-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3cOpMWk8G7SJljxl0TxKwskDhYT3lNF3aUCGUM0f3Lj4Vy0O587c2tzlUWulcOy 59hAgezC0OHqrEM9Tnn76w== 0000939802-97-000007.txt : 19970222 0000939802-97-000007.hdr.sgml : 19970222 ACCESSION NUMBER: 0000939802-97-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970220 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVTEL COMMUNICATIONS INC/UT CENTRAL INDEX KEY: 0001005974 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 870378021 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27580 FILM NUMBER: 97539041 BUSINESS ADDRESS: STREET 1: 350 WEST 300 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84101 BUSINESS PHONE: 8013221221 MAIL ADDRESS: STREET 1: 350 WEST 300 SOUTH CITY: SALT LAKE CITY STATE: UT ZIP: 84101 FORMER COMPANY: FORMER CONFORMED NAME: HI TIGER INTERNATIONAL INC DATE OF NAME CHANGE: 19960119 10QSB 1 Form 10-Q SB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________ (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended December 31, 1996 ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to _________ Commission File No. 0-27580 AVTEL COMMUNICATIONS, INC. (Exact name of small business issuer as specified in its charter) A Utah Corporation 87-0378021 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 130 Cremona Drive, Suite C, Santa Barbara, California 93117 (Address of principal executive offices) Registrant's telephone number, including area code: (805) 685-0355 (No Change) Former name, former address and former fiscal year, if changed since last report. Check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ____ No ____ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: 7,090,807 Shares of Common Stock - January 24, 1997 Traditional Small Business Disclosure Forms Yes No X PART I. FINANCIAL INFORMATION Item 1. Financial Statements AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets - Unaudited ASSETS Three Months Fiscal Year Ended Ended December 31, 1996 September 30, 1996 Current Assets Cash $ 748,651 $ 985,237 Other Current Assets 1,902 - Accounts Receivable (Net of Allowance for Doubtful Accounts of ($-0-) 95,456 8,785 TOTAL CURRENT ASSETS 846,009 994,022 Fixed Assets Equipment 210,405 - Equipment Leased 172,155 - Furniture and Fixtures 12,750 - Less Accumulated Depreciation (14,547) - NET FIXED ASSETS 380,763 - Intangible Assets Goodwill 331,424 - Organization Costs 19,209 6,698 TOTAL INTANGIBLE ASSETS 350,633 6,698 TOTAL ASSETS $ 1,577,405 $1,000,720 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (continued) - Unaudited LIABILITIES AND STOCKHOLDERS' EQUITY Three Months Ended Fiscal Year Ended December 31, 1996 September 30, 1996 Current Liabilities Accounts Payable Trade $ 235,469 $ 31,945 Accrued Liabilities 4,134 6,026 Income Tax Payable - - Deferred Revenue 60,536 - Notes Payable 90,569 - Lease Obligations-Current Portion 32,368 - Contingent Consideration 150,000 - Accounts Payable - Related party 58,358 40,683 TOTAL CURRENT LIABILITIES 631,434 78,654 Long Term Liabilities Lease Obligation - Long Term Portion 107,655 - TOTAL LONG TERM LIABILITIES 107,655 - TOTAL LIABILITIES 739,089 78,654 Minority Interest 19,048 - Stockholder's Equity Preferred Stock 1,000,000 1,000,000 5,000,000 authorized 1,000,000 shares of Series A Convertible Preferred, $1.00 par value, issued and outstanding Common Stock (Par Value $.001) 7,091 3,000 50,000,000 shares authorized 7,090,807 issued and outstanding 12/31/96 Paid in Capital in Excess of Par Value 122,827 - Retained Earnings/(Deficit) (310,650) (80,934) TOTAL STOCKHOLDERS' EQUITY 819,268 922,066 TOTAL LIABILITY & STOCKHOLDERS' EQUITY $ 1,577,405 $ 1,000,720 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statement of Operations For the Three Months Ending December 31, 1996 and 1995 - Unaudited Three Months Ending December 31, 1996 December 31, 1995 REVENUES Sales $ 254,355 $ - Cost of Sales (86,484) - Gross Margin 167,871 - EXPENSES General and Administrative 410,862 - Bad Debt Expense 2,235 - TOTAL OPERATING EXPENSE 413,097 - Income (Loss) from Operations (245,226) - Other Income/(Expense) Interest Income 9,552 - Miscellaneous Income 7,040 - Interest Expense (945) - NET OTHER INCOME (LOSS) 15,647 - Income/(Loss) Before Taxes (229,579) - Minority Interest (137) - NET INCOME (LOSS) (229,716) - Earnings/(Loss) Per Common Share ( .04) - Weighted Average Shares Outstanding 5,908,169 - THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows For the Three Months Ending December 31, 1996 and 1995 - Unaudited Three Months Ending December 31, 1996 December 31. 