x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE FISCAL YEAR ENDED JULY 31,
2005
|
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.)
|
|
8600
Wurzbach, Suite 700W
San
Antonio, Texas
(Address
of Principal Executive Offices)
|
78240
(Zip
Code)
|
Page
|
||||
PART
I
|
||||
Item
1. Description of Business
|
4
|
|||
Overview
|
5
|
|||
History
|
5
|
|||
Recent
Developments
|
6
|
|||
Services
and Products
|
6
|
|||
Carrier
Services
|
6
|
|||
Network
Services
|
6
|
|||
Communication
Services
|
6
|
|||
Voice
over Internet Protocol Network
|
7
|
|||
Strategy
and Competitive Conditions
|
8
|
|||
Government
Regulations/ Concession License
|
10
|
|||
Suppliers
|
14
|
|||
Employees
|
14
|
|||
Item
2. Description of Properties
|
14
|
|||
Item
3. Legal Proceedings
|
14
|
|||
Item
4. Submission of Matters to a Vote of Security Holders
|
15
|
|||
PART
II
|
||||
Item
5. Market for Registrant’s Common Equity and Related Stockholder
Matters
|
15
|
|||
Item
6. Management’s Discussion and Analysis or Plan of
Operations
|
17
|
|||
Item
7. Financial Statements and Supplementary Data
|
25
|
|||
Item
8. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosures
|
50
|
|||
Item
8A. Controls and Procedures
|
50
|
|||
PART
III
|
||||
Item
9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(A) of the Exchange Act
|
50
|
|||
Item
10. Executive Compensation
|
52
|
|||
Item
11. Security Ownership of Certain Beneficial Owners and
Management
|
54
|
|||
Item
12. Certain Relationships and Related Transactions
|
55
|
|||
Item
13. Exhibits and Reports on Form 8-K
|
55
|
|||
Item
14. Principal Accountant Fees and Services
|
59
|
· |
On
August 1, 2004, we acquired a
Competitive Local Exchange Carrier (“CLEC”) based in South Texas. This
acquisition served as a gateway to reach out to the Hispanic communities
residing along the US and Mexico border. Our strategy is to provide
reliable and affordable local and long distance services to the
underserved Hispanic community through Texas utilizing our VoIP
infrastructure.
|
· |
We
expanded our NexTone’
Communications Session Controller (soft-switch) by 50% to enhance
our
Voice over Internet Protocol (VoIP) network. This network expansion
has
allowed us to route our traffic more efficiently, improve our call
processing, monitor quality of service and enable us to share port
resources with our customers. The NexTone technology has allowed
us to be
more competitive and to improve margins in our wholesale international
telecommunication services. As a result of these enhancements to
our VoIP
Network our customer base has grown to approximately 45 customers
and our
revenue increased from $1,254,000 during the year ended July 31,
2004 to
$6,011,000 for the year ended July 31, 2005.
|
· |
Integration
of Voice and Data:
VoIP networks allows for the integration of voice, data traffic and
images
into the same network.
|
· |
Simplification:
An
integrated infrastructure that supports all forms of communication
allows
more standardization and less equipment management. The result is
a fault
tolerant design.
|
· |
Network
Efficiency:
The integration of voice and data fills up the data communication
channels
efficiently, thus providing bandwidth consolidation and reduction
of the
costs associated with idle bandwidth. The sharing of equipment and
operations costs across both data and voice users can also improve
network
efficiency since excess bandwidth on one network can be used by the
other,
thereby creating economies of scale for voice (especially given the
rapid
growth in data traffic). An integrated infrastructure that supports
all
forms of communication allows more standardization and reduces the
total
equipment complement. This combined infrastructure can support dynamic
bandwidth optimization and a fault tolerant design. The differences
between the traffic patterns of voice and data offer further opportunities
for significant efficiency improvements.
|
· |
Co-existence
with traditional communication mediums: IP
telephony can be used in conjunction with existing PSTN switches,
leased
and dial-up lines, PBXs and other customer premise equipment (CPE),
enterprise LANs, and Internet connections. IP telephony applications
can
be implemented through dedicated gateways, which in turn can be based
on
open standards platforms for reliability and scalability.
