10QSB 1 0001.txt FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D. C. 20549 FORM 10-QSB ( X ) Quarterly report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934. For the quarterly period ended June 30, 2000. ( ) Transition report pursuant to Section 13 or 15(d) of the Exchange Act for the transition period from _________________ to ____________ . Commission File Number: 333-72097 AMERICAN COMMUNICATIONS ENTERPRISES, INC. ----------------------------------------- (Exact name of registrant as specified in charter) Nevada 74-2897368 ------ ---------- (State of Incorporation) (I.R.S. Employer I.D. No) 7103 Pine Bluffs Trail, Austin, TX 78729 (Address of Principal Executive Offices) (512) 249-2344 -------------- (Registrant's Telephone Number, Including Area Code) Check whether the registrant: (1) has filed all reports required to be filed by Section 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 90 days. YES ( X ) NO ( ) Indicate the number of shares outstanding of each of the issuer's classes of stock as of September 15, 2000. 18,487,888 Common Shares Transitional Small Business Disclosure Format: YES ( ) NO (X) 1 AMERICAN COMMUNICATIONS ENTERPRISES, INC. INDEX TO FORM 10-QSB PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Balance Sheets as of June 30, 2000 and December 31, 1999........... 3 Statements of Operations for the three and six months ended June 30, 2000 and 1999....................................... 4 Statement of Stockholders'Equity (Deficit) for the six months ended June 30, 2000......................................... 5 Statements of Cash Flows for the three and six months ended June 30, 2000 and 1999....................................... 6 Notes to Financial Statements...................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................10 PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................14 Item 2. Changes in Securities..............................................14 Item 3. Defaults Upon Senior Securities....................................14 Item 4. Submission of Matters to a Vote of Securities Holders..............14 Item 5. Other Information..................................................14 Item 6. Exhibits and Reports on Form 8-K...................................14 Signatures 2 AMERICAN COMMUNICATIONS ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET June 30, 2000 December 31, (Unaudited) 1999 -------------- ------------- ASSETS CURRENT ASSETS Cash $ 1,728 $ 43,613 Accounts receivable, net of allowance for doubtful accounts of $52,166 and $25,500, rexpectively 3,061 70,226 -------------- ------------- Total Current Assets 4,789 113,839 -------------- ------------- Fixed assets, at cost, net of accumulated depreciation of 33,365 3,986 $5,150 and $150, respectively Licenses, at cost, net of accumulated amortization of $39,400 175,600 197,000 and $18,000, respectively -------------- ------------- $213,754 $314,825 ============== ============= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 54,153 $ 24,147 Cap. Lease Payable - Current 11,460 - Accrued Expenses 314,417 247,769 Shareholder Advances 25,000 - -------------- ------------- Total Current Liabilities 405,030 271,916 -------------- ------------- COMMITMENTS AND CONTINGENCIES Capital Leases Obligation - Long Term 17,054 - -------------- ------------- Total Liabilities 422,084 271,916 -------------- ------------- STOCKHOLDERS' DEFICIT Common stock; authorized 30,000,000 no par common shares; 18,442,888 and 17,917,420 shares issued and outstanding, respectively 650,822 519,455 Deficit accumulated during the development stage (859,152) (476,546) -------------- ------------- Total Stockholders' Deficit (208,330) 42,909 -------------- ------------- $213,754 $314,825 ============== ============= SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 3 AMERICAN COMMUNICATIONS ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (Unaudited)
From Inception On October Six-Months Six-Months Three-Months Three-Months 29, 1998 Ended Ended Ended Ended Through June 30, June 30, June 30, June 30, June 30, 2000 1999 2000 1999 2000 ------------- ------------ ------------ ----------- ----------- REVENUE Revenues $ 252,403 $ 49,217 $ 126,238 $ 49,217 $ 642,802 Cost of goods sold 100,690 43,480 47,623 43,480 303,939 ------------- ------------ ------------ ------------- ------------ Gross Profit 151,713 5,737 78,615 5,737 338,863 ------------- ------------ ------------ ------------- ------------ EXPENSES General and administrative 437,742 182,499 237,526 83,451 987,820 Sales and marketing 70,557 - 34,924 - 160,338 Provision for bad debts 26,666 - 23,144 - 52,166 ------------- ------------ ------------ ----------- ------------- Total Expenses 534,965 182,499 295,594 83,451 1,200,324 ------------- ------------ ------------ ----------- ------------- Other Income (Expense) 646 - - - 2,309 ------------- ------------ ------------ ----------- ----------- Net loss before provision for income taxes (382,606) (176,762) (216,979) (77,714) (859,152) Provision for income taxes - - - - - ------------- ------------ ------------ ------------- ------------ NET LOSS $ (382,606) $ (176,762) $ (216,979) $ (77,714) $(859,152) ============= ============ ============ ============= ============ Weighted Average Loss Per share Basic and Diluted (0.02) $ (0.02) $ (0.01) $ (0.01) ============= ============ ============= ============= Weighted Average Shares Outstanding Basic and Diluted 18,180,000 11,000,000 18,287,000 11,500,000 ============= ============ ============ ===========
