U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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
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(Address of principal executive offices)
(Zip Code)
(941) 758-0389
------------------------
(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
The number of shares of the issuer's Common Stock outstanding as of
August 12, 1997 was 8,182,216.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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ELCOTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
June 30, March 31,
1997 1997
----------- -----------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments $1 $1,009
Accounts receivable, net 4,824 4,678
Notes receivable, net 2,423 1,318
Inventories 3,561 2,733
Refundable income taxes 95 95
Deferred tax asset 692 692
Prepaid expenses and other current as 499 457
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TOTAL CURRENT ASSETS 12,145 10,982
Property, plant and equipment, net 3,287 3,184
Notes receivable, noncurrent 692 711
Deferred tax asset 799 799
Other assets 281 268
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$17,204 $15,944
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $3,295 $2,886
Line of credit 525 -
Current portion of long-term debt 199 199
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TOTAL CURRENT LIABILITIES 4,019 3,085
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LONG TERM DEBT, less current portion 183 232
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SHAREHOLDERS' EQUITY:
Common Stock 82 82
Additional paid-in capital 11,160 11,160
Retained earnings 1,937 1,562
Less treasury stock (177) (177)
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13,002 12,627
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$17,204 $15,944
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<FN>
Note: The balance sheet at March 31, 1997, has been derived
from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 1
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
-----------------------
1997 1996
------ ------
<S> <C> <C>
NET SALES $6,753 $5,551
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COSTS AND EXPENSES:
Cost of sales 3,838 3,254
Research and development 708 545
Selling, general and
administrative 1,695 1,480
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TOTAL COSTS AND EXPENSES 6,241 5,279
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PROFIT FROM OPERATIONS 512 272
INTEREST INCOME, net 63 30
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PROFIT BEFORE INCOME TAXES 575 302
INCOME TAX PROVISION 200 105
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NET PROFIT $375 $197
====== ======
NET PROFIT PER COMMON AND COMMON
EQUIVALENT SHARE $0.05 $0.02
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,301 8,279
====== ======
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 2
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
June 30,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $375 $197
Adjustments to reconcile net profit
to net cash provided from operations:
Depreciation and amortization 105 89
Provision for doubtful accounts (15) (30)
Change in operating assets and liabilities:
Accounts receivable (131) 466
Notes receivable (1,136) (547)
Inventories (828) (103)
Prepaid expenses and other
current assets (42) 184
Accounts payable and accrued expenses 409 (72)
Other, net (13) (192)
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Net cash flow used in operations (1,276) (8)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (208) (35)
------ ------
Net cash flow used in investing
activities (208) (35)
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<FN>
</TABLE>
<PAGE> 3
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
(continued)
<CAPTION>
Three Months Ended
June 30,
1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds related to
short-term borrowings 525 125
Payments on long-term debt (49) (216)
Issuance of common stock - 41
------ ------
Net cash flow used in
financing activities 476 (50)
------ ------
Net decrease in cash and
temporary investments (1,008) (93)
Cash and temporary investments at
beginning of year 1,009 232
------ ------
Cash and temporary investments at
end of quarter $1 $139
====== ======
ADDITIONAL CASH FLOW INFORMATION:
Cash Paid During the period for:
Interest $11 $49
Income taxes - -
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE> 4
ELCOTEL, INC. AND SUBSIDIARIES
-------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for share amounts)
(Unaudited)
NOTE A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of June 30, 1997, and the
consolidated statements of operations for the three month periods ended
June 30, 1997 and 1996, and the consolidated statements of cash flows
for the three month periods ended June 30, 1997 and 1996, have been
prepared by the Company, without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at June 30, 1997, 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-K for the fiscal year ended
March 31, 1997. The results of operations for the three month period
ended June 30, 1997, are not necessarily indicative of the results for
the full fiscal year.
NOTE B. INVENTORIES:
Inventories by stage of completion are as follows:
June 30, March 31,
1997 1997
-------- --------
Finished products $ 548 $ 569
Work-in-process 405 248
Purchased components 2,608 1,916
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$3,561 $2,733
======= =======
NOTE C. SHAREHOLDERS' EQUITY:
During the three month period ended June 30, 1997, shareholders' equity
increased as a result of a net profit of $375.
<PAGE> 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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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, 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)
Quarter ended June 30, 1997, compared to the quarter ended June 30, 1996:
Net sales for the quarter ended June 30, 1997 ("first quarter 1998"),
increased to $6,753 from $5,551 for the quarter ended June 30, 1996
("first quarter 1997"), an increase of $1,202, or approximately 22%,
principally as a result of an increase in sales of complete payphones
of approximately 69% offset by a decrease in sales of electronic
assemblies of approximately 8%. Unit sales of complete payphones
increased by approximately 61% while unit sales of electronic
assemblies decreased by approximately 13%. Average selling prices of
payphones in the quarter were approximately 5% higher than in the same
quarter last year and average selling prices of electronic assemblies
were approximately 6% higher than last year. Sales to international
customers accounted for 6% of net sales for the first quarter 1998 as
compared to 10% for the first quarter 1997. This represented a 24%
decrease in international sales as compared to the first quarter 1997.
