal is reflected as a
reconciling item on the statements of operations to derive net income to common
stockholders.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
SPECIAL
NOTE: This Quarterly Report on Form 10-QSB contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and
Section 21E of the Securities 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. Some of these risks
include the availability and capacity of competitive data transmission networks,
the continued effectiveness of our concession from the government of Mexico,
and
or ability to raise sufficient capital to continue operations. Additional risks
are included in our Annual Report on Form 10-KSB filed with the Securities
and
Exchange Commission on October 10, 2006.
The
following is a discussion of the consolidated financial condition and results
of
operations of ATSI for the three and nine months ended April 30, 2007 and 2006.
As used in this section, the term “fiscal 2007” means the year ending July 31,
2007 and “fiscal 2006” means the year ended July 31, 2006.
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 technology. Our services include:
Carrier
Services: We
currently provide VoIP communication services to U.S. and foreign
telecommunications companies that 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.
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. We also provide prepaid domestic and
long-distance services through our prepaid VoIP network platform. Customers
access this platform and complete the call by using their local phone number
as
a “PIN” or personal identification number.
Network
Services:
We
provide private communication links and VoIP gateway services to multi-national
and Latin American carriers and enterprise customers who require 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 co-location services in the United States.
Results
of Operations
The
following table sets forth certain items included in our results of operations
and variances between periods for the three month and nine month periods ended
April 30, 2007 and 2006. All dollar amounts are in thousands.
|
|
Three
months ended April 30,
|
|
|
|
Nine
months ended April 30,
|
|
|
|
|
|
2007
|
|
2006
|
|
Variances
|
|
%
|
|
2007
|
|
2006
|
|
Variances
|
|
%
|
|
OPERATING
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrier
services
|
|
$
|
8,109
|
|
$
|
4,047
|
|
$
|
4,062
|
|
|
100
|
%
|
$
|
21,645
|
|
$
|
9,253
|
|
$
|
12,392
|
|
|
134
|
%
|
Communication
services
|
|
|
27
|
|
|
39
|
|
|
(12
|
)
|
|
-31
|
%
|
|
87
|
|
|
91
|
|
|
(4
|
)
|
|
-4
|
%
|
Network
services
|
|
|
4
|
|
|
5
|
|
|
(1
|
)
|
|
-20
|
%
|
|
13
|
|
|
17
|
|
|
(4
|
)
|
|
-24
|
%
|
Total
operating revenues
|
|
|
8,140
|
|
|
4,091
|
|
|
4,049
|
|
|
99
|
%
|
|
21,745
|
|
|
9,361
|
|
|
12,384
|
|
|
132
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
|
|
7,647
|
|
|
3,899
|
|
|
(3,748
|
)
|
|
-96
|
%
|
|
20,175
|
|
|
8,908
|
|
|
(11,267
|
)
|
|
-126
|
%
|
Selling,
general and administrative expense (exclusive of legal and professional
fees)
|
|
|
317
|
|
|
209
|
|
|
(108
|
)
|
|
-52
|
%
|
|
1,271
|
|
|
828
|
|
|
(443
|
)
|
|
-54
|
%
|
Legal
and professional fees
|
|
|
84
|
|
|
72
|
|
|
(12
|
)
|
|
-17
|
%
|
|
199
|
|
|
153
|
|
|
(46
|
)
|
|
-30
|
%
|
Bad
debt expense
|
|
|
29
|
|
|
-
|
|
|
(29
|
)
|
|
-100
|
%
|
