<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
__________,19 ___ .
Commission File Number:
0-27778
Premiere Technologies, Inc.
(Exact name of registrant as specified in its charter)
Georgia 59-3074176
(State or other jurisdiction of (I.R.S. Employer Identi-
incorporation or organization) fication No.)
3399 Peachtree Road NE
The Lenox Building, Suite 400
Atlanta, Georgia 30326
(Address of principal executive offices, including zip code)
(404) 237-2911
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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.
(1) Yes X No (2) Yes X No .
--------- ------- -------- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 13, 1996
- - ----------------------------- ----------------------------------
Common Stock, $0.01 par value 20,730,868 shares
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PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO FORM 10-Q
PAGE
----
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996 3
Condensed Consolidated Statements of
Operations for the Three Months and Six
Months Ended June 30, 1995 and 1996 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
1995 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBITS INDEX 15
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
December 31,1995 June 30, 1996
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,981,144 $ 2,095,612
Investments 3,515,782 78,842,899
Accounts receivable (less allowance for doubtful accounts of
$107,613 and $423,216, respectively) 3,013,185 4,453,859
Due from related parties 276,477 35,243
Prepaid expenses and other 497,746 920,145
Deferred tax asset, net 2,533,403 1,634,163
---------------- ----------------
Total current assets 11,817,737 87,981,921
---------------- ----------------
PROPERTY AND EQUIPMENT 5,734,992 9,300,715
Less: accumulated depreciation (980,943) (1,724,931)
---------------- ----------------
Net property and equipment 4,754,049 7,575,784
---------------- ----------------
OTHER ASSETS:
Deferred software development costs, net 78,105 59,330
Due from related parties 100,672 100,984
Other 237,099 172,271
---------------- ----------------
$ 16,987,662 $ 95,890,290
=============== ===============
The accompanying notes are an integral part of these condensed consolidated balance sheets.
3
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PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
December 31,1995 June 30, 1996
---------------- --------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 849,584 $ 724,440
Accrued payroll 357,345 442,504
Accrued transmission 1,325,094 2,572,157
Accrued sales taxes 780,661 875,159
Accrued bonuses 15,000 337,836
Accrued construction costs 883,850 235,078
Other accrued expenses 887,726 1,313,308
Unearned revenue 352,541 1,153,066
Current portion of capital lease obligation 172,422 305,481
Dividends payable on preferred stock 647,644 0
Notes payable 10,500 10,500
---------------- ----------------
Total current liabilities 6,282,367 7,969,529
---------------- ----------------
LONG TERM LIABILITIES:
Notes payable 1,915,192 21,000
Obligation under capital lease 355,160 354,042
Deferred tax liability 242,216 242,216
---------------- ----------------
Total long-term liabilities 2,512,568 617,258
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Series A convertible, redeemable 8% cumulative preferred stock,
$0.01 par value; 5,000,000 shares authorized, 128,983 and 0 shares
issued and outstanding, respectively, converted to common stock 3,906,500 0
Common Stock, $0.01 par value; 150,000,000 shares
authorized, 12,367,920 and 20,640,868 shares issued and
outstanding, respectively 123,679 206,409
Additional paid-in capital 7,237,795 85,982,847
Subscriptions receivable (2,436,703) 0
Stock warrants outstanding 243,760 12,613
(Accumulated deficit) retained earnings (882,304) 1,101,634
---------------- ----------------
Total shareholders' equity 8,192,727 87,303,503
---------------- ----------------
$ 16,987,662 $ 95,890,290
================ ================
The accompanying notes are an integral part of these condensed consolidated balance sheets.
