x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
For
the quarterly period ended October 31, 2006
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
For
the transition period from ____________ to
___________
|
Nevada
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
74-2849995
(IRS
Employer
Identification
No.)
|
|
3201
Cherry Ridge
Building
C, Suite 300
San
Antonio, Texas 78230
(Address
of Principal Executive Offices)
|
||
(210)
614-7240
(Issuer’s
Telephone Number, Including Area
Code)
|
Class
|
Outstanding
as of December 13, 2006
|
Common
Stock, $.001 par
|
19,621,434
|
PART I. FINANCIAL INFORMATION |
Page
|
|
Item
1. Financial
Statements (unaudited)
|
||
Consolidated
Balance Sheets as of October 31, 2006 and July 31,
2006
|
1
|
|
Consolidated
Statements of Operations for the Three Months
|
||
Ended
October 31, 2006 and 2005
|
2
|
|
Consolidated
Statements of Comprehensive Income (Loss) for the Three Months
|
||
Ended
October 31, 2006 and 2005
|
3
|
|
Consolidated
Statements of Cash Flows for the Three Months Ended October 31, 2006
and
2005
|
4
|
|
Notes
to Consolidated Financial Statements
|
5
|
|
|
||
Item
2. Management’s
Discussion and Analysis Or Plan of Operation
|
8
|
|
|
||
Item
3. Controls
and Procedures
|
13
|
|
PART
II. OTHER INFORMATION
|
||
Item
1. Legal
Proceedings
|
14
|
|
Item
2. Unregistered
Sales of Equity Securities and use of proceeds
|
14
|
|
Item
3. Default
Upon Senior Securities
|
14
|
|
Item
4. Submission
of Matters to a Vote of Security Holders
|
14
|
|
Item
5. Other
Information
|
14
|
|
Item
6. Exhibits
|
14
|
PART
1. FINANCIAL INFORMATION
|
|||||||
ITEM
1. FINANCIAL STATEMENTS
|
|||||||
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
(In
thousands, except share and per share amounts)
|
|||||||
October
31,
|
July
31,
|
||||||
2006
|
2006
|
||||||
(Unaudited)
|
|||||||
ASSETS
|
|||||||
CURRENT
ASSETS:
|
|||||||
Cash
and cash equivalents
|
$
|
556
|
$
|
36
|
|||
Accounts
receivable, net of allowance for bad debt of $23 and $0,
respectively
|
665
|
621
|
|||||
Prepaid
& other current assets
|
38
|
33
|
|||||
Total
current assets
|
1,259
|
690
|
|||||
PROPERTY
AND EQUIPMENT
|
295
|
284
|
|||||
Less
- accumulated depreciation
|
(200
|
)
|
(182
|
)
|
|||
Net
property and equipment
|
95
|
102
|
|||||
Total
assets
|
$
|
1,354
|
$
|
792
|
|||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||
CURRENT
LIABILITIES:
|
|||||||
Accounts
payable
|
$
|
691
|
$
|
676
|
|||
Accounts
payable, related parties
|
57
|
42
|
|||||
Line
of credit, CSI Business Finance
|
150
|
150
|
|||||
Accrued
liabilities
|
2,307
|
2,389
|
|||||
Advances
from shareholders
|
408
|
-
|
|||||
Current
portion of obligation under capital leases
|
3
|
3
|
|||||
Notes
payable
|
550
|
50
|
|||||
Notes
payable, related party
|
16
|
106
|
|||||
Convertible
debentures
|
93
|
74
|
|||||
Total
current liabilities
|
4,275
|
3,490
|
|||||
LONG-TERM
LIABILITIES:
|
|||||||
Notes
payable
|
-
|
500
|
|||||
Convertible
debentures
|
217
|
234
|
|||||
Obligation
under capital leases, less current portion
|
5
|
6
|
|||||
Other
|
4
|
4
|
|||||
Total
long-term liabilities
|
226
|
744
|
|||||
Total
liabilities
|
4,501
|
4,234
|
|||||
STOCKHOLDERS'
DEFICIT:
|
|||||||
Series
A Cumulative Convertible Preferred Stock, $0.001,
50,000
shares authorized, 2,750 shares
|
|||||||
issued
and outstanding
|
-
|
-
|
|||||
Series
D Cumulative Preferred Stock, $0.001, 3,000 shares authorized,
742
shares issued and outstanding
|
1
|
1
|
|||||
Series