|
76
|
|
|
-
|
|
|
(76
|
)
|
|
-100
|
%
|
Depreciation
and amortization expense
|
|
|
24
|
|
|
23
|
|
|
(1
|
)
|
|
-4
|
%
|
|
62
|
|
|
72
|
|
|
10
|
|
|
14
|
%
|
OPERATING
INCOME (LOSS)
|
|
|
39
|
|
|
(112
|
)
|
|
151
|
|
|
135
|
%
|
|
(38
|
)
|
|
(600
|
)
|
|
562
|
|
|
94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on derivative instrument liabilities
|
|
|
-
|
|
|
88
|
|
|
(88
|
)
|
|
100
|
%
|
|
-
|
|
|
(8
|
)
|
|
8
|
|
|
100
|
%
|
Debt
forgiveness income
|
|
|
-
|
|
|
11
|
|
|
(11
|
)
|
|
-100
|
%
|
|
-
|
|
|
50
|
|
|
(50
|
)
|
|
-100
|
%
|
Other
income
|
|
|
4
|
|
|
-
|
|
|
4
|
|
|
100
|
%
|
|
4
|
|
|
-
|
|
|
4
|
|
|
100
|
%
|
Interest
expense
|
|
|
(257
|
)
|
|
(26
|
)
|
|
(231
|
)
|
|
-888
|
%
|
|
(326
|
)
|
|
(81
|
)
|
|
(245
|
)
|
|
-302
|
%
|
Total
other income (expense), net
|
|
|
(253
|
)
|
|
73
|
|
|
(326
|
)
|
|
447
|
%
|
|
(322
|
)
|
|
(39
|
)
|
|
(283
|
)
|
|
-726
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
|
|
(214
|
)
|
|
(39
|
)
|
|
(175
|
)
|
|
-449
|
%
|
|
(360
|
)
|
|
(639
|
)
|
|
279
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of discontinued operations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,652
|
|
|
(1,652
|
)
|
|
-100
|
%
|
INCOME
FROM DISCONTINUED OPERATIONS
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,652
|
|
|
(1,652
|
)
|
|
-100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS)
|
|
$
|
(214
|
)
|
$
|
(39
|
)
|
$
|
(175
|
)
|
|
-449
|
%
|
$
|
(360
|
)
|
$
|
1,013
|
|
$
|
(1,373
|
)
|
|
-136
|
%
|
LESS:
PREFERRED DIVIDEND
|
|
|
(7
|
)
|
|
(23
|
)
|
|
16
|
|
|
70
|
%
|
|
(45
|
)
|
|
(82
|
)
|
|
37
|
|
|
45
|
%
|
ADD:
REVERSAL OF PREVIOUSLY RECORDED PREFERRED DIVIDEND
|
|
|
600
|
|
|
-
|
|
|
600
|
|
|
100
|
%
|
|
828
|
|
|
-
|
|
|
828
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
|
$
|
379
|
|
$
|
(62
|
)
|
$
|
441
|
|
|
711
|
%
|
$
|
423
|
|
$
|
931
|
|
$
|
(508
|
)
|
|
-55
|
%
|
Three
Months ended April 30, 2007 Compared to Three Months ended April 30,
2006
Operating
Revenues.
Consolidated operating revenues increased 99% from $4,091,000 for the quarter
ended April 30, 2006 to $8,140,000 for the quarter ended April 30,
2007.
Carrier
services revenue increased $4,062,000, or 100% from the quarter ended April
30,
2006 to the quarter ended April 30, 2007. Our carrier traffic increased 70
%
from approximately 65,875,150 minutes of voice traffic in the third quarter
of
fiscal 2006 to approximately 111,878,669
minutes
of voice traffic in the quarter ended April 30, 2007. The increase in revenue
and carrier traffic can mainly be attributed to an increase in customers over
the last twelve months. The increase in total customers is as a result of the
Company’s ability to offer high quality and dependable VoIP services to multiple
countries in the world.
Communication
services revenue decreased approximately 31% or $12,000 from the quarter ended
April 30, 2006 to the quarter ended April 30, 2007. The decrease in
communication services revenue is primarily due to a decrease in retail
customers from 162 during the quarter ended April 30, 2006 to 115 during the
quarter ended April 30, 2007.
Network
services revenue decreased approximately $1,000 from the quarter ended April
30,
2006 to the quarter ended April 30, 2007.
Cost
of Services (Exclusive of depreciation and amortization).
