UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1997.
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)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Title of Class
--------------
Common Stock, $.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity (which
consists solely of shares of Common Stock) held by non-affiliates of the
registrant as of June 16, 1997, computed by reference to the price at which
the registrant's Common Stock, as quoted by the National Market System of
NASDAQ, was sold on such date, was approximately $33,741,000. Shares of Common
Stock held be each officer, director and holder of 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares of the registrant's Common Stock outstanding as of
June 16, 1997 was 8,182,216.
<PAGE>
PART I
------
Item 1. Description of Business
---------------------------------
Elcotel, Inc. (the "Company") has been in the public telecommunications
industry since its founding in 1985. The Company has been recognized as
a leader in the development and sale of microprocessor smart phone
products domestically. The Company believes it is well positioned to
continue as a leading supplier to an industry that is experiencing
significant change and growth as a result of regulatory policies aimed at
stimulating competition world wide. This growth is being aided by
improving technology in wireless communications and smart card chip
technology. The Company's products are sold to domestic private operators
and regulated telephone companies and to international telephone companies
and private operators.
The Company designs, develops, manufactures and markets micro-processor
based public communication products and software which provide services
over both domestic and international wireline and wireless (cellular)
telephone networks. The principal products of the Company are coin and
card operated intelligent payphones and management systems to support
payphone operators. The Company markets intelligent prepaid card systems
internationally in support of its payphone card applications. When the
Company's products are combined with personal computer (PC) based payphone
management systems, they perform substantially the same functions as
payphones controlled by the central offices of regulated telephone
operating companies, hereinafter referred to as Local Exchange Carriers or
"LECs".
The markets for the Company's products are both domestic and international
private payphone operators and regulated telephone companies providing
public communications services. The Company is one of the leaders in
sales of microprocessor-based payphone products to domestic private
payphone operators. The Company's payphones support coin, credit card and
debit card applications and are controlled internally by a microprocessor,
memory chips, and other electronic components which automate the call
management functions performed by the payphone. The microprocessor units
provide the capability to reconfigure the operational functions of the
payphones via PC controlled remote access. This PC control capability
provides the operator with a variety of management reports in order to
manage its payphone operations.
The Company's current development efforts are aimed at expanding the
product line to address both domestic and international markets using
wireline and wireless capability. The applications to be supported by
these products include commercial credit and debit card payment processes,
service management enhancements, and retrofit upgrades for the aging
installed base of payphones being operated by the LECs and international
telephone companies. The Company is also developing for international
applications a network-based prepaid card system for prepaid card
applications and expanding the card technology capabilities of its
products.
<PAGE> 1
The Company believes that the regulated telephone companies will have to
restructure their payphone operations as a result of the
Telecommunications Act of 1996 (the "1996 Act"), since the 1996 Act
prevents Bell operating companies from discriminating between their pay
telephones and private pay telephones. The Company believes this
restructuring will motivate the regulated telephone companies to upgrade
their payphone operations, which will cause them to acquire technology
similar to that used by private payphone operators and otherwise look for
ways to become more competitive. The Company believes it can offer the
regulated telephone companies products that they may find more suited to
the changing public communications market and to help them become more
competitive.
As as result of the 1996 Act, the FCC mandated compensation be paid to
payphone providers for the large volume of access code calls (such as
10ATT or 1 800-CALLATT) and debit card calls and the previously uncompensated
interstate and intrastate subscriber 800 calls ("dial-around calls").
From November 1996 until November 1997, this compensation for dial-around
calls was fixed at the flat rate of $45.85 per payphone per month. After
November 1997, this compensation will change to a fixed charge per
dial-around call of $0.35. The Company believes that this change may
increase the demand by private payphone operators for additional payphones.
The Company has expanded its presence in international markets and
realized a 424% increase in sales to international customers in the fiscal
year ended March 31, 1997 over the previous year. International revenues
represented approximately 30% of the Company's total revenues for the 1997
fiscal year and established a base of international customers for
additional sales opportunities. The Company will continue its
international development efforts as it addresses the growth opportunities
presented by international markets. The Company estimates that
international markets may represent sales opportunities approximating $2
billion over the next three years.
The Company was organized in April 1985 as a Florida Corporation, and in
September 1986 changed its corporate domicile to Delaware by merging into
a newly-formed Delaware corporation created exclusively for that purpose.
All references to the Company include its predecessor. The Company's
principal offices are located at 6428 Parkland Drive, Sarasota, Florida
34243, and its telephone number is (941) 758-0389.
PRODUCTS
Payphones
---------
The Company's intelligent payphones operate as integral self-standing
units of a public communications system and internally process the
functions associated with processing, call rating and collecting data for
future use in accounting and coin management functions. By contrast, when
<PAGE> 2
a call is initiated at older style payphones (typically owned by LECs),
the call is processed through a remote central office system maintained by
the LEC. The older style payphone requires that the central office
communicate with the caller, if necessary, and controls the payphone by
external means.
The Company's payphones operate by means of electronic assemblies of
integrated circuits and other components located within the telephone
cabinet. The processing of all telephone functions is controlled by a
microprocessor "chip" which utilizes the Company's copyrighted software
operating system. The Company's payphones communicate with a caller by
digitized human voice messages activated by the microprocessor. The
Company's payphones have all of the usual features of LEC coin and credit
card reading telephones, as well as several additional features available
through microprocessor control.
The Company began full marketing of its first payphone in January 1986.
Since then, the Company has introduced several improved models and a
number of software enhancements to its various models. The Company's
payphones are offered with a housing and coin mechanism supplied by
Quadrum Telecom, AT&T, or alternative suppliers providing essentially
equivalent housings and coin mechanisms. Certain of the Company's
payphone products are being offered with an enhanced electronic coin
mechanism supplied by Mars Electronics and with similar electronic coin
mechanisms from AT&T for Western style cabinets. The Company also offers
its payphone product as a unique panel phone using a customized cabinet
and has customized designs for special customer applications, such as
airports and convention centers. The product is available as an
electronic board assembly which the customer can install in existing
Quadrum, Tatung, GTE, AT&T or equivalent cabinets to replace the
electronic board assemblies of competitors' products. Modified versions
of these electronic board assemblies are being used in international
applications and can be used to retrofit regulated telephone company
electronics. The Company has also introduced a line of international
products that utilize cabinets designed by the Company.
The Company's payphones contain call rating software in memory which
stores the local, intrastate and interstate rates for coin sent-paid calls
between exchanges throughout the United States or international locations
where the Company's payphones are sold. The maximum rates which operators
of privately-owned payphones can charge for local and intrastate calls are
regulated by the various state public service commissions. See
"Regulation". The Company maintains and updates on a current basis at its
corporate offices a proprietary data base of all local, intrastate and
interstate rates. The Company programs and sells rate center files to be
downloaded by the customer to each payphone purchased and put in service.
Rates download services are available from the Company. The rate center
file (or device) contains the then-current applicable rates for coin calls
between the exchange where the payphone is to be located and all other
exchanges throughout the United States or in international locations.
However, the owner/operator of a payphone is responsible for ensuring that
the rates are kept current. Each payphone may also be downloaded with
various available options chosen by a customer, such as free calls for
<PAGE> 3
emergency numbers, special charges for certain calls, and speed dial
numbers. The Company's current models utilize a programmable memory chip
(EEPROM) permitting the downloading of rates and option selections from a
personal computer, using software and rate center files provided, and
periodically updated, by the Company.
The Company's current domestic payphone models, the Series 5 and
Olympian 5501, utilize state-of-the-art hardware and software technology
to enable them to be powered by the very low electric current available
from the telephone line, thereby requiring no external source of power.
Expensive electrical installation is thereby avoided.
The Company also markets international payphone products that derive the
capability to support prepaid card and coin applications from the same
technology base. These products offer an LCD display to support
multilingual messages in languages selected by the customer through the
keypad control.
The Olympian 5501, which was introduced in fiscal 1995, incorporates a
surface mount manufacturing process to reduce cost and, which the Company
believes, improves quality and reliability. This product provides an
opportunity to address domestic and international markets due to its
ability to function with either a standard business line or a LEC coin
line, and allows the payphone operators to program the payphone for any
one of three operating modes (smart, bright or coin line). The
Olympian 5501 board utilizes a metallic wrap around chassis to protect
against damage to the board.
The Company's current payphone products consist of:
Model IPT-9100, Series 5 International line-powered payphone.
Model IPT-9120, Series 5 International line-powered payphone
with debit and credit card reader.
Model 1510LP, Series 5 line-powered utilizing a hybrid payphone
housing from an independent manufacturer
(Quadrum Telecom), with certain characteristics
of both the AT&T and GTE payphone assemblies.
Model 1520LP, Series 5 line-powered payphone utilizing the GTE
payphone housing.
Model 1530LP, Series 5 line-powered panel phone.
Model 1550LP, Series 5 line-powered payphone utilizing AT&T
style payphone housings.
<PAGE> 4
Model 1500LP, Series 5 Electronic Assembly (retrofit kit) for
customer installation in GTE or hybrid housing.
Model 1502LP, Series 5 Electronic Assembly and Keypad
(retrofit kit) for customer installation in AT&T
housing.
Model S5501 Olympian Electronic Assembly and Keypad for AT&T
style payphone housings.
Model COT103, Card only telephone for international
applications on wireline or wireless (cellular)
networks.
Model OCT9520, Card and coin international payphone capable of
handling large sized coins.
The following are some of the principal features of the Company's present
line of payphone products:
- Permit monitoring of the amount of money in the cash box, the number
and types of calls made and the service condition of the payphone;
and communication of such audit information through the voice
circuitry on demand, either at the payphone or remotely from the
owner's office, upon receipt of an owner-programmed security code.
- Contain a programmable memory chip for on-site or remote programming
and monitoring of various options, updated rates, alarms and free
phone numbers.
- Provide an internal modem to receive programming information, and
transmit audit information remotely to and from an external modem
and printer associated with a personal computer at the
owner/operator's facility.
- Provide a clock and calendar function to calculate time-of-day
discounts and control other timed functions.
- Provide up to seven optional alarms which can be monitored remotely.
- Provide the capability of downloading revisions of the phone's
software operating system, eliminating the need to install new
program chips in the phone.
- Provide debit card operation using the "103" type chip card as well
as credit card operation.
- Provide proprietary designed "answer detection" and "answer
supervision" functions for call timing and rating.
- Provide an optional credit card reading capability.
<PAGE> 5
Payphone Network Manager ("PNM")
--------------------------------
The Payphone Network Manager is a software system designed, developed and
sold by the Company for installation in personal computers with specified
memory and disk capacity. The system provides the owner/operator of the
Company's products the ability to monitor the functional capabilities of
the various products, permits the automatic control of the products, and
controls the download of program files, rate files, and several other
files which are pertinent to the operation of each phone.
The Company has four versions of the Payphone Network Manager: the
Microsoft Windows-based PNM Plus system which contains enhanced features
associated with the domestic market; the Microsoft Windows-based PollQuest
system, with enhanced features for the international market; and the DOS-based
PNM and IPNM Payphone Network Management Systems that support the
domestic and international markets, respectively.
PNM Plus and PollQuest have the ability to support over 10,000 phones, to
communicate simultaneously with many payphones, and to provide appropriate
reporting. This software is currently operating at various locations in
North America, South America, Central America, Asia, Africa, and Europe.
Rate Center Files
-----------------
The Company installs an EEPROM memory device in the payphone and sells the
customer rate center files on a diskette which is downloaded to the
product after installation, using PNM or which can be downloaded from an
electronic bulletin board which the Company maintains. This bulletin
board system allows the Company's customers to obtain rate center files
24 hours per day, 7 days per week.
Service Management Program
--------------------------
The Company's Service Management Program helps new or dependent payphone
owners handle their routine operations. This program provides software
downloads, including rate center files, and generates reports of alarm
conditions upon which the customer can then act. The Service Management
Program is offered on a monthly subscription basis and customer choices
range from a basic offering to a package of services.
WARRANTY AND SERVICE
The Company provides the original purchaser with either two or three-year
warranties on payphone products the Company manufactures. When the
Company resells products from other manufacturers, the Company passes on
the other manufacturer's warranty to its customers. In addition, the
Company's customer service engineering staff at its corporate offices
provides telephone support services without charge to customers who have
installation or operational questions. The Company also provides field
engineering support services during the introductory phase of new products
<PAGE> 6
and when customers encounter unusual problems. After the warranty
expires, the Company provides non-warranty service at its corporate
offices for a fee. The Company's distributors are also authorized to
repair products.
Owners/operators of the Company's payphones have the sole responsibility
of ensuring that rates charged for calls made from the phone remain
current. The Company provides updated rating devices or rate center files
on a bulletin board service to permit the customer to maintain control
files for each phone and to download the rates to the phones using PNM.
TRAINING
The Company provides training courses given at the Company's facility or
at the customer's premises on the installation, operation, maintenance and
repair of the payphones and PNM, both domestic and international. The
Company's distributors also provide training to their customers.
PRODUCTION
The Company's current manufacturing facility occupies approximately 16,000
square feet situated in a building leased by the Company located in a
light industrial complex. The Company's manufacturing operations are
designed so that production volumes could be readily increased. See
"Properties."
The Company purchases all components for its electronic and mechanical
assemblies from external suppliers. These suppliers must be approved by
the Company's design engineering group and manufacturing operations.
Approval is based on quality, delivery, performance and cost. Design
engineering attempts to utilize components available from several
manufacturers, as well as avoiding single source component restraints.
However, occasionally it is necessary to use a single source component and
the Company currently has several items in this category. While the
Company believes that it could find alternative suppliers for its
components, or in the case of single source components, substitute other
components for the ones currently used in its electronic assemblies, the
Company's operations could be adversely affected until alternative sources
or substituted components could be obtained. During fiscal 1998, the
Company will purchase for one of its products complete electronic board
assemblies from one of its two subcontractors. That subcontractor has
entered into agreements with the Company's suppliers and the Company will
not be required to purchase individual components for these assemblies.
