AMERICAN
NORTEL COMMUNICATIONS, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED DECEMBER 31, 2001
and 2000
The
Company has existed in various forms since 1979 and has evolved from a mining
exploration and development business to a telecommunications
business. The Company has been known as American Nortel
Communications, Inc. (“ANC”) since 1992 and is a Nevada
corporation. ANC currently operates only in the telecommunications
business, providing long distance telephone service as a reseller in combination
with additional related services in the United States and a number of foreign
countries.
Prior to
September 14, 1994, ANC conducted almost all of its telecommunications business
through NorTel Communications, Inc. (“NorTel-US”), a wholly-owned subsidiary in
Salt Lake City, Utah. All subsidiaries, including NorTel-US, were not
active and were sold for nominal consideration or were dissolved.
On
September 14, 1994, ANC and NorTel-US filed petitions under Chapter 11 of the
U.S. Bankruptcy Code, under case numbers 948-24604 and 948-24605 respectively in
the U.S. Bankruptcy Court, District of Utah, and Central
Division. ANC’s bankruptcy proceeding was subsequently converted to a
Chapter 7 proceeding and was thereafter dismissed on February 7,
1996. NorTel-US was sold June 27, 1996 for nominal consideration to
an affiliate of former directors, leaving ANC as the sole surviving
entity.
The
Company was dormant when ANC’s current President, Chief Executive Office, and
Board Chairman, William P. Williams, Jr. achieved control of the Company on June
27, 1995. On that day, the former officers and directors resigned and
assigned their rights under certain agreements to Mr. Williams.
The
accompanying condensed financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going
concern. However, the Company has year end losses from operations and
had minimal revenues from operations the six months ended December 31, 2001.
During six months ended December 31, 2001 the Company incurred a net loss of
$3,589,992 and has an accumulated deficit of $20,321,877. Further,
the Company has inadequate working capital to maintain or develop its
operations, and is dependent upon funds from private investors and the support
of certain stockholders.
These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. The condensed financial statements do not include
any adjustments that might result from the outcome of these
uncertainties. In this regard, Management is proposing to raise any
necessary additional funds through loans and additional sales of its common
stock. There is no assurance that the Company will be successful in raising
additional capital.
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3.
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INTERIM
FINANCIAL STATEMENTS
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The
accompanying interim unaudited condensed financial information has been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations, although management believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of December
31, 2001 and the related operating results and cash flows for the interim period
presented have been made. The results of operations of such interim periods are
not necessarily indicative of the results of the full fiscal year. For further
information, refer to the financial statements and footnotes thereto included in
the Company’s 10-KSB and Annual Report for the fiscal year ended June 30,
2001.
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4.
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SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Our
management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions or
conditions.
Critical
Accounting Policies
Stock Based
Compensation
In
December 2004, the FASB issued a revision of SFAS No. 123 ("SFAS No. 123(R)")
that requires compensation costs related to share-based payment transactions to
be recognized in the statement of operations. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date fair value
of the equity or liability instruments issued. In addition, liability awards
will be re-measured each reporting period. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
SFAS No. 123(R) replaces SFAS No. 123 and is effective as of the beginning of
January 1, 2006. Based on the number of shares and awards outstanding as of
December 31, 2005 (and without giving effect to any awards which may be granted
in 2006), we do not expect our adoption of SFAS No. 123(R) in January 2006 to
have a material impact on the financial statements.
FSP FAS
123(R)-5 was issued on October 10, 2006. The FSP provides that instruments that
were originally issued as employee compensation and then modified, and that
modification is made to the terms of the instrument solely to reflect an equity
restructuring that occurs when the holders are no longer employees, then no
change in the recognition or the measurement (due to a change in classification)
of those instruments will result if both of the following conditions are met:
(a). There is no increase in fair value of the award (or the ratio of intrinsic
value to the exercise price of the award is preserved, that is, the holder is
made whole), or the antidilution provision is not added to the terms of the
award in contemplation of an equity restructuring; and (b). All holders of the
same class of equity instruments (for example, stock options) are treated in the
same manner. The provisions in this FSP shall be applied in the first reporting
period beginning after the date the FSP is posted to the FASB website. The
Company has adopted SP FAS 123(R)-5 but it did not have a material impact on its
consolidated results of operations and financial condition.
