AMERIVISION COMMUNICATIONS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the quarterly period
ended June 30 2002.

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from ___________ to _________________.

Commission file number 0-27683

AMERIVISION COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

OKLAHOMA 73-1378798
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

5900 MOSTELLER DRIVE, SUITE 1600 73112
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal executive offices)

(405) 600-3500
(Registrant's telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed
since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed 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 [ ]

Outstanding shares of the registrant's common stock, par value $0.10 per share,
at July 31, 2002: 847,975.

AMERIVISION COMMUNICATIONS, INC.

INDEX

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERIVISION COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Information at June 30, 2002 is unaudited)

The accompanying notes are an integral part of these financial statements.

2

AMERIVISION COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

3

AMERIVISION COMMUNICATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(In thousands)

The accompanying notes are an integral part of these financial statements.

4

AMERIVISION COMMUNICATIONS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

5

AMERIVISION COMMUNICATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements for
AmeriVision Communications, Inc. (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted. In the opinion of the
Company's management, the condensed consolidated financial statements reflect
all adjustments, of a normal and recurring nature, that are necessary to present
fairly the Company's financial position as of June 30, 2002, and the results of
its operations and cash flows for the six months ended June 30, 2001 and 2002.

The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is recommended that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes as of and for the year ended December 31, 2001. The interim
results are not necessarily indicative of the results for a full year.

Certain amounts in the condensed consolidated balance sheets as of June 30,
2002, have been reclassified to conform with the classifications used as of
December 31, 2001.

NOTE B--EARNINGS PER SHARE (share and per share amounts not in thousands)

The computation of basic and diluted earnings per share for the three and six
months ended June 30, 2001 and 2002, is as follows:

6

The conversion of redeemable stock was not assumed in the computation of diluted
earnings (loss) per share for the three months ended June 30, 2001, or the six
months ended June 30, 2001, because to do so would have been antidilutive for
the periods. The conversion of convertible notes was not assumed in the
computation of diluted earnings (loss) per share for the six months ended June
30, 2001 and 2002, because to do so would have been antidilutive for the
periods.

NOTE C--PRIOR PERIOD ADJUSTMENT

Subsequent to December 31, 2001, the Company determined that it had incorrectly
computed the amount of common stock subject to rescission by stockholders at
December 31, 2000 and prior periods. Specifically, the Company did not correctly
apply certain state statutes when it previously reported the amount of common
stock subject to rescission. The effects of this error were to increase the
stockholders' deficiency (1) from ($27,644) to ($28,427) at January 1, 1999, (2)
from ($23,758) to ($24,785) at December 31, 1999, and (3) from ($22,636) to
($23,738) at December 31, 2000. The restatement did not have any affect on the
previously reported results of operations or cash flows for the years ended
December 31, 1999 and 2000.

NOTE D--RELATED PARTY INFORMATION

The Company has financial relationships with the following members of its Board
of Directors: (a) Mr. Guthrie is the payee of the Company's promissory note,
dated February 1, 2001, issued in the principal sum of $50,000, bearing interest
at an annual interest rate of 14% (plus a late charge of 5% of any delinquent
payment), carrying a maturity date of February, 1, 2002, and current balance of
$45,000, (b) Mr. Nestegard is the payee of the Company's promissory note, dated
February 1, 2001, issued in the principal sum of $325,000, bearing interest at
an annual interest rate of 14% (plus a late charge of 5% of any delinquent
payment), carrying a maturity date of February 1, 2002, and current balance of
$292,500; (c) Mr. Telling, a former vice-president of the Company, is currently
owed the monetary sum of $425,000, payable to him by the Company under the terms
of an employment termination agreement entered into in December 1999 and which
required an aggregate of $1,359,000 be paid to him over the succeeding four year
period; and (d) Mr. Telling is the current chairman and president of Hebron
Communications Corporation, a Florida corporation ("Hebron") which owns the
building in which the Company's principal offices are located and from which the
Company leases approximately 37,000 square feet of occupied space at an annual
rental of slightly more than $500,000. Hebron is also the payee of three
separate promissory notes, having an original aggregate face value of
$3,451,000, issued by the Company in 1999 and 2000 as a consequence of the
Company's purchase from that entity of certain telecommunications switching
network equipment and Internet service product development assets. The aggregate
principal balance currently owing under the notes is approximately $2,352,000,
and because of cash disbursement limitations imposed by the Company's principal
lender, all are in default and therefore carry annual interest rates of 18%.