|
· |
Cost
reduction:
Under the VoIP network, the connection is directly to the Internet
backbone and as a result the telephony access charges and settlement
fees
are avoided.
|
· |
the
rapid growth of the Latino segment of the United States population
|
· |
Mexico’s
status as the top calling partner with the United States
|
· |
increase
in trade and travel between Latin America and the United States
|
· |
the
build-out of local networks and corresponding increase in the number
of
telephones in homes and businesses in Latin countries
|
· |
proliferation
of communications devices such as faxes, mobile phones, pagers, and
personal computers
|
· |
declining
rates for services as a result of increased competition.
|
· |
Maintain
approximately $10 million in registered and subscribed capital.
|
· |
Install
and operate a network in Mexico. The Mexican government will need
to
approve the operating plan before it is implemented; additionally
the
Mexican government will need to approve any future changes to the
operating plan before it can be implemented.
|
· |
Continuously
develop and conduct training programs for its staff.
|
· |
The
Concessionaire at all times needs to have an assigned individual
responsible for the technical functions to operate the concession.
|
· |
The
Concessionaire is required to provide continuous and efficient services
at
all times to its customers.
|
· |
The
Concessionaire must establish a complaint center and correction facilities
center. We are required to report to the Mexican Government on a
monthly
basis the complaints received and the actions taken to resolve the
problems.
|
· |
The
Concessionaire will only be authorized to invoice its customer’s tariffs
rates that have been approved by the Mexican
government.
|
· |
The
Concessionaire is required to provide audited financial statements
on a
yearly basis that includes a detailed description of the fixed assets
utilized in the network and accounting reporting by region and location
of
where the services are being provided.
|
· |
The
Concessionaire is required to provide quarterly reports and updates
on the
expansion of the network in Mexico and a description of the training
programs and research and development programs.
|
· |
The
Concessionaire is required to provide statistic reports of traffic,
switching capacity and other parameters in the
network.
|
(a) |
Market
for Common Equity
|
Fiscal
2004
|
High
|
Low
|
|||||
First Quarter
|
$
|
2.00
|
$
|
2.00
|
|||
Second
Quarter
|
$
|
1.00
|
$
|
1.00
|
|||
Third
Quarter
|
$
|
1.00
|
$
|
1.00
|
|||
Fourth
Quarter
|
$
|
6.00
|
$
|
1.25
|
|||
|
|||||||
Fiscal
2005
|
High
|
Low
|
|||||
First Quarter
|
$
|
1.20
|
$
|
0.56
|
|||
Second
Quarter
|
$
|
1.25
|
$
|
0.48
|
|||
Third
Quarter
|
$
|
0.92
|
$
|
0.21
|
|||
Fourth
Quarter
|
$
|
0.32
|
$
|
0.16
|
(b) | Holders |
(c) |
Dividends
|
(d) |
Securities
issued under Equity Compensation
Plans
|
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding Options,
Warrants
and Rights
|
Weighted-average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in column
(a))
|
(a)
|
(b)
|
(c)
|
|
Equity
Compensation Plans Not Approved by Security
Holders
|
303,140
|
$0.25
|
1,054,149
|
Total
|
303,140
|
$0.25
|
1,054,149
|
(e) |
Sales
of Unregistered Securities
|
Years
ended July 31,
|
|||||||||||||
(Restated)
|
|||||||||||||
2005
|
2004
|
||||||||||||
$ |
%
|
$ |
%
|
||||||||||
Operating
revenues
|
|||||||||||||
Services
|
|||||||||||||
Carrier
services
|
$
|
5,782
|
96
|
%
|
$
|
1,020
|
81
|
%
|
