<PAGE>
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 Quarter Ended Commission File Number
DECEMBER 31, 1995 1-10210
- ----------------------- ----------------------
EXECUTIVE TELECARD, LTD.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
- ------------------------------------ --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
8 AVENUE C, NANUET, NEW YORK 10954
-------------------------------------
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 627-2060
- -----------------------------------------------------------------------------
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 outstanding of each of the registrant's classes of common
stock, as of January 31, 1996 is 14,406,374 shares, all of one class of $.001
par value Common Stock.
1
<PAGE>
EXECUTIVE TELECARD, LTD.
PART I
FINANCIAL INFORMATION
QUARTER ENDED DECEMBER 31, 1995
GENERAL
The following financial information is submitted in response to the requirements
of Form 10-Q and does not purport to be financial statements prepared in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, although the Company believes the disclosures that are made are
adequate to make the information presented not misleading. Further, in the
opinion of management, the interim financial statements reflect fairly the
financial position and results of operations for the period indicated.
It is suggested that these interim consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1995 Annual Report on Form 10-K for the year ended March 31, 1995,
filed with the Securities and Exchange Commission.
The results of operations for the quarter ending December 31, 1995, are not
necessarily indicative of the results to be expected for the entire fiscal year
ending March 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
a. Registrant's Form S-1 Registration Statements and Exhibit Book under file
#33-25572, as effective March 17, 1989, are incorporated by reference.
b. Forms 10-K for the fiscal years ended March 31, 1993, March 31, 1994 and
March 31, 1995, are incorporated by reference.
2
<PAGE>
EXECUTIVE TELECARD, LTD.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of December 31,
1995 and March 31, 1995 4-5
Consolidated Statements of Operations for
the three months ended December 31, 1995 and 1994 6
Consolidated Statements of Operations for
the nine months ended December 31, 1995 and 1994 7
Consolidated Statements of Cash Flows for
the three months ended December 31, 1995 and 1994 8
Consolidated Statements of Cash Flows for
the nine months ended December 31, 1995 and 1994 9
Notes to Consolidated Financial Statements 10-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-14
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 15-16
Item 2 - Changes in Securities 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security
Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
3
<PAGE>
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
EXECUTIVE TELECARD, LTD.
------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1995 AND MARCH 31, 1995
------------------------------------------
ASSETS
------
December 31, March 31,
1995 1995
------------ ---------
(Unaudited) (Note 1)
CURRENT:
- --------
Cash and cash equivalents $ 1,248,375 $ 1,734,232
Accounts receivable less allowance for
doubtful accounts of $312,295 and
$346,000 5,453,810 3,777,984
Other current assets 355,085 343,337
----------- -----------
Total current assets 7,057,270 5,855,553
PROPERTY AND EQUIPMENT - net 7,868,150 6,357,575
OTHER:
Intangible assets - net 241,190 314,506
Advances for equipment purchases - 109,132
Deposits 253,070 278,229
Other assets 50,000 28,049
----------- -----------
Total other assets 544,260 729,916
----------- -----------
TOTAL ASSETS $15,469,680 $12,943,044
=========== ===========
See Notes to Consolidated Financial Statements
4
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1995 AND MARCH 31, 1995
------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31, March 31,
1995 1995
----------- --------
(Unaudited) (Note 1)
CURRENT:
- --------
Note payable $ 1,000,000 $ -
Accounts payable 2,653,028 1,629,680
Accrued expenses 4,540,997 6,006,314
Customer deposits 319,904 349,385
Unearned income 181,068 220,103
Current maturities of long-term debt 137,223 146,037
----------- ------------
Total current liabilities 8,832,220 8,351,519
----------- ------------
LONG-TERM DEBT, less current maturities 575,978 671,774
----------- ------------
Total liabilities 9,408,198 9,023,293
----------- ------------
STOCKHOLDERS' EQUITY:
Common stock - $.001 par value; 20,000,000
shares authorized, 14,406,374 and 14,279,962
shares outstanding 14,406 14,280
Additional paid-in capital 15,895,770 15,558,045
