EXECUTONE INFORMATION SYSTEMS, INC.- 10-Q - 9/30/99
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-11551
EXECUTONE Information Systems, Inc.
(Exact name of registrant as specified in its charter)
Virginia 86-0449210
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
478 Wheelers Farms Road, Milford, Connecticut 06460
(Address of principal executive offices) (Zip Code)
(203) 876-7600
(Registrant's telephone number, including area code)
N/A
(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
The number of shares outstanding of registrant's Common Stock,
$.01 par value per share, as of October 31, 1999 was 63,004,953.
<PAGE>
INDEX
EXECUTONE Information Systems, Inc.
Page #
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998. 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1999 and 1998. 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION 21
SIGNATURES 22
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except for share amounts) 1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,219 $ 1,482
Accounts receivable, net of
allowance of $1,281 and $1,720 30,320 25,531
Inventories 21,905 24,753
Prepaid expenses and other current assets 4,339 4,966
Total Current Assets 57,783 56,732
PROPERTY AND EQUIPMENT, net 12,114 10,604
INTANGIBLE ASSETS, net 3,698 3,795
DEFERRED TAXES 22,811 22,811
OTHER ASSETS 6,809 16,363
$ 103,215 $ 110,305
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,107 $ 856
Accounts payable 19,195 18,093
Accrued payroll and related costs 4,259 3,969
Accrued liabilities 11,944 15,046
Deferred revenue and customer deposits 2,198 2,439
Total Current Liabilities 38,703 40,403
LONG-TERM DEBT 30,146 23,693
OTHER LONG-TERM LIABILITIES 1,445 2,445
TOTAL LIABILITIES 70,294 66,541
STOCKHOLDERS' EQUITY:
Common stock: $.01 par value; 80,000,000 shares
authorized; 63,004,953 and 49,834,807 issued
and outstanding 630 498
Preferred stock -- 7,300
Additional paid-in capital 78,413 71,624
Accumulated deficit (46,122) (35,658)
Total Stockholders' Equity 32,921 43,764
$ 103,215 $ 110,305
The accompanying notes are an integral part of these consolidated
balance sheets.
</TABLE>
3
<PAGE>
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except for Three Months Ended Nine Months Ended
per share amounts) September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES $ 32,872 $ 33,605 $ 96,822 $102,215
COST OF REVENUES 23,581 23,159 66,959 69,081
Gross Profit 9,291 10,446 29,863 33,134
OPERATING EXPENSES:
Product development and engineering 2,360 2,413 6,721 7,466
Selling, general and administrative 9,260 10,327 32,534 29,543
Provision for special charges --- 860 --- 5,343
11,620 13,600 39,255 42,352
OPERATING LOSS (2,329) (3,154) (9,392) (9,218)
INTEREST EXPENSE (845) (664) (2,321) (1,710)
OTHER INCOME, net 6 236 1,252 346
LOSS BEFORE TAXES (3,168) (3,582) (10,461) (10,582)
INCOME TAX BENEFIT --- (1,433) --- (4,232)
NET LOSS $ (3,168) $ (2,149) $(10,461) $ (6,350)
LOSS PER SHARE $ (0.05) $ (0.04) $ (0.18) $ (0.13)
AVERAGE DILUTED COMMON SHARES 62,961 49,801 57,334 49,744
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
4
<PAGE>
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(In thousands) September 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,461) $ (6,350)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,671 2,661
Income tax benefit not currently receivable --- (4,232)
Noncash items, including noncash interest expense,
noncash provision for losses on accounts receivable
and income from equity investment (26) 250
Gain on distributor note and warrant redemption (1,161) ---
Change in working capital items:
Accounts receivable (4,734) 3,825
Inventories 2,712 (2,665)
Accounts payable and accruals (1,273) (4,096)
Restricted cash --- 5,084
Other working capital items 664 (135)
NET CASH USED BY OPERATING ACTIVITIES (11,608) (5,658)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,448) (726)
Investment in eLottery (2,634) (5,842)
Proceeds from distributor note and warrant redemption 9,261 ---
Other, net 758 (302)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 5,937 (6,870)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility 6,757 8,410
Repayments of other long-term debt (772) (841)
Repurchase of stock (1,341) (148)
Proceeds from issuance of stock 764 191
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,408 7,612
DECREASE IN CASH AND CASH EQUIVALENTS (263) (4,916)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 1,482 7,727
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,219 $ 2,811
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
5
<PAGE>
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - NATURE OF THE BUSINESS AND FORMATION OF THE COMPANY
EXECUTONE Information Systems, Inc. (the Company) develops,
markets and supports voice and data communications and
information systems. Products and services include telephone
systems, voice mail systems, inbound and outbound call center
systems and specialized healthcare communications and workflow
management systems. Products and services are sold under the
EXECUTONE, INFOSTAR, IDS, LIFESAVER and INFOSTAR/ILS brand names
through a national network of independent distributors and direct
sales and service employees. The Company's products are
manufactured primarily in the United States and China.
The Company's eLottery subsidiary (formerly named Unistar Gaming
Corp.) develops, provides and maintains Internet, intranet and
telephone communications, accounting, database and other
applications and services for use by the domestic and
international lottery market. eLottery's UniStar Entertainment
subsidiary had the exclusive right to design, develop and manage
the National Indian Lottery (NIL) of the Coeur d'Alene Tribe of
Idaho (CDA). The NIL was operational beginning in January 1998.
However, in response to an adverse legal opinion on December 17,
1998, eLottery and the CDA terminated the operations of the NIL
and the US Lottery telephone and Internet operations managed by
eLottery.
NOTE B - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. In consolidating
the accompanying financial statements, all significant
intercompany transactions have been eliminated. Investments in
affiliated companies owned more than 20%, but not in excess of
50%, are recorded under the equity method.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE C - INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes." The deferred tax asset
represents the benefits that are more likely than not to be
realized from the utilization of pre- and post-acquisition tax
benefit carryforwards, which include net operating losses, tax
credits and the excess of tax bases over the fair value of the
net assets of the Company.
