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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-QSB
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(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
For the transition period from _____________ to _______________
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Commission File No. 1-13134
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AMERICAN NORTEL COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Wyoming 87-0507851
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7201 East Camelback Road, Suite 320
Scottsdale, AZ 85251
(Address of principal executive offices)
(480) 945-1266
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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The number of shares of the issuer's common equity outstanding as of
January 31, 2001 was 15,273,785 shares of common stock, par value $.001.
Transitional Small Business Disclosure Format (check one):
Yes No X
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AMERICAN NORTEL COMMUNICATIONS, INC.
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets
December 31, 2000 (unaudited) and June 30, 2000 ..2
Statements of Operations
For the Three Months and Six Months Ended December 31, 2000
(unaudited) and 1999 (unaudited) 3
Statements of Cash Flows
For the Three Months and Six Months Ended December 31, 2000
(unaudited) and 1999 (unaudited) 4
Notes to the Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2000 AND JUNE 30, 2000
(UNAUDITED)
ASSETS
DECEMBER 31, 2000 JUNE 30, 2000
CURRENT ASSETS:
Cash and Cash Equivalents $ 647,327 $ 1,405,002
Trade Accounts Receivable 3,168,789 5,734,828
Investments in marketable securities 3,338,067 7,947,051
Prepaid Expenses 189,353 143,129
Notes Receivable 265,909 80,509
Deferred Income Taxes 81,742 59,232
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TOTAL CURRENT ASSETS 7,691,187 15,369,751
PROPERTY AND EQUIPMENT:
Furniture and Fixtures 4,660 4,660
Equipment & Computer Equipment 78,948 77,449
Telecommunications Property 1,650 1,650
LESS: Accumulated Depreciation and Amortization (53,982) (46,782)
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TOTAL PROPERTY AND EQUIPMENT 31,276 36,977
OTHER ASSETS:
Other Assets 6,667 6,667
TOTAL OTHER ASSETS 6,667 6,667
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TOTAL ASSETS 7,729,130 15,413,395
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LIABILITIES
CURRENT LIABILITIES:
Trade Accounts Payable 395,308 761,608
Trade Accounts Payable - Other 339,189 362,189
Accrued Expenses 115,220 149,658
Notes Payable 146,642 50,000
Accrued Interest 55,188 52,938
Factoring Arrangement 999,970 2,383,956
Income Taxes Payable 1,125,833 1,079,947
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TOTAL CURRENT LIABILITIES 3,177,350 4,840,296
DEFERRED INCOME TAXES 438,045 1,852,997
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TOTAL LIABILITIES 3,615,395 6,693,293
STOCKHOLDERS' EQUITY
Common Stock, no par value, 50,000,000 shares authorized. 21,980,202 21,980,202
15,273,785 shares issued and 15,273,785
shares outstanding.
Paid In Capital 51,795 51,795
Treasury Stock, 236,858 shares at cost (759,773) (759,773)
Unrealized gain on investments held for sale. (1,589,720) 3,003,535
Accumulated deficit (15,568,768) (15,555,657)
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TOTAL STOCKHOLDERS' EQUITY 4,113,735 8,720,102
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,729,130 $ 15,413,395
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See the accompanying notes to these unaudited financial statements
2
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
FISCAL QUARTER 2000 FISCAL QUARTER 2000
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
INCOME
Revenue $ 1,899,488 $ 5,098,524 $ 6,021,529 $12,784,933
COST OF SALES 1,745,763 4,333,569 4,746,570 9,341,876
-------------- ------------ -------------- ------------
GROSS PROFIT 153,724 764,955 1,274,959 3,443,057
SELLING EXPENSES 53,281 196,570 222,912 559,129
GENERAL & ADMINISTRATIVE 310,254 594,909 266,118 619,465
-------------- ------------ -------------- ------------
TOTAL EXPENSES 363,535 791,479 489,029 1,178,595
EARNINGS (LOSS) FROM OPERATIONS (209,811) (26,523) 785,930 2,264,463
OTHER INCOME (EXPENSE)
Other Income 972 9,451 - 19,962
Interest Income 14,262 34,729 2,207 4,278
Interest Expense (3,645) (7,393) (23,870) (47,785)
-------------- ------------ -------------- ------------
TOTAL OTHER INCOME 11,589 36,786 (21,664) (23,546)
NET INCOME BEFORE INCOME TAXES (198,222) 10,263 764,266 2,240,917
Provisions for Income Taxes Benefit (Expense) 65,830 (23,374) (65,000) (145,000)
NET INCOME (LOSS) $ (132,392) $ (13,111) $ 699,266 $ 2,095,917
============== ============ ============== ============
EARNINGS PER SHARE:
BASIC EARNINGS PER SHARE BEFORE INCOME TAXES $ (0.01) $ (0.00) $ 0.05 $ 0.15
