U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
Commission File No. 0-15205
ELCOTEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2518405
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6428 Parkland Drive, Sarasota, Florida 34243
--------------------------------------------
(Address of principal executive offices)
(Zip Code)
(941) 758-0389
------------------------
(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 past 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 of the issuer's Common Stock outstanding as of
August 9, 1996 was 8,073,807.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
ELCOTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments $139 $232
Accounts receivable, net 2,507 2,943
Notes receivable, net 2,478 2,238
Inventories 2,903 2,800
Refundable income taxes 403 507
Deferred tax asset 1,332 1,332
Prepaid expenses and other current as 192 175
------- -------
TOTAL CURRENT ASSETS 9,954 10,227
Property, plant and equipment, net 3,049 3,103
Notes receivable, noncurrent 952 646
Deferred tax asset 782 782
Other assets 362 171
------- -------
$15,099 $14,929
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $2,187 $2,164
Line of credit 1,090 965
Current portion of long-term debt 644 810
------- -------
TOTAL CURRENT LIABILITIES 3,921 3,939
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LONG TERM DEBT, less current portion 382 432
------- -------
SHAREHOLDERS' EQUITY:
Common Stock 81 81
Additional paid-in capital 10,761 10,720
Retained earnings/(deficit) 131 (66)
Less treasury stock (177) (177)
------- -------
10,796 10,558
------- -------
$15,099 $14,929
======= =======
<FN>
Note: The balance sheet at March 31, 1996, has been derived
from the audited financial statements.
1
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
-----------------------
1996 1995
------ ------
<S> <C> <C>
NET SALES $5,551 $5,820
------ ------
COSTS AND EXPENSES:
Cost of sales 3,254 3,322
Research and development 545 521
Selling, general and
administrative 1,377 1,547
Other Charges (see Note D) 103 -
------ ------
TOTAL COSTS AND EXPENSES 5,279 5,390
------ ------
PROFIT FROM OPERATIONS 272 430
INTEREST INCOME, net 30 145
------ ------
PROFIT BEFORE INCOME TAXES 302 575
INCOME TAX PROVISION 105 202
------ ------
NET PROFIT $197 $373
====== ======
NET PROFIT PER COMMON AND COMMON
EQUIVALENT SHARE $0.02 $0.05
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,279 8,212
====== ======
<FN>
2
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $197 $373
Adjustments to reconcile net profit
to net cash provided from operations:
Depreciation and amortization 89 82
Provision for doubtful accounts (30) (9)
Change in operating assets and liabilities:
Accounts receivable 466 (1,038)
Notes receivable (547) 535
Inventories (103) (87)
Prepaid expenses and other
current assets 184 74
Accounts payable and accrued expenses (72) 137
Other, net (192) 7
------ ------
Net cash flow (used in)/provided from
operations (8) 74
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (35) (113)
------ ------
Net cash flow used in investing
activities (35) (113)
------ ------
<FN>
3
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
(continued)
<CAPTION>
Three Months Ended
June 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments)/proceeds related to
short-term borrowings 125 (327)
Payments on long-term debt (216) (72)
Issuance of common stock 41 74
------ ------
Net cash flow used in
financing activities (50) (325)
------ ------
Net decrease in cash and
temporary investments (93) (364)
Cash and temporary investments at
beginning of year 232 366
------ ------
Cash and temporary investments at
end of quarter $139 $2
====== ======
ADDITIONAL CASH FLOW INFORMATION:
Cash Paid During the period for:
Interest $49 $56
Income taxes - -
<FN>
4
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
ELCOTEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for share amounts)
(Unaudited)
NOTE A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of June 30, 1996, and the
consolidated statements of operations for the three month periods ended
June 30, 1996 and 1995, and the consolidated statements of cash flows for the
three month periods ended June 30, 1996 and 1995, have been prepared by the
Company, without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1996,
and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-KSB
for the fiscal year ended March 31, 1996. The results of operations for the
three month period ended June 30, 1996, are not necessarily indicative of the
results for the full fiscal year.
NOTE B. INVENTORIES:
Inventories by stage of completion are as follows:
June 30, March 31,
1996 1996
-------- --------
Finished products $ 557 $ 470
Work-in-process 260 240
Purchased components 2,086 2,089
------ ------
$2,903 $2,800
====== ======
NOTE C. SHAREHOLDERS' EQUITY:
During the three month period ended June 30, 1996, shareholders' equity
increased as a result of a net profit of $197, and employee and director
exercises of stock options at prices between $.75 per share and $3.50 per
share for a total of $41.
5
<PAGE>
NOTE D. OTHER CHARGES:
During the three month period ended June 30, 1996, the Company incurred
continuing expenses for legal fees pertaining to the Amtel bankruptcy filing
in the amount of $103. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a further description of
this matter.
