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, 1997 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)
1720 SOUTH BELLAIRE STREET, DENVER, COLORADO 80222
- - --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 691-2115
---------------------------
- - --------------------------------------------------------------------------------
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 1, 1998 is 17,350,153 shares, all of one class of $.001 par
value Common Stock.
-1-
<PAGE>
EXECUTIVE TELECARD, LTD.
FORM 10-Q
QUARTER ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
FINANCIAL INFORMATION PAGE
----
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997 3,4
and March 31, 1997
Consolidated Statements of Operations for the three months 5
ended December 31, 1997 and 1996
Consolidated Statements of Operations for the nine months 6
ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the nine months 7
ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements 8 - 11
Item 2 - Management's Discussion and Analysis of Financial 12 - 17
Condition and Results of Operations
OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities 17
Item 3 - Defaults Upon Senior Securities 17
Item 4 - Submission of Matters to a Vote of Security Holders 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES 18
-2-
<PAGE>
EXECUTIVE TELECARD, LTD.
PART I: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
(Unaudited) --------------
-----------------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 3,787,373 $ 2,172,480
Trade accounts receivable, less allowance of
$650,000 and $123,000 for doubtful
accounts 8,570,482 8,538,131
Other current assets
420,932 347,995
-------------- -------------
Total current assets 12,778,787 11,058,606
PROPERTY AND EQUIPMENT - net of
accumulated depreciation and amortization 11,851,996 11,905,956
OTHER:
Intangible assets - net 225,015 286,941
Deposits 284,117 261,125
Other assets
24,525 167,058
-------------- -------------
Total other assets
533,657 715,124
-------------- -------------
TOTAL ASSETS $ 25,164,440 $ 23,679,686
============== =============
</TABLE>
-3-
<PAGE>
EXECUTIVE TELECARD, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
(Unaudited) --------------
-----------------
<S> <C> <C>
CURRENT:
Accounts payable $ 1,640,993 $ 2,466,056
Accrued expenses 4,332,202 2,038,415
Customer deposits 264,651 319,674
Unearned income 170,059 155,879
Current maturities of long-term debt 7,599,846 1,003,383
------------- -------------
Total current liabilities 14,007,751 5,983,407
LONG-TERM DEBT, less current maturities 644,907 9,737,007
------------- -------------
Total liabilities 14,652,658 15,720,414
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares
authorized; none issued - -
Common stock, $.001 par value, 100,000,000
shares authorized; 17,350,153 and 15,861,240
outstanding
17,350 15,861
Additional paid-in capital 23,935,036 16,047,812
Accumulated deficit (13,521,936) (8,186,244)
Accumulated translation adjustment 81,332 81,843
------------- -------------
Total stockholders' equity 10,511,782 7,959,272
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,164,440 $ 23,679,686
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
NET REVENUE $ 8,132,851 $ 8,278,029
COST OF REVENUE 5,377,372 4,297,676
-------------- --------------
GROSS PROFIT 2,755,479 3,980,353
-------------- --------------
COSTS AND EXPENSES:
Selling, general and administrative 3,550,352 3,109,402
Corporate realignment expense 911,819 -
Depreciation and amortization 726,162 414,463
-------------- --------------
Total costs and expenses
5,188,333 3,523,865
-------------- --------------
Income (loss) from operations (2,432,854) 456,488
-------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (317,552) (244,589)
Interest income 9,821 17,902
Proxy related litigation expense (121,013) -
Foreign currency transaction (loss) (103,604) (19,879)
-------------- --------------
Total other income (expense) (532,348) (246,566)
-------------- --------------
Income (loss) before taxes on income (2,965,202) 209,922
Income taxes - 32,000
-------------- --------------
NET INCOME (LOSS) $ (2,965,202) $ 177,922
============== ==============
BASIC NET INCOME (LOSS) PER SHARE $ (0.17) 0.01
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 17,350,153 15,860,407
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE>
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
NET REVENUE $ 25,583,730 $ 25,421,903
COST OF REVENUE 14,678,716 13,091,764
---------------- ---------------
GROSS PROFIT 10,905,014 12,330,139
---------------- ---------------
COSTS AND EXPENSES:
Selling, general and administrative 10,500,787 8,565,268
Corporate realignment expense 2,171,476 -
Depreciation and amortization 1,955,972 1,211,217
---------------- ---------------
Total costs and expenses 14,628,235 9,776,485
---------------- ---------------
Income (loss) from operations (3,723,221) 2,553,654
---------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (933,404) (552,704)
Interest income 41,255 47,997
Proxy related litigation expense (373,917) -
Foreign currency transaction (loss) (206,405) (18,815)
---------------- --------------
Total other income (expense) (1,472,471) 523,522
---------------- --------------
Income (loss) before taxes on income (5,195,692) 2,030,132
Income taxes
140,000 313,000
---------------- --------------
NET INCOME (LOSS) $ (5,335,692) $ 1,717,132
================ ==============
BASIC NET INCOME (LOSS) PER SHARE $ (0.31) $ 0.11
================ ==============
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 16,997,460 15,858,298
================ ==============
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE>
EXECUTIVE TELECARD, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine Months Nine Months
Ended Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (5,335,692) $ 1,717,132
Adjustments to reconcile net income (loss) to
net cash flows (used in)
operating activities:
Depreciation and amortization 1,895,485 1,211,217
Provision for bad debts 735,029 104,836
Compensation paid in common stock 161,945 -
Write off of non-producing Internet assets 88,668 -
Write down of building to market value 55,000 -
Changes in operating assets and liabilities:
Accounts receivable (767,380) (393,911)
Other assets (72,937) (403,692)