For the nine-month periods ended September 30, 1999 and 1998, the
Company made cash payments for income taxes of approximately
$57,000 and $75,000, respectively.
6
<PAGE>
NOTE D - EARNINGS PER SHARE
Earnings per share is based on the weighted average number of
shares of common stock and dilutive
common stock equivalents (which include stock options and
warrants) outstanding during the periods. Common stock
equivalents, the convertible preferred stock and the convertible
debentures which are antidilutive have been excluded from the
computations.
A reconciliation of the Company's loss per share calculations for
the three-month and nine-month periods ended September 30, 1999
and 1998, respectively, is as follows:
<TABLE>
<CAPTION>
Per Share
(in thousands, except for per share amounts) Loss Shares Amount
<S> <C> <C> <C>
For the three months ended September 30, 1999:
Basic and Diluted Loss Per Share: $ (3,168) 62,961 $(0.05)
For the three months ended September 30, 1998:
Basic and Diluted Loss Per Share: $ (2,149) 49,801 $(0.04)
For the nine months ended September 30, 1999:
Basic and Diluted Loss Per Share: $(10,461) 57,334 $(0.18)
For the nine months ended September 30, 1998:
Basic and Diluted Loss Per Share: $ (6,350) 49,744 $(0.13)
</TABLE>
The Company's Convertible Subordinated Debentures are convertible
into approximately 1.5 million shares of common stock as of
September 30, 1999. The shares issuable upon conversion of the
Debentures were not included in the computation of diluted
earnings per share because they would be antidilutive for each of
the periods presented. Incremental common shares assumed to be
issued for stock options totaling 1,127,563 and 30,724 shares for
the three-month periods ended September 30, 1999 and 1998,
respectively, were not included in the computation of diluted
earnings per share due to the net losses for both periods.
Corresponding amounts for the nine-month periods ended September
30, 1999 and 1998 were 1,256,674 and 129,688 shares,
respectively.
The convertible preferred stock issued in connection with the
acquisition of eLottery was antidilutive, at issuance, and has
been excluded from the above calculations. On April 13, 1999,
the convertible preferred stock was redeemed (See Note G).
NOTE E - INVENTORIES
Inventories are stated at lower of first-in, first-out (FIFO)
cost or market and consist of the following:
<TABLE>
<CAPTION>
(amounts in thousands) 9/30/99 12/31/98
<S> <C> <C>
Raw Materials $ 2,523 $ 3,339
Finished Goods 19,382 21,414
$ 21,905 $ 24,753
</TABLE>
7
<PAGE>
NOTE F - eLOTTERY
Acquisition
On December 19, 1995, EXECUTONE Information Systems, Inc.
(Executone) acquired 100% of the common stock of Unistar Gaming
Corp. for common and preferred stock with a combined value of
$12.7 million. In January 1999, Unistar Gaming Corp. changed its
name to eLottery, Inc. (eLottery). Any reference herein to
eLottery shall be deemed to include business conducted under the
name Unistar Gaming Corp. eLottery's wholly-owned subsidiary,
UniStar Entertainment, Inc. (UniStar Entertainment) had an
exclusive five-year management agreement with the CDA, which was
the primary asset acquired, to provide design, development,
financial and management services to the NIL. The NIL was
operational beginning in January 1998. However, in response to
an adverse legal opinion on December 17, 1998, eLottery and the
CDA terminated the operations of the NIL and the US Lottery
telephone and Internet operations managed by eLottery.
The preferred stock consisted of 250,000 shares of Cumulative
Convertible Preferred Stock, Series A (Series A Preferred Stock)
and 100,000 shares of Cumulative Contingently Convertible
Preferred Stock, Series B (Series B Preferred Stock). The Series
A Preferred Stock was to earn dividends equal to 18.5% of the
consolidated retained earnings of eLottery as of the end of a
fiscal period, less any dividends paid to the holders of the
Series A Preferred Stock prior to such date. The Series B
Preferred Stock was to earn dividends equal to 31.5% of the
consolidated retained earnings of eLottery as of the end of a
fiscal period, less any dividends paid to the holders of the
Series B Preferred Stock prior to such date. On April 7, 1999,
the Company reached agreement with the preferred shareholders to
accelerate redemption of the Series A and Series B preferred
shares, with such shares actually being redeemed effective
April 13, 1999 (see Note G).
Legal and Other Risks
On October 16, 1995, the CDA filed an action entitled Coeur
d'Alene Tribe v. AT&T Corp. in the Tribal Court, located in
Plummer, Idaho (Case No. C195-097): (i) requesting a ruling that
the NIL is legal under the federal Indian Gaming Regulatory Act
of 1988 (IGRA), that IGRA preempts state laws on the subject of
Indian gaming, that Section 1084 is inapplicable and that
therefore the states lack authority to issue Section 1084
notification letters to any long-distance carrier; and (ii)
seeking an injunction preventing AT&T from refusing to provide
telephone service to the NIL. The CDA took the position that all
NIL gaming activity was occurring on "Indian lands" as required
by IGRA. On February 28, 1996, the Tribal Court ruled: (i) that
all requirements of IGRA have been satisfied; (ii) that Section
1084 is inapplicable and the states lack jurisdiction to
interfere with the NIL; and (iii) that AT&T cannot refuse service
to the NIL. On July 2, 1997, the Tribal Appellate Court affirmed
the lower Tribal Court's
May 1, 1996 ruling and analysis upholding the CDA's right to
conduct the NIL telephone lottery. On
August 22, 1997, AT&T filed a complaint for declaratory judgment
against the CDA in the U. S. District Court for the District of
Idaho, to obtain a federal court ruling on the validity and
enforceability of the Tribal Court ruling. On December 17, 1998,
that Court granted declaratory judgment in favor of AT&T
overruling the decisions of the Tribal Courts. In response to
that decision, eLottery and the CDA terminated operations of the
NIL and the US Lottery. The CDA has appealed the District Court
decision; however, eLottery is not participating in or funding
any appeal of this ruling.