4
</TABLE>
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<TABLE>
<CAPTION>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
Three Months Ended Six Months Ended
---------------------------- ---------------------------
-------------- ------------ ------------ -------------
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
-------------- ------------ ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Subscriber services $ 3,235,211 $ 8,536,645 $ 5,666,593 $ 15,740,961
License fees 1,086,876 2,788,868 1,988,440 5,085,141
Hospitality services 291,647 270,484 562,668 525,290
Other revenues 37,504 89,753 83,397 427,480
-------------- ------------- ------------ ---------------
Total revenues 4,651,238 11,685,750 8,301,098 21,778,872
COST OF SERVICES 1,612,313 3,982,755 2,863,715 7,433,696
-------------- ------------- ------------ ---------------
GROSS MARGIN 3,038,925 7,702,995 5,437,383 14,345,176
-------------- ------------- ------------ ---------------
OPERATING EXPENSES:
Selling and marketing 1,455,358 4,129,473 2,650,959 7,782,978
General and administrative 950,495 2,129,738 1,741,004 3,841,041
Depreciation and amortization 145,267 423,987 262,063 768,474
-------------- ------------- ------------ ---------------
Total operating expenses 2,551,120 6,683,198 4,654,026 12,392,493
-------------- ------------- ------------ ---------------
OPERATING INCOME 487,805 1,019,797 783,357 1,952,683
-------------- ------------- ------------ ---------------
OTHER INCOME (EXPENSE):
Interest income 65,502 802,840 131,137 1,069,026
Interest expense (93,752) (17,587) (175,394) (108,060)
Other, net 23,316 16,976 35,470 12,413
-------------- ------------- ------------ ---------------
Total other income (expense) (4,934) 802,229 (8,787) 973,379
-------------- ------------- ------------ ---------------
NET INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 482,871 1,822,026 774,570 2,926,062
PROVISION FOR INCOME TAXES 93,775 482,316 150,393 853,536
-------------- ------------- ------------ ---------------
NET INCOME BEFORE EXTRAORDINARY LOSS 389,096 1,339,710 624,177 2,072,526
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF TAX EFFECT OF $37,880 0 0 0 59,251
-------------- ------------- ------------ ---------------
NET INCOME 389,096 1,339,710 624,177 2,013,275
PREFERRED STOCK DIVIDENDS 77,105 0 154,209 0
-------------- ------------- ------------ ---------------
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 311,991 $ 1,339,710 $ 469,968 $ 2,013,275
============= ============= ============ ===============
PRO FORMA INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS FOR PRIMARY EARNINGS PER SHARE $ 373,304 $ 1,687,225 $ 667,735 $ 2,533,775
============= ============= ============ ===============
PRO FORMA INCOME PER COMMON AND COMMON
EQUIVALENT SHARES: Primary $ 0.02 $ 0.07 $ 0.04 $ 0.12
============= ============= ============ ===============
SHARES USED IN COMPUTING EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARES: Primary 18,752,938 23,421,843 18,965,927 21,653,786
============= ============= ============ ===============
The accompanying notes are an integral part of these condensed consolidated statements.
5
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PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 624,177 $ 2,013,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 262,063 768,474
Amortization of note discount 22,718 8,677
Loss on early extinguishment of debt 0 97,131
Loss on sale of asset 0 17,672
Changes in assets and liabilities:
Accounts receivable, net (593,782) (1,440,674)
Prepaid expenses and other (343,583) (357,571)
Deferred tax asset 0 899,240
Accounts payable 269,913 (125,144)
Accrued expenses 786,095 1,526,366
Unearned revenue 215,175 800,525
-------------- ---------------
Total adjustments 618,599 2,194,696
-------------- ---------------
Net cash provided by operating activities 1,242,776 4,207,971
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (886,594) (3,358,185)
Purchase of investments, net 963 (75,327,117)
Due from related parties, net 55,839 240,922
-------------- ---------------
Net cash used in investing activities (829,792) (78,444,380)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 0 74,666,094
Principal payments under capital lease obligation (56,612) (98,979)
Proceeds from issuance of note payable 54,000 0
Early extinguishment of debt 0 (2,000,000)
Payment of dividends on preferred stock 0 (676,981)
Proceeds from payments of subscriptions receivable 0 2,436,703
Proceeds from exercise of stock options 0 24,040
-------------- --------------
Net cash (used in) provided by financing activities (2,612) 74,350,877
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 410,372 114,468
CASH AND CASH EQUIVALENTS, beginning of period 1,513,528 1,981,144
------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 1,923,900 $ 2,095,612
=============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 146,276 $ 99,384
=============== ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE>
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements, with the
exception of the December 31, 1995 condensed consolidated balance sheet, are
unaudited and have been prepared by the management of Premiere Technologies,
Inc. (the "Company") in accordance with the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures usually found in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of the management of the Company, all adjustments,
(consisting of only normal recurring adjustments) considered necessary for fair
presentation of the condensed consolidated financial statements have been
included, and the accompanying condensed consolidated financial statements
present fairly the financial position and the results of operations for the
interim periods presented. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
included in the Company's Registration Statement on Form S-1 (Reg. No. 33-
80547), as amended, declared effective by the Securities and Exchange Commission
on March 4, 1996.