Accounts payable (825,063) (684,805)
Accrued expenses 2,438,056 (2,133,644)
Other liabilities (40,843) (114,447)
-------------- --------------
Cash (used in) operating activities (1,667,732) (697,314)
-------------- --------------
INVESTING ACTIVITIES:
Acquisitions of property and equipment (1,910,444) (3,303,656)
Other assets 206,718 305,974
-------------- --------------
Cash used in investing activities (1,703,726) (3,609,630)
-------------- --------------
FINANCING ACTIVITIES:
Principal payments on long-term debt (3,307,854) (1,693,014)
Proceeds from long-term debt 812,213 1,219,191
Proceeds from notes payable - 6,000,000
Proceeds from issuance of common stock 7,482,500 -
-------------- --------------
Cash provided by financing activities 4,986,859 5,526,177
-------------- --------------
Effect of exchange rate changes on cash (508) (935)
-------------- --------------
Net increase in cash and cash equivalents 1,614,893 1,218,298
CASH AND CASH EQUIVALENTS, beginning of period 2,172,480 950,483
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 3,787,373 $ 2,168,781
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
-7-
<PAGE>
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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, 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 - BASIC NET INCOME (LOSS) PER SHARE
- - --------------------------------------------------------------------------------
During the quarter ended December 31, 1997, the Company implemented
Financial Accounting Standards ("FASB") No. 128, "Earnings Per Share".
FASB No. 128 provides for the calculation of "basic" and "diluted"
earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the entity, similar to
fully diluted earnings per shares. In loss periods, dilutive common
equivalent shares are excluded, as the effect would be anti-dilutive.
-8-
<PAGE>
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - LONG TERM DEBT
- - --------------------------------------------------------------------------------
At December 31, 1997 and March 31, 1997, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
----------------- --------------
Unaudited
---------
<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. 1,087,589 1,079,697
9% mortgage note, payable monthly, including
interest, through December 1997, with a
February 1998 balloon payment, secured by deed
of trust on the related land and building.
157,164 160,693
------------- ------------
TOTAL 8,244,753 10,740,390
Less current maturities 7,599,846 1,003,383
------------- ------------
TOTAL LONG TERM DEBT $ 644,907 $ 9,737,007
============= ============
</TABLE>
-9-
<PAGE>
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) The Company borrowed $6 million from a financial institution in June 1996
pursuant to a one year term note. In November 1996, the Company obtained a
$4 million multiple draw down term loan from the same institution, with
both loans maturing in June 1997. In connection with these borrowings, the
Company issued warrants to purchase shares of the Company's common stock to
the lender, including certain penalty warrants exercisable only if the
Company failed to repay the loan at maturity.
In June 1997, the Company obtained an extension of the $6 million term loan
and the $4 million multiple draw loan until April 1998 in exchange for the
payment of certain fees, an adjustment of the exercise price of the
existing warrants and the issuance of additional penalty warrants
exercisable if the loans are not paid by December 31, 1997.
As the result of the nonpayment of the loans on December 31, 1997 and in
connection with the subsequent re-negotiations and amendments to the terms
of the loans, a portion of the penalty warrants became exercisable.
Accordingly, as detailed below, on December 31, 1997, total warrants
outstanding in connection with these loan agreements consisted of four sets
of warrants presently exercisable by the lender and one set of penalty
warrants which may become exercisable in the future if the loan is not paid
before their respective vesting dates.
The lender holds ten-year warrants to purchase an aggregate of 166,667
shares at $6.61 per share and a ten-year penalty warrant to purchase
125,000 shares at the lesser of $6.61 per share or 120% of the average
quoted price of the Company's stock for the five trading days before
exercise, all of which are dated June 27, 1997 and are presently
exercisable. As the loans were not repaid by December 31, 1997, ten-year
penalty warrants to purchase another 15,000 shares at $.01 per share have
become exercisable. If the loans are not repaid by March 31, 1998, ten-year
penalty warrants for 125,000 shares at the lesser of $6.61 per share or
120% of the average quoted price for the five trading days before exercise
will become exercisable.
The value assigned to such warrants when granted in connection with these
loans is being amortized over the terms of the loans. As of December 31,
1997, none of the warrants have been exercised.
As amended in November of 1997, the notes evidencing the loans are subject
to certain financial covenants, including maintenance of operating results,
certain debt ratios and limitations on asset purchases. The Company was in
compliance with all financial covenants as of December 31, 1997 except for
the maintenance of the operating results covenant for which the Company has
been granted a waiver of default.
-10-
<PAGE>
EXECUTIVE TELECARD, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(2) In connection with this transaction, the Company issued options to purchase
50,000 shares of the Company's common stock to the stockholder at a price
of $12.13 per share. These options expire June 27, 1999. The term note, as
originally issued, had a due date of December 27, 1997. During April 1997,
the Company re-negotiated 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 options to April 24, 2000. As of December 31,
1997, such options have 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
- - --------------------------------------------------------------------------------
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.
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.
Proceeds of $3,000,000 from the sale were 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.