The Company will continue to specify and approve all components and will
purchase the completed assemblies from the subcontractor.
<PAGE> 7
All components and assemblies are identified by total inventory value and
deliveries are scheduled consistent with meeting production schedules.
Material planning and scheduling is accomplished utilizing a basic
computerized Material Requirements Planning (MRP) system.
The Company's electronic boards are assembled by two qualified local
subcontractors. The Company believes it could use alternate
subcontractors, if necessary, with minimal interruption to production, as
the equipment required for these assemblies is industry standard and
suitable subcontractors are available.
The Company routes all electronic assemblies through various automated
in-house tests and defect-inducing processes to improve their quality and
reliability. After testing, the electronic board assemblies may be
installed in and tested as a full payphone and shipped to the customer or
packaged separately and shipped for customer installation. The Company's
manufacturing and service organizations were ISO 9002 certified in
December 1995 and the Company will pursue ISO 9001 certification during
fiscal 1998.
MARKETING
The markets for the Company's products are both domestic and international
public communications services. Domestically, these services and markets
represent an annual $6 billion market segment, $400 million of which is in
hardware and software sold to the independent payphone operators ("IPPs")
and LECs of the type provided by the Company. The Company estimates that
international markets may represent sales opportunities approximating $2
billion over the next three years.
The Company's customers range from operators of small private payphone
routes to large nationally recognized LECs. Generally, customers enter
into revenue-sharing arrangements with location owners and install the
Company's payphones in such locations as convenience stores, city
sidewalks and airports. The Company provides its customers with detailed
instruction manuals for its products, and offers training in installation
and maintenance at its corporate offices, at regional locations or at the
customer's designated site. The Company also offers such value-added
products and services as network management systems and service management
programs to enhance the customer's ability to increase its revenues.
The Company generally enters into non-exclusive sales agreements with its
customers, which include a non-exclusive license to use the Company's
proprietary operating system and Payphone Network Management system. All
purchase orders from customers are subject to acceptance by the Company.
The Company's policy is to grant credit to customers that the Company
deems creditworthy. Products are sold by payment in advance for which the
Company grants the customer a discount, or, if the customer otherwise
qualifies, the Company provides 30 days credit. In addition, the Company
provides limited secured financing with terms generally not exceeding 24
months and interest charged at competitive rates.
<PAGE> 8
The Company's customers are not prohibited from using and reselling
competing products and are not required to purchase a minimum quantity of
products, although the Company's pricing schedules offer discounts for
volume purchases.
The Company sells its products directly to customers and to distributors.
The Company at present has four distributors, each with limited exclusive
selling arrangements in assigned territories. The Company's distributors
currently represent approximately 11% of its total sales.
The locations at which the Company's products are installed may include
any business, organization, institution or governmental agency which
desires to offer payphone services to customers, employees and visitors.
The gross revenue generated by a particular product is dependent upon many
variables including location, traffic volume, duration and distance of
call, visibility, as well as volume of coinless calls which are charged to
telephone company issued calling cards, commercial credit cards, or
collect to the destination subscriber's phone for which the
owners/operators receive commission or dial-around compensation. The
profitability of public communications products also depends upon such
other variables as LEC line charges, usage sensitive costs, the maximum
rates permitted by state laws, compensation plans approved by the FCC,
commissions to location owners, and maintenance and insurance costs.
In fiscal 1996, the Company entered into an agreement with Lucent
Technologies Public Terminals business unit pursuant to which the Company
produces and sells to Lucent a private labeled Olympian 5501 payphone
using Lucent's payphone housing, along with the Company's Payphone Network
Management system which Lucent will incorporate into its payphone systems
for its domestic customers. Both companies are marketing their respective
products to the Regional Bell Operating Companies.
Prior to January 1997 Lucent also marketed to its international customers
the Company's private label Olympian 5501 payphone. In January 1997,
Lucent decided to cease such international business and agreed to assign
its customer contracts with respect to such business to the Company for
completion of these orders.
During fiscal 1997, two customers (one of which was Lucent with respect to
international customers) accounted for approximately 12% and 12% of the
Company's sales, respectively. During fiscal 1996, no customer accounted
for 10% or more of the Company's sales.
The Company is currently pursuing ISO 9001 certification and was ISO 9002
certified in December 1995. The Company believes it may become ISO 9001
certified during fiscal 1998.
<PAGE> 9
Four of the Company's executive officers, and five full-time sales
representatives employed by the Company currently market the Company's
products to its customers. Sales representatives are located regionally.
The Company advertises its products through trade publications, routinely
participates in trade shows and periodically hosts seminars for major
account customers at its corporate headquarters and at regional locations.
The Company's sales and marketing functions focus on four major markets:
regionally based IPP operations; regulated telephone companies; national
accounts; and international markets. The Company hosts an annual Customer
Conference for all its customers covering such areas as current and future
product development, regulatory and industry issues, and customer service.
In addition, the Company holds a monthly conference call with selected
customers and representatives of the Company, to discuss product and
service issues and other matters of mutual concern to both the Company and
its customers.
The Company's domestic equipment sales are affected by seasonal weather
conditions throughout the United States which may reduce the sales of
payphones for outdoor locations during the winter months in colder
climates.
INTERNATIONAL BUSINESS DEVELOPMENT
Since the Company first entered the international markets in 1991, there
have been many changes in that market. The international initiatives
pursued by the Company bore fruit in fiscal 1997 as the Company's
international sales increased by 424% over the prior year.
Many countries around the world have moved in the same direction as the
United States following the breakup of its telecommunications monopoly in
1984. Privatization, competition, open foreign investment and new laws
and regulations have had a major impact on international markets,
resulting in new players and new opportunities for the various segments of
the telecommunications market, including public payphones. Developing
countries have placed a high priority on expanding telecommunication
services and payphones are often a significant part of the capital
expansion.
In order to take advantage of these opportunities, the Company has begun
the following international initiatives:
- Employ individuals with experience in the international
telecommunications market.
- Continue to develop a set of products and services capable of
handling the requirements of the international market, such as
standard and large coins in a variety of currencies and credit card
and debit card products, including intelligent or smart card
technology, which are becoming widely used in electronic commerce
applications.
<PAGE> 10
- Develop software and hardware that may allow the Company's products
to be adapted to the varying requirements of different countries.
- Select and develop distribution partnerships and strategic
alliances.
The Company has sold its products to customers in Bolivia, Morocco, Chile,
Mexico, Belize, Bermuda, Guatemala, Guam, Canada and the Philippines. The
Company's products are currently under evaluation in Poland, Egypt, China,
Ukraine, Saudi Arabia, Korea, Spain, England, Ireland, and other
countries.
The Company continues its development efforts on technology for new
applications with wireless networks and smart card technology. The
Company has introduced a network based prepaid card application designed
to work in conjunction with the Company's international card and coin
payphone products.
PRODUCT DEVELOPMENT
The Company's research and development programs are currently focused on
developing new products and product enhancements for the IPP market, the
regulated telephone company market and international markets and an
enhanced management system for its products. During fiscal 1997, the
Company incurred approximately $2,623,000 in Company sponsored research
and development costs for payphones, Payphone Network Management systems
and other products. Research and development costs were $2,257,000 in
fiscal 1996 and $1,758,000 in fiscal 1995.
The major development efforts in fiscal 1997 included the release and
continued modification of the Microsoft Windows-based Payphone Network
Management systems (PNM Plus and PollQuest) to address large route
operations, the enhancement of the LEC targeted Olympian 5501 payphone and
IPP targeted Series 5 payphone. During fiscal 1997, the Company also
completed development of and shipped to an international customer the
OCT9520, a large capacity coin and card payphone capable of handling large
sized coins. This product will be used on a world wide basis in those
countries using coinage larger than that used in the United States.
During fiscal 1998, development efforts will focus on further enhancements
to many of the Company's current payphones and network management system.
In addition programs for the development of international payphones with
modified cabinets were initiated in fiscal 1996 and are expected to be
completed in fiscal 1998. During fiscal 1998, the Company anticipates
releasing products addressing the regulated telephone company market place
and the international wireless market place. These products would provide
enhanced card and coin handling capabilities required for these markets.
<PAGE> 11
BACKLOG
The amount of the Company's backlog is subject to fluctuation based on the
timing of the receipt and completion of orders. The Company calculates
its backlog by including only items for which there are purchase orders
with firm delivery schedules. At May 31, 1997, the backlog of all
products on order from the Company was approximately $2,712,000, compared
with a backlog of approximately $2,544,000 one year prior at May 31, 1996.
The current backlog is expected to be filled within approximately ninety
days.
PATENT AND PROPRIETARY SOFTWARE
The Company has developed, at its expense, the software and engineering
designs incorporated in its products. The Company owns registered
copyrights for its proprietary software and owns a patent on certain
aspects of its Series 5 products. This patent relates to its line-powered
product and covers certain aspects of the power management of the payphone
and the high voltage circuits utilized in coin collection and return.
This patent will expire in 2009. There can be no assurance that the
Company's products do not infringe upon valid proprietary rights which may
be held by others. See "Legal Proceedings." Moreover, the Company's
copyrights may not protect it from unauthorized duplication of its
payphones or other products which may be marketed without the Company's
knowledge or consent, although the Company has vigorously and successfully
to date defended its copyrights and has stopped certain other
organizations from continuing the unauthorized duplication of the
Company's payphone software. However, the copyright registrations would
not prevent a competitor from independently creating payphones or other
products which are functionally equivalent to those of the Company. The
Company licenses the use of its proprietary software and designs through
licensing provisions in its standard sales agreement, which provisions are
designed to prevent duplication and unauthorized use of the Company's
software.
COMPETITION
The public communications industry is highly competitive. Prior to 1984,
the LECs held a monopoly in the pay telephone industry in the United
States, and still continue to have a dominant share of the public
communications market. The Company also competes with firms that
manufacture and market privately-owned payphones and other products
similar to the Company's products. In addition, there are many other
<PAGE> 12
firms which have the resources and ability to develop and market products
which could compete with the Company's products. Many existing
competitors (including the LECs) and potential competitors have financial,
management and technical resources substantially greater than those of the
Company.
The four principal competitors currently marketing privately-owned
payphones include Protel, TeleServices Group, Nortel and Intellicall. The
Company expects possible competition from other competitors and from such
competing technologies as debit systems and wireless communications. Some
telecommunications companies, already established in the telephone
industry with substantial engineering, manufacturing and capital
resources, are positioned to enter the public communications market, some
of which are foreign manufacturers.
LECs compete with private payphone operators by making site owner
compensation arrangements more attractive for their existing phones thus
reducing the site owners' incentive to use private pay telephones. The
1996 Telecommunications Reform Act prohibits Bell operating companies from
subsidizing their payphone service directly or indirectly from their
telephone exchange service operations or their exchange access operations.
As a result, the Company believes Bell operating companies will become
more directly competitive with private payphone operators. Accordingly,
LECs may initiate programs to retrofit their payphones to improve
operational efficiency. The Company may be in a position to manufacture
and sell retrofit kits to LECs and offer enhanced service management
capabilities with products that are currently in development.
Competition for payphone service also affects payphone manufacturers such
as the Company. The payphone industry in general competes with cellular
or wireless communications and other Personal Communication Services and
with paging services. The Company believes that conventional payphones
compete favorably with Cellular Mobile Radiotelephone Service (CMRS) in
many respects. While CMRS will more readily satisfy the demand for in
transit telecommunications, conventional payphones have significant cost
advantages. CMRS costs typically range from $.15 to $.50 per minute for
local calls which comprise a significant portion of CMRS calls compared to
the $.25 cost of a local call for long periods from a payphone. In
addition, the large installed base of payphones compares to the limited
but increasing market penetration of cellular phones.
Paging services continue to grow and are competitive with payphones for
sending messages. However, display or tone and voice paging systems alert
the user of the need to return a call which may be via a payphone.
The market for international public communications is highly competitive,
and numerous competitors are larger, better capitalized and have greater
experience in marketing their products internationally. In addition, the
Company's international marketing efforts are subject to the risks of
doing business abroad. Consequently, there can be no assurances that the
Company's efforts in international markets will be successful.
Although the Company expects to be subject to intense competition in the
future, the Company believes that its products and services are currently
competitive with those of other manufacturers in such areas as equipment
capability and quality, cost and service. Since the telecommunications
industry is subject to rapid technological change, the Company will be
required to develop enhancements, new products and services in the future
to remain competitive.
<PAGE> 13
REGULATION
Products and services offered by the Company and operated by its customers
domestically are subject to varying degrees of regulation at both the
federal and state levels. There can be no assurances that changes in such
regulation, if proposed and adopted, would not have an adverse impact on
the operations of the Company and its customers.
In June 1984, the Federal Communications Commission ("FCC") decided to
allow the registration of privately-owned payphones for connection to the
telephone network, while permitting the states to adopt their own
regulations governing the installation and operation of such payphones for
intrastate calls. To date, 49 states and the District of Columbia have
authorized the use of privately-owned payphones with various tariff,
technical and operational requirements and restrictions. The FCC decision
and subsequent state regulations opened the market for privately-owned
payphones which was previously available only to the regulated telephone
operating companies.
Parts 15 and 68 of the FCC rules govern the technical requirements that
payphone and other telephone products must meet in order to qualify for
FCC registration and interconnection to the telephone network. The
Company has performed those tests necessary to assure compliance with
these technical requirements and obtained FCC registration for its various
model payphones.
The National Electric Code requires that all customer premise equipment
manufactured after July 1, 1991, be certified by a nationally recognized
safety laboratory. All customer premise equipment products manufactured
by the Company since July 1, 1991 have been approved and listed by ETL
Testing Laboratories.