As of May 26, 2000 (the "Commencement Date"), the Company entered into an
amended and restated employment agreement with Stephen Halliday, then the
Company's president and chief executive officer and a member of its board of
directors (the "CEO Agreement"). That agreement carried an effective initial
term of five years, measured from October 1998, and was subject to automatic one
year extensions unless either party notified the other of an intention to
terminate at the end of the then existing term. Under its principal provision
Mr. Halliday was to receive an annual salary of $450,000 which was increased to
$600,000 on October 1, 1999, as well as rights to receive and options to acquire
shares of the Company's Common Stock. Pursuant thereto, as of July 1, 2000, the
Company issued Mr. Halliday 4,549 shares of Common Stock of which 50% were then
deemed to be vested and an additional 25% were to be vested on each of the two
succeeding anniversary dates of the issuance. Further, Mr. Halliday was entitled
to receive a cash bonus equal to whatever additional income tax resulted from
the vesting of such shares and the payment of such bonus, as well as two
separate options to acquire (a) 27,296 shares of Common Stock at an exercise
price of $28.86/share, and (b) 2% of the Common Stock deemed outstanding, on a
fully diluted basis, as of May 26, 2003, at an exercise price of $36.075. As a
direct consequence of the shareholder action taken in July 2001,

7

Mr. Halliday's status with the Company was modified and he chose to effect a
good reason termination of the CEO Agreement.

The Company and Mr. Halliday have recently executed Consulting and Settlement
Agreement, effective as of January 1, 2002, under which the Company will pay Mr.
Halliday the monthly sum of $41,300 from August 2002 through November 2006 and
slightly different sums in July 2002 and December 2006, and Mr. Halliday will
provide the Company with consulting services and have certain of his expenses,
incurred in the performance of such activities, reimbursed by the Company. The
agreement also contains non-competition and non solicitation provisions. The
Company's monetary obligations under this arrangement have been evidenced by a
promissory note, and the Company has recorded the present value of these
payments as a current asset and a current liability. As a result of the
shareholders' June 2002 election of a new board of directors, a "change of
control" occurred under the note so as to place the Company in a state of
technical default and Mr. Halliday in a position to demand full payment of the
note's current principal balance of approximately $2 million. Mr. Halliday has
informed the Company that he has no intention of exercising his demand rights as
long as he believes the Company's management to be exercising reasonable and
prudent business judgment in its managerial duties, and that no significant
business decisions are being made without prior approval of the Company's board
of directors or a representative with delegated authority to act for the board.

During the three months ended June 30, 2002, the Company recorded long distance
telecommunications service revenue from a single customer constituting
approximately 18% of its total revenues for the period. In August 2002, the
Company was notified by the customer of its intended redirection of its
telecommunications service needs to other carriers during the third quarter
2002.

NOTE E--LEGAL MATTERS

In February 2001, the State of Florida assessed the Company for underpayment of
various Florida taxes, including gross receipts taxes and sales and use taxes,
covering the periods from September 1993 through August 1998, to the extent of
approximately $1,728, including penalties and interest of approximately $847.
The Company agreed with $14 of the assessment and subsequently paid that amount.
The Company disagrees with the remaining assessment of $1,714, and has asserted
that satisfaction of any underpaid taxes was the responsibility of the Company's
third-party billing and collection companies. The State of Florida has requested
an extension to December 31, 2003 to complete its audit. The Company believes
that it will ultimately prevail in its protest of the assessment, and has not
recorded a liability as of December 31, 2001 or June 30, 2002.