The
consolidated cost of services increased by $3,748,000 or 96% from the quarter
ended April 30, 2006 to the quarter ended April 30, 2007. 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 65,875,150
minutes of voice traffic in the third quarter of fiscal 2006 to approximately
111,878,669 minutes of voice traffic in the quarter ended April 30, 2007, thus
increasing our cost of services between quarters. Consolidated cost of services,
as a percentage of revenue decreased from 95% during the quarter ended April
30,
2006 to 94% during the quarter ended April 30, 2007. Additionally, as a result
of the increase in total revenue our gross profits increased from $192,000
during the quarter ended April 30, 2006 to $492,000 during the quarter ended
April
30,
2007.
Selling,
General and Administrative (SG&A) Expenses (exclusive of legal and
professional fees). SG&A
expenses increased $108,000, or 52% from the quarter ended April 30, 2006 to
the
quarter ended April 30, 2007. The increase is primarily attributable to an
increase in salaries of $64,000 as a result of the hiring of two new employees,
bonuses paid to officers and accounts receivable factoring fees of approximately
$14,000 incurred during the quarter ended April 30, 2007. Additionally, non-cash
compensation expense to employees increased by $52,000 from the quarter ended
April 30, 2006, to the quarter ended April 30, 2007. The increase is attributed
to the recognition during the quarter ended April 30, 2007 of approximately
$52,000 of non-cash compensation expense associated with the stock options
issued to employees and directors. We did not incur this type of expense during
the quarter ended April 30, 2006.
Legal
and professional fees.
Legal
and professional fees increased $12,000, or 17% from the quarter ended April
30,
2006, to
the
quarter ended April 30, 2007. The increase is attributable to $17,000 in legal
fees incurred as a result of the ongoing litigation involving the holders of
the
Redeemable Preferred Series D shares. We did not incur these types of expenses
during the quarter ended April 30, 2006.
Bad
debt expense. Bad
debt
expense increased by $29,000 from the quarter ended April 30, 2006 to the
quarter ended April 30, 2007. During the quarter ended April 30, 2007 we
recognized $29,000 in bad debt expense for certain accounts receivable we deemed
we were unlikely to collect. We did not recognize any bad debt expense during
the third quarter of fiscal 2006.
Depreciation
and amortization.
Depreciation and amortization decreased by $1,000 or 4% from the quarter ended
April 30, 2006 to the quarter ended April 30, 2007. The decrease is attributed
to the full amortization during fiscal 2006 of the initial installation and
maintenance of the Nextone Soft-switch.
Operating
income (loss).
The
Company’s operating loss decreased by $151,000 or 135% from the quarter ended
April 30, 2006 to the quarter ended April 30, 2007. The decrease in operating
loss is attributed to the increase between quarters in gross profit margin
of
approximately $300,000. The increase in gross profit margin was offset by the
increase of approximately $108,000 in selling, general and administrative
expenses due to an increase in salaries of $64,000 and an increase of $12,000
in
legal and professional fees and an increase in bad debt expense of approximately
$29,000.
Gain
(loss) on derivative instruments liabilities, net. The
Company recognized a loss on derivative instruments of $88,000 during the
quarter ended April 30, 2006. No gain or loss was recognized during the quarter
ended April 30, 2007, as we had no derivative liabilities during 2007.
Debt
forgiveness income. Debt
forgiveness income decreased by $11,000 from the quarter ended April 30, 2006
to
the quarter ended April 30, 2007. The
decrease is primarily due to the recognition during the quarter ended April
30,
2006 of $11,000 in debt forgiveness income associated with the settlement of
debt for the issuance of common stock.
This
transaction was related to the settlement of accrued interest associated with
the conversion of 500 Redeemable Preferred Series A shares into common stock.
The debt
forgiveness expense was recognized based on the difference between the accrued
interest and principal balance on the Note
Payable and the market
price of ATSI stock issued as part of the conversion.
Interest
expense.
Interest expense increased by $231,000 from the quarter ended April 30, 2006
to
the quarter ended April 30, 2007. The increase can be attributed to the
beneficial
conversion feature of $143,723 recognized with conversion of the $564,600 notes
payable plus accrued interest of $10,292 and to
the
amortization of approximately $93,000 in deferred financing fees as
part
of the private placement common stock financing.
