UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended: December 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1771 E. Flamingo Road, Suite 200B, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
(702) 734-4898
(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 [ ]
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of February 11, 1997:
13,912,883
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TELETEK, INC. AND SUBSIDIARIES
INDEX
PAGE
NO.
PART I. FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEET 3
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II. OTHER INFORMATION 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 5. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, June 30,
ASSETS 1996 1996
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 612,566 $ 1,485,883
Receivables:
Trade accounts, less allowance for
doubtful accounts of $450,000 at June 30,
1996 and $2,740,588 at December 31, 1996 18,473,018 3,820,305
Unbilled trade accounts receivable 3,364,712 8,301,875
Interest receivable - 17,280
Notes receivable - 20,000
Prepaid expenses and other 186,310 41,345
Total current assets 22,636,606 13,686,688
Property and equipment, net 2,711,087 2,393,110
Other assets:
Investment in United Payphone Services, Inc. - 1,817,591
Deposits 528,820 480,410
Notes receivable 26,022 169,443
Goodwill 796,687 -
Other 86,577 68,976
Total other assets 1,438,106 2,536,420
$ 26,785,799 $ 18,616,218
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, CONTINUED
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 586,871 $ 906,510
Accounts payable 17,753,977 7,208,242
Accrued expenses 4,531,773 4,424,318
Deposits 2,900 122,900
Income taxes 103,002 123,000
Total current liabilities 22,978,523 12,784,970
Long-term debt, excluding current installments 644,245 230,082
Total liabilities 23,622,768 13,015,052
Stockholders' equity:
Common stock, $.0001 par value. Authorized 100,000,000 shares,
issued and outstanding 13,722,883 (June 30) and 13,912,883
(December 31) shares 1,391 1,372
Class A, convertible preferred stock, no par value. Authorized
50,000,000 shares, issued and outstanding 0 (June 30) and
0 (December 31) shares - -
Class B, convertible preferred stock, no par value. Authorized
50,000,000 shares, issued and outstanding 0 (June 30) and
0 (December 31) shares - -
Class C, convertible preferred stock, no par value. Authorized
50,000,000 shares, issued and outstanding 135 (June 30) and
135 (December 31) shares 70,000 70,000
Additional paid-in capital 12,106,761 11,619,905
Accumulated deficit (9,015,121) (6,090,111)
Total stockholders' equity 3,163,031 5,601,166
$ 26,785,799 $ 18,616,218
See accompanying notes to unaudited consolidated fiancial statements.
</TABLE>
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<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended December 31,
1996 1995
<S> <C> <C>
Total revenue $ 17,965,758 $ 9,792,192
Cost of goods sold 17,680,862 7,692,935
Gross margin 284,896 2,099,257
Operating expenses:
General and administrative 1,579,380 1,474,412
Bad debts 2,140,000 -
Depreciation and amortization 88,872 38,202
Total operating expenses 3,808,252 1,512,614
Income from operations (3,523,356) 586,643
Other income (expense):
Interest income 15,728 -
Interest expense (16,985) -
Other, net (13,115) (18,263)
Income (loss) before income taxes (3,537,728) 568,380
Provision for income taxes 41,000 -
Net income (loss) (3,496,728) 568,380
Net income (loss) per common share and common share
equivalent (restated for 1995) (note 5) $ (0.25) $ 0.03
Weighted average common shares outstanding
(restated for 1995) (note 5) 13,912,883 18,186,030
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
(Unaudited)
Six months ended December 31,
1996 1995
<S> <C> <C>
Total revenue $ 40,995,200 $ 13,739,339
Cost of goods sold 38,437,334 10,339,336
Gross margin 2,557,866 3,400,003
Operating expenses:
General and administrative 2,949,627 2,298,149
Bad debts 2,293,786 -
Depreciation and amortization 218,294 73,306
Total operating expenses 5,461,707 2,371,455
Income from operations (2,903,841) 1,028,548
Other income (expense):
Interest income 50,047 -
Interest expense (71,216) -
Other, net - (24,557)
Income (loss) before income taxes (2,925,010) 1,003,991
Provision for income taxes - -
Net income (loss) (2,925,010) 1,003,991
Net income (loss) per common share and common share
equivalent (restated for 1995) (note 5) $ (0.21) $ 0.06
Weighted average common shares outstanding
(restated for 1995) (note 5) 13,849,550 17,578,205
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
TELETEK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ (2,925,010) $ 1,003,990
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 218,294 73,306
Bad debts 2,293,786 129,017
Loss of subsidiary - 20,000
Common stock issued for services - 95,000
Changes in assets and liabilities:
Increase in accounts receivable (11,555,550) (4,982,619)
Decrease (Increase) in prepaid expenses (144,965) 239,058
(Increase) in other asset (17,601)
Decrease in deposits (48,410) (86,889)
Increase in accounts payable 10,545,735 4,600,788
Increase (Decrease) in accrued expenses and other (12,545) 5,212