Accumulated deficit (9,873,217) (11,813,048)
Accumulated translation adjustment 24,523 160,474
----------- ------------
Total stockholders' equity
6,061,482 3,919,751
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,469,680 $ 12,943,044
=========== ============
See Notes to Consolidated Financial Statements
5
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
---------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1995 December 31, 1994
----------------- -----------------
(Note 1)
<S> <C> <C>
NET REVENUE $8,117,676 $ 6,083,944
COST OF REVENUE 4,821,847 3,778,170
---------- -----------
GROSS PROFIT 3,295,829 2,305,774
---------- -----------
COSTS AND EXPENSES:
- -------------------
Selling, general and administrative 1,965,650 1,825,488
Depreciation and amortization 402,653 290,111
---------- -----------
Total costs and expenses 2,368,303 2,115,599
---------- -----------
Income from operations 927,526 190,175
---------- -----------
OTHER INCOME (EXPENSE):
- ----------------------
Interest income 574 12,765
Interest expense (46,574) (23,597)
Foreign currency transaction gain (loss) 13,668 (56,493)
Proxy contest expense - (1,458,554)
---------- -----------
Total other expense (32,332) (1,525,879)
---------- -----------
Income (loss) before provision for income taxes 895,194 (1,335,704)
Provision (benefit) for income taxes 87,000 ( 45,198)
---------- -----------
NET INCOME (LOSS) $ 808,194 $(1,290,506)
========== ============
NET INCOME (LOSS) PER SHARE $ .06 $ (0.09)
========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 14,406,374 14,127,934
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
--------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 31, 1995 December 31, 1994
----------------- -----------------
(Note 1)
<S> <C> <C>
NET REVENUE $22,788,871 $17,017,057
COST OF REVENUE 14,244,099 11,558,640
----------- -----------
GROSS PROFIT 8,544,772 5,458,417
----------- -----------
COSTS AND EXPENSES:
- -------------------
Selling, general and administrative 5,407,917 4,733,621
Depreciation and amortization 1,153,885 829,710
----------- -----------
Total costs and expenses 6,561,802 5,563,331
----------- -----------
Income (loss) from operations 1,982,970 (104,914)
----------- -----------
OTHER INCOME (EXPENSE):
- -----------------------
Interest income 962 18,692
Interest expense (132,214) (47,555)
Foreign currency transaction loss (46,886) (190,344)
Proxy contest expense - (1,458,554)
Other income 350,000 -
----------- -----------
Total other income (expense) 171,862 (1,677,761)
----------- -----------
Income (loss) before provision for income taxes 2,154,832 (1,782,675)
Provision for income taxes 215,000 -
----------- -----------
NET INCOME (LOSS) $ 1,939,832 $(1,782,675)
=========== ===========
NET INCOME (LOSS) PER SHARE $ .14 $ (0.13)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 14,352,454 14,198,084
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
---------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1995 December 31, 1994
----------------- -----------------
(Note 1)
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net income (loss) $ 808,194 $(1,290,506)
Adjustments to reconcile net income (loss) to
net cash flows provided by operating activities:
Depreciation and amortization 402,653 290,111
Provision for bad debts 24,436 54,182
Changes in operating assets and liabilities:
Accounts receivable (452,084) (70,409)
Other assets (144,637) (90,709)
Accounts payable 324,703 542,815
Accrued expenses (648,891) (72,693)
Other liabilities (65,772) (4,855)
----------- -----------
Cash provided (used) by operating activities 248,602 (642,064)
INVESTING ACTIVITIES:
- ---------------------
Acquisitions of property and equipment (1,521,418) (541,094)
Other assets 299,320 95,162
----------- -----------
Cash used in investing activities (1,222,098) (445,932)
FINANCING ACTIVITIES:
- ---------------------
Principal payments on long-term debt (34,177) 164,128
Issuance of common stock - 133,878
----------- -----------
Cash provided by (used in) financing activities (34,177) 278,006
Effect of exchange rate changes on cash 30,694 (56,493)
----------- -----------
Net decrease in cash and cash equivalents (976,979) (866,483)
CASH AND CASH EQUIVALENTS - beginning of period 2,225,354 2,022,232
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 1,248,375 $ 1,155,749
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
8
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
--------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 31, 1995 December 31, 1994
----------------- -----------------
(Note 1)
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net income (loss) $ 1,939,832 $(1,782,675)
