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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-10588
INTELLICALL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1993841
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
2155 Chenault, Suite 410
Carrollton, TX 75006
(Address of principal executive offices)
(214) 416-0022
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class July 31,1995
Common Stock $.01 par value 7,678,043
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<PAGE>
INDEX
INTELLICALL, INC.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1995
(Unaudited) and December 31, 1994..........................1
Condensed Consolidated Statements of Operations for each of
the three month periods ended June 30, 1995 and 1994
(Unaudited) .........................................2
Condensed Consolidated Statements of Operations for each of
the six month periods ended June 30, 1995 and 1994
(Unaudited) .........................................3
Condensed Consolidated Statements of Cash Flows for each of
the six month periods ended June 30, 1995 and 1994
(Unaudited) .........................................4
Notes to Condensed Consolidated Financial Statements...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.......11
Item 6. Exhibits and Reports on Form 8-K..........................11
Signatures..................................................................12
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INTELLICALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,127 $ 2,826
Receivables, net 26,469 28,079
Receivables from related party 431 766
Inventories 12,820 12,935
Other current assets 305 122
------- ------
Total current assets 42,152 44,728
Fixed assets, net 2,343 2,415
License fees receivable, net 801 1,140
Investment in sales-type leases, net 398 1,154
Receivables from related party -- 32
Notes receivable, net 2,751 4,035
Intangible assets, net 1,063 1,108
Capitalized software costs, net 3,535 2,259
Other assets 1,002 1,928
------ ------
$54,045 $58,799
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,951 $ 10,133
Other liabilities 1,980 2,505
Current portion of long-term debt 362 945
------ ------
Total current liabilities 12,293 13,583
Long-term debt 20,086 25,694
Deferred revenue 2,247 --
Other liabilities 200 200
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued -- --
Common stock, $.01 par value; 20,000,000
and 50,000,000 shares authorized,
respectively; 7,698,451 and 7,686,451
shares issued, respectively 77 77
Additional capital 47,170 47,131
Less common stock in treasury, at cost;
24,908 shares (258) (258)
Accumulated deficit (27,770) (27,628)
------- -------
Total stockholders' equity 19,219 19,322
------- -------
$ 54,045 $ 58,799
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
- 1 -
<PAGE>
INTELLICALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1995 1994
-------- --------
<S> <C> <C> <C>
Revenues and Sales:
Service revenues $ 14,790 $ 15,333
Equipment sales 4,493 6,343
-------- --------
19,283 21,676
Cost of revenues and sales:
Service revenues 12,335 12,609
Equipment sales 4,472 6,437
-------- -------
16,807 19,046
-------- -------
Gross profit
Service revenues 2,455 2,724
Equipment sales 21 (94)
-------- -------
2,476 2,630
Selling, general and administrative
expenses 2,300 3,387
Research and development expenses 592 694
Provision for doubtful accounts 247 278
Gain on sale of call validating assets 1,607 ---
-------- -------
Operating income (loss) 944 (1,729)
Interest income 128 414
Interest expense (965) (578)
-------- -------
Net income (loss) $ 107 $(1,893)
======== =======
Income (loss) per share $ .01 $ (.25)
======== =======
Weighted average number of common and
common equivalent shares outstanding 7,670 7,588
======== =======
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
INTELLICALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1994
--------- --------
<S> <C> <C> <C>
Revenues and Sales:
Service revenues $ 27,415 $ 28,615
Equipment sales 12,030 11,093
-------- --------
39,445 39,708
Cost of revenues and sales:
Service revenues 22,717 23,395
Equipment sales 10,898 11,318
-------- --------
33,615 34,713
-------- --------
Gross profit
Service revenues 4,698 5,220
Equipment sales 1,132 (225)
-------- --------
5,830 4,995
Selling, general and administrative
expenses 4,559 6,959
Research and development expenses 1,057 1,480
Provision for doubtful accounts 386 542
Gain on sale of call validating assets 1,607 ---
-------- -------
Operating income (loss) 1,435 (3,986)
Interest income 252 684
Interest expense (1,829) (1,152)
-------- --------
Net loss $ (142) $ (4,454)
======== ========
Loss per share $ (.02) $ (.56)