Accounting Policies and
Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our management periodically
evaluates the estimates and judgments made. Management bases its estimates and
judgments on historical experience and on various factors that are believed to
be reasonable under the circumstances. Actual results may differ from these
estimates as a result of different assumptions or conditions. As
such, in accordance with the use of accounting principles generally accepted in
the United States of America, our actual realized results may differ from
management’s initial estimates as reported. A summary of significant
accounting policies are detailed in notes to the financial statements which are
an integral component of this filing.
Revenue
Recognition
The
Company has adopted the Securities and Exchange Commission’s Staff Accounting
Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements.
During
six months ended December 31, 2001:
The
Company has issued shares of its common stock as consideration to consultants
for the fair value of the services rendered. The value of those
shares is determined based on the trading value of the stock at the dates on
which the agreements were entered into for the services and the value of
services rendered. During the period ended December 31, 2001,
the Company granted to consultants, 647,000 shares of common stock valued
between $.75 - $.25. The values of these common shares issued were
expensed during the year in the amount of $154,200.
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6.
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RELATED
PARTY TRANSACTIONS
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The
Company’s president and chairman is an 70% shareholder and its sole officer and
director of the Company. The chairman controls MedCom USA,
Incorporated (“MedCom”) which the company owns is a 31% shareholder in
MedCom. The chairman also controls Card Activation Technologies, Inc.
(“Card”) in which MedCom owns 37% of Card. During the year ended June
30, 1995, the Company moved its administrative offices into space occupied by
this related entity. The Company shares office space and management
and administrative personnel with this related entity. Certain of the
Company’s personnel perform functions for the related entity but there was no
allocation of personnel related expenses to the related entity in the six months
ended December 31, 2001 and 2000.
The
Company frequently receives advances, and advances funds to an entity controlled
by the Company’s president and which is a significant shareholder of the Company
to cover short-term cash flow deficiencies.
The
Company issued 4,856,648 shares of common stock for repayment of debt on
November 17, 2005. This common stock was issued for services
performed for the benefit of MedCom, specifically to pay expenses for
MedCom. The Company also issued 4,856,648 of common stock in
accordance with the compensation package of Mr. Williams on August 24,
2007. MedCom owes ANC approximately $250,000 as of December 31,
2007.
ITEM 2
- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management’s
Discussion and Analysis contains various “forward looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
regarding future events or the future financial performance of the Company that
involve risks and uncertainties. Certain statements included in this Form
10-QSB, including, without limitation, statements related to anticipated cash
flow sources and uses, and words including but not limited to “anticipates”,
“believes”, “plans”, “expects”, “future” and similar statements or expressions,
identify forward looking statements. Any forward-looking statements herein are
subject to certain risks and uncertainties in the Company’s business, including
but not limited to, reliance on key customers and competition in its markets,
market demand, product performance, technological developments, maintenance of
relationships with key suppliers, difficulties of hiring or retaining key
personnel and any changes in current accounting rules, all of which may be
beyond the control of the Company. The Company adopted at management’s
discretion, the most conservative recognition of revenue based on the most
astringent guidelines of the SEC in terms of recognition of software licenses
and recurring revenue. Management will elect additional changes to revenue
recognition to comply with the most conservative SEC recognition on a forward
going accrual basis as the model is replicated with other similar markets (i.e.
SBDC). The Company’s actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth therein.
Forward-looking
statements involve risks, uncertainties and other factors, which may cause our
actual results, performance or achievements to be materially different from
those expressed or implied by such forward-looking statements. Factors and risks
that could affect our results and achievements and cause them to materially
differ from those contained in the forward-looking statements include those
identified in the section titled “Risk Factors” in the Company’s Annual Report
on Form 10-KSB for the year ended June 30, 2007, as well as other factors that
we are currently unable to identify or quantify, but that may exist in the
future.
In
addition, the foregoing factors may affect generally our business, results of
operations and financial position. Forward-looking statements speak only as of
the date the statement was made. We do not undertake and specifically decline
any obligation to update any forward-looking statements.
Overview
American Nortel, Inc. ("ANC"
or the "Company"), was formed as a Wyoming corporation
in 1979. In 2008, we redomiciled to the State of Nevada.
We are a reseller of 1-Plus and 1-800 long-distance telecommunications
services. ANC resells to customers’ long distance telephone time that
it purchases or leases from other long distance carriers.