Tariffs are established by the states for local and intrastate coin sent-paid
calls, and in many instances for Zero-Plus Calls. Tariffs establish
the maximum rates which the LECs may charge the public communications
operator for line connections and calls. These charges may be flat rated
or variable rated.
In addition to tariff restrictions, the 49 states and the District of
Columbia which currently permit privately-owned payphones have adopted a
variety of regulations which vary from state to state, governing technical
and operational requirements. These requirements include the following:
dialtone-first capability to allow free calls to operator, emergency,
information and "800" numbers without a coin deposit; multi-coin
capability; calculation of time-of-day and weekend discounts; prohibition
of post-call charges; advisement to callers of additional charges for
additional time before disconnecting; provisions of certain information
statements posted on cabinets; provision of local telephone directories;
mandatory acceptance of incoming calls; reduced charges for local calls
from certain locations such as hospitals or rest homes; and restrictions
as to the location and hours of operation of such payphones.
<PAGE> 14
The 1996 Act and the FCC, in its Notice of Proposed Rulemaking on
Section 276 of the 1996 Act, mandates compensation to payphone providers
for the large volume of access code calls (such as 10ATT or 1 800-CALLATT)
and debit card calls and the previously uncompensated interstate and
intrastate subscriber 800 calls. This compensation was fixed at
the flat rate of $45.85 per payphone per month during the period from
November 1996 until November 1997. After November 1997, this
("dial-around calls") will change to a fixed charge of $0.35 per dial-around
calls. The FCC also recognized there is a need for a national payphone
compensation rate so that consumers would know the charges to expect when
they access public payphones.
The FCC had proposed in 1996 the requirement that interexchange carriers
(IXCs) offering operator services through payphones and other aggregator
locations must disclose their rates to callers before the call is
completed and any charges have been incurred. The FCC had proposed the
establishment of benchmarks for charges of operator service providers
(OSPs), and for any associated aggregator surcharges. The FCC had also
proposed a requirement that OSPs that charge, or allow, rates above a
predetermined benchmark level to disclose orally those rate to callers
before connecting the call.
Based on a recent informal inquiry made to the FCC by an industry
association the FCC may be considering an alternative approach where OSPs
provide rate information in response to a caller's request at the time of
the call.
The FCC is expected to issue final rules on these issues during the third
calendar quarter of 1997, although there can be no assurance in that
regard.
In addition, the Federal government and certain states have, or are in the
process of adopting, various regulations relating to the control of public
communications equipment, with restrictions on call pricing, requirements
to advise the caller of the name of the service provider, requirements
that the caller be provided a rate quote upon request, and the requirement
for access to the carrier of the caller's choice. The Company will
monitor future changes in federal and state regulations and may be
required to modify its products to comply with additional technical
requirements or other factors which could result in the Company's products
not being in compliance with federal and state regulations.
With respect to the use restrictions and requirements, such as restricted
locations for payphones, informational statements on cabinets, or the
provision of access to the carrier of choice, the owner/operators of the
Company's products have the sole responsibility to determine and comply
with all applicable use requirements, including the responsibility to
ensure that the rates charged remain current and do not exceed the maximum
rates permitted by state or federal regulations for the particular
location of the product.
<PAGE> 15
Most states require that owner/operators of private payphones be certified
by the state's public utility commission and file periodic reports. As a
manufacturer and seller of privately-owned payphones, the Company does not
believe that any states currently require the Company to be certified.
The 1996 Act would eliminate certain restrictions placed on the Bell
operating companies by the final judgment that broke up the Bell system.
Certain elements of this legislation would open up long distance service
and manufacturing to the Bell operating companies while mandating further
competition in the local telephone exchange business. Pursuant to the
1996 Act, the Bell operating companies are required to end practices that
treat independently owned payphones differently than those they own, and
ban cross subsidy of services by prohibiting Bell operating companies from
subsidizing their payphone service directly or indirectly from their
telephone exchange service operations or their exchange access operations.
EMPLOYEES
As of June 4, 1997, the Company employed 147 individuals of which 145 are
full-time employees. The Company is not a party to any collective
bargaining agreement and believes that its relations with its employees
are good.
Item 2. Properties
-------------------
The Company owns two 24,000 square foot buildings located at 6428 Parkland
Drive, Sarasota, Florida. These buildings were constructed in 1987 and
1989, respectively. The two buildings are owned subject to mortgage
indebtedness pursuant to a promissory note with a bank.
The Company utilizes one of the 24,000 square foot buildings for its own
operations. The other 24,000 square foot facility is leased to an
electronics manufacturer under a lease agreement which expires on January
31, 1998. This agreement provides the Company with average annual lease
income of $159,000.
In addition, the Company leases a 16,000 square foot facility in the same
industrial complex for its manufacturing operation under a three year
lease which commenced in December 1994. The Company believes that the
combination of owned and leased space is adequate for its current needs.
<PAGE> 16
Item 3. Legal Proceedings
--------------------------
Nogah Bethlahmy, et al. plaintiffs v. Randy S. Kuhlmann, et al. defendants.
---------------------------------------------------------------------------
San Diego Superior Court Case No. 691635.
As previously reported, this putative class action was filed in the
Superior Court of the State of California for the County of San Diego
alleging that Amtel Communications, Inc. ("Amtel"), a former customer of
the Company that filed for bankruptcy, 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. See
Item 3, Legal Proceedings of Part I of the Company's Form 10-KSB for the
fiscal year ended March 31, 1996 and Item I, Legal Proceedings of Part II
of the Company's Form 10-Q for the quarter ended September 30, 1996.
On or about April 11, 1997, the case was remanded to the San Diego
Superior Court (San Diego Superior Court Case No. 691635). Plaintiffs
have filed a motion in state court for leave to file a second amended
complaint, which is expected to contain the same allegations as the second
amended complaint that was previously filed by plaintiffs in the
bankruptcy court. Plaintiffs' motion for class certification is currently
scheduled on July 19, 1997. Discovery is still in its initial stages. The
Company disputes liability and intends to defend this matter vigorously,
although the Company cannot predict the ultimate outcome of this litigation.
William Polillo, et al. v. Elcotel, Inc.
----------------------------------------
(U.S. District Court for the Northern District of Illinois, No. 96C 2275,
filed April 18, 1996).
William Polillo, Cecilia Polillo and Richard Reno filed this suit against
the Company alleging that the Company's pay telephones infringe U.S.
Patent No. 4,208,549 for a Coin Surveillance Apparatus. An Amended
Complaint was filed against the Company on May 10, 1996. The Company
filed an Answer and Counterclaim on May 28, 1996 denying infringement and
asserting a counterclaim for a declaratory judgment of noninfringement and
invalidity of the patent. On July 2, 1996, the plaintiffs' responded to
the Company's counterclaim by denying the claims of noninfringement and
invalidity. In May 1997 this case was settled and the case was dismissed
with prejudice.
While the Company is subject to various other legal proceedings arising in
the conduct of its business, there are no pending legal proceedings which
are material to the business of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
-------------------------------------------------------------
None.
<PAGE> 17
PART II
-------
Item 5. Market for Registrant's Common Equity and
- ------- Related Stockholder Matters.
-----------------------------------------
From December 1, 1993 to June 12, 1995, the bid and asked quotations of the
Company's Common Stock were reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") under the symbol "ECTL". As of
June 13, 1995, the Company's Common Stock began being reported by the NASDAQ
National Market System under the same symbol "ECTL". The following table sets
forth the range of high and low bid quotations or high and low sales prices for
the Company's Common Stock for each of the periods indicated as reported by
NASDAQ or the NASDAQ National Market System. Bid quotations reflect
interdealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions.
Period High Low
- ------ ---- ----
Quarter Ended:
June 30, 1995 $ 9-1/2 $ 3-3/4
September 30, 1995 10-1/4 6-3/4
December 31, 1995 9 5-1/2
March 31, 1996 8-5/8 5
June 30, 1996 8 5
September 30, 1996 9-1/4 5-1/4
December 31, 1996 7-3/4 5-7/8
March 31, 1997 8-5/8 6
_______________________________
The approximate number of record holders of shares of the Common Stock of the
Company outstanding as of June 16, 1997, was 380.
No cash dividends have been declared or paid on the Company's Common Stock.
<PAGE> 18
Item 6. Selected Financial Data.
- ------- ------------------------
The following selected financial data is qualified in its entirety by
reference to the more detailed consolidated financial statements and
notes thereto included elsewhere in this report.
Year ended March 31,
-----------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands, except per share data)
Net Sales $ 26,832 $ 21,462 $ 25,090 $ 20,216 $ 10,622
Cost of Sales $ 15,883 $ 13,238 $ 14,776 $ 12,232 $ 6,561
Profit (Loss) before
Extraordinary Items $ 1,628 ($ 1,291) $ 3,524 $ 2,041 $ 92
Profit (Loss) before
Extraordinary Items per
Common and Common
Common Equivalent Share $ .20 ($ .16) $ .45 $ .30 $ .02
Net Profit (Loss) $ 1,628 ($ 1,291) $ 3,524 $ 4,002 $ 123
Net Profit (Loss) per
Common and Common
Equivalent Share $ .20 ($ .16) $ .45 $ .59 $ .02
Weighted Average Number
of Common and Common
Equivalent Shares
Outstanding 8,316 7,830 7,847 6,823 5,547
Working Capital
(Deficiency) $ 7,897 $ 6,288 $ 5,575 $ 4,224 ($ 4,812)
Total Assets $ 15,944 $ 14,929 $ 16,225 $ 10,234 $ 10,911
Long-term Obligations $ 232 $ 432 $ 782 $ 95 $ -
Shareholders' Equity $ 12,627 $ 10,558 $ 11,091 $ 6,638 $ 337
<PAGE> 19
Item 7. Management's Discussion and Analysis of
- ------- Financial Condition and Results of Operations.
-----------------------------------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- -------------------------------------------------------------------------
The statements contained in this Annual Report on Form 10-K 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, changes in the international business climate, general economic
conditions, seasonality, changes in industry practices, the outcome of the
Bethlahmy class action lawsuit, and uncertainties detailed in the Company's
filings with the Securities and Exchange Commission.
Results of Operations.
- ----------------------
(Dollars in thousands)
Year ended March 31, 1997, compared to year ended March 31, 1996:
Net sales for the year ended March 31, 1997 ("fiscal 1997"), increased to
$26,832 from $21,462 for the year ended March 31, 1996 ("fiscal 1996"), an
increase of $5,370, or approximately 25%, principally as a result of an
increase in sales of complete payphones and electronic assemblies of
approximately 39% and 21%, respectively, offset by a decrease in miscellaneous
revenues of approximately 8%. Unit sales of complete payphones increased by
approximately 40% and unit sales of electronic assemblies increased by
approximately 16%. During fiscal 1997, sales to two major customers accounted
for approximately 12% and 12% of net sales, respectively. During fiscal 1996,
there were no sales to any customer which accounted for 10% of net sales.
Average selling prices of payphones during fiscal 1997 were approximately 1%
lower than in the preceding fiscal year. Average selling prices of electronic
assemblies were approximately 5% higher than in the preceding fiscal year due
to fewer trade in credits given to customers who upgraded older electronic
assemblies, that they previously purchased from either the Company or other
manufacturers, for the Company's current models as compared with fiscal 1996.
Sales to international customers accounted for 30% of net sales for fiscal 1997
as compared to 7% for fiscal 1996. This represented a 424% increase in
international sales as compared to fiscal 1996. Certain sales to Lucent
Technologies, while sold and shipped to Lucent in the United States, are
classified by the Company as international for these purposes since these were
sales of international payphones. For purposes of determining sales by
geographic region in the Notes to Consolidated Financial Statements, these
sales are classified as United States sales of international payphones because
of their point of delivery.
<PAGE> 20
Cost of sales as a percentage of net sales decreased from 62% to 59% for the
comparative fiscal years principally as a result of increased production and
favorable manufacturing cost absorption and other favorable variances.
Research and development costs increased by $366, or approximately 16%, from
$2,257 in fiscal 1996 to $2,623 in fiscal 1997 principally due to an increase
in the number of employees engaged in research and development activities
($505) partially offset by a decrease in the use of consultants on certain
development projects ($345). Selling, general and administrative expenses
decreased by $132, or approximately 2%, to $6,358 in fiscal 1997 from $6,490
in fiscal 1996 principally as a result of a reduction in the Company's
provision for doubtful accounts due to cash collection or product return of
previously reserved amounts as well as reduced reserves with respect to current
accounts receivable during fiscal 1997, partially offset by an increase in
sales and marketing salaries and commission expense, management incentive
bonuses and legal fees. Interest income decreased by $92, or approximately
22%, to $324 in fiscal 1997 from $416 in fiscal 1996, principally as a result
of a decrease in the Company's note receivable portfolio. Interest expense
decreased by $82, or approximately 41%, to $119 in fiscal 1997 from $201 in
fiscal 1996 due to decreased borrowings by the Company under its line of credit
facility with its bank.
The fiscal 1997 tax expense is comprised of $253 of current tax expense and a
deferred tax provision of $623.
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. The agreement in
principle resulted in an allowance of approximately $1,602 against the
Company's receivable from the debtor. In addition, the Company has incurred
approximately $242 in legal and related expenses in connection with its claim
against the debtor. The total charge to the Company's financial statements
relating to this matter was $1,844 during fiscal 1996. During fiscal 1997,
the Company sold the payphones and related equipment which was in the Company's
possession and being warehoused by the Company pursuant to a prior Bankruptcy
Court order. The amount realized by the Company from this transaction resulted
in a $413 recovery in excess of the amount anticipated during fiscal 1996.
In addition, the Company incurred approximately $82 in legal and related
expenses in connection with this matter during fiscal 1997. The total
credit to the Company's financial statements for this matter was $331 during
fiscal 1997.