======== ========
Weighted average number of common and
common equivalent shares outstanding 7,666 7,893
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
INTELLICALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995 1994
-------- --------
<S> <C> <C> <C>
Operating Activities:
Net loss $ (142) $ (4,454)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 1,791 1,435
Provision for doubtful accounts 386 542
Provision for inventory 36 68
Changes in operating assets and liabilities:
(Increase) in receivables (558) (601)
Decrease in inventories 79 3,313
(Increase) decrease in other current
assets (215) 158
Decrease in license fee receivable 1,136 3,311
Decrease in investment in sales
type leases 1,821 1,367
Decrease in related party receivable 367 60
Decrease in notes receivable 696 275
Decrease in accounts payable (180) (2,343)
(Decrease) increase in accrued
liabilities (526) 1,167
Increase in deferred revenue 2,247 --
Increase (decrease) in other 386 (1,039)
------ ------
Net cash provided by operating activities 7,324 3,259
Investing activities:
Purchase of equipment (505) (315)
Capitalized software (1,305) (1,421)
------ ------
Net cash used in investing activities (1,810) (1,736)
Financing activities:
Proceeds from borrowings on long-term debt 13 42,451
Principal payments on long-term debt (6,264) (44,014)
Proceeds from issuance of stock under
stock option plans 38 5
------ ------
Net cash used in financing activities (6,213) (1,558)
Changes in cash (699) (35)
Cash at beginning of period 2,826 83
------ ------
Cash at end of period $ 2,127 $ 48
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CERTAIN ACCOUNTING POLICIES
Basis of Presentation. The accompanying condensed consolidated financial
statements of Intellicall, Inc. (the "Company") have been prepared in accordance
with the requirements of Form 10-Q and do not include all disclosures normally
required by generally accepted accounting principles or those normally made in
annual reports on Form 10-K. In management's opinion, all adjustments necessary
for a fair presentation of the results of operations for the periods shown have
been made and are of a normal and recurring nature.
The results of operations for the six months ended June 30, 1995 are not
necessarily indicative of the results of operations for the full year 1995. The
condensed consolidated financial statements herein should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
Statement Presentation. Certain prior year amounts have been reclassified
to conform to current year presentation.
Software Development Costs. The Company capitalizes costs related to the
development of certain software products. In accordance with Statement of
Financial Accounting Standards No. 86, capitalization of costs begins when
technological feasibility has been established and ends when the product is
available for general release to customers. Amortization is computed on an
individual product basis based on the products' estimated economic life using
the straight line method.
The amounts of software development costs capitalized in the second quarter
of 1995 and 1994 were $600,000 and $775,000, respectively. The Company recorded
$156,000 and $312,000 of software amortization expense for the three and six
months ended June 30, 1995.
Cash. Cash accounts serve as collateral under the Company's lending
agreements and, accordingly, are restricted. Additionally certain of these cash
accounts are pledged as security for letters of credit and are further
restricted.
Other. The allowance for doubtful accounts was $4.6 million at June 30,
1995, and $5.1 million at December 31, 1994.
- 5 -
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT AND LINE OF CREDIT
As of June 30, 1995 and December 31, 1994, the Company's debt consisted of
the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Variable rate Senior Bridge Notes Due
1996, Series A $14,486 $16,000
12.5% Senior Bridge Notes Due 1996,
Series B 4,560 8,000
Series B debt discount (135) (195)
Collateralized note 537 1,834
Subordinated note 1,000 1,000
------ ------
Total debt 20,448 26,639
Less: Current portion of long-term debt (362) (945)
------ ------
Total long-term debt $ 20,086 $25,694
======== =======
</TABLE>
On August 11, 1994, the Company issued its Variable Rate Senior Bridge
Notes Due 1996, Series A ("Series A Notes") and 12.5% Senior Bridge Notes Due
1996, Series B ("Series B Notes") to Nomura Holding America Inc. ("Nomura"). The
Company issued a warrant which entitles Nomura to purchase 551,954 shares of the
Company's common stock. The notes are secured by collateral comprising
substantially all the assets of the Company and mature on August 11, 1996.
