Nevada
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74-2849995
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(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(I.R.S.
Employer
Identification
No.)
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3201
Cherry Ridge
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||
Building
C, Suite 300
|
||
San
Antonio, Texas
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78230
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(210)
614-7240
(Registrant’s
Telephone Number, Including Area
Code)
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Number
of Shares
|
Class
Common Stock
|
As
of
|
52,962,850
|
$001.
par value
|
December
13, 2010
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Page
|
|||
PART
I. FINANCIAL INFORMATION
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|
||
Item
1.
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Financial
Statements
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||
Consolidated
Balance Sheets as of October 31, 2010 and July 31, 2010
(unaudited)
|
3
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||
Consolidated
Statements of Operations for the Three Months Ended October 31, 2010and
2009 (unaudited)
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4
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||
Consolidated
Statement of Changes in Stockholders’ Deficit for the Three Months Ended
October 31, 2010 (unaudited)
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5
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||
Consolidated
Statements of Cash Flows for the Three Months Ended
October 31, 2010 and 2009 (unaudited)
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6
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||
Notes
to Consolidated Financial Statements (unaudited)
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7
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||
Item
2.
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Management’s
Discussions and Analysis of Financial Condition and
Results of Operations
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9
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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12
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Item
4.
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Controls
and Procedures
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12
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|
PART
II. OTHER INFORMATION
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|||
Item
6.
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Exhibits
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12
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October
31,
|
July
31,
|
|||||||
2010
|
2010
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 261 | $ | 73 | ||||
Accounts
receivable, net of allowance for bad debt of $10 and $10,
respectively
|
645 | 526 | ||||||
Prepaid
and other current assets
|
37 | 48 | ||||||
Total
current assets
|
943 | 647 | ||||||
LONG-TERM
ASSETS:
|
||||||||
Deferred
financing fees
|
64 | - | ||||||
Intangible
assets, net of accumulated amortization of $35 and $16,
respectively
|
115 | 119 | ||||||
Property
and equipment
|
859 | 856 | ||||||
Less
- accumulated depreciation
|
(748 | ) | (727 | ) | ||||
Net
property and equipment
|
111 | 129 | ||||||
Total
assets
|
$ | 1,233 | $ | 895 | ||||
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ | 550 | $ | 637 | ||||
Accrued
liabilities
|
82 | 106 | ||||||
Notes
payable, net of unamortized discount of $0 and $1,
respectively
|
376 | 409 | ||||||
Derivative
liability
|
10 | 85 | ||||||
Total
current liabilities
|
1,018 | 1,237 | ||||||
LONG-TERM
LIABILITIES:
|
||||||||
Notes
payable
|
1,157 | 639 | ||||||
Customer
deposits
|
115 | 16 | ||||||
Total
long-term liabilities
|
1,272 | 655 | ||||||
Total
liabilities
|
2,290 | 1,892 | ||||||
STOCKHOLDERS'
DEFICIT:
|
||||||||
Preferred
stock, 16,063,000 shares authorized, none issued
and outstanding
|
- | - | ||||||
Common
stock, $0.001 par value, 150,000,000 shares authorized, 52,962,850 and
45,504,120 shares issued and outstanding, respectively
|
53 | 46 | ||||||
Additional
paid in capital
|
73,527 | 73,276 | ||||||
Accumulated
deficit
|
(74,500 | ) | (74,182 | ) | ||||
Other
comprehensive income
|
1 | 1 | ||||||
Total
ATSI Communications, Inc. stockholders' deficit
|
(919 | ) | (859 | ) | ||||
Noncontrolling
interest
|
(138 | ) | (138 | ) | ||||
Total
stockholders' deficit
|
(1,057 | ) | (997 | ) | ||||
Total
liabilities and stockholders' deficit
|
$ | 1,233 | $ | 895 |
Three
months ended October 31,
|
||||||||
2010
|
2009
|
|||||||
OPERATING
REVENUES:
|
||||||||
VoIP
services
|
$ | 4,252 | $ | 4,985 | ||||
Total
operating revenues
|
4,252 | 4,985 | ||||||
OPERATING
EXPENSES:
|
||||||||
Cost
of services (exclusive of depreciation and amortization)
|
3,865 | 4,705 | ||||||
Selling,
general and administrative expense (exclusive of legal and professional
fees)
|
577 | 368 | ||||||
Legal
and professional fees
|
56 | 98 | ||||||
Depreciation
and amortization expense
|
25 | 44 | ||||||
Total
operating expenses
|
4,523 | 5,215 | ||||||
OPERATING
LOSS
|
(271 | ) | (230 | ) | ||||
OTHER
INCOME (EXPENSE):
|
||||||||
Interest
expense
|
(47 | ) | (43 | ) | ||||
Total
other expense
|
(47 | ) | (43 | ) | ||||
NET
LOSS
|
(318 | ) | (273 | ) | ||||
NET
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
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- | 24 | ||||||
NET
LOSS ATTRIBUTABLE TO ATSI COMMUNICATIONS, INC.