(Balance of Page Left Blank Intentionally)
-11-
<PAGE>
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- - --------------------------------------------------------------------------------
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 risks,
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. These forward-looking statements include,
among others, statements concerning the Company's outlook for 1998,
pricing trends, the Company's need to raise additional funds,
expectations and plans for increases in business volume and future
growth, possibility of the Company incurring additional corporate
realignment expenses, the collectability of accounts receivable and
the possibility of adverse foreign currency exposures and other
statements of expectations, beliefs, future plans and strategies,
anticipated events or trends, and similar expressions concerning
matters that are not historical facts. The forward-looking statements
in this report are subject to risks and uncertainties that could
cause results to differ materially from those expressed in or implied
by the statements.
The Company has seen a number of changes in its operating Management
and Board of Directors in the third and fourth calendar quarters of
1997. The new Management initiated a review of the operations and
activities of the Company, which has resulted in a refocusing of the
Company's marketing and sales activities and in an emphasis on its
core business. In practical terms, this means that the Company has
decided to sell its resale telephone business in Colorado within the
next few quarters, that it has refocused its developing internet
business on mobility and global access services that complement the
core calling card services, that it has established a small staff
devoted to improving its network structure and reducing its marginal
transmission cost (and thus its cost of revenue), that it has
increased its sales and marketing staff and implemented a budget for
marketing and promotion activities, and that it has instituted a
process to add new network and operations staff as necessary to
support new contracts. In addition, Management has concluded the
realignment activities begun in the third calendar quarter of 1997,
with the exception of completing the simplification and
rationalization of the current multi-layered corporate structure.
The realignment has reduced existing and anticipated cost in several
areas (for example, the internet services staff was reduced from 19
to 4 and the anticipated cost of a global internet access network
were reduced by combining operations with the voice network), but
many of these reforms will add cost for the purpose of adding revenue
(in sales, marketing and promotion) and for responding to new revenue
requirements (in network and operations).
-12-
<PAGE>
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
As part of the review of operations, a thorough review of corporate
practices and procedure was undertaken. This resulted in a
re-examination of the internal accounting and financial processes of
the Company and the implementation of a number of improvements to
internal reporting and accrual practices. As a result, this quarter's
financial report includes allowances and adjustments to reflect
one-time amounts in costs of operation in the following items: cost
of revenue, SG&A, and depreciation and amortization.
Examining the current period statement of operations, after
subtracting these one-time allowances, adjustments and the cost of
realignment, the statement of operations presents a loss from
operations of approximately ($396,000) and positive EBITDA of
approximately $55,000 (and net cash provided by operating activities
of approximately $43,000). For the three months ended December 31,
1997, before subtracting the one-time allowances, adjustments and
cost of realignment, the Company had EBITDA of approximately
($1,931,000) (and net cash used in operating activities of
approximately ($253,000)). "EBITDA" represents earnings before
interest income, interest expense, income taxes, depreciation and
amortization. EBITDA is commonly used in the communications industry
to analyze companies on the basis of operating performance, leverage
and liquidity. EBITDA is not intended to represent cash flows from
operating, investing or financing activities as determined in
accordance with GAAP. EBITDA is not a measurement under GAAP and may
not be comparable to other similarly titled measures of other
companies.
Net revenue for the three month period ended December 31, 1997,
decreased by 1.8% to $8,132,851 from $8,278,029 for the three months
ended December 31, 1996. For the nine month period ended December 31,
1997, net revenue increased by .6% to $25,583,730 as compared to
$25,421,903 for the same period last year. The 1.8% decrease in
revenue for the three month period ended December 31, 1997 as
compared to the same period for the prior year reflects a combination
of three elements: a decline in revenues from the long distance
resale services of the Company, lower per minute revenues due to a
new pricing schedule which went into effect in the second and third
calendar quarters of 1997 and a lack of new revenue generating
contracts in the prior period. Management expects revenues to remain
flat for these same reasons in the current quarter. However,
Management does anticipate that its renewed and more focused sales
efforts will have a first impact on the results of operations in the
second and third quarters.
Cost of revenue for the three month period ended December 31, 1997
was $5,377,372, an increase of 25% from the prior year's amount of
$4,297,676. For the nine month period ended December 31, 1997, cost
of revenue increased by 12% to $14,678,716 from $13,091,764 for the
comparable period last year. As a percentage of revenue, these costs
increased by 14%, from 52% for the three months ended December 31,
1996 to 66% for the current period. For the nine months ended
December 31, 1997, cost of revenue was 57% compared to 51% for the
nine months ended December 31 1996, an increase of 6%. For the three
month period ended December 31, 1997 cost of revenue rose, both in
absolute numbers and as a percentage of revenue, primarily as a
result of a one-time adjustment which represents approximately
$600,000 of costs to record transmission charges from various
foreign telephone companies not previously
-13-
<PAGE>
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
accounted for. In addition, cost of revenue as a percentage of
revenue rose in this period and the nine month period, and may be
expected to fluctuate in the next few periods as new pricing
structures take hold, as new contractual structures are put in place
and as the Company works to improve its network structure and
transmission cost (which is the dominant element of cost of revenue).
Corporate realignment activities continued from the prior quarter,
reflecting the review and restructuring undertaken by new Corporate
leadership. Most of these costs, which totaled $911,819 involve
employee severance, legal and consulting fees and the write down of
certain investments made in the Company's internet service
development in prior periods.