|||||
Network
services
|
229
|
4
|
%
|
234
|
19
|
%
|
|||||||
Total
operating revenues
|
6,011
|
100
|
%
|
1,254
|
100
|
%
|
|||||||
Cost
of services (Exclusive of depreciation and amortization, shown
below)
|
5,664
|
94
|
%
|
1,071
|
85
|
%
|
|||||||
Gross
Margin
|
347
|
6
|
%
|
183
|
15
|
%
|
|||||||
Selling,
general and administrative expense (exclusive of legal and professional
fees, non cash stock compensation to employees and warrants for services,
shown below)
|
517
|
9
|
%
|
585
|
47
|
%
|
|||||||
Legal
and professional fees
|
417
|
7
|
%
|
303
|
24
|
%
|
|||||||
Non-cash
issuance of common stock and warrants for services
|
618
|
10
|
%
|
6,570
|
524
|
%
|
|||||||
Non-cash
stock-based compensation, employees
|
474
|
8
|
%
|
-
|
0
|
%
|
|||||||
Impairment
expense
|
-
|
0
|
%
|
702
|
300
|
%
|
|||||||
Bad
debt expense
|
4
|
0
|
%
|
4
|
0
|
%
|
|||||||
Depreciation
and amortization
|
112
|
2
|
%
|
20
|
2
|
%
|
|||||||
Operating
loss
|
(1,795
|
)
|
-30
|
%
|
(8,001
|
)
|
-638
|
%
|
|||||
Debt
forgiveness income
|
460
|
8
|
%
|
257
|
0
|
%
|
|||||||
Gain
on disposal of investment
|
12,104
|
201
|
%
|
-
|
0
|
%
|
|||||||
Gain
(loss) on derivative instrument liabilities
|
(287
|
)
|
-5
|
%
|
4,439
|
354
|
%
|
||||||
Other
income (expense)
|
(75
|
)
|
-1
|
%
|
(252
|
)
|
-20
|
%
|
|||||
Net
income (loss)
|
10,407
|
173
|
%
|
(3,557
|
)
|
-284
|
%
|
||||||
Less:
preferred stock dividends
|
(709
|
)
|
-12
|
%
|
(306
|
)
|
-24
|
%
|
|||||
Net
income (loss) to applicable to common shareholders
|
$
|
9,698
|
161
|
%
|
($3,863
|
)
|
-308
|
%
|
· |
$103,454
owed to Attorneys for legal services rendered during fiscal 2004.
|
· |
$1,182,000
associated with the Series D Cumulative preferred stock. Of this
balance,
$942,000 is associated with the full redemption of this security
and
$240,000 is related to the accrued dividends as of July 31, 2005.
|
· |
$1,749,000
associated with the Series E Cumulative preferred stock. Of this
balance,
$1,463,000 is associated with the full redemption of this security
and
$286,000 is related to the accrued dividends as of July 31, 2005.
During
the fiscal year ended July 31, 2003, the Company was de-listed from
AMEX
and according to the terms of the Series E Cumulative preferred stock
Certificate of Designation, if the Company fails to maintain a listing
on
NASDAQ, NYSE or AMEX the Series E preferred stockholder could request
a
mandatory redemption of the total outstanding preferred stock. As
of the
date of this filing we have not received such redemption notice.
On
October 31, 2002, we filed a lawsuit in the United States District
Court
for the Southern District Court of New York against several individuals
and financial institutions, including Rose Glen Capital and Shaar
Fund,
the holders of our Series D and E Redeemable Preferred Stock, for,
among
other things, stock fraud and manipulation. On February 25, 2005,
Judge
Lewis A. Kaplan issued a memorandum opinion and order dismissing
the
complaint as to defendants that included the holders of our Series
D and E
Redeemable Preferred Stock. We plan to appeal that decision once
a final
judgment has been entered. These liabilities for the redemption of
Series
D and Series E preferred stock combined for a total of approximately
$2,931,000. Accounting rules dictate that these liabilities must
remain on
our books under Current Liabilities until the lawsuit is resolved
in the
judicial system or otherwise. At this time we cannot predict the
outcome
or the time frame for this to
occur.