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 4 AMERICAN COMMUNICATION ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE SIX-MONTHS ENDED JUNE 30, 2000 (Unaudited)
Deficit Accumulated During the Common Stock Development Shares Amount Stage Balance, December 31, 1999 17,917,420 $519,455 $(476,546) Issuance of common stock for cash 100,000 25,000 -0- Issuance of common stock for services ($.25/share) 425,468 106,367 -0- Net Loss for the six-months ended June 30, 2000 -0- -0- (382,606) --------------------------------------- Balance, June 30, 2000 18,442,888 $650,822 $(859,152) =======================================
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 5 AMERICAN COMMUNICATIONS ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (Unaudited)
From Inception On October 28, Six-Months Six-Months Three-Months Three-Months 1998 Ended Ended Ended Ended Through June 30, June 30, June 30, June 30, June 30, 2000 1999 2000 1999 2000 ----------- ----------- ---------- --------- ----------- Cash Flows From Operating Activities Net Loss $(382,606) $ (176,762) $ (216,979) $ (77,714) $ (859,152) Bad Debt Expense 26,666 - 23,144 - 52,166 Depreciation and Amortization 26,400 - 12,450 - 44,550 (Increase) Decrease in Receivables 40,499 - 15,199 - (55,227) Increase (Decrease) in Payables an accrued expenses 96,654 124,878 88,243 49,826 362,430 Stock Issued for Services 106,367 - 78,000 - 185,722 ----------- ----------- ---------- ----------- ----------- Net Cash Provided (Used) by Operating Activities (86,020) (51,884) 57 (27,888) (269,511) ----------- ----------- ---------- --------- ----------- Cash Flows From Investing Activities Purchase of fixed assets - - - - (4,136) ----------- ----------- ---------- --------- ----------- Cash Flows From Financing Activities Advances from stockholder 25,000 - - - 31,140 Issuance of common stock 25,000 12,500 - 12,500 200,100 Issuance of debt - 50,000 - - 50,000 Payments of Capital Lease obligation (5,865) - (3,000) - (5,865) ----------- ----------- ----------- --------- ----------- Net Cash Provided (Used) by Financing Activities 44,135 62,500 (3,000) 12,500 275,375 ----------- ----------- ---------- --------- ----------- Net (Decrease) Increase In Cash (41,885) 10,616 (2,943) 15,388 1,728 Cash at Beginning of Period 43,613 - 4,671 26,004 - ----------- ----------- ---------- --------- ----------- Cash at End of Period $ 1,728 $10,616 $ 1,728 $ 10,616 $ 1,728 ========== =========== ========== ========== =========== Supplemental cash flow information: Cash Paid For: Interest $ - $ - $ - $ - ========== =========== ========== ========== Income Taxes $ - $ - $ - $ - ========== =========== ========== ========== Non-Cash Transactions: Equipment purchased under capital lease $ 34,379 ---------- Stock issued for services $106,367 $ 78,000 ---------- ---------
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS 6 AMERICAN COMMUNICATIONS ENTERPRISES, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE FINANCIAL STATEMENTS AS OF AND FOR SIX MONTHS ENDED JUNE 30, 2000 (Unaudited) NOTE 1: BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLOCIES American Communications Enterprises, Inc. (the "Company") was incorporated under the laws of the state of Nevada on October 29, 1998. The Company is considered to be in the development stage, as defined in Financial Accounting Standards Board Statement No. 7. The Company intends to purchase and operate radio stations throughout the United States. The planned principal operations of the Company have not commenced, therefore accounting policies and procedures have not yet been established. Basis of Presentation The accompanying unaudited financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and Rule 10-1 of Regulation S-X of the Securities and Exchange Commission (the "SEC"). Accordingly, these financial statements do not include all of the footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six and three months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The accompanying financial statements and the notes should be read in conjunction with the Company's audited financial statements as of December 31, 1999 contained in its Form 10-KSB. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 periods presented. Actual results could differ from those estimates. NOTE 2: RELATED PARTY TRANSACTIONS Included in accrued expenses is approximately $300,000 in accrued wages and related payroll taxes due to the President and Vice-President of the Company under employment agreements. 