6
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
----------------------------------------------
Results of Operations
- ---------------------
(Dollars in thousands)
Quarter ended June 30, 1996, compared to the quarter ended June 30, 1995:
Net sales for the quarter ended June 30, 1996 ("first quarter 1997"), decreased
to $5,820 from $5,551 for the quarter ended June 30, 1995 ("first quarter
1996"), a decrease of $269, or approximately 5%, principally as a result of
a decrease in sales of complete payphones of approximately 7% offset by an
increase in sales of electronic assemblies of approximately 11%. Unit sales
of complete payphones increased by approximately 3% and unit sales of
electronic assemblies increased by approximately 4%. Average selling prices
of payphones in the quarter were approximately 10% lower than in the same
quarter last year due to discounts given to customers for competitive reasons,
while average selling prices of electronic assemblies were approximately 7%
higher than last year due to the phase out of credits given to customers
under its trade in program. The trade in program, which initially began in
conjunction with the North American Numbering Plan ("NANP"), was continued
for competitive reasons to permit customers to receive a credit for upgrading
older electronic assemblies, that either they previously purchased from the
Company or other manufacturers, for the Company's current models.
Cost of sales as a percentage of net sales were slightly higher than last
year due to product mix and the sale of more payphones at lower prices than
last year.
Research and development costs increased by $24, or approximately 5%, from
$521 in the first quarter 1996 to $545 in the first quarter 1997 due to the
hiring of additional development staff offset by a reduction in the use of
outside contractors. Selling, general and administrative expenses decreased
by $170, or approximately 11%, from $1,547 in the first quarter 1996 to
$1,377 in the first quarter 1997 principally as a result of reduced sales
commissions related to the Company's lower sales level compared to the prior
year, a reduction in the Company's provision for doubtful accounts due to the
lower sales level as well as a reduction in accounts receivable during the
first quarter 1997, and a one-time expense in connection with the Company's
listing on the NASDAQ National Market System during the first quarter 1996.
Interest income decreased by $112, or approximately 61%, from $185 in first
quarter 1996 to $73 in first quarter 1997 due to a decrease in the Company's
note receivable portfolio. Interest expense increased by $3, or approximately
8%, from $40 in first quarter 1996 to $43 in first quarter 1997 due to
increased borrowings against the Company's line of credit facility with its
bank.
During fiscal 1996, one of the Company's customers, to whom the Company had
sold approximately 3,500 payphones during fiscal 1995, filed for protection
under Chapter 11 of the Bankruptcy Code. On the date of the bankruptcy filing,
the Company was owed approximately $3,200. In July 1996, the Company and the
debtor reached an agreement in principle with respect to the treatment of the
Company's claims under the debtors' plan of reorganization. See "Legal
Proceedings." The agreement in principle resulted in an allowance of
approximately $1,602 against the Company's receivable from the debtor.
7
<PAGE>
In addition, the Company had incurred approximately $242 in legal and related
expenses in connection with its claim against the debtor. The total charge
to the Company's consolidated financial statements for the fiscal year ended
March 31, 1996, relating to this matter was $1,844. Continuing expenses for
legal fees pertaining to this matter during the first quarter 1997 are $103
and are shown as "Other Charges" on the Consolidated Statements of Operations.
Liquidity and Capital Resources
- -------------------------------
(Dollars in thousands)
The Company incurred a decrease in current assets of $273, or approximately 3%,
from $10,227 at March 31, 1996 to $9,954 at June 30, 1996, predominantly from
a decrease in accounts receivable of $436, partially offset by an increase of
$240 in notes receivable. Current liabilities decreased by $18, or
approximately 1%, from $3,939 at March 31, 1996 to $3,921 at June 30, 1996
predominantly from a reduction in the current portion of long term debt
offset by an increase in the amount owed under the Company's line of credit
with its lender.
Since August 31, 1995 the Company has had a $2,000 working capital line of
credit secured by the Company's accounts receivable, notes receivable and
inventories. Interest on amounts borrowed on the line of credit is at the
bank's floating 30 day libor rate plus 2.75%. The Company borrows against
and repays the line of credit throughout the year depending upon its working
capital needs and cash generated from operations, with the outstanding amount
under the line of credit during fiscal 1997 ranging from $425 to $1,175. The
Company believes its lender will renew the line of credit when it matures on
August 31, 1996.
In addition, on August 31, 1995, the Company borrowed $1,000 from the same
lender for an eighteen month term with interest at the bank's floating 30 day
libor rate plus 2.75%. The Company also refinanced its mortgage note with its
lender on the same date without changing the maturity date of May 23, 1999,
but lowering its interest rate to a fixed rate of 8.50% from the floating rate
of 9.25% as of the closing date for the remainder of the original five year
term.
The Company believes that its anticipated cash flow from operations will be
sufficient to fund its working capital needs, its capital expenditures and
its short and long term note obligations through June 30, 1997.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Quarterly Report on Form 10-Q which are not
historical facts contain forward looking information with respect to plans,
projections or future performance of the Company, the occurrence of which
involve certain risks and uncertainties that could cause the Company's actual
results to differ materially from those expected by the Company, including
the risk of adverse regulatory action affecting the Company's business or the
business of the Company's customers, competition, the risk of obsolescence of
its products, the ultimate outcome of the Amtel bankruptcy proceeding, and
uncertainties detailed in the Company's filings with the Securities and
Exchange Commission.