The Company does not anticipate realignment costs or adjustments for
prior periods in the future with one exception: the cost of
simplifying and rationalizing the existing multi-layered corporate
structure. This effort will involve legal expenses and is likely to
involve one-time tax or balance sheet adjustments. The Company
currently anticipates completing its review of its corporate
structure and initiating all of the steps necessary to implement the
rationalization program within the 1998 calendar year. In the
judgment of management, this rationalization effort is expected to
assist in improving management oversight and control, in lowering
legal costs, and in improving the transparency of the Company to its
shareholders and to the investment community.
Selling, general and administrative expenses increased by $440,950,
(14%) to $3,550,352, during the three month period ended December 31,
1997 versus $3,109,402 for the comparable period last year. For the
nine months ended December 31, 1997, selling, general and
administrative expenses were $10,500,787, an increase of $1,935,519,
(22%) over the $8,565,268 reported for the comparable period last
year. As a percentage of revenue, selling, general and administrative
expenses increased from 38% to 44% for the three months and from 34%
to 41% for the nine months ended December 31, 1997 compared to the
same periods last year. SG&A expenses, after adjustment for certain
one-time allowances which resulted in large part from the
re-examination of internal accounting and financial processes, are
significantly reduced from the immediately prior quarter and
generally equivalent to expenses for the same period in the prior
year. The allowances and adjustments include a one-time increase in
bad debt reserves of $425,000 and adjustments in rent and related
expenses of approximately $50,000 of prior period costs. In addition,
the Company incurred increases in rent expense, administrative
telephone expenses, audit and accounting
-14-
<PAGE>
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
expenses, marketing and advertising and legal expenses which were
offset by decreases in wages, salaries, benefits, travel and
entertainment expenses. SG&A, net of such adjustments and allowances,
can be expected to rise in the current quarter and in future quarters
to reflect increases in sales and marketing personnel, spending for
marketing and promotional activities, and spending for network
development and increases in network operations staff as the Company
acquires new business.
Depreciation and amortization expense increased by $311,699 to
$726,162 as compared to $414,463 for the three months and by $744,755
to $1,955,972 compared to $1,211,217 for the nine months ended
December 31, 1997. A portion of the increase in Depreciation and
Amortization reflects a one-time adjustment to recognize prior period
costs of approximately $50,000.
Interest expense increased by $72,963 to $317,552 for the three
months ended December 31, 1997, from $244,589 and for the nine months
ended December 31, 1997, interest expense increased $380,700 to
$933,404 versus $552,704 for the comparable period last year. These
increases primarily relate to increases in borrowings and additional
finance charges for extending a loan.
The Company incurred a foreign currency transaction loss of $103,604
for the three months ended December 31, 1997 as compared to $19,879
for the same period last year. For the nine months ended December 31,
1997, the Company incurred a foreign currency transaction loss of
$206,405 as compared to a foreign currency loss of $18,815 for the
same period last year. The losses incurred in the current period as
compared to the prior periods generally reflect 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 nine months ended December 31, 1997, cash and cash
equivalents increased $1,614,893 to $3,787,373. The increase in cash
and cash equivalents consisted of the following components: (i) net
cash flows used in operating activities in the amount of $1,667,732,
resulting primarily from a net loss for the nine months of
$5,335,692, a decrease in accounts payable of $825,063, a decrease in
other liabilities of $40,843, an increase in accounts receivable of
$767,380 and an increase in other assets of $72,937 which were offset
by an increase in accrued expenses of $2,438,056 (ii) net cash flows
used in investing activities in the amount of $1,703,726, which
related primarily to $1,910,444 in acquisitions of new equipment to
expand the Company's global network, (iii) cash flows provided by
financing activities of $4,986,859 consisting of net
-15-
<PAGE>
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
proceeds from the issuance of the Company's common stock of
$7,482,500 and proceeds from borrowings of $812,213 reduced by
principal payments on long-term debt of $3,307,854. The $7,482,500
net 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 nine month period ended December 31,
1997 were used to pay down $3,000,000 on debt and to provide
additional working capital.
Debt due to a financial institution in the amount of $6,500,000 and a
note due to a shareholder are due and payable as of April 1, 1998 and
December 27, 1998 respectively. At the present time, the Company does
not have available funds to pay off these debts when due. The Company
is working on refinancing these debt obligations, raising funds and
has retained investment bankers to assist it in these efforts.
Although the Company anticipates that it will be successful in its
efforts to raise additional capital, there can be no assurance that
it will be successful in these efforts. Failure to obtain refinancing
could have a materially adverse effect on the Company.
RECENT ACCOUNT PRONOUNCEMENTS
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS No. 130 requires that all
items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as
other financial statements. Also in June 1997, FASB issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information" which supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise."
SFAS No. 131 establishes standards for the way that public companies
report information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. It also establishes standards for disclosure regarding
products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Both SFAS No. 130
and 131 are effective for financial statements for periods beginning
after
-16-
<PAGE>
EXECUTIVE TELECARD, LTD.
DECEMBER 31, 1997
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
- - --------------------------------------------------------------------------------
December 15, 1997 and require comparative information for earlier
years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact,
if any, they may have on future financial statement disclosures.
Results of operations and financial position, however, will be
unaffected by implementation of these standards.
