UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
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: 0-9019
TELETEK, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada
88-0298190
(State of Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification Number)
1771 East Flamingo Road, Suite 111A, Las Vegas, Nevada 89119
(Address of Principal Executive Offices)
(702) 734-0177
(Registrant's telephone number, including area code)
N/A
(Former name, former address and formal 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 and, (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of April 26, 1996, TELETEK, INC. Registrant had 11,819,103 shares
of its $0.0001 par value common stock outstanding, 46,626 Class "A"
preferred Shares, no Class "B" Preferred shares and 135 Class "C" Preferred
Shares.
<PAGE>
FORM 10-Q
THIRD FISCAL QUARTER 1996
TELETEK, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION1
PAGE
Consolidated Balance Sheets - March 31, 1996
and June 30, 1995 . . . . . . . . . . . . . . . . . . 3 - 4
Consolidated Statements of Operations for the Three and Nine
Months Ended March 31, 1996 and 1995 . . . . . . . .. .. 5
Consolidated Statement of Cash Flows - for the Nine
Months Ended March 31, 1996, 1995 . . . . . . . . . . 6 - 7
Notes to Consolidated Financial Statements . . . . . .. .. 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . .9 - 11
Part II. Other Information . . . . . . . . . . . . . . 11 - 12
Signature Page . . . . . . . . . . . . . . . . . . . .. . 13
The accompanying financial statements are not covered by an Independent
Certified Public Accountant's Report.<PAGE>
TELETEK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
1995
(Audited)
CURRENT ASSETS
356,538
14,800
Receivables
Trade accounts, net of allowance for doubtful accounts of
$249,382 at March 31, 1996 and $70,475 at June 30, 1995
9,725,
894 798,400
3,516
Employee -
93,000
Other Current Assets 414,607
OTHER ASSETS
Investments in UnitedPayphone Services 306,177
<PAGE>
TELETEK, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value; 100,000,000 shares authorized;
Convertible Preferred stock, no par, class A; 50,000,000 shares authorized;
Convertible Preferred stock, no par, class B; 50,000,000 shares
Convertible Preferred stock, no par, class C; 50,000,000 shares authorized;
<PAGE>
TELETEK, INC. AND SUBSIDIARIES
Consolidated Statement of Income
(Unaudited)
Net sales $ 18,612,951 $2,002,290 $ 32,352,290$4,121,965
Less cost of sales 15,311,708 1,220,388 25,651,044 2,648,433
Gross profit 3,301,243 781,902 6,701,246 1,473,532
Selling, general and
administrative expenses 2,153,292 1,260,040 4,462,726 3,333,492
Operating income or (loss) 1,147,951 (478,138) 2,238,520 (1,859,960)
Other Income, net 48,348 33,608 43,791 157,855
Subsidary - - (20,000) -
t income (loss) before income taxes$1,196,299$(444,530)$2,262,311$(1,702,105
Porpotuion for income taxes12,000-12,000-
t income or (loss)$1,184,299$(444,530)$2,250,311$(1,702,105)
net income or (loss) per share $ .11 $(.09 )$.26 $(.44)
Weighted Average Shares Outstanding10,663,637 4,955,801 8,773,633 3,859,788
<PAGE>
TELETEK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended
March 31, 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ 2,250,311 $ (1,702,105)
Adjustments to reconcile net loss to net cash used in operating
activitie
Depreciation and amortization 129,534 396,048
Loss of subsidiaries 20,000 -
Common stock issued for services 95,000 32,000
Bad debt 232,112 -
Changes in operating assets and liabilities
(Increase) decrease in
Receivables - trade and other (8,856,446 ) (875,240)
Prepaid expenses and other (2,699) 28,709
Accounts payable & accrued liabilities 9,668,388 615,945
Deposits 2,900 25,000
Net Cash Provided (Used) in Operating Activities 3,539,100(1,479,643)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,384,981 )(427,510)
Purchase of licenses and other assets (415,099 ) (289,941)
Purchase of certificates of deposits - (200,000)
Purchase of treasury stock (840,000) -
Net Cash (Used) by Investing Activities $ (1,800,080) (917,451)
<PAGE>
TELETEK, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended
March 31, 1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Provided (Used) by debt financing (net) $199,386 $(464,139