E Cumulative Preferred Stock, $0.001, 10,000 shares authorized,
1,170
shares issued and outstanding
|
1
|
1
|
|||||
Series
H Convertible Preferred Stock, $0.001, 16,000,000 shares authorized,
10,969,100
and 11,802,353 shares
|
|||||||
issued
and outstanding, respectively
|
11
|
12
|
|||||
Common
stock, $0.001 par value, 150,000,000 shares authorized,
18,935,336
and
16,444,768 shares
|
|||||||
issued
and outstanding, respectively
|
19
|
16
|
|||||
Additional
paid in capital
|
69,252
|
68,775
|
|||||
Accumulated
deficit
|
(72,432
|
)
|
(72,248
|
)
|
|||
Other
comprehensive income
|
1
|
1
|
|||||
Total
stockholders' deficit
|
(3,147
|
)
|
(3,442
|
)
|
|||
Total
liabilities and stockholders' deficit
|
$
|
1,354
|
$
|
792
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|||||||
(In
thousands, except share and per share amounts)
|
|||||||
(Unaudited)
|
|||||||
Three
months ended October 31,
|
|||||||
2006
|
2005
|
||||||
OPERATING
REVENUES:
|
|||||||
Carrier
services
|
$
|
6,495
|
$
|
2,291
|
|||
Communication
services
|
33
|
22
|
|||||
Network
services
|
4
|
9
|
|||||
Total
operating revenues
|
6,532
|
2,322
|
|||||
OPERATING
EXPENSES:
|
|||||||
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
6,019
|
2,240
|
|||||
Selling,
general and administrative expense (exclusive of legal and professional
fees,
|
|||||||
non-cash
stock compensation to employees and warrants for services, shown
below)
|
210
|
149
|
|||||
Legal
and professional fees
|
58
|
27
|
|||||
Non-cash
issuance of common stock and warrants for services
|
46
|
64
|
|||||
Non-cash
stock-based compensation, employees
|
315
|
180
|
|||||
Bad
debt expense
|
23
|
-
|
|||||
Depreciation
and amortization expense
|
17
|
22
|
|||||
Total
operating expenses
|
6,688
|
2,682
|
|||||
OPERATING
(LOSS)
|
(156
|
)
|
(360
|
)
|
|||
OTHER
INCOME (EXPENSE):
|
|||||||
Loss
on derivative instrument liabilities
|
-
|
(26
|
)
|
||||
Interest
expense
|
(28
|
)
|
(26
|
)
|
|||
Total
other income (expense), net
|
(28
|
)
|
(52
|
)
|
|||
(LOSS)
FROM CONTINUING OPERATIONS
|
(184
|
)
|
(412
|
)
|
|||
DISCONTINUED
OPERATIONS
|
|||||||
Gain
on disposal of discontinued operations
|
-
|
1,652
|
|||||
INCOME
FROM DISCONTINUED OPERATIONS
|
-
|
1,652
|
|||||
NET
INCOME (LOSS)
|
$
|
(184
|
)
|
$
|
1,240
|
||
LESS:
PREFERRED DIVIDEND
|
(2
|
)
|
(23
|
)
|
|||
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
$
|
(186
|
)
|
$
|
1,217
|
||
BASIC
INCOME (LOSS) PER SHARE:
|
|||||||
From
continuing operations
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
|
From
discontinued operations
|
-
|
0.15
|
|||||
Total
|
$
|
(0.01
|
)
|
$
|
0.11
|
||
DILUTED
INCOME (LOSS) PER SHARE
|
|||||||
From
continuing operations
|
$
|
(0.01
|
)
|
$
|
(0.04
|
)
|
|
From
discontinued operations
|
-
|
0.05
|
|||||
Total
|
$
|
(0.01
|
)
|
$
|
0.01
|
||
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
|||||||
BASIC
|
17,569,410
|
10,945,338
|
|||||
DILUTED
|
17,569,410
|
10,945,338
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|||||||
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|||||||
(In
thousands)
|
|||||||
(Unaudited)
|
|||||||
Three
months ended October 31,
|
|||||||
2006
|
2005
|
||||||
Net
income (loss) to common stockholders
|
$
|
(186
|
)
|
$
|
1,217
|
||
Foreign
currency translation adjustment
|
-
|
-
|
|||||
Comprehensive
income (loss) to common stockholders
|
$
|
(186
|
)
|
$
|
1,217
|
||
See
accompanying summary of accounting policies and notes to financial
statements.