Year ended March 31, 1996, compared to year ended March 31, 1995:
Net sales for the year ended March 31, 1996 ("fiscal 1996"), decreased to
$21,462 from $25,090 for the year ended March 31, 1995 ("fiscal 1995"), a
decrease of $3,628, or approximately 15%, principally as a result of a
<PAGE> 21
decrease in sales of complete payphones and electronic assemblies of
approximately 32% and 1%, respectively, offset by an increase in miscellaneous
revenues of approximately 87%. Unit sales of complete payphones decreased by
approximately 37% while unit sales of electronic assemblies increased by
approximately 27%. There were no sales to any customer which accounted for 10%
or more during fiscal 1996. During fiscal 1995, sales to one major customer
accounted for approximately 13% of net sales. Average selling prices of
payphones during fiscal 1996 were approximately 8% higher than in the preceding
fiscal year. Average selling prices of electronic assemblies were
approximately 22% lower than in the preceding fiscal year due to continuation
of a trade in program which began in the prior fiscal year. 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. Sales to international customers accounted for 7% of net sales
for fiscal 1996 as compared to 8% for fiscal 1995. This represented a 20%
decrease in international sales as compared to fiscal 1995.
Cost of sales as a percentage of net sales increased from 59% to 62% for the
comparative fiscal years principally as a result of decreased production and
decreased manufacturing cost absorption.
Research and development costs increased by $499, or approximately 28%, from
$1,758 in fiscal 1995 to $2,257 in fiscal 1996 principally due to an increase
in the number of employees engaged in research and development activities ($333)
and the increased use of consultants on certain development projects ($176).
Selling, general and administrative expenses increased by $699, or
approximately 12%, from $5,791 in fiscal 1995 to $6,490 in fiscal 1996
principally as a result of the full year impact of personnel increases made in
the prior fiscal year in support of the Company's international sales efforts
as well as other personnel increases made within the sales and marketing
functions ($261), contractor labor costs for a specific project ($137), an
increase in the Company's provision for doubtful accounts ($503), one-time
expenses incurred in connection with the Company's listing on the NASDAQ
National Market System and related investor relations costs ($92), offset by
lower sales commissions and elimination of management bonuses due to the
Company's lower sales level and lack of profitability compared to the prior
fiscal year ($277). Interest income increased by $22, or approximately 6%,
from $394 in fiscal 1995 to $416 in fiscal 1996, principally as a result of a
higher average interest rate the Company received from its note receivable
portfolio. Interest expense increased by $92, or approximately 84%, from $109
in fiscal 1995 to $201 in fiscal 1996 due to increased borrowings by the
Company against its line of credit facility with its bank.
The fiscal 1996 tax benefit is comprised of $186 of current tax benefit and a
deferred tax benefit or $675. The tax benefit was generated as a result of the
current year loss.
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,
<PAGE> 22
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. The agreement in
principle resulted in an allowance of approximately $1,602 against the
Company's receivable from the debtor. In addition, the Company has incurred
approximately $242 in legal and related expenses in connection with its claim
against the debtor. The total charge to the Company's financial statements
relating to this matter was $1,844 during fiscal 1996.
Effects of Inflation.
- ---------------------
In general, inflation and changing prices have not had a material impact on the
Company's operations.
Effects of New Accounting Standards
- -----------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per share. The
objective of SFAS 128 is to simplify the computation of earnings per share and
to make the U.S. standard for computing earnings per share more compatible with
the earnings per share standards of other countries. This statement will be
effective for financial statements for both interim and annual periods ending
after December 15, 1997 and is required to be retroactively applied to all
periods presented. It is anticipated that SFAS 128 will not have a significant
impact on the Company's earnings per share in the periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129 ("SFAS 129"), Disclosure of Information
about Capital Structure. The objective of SFAS 129 is to establish standards
for disclosing information about an entity's capital structure. The statement
is effective for financial statements for periods ending after
December 15, 1997. It is anticipated that SFAS 129 will not have a
significant impact on the Company's disclosures of information about capital
structure.
Liquidity and Capital Resources.
- --------------------------------
(Dollars in thousands)
The Company recorded an increase in cash of $777 for fiscal 1997 compared to a
decrease in cash of $134 for fiscal 1996. During fiscal 1997, $2,813 of cash
was provided by operations compared to $108 used by operations during fiscal
1996. This change resulted principally from a net operating profit for fiscal
1997 as compared with a net operating loss in fiscal 1996. During fiscal 1997,
net cash of $477 was used in investing activities compared to $253 used during
fiscal 1996. During both years, investing activities principally represented
additions to property, plant and equipment. During fiscal 1997, net cash of
$1,559 was used in financing activities consisting principally of payments
against net long and short term borrowings ($1,776) offset by proceeds from
employee and director exercises of stock options ($217), compared to $227
provided by financing activities in fiscal 1996, which principally represented
long term borrowings and proceeds from the exercise of employee and director
stock options offset by payments against long and short term borrowings.
<PAGE> 23
Current assets increased by $755, or approximately 7%, from $10,227 at
March 31, 1996 to $10,982 at March 31, 1997, predominantly from a decrease in
the Company's deferred tax asset of $640, an increase in accounts receivable
of $1,735 and cash of $777 due to the Company's increased sales volume,
partially offset by a decrease in the Company's short term notes receivable of
$920 and a decrease in refundable income taxes of $412. Long term notes
receivable increased by $65, or approximately 10%, to $711 at March 31, 1997
from $646 at March 31, 1996, predominantly from the Company's increased sales
volume. The long term portion of the Company's deferred tax asset increased
by $17, or approximately 2%, from $782 at March 31, 1996 to $799 at
March 31, 1997. Current liabilities decreased by $854, or approximately 22%,
from $3,939 at March 31, 1996 to $3,085 at March 31, 1997, predominantly from
an increase in accounts payable and accrued expenses of $722 offset by a
decrease in short term borrowings under the Company's line of credit with its
bank of $965 and a decrease in the current portion of long-term debt of $611.
Long-term debt decreased from $432 at March 31, 1996 to $232 at March 31, 1997
due predominantly to payments made against the Company's mortgage note with its
lender. Common Stock and Paid-In Capital increased by $441, or approximately
4%, from $10,801 at March 31, 1996 to $11,242 at March 31, 1997 due primarily
to exercise of stock options by employees and directors of the Company and
compensation costs for stock options granted to non-employee directors.
Since August 31, 1994 the Company has had a $2,000 working capital line of
credit collateralized 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 zero to $1,270. The
Company believes its lender will renew the line of credit when it matures on
August 31, 1997.
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%. That note was paid in full in February 1997. The
Company also refinanced its mortgage note with its lender on August 31, 1995.
The Company's former mortgage note, in the original principal amount of $1,000,
was for a 15 year term with a five year balloon with an interest rate of prime
plus one-half percent. The Company had been making its monthly principal
payments based upon a five year amortization schedule. By refinancing the
note, but not changing the maturity date of May 23, 1999, the Company was able
to lower 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 current cash and temporary investments and its
anticipated cash flow from operations will be sufficient to fund its expected
working capital and capital expenditure requirements and its short and long
term note obligations through March 31, 1998.
<PAGE> 24
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
Independent Auditors' Report, page F-2.
Consolidated Balance Sheets as of March 31, 1997 and 1996, pages F-3
and F-4.
Consolidated Statements of Operations for the years ended March 31,
1997, 1996, and 1995, page F-5.
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1997, 1996, and 1995, page F-6.
Consolidated Statements of Cash Flows for the years ended March 31,
1997, 1996, and 1995, pages F-7 and F-8.
Notes to Consolidated Financial Statements, pages F-9 through F-24.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- Financial Disclosure.
---------------------------------------------------------------
None.
<PAGE> 25
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
The following table sets forth the names and ages of all directors
and executive officers of the Company, as well as positions and
offices within the Company.
Name Age Position
--------------------- --- ---------------------------------
C. Shelton James 57 Chief Executive Officer and
Chairman of the Board
Tracey L. Gray 65 President, Chief Operating Officer
and Director
Dwight Jasmann 61 Director
Charles H. Moore 67 Director
Thomas E. Patton 56 Director
T. Raymond Suplee 50 Director
Thomas R. Wiltse 73 Director
Ronald M. Tobin 54 Vice President, Finance
Chief Financial Officer, Secretary
and Treasurer
Hugh H. Durden 49 Vice President, Domestic Sales
Eduardo Gandarilla 47 Vice President, International Sales
and Marketing
Frederick O. Hawkes 51 Vice President, Marketing and
Business Development
Kenneth W. Noack 59 Vice President, Operations
Henry W. Swanson 60 Vice President, Engineering
and Development
__________________________
<PAGE> 26
Mr. James has served as Chief Executive Officer of the Company
since May 1991 and has been a director of the Company since
December 1990. Mr. James is currently an investor in and business
advisor to a number of companies. While he has devoted a
substantial amount of time to the Company since May 1991, he has
also served as Executive Vice President of Fundamental Management
Corporation, an investment management company, since April 1990,
and was appointed President of that company in April 1993. He is
a member of the boards of Cyberguard Corporation, Concurrent
Computer Corporation, NAI Technologies, Fundamental Management
Corporation, CSPI and SK Technologies, Inc. From 1980 to 1989, Mr.
James had been Executive Vice President of Gould, Inc., a
diversified electronics company, and President of Gould's Computer
Systems Division.
Mr. Gray has served as President and Chief Operating Officer of the
Company since July 1991 and has been a director of the Company
since August 1991. From June 1986 until joining the Company, Mr.
Gray had been a Vice President of the Government Systems Division,
Network Systems Division and Federal Systems Division,
respectively, of Sprint in Washington, DC. Prior to that, Mr. Gray
served in numerous assignments with AT&T in corporate staff
functions and retired as Vice President, Government Systems in
1985. He served as Chief Executive Officer and a member of the
board of Access Engineering Corporation from 1985 to 1986. Mr.
Gray has served in various positions with industry professional
associations.
Mr. Jasmann has been a director of the Company since December 1993.
Since August 1996 Mr. Jasmann has been President and General
Manager for COMSAT International Ventures in Bethesda, Maryland, a
business unit of COMSAT Corporation that manages telecommunications
companies in thirteen overseas markets serving the needs of
national and multinational operators for digital network solutions.
From January 1995 to July 1996, Mr. Jasmann had been Vice President
of Human Resources for AirTouch Communications in San Francisco, a
domestic and international operator of wireless services. From
August 1992 to December 1994, he was an international
telecommunications advisor for various U.S. and foreign
telecommunications operators including COMSAT Corporation and Fax
International, Inc. From February 1959 to May 1992, Mr. Jasmann
held various positions with AT&T, most recently as President and
Managing Director of AT&T Communications Pacific based in Hong
Kong. He previously served on the boards of the Pacific
Telecommunications Council in Hawaii, the Information Communication
Institute of Singapore and Philcom, a Philippines telephone
company. He currently serves as chairman of the board of COMSAT
Argentina and as a director of both COMSAT Max in India and COMSAT
Brazil.
Mr. Moore has been a director of the Company since December 1993.
Mr. Moore has been Director of Athletics for Cornell University
since November 1994. From November 1992 to October 1994 Mr. Moore
was Vice Chairman of Advisory Capital Partners, Inc., an
investment advisory firm. From July 1988 to October 1992, Mr.
<PAGE> 27
Moore served as President and Chief Executive Officer of Ransburg
Corporation, a producer of industrial coating systems and
equipment, and from August 1991 to October 1992 as Executive Vice
President of Illinois Tool Works, Inc., a multinational
manufacturer of highly engineered components and systems. Mr. Moore
is currently a director of The Turner Corporation and is Chairman
of the Audit Committee of the United States Olympic Committee.
Mr. Patton has been a director of the Company since July 1989. Mr.
Patton has been a partner in the Washington, D.C. law firm of
Tighe, Patton, Tabackman & Babbin, engaged in civil and criminal
business litigation, securities law enforcement matters, corporate
finance and corporate compliance, since August 1994. From 1979
until July 1994, Mr. Patton was a partner in the Washington, D.C.
law office of Schnader, Harrison, Segal & Lewis, engaged in civil
and criminal securities litigation and general business litigation.
Mr. Patton also serves on the board of directors of Infomation
Exchange, Inc., a financial services marketing database company.
Mr. Suplee has been a director of the Company since September 1986.
Since 1982, Mr. Suplee has been the Senior Partner and President of
Suplee & Shea, P.A., a certified public accounting firm located in
Sarasota, Florida. Mr. Suplee is currently a director of First of
America Bank (Florida) and serves on its audit committee, and is
also a director and treasurer of Plymouth Harbor adult retirement
facility. He formerly was a director of Presidential Bank. Mr.
Suplee serves as a discussion leader for the Florida Institute of
Certified Public Accountants.
Mr. Wiltse has been a director of the Company since July 1990.
Since 1985 Mr. Wiltse has been active as a private investor. For
more than thirty years, until his retirement in 1985, Mr. Wiltse
served in a variety of managerial and executive capacities with
General Motors Corporation's worldwide foundry operations.
Mr. Tobin has served as Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since July 1992. Prior to
joining the Company he held various financial positions with
SmithKline Beecham Corporation in Philadelphia since September
1970, and most recently had been Corporate Controller of SmithKline
Beecham Clinical Laboratories in King of Prussia, PA since February
1982.
Mr. Durden rejoined the Company in June 1991 as Vice President of
Domestic Sales after having previously served as district sales
manager for the Company from March 1987 until August 1989. From
August 1989 until rejoining the Company, Mr. Durden founded and
served as Chief Executive Officer and President of two privately-held
telecommunications companies. From November 1984 until
February 1987, Mr. Durden was President of Communications Central,
Inc., a privately-held operator of payphones.
Mr. Gandarilla has served as Vice President of International Sales
and Marketing since October 1996, having joined the Company in
April 1996. From June 1995 until April 1996, he was an
international marketing consultant for Compression Laboratories,
Inc., a company which manufactures video conferencing equipment.