Decrease in income taxes (19,998)
Net cash provided by operating activities (1,666,264) 1,096,863
Cash flows from investing activities:
Purchase of property and equipment (796,185) (1,011,788)
Increase in notes receivable - (15,618)
Cash paid for subsidiary, net of cash received (216,166) -
Net cash used in investing activities (1,012,351) (1,027,406)
Cash flows from financing activities:
Principle payments on notes payable and lease obligations (412,202) (70,000)
Proceeds from notes payable and lease obligations 2,217,500 486,482
Net cash provided by financing activities 1,805,298 416,482
Net increase in cash and cash equivalents (873,317) 485,939
Cash and cash equivalents at beginning of period 1,485,883 356,538
Cash and cash equivalents at end of period $ 612,566 $ 842,477
Supplemental disclosures of cash flow information:
Cash paid for interest $ 61,025 $ 2,345
Cash paid for taxes 13,998 -
Non cash investing activities:
Disposal of investment in subsidiary (note 3) $ 2,004,051 $ -
Non cash financing activities:
Stock issued for acquisition of subsidiary $ 486,875 $ -
Extinguishment of note payable in exchange for investment (note 3) $ 1,975,000 $ -
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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TELETEK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1996
(1) General
Teletek, Inc. (the "Company") has elected to omit
substantially all footnotes to the Consolidated Financial
Statements for the six months ended December 31, 1996,
except where there have been material changes to the
information previously reported by the Company. The
consolidated financial statements should be read in
conjunction with the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1996.
(2) Unaudited Information
The information furnished herein was taken from the books
and records of the Company without audit. However, such
information reflects all adjustment 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 that may be expected for future periods or for
the fiscal year ended June 30, 1997.
(3) United Payphone Services, Inc.
In December 1996, the Company exchanged its investment of
727 shares of United Payphone Services, Inc. ("United
Payphone") preferred stock aggregating $1,817,591, 992,065
shares of common stock of United Payphone with no recorded
book value, and notes receivable from United Payphone
aggregating $186,460, in consideration for the
extinguishment of a note payable aggregating $1,975,000. The
resulting loss of $29,051 has been recorded in the
accompanying unaudited statement of operations as an "other
expense."
(4) Exercise of Stock Options
During the quarter ended September 30, 1996, options for
541,515 shares of common stock were exercised by certain
employees and officers of the Company at an average price of
$.66 per share. Notes receivable in the aggregate amount of
$150,800 were received by the Company in connection with the
exercise of options to purchase 228,484 shares. During the
quarter ended December 31, 1996, all of those option
exercise transactions were reversed.
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<PAGE>
(5) Prior Period Adjustment
In 1996, the Company discovered certain errors in the
calculation of the weighted average shares outstanding for
the quarter ended and six months ended December 31, 1995.
The weighted average shares outstanding for that period did
not include the number of shares of the Company's common
stock that could have been (i) converted from the Company's
outstanding preferred stock, or (ii) exercised from the
Company's outstanding options. The correction of this error
resulted in an increase of weighted average shares
outstanding to 18,186,030 and 17,578,205 shares from the
previously reported 8,169,379 and 7,828,631 shares for the
quarter and six months ended December 31, 1995,
respectively; and a corresponding decrease in net income per
share for the quarter and six months ended December 31, 1995
to $.03 and $.06 per share from the previously reported $.07
and $.13 per share, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that
may be considered forward-looking within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, such as statements relating to
anticipated obligations, capital spending and financing sources.
Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results
in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made herein.
These risks and uncertainties include, but are not limited to,
those relating to dependence on existing management, competition
from other long-distance telecommunication providers, leverage
and debt service (including sensitivity to fluctuations in
interest rates), the outcome of litigation, domestic or global
economic conditions, regulatory requirements, and changes in
federal or state tax laws or the administration of such laws.
Further information on potential factors which could affect the
financial condition and results of operations of the Company are
included in the filings of the Company with the Securities and
Exchange Commission, including, but not limited to, the Company's
annual report on Form 10-K for the year ended June 30, 1996.
