UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996.
Commission File No. 0-15205
ELCOTEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2518405
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6428 Parkland Drive, Sarasota, Florida 34243
--------------------------------------------
(Address of principal executive offices)
(Zip Code)
(941) 758-0389
------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the issuer's Common Stock outstanding as of
February 3, 1997 was 8,167,676.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
ELCOTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
December 31, March 31,
1996 1996
----------- -----------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments $1,046 $232
Accounts receivable, net 3,525 2,943
Notes receivable, net 1,244 2,238
Inventories 3,205 2,800
Refundable income taxes - 507
Deferred tax asset 1,332 1,332
Prepaid exp. and other current assets 254 175
------- -------
TOTAL CURRENT ASSETS 10,606 10,227
Property, plant and equipment, net 3,140 3,103
Notes receivable, noncurrent 760 646
Deferred tax asset 782 782
Other assets 256 171
------- -------
$15,544 $14,929
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $3,158 $2,164
Line of credit - 965
Current portion of long-term debt 310 810
------- -------
TOTAL CURRENT LIABILITIES 3,468 3,939
------- -------
LONG TERM DEBT, less current portion 282 432
------- -------
SHAREHOLDERS' EQUITY:
Common Stock 82 81
Additional paid-in capital 10,884 10,720
Retained earnings/(deficit) 1,005 (66)
Less treasury stock (177) (177)
------- -------
11,794 10,558
------- -------
$15,544 $14,929
======= =======
<FN>
Note: The balance sheet at March 31, 1996, has been derived
from the audited financial statements.
1
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $7,206 $5,069 $18,858 $16,373
------ ------- ------- -------
COSTS AND EXPENSES:
Cost of sales 4,315 3,259 11,350 9,841
Research and development 692 587 1,932 1,651
Selling, general and
administrative 1,407 1,764 4,055 4,908
------ ------- ------- -------
TOTAL COSTS AND EXPENSES 6,414 5,610 17,337 16,400
------ ------- ------- -------
PROFIT/(LOSS) FROM OPERATIONS 792 (541) 1,521 (27)
INTEREST INCOME, net 51 30 127 218
------ ------- ------- -------
PROFIT/(LOSS) BEFORE INCOME TAXES 843 (511) 1,648 191
INCOME TAX PROVISION/(BENEFIT) 295 (179) 577 67
------ ------- ------- -------
NET PROFIT/(LOSS) $548 ($332) $1,071 $124
====== ======= ======= =======
NET PROFIT/(LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $0.07 ($0.04) $0.13 $0.02
====== ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,348 8,280 8,312 8,239
====== ====== ======= =======
<FN>
2
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $1,071 $124
Adjustments to reconcile net profit
to net cash provided from operations:
Depreciation and amortization 285 251
Provision for doubtful accounts (546) 357
Change in operating assets and liabilities:
Accounts receivable (36) (1,690)
Notes receivable 879 2,019
Inventories (405) (749)
Prepaid expenses and other
current assets 125 181
Accounts payable and accrued expenses 1,299 (869)
Other, net (86) (53)
------ ------
Net cash flow (used in)/provided from
operations 2,586 (429)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (322) (216)
------ ------
Net cash flow used in investing
activities (322) (216)
------ ------
<FN>
3
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
(continued)
<CAPTION>
Nine Months Ended
December 31,
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments related to
short-term borrowings (965) (470)
Borrowings/(payments) on long-term debt (650) 609
Issuance of common stock 165 240
------ ------
Net cash flow used in
financing activities (1,450) 379
------ ------
Net increase/(decrease) in cash and
temporary investments 814 (266)
Cash and temporary investments at
beginning of year 232 366
------ ------
Cash and temporary investments at
end of quarter $1,046 $100
====== ======
ADDITIONAL CASH FLOW INFORMATION:
Cash Paid/(Refunded) During the period for:
Interest $107 $113
Income taxes (509) 212
<FN>
4
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE)
ELCOTEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for share amounts)
(Unaudited)
NOTE A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of December 31, 1996, and
the consolidated statements of operations for the three and nine
month periods ended December 31, 1996 and 1995, and the consolidated
statements of cash flows for the nine month periods ended December 31, 1996
and 1995, have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at December
31, 1996, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-KSB for the fiscal
year ended March 31, 1996. The results of operations for the nine
month period ended December 31, 1996, are not necessarily indicative
of the results for the full fiscal year.
NOTE B. INVENTORIES:
Inventories by stage of completion are as follows:
December 31, March 31,
1996 1996
-------- --------
Finished products $ 896 $ 470
Work-in-process 247 240
Purchased components 2,062 2,089
------ ------
$3,205 $2,800
====== ======
NOTE C. SHAREHOLDERS' EQUITY:
During the nine-month period ended December 31, 1996, shareholders'
equity increased as a result of a net profit of $1,071, and employee
and director exercises of stock options at prices between $.75 per
share and $3.50 per share for a total of $165.