2. Initial Public Offering
The Company issued 4,570,000 shares of its $0.01 par value common stock in
an initial public offering in March 1996. Proceeds to the Company, net of
the underwriting discount and expenses of the offering, were $74,666,094.
The Company plans to use approximately $10.8 million of the net
proceeds to invest in expansion and enhancement of the Company's network
management system and related network and the Company's other infrastructure,
has already used approximately $2.0 million to repay indebtedness,
and will retain the remaining net proceeds for working capital and
other general corporate purposes.
3. Earnings Per Share
Primary net income per share is computed under the modified treasury
stock method using the weighted average number of shares of common stock and
dilutive common stock equivalent shares ("CSEs") from stock options. The
modified treasury stock method was used for CSEs issued earlier than the 12-
month period prior to the initial filing of the Registration Statement relating
to the Company's initial public offering. Under the modified treasury stock
method, proceeds from the exercise of CSEs consist of the exercise price of the
CSEs, as well as the related income tax benefit to the Company. CSE proceeds are
assumed to be applied first to repurchase up to 20% of the Company's common
stock, and then to repay outstanding long term indebtedness. Any remaining CSE
proceeds are assumed to be invested in U.S. Government securities.
In determining the Company's primary net income per share under the
modified treasury stock method, net income per share applicable to common
shareholders has been adjusted on a pro forma basis to reflect the decrease in
interest expense related to a capitalized lease obligation and to loans payable
to a licensed small business investment company ("SBIC") that were repaid in
full in the first quarter of 1996. To the extent that excess proceeds from the
assumed exercise of outstanding options and tax benefits from the assumed
exercise were in excess of the capitalized lease obligation and the SBIC
loans, an increase in interest income related to the investment of such excess
proceeds in U.S. Government securities is reflected in adjusted net income
per share applicable to common shareholders. The pro forma net interest
adjustment to primary net income per share under the modified treasury stock
method was $61,313 and $347,515 for the three months ended June 30, 1995
and 1996, respectively, and $197,767 and $520,500 for the six months ended June
30, 1995 and 1996, respectively.
Fully diluted net income per common and common equivalent shares is
computed by including convertible instruments which are not CSEs in the weighted
average per share calculation (using the modified treasury stock method) at
period-end market value of stock prices. To the extent that the
convertible securities are anti-dilutive, they are not included in the fully
diluted net income per common and common equivalent shares. To the extent
that period-end market value of stock prices is less than the average market
7
<PAGE>
value for the period, then the average market value is used for fully
diluted net income per common and common equivalent shares. For all periods
presented, the inclusion of convertible securities in the fully diluted
calculation are anti-dilutive. Accordingly, fully diluted earnings per share
data is not presented.
4. Commitments and Contingencies
The Company has entered into a subscription agreement to purchase 50 shares
of the common stock of EBIS Communications, Inc. ("EBIS"), a Georgia
corporation, for an aggregate purchase price of $5,000,000, of which $2,500,000
is payable upon demand of the Board of Directors of EBIS and the balance of
which is payable upon demand of the Board of Directors on each of August 1,
September 1, October 1, November 1 and December 1, 1996. As of the date of this
filing, the Board of Directors has not made any demand for payment and no
payment has been made by the Company.
On August 6, 1996, Communications Network Corporation ("CNC"), a licensing
customer of the Company, was placed into bankruptcy under Chapter 11 of the
United States Bankruptcy Code. CNC accounted for approximately 57.1% and 52.9%
of the Company's licensing revenues in the three months ended June 30, 1996 and
the six months ended June 30, 1996, respectively, and approximately 13.7% and
12.4% of the Company's total revenues in the three months ended June 30, 1996
and the six months ended June 30, 1996, respectively. The Company is owed
approximately $627,000 by CNC; however, the transmission provider (WorldCom
Network Services, Inc.) for CNC is also obligated to pay this amount to the
Company. See "Management's Discussion and Analysis of Financial condition and
Results of Operations for further discussion.
