<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________.
Commission File No. 0-4410.
TELECOMM INDUSTRIES CORP.
-------------------------------------------------
(Exact name of Issuer as specified in its charter)
Delaware 06-0844558
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9310 Progress Parkway
Mentor, Ohio 44060
------------------------------------------------
(Address of principal executive offices)
216-953-1400
------------------------------------------------
(Issuer's telephone number)
------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of March 31, 1996: 9,607,791.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
No exhibits
Page 1 of 14
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TELECOMM INDUSTRIES CORP. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (unaudited) 3
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 4
Consolidated Statements of Income -
three months ended March 31, 1996 and March 31, 1995 5
Consolidated Statements of Cash Flows -
three months ended March 31, 1996 and March 31, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 12
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
Page 2 of 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The Registrant's Financial Statements follow this page.
Page 3 of 14
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED) ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 488,746 $ 575,367
Note receivable - current portion 61,200 61,200
Accounts receivable 1,531,668 1,348,997
Inventory 226,449 199,610
Prepaid expenses 125,573 145,567
Employee advances 19,721 29,420
----------- -----------
Total current assets $ 2,453,357 $ 2,360,161
----------- -----------
Property and equipment - at cost, net of accumulated depreciation of $158,409
and $131,323 at March 31, 1996 and December 31, 1995, respectively 444,295 364,297
----------- -----------
Other assets:
Note receivable, less current portion 359,810 375,446
Intangibles, net of accumulated amoritization of $13,305 and $11,606 at
March 31, 1996 and December 31, 1995, respectively 86,176 87,876
----------- -----------
445,986 463,322
----------- -----------
Total assets $ 3,343,638 $ 3,187,780
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 280,613 $ 126,000
Current portion of long-term debt 98,168 98,168
Accounts payable - trade 128,195 143,388
Payroll taxes payable 57,730 17,987
Other accrued expense 1,937 16,190
Deferred income taxes -- --
Accrued commissions and contractor fees 219,497 318,869
Income taxes payable 91,800 162,130
Accrued bonuses 106,866 142,000
----------- -----------
Total current liabilities 984,806 1,024,732
----------- -----------
Long-term liabilities:
Long-term debt, less current portion 141,772 137,120
Deferred income taxes 158,900 158,900
----------- -----------
Total liabilities 1,285,478 1,320,752
Stockholders' equilty:
Common stock $.01 par value; authorized - 10,000,000 shares; issued
-9,742,791; outstanding - 9,607,791 at
March 31, 1996 and December 31, 1995 respectively 96,078 96,078
Additional paid-in capital 2,145,706 2,145,706
Receivables from stockholders (122,018) (163,202)
Accumulated deficit (61,606) (211,554)
----------- -----------
Total stockholders' equity 2,058,160 1,867,028
Commitments -- --
----------- -----------
Total liabilities and stockholders' equity $ 3,343,638 $ 3,187,780
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Net revenues $ 1,930,762 $ 1,368,403
Commissions, contractor fees and related expenses 660,812 682,773
Selling, general and administrative expenses 1,030,317 506,239
----------- -----------
Operating income 239,633 179,391
Other income (expense):
Gain (loss) on disposal of assets -- --
Interest income 13,053 13,881
Interest expense (7,739) (6,169)
----------- -----------
5,314 7,712
----------- -----------
Income from continuing operations before income tax expense 244,947 187,103
Income tax expense 95,000 73,300
----------- -----------
Net income $ 149,947 $ 113,803
----------- -----------
----------- -----------
Earnings per common and common equivalent share:
Net Income 0.02 0.01
----------- -----------
----------- -----------
Number of shares used in computing earnings per common and common
equivalent share 9,607,791 8,607,791
----------- -----------
----------- -----------
Dividends per common share -- --
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 1996 AND 1995
(Unaudited) 1996 1995
----------- ---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income:
Continuing operations $ 149,948 $ 113,803
Adjustments to reconcile to net cash (used) provided by
operating activities:
Expenses not requiring the use of cash:
Issuance of common stock for acquisition costs -- --
Depreciation and amortization 28,786 13,830
Gain on disposition of TCI -- --
Deferred taxes -- (36,000)
(Loss) gain on sale of fixed assets -- --
Changes in assets and liabilities:
Accounts receivable (182,671) (232,231)
Inventory (26,839) 2,521
Prepaid expenses 19,994 13,859
Employee advances 9,699 (19,209)
Security deposits -- --
Accounts payable (15,193) (31,701)
Acccrued expenses (14,253) (19,859)
Payroll taxes payable 39,743 (3,290)
Accrued commissions and contractor fees (99,372) 87,016
Income taxes payable (70,330) 98,265
Discontinued operations -- --
Accrued bonuses (35,134) --
---------- ----------
Total adjustments (345,570) (126,799)
---------- ----------
Net cash (used) provided by operating
activities (195,622) (12,996)
Cash flows from investing activities:
Proceeds from sale of fixed assets -- --
Purchases of fixed assets (107,085) (7,300)
Acquisition of ASI -- --
From discontinued operations -- --
Proceeds from stockholders receivables 41,184 104,457
Issuance of stock holders receivables -- --
---------- ----------
Net cash used in investing activities (65,901) 97,157
---------- ----------
Cash flows from financing activities:
Proceeds from disposition of TCI -- --
Payments on long-term debt 4,653 (13,821)
Proceeds from issuance of common stock to employees -- --
Proceeds from sale of common stock -- --
Distributions paid to shareholders -- --
Decrease in notes receivable 15,636 27,370
Net borrowings under line of credit 154,613 17,500
---------- ----------
Net cash provided by financing activities 174,902 31,049
---------- ----------
Net increase in cash (86,621) 115,210
Cash at beginning of year 575,367 151,447
---------- ----------
Cash at end of year $ 488,746 $ 266,657
---------- ----------
---------- ----------
</TABLE>
<PAGE>
TELECOME INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL: Certain reclassifications have been made to the financial
statements to conform to the 1996 method of presentation.