Income
(loss) from continuing operations.
Net
loss from continuing operations increased by $175,000. The increase in loss
from
continuing operations is attributed to the
increase of approximately $151,000 in operating income as a result of increased
sales offset by a decrease of approximately $326,000 of other income and expense
items consisting primarily of increased interest expense related to our
financing activities.
Preferred
stock dividends.
Preferred stock dividends decreased by $16,000 or 70% between periods, from
$23,000 for the quarter ended April 30, 2006 to $7,000 during the quarter ended
April 30, 2007. The decrease in preferred dividends during the quarter ended
April 30, 2007 is mainly attributed to a decrease in dividends resulting from
the conversion of Series A Convertible Preferred Stock and Series H Convertible
Preferred Stock.
Reversal
of previously recorded preferred stock dividends. During
the quarter ended April 30, 2007, we recognized a reversal of previously
recorded dividend expense of $600,000. This reversal occurred as result of
the
conversion into common stock of 9,063,260 shares of Series H Convertible
Preferred Stock. At the time of conversion of these securities, the
market price of ATSI’s stock was higher than at the time of issuance of the
securities. As a result, a reversal of preferred dividends was recognized during
the period.
Net
income (loss) applicable to common stockholders.
Net
income applicable to common stockholders increased by $441,000. The increase
in
net income applicable to common stockholders is attributed to the increase
between quarters in gross profit margin of approximately $300,000 and a reversal
of previously recorded preferred stock divided of approximately $604,000. The
increase in gross profit margin and decrease in dividend expense were offset
by
the increase of approximately $108,000 in selling, general and administrative
expenses due to an increase of $64,000 in salaries. Additionally, non-cash
compensation expense to employees increased by $52,000 from the quarter ended
April 30, 2006 to the quarter ended April 30, 2007 and an increase in interest
expense of $143,723 is attributed to the beneficial
conversion feature recognized with conversion of the $564,600 notes payable
plus
accrued interest of $10,292 as part of the private placement financing.
Additionally, bad
debt
expense increased by $29,000 from the quarter ended April 30, 2006 to the
quarter ended April 30, 2007.
Nine
Months ended April 30, 2007 Compared to Nine Months ended April 30,
2006
Operating
Revenues.
Consolidated operating revenues increased 132% between periods from $9,361,000
for the nine months ended April 30, 2006 to $21,745,000 for the nine months
ended April 30, 2007.
Carrier
services revenues increased $12,392,000, or 134% from the nine months ended
April 30, 2006, to the nine months ended April 30, 2007. Our carrier traffic
increased 75% from approximately 180,704,747 minutes of voice traffic in the
nine months ended April 30, 2006 to approximately 316,435,399 minutes of voice
traffic in the nine months ended April 30, 2007. The increase in revenue and
carrier traffic can mainly be attributed to an increase in customers over the
last twelve months. The increase in total customers is as a result of the
Company’s ability to offer high quality and dependable VoIP services to multiple
countries in the world.
Communication
services revenue decreased approximately 4% or $4,000 from the nine months
ended
April 30, 2006 to the nine months ended April 30, 2007. The decrease in
communication services revenue is primarily due to a decrease in total customers
from 162 customers during the nine months ended April 30, 2006 to 115 customers
during the nine months ended April 30, 2007.
Network
services revenues decreased approximately 24% or $4,000 from the nine months
ended April 30, 2006 to the nine months ended April 30, 2007. The decrease
in
network services revenue is primarily due to the decrease in network services
customers.
Cost
of Services. (Exclusive of depreciation and amortization)
The
consolidated cost of services increased by $11,267,000, or 126% from the nine
months ended April 30, 2006, to the nine months ended April 30, 2007. The
increase in cost of services is a direct result of the increase in carrier
services revenue. As mentioned above, our carrier traffic increased 75% from
approximately 180,704,747 minutes of voice traffic in the nine months ended
April 30, 2006 to approximately 316,435,399 minutes of voice traffic in the
nine
months ended April 30, 2007, thus increasing our cost of services between
periods. Consolidated cost of services as a percentage of sales decreased from
95% in the nine months of fiscal 2006 to 93% in the nine months of fiscal 2007.