On June 28, 1996, AudioFAX IP LLC ("AudioFAX") filed a complaint against
the Company and its subsidiary, Premiere Communications, Inc. in the United
States District Court for the Northern District of Georgia. In the complaint,
AudioFAX alleges that the Company manufactures, uses, sells and/or distributes
certain enhanced facsimile products which infringe three United States patents
and one Canadian patent allegedly held by AudioFAX. AudioFAX seeks injunctive
relief, three times an unspecified amount of damages, prejudgment interest,
attorneys' fees and expenses of litigation and court costs. The Company has
filed an answer to the complaint in which it denies plaintiff's allegations,
asserts various affirmative defenses and seeks declaratory judgment regarding
noninfringement and patent invalidity. Prior to receiving the complaint, the
Company obtained an opinion from outside patent counsel to the effect that the
Company's enhanced facsimile service does not infringe any of the United States
patents held by AudioFAX, and also obtained a concurring opinion from separate
patent counsel engaged to review the initial opinion. Based on these opinions
and other considerations, the Company believes that it has meritorious defenses
to the AudioFAX complaint; however, due to the inherent uncertainties of the
judicial system, the Company is unable to predict the outcome of this
litigation. If the outcome of the litigation is adverse to the Company, it could
have a material adverse effect on the Company's business, operating results and
financial condition.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended June 30, 1995 Compared to Three Months Ended
June 30, 1996
Revenues. Total revenues increased $7.0 million or 148.9% from $4.7 million in
the three months ended June 30, 1995 to $11.7 million in the three months ended
June 30, 1996. Subscriber services revenues increased $5.3 million or 165.6%
from $3.2 million in the three months ended June 30, 1995 to $8.5 million in the
three months ended June 30, 1996. This increase was due almost entirely
to increased revenues from Premiere WorldlLink subscriber services
resulting primarily from response to the Company's print advertising campaign,
which was substantially expanded after the first quarter of 1995. Additional co-
branded relationships were in existence during the three months ended June 30,
1996, which also contributed to the growth in Premiere Worldlink subscriber
services revenues. Revenues from AFCOM subscriber services remained stable.
License fee revenues increased $1.7 million or 154.5% from $1.1 million in the
three months ended June 30, 1995 to $2.8 million in the three months ended June
30, 1996. This increase was due to the establishment of additional licensing
relationships and increased revenues from existing licensees. Hospitality
services revenues remained stable. Other services revenues increased $52,000 or
136.8% from $38,000 in the three months ended June 30, 1995 to $90,000 in the
three months ended June 30, 1996.
8
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Cost of Services. Cost of services increased $2.4 million or 150.0% from $1.6
million in the three months ended June 30, 1995 to $4.0 million in the three
months ended June 30, 1996, but remained stable as a percentage of revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased $2.6
million or 173.3% from $1.5 million in the three months ended June 30, 1995 to
$4.1 million in the three months ended June 30, 1996, and increased as a
percentage of revenues from 31.9% to 35.0%. This increase was due to greater
expenditures on print advertising and other selling and marketing costs related
to the increase in subscribers and revenues.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million or 126.3% from $950,000 in the three months ended June
30, 1995 to $2.1 million in the three months ended June 30, 1996. This increase
was due primarily to increased numbers of employees and related expenses to
support the Company's growth. These expenses decreased as a percentage of
revenues from 20.2% in the three months ended June 30, 1995 to 17.9% in the
three months ended June 30, 1996. This decrease was attributable primarily to
increased operating leverage due to higher revenues.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $279,000 or 192.4% from $145,000 in the three months ended June 30,
1995 to $424,000 in the three months ended June 30, 1996. This increase was due
primarily to depreciation of additional equipment acquired during the second
half of 1995 and the six months ended June 30, 1996.
Operating Income. Operating income increased $512,000 or 104.9% from $488,000
in the three months ended June 30, 1995 to $1.0 million in the three months
ended June 30, 1996.