|
Page
|
||||
Consolidated Financial Statements of ATSI Communications, Inc. and Subsidiaries | ||||
Report
of Malone and Bailey, PC.
|
26
|
|||
Consolidated
Balance Sheet as of July 31, 2005
|
27
|
|||
Consolidated
Statements of Operations for the Years Ended July 31, 2005 and
2004
|
28
|
|||
Consolidated
Statements of Comprehensive Income (loss) for
|
||||
the
Years Ended July 31, 2005 and 2004
|
29
|
|||
Consolidated
Statement of Changes in Stockholders’ Deficit for
|
||||
the
Years Ended July 31, 2005 and 2004
|
30
|
|||
Consolidated
Statements of Cash Flows for the Years Ended July 31, 2005 and
2004
|
31
|
|||
Notes
to Consolidated Financial Statements
|
32
|
ATSI
COMMUNICATIONS, INC.
|
|||
AND
SUBSIDIARIES
|
|||
CONSOLIDATED
BALANCE SHEET
|
|||
(in
thousands, except share
information)
|
July
31,2005
|
||||
ASSETS:
|
(Restated)
|
|||
CURRENT
ASSETS:
|
||||
Cash
and cash equivalents
|
$
|
29
|
||
Accounts
receivable
|
170
|
|||
Prepaid
& other current assets
|
44
|
|||
Total
current assets
|
243
|
|||
|
||||
PROPERTY
AND EQUIPMENT
|
228
|
|||
Less
- accumulated depreciation
|
(90
|
)
|
||
Net
property and equipment
|
138
|
|||
|
||||
Total
assets
|
$
|
381
|
||
|
||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||
CURRENT
LIABILITIES:
|
||||
Accounts
payable
|
$
|
606
|
||
Accrued
liabilities
|
1,033
|
|||
Current
portion of obligation under capital leases
|
3
|
|||
Notes
payable
|
16
|
|||
Notes
payable, Franklin Cardwell & Jones
|
77
|
|||
Convertible
debentures
|
234
|
|||
Series
D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares
issued
and outstanding
|
1,182
|
|||
Series
E Cumulative Preferred Stock, 10,000 shares authorized, 1,170 shares
issued and outstanding
|
1,749
|
|||
Derivative
financial instrument liabilities (footnote 12)
|
24
|
|||
Liabilities
from discontinued operations, net of assets
|
1,152
|
|||
Total
current liabilities
|
6,076
|
|||
|
||||
LONG-TERM
LIABILITIES:
|
||||
Notes
payable
|
500
|
|||
Obligation
under capital leases, less current portion
|
9
|
|||
Other
|
8
|
|||
Total
long-term liabilities
|
517
|
|||
|
||||
STOCKHOLDERS'
DEFICIT:
|
||||
Series
A Cumulative Convertible Preferred Stock, 50,000 shares authorized,
3,750
issued and outstanding
|
-
|
|||
Series
H Convertible Preferred Stock, 16,000,000 shares authorized, 13,912,372
issued and outstanding
|
14
|
|||
Common
stock, $0.001, 150,000,000 shares authorized, 10,397,222 issued and
outstanding
|
10
|
|||
Additional
paid in capital
|
66,458
|
|||
Accumulated
deficit
|
(73,196
|
)
|
||
Other
comprehensive income
|
502
|
|||
Total
stockholders' deficit
|
(6,212
|
)
|
||
Total
liabilities and stockholders' deficit
|
$
|
381
|
ATSI
COMMUNICATIONS, INC.