-------------- ------------ -------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------ -------------- ------------
SHARES OUTSTANDING
BASIC EARNINGS PER SHARE $ (0.01) $ (0.00) $ 0.05 $ 0.14
-------------- ------------ -------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------ -------------- ------------
SHARES OUTSTANDING
DILUTED EARNINGS PER SHARE BEFORE INCOME TAXES $ (0.01) $ (0.00) $ 0.05 $ 0.15
-------------- ------------ -------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------ -------------- ------------
AND COMMON SHARE EQUIVALENTS OUTSTANDING
DILUTED EARNINGS PER SHARE $ (0.01) $ (0.00) $ 0.05 $ 0.14
-------------- ------------ -------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON 15,273,785 15,273,785 15,403,785 15,403,785
-------------- ------------ -------------- ------------
AND COMMON SHARE EQUIVALENTS OUTSTANDING
See the accompanying notes to these unaudited financial statements
3
AMERICAN NORTEL COMMUNICATIONS, INC.
COMPARATIVE STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
(UNAUDITED)
2000 2000 1999 1999
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ (132,392) $ (13,111) $ 699,266 $ 2,095,917
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES.
Depreciation and amortization 3,600 7,200 3,600 7,200
Consultants paid with common stock - - - 27,000
Sale of Common Stock (11,506) (11,506)
(Increase) decrease in assets
Trade accounts receivable 1,255,333 2,566,039 94,271 (620,743)
Prepaid and other current assets 23,181 (46,224) 20,851 160,580
Deferred tax asset (8,541) (22,510) -
Increase (decrease) in liabilities
Trade accounts payable (649,896) (972,049) (55,153) (702,468)
Accrued liabilities 9,162 (34,438) 4,005 60,246
Income Taxes Payable (57,289) 45,884 65,000 145,000
Accrued interest 1,125 2,249 34,267 34,267
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NET CASH PROVIDED IN OPERATING ACTIVITIES 444,283 1,533,040 854,602 1,195,493
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable equity securities (699,222) (1,399,222) (1,216,141) (1,356,141)
Advances to shareholder (235,000) (235,000) (30,000)
Purchases of property and equipment (1,499) (1,499) (5,078) (5,078)
------------ -------------- ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (935,721) (1,635,721) (1,221,219) (1,391,219)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments on notes payable 49,600 (654,995) (45,000.00) (511,000)
Draw down on short term loan - - 399,181 399,181
------------ -------------- ------------ ------------
NET CASH USED BY FINANCING ACTIVITIES 49,600 (654,995) 354,181 (111,819)
NET DECREASE IN CASH (441,838) (757,676) (12,936) (307,545)
CASH AT BEGINNING OF PERIOD 1,089,163 1,405,002 423,242 717,851
------------ -------------- ------------ ------------
CASH AT END OF PERIOD $ 647,325 $ 647,326 $ 410,306 $ 410,306
============ ============== ============ ============
See the accompanying notes to these unaudited financial statements
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 2000 AND DECEMBER 31,
1999
1. Basis of Presentation
The accompanying unaudited financial statements represent the financial position
of American Nortel Communications, Inc. as of December 31, 2000, and December
31, 1999, includes our results of operations and cash flows for the three months
and six months ended December 31, 2000 and 1999. These statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-QSB. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements. In the
opinion of management, all adjustments to these unaudited financial statements
necessary for a fair presentation of the results for the interim period
presented have been made. The results for the three and six month ended
December 31, 2000 and 1999 may not necessarily be indicative of the results for
the entire fiscal year. These financial statements should be read in
conjunction with our Form 10-KSB for the year ended June 30, 2000, including
specifically the financial statements and notes to such financial statements
contained therein.
2. Summary of Significant Accounting Policies
Our accounting policies, and the methods of applying those policies, which
affect the determination of its financial position, results of operations or
cash flows are summarized below:
Advertising and Marketing Costs
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Advertising production costs, except for costs associated with marketing, are
charged to operations when incurred. Marketing costs are related to
direct-response marketing and costs are capitalized as required by SOP 93-7 and
amortized. Marketing Costs Direct response marketing costs, primarily incurred
through contracted telephone solicitation of prospective accounts are deferred
and amortized over the average life of the new accounts, which is normally six
to eight months.