Cost of sales as a percentage of net sales decreased from 59% for the
first quarter 1997 to 57% for the first quarter 1998, due to the higher
volume of payphones sold during the quarter as well as the higher
selling prices of payphones and electronic assemblies.
Research and development costs increased by $163, or approximately 30%,
from $545 in the first quarter 1997 to $708 in the first quarter 1998
prinicipally due to the hiring of additional development staff during
the quarter. Selling, general and administrative expenses increased by
$215, or approximately 15%, from $1,480 in the first quarter 1997 to
$1,695 in the first quarter 1998 principally as a result of additional
staff and related expenses in support of the Company's increased sales
activities. Interest income increased by $5, or approximately 7%, from
$73 in first quarter 1997 to $78 in first quarter 1998 due to an
increase in the Company's note receivable portfolio. Interest expense
decreased by $28, or approximately 65%, from $43 in first quarter 1997
to $15 in first quarter 1998 due to decreased borrowings against the
Company's line of credit facility with its bank.
<PAGE> 6
Liquidity and Capital Resources
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(Dollars in thousands)
Current assets increased by $1,163, or approximately 11%, from $10,982
at March 31, 1997 to $12,145 at June 30, 1997, predominantly from an
increase in accounts receivable of $146, an increase of $1,155 in notes
receivable and an increase of $828 in inventories, partially offset by
a decrease of $1,008 in cash. Current liabilities increased by $934,
or approximately 30%, from $3,085 at March 31, 1997 to $4,019 at June
30, 1997 predominantly from an increase in accounts payable and accrued
expenses of $409 and borrowing under the Company's line of credit
facility with its bank of $525.
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 1998 ranging from zero to $525. 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 refinanced its mortgage
note with its lender without changing the maturity date of May 23,
1999, but lowering its interest rate to a fixed rate of 8.50% from the
floating rate of 9.25% as of the closing date for the remainder of the
original five year term.
The Company believes that its anticipated cash flow from operations
will be sufficient to fund its working capital needs, its capital
expenditures and its short and long term note obligations through June
30, 1998.
New Accounting Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). SFAS 128 requires disclosure of basic earnings per share
based on income available to common stockholders and the weighted
average number of common shares outstanding during the period, and
diluted earnings per share based on income available to common
stockholders and the weighted average number of common and dilutive
potential common shares outstanding during the period. The adoption of
SFAS 128 is required for fiscal years ending after December 15, 1997,
and earlier adoption is not permitted. The adoption of SFAS 128 is not
expected to have a material effect on the Company's results of operations
or financial position.
Also, in February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 129, Disclosure
of Information about Capital Structure ("SFAS 129"). SFAS 129 requires
a Company to explain the privileges and rights of its various
outstanding securities, the number of shares issued upon conversion,
exercise or satisfaction of required conditions during the most recent
annual fiscal period, liquidation preferences of preferred stock and
other matters with respect to preferred stock. Although the statement
is effective for periods ending after December 15, 1997, the Company's
financial statement disclosures are in compliance with SFAS 129.
<PAGE> 7
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined
as the change in equity of a business during a period from transactions
and events and circumstances from non-owner sources, and includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 is not expected to have a material effect on the
Company's results of operations or financial position.
Also, in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS
131 requires public entities to report certain information about
operating segments, their products and services, the geographic areas
in which they operate, and their major customers, in complete financial
statements and in condensed interim financial statements issued to
stockholders. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS 131 is not expected to have a
material effect on the Company's results of operations or financial
position.
<PAGE> 8
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Nogah Bethlahmy, et al. plaintiffs v. Randy S. Kuhlmann, et al. defendants.
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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 third
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. In July 1997 plaintiffs' motion for class
certification was tentatively denied, without prejudice. 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.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Elcotel, Inc.
----------------
(Registrant)
Date: August 13, 1997 By: /s/ Ronald M. Tobin
Ronald M. Tobin
Vice President
(Principal Financial Officer and
Chief Accounting Officer)
<PAGE> 10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 7,297
<ALLOWANCES> 0
<INVENTORY> 3,561
<CURRENT-ASSETS> 12,145
<PP&E> 3,287
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,204
<CURRENT-LIABILITIES> 4,019
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 12,920
<TOTAL-LIABILITY-AND-EQUITY> 17,204
<SALES> 6,753
<TOTAL-REVENUES> 6,753
<CGS> 3,838
<TOTAL-COSTS> 3,838
<OTHER-EXPENSES> 2,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 575
<INCOME-TAX> 200
<INCOME-CONTINUING> 375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