ITEM 1 LEGAL PROCEEDINGS
- - --------------------------------------------------------------------------------
The following information sets forth information relating to material
legal proceedings involving the Company and certain of its executive
officers and directors. From time to time, the Company and its
executive officers and directors become subject to litigation which
is incidental to and arises in the ordinary course of business. Other
than as set forth herein, there are no material pending legal
proceedings involving the Company or its executive officers and
directors.
1. In re Executive TeleCard, Ltd. Securities Litigation, Case No.
94 Civ. 7846 (CLB) (U.S.D.C., S.D.N.Y.). The Company, its former
auditors, certain of its present and former directors and others are
defendants in this consolidated securities law class action, which
alleges that certain public filings and reports made by the Company,
including its Forms 10-K for the 1991, 1992, 1993 and 1994 fiscal
years (i) did not present fairly the financial condition of the
Company and its earnings; and (ii) failed to disclose the role of
Richard Bertoli as a consultant to the Company. Plaintiffs seek
unspecified monetary damages. In January 1997, the court certified
the named plaintiffs, except Moise Katz, as adequate class
representatives, and certified the putative class to include all
persons who purchased the Company's common stock in the open market
between October 28, 1991 and October 27, 1994. All of the defendants
are vigorously opposing the action. By Memorandum and Order dated
October 16, 1997, the Court excluded all testimony by plaintiffs'
damages expert and denied the parties' cross-motions for summary
judgment. Plaintiffs' have retained a new expert on damages.
Discovery concerning the claims asserted by him is scheduled to be
conducted shortly. Trial of the action has not been scheduled.
2. Residual Litigation: Wegard, etc. v. International 800 Telecom
Corp., et. al., No. 107747/94 (Supreme Court, New York County). The
Company has been named as a defendant in this action, which was
brought by certain underwriters who represented Residual in its
initial public offering. The underwriters contend that Residual
breached its contract with the underwriters by allegedly failing to
register certain warrants held by the underwriters. The underwriters
also claim that the Company is liable for inducing Residual's refusal
to register the warrants. By decision, order and judgment dated
October 20, 1997, the Court granted the Company's motion to dismiss
the complaint in its entirety with prejudice. Plaintiffs have filed a
Notice of Appeal and have until September 30, 1998 to perfect that
appeal.
3. Theodore Mayer Litigation: Mayer v. Executive TeleCard, Ltd.,
No. 95 Civ. 5403 (RWS) (U.S.D.C., S.D.N.Y.); Mayer v. Executive
TeleCard, Ltd., No. 14459 (Chancery Court of Delaware, New Castle
County); Executive TeleCard, Ltd. v. Mayer, No. 95 Civ. 9641 (LLS)
(U.S.D.C., S.D.N.Y.). The $56,000 judgment entered against the
Company in favor of Theodore J. Mayer, a former officer, in the
Delaware action has been paid. Subsequently, all actions involving
Mr. Mayer and the Company were dismissed with prejudice pursuant to a
September 18, 1997 settlement agreement between the parties. Pursuant
to that settlement, Mr. Mayer released all claims against the Company
in exchange for the payment to him of $10,000.
<PAGE>
ITEM 2 CHANGES 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
- - --------------------------------------------------------------------------------
a) Exhibits
10. Employment Agreement for Chief Executive
Officer dated December 5, 1997.
27. Financial Data Schedule
b) Reports on Form 8-K
A report on Form 8-K dated December 11,
1997 under Item 6 was filed with the
Commission on December 11, 1997 to report
the hiring of a Chief Executive Officer.
(Balance of page left blank intentionally)
-17-
<PAGE>
EXECUTIVE TELECARD, LTD
DECEMBER 31, 1997
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 17, 1998 By /S/
----------------------------------------
Anne Haas
Controller, Treasurer
By /S/
----------------------------------------
Christopher Vizas
Chief Executive Officer
Chairman of the Board
-18-
EXHIBIT 10
----------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of December 5, 1997, between EXECUTIVE TELECARD, LTD., a Colorado corporation
with principal offices located in Denver, Colorado (the "Company"), and
CHRISTOPHER J. VIZAS, II (the "Executive").
WHEREAS, the Executive is currently serving as the interim Chief
Executive Officer of the Company;
WHEREAS, the parties desire to enter into this Agreement setting
forth the terms and conditions for the employment relationship of the Executive
with the Company.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Executive is employed as the Chairman and
Chief Executive Officer of the Company for a period commencing on the date
hereof and ending on December 31, 2000. As the Chairman and Chief Executive
Officer of the Company, the Executive shall render executive, policy, and other
management services to the Company of the type customarily performed by persons
serving in such capacities. The Executive shall be responsible for strategic
planning, day to day operations, profitability, and growth. The Executive's
duties shall also include the supervision of all aspects of finance, legal
matters, planning, operations, marketing, sales, and personnel and shareholder
relations. All Company employees shall be subject to the Executive's orders and
direction. The Executive shall also perform such duties as the Board of
Directors may from time to time reasonably direct. During the term of this
Agreement, there shall be no material increase or decrease in the duties and
responsibilities of the Executive otherwise than as provided herein, unless the
parties otherwise agree in writing.
2. Location of Services. During the term of this agreement,
the Executive shall perform services at the Company's various offices
(particularly its principal office in Denver, Colorado), at an office in the
Washington, D.C. metropolitan area established for the Executive as provided
herein or at such other locations as the Executive reasonably determines are
necessary or convenient in order to perform the services hereunder.