In the opinion of management of Telecome Indusstries, Inc. (the "Company"),
the accompanying unaudited consolidated condensed interim financial
statements reflect all adjustments necessary to present fairly the financial
positin of the Company as of March 31, 1996 and the results of its operations
and
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Unaudited)
ASSETS 1995 1994
---------- ----------
Current Assets:
Cash $ 575,367 $ 151,447
Note receivable - current portion 61,200 159,095
Accounts receivable 1,348,997 583,563
Inventory 199,610 152,521
Prepaid expenses 145,567 38,843
Employee advances 29,420 --
---------- ----------
Total current assets 2,360,161 1,085,469
---------- ----------
Property and equipment - at cost, net of accumulated
depreciation of $131,323 and $66,505 at December 31,
1995 and 1994, respectively 364,297 197,974
---------- ----------
Other assets:
Note receivable, less current portion 375,446 420,905
Intangibles, net of accumulated amoritization of
$11,606 and $4,974 at December 31, 1995 and
1994, respectively 87,876 94,508
Security Deposits -- 318
---------- ----------
463,322 515,731
---------- ----------
Total assets 3,187,780 1,799,174
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 126,000 $ 12,500
Current portion of long-term debt 98,168 63,825
Accounts payable - trade 143,388 245,081
Payroll taxes payable 17,987 14,228
Other accrued expense 16,190 38,830
Deferred income taxes -- 36,000
Accrued commissions and contractor fees 318,869 82,302
Income taxes payable 162,130 44,735
Accrued bonuses 142,000 10,000
---------- ----------
Total current liabilities 1,024,732 547,501
---------- ----------
Long-term liabilities:
Long-term debt, less current portion 137,120 192,904
Deferred income taxes 158,900 179,000
---------- ----------
Total liabilities 1,320,752 919,405
Stockholders' equilty:
Common stock $.01 par value; authorized - 10,000,000
shares; issued - 9,742,791 and 8,627,791; outstanding
- 9,607,791 and 8,627,791, at December 31, 1995 and
1994 respectively 96,078 86,278
Additional paid-in capital 2,145,706 1,348,896
Receivables from stockholders (163,202) (138,764)
Accumulated deficit (211,554) (416,641)
---------- ----------
Total stockholders' equity 1,867,028 879,769
Commitments -- --
---------- ----------
Total liabilities and stockholders' equity $3,187,780 $1,799,174
---------- ----------
---------- ----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
for the years ended December 31, 1995 and 1994
(Unaudited)
1995 1994
----------- -----------
<S> <C> <C>
Net revenues $ 5,645,321 $ 3,363,620
Commissions, contractor fees and related expenses 2,535,288 2,160,506
Selling, general and administrative expenses 2,801,450 922,728
Costs to acquire subsidiary -- 23,816
----------- -----------
Operating income 308,583 256,570
Other income (expense):
Gain (loss) on disposal of assets 731 (1,361)
Interest income 67,240 3,721
Interest expense (22,899) (8,355)
----------- -----------
45,072 (5,995)
----------- -----------
Income from continuing operations before income tax expense 353,655 250,575
Income tax expense 137,568 84,735
------------ -----------
Income from continuing operations 216,087 165,840
Discontinued operations:
Loss from operations of discontinued TCI (net of applicable income
tax benefit of $25,482) -- (46,811)
Gain on disposal of TCI (less applicable income taxes of $185,482 -- 342,009
----------- -----------
Net income $ 216,087 $ 461,038
----------- -----------
----------- -----------
Earnings per common and common equivalent share:
Continuing operations 0.02 0.02
----------- -----------
----------- -----------
Net Income 0.02 0.06
----------- -----------
----------- -----------
Number of shares used in computing earnings per common and common
equivalent share 8,918,921 8,342,859
----------- -----------
----------- -----------
Dividends per common share -- --
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited) 1995 1994
---------- ---------
Cash flows from operating activities:
Net income:
Continuing operations $ 205,087 $ 165,840
Discontinued operations -- 295,198
Adjustments to reconcile to net cash (used) provided by