8
<PAGE>
On September 14, 1998, the CDA, eLottery and representatives of
the U.S. Department of Justice had discussions regarding a
declaratory judgment to be sought jointly from the U.S. District
Court for the
District of Idaho as to whether the operation of the NIL is legal
under 18 U.S.C. Sections 1952 and 1955.
eLottery was informed that the Department of Justice viewed such
operation to be in violation of such statutes. The Department of
Justice proposed that the parties file a joint stipulation of
facts and cross-motions for summary judgment in the declaratory
judgment action. On December 17, 1998, the Idaho Federal
District Court issued an opinion and order granting declaratory
judgment in favor of AT&T in the action styled AT&T v. Coeur d'
Alene Tribe. In response to that decision, eLottery and the CDA
terminated operation of the NIL and the US Lottery. In light of
the ruling of the U.S. District Court of Idaho and the
termination of the NIL and the US Lottery, eLottery has requested
confirmation from the Department of Justice that no further
action will be taken.
On May 28, 1997, the Attorney General of the State of Missouri
brought an action in the Circuit Court of Jackson County,
Missouri, against the CDA and UniStar Entertainment seeking to
enjoin the NIL games offered over the Internet. The complaint
also sought civil penalties, attorneys fees and court costs. The
complaint alleged that the NIL violated Missouri anti-gambling
laws and that the marketing of the games violated the Missouri
Merchandising Practices Act. UniStar Entertainment and the CDA
removed the case to the U.S. District Court for the Western
District of Missouri. After the Court denied the State's motion
to remand and dismissed the CDA on the basis of sovereign
immunity, the State dismissed Unistar Entertainment without
prejudice.
On January 29, 1998, the State of Missouri filed in state court a
new lawsuit against Unistar Entertainment, Executone and two
tribal officials. This lawsuit essentially repeated the
allegations from the State's first lawsuit and was likewise
removed to federal court. Following a decision by the Eighth
Circuit Court of Appeals in the State's first lawsuit, which held
that the existence of federal subject matter jurisdiction over
Missouri's lawsuits depends on whether the gaming activities of
the NIL occurred on Indian lands, a hearing on that issue was
scheduled for September 25, 1999. Rather than incur the legal
fees to continue to dispute jurisdiction, in September 1999,
UniStar Entertainment and Executone consented to the state's
motion for remand of the case to state court.
On September 15, 1997, the State of Wisconsin filed an action in
the Wisconsin State Circuit Court against Executone, UniStar
Entertainment and the CDA to permanently enjoin the NIL games
offered over the Internet. The complaint alleged that the NIL
violated Wisconsin anti-gambling laws and that the legality of
the NIL was misrepresented to Wisconsin residents in violation of
state law. In June 1999, the State of Wisconsin dismissed the
litigation against eLottery based upon eLottery's refund of
customer balances after termination of the NIL and its agreement
not to offer a similar lottery to Wisconsin residents in the
future, absent a court ruling as to its legality.
Investment in eLottery
The Company periodically evaluates the recoverability of its
investment in eLottery in accordance with the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets" by
projecting future undiscounted net cash flows for the underlying
businesses. If the sum of such cash flows is not sufficient to
recover the Company's investment in eLottery, projected cash
flows would then be discounted and the carrying value of
Company's investment would be adjusted accordingly. On December
17, 1998, the United States District Court for the District of
Idaho ruled in the case of AT&T vs. Coeur d'Alene Tribe that the
orders previously issued by the Tribal Court upholding the
legality of the US Lottery were erroneous (see Legal and Other
Risks for a description of the litigation). In
9
<PAGE>
response to this legal decision, eLottery and the CDA terminated
operation of the NIL and the US Lottery in every state where it
had been offered. Management determined that all of eLottery's
assets related to the NIL were impaired and were written down to
zero during the fourth quarter of 1998. All of the Company's
remaining investment in eLottery relates to its business as an
Internet retailer of lottery products for legally authorized
entities.
In February 1997, the Company signed agreements with Virtual
Gaming Technologies (formerly Internet Gaming Technologies (IGT))
and CasinoWorld Holdings, Ltd. (CWH). The agreements required
the Company to invest $700,000 in IGT common stock in September
1996 under a previous agreement. In addition, the Company was
granted a 200,000-share, five-year option set at 15% more than
the price per share on the initial investment, or $3.45 per
share. CWH provided project management services overseeing the
development of the software for the NIL, with the Company
contracting independently for system software development.
Approximately $800,000 in cumulative hardware costs were incurred
as of September 30, 1999.
The investment in IGT is being accounted for under the cost
method. All hardware costs incurred are being capitalized and
depreciated over the useful life of the assets. As of September
30, 1999, approximately $3.6 million has been spent on software
development. Such payments are being capitalized and depreciated
over a five-year period.
The eLottery Business
eLottery, Inc. is pursuing opportunities to become a web-based
retailer of lottery services and to license its systems and
services to state and international lotteries. eLottery
develops, provides and maintains Internet, Intranet, telephone,
communications, accounting, banking, database and other
applications and services to facilitate the electronic sale of
new and existing lottery products worldwide. Using its past
experience and market-tested products, eLottery is committed to
leading the governmental lottery industry into the e-commerce
market. Through September 30, 1999, eLottery has yet to generate
any revenue.