ANC
resells long distance telephone services to both small business and residential
customers. As a reseller it purchases or leases long distance time
from other carriers and resells that time to others. ANC is charged
for the time it 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. Telemarketing is a recurring expense and is
its sales and marketing expense. ANC out-sources its marketing
efforts to telemarketers and it pays those telemarketers a certain amount for
each new customer obtained. The Company does not direct-bill its
customers, but rather utilizes the Local Exchange Carriers (LEC) which provides
local area telephone service to the Company long-distance customers, for billing
and collections. LECs receive a fee based upon a certain percentage
of amounts collected. Management believes that the practice of
billing through LECs has substantial advantages since it increases the
likelihood and promptness of collections.
ANC’s
method of operations has certain advantages and disadvantages. It
substantially reduces its out-of-pocket expenses of such things as capital,
equipment costs, rent and salaries. But it also makes ANC more
dependent upon the performance of others whom it does not control, and upon its
ability to contract for such services at a reasonable price. With
regard to its cost of obtaining long distance time, there is presently a surplus
of lines and capacity held by carriers who sell long distance usage time to ANC
on a bulk basis, and ANC believes that such surplus will continue in the
foreseeable future.
Competition
The long
distance telephone industry is intensely competitive. There are many
large and small competitors in the industry, many of which share the same target
market as ANC. Many of the Company’s competitors have much larger
resources, and are more established and have a larger customer base than
ANC. There are also a large number of resellers, many of who operate
in a manner similar to ANC. Competition among resellers and other providers of
long-distance services generally is conducted on the basis of
price. Prices have been decreasing over the last several years,
sometimes dramatically, for a variety of communication
services. Customers have become more sophisticated and price
conscious. They are likely to switch services when new competitor
communication packages become available, and switching from one service provider
to another typically has few, if any, cost implications for a customer. ANC
constantly obtains new customers to replace its customer account
attrition. Other sources of competition may be developing because of
new offerings by telecommunication providers, such as cable television industry,
Internet telephony, and voice and data communication.
Regulatory
Background
The Company is subject to
regulation by the
U.S.
Federal Communications
Commission (the "FCC").
The
existing domestic long distance telecommunications industry was principally
shaped by a 1984 court decree (the “Decree”) that required the divestiture by
AT& T of its 22 bell operating companies (“BOCs”), organized the BOCs under
seven regional Bell operating companies (“RBOCs”) and divided the country into
some 200 Local Access Transport Areas or “LATAs.” The incumbent local
exchange carriers (“ILECS”), which include the seven RBOCS as well as
Independent local exchange carriers, were given the right to provide local
telephone service, local access service to long distance carriers and intra-LATA
long distance service (long distance service within LATAS), but the RBOCs were
prohibited from providing inter-LATA service (service between
LATAs). The right to provide inter-LATA service was given to AT&T
and the other interexchange carriers (“IXC”). Conversely, IXCs were
prohibited from providing local telephone service.
A typical
inter-LATA long distance telephone call begins with the local exchange carrier
(“LEC”) transmitting the call by means of its local network to a point of
connection with an IXC. The IXC, through its switching and transmission network,
transmits the call to the LEC serving the area where the recipient of the call
is located, and the receiving LEC then completes the call over its local
facilities. For each long distance call, the originating LEC charges an access
fee. The IXC also charges a fee for its transmission of the call, a portion of
which consists of a terminating fee which is passed on to the LEC which delivers
the calls. To encourage the development of competition in the long
distance market, the Decree required LECs to provide all IXCs with access to
local exchange services “equal in type, quality and price” to that provided to
AT&T. These so-called “equal access” and related provisions were
intended to prevent preferential treatment of AT&T and to level the access
charges that the LECs could charge IXCs, regardless of their volume of
traffic. As a result of the Decree, customers of all long distance
companies were eventually allowed to initiate their calls by utilizing simple
1 plus
dialing, rather
than having to dial longer access or identification numbers and
codes.