operating activities:
Expenses not requiring
the use of cash:
Issuance of common stock for acquisition costs -- 10,000
Depreciation and amortization 74,067 48,132
Gain on disposition of TCI -- (493,336)
Deferred taxes (56,100) 215,000
(Loss) gain on sale of fixed assets -731 1,361
Changes in assets and liabilities:
Accounts receivable (765,43) (539,581)
Inventory (47,08) (32,103)
Prepaid expenses (106,724) (30,366)
Employee advances (29,420) --
Security deposits 318 (318)
Accounts payable (101,693 229,926
Acccrued expenses 11,697 38,191
Payroll taxes payable 3,760 11,739
Accrued commissions and contractor fees 211,059 65,542
Income taxes payable 108,565 56,488
Discontinued operations -- 205,241
Accrued bonuses 132,000 10,000
---------- ---------
Total adjustments (565,726) (204,084)
Net cash (used) provided by operating
activities (360,639) 256,954
---------- ---------
Cash flows from investing activities:
Proceeds from sale of fixed assets 11,196 11,285
Purchases of fixed assets (247,611) (183,758)
Acquisition of ASI -- (100,000)
From discontinued operations -- 2,630
Proceeds from stockholders receivables 138,764 --
Issuance of stock holders receivables (163,202) --
---------- ---------
Net cash used in investing activities (260,853) (269,843)
---------- ---------
Cash flows from financing activities:
Proceeds from disposition of TCI -- 20,000
Payments on long-term debt (21,441) (44,734)
Proceeds from issuance of common stock to employees 65,000 128,374
Proceeds from sale of common stock 745,000 39,785
Distributions paid to shareholders -- -9,014
Decrease in notes receivable 143,354 --
Net borrowings under line of credit 113,500 --
---------- ---------
Net cash provided by financing activities 1,045,413 134,411
---------- ---------
Net increase in cash 423,921 121,522
Cash at beginning of year 151,448 29,926
---------- ---------
Cash at end of year $ 575,369 $ 151,448
---------- ---------
---------- ---------
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
(Unaudited)
Additional Receivables
Common Stock Paid-In from
Shares Amount Capital Stockholders Deficit
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 as original $ 6,227,791 $ 62,278 $ 1,114,756 $ -- $ (858,831)
Adjustments for AND pooling 1,000,000 10,000 237,140 (138,764) (8,054)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1993 as restated 7,227,791 72,278 1,351,896 (138,764) (866,885)
Stock issued to individuals as compensation for
acquisition 1,000,000 10,000 -- -- --
Adjustments for Seraphim pooling 400,000 4,000 (3,000) -- 8,180
Net income -- -- -- -- 442,064
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 8,667,791 86,278 1,348,896 (138,764) (416,641)
Settlement of AND notes from stockholder -- -- -- 138,764 --
Stock issued for employee grant and award programs 115,000 1,150 60,460 -- --
Stock issued for private placement 865,000 8,650 736,350 -- --
Advances to stockholders -- -- -- (163,202) --
Net income -- -- -- -- 205,087
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 9,647,791 96,078 2,145,706 (163,202) (211,554)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Telecomm was incorporated on December 13, 1967, and until December 1993,
its name was Scoto Data Com., Inc. The Registrant has two wholly owned by
subsidiaries, Centel Corporation d/b/a Teleco ("Teleco") and Authorized Network
Distributors, Inc. ("AND"). The operations of Teleco were primarily acquired in
April 1994 and AND was acquired in September 1995. In January 1996, AND
acquired Seraphim Information Systems, Inc., an Ameritech Authorized Distributor
of data services and integrated hardware and software networking solutions in
northern Illinois.
Teleco distributions telecommunications services in the major metropolitan
markets of the State of Ohio for Ameritech Corporation ("Ameritech") and sells
telecommunication equipment and provides related installation, maintenance and
repair services. AND distributes telecommunication services in Illinois,
Indiana and Ohio for Ameritech. On a combined basis, Teleco and AND makes the
Company one of the largest Authorized Ameritech Distributors of voice and data
transmission services.