<PAGE> 28
From July 1993 until June 1995, Mr. Gandarilla was managing
director of the business communication systems division of AT&T,
based in Mexico. From 1990 until July 1993, he was a managing
director for Gestetner, a distributor of office equipment, also
located in Mexico. His previous employment included managerial
positions with various computer system companies located in Latin
America and Paris.
Mr. Hawkes has served as Vice President of Marketing and Business
Development since December 1996. Prior to that he served as Vice
President of Engineering and Development since October 1993 when he
rejoined the Company, having previously served in the same capacity
from August 1991 to April 1992. From April 1992 until October
1993, Mr. Hawkes was a consultant to Harris Corporation and from
September 1989 until May 1991, he was a director of a product
division of Harris.
Mr. Noack has served as Vice President of Operations since January
1993, having joined the Company in July 1992 as Director of
Operations. Prior to joining the Company he was with AT&T Paradyne
Corporation in Largo, Florida since 1973, and most recently was
Vice President and Director of Operations Planning and Materials.
Mr. Swanson has served as Vice President of Engineering and
Development since December 1996. Prior to joining the Company, he
was a consultant for Texas Microsystems, Inc., a computer hardware
manufacturer, since March 1996. From April 1994 until November
1995, Mr. Swanson was Vice President of Engineering for Arrowsmith
Technologies, a computer systems developer. From 1989 until April
1994 he was Director of PC Systems Development for Dell Computer
Corporation, also in Austin. His previous employment included
engineering management positions with several computer hardware and
software companies.
Section 16 Compliance
- ----------------------
Based solely upon a review of certain reports required to be filed
by the Company's current or former directors and officers and
beneficial owners of more than 10 percent of the outstanding Common
Stock pursuant to Section 16(a) of the Securities Exchange Act of
1934, the following person failed to file, on a timely basis,
reports so required to be filed during the fiscal year ended
March 31, 1997.
Number of
Transactions
Number of Not Reported on a
Name Title Late Reports Timely Basis
-------------- ----------------------- ------------ -----------------
Tracey L. Gray President, 1 1
Chief Operating Officer
and Director
__________________
<PAGE> 29
Item 11. Executive Compensation
- -------- ----------------------
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON
-------------------------------------------------
EXECUTIVE COMPENSATION
----------------------
This report, prepared by the Company's Compensation and Stock
Option Committee (the "Compensation Committee"), reflects executive
compensation policy and philosophy applicable to fiscal year 1997.
All members of the Compensation Committee are non-employee
directors.
The Company's executive compensation plans have been structured to
attract, retain and incentivize talented executives capable of
executing the strategies and plans essential to a fast growth,
technology-based company in the traditional and emerging
competitive telecommunications markets. The policies and plans are
designed to ensure individual executives receive compensation in
direct relationship to their contribution to key corporate
financial and strategic goals that are focused on short term and
long term business success while increasing shareholder values.
The plans are designed to be equitable and to recognize the balance
between short term operating performance and stock performance.
For fiscal year 1997, the Compensation Committee adopted an
incentive compensation bonus plan for the senior executive
officers: C. Shelton James, CEO and Tracey L. Gray, President/COO,
related to overall corporate financial performance. Discretionary
bonuses up to 50% of base salary would be paid based on the
Company's performance as measured against key financial factors,
revenues, operating profits and increasing profitability. The
Compensation Committee determined the appropriate level of bonus
based on overall consideration of the Company's performance for the
fiscal year. The Compensation Committee awarded a $33,930 bonus to
Mr. James and a $60,450 bonus to Mr. Gray.
For fiscal year 1997, the Compensation Committee adopted a
discretionary incentive compensation bonus plan for corporate
officers other than Mr. James and Mr. Gray. Maximum bonus levels
of 20% to 25% of base salary would be paid based on the Company
achieving operating performance goals established for revenues,
gross margins, operating profits and personal objectives related to
each officer's area of responsibility. Recommendations regarding
the bonus payment to each officer were presented by Mr. Gray once
final results were available. No bonus is payable under the plan
unless the Company reports profits. All bonuses awarded under the
plan are paid out in equal amounts over four years. The corporate
performance goals and the personal objectives of each officer are
approved at the beginning of each fiscal year following the fiscal
year business plan approval.
In October of 1996, the Compensation Committee authorized
adjustments in all corporate officers' base compensation. This
adjustment represented the first increase in officer base
compensation since July of 1995. The adjustments represented a
<PAGE> 30
combination of annual salary review adjustments as well as
structural adjustments to address industry and competitive issues
faced by the Company as it attempts to attract a more talented and
experienced executive team. The Committee was briefed on
comparable officer compensation in the industry from a variety of
salary survey reports and competitors' officer compensation
structure and also considered data provided by Towers Perrin which
had been commissioned by the Committee to advise on compensation
issues.
Mr. James and Mr. Gray's base compensation was adjusted from
$80,000 to $87,000 and from $141,000 to $155,000, respectively, at
the recommendation of the Compensation Committee effective
October 1, 1996.
The Compensation Committee recognizes the merits and value of stock
ownership by the Company's executives as a basis for retention and
aligning the executive's interests with the stockholders of the
Company. The use of stock option grants has become a key element
of the equity based compensation plans designed to increase the
equity interest of the Company's executives and combined with
performance based incentive compensation ensures a balanced
perspective focused on these two objectives.
The Committee also recognizes that in time of general economic
distress, it may not be economically practical to maintain total
compensation, particularly for senior managers, within the targeted
ranges.
To ensure Executive Compensation is appropriately aligned with
performance and the financial interest of stockholders, and that
senior managers share with those associates subject to layoff and
shorter work weeks the financial impact of difficult economic
conditions, it has been the practice of the Committee to recommend
salary freezes or temporary salary reduction for senior managers
during periods of general economic distress and poor corporate
performance.
Respectfully submitted,
Thomas R. Wiltse, Chairman
Dwight Jasmann
Charles H. Moore
T. Raymond Suplee
<PAGE> 31
SUMMARY COMPENSATION TABLE
---------------------------
<TABLE>
The following table sets forth certain information covering the
compensation paid or accrued by the Company during the fiscal years
indicated to its Chief Executive Officer, to each of its four most
highly compensated executive officers, other than the Chief
Executive Officer, whose salary and bonus exceeded $100,000 during
the fiscal year ended March 31, 1997 and who were serving as
executive officers as of March 31, 1997 and to one additional
executive officer who would have so qualified if he had been an
executive officer on March 31, 1997 ("named executive officers"):
Long Term
<CAPTION> Compensation
Awards
----------------------------------------- ------
(a) (b) (c) (d) (e) (g) (i)
Fiscal Other Number
Year Annual of Securities
Ended Compensation Underlying All Other
Name and Principal Position March 31, Salary ($) Bonus ($) ($) Options <F1> Compensation ($)
- --------------------------- --------- ---------- --------- ------------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
C. Shelton James 1997 $83,338 $33,930 0 $2,030 <F2>
Chairman of the Board and 1996 78,654 0 25,000 1,838 <F2>
Chief Executive Officer 1995 73,004 35,450 40,000 1,555 <F2>
Tracey L. Gray 1997 148,928 60,450 0 3,656 <F2>
President and 1996 138,039 0 25,000 3,463 <F2>
Chief Operating Officer 1995 127,461 60,450 40,000 2,738 <F2>
Ronald M. Tobin 1997 100,063 17,640 0 2,182 <F2>
Vice President, 1996 92,846 0 9,000 2,146 <F2>
Chief Financial Officer 1995 85,318 14,805 12,000 1,651 <F2>
Secretary and Treasurer
Alvaro R. Quiros <F3> 1997 123,160 0 0 3,253 <F2>
Executive Vice President 1996 104,000 0 7,000 2,761 <F2>
1995 102,295 0 10,000 2,404 <F2>
Hugh H. Durden 1997 148,452 9,525 0 2,869 <F2>
Vice President 1996 184,876 0 7,500 3,173 <F2>
1995 201,859 8,100 10,000 3,369 <F2>
Eduardo Gandarilla <F4> 1997 162,123 12,000 $44,617 <F5> 50,000 1,762 <F2>
Vice President 1996 0 0 0
1995 0 0 0
- ----------------------------
<FN>
<F1> Represents options granted under the Company's 1991 Stock Option
Plan. No options were granted during the fiscal year ended March
31, 1997, except for Mr. Gandarilla who received options upon
joining the Company.
<F2> Includes taxable portion of Company paid Group Term Life Insurance
and the Company's matching contribution to the 401(k) savings plan
(see Note P to the Company's financial statements). Such Group Term
Life Insurance for Messrs. James, Gray, Tobin, Quiros, Durden and
Gandarilla, respectively, for Fiscal 1997 is $450, $702, $288, $702,
$174 and $174, for Fiscal 1996 is $450, $702, $288, $702 and $174
and for Fiscal 1995 is $450, $702, $288, $702 and $174. 401(k)
savings plan matching contributions for Messrs. James, Gray, Tobin,
Quiros, Durden and Gandarilla, respectively, for Fiscal 1997 are
$1,580, $2,954, $1,894, $2,551, $2,695 and $1,588, Fiscal 1996 are
$1,388, $2,761, $1,858, $2,059 and $2,999 and for Fiscal 1995 are
$1,105, $2,036, $1,363, $1,702 and $3,195.
<PAGE> 32
<F3> Mr. Quiros retired effective December 31, 1996. The Company
continued to pay Mr. Quiros' regular salary through June 30, 1997.
$25,846 of his 1997 salary was paid to him pursuant to such
arrangement during the quarter ended March 31, 1997.
<F4> Mr. Gandarilla joined the Company on April 1, 1996 and was appointed
Vice President on October 15, 1996.
<F5> $39,217 of this amount represents reimbursement of relocation expenses
to Mr. Gandarilla during the fiscal year ended March 31, 1997.
</FN>
</TABLE>
Stock Option Grants
- -------------------
The following table sets forth information with respect to stock option
grants to named executive officers who received options during the fiscal
year ended March 31, 1997.
Option Grants in Last Fiscal Year
---------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of
Total
Options
Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#) (1) Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------
Eduardo Gandarilla 50,000 51.6% $5.2500 4/1/01 $72,524 $160,259
(1) Options granted upon joining the Company which become
exercisable one fourth each year, cumulatively, beginning
on April 1, 1997, and expire on April 1, 2001. No other
options were granted during the fiscal year ended
March 31, 1997 to the named executive officers.
<PAGE> 33
Stock Option Exercises and Holdings
- ------------------------------------
The following table sets forth the number of exercisable and
unexercisable options as of March 31, 1997 and the value of such
options for the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTIONS VALUE TABLE
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------
C. Shelton James 74,227 $372,542 6,250/43,750 $781/$81,105
Tracey L. Gray 35,000 $183,163 6,250/43,750 $781/$81,105
Ronald M. Tobin - - 10,550/14,750 $27,511/$26,723
Alvaro R. Quiros - - 17,000/0 $29,000/$0
Hugh H. Durden - - 6,875/13,125 $18,521/$26,021
Eduardo Gandarilla - - 0/50,000 $0/$53,125
Directors' Compensation
- -----------------------
Directors who are not employees of the Company receive an annual
retainer fee of $5,000 per year plus $1,500 for each Board meeting
attended, and $500 for each committee meeting attended. Directors
are also reimbursed for expenses in attending Board and Board
committee meetings.
During the fiscal year ended March 31, 1997, options were granted
to the Company's non-employee directors (Messrs. Jasmann, Moore,
Patton, Suplee and Wiltse), pursuant to the Company's Directors'
Stock Option Plan, in the amount of 2,000 shares, 3,000 shares,
2,000 shares, 4,000 shares and 6,000 shares, respectively, at
$6.3125 per share. These options are fully exercisable on March
31, 1998 and expire on March 31, 2002.
<PAGE> 34
STOCK PERFORMANCE CHART
-----------------------
The following chart compares the yearly percentage change in
cumulative total stockholder return on the Company's common stock
during the five years ended March 31, 1997, with the cumulative
total return of (i) Standard & Poors 500 Composite Index, (ii) the
Standard & Poors Telephone Index and (iii) the Standard & Poors
Technology Index. The comparison assumes $100 was invested on
March 31, 1992 in the Company's common stock and in each of the
other indices and assumes reinvestment of dividends. The Company
paid no dividends during the five year period.
[The following table was representd by a line graph in the printed material]
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
------- ------- ------- ------- ------- -------
Elcotel, Inc. $100 $338 $938 $1,015 $1,292 $1,538
S&P 500 Index 100 115 117 135 177 213
S&P Telephone Index 100 136 133 147 186 201
S&P Technology Index 100 147 189 243 334 493
<PAGE> 35
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The following table sets forth, at June 9, 1997, the number and
percentage of shares of Common Stock which, according to
information supplied to the Company, are beneficially owned by: (i)
each person who is the beneficial owner of more than 5% of the
Common Stock; (ii) each of the directors, and named executive
officers of the Company individually; and (iii) all current
directors and executive officers of the Company as a group. Under
rules adopted by the Securities and Exchange Commission, a person
is deemed to be a beneficial owner of Common Stock with respect to
which he has or shares voting power (which includes the power to
vote or to direct the voting of the security), or investment power
(which includes the power to dispose of, or to direct the
disposition of, the security). A person is also deemed to be the
beneficial owner of shares with respect to which he could obtain
voting or investment power within 60 days of June 9, 1997, such as
upon the exercise of options or warrants.