Commencing on January 1, 1998 and during the term of this
Agreement, the Company shall provide the Executive with and pay (or reimburse
the Executive for, as applicable) all rent and other costs associated with an
office in the Washington, D.C. metropolitan area. The Executive shall be
entitled to use,
<PAGE>
and be reimbursed for under this paragraph, the office at 2000 Pennsylvania
Avenue, N.W., Washington, D.C. (or at such other location to which such office
is moved) leased by a company affiliated with the Executive and the secretarial
or administrative assistant(s) based at such office; provided, however, that if
less than 100% of the use of such office and such assistant(s) are devoted to
matters relating to the Executive's employment with the Company, the Executive
shall pro rate such costs between the Company and all other uses, based upon the
Executive's reasonable estimates of relative usage.
The Company shall provide the Executive with and pay (or
reimburse the Executive for, as applicable) all rent and other costs associated
with a furnished apartment in the Denver, Colorado metropolitan area.
The Executive Committee of the Company shall have the right to
review the reasonableness of the office and apartment reimbursement amounts from
time to time, in its discretion.
3. Salary. The Company shall pay the Executive an annual
salary equal to $200,000, with such increases as may be determined by the Board
of Directors in its discretion ("Base Salary"). The Base Salary of the Executive
shall not be decreased at any time during the term of this Agreement from the
amount then in effect, unless the Executive otherwise agrees in writing.
Participation in deferred compensation, discretionary bonus retirement, and
other employee benefit plans and in fringe benefits shall not reduce the Base
Salary. The Base Salary shall be payable to the Executive not less frequently
than monthly.
4. Bonuses. The Executive shall be eligible to earn
annual bonuses during each fiscal year or portion (but not less than one fiscal
quarter) thereof (a "Bonus Period") that he remains an executive employee of the
Company. For each Bonus Period the Board of Directors and the Executive shall
adopt financial performance targets expressed in gross revenues and EBITDA
(earnings before interest, taxes, depreciation and amortization) (unless
different performance measures are agreed upon in writing by the Company and the
Executive). If such targets are met or exceeded for such Bonus Period, the
Executive shall earn a bonus equal to 50% of the Base Salary in effect as of the
end of such Bonus Period. If between 70% and 100% of such targets are met for
such Bonus Period (averaging the percentages of achievement), the Executive
shall earn a bonus equal to the percentage of such target that was met
multiplied by 50% of the Base Salary in effect as of the end of such Bonus
Period. In the event that a Bonus Period is other than a fiscal year, the
financial performance targets for the applicable fiscal year(s) shall be pro
rated based upon the number of days in the Bonus Period. An amount equal to each
bonus earned under this paragraph shall be set aside by the Company in a
separate interest-bearing account (which shall be subject to the claims of
general creditors of the Company) within 90 days after the end of each Bonus
-2-
<PAGE>
Period, and all accrued interest shall become part of such bonus. Such bonus
(with accrued interest) shall become payable to the Executive on the earlier of
the date that is 15 days after termination of Executive's employment under this
Agreement by the Company and January 15, 2001, at which time it shall be paid in
a single lump sum; provided, however, that if any portion of such lump sum
payment would be subject to the deduction disallowance rule of Section 162(m) of
the Internal Revenue Code of 1986, or its successor, then such portion instead
shall be payable immediately after the start of the next calendar year. The
Board of Directors may, in its sole discretion, award additional or greater
bonuses to the Executive based upon achievement of other Company objectives
during the Bonus Period, including without limitation the Company exceeding 100%
of one or both of the financial performance targets.
5. Participation in Employee Benefit Plans. The Executive
shall be entitled to participate, on the same basis as other executive employees
of the Company, in any stock option, stock purchase, pension, thrift,
profit-sharing, group life insurance, medical coverage, education, or other
retirement or employee pension or welfare plan or benefits that the Company has
adopted or may adopt for the benefit of its employees. The Executive shall be
entitled to participate in any fringe benefits which are now or may be or become
applicable to the Company's executive employees generally. The Executive shall
promptly be reimbursed for any expenses which he may incur in connection with
his services hereunder in accordance with the Company's normal reimbursement
policies as established from time to time.
6. Stock Options. The Executive shall be granted options
to purchase an aggregate of 500,000 shares of the Company's common stock in
consideration of the Executive's acceptance of employment hereunder and in
consideration of the Executive relinquishing all prior stock option grants from
the Company. The exercise prices and vesting of such new options shall be as
follows:
(i) options to purchase 50,000 shares shall have an exercise
price equal to $2.32 (the fair market value at December 5, 1997, the time of
grant), and shall vest immediately.
(ii) options to purchase 50,000 shares shall have an
exercise price equal to $2.32 per share, and shall vest on the first anniversary
of the date hereof, subject only to continued employment as of such date.
(iii) options to purchase 100,000 shares shall have an
exercise price equal to $2.32 per share, and shall vest on the first anniversary
of the date hereof, subject to achievement of the financial performance targets
determined under (or in the same manner as provided in) Section 4 of this
Agreement for the period commencing on January 1, 1998 and ending on December
31, 1998; if such targets are met or exceeded for such period, all such options
shall vest; if between 70% and 100% of such targets are met for such period
(averaging the percentages of
-3-
<PAGE>
achievement), options shall vest with respect to the number of shares equal to
the percentage of such target that was met multiplied by 100,000 shares.
