<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: June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-4410.
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TELECOMM INDUSTRIES CORP.
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(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
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(Address of principal executive offices)
216-953-1400
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(Issuer's telephone number)
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(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
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Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of July 31, 1996: 9,607,791.
Transitional Small Business Disclosure Format:
Yes No X
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Page 1 of 13
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TELECOMM INDUSTRIES CORP. AND SUBSIDIARIES
INDEX
Part I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements (unaudited) 3
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 4
Consolidated Statements of Income -
three and six months ended June 30, 1996 and June 30, 1995 5
Consolidated Statements of Cash Flows -
six months ended June 30, 1996 and June 30, 1995 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 9
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Page 2 of 13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The Registrant's Financial Statements follow this page.
Page 3 of 13
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited) ASSETS 1996 1995
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<S> <C> <C>
Current Assets:
Cash $ 480,461 $ 575,367
Note receivable - current portion 61,200 61,200
Accounts receivable 1,816,075 1,348,997
Inventory 372,140 199,610
Prepaid expenses 81,795 145,567
Employee advances 35,603 29,420
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Total current assets $ 2,847,274 $ 2,360,161
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Property and equipment - at cost, net of accumulated depreciation of $186,420
and $131,323 at June 30, 1996 and December 31, 1995, respectively 438,942 364,297
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Other assets:
Note receivable, less current portion 359,958 $ 375,446
Intangibles, net of accumulated amortization of $15,006 and $11,606 at
June 30, 1996 and December 31, 1995, respectively 84,476 87,876
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444,434 463,322
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Total assets $ 3,730,650 $ 3,187,780
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 278,613 $ 126,000
Current portion of long-term debt 98,168 98,168
Accounts payable - trade 203,756 143,388
Payroll taxes payable 60,978 17,987
Other accrued expense 12,392 16,190
Deferred income taxes -- --
Accrued commissions and contractor fees 324,574 318,869
Income taxes payable 184,196 162,130
Accrued bonuses 106,866 142,000
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Total current liabilities 1,269,543 1,024,732
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Long-term liabilities:
Long-term debt, less current portion 94,437 137,120
Deferred income taxes 158,900 158,900
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Total liabilities 1,522,880 1,320,752
Stockholders' equity:
Common stock $.01 par value; authorized - 10,000,000 shares; issued -
9,742,791; outstanding - 9,607,791, at June 30, 1996 and
December 31, 1995 respectively 96,078 96,078
Additional paid-in capital 2,145,706 2,145,706
Receivables from stockholders (106,119) (163,202)
Accumulated earnings (deficit) 72,105 (211,554)
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Total stockholders' equity 2,207,770 1,867,028
Commitments -- --
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Total liabilities and stockholders' equity $ 3,730,650 $ 3,187,780
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
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Net revenues $ 4,246,182 $ 2,687,347
Commissions, contractor fees and related expenses 1,525,600 1,215,880
Selling, general and administrative expenses 2,254,732 1,117,678
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Operating income 465,850 353,787
Other income (expense):
Gain (loss) on disposal of assets (870) --
Interest income 27,247 32,475
Interest expense (19,467) (12,965)
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6,910 19,510
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Income from continuing operations before income tax
expense 472,760 373,297
Income tax expense 189,100 119,000
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Net income $ 283,660 $ 254,297
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Earnings per common and common equivalent share:
Net Income 0.03 0.03
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------------ ------------
Number of shares used in computing earnings per
common and common equivalent share 9,607,791 8,607,791
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------------ ------------
Dividends per common share -- --
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTER ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
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Net revenues $ 2,315,419 $ 1,318,944
Commissions, contractor fees and related expenses 864,788 533,107
Selling, general and administrative expenses 1,224,415 611,440