NOTE F--SUBSEQUENT EVENT

On August 6, 2002, the Company was notified by Coast Business Credit, a Division
of Southern Pacific Bank ("Coast"), the Company's primary lender, of its
intention not to renew the Credit Facility following the occurrence of its
current maturity date, January 30, 2003. The Company is currently considering
available financing options, including an extension of the Coast relationship
upon alternative terms. If the Company is not successful in obtaining
alternative financing, there could be a material adverse effect on the Company's
ability to continue operations at its current levels or to meets its obligations
as they come due.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The historical financial data presented in the following table for and at
the end of the six-month periods ended June 30, 2001 and 2002 are derived from
the unaudited consolidated financial statements of the Company. In the opinion
of management of the Company, such unaudited consolidated condensed financial
statements include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial data for such periods. The
results for the six months ended June 30, 2002 are not necessarily indicative of
the results to be achieved for the full year.

8

The data presented below should be read in conjunction with the Company's
consolidated financial statements and the notes thereto included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

- ----------

(1) EBITDA (earnings before interest, taxes, depreciation and
amortization) consists of net sales less cost of telecommunication
services and selling, general and administrative expenses. EBITDA is
provided because it is a measure commonly used by investors to analyze
and compare companies on the basis of operating performance. EBITDA is
presented to enhance an understanding of the Company's operating
results and is not intended to represent cash flows or results of
operations in accordance with generally accepted accounting principles
("GAAP") for the periods indicated. EBITDA is not a measurement under
GAAP and is not necessarily comparable with similarly titled measures
for other companies.

GENERAL

The Company provides domestic long distance and other telecommunications
services, primarily to residential users. Since its formation in 1991, the
Company's annual long distance telephone volume has grown from approximately
$1.0 million in net sales in 1991 to approximately $80.8 million in net sales in
2001. Substantially all of this growth is attributable to the increase in the
Company's subscriber base. The Company's subscriber base has increased from
approximately 30,000 subscribers at the beginning of 1994 to approximately
400,000 subscribers at December 31, 2001. The Company does not, however, expect
its revenues or subscriber base to continue to grow at this rate in the future
due to decreased long-distance traffic and users. The net sales for the three
and six months ended June 30, 2001 totaled $20.3 million and 42.0 million,
respectively, compared to $17.5 million and 33.8 million, respectively, for the
three months ended June 30, 2002.

From its inception through December 31, 1998, the Company had incurred
cumulative net operating losses totaling approximately $12.1 million. During the
year ended December 31, 1999, 2000 and 2001, the Company generated net income of
$2.2 million, $0.8 million, and $3.4 million, respectively. The improvements of
net income from operating activities were primarily achieved from reductions in
operating expenses. The Company reduced its accumulated stockholders' deficiency
from approximately $25.8 million at December 31, 1997 to approximately $16.9
million at December 31, 2001. The net income generated during the three and six
months ended June 30, 2002 also contributed to the decrease in accumulated
stockholders' deficiency to approximately $15.7 million at March 31, 2002. In
addition to the net operating losses, the accumulated deficit has been
attributed to the Company's payment of quarterly distributions to its
stockholders between 1994 and 1997, totaling approximately $19.0 million, and by
stock redemptions totaling approximately $4.7 million. The Company's current
liabilities exceeded its current assets by approximately $22.7 million, $19.6
million, and $17.9 million at December 31, 2000, December 31, 2001 and at June
30, 2002, respectively.

The Company bills its customers under several different methods. Some
customers receive their long distance bills directly from the Company. The
Company also has billing and collection agreements with several of the RBOCs.
Customers who are billed through the RBOCs receive their long distance phone
bill with their local phone bill from the RBOC. The Company also utilizes one
third party billing and collection service for customer billings through other
LECs or RBOCs with whom the Company does not have a separate billing and
collection agreement.

The Company makes payments of approximately 10.0% of certain of the
customer's collected revenues to a non-profit organization selected by the
customer.

9

Selling, general and administrative expenses include billing fees charged
by LECs and other third party billing and collection companies, bad debts,
commissions to salespersons, advertising and telemarketing expenses, customer
service and support, and other general overhead expenses.