(iv) options to purchase 50,000 shares shall have an
exercise price equal to $3.50 per share, and shall vest on the second
anniversary of the date hereof, subject only to continued employment as of such
date.
(v) options to purchase 100,000 shares shall have an
exercise price equal to $3.50 per share, and shall vest on the second
anniversary of the date hereof, subject to achievement of the financial
performance targets determined under (or in the same manner as provided in)
Section 4 of this Agreement for the period commencing on January 1, 1999 and
ending on December 31, 1999; if such targets are met or exceeded for such
period, all such options shall vest; if between 70% and 100% of such targets are
met for such period (averaging the percentages of achievement), options shall
vest with respect to the number of shares equal to the percentage of such target
that was met multiplied by 100,000 shares.
(vi) options to purchase 50,000 shares shall have an
exercise price equal to $4.50 per share, and shall vest on the third anniversary
of the date hereof, subject only to continued employment as of such date.
(vii) options to purchase 100,000 shares shall have an
exercise price equal to $4.50 per share, and shall vest on the third anniversary
of the date hereof, subject to achievement of the financial performance targets
determined under (or in the same manner as provided in) Section 4 of this
Agreement for the period commencing on January 1, 2000 and ending on December
31, 2000; if such targets are met or exceeded for such period, all such options
shall vest; if between 70% and 100% of such targets are met for such period
(averaging the percentages of achievement), options shall vest with respect to
the number of shares equal to the percentage of such target that was met
multiplied by 100,000 shares.
Each of the options will have a term of five years from December
5, 1997. To the extent eligible, the options will be issued as incentive stock
options within the meaning and subject to the limitations of Section 422 of the
Internal Revenue Code. Once an option vests, it will remain vested and the
Executive will be permitted to exercise the option for the remainder of the five
year term of the option, without regard to termination of employment or the
reasons therefor. If the Company terminates the Executive's employment other
than "termination for cause," as defined below, options that are not yet vested
will vest to the extent that the Company achieves the applicable target(s) for
the period in which such termination occurs. If during the term of this
Agreement there is a "change in control" of the Company, as defined below, and
in connection with or within two years after such change of control the Company
terminates the Executive's employment other than "termination for cause," all of
the options shall vest in full
-4-
<PAGE>
to the extent and at such time that such options would have vested if the
Executive had remained employed for the remainder of the term of this Agreement.
7. Standards. The Executive shall perform the Executive's
duties and responsibilities under this Agreement in accordance with such
reasonable standards as may be established from time to time by the Board of
Directors. The reasonableness of such standards shall be measured against
standards for executive performance generally prevailing in the Company's
industry.
8. Voluntary Absences; Vacations. The Executive shall be
entitled, without loss of pay, to be absent voluntarily for reasonable periods
of time from the performance of the duties and responsibilities under this
Agreement. All such voluntary absences shall count as paid vacation time, unless
the Board of Directors otherwise approves. The Executive shall be entitled to
annual paid vacation of at least four weeks per year or such longer period as
the Board of Directors of the Company may approve. The timing of paid vacations
shall be scheduled in a reasonable manner by the Executive.
9. Disability. If the Executive shall become disabled or
incapacitated to the extent that the Executive is unable to perform the
Executive's duties and responsibilities hereunder, the Executive shall be
entitled to receive disability benefits of the type provided for other executive
employees of the Company.
10. Termination of Employment.
(a) The Board of Directors may terminate the Executive's
employment at any time, subject to payment of the compensation described below.
(b) In the case of any termination by the Board of Directors
other than "termination for cause" as defined below, or in the case of any
termination by the Executive after a material breach of this Agreement by the
Company ("termination with good reason"), the Executive shall continue to
receive, for one year commencing on the date of such termination (the "Severance
Period"), full Base Salary, any bonus that is earned after the termination of
employment, and all other benefits and compensation that the Executive would
have been entitled to under this Agreement in the absence of termination of
employment (collectively, the "Severance Amount"). The Severance Amount shall
not be reduced by any compensation which the Executive may receive for other
employment with another employer after termination of employment with the
Company. If during the term of this Agreement there is a "change in control" of
the Company, and in connection with or within two years after such change of
control the Company terminates the Executive's employment other than termination
for cause, the Company shall be obligated, concurrently with such termination,
to pay the Severance Amount in a single lump sum cash payment to the Executive.
If the Company fails to make
-5-
<PAGE>
timely payment of any portion of the Severance Amount, the Executive shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred by the Executive in taking action to collect such amount or otherwise
enforce this Agreement. In addition, the Executive shall be entitled to interest
on the amounts owed to him under this Agreement at the rate of 5% above the
prime rate (defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal), compounded
monthly, for the period from the date of employment termination until payment is
made to the Executive.
(c) The Executive shall have no right to receive
compensation or other benefits from the Company for any period after termination
for cause by the Company or termination by the Executive other than termination
with good reason, except for any vested retirement benefits to which the
Executive may be entitled under any qualified employee pension plan maintained
by the Company and any deferred compensation to which the Executive may be
entitled.
(d) The term "termination for cause" shall mean termination
by the Company because of the Executive's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses), or material
breach of any provision of this Agreement.