Cash and Cash Equivalents
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Cash and cash equivalents include all short-term liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less. At times cash deposits may exceed government insured
limits.
Concentration of Credit Risk
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We maintain cash balances in two banks in Phoenix, Arizona, which have an
average balance of $250,000. The Federal Depository Insurance Corporation
(FDIC) insures accounts at each institution up to $100,000. We maintain
investment balances with two brokerage firms. The Security Investor Protection
Corporation (SPIC) insures accounts at these firms up to $500,000.
5
Income Taxes
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Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which, among other things, requires that recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date of
the financial statements.
Revenue Recognition
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Our revenues are derived principally from long distance service. Revenue is
recorded when service is rendered, which is when a long distance call is
completed, and is recorded net of an allowance for certain amounts which we
estimate will be refunded, rebated, uncollectable, or not billable.
Fair Value of Financial Instruments
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The carrying amounts for cash, investments in marketable securities, trade
accounts receivable, trade accounts payable, accrued liabilities and notes
payable, approximate their fair value due to the short maturity of these
instruments. We have determined that the recorded amounts approximate fair
value.
Net Income Per Share
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Net loss per share is calculated using the weighted average number of shares of
common stock outstanding during the year. We have adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Use of Estimates
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The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This may affect the reported amounts of assets and liabilities and disclosure of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-Based Compensation
-------------------------
Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation. In accordance with SFAS 123, we have elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and our plans and expectations. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below in this Form 10-QSB under the heading "Special Note on
Forward-Looking Statements" or incorporated herein by reference.
THE COMPANY
American Nortel Communications, Inc. ("ANC") is a Wyoming corporation
founded in 1979 and is a reseller of 1-Plus and 1-800, 888 long-distance
telecommunications services. ANC resells to it's customers long distance
telephone time that it purchases or leases from other long distance carriers.
In September 1994, American Nortel and its subsidiary Nortel
Communications, Inc., filed petitions under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court, District of Utah, Central Division (Case
Numbers 948-24604 and 948-24605). The proceedings were later converted to
Chapter 7 liquidation proceedings, and dismissed on February 7, 1996. American
Nortel sold its Nortel Communications subsidiary in June 1996 for nominal
consideration to an affiliate of former directors. During the penance of the
bankruptcy proceedings, in June 1995, a controlling stock interest in the
company was sold to Wilcom, Inc., which is currently our majority stockholder.
In February 1996 the bankruptcy proceedings were dismissed and ANC resumed
business as a seller of long distance communications services.
OVERVIEW OF BUSINESS
ANC resells long distance telephone services to both business and
residential customers. As a reseller it purchases or leases long distance time
from other carriers and resells that time to its customers. ANC is charged for
the time it uses beyond certain minimum requirements and in turn charges its
customers a certain amount per minute. To a large extent, ANC's profits are
dependent upon the spread between its cost per minute and the amount it charges
its customers, and its results of operations are directly affected by
competition, which in recent years has been intense and has lowered the amount
resellers can charge customers. ANC out-sources its sales and marketing to
telemarketers and it pays those telemarketers compensation for each new customer
obtained. We do not direct-bill our customers, but rather we utilize the Local
Exchange Carriers (LEC's) which provide telephone services to our long-distance
customers, and perform billing and collections for us. LEC's receive a fee based
upon a certain percentage of amount collected. Management believes that the
practice of billing through LECs has a substantial advantage because it
increases the likelihood and promptness of our collections.
We have recently determined to change our long distance strategy of
reselling 1 plus 800 and 888 long distance services. Management has determined
that the profit margins from long distance service, which have been achieved in
the past, have narrowed and are continuing to narrow to an unacceptable extent.
We believe the long distance market, as a whole, has experienced a decrease in
profit margins due to the very aggressive pricing competition that has
characterized the industry during the last several years. LECs have also
experienced competition with the Competitive Local Exchange Carriers ("CLECs").
As a result of this increase competition, we have experienced a dilution in
profits. Because of our reduced profitability, we have ceased marketing efforts
in long distance service offerings and are examining the potential to enter into
other business, which could add to our profitability. Potential businesses,
which might provide profitability to us, are presently being examined by
management.