GENERAL
The Company, through its operating subsidiaries, provides
long-distance telecommunication services, consisting primarily of
direct dial international long-distance telephone transmissions
from the United States for commercial customers. Currently, the
Company's wholly-owned subsidiaries are Hi-Rim Communications,
Inc. ("Hi-Rim") and SelecTel Corporation ("SelecTel"). The
consolidated financial statements include the accounts of Hi-Rim
and SelecTel. All material intercompany balances have been
eliminated in consolidation.
In 1996, the Company discovered certain errors in the
calculation of the weighted average shares outstanding for the
quarter and six months ended December 31, 1995. The correction
of this error resulted in an increase of weighted average shares
outstanding to 18,186,030 and 17,578,205 shares from the
previously reported 8,169,379 and 7,828,631 shares for the
quarter and six months ended December 31, 1995, respectively; and
a corresponding decrease in net income per share for the quarter
and six months ended December 31, 1995, to $.03 and $.06 per
share from the previously reported $.07 and $.13 per share,
respectively. See Note 5 to the Unaudited Consolidated Financial
Statements.
The results of operations for the quarter and six months
ended December 31, 1996 are not necessarily indicative of the
Company's expected performance for any future period.
Information contained herein is supplemental to the Company's
annual report on Form 10-K for the year ended June 30, 1996.
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<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
REVENUES
Revenues for the Company increased to approximately $18
million for the quarter ended December 31, 1996 and to
approximately $41 million for the six months ended December 31,
1996, from approximately $9.8 million for the quarter ended
December 31, 1995 and from approximately $13.8 million for the
six months ended December 31, 1995, a respective increase of
approximately $8.2 million or 83% and approximately $27.2 million
or 198%. Management believes these increases are due to the
increase in the sales staff, the development of customer contacts
by the Company's management, an increase in demand due to the
Company's competitive rates, and the general increase in
acceptance of the Company's services among the Company's target
customer market.
GROSS MARGIN
The Company's gross margin for the quarter ended
December 31, 1996 decreased to $284,896, and for the six months
ended December 31, 1996 decreased to approximately $2.6 million.
This compares to a gross margin of approximately $2.1 million for
the quarter ended December 31, 1995, and approximately $3.4
million for the six months ended December 31, 1995, a decrease of
approximately $1.8 million or 86% and $800,000 or 24%,
respectively. The decreases in gross margin principally reflect
the results of rate increases by the Company's carriers which the
Company determined not to pass on to its customers during the
second quarter. The Company maintained its rates to its
customers as a competitive measure to increase demand for its
services. Management believes such action was necessary to
retain the Company's customer base due to the increasingly
competitive climate of the international long-distance industry.
In order to improve gross margins, in January and February 1997,
the Company adjusted its rates to reflect the rate increases of
the Company's carriers and the Company negotiated lower carrier
rates for certain high-volume countries.
The Company's gross margin in the first quarter and second
quarter of fiscal 1997 was negatively affected by the termination
in March 1996 of the Company's relationship with MCI, which at
the time carried approximately 75% of the Company's long-distance
traffic. See Part II, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" in the Company's annual report
on Form 10-K for the year ended June 30, 1996. Currently, the
Company uses approximately seven different carriers, none of
which handles more than 20% of the Company's long-distance
traffic.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to
approximately $1.6 million for the quarter ended December 31,
1996 and increased to approximately $2.9 million for the six
months ended December 31, 1996. This compares to approximately
$1.5 million for the quarter ended December 31, 1995, and
approximately $2.3 million for the six months ended December 31,
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<PAGE>
1995, a $104,968 or 7% increase and $651,478 or 28% increase,
respectively. The increases were principally due to staff
increases, and the recent acquisition of SelecTel.
BAD DEBTS EXPENSE
For the quarter and six months ended December 31, 1996, bad
debts expense increased to approximately $2.1 million and
approximately $2.3 million, respectively; compared to no bad
debts expense for the quarter and six months ended December 31,
1995. The increase in bad debts expense reflects the increase in
revenues and the inability of the Company in certain instances to
collect outstanding accounts. In January 1997, the Company
adopted stricter credit and collection policies to attempt to
reduce the amount of bad debts. The Company's policy is to reserve
12.5% of total accounts receivables and accrued revenues. This
policy is reviewed periodically by management.
INTEREST EXPENSE
For the quarter and six months ended December 31, 1996,
interest expense increased to $16,985 and $71,216, respectively;
compared to no interest expense for the quarter and six months
ended December 31, 1995. These increases were principally due
to the purchase of the Company's switching equipment in September
1996 and interest associated with the Private Loan (defined
below).