|
|||||
AND
SUBSIDIARIES
|
|||||
CONSOLIDATED
STATEMENTS OF OPERATIONS (RESTATED)
|
|||||
(In
thousands, except per share
amounts)
|
Years
ended July 31,
|
|||||||
2005
|
2004
|
||||||
OPERATING
REVENUES:
|
|||||||
Services
|
|||||||
Carrier
services
|
$
|
5,782
|
$
|
1,020
|
|||
Network
services
|
229
|
234
|
|||||
Total
operating revenues
|
6,011
|
1,254
|
|||||
OPERATING
EXPENSES:
|
|||||||
Cost
of services (exclusive of depreciation and amortization, shown
below)
|
5,664
|
1,071
|
|||||
Selling,
general and administrative expense (exclusive of legal and professional
fees, non cash stock compensation to employees and warrants for services,
shown below)
|
517
|
585
|
|||||
Legal
and professional fees
|
417
|
303
|
|||||
Non-cash
issuance of common stock and warrants for services
|
618
|
6,570
|
|||||
Non-cash
stock-based compensation, employees
|
474
|
-
|
|||||
Impairment
expense
|
-
|
702
|
|||||
Bad
debt expense
|
4
|
4
|
|||||
Depreciation
and amortization
|
112
|
20
|
|||||
Total
operating expenses
|
7,806
|
9,255
|
|||||
OPERATING
LOSS
|
(1,795
|
)
|
(8,001
|
)
|
|||
OTHER
INCOME (EXPENSE):
|
|||||||
Other
income
|
27
|
7
|
|||||
Debt
forgiveness income
|
460
|
257
|
|||||
Gain
on disposal of investment
|
12,104
|
0
|
|||||
Gain
from sale of assets
|
-
|
25
|
|||||
Gain
(loss) on derivative instrument liabilities
|
(287
|
)
|
4,439
|
||||
Loss
on an unconsolidated affiliate
|
-
|
(107
|
)
|
||||
Interest
expense
|
(102
|
)
|
(177
|
)
|
|||
|
|||||||
Total
other income
|
12,202
|
4,444
|
|||||
NET
INCOME (LOSS)
|
10,407
|
(3,557
|
)
|
||||
LESS:
PREFERRED DIVIDENDS
|
(709
|
)
|
(306
|
)
|
|||
NET
INCOME (LOSS) TO COMMON STOCKHOLDERS
|
$
|
9,698
|
($3,863
|
)
|
|||
BASIC
INCOME (LOSS) PER SHARE
|
$
|
1.36
|
($3.22
|
)
|
|||
DILUTED
INCOME (LOSS) PER SHARE
|
$
|
0.42
|
($3.22
|
)
|
|||
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING
|
7,128,847
|
1,199,892
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|||||
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (RESTATED)
|
|||||
(In
thousands)
|
Twelve
months ended July 31,
|
|||||||
2005
|
2004
|
||||||
Net
income (loss) to common stockholders
|
$
|
9,698
|
($3,863
|
)
|
|||
Foreign
currency translation adjustment
|
-
|
-
|
|||||
Comprehensive
income (loss) to common stockholders
|
$
|
9,698
|
($3,863
|
)
|
ATSI
COMMUNICATIONS, INC.
|
AND
SUBSIDIARIES
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT) (RESTATED)
|
(
in thousands)
|
Preferred
Stock (A)
|
Preferred
Stock (H)
|
Common
Stock
|
||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid In Capital
|
Accumulated
Deficit
|
Notes
receivable from officers
|
Cumulative
Translation Adjustment
|
Total
Stockholders'
(DEFICIT) |
||||||||||||||||||||||||
BALANCE,
JULY 31, 2003
|
4
|
0
|
-
|
-
|
1,036
|
$
|
1
|
$
|
60,720
|
($80,046
|
)
|
$
|
0
|
$
|
502
|
(18,819
|
)
|
|||||||||||||||||
Shares
issued for services
|
929
|
1
|
861
|
862
|