1995 Cash Flows from Operating Activities: Net Loss $ (229,716) $ - Adjustments to reconcile net loss net cash provided by operating activities Minority Interest 19,048 - Depreciation Expense 14,547 - (Increase)/decrease in Accounts Receivable (86,671) - Prepaid Expenses (1,902) - Increase/(Decrease) in Accounts Payable 203,523 - Interest Payable - - Accrued Expenses ( 1,890) - Deferred income 60,536 - Accounts Payable - related party 17,675 - NET CASH USED BY OPERATING ACTIVITIES: (4,850) - Cash flows from investing activities: Purchase of fixed assets (395,310) - Purchase of intangible assets (343,935) - NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (739,245) - Cash flows from financing activities: Proceeds from loans - - notes payable 90,569 - Cash payment on capital lease (6,963) - Lease obligations 146,985 - Contingent consideration 150,000 - Issuance of common stock 126,918 - NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 507,509 - Increase/(Decrease) in cash and cash equivalents (236,586) - CASH & CASH EQUIVALENTS AT BEGINNING OF QUARTER 985,237 - CASH & CASH EQUIVALENTS AT END OF QUARTER $ 748,651 - THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows For the Three Months Ending December 31, 1996 and 1995 - Unaudited (Continued) Three Months Ending December 31, 1996 December 31. 1995 Supplemental Disclosures of Cash Flow Information Payment for interest expense $ - - 115,000 Shares Common Stock Issued in Exchange for Interest in Silicon Beach - - 4,452,508 Shares of Common Stock and 1,000,000 Shares of $1.00 par value Series A Convertible Preferred Stock for acquisition of AvTel Holdings, Inc. - - THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) 1.The unaudited consolidated financial statements included herein have been prepared by AvTel Communications, Inc. and its subsidiaries (the "Company") in accordance with generally accepted accounting principles and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted. The unaudited consolidated financial statements and selected notes included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended September 30, 1996. Operating results for the three month period ended December 31, 1996, are not necessarily indicative of the results that may be expected for the year ended September 30, 1997. The foregoing unaudited consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary to present fairly the consolidated financial position and results of operations for the periods presented. 2.In connection with its acquisition of all the issued an outstanding capital stock of AvTel Holdings, Inc., a California corporation ("AHI"), on October 23, 1996, the Company amended and restated its Articles of Incorporation to, among other things, authorize 5,000,000 shares of preferred stock. The Company's Board of Directors is authorized to designate one or more series of such preferred stock and to designate the rights, preferences and privileges of each such series. The AHI acquisition was completed in accordance with an Acquisition Agreement dated August 30, 1996 ("Acquisition Agreement"). The transaction was accomplished by way of a merger (the "Merger") in which a wholly owned subsidiary of the Company was merged with and into AHI which was the surviving entity and became a wholly owned subsidiary of the Company. Pursuant to the Merger, the Company authorized and issued 1,000,000 shares of Series A Convertible Preferred Stock which have certain liquidation preferences, bear a cumulative dividend, payable semi-annually, at 8% and are convertible, upon the happening of certain events, into shares of the Company's $.001 par value common stock. The Merger has been accounted for as a reverse purchase by AHI of the company whereby the holders of AHI's Common Stock acquired, after giving effect to the Merger, a controlling interest in the Company. Accordingly, the assets and liabilities of the Company and its subsidiary, The Friendly Net LLC, are reflected at their fair market values. In addition, as are the assets and liabilities of Silicon Beach Communications, Inc., which was acquired in November, 1996 (See Note below). The foregoing unaudited financial statements reflect, for the previous periods noted, comparative data as to AHI only. AHI began operations in April, 1996. 