NET LOSS
The Company experienced a net loss of approximately $3.5
million for the quarter ended December 31, 1996 and a net loss of
approximately $2.9 million for the six months ended December 31,
1996. This compares to net income of $568,380 for the quarter
ended December 31, 1995 and net income of approximately $1.0
million for the six months ended December 31, 1995, a decrease
of approximately $4.1 million or 715% and approximately $4.0
million or 391%, respectively. The Company's net losses were
principally due to the decrease in gross margins and the increase
in bad debt reserves.
MATERIAL CHANGES IN FINANCIAL CONDITION
At December 31, 1996, the Company had negative working
capital of approximately $341,917, compared to positive working
capital of $901,718 at June 30, 1996. Cash and cash equivalents
were $612,566 at December 31, 1996, compared to approximately
$1.5 million at June 30, 1996. The decrease in both working
capital and cash is primarily due to the significant decrease in
gross margins. Trade accounts receivables increased from
approximately $3.8 million at June 30, 1996 to approximately
$18.4 million at December 31, 1996, an approximately $14.6
million or 384% increase. The increase in receivables
principally reflects the increase in the Company's revenues and
the inability of the Company in certain instances to collect
outstanding receivables in a timely manner. In January 1997, the
Company adopted stricter credit and collection policies to
attempt to reduce the outstanding receivables and corresponding
bad debts.
For the six months ended December 31 1996, net cash used by
operating activities totaled approximately $1.7 million. Net
cash used in investing activities for the same period totaled
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approximately $1.0 million, which consisted primarily of (i) the
acquisition of SelecTel; and (ii) the purchase of substantially
all of the assets of Xtel, Inc., a Nevada corporation, dba Phone
Line USA ("Phone Line USA"). Net cash provided by financing
activities totaled approximately $1.8 million for the six months
ended December 31, 1996, which primarily reflects proceeds from
the Private Loan and equipment financing.
In November 1996, 30 persons were indicted by a federal
grand jury for allegedly illegal activities which in some
instances involved the common stock of the Company and United
Payphone. See "Legal Proceedings." Although the Company was not
indicted, the serious nature of the allegations in the
indictments could negatively affect the Company's ability to
attract or retain customers and could have a material adverse
effect on the Company's financial condition and results of
operations.
The Company is currently arbitrating a dispute with MCI in
connection with a carrier agreement between the Company and MCI.
See Part II, Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources" in the Company's annual report on Form 10-K
for the year ended June 30, 1996.
In August 1996, the Company received a private loan (the
"Private Loan") from an unaffiliated third party, bearing
interest at 8.5% per annum. All accrued and unpaid interest on
the outstanding balance of the Private Loan plus a principle
payment of $25,000 was payable monthly. As of December 31, 1996,
the Private Loan had been satisfied in full in exchange for the
Company's investment in United Payphones. See Note 3 to the
Unaudited Consolidated Financial Statements.
The Company currently does not have any firm commitments for
any capital expenditures or business acquisitions. However,
subject to certain factors, the Company's present intention is to
purchase an additional computerized digital network switch during
the fiscal year 1997. In addition, the Company continues to
monitor acquisition and expansion opportunities throughout the
United States. The Company expects to be able to meet its debt
obligations and to finance capital expenditures and expansion
opportunities through cash flow from operations, present and
future borrowings, or other sources of private financing.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
UNITED STATES OF AMERICA V. MICHAEL G. SWAN, ET AL., United
States District Court, District of Nevada, Case No. CR-S-96-288,
instituted on November 6, 1996, and UNITED STATES OF AMERICA V.
DAMON COZZOLINO, ET AL., United States District Court, District
of Nevada, Case No. CR-S-96-287, instituted on November 6, 1996,
and UNITED STATES OF AMERICA V. JAY WELLS NANCE, ET AL., United
States District Court, District of Nevada, Case No. CR-S-96-271,
instituted on November 7, 1996 (collectively, the "Indictments").
The Indictments allege, among other things, racketeering,
conspiracy, securities fraud, wire fraud, and money laundering
involving the
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common stock of the Company and United Payphone. Three of the
persons indicted are former officers of the Company and one has
provided accounting services for the Company. Two of the persons
indicted are former officers of United Payphone and the others
are primarily stock promoters and brokers. The Indictments state
that the alleged illegal activities took place over a four-year
period beginning in late 1991. None of the persons indicted
currently holds any position as a director, officer or employee
of the Company or any of its subsidiaries. Although the
Indictments described illegal activities involving the Company's
stock, the Company was not indicted by the federal grand jury.