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||
(In
thousands)
|
|||
(Unaudited)
|
Three
months ended October 31,
|
|||||||
2006
|
2005
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
NET
INCOME
|
$
|
(184
|
)
|
$
|
1,240
|
||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|||||||
Gain
in disposal of investment
|
-
|
(1,652
|
)
|
||||
Depreciation
and amortization
|
17
|
22
|
|||||
Issuance
of stock grants and options, employees for services
|
315
|
180
|
|||||
Issuance
of common stock and warrants for services
|
11
|
64
|
|||||
Provisions
for losses on accounts receivables
|
23
|
-
|
|||||
Loss
on derivative instrument liabilities
|
-
|
26
|
|||||
Amortization
of BCF
|
2
|
-
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(67
|
)
|
(59
|
)
|
|||
Prepaid
expenses and other
|
(4
|
)
|
15
|
||||
Accounts
payable
|
31
|
67
|
|||||
Accrued
liabilities
|
36
|
29
|
|||||
Net
cash (used) / provided in operating activities
|
180
|
(68
|
)
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchases
of property & equipment
|
(12
|
)
|
(3
|
)
|
|||
Net
cash used in investing activities
|
(12
|
)
|
(3
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Payments
on notes payable, related party
|
(90
|
)
|
-
|
||||
Advances
from shareholders
|
408
|
-
|
|||||
Proceeds
from the exercise of warrants
|
35
|
46
|
|||||
Principal
payments on capital lease obligation
|
(1
|
)
|
(1
|
)
|
|||
Net
cash provided by financing activities
|
352
|
45
|
|||||
INCREASE
(DECREASE) IN CASH
|
520
|
(26
|
)
|
||||
CASH
AND CASH EQUIVALENTS, beginning of period
|
36
|
29
|
|||||
CASH
AND CASH EQUIVALENTS, end of period
|
$
|
556
|
$
|
3
|
|||
SUPPLEMENTAL
DISCLOSURES:
|
|||||||
Cash
paid for interest
|
$
|
12
|
$
|
-
|
|||
NON-CASH
INVESTING AND FINANCING TRANSACTIONS
|
|||||||
Issuance
of common stock for conversion of debt
|
$
|
15
|
$
|
58
|
|||
Conversion
of preferred stock to common stock
|
106
|
17
|
|||||
Fair
value of derivatives transferred to equity
|
-
|
22
|
|||||
Preferred
stock dividends
|
2
|
23
|
See
accompanying summary of accounting policies and notes to financial
statements.
|
Three
months ended October 31,
|
|||||
2006
|
2005
|
||||
Net
income (loss) to common
|
|||||
shareholders,
as reported
|
($186,000)
|
$1,217,000
|
|||
Add:
|
stock
based compensation determined
|
||||
under
intrinsic value based method
|
-
|
-
|
|||
Less:
stock based compensation determined
|
|||||
under
fair value based method
|
-
|
(281,499)
|
|||
Pro
forma net income (loss) to common stockholders
|
($186,000)
|
$935,501
|
|||
Basic
net income (loss) per common share:
|
|||||
As
reported
|
($0.01)
|
$0.11
|
|||
Pro
forma
|
($0.01)
|
$0.09
|
|||
Diluted
net income (loss) per common share:
|
|||||
As
reported
|
($0.01)
|
$0.01
|
|||
Pro
forma
|
($0.01)
|
$0.03
|
For
the Quarter Ended October 31,
|
|||||||
2006
|
2005
|
||||||
Expected
dividends yield
|
0.00
|
%
|
0.00
|
%
|
|||
Expected
stock price volatility
|
80
|
%
|
50
|
%
|
|||
Risk-free
interest rate
|
4.51
|
%
|
3.5
|
%
|
|||
Expected
life of options
|
7
years
|
10
years
|
·
|
During
the three months ended October 31, 2006, ATSI granted 1,345,000 options
to
purchase common stock to employees and members of the Board of Directors
with an exercise price of $0.21, the closing price of ATSI’s stock on the
grant date, September 25, 2006. One third of the options vested at
issuance and the remaining two-thirds will vest equally over a period
of
two years. Under the fair value option method, ATSI recognized at
issuance
$71,000 of compensation expense associated with the vested options.
