SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT UNDER 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 (I.R.S. Employer Identification number)
incorporation or organization)
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 April 28,1995
Common Stock $.01 par value 7,667,543
<PAGE>
INDEX
INTELLICALL, INC.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1995
(Unaudited) and December 31, 1994.........................1
Condensed Consolidated Statements of Operations for each
of the three month periods ended March 31, 1995 and 1994
(Unaudited) ........................................2
Condensed Consolidated Statements of Cash Flows for each
of the three month periods ended March 31, 1995 and 1994
(Unaudited) ........................................3
Notes to Condensed Consolidated Financial Statements..... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................7
Part II. Other Information
Item 1. Legal Proceedings........................................ 8
Item 6. Exhibits and Reports on Form 8-K......................... 8
Signatures................................................................. 9
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INTELLICALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,217 $ 2,826
Receivables, net 28,518 27,777
Receivables from related party 533 766
Inventories 12,757 12,935
Other current assets 694 424
-------- --------
Total current assets 44,719 44,728
Fixed assets, net 2,333 2,415
License fees receivable 896 1,140
Investment in sales-type leases 535 1,154
Receivables from related party -- 32
Notes receivable, net 2,915 4,035
Intangible assets, net 1,086 1,108
Capitalized software costs, net 3,091 2,259
Other assets 1,353 1,928
-------- --------
$56,928 $58,799
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $10,152 $10,133
Other liabilities 1,579 2,505
Current portion of long-term debt 657 945
----- -------
Total current liabilities 12,388 13,583
Long-term debt 25,267 25,694
Other liabilities 200 200
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; none issued -- --
Common stock, $.01 par value; 50,000,000
shares authorized; 7,686,451 and
7,573,428 shares issued,
respectively 77 77
Additional capital 47,131 47,131
Less common stock in treasury, at cost;
24,908 shares (258) (258)
Accumulated deficit (27,877) (27,628)
-------- --------
Total stockholders' equity 19,073 19,322
-------- --------
$56,928 $ 58,799
======== =========
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>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
<S> <C> <C> <C>
Revenues and Sales:
Service revenues $ 12,625 $ 13,282
Equipment sales 7,537 4,750
------- -------
20,162 18,032
Cost of revenues and sales:
Service revenues 10,382 10,786
Equipment sales 6,426 4,881
-------- --------
16,808 15,667
------- -------
Gross profit
Service revenues 2,243 2,496
Equipment sales 1,111 (131)
----- -------
3,354 2,365
Selling, general and administrative expenses 2,259 3,940
Research and development expenses 465 418
Provision for doubtful accounts 139 264
------- -------
Operating income (loss) 491 (2,257)
Interest income 124 270
Interest expense (864) (574)
--------- ----------
Net loss $ (249) $ (2,561)
======== ========
Loss per share $ (.03) $ (.31)
--------- ---------
Weighted average number of common and common
equivalent shares outstanding 7,662 8,158
========= =========
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>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
<S> <C> <C> <C>
Operating Activities:
Net loss $ (249) $ (2,561)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 886 693
Provision for doubtful accounts 139 264
Provision for inventory 18 38
Changes in operating assets and liabilities:
(Increase) decrease in receivables (1,750) 2,125
Decrease in inventories 160 2,119
(Increase) decrease in other current assets (286) 64
Decrease in license fee receivable 707 2,271
Decrease in investment in sales type leases 1,338 748
Decrease in related party receivable 265 34
Decrease in notes receivable 568 41
Increase (decrease) in accounts payable 19 (3,869)
(Decrease) increase in accrued liabilities (926) 104
Increase (decrease in other) 163 (263)
------ ------
Net cash provided by operating activities 1,052 1,808
Investing activities:
Purchase of equipment (216) (182)
Capitalized software (700) (646)
----- -----
Net cash used in investing activities (916) (828)
Financing activities:
Proceeds from borrowings on long-term debt 13 23,156
Principal payments on long-term debt (758) (23,790)
Proceeds from issuance of stock under stock
option plans 0 5
----- -------
Net cash used in financing activities (745) (629)
Changes in cash (609) 351
Cash at beginning of period 2,826 83
----- ------
Cash at end of period $2,217 $ 434
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
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 three months ended March 31, 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 first quarter
of 1995 and 1994 were $700,000 and $625,000, respectively. The Company recorded
$156,000 software amortization expense for the three months ended March 31,
1995.
Cash. Cash accounts serve as collateral under the Company's lending
agreements and, accordingly, are restricted.
Other. The allowance for doubtful accounts was $4.4 million at March 31,
1995, and $5.1 million at December 31, 1994.
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<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT AND LINE OF CREDIT
As of March 31, 1995 and December 31, 1994, the Company's debt
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Variable rate Senior Bridge Notes Due 1996, Series A $ 16,000 $ 16,000
12.5% Senior Bridge Notes Due 1996, Series B 8,000 8,000
Series B debt discount (165) (195)
Collateralized note 1,089 1,834
Subordinated note 1,000 1,000
-------- -------
Total debt 25,924 26,639
Less: Current portion of long-term debt (657) (945)
--------- --------
Total long-term debt $ 25,267 $ 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 550,000 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.
-5-
<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 March 31,
1995, the Company was in compliance with its debt covenants.