In addition, none of the current officers or directors was
mentioned in either of the Indictments. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Material Changes in Financial Condition."
By letter dated November 22, 1996, the Company was notified
by the Nasdaq Stock Market, Inc. ("Nasdaq") that Nasdaq had
determined to delist the Company from the Nasdaq SmallCap Market.
A hearing on the matter was held before the Nasdaq Listing
Qualifications Panel (the "Panel") on December 19, 1996. The
Panel concluded that the Company should be delisted. The Company
has requested that the Panel's decision be reviewed by the Nasdaq
Listing and Hearing Review Committee (the "Committee") and the
Company has been informed that any delisting will be stayed
pending the results of the Committee's review. The Company has
been advised by Nasdaq that the Committee will most likely issue
its decision subsequent to the meeting of the NASD Board of
Governors which is currently scheduled for April 10, 1997. There
can be no assurance that the results of the Committee's review
will be favorable to the Company.
ROBERT C. SEOANE, ET AL. V. MICHAEL SWAN, ET AL., United
States District Court, District of Nevada, Case No. CV-S-96-01114-
HDM, instituted on December 2, 1996. Three stockholders,
purportedly representing a class, filed a complaint against the
Company and eight other persons including two current officers
and directors of the Company, three former officers, an
accountant who performed accounting services for the Company, an
individual described in the complaint as a stock promoter and a
Winter Park, Florida firm described in the complaint as a stock
promotion firm. The complaint alleges violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934. The
plaintiffs seek compensatory damages against the defendants.
Teletek has filed a motion to dismiss the action for failure to
specify which actions and statements were unlawful and for
failure to link such actions to the named defendants.
HI-RIM COMMUNICATIONS, INC. V. CHERRY COMMUNICATIONS, Eighth
Judicial District, Clark County, Las Vegas, Nevada, Case No.
A369425, instituted on February 3, 1997. The Company alleges that
Cherry Communications breached a contract with the Company and
tortuously interfered with contract and business opportunities
when it failed to pay monies due and owing to the Company and
further failed to provide agreed upon switch services. The
Company is claiming over $6 million in compensatory damages. No
answer has been filed by the defendants.
See also "Legal Proceedings" in Part I, Item 3, in the
Company's annual report on Form 10-K for the year ended June 30,
1996, and Part II, Item 1, in the Company's report on Form 10-Q
for the quarter ended September 30, 1996.
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ITEM 5. OTHER INFORMATION
During the quarter ended December 31, 1996, Thomas A. Mills
and William Davis resigned as directors of Teletek, Inc. and as
officers and directors of the Hi-Rim.
In December 1996, the following outstanding options to
purchase the Company's common stock were surrendered by the
holders and canceled by the Company: (i) options to purchase
200,000 shares, at an exercise price of $8 per share, issued to
John M. Vergiels; (ii) options to purchase 1,000,000 shares, at
an exercise price of $7 per share, issued to Wayne J. Godbout;
and (iii) options to purchase 2,100,000 shares, at an exercise
price of $7 per share, issued to Thomas A. Mills.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
EXHIBIT NO. DESCRIPTION
10.01 Stock Purchase Agreement entered into as
of the 1st day of December, 1996 between
Teletek, Inc. and Dingaan Holdings S.A.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
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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.
Teletek, Inc.,
a Nevada corporation
Date: February 14, 1997 By: /s/ John M. Vergiels
John M. Vergiels, Chairman
of the Board, Chief Executive
Officer, President and
Treasurer (duly authorized
officer and principal
financial officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
10.01 Stock Purchase Agreement entered into as 17
of the 1st day of December, 1996 between
Teletek, Inc. and Dingaan Holdings S.A.
27.01 Financial Data Schedule 27
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EXHIBIT 10.01
17
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made and
entered into as of the 1st day of December, 1996, by and between
Teletek, Inc., a Nevada corporation ("Seller"), and Dingaan
Holdings S.A., a Bahamas corporation ("Purchaser").
RECITALS
A. Seller is the owner of (i) 992,065 shares (the "Common
Shares") of common stock, $.001 par value (the "Common Stock"),
of United Payphone Services, Inc., a Nevada corporation (the
"Company"), evidenced by certificate no. 2821 dated May 8, 1995;
and (ii) 727 shares (the "Preferred Shares") of class A preferred
stock, $.001 par value (the "Preferred Stock"), of the Company,
evidenced by certificate no. A-1 dated December 1, 1996. The
Common Shares represent approximately 19% of the total
outstanding Common Stock of the Company, and the Preferred Shares
represent all of the outstanding Preferred Stock of the Company.