(e) A "change in control," for purposes of this Agreement,
shall be deemed to have taken place if: (i) any person becomes the beneficial
owner of 20% or more of the total number of voting shares of the Company; (ii)
any person becomes the beneficial owner of 10% or more, but less than 20% of the
total number of voting shares of the Company, if the Board of Directors makes a
determination that such beneficial ownership constitutes or will constitute
control of the Company; (iii) any persons (other than persons named as proxies
solicited on behalf of the Board of Directors) hold revocable or irrevocable
proxies, as to the election or removal of two or more directors of the Company,
for 25% or more of the total number of voting shares of the Company; (iv) any
person has commenced a tender or exchange offer, or entered into an agreement or
received an option, to acquire beneficial ownership of 20% or more of the total
number of shares of the Company; or (v) as the result of, or in connection with,
any cash tender or exchange offer, merger, or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions, the persons who were directors of the Company before such
transaction shall cease to constitute at least two-thirds of the Board of
Directors of the Company or any successor corporation. For purposes of this
paragraph, a "person" includes an individual, corporation, partnership, trust or
group acting in concert, and a "beneficial owner" shall have the meaning used in
Rule 13d-3 under the Securities Exchange Act of 1934.
-6-
<PAGE>
11. Restrictive Covenants.
(a) During the employment of the Executive under this
Agreement and for a period of one year after termination of such employment
other than a termination by the Company without cause, the Executive shall not
at any time (i) compete on his own behalf or on behalf of any other person or
entity, with the Company or any of its affiliates within all territories in
which the Company does business with respect to the business of the Company or
any of its affiliates as such business shall be conducted on the date hereof or
during the employment of the Executive under this Agreement; (ii) solicit or
induce, on his own behalf or on behalf of any other person or entity, any
employee of the Company or any of its affiliates to leave the employ of the
Company or any of its affiliates; or (iii) solicit or induce, on his own behalf
or on behalf of any other person or entity, any customer of the Company or any
of its affiliates to reduce its business with the Company or any of its
affiliates.
(b) The Executive shall not at any time during or subsequent
to his employment by the Company, on his own behalf or on behalf of any other
person or entity, disclose any proprietary information of the Company or any of
its affiliates to any other person or entity other than on behalf of the Company
or in conducting its business, and the Executive shall not use any such
proprietary information for his own personal advantage or make such proprietary
information available to others for use, unless such information shall have come
into the public domain other than through unauthorized disclosure.
(c) The ownership by the Executive of not more than 5% of a
corporation, partnership or other enterprise shall not constitute a violation
hereof.
(d) If any portion of this Section 11 is found by a court of
competent jurisdiction to be invalid or unenforceable, but would be valid and
enforceable if modified, this Section 11 shall apply with such modifications
necessary to make this Section 11 valid and enforceable. Any portion of this
Section 11 not required to be so modified shall remain in full force and effect
and not be affected thereby. The Executive agrees that the Company shall have
the right of specific performance in the event of a breach by the Executive of
this Section 11.
12. No Assignments. This Agreement is personal to each of
the parties hereto. No party may assign or delegate any rights or obligations
hereunder without first obtaining the written consent of the other party hereto.
However, in the event of the death of the Executive all rights to receive
payments hereunder shall become rights of the Executive's estate.
-7-
<PAGE>
13. Other Contracts. The Executive shall not, during the term of
this Agreement, have any other paid employment other than with a subsidiary of
the Company, except with the prior approval of the Board of Directors.
14. Amendments or Additions; Action by Board of Directors. No
amendments or additions to this Agreement shall be binding unless in writing and
signed by all parties hereto. The prior approval by a majority vote of the full
Board of Directors shall be required in order for the Company to authorize any
amendments or additions to this Agreement, to give any consents or waivers of
provisions of this Agreement, or to take any other action under this Agreement
including any termination of employment with or without cause.
15. Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
17. Governing Law. This Agreement shall be governed by the laws
of the State of Colorado (other than the choice of law rules thereof).
18. Prior Agreements. This Agreement supersedes all prior
agreements between the parties hereto relating to the subject matter hereof,
including all prior agreements granting stock options to the Executive. From and
after the date of execution of this Agreement by each of the parties hereto,
neither of the parties hereto shall have any further obligations under such
prior agreements, except that the Company shall continue to be obligated to pay
all cash compensation presently owing to the Executive with respect to the
quarter ending December 31, 1997, which funds shall be used by the Executive to
unwind certain arrangements and pay certain expenses necessary for the Executive
to make the commitments provided for herein.
EXECUTIVE TELECARD, LTD.
By: /s/ Richard A. Krinsley
---------------------------
/s/ Christopher J. Vizas, II
----------------------------
CHRISTOPHER J. VIZAS, II
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,787,373
<SECURITIES> 0
<RECEIVABLES> 8,570,482
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,778,787
<PP&E> 11,851,996
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,164,440
<CURRENT-LIABILITIES> 14,007,751
<BONDS> 0
0
0
<COMMON> 17,350
<OTHER-SE> 10,494,432
<TOTAL-LIABILITY-AND-EQUITY> 25,164,440
<SALES> 0
<TOTAL-REVENUES> 25,583,730
<CGS> 0
<TOTAL-COSTS> 14,678,716
<OTHER-EXPENSES> 14,628,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 933,404
<INCOME-PRETAX> (1,472,471)
<INCOME-TAX> 140,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,335,692)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> 0
</TABLE>