Additionally, as a result of the increase in total revenue our gross profits
increased from $453,000 during the nine months ended April 30, 2006 to
$1,570,000 during the nine months ended April 30, 2007.
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 increased $443,000, or 54% from the nine months ended April 30, 2006
to
the nine months ended April 30, 2007. The increase is primarily attributable
to
an increase in salaries and wages of approximately $189,000 as a result of
the
hiring of two new employees, bonuses paid to officers, and accounts receivable
factoring fees of approximately $26,000 during the nine months ended April
30,
2007.
Furthermore, non-cash
issuance of common stock and warrants for services decreased by $48,000 from
the
nine months ended April 30, 2006 to the nine months ended April 30, 2007. The
decrease is primarily due to recognition during the nine months ended April
30,
2006, of approximately $48,000 in non-cash compensation expense associated
with
consulting agreements entered into with certain individuals and legal services
paid in common stock during the period. We did not incur these types of expenses
during the nine months ended April 30, 2007. Non-cash compensation expense
to
employees increased by $242,125 from the nine months ended April 30, 2006 to
the
nine months ended April 30, 2007. The increase is attributed to the recognition
during the nine months ended April 30, 2007 of approximately $422,125 of
non-cash compensation expense associated with stock options issued to employees
and directors. We did not incur this type of expense during the nine months
ended April 30, 2006.
Legal
and Professional Fees.
Legal
and professional fees increased $46,000, or 30% from the nine months ended
April
30, 2006 to the nine months ended April 30, 2007. The
increase is attributable to
the
recognition of approximately $7,500 associated with the preparation of the
closing documents for the new accounts receivable factoring agreement. Also,
during the nine months ended April 30, 2007 we recognized approximately $31,000
in professional fees associated with the evaluation of derivative instruments
and restructuring of debt. We did not incur these types of expenses during
the
nine months ended April 30, 2006.
Bad
debt expense. Bad
debt
expense increased by $76,000 from the nine months ended April 30, 2006 to the
nine months ended April 30, 2007. During
the nine months ended April 30, 2007 we recognized $76,000 in bad debt expense
for certain accounts receivable we deemed we were unlikely to collect. We did
not recognize any bad debt expense during the nine months ended April 30, 2006.
Depreciation
and amortization.
Depreciation and amortization decreased by $10,000 or 14% from the nine months
ended April 30, 2006 to the nine months ended April 30, 2007. The decrease
is
attributed to the full amortization during the fiscal 2006 of the installation
and maintenance agreement associated with the Nextone Soft-switch.
Operating
Loss.
The
Company’s operating loss decreased by $562,000 or 94% from the nine months ended
April 30, 2006 to the nine months ended April 30, 2007. The reduction in
operating loss between periods is attributed to the increase in gross profit
margin of $1,117,000. The
increase in gross profit margin was offset by the increase of approximately
$443,000 in selling, general and administrative expenses due to an increase
in
salaries and wages of approximately $189,000 as a result of the hiring of two
new employees, bonuses paid to officers, accounts receivable factoring fees
of
approximately $26,000 during the nine months ended April 30, 2007, and the
increase in non-cash
compensation expense to employees by approximately $242,125 from the nine months
ended April 30, 2006 to the nine months ended April 30, 2007. Additionally,
the
increase in bad debt of approximately $76,000 from the nine months ended April
30, 2006 to the nine months ended April 30, 2007.
Gain
(loss) on derivative instruments liabilities, net. The
Company recognized a loss on derivative instruments of $8,000 during the nine
months ended April 30, 2006. No gain or loss was recognized during the nine
months ended April 30, 2007, as we had no derivative liabilities during 2007.