Interest on the Series A Notes accrues monthly at a rate of prime plus 2%
through December 31, 1995, and prime plus 3% thereafter. Interest on both notes
is payable quarterly. The Series A Notes may be issued from time to time
provided the aggregate amount outstanding does not exceed $16 million.
If the Series B Notes are not retired by December 31, 1995, the Company
must issue an additional warrant to Nomura which, if exercised, would increase
Nomura's ownership position in the Company by an incremental amount equal to 5%
of the sum of (a) the issued and outstanding shares of common stock of the
Company on the date such additional warrant is issued, and (b) the shares
issuable upon exercise of the warrant issued to Nomura at closing. If the Series
B Notes are not retired by June 30, 1996, the Company must issue an additional
warrant to Nomura, which if exercised, would increase Nomura's ownership in the
Company by an incremental amount equal to 5% of the sum of (a) the issued and
outstanding shares of common stock of the Company on the date such additional
warrant is issued, and (b) the shares issuable upon exercise of the warrant
issued to Nomura at closing and (c) the shares issuable upon exercise of the
warrant which may be issued to Nomura as described in the preceding sentence. If
the Company is required to issue additional warrants, the exercise price will be
the average closing price for the 10 trading days prior to the dates of issue.
All warrants issued to Nomura expire on August 11, 1999.
- 6 -
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The note agreement with Nomura requires the Company to comply with certain
debt covenants. Such covenants require the Company to maintain certain financial
ratios and prohibit the paying of dividends. As of December 31, 1994, Nomura
waived the Company's non-compliance with one covenant and amended various
covenants covering the remaining term of the note agreement. As of June 30,
1995, the Company was in compliance with its debt covenants.
NOTE 3 - INVENTORY
As of June 30, 1995 and December 31, 1994, the Company's inventory
consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- -----------
<S> <C> <C>
Raw materials $ 7,255 $ 7,192
Work-in-process 1,160 1,731
Finished goods 4,405 4,012
-------- -------
Total inventory $ 12,820 $ 12,935
========= =========
</TABLE>
NOTE 4 - SALE OF CALL VALIDATING ASSETS
On June 30, 1995, the Company received $1.7 million of proceeds from the
sale of call validaitng assets and $2.84 million from prepayments for future
services to be provided by the Company and for covenants not to compete. All
proceeds were used to reduce the Company's debt under Notes A and B. The Company
recorded a $1.6 million gain on the sale of assets with the balance recorded as
deferred revenues. As of June 30, 1995, the Company had $2.247 million of long
term deferred revenues.
- 7 -
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
During the six months ended June 30, 1995, the Company generated net cash
of $7.3 million from operations, inclusive of proceeds from the sale of call
validating assets as discussed below, and decreased long-term borrowings by $6.3
million. The Company used a portion of the net cash generated to invest $505,000
in capital equipment and $1.3 million in software development. The Company's net
cash position decreased by $699,000 for the six months ended June 30, 1995.
In the second half of 1995, as part of its new product strategies, the
Company plans to invest in software development costs and in various capital
expenditures at levels similar to or lower than those in 1994. Additionally, the
Company intends to continue investing in new product development and marketing
at levels similar to or lower than those in 1994. The Company expects that its
sources and uses of working capital will generally be balanced for the duration
of 1995, except for third quarter seasonal growth in call traffic receivables,
which may cause an additional strain on liquidity during the third and fourth
quarters of 1995. The Company anticipates that, as a result of the second half
of 1995 operating results, the Company may be required to seek alternative
sources of financing, such as sale of assets or the issuance of new debt or
equity to meet operating needs. Management believes that its bad debt provisions
are adequate and that liquidity will not be affected by unexpected adverse
trends in collection experience.