7 During the six months ended June 30, 2000 the Company's borrowed from its President $25,000, which is non-interest bearing, unsecured, and due on demand. NOTE 3: GOING CONCERN The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has a working capital deficiency of $400,241 an accumulated deficit of $859,152 as of June 30, 2000, and a net loss for the six months then ended of $382,606. Accordingly its ability to continue as a going concern is dependent on obtaining capital and financing for its planned principal operations. The Company plans to secure financing for its acquisition strategy through the sale of its common stock and issuance of debt. However, there is no assurance that they will be successful in their efforts to raise capital or secure other financing. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. NOTE 4: TIME BROKERAGE AGREEMENT The Company entered into a Time Brokerage Agreement (the "Agreement") with Watts Communications Inc. on June 1, 1999. The Agreement was initially for 12 months, but was extended through June 30, 2000. At which time the Company was unsuccessful in its attempt to exercise its irrevocable option to purchase substantially all of the assets of Watts Communications Inc. (the "Seller"), subject to Federal Communications Commission approval, which also granted the Company the radio air time for four radio stations for the period of the Agreement. On July 3, 2000, the Company was named as a defendant in a lawsuit brought by the Seller, seeking unspecified damages and attorney's fees. The Company filed a counterclaim on July 7, 2000, alleging that the Seller breached its agreement to sell the radio stations to the Company. The Company is seeking to require the Seller to perform its obligations to sell the radio stations. The Company is also seeking to be reimbursed for its damages arising from the Sellers breach of contract. Management believes that the allegations on which the Seller relies in its claim for damages are false. Management also believes that the Company's claims for breach of contract have merit. Therefore, the Company intends to defend vigorously against the Seller's claim and to pursue its counterclaim vigorously. While the outcome of this litigation, as with litigation generally, is inherently uncertain, management believes that the ultimate resolution of this proceeding would not be likely to have a material adverse effect on its business or financial condition. 8 In exchange for the purchase option and the airtime, the Company paid the Seller various monthly fees of approximately $10,000 per month. Under the Agreement, the Company operated the four radio stations and received the right to receive payment for any commercial or program time sold during the term of the Agreement. The sale of commercial and program time are included in revenues and the monthly fees payable under the Agreement are included in Cost of Revenues in these financial statements. As a result of the unsuccessful attempt to exercise the purchase option, the Company has recorded $23,144 as a provision for bad debts, in the accompanying statement of operations, for the estimated amount of receivables which the Seller has collected and not remitted to the Company. NOTE 5: COMMITMENTS In January 2000, the Company executed a letter of intent to acquire substantially all of the assets of a Texas corporation (the Seller), which include two radio stations in Texas. The letter of intent calls for the acquisition of substantially all of the assets of the Seller, including the two radio stations, for approximately $750,000 made up of cash, notes, Company stock and/or other consideration. This acquisition is contingent upon Federal Communications Commission approval. In April 2000, the Company executed a letter of intent to acquire substantially all of the assets of a Nevada corporation (the Seller), which includes two radio stations. The letter of intent calls for the acquisition of substantially all of the assets of the Seller, including the two radio stations, for approximately $3,000,000 made up of cash, notes, Company stock and/or other consideration. This acquisition is contingent upon Federal Communications Commission approval. 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OVERVIEW The following discussion and analysis should be read in conjunction with the balance sheet as of December 31, 1999 and the financial statements as of and for the three and six months ended June 30, 2000 and 1999 included with this Form 10-QSB. We are considered to be in the development stage as defined in Financial Accounting Standards Board Statement No. 7, and we intend to provide branded, interactive information and programming as well as merchandise to music enthusiasts worldwide. Readers are referred to the cautionary statement, which addresses forward-looking statements made by the Company. We entered into a Time Brokerage Agreement (the "Agreement") with Watts Communications Inc. on June 1, 1999. The Agreement was initially for 12 months, but was extended through June 30, 2000. At which time we were unsuccessful in our attempt to exercise the irrevocable option to purchase substantially all of the assets of Watts Communications Inc. (the "Seller"), subject to Federal Communications Commission approval, which also granted us the radio air time for four radio stations for the period of the