Number of
Name and Address Shares (1) Percentage
- ----------------------------------- ------------- ----------
C. Shelton James. . . . . . . . . . . . 1,566,663 (2) 19.1%
6428 Parkland Drive
Sarasota, Florida 34243
Fundamental Management Corporation. . . 1,439,223 17.6%
4000 Hollywood Boulevard
Suite 610N
Hollywood, Florida 33021
Alvaro R. Quiros. . . . . . . . . . . . 513,577 (3) 6.3%
6428 Parkland Drive
Sarasota, Florida 34243
Thomas R. Wiltse. . . . . . . . . . . . 406,000 (4) 4.9%
6428 Parkland Drive
Sarasota, Florida 34243
Tracey L. Gray. . . . . . . . . . . . . 150,284 (5) 1.8%
6428 Parkland Drive
Sarasota, Florida 34243
T. Raymond Suplee . . . . . . . . . . 32,300 (6) 0.4%
6428 Parkland Drive
Sarasota, Florida 34243
<PAGE> 36
Thomas E. Patton. . . . . . . . . . . 11,000 (7) 0.1%
6428 Parkland Drive
Sarasota, Florida 34243
Dwight Jasmann. . . . . . . . . . . . 9,890 (8) 0.1%
6428 Parkland Drive
Sarasota, Florida 34243
Charles H. Moore. . . . . . . . . . . 14,100 (9) 0.2%
6428 Parkland Drive
Sarasota, Florida 34243
Ronald M. Tobin . . . . . . . . . . . 52,700 (10) 0.6%
6428 Parkland Drive
Sarasota, Florida 34243
Eduardo Gandarilla. . . . . . . . . . 12,500 (11) 0.2%
6428 Parkland Drive
Sarasota, Florida 34243
Hugh H. Durden. . . . . . . . . . . . 11,875 (12) 0.1%
6428 Parkland Drive
Sarasota, Florida 34243
All directors and executive officers as
a group (13 persons) . . . . . . . 2,331,374 (13) 27.8%
_______________________________________
(1) Unless otherwise indicated, each shareholder has sole voting
and investment power with respect to all listed shares.
(2) Includes 1,439,223 shares held by Fundamental Management
Corporation, as to which shares Mr. James disclaims
beneficial ownership, and 21,250 shares which may be issued
upon exercise of stock options within 60 days.
(3) Includes 17,000 shares which may be issued upon the exercise
of stock options within 60 days.
(4) Includes 30,000 shares which may be issued upon the exercise
of stock options within 60 days.
(5) Includes 21,250 shares which may be issued upon exercise of
stock options within 60 days.
(6) Includes 7,000 shares held by a revocable trust in which Mr.
Suplee has a pecuniary interest and of which he is a co-trustee.
Includes 23,000 shares which may be issued upon the exercise
of stock options within 60 days.
<PAGE> 37
(7) Includes 500 shares held jointly with Mr. Patton's wife.
Includes 10,000 shares which may be issued upon the exercise
of stock options within 60 days.
(8) Includes 7,000 shares which may be issued upon the exercise
of stock options within 60 days.
(9) Includes 75 shares held by Mr. Moore's wife and 25 shares
held by Mr. Moore's daughter. Includes 13,000 shares which
may be issued upon the exercise of stock options within 60
days.
(10) Includes 150 shares held by Mr. Tobin's son. Includes 15,550
shares which may be issued upon the exercise of stock options
within 60 days.
(11) Includes 12,500 shares which may be issued upon the exercise
of stock options within 60 days.
(12) Includes 11,875 shares which may be issued upon the exercise
of stock options within 60 days.
(13) Includes a total of 1,439,223 shares held by Fundamental
Management Corporation and shares held by family members as
to which shares the respective officers and directors
disclaim beneficial ownership. Also includes 203,947 shares
which may be issued upon exercise of stock options within 60
days.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
As of March 31, 1997, the Company is owed approximately $325,000 from
Aditel, a Mexican corporation ("Aditel"), arising out of loans and
sales of payphones to Aditel. This amount is represented by a
promissory note which matures on September 30, 1997, payment of which
is secured by a security interest in certain payphones and operating
agreements of Aditel. Mr. Alvaro R. Quiros, a holder of
approximately 6.3 percent of the Company's Common Stock as of June
9, 1997, is the owner of approximately 25 percent of the equity of
Aditel.
<PAGE> 38
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) (1) Financial Statements:
The Financial Statements are listed in the index to
Consolidated Financial Statements on page F-1.
(2) Financial Statement Schedules:
All supporting schedules have been omitted because they
are not required or the information required to be set
forth therein is included in the financial statements or
the notes thereto.
(3) Exhibits:
The Exhibits are listed in the Index to Exhibits on
pages E-1 through E-3.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the quarter
ended March 31, 1997.
<PAGE> 39
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: June 30, 1997 By: /s/ Ronald M. Tobin
-------------------------
Ronald M. Tobin
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
/s/ C. Shelton James Chairman of the Board, Chief Executive Officer
- ------------------------- (Principal Executive Officer and Director)
C. Shelton James
Date: June 30, 1997
/s/ Tracey L. Gray President, Chief Operating Officer and Director
- -------------------------
Tracey L. Gray
Date: June 30, 1997
/s/ Dwight Jasmann Director
- -------------------------
Dwight Jasmann
Date: June 30, 1997
/s/ Charles H. Moore Director
- -------------------------
Charles H. Moore
Date: June 30, 1997
/s/ Thomas E. Patton Director
- -------------------------
Thomas E. Patton
Date: June 30, 1997
/s/ T. Raymond Suplee Director
- -------------------------
T. Raymond Suplee
Date: June 30, 1997
/s/ Thomas R. Wiltse Director
- -------------------------
Thomas R. Wiltse
Date: June 30, 1997
/s/ Ronald M. Tobin Vice President and Chief Financial Officer
- ------------------------- (Principal Financial and Accounting Officer)
Ronald M. Tobin
Date: June 30, 1997
<PAGE> 40
ELCOTEL, INC.
-------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Independent Auditors' Report..............................................F-2
Consolidated Financial Statement
Consolidated Balance Sheets.......................................F-3
Consolidated Statements of Operations.............................F-5
Consolidated Statements of Shareholders' Equity...................F-6
Consoldiated Statements of Cash Flows.............................F-7
Notes to Consolidated Financial Statements........................F-9
<PAGE> F-1
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Elcotel, Inc.
Sarasota, Florida
We have audited the accompanying consolidated balance sheets of Elcotel, Inc.
and subsidiaries (the "Company") as of March 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Elcotel, Inc. and
subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note J to the consolidated financial statements, in 1997 the
Company changed its method of computing compensation expense related to
stock-based compensation plans for non-employee directors.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
June 23, 1997
<PAGE> F-2
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
<CAPTION>
March 31,
----------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary investments $ 1,009 $ 232
Accounts receivable, less allowance
for doubtful accounts of $817
and $1,115, respectively 4,678 2,943
Notes receivable, less allowance
for doubtful accounts of $387
and $1,922, respectively 1,318 2,238
Inventories 2,733 2,800
Refundable income taxes 95 507
Deferred tax asset 692 1,332
Prepaid expenses and other current assets 457 175
----------- -----------
TOTAL CURRENT ASSETS 10,982 10,227
PROPERTY, PLANT AND EQUIPMENT, net 3,184 3,103
NOTES RECEIVABLE, less allowance
for doubtful accounts of $97
and $69, respectively 711 646
DEFERRED TAX ASSET 799 782
OTHER ASSETS 268 171
----------- -----------
$ 15,944 $ 14,929
=========== ===========
</TABLE>
<PAGE> F-3
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
(Dollars in thousands)
<CAPTION>
March 31,
----------------------------------
1997 1996
----------- ----------- 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable, trade $ 1,271 $ 1,030
Accrued expenses and other current
liabilities 1,615 1,134
Line of credit - 965
Current portion of long-term debt 199 810
----------- -----------
TOTAL CURRENT LIABILITIES 3,085 3,939
----------- -----------
LONG TERM DEBT, less current portion 232 432
COMMITMENTS AND CONTINGENCIES (see Note L)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value:
Authorized 20,000,000 shares,
Issued 8,234,216 shares and 8,060,503
shares, respectively 82 81
Additional paid-in capital 11,160 10,720
Retained earnings (deficit) 1,562 (66)
Less cost of 52,000 shares of common
stock in treasury (177) (177)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 12,627 10,558
----------- -----------
$ 15,944 $ 14,929
=========== ===========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> F-4
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Year ended March 31,
---------------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
NET SALES $ 26,832 $ 21,462 $ 25,090
COSTS AND EXPENSES:
Cost of sales 15,883 13,238 14,776
Research and development 2,623 2,257 1,758
Selling, general and administrative 6,358 6,490 5,791
Other charges (see Note B) (331) 1,844 -
---------- --------- ---------
TOTAL COSTS AND EXPENSES 24,533 23,829 22,325
---------- --------- ---------
PROFIT (LOSS) FROM OPERATIONS 2,299 (2,367) 2,765
---------- --------- ---------
INTEREST:
Interest income 324 416 394
Interest expense (119) (201) (109)
---------- --------- ---------
INTEREST, net 205 215 285
PROFIT (LOSS) BEFORE INCOME TAXES 2,504 (2,152) 3,050
INCOME TAX PROVISION (BENEFIT) 876 (861) (474)
---------- --------- ---------
NET PROFIT (LOSS) $ 1,628 $ (1,291) $ 3,524
========== ========= =========
NET PROFIT (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.20 $ (0.16) $ 0.45
========== ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,316 7,830 7,847
========== ========= =========
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> F-5
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
------------------------------------------------
(Amounts in thousands)
<CAPTION>
Common Stock
-------------- Additional Retained
Shares Paid-in Earnings Treasury
Issued Amount Capital (Deficit) Stock Total
------ ------ -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994 7,083 71 9,043 (2,299) (177) 6,638
EXERCISE OF OPTIONS 113 1 108 - - 109
EXERCISE OF WARRANT 539 5 749 - - 754
TAX BENEFIT FROM
EXERCISE OF OPTIONS - - 66 - - 66
NET PROFIT - - - 3,524 - 3,524
------ ----- -------- --------- -------- ---------
BALANCE, March 31, 1995 7,735 77 9,966 1,225 (177) 11,091
EXERCISE OF OPTIONS 326 4 290 - - 294
TAX BENEFIT FROM
EXERCISE OF OPTIONS - - 464 - - 464
NET LOSS - - - (1,291) - (1,291)
------ ----- -------- --------- -------- ---------
BALANCE, March 31, 1996 8,061 $ 81 $ 10,720 $ (66) $ (177) $ 10,558
EXERCISE OF OPTIONS 173 1 216 - - 217
TAX BENEFIT FROM
EXERCISE OF OPTIONS - - 175 - - 175
FAIR VALUE OF OPTION ISSUED
AS COMPENSATION TO NON-
EMPLOYEE DIRECTORS - - 49 - - 49
NET PROFIT - - - 1,628 - 1,628
------ ----- -------- --------- -------- ---------
BALANCE, March 31, 1997 8,234 $ 82 $ 11,160 $ 1,562 $ (177) $ 12,627
====== ===== ======== ========= ======== =========
<FN> See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> F-6
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
<CAPTION>
Year ended March 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 1,628 $ (1,291) $ 3,524
Adjustments to reconcile net profit (loss) to net
provided by (used in) by operating activities:
Depreciation and amortization 437 363 318
Provision for doubtful accounts (520) 2,392 287
(Gain) Loss on disposal of equipment (1) - 12
Fair value of options issued as compensation
to non-employee directors 49 - -
Change in operating assets and
liabilities:
Accounts receivable (1,519) (956) (1,136)
Notes receivable 1,159 1,530 (3,950)
Deposits - - 721
Inventories 67 (446) (319)
Refundable income taxes 412 (330) (177)
Deferred tax asset 798 (675) (975)
Prepaid expenses and other
current assets (282) 121 (205)
Other assets (137) (120) (39)
Accounts payable, trade 241 (718) 314
Accrued expenses and other
current liabilities 481 22 (50)
------------ ------------ ------------
Net cash flow provided by (used in)
operating activities 2,813 (108) (1,675)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (478) (255) (709)
Proceeds from disposal of equipment 1 2 -
------------ ------------ ------------
Net cash flow used in investing
activities (477) (253) (709)
------------ ------------ ------------
</TABLE>
<PAGE> F-7
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(continued)
<CAPTION>
Year ended March 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $ 217 $ 294 $ 929
Net (payments) proceeds related to
short-term borrowings (965) (460) 1,425
Proceeds from long-term borrowings - 1,000 -
Payments on long-term debt (811) (607) (151)
------------ ------------ ------------
Net cash flow provided by
(used in) financing activities (1,559) 227 (2,203)
------------ ------------ ------------
Net increase (decrease) in cash
and temporary investments 777 (134) (181)
Cash and temporary investments
at beginning of year 232 366 547
------------ ------------ ------------
Cash and temporary investments
at end of year $ 1,009 $ 232 $ 366
============ ============ ============
ADDITIONAL CASH FLOW INFORMATION:
Cash Paid (Received) During the Year for:
Interest $ 122 $ 218 $ 123
Income taxes (383) 144 610
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Tax benefit from exercise of options $ 175 $ 464 $ -
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> F-8
<PAGE>
ELCOTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996, AND 1995
- -----------------------------------------------
(Dollars in thousands, except for share amounts)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
- --------------------
The Company designs, develops and markets public communication products
for sales in the United States and international markets.
Principles of Consolidation
- -----------------------------
The accompanying consolidated financial statements include the accounts
of Elcotel, Inc. and its wholly-owned subsidiaries (the "Company"). All
material intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
- ---------------------
Revenue is recognized at the point at which title to such goods sold
passes to the customer.
Credit Policy
- ------------------
Credit is granted to customers that the Company deems creditworthy.
Sales are made to customers upon their payment of cash in advance or
cash on delivery, for which the Company grants the customer a discount,
or, if the customer otherwise qualifies, the Company provides 30 days
credit. In addition, the Company provides limited secured financing
with terms generally not exceeding 24 months and interest charged at
competitive rates.
Warranty Policy
- ------------------
The original purchaser of the Company's products receives a two or
three-year warranty on products the Company manufactures. Where the
Company resells products from other manufacturers, the Company will pass
on the other manufacturers' warranty to its customer.
