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
June 30, 1997 1-10210
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EXECUTIVE TELECARD, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 13-3486421
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(State or other jurisdiction of (I.R.S. Employer Identification No).)
incorporation of organization)
One Blue Hill Plaza, Suite 1650, Pearl River, New York 10965
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(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 627-2060
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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 August 1, 1997 is 17,306,563 shares, all of one class
of $.001 par value Common Stock.
EXECUTIVE TELECARD, LTD.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
FINANCIAL INFORMATION PAGE
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and March 31, 1997 3, 4
Consolidated Statements of Operations for the three months
ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the three months
ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11, 12
OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXECUTIVE TELECARD, LTD.
PART I: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
------------- --------------
(Unaudited)
CURRENT:
<S> <C> <C>
Cash and cash equivalents $5,269,082 $2,172,480
Trade accounts receivable, less allowance of
$180,644 and $123,000 for doubtful
accounts 9,570,826 8,363,017
Accounts receivable from related parties 94,572 175,114
Other current assets 538,008 347,995
----------- -----------
Total current assets 15,472,488 11,058,606
PROPERTY AND EQUIPMENT - net of
accumulated depreciation and amortization 12,642,270 11,905,956
OTHER:
Intangible assets - net 172,905 286,941
Deposits 267,383 261,125
Other assets 10,306 167,058
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Total other assets 450,594 715,124
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TOTAL ASSETS $28,565,352 $23,679,686
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1997 AND MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
- ------------- --------------
(Unaudited)
CURRENT:
<S> <C> <C>
Accounts payable $2,177,244 $2,466,056
Accrued expenses 2,379,686 2,038,415
Customer deposits 324,948 319,674
Unearned income 155,013 155,879
Current maturities of long-term debt 7,080,365 1,003,383
----------- -----------
Total current liabilities 12,117,256 5,983,407
LONG-TERM DEBT, less current maturities 1,371,758 9,737,007
----------- -----------
Total liabilities 13,489,014 15,720,414
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STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares
authorized; none issued - -
Common stock, $.001 par value, 100,000,000
shares authorized, 17,306,563 and 15,861,240
outstanding 17,306 15,861
Additional paid-in capital 23,661,367 16,047,812
Accumulated deficit (8,684,165) (8,186,244)
Accumulated translation adjustment 81,830 81,843
----------- -----------
Total stockholders' equity 15,076,338 7,959,272
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $28,565,352 $23,679,686
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 and 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
----------------- ------------------
<S> <C> <C>
NET REVENUE $8,559,551 $8,067,509
COST OF REVENUE 4,445,496 4,144,949
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GROSS PROFIT 4,114,055 3,922,560
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COSTS AND EXPENSES:
Selling, general and administrative 3,370,272 2,364,787
Depreciation and amortization 634,622 386,423
----------- -----------
Total costs and expenses 4,004,894 2,751,210
----------- -----------
Income from operations 109,161 1,171,350
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OTHER INCOME (EXPENSE):
Interest expense (326,343) (65,768)
Interest income 963 6
Proxy related litigation expense (199,886) -
Foreign currency transaction gain (loss) (46,816) 11,717
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Total other expense (572,082) (54,045)
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Income before taxes on income (462,921) 1,117,305
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Taxes on income 35,000 168,000
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NET INCOME $(497,921) $949,305
=========== ===========
NET INCOME PER SHARE $(0.03) $0.06
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 16,301,068 15,854,115
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $(497,921) $949,305
Adjustments to reconcile net income
(loss) to net
cash flows provided by (used in) operating
activities:
Depreciation and amortization 634,622 386,423
Provision for bad debts 100,268 105,269
Compensation paid in common stock 115,000 -
Changes in operating assets and liabilities:
Accounts receivable (1,227,535) 680,085
Other assets (244,267) (252,907)
Accounts payable (288,812) (340,599)
Accrued expenses 341,272 (591,340)
Other liabilities 4,408 (120,465)
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Cash provided by (used in) operating
activities (1,062,965) 815,771
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INVESTING ACTIVITIES:
Acquisitions of property and equipment (1,293,841) (446,564)
Other assets 241,690 (470,564)
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Cash used in investing activities (1,052,151) (917,128)
----------- -----------
FINANCING ACTIVITIES:
Principal payments on long-term debt (3,100,482) (1,549,693)
Proceeds from long-term debt 812,213 691,439
Proceeds from notes payable - 6,000,000
Proceeds from issuance of common stock 7,500,000 -
----------- -----------
Cash provided by financing activities 5,211,731 5,141,746
----------- -----------
Effect of exchange rate changes on cash (13) (2,358)
----------- -----------
Net increase in cash and cash
equivalents 3,096,602 5,038,031
CASH AND CASH EQUIVALENTS,
beginning of period 2,172,480 950,483
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $5,269,082 $5,988,514
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
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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 months ended June 30,
1997 are not necessarily indicative of the results that may be expected
for the year ended March 31, 1998. 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, 1997.