3.In December, 1996, the Company entered into a letter of intent with WestNet Communications, Inc., a California corporation ("WNC"), a regional Internet Service Provider ("ISP"), to acquire, through one of the Company's subsidiaries, all of the issued and outstanding capital stock of WNC for consideration consisting of cash, promissory notes and shares of the Company's $.001 par value common stock ("Common Stock"). A definitive agreement has not yet been executed and there are no assurances that a transaction will be completed. Nonetheless, management believes that it is probable that this acquisition will be consummated during February, 1997. Under the proposed transaction, the consideration will include $100,000 in cash, promissory notes and deferred payments in an aggregate original principal amount of $165,000.00 (which will be secured by certain assets of WNC and by a pledge in the capital stock of WNC being acquired) and 35,000 shares of Common Stock. In November, 1996, the Company, through a subsidiary, acquired all the issued and outstanding capital stock of Silicon Beach Communications, Inc., a California corporation ("SBC") that serves as an ISP and provides software development services. The following unaudited pro forma balance sheets have been prepared as if the WNC acquisition had been in effect as of December 31, 1996. The following unaudited pro forma statements of operations have been prepared as if the WNC and SBC acquisitions had been in effect as of October 1, 1996. AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - Unaudited (Continued) Note 2. Recent Developments (Continued) Condensed Consolidated Pro Forma Balance Sheets (unaudited) As Reported WestNet for the In the Accompanying 3 Months Ending Pro Forma Pro Forma Financial Statements 12/31/96 Adjustments Balance (Unaudited) ASSETS Current Assets Cash $ 748,651 $ 46,589 $ (100,000) $ 695,240 Other Current Assets 1,902 6,839 - 8,741 Accounts Receivable (Net of Allowance for Doubtful Accounts of $-0-) 95,456 84,134 - 179,590 Total Current Assets 846,009 137,562 (100,000)C 883,571 Fixed Assets Equipment 210,405 257,853 - 468,258 Equipment Leased 172,155 - - 172,155 Furniture & Fixtures 12,750 2,619 - 15,369 Less Accumulated Depreciation ( 14,547) (78,825) - (93,372) Net Fixed Assets 380,763 181,647 - 562,410 Intangible Assets Goodwill 331,424 60,380 - 391,804 Organization Costs 19,209 14,400 - 33,609 Accumulated Amortization (4,200) - (4,200) Total Intangible Assets 350,633 70,580 - 421,213 Other Assets Deposits - 1,250 - 1,250 - 1,250 - 1,250 Total Assets $ 1,577,405 $ 391,039 $ (100,000) $ 1,868,444 AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements - Unaudited (Continued) Note 2. Recent Developments (Continued) Consolidated Pro Forma Balance Sheets (unaudited) As Reported WestNet for the In the Accompanying 3 Months Ending Pro Forma Pro Forma Financial Statements 12/31/96 Adjustments Balance (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts Payable Trade $ 235,469 $ 186 $ - $ 235,655 Accrued Liabilities 4,134 14,853 - 18,987 Deferred Revenue 60,536 - - 60,536 Notes Payable 90,569 76,000 C 157,000 323,569 Lease Obligations 140,023 - - 140,023 Contingent Consideration 150,000 - - 150,000 Accounts Payable- Related Party 58,358 - - 58,358 Total Liabilities 739,089 91,039 157,000 987,128 Minority Interest 19,048 - - 19,048 Stockholders' Equity Preferred Stock 1,000,000 - - 1,000,000 Common Stock 7,091 19,000 A (19,000) 7,126 B 35 Paid in Capital in Excess of Par Value 122,827 60,380 A 19,000 165,792 B (35) C (257,000) D 220,620 Retained Earnings/(Deficit) (310,650) 220,620 D (220,620) (310,650) Total Stockholders' Equity 819,268 300,000 (257,000) 862,268 Total Liability & Stockholders' Equity $ 1,577,405 $ 391,039 $ (100,000)$1,868,444 Notes: A Cancellation of all authorized, issued and outstanding shares of all common shares of WNC B Issuance of 35,000 shares of $.001 par value