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$ | (318 | ) | $ | (249 | ) | ||
LOSS
PER SHARE - BASIC AND DILUTED
|
$ | (0.01 | ) | $ | (0.01 | ) | ||
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED
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45,990,559 | 45,504,120 |
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
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FOR
THE QUARTER ENDED OCTOBER 31, 2010
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(In
thousands, except share amounts)
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Additional
|
||||||||||||||||||||||||||||
Common
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Paid-in
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Noncontrolling
|
Accumulated
|
Other
Comp.
|
||||||||||||||||||||||||
Shares
|
Par
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Capital
|
interest
|
Deficit
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Income/Loss
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Totals
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||||||||||||||||||||||
BALANCE,
July 31, 2010
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45,504,120 | $ | 46 | $ | 73,276 | $ | (138 | ) | $ | (74,182 | ) | 1 | $ | (997 | ) | |||||||||||||
Stock
option expense
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7,458,730 | 7 | 251 | - | - | - | 258 | |||||||||||||||||||||
Net
loss
|
- | - | - | - | (318 | ) | - | (318 | ) | |||||||||||||||||||
BALANCE,
October 31, 2010
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52,962,850 | $ | 53 | $ | 73,527 | $ | (138 | ) | $ | (74,500 | ) | 1 | $ | (1,057 | ) |
Three
months ended October 31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (318 | ) | $ | (273 | ) | ||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
25 | 44 | ||||||
Amortization
of deferred financing fees
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9 | - | ||||||
Issuance
of stock grants and options for services
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258 | 14 | ||||||
Amortization
of debt discount
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1 | 12 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(119 | ) | (280 | ) | ||||
Prepaid
expenses and other
|
12 | (7 | ) | |||||
Accounts
payable
|
(88 | ) | 115 | |||||
Accrued
liabilities
|
(18 | ) | (33 | ) | ||||
Customer
deposits
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100 | - | ||||||
Net
cash used in operating activities
|
(138 | ) | (408 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Investment
in certificates of deposit
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- | 264 | ||||||
Purchases
of property & equipment
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(3 | ) | (15 | ) | ||||
Net
cash (used in) provided by investing activities
|
(3 | ) | 249 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payment
of deferred financing fees
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(73 | ) | - | |||||
Payments
on notes payable
|
(200 | ) | (172 | ) | ||||
Proceeds
from notes payables
|
677 | - | ||||||
Acquisition
of put option on warrants
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(75 | ) | - | |||||
Principal
payments on capital lease obligation
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- | (1 | ) | |||||
Net
cash provided by (used in) financing activities
|
329 | (173 | ) | |||||
DECREASE
IN CASH AND CASH EQUIVALENTS
|
188 | (332 | ) | |||||
CASH
AND CASH EQUIVALENTS, beginning of period
|
73 | 637 | ||||||
CASH
AND CASH EQUIVALENTS, end of period
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$ | 261 | $ | 305 | ||||
SUPPLEMENTAL
DISCLOSURES:
|
||||||||
Cash
paid for interest
|
$ | 30 | $ | 25 | ||||
Cash
paid for income tax
|
- | - | ||||||
Outstanding debt consisted of the following: (In
thousands)
|
||||||||
October 31,
|
July
31,
|
|||||||
2010
|
2010
|
|||||||
Note
payable to Alfonso Torres, payable upon maturity, bearing interest of
6.00% per annum, maturing July 31, 2012, unsecured.