Interest expense includes the cost of financing the Company's accounts
receivable and asset purchases, including loans from its primary financial
institution under a line of credit facility (the "LOC").

The Company has recognized net deferred tax assets, primarily due to net
operating loss carryforwards.

In 1996, the Federal Communications Commission adopted regulations
implementing the Telecommunications Act enacted that year. To support universal
service, carriers are required to contribute certain percentages of their annual
gross receipts to fund the High Cost Fund, the Schools and Libraries Fund, and
the Low Income Fund. The FCC has allowed carriers to offset these charges by
passing them through to their customers. In addition, the FCC adopted a Primary
Interexchange Carrier Charge ("PICC") to allow LECs to recover through
non-usage-sensitive charges certain costs associated with long distance carriers
having access to LEC networks. The FCC has also allowed the long distance
carriers to offset these amounts by passing these charges on to their customers.
In May 2000, the FCC adopted an order, which consolidates PICC charges with
certain other subscriber charges and initially decreases the charges effective
July 1, 2000 and then annually increases such charges. As a result the Company
reduced its PICC charges and the impact is an annualized revenue loss of
approximately $6.0 million with a similar reduction in PICC costs.

RESULTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 2001

The following table sets forth for the three-month and six-month periods
indicated the percentage of net sales represented by certain items in the
Company's statements of operations:

10

NET SALES: Net sales decreased 14.1% to $17.5 million for the current
quarter from $20.3 million for the year earlier quarter. Net sales decreased
19.5% to $33.8 million for the six months ended June 30, 2002 from $42.0 million
for the six months ended June 30, 2001. This decrease was the result of a
decrease in total minutes of traffic and a reduction in minutes under certain
rate plans, which are billed at a higher per minute rate. Total billable minutes
were approximately 97 million minutes for the current quarter compared to 133
million minutes for the year earlier quarter, a decrease of 27.1%.

COST OF TELECOMMUNICATION SERVICES: The Company's cost of sales are
variable costs based on amounts paid by the Company to its providers for its
customers' long distance usage, as well as the amounts paid to providers for
customer service and support. For the six months ended June 30, 2002, the
Company's overall cost per minute decreased as compared to the three and six
months ended June 30, 2001. This decrease resulted from rate reductions received
by the Company from its switchless carrier. During the three and six months
ended June 30, 2002 and 2001, the amounts and relative percentage of net sales
to each of its providers was as follows:

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: The significant components of
selling, general and administrative expenses include the following:

Billing Fees and Charges: Billing fees and charges include the contractual
billing fees and bad debts charged by LECs and other third party billing
companies. It also includes bad debt charge-offs from the Company's direct bill
customers. The efforts to collect the direct bill customer accounts are
completed by internal personnel. The reduction in the overall billing fees and
charges from 2001 to 2002 is due primarily to improvements in the Company's
internal collection process.

Advertising and Marketing Expense: Advertising expense decreased for the
three months and six months ended June 30, 2002 to $383,000 and $806,000,
respectively, compared to $701,000 and $1,532,000 in the same periods in 2001,
respectively. The decrease was primarily due to more focused efforts on specific
advertising.

Payments to Non-Profit Organizations: Payments to non-profit organizations
for the three months and six months ended June 30, 2002 were $1.1 million and
$2.3 million, respectively, compared to $1.3 million and $2.9

11

million for the same periods in 2001, respectively. During each period, the
Company made Partner Sharing payments to over 30,000 non-profit organizations,
of which approximately 40.0% were paid to ten organizations.

Payroll Expenses: Payroll expenses decreased by approximately $2.1 million
from the six months ended June 30, 2001 to 2002 and approximately $900,000 from
the three months ended June 30, 2001 to 2002, due primarily to reorganization
efforts and elimination of duplicated expenses.

Other General and Administrative Expense: Other general and administrative
expenses decreased by approximately 4.8% and 9.8% during the three months and
six months ended June 30, 2002, respectively, compared to the same periods in
2001. This decrease was due to increased controls on expenses.

DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense
totaled $ 538,000 and $1.1 million for the three and six months ended June 30,
2002, respectively, compared to $534,000 and $1.4 million in same periods in
2001, respectively. This decrease is primarily attributable to significant
assets acquired in prior years becoming fully depreciated.