On June 30, 1995, the Company received $4.5 million of proceeds from the
sale of call validating assets and from prepayments for future services to be
provided by the Company. Net proceeds of $4.4 million were used to reduce the
Company's debt under Notes A and B.
The Company's future liquidity depends largely on its ability to increase
shipments of new products, reduce inventories and expand profitability. There
can be no assurances that the Company's efforts to maintain or enhance liquidity
will be successful and, under certain circumstances, the Company may be required
to limit its operations, dispose of certain assets, or take other actions as
considered necessary. See Item 1, Note 2, "Senior Note Agreement".
- 8 -
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Results of Operations
Service Revenues. The Company had service revenues of $14.8 million and
$27.4 million for the three and six months ended June 30,1995, compared to $15.3
million and $28.6 million for the three and six months ended June 30, 1994.
Service revenues decreased by approximately $543,000 or 3.5% and $1.2 million or
4.2% from the three and six months ended June 30, 1994.
The $543,000 and $1.2 million decreases in revenue from the three and six
months ended June 30, 1994 is attributable to two offsetting factors. First,
total service revenues in 1995 declined by $1.2 million and $2.2 million from
the three and six months ended June 30, 1994 due to a decline in the average
number of phone calls made using the Company's Intelli*Star automated operator
technology. The decline in average calls per phone was partially offset by an
increase in the number of phones using the Company's Intelli*Star technology.
Also in 1995, the Company had $503,000 and $764,000 of increased revenues for
the three and six months ended June 30, 1995 as a result of improved volume for
operator services as a result of an expanded customer base.
Gross profit derived from service revenues was $2.5 million or 16.6% and
$4.7 million or 17.1% for the three and six months ended June 30, 1995 as
compared to gross profit of $2.7 million or 17.8% and $5.2 million or 18.2% for
the three and six months ended June 30, 1994. Gross profit percentage declined
from 1994 to 1995 for the periods reported due to a slightly less profitable mix
of service revenues.
Equipment Sales. Revenues from telephone and related sales were $4.5
million and $12 million for the three and six months ended June 30, 1995 as
compared to $6.3 million and $11.1 million for the three and six months ended
June 30, 1994.
The $1.9 million or 29.2% decrease in 1995 revenues from the three months
ended June 30, 1994 was due to a $1.5 million decline in international sales and
a $.4 million decline in domestic sales.
The $937,000 or 8.4% increase from the six months ended 1994 was
attributable to two offsetting factors. First, domestic and regulated sales
increased by $1.4 million in 1995 as compared to 1994. The above increases were
offset by a $492,000 decrease in international sales from 1994 to 1995.
Gross profit from telephone and related sales was $21,000 (.5% of related
sales) and $1.1 million (9.4% of related sales) for the three and six months
ended June 30, 1995 as compared to a gross loss of $94,000 (1.5% of related
sales) and $225,000 (2.0% of related sales) for the three and six months ended
June 30, 1994.
Gross profit on sales and revenues increased in the first half of 1995
compared to 1994 primarily as a result of a more profitable mix of equipment
sold.
- 9 -
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.1 million and $2.4 million from the three
and six months ended June 30, 1994 to the same periods in 1995. Primarily, such
decreases consisted of reductions in the areas of compensation, employee
benefits and consulting fees as a result of cost reduction measures taken in the
second half of 1994.
Gain on sales of Call Validating Assets. In June 1995, the Company recorded
a gain of $1.6 million in connection with the sale of certain call validating
assets.
Net Income/Loss. The Company reported net income of $107,000 and a net loss
of $142,000 for the three and six months ended June 30, 1995 compared to a net
loss of $1.9 million and $4.5 million for the three and six months ended June
30, 1994.