common stock of the Company in accordance with the contemplated acquisition of WNC C Payment of cash and issuance of promissory notes in accordance with the contemplated acquisition of WNC D Elimination of current period earnings of WNC from retained earnings due to purchase accounting. AVTEL COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Balance Sheets - Unaudited Note 2. Recent Developments (Continued) Consolidated Pro Forma Statement of Operations (unaudited) As Reported WestNet for the Silicon Beach In the Accompanying 3 Months Ending for the period Pro Forma Pro Forma Financial Statements 12/31/96 10/1-11/23/96 Adjustments Balance (Unaudited) (Unaudited) REVENUES Sales $ 254,355 $ 243,247 $ 141,219 $ - $ 638,821 Cost of Sales (86,484) (30,915) (104,445) - (221,844) Gross Margin 167,871 212,332 36,774 - 416,977 EXPENSES General & Administrative 410,862 159,770 159,131 - 729,763 Bad Debt Expense 2,235 - - - 2,235 Total Operating Expense 413,097 159,770 159,131 - 731,998 Income/(Loss) from Operations (245,226) 52,562 (122,357) - (315,021) Other Income (Expense) Interest Income 9,552 - - - 9,552 Miscellaneous Income 7,040 - 6,684 - 13,724 Interest Expense (945) - (1,773) - (2,718) Net Other Income/(Loss) 15,647 - 4,911 - 20,558 Income/(Loss) Before Taxes (229,579) 52,562 (117,446) - (294,463) Income Taxes - (23,375) - - (23,375) Minority Interest (137) - - - (137) Net Income (Loss) $ (229,716) $ 29,187 $ (117,446) $ - $ (317,975) Item 2 - Management's Discussion and Analysis or Plan of Operation General The following discusses the financial position and results of operations of the Company and its consolidated subsidiaries, The Friendly Net LLC, a Utah Limited Liability Company ("TFN"), Silicon Beach Communications, Inc., a California corporation ("SBC"), and AvTel Holdings, Inc., a California corporation ("AHI"). On October 23, 1996, the Company completed a merger transaction (the "Merger") in which it acquired 100% of the issued and outstanding capital stock of AHI, in exchange for 4,252,508 shares of the Company's $.001 par value common stock ("Common Stock"), comprising approximately 61% of the Company's issued and outstanding Common Stock after giving effect to the Merger, and 1,000,000 shares of newly authorized shares of the Company's Series A Convertible Preferred Stock. The Merger, which was consummated in accordance with the terms of an Acquisition Agreement dated August 30, 1996, was approved by the Company's shareholders at a special meeting held October 23, 1996. The transaction has been accounted for as a reverse acquisition for accounting purposes. Accordingly, the assets and liabilities of AHI are reflected at their fair market value whereby the holders of AHI's Common Stock acquired, after giving effect to the Merger, a controlling interest in the Company. Accordingly, the assets and liabilities of the Company and TFN are reflected at their fair market values. (See Note 2 to Consolidated Financial Statements - Unaudited) On November 22, 1996, the Company completed the acquisition of SBC. The acquisition was structured as a stock for stock transaction in which the Company issued an aggregate of 115,000 shares of its Common Stock in exchange for all the issued and outstanding capital stock of SBC. This transaction has been accounted for as a purchase. Accordingly, assets and liabilities of SBC are reflected at their fair market values. Financial Condition and Results of Operations The decrease in total current assets from the fiscal year ended September 30, 1996, to the three months ended December 31, 1996, relates, primarily, to the use of cash for operating activities relating to the integration of the Company and AHI following the Merger, the integration of SBC and increased general administrative expenses.. The increase in net fixed assets over the periods resulted primarily from the acquisition of SBC in November, 1996. The increase in total liabilities from the year ended September 30, 1996, to the quarter ended December 31, 1996, arose, primarily, from the increase in trade payables arising from the Merger and the acquisition of SBC; the increase in deferred revenue associated with the acquisition of SBC which, in the course of its business, is paid in advance by certain customers