5
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
----------------------------------------------
Results of Operations
- ---------------------
(Dollars in thousands)
Quarter ended December 31, 1996, compared to the quarter ended
December 31, 1995:
Net sales for the quarter ended December 31, 1996 ("third quarter
1997"), increased from $5,069 for the quarter ended December 31, 1995
("third quarter 1996") to $7,206, an increase of $2,137, or
approximately 42%, principally as a result of an increase in sales of
complete payphones of approximately 57% and an increase in sales of
electronic assemblies of approximately 40%. Unit sales of complete
payphones increased by approximately 68% and unit sales of electronic
assemblies increased by approximately 14%. Average selling prices of
payphones in the quarter were approximately 6% lower than in the same
quarter last year due to discounts given to customers for competitive
reasons, while average selling prices of electronic assemblies were
approximately 23% higher than last 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 the
same period last year. Sales to international customers accounted
for 42% of net sales for the third quarter 1997 and represented a
443% increase as compared with the third quarter 1996.
Cost of sales as a percentage of net sales decreased from 64% for the
third quarter 1996 to 60% for the third quarter 1997, principally as
a result of higher sales of both complete payphones and electronic
assemblies as compared with last year. The Company realizes higher
prices but lower margins on sales of complete payphones than on
electronic assembly products because the cabinets included with the
Company's complete telephones are a significant portion of the total
cost of the telephone but are priced only nominally above cost.
Research and development costs increased by $105, or approximately
18%, from $587 in the third quarter 1996 to $692 in the third quarter
1997 due to the hiring of additional development staff partially
offset by a reduction in the use of outside contractors. Selling,
general and administrative expenses decreased by $357, or
approximately 20%, from $1,764 in the third quarter 1996 to $1,407 in
the third quarter 1997 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 improved
aging of current accounts during the third quarter 1997, partially
offset by an increase in sales commission expenses and international
travel expense, as compared with the third quarter 1996. Interest
income decreased by $7, or approximately 8%, from $85 in the third
quarter 1996 to $78 in the third quarter 1997 due to a decrease in
the Company's note receivable portfolio. Interest expense decreased
by $28, or approximately 51%, from $55 in the third quarter 1996 to
$27 in the third quarter 1997 due to decreased borrowings under the
Company's line of credit facility with its bank.
6
<PAGE>
Nine months ended December 31, 1996, compared to the nine months
ended December 31, 1995:
Net sales for the nine months ended December 31, 1996 ("nine-months
1997"), increased from $16,373 for the nine months ended December 31,
1995 ("nine-months 1996") to $18,858, an increase of $2,485, or
approximately 15%, principally as a result of an increase in sales of
complete payphones of approximately 24% and an increase in sales of
electronic assemblies of approximately 10%. Unit sales of complete
payphones increased by approximately 34% and unit sales of electronic
assemblies increased by approximately 5% during the nine-months 1996.
Average selling prices of payphones during the nine-months 1997 were
approximately 7% lower than during the nine-months 1996 due to
discounts given to customers for competitive reasons, while average
selling prices of electronic assemblies were approximately 5% higher
than last 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 the same period last year. Sales to
international customers accounted for 30% of net sales for the nine-months
1997 and represented a 472% increase as compared with the
nine-months 1996.
Cost of sales as a percentage of net sales was 60% for the nine-months 1997
which percentage is unchanged as compared to the nine-months 1996.
Research and development costs increased by $281, or approximately
17%, from $1,651 in the nine-months 1996 to $1,932 in the nine-months
1997 due to the hiring of additional development staff partially
offset by a reduction in the use of outside contractors. Selling,
general and administrative expenses decreased by $853, or
approximately 17%, from $4,908 in the nine-months 1996 to $4,055 in
the nine-months 1997 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 improved
aging of current accounts during the nine-months 1997, partially
offset by an increase in sales commission expense as compared with
the nine-months 1996. Interest income decreased by $140, or
approximately 37%, from $375 in the nine-months 1996 to $235 in nine-months
1997 due to a decrease in the Company's note receivable
portfolio. Interest expense decreased by $49, or approximately 31%,
from $157 in the nine-months 1996 to $108 in the nine-months 1997 due
to decreased borrowings under the Company's line of credit facility
with its bank.
7
<PAGE>
Liquidity and Capital Resources
- -------------------------------
(Dollars in thousands)
The Company's current assets increased by $379, or approximately 4%,
from $10,227 at March 31, 1996 to $10,606 at December 31, 1996,
predominantly from an increase in accounts receivable of $582 and an
increase in cash of $814, partially offset by a reduction in notes
receivable of $994. Current liabilities decreased by $471, or
approximately 12%, from $3,939 at March 31, 1996 to $3,468 at
December 31, 1996 predominantly from a reduction in the current
portion of long term debt and a reduction in the amount owed under
the Company's line of credit with its bank, partially offset by an
increase in accounts payable and accrued expenses.