The improvement in 1995 results for the three month period ended June 30
was attributable to several factors. First, selling general and administrative
expenses decreased $1.1 million from 1994 to 1995 as a result of reduced
compensation, benefits, and consulting fees. Next, the Company recorded a $1.6
million gain on sale of assets in June 1995. There was no similar gain recorded
during the same period in 1994. The Company's interest income declined by
$286,000 from 1994 to 1995 as a result of diminished financing provided to
customers. Lastly, interest expense increased by $387,000 from 1994 to 1995 as a
result of higher rates related to new financing obtained in August 1994. The
combination of all of the above factors resulted in a $2 million improvement of
earnings from 1994 to 1995 for the three months ended June 30.
The improvement in 1995 results for the six month period ended June 30 was
attributable to several factors. First, selling, general and administrative
expenses, as well as research and development costs decreased $2.8 million from
1994 to 1995. Primarily, these savings arose from cost reductions in
compensation, benefits, and consulting fees. Next, the Company recorded a $1.6
million gain on the sale of assets in June 1995. There was no similar gain
recorded during the same period in 1994. Gross profits on service revenues
declined $522,000 from 1994 to 1995 as a result of decreased revenues and a less
profitable mix of revenue sources. However, gross profits on equipment sales
increased $1.4 million from 1994 to 1995 as a result of increased sales,
improved sales mix and more production efficiencies. The Company's interest
income declined by $432,000 from 1994 to 1995 as a result of diminished
financing provided to customers. Finally, interest expense increased by $677,000
from 1994 to 1995 as a result of higher rates related to new financing obtained
in August 1994. The combination of all of the above factors resulted in a $4.3
million improvement of earnings from June 1994 to 1995 for the six months ended
June 30.
- 10 -
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 11, 1995 the Company held its 1995 Annual Meeting of Stockholders
(the "Meeting") in Dallas, Texas.
At the Meeting the following individuals were elected to serve as directors
until the next annual meeting or until their successors are duly elected and
qualified:
William O. Hunt
B. Michael Adler
Lewis E. Brazelton III
Richard B. Curran
Richard E. Hanlon
Hugh E. Humphrey, Jr.
Also, at the Meeting, the Company's stockholders approved a proposal to
increase the number of shares reserved for issuance under the Company's 1991
Stock Option Plan pursuant to the grant of incentive stock options from
1,275,000 shares to 1,525,000 shares. The number of affirmative votes and
negative votes cast with respect to such proposal were 4,384,642 and 1,442,631
respectively, with 5,713 abstaining. Furthermore, at the Meeting, the Company's
stockholders approved a proposal to amend the Company's Certificate of
Incorporation to decrease the amount of authorized stock, par value $.01 per
share, from 50,000,000 shares to 20,000,000 shares. The number of affirmative
votes and negative votes cast with respect to such proposal were 5,809,820 and
17,880 respectively with 5,286 abstaining.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
- 11 -
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTELLICALL, INC.
08/03/95 /s/ William O. Hunt
Date Chairman of the Board, President and
Chief Executive Officer
08/03/95 /s/ Michael H. Barnes
Date Senior Vice President Corporate Staff
and Chief Financial Officer
(principal financial officer)
Date: August 03, 1995
-12-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000818674
<NAME> INTELLICALL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS.
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,127
<SECURITIES> 0
<RECEIVABLES> 30,786
<ALLOWANCES> 4,565
<INVENTORY> 12,820
<CURRENT-ASSETS> 42,152
<PP&E> 10,236
<DEPRECIATION> 7,893
<TOTAL-ASSETS> 54,045
<CURRENT-LIABILITIES> 12,293
<BONDS> 0
<COMMON> 77
0
0
<OTHER-SE> 19,142
<TOTAL-LIABILITY-AND-EQUITY> 54,045
<SALES> 4,493
<TOTAL-REVENUES> 19,283
<CGS> 4,472
<TOTAL-COSTS> 16,807
<OTHER-EXPENSES> 1,532
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 837
<INCOME-PRETAX> 107
<INCOME-TAX> 0
<INCOME-CONTINUING> 107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