Debt
forgiveness income. Debt
forgiveness income decreased by $50,000 from the nine months ended April 30,
2006 to the nine months ended April 30, 2007. The
decrease is primarily due to the recognition during the nine months ended April
30, 2006 of $50,000 in debt forgiveness income associated with the settlement
of
debt for the issuance of common stock. This
transaction was related to the settlement of $49,000 in debt with a consultant.
This debt was incurred during fiscal 2000 and associated with the commissions
incurred as part of the acquisition of the concession license in Mexico.
The
debt
forgiveness income was based on the difference between the market price of
ATSI’s equity at the time of issuance and the market price calculated at the
time of the settlement of the debt.
Interest
expense.
Interest expense increased by $245,000 from the nine months ended April 30,
2006
to the nine months ended April 30, 2007. The increase can be attributed to
the
beneficial
conversion feature of $143,723 recognized with conversion of the $564,600 in
notes payable plus accrued interest of $10,292 and to
the
amortization of approximately $93,000 of deferred financing fees as
part
of the private placement financing.
Income
(loss) from continuing operations.
Net
loss from continuing operations decreased by $279,000. The decrease in operating
loss is attributed to the increase of $562,000 in operating income as a result
of increased sales offset by a decrease of approximately $283,000 of other
income and expense items consisting primarily of increased interest expense
related to our financing activities.
Net
income from discontinued operations. During
the nine months ended April 30, 2006 we recognized a gain on disposal of
discontinued operations of $1,652,000. No
gain
on disposal of discontinued operation was recognized during the nine months
ended April 30, 2007. 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 decreased by $37,000 or 45% between periods, from
$82,000 for the nine months ended April 30, 2006 to $45,000 during the nine
months ended April 30, 2007. The decrease in preferred dividends between periods
is mainly attributed to a decrease in dividends resulting from the conversion
of
Series A Convertible Preferred Stock and Series H Convertible Preferred Stock.
Reversal
of previously recorded preferred stock dividends. During
the nine months ended April 30, 2007 we recognized a reversal of previously
recorded dividend expense of $828,000, this reversal occurred as result of
the
conversion into common stock of 2,750 shares of Series A Convertible Preferred
Stock and 11,802,420 shares of Series H Convertible Preferred Stock. At the
time
of conversion of these securities the
market price of ATSI’s stock was higher than at the time of issuance of the
securities. As a result, a reversal of preferred dividends was recognized during
the period.
Net
income (loss) applicable to common stockholders.
Net
income applicable to common stockholders decreased by $508,000. The decrease
in
net income applicable to common stockholders is attributed to the decrease
in
gain on disposal of discontinued operations of approximately $1,652,000
recognized during the prior period, the increase of approximately $46,000 in
legal and professional fees and an increase of approximately $443,000 in
selling, general and administrative expenses, the increase in interest expense
of approximately $245,000 during the nine months ended April 30, 2007. These
increases were offset between periods by the increase in gross profit margin
of
approximately $1,117,000.
Liquidity
and Capital Resources
Cash
Position:
We had a
cash balance of $597,000 as of April 30, 2007. Net cash provided by operating
activities during the nine months ended April 30, 2007, was approximately
$117,000, attributable to improved operating results from an increase in gross
margins offset by working capital changes.
Investing
activities during the nine
months ended April 30, 2007, consumed
$403,000. We used $101,000 to upgrade our Nextone Soft-switch and other
equipment necessary to handle the increase in minutes of voice traffic
transported in our network and sustain higher revenues. Additionally, we used
$302,000 to acquire two certificates of deposit necessary to secure certain
obligations of the Company.
Financing
activities during the nine months ended April 30, 2007, generated $847,000
in
cash. This cash was primarily generated from proceeds of our private placement
of $713,000, proceeds from a notes payable of $350,000, cash
proceeds of $35,000 from the exercise of 150,000 warrants and
cash
proceeds of $16,000 from the exercise of 100,000 stock options. These cash
proceeds were offset by debt principal payments of $106,000 associated with
two
related party notes payable; the principal payments of $78,000 associated with
various notes payable, the principal payments of $148,000 associated with
advances from shareholders and principal payments of $2,000 associated with
our
capital leases. Overall, our net operating, investing and financing activities
during the nine months ended April 30, 2007 provided an increase of $561,000
in
cash.