Proceeds from stock issuance 375,000 2,850,000
et Cash Provided by Financing Activities 574,386 2,385,861
INCREASE (DECREASE) IN CASH 2,313,406 (11,233)
CASH, BEGINNING OF PERIOD 356,538 301,581
CASH, END OF PERIOD $ 2,669,944 $ 290,348
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $6,022 $ 1,555
Cash paid for taxes $ 12,000
$ -
NON CASH FINANCING ACTIVITIES
Stock issued for services $ 95,000
$ 32,000
<PAGE>
TELETEK, INC. AND SUBSIDIARIES
March 31, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
Teletek, Inc. (the "Company") has elected to omit substantially all footnotes
to the Consolidated Financial Statements for the three and nine months ended
March 31, 1996, since there have been no material changes to the information
previously reported by the Company in their Annual Report filed on Form 10-K
for the Fiscal year ended June 30, 1995.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
which are, in the opinion of management, necessary to properly reflect the
results of the interim period presented. The information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
<PAGE>
TELETEK, INC. AND SUBSIDIARY
March 31, 1996
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTE: The following discussion includes "forward looking"
information. Such information is Management's reasonable expectations and
based upon facts and circumstances as they currently exist.
Liquidity and Capital Resources of the Company and Its Subsidiaries
A year ago in the fourth quarter of fiscal year 1995, the Company
sold its controlling ownership of United Payphone common stock in exchange
for cancellation of Class A Preferred stock. As a result of the transaction,
United has ceased to be a subsidiary of the Company and its financial reports
are no longer consolidated with the Company's reports. As a result of its
financing of United, however, the Company retained a United promissory note,
some common stock and 6% preferred stock, which were carried on the books of
the Company at a value of approximately $2,345,781. Subsequent to the end of
the third fiscal quarter this year, the Company exchanged these securities
for a promissory note in the amount of $150,00 and $2.4 million in preferred
stock of Xecom Corporation. The Xecom preferred stock bears an 11%
cumulative dividend. As a result of the transaction, the company has no
remaining financial interest in United Payphone. Xecom is a publicly held
corporation traded on the NASD Bulletin Board under the symbol XECM. Xecom
is in the telecommunications industry providing facility management, long
distance, data, network and facsimile services. Xecom also markets related
equipment and products through its wholly-owned subsidiaries, SelecTel
Corporation (Costa Mesa, California) and Select Switch Systems, Inc. (Dallas,
Texas).
At March 31, 1995, the Company had a working capital surplus of
$1,453,251 compared to a working capital surplus of approximately $585,929
at June 30, 1995. Improvement of the Company's working capital position
since year-end resulted from income generated by Hi-Rim. The Company and its
subsidiary are not expected to face the cash shortages which were experienced
in previous years. Cash and accounts receivable have dramatically increased
from year end. Additionally, there have been a corresponding increase in
accounts payable. These increases are the result of the substantial
increases in sales since year end.
The cash balance at March 31, 1996 was $2,669,944. The Company
currently maintains a current ratio of 1.13 which is a significant
improvement over the last two years when working capital deficits were
common. Also, at March 31, 1996, $5,723,816 in shareholders' equity was
12.5 times greater than the $458,685 in long term debt.
Total long term debt of the Company is due to $346,000 still owing
on the Kansas City switching equipment and the remaining obligation to a
former officer and director. In the third fiscal quarter the Company
acquired securities beneficially owned by Michael Swan, the Company's
previous CEO and controlling shareholder. Pursuant to the transaction 153,333
shares of Class A Convertible stock and 29,534 shares of common stock were
purchased for $840,000. The funds are being paid in eighteen monthly
installments at an annual interest rate of 8%.