The Common Shares and the Preferred Shares are hereinafter
collectively referred to as the "Shares."
B. Purchaser previously made a loan (the "Loan") to Seller
in the principal amount of Two Million and No/100ths Dollars
($2,000,000.00), as evidenced by that certain Promissory Note
(the "Note") dated August 22, 1996, attached hereto as Exhibit A.
The Loan, which bears interest at 8.5% per annum, is due in full
on August 22, 1999. The Loan plus all accrued and unpaid
interest through the date of this Agreement, as well as all other
obligations of Seller under the Loan, are hereinafter
collectively referred to as the "Indebtedness."
C. Seller desires to sell the Shares to Purchaser upon the
terms and conditions hereinafter set forth, and Purchaser desires
to acquire the Shares upon such terms and conditions.
Now, Therefore, for and in consideration of the premises and
mutual covenants, agreements, understandings, undertakings,
representations, warranties and promises, and subject to the
conditions hereinafter set forth, and intending to be legally
bound thereby, the parties do hereby covenant and agree that the
Recitals set forth above are true and accurate, and further
covenant and agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale
Subject to the provisions hereof, on the Closing Date (as
hereinafter defined), Seller shall sell, transfer, assign and
deliver the Shares to Purchaser, and Purchaser shall buy the
Shares from Seller.
<PAGE>
1.2 Consideration
In consideration of the sale of the Shares to Purchaser,
Purchaser hereby forgives and cancels all of the Indebtedness as
evidenced by the Note.
ARTICLE II
CLOSING
2.1 Closing Date
The closing (the "Closing") under this Agreement for the
purchase and sale of the Shares shall be at the offices of the
Company, unless otherwise agreed to in writing by each of the
parties hereto, on December 1, 1996 (the "Closing Date"). The
Closing shall take place at 10:00 a.m. on the Closing Date.
2.2 Seller's Closing Documents
At the Closing, Seller shall deliver to Purchaser
(i) certificates representing all of the Common Shares, together
with an assignment of the Common Shares executed by Seller; and
(ii) a certificate(s) representing the Preferred Shares, together
with an assignment of the Preferred Shares executed by Seller.
2.3 Purchaser's Closing Document
At the Closing, Purchaser shall deliver to Seller the Note,
marked "Paid in Full" across the face of the Note and signed by
the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby makes the following representations and
warranties to Purchaser, and Seller warrants that the following
are true and accurate on the date hereof and will be true and
accurate on the Closing Date:
3.1 Title to Shares
Seller is the record and beneficial owner of the Shares,
free and clear of all liens, encumbrances, security agreements,
options, charges, restrictions or any other claims of any type,
kind or nature whatsoever.
3.2 Authority
Seller has the full right, power, legal capacity and
authority to enter into, and perform its obligations under this
Agreement, including the sale and delivery of the Shares to
Purchaser.
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<PAGE>
3.3 Binding Nature of Agreement
This Agreement constitutes the valid and binding obligation
of Seller, enforceable against Seller in accordance with its
terms.
3.4 No Violation
Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor the
fulfillment of the terms hereof by Seller will conflict with, or
result in a breach of or default under, any of the terms or
provisions of: (i) any agreement, note, indenture, mortgage, deed
of trust, instrument lease or franchise to which Seller is a
party or by which it or any of its assets or properties are
bound; or (ii) any law, judgment, order, arbitration award, rule,
regulation, ordinance, writ, injunction or decree of any
governmental agency or instrumentality or court applicable to or
having jurisdiction over Seller or any of its assets or
properties.
3.5 Valid Corporate Organization and Good Standing
Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, and has
the corporate power and authority necessary and appropriate to
own its properties and to engage in the business in which it is
presently engaged.
3.6 No Commission or Finder's Fee
Seller has not dealt with any broker or finder in connection
with any of the transactions contemplated by this Agreement, and
to the best of its knowledge, no broker or other person is
entitled to any commission or finder's fee in connection with
such transactions.
3.7 No Representations Untrue
No representation made by Seller in this Agreement contains
or will contain any untrue statement of material fact or omit to
state any material fact known to Seller necessary to make any
statement, warranty or representation not misleading to
Purchaser. Seller knows of no material facts or conditions
adversely affecting the value of the Shares which have not been
disclosed to Purchaser. Except as set forth in this Agreement,
Seller does not make any representations or warranties to
Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby makes the following representations and
warranties to Seller, and Purchaser warrants that the following
are true and accurate on the date hereof and will be true and
accurate as the Closing Date:
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<PAGE>
4.1 Holder of Note
Purchaser is the sole holder of the Note, free and clear of
all liens, encumbrances, security agreements, assignments,
charges, restrictions or any other claims of any type, kind or
nature whatsoever.