The
Telecommunications Act
(enacted on February 8, 1996) has significantly altered the telecommunications
industry. The Decree has been lifted and all restrictions and
obligations associated with the Decree have been eliminated by the new
legislation. The seven RBOCs are now permitted to provide long
distance service originating (or in the case of “800” service, terminating)
outside the local services areas or offered in conjunction with other ancillary
services, including wireless services. Following application to the
FCC, and upon a finding by the FCC that the RBOC faces facilities-based
competition and has satisfied a congressionally-mandated “competitive checklist”
of interconnection and access obligations, an RBOC will be permitted to provide
long distance service within its local service area, although in so doing it
will be subject to a variety of structural and nonstructural safeguards intended
to minimize abuse of its market power in these local service
areas. Having opened the interexchange market to RBOC entry, the
Telecommunications Act also removes all legal barriers to competitive entry by
interexchange and other carriers into the local telecommunications market and
directs RBOCs to allow competing telecommunications service providers, such as
the Company, to interconnect their facilities with the local exchange network,
to acquire network components on an unbundled basis and to resell local
telecommunications services. Moreover, the Telecommunications Act
prevents IXCs that serve greater than five percent of pre-subscribed access
lines in the U.S., (which includes the nation’s three largest long distance
providers) from jointly marketing their local and long distance services until
the RBOCs have been permitted to enter the long distance market or for three
years, whichever is sooner. This provision of the Act is intended to
give all other long distance providers a competitive advantage over the larger
long distance providers in the newly opened local telecommunications
market. As a result of the Telecommunications Act, long distance
carriers will allow significant new competition in the long distance
telecommunications market, but will also be afforded significant new business
opportunities in the local telecommunications market.
Legislative,
judicial and, technology factors have helped to create the foundation for
smaller long distance providers, such as the Company, to emerge as alternative
long distance service. The FCC has required all IXCs to allow the
resale of their services, and the Decree substantially eliminated different
access arrangements as distinguishing features among long distance
carriers. In recent years, national and regional network providers
have substantially upgraded the quality and capacity of their domestic long
distance networks, resulting in significant excess transmission capacity for
voice and data communications. The Company believes that, as a result
of digital fiber optic technology and installation of fiber optic transmission
networks, excess capacity has been, and will continue to be, an important factor
in long distance telecommunications. The Company believes that
resellers and the smaller long distance service providers represent a source of
traffic such to carriers with excess capacity. Thus, resellers have
become an integral part of the long distance telecommunications
industry.
Industry
Evolution
Resellers
represent a paradox in the telecommunications marketplace. They are
simultaneously an important source of revenues to the major long distance
providers and yet resellers represent a risk to the product quality, reputation
and pricing. Not only do long distance service resellers receive
legal protection to compete with the network based major carriers, but also the
resellers’ sale of network based carriers, excess capacity represents a source
of additional traffic for such carriers. The Company believes that
the three major carriers and most regional carriers have a substantial excess
telecommunication transmission capacity and that the constant technological and
facility upgrading will continue, with resultant excess capacity in there
carriers’ network for the foreseeable future.
Resellers
primarily exist due to their ability to offer substantially discounted long
distance toll rates, and increasingly, discounted calling card rates and other
discounted services, to their prime target markets, which are small and medium
sized businesses. The main target market for most resellers is not as
profitable as other markets for wholesale or major carriers to serve and the
major carriers have focused on the larger businesses, generally those who are
currently paying less than $25,000 a month in long distance
charges.
Traditionally,
many resellers originated as customer base groups or aggregators of customers,
and their operations generally are marked by relatively low overhead and low
capital investment in property, plant & equipment. Resellers
often offer services that larger carriers are not prepared to offer, such as
customized location billing, non-telecom billing services, international
call-back, customized calling cards, multiple carrier service at single
locations with single invoices, and split dedicated service. Although
there is an existence of some regulatory barriers, the costs of overcoming these
are low. With low entry barriers, a significant portion of the
telecommunications market is still open to significant competition on a price
and service basis. To date, resellers have been able to quickly build
sizable customer bases on marketing and telemarketing strengths. In
many cases rapid growth has strained some reseller’s ability to manage their
growing revenues and their general business enterprise. Therefore,
their ability to attract capital to finance receivables, improve facilities and
equipment, and develop management and systems infrastructure, will be the
difference between resellers that survive as independent companies and those
that will merge or be acquired.