7
Investment in Marketable Securities. With excess cash from operations, we
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have made investments in other companies, particularly early stage companies in
need of working capital. These issuers may have limited operating histories
and revenues.
Investments in marketable securities consisted of the following at December
31, 2000:
Gross Unrealized Fair
Cost Gains Losses Value
---------- -------- ---------- ----------
Equity securities $4,156,601 $575,817 $1,394,353 $3,338,065
We have invested in common stock and related warrants of several publicly
traded companies. At December 31, 2000, our investment in marketable securities
is made in seven different companies. The investment in one such company's
securities represents approximately 43% of the estimated aggregate fair value of
all investments in marketable securities at December 31, 2000.
At December 31, 2000, we held stocks of the following companies:
Dauphin Technologies, Inc. ("DNTK"). DNTK designs manufactures and markets
mobile hand-held, pen based computers, as well as other electronic devises for
home and business use. DNTK primary product line is a handheld computer
developed with the multi-sector mobile user in mind. This product incorporates
an upgradeable processor, user upgradeable memory and hard disk, various modules
and mobile devices.
Sonoma Financial Corporation/Victormaxx Technologies, Inc. ("VMAX"). VMAX
incorporates financial service companies that operate a chain of stores devoted
to providing low documentation, short-term consumer loans. VMAX is one of the
largest payday advance operations in the Chicago area.
American Educational Products, Inc. ("AMEP"). AMEP manufactures and
distributes products that increase teachers' effectiveness in the classroom
facilitates students' learning through inquiry and discovery, and encourage
parental participation in their child's education. AMEP manufactures and
distributes educational products to educational institutions, wholesalers,
individual educators, and consumers.
PTN Media, Inc. ("PTNM"). PTNM is an interactive media content provider
focusing on providing branded content using a combination of new and traditional
media. PTNM initial web-site focus on fashion, beauty, style, fitness, and
related subjects. PTNM currently provides this content on its interactive web
site www.fashionwindow.com.
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Med Com USA, Inc. ("EMED"). EMED enables paperless electronic verifications
and transactions, a web health care portal, and online purchase of home medical
equipment through its operating units.
Cynet, Inc. ("CYNE"). CYNE is an Internet business applications solutions
provider integrating convergent messaging with Internet services. CYNE's
products and services include convergent messaging, which includes fax, data,
voice, email and wireless messaging, and Internet services, which includes
custom application development, e-commerce development, web content creation,
web hosting and internet access.
Morgan Cooper, Inc. ("MCII"). MCII is primarily involved in design
contemporary style clothing. The Morgan Cooper collections are designed to
provide the consumer with fresh and updated looks by combining classic and
contemporary styling, in both fabrics and leathers, with special attention to
unique details and fit to appeal to their target market who desire high quality,
designer clothes at competitive prices.
8
Although we have made investments in several publicly traded corporations,
we are seeking an active business to offset the reduced profit margins in its
long distance reseller business. We have yet to identify that business, but
have undertaken efforts to do so in order to offset the effects of declining
profitability in the long distance reseller business.
On November 9, 2000 ANC purchased 400,000 common shares of Morgan Cooper,
Inc. ("MCII") at $1.62 per share. The Morgan Cooper collections are designed to
provide the consumer with fresh and updated looks by combining classic and
contemporary styling, in both fabrics and leathers, with special attention to
unique details and fit to appeal to their target market who desire high quality,
designer clothes at competitive prices. The average of the bid and asked price
of the stock as of December 31, 2000, was $1.06 per share according to
over-the-counter market.
On December 26, 2000 ANC purchased 106,400 common stock at $.63 per share
of Med Com USA, Inc. ("EMED"). EMED enables paperless electronic verifications
and transactions, a web health care portal, and online purchase of home medical
equipment through its operating units. The average of the bid and asked price of
the stock as of December 31, 2000, was $.59 per share according to
over-the-counter market.
On December 28, 2000 ANC purchased 175,000 common stock at $.15 per share
of Cynet, Inc. ("CYNE"). CYNE is an Internet business applications solutions
provider integrating convergent messaging with Internet services. CYNE's
products and services include convergent messaging, which includes fax, data,
voice, email and wireless messaging, and Internet services, which includes
custom application development, e-commerce development, web content creation,
web hosting and internet access. The average of the bid and asked price of the
stock as of December 31, 2000, was $.16 per share according to over-the-counter
market.