4.2 Authority
Purchaser has the full right, power, legal capacity and
authority to enter into, and perform its obligations under this
Agreement, including the forgiveness and cancellation of the
Indebtedness.
4.3 Binding Nature of Agreement
This Agreement constitutes the valid and binding obligation
of Purchaser, enforceable against Purchaser in accordance with
its terms.
4.4 No Violation
Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor the
fulfillment of the terms hereof by Purchaser will conflict with,
or result in a breach of or default under, any of the terms or
provisions of: (i) any agreement, note, indenture, mortgage,
deed of trust, instrument, lease or franchise to which Purchaser
is a party or by which it or any of its assets or properties are
bound; or (ii) any law, judgment, order, arbitration award, rule,
regulation, ordinance, writ, injunction or decree of any
governmental agency or instrumentality or court applicable to or
having jurisdiction over Purchaser or any of its assets or
properties.
4.5 Valid Corporate Organization and Good Standing
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of the Bahamas, and has the
corporate power and authority necessary and appropriate to own
its properties and to engage in the business in which it is
presently engaged.
4.6 No Reliance
PURCHASER ACKNOWLEDGES THAT SELLER HAS NOT MADE AND DOES NOT
MAKE ANY REPRESENTATIONS OR WARRANTIES CONCERNING THE PAST OR
FUTURE PERFORMANCE OF THE COMPANY. IN MAKING ITS INVESTMENT
DECISION, PURCHASER HAS RELIED UPON ITS OWN EXAMINATION OF THE
COMPANY, INCLUDING THE MERITS AND RISKS INVOLVED. PURCHASER HAS
CONSULTED ITS OWN ATTORNEY, BUSINESS ADVISOR OR TAX ADVISOR AS TO
LEGAL, BUSINESS OR TAX ADVICE. PURCHASER POSSESSES SUFFICIENT
BUSINESS PROBITY AND SOPHISTICATION TO ASSESS THE RISKS OF
PURCHASING THE SHARES OR HAS CONSULTED WITH PERSONS OF ITS OWN
CHOOSING WHO POSSESS SUCH PROBITY AND SOPHISTICATION TO ADVISE
PURCHASER OF THE RISKS ATTENDANT TO THE INVESTMENT CALLED FOR
UNDER THIS AGREEMENT.
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<PAGE>
4.7 Investment Intent
Purchaser is acquiring the Shares for its own account for
investment and not with a view to the resale or distribution
thereof, and Purchaser understands the nature and effect of this
representation. [Purchaser has been informed by Seller that the
Shares have not been registered under the Securities Act of 1933
or the securities laws of any state, and may not be offered, sold
or transferred in the absence of such registration or an
exemption from such registration.]
4.8 No Commission or Finder's Fee
Purchaser has not dealt with any broker or finder in
connection with any of the transactions contemplated by this
Agreement, and to the best of its knowledge, no broker or other
person is entitled to any commission or finder's fee in
connection with such transactions.
4.9 No Representations Untrue
No representation made by Purchaser in this Agreement
contains or will contain any untrue statement of material fact or
omit to state any material fact known to Purchaser necessary to
make any statement, warranty or representation not misleading to
Seller. Purchaser knows of no material facts or conditions
adversely affecting the Note which have not been disclosed to
Seller. Except as set forth in this Agreement, Purchaser does
not make any representations or warranties to Seller.
ARTICLE V
COSTS
Purchaser and Seller shall each pay all costs and expenses
incurred or to be incurred by each of them respectively in
negotiating and preparing this Agreement and in taking whatever
actions may be necessary or appropriate to consummate the
transactions contemplated by this Agreement, including the costs
of obtaining any consents or approvals.
ARTICLE VI
MISCELLANEOUS
6.1 Captions
The subject headings or captions of the sections and
subsections of this Agreement are included only for purposes of
convenience and shall not affect the construction or
interpretation of any provisions contained herein.
6.2 Entire Agreement
This Agreement (together with all exhibits, documents,
agreements and instruments executed or furnished in connection
herewith) constitutes the entire agreement between the
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<PAGE>
parties pertaining to the subject matter hereof, and supersedes
any and all prior or contemporaneous written or oral
negotiations, agreements, representations, and understandings of
the parties with respect to such subject matter.