The
Company believes that the major carriers and some of the regional carriers will
continue to derive a portion of their revenues from their wholesalers and resale
market sales, since resellers can currently serve their target market at a price
that the major or regional carrier cannot or will not provide. The Company
believes that opportunities for future growth of its business exists in high
gross profit product/service area segments, including prepaid calling cards,
international services, cellular and wireless services, video and data
transmission, web-sight and internet-access, 800 number service, voice mail and
electronic mail. As a result, the Company expects that the number of call
minutes billed by resellers will continue to rise at an annual rate that,
measured on a percentage basis, is substantially greater than the number of call
minutes billed by the major carriers. Within the resale market as a
whole,
switchless
resellers, such as the Company, appear to have experienced in recent periods a
higher percentage growth than have facilities-based carriers in all the segments
previously mentioned. However, more switchless resellers will become
facilities-based as they acquire small companies and as their traffic increase
in geographic zones, which will increase their ability to purchase or lease a
switch. More traffic flowing in a given area would enhance a
reseller’s ability to make a switch economically viable and more profitable for
that geographic zone.
Service and
Products
The
Company offers a basic
1 plus
and 800
long distance services. ANC is successful as a
provider of these basic services because of the volume discounts it has been
able to negotiate with its underlying carriers.
The
Company charges its customers on the basis of minutes or partial minutes of
usage at rates which vary with the distance, duration, time of day of the call,
and type of call. Rate charges for a call are not affected by the
particular transmission facilities selected for the call transmission, but are
affected by the type of call a user may select. All billing is done
through the local exchange carrier (“LEC”). The Company offers a
flat-rate long distance calling service throughout the United States; these
providers’ rates usually are the same per minute rate regardless of the call’s
origin or destination. Billing occurs in six-second
increments.
On
December 9, 1996 ANC entered into a Billing Services Agreement (One Plus (1+))
with Integretel Incorporated (“IGT”) whereby IGT would provide ANC telephone
company billing and collection and associated services to the telecommunications
industry. The agreement term is for two years, automatically
renewable in two-year increments unless appropriate notice to terminate is given
by either party. The agreement automatically renewed on December 9,
1998, as neither party had given notice of terminations prior to that renewal
date. Under the agreement, IGT bills, collects and remits the proceeds to ANC
net of reserves for bad debts, billing adjustments, telephone company fees and
IGT fees. If either the Company’s transaction volume decreases by 25%
from the preceding month, less than 75% of the traffic is billable to major
telephone companies, IGT may at its own discretion increase the reserves and
holdbacks under this agreement. IGT is the only provider of this
service to the Company.
On
December 19, 1996 ANC entered into a Master Agreement for Purchase and Sale of
Accounts with IGT whereby IGT purchases accounts from ANC for a purchase price
consisting of an advance component and a deferred component. The
advance component, which is calculated by multiplying the estimated purchase
price by the advance component percentage, is payable within ten days of receipt
of the transaction batch pertaining to the purchased accounts. The
deferred component is the differential of the amount actually collected by IGT
and the advance component and is payable when the amount is
determined. Except for the right of IGT to refuse to accept or reject
acceptance of accounts and except for the right of IGT to charge back amounts to
ANC under certain circumstances, the sale of accounts is without recourse and
IGT assumes the full credit risk. Certain charge backs and fees are
recourse obligations of ANC. IGT maintains both Non-recourse and
Recourse accounts comprising the combined account for ANC. The
maximum purchase obligation of IGT to ANC was set at $700,000 when the agreement
was entered into in December 1996. This amount was subsequently
increased to $3,000,000 as of March 31, 1998.
Marketing
Strategy
The
Company is no longer in the long distance business and is seeking new
acquisitions. The revenues collected are residuals from the long
distance business.
Delinquent Filing of SEC
Reports and Inadequacies of Disclosures
ANC
failed to timely file with Securities and Exchange Commission (“SEC”) its
periodic reports, including its annual reports on Form 10KSB for fiscal 2002,
2003, 2004, 2005, 2006, 2007, and its Form 10QSB reports for those years. The
Company intends to shortly complete the filing of all the required periodic
reports.
Revenues
The
Company has adopted the Securities and Exchange Commission’s Staff Accounting
Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements.
Results of
Operations
Revenues
for the three months ended December 31, 2001 decreased to $974,929 from
$1,899,488 for the three months ended December 31, 2001 and 2000. Revenues for
the six months ended December 31, 2001 decreased to $2,038,849 from $5,098,524
for the six months ended December 31, 2001 and 2000. This was a 49%
reduction in revenues three months ended December 31, 2001 and a 60% for the six
months ended December 31, 2001. This decrease in revenue is directly
the result of changes in the Company's strategic direction in core
operations. The Company purchased new accounts in the past but has
reduced the purchase of new accounts and reduced it customer base.