On October 25, 1999, eLottery entered into a software licensing
and development agreement and a management agreement with the
Jamaica Lottery Corporation, the government-authorized provider
of Jamaican government lottery products, and eCaribbean.com,
Limited, a Jamaican company that has been designated the
exclusive internet retail agent of the Jamaican Lottery
Corporation. Under the agreement, eLottery has agreed to
customize, license and maintain its proprietary internet lottery
software and systems for use in making sales of authorized
Jamaican government lottery products to eligible Jamaican
citizens and other persons in a manner and under circumstances
reasonably believed to comply with applicable law. The agreement
has an initial term of ten years and provides for compensation to
eLottery of a percentage of the net lottery revenues from sales
by eCaribbean.com, Limited, after payment of the prize pool,
required governmental and charitable payments, internet service
provider fees, and banking fees not charged to customers'
accounts. The Jamaica Lottery Corporation and eLottery currently
plan to launch Internet retail sales of Jamaica Lottery tickets
in early 2000.
NOTE G - DIVESTITURE OF CORE BUSINESSES
On October 18, 1999, the Company announced that it has signed a
definitive agreement to sell its computer telephony business,
including the national accounts and government systems groups to
Inter-Tel, Incorporated (Inter-Tel) for $44.3 million in cash
plus the assumption of certain liabilities and subject to certain
closing adjustments.
10
<PAGE>
The Company has received a waiver from Claricom, Inc., d/b/a
Staples Communications (Staples) under the right of first offer
held by Staples pursuant to its purchase of Executone's direct
sales offices in 1996. The proposed sale is subject to approval
of the Executone shareholders and certain other conditions. Both
Executone's and Inter-Tel's Boards of Directors unanimously
approved the transaction. Upon shareholders approval, the
results of the computer telephony business will be presented as a
discontinued operation.
The Company expects to use the proceeds, net of transaction
costs, to retire bank and other long-term debt. The Board of
Directors of the Company has determined that the net proceeds of
the sale after payment of debt will be used by the Company to
execute its business plan to provide a wide array of products and
services to the domestic and international lottery markets. If
the sale of the computer telephony business is consummated, the
Company will then conduct the lottery business through its wholly-
owned subsidiary, eLottery, Inc. The Company, under the name
eLOT, Inc., will hold the assets of the healthcare communications
business, its 47% interest in Dialogic Communications
Corporation, the stock of the eLottery subsidiary and the
proceeds from the sale.
The Company is continuing to pursue alternative transactions to
maximize shareholder value through the sale or other disposition
of its healthcare communications business and its 47% interest in
Dialogic Communications Corporation. Members of the Company's
management have submitted an expression of interest to purchase
the healthcare communications business and it is currently being
evaluated along with other expressions of interest. Until a
definitive agreement has been executed, the continuing healthcare
organization is in place and the current agreement with the
purchaser of the computer telephony business includes provisions
to assure the on-going availability of healthcare products and
services to all of the Company's healthcare distributors and
direct customers. Upon conclusion of the sale of the healthcare
business, the Company will have sold substantially all of its
assets which will trigger a mandatory redemption of the Company's
convertible subordinated debentures for $16.3 million.
On April 13, 1999, as part of its plan to separate its telephony
and healthcare businesses from eLottery, the Company accelerated
the redemption of its Series A and Series B preferred stock.
Upon redemption, the preferred shares were redeemed for 13.3
million shares of common stock, or approximately 21% of the
Company's common stock, and are no longer entitled to receive a
total of 50% of eLottery's retained earnings as preferred
dividends.
NOTE H - SEGMENTS
The Company's reportable business segments provide products and
services, which are marketed through both retail and independent
distribution channels. These businesses are managed and reported
separately because they serve distinct markets.
<TABLE>
<CAPTION>
Computer
(amounts in thousands) Telephony Healthcare eLottery Corporate Totals
<S> <C> <C> <C> <C> <C>
Three months ended Sept. 30, 1999
Revenue $ 24,002 $ 8,870 $ -- $ -- $ 32,872
Segment Income (Loss) 170 (1,094) (933) (472) (2,329)
Three months ended Sept. 30, 1998
Revenue $ 25,685 $ 7,920 $ -- $ -- $ 33,605
Segment Income (Loss) 145 (1,698) (902) 161 (2,294)
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Nine months ended Sept. 30, 1999
Revenue $ 70,930 $ 25,892 $ -- $ -- $ 96,822
Segment Income (Loss) 956 (4,325) (2,484) (3,539) (9,392)
Nine months ended Sept. 30, 1998
Revenue $ 74,947 $ 27,268 $ -- $ -- $102,215
Segment Loss (Loss) (8) (2,534) (1,360) 27 (3,875)
</TABLE>
The following reconciles the Company's segment loss to the
reported net loss for the three-month and nine-month periods
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three-Month Period Nine-Month Period
Ended September 30, Ended September 30,
(amounts in thousands) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Total segment loss $(2,329) $(2,294) $ (9,392) $(3,875)
Special charges -- (860) -- (5,343)
Interest expense (845) (664) (2,321) (1,710)
Other income, net 6 236 1,252 346
Income tax benefit -- 1,433 -- 4,232
Net loss $(3,168) $(2,149) $(10,461) $(6,350)
</TABLE>
Corporate assets were reduced by approximately $8.0 million
during the first quarter of 1999 due to the repayment of the note
receivable from Claricom and the redemption of Claricom warrants
issued to the Company (See Note I).
NOTE I - OTHER MATTERS
For the nine-month periods ended September 30, 1999 and 1998,
respectively, the Company made cash payments of approximately
$2.2 million and $1.7 million for interest expense on
indebtedness.
During the nine-month periods ended September 30, 1999 and 1998,
respectively, noncash financing activities included capital lease
obligations incurred in connection with computer software and
equipment acquisitions of $0.6 million and $0.8 million.
For the nine-month periods ended September 30, 1999 and 1998,
more than 10% of the Company's revenue were derived from a single
customer. Revenues from the customer were $11.5 million and
$14.2 million, respectively, for the nine-month periods ended
September 30, 1999 and 1998. For the nine-month period ended
September 30, 1998, a second customer also generated in excess of
10% of the Company's revenue, totaling $10.8 million during the
period.