INTEREST EXPENSE AND OTHER FINANCE CHARGES: Interest expense and other
finance charges decreased to $635,000 and $1.3 million for the three months and
six months ended June 30, 2002, respectively, compared to $1.0 million and $2.1
million in the same periods in 2001, respectively. This decrease is attributable
to a reduction in the Company's LOC balance due to repayments from operating
cash flow.

INCOME TAX EXPENSE: During the three months and six months ended June 30,
2002 the Company recorded deferred income tax expense (benefit) of approximately
$267,000 and $751,000, respectively. This compared to $(228,000) and $(29,000)
for the three months and six months ended June 30, 2001, respectively. The
income tax expense (benefits) recognized in the financial statements consist
primarily of the deferred tax effects of the temporary differences between the
financial and tax basis of assets and liabilities, and net operating loss
carryforwards. The Company believes that it will realize the tax benefits of net
operating loss carryforwards within the period allowed under Federal tax laws
(15 years).

NET INCOME: During the three months and six months ended June 30, 2002 the
Company reported net income of $415,000 and $1.2 million, respectively. This
compared to net (loss) of $(372,000) and $(51,000) for the three months and six
months ended June 30, 2001.

FINANCIAL CONDITION AND LIQUIDITY

Overall the Company's financial condition and liquidity continued to
improve during the six months ended June 30, 2002. The major factor underlying
this improvement was the reduction in its negative working capital position by
approximately $1.8 million over the first six months of 2002. Specifically, in
the first six months of 2002 the Company reduced its credit facility by over
$3.4 million.

Net cash provided by operations for the six months ended June 30, 2002 and
2001 was $4.3 million and $2.2 million, respectively. The variations in cash
flow from operations are primarily attributable to net income for the period,
the timing of collections on accounts receivable, and the timing of payment of
accounts payable.

In 2001, the Company and its lender modified the LOC to provide
availability of $28.5 million. Current availability is limited to a calculated
amount based on financial results and loan formula restrictions of which
approximately $15.2 million was outstanding as of June 30, 2002. The remaining
balance is available to the Company for working capital, capital improvements,
debt reduction and required reserves. The LOC is secured by a blanket lien on
all of the Company's assets, including accounts receivable and the Company's
customer base. The terms of the LOC are for three years from initial funding,
with an interest rate of prime plus 3.5% (with a floor of 9%). Although the LOC
has a three-year term, it is classified as a current liability in the Company's
financial statements because the agreement contains certain subjective
acceleration clauses and requires that all cash receipts be deposited to a
lockbox, the proceeds of which are used daily to repay the debt. The LOC matures
on January 31, 2003. On August 6, 2002, the Company was notified by the lender
of its intent not to renew the LOC beyond the maturity date. See Item 5. Other
Information, for further discussion.

12

The Company expects to incur future capital expenditures of approximately
$200,000 related to upgrades to the Company's management information systems and
various aspects of reorganization.

OPERATING ACTIVITIES

Significant sources of cash in operating activities for the six months
ended June 30, 2002 include increases in accounts payable of $1.3 million,
primarily due to increases in carrier payables. The Company also generated cash
from operations by recording net income of $1.2 million; $751,000 from recording
a deferred income tax expense; and $1.2 million in certain non-cash expenses,
principally depreciation and amortization.

Significant sources of cash in operating activities for the six months
ended June 30, 2001 include decreases in accounts receivable of $1.4 million.
The Company also generated cash from operations by recording certain non-cash
expenses, principally depreciation and amortization, totaling $1.5 million.
Significant uses of cash in operating activities include reductions in accounts
payable of $689,000.

INVESTING ACTIVITIES

The Company's investing activities for the six months ended June 30, 2002
and 2001 consisted primarily of property and equipment purchases of $914,000 and
$115,000, respectively.