Our
current cash expenses are expected to be approximately $90,000 per month,
including wages, rent, utilities, litigation fees and corporate professional
fees. We are currently generating sufficient cash from operations to cover
all
monthly cash expenses, but we cannot predict if, over the next twelve months,
we
will continue to generate sufficient cash from operations to cover all of our
cash expenses. We intend to cover our initial monthly cash expenses with our
available cash from operations and proceeds received from the sale of our common
stock. We expect to continue conserving cash resources by paying executive
compensation, fees for certain consultants and professional services with shares
of our common stock. Additionally, on November 3, 2006, we entered into a
factoring agreement with CCA Financial Services, Inc. Under the agreement,
CCA
Financial Services committed to purchase up to $1,000,000 of ATSI’s monthly
receivables. As our ongoing operations require, we will factor our receivables
under this new agreement. As of the date of this filing, we did not have any
outstanding factored receivables under this agreement. Furthermore, we will
continue to pursue additional debt and equity financings to fund continued
growth and increase our 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 operational results and financial condition may be
adversely affected.
We
are
not presently paying quarterly interest and dividends on our outstanding
convertible debentures and preferred stock. However, we have continued to accrue
dividends and interest on such debentures. The increase in accrued liabilities
related to the dividends and interest in arrears contributed approximately
$78,000 in cash flow savings during the nine months ended
April 30, 2007.
Our
working capital deficit was $531,000 as of the nine months ended
April 30, 2007.
This
represents an improvement of approximately $2,270,000 from our working capital
deficit at July 31, 2006. The improvement can primarily be attributed to the
elimination of $1,773,680 of accrued dividends due to the conversion into common
stock of 11,802,420 shares of Series H Convertible Preferred Stock and accrued
dividends. Additionally, during the nine months ended April 30, 2007, we
reclassified a note payable of $500,000 from long-term liabilities to current
liabilities. This note is due in October 2007.
Ongoing
operations
We
generated sufficient income from operations to cover our operating expenses
during the nine months ended April 30, 2007. However, 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. These matters raise 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 continue
generating sufficient income from operations to cover our operating expense
and
our ability to obtain capital resources to support expansion.
During
the nine months ended
April 30, 2007,
we
received $713,000
from the private placement common stock financing, $35,000
from the exercise of warrants and $16,000 from the exercise of stock options.
These funds, along with funds generated from operations, allowed us to cover
our
operating expenses and other corporate expenses during the nine months
ended
April 30, 2007.
Additionally, on November 3, 2006, we entered into a factoring agreement with
CCA Financial Services, Inc. Under the agreement, CCA Financial Services
committed to purchase up to $1,000,000 of our monthly receivables. As our
ongoing operations require, we will factor our receivables under this new
agreement. As of date of this filing, we did not have any outstanding factored
receivables under this agreement.
We
will
continue to pursue cost cutting 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 fully implement our business plan. If
we
are unable to continue producing positive cash flow from operations or 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 our 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
it is required.
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 these disclosure controls and procedures
are effective as of the end of the fiscal quarter covered by this report. There
were no changes in the Company’s internal control over financial reporting
during the 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
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 July 9, 2004,
we filed a separate but related lawsuit in the same court against Sam Levinson
and Uri Wolfson. On February 25, 2005, Judge Lewis A. Kaplan issued a memorandum
opinion and order dismissing the complaint in the first action as to all
defendants with prejudice. A judgment was entered in that action on September
8,
2005. We appealed that judgment on September 20, 2005 to the United States
Court
of Appeals for the Second Circuit. On April 27, 2005, the court entered a final
judgment dismissing the second 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.
The defendants' briefs were filed in both appeals on March 29, 2006, and our
reply briefs were filed on May 12, 2006. Our attorneys presented their argument
for the appeal on November
29, 2006. Currently
we cannot predict the outcome of this litigation or the financial impact on
our
ongoing operations.