On February 26, 1999, the Company received $9.3 million from
Claricom as payment for Claricom's outstanding $5.9 million
junior subordinated note plus interest, along with the redemption
of the warrants issued to the Company as part of the sale of the
direct offices in 1996. As a result, the Company recorded a gain
of $1.2 million during the first quarter of 1999. The gain is
included in other income, net.
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<PAGE>
The Company recorded a total of $9.0 million in reorganization
and other special charges during the year ended December 31,
1998, of which $5.3 million was recorded during the first nine
months of 1998. At September 30, 1999, the remaining reserve
balance associated with these charges was $2.6 million. These
amounts will be paid during 1999, with the exception of $1.5
million related to the patent litigation settlement, which will
be paid subsequent to December 31, 1999.
On March 30, 1998, the Company entered into an Amended and
Restated Distributor Agreement (the "Amended Agreement") with
Claricom, purchaser of the direct sales offices and the Company's
largest distributor. The Amended Agreement, effective April
1,1998 and continuing through December 31, 2001, provides, among
other things, that Claricom will be a non-exclusive distributor
of the Company's telephony products and that Claricom can market
products competing with those sold by the Company. Upon
execution of the Amended Agreement, Claricom released to the
Company the $5 million plus interest being held in escrow to
satisfy potential indemnity claims under the 1996 Asset Purchase
Agreement and waived all potential contract claims under the
prior distributor agreement.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis explains trends in the
Company's financial condition and results of operations for the
three-month and nine-month periods ended September 30, 1999
compared with the same periods last year. It is intended to help
shareholders and other readers understand the dynamics of the
Company's business and the key factors underlying its financial
results. This discussion should be read in conjunction with the
consolidated financial statements and notes included elsewhere in
this Form 10-Q, and with the Company's audited consolidated
financial statements and notes thereto for the year ended
December 31, 1998. Management believes that certain statements
in this management's discussion and analysis constitute forward-
looking statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 that are based on
current expectations, estimates and projections about the
industries in which the Company operates, management's beliefs
and assumptions made by management. Such forward-looking
statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or
achievements of the Company, or industry results, to be
materially different from any future results, performance, or
achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and assumptions include,
among others, the following: general economic and business
conditions; demographic changes; import protection and
regulation; rapid technology development and changes; timing of
product introductions; the mix of products/services; industry
capacity and other industry trends; and the ability of the
Company to attract and retain key employees.
OVERVIEW
The Company develops, markets and supports voice and data
communications and information systems. Products and services
include telephone systems, voice mail systems, inbound and
outbound call center systems and specialized healthcare
communications and workflow management systems. The Company's
products are sold under the EXECUTONE, INFOSTAR, IDS, LIFESAVER
and INFOSTAR/ILS brand names through a national network of
independent distributors and company direct sales and service
employees. The Company's eLottery subsidiary (formerly named
Unistar Gaming Corp.) develops, provides and maintains Internet,
intranet and telephone communications, accounting, database and
other applications and services for use by the domestic and
international lottery market. eLottery's UniStar Entertainment
subsidiary had the exclusive right to design, develop and manage
the National Indian Lottery (NIL) of the Coeur d'Alene Tribe of
Idaho (CDA). The NIL was operational beginning in January 1998.
However, in response to an adverse legal opinion on
December 17, 1998, eLottery and the CDA terminated the operations
of the NIL and US Lottery telephone and Internet operations
managed by eLottery.
Revenues are derived from product sales to distributors, direct
sales of healthcare products, and direct sales to national
accounts and government customers, as well as installations,
additions, changes, upgrades or relocation of previously
installed systems, maintenance contracts, and service charges to
the existing base of healthcare, national account and government
customers.
DIVESTITURE OF CORE BUSINESSES
On October 18, 1999, the Company announced that it has signed a
definitive agreement to sell its computer telephony business,
including the national accounts and government systems groups to
Inter-Tel, Incorporated (Inter-Tel) for $44.3 million in cash
plus the assumption of certain liabilities and subject to certain
closing adjustments.
14
<PAGE>
The Company has received a waiver from Claricom, Inc., d/b/a
Staples Communications (Staples) under the right of first offer
held by Staples pursuant to its purchase of Executone's direct
sales offices in 1996. The proposed sale is subject to approval
of the Executone shareholders and certain other conditions. Both
Executone's and Inter-Tel's Boards of Directors unanimously
approved the transaction. Upon shareholder approval, the results
of the computer telephony business will be presented as a
discontinued operation.
The Company expects to use the proceeds, net of transaction
costs, to retire bank and other long-term debt. The Board of
Directors of the Company has determined that the net proceeds of
the sale after payment of debt will be used by the Company to
execute its business plan to provide a wide array of products and
services to the domestic and international lottery markets. If
the sale of the computer telephony business is consummated, the
Company will then conduct the lottery business through its wholly-
owned subsidiary, eLottery, Inc. The Company, under the name
eLOT, Inc., will hold the assets of the healthcare communications
business, its 47% interest in Dialogic Communications
Corporation, the stock of the eLottery subsidiary and the
proceeds from the sale.
The Company is continuing to pursue alternative transactions to
maximize shareholder value through the sale or other disposition
of its healthcare communications business and its 47% interest in
Dialogic Communications Corporation. Members of the Company's
management have submitted an expression of interest to purchase
the healthcare communications business and it is currently being
evaluated along with other expressions of interest. Until a
definitive agreement has been executed, the continuing healthcare
organization is in place and the current agreement with the
purchaser of the computer telephony business includes provisions
to assure the on-going availability of healthcare products and
services to all of the Company's healthcare distributors and
direct customers. Upon conclusion of the sale of the healthcare
business, the Company will have sold substantially all of its
assets which will trigger a mandatory redemption of the Company's
convertible subordinated debentures for $16.3 million.