Adjustments to reconcile net income (loss) to
net cash flows provided by operating activities:
Depreciation and amortization 1,153,885 829,710
Provision for bad debts 177,141 156,370
Changes in operating assets and liabilities:
Accounts receivable (1,852,967) (1,056,879)
Other assets (11,748) (82,452)
Accounts payable 1,023,348 881,380
Accrued expenses (1,465,317) 1,408,230
Other liabilities (68,518) (8,553)
----------- -----------
Cash provided by operating activities 895,656 345,131
INVESTING ACTIVITIES:
- ---------------------
Acquisitions of property and equipment (2,591,143) (1,748,769)
Other assets 112,340 110,798
----------- -----------
Cash used in investing activities (2,478,803) (1,637,971)
FINANCING ACTIVITIES:
- ---------------------
Principal payments on long-term debt (104,610) 120,761
Proceeds from note payable 1,000,000
Issuance of common stock 337,851 561,879
----------- -----------
Cash provided by financing activities 1,233,241 682,640
Effect of exchange rate changes on cash (135,951) 284,518
----------- -----------
Net decrease in cash and cash equivalents (485,857) (325,682)
CASH AND CASH EQUIVALENTS - beginning of period 1,734,232 1,481,431
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 1,248,375 $ 1,155,749
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
9
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995
-----------------
NOTE 1 - BASIS OF PRESENTATION
- -----------------------------------------------------------------------------
The accompanying consolidated financial statements have been prepared
in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the three
and nine months ended December 31, 1995 are not necessarily indicative
of the results that may be expected for the year ended March 31, 1996.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Form 10-K for the year
ended March 31, 1995.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation.
The consolidated financial statements are presented in United States
Dollars, which is the reporting currency of the Company as of April 1,
1995. Prior to April 1, 1995, the Company's reporting currency was
Swiss Francs. For purposes of comparing the financial information for
the period ended December 31, 1995 to the fiscal year ended March 31,
1995 and to the quarter and nine months ended December 31, 1994, the
information previously reported has been converted to United States
dollars in accordance with FASB 52. The functional currency for the
company's foreign operations is the applicable local currency. Currency
gains and losses arising from transactions occurring during the period
are recorded when the transaction occurs at the then current exchange
rate and are included in the operating statements of the Company. The
translation of the applicable foreign currency into United States
Dollars is computed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The
gains and losses resulting from such translation are included in
stockholders' equity.
10
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995
-----------------
NOTE 1 - BASIS OF PRESENTATION (Continued)
- -----------------------------------------------------------------------------
Management has determined that certain costs are more properly
reflected as a cost of revenue and therefore, has reflected these costs
in cost of revenue for the three and nine month periods ended December
31, 1995. To conform to the current year's presentation, these costs
have been reclassified from selling, general and administrative expense
to cost of revenue for the three and nine month periods ended December
31, 1994.
Effective March 31, 1995, the Company acquired substantially all of the
assets of Residual Corporation ("Residual"). The assets consisted
primarily of all of Residual's operating subsidiaries. In connection
with the acquisition, agreement was reached to terminate the management
agreement between the Company and Residual. In consideration for the
transaction, the Company issued 697,828 restricted shares of its common
stock to Residual and also transferred approximately $12,722,000 of
debt obligations payable by Residual to the Company. As a result of the
termination of the management agreement and considering the nature of
the relationship between the Company and Residual, the transaction is
considered to be an exchange between enterprises under common control
and accordingly, it has been accounted for at historical cost in a
manner similar to that in pooling-of-interests accounting with the
accompanying financial statements presented to include the accounts and
operations of the acquired companies as though the acquisition had
occurred as of April 1, 1994.