<PAGE> F-9
Use of Estimates
- ------------------
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
and 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
estimated.
Temporary Investments
- ----------------------
Temporary investments consist of short-term, highly liquid investments
which are readily convertible into cash.
Advertising
- -------------
Advertising expenses are charged to operations during the period
incurred. The Company incurred advertising expense of approximately
$91, $90 and $100 for the years ended March 31, 1997, 1996, and 1995,
respectively.
Inventories
- ---------------
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
- -------------------------------
Property, plant and equipment are recorded at cost. Depreciation is
computed by the straight-line method based upon the estimated useful
lives of the related assets, which generally range from three years for
computers to 35 years for buildings.
Stock Based Compensation Plans
- --------------------------------
The Company applies APB 25 and related interpretations in accounting for
its employee stock-based compensation plans. Accordingly, no
compensation cost has been recognized for its employee stock-based
compensation plan. The Company applies SFAS 123 in accounting for its
non-employee directors stock-based compensation plan beginning in fiscal
1997.
<PAGE> F-10
Income Taxes
- --------------
The liability method is used in accounting for income taxes. Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and are
measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse. The deferred tax
asset is reduced by a valuation allowance when, on the basis of
available evidence, it is more likely than not that all or a portion of
the deferred tax asset will not be realized.
Net Profit (Loss) per Common and Common Equivalent Share
- ----------------------------------------------------------
Net profit per common and common equivalent share for the years ended
March 31, 1997 and 1995 have been computed based upon the weighted
average number of common and common equivalent shares outstanding.
Net loss per common share for the year ended March 31, 1996 has been
computed based upon the weighted average number of common shares
outstanding. Common equivalent shares have not been included as the
effect would be antidilutive.
NOTE B - OTHER CHARGES
In late 1994 and early 1995, the Company sold Amtel Communications, Inc.
and four related entities ("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 (collectively, the "Collateral").
On August 3, 1995, 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. On the date of the
bankruptcy filing, the Company was owed approximately $3,200,000 by
Amtel.
On August 29, 1996, the Bankruptcy Court approved the sale of Amtel's
pay phone assets and business to PhoneTel Technologies, Inc. for
approximately $13 million, payable $7 million in cash and $6 million in
publicly tradeable shares of PhoneTel stock.
<PAGE> F-11
Pursuant to an order entered October 10, 1996, the Bankruptcy Court
approved the settlement agreement between the Company and Amtel
regarding the treatment of the Company's claims against Amtel. Pursuant
to that settlement agreement, the Company was allowed a fully secured
claim in all of its collateral and received in satisfaction of its claim
payment of $1.7 million and the transfer to the Company of certain pay
phones (approximately 1,350) and related equipment in the Company's
possession and being warehoused by the Company pursuant to a prior
Bankruptcy Court order. The Company and Amtel also exchanged mutual
releases of all other claims subject to certain exceptions. On
October 30, 1996, the Company received a check for $1.7 million from
Amtel and Amtel released its interest in the warehoused pay phones and
equipment.
During the year ended March 31, 1996, the Company reviewed the carrying
value of its notes receivable from Amtel and provided a specific
allowance of $1,602 against such notes receivable. This charge of
$1,602, in addition to approximately $242 in other costs associated with
the bankruptcy proceeding, was included as Other Charges in the
Consolidated Statement of Operations for the year ended March 31, 1996.
During fiscal 1997, the Company sold the payphones and related equipment
which was in the Company's possession and being warehoused by the
Company pursuant to a prior Bankruptcy Court order. The amount realized
by the Company from this transaction resulted in a $413 recovery in
excess of the amount anticipated. In addition, the Company incurred
approximately $82 in legal and related expenses in connection with this
matter during fiscal 1997. The net credit related to this matter was
$331 during fiscal 1997 which has been included as Other Charges in the
Consolidated Statement of Operations for the year ended March 31, 1997.
<PAGE> F-12
NOTE C - RECEIVABLES:
Accounts receivable consist of the following:
March 31,
-------------------------
1997 1996
-------- --------
Accounts receivable, trade $ 5,449 $ 3,978
Call revenue receivables 46 80
Less allowance for doubtful accounts ( 817) (1,115)
-------- --------
$ 4,678 $ 2,943
======== ========
Changes in the allowance for doubtful accounts consist of the following:
Years ended March 31,
----------------------------
1997 1996 1995
-------- -------- --------
Balance at beginning of period ($1,115) ($ 345) ($ 171)
Recovery (Provision) for
doubtful accounts 216 ( 822) ( 181)
Charge-off of uncollectible
accounts, net of recoveries 82 52 7
-------- -------- --------
($ 817) ($1,115) ($ 345)
======== ======== ========
Notes receivable are principally comprised of interest-bearing trade
notes receivable from customers with remaining maturities of twenty-four
months or less and collateralized by operating pay stations. The notes
receivable of $1,550, as described in Note B, are included in the
balance as of March 31, 1996.
Changes in the allowance for doubtful notes receivable consist of the
following:
Years ended March 31,
----------------------------
1997 1996 1995
-------- -------- --------
Balance at beginning of period ($1,991) ($ 430) ($ 390)
Recovery (Provision) for
doubtful Notes 304 ( 1,570) ( 106)
Charge-off of uncollectible
notes, net of recoveries 1,203 9 66
-------- -------- --------
($ 484) ($1,991) ($ 430)
======== ======== ========
<PAGE> F-13
NOTE D - INVENTORIES:
Inventories by stage of completion are as follows:
March 31,
-------------------------
1997 1996
-------- --------
Finished Products $ 569 $ 470
Work-in Process 248 240
Purchased Components 1,916 2,090
-------- --------
$ 2,733 $ 2,800
======== ========
NOTE E - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following:
March 31,
-------------------------
1997 1996
-------- --------
Land and improvements $ 372 $ 372
Buildings 2,697 2,672
Engineering and manufacturing eqt. 1,583 1,347
Furniture, fixtures and office eqt. 1,077 864
-------- --------
5,729 5,255
Less accumulated depreciation
and amortization 2,545 2,172
-------- --------
$ 3,184 $ 3,103
======== ========
Depreciation expense for the fiscal years ended March 31, 1997, 1996,
and 1995, respectively, was $397, $255, and $276.
NOTE F - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
March 31,
-------------------------
1997 1996
-------- --------
Payroll, payroll taxes and severance $ 773 $ 480
Professional fees 157 100
Commissions to international
representative 188 6
Interest expense 3 6
Warranty 295 311
Income and other taxes 798 7
Customer advances 144 214
Other 10 10
-------- --------
$ 2,368 $ 1,134
======== ========
<PAGE> F-14
NOTE G - INCOME TAXES:
The Company's income tax (benefit) provision for the years ended March
31, 1997, 1995 and 1995 is comprised of the following:
Years ended March 31,
----------------------------
1997 1996 1995
-------- -------- --------
Current tax expense (benefit)
Federal $ 253 ($ 186) $ 475
State - - 26
-------- -------- --------
253 ( 186) 501
-------- -------- --------
Deferred tax expense (benefit)
Federal 593 ( 627) ( 848)
State 30 ( 48) ( 27)
-------- -------- --------
623 ( 675) ( 975)
-------- -------- --------
Net tax provision (benefit) $ 876 ($ 861) ($ 474)
======== ======== ========
The significant components of the deferred tax assets as of March 31,
1997 and March 31, 1996 are as follows:
March 31,
-------------------------
1997 1996
-------- --------
Deferred tax assets:
Accounts and notes receivable
reserves $ 468 $ 1,170
Inventory reserves 58 55
Warranty and other accruals 201 184
Tax credit carryforwards 647 583
NOL carryforwards 219 220
-------- --------
1,593 2,212
-------- --------
Deferred tax liabilities:
Property, plant and equipment 95 91
Deferred patent costs 7 7
-------- --------
102 98
-------- --------
Net deferred tax asset 1,491 2,114
Less current portion 692 1,332
-------- --------
Net deferred tax asset,
less current portion $ 799 $ 782
======== ========
<PAGE> F-15
As of March 31, 1997, the Company has available net operating loss
carryforwards for state tax purposes of approximately $3,986, expiring
in the years 2006 to 2009. In addition, the Company has available
approximately $647 in research and other tax credit carryforwards,
expiring in varying amounts between the years 2001 and 2009.
The effective tax rate on income before taxes differs from the United
States statutory rate. The following summary reconciles taxes at the
United States statutory rate with the effective rate.
Years ended March 31,
----------------------------
1997 1996 1995
-------- -------- --------
U.S. statutory rate 34.0% 34.0% 34.0%
Increases (decreases)
resulting from:
Business credits earned (2.9) 1.3 (2.9)
Business credits restored - 7.5 -
Other 3.9 (2.8) (2.2)
Reversal of valuation
allowance - - (44.4)
-------- -------- --------
Effective rate 35.0% 40.0% (15.5)%
======== ======== ========
<PAGE> F-16
NOTE H - LONG TERM DEBT:
March 31,
-------------------------
1997 1996
-------- --------
Long term debt consists of the following:
Promissory note with a bank, expiring
May 23, 1999, with interest fixed
at 8.50% $ 431 $ 631
Promissory note with a bank, expired
February 28, 1997, with variable
interest (8.06% at March 31, 1996) - 611
-------- --------
Total long term debt 431 1,292
Less current protion 199 810
-------- --------
$ 232 $ 432
======== ========
The promissory note, expiring May 23, 1999, arose from refinancing a
note on August 31, 1995 which was due on May 23, 1996. Interest on the
previous note was at prime plus one-half percent with monthly payments
based on a fifteen year amortization and a balloon payment after five
years. Principal payments on the new note are based on equal monthly
installments over a five year period. Final payment of all unpaid
principal and interest is due on May 23, 1999. The note is secured by a
mortgage on the Company's facility. Payments due on the note are as
follows:
Due in fiscal 1998 $ 199
Due in fiscal 1999 199
Due in fiscal 2000 33
-------
$ 431
=======
The Company had a $1,000 promissory note secured by the Company's
accounts receivable, notes receivable and inventories. Interest on the
note was based on the Libor rate plus 2.75 percentage points (8.06% at
March 31, 1996). Principal payments are based on eighteen equal monthly
installments and expired on February 28, 1997.
NOTE I - LINE OF CREDIT:
The Company has 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 Libor rate
plus 2.75 percentage points (8.4375% at March 31, 1997). The balance
on this line of credit as of March 31, 1997 and 1996 was $-0- and $965,
respectively.
<PAGE> F-17
NOTE J - STOCK OPTIONS AND WARRANTS:
Accounting for Stock-based compensation: In October 1995, Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" ("SFAS No. 123") was issued by the Financial Accounting
Standards Board. The statement requires the fair value of stock options
and other stock-based compensation issued to employees to either be
included as compensation expense in the income statements of companies
or the pro-forma effect on net income and earnings per share of such
compensation expense to be disclosed in the footnotes to the company"s
financial statements beginning in fiscal years beginning after December
15, 1995. Additionally, SFAS 123 requires companies to recognize
expense for stock options issued to non-employees for goods and services
based upon the fair value of the options at the date of grant. During
the year ending March 31, 1997, the Company adopted SFAS 123 and recognized
$49 of compensation expense related to the Directors Stock Option Plan. The
Company has elected to adopt SFAS No. 123 on a disclosure basis only for
employee compensation. Had compensation cost for the Company's stock
option plan been determined based on the fair market value at the grant
dates for awards under the plan consistent with the method provided by
SFAS No. 123, the Company's net income (loss) and net income (loss) per
common share would have been reflected by the following proforma amounts
for the years ended March 31, 1997 and 1996:
Year Ended March 31,
--------------------------
1997 1996
-------- ----------
Net income (loss) As reported $ 1,628 $ (1,291)
Proforma $ 1,456 $ (1,714)
Primary net income As reported $ 0.20 $ (0.16)
(loss) per share Proforma $ 0.18 $ (0.22)
The fair value of each grant is estimated on the date of grant using the
Black-Scholes Option pricing model with the following weighted-average
assumptions used for grants during the years ended March 31, 1997 and
1996:
Year Ended March 31,
--------------------------
1997 1996
-------- ----------
Dividend yield - -
Expected Volatility 54.90% 67.31%
Risk free interest rate 6.20% 6.20%
Option Term 3.4 years 3.4 years
The weighted average fair value for all options granted in 1997 and 1996
was $2.78 and $3.30, respectively.
<PAGE> F-18
STOCK OPTION PLANS:
1991 Stock Option Plan
- -----------------------
On July 2, 1991, the Company adopted a stock option plan (the "1991
Plan") which provides for the grant of incentive and non-qualified stock
options to key employees, including officers and directors, of the
Company. The option price per share may not be less than 100% of the
fair market value of such shares on the date such option is granted, or
$ .75. In May 1994, the Board approved, and in October 1994 the
shareholders approved, a 350,000 share increase in the number of shares
reserved under the Plan. In August 1996, the Board approved, and in
October 1996 the shareholders approved an additional 500,000 share
increase in the number of shares reserved under the Plan. Options to
acquire up to 1,600,000 shares of common stock may be granted pursuant
to the 1991 Plan
Information with respect to options under the above plans is as follows:
Number of Option Price
Shares Per Share
----------- ------------
Outstanding at March 31, 1994 647,633 $ .75-$3.50
Granted 319,700 $1.00-$3.625
Exercised ( 108,353 ) $ .75-$1.81
Cancelled ( 115,138 ) $1.00-$3.50
---------
Outstanding at March 31, 1995 743,842 $ .75-$3.625
Granted 193,950 $6.1875-$9.1875
Exercised ( 333,607 ) $ .75-$3.625
Cancelled ( 45,483 ) $1.36-$3.50
---------
Outstanding at March 31, 1996 558,702 $ .75-$9.1875
Granted 97,OOO $5.25-$7.375
Exercised ( 178,729 ) $ .75-$3.50
Cancelled ( 85,525 ) $1.81-$9.1875
---------
Outstanding at March 31, 1997 391,448 $1.3125-$7.50
=========
All options outstanding, both non-qualified and incentive stock options,
were granted to key employees and officers of the Company on
May 12, 1993, August 8, 1994, and February 20, 1996 and are exercisable
cumulatively in four installments of one-fourth each year beginning one
year from the date of grant and expire five years from the date of
grant. As of March 31, 1997, 101,454 options are exercisable. As of
March 31, 1997, options to acquire 538,496 shares were available for
future grant under the 1991 Plan. The weighted average exercise price
of options outstanding is $5.3463 and the weighted average remaining
contractual life is 4.12 years.