Since August 31, 1995 the Company has had a $2,000 working capital
line of credit secured by the Company's accounts receivable, notes
receivable and inventories. Interest on amounts borrowed on the line
of credit is at the bank's floating 30 day libor rate plus 2.75%.
The Company borrows against and repays the line of credit throughout
the year depending upon its working capital needs and cash generated
from operations, with the outstanding amount under the line of credit
during fiscal 1997 ranging from zero to $1,270. The line of credit
was renewed effective August 28, 1996 and 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%. The Company also refinanced
its mortgage note with its lender on the same date without changing
the maturity date of May 23, 1999, but lowering its interest rate to
a fixed rate of 8.50% from the floating rate of 9.25% as of the
closing date, for the remainder of the original five year term.
The Company believes that its anticipated cash flow from operations
will be sufficient to fund its working capital needs, its capital
expenditures and its short and long term note obligations through
December 31, 1997.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Quarterly Report on Form 10-Q which
are not historical facts contain forward looking information with
respect to plans, projections or future performance of the Company,
the occurrence of which involve certain risks and uncertainties that
could cause the Company's actual results to differ materially from
those expected by the Company, including the risk of adverse
regulatory action affecting the Company's business or the business of
the Company's customers, competition, the risk of obsolescence of its
products, the ultimate outcome of the class action lawsuit, and
uncertainties detailed in the Company's filings with the Securities
and Exchange Commission.
8
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
In re ACI-HDT Supply Company, debtor and related cases. Nogah
Bethlahmy, et al., plaintiffs v. Randy S. Kuhlmann, et al., defendants.
Adversary Proceeding No. 95-90809 in the United States Bankruptcy Court,
Southern District of California.
As previously reported, this putative class action was filed in the
Superior Court of the State of California for the County of San Diego ("State
Court") alleging that Amtel conspired with its own officers and professionals,
and with various telephone suppliers (including the Company) to defraud
investors in Amtel by operating a Ponzi scheme. 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
fiscal quarter ended September 30, 1996.
On January 24, 1997, the Bankruptcy Appellate Panel ruled that this
litigation should be remanded to State Court, and it is expected that the case
will shortly be returned to State Court. Thereafter, the Company will be
required to answer the second amended complaint and the plaintiffs' motion for
class certification and authorization of contingent fee arrangement, presently
pending in Bankruptcy Court, will be rescheduled for hearing in State Court.
Discovery in the litigation is continuing.
Item 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
On October 15, 1996, the Company held its Annual Meeting of
Shareholders (the "Meeting"). The matters voted upon at the Meeting were
the election of directors, a proposal to amend the 1991 Stock Option Plan
and ratification of the appointment of Deloitte & Touche LLP as the Company's
independent accountants for the fiscal year ending March 31, 1997.
At the Meeting, the Shareholders were asked to elect seven
directors with each director to serve until the next annual meeting of
shareholders or until the election and qualification of a respective
successor. All of the nominees for director recommended by the Board of
Directors were elected and the results of the voting were as follows:
Votes
Name Votes For Against Abstentions
----------------- --------- -------- -----------
Tracey L. Gray 7,655,300 56,316 0
C. Shelton James 7,656,200 55,416 0
Dwight Jasmann 7,655,800 55,816 0
Charles H. Moore 7,656,200 55,416 0
Thomas E. Patton 7,655,800 55,816 0
T. Raymond Suplee 7,656,200 55,416 0
Thomas R. Wiltse 7,656,200 55,416 0
9
<PAGE>
At the Meeting, the shareholders were asked to act upon a
proposal to amend the 1991 Stock Option Plan to, among other things, increase
the number of shares by 500,000. The outcome of the voting was:
4,392,959 For; 321,881 Against; 20,861 Abstentions; and 2,975,915 broker
non-votes.
At the Meeting, the shareholders ratified the appointment
of Deloitte & Touche LLP as the Company's independent public accountants
for the fiscal year ending March 31, 1997, and the outcome of the voting was:
7,690,026 For; 13,175 Against; and 8,415 Abstentions.
There were no broker non-votes in connection with any of
the matters other than for the amendment to the 1991 Stock Option Plan.
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Elcotel, Inc.
----------------------
(Registrant)
Date: February 13, 1997 By: /s/ Ronald M. Tobin
----------------------
Ronald M. Tobin
Vice President
(Principal Financial Officer
and Chief Accounting Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,046
<SECURITIES> 0
<RECEIVABLES> 4,769
<ALLOWANCES> 0
<INVENTORY> 3,205
<CURRENT-ASSETS> 10,606
<PP&E> 3,140
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,544
<CURRENT-LIABILITIES> 3,468
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 10,884
<TOTAL-LIABILITY-AND-EQUITY> 15,544
<SALES> 18,858
<TOTAL-REVENUES> 18,858
<CGS> 11,350
<TOTAL-COSTS> 11,350
<OTHER-EXPENSES> 5,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,648
<INCOME-TAX> 577
<INCOME-CONTINUING> 1,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,071
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