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 functional currency for the Company's foreign operations is the
applicable local currency. 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.
NOTE 2 - NET INCOME (LOSS) PER SHARE
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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.
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 3 - LONG TERM DEBT
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At June 30, 1997 and March 31, 1997, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
----------- -----------
<S> <C> <C>
11% (lender's prime rate plus 2.5%) secured
term note payable to a financial institution,
interest payable quarterly, principal due and
payable April 1, 1998 (1). $6,500,000 $9,000,000
12% unsecured term note payable to a stockholder,
interest payable monthly, principal due and
payable December 27, 1998 (2). 500,000 500,000
Capitalized lease obligations. 1,292,970 1,079,697
9% mortgage note, payable monthly, including
interest, through November 1997, with a
December 1997 balloon payment, secured by deed
of trust on the related land and building. 159,153 160,693
----------- -----------
TOTAL 8,452,123 10,740,390
Less current maturities 7,080,365 1,003,383
----------- -----------
TOTAL LONG TERM DEBT $1,371,758 $9,737,007
=========== ===========
</TABLE>
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) In June, 1996, the Company borrowed $6,000,000 from a financial
institution. The note was originally payable in June 1997. In
November 1996, the Company secured from the same financial
institution a $4,000,000 multiple draw down term loan originally
expiring June, 1997. Any unused portion of the loan is subject to a
commitment fee of .5%. In connection with these notes, the lender
was granted warrants to purchase 100,000 shares of the Company's
common stock at a price of $14.88 per share and 66,667 shares of the
Company's common stock at a price of $7.88 per share. The warrants
expire on December 31, 2001. The nominal value assigned to such
warrants when granted in connection with the above note agreements is
amortized over the term of the notes. At June 30, 1997 these
warrants have not been exercised.
The notes are subject to certain financial covenants including
maintenance of operating results, certain debt ratios, and
limitations on asset purchases. At June 30, 1997 the Company was in
compliance with such covenants.
During June, 1997, the Company renegotiated both the $6,000,000 note
and the $4,000,000 multiple draw down term loan, extending the term
of the loans to April 1998, adjusting the price of common stock
subject to existing warrants to the lesser of (i) $7 per share or
(ii) the average stock price for the past ninety (90) trading days,
and extending the expiration date for the warrants for ten (10)
years.
(2) In connection with this transaction, the Company issued options to
purchase 50,000 shares of the Company's common stock at a price of
$12.13 per share, expiring June 27, 1999. During April, 1997, the
Company renegotiated the note extending the term to December 27,
1998, adjusting the exercise price of the options to $6.00 per share
and extending the term of the option to April 24, 2000. At June 30,
1997, such option has not been exercised.
The value assigned to such warrants or options when granted in connection
with the above note agreements is being amortized over the term of the
respective notes.
NOTE 4 - COMMON STOCK
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On May 14, 1996 the Board of Directors declared a stock split, effected in
the form of a ten percent (10%) stock dividend, subject to shareholders
approving an increase in the number of authorized shares of common stock.
As a result of that approval on July 26, 1996, shareholders received the
dividend on August 5, 1996.
All references to common share and per share amounts in the accompanying
financial statements have been retroactively adjusted to reflect the
effect of this stock dividend.
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
In April 1997, the Company remunerated two officers under a stock grant
plan with 20,000 shares of the Company's common stock valued at $115,000.
On June 3, 1997, the Board of Directors approved the sale of 1,425,000
shares of the Company's common stock for $7,500,000 to one individual.
$3,000,000 of the proceeds from the sale was used to reduce long term
debt. The remainder of the proceeds has been used for working capital or
invested in obligations through a financial institution.
EXECUTIVE TELECARD, LTD.
JUNE 30, 1997
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Net revenue increased by 6% to $8,559,551 for the three months ended
June 30, 1997, as compared to $8,067,509 for the comparable period last
year. Growth in revenue resulted from increased usage of the Company's
calling card services by existing customers as well as the addition of new
customers.
Cost of revenue for the three months was $4,445,496, an increase of 7%
from the prior year's amount of $4,144,949. As a percentage of revenue,
these costs were 51.9% and 51.4% for the three months ended June 30, 1997
and June 30, 1996, respectively.