RESULTS OF OPERATIONS
Revenues were $1,899,488 and $5,098,524 for three and six months ended
December 31, 2000, respectively, as compared to $6,021,529 and $12,784,933 for
three and six months ended December 31, 1999, respectively. The decrease in
revenue is principally the result of decrease of our basic 1 Plus and 800, 888
long distance service. We have decreased our marketing efforts and have
experienced attrition in our customer base. We have maintained our call volumes
in the telecommunication's industry and maintained our revenues. However, we
have experienced continued increases in competition in the U.S. domestic market,
and continue to seek business acquisition opportunities to potentially alleviate
the effects of cost competition in the domestic telecommunication market.
Cost of sales were $1,745,763 and $4,333,569 for three and six months ended
December 31, 2000 as compared to $4,746,570 and $9,341,876 for three and six
months December 31, 1999. Our cost of sales has decreased in relation to the
decrease in revenues, as our revenues have decrease based upon the attrition of
our customer base so have our cost of sales decreased due to decreased costs
from our long distance service provider and all other providers. Our Cost of
sales is comprised of long-distance fees we pay providers of long-distance
service that we resell, telemarketing costs, allowances for bad debt, cost of
factoring arrangement, and our billing costs. Billing costs include fees for
services provided by LECs and other outside parties, billing integrators, to
transfer and organize our customer acquisition, billing, and collection data.
Selling expenses were $53,281 and 196,570 for three and six months ended
December 31, 2000 as compared to $222,912 and $559,129 for three and six months
ended December 31, 1999. Selling expenses were primarily the costs associated
9
with the cost of acquiring customers. Our selling costs have decrease because
we have decreased and actually ceased all marketing of new long distance
customers. We have decreased our marketing efforts as competition in the U.S.
domestic long-distance markets increased in order to redirect those revenues to
other business and investment opportunities.
General and administrative expenses were $310,254 and $594,909 for three
and six months ended December 31, 2000 as compared to $266,118 and 619,465 for
three and six months ended December 31, 1999. These costs are primarily related
to customer service staffing and professional fees. We believe that we provide
better service to our customers. The increase in these costs are related to the
increase in professional services in researching and providing financial and
legal due diligences to confirm the soundness of the new potential business
activities investments that management has pursued. The costs also include
executive compensation and benefit costs.
Interest income net of interest expense were $11,589 and $36,786 for three
and six months ended December 31, 2000 as compared to interest expenses net of
interest income of $21,664 and $23,546 for three and six months ended December
31, 1999. Interest income and dividend income have increased as a result of our
investment activities.
Net loss was ($132,392) or ($.01) per diluted share and ($13,111) or ($.00)
per diluted share for three and six months ended December 31, 2000 as compared
to $699,266 or $.05 per diluted share and $2,095,917 or $.15 per diluted share
for three and six months ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities were $1,533,039 for the six months
ended December 31, 2000 as compared to $1,195,493 for the six months ended
December 31, 1999. We have funded our working capital requirements primarily
from our principal source of revenue generated from providing long distance
service as a long distance reseller. Cash from operating activities for the six
months ended December 31, 2000 was utilized by an increase in our prepaid
expenses of $46,224 and accrued expenses of $2,249 and by decreases in trade
accounts receivables of $2,566,039, trade accounts payables of $972,049, and
accrued liabilities of $34,438. Cash from operating activities for the six
months ended December 31, 1999, was utilized by an increase in trade accounts
receivables of $620,743, accrued liabilities of $60,246, and accrued interest of
$34,267 and by decreases in prepaid expenses of $160,580 and trade accounts
payables of $702,468.
Cash used by investing activities was $1,635,721 for the six months ended
December 31, 2000. We purchased marketable securities of $1,399,222, purchased
computer equipment $1,499 and advanced to a controlled group $235,000. Cash
used by investing activities was $1,391,219 for the six months ended December
31, 1999. We purchased marketable securities of $1,356,141, purchased equipment
of $5,078 and made advances to a shareholder of $30,000.
Cash used from financing activities was utilized to repay notes payables of
$654,995 for the six months ended December 31, 2000. Cash used from financing
activities was utilized to repay notes payables of $511,000 and draw down our
credit facility with RFC Capital Inc. of $399,181 in the six months ended
December 31, 1999.