RESULTS OF OPERATIONS
Revenues for the third quarter of 1999 were $32.9 million, with an
operating loss of $2.3 million and a net loss of $3.2 million or
($.05) per common share. Revenues for the third quarter of 1998
were $33.6 million, with an operating loss of $3.2 million and a
net loss of $2.1 million or ($.04) per common share. For the nine-
month period ended September 30, 1999, revenues were $96.8
million, with an operating loss of $9.4 million and a net loss of
$10.5 million or ($.18) per common share. For the same period in
1998, revenues were $102.2 million, with an operating loss of $9.2
million and a net loss of $6.4 million or ($.13) per common share.
The 1998 results include $0.9 million and $5.3 million in special
charges for the three-month and nine-month periods ended September
30, 1998, respectively, covering severance and benefits
continuation costs.
The 1999 year-to-date revenue declines compared to the comparable
1998 period are largely the result of the discontinuation of
quarter-ending, distributor-focused sales incentives in the third
quarter of 1998, along with certain start-up problems in
production planning and shipping encountered during the Company's
first few months using its new integrated business software
system. Operating expenses include one-time charges for
professional fees associated with the Company's re-engineering
program ($0.5 million in the third quarter of 1999 and $3.5
million for the year-to-date) and related travel, training and
contract labor to temporarily assist Company employees engaged in
re-engineering and software implementation ($0.7 million in the
third quarter and $2.1 million for the year to date) as well as
an increase in eLottery expenses resulting from the charging of
certain 1998 expenses to the then-operational NIL. Excluding
these one-time expenses, operating expenses for the Company
declined about $1.9 million for the third quarter of 1999 and
$3.6 million for the 1999 year-to-date.
15
<PAGE>
REVENUE
Computer Telephony
Computer telephony products range from PBXs for small to medium-
sized businesses to standards-compliant computer telephony
applications, LAN and Internet-based applications, including
voice mail, unified messaging, automatic call distribution (ACD),
predictive dialing and wireless communications.
This business targets the under-400-extension market segment.
Customers range from small companies with fewer than ten
employees to large national accounts and government agencies with
fewer than 400 extensions at any individual location. These
products are marketed through independent distribution and direct
sales, with the direct sales effort focused on product and
service sales to National and Government Accounts.
In the third quarter of 1999, Computer Telephony revenues
decreased $1.7 million, or almost 7%, compared to the same
quarter last year primarily due to lower sales to Staples
Communications. For the nine-month period ended September 30,
1999, Computer Telephony revenues declined $4.0 million or 5%
compared to the same period in 1998, a result of lower sales to
Staples Communications and the absence of several large National
Account sales for Year 2000 upgrades recorded in 1998.
Healthcare
Healthcare products range from traditional nurse call systems,
intercoms and room status indicators to more sophisticated
patient reporting systems, infrared locating systems and wireless
technologies. All of these products can be integrated to enhance
a facility's communications and information networking.
Healthcare customers include hospitals, surgical centers, nursing
homes and assisted living centers.
Healthcare reported $1.0 million higher sales for the third
quarter of 1999 compared to the same period in 1998, but $1.4
million lower sales for the 1999 year-to-date compared to the
same period in 1998. The increase for the third quarter
continues the trend of revenue increases over the last four
sequential quarters based on continuing improvements in the
Company's installation processes. The decrease for the year to
date reflects the change in business practice away from supply
push distributor incentive programs, which occurred at the end of
the third quarter of 1998.
GROSS PROFIT
Gross profit for the third quarter of 1999 was $9.3 million or
28.3 % of revenue, compared to $10.4 million or 31.1% of revenue
for the same quarter last year. On a year-to-date basis, gross
profit for 1999 was $29.9 million or 30.8% of revenue compared to
$33.1 million or 32.4% of revenue for 1998. Pricing margins
(revenue less direct cost of sales) remained fairly constant.
However, the Company incurred higher period costs for the training
and data conversion associated with the implementation of the new
software package, along with temporary labor to assist on
installations while individuals were being trained on the new
system. The Company also wrote off $0.8 million of prepaid
royalties during the quarter for a product that it no longer
expects to bring to market.
OPERATING EXPENSES
Product development expenses were comparable at $2.4 million for
the third quarter of both 1999 and 1998. For the year to date,
product development expenses for 1999 were $6.7 million, a
decrease of approximately $0.7 million from the 1998 period
primarily due to lower headcount required to execute a more
focused product development program.
16
<PAGE>
Selling, general and administrative expenses were $9.3 million, or
28.2% of revenue for the third quarter of 1999, compared to $10.3
million or 30.7% of revenue for the same period in 1998. Year-to-
date, selling general and administrative expenses for 1999 were
$32.5 million or 33.6% compared to $29.5 million or 28.9% in 1998.
Expenses for 1999 include non-recurring professional fees incurred
to help the Company re-engineer its business processes of $0.5
million for the third quarter and $3.5 million for the year to
date. eLottery expenses remain flat for the third quarter of 1999
as compared to 1998, however, increased $1.1 million on a year-to-
date basis due to the Company's efforts to develop and market
eLottery's products, along with the Company's practice in the
first and second quarters of 1998 of charging the NIL for
personnel expenses which, with the termination of the NIL, are now
included in the Company's expenses.
Excluding the effect of the special charges, eLottery expenditures
and the consulting fees incurred in re-engineering the Company's
business processes, 1999 operating expenses for the third quarter
and year-to-date decreased $1.9 million and $3.6 million,
respectively, compared to the same periods in 1998. This reflects
the impact of the Company's cost reduction efforts and is expected
to continue through the end of 1999.
SPECIAL CHARGES
As a result of actions taken by the Company to improve its
business processes, including significant changes in its senior
management structure, along with a provision for a patent
litigation settlement, the Company recorded a total of $9.0
million in reorganization and other special charges during year
ended December 31, 1998, of which $5.3 million was recorded
during the first nine months of 1998. At September 30, 1999, the
remaining reserve balance associated with these charges was $2.6
million. These amounts will be paid during 1999, with the
exception of $1.5 million related to the patent litigation
settlement, which will be paid subsequent to December 31, 1999.