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Operating income 226,216 174,397
Other income (expense):
Gain (loss) on disposal of assets (870) --
Interest income 14,193 18,593
Interest expense (11,727) (6,796)
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1,596 11,797
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Income from continuing operations before income
tax expense 227,812 186,194
Income tax expense 94,100 45,700
Net income $ 133,712 $ 140,494
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Earnings per common and common equivalent share:
Net Income 0.01 0.02
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Number of shares used in computing earnings per
common and common equivalent share 9,607,791 8,607,791
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------------ ------------
Dividends per common share -- --
------------ ------------
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND DECEMBER 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income: $ 283,660 $ 205,087
Adjustments to reconcile to net cash (used) provided by
operating activities:
Expenses not requiring the use of cash:
Depreciation and amortization 58,497 74,067
Deferred taxes -- (56,100)
(Loss) gain on sale of fixed assets -- (731)
Changes in assets and liabilities:
Accounts receivable (467,078) (765,435)
Inventory (172,531) (47,089)
Prepaid expenses 63,772 (106,724)
Employee advances (6,183) (29,420)
Security deposits -- 318
Accounts payable 60,368 (101,693)
Accrued expenses (3,798) 11,697
Payroll taxes payable 42,991 3,760
Accrued commissions and contractor fees 5,705 211,059
Income taxes payable 22,066 108,565
Accrued bonuses (35,134) 132,000
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Total adjustments (431,325) (565,726)
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Net cash (used) provided by operating
activities (147,665) (360,639)
Cash flows from investing activities:
Proceeds from sale of fixed assets 15,595 11,196
Purchases of fixed assets (145,337) (247,611)
Proceeds from stockholders receivables 57,083 138,764
Issuance of stockholders receivables -- (163,202)
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Net cash used in investing activities (72,659) (260,853)
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Cash flows from financing activities:
Payments on long-term debt (76,495) (21,441)
Proceeds from issuance of common stock to employees -- 65,000
Proceeds from sale of common stock -- 745,000
Proceeds from long-term debt 33,812 --
Decrease in notes receivable 15,488 143,353
Net borrowings under line of credit 152,613 113,500
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Net cash provided by financing activities 125,418 1,045,412
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Net increase in cash (94,906) 423,920
Cash at beginning of year 575,367 151,447
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Cash at end of year $ 480,461 $ 575,367
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</TABLE>
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TELECOMM INDUSTRIES CORP.
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 Telecomm Industries Corp. (the "Company"), the
accompanying unaudited consolidated condensed interim financial statements
reflect all adjustments necessary to present fairly the financial position of
the Company as of June 30, 1996 and the results of its operations.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Telecomm Industries Corp. (the "Company") was incorporated on December 13,
1967, and until December 1993, its name was Scoto Data Com., Inc. The Company
has three wholly owned subsidiaries, Centel Corporation d/b/a Teleco ("Teleco"),
Authorized Network Distributors, Inc. ("AND"), and Netserve Corporation. 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. ("Seraphim"), an Ameritech Authorized Distributor of data services and
integrated hardware and software networking solutions in northern Illinois.
Teleco distributes 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 make the
Company one of the largest Authorized Ameritech Distributors of voice and data
transmission services.
In order to stimulate internal growth, in 1995 the Company adopted an
aggressive commission policy to actively attract and keep skilled, experienced
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
Second Quarter of 1996 Compared to Second Quarter of 1995
Net revenues for the second quarter increased 77% to $2.31 million from the
comparable 1995 period. Sales of equipment and interconnect services increased
17% from the comparable 1995 period. The increase was attributable to new
equipment, telephone and data sales during the quarter. Sales to the existing
customer base increased 1% compared to the second quarter of 1995. Sales of
network services increased 60%, or $597,600, compared to the second quarter of
1995.
Commissions, contractor fees and related expenses increased $331,600, a 62%
increase from the second quarter of 1995. The increase was due primarily to
increased costs of labor and equipment to support additional sales in the
quarter.
Page 9 of 13
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Selling, general and administrative expenses ("SG&A") increased $613,000
compared to the second quarter of 1995. The increase of 101% was incurred to
support the management of additional sales offices and procurement of highly
focused sales personnel.