||||||||||||||||||||||||||||||
Shares
issued for cash
|
567
|
1
|
5
|
6
|
||||||||||||||||||||||||||||||
Conversion
of redeemable preferred stock
|
401
|
0
|
314
|
314
|
||||||||||||||||||||||||||||||
Reincorporation
to Nevada
|
14,385
|
14
|
(14
|
)
|
(0
|
)
|
128
|
142
|
||||||||||||||||||||||||||
Dividends
declared
|
(306
|
)
|
(306
|
)
|
||||||||||||||||||||||||||||||
Derivative
instrument (income) expense
|
(5,784
|
)
|
(5,784
|
)
|
||||||||||||||||||||||||||||||
Warrant
expense
|
6,569
|
6,569
|
||||||||||||||||||||||||||||||||
Net
loss
|
(3,557
|
)
|
(3,557
|
)
|
||||||||||||||||||||||||||||||
BALANCE,
JULY 31, 2004
|
4
|
0
|
14,385
|
14
|
2,919
|
$
|
3
|
$
|
62,510
|
($83,602
|
)
|
$
|
0
|
$
|
502
|
(20,573
|
)
|
|||||||||||||||||
Shares
issued for services
|
1,417
|
1
|
606
|
607
|
||||||||||||||||||||||||||||||
Shares
issued to Purchase Assets
|
121
|
0
|
69
|
69
|
||||||||||||||||||||||||||||||
Shares
issued for P/S Conversion
|
(473
|
)
|
473
|
0
|
0
|
1
|
||||||||||||||||||||||||||||
Shares
issued for Debt Conversion
|
1,188
|
1
|
944
|
945
|
||||||||||||||||||||||||||||||
Exercise
of Warrants
|
4,280
|
4
|
914
|
918
|
||||||||||||||||||||||||||||||
Warrant
expense
|
443
|
443
|
||||||||||||||||||||||||||||||||
Derivative
instrument (income) expense
|
1,638
|
1,638
|
||||||||||||||||||||||||||||||||
Dividends
declared
|
(709
|
)
|
(709
|
)
|
||||||||||||||||||||||||||||||
Option
Expense
|
42
|
42
|
||||||||||||||||||||||||||||||||
Net
income
|
10,407
|
10,407
|
||||||||||||||||||||||||||||||||
BALANCE,
JULY 31, 2005
|
4
|
0
|
13,911
|
14
|
10,397
|
$
|
10
|
$
|
66,458
|
($73,196
|
)
|
$
|
0
|
$
|
502
|
(6,212
|
)
|
ATSI
COMMUNICATIONS, INC. AND SUBSIDIARIES
|
|||
CONSOLIDATED
STATEMENTS OF CASH FLOWS (RESTATED)
|
|||
(In
thousands)
|
Years
ended July 31,
|
|||||||
2005
|
2004
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
NET
INCOME (LOSS)
|
$
|
10,407
|
($3,557
|
)
|
|||
Adjustments
to net income (loss):
|
|||||||
Gain
on disposal of investment
|
(12,104
|
)
|
|||||
Debt
forgiveness income
|
(460
|
)
|
(257
|
)
|
|||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|||||||
Impairment
loss
|
-
|
702
|
|||||
Depreciation
and amortization
|
112
|
19
|
|||||
Loss
on an unconsolidated affiliate
|
-
|
107
|
|||||
Non-cash
issuance of stock grants and options, employees
|
474
|
-
|
|||||
Non-cash
issuance of common stock and warrants for services
|
618
|
6,570
|
|||||
Provision
for losses on accounts receivable
|
4
|
4
|
|||||
Loss
(gain) on derivative instrument liabilities
|
287
|
(4,439
|
)
|
||||
Changes
in operating assets and liabilities:
|
|||||||
Increase
in
|
|||||||
Accounts
receivable
|
(125
|
)
|
(21
|
)
|
|||
Prepaid
expenses and other
|
(18
|
)
|
(31
|
)
|
|||
Increase
/ (decrease) in
|
|||||||
Accounts
payable
|
79
|
284
|
|||||
Accrued
liabilities
|
165
|
162
|
|||||
Net
cash used in operating activities
|
(561
|
)
|
(457
|
)
|