Interest Income. Interest income increased $737,000 or 1,116.7% from $66,000 in
the three months ended June 30, 1995 to $803,000 in the three months ended June
30, 1996. This increase was attributable to the Company's investment of the net
proceeds from its initial public offering.
Interest Expense. Interest expense decrease $76,000 or 80.9% from $94,000 in
the three months ended June 30, 1995 to $18,000 in the three months ended June
30, 1996. This decrease is attributable to the early extinguishment of long-term
debt.
Income Taxes. Income taxes on net income increased $388,000 or 412.8% from
$94,000 (an effective tax rate of 19.5%) in the three months ended June 30, 1995
to $482,000 (an effective tax rate of 26.8%) in the three months ended June 30,
1996. The Company's effective tax rate was less than the statutory rate due to
the use of net operating loss carryforwards in the second quarter of 1995 and
the Company's investment of the net proceeds of its initial public offering in
tax free instruments in the second quarter of 1996.
Net Income. As a result of the foregoing, net income increased $911,000 or
234.2% from $389,000 in the three months ended June 30, 1995 to $1.3 million in
the three months ended June 30, 1996. Net income as a percentage of revenues
increased from 8.3% in the three months ended June 30, 1995 to 11.1% in the
three months ended June 30, 1996.
9
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Six Months Ended June 30, 1995 Compared to Six Months Ended
June 30, 1996
Revenues. Total revenues increased $13.5 million or 162.7% from $8.3 million in
the six months ended June 30, 1995 to $21.8 million in the six months ended June
30, 1996. Subscriber services revenues increased $10.0 million or 175.4% from
$5.7 million in the six months ended June 30, 1995 to $15.7 million in the six
months ended June 30, 1996. This increase was due almost entirely to increased
revenues from Premiere Worldlink subscriber services resulting primarily from
the Company's print advertising campaign, which was substantially expanded after
the first quarter of 1995 through the first six months of 1996. Additional co-
branded relationships were in existence during the six months ended June 30,
1996, which also contributed to the growth in Premiere Worldlink subscriber
services revenues. Revenues from AFCOM subscriber services remained stable.
License fee revenues increased $3.1 million or 155.0% from $2.0 million in the
six months ended June 30, 1995 to $5.1 million in the six months ended June 30,
1996. This increase was due to the establishment of additional licensing
relationships and increased revenues from existing licensees. Hospitality
services revenues remained stable. Other services revenues increased $344,000 or
414.5% from $83,000 in the six months ended June 30, 1995 to $427,000 in the six
months ended June 30, 1996. Approximately $240,000 of this increase is
attributable to nonrecurring system design and development revenue in the first
quarter of 1996.
On August 6, 1996, CNC, a licensing customer of the Company, was placed into
bankruptcy under Chapter 11 of the United States Bankruptcy Code. CNC accounted
for approximately 57.1% and 52.9% of the Company's licensing revenues in the
three months ended June 30, 1996 and the six months ended June 30, 1996,
respectively, and approximately 13.7% and 12.4% of the Company's total revenues
in the three months ended June 30, 1996 and the six months ended June 30, 1996,
respectively. The Company is owed approximately $627,000 by CNC; however, the
transmission provider (WorldCom Network Services, Inc.) for CNC is also
obligated to pay this amount to the Company. The Company has entered into
several licensing agreements since July 1 which provide for combined minimum
payments through September, 30, 1996 that exceed the revenues from CNC during
the three months ended June 30, 1996. While these licensing agreements do not
provide for this same level of minumum payments after September 30, 1996, the
Company believes that through a combination of new licensing agreements and
increased revenues from existing licensees, the Company should be able to
replace substantially all of the CNC revenue after September 30, although such
replacement is not assured.
Cost of Services. Cost of services increased $4.5 million or 155.2% from $2.9
million in the six months ended June 30, 1995 to $7.4 million in the six months
ended June 30, 1996, but remained stable as a percentage of revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased $5.1
million or 188.9% from $2.7 million in the six months ended June 30, 1995 to
$7.8 million in the six months ended June 30, 1996, and increased as a
percentage of revenues from 32.5% to 35.8%. This increase was due to greater
expenditures on print advertising and other selling and marketing costs related
to the increase in subscribers and revenues.