INTEREST AND OTHER EXPENSE
Interest expense for the third quarter of 1999 increased $0.2
million compared to the same period in 1998. Year-to-date,
interest expense in 1999 was $0.6 million higher than in 1998.
The increases are due to higher levels of bank borrowings in 1999
compared to the previous year. Other income, net, for the third
quarter 1999 was $0.2 million lower than the prior year due to
lower equity investment and royalty income. Year-to-date, other
income, net increased $0.9 million compared to the same period in
1998 due to a nonrecurring $1.2 million gain on the receipt of
payment from Claricom on the $5.9 million junior subordinated
note plus interest, along with the redemption of the warrants
held by the Company.
eLOTTERY
On December 19, 1995, EXECUTONE Information Systems, Inc.
(Executone) acquired 100% of the common stock of Unistar Gaming
Corp. for common and preferred stock with a combined value of
$12.7 million. In January 1999, Unistar Gaming Corp. changed its
name to eLottery, Inc. (eLottery). Any reference herein to
eLottery shall be deemed to include business conducted under the
name Unistar Gaming Corp. eLottery's wholly-owned subsidiary,
UniStar Entertainment, Inc. (UniStar Entertainment) had an
exclusive five-year management agreement with the CDA, which was
the primary asset acquired, to provide design, development,
financial and management services to the National Indian Lottery.
The NIL was operational beginning in January 1998. However, in
response to an adverse legal opinion on December 17, 1998,
eLottery and the CDA terminated the operations of the NIL and the
US Lottery telephone and Internet operations managed by eLottery.
17
<PAGE>
eLottery's original mission was to develop, install and manage a
National Indian Lottery accessible by telephone. eLottery
developed a state-of-the-art Internet and telephone-based system
providing both instant and draw lottery games, full player
accounting and tracking and automatic credit or debit card
clearance. In early 1998, as a hedge against potential adverse
legal and political decisions, eLottery began investigating
alternative applications and markets for its technology.
eLottery is now pursuing opportunities to become a web-based
retailer of lottery services and to license its systems and
services to state and international lotteries. The Company has
developed and operated systems software that enables the
electronic distribution of lottery tickets over the Internet,
Intranet and via telephone. The Company believes that the
electronic distribution of lottery tickets through these systems
will increase lottery sales because they make the purchase of
tickets more easily accessible and because they make use of
technology to enhance and enliven the lottery gaming experience.
With its unique and proven ability to offer lottery operators its
new Internet and Intranet-based lottery products worldwide, the
Company believes it is well positioned to capitalize on the
growth in non-traditional lottery sales.
During the first nine months of 1999, the Company incurred
approximately $4.3 million in cash expenditures related to
eLottery. Of that amount, approximately $1.7 million related to
the termination of NIL operations, including payment of
outstanding invoices, shutdown costs and severance and other
charges. eLottery's net loss for 1999 year-to-date is $2.5
million, consisting primarily of expenses for the development and
marketing of its products and other operating expenses.
On October 25, 1999, eLottery entered into a software licensing
and development agreement and a management agreement with the
Jamaica Lottery Corporation, the government-authorized provider
of Jamaican government lottery products, and eCaribbean.com,
Limited, a Jamaican company that has been designated the
exclusive internet retail agent of the Jamaican Lottery
Corporation. Under the agreement, eLottery has agreed to
customize, license and maintain its proprietary internet lottery
software and systems for use in making sales of authorized
Jamaican government lottery products to eligible Jamaican
citizens and other persons in a manner and under circumstances
reasonably believed to comply with applicable law. The agreement
has an initial term of ten years and provides for compensation to
eLottery of a percentage of the net lottery revenues from sales
by eCaribbean.com, Limited, after payment of the prize pool,
required governmental and charitable payments, internet service
provider fees, and banking fees not charged to customers'
accounts. The Jamaica Lottery Corporation and eLottery currently
plan to launch Internet retail sales of Jamaica Lottery tickets
in early 2000.
With the termination of the NIL and US Lottery, the Company
continues to face certain legal and other risks. See the Notes
to Consolidated Financial Statements for a discussion of the
legal issues, which could impact the Company and its eLottery
business.
YEAR 2000
Status
The Company has completed a review of its computer systems to
identify systems that could be affected by the "Year 2000" issue.
Systems that do not properly recognize information after December
31, 1999 could generate erroneous data or fail. Effective June
30, 1999, as part of its long-term information systems plan, the
Company converted to a new and more comprehensive software system
for its
information technology (IT) infrastructure. Including
installation and data conversion costs, the Company spent
approximately $2.7 million on the new system, which is now
operational. The costs for the new system have been capitalized
and are being depreciated over the expected service life of the
system beginning in July 1999.
18
<PAGE>
Management believes that the conversion to new software should
resolve the Year 2000 issue as it relates to its IT
infrastructure. There are several peripheral systems that will
not be replaced by the new software. These systems have been
made compliant using the Company's internal resources, which have
been redeployed from other projects. The remedial effort for
such systems is complete and has been expensed as incurred.
For non-IT systems (non-information technology that typically
includes imbedded technology such as micro-controllers), the
Company has reviewed its production and other equipment and
determined that there are no significant Year 2000 issues. The
Company continues to seek representations and assurances from its
key vendors regarding timely Year 2000 compliance. Other than
such surveys of its vendors, the Company has not made an
assessment as to whether any of its suppliers or service
providers will be affected by the date change.
Risk Assessment
Although the Company believes that internal Year 2000 compliance
will be achieved by December 31, 1999, there can be no assurance
that the Year 2000 problem will not have a material adverse
affect on the Company's business, financial condition and results
of operations. The failure by the Company to correct a material
Year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations.