Operating Restrictions. We intend to conduct our business so as to not
----------------------
become a regulated investment company under the Investment Company Act of 1940
(the "1940 Act"). Accordingly, we do not expect to be subject to the
provisions of the 1940 act, including those that prohibit certain transactions
among affiliated parties. The 1940 Act exempts issuers primarily engaged,
directly or
10
indirectly, through a wholly-owned subsidiary or subsidiaries, in a business
other than that of investing, reinvesting, owning or holding or trading in
securities. The United States Securities and Exchange Commission ("SEC") may
also, upon application by an issuer, find by order that the issuer is primarily
engaged in the business or businesses other than investing, reinvesting, owning
or holding or trading in securities.
Our investments in securities are currently 43% of its otal assets,
exclusive of government securities and cash items (on an unconsolidated basis).
We intend to seed and develop other lines of business, which would prevent us
from becoming subject to the 1940 act and will, if necessary, make application
of the SEC for an order of exemption. If for any reason we were to become an
investment company which is non-exempt from the 1940 act (for example, due to a
change in our assets or a change in the value of particular assets), we would
wither have to restructure our assets so as not to become subject to the 1940
Act or would have to change materially the way it conducts its activities.
Either of these changes could require us to sell substantial portions of its
assets at a time when it may not wish to do so, and could incur significant
losses as a result. Further, to avoid becoming subject to the requirements of
the 1940 Act, we may be required to forego investments, which we would like to
make, or otherwise act in a manner other than which management believes would
maximize our earnings.
OTHER CONSIDERATIONS
There are numerous factors that affect our business and the results of its
operations. Sources of these factors include general economic and business
conditions, federal and state regulation of our business activities, the level
of demand for our services, the level and intensity of competition in the
telecommunications industry and the pricing pressures that may result, our
ability to develop new services based on new or evolving technology and the
market's acceptance of those new services, our ability to timely and effectively
manage periodic product transitions, the services, customer and geographic sales
mix of any particular period, and our ability to continue to improve our
infrastructure (including personnel and systems) to keep pace with the growth in
its overall business activities.
Because we have acquired the securities of various small publicly held
companies, which have limited liquidity, and we are subject to risks related to
the value of those investments. These risks include the volatility of these
investments, the difficulty we may have in disposing of these investments, and
the risks that interest rates and other economic conditions may adversely affect
the value of these investments. At this time, we do not have an intention of
engaging in the business of investing, reinvesting, owning, holding or trading
in securities and intends to be engaged primarily, as soon as reasonably
possible, but in any event in not less than one year, in a business other than
that of investing, reinvesting, owning, holding or trading in securities. The
value of our investments in securities presently exceeds the limitation set
forth in Section 3(a)(1)(C) required for us to be classified as an investment
company under the 1940 Act.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
We intend that such forward-looking statements be subject to the safe harbors
created thereby. We may make written or oral forward-looking statements from
time to time in filings with the SEC, in press releases, quarterly conference
calls or otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "project," "plans," "estimates" and similar expressions identify
forward-looking statements. Such statements reflect our current views with
respect to future events and financial performance or operations and speak only
as of the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. Our actual
results may differ materially from such statements. Factors that cause or
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contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB, as well as those discussed in our Form 10-KSB
which is incorporated by reference in this Form 10-QSB.
Although we believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded as a representation that the
future events, plans, or expectations contemplated will be achieved. We
undertake no obligation to publicly update, review, or revise any
forward-looking statements to reflect any change in our expectations or any
change in events, conditions, or circumstances on which any such statements
based. Our filings with the SEC, including the Form 10-KSB, may be accessed at
the SEC's Web site, www.sec.gov.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ANC is involved in various legal proceedings and claims as described in our
Form 10-KSB for the year ended June 30, 2000. No material developments occurred
in any of these proceedings during the quarter ended December 31, 2000. The
costs and results associated with these legal proceedings could be significant
and could affect the results of our future operations.
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ADDITIONAL INFORMATION
ANC files reports and other materials with the Securities and Exchange
Commission. These documents may be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You
can obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. You can also get copies of documents that the
Company files with the Commission through the Commission's Internet site at
www.sec.gov.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: NONE
REPORTS ON FORM 8-K:
No reports on Form 8-K was filed in the fiscal quarter ended December 31,
2000, as follows:
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICAN NORTEL COMMUNICATIONS, INC.
By /s/ William P. Williams
-----------------------------
William P. Williams, Chairman of the Board, Chief Executive Officer, and
President
Dated: ________________, 2000
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