General and Administrative Expenses. General and administrative expenses
increased $2.1 million or 123.5% from $1.7 million in the six months ended June
30, 1995 to $3.8 million in the six months ended June 30, 1996. This increase
was due primarily to increased numbers of employees and related expenses to
support the Company's growth. These expenses decreased as a percentage of
revenues from 20.5% in the six months ended June 30, 1995 to 17.4% in the six
months ended June 30, 1996. This decrease was attributable primarily to
increased operating leverage due to higher revenues.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased $506,000 or 193.1% from $262,000 in the six months ended June 30, 1995
to $768,000 in the six months ended June 30, 1996. This increase was due
primarily to depreciation of additional equipment acquired during the second
half of 1995 and the six months ended June 30,1996.
10
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Operating Income. Operating income increased $1.2 million or 153.3% from
$783,000 in the six months ended June 30, 1995 to $2.0 million in the six months
ended June 30, 1996.
Interest Income. Interest income increased $1.0 million or 763.4% from $131,000
in the six months ended June 30, 1995 to $1.1 million in the six months ended
June 30, 1996. This increase was attributable to the Company's investment of the
net proceeds from its initial public offering.
Interest Expense. Interest expense decreased $67,000 or 38.3% from $175,000 in
the six months ended June 30, 1995 to $108,000 in the six months ended June 30,
1996.
Income Taxes. Income taxes on net income before extraordinary loss increased
$704,000 or 469.3% from $150,000 (an effective tax rate of 19.4%) in the six
months ended June 30, 1995 to $854,000 (an effective tax rate of 29.4%) in the
six months ended June 30, 1996. The Company's effective tax rate was less than
the statutory rate due to the use of net operating loss carryforwards in the
first quarter of 1995 and the Company's investment of the net proceeds of its
initial public offering in tax free instruments in the first quarter of 1996.
Extraordinary Loss. As a result of the early extinguishment of debt, the
Company recognized an extraordinary loss of $59,000, net of the income tax
effect of $38,000, in the six months ended June 30, 1996. This debt consisted of
two $1.0 million loans obtained from an SBIC in 1992 and 1993. The extraordinary
loss resulted from the write-off of the remaining unamortized discount related
to stock warrants issued in connection with the loans.
Net Income. As a result of the foregoing, net income increased $1.4 million or
224.4% from $624,000 in the six months ended June 30, 1995 to $2.0 million in
the six months ended June 30, 1996. Net income as a percentage of revenues
increased from 7.5% in the six months ended June 30, 1995 to 9.2% in the six
months ended June 30, 1996. Without giving effect to the Company's extraordinary
loss, the Company's net income as a percentage of revenues would have been 9.6%
in the six months ended June 30, 1996.
Liquidity and Capital Resources
The Company's primary sources of funds are from current amounts of cash
and cash equivalents (including the net proceeds of the Company's initial public
offering) and operations. The Company's principal uses of cash are for working
capital and capital expenditures.
The Company anticipates using initial public offering proceeds to expand
and enhance its network management system and related network and other
infrastructure. This includes enhancements to the database as well as
establishing the Company's platform site in Dallas, Texas, and the installation
of telnodes and related telecommunications interface equipment managers in the
United Kingdom and a proposed site in New Zealand. This estimate includes actual
expenditures as of June 30, 1996 of approximately $70,000 and $12,000 for the
Dallas and United Kingdom projects, respectively.
The Company believes that funds provided by operations and current amounts
of cash, cash equivalents, and short-term investments, including the net
proceeds of the Company's initial public offering, will be sufficient to meet
its presently anticipated needs for working capital and capital expenditures.
Forward-Looking Statements
Item 2 of Part I contains certain forward-looking statements and
projections (including statements concerning plans and objectives of management
for future operations and services and statements concerning certain revenue
expectations) that are based on management's belief as well as assumptions made
by, and information currently available to, management. The Company's actual
results might differ materially from the plans envisioned in, or results
projected by, those statements if the Company's assumptions prove to be
incorrect or for a variety of other reasons, including those relating to factors
identified in the Company's Prospectus dated March 5, 1996 and its Quarterly
Reports on Form 10-Q for the first two fiscal quarters of 1996, as filed with
the Securities and Exchange Commission.