Agreement. On July 3, 2000, we were named as a defendant in a lawsuit brought by the Seller, seeking unspecified damages and attorney's fees. We filed a counterclaim on July 7, 2000, alleging that the Seller breached its agreement to sell the radio stations to us. We are seeking to require the Seller to perform its obligations to sell the radio stations. We are also seeking to be reimbursed for damages arising from the Sellers breach of contract. We believe that the allegations on which the Seller relies in its claim for damages are false. We also believe that the our claims for breach of contract have merit. Therefore, we intend to defend vigorously against the Seller's claim and to pursue our counterclaim vigorously. While the outcome of this litigation, as with litigation generally, is inherently uncertain, we believe that the ultimate resolution of this proceeding would not be likely to have a material adverse effect on our business or financial condition. Under the Agreement, we operated the four radio stations and received the right to receive payment for any commercial or program time sold during the term of the Agreement. 10 RESULTS OF OPERATIONS Quarter Ended June 30, 2000 and 1999 For the quarter ended June 30, 2000 we generated revenues of approximately $126,238 through the Time Brokerage Agreement with the Stations. Revenues primarily consisted of commercial or program time sold. We generated $49,217 revenues for the quarter ended June 30, 1999, as we had just commenced operations. We incurred a net loss of approximately $216,979 for the quarter ended June 30, 2000 as compared with a net loss of $77,714 for the quarter ended June 30, 1999. Our operating expenses consist primarily of broadcast operations, sales and marketing and general and administrative expenses. General and administrative expenses increased to $237,526 for the quarter ended June 30, 2000 from $83,451 for the quarter ended June 30, 1999, and principally includes payroll and related taxes; professional fees for consulting, business development, legal and accounting; office supplies expense; travel expense and organizational costs. Broadcast operating expenses increased to $47,623 for the quarter ended June 30, 2000 from $43,480 for the quarter ended June 30, 1999, and consisted primarily of those expenses incurred in connection with the management of the Stations. Sales and marketing expenses were $34,924 for the quarter ended June 30, 2000, and were incurred in connection with the development of advertising revenues. Also as a result of an unsuccessful attempt to exercise the purchase option related to the Time Brokerage Agreement, we recorded $23,144 as a provision for bad debts for the estimated amount of receivables which the Seller has collected and not remitted to us. The results of operations for the quarter ended June 30, 2000 are not necessarily indicative of the results for any future interim period or for the year ending December 31, 2000. We expect to expand upon obtaining capital and financing for our planned principle operations. Six Months Ended June 30, 2000 and 1999 For the six-months ended June 30, 2000 we generated revenues of approximately $252,403 through the Time Brokerage Agreement with the Stations. Revenues primarily consisted of commercial or program time sold. We generated $49,217 revenues for the six-months ended June 30, 1999, as we had just commenced operations. We incurred a net loss of approximately $382,606 for the six-months-ended June 30, 2000 as compared with a net loss of $176,762 for the six-months-ended June 30, 1999. Our operating expenses consist primarily of broadcast operations, sales and marketing and general and administrative expenses. General and administrative expenses increased to $437,742 for the six-months ended June 30, 2000 from $182,499 for the six-months ended June 30, 1999, and principally includes payroll and related taxes; professional fees for consulting, business development, legal and accounting; office supplies expense; travel expense and organizational costs. Broadcast operating expenses increased to $100,690 for the six months ended June 30, 2000 from $43,480 for the six months ended June 30, 11 1999, and consisted primarily of those expenses incurred in connection with the management of the Stations. Sales and marketing expenses were $70,557 for the six-months ended June 30, 2000, and were incurred in connection with the development of advertising revenues. Also as a result of an unsuccessful attempt to exercise the purchase option related to the Time Brokerage Agreement, we recorded $23,144 as a provision for bad debts for the estimated amount of receivables which the Seller has collected and not remitted to us. The results of operations for the six-months ended June 30, 2000 are not necessarily indicative of the results for any future interim period or for the year ending December 31, 2000. We expect to expand upon obtaining capital and financing for our planned principle operations. Liquidity and Capital Resources Our operating requirements have exceeded our cash flow from operations as we continue to build our business. Operating activities during