<PAGE> F-19
Directors Stock Option Plan
- ----------------------------
On July 2, 1991, the Company adopted a Directors Stock Option Plan which
provides for the automatic annual grant of non-qualified stock options
to outside directors of the Company. The option price per share may not
be less than 100% of the fair market value of such shares on the date
such option is granted, or $2.00. In May 1994, the Board approved, and
in October 1994 the shareholders approved, a 75,000 share increase in
the number of shares reserved under the Plan. Options to acquire up to
175,000 shares of common stock may be granted pursuant to the Plan.
Accordingly, for the fiscal years ended March 31, 1997, 1996, and 1995,
options to purchase 17,000 shares, 16,000 shares and 16,000 shares, at
an exercise price of $6.3125, $5.25 and $3.9375, per share,
respectively, were granted under the Directors Stock Option Plan. The
options are exercisable commencing one year from the date of grant and
expire five years from the date of grant. During fiscal 1997, 1996 and
1995, there were 15,000, 5,000 and 5,000 shares exercised, respectively,
all at an option price of $2.00. As of March 31, 1997, 83,000 options
are exercisable. As of March 31, 1997, options to acquire 38,000 shares
were available for future grant under the Directors Stock Option Plan.
The weighted average exercise price of options outstanding is $4.6244
and the weighted average remaining contractual life is 4.57 years.
Other Options
- ---------------
The Company has issued 26,000 other options to its existing and former
directors. The options have an exercise price of $2.00 per share and
expire on July 2, 1996. During fiscal 1997 and 1996, there were 8,000
and 12,000 shares exercised, respectively, all at an option price of
$2.00. During fiscal 1995, none of those options were exercised. There
are no more remaining other options exercisable as of March 31, 1997.
<PAGE> F-20
NOTE K - RELATED PARTY TRANSACTIONS:
As of March 31, 1997, the Company is owed approximately $325,000 from
Aditel, a Mexican corporation ("Aditel"), arising out of loans and sales
of payphones to Aditel. This amount is represented by a promissory note
which matures on September 30, 1997, payment of which is secured by a
security interest in certain payphones and operating agreements of Aditel.
Mr. Alvaro R. Quiros, a holder of approximately 6.3 percent of the
Company's Common Stock as of June 9, 1997, is the owner of approximately
25 percent of the equity of Aditel.
Legal fees amounting to approximately $73 for the fiscal year ended
March 31, 1995, were incurred by the Company to Schnader, Harrison,
Segal & Lewis, of which Mr. Patton, a director of the Company, was a
partner until July 1994, for legal services rendered to the Company and
its subsidiaries. These services included the work of several partners
and associates of the firm in litigation matters, corporate and
financial matters, and other types of legal matters incident to the
representation of the Company.
NOTE L - COMMITMENTS AND CONTINGENCIES:
Nogah Bethlahmy, et al. plaintiffs v. Randy S. Kuhlmann, et al.defendants.
- --------------------------------------------------------------------------
San Diego Superior Court Case No. 691635.
This putative class action was filed in the Superior Court
of the State of California for the County of San Diego
("State Court") but not initially served on the Company. On
November 17, 1995, the first amended complaint was filed and
served on the Company.
On December 28, 1995, a co-defendant removed the case to the
United States Bankruptcy Court for the Southern District of
California. On January 26, 1996, plaintiffs moved to remand the
case to State Court. On April 11, 1997, the case was remanded to
the San Diego Superior Court (San Diego Superior Court Case No. 691635.)
On May 20, 1996, plaintiffs filed a second amended complaint
for (1) unlawful business practices; (2) fraudulent and
unfair business practices; (3) false and misleading
advertising; (4) fraud and deceit; (5) conspiracy to
defraud; (6) negligence and negligent misrepresentation; (7)
violations of California Corporations Code section 25110; (8)
violations of California Corporations Code section 25400; (9)
professional negligence and legal malpractice; and (10)
spoliation of evidence. The gravamen of the complaint is
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. Plaintiffs have filed a motion in state
court for leave to file a second amended complaint, which is expected
to contain the same allegations as the second amended complaint that
was previously filed by the plaintiffs in the bankruptcy court. Plaintiffs'
<PAGE> F-21
motion for class certification is currently scheduled on July 19, 1997.
Discovery is still in its initial stages. The Company disputes liability
and intends to defend this matter vigorously, although the Company cannot
predict the ultimate outcome of this litigation.
William Polillo, et al. v. Elcotel, Inc.
- ----------------------------------------
(U.S. District Court for the Northern District of Illinois, No. 96C 2275,
filed April 18, 1996).
William Polillo, Cecilia Polillo and Richard Reno filed this suit
against the Company alleging that the Company's pay telephones infringe
U.S. Patent No. 4,208,549 for a Coin Surveillance Apparatus. An Amended
Complaint was filed against the Company on May 10, 1996. The Company
filed an Answer and Counterclaim on May 28, 1996 denying infringement
and asserting a counterclaim for a declaratory judgment of
noninfringement and invalidity of the patent. On July 2, 1996, the
plaintiffs' responded to the Company's counterclaim by denying the
claims of noninfringement and invalidity. In May 1997 this case was
settled and the case was dismissed with prejudice.
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability, if any , with respect to these actions
will not materially affect the financial position or results of
operations of the Company.
NOTE M - MAJOR CUSTOMERS:
For the year ended March 31, 1997, the Company had two customers which
accounted for approximately 24% of net sales. For the year ended March
31, 1996, there were no customers which individually accounted for more
than 10% of net sales. During the year ended March 31, 1995, the
Company had one customer which accounted for approximately 13% of net
sales.
NOTE N - CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of notes
receivable. In order to minimize this risk, the Company performs
ongoing credit evaluations of its customers' financial condition and
requires collateral, primarily the phone and related enclosures. At
March 31, 1997, the Company had three customers with accounts receivable
totalling $1,333, $628, and $589, respectively. At March 31, 1996, the
Company had one customer with notes receivable totalling approximately
$1,550, net of a specific allowance (see Note B).
<PAGE> F-22
NOTE O - SHAREHOLDERS' EQUITY:
During the year ended March 31, 1997, shareholders' equity increased as
a result of a net profit of $1,628, by the exercise of 201,729 stock
options less 28,046 shares surrendered at prices between $.75 and $3.50
per share for a total of $217, $175 related to the tax benefit from
exercise of stock options, and $49 for the fair value of options granted
to directors.
NOTE P - SAVINGS PLAN:
During fiscal 1994, the Company began a 401(k) savings plan whereby
eligible employees may voluntarily contribute a percentage of their pre-
tax earnings. The Company will match 50% of the employees'
contribution, up to an additional 2% of the eligible employees'
compensation. An employee begins vesting after having completed two
years of employment with the Company, at the rate of 25% per year, and
is 100% vested after having completed five years of employment with the
Company. Total plan expense was approximately $104, $79 and $57,
respectively for the fiscal years ended March 31, 1997, 1996 and 1995.
NOTE Q - SALES BY GEOGRAPHIC LOCATION:
The Company sells its payphone products both in the United States and
internationally. United States sales of international payphones
includes products sold to United States customers for resale in
international markets. In fiscal 1997, 1996, and 1995, the Company's
revenues by geographic regions were as follows:
Years ended March 31,
----------------------------
1997 1996 1995
-------- -------- --------
United States $ 18,792 $ 19,834 $ 3,200
United States sales of
international payphones 2,796 285 -
Canada and Latin America 1,763 521 1,520
Europe, Middle East and Africa 99 397 11
Asia, Pacific and Other Areas 3,382 425 359
-------- -------- --------
Total export sales $ 26,832 $ 21,462 $ 25,090
======== ======== ========
<PAGE> F-23
NOTE R - FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and short-term investments
- --------------------------------
The carrying amount approximates fair value because of the short
maturity of those instruments.
Long-term debt
- ----------------
The fair value of the Company's long term debt is estimated based on the
borrowing rates available to the Company for bank loans with similar
terms and average maturities. The carrying value at March 31, 1997 and 1996
approximates fair value.
<PAGE> F-24
INDEX TO EXHIBITS
Exhibit
Number Description Incorporated by Reference to
- ----- ---------------------------- ------------------------------
3.1 Certificate of Incorporation Exhibit 3.1 to Registration
Statement on Form S-18, File No. 33-8565.
3.2 By-Laws (as amended). Exhibit 3.2 to Annual Report on
Form 10-K for year ended March 31, 1987.
10.1 1991 Stock Option Plan. Exhibit 10.2 to Annual Report on
Form 10-K for year ended March 31, 1992.
10.2 Directors Stock Option Plan. Exhibit 10.3 to Annual Report on
Form 10-K for year ended March 31, 1992.
10.3 Mortgage and Security Exhibit 10.6 to Annual Report on
Agreement between Registrant Form 10-KSB for year ended March 31, 1994.
and NationsBank of Florida,
N.A. dated January 20, 1994.
10.4 Loan Agreement between Exhibit 10.8 to Annual Report on
Registrant and NationsBank of Form 10-KSB for year ended March 31, 1994.
Florida, N.A. dated
May 23, 1994.
10.5 Amendment to Loan Agreement Exhibit 10.1 to Quarterly Report
and Second Amendment to on Form 10-QSB for the quarter ended
Collateral Assignment and September 30, 1995.
Security Agreement between
Registrant and NationsBank
of Florida, NA dated
August 31, 1995.Exh
<PAGE> E-1
Exhibit
Number Description Incorporated by Reference to
- ----- ---------------------------- ------------------------------
10.6 Mortgage Note between Exhibit 10.6 to Quarterly Report on Form
Registrant and Carl G. 10-QSB for quarter ended
Santangelo, as Trustee of September 30, 1993
Elcotel Mortgage Trust dated
September 28, 1993.
(a) Mortgage Modification Exhibit 10.9(a) to Annual Report on Form
Agreement between 10-KSB for the year ended March 31, 1994.
Registrant and
NationsBank of Florida,
N.A. dated May 23, 1994.
(b) Assignment of Note and Exhibit 10.9(b) to Annual Report on Form
Mortgage between Carl G. 10-KSB for the year ended March 31, 1994.
Santangelo, as Trustee of
Elcotel Mortgage Trust and
NationsBank of Florida, N.A.
dated May 23, 1994.
(c) Mortgage Modification Exhibit 10.4 to Quarterly Report on Form
Agreement between 10-QSB for the quarter ended September 30,
Registrant and 1995.
NationsBank of Florida,
N.A. dated August 31, 1995.
10.7 Replacement Promissory Note Exhibit 10.5 to Quarterly Report on Form
between Registrant and 10-QSB for the quarter ended September 30,
NationsBank of Florida, N.A. 1995.
dated August 31, 1995.
<PAGE> E-2
Exhibit
Number Description Incorporated by Reference to
- ----- ---------------------------- ------------------------------
10.8 Consolidation Promissory Note Exhibit 10.4 to Quarterly Report on Form
between Registrant and 10-QSB for the quarter ended September 30,
NationsBank of Florida, N.A. 1994.
dated August 31, 1994.
10.9 Renewal Promissory Note Exhibit 10.2 to Quarterly Report on Form
between Registrant and 10-QSB for the quarter ended September 30,
NationsBank of Florida 1995.
N.A. dated August 31, 1995.
10.10 Second Amendment to Loan Exhibit 10.1 to Quarterly Report on
Agreement and Third Form 10-Q for the quarter ended
Amendment to Collateral September 30, 1996.
Assignment and Security
Agreement between Registant
and NationsBank, N.A. (South)
effective August 28, 1996.
10.11 Renewal Promissory Note Exhibit 10.2 to Quarterly Report on
between Registrant and Form 10-Q for the quarter ended
NationsBank, N.A. (South), September 30, 1996.
effective August 28, 1996.
21.1 Subsidiaries of the Included in this Report
Registrant.
23.1 Independent Auditors' Included in this Report
Consent.
27 Financial Data Schedule Included in this Report.
<PAGE> E-3
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
State of %
Name Incorporation Ownership
- ---------------------- ------------- ----------
LD*OS, Inc. Delaware 100%
Elcotel Hospitality
Service, Inc. Delaware 100%
Public Communication
Managers, Inc. Delaware 19.9%
Public Communication-I
Corporation Delaware 100%
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-68806, 33-68808, 33-62631 and 33-62633 of Elcotel, Inc. and
subsidiaries on Forms S-8, of our report dated June 23, 1997, appearing
in the Annual Report on Form 10-K of Elcotel, Inc. and subsidiaries for
the year ended March 31, 1997.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATMENTS AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,009
<SECURITIES> 0
<RECEIVABLES> 5,996
<ALLOWANCES> 0
<INVENTORY> 2,733
<CURRENT-ASSETS> 10,982
<PP&E> 3,184
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,944
<CURRENT-LIABILITIES> 3,085
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 12,545
<TOTAL-LIABILITY-AND-EQUITY> 15,944
<SALES> 26,832
<TOTAL-REVENUES> 26,832
<CGS> 15,883
<TOTAL-COSTS> 15,883
<OTHER-EXPENSES> 8650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (205)
<INCOME-PRETAX> 2,504
<INCOME-TAX> 876
<INCOME-CONTINUING> 1,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,628
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