NOTE 2 - NET INCOME (LOSS) PER SHARE
- -----------------------------------------------------------------------------
Net income (loss) per share and common equivalent share is computed
using the weighted average number of shares outstanding during each
period. Warrants and options outstanding to purchase common stock are
included as common stock equivalents when dilutive.
NOTE 3 - RELATED PARTY TRANSACTION
- -----------------------------------------------------------------------------
During April 1995, an agreement between the Company and a corporate
stockholder was finalized to resolve certain claims and potential
claims between the two parties. The claims arose out of negotiated
transactions whereby sales of the Company's restricted stock had
occurred at prices at or below the quoted market price. Under the
agreement, the corporate stockholder granted the Company an irrevocable
proxy to vote all of the shares beneficially owned or controlled by the
stockholder in favor of the director nominees proposed by the Board, to
pay the Company the sum of $350,000 and not to compete with nor solicit
Company employees for a period of three years. The sum of $350,000
11
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995
-----------------
NOTE 3 - RELATED PARTY TRANSACTION (Continued)
- -----------------------------------------------------------------------------
has been included in other income for the nine months ended December
31, 1995.
NOTE 4 - NOTE PAYABLE
- -----------------------------------------------------------------------------
In April 1995, the Company borrowed $1,000,000 from a foreign
corporation. The note is payable in April 1996 and carries an interest
rate of 12% per annum. In connection with this transaction, the Company
issued warrants to purchase 82,500 shares at a price of $6.36 per
share. As of December 31, 1995, such warrants have not been exercised.
NOTE 5 - COMMON STOCK
- -----------------------------------------------------------------------------
On June 30, 1995, the Board of Directors authorized a stock split,
effected in the form of a ten percent (10%) stock dividend, which was
distributed on August 25, 1995 to shareholders of record on August 10,
1995. All references to common share and per share amounts in the
accompanying financial statements have been adjusted to reflect the
effect of this stock dividend.
On December 15, 1995, the Stock Option Committee of the Board of
Directors approved the granting of options to purchase 524,200
restricted shares of common stock to its employees pursuant to the
Company's 1995 Employee Stock Option and Appreciation Rights Plan (the
"Plan"). The options are exerciseable at the fair market value of the
stock as of the grant date, December 15, 1995, and are exerciseable for
a period of ten (10) years so long as the employee remains employed
with the Company. The employees were also granted Stock Appreciation
Rights in tandem with the options granted to them.
Concurrently, on December 15, 1995, the Stock Option Committee of the
Board of Directors approved the granting of options to purchase 50,000
restricted shares of common stock to its directors pursuant to the
Company's 1995 Director Stock Option and Appreciation Rights Plan (the
"Plan"). The options are exerciseable at the fair market value of the
stock as of the grant date, December 15, 1995, and are exerciseables
for a period of ten (10) years so long as the director remains with the
Company.The directors were also granted Stock Appreciation Rights in
tandem with options granted to them.
(Balance of page intentionally left blank)
12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
================================================================================
EXECUTIVE TELECARD, LTD.
------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
Net revenue increased by 34% to $22,788,871 for the nine months ended
December 31, 1995 as compared to $17,017,057 for the comparable period
last year. For the three months then ended, net revenue increased by
33% to $8,117,676 from $6,083,944 reported for the comparable period
last year. This continued growth resulted primarily from volume
increases in usage of the Company's calling cards services by existing
customers as well as the addition of customers reflecting new
agreements signed.