the six-months ended June 30, 2000 used cash of $86,020. Operating activities were primarily funded through proceeds from the sale of common stock of $25,000 and proceeds from the issuance of debt of $25,000 and the use of approximately $40,000 of cash on hand at December 31, 1999. At June 30, 2000 we had cash and cash equivalents of approximately $1,728. During April 1999, we began offering subscriptions for the sale of up to 11,000,000 shares of our common stock at $0.05 per share, which was increased to $0.25 in the third quarter of 1999. As of June 30, 2000, cash proceeds of approximately $200,000 were received through the sale of 1,566,667 shares in connection with this offering. An additional 6,376,221 shares of common stock, valued at approximately $451,000, were issued in exchange for services, satisfaction of debt and a license agreement. We need the proceeds of this offering to expand our operations and finance our future working capital requirements. Based upon our current plans and assumptions relating to our business plan, we anticipate that we may need to seek additional financing to fund our proposed acquisition strategy. CAUTIONARY STATEMENT This Form 10-QSB, press releases and certain information provided periodically in writing or orally by the Company's officers or its agents contain statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Securities Exchange Act of 1934. The words expect, anticipate, believe, goal, plan, intend, estimate and similar expressions and variations thereof if used are intended to specifically identify forward-looking statements. Those statements appear in a number of places in this Form 10-QSB and in other places, particularly, Management's Discussion and Analysis of Financial Condition and Results of Operations, and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company's liquidity and capital resources; (ii) the Company's financing opportunities and plans and (iii) the Company's future performance and operating 12 results. Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) any material inability of the Company to successfully identify, consummate and integrate the acquisition of radio stations at reasonable and anticipated costs to the Company; (ii) any material inability of the Company to successfully internally develop its products; (iii) any adverse effect or limitations caused by Governmental regulations; (iv) any adverse effect on the Company's continued positive cash flow and abilities to obtain acceptable financing in connection with its growth plans; (v) any increased competition in business; (vi) any inability of the Company to successfully conduct its business in new markets; and (vii) other risks including those identified in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise the forward looking statements made in this Form 10-QSB to reflect events or circumstances after the date of this Form 10-QSB or to reflect the occurrence of unanticipated events. -------------------------------------------------------------------------------- 13 PART II. - OTHER INFORMATION Item 1. Legal Proceedings On July 3, 2000, the Company was named as a defendant in a lawsuit titled Cause No. 00-07-370; Watts Communications, Inc. vs. American Communications Enterprises, Inc., which is currently pending in the 35th Judicial District Court in Brown County, Texas. The plaintiff in this action is Watts Communications, Inc. The action arises out of a contract between the Company and the plaintiff to purchase radio stations located in Brownwood and Coleman, Texas. The plaintiff seeks unspecified damages and its attorney's fees. The Company filed a counterclaim on July 7, 2000, alleging that the plaintiff breached its agreement to sell the radio stations to the Company. The Company is seeking to require the plaintiff to perform its obligations to sell the radio stations. The Company is also seeking to be reimbursed for its damages arising from the plaintiff's breach of contract. Management believes that the allegations on which the plaintiff relies in its claim for damages are false. Management also believes that the Company's claims for breach of contract have merit. Therefore, the Company intends to defend vigorously against the plaintiff's claim and to pursue its counterclaim vigorously. While the outcome of this litigation, as with litigation generally, is inherently uncertain, management believes that the ultimate resolution of this proceeding would not be likely to have a material adverse effect on our business or financial condition. ACE is involved in litigation from time to time in the ordinary course of its business. In management's opinion, the outcome of all pending legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company. Item 2. Changes in Securities NONE Item 3. Defaults Upon Senior Securities NONE Item 4. Submission of Matters to a Vote of Securities Holders NONE Item 5. Other Information NONE Item 6. Exhibits and Reports on Form 8-K SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 09/21/2000 /s/ Robert E.Ringle --------------------------- -------------------- Date Robert E. Ringle, Vice-President, Treasurer 14