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$ | 545 | $ | 537 | ||||
Note
payable to ATVF, Scott Crist, Roderick Ciaccio & Vencore Solutions,
payable in monthly installments, bearing interest at 10.00% per annum,
maturing September 10, 2010, collateralized by ATSI's accounts receivables
(other than accounts factored with Wells Fargo), $100,000 certificate of
deposit with Wells Fargo and ATSI's ownership in ATSICOM. Additionally, we
issued 425,000 warrants to the note holders, at an exercise price per
warrant of $0.19. The warrants have the following “Put” and “Call” rights:
Put
right. From and after the second anniversary of the notes payable,
the holder shall have the right to request from ATSI, upon five (5)
Business days prior notice, to acquire from the holders the warrants at a
price $0.39 per warrant. Call
right. At any time any warrants are outstanding, if the
last sale price of ATSI’s common stock is greater than $.80 per share for
ten (10) consecutive trading days, ATSI shall be entitled to require the
purchaser to exercise the warrants and pay the exercise price therefore
upon five (5) business days written notice. Net of unamortized discount of
$0 and $1, respectively
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- | 133 | ||||||
Note
payable to San Antonio National Bank payable in monthly installments,
bearing interest at 8.00% per annum, maturing October 25, 2011,
collateralized by ATSI's assets.
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153 | 189 | ||||||
Note
payable to ATV Texas Ventures payable in monthly installments, bearing
interest at 12.00% per annum, maturing November 10, 2011, collateralized
by ATSI's assets.
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57 | 69 | ||||||
Note
payable to ATV Texas Ventures payable in monthly installments, bearing
interest at 12.00% per annum, maturing January 10, 2012, collateralized by
ATSI's assets.
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65 | 77 | ||||||
Note
payable to ATV Texas Ventures payable in monthly installments, bearing
interest at 12.00% per annum, maturing March 10, 2012, collateralized by
ATSI's assets.
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37 | 43 | ||||||
Note
payable to ATV Texas Ventures payable in monthly installments, bearing
interest at 12.00% per annum, maturing October 10, 2012, collateralized by
ATSI's assets.
|
200 | - | ||||||
Note
payable to Thermo Credit, LLC., interest payment for the first
twenty-three months with a balloon payment on the twenty-fourth month,
maturing August 2, 2012, collateralized by ATSI's accounts receivable.
Bearing an annual interest rate equivalent to the lesser of the maximum
rate and the greater of the prime rate plus 8.25% and 11.5%, a commitment
fee of 2% and weekly monitoring fee of .05%. ATSI is required to maintain
the following financial covenants: 1) A consolidated debt service coverage
ratio, for the 12-month period, of not less than 1.0 as of the last day of
each quarter and 2) A consolidated operating income, for the 12-month
period, of not less than zero as of the last day of each fiscal
year
|
476 | - | ||||||
Total
outstanding long-term debt
|
1,533 | 1,048 | ||||||
Current
portion of long-term debt
|
(376 | ) | (409 | ) | ||||
Long-term
debt, net of current portion
|
$ | 1,157 | $ | 639 | ||||
Payments
on long-term debt of ATSI are due as follows:
|
||||||||
(in
thousands)
|
||||||||
Fiscal
2011
|
$ | 376 | ||||||
Fiscal
2012
|
1,157 | |||||||
Total
payments
|
$ | 1,533 |
|
-
|
ATSI
granted 1,333,333 common shares to its directors for services
rendered. The Company recognized stock-based compensation
expense of $40,000 equivalent to the value of the shares calculated
based on the share’s closing price at the grant
date.