Cost of revenue for the nine months ended December 31, 1995 was
$14,244,099, an increase of 23% over the prior period amount of
$11,558,640. For the three months ended December 31, 1995, cost of
revenue was $4,821,847, an increase of 28% over $3,778,170 reported for
the comparable period last year. These costs represent charges directly
attributable to increases in intra/intercountry calling services. As a
percentage of revenue, these costs decreased 5% from 68% for the nine
months ended December 31, 1994 to 63% for the current period. For the
three months ended December 31, 1995, these costs were 59% compared to
62% for the prior period, a decrease of 3%. This reduction in costs
primarily reflects negotiated rate decreases and volume discounts
obtained from domestic and foreign telephone carriers based upon the
Company's continued increase in volume of traffic generated over their
networks.
Selling, general and administrative expenses increased by $674,296 to
$5,407,917 for the nine months ended December 31, 1995 from $4,733,621
for the comparable period last year. For the three months ended
December 31, 1995, selling, general and administrative expenses were
$1,965,650, an increase of $ 140,162 over $ 1,825,488 reported for the
comparable period last year. These increases are due primarily to
increased personnel and related costs associated with additions of
employees to manage the increased business volume and to market and
promote the Company's calling services. As a percentage of revenue,
selling, general and administrative expenses decreased from 28% to 24%
for the nine months and from 30% to 24% for the three months ended
December 31, 1995 as compared to the same period last year.
Depreciation and amortization for the nine months ended December 31,
1995 increased by $324,175 to $ 1,153,885 as compared to $829,710 for
the same period last year. For the three months ended December 31,
1995, depreciation
13
<PAGE>
EXECUTIVE TELECARD, LTD.
------------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------------------
and amortization increased $112,542 to $402,653 compared to $290,111
for the prior period. This increase primarily relates to equipment
placed in service during the past twelve months to satisfy the
requirements of new customers obtained and calling services volume
increases during the period.
Liquidity and Capital Resources
-------------------------------
During the quarter ended December 31, 1995, cash and cash equivalents
decreased by $976,979 to $1,248,375. The decrease in cash and cash
equivalents consisted of the following components: (i) net cash flows
provided by operating activities in the amount of $248,602, resulting
primarily from net income for the quarter of $808,194, a decrease in
accrued expenses of $648,891, a decrease in accounts receivable of
$452,084 and an increase in accounts payable of $324,703; (ii) net cash
flows used in investing activities in the amount of $1,222,098,
primarily related to acquisitions of property and equipment; (iii) cash
flows used in financing activities related to the principal payments on
long term debt of $34,177; and (iv) the effect of exchange rate changes
on cash which served to increase cash and cash equivalents by $30,694.
The substantial costs incurred in the proxy contest during the year
ended March 31, 1995 has materially and adversely affected the working
capital of the Company. The Company believes, however, that it has
adequate internal resources and access to external resources that are
sufficient to finance its operating needs for the next twelve months,
including CAVIAR network expansion and modernization, payment of
indebtedness and planned marketing activities. The Company may be
required to raise additional capital through the incurring of
additional debt or placement of additional equity securities in order
to effectively fund its business needs through the next twelve (12)
months. There can be no assurance that the Company will be successful
in its efforts to raise such additional capital.
(Balance of page intentionally left blank)
14
<PAGE>
EXECUTIVE TELECARD, LTD
PART II
OTHER INFORMATION
QUARTER ENDED DECEMBER 31, 1995
ITEM 1 LEGAL PROCEEDINGS
- -----------------------------------------------------------------------------
The following information sets forth developments concerning legal
proceedings in which the company is involved since the filing on
August 21, 1995 of the company's Form 10-K for the fiscal year 1995.
This item should be read in conjunction with the financial statements
and the notes thereto included in the company's 1995 Annual Report of
Form 10-K for the year ended March 31, 1995, filed with the Securities
and Exchange Commission.
A. PROXY AND RELATED LITIGATION
On June 1, 1995, an action was filed entitled Krauth, et al. v.