In April
13, 2006, ATSI filed suit in a state District Court in Bexar County, Texas
and
obtained injunctive relief against former ATSI consultant Diane Huth and her
associate, John Highland. The lawsuit involves a dispute relating to who has
prior claim and rightful ownership of the trade name "Telefamilia," which
Defendants were alleged in the lawsuit to have undertaken to
trademark for their own purposes. Defendants had filed an answer denying
any liability. Within the last 30 days a settlement has been consummated in
which ATSI obtained undisputed ownership and claim to such name from Defendants,
including an assignment of the trademark "Telefamilia" to ATSI, which Defendants
had previously obtained from the US. Patent and Trademark Office. This
lawsuit has been dismissed.
In
December 2006, ATSI filed suit in Bexar County District Court to recover
approximately $63,000 (plus attorneys fees, legal interest, and court
costs) against a company that called itself Lightspeed Telecom, Inc. and
its principals or alter egos. The suit is for telecommunications
services provided to Lightspeed at the instance of Defendants; ATSI asserts
such services were obtained by or at the direction of
Defendants without intent to pay, which the individual Defendants
deny. Currently, the Company is in the discovery process and a
deposition has been set for David R. Dragon and Mr. Michael Freidman,
two of Lighspeed’s principals also being sued in their individual
capacities. As of the date of this filing no trial date has been
set.
RGC
International Investors, LDC ("RGC") filed a lawsuit in the Chancery Court
in Delaware against ATSI on March 20, 2007 asserting it still has rights of
enforcement against ATSI to convert preferred stock to common stock or
redeem such stock in connection with Certificate of Designation issued
regarding such series D preferred stock in October of 2000. ATSI asserts,
among other things, that RGC is barred from such relief based on the applicable
statute of limitations. The parties are currently exploring
settlement as an alternative to actively litigating the issues in the
case.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During
the period covered by this report, the Company issued a total of 16,149,938
shares of common stock in connection with the conversion and redemption of
all
outstanding shares of its Series H Convertible Preferred Stock. No compensation
was paid to any person in connection with the exchange and the exchange was
exempt from registration pursuant to Section 3(a)(9) of the Securities Act
of
1033.
During
the period covered by this report, the Company issued 137,412 shares of its
common stock to Mr. John Fleming, a director, pursuant to a settlement
agreement. The transaction was privately negotiated between the Company and
Mr.
Fleming, with whom the Company has substantial prior relationship. The shares
were issued without registration pursuant to Section 4(2) of the Securities
Act
of 1933.
During
the period covered by this report, the Company issued an aggregate of 2,566,482
shares of its common stock in exchange and conversion of outstanding promissory
notes in the original principal amount of $564,600 and accrued interest of
$10,292. The promissory notes were originally sold in a private placement that
did not involve a public solicitation and all of the note holders certified
to
the Company that they are accredited investors. In addition, the Company issued
297,270 shares of common stock to the placement agent in connection with the
original private placement of the promissory notes. The shares were exempt
from
registration under Section 4(2) of the Securities Act of 1933 as a private
placement.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
As
of
April 30, 2007, the Company was in arrears with respect to the declaration
of
the following dividends payable on outstanding shares of its Preferred
Stock:
Series
D Cumulative Preferred Stock
|
|
|
318,000
|
|
TOTAL
|
|
$
|
318,000
|
|
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM
5. OTHER INFORMATION
NONE
ITEM
6. EXHIBITS
(a) Exhibits:
The following documents are filed as exhibits to this report.
Exhibit
|
|
|
Number
|
|
Description
|
|
|
|
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:
June 14, 2007 |
By: |
/s/ Arthur
L.
Smith |
|
Name: Arthur
L. Smith |
|
Title: President
and Chief Executive Officer |
|
|
|
|
|
|
|
|
Date:
June 14, 2007 |
By: |
/s/ Antonio
Estrada |
|
Name: Antonio
Estrada |
|
Title:
Corporate
Controller
(Principal
Accounting and Principal Financial Officer)
|