FINANCING ACTIVITIES

During the six months ended June 30, 2002 and 2001, financing activities
used $4.2 million and $1.1 million, respectively, in cash. The most significant
use of cash in 2002 was the repayments of notes and leases payable, including
the Company's LOC. The repayment of loans to related parties totaled $566,000
and $238,000, respectively, for the six months ended June 30, 2002 and 2001.

INFLATION AND CHANGING PRICES

Telecommunications revenues do not necessarily track the changes in general
inflation, as they tend to respond to the level of activity on the part of the
telecommunications industry in combination with the number of competing
companies. Capital and operating costs are influenced to a larger extent by
specific price changes in the telecommunications industry and to a lesser extent
by changes in general inflation.

FORWARD LOOKING INFORMATION

This Report contains forward-looking statements and information that are
based on the beliefs of the Company's management as well as assumptions made by
and information currently available to management. All statements other than
statements of historical fact included in this Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including but not limited to statements identified by the words
"anticipate," "believe," "intend," "estimate" and "expect" and similar
expressions. Such statements reflect the Company's current views with respect to
future events, based on what it believes are reasonable assumptions; however,
such statements are subject to certain risks, uncertainties and assumptions,
including but not limited to the risk factors set forth in the Company's
Statements on FORM 10-K, copies of which may be obtained from the Securities and
Exchange Commission or from the Internet site maintained by the Commission at
http://www.sec.gov. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those in the forward-looking statements. The Company
disclaims any intention or obligation to update or review any forward-looking
statements or information, whether as a result of new information, future events
or otherwise.

13

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In February 2001, the State of Florida assessed the Company for
underpayment of various Florida taxes, including gross receipts taxes and sales
and use taxes, covering the periods from September 1993 through August 1998, to
the extent of approximately $1,728, including penalties and interest of
approximately $847. The Company agreed with $14 of the assessment and
subsequently paid that amount. The Company disagrees with the remaining
assessment of $1,714, and has asserted that satisfaction of any underpaid taxes
was the responsibility of the Company's third-party billing and collection
companies. The State of Florida has requested an extension to December 31, 2002
to complete its audit. The Company believes that it will ultimately prevail in
its protest of the assessment, and has not recorded a liability as of December
31, 2001.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's annual meeting of shareholders was held in Oklahoma City,
Oklahoma at 1:00 p.m. local time, on Thursday, June 27, 2002. Proxies for the
meeting were solicited pursuant to Regulation 14 under the Securities and
Exchange Act of 1934, as amended. Out of 847,975 shares of the Company's single
class of authorized capital stock which were outstanding and entitled to vote at
such meeting, 634,354 shares, or approximately 74.8%, were present either in
person or by proxy. Four separate matters were presented by the Company's board
of directors for voting consideration by shareholders, including:

(1) Approval of a replacement set of Company bylaws which
contemplated, among other provisions, the establishment of a classified
board of directors (Proposal #1);

(2) Contingent upon the approval of Proposal #1, approval of a
specific number of persons to serve on the Company's classified board
of directors, as among seven, eight or nine (Proposal #2);

(3) Election of directors (Proposal #3);

(4) Ratification of the board of directors' selection of the
Company's independent auditors for the fiscal year ending December 31,
2002 (Proposal #4).

In advance of the vote on Proposal #1, a shareholder motion was
properly presented proposing an amendment to the replacement set of bylaws
which, if passed, would establish a nine member non-classified board of
directors each of whose members would be elected annually. Such motion was
approved by the shareholders, who thereafter separately voted to approve the
replacement set of bylaws, as so amended. Those actions resulted in a need to
elect a nine member board of directors. In the proxy materials furnished by the
Company's incumbent board of directors, the following nine individuals were
identified as having been nominated for election to such positions: Danny
Bannister, Arch Bonnema, David Clark, Belarmino Gonzalez, David High, Kenneth
Kolek, Arthur Richardson, John Telling and Loren Unruh. At the meeting, the
following five additional individuals were nominated by shareholder motions:
Thomas Choquette, Sharon Freeny, Wilbur Fulbright, Kenneth Guthrie and Curtis
Nestegard, giving rise to a total of 14 nominees running for nine open board
seats. As identified in the following vote tabulation, the nine individuals
elected at the meeting to serve as members of the Company's board of directors
for the annual period ending concurrently with the conduct of the Company's 2002
annual shareholder

14

meeting were: David Clark, Thomas Choquette, Sharon Freeny, Wilbur Fulbright,
Belarmino Gonzalez, Kenneth Guthrie, Curtis Nestegard, Arthur Richardson and
John Telling.