Executive Telecard, Ltd. 95 Civ. 3967 (RWS) ("Krauth V") in the United
States District Court for the Southern District of New York before the
honorable Robert W. Sweet. Plaintiffs seek in excess of $700,000 in
damages purportedly due under settlement agreements allegedly entered
into early 1995 between Executive Telecard, Ltd. and the so-called
Shareholders Protective Committee ("SPC") .Those claim arise out of a
prior proxy dispute between the Company and the SPC. Plaintiffs in
Krauth V filed a motion for summary judgment to enforce the alleged
settlement agreements and for over $400,000 in attorneys' fees on
October 4, 1995. On January 23, 1996, Judge Sweet denied plaintiffs
motion for summary judgment in its entirety, but granted the request
for attorneys' fees to the extent of awarding plaintiffs approximately
$60,000. The Company is considering appealing this award of attorneys'
fees. Trial of all matters in Krauth V is expected to begin in late
Spring or early Summer 1996.
During November 1995, the Company filed complaints against certain
former officers and employees for breach of fiduciary duty, self
dealing, interfering with business relationships, and other actions
taken by those officers and employees. The filings arose out of the
Proxy and Related Litigation proceedings noted above. The actions are
in the early stages of discovery.
B. OTHER LITIGATION
On December 1, 1995, an action was filed entitled Morales v. Executive
TeleCard, Ltd. and Network Data Systems, Ltd., 95 Civ. 10202 (KW), in
the United States District Court for the Southern District of New York.
Plaintiff in that action is a shareholder of the Company who has
asserted claims against a large corporate shareholder for alleged
violations
15
<PAGE>
EXECUTIVE TELECARD, LTD
PART II
OTHER INFORMATION
QUARTER ENDED DECEMBER 31, 1995
of Section 16 of the Securities Exchange Act of 1934. Plaintiff claims
that such violations resulted in short-swing profits in excess of the
$350,000 that was paid to the Company by the corporate shareholder,
which excess has not properly been paid to the Company. That action is
alleged to have been brought solely for the benefit of the Company, and
the Company has been named as a party in it solely in order to have all
necessary parties before the Court.
The Company and its subsidiaries are also parties to various other
legal actions and claims arising in the ordinary course of business.
Management of the company does not believe that the disposition of
such other actions will have a material effect on the financial
position of the company.
ITEM 2 CHANGE IN SECURITIES
- -----------------------------------------------------------------------------
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------------------------------------------
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------------------
None
ITEM 5 OTHER INFORMATION
- -----------------------------------------------------------------------------
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------------------
None
16
<PAGE>
EXECUTIVE TELECARD, LTD.
SIGNATURES
Pursuant to the requirements of Section 13 of 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed in its
behalf by the undersigned, thereunto duly authorized.
EXECUTIVE TELECARD, LTD.
(Registrant)
Date: February 14, 1996 By /S/
----------------------------
Timothy A. Peach
Controller, Chief Accounting Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,248,375
<SECURITIES> 0
<RECEIVABLES> 5,766,105
<ALLOWANCES> (312,295)
<INVENTORY> 0
<CURRENT-ASSETS> 7,057,270
<PP&E> 14,918,190
<DEPRECIATION> (7,050,040)
<TOTAL-ASSETS> 15,469,680
<CURRENT-LIABILITIES> 8,832,220
<BONDS> 0
0
0
<COMMON> 14,406
<OTHER-SE> 6,047,076
<TOTAL-LIABILITY-AND-EQUITY> 15,469,680
<SALES> 22,788,871
<TOTAL-REVENUES> 22,788,871
<CGS> 14,244,099
<TOTAL-COSTS> 6,561,802
<OTHER-EXPENSES> (304,076)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,214
<INCOME-PRETAX> 2,154,832
<INCOME-TAX> 215,000
<INCOME-CONTINUING> 1,939,832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,939,832
<EPS-PRIMARY> 0
<EPS-DILUTED> .14
</TABLE>