Cost of
services for three months ended December 31, 2001 decreased to $594,240 from
$1,745,763 for three months ended December 31, 2001 and 2000. Cost of
services for six months ended December 31, 2001 decreased to $1,320,965 from
$4,333,569 for the six months ended December 31,
2001. This was a 65% reduction in cost of services three months
ended December 31, 2001 and a 70 % for the six months ended December 31, 2001
and 2000. The reduction in the cost of services is directly related
to the reduction in airtime services. The company has reduced it
telecommunication business to refocus the direction of the company.
Selling
expenses for three months ended December 31, 2001 decrease to $12,713 from
$53,281 for three months ended December 31, 2001 and 2000. Selling
expenses for six months ended December 31, 2001 decreased to $43,470 from
$196,570 for the six months ended December 31, 2001 and 2000. This
was a 76% reduction in selling expenses three months ended December 31, 2001 and
a 78% for the six months ended December 31, 2001. The decrease in
selling expenses was a result of the decrease in marketing costs expended by the
company. The Company was able to negotiate a lower cost per customer
throughout their telemarketing out-source.
General
and administrative expenses for the three months ended December 31, 2001
decreased to $367,711 from $310,254 for three months ended December 31, 2001 and
2000. General and administrative expenses for six months ended
December 31, 2001 decreased to $598,692 from $594,909 the six months ended
December 31, 2001 and 2000. This was a 18% reduction in general and
administrative expenses three months ended December 31, 2001 and a 11% for the
six months ended December 31, 2001. This decrease is
attributed to the Company's reduction of workforce operations as the Company has
streamlined overall employee use. That is the Company has implemented
and advanced its in-house software to perform many of the services the prior
employees were performing manually.
The loss
for three months ended December 31, 2001 increased to ($2,598,897) from
($132,391) for the three months ended December 31, 2001 and 200. The
loss for the six months ended December 31, 2001 increased to ($3,589,992) from
($13,111) for the six months ended December 31, 2006. This was a 19%
increase in loss three months ended December 31, 2001 and 27% for the six months
ended December 31, 2001. The decrease is due to the reduction in
revenue, sales force, and reduction in operations.
No tax
benefit was recorded on the expected operating loss for December 31, 2001 and
2000 as required by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. For the quarter ended we do not expect
to realize a deferred tax asset and it is uncertain, therefore we have provided
a 100% valuation of the tax benefit and assets until we are certain to
experience net profits in the future to fully realize the tax benefit and tax
assets.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company’s operating requirements have been funded primarily on its sale of long
distance services. During the six months ended December 31, 2001, the
Company’s net proceeds from long distance of were $267,357 as compared to 2006
of $2,566,039. The Company believes that the cash flows from its
monthly service and transaction fees are inadequate to repay the capital
obligations.
Cash
provided from operating activities for the six months ended December 31, 2001
was $570,171 compared to $1,533,040 for 2000. The Company’s focus on
core operations results in a decrease in the sale of long distance
services. The Company receives payments from customers automatically
through electronic fund transfers. Collection cycles of the long
distance services agreements are generally paid monthly. The Company
has grown its operations in the past but has decided to refocus the operations
on a new direction. The Company impaired its assets in marketable
securities as they were worthless in value of $3,778,410. The Company
issued its common stock for services of $154,200.
Cash
(used in) investing activities was ($157,318) for six months ended December 31,
2001, compared to ($1,635,721) for 2000. Streamlining operations and
capital budget curtailment practices promoted a reduction in purchase of
marketable securities for the Company. The Company no longer invests
small cap marketable securities. The Company invested in its
unconsolidated subsidiary of ($157,318) for six months ended December 31, 2001
as compared to ($235,000) for December 31, 2000
Cash
(used) by financing activities was ($237,806) for the six months ended December
31, 2001 as compared to ($654,995) for 2000. Financing activities
primarily consisted of proceeds from the increase in the long distance services
through Integretel, Inc. financing of our long distance through
LeeCo. The Company does not have adequate cash flows to satisfy its
obligations although have improved cash flow and anticipates have adequate cash
flows in the upcoming fiscal periods. The Company repaid its loans
for six months ended December 31, 2001 of ($237,806) as compared to 2000 of
($654,995).
Additional
Information
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public may obtain information on the operation of the SEC's Public Reference
Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC which may be viewed at http://www.sec.gov/.