Presently, the Company perceives that the most reasonably likely
worst case scenario related to the Year 2000 issue is associated
with potential concerns with the ability of third party vendors
to provide products used in the manufacturing process. A
significant disruption in the product manufacturing process could
prevent or delay the Company from completing new installations or
system upgrades and enhancements for its customers. This would
adversely affect the Company's results of operations, liquidity
and financial condition. The Company is not presently aware of
any vendor-related Year 2000 issue that is likely to result in
such a disruption.
Contingency Plan
The Company has a contingency plan documented and in place to
deal with unforeseen conversion failures. The plan includes the
identification of teams of employees to be on call during the
millennium change to monitor key internal systems and to respond
to a potential increase in the normal volume of calls for service
and/or support, providing for backup power sources, data
retention and backup procedures for critical business data,
procedures to safeguard against disruption of the payroll process
and operational plans to address potential delays in product
supply from vendors.
OTHER
On March 30, 1998, the Company entered into an Amended and
Restated Distributor Agreement with Claricom, d/b/a Staples
Communications, (the "Amended Agreement"). The Amended
Agreement, effective April 1, 1998 and continuing through
December 31, 2001, provides, among other things, that Claricom
will be a non-exclusive distributor of the Company's telephony
products and that Claricom can market products competing with
those sold by the Company. Upon execution of the Amended
Agreement, Claricom released to the Company the $5 million plus
interest being held in escrow to satisfy potential indemnity
claims under the 1996 Asset Purchase Agreement and waived all
potential contract claims under the prior distributor agreement.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is represented by cash, cash equivalents
and cash availability under its existing credit facilities. The
Company's liquidity was approximately $4 million as of September
30, 1999 and $10 million as of December 31, 1998.
At September 30, 1999 and December 31, 1998, cash and cash
equivalents amounted to $1.2 million and $1.5 million,
respectively, a decrease of $0.3 million. The decrease was
mainly due to the funding of the Company's operating losses,
along with additional expenditures to fund eLottery development
expenses and the termination of NIL operations and the repurchase
of stock, partially offset by a nonrecurring cash receipt from
Claricom (see below) and additional borrowings from the Company's
credit facility.
The Company used $11.6 million in its operating activities during
the first nine months of 1999, of which $10.0 million was used
during the first six months of 1999. For the same period in
1998, $10.7 million in cash used by operations, excluding the
March 1998 release of $5.1 million held in escrow since the sale
of the direct offices in 1996. The increase in funds used by
operating activities is primarily due to the funding of $5.6
million of consulting fees and other expenses associated with the
Company's business process improvement activities and
installation of new computer systems, the increase in accounts
receivable days sales outstanding and an additional $2.5 million
of eLottery business development spending. This was partially
offset by the positive cash impact of the inventory reductions
during the first nine months of 1999.
Cash provided by investing activities totaled $5.9 million for
the first nine months of 1999, compared to $6.9 million of cash
used during the same period last year. The increase in cash
provided by investing activities is primarily due to a
nonrecurring cash receipt from Claricom. On February 26, 1999,
the Company received $9.3 million from Claricom as payment for
Claricom's outstanding $5.9 million junior subordinated note plus
interest, along with the redemption of the warrants issued to the
Company as part of the sale of the direct offices in 1996. The
Company used the proceeds to reduce outstanding bank borrowings
and accounts payable.
The Company generated $5.4 million in cash from financing
activities during the first nine months of 1999. Borrowings for
the first nine months of 1999 increased by $6.8 million. An
additional $0.8 million was generated by the issuance of common
shares. Cash was used to repurchase 420,000 shares of the
Company's common stock for $1.3 million and to repay other long-
term debt totaling $0.8 million. During the same period in 1998,
the Company borrowed $8.4 million from its credit facility and
used $0.8 million in cash in its other financing activities,
primarily for debt repayment.
Total debt as of September 30, 1999 was $31.3 million, an
increase of $6.8 million from $24.5 million at December 31, 1998.
The increase is a result of an additional $6.8 million in bank
borrowings, $0.6 million in connection with the acquisition of a
new computer software system, along with an increase in the
carrying value of the convertible subordinated debentures of $0.2
million due to accretion. Debt payments totaled $0.8 million
during the first nine months of 1999.
The Company received a waiver of its covenant defaults on its
credit facility as of September 30, 1999 and expects to receive a
waiver for December 31, 1999 in the event that there is a default
at that time. As previously noted, the credit facility is
expected to be repaid in full from the proceeds of the sale of
the CT division.
The Company believes that borrowings available under the credit
facility and cash flow from operations will be sufficient to meet
working capital and other requirements for the next twelve
months.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note F of the Notes to Consolidated Financial
Statements in Part I, Item 1 for details on legal
proceedings.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
11 - Statement Regarding Computation of Per
Share Earnings (see Note D of Notes to
Consolidated Financial Statements in Part I,
Item 1).
b) Reports on Form 8-K
Not applicable.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report for the
quarterly period ended September 30, 1999 on Form 10-Q to be
signed on its behalf by the undersigned thereunto duly
authorized.
EXECUTONE Information Systems, Inc.
Dated: November 15, 1999 /s/ Stanley J. Kabala
Stanley J. Kabala
Chairman, President and
Chief Executive Officer
Dated: November 15, 1999 /s/ Edward W. Stone
Edward W. Stone
Senior Vice President and
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in the registrant's filing on Form 10-Q for the
quarterly period ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,219
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<RECEIVABLES> 31,601
<ALLOWANCES> 1,281
<INVENTORY> 21,905
<CURRENT-ASSETS> 57,783
<PP&E> 27,146
<DEPRECIATION> 15,032
<TOTAL-ASSETS> 103,215
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<BONDS> 30,146
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<COMMON> 630
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<TOTAL-LIABILITY-AND-EQUITY> 103,215
<SALES> 96,822
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<CGS> 66,959
<TOTAL-COSTS> 66,959
<OTHER-EXPENSES> 39,255
<LOSS-PROVISION> 104
<INTEREST-EXPENSE> 2,321
<INCOME-PRETAX> (10,461)
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