for ISP services; the increase in notes payable relating to a deferred payment agreement between the Company and Mr. Paul Begum, a principal shareholder and former officer and director of the Company, and certain promissory notes issued in connection with the Merger; and certain deferred compensation arrangements and accounts payable with certain officers and directors. Stockholders' equity decreased from September 30, to December 31, 1996, as a result of the operating losses experienced during the quarter due, primarily, to substantial costs and expenses incurred in connection with the Merger with AHI, the acquisition of SBC and increased management and other costs relating to the development and implementation of the Company's marketing strategies. The Merger involving the Company and AHI is treated, for accounting purposes, as a reverse purchase whereby the holders of AHI's Common Stock acquired, after giving effect to the Merger, a controlling interest in the Company. For financial reporting purposes, comparative data for periods prior to the quarter ended December 31, 1996, reflects the financial condition and results of operation of AHI only. Since AHI did not begin operations until April, 1996, no comparative financial analysis is available for AHI, with respect to the quarter ended December 31, 1995, as compared to similar data for the Company, for the same quarter in 1995, as to revenues, operating income and expenses, net income, cash and other topics that would normally be addressed in statements of operations and cash flows. The Company has entered into a letter of intent to purchase 100% of WestNet Communications, Inc., a California corporation ("WNC") and intends to close the transaction in February, 1997. The purchase of WNC will be achieved using the issuance of the Company's Common Stock, notes payable and cash. See "Recent Developments, Note 3 - to Consolidated Financial Statements." PART II - OTHER INFORMATION Item 5. Other Information In December, 1996, the Company entered into a letter of intent with WestNet Communications, Inc., a California corporation ("WNC"), a regional Internet Service Provider ("ISP"), to acquire, through one of the Company's subsidiaries, all of the issued and outstanding capital stock of WNC for consideration consisting of cash, promissory notes and shares of the Company's $.001 par value common stock ("Commons Stock"). A definitive agreement has not been executed and there are no assurances that a transaction will be completed. Nonetheless, management believes that it is probable that this acquisition will be consummated during February, 1997. Under the proposed transaction, the consideration will include $100,000 in cash, promissory notes in an aggregate original principal amount of $157,000 (which will be secured by certain assets of WNC and by a pledge in the capital stock of WNC being acquired) and 35,000 shares of Common Stock. In January, 1997, the Company appointed Mr. Steve DeWindt to the position of President, Business Network Services. Mr. DeWindt has over 15 years experience in various executive sales and management positions in the information technology distribution industry. He most recently served as Chairman and CEO of Ameriquest, Inc., a distributor of information technology products and services. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (none) (b) Reports on Form 8-K. On October 23, 1996, the Company filed a Report on Form 8-K to report the consummation of the transactions pursuant to which the Company merged with and acquired AvTel Holdings, Inc. SIGNATURES 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. AvTel Communications, Inc. (Registrant) DATE: February 19, 1997 By: /s/ James P. Pisani Its Principal Financial & Accounting Officer EX-27 2
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET OF AVTEL COMMUNICATIONS, INC. AS OF DECEMBER 31, 1996 AND THE RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THREE MONTHS THEN ENDED AN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS SEP-30-1996 DEC-31-1996 748651 0 0 0 0 846009 395310 14547 1577405 631434 0 0 1000000 7091 187823 1577405 254355 254355 86484 86484 413097 0 945 (229579) 0 0 0 0 0 (229716) (.04) 0
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