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EXHIBIT (a) 2.
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AMTEL COMMUNICATIONS, INC.
AND COMBINED COMPANIES
(Debtor-in-Possession)
COMBINED STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
FOR THE THREE MONTHS ENDED DECEMBER 31, 1994
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INDEX TO COMBINED STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
Page
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Independent Auditor's Report....................................................................................1
Combined Statement of Revenues and Direct Operating Expenses
for the three months ended December 31, 1994...........................................................2
Notes to Combined Statement of Revenues and Direct
Operating Expenses...................................................................................3-4
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[HB LOGO] [HARLAN & BOETTGER LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
OF AMTEL COMMUNICATIONS, INC:
We have audited the accompanying combined statement of revenues and direct
operating expenses of Amtel Communications, Inc., and combined Companies (Note
B) for the three months ended December 31, 1994. This combined statement of
revenues and direct operating expenses is the responsibility of the Company's
management. Our responsibility is to express an opinion on the statement of
revenues and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined statement of revenues and direct operating
expenses are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and direct operating expenses. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the combined
statement of revenues and direct operating expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement was prepared to present the revenues and direct
operating expenses for the three months ended December 31, 1994, pursuant to the
Securities and Exchange Commission's communication dated July 25, 1996 described
in Note C, and is not intended to be a complete presentation of the Company's
operations.
In our opinion, the combined statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenue and
direct operating expenses of Amtel Communications, Inc., and combined Companies
(Note B) for the three months ended December 31, 1994 in conformity with
generally accepted accounting principles.
The accompanying combined statement of revenues and direct operating expenses
has been prepared assuming that the Company will continue as a going concern. As
described in Note A, on August 3, 1995, the Company filed voluntary petitions
for relief under Chapter 11 of Title II of the United States Bankruptcy Code and
was authorized to continue managing and operating the business as a debtor in
possession subject to the control and supervision of the Bankruptcy Court. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The combined statement of revenues and direct operating expenses
does not include any adjustment that might result from the outcome of this
uncertainty.
/s/ Harlan & Boetgger
San Diego, California
August 23, 1996
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[HB LOGO] [HARLAN & BOETTGER LETTERHEAD]
AMTEL COMMUNICATIONS, INC. AND COMBINED COMPANIES
(DEBTOR-IN-POSSESSION)
COMBINED STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
For the three
months ended
December 31, 1994
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REVENUE
Coin $ 2,603,577
LD Commissions 593,370
Interstate 68,155
Intralata 593,842
Other 1,509,861
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TOTAL REVENUE 5,368,805
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COSTS AND EXPENSES
Line charges 1,342,855
Location commissions 890,903
Other operating expenses 1,481,073
Selling, general and administrative 4,115,854
Depreciation and amortization 480,702
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LOSS FROM OPERATIONS BEFORE OTHER
INCOME AND EXPENSES (2,942,582)
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OTHER
Interest income (105)
Interest expense 2,295,382
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NET LOSS $(5,237,859)
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The accompanying notes are an integral part of this statement.
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[HB LOGO] [HARLAN & BOETTGER LETTERHEAD]
AMTEL COMMUNICATIONS, INC. AND COMPANIES
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
A. REORGANIZATION AND LEGAL MATTERS:
Amtel Communications, Inc. and its combined companies (the "Company")
filed voluntary petitions for relief under Chapter 11 of Title II of
the United States Bankruptcy Code (the "Code") on August 3, 1995 (the
"petition date") administratively consolidated under Case No.
95-08253-A11. The Company is currently operating its business as a
debtor-in-possession under the jurisdiction of the United States
Bankruptcy Court for the Southern District of California. The Company's
liabilities as of the petition date are generally subject to settlement
in a plan of reorganization, which must be voted on by certain of its
creditors and confirmed by the Court. Until a reorganization plan has
been confirmed, the Company is prevented from making payments on
pre-petition debt unless permitted by the Code or approved by the
Court. Certain contracts existing at the petition date have been
rejected or assumed with the approval of the Court. The Company
continues to review all other unexpired pre-petition executory
contracts to determine whether they should be assumed or rejected.
Parties affected by the rejection of contracts and leases may file
claims against the Company.
The combined statement of revenues and direct operating expenses has
been prepared assuming the Company will continue as a going concern,
which contemplates continuity of operations and the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Chapter 11 filings, the Company's leveraged financial
structure, and recurring net losses resulting in a deficit in
stockholder's equity, raise substantial doubt about its ability to
continue as a going concern. A plan of reorganization may materially
change the amounts reported in the combined statement of revenues and
direct operating expenses (which do not give effect to adjustments to
the carrying values of assets and liabilities which may be necessary as
a consequence of a plan of reorganization). The continuation of the
Company's business as a going concern is contingent upon, among other
things, the ability to (1) formulate a plan of reorganization that will
be confirmed by the Court, (2) achieve satisfactory levels of future
profitable operations, (3) maintain adequate financing, and (4) provide
sufficient cash from operations to meet future obligations.
The Company has commenced actions against various parties relating to
the management of the Company. These actions seek to avoid or
subordinate certain obligations incurred by the Company and to recover
certain payments made by or on behalf of the Company in connection with
its operations. The Company has also filed actions against several
entities seeking avoidance and recovery of certain transfers of
interests of the Company in property alleged to be preferences under
section 547(b) of the Code. The ultimate outcome of this actions and
the potential recoveries, if any, resulting from the resolution of
these actions is unknown at this time and, accordingly, no provision
for any amounts has been recorded in this combined statement of
revenues and direct operating expenses.
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[HB LOGO] [HARLAN & BOETTGER LETTERHEAD]
AMTEL COMMUNICATIONS, INC. AND COMPANIES
(DEBTOR-IN-POSSESSION)
NOTES TO COMBINED STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
(CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF COMBINATION
The combined statement of revenues and direct operating expenses
includes the accounts of Amtel Communications, Inc., Amtel
Communications Payphones, Inc., Amtel Communications Services, Inc.,
Amtel Communications Correctional Facilities, Inc. and ACI-HDT Supply
Company. The five entities are all owned 100% by the same individual.
Collectively, the five entities will be referred to as "the Company".
Material intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
Revenue is recognized when it is earned with the exception of coin
revenue, which is recognized when it is collected.
ESTIMATES
The preparation of a combined statement of revenues and direct
operating expenses in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the amounts reported in the combined statement of revenues and
direct operating expenses and accompanying notes. Although these
estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ from
actual results.
C. INCOMPLETE PRESENTATION:
By letter dated July 25, 1996 to PhoneTel Technologies, Inc., the
Securities and Exchange Commission (SEC) granted a waiver of Item
310(c) of Regulation S-B which requires submission of two years of
audited statements of operations. Instead, the SEC has accepted audited
statements of operations for a twenty-one month period. This combined
statement of revenues and direct operating expenses together with the
combined statement of operations from the audited financial statements
for the six months ended June 30, 1996 and for the year ended December
31, 1995 comprise the twenty-one month period.
D. SUBSEQUENT EVENT - PROPOSED PLAN OF REORGANIZATION:
In 1996, the Company evaluated its long-term market strategies with the
goal of reducing expenses and improving overall operating results. As a
result, the Company entered into an asset purchase agreement with
PhoneTel Technologies, Inc. (an Ohio Corporation) ("PhoneTel") dated
June 26, 1996 wherein the Company will sell substantially all of its
pay phone operating assets for cash and stock of PhoneTel totaling
$13,000,000 ($7,000,000 cash and $6,000,000 PhoneTel stock). In July,
1996 PhoneTel made a non refundable deposit of $1,300,000 to open
escrow for the purchase of these assets.
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