NOTE 3 - INVENTORY
As of March 31, 1995 and December 31, 1994, the Company's inventory
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Raw materials $ 7,317 $ 7,192
Work-in-process 2,077 1,731
Finished goods 3,363 4,012
-------- --------
Total inventory $12,757 $12,935
========= =========
</TABLE>
NOTE 4 - LITIGATION
SEC Investigation. In February 1993 the Company learned that the
Securities and Exchange Commission issued an order in August 1992 authorizing a
private investigation of the Company by members of the Commission's staff. The
Company had previously announced that the SEC was conducting an inquiry with
respect to the Company. The investigation is directed to the following issues:
(i) the Company's revenue recognition practices; (ii) the Company's
non-compliance with certain loan covenants during 1991 and the timing of its
disclosures of those non-compliances and their effect on the characterization of
the Company's debts; (iii) the timing of the Company's disclosure that it had
suffered a loss for the year ended December 31, 1991; (iv) certain charges that
the Company reported in its Form 10-K for the year ended December 31, 1991; and
(v) the timing of the Company's charge against earnings arising from the
Company's transactions with a billing agent. The Company has been cooperating
with the investigation.
-6-
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other. The Company is subject to various other legal proceedings arising
out of the conduct of its business. It is the opinion of the management of the
Company that the ultimate disposition of these proceedings will not have a
material adverse effect on the Company's financial condition and results of
operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
Liquidity and Capital Resources
During the quarter, the Company generated $1.1 million of cash from
operations. Also during this period, the Company invested $216,000 in capital
equipment and $700,000 in software development, respectively. Long term debt of
$758,000 was repaid and the Company's net cash position decreased $609,000
during the quarter.
The Company anticipates that its 1995 operations will be self-sustaining
and has no present plans to issue new debt or equity. In 1995, as part of its
new product strategies, the Company plans to invest in capitalized software
costs and in various capital expenditures at levels similar to those in 1994.
Additionally, the Company intends to continue investing in new product
development and marketing at levels similar to those in 1994. The Company
expects that its sources and uses of working capital will generally be balanced
throughout 1995, except for seasonal growth in call traffic receivables which
generally occurs in the second and third quarters. Management believes that its
bad debt provisions are adequate and that liquidity will not be affected by
unexpected adverse trends in collection experience.
The Company's future liquidity will depend on working capital turnover,
spending levels, the volume and timing of equipment sales combined and product
gross margins. There can be no assurance 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,
consider the sale of additional equity, or take other actions as considered
necessary.
See Item 1, Note 2 for Senior Note Agreement information.
Results of Operations
Service Revenues. The Company had service revenues of $12.6 million for the
three months ended March 31, 1995, compared to $13.3 million for the three
months ended March 31, 1994, a decrease of approximately $657,000 or 4.9% from
the three months ended March 31, 1994. The lower service revenues in 1995 are
attributable 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.
-7-
<PAGE>
INTELLICALL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Gross profit derived from service revenues was $2.2 million (17.8% of the
related revenues) for the three months ended March 31, 1995, as compared to
gross profit of $2.5 million (18.8% of the related revenues) for the three
months ended March 31, 1994.
Equipment Sales. Revenues from telephone and related sales were $7.5
million for the three months ended March 31, 1995 as compared to $4.8 million
for the three months ended March 31, 1994. The 58.7% revenue increase reflects
increased shipments in domestic payphone, regulated, and international markets.
In particular, international shipments were made to Thailand, Argentina, and Sri
Lanka.
Gross profit from equipment sales was $1.1 million (14.7% of related sales)
for the three months ended March 31, 1995 as compared to a loss of $131,000
(2.8% of related sales) for the three months ended March 31, 1994. Gross profit
on sales and revenues increased in the first quarter of 1995 primarily as a
result of higher sales volume and a more profitable mix of equipment sold, and
increased production efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 42.7%, or approximately $1.7 million, for the
three months ended March 31, 1995 from the same period ended March 31, 1994.
Primarily, such decreases consisted of reductions in compensation, employee
benefits, and consulting fees as a result of cost cutting initiatives which
occurred in the second half of 1994.
Net Loss. The Company reported a net loss of $249,000 for the three months
ended March 31, 1995 as compared to a net loss of $2,561,000 for the three
months ended March 31, 1994. The decreased loss in 1995 was attributed to
several factors. Gross profit increased by approximately $989,000 in 1995
primarily due to a higher volume of equipment sales and more profitable mix of
sales. Selling general and administrative expenses decreased $1,689,000 in 1995
due to reductions in compensation, employee benefits and consulting fees.
Lastly, the above improvements in operating income were offset by an increase of
$436,000 in net interest expense as a result of higher 1995 interest rates,
increased borrowings and reduced interest income.
Part II. Other Information
Item 1. Legal Proceedings
Reference is hereby made to Note 9 of the Company's consolidated financial
statements included in the Form 10-K for the year ended December 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None.
-8-
<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.
/s/ William O. Hunt
Chairman of the Board, President and
Chief Executive Officer
/s/ Michael H. Barnes
Senior Vice President Corporate Staff
and Chief Financial Officer
(principal financial officer)
Date: May 3, 1995
-9-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000818674
<NAME> Intellicall, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,217
<SECURITIES> 0
<RECEIVABLES> 33,467
<ALLOWANCES> 4,416
<INVENTORY> 12,757
<CURRENT-ASSETS> 44,719
<PP&E> 10,435
<DEPRECIATION> 8,102
<TOTAL-ASSETS> 56,928
<CURRENT-LIABILITIES> 12,388
<BONDS> 0
<COMMON> 77
0
0
<OTHER-SE> 18,996
<TOTAL-LIABILITY-AND-EQUITY> 56,928
<SALES> 7,537
<TOTAL-REVENUES> 20,162
<CGS> 6,426
<TOTAL-COSTS> 16,808
<OTHER-EXPENSES> 2,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 864
<INCOME-PRETAX> (249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (249)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