Selling, general and administrative expenses increased by $1,005,485 (43%)
to $3,370,272, during the three months ended June 30, 1997 versus
$2,364,787 for the comparable period last year. This increase is
primarily attributable to the addition of personnel and related employee
costs necessary to manage the increasing business volume, provide
additional marketing and promotion for the Company's calling card
services, develop new business services (primarily Internet related), and
maintain quality customer support and assistance. As a percentage of
revenue, selling, general and administrative expenses increased to 39% for
the three months ended June 30, 1997 from 29% when compared to the same
period last year. As additional revenue is realized from the Company's
current marketing and new business development expenditures, selling,
general and administration expenses as a percentage of revenue are
expected to decrease.
Depreciation and amortization expense increased 64% to $634,622 for the
three months ended June 30, 1997 as compared to $386,423 for the same
period last year. This increase primarily relates to equipment placed in
service during the past year.
Interest expense increased by $260,575 to $326,343 for the three months
ended June 30, 1997, as compared to $65,768 for the comparable three month
period last year. This increase primarily relates to additional
borrowings to finance business development and expansion and an increase
in lease financed asset transactions.
The Company incurred a foreign currency transaction loss of $46,816 for
the three months ended June 30, 1997 as compared to a gain of $11,717 for
the same period last year. This generally reflects the currency exchange
rate movement between foreign currencies billed to customers and paid to
suppliers against the U.S. Dollar.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended June 30, 1997, cash and cash equivalents
increased $3,096,602 to $5,269,082. This increase in cash and cash
equivalents consisted of the following components: (i) net cash flows
used in operating activities in the amount of $1,062,965, which resulted
from a net loss for the period, increases in accounts receivable and other
EXECUTIVE TELECARD, LTD.
JUNE 30, 1997
assets, and a decrease in accounts payable offset by an increase in
accrued expenses and other non-cash items, (ii) net cash flows used in
investing activities in the amount of $1,052,151, primarily related to
acquisitions of new equipment for further expansion of the Company's
global network, (iii) cash flows provided by financing activities of
$5,211,732, including issuance of the Company's common stock for
$7,500,000 and proceeds from borrowings of $812,213 reduced by payments of
borrowings of $3,100,481, and (iv) the effect of exchange rate changes on
cash which served to decrease cash and cash equivalents.
The $7,500,000 proceeds from the issuance of the Company's common stock
during the quarter ended June 30, 1997 and included in cash flows provided
by financing activities for the period was used to pay down $3,000,000 on
debt and to provide additional working capital.
The Company's future plans to fund its working capital needs may consist
of the following: (i) issuance of additional shares of common or preferred
stock, (ii) the creation of a long term debt facility, and (iii) cash flow
generated from operations. There can be no assurance that the Company
will be successful in its efforts to raise such additional capital.
Certain statements in this Quarterly Report on Form 10-Q are "forward
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risk,
uncertainties and other factors that may cause the Company's actual
results, performance or achievements to be materially different from the
results, performance or achievements expressed or implied by the forward
looking statements. Factors that impact such forward looking statements
include, among others, changes in worldwide general economic conditions,
changes in interest rates, currency rates and worldwide competition.
(Balance of Page Left Blank Intentionally)
EXECUTIVE TELECARD, LTD.
JUNE 30, 1997
Item 1 Legal Proceedings
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None
Item 2 Change In Securities
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Pursuant to a stock purchase agreement between the Company
and Ronald L. Jensen dated June 10, 1997, Mr. Jensen purchased 1,425,000
shares of the Company's $.001 par value Common Stock for $7,500,000. The
terms and conditions of the transaction are described in the Company's
Form 10-K/A for the period ended March 31, 1997 and a copy of the
agreement was included with Mr. Jensen's Schedule 13D, both of which have
been previously filed with the S.E.C. The shares were sold to Mr. Jensen
as an accredited investor pursuant to Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933.
Item 3 Defaults Upon Senior Securities
- --------------------------------------------------------------------------
None
Item 4 Submission of Matters to a Vote of Security Holders
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None
Item 5 Other Information
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None
Item 6 Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------
a) Exhibits
27. Financial Data Schedule
b) Reports on Form 8-K
None
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: August 14, 1997 By /s/Scott R. Danitz
Scott R. Danitz
Controller, Treasurer
and Chief Accounting Officer
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ----------------
27 Financial Data Schedule Filed herewith electronically
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 5,269,082
<SECURITIES> 0
<RECEIVABLES> 9,665,398
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,472,488
<PP&E> 12,642,270
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,565,352
<CURRENT-LIABILITIES> 12,117,256
<BONDS> 1,371,758
0
0
<COMMON> 17,306
<OTHER-SE> 15,059,032
<TOTAL-LIABILITY-AND-EQUITY> 28,565,352
<SALES> 0
<TOTAL-REVENUES> 8,559,551
<CGS> 0
<TOTAL-COSTS> 4,445,496
<OTHER-EXPENSES> 4,004,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326,343
<INCOME-PRETAX> (462,921)
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (497,921)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