11
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed in the Company's Registration Statement on Form S-1
(Reg. No. 33-80547), as amended, relating to the Company's March 1996 initial
public offering, on January 30, 1996, Eric Bott, E.B. Elliott and Cost Recovery
Systems, Inc. ("CRS") filed a complaint against the Company's subsidiary,
Premiere Communications, Inc., and the Company's President, Boland T. Jones, in
the Superior Court of Fulton County, Georgia. In the complaint, the plaintiffs
allege that: (i) Mr. Bott, a former Company employee, is entitled to options to
purchase 10,000 shares of common stock of Premiere Communications, Inc. at $5.00
per share; (ii) Mr. Bott is entitled to a commission equal to 10% of all
revenues that have been and in the future are collected as a result of the
Company's licensing arrangement with one of its customers; (iii) Mr. Bott is
entitled to $7,000 for consulting work allegedly performed for the Company; (iv)
Mr. Bott is entitled to unspecified damages resulting from his sale in June 1995
of 750 shares of common stock of Premiere Communications, Inc. to an unrelated
third party for an unspecified amount; (v) Mr. Elliott or CRS, an affiliate of
Mr. Elliott, is entitled to options to purchase 5,000 or 10,000 shares of common
stock of Premiere Communications, Inc. at an unspecified exercise price arising
out of work allegedly performed by CRS for the Company; and (vi) CRS is owed an
unspecified amount of commissions from the Company relating to sales of the
Company's telecommunications services by CRS. Subsequent to the filing of the
complaint, the plaintiffs dismissed without prejudice count (iv) above. The
plaintiffs also seek attorney fees and unspecified amounts of punitive damages.
The Company has filed an answer and counterclaim denying all allegations of the
complaint and asserting various affirmative defenses, and the Company intends to
vigorously defend the action. Assuming that the allegations concerning stock
options and stock sales relate to the common stock of Premiere Technologies,
Inc., rather than Premiere Communications, Inc., as alleged, the Company
believes that the share numbers and exercise prices have not been adjusted for
the 24-to-1 stock split effected in December 1995. In this regard, the
plaintiffs filed a motion to add the Company as a defendant and to amend their
complaint to assert their claims against the Company. Adjusting the share
numbers and exercise prices of these options to reflect the 24-to-1 stock split,
the plaintiffs' claims relate to options to purchase up to a total of 480,000
shares of Common Stock and the alleged exercise price of $5.00 per share with
regard to a portion of such options becomes approximately $0.21 per share. The
Company believes it has meritorious defenses to the plaintiffs' allegations, but
due to the inherent uncertainties of the judicial system, the Company is unable
to predict the outcome of this litigation. If the outcome of this litigation is
adverse to the Company, it could have a material adverse effect on the Company's
business, operating results and financial condition.
On June 28, 1996, AudioFAX filed a complaint against the Company and its
subsidiary, Premiere Communications, Inc., in the United States District Court
for the Northern District of Georgia. In the complaint, AudioFAX alleges that
the Company manufactures, uses, sells and/or distributes certain enhanced
facsimile products which infringe three United States patents and one Canadian
patent allegedly held by AudioFAX. AudioFAX seeks injunctive relief, three times
an unspecified amount of damages, prejudgment interest, attorneys' fees and
expenses of litigation, and court costs. The Company has filed an answer to the
complaint in which it denies plaintiff's allegations, asserts various
affirmative defenses, and seeks declaratory judgment regarding noninfringement
and patent invalidity. Prior to receiving the complaint, the Company obtained an
opinion from outside patent counsel to the effect that the Company's enhanced
facsimile service does not infringe any of the United States patents held by
AudioFAX, and also obtained a concurring opinion from separate patent counsel
engaged to review the initial opinion. Based on these opinions and other
considerations, the Company believes that it has meritorious defenses to the
AudioFAX complaint; however, due to the inherent uncertainties of the judicial
system, the Company is unable to predict the outcome of this litigation. If the
outcome of the litigation is adverse to the Company, it could have a material
adverse effect on the Company's business, operating results and financial
condition.