During the third fiscal quarter the Company received $375,000 in
exercise of options to purchase common stock. For the first nine months of
fiscal year 1996, $3.5 million was provided from operations compared to a
deficit of $1.48 million in the prior year. This cash surplus has allowed
the Company to increase operating capital and purchase approximately $1.4
million in new equipment and other long term assets.
Teletek, the holding company, continues to operate with a deficiency,
due mainly to maintaining all corporate general and administrative overhead
and not generating any gross revenue, except income from investments and cash
reserves. Operational expenses of the parent corporation are primarily
professional and consulting fees, travel, stockholder relations, severance
fees and printing costs. Overhead expenses of the parent corporation are
expected to remain about the same during the balance of the current fiscal
year.
Management believes that Hi-Rim will be able to generate sufficient
capital to fund Hi-Rim's and the Company's capital needs for the next three
months.
Results of Operations
For the third quarter of fiscal 1996 consolidated net sales were
$18,612,951. Net sales for the nine months ended March 31 were $32,352,290,
an increase of $28,230,325, or 685% over the same nine month period in fiscal
1995. All revenues for this quarter were generated by the Company's
subsidiary Hi-Rim Communications, as opposed to the same period last year
which included revenue for both United Payphone and Hi-Rim Communications.
Gross profit for the nine month period increased to $6,701,246 from
$1,473,532 reported for the nine months ended March 31, 1995.
In the second fiscal quarter the Company settled the case of Teletek
v. U.S. Tel, et. al, and its related case Schwartz, et. al., v. Teletek.
Pursuant to the settlement the Company was obligated to pay $1,150,000, issue
25,000 in restricted stock, and issue a warrant to purchase 250,000 shares
of common stock at $1.40 per share. The stock and warrants have been issued
and the cash portion of the settlement has been paid. Increases in general
and administrative expenses for the first nine months are due primarily to
funds expended in settlement of the lawsuit and related legal expenses.
Subsequent to the end of the third quarter the Company received $350,000 in
exercise of the warrants.
Hi-Rim Communications continues to experience rapid growth in revenue
and such revenue is expected to continue to increase during the balance of
the year with little change in general and administrative expenses. Profits
were $435,611 for the first quarter, $630,401 for the second quarter, and
$1,184,299 for the third quarter. Thus, for the first nine months the
Company had a profit of $2,250,311 compared to a net loss of ($1,702,105) for
the same period last year. This dramatic change from substantial losses to
significant profit is due to the investments the Company made in developing
its subsidiary Hi-Rim. Hi-Rim exceeded its $4.5 million projected second
quarter revenue and its projected $12 million for the third fiscal quarter
of 1996. The Company anticipates remaining profitable with increases in
revenue, which is expected to exceed $50 million for this fiscal year ending
June 30, 1996.
At March 31, 1996 the Company had total assets of $17,579,963 as
compared to $4,778,252 at the same time last year, which is an increase of
$12,801,711 or approximately 268%. The Company anticipates that total assets
will continue to increase as earnings are reinvested in additional equipment.
<PAGE>
Plan of Operations
In December 1993, Hi-Rim entered into an agreement with DSC
Communication for the delivery of the three DEX 600SC switches. The first
switch was installed and operating by July 1994. In September 1995 Hi-Rim
contracted for installation of its second switch, which was installed at its
new offices in Overland Park, Kansas. This switch was operational March 20,
1996. Hi-Rim has negotiated contracts with major carriers which allows Hi
- - - -Rim to purchase service at very competitive prices that can be marketed to
smaller long distance companies. To this end Hi-Rim continues to develop two
distinctive products.
The first product, Hi-Rim's wholesale international direct dialing
package, is a result of agreements with international carriers. This
product is sold to small and medium long distance companies. There are
approximately two hundred and fifty (250) companies of this kind in the
United States today.