Income before income taxes increased 22% to $227,800 from $186,200 in the
comparable 1995 period for the reasons stated above, with a small increase of
$1,600 from investing activities net of interest earned and paid.
Net income decreased $6,800, a 5% decrease from the comparable 1995 period.
The provision for income taxes increased due to higher earnings, changing the
effective tax rate for state and federal income taxes by 17%.
First Six Months of 1996 Compared to First Six Months of 1995
Net revenues increased 58% to $4.24 million for the first six months of
1996 from $2.68 million in the comparable 1995 period. The increase reflects a
55% increase in sales of network services to $1.52 million, partially credited
to the extensive marketing efforts commenced in late 1995, as well as the
opening of new and continued expansion of existing sales offices. Sales of
equipment and interconnect services increased 3% from the comparable 1995
period, primarily due to increased data equipment sales.
Commission, contractor fees and related expenses increased 25% to
$1,525,600 in the first six months of 1996 compared to the same period in 1995,
reflecting the Company's shift from an external sales force of independent
representatives to a combined sales force of internal salesman and field
representatives.
SG&A increased by 101% to $2.25 million in the first six months of 1996
from $1.12 million in the first six months of 1995. Substantially all of
such increase is attributable to increased sales force salaries and sales
office expenses, which were responsible for the revenue growth discussed
above.
Income from continuing operations before taxes increased 53% to $472,800 in
the first six months of 1996 from $373,300 in the comparable 1995 period for the
reasons stated above, offset in part by a decrease of $52,000 in net interest
income and a net increase in interest expense of $6,500.
Net income for the first six months of 1996 was $283,700, an increase of
11% from the first six months income of $254,300 for 1995. The effective
estimated provision for federal and state income taxes is reflective of the
Company's earnings for the reported periods.
Page 10 of 13
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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 June 30, 1996 increased $242,000, or 80%, since March
31, 1996. The increase is primarily attributable to a $467,000 increase in
accounts receivable, reflective, in part, of the Company's rapid growth in the
sale of network services, and a $172,000 increase in inventory due to purchases
of data and telephone equipment sold yet not installed at June 30, 1996, offset
in part by increased borrowings of the Company's line of credit and a reduction
in cash. The Company added over $145,000 in fixed assets, primarily vehicles
and computer equipment, in the first half of 1996 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 $321,000 in unused borrowing availability existed under the
Company's credit facility at June 30, 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 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. These risks must be considered by an investor or potential
investor in the Company.
Page 11 of 13
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 23, 1996, the Board of Directors of the Company adopted an amendment
to the Certificate of Incorporation authorizing an increase in the number of
shares of Common Stock from 10,000,000 to 20,000,000. The additional shares
would be available for issuance in acquisitions and private or public offerings.
The proposed amendment is scheduled to be submitted to the stockholders of the
Company for approval in the third quarter of 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
None
Page 12 of 13
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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.
Date: August 22, 1996 /s/ Andrew G. Gorogiani
-------------------------------------
Andrew G. Gorogiani, President
Date: August 22, 1996 /s/ Frank Campanale
-------------------------------------
Frank Campanale, Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 480,461
<SECURITIES> 0
<RECEIVABLES> 1,877,275
<ALLOWANCES> 0
<INVENTORY> 372,140
<CURRENT-ASSETS> 2,847,274
<PP&E> 625,362
<DEPRECIATION> (186,420)
<TOTAL-ASSETS> 3,730,650
<CURRENT-LIABILITIES> 1,269,543
<BONDS> 0
0
0
<COMMON> 96,078
<OTHER-SE> 2,111,692
<TOTAL-LIABILITY-AND-EQUITY> 3,730,650
<SALES> 0
<TOTAL-REVENUES> 4,246,182
<CGS> 0
<TOTAL-COSTS> 1,525,600
<OTHER-EXPENSES> 2,228,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,467
<INCOME-PRETAX> 472,760
<INCOME-TAX> 189,100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,660
<EPS-PRIMARY> .03
<EPS-DILUTED> 0.0
</TABLE>