Additionally, ATSI will amortize $142,000 of noncash compensation
expense
related to non-vested options during the service period
|
·
|
During
the three months ended October 31, 2006, ATSI issued 980,000 shares
of
common stock to its employees and directors for services with a market
value of $206,000. We recorded compensation expense in our statement
of
operations for the aggregate market value of the stock at the date
of
issuance.
|
Weighted-Average
|
||||||||||
Weighted-Average
|
Remaining
Contractual
|
|||||||||
2005
Stock Compensation Plan
|
Options
|
Exercise
Price
|
Term
|
|||||||
Outstanding
as of July 31, 2006
|
4,354,000
|
$
|
0.16
|
9.0
|
||||||
Granted
|
1,345,000
|
$
|
0.21
|
7.0
|
||||||
Exercised
|
-
|
-
|
-
|
|||||||
Forfeited
|
-
|
-
|
-
|
|||||||
Expired
|
-
|
-
|
-
|
|||||||
Outstanding
as of October 31, 2006
|
5,699,000
|
$
|
0.17
|
8.5
|
||||||
Exercisable
at October 31, 2006
|
1,888,333
|
$
|
0.17
|
8.5
|
Three
months ended October 31,
|
|||||||||||||
2006
|
2005
|
Variances
|
%
|
||||||||||
OPERATING
REVENUES:
|
|||||||||||||
Carrier
services
|
$
|
6,495
|
$
|
2,291
|
$
|
4,204
|
184
|
%
|
|||||
Communication
services
|
33
|
22
|
11
|
50
|
%
|
||||||||
Network
services
|
4
|
9
|
(5
|
)
|
-56
|
%
|
|||||||
Total
operating revenues
|
6,532
|
2,322
|
4,210
|
181
|
%
|
||||||||
Cost
of services (exclusive of depreciation
and
amortization, shown below)
|
6,019
|
2,240
|
(3,779
|
)
|
-169
|
%
|
|||||||
Selling,
general and administrative expense
(exclusive
of legal and professional fees,
|
|||||||||||||
non-cash
stock compensation to employees
and
warrants for services, shown below)
|
210
|
149
|
(61
|
)
|
-41
|
%
|
|||||||
Legal
and professional fees
|
58
|
27
|
(31
|
)
|
-115
|
%
|
|||||||
Non-cash
issuance of common stock
and
warrants for services
|
46
|
64
|
18
|
28
|
%
|
||||||||
Non-cash
stock-based compensation, employees
|
315
|
180
|
(135
|
)
|
-75
|
%
|
|||||||
Bad
debt expense
|
23
|
-
|
(23
|
)
|
-100
|
%
|
|||||||
Depreciation
and amortization expense
|
17
|
22
|
5
|
23
|
%
|
||||||||
OPERATING
(LOSS)
|
(156
|
)
|
(360
|
)
|
204
|
57
|
%
|
||||||
OTHER
INCOME (EXPENSE):
|
|||||||||||||
Loss
on derivative instrument liabilities
|
-
|
(26
|
)
|
26
|
100
|
%
|
|||||||
Interest
expense
|
(28
|
)
|
(26
|
)
|
(2
|
)
|
-8
|
%
|
|||||
Total
other income (expense), net
|
(28
|
)
|
(52
|
)
|
24
|
-46
|
%
|
||||||
(LOSS)
FROM CONTINUING OPERATIONS
|
(184
|
)
|
(412
|
)
|
228
|
-55
|
%
|
||||||
DISCONTINUED
OPERATIONS
|
|||||||||||||
Gain
on disposal of discontinued operations
|
-
|
1,652
|
(1,652
|
)
|
100
|
%
|
|||||||
INCOME
FROM DISCONTINUED OPERATIONS
|
-
|
1,652
|
(1,652
|
)
|
100
|
%
|
|||||||
NET
INCOME (LOSS)
|
$
|
(184
|
)
|
$
|
1,240
|
$
|
(1,424
|
)
|
-115
|
%
|
|||
LESS:
PREFERRED DIVIDEND
|
(2
|
)
|
(23
|
)
|
21
|
91
|
%
|
||||||
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
($186
|
)
|
$
|
1,217
|
($1,403
|
)
|
-115
|
%
|
Series
A Cumulative Preferred Stock
|
$
|
191,000
|
||
Series
D Cumulative Preferred Stock
|
296,000
|
|||
TOTAL
|
$
|
487,000
|
Exhibit
|
|
Number
|
Description
|
4.1
|
Secured
Promissory Note and Security Agreement dated November 3, 2006 between
ATSI
Communications, Inc. and CCA
Financial Services, Inc.
|
10.1
|
Factoring
Agreement dated November 3, 2006 between ATSI Communications, Inc.
and
CCA
Financial Services, Inc.
|
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 14, 2006
|
By:
|
/s/
Arthur L. Smith
|
Name:
|
Arthur
L. Smith
|
|
Title:
|
President
and
|
|
Chief
Executive Officer
|
||
Date:
December 14, 2006
|
By:
|
/s/
Antonio Estrada
|
Name:
|
Antonio
Estrada
|
|
Title:
|
(Principal
Accounting and Principal
Financial
Officer)
|
|