|||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchases
of property & equipment
|
(8
|
)
|
(130
|
)
|
|||
Cash
proceeds from sale of ATSICOM
|
-
|
187
|
|||||
Investment
in joint venture in ATSICOM
|
-
|
(47
|
)
|
||||
Acquisition
of business
|
(8
|
)
|
-
|
||||
Net
cash (used in) provided by investing activities
|
(16
|
)
|
10
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Proceeds
from notes payable
|
918
|
410
|
|||||
Payments
on notes payable
|
(918
|
)
|
(9
|
)
|
|||
Proceeds
from the exercise of warrants
|
514
|
-
|
|||||
Principal
payments on capital lease obligation
|
(2
|
)
|
-
|
||||
Net
cash provided by financing activities
|
512
|
401
|
|||||
DECREASE
IN CASH
|
(65
|
)
|
(46
|
)
|
|||
CASH
AND CASH EQUIVALENTS, beginning of period
|
94
|
140
|
|||||
CASH
AND CASH EQUIVALENTS, end of period
|
$
|
29
|
$
|
94
|
|||
NON-CASH
TRANSACTIONS
|
|||||||
Issuance
of common stock for conversion of debt
|
$
|
944
|
-
|
||||
Issuance
of common stock for purchase of fixed & Intangible
assets
|
82
|
-
|
|||||
Fair
value of the derivative instrument
|
26
|
6,569
|
|||||
Change
in derivative liabilities on warrants exercised
|
1,638
|
1,638
|
Twelve
months ended July 31,
|
|||||||
2005
|
2004
|
||||||
(Restated)
|
|||||||
Net
income (loss) to common shareholders, as reported
|
$
|
9,698,000
|
($3,863,000
|
)
|
|||
Add:
stock based compensation determined under the intrinsic value-based
method
|
42,080
|
-
|
|||||
Less:
stock
based compensation determined under the
fair value-based method
|
(1,000,493
|
)
|
-
|
||||
Pro
forma net income (loss)
|
$
|
8,739,587
|
($3,863,000
|
)
|
|||
Basic
and diluted net income (loss) per share
|
|||||||
As
reported
|
$
|
1.36
|
($3.22
|
)
|
|||
Pro
forma
|
$
|
1.23
|
($3.22
|
)
|
For
the Years Ended July 31,
|
|||||||
2005
|
2004
|
||||||
Expected
dividends yield
|
0.00
|
%
|
0.00
|
%
|
|||
Expected
stock price volatility
|
297
|
%
|
248
|
%
|
|||
Risk-free
interest rate
|
3.5
|
%
|
2
|
%
|
|||
Expected
life of options
|
3
years
|
1-3
years
|
Depreciable
lives
|
July
31, 2005
|
||||||
Telecom
equipment & Software
|
1-5
years
|
$
|
228
|
||||
Less:
accumulated depreciation
|
(90
|
)
|
|||||
Net-property
and equipment
|
$
|
138
|
Accounts
payable
|
$
|
7,496
|
||
Accrued
liabilities
|
2,015
|
|||
Notes
payable
|
386
|
|||
Capital
leases
|
2,207
|
|||
|
||||
TOTAL
CURRENT LIABILITIES:
|
$
|
12,104
|
COMMON
SHARES
|
EXERCISE
PRICE
|
|||
|
||||
2,000,000
|
$
|
0.01/share
|
||
800,000
|
$
|
0.25/share
|
||
850,000
|
$
|
0.50/share
|
||
250,000
|
$
|
0.75/share
|
Year
Ending July 31,
|
|||||||
2005
|
2004
|
||||||
Warrants
outstanding, beginning
|
19,874
|
45,088
|
|||||
Warrants
issued
|
-
|
-
|
|||||
Warrants
expired
|
(19,874
|
)
|
(25,214
|
)
|
|||
Warrants
exercised
|
-
|
-
|
|||||
Warrants
outstanding, ending
|
-
|
19,874
|
Years
Ended July 31,
|
|||||||||||||
1997
Stock Option Plan
|
2005
|
2004
|
|||||||||||
|
|
|
Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Options
|
|
|
Weighted
Average Exercise Price
|
|
Outstanding,
|
|||||||||||||
Beginning
of year
|
-
|
$
|
-
|
20
|
$
|
58
|
|||||||
Granted
|
-
|
-
|
-
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
-
|
|||||||||
Forfeited
|
-
|
-
|
(20
|
)
|
58
|
||||||||
Outstanding,
end of year
|
-
|
$
|
-
|
-
|
$
|
58
|
|||||||
Options
exercisable at end of year
|
- | - |
(20
|
)
|
$
|
58
|
|||||||
Weighted
average fair value of options granted during the year
|
$ | N/A | N/A |
1998
Stock Option Plan
|
2005
|
2004
|
|||||||||||
Options
|
Weighted
Average Exercise
Price
|
Options
|
Weighted
Average Exercise
Price
|
||||||||||
Outstanding,
|
|||||||||||||
Beginning
of year
|
3,559
|
$
|
56
|
3,559
|
$
|
56
|
|||||||
Granted
|
-
|
-
|
-
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
-
|
|||||||||
Forfeited
|
(3,559
|
)
|
56
|
-
|
-
|
||||||||
Outstanding,
end of year
|
-
|
$
|
-
|
3,559
|
$
|
56
|
|||||||
Options
exercisable at end of year
|
- | - |
3,559
|
$
|
56
|
||||||||
Weighted
average fair value of options granted during the year
|
$ | N/A | N/A |
2000
Stock Option Plan
|
2005
|
2004
|
|||||||||||
Options
|
Weighted
Average Exercise
Price
|
Options
|
Weighted
Average Exercise
Price
|
||||||||||
Outstanding,
|
|||||||||||||
Beginning
of year
|
28,767
|
$
|
48
|
38,100
|
$
|
45
|
|||||||
Granted
|
-
|
-
|
-
|
-
|
|||||||||
Exercised
|
-
|
-
|
-
|
-
|
|||||||||
Forfeited
|
(28,767
|
)
|
48
|
(9,333
|
)
|
48
|
|||||||
Outstanding,
end of year
|
-
|
$
|
-
|
28,767
|
$
|
48
|
|||||||
Options
exercisable at end of year
|
- | - |
22,466
|
$
|
47
|
||||||||
Weighted
average fair value of options granted during the year
|
$ | N/A | N/A |
2004
Stock Option Plan
|
2005
|
2004
|
|||||||||||
Options
|
Weighted
Average Exercise
Price
|
Options
|
Weighted
Average Exercise
Price
|
||||||||||
Outstanding,
|
|||||||||||||
Beginning
of year
|
-
|
$
|
-
|
-
|
$
|
-
|
|||||||
Granted
|
3,004,000
|
0.46
|
57,786
|
0.95
|
|||||||||
Exercised
|
(900,000
|
)
|
0.46
|
(57,786
|
)
|
0.95
|
|||||||
Forfeited
|
-
|
-
|
-
|
-
|
|||||||||
Outstanding,
end of year
|
2,104,000
|
$
|
-
|
-
|
$
|
-
|
|||||||
Options
exercisable at end of year
|
1,328,000
|
$
|
0.46
|
-
|
$
|
-
|
|||||||
Weighted
average fair value of options granted during the year
|
$ | 0.46 |
$
|
0.95
|
2004
Stock Compensation Plan (WARRANTS)
|
2005
|
2004
|
|||||||||||
Warrants
|
Weighted
Average Exercise
Price
|
Warrants
|
Weighted
Average Exercise
Price
|
||||||||||
Outstanding,
|
|||||||||||||
Beginning
of year
|
3,333,426
|
$
|
0.25
|
-
|
$
|
-
|
|||||||
Granted
|
2,183,500
|
0.32
|
3,900,000
|
0.21
|
|||||||||
Exercised
|
(4,280,286
|
)
|
0.21
|
(566,574
|
)
|
0.21
|
|||||||
Forfeited
|
(933,500
|
)
|
0.56
|
-
|
-
|
||||||||
Outstanding,
end of year
|
303,140
|
$
|
0.25
|
3,333,426
|
$
|
0.25
|
|||||||
Warrants
exercisable at end of year
|
303,140
|
$
|
0.25
|
-
|
$
|
-
|
|||||||
Weighted
|