The number of shareholder votes cast, either in person or by proxy,
with respect to each voting proposal presented to the shareholders, including
the number of votes cast with respect to each nominee for the position of
Company director, is set forth below:

15

ITEM 5. OTHER INFORMATION

SUBSEQUENT EVENTS

On July 17, 2002, Mr. Kolek, the Company's Chief Executive Officer, and
the Board of Directors gave notice of their mutual intention to not renew the
consulting agreement between Mr. Kolek and the Company effective as of August
16, 2002. The Company's board of directors has appointed one of its members,
John E. Telling, to serve as interim Chief Executive Officer while it conducts a
formal search for a permanent replacement.

On August 6, 2002, the Company was notified by Coast Business Credit, a
Division of Southern Pacific Bank ("Coast"), the Company's primary lender, of
its intention not to renew the LOC following the occurrence of its current
maturity date, January 31, 2003. The Company is currently considering available
financing options, including an extension of the Coast relationship upon
alternative terms. See Item 6. Exhibits and Reports on 8-K.

During the three months ended June 30, 2002, the Company recorded long
distance telecommunications service revenue from a single customer constituting
approximately 18% of its total revenues for the period. In August 2002 the
Company was notified by the customer of its intended redirection of its
telecommunications service needs to other carriers during the third quarter
2002.

The Company is aware of the reported precarious financial condition
of certain major telecommunications companies. The Company has no long-term
contracts with any of these companies. The Company is implementing a plan to
diversify its risk by utilizing several different carriers so as to better
protect its customers' service requirements. The Company anticipates that no
significant disruptions of its telecommunications services will arise from these
industry conditions.

AGREEMENTS WITH RELATED PARTIES

The Company and Stephen Halliday, a former director, chief executive
officer and president of the Company, are parties to a recently executed
Consulting and Settlement Agreement, effective as of January 1, 2002, under
which the Company will pay Mr. Halliday the monthly sum of $41,300 from August
2002 through November 2006 and slightly different sums in July 2002 and December
2006, and Mr. Halliday will provide the Company with consulting services and
have certain of his expenses, incurred in the performance of such activities,
reimbursed by the Company. The agreement also contains non-competition and non
solicitation provisions. The Company's monetary obligations under this
arrangement have been evidenced by a promissory note, and the Company has
recorded the present value of these payments as a current asset and a current
liability. As a result of the shareholders' June 2002 election of a new board of
directors, a "change of control" occurred under the note so as to place the
Company in a state of technical default and Mr. Halliday in a position to demand
full payment of the note's current principal balance of approximately $2
million. Mr. Halliday has informed the Company that he has no intention of
exercising his demand rights as long as he believes the Company's management to
be exercising reasonable and prudent business judgment in its managerial duties,
and that no significant business decisions are being made without prior approval
of the Company's board of directors or a representative with delegated authority
to act for the board. See Item 6. Exhibits and Reports on 8-K.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

Company Bylaws as approved at the Company's 2002 annual shareholder
meeting

Consulting and Settlement Agreement between the Company and Stephen
Halliday

Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

(b) REPORTS ON FORM 8-K

Not applicable; however a Form 8-K filing was made by the Company on
July 31, 2002 to report the change of control resulting from the shareholders'
election, on June 27, 2002, of a new board of directors, the voting results of
which were not affirmed until July 17, 2002.

16

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

AMERIVISION COMMUNICATIONS, INC.

DATE: August 16, 2002 /s/ Kenneth R. Kolek
--------------------
Kenneth R. Kolek, President and
Chief Executive Officer

/s/ Loni Woodley
----------------
Loni Woodley, Treasurer and
Chief Financial Officer
(Principal Financial Officer)

INDEX TO EXHIBITS