The second product is Hi-Rim's retail package for domestic and
international direct dialing which targets a growing market of multinational
companies. This service is sold as either a dedicated or switched service
depending on the customer requirements. These would include multi-national
companies or American companies that have extensive interests outside the
United States. Hi-Rim has expanded its customer base to forty-two states
where they are presently certified to sell their products. These
certifications make Hi-Rim a true nationwide provider of long distance
service.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
At March 31, 1996, the Company or its subsidiary was a party in the
following actions:
The cases of Teletek v. USTEL, et al. and Shwartz, et al. v. Teletek
were settled prior to the end of the second fiscal quarter. Terms of the
settlement were fulfilled in the third fiscal quarter (see Managements
Discussion and Analysis of Financial Condition).
In November 1995, World Communications, Inc. filed suit against
Hi-Rim Communications in the United States District Court,
District of Nevada(case number CV-S-01114-DWH). In this case the
Plaintiff alleges that Hi-Rim
owes approximately $201,000 for long distance services rendered. In January
1996 Hi Rim answered the complaint and filed a counter claim. In the counter
claim Hi Rim alleges claims of breach of contract, negligence, and sale of
defective product and seeks damages exceeding $2,000,000.
In January and February of 1996, Hi Rim Communications, Inc. filed
two complaints against MCI Communications with the Federal Communications
Commission alleging flawed traffic connections and over billing for
international traffic. Hi Rim then notified MCI that Hi Rim was beginning
to transfer its traffic to other carriers. Shortly thereafter, MCI
terminated long distance service to a portion of Hi Rim's customers. At the
time of termination many of Hi Rim's customers had been switched to other
carriers. As a result of the actions of MCI, which Hi Rim claims is in
breach of their contract, Hi Rim has also filed for arbitration seeking
damages for MCI terminating traffic to Hi Rim customers and for other
tortious conduct.
Teletek has complied with a subpoena in connection with a Formal
Order of Investigation dated January 5, 1994, and an Amended Order Directing
Private Investigation and Designating Officers to Take Testimony dated July
5, 1995 captioned In the Matter of Certain Undisclosed Payments of
Compensation, File No. HO-2814. The Company has also complied with grand
jury subpoenas calling for the production of documents. The Company is
currently unable to predict what effect, if any, these investigations, or the
legal positions the Company previously took with respect to the SEC's
subpoena, may have on the Company's businesses. Additionally, the Company
is a plaintiff in a civil action pending against the Securities and Exchange
Commission in federal court in the District of Columbia. The suit seeks to
compel the SEC to allow access to certain documents under the Freedom of
Information Act. The district court has denied the Company's request.
Teletek is co-plaintiff to recover common stock issued as collateral
for a foreign loan sought in 1993. Teletek and other public companies have
filed a criminal complaint on the matter in Wiesbaden, Germany against the
contracting party and have obtained injunctions in Germany and Luxembourg
preventing the sale, transfer or liquidation of the collateral or release of
funds from any sale of the collateral. In the third quarter the German
court ruled in favor of the plaintiffs. The defendants have until mid May
to appeal the decision. Teletek and other plaintiffs are currently awaiting
the outcome of the criminal trial in Germany. In the second fiscal quarter
the Company and three other public companies filed a civil suit in the above
matter.
Item 2. Changes in Securities.
No changes in the rights of the holders of the common stock of the
Registrant have occurred during the quarter ended March 31, 1996.
Item 3. Defaults upon Senior Securities.
The Registrant is not in default on any indebtedness exceeding 5
percent of its assets. Further, the Registrant paid no dividends, and is not
in arrears in the payment of dividends, for the quarter ended March 31, 1996.
The Company's subsidiary, however, is in litigation over the amount of funds
owed to MCI. A decision in the arbitration suit is expected within the next
six months. Commencing the fourth fiscal quarter the Company established a
reserve for this litigation contingency.
Submission of Matters to a Vote of Security Holders.
There were no matters presented for vote by the shareholders during
the quarter ended March 31, 1996.
Item 5. Other Information.
N/A
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Index - None
(b)Reports on Form 8-K. - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 9, 1996
TELETEK, INC.
By: /s/ John Vergiels
John M. Vergiels, CEO and
Principal Financial Officer