12
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting (the "Meeting") of the Company's shareholders was
held on April 30, 1996. Proxies were solicited from shareholders of record
as of the close of business on March 4, 1996, for the purpose of obtaining
shareholder approval of certain executive compensation matters all as
described in more detail in the Company's Proxy Statement as filed with the
Securities and Exchange Commission in connection with the Meeting. The
election of directors was not considered at the Meeting. The results of the
shareholder vote are summarized below (there were no broker non-votes or
withheld votes on the proposal):
For Against Abstentions
--- ------- -----------
12,840,624 0 24,000
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
11.1 Statement re computation of per share earnings
27.1 Financial data schedule
b. Reports on Form 8-K: None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Premiere Technologies, Inc.
August 13, 1996 /s/ Boland T. Jones
- - ---------------------- -----------------------------------------
Date Boland T. Jones
Chairman of the Board and President
August 13, 1996 /s/ Patrick G. Jones
- - ----------------------- -----------------------------------------
Date Patrick G. Jones
Senior Vice President
Finance and Legal
14
<PAGE>
EXHIBITS INDEX
PAGE
----
11.1 Statement re computation of per share earnings 16
27.1 Financial data schedule 17
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
PREMIERE TECHNOLOGIES, INC. AND SUBSIDIARY
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(in Thousands)
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
-------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
PRIMARY (5)
Earnings applicable to common stock:
Net income $ 389 $ 1,340 $ 624 $ 2,013
Preferred dividends (1) (77) 0 (154) 0
Interest income (2) 61 347 198 521
------- ---------- -------- ----------
Net income applicable to common stock $ 373 $ 1,687 $ 668 $ 2,534
======= ========== ======== ==========
Weighted average shares outstanding for primary:
Weighted average shares outstanding 5,968 20,641 5,968 18,399
Shares upon assumed exercise of stock options and warrants issued within
one year of initial public offering (3) 4,845 0 4,845 0
Other shares upon assumed exercise of stock options and warrants (4) 7,940 2,781 8,153 3,255
------- ---------- -------- ----------
Weighted average shares 18,753 23,422 18,966 21,654
======= ========== ======== ==========
Primary net income per share $ 0.02 $ 0.07 $ 0.04 $ 0.12
======= ========== ======== ==========
- - --------------------
(1) Dividends on cumulative convertible preferred stock are deducted to arrive
at net income applicable to common stock as the preferred stock is not a
common stock equivalent and is therefore not considered as if converted for
primary earnings per share.
(2) Reflects adjustment to interest expense, net of related income tax effect,
on excess proceeds due to 20% limitation on assumed acquisition of shares
under the modified treasury stock method. Assumed proceeds from stock
options include an income tax benefit as the options are not qualified
options under the Internal Revenue Code.
(3) Options and warrants issued within one year of the initial filing of the
accompanying registration statement are assumed to be outstanding for all
periods using the modified treasury stock method at the assumed initial
public offering price, regardless of whether they are anti-dilutive.
(4) Options and warrants are assumed exercised using the modified treasury stock
method, except where the effect is anti-dilutive.
(5) Fully diluted net income per share is anti-dilutive. Accordingly, fully
diluted net income per share is not presented for all periods.
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 2,096 2,096
<SECURITIES> 78,843 78,843
<RECEIVABLES> 4,877 4,877
<ALLOWANCES> 423 423
<INVENTORY> 0 0
<CURRENT-ASSETS> 87,982 87,982
<PP&E> 9,301 9,301
<DEPRECIATION> 1,725 1,725
<TOTAL-ASSETS> 95,890 95,890
<CURRENT-LIABILITIES> 7,970 7,970
<BONDS> 0 0
0 0
0 0
<COMMON> 206 206
<OTHER-SE> 87,304 87,304
<TOTAL-LIABILITY-AND-EQUITY> 95,890 95,890
<SALES> 11,686 21,779
<TOTAL-REVENUES> 11,686 21,779
<CGS> 3,983 7,434
<TOTAL-COSTS> 3,983 7,434
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 507 1,073
<INTEREST-EXPENSE> 18 108
<INCOME-PRETAX> 1,822 2,926
<INCOME-TAX> 482 854
<INCOME-CONTINUING> 1,340 2,073
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 59
<CHANGES> 0 0
<NET-INCOME> 1,340 2,013
<EPS-PRIMARY> 0.07 0.12
<EPS-DILUTED> 0.07 0.12
</TABLE>