In order to stimulate internal growth, the Company adopted in 1995 an
aggressive commission policy to actively attract and keep skilled, experience
salespeople. In addition, the Company opened new offices in several Illinois,
Indiana and Ohio cities and expanded the size of other offices. The Company
also restructured its sales forces into specialized teams dedicated to specific
products and services, i.e. data transmission, voice transmission and cellular
and Internet access services.
RESULTS OF OPERATIONS
Net revenues increased 42% to $1.93 million for the first quarter of 1996
from $1.37 million in the comparable 1995 period. The increase reflects a 68%
increase in sales of network services to $1.36 million, partially credited to
the extensive marketing efforts commenced in late 1995, as well as the opening
of new and expansion of existing sales offices. Sales of equipment and
interconnect services increased 2% from the comparable 1995 period, reflecting
the commencement of internet access services and modest equipment sales growth.
Commission, contractor fees and related expenses decreased 2% to $660,800
in the 1996 first quarter, reflective of the Company's shift from an external
sales force of independent representatives to a combined sales force of internal
salesmen and field representatives.
Selling, general and administrative expenses ("SG&A") increased by 104% to
$1.03 million in first quarter 1996 from $0.51 million in the first quarter of
1995. Substantially all of such increase
Page 12 of 14
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is attributable to added sales salaries and sale office expenses, which is
responsible for the revenues growth reported previously. Also contributing to
the increase in SG&A was a $47,000 increase in professional fees and costs
associated with being an SEC reporting company.
Income from continuing operations before taxes increased 31% to $245,000 in
first quarter 1996 from $187,100 in the comparable 1995 period for the reasons
stated above, offset by a small $2,400 decrease in net interest income.
Net income for first quarter 1996 was $149,900 an increase of 32% from 1995
first quarter income of $113,800. The effective estimated provision for federal
and state income taxes remained constant between the reported periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including working capital, acquisitions, and the purchase of equipment. The
Company uses cash generated from operations, borrowings under its credit
facilities and the sale of equity in private placements to fund these
requirements.
Working capital at March 31, 1996 increased $133,000, or 10% since December
31, 1995. The increase is primarily attributable to a $183,000 increase in
accounts receivable, reflective, in part, of the Company's rapid growth in the
sale of network services and $205,000 aggregate decrease in accrued independent
sales representatives (ISR) fees on the phase out of the 1995 ISR & Commission
plans, taxes payable and accrued bonuses, offset by increased borrowings of the
Company's line of credit and a reduction in cash. The Company added over
$100,000 in fixed assets, primarily vehicles and computer equipment in the first
quarter in support of its sales efforts.
Ameritech has advised the Company and other authorized distributors of a
change in payment of sales commissions, which change is to take effect in the
second half of 1996. Under the revised payment program, a portion of the earned
commission will be deferred and paid over the term of the customer contract.
The effect of the change on the Company will be to lengthen the collection
period of receivables, adversely affecting working capital.
Approximately $320,000 in unused borrowing availability existed under the
Company's credit facility at March 31, 1996. The Company believes that funds
available under its credit facility, cash reserves and funds generated from
operations will be sufficient to provide the liquidity necessary to fund its
anticipated existing capital and operational requirements over the next twelve
months. The Company is investigating additional acquisitions that could require
other sources of funding, including additional private placements or other debt
or equity offerings.
FORWARD-LOOKING STATEMENTS.
Certain statements contained in this report that are not historical facts
are forward-looking
Page 13 of 14
<PAGE>
statements that are subject to certain risks and uncertainties that could cause
actual results to differ materially from those set forth in the forward-looking
statement. These risks and uncertainties include, but are not limited to,
changes arising from greater competition in local telephone service attributable
to passage of the Telecommunications Act, the introduction of competitors into
the market, the ability of the Company to integrate Seraphim operations into the
Company, the availability of other acquisitions and the integration of the
operations of those acquisitions, if completed, into the Company, general
economic conditions, and other risk factors discussed herein.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - None.
B. Reports on Form 8-K
On February 8, 1996, the Registrant filed a Current Report on a Form 8-K
dated January 25, 1996 relating to the acquisition of Seraphim Information
Systems, Inc. An Amendment to the Current Report was filed on March 24, 1996
containing Seraphim's financial statements and pro forma financial information
of the Registrant for the required periods.
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TELECOMM INDUSTRIES CORP.
(Registrant)
----------------------------------------
Andrew G. Gorogiani
President
Date: June 28, 1996 (Chief Executive Officer)
----------------------------------------
Frank Campanale
Treasurer
(Chief Accounting Officer and Chief
Date: June 28, 1996 Financial Officer)
Page 14 of 14