6.3 Expenses
If any legal action or any arbitration or other proceeding
is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default, or misrepresentation in
connection with any of the provisions of this Agreement, the
successful or prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to
which it may be entitled.
6.4 Notice
Any and all notices required under this Agreement shall be
in writing and shall be either (i) hand-delivered; (ii) mailed,
first-class postage prepaid, certified mail, return receipt
requested; or (iii) delivered via a nationally recognized
overnight courier service, addressed to:
SELLER: Teletek, Inc.
1771 E. Flamingo Road
Suite 111A
Las Vegas, Nevada 89119
Attention: President
PURCHASER: Dingaan Holdings S.A.
Enro Canadian Center
First Floor
Marlborough Street
P.O. Box N3802
Nassau, Bahamas
All notices hand-delivered or delivered via overnight
courier shall be deemed delivered as of the date actually
delivered. All notices mailed shall be deemed delivered as of
three (3) business days after the date postmarked. Any changes
in any of the addresses listed herein shall be made by notice as
provided in this Section 6.4.
6.5 Modification, Amendment or Waiver
This Agreement may not be amended, supplemented or otherwise
modified, and none of its terms may be waived, unless such
amendment, supplement, modification or waiver is in writing and
executed by the party or parties to be bound thereby. The
failure of any party at any time or times to require performance
of any provision hereof shall not affect the right of such party
at a later time to enforce the same, and no waiver of any term or
provision hereof on any one occasion shall be deemed to be a
waiver of the same or any other provision hereof at any
subsequent time or times.
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<PAGE>
6.6 Binding Effect; Assignment
This Agreement shall be binding upon, and shall enure to the
benefit of and be enforceable by, the parties hereto, and their
respective heirs, successors, assigns and legal representatives;
provided, however, that no assignment of any rights or delegation
of any obligations provided for herein may be made by either
party to this Agreement without the prior written consent of the
other party.
6.7 Construction
This Agreement shall be construed in accordance with its
intent and without regard to any presumption or any other rule
requiring construction against the party causing the same to be
drafted.
6.8 Governing Law
The laws of the State of Nevada shall govern the validity,
performance and enforcement of this Agreement and the courts of
Nevada shall have the sole and exclusive jurisdiction over any
matter brought under or by reason of this Agreement.
6.9 Counterparts
This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which taken together
shall constitute the same instrument.
6.10 No Third Parties Benefited
This Agreement is made and entered into for the sole
protection and benefit of Purchaser and Seller, their successors
and assigns, and no other person or persons shall have any right
of action hereon.
6.11 Severability
If any provision of this Agreement, or any portion of any
provision, shall be deemed invalid or unenforceable for any
reason whatsoever, such invalidity or unenforceability shall not
affect the enforceability and validity of the remaining
provisions hereof.
6.12 Time of the Essence
At all times stated herein, time shall be of the essence.
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<PAGE>
In Witness Whereof, the parties hereto have duly executed
this Agreement on the date first set forth above.
"Seller" "Purchaser"
Teletek, Inc., a Nevada Dingaan Holdings S.A., a
corporation Bahamas corporation
By: /s/ John M. Vergiels By: /s/
JOHN M. VERGIELS, Its: Director
PRESIDENT
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<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
In order to correct a drafting exclusion, the Stock Purchase
Agreement (the "Agreement") entered into as of the 1st day of
December, 1996, by and between Teletek, Inc., a Nevada
corporation, and Dingaan Holdings S.A., a Bahamas corporation, is
hereby amended as follows:
Paragraph A of Recital identifying the securities purchased
should and does include two promissory notes, one in the amount
of $61,519 and one in the amount of $125,683. Said notes, for the
purposes of simplicity, shall be included in the definition of
"Shares" as used in the Agreement.
TELETEK, INC.
/s/ John M. Vergiels
John M. Vergiels
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statements of income of Teletek, Inc., as
of and for the six months ended December 31, 1996, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 613
<SECURITIES> 0
<RECEIVABLES> 18,473
<ALLOWANCES> 2,741
<INVENTORY> 0
<CURRENT-ASSETS> 22,637
<PP&E> 2,711
<DEPRECIATION> 218
<TOTAL-ASSETS> 26,786
<CURRENT-LIABILITIES> 22,979
<BONDS> 0
0
70
<COMMON> 1
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,786
<SALES> 0
<TOTAL-REVENUES> 40,995
<CGS> 38,437
<TOTAL-COSTS> 38,437
<OTHER-EXPENSES> 5,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,925)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,925)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