|
|
-
|
ATSI
granted 6,125,396 common shares to various employees as part of the
Company’s profit sharing plan contribution. The Company
recognized stock-based compensation expense of $183,762 equivalent to the
value of the shares calculated based on the share’s closing price at the
grant date.
|
|
-
|
ATSI
extended the term of existing options totaling 7,359,000 to July 31,
2015. As a result, the Company recognized incremental
compensation expense of $34,501.
|
|
-
|
375,000
warrants were cancelled as a result of the warrant holders exercising
their related put rights (see Note
2).
|
Three
months ended October 31,
|
||||||||||||||||
2010
|
2009
|
Variances
|
%
|
|||||||||||||
OPERATING
REVENUES:
|
||||||||||||||||
VoIP
services
|
$ | 4,252 | $ | 4,985 | $ | (733 | ) | -15 | % | |||||||
Total
operating revenues
|
4,252 | 4,985 | (733 | ) | -15 | % | ||||||||||
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
3,865 | 4,705 | (840 | ) | -18 | % | ||||||||||
GROSS
MARGIN
|
387 | 280 | 107 | 38 | % | |||||||||||
Selling,
general and administrative expense (exclusive of legal and professional
fees)
|
577 | 368 | 209 | 57 | % | |||||||||||
Legal
and professional fees
|
56 | 98 | (42 | ) | -43 | % | ||||||||||
Depreciation
and amortization expense
|
25 | 44 | (19 | ) | -43 | % | ||||||||||
OPERATING
LOSS
|
(271 | ) | (230 | ) | (41 | ) | 18 | % | ||||||||
OTHER
INCOME (EXPENSE):
|
||||||||||||||||
Interest
expense
|
(47 | ) | (43 | ) | (4 | ) | 9 | % | ||||||||
Total
other expense, net
|
(47 | ) | (43 | ) | (4 | ) | 9 | % | ||||||||
NET
LOSS
|
$ | (318 | ) | $ | (273 | ) | $ | (45 | ) | 16 | % | |||||
NET
LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
|
- | 24 | (24 | ) | -100 | % | ||||||||||
NET
LOSS ATTRI BUTABLE TO
ATSI COMMUNICATIONS, INC.
|
$ | (318 | ) | $ | (249 | ) | $ | (69 | ) | 28 | % |
Number
|
Description
|
10.1
|
Promissory
note payable and security agreement with ATV Texas Ventures III, LP.,
dated October 10, 2010 in the principal amount of
$200,000.
|
31.1
|
Certification
of our President and Chief Executive Officer, under Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of our Corporate Controller and Principal Financial Officer, under Section
302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of our President and Chief Executive Officer, under Section 906 of the
Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification
of our Corporate Controller and Principal Financial Officer, under Section
906 of the Sarbanes-Oxley Act of
2002.
|
ATSI COMMUNICATIONS,
INC.
|
||
(Registrant)
|
||
Date:
December 13, 2010
|
By:
|
/s/ Arthur L. Smith
|
Name:
|
Arthur
L. Smith
|
|
Title:
|
President
and
|
|
Chief
Executive Officer
|
||
Date:
December 13, 2010
|
By:
|
/s/ Antonio Estrada Jr.
|
Name:
|
Antonio
Estrada Jr.
|
|
Title:
|
Sr.
VP of Finance & Corporate Controller
|
|
(Principal
Accounting and Principal Financial
Officer)
|
Number
|
Description
|
|
10.1
|
Promissory
note payable and security agreement with ATV Texas Ventures III, LP.,
dated October 10, 2010 in the principal amount of
$200,000.
|
|
31.1
|
Certification
of our President and Chief Executive Officer, under Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of our Corporate Controller and Principal Financial Officer, under Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of our President and Chief Executive Officer, under Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32.2
|
|
Certification
of our Corporate Controller and Principal Financial Officer, under Section
906 of the Sarbanes-Oxley Act of
2002.
|