8
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
As previously reported, on August 3, 1995, one of the Company's
customers, Amtel Communications, Inc. and four related entities
("Amtel"), filed voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code, which were administratively consolidated under
the case name of In re ACI-HDT Supply Company, United States Bankruptcy
Court for the Southern District of California, Administratively
Consolidated Case No. 95-08253-A11.
In late 1994 and early 1995, the Company had sold Amtel on credit
approximately 3,500 payphones and related equipment. To secure Amtel's
obligations to pay the Company for the payphones and related equipment
pursuant to five promissory notes, Amtel granted the Company a security
interest in payphones sold to Amtel and collateral assignments of
agreements between Amtel and the owners of certain sites where those
payphones had been or were to be installed. On the date of the
bankruptcy filing, the Company was owed approximately $3,200,000 by
Amtel.
The Company has reached an agreement in principle with Amtel with
respect to the treatment of the Company's claims in the bankruptcy
case. That agreement in principle provides that the Company would
receive in satisfaction of all claims by the Company against Amtel
and by Amtel against the Company $1.7 million in cash plus all of the
payphones (approximately 1,350) and related equipment currently in the
Company's possession and being warehoused by the Company pursuant to a
prior Bankruptcy Court order. There can be no assurance that this
agreement in principle with respect to the treatment of the Company's
claims will be implemented. This settlement between the Company and
Amtel is subject to the approval of the Bankruptcy Court. Bankruptcy
Court approval of such settlement is expected to be sought in advance
of and independent of any plan of reorganization.
Amtel is in the process of preparing an amended disclosure statement
that accurately reflects the terms of its agreement in principle with
the Company. Since the reorganization plan involving Pacific Coin has
been abandoned, the only reorganization plan presently proposed
involves PhoneTel's purchase of Amtel's pay phone assets and business
for approximately $13 million, payable $7 million in cash and
$6 million in publicly tradeable shares of PhoneTel stock. Amtel has
filed a motion to sell, outside of a plan of reorganization,
substantially all of Amtel's payphone assets to PhoneTel. In order to
protect the Company's security interest in the payphones to be sold to
PhoneTel, the Company intends to conditionally oppose that sale motion
until the Bankruptcy Court approves the settlement between the Company
and Amtel (or the Company's liens on the payphones are transferred to
the cash portion of the sale proceeds.) A hearing on the motion to
sell those assets is scheduled for August 29, 1996.
9
<PAGE>
In re ACI-HDT Supply Company, debtor and related cases. Nogah
Bethlahmy, et al plaintiffs v. Randy S. Kuhlmann, et al. defendants.
Adversary Proceeding No. 95-90809 in the United States Bankruptcy
Court, Southern District of California.
As previously reported, this putative class action was filed in the
Superior Court of the State of California for the County of San Diego
("State Court") alleging that Amtel conspired with its own officers and
professionals, and with various telephone suppliers (including the
Company) to defraud investors in Amtel by operating a Ponzi scheme.
The Company has offered to settle this class action case by taking
$300,000 of the $1.7 million to be received by the Company in
connection with the settlement of its claims in the Amtel bankruptcy
case and depositing that amount in an interest bearing account.
That account would be available for the benefit of the Amtel
lessor/investors who, as a class, vote by at least 80 percent in
amount of outstanding interests to accept such $300,000 payment in
full and complete satisfaction of any claims they may have against
the Company, including those asserted in the class action. If less
than 80 percent of the Amtel lessor/investors vote as a class to give
the Company full and complete releases in exchange for the $300,000
plus accrued interest, the Company may elect either (i) to proceed
with the settlement with those who have elected to accept the
settlement or (ii) to receive immediately free of any claims the
$300,000 plus accrued interest thereon. Those members of the class
who do not settle with the Company can proceed against the Company in
the class action.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Elcotel, Inc.
----------------------
(Registrant)
Date: August 14, 1996 By: /s/ Ronald M. Tobin
----------------------
Ronald M. Tobin
Vice President
(Principal Financial Officer
and Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 139
<SECURITIES> 0
<RECEIVABLES> 4,985
<ALLOWANCES> 0
<INVENTORY> 2,903
<CURRENT-ASSETS> 9,954
<PP&E> 3,049
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,099
<CURRENT-LIABILITIES> 3,921
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 10,715
<TOTAL-LIABILITY-AND-EQUITY> 15,099
<SALES> 5,551
<TOTAL-REVENUES> 5,551
<CGS> 3,254
<TOTAL-COSTS> 3,254
<OTHER-EXPENSES> 2,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43
<INCOME-PRETAX> 302
<INCOME-TAX> 105
<INCOME-CONTINUING> 197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
