UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[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_____________
Commission file number: 1-11782
ESQUIRE COMMUNICATIONS LTD.
( Exact name of Small Business issuer as specified in its charter)
DELAWARE 13-3703760
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
216 EAST 45TH STREET, NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (212) 687-8010
--------------
FORMER ADDRESS: 342 MADISON AVENUE, NEW YORK, NEW YORK 10173
Former name, former address and former fiscal year, if changed from 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 such shorter period that the registrant
was required to file such reports), and (2) has been subject of such filing
requirements for the past 90 days.
Yes X No
At August 8, 1996 there were 4,126,823 shares of Common Stock, $.01 par
value outstanding.
<PAGE>
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other Information 8
Signatures 9
<PAGE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995 (1)
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $39,296 $95,339
Accounts receivable, less allowance 4,758,741 4,263,330
Prepaid expenses and other current assets 346,787 246,678
---------- ----------
Total current assets 5,171,824 4,605,347
Property and Equipment, net 1,659,001 1,025,567
Other assets:
Costs in excess of fair value of net
tangible assets of acquired businesses, net 12,478,205 12,751,931
Other assets, net 986,039 690,573
------------ ------------
13,464,244 13,442,504
$20,295,069 $19,073,418
============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $979,006 $576,888
Accrued expenses and other current liabilities 799,868 822,704
Current portion of long-term debt 1,544,297 1,604,948
------------ -----------
Total current liabilities 3,323,171 3,004,540
Long-term debt 9,319,844 8,634,595
Deferred rent obligation 139,790 34,790
Deferred income taxes 43,004
Stockholders' equity:
Preferred Stock , $.01 par value, 1,000,000
shares authorized, no shares issued
Common stock, $.01 par value, 25,000,000
shares authorized, 4,126,823 issued
and outstanding 41,268 41,268
Additional paid-in capital 7,702,576 7,702,576
Accumulated deficit (274,584) (344,351)
----------- ------------
Total stockholders' equity 7,469,260 7,399,493
$20,295,069 $19,073,418
=========== ===========
(1) The balance sheet at December 31, 1995 is derived from audited financial
statements at that date.
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Three Months Ended
June 30, June 30,
1996 1995
========= =======
<S> <C> <C>
Revenues $6,217,364 $5,329,186
Costs and expenses:
Operating expenses 3,457,177 3,040,847
General and administrative 2,045,438 1,488,711
Depreciation and amortization 265,918 256,048
5,768,533 4,785,606
------------ ------------
Income from operations 448,831 543,580
Other income (expense):
Interest expense (274,515) (276,931)
Interest income 1,212 2,398
Other 364 295
(272,939) (274,238)
------------ -----------
Income before income tax provision 175,892 269,342
Income tax provision 139,186 164,123
Net income $36,706 $105,219
=========== ============
Per common share:
Net income $0.01 $0.03
=========== ===========
Weighted average number of shares outstanding 4,126,823 4,126,823
============= ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Revenues $11,746,308 $10,150,205
Costs and expenses:
Operating expenses 6,534,665 5,680,848
General and administrative 3,819,556 2,970,147
Depreciation and amortization 518,864 511,268
10,873,085 9,162,263
----------- -----------
Income from operations 873,223 987,942
Other income (expense):
Interest expense (537,558) (534,359)
Interest income 2,686 5,084
Other 558 505
(534,314) (528,770)
----------- -----------
Income before income tax provision 338,909 459,172
Income tax provision 269,141 303,871
Net income $69,768 $155,301
=========== ============
Per common share:
Net income $0.02 $0.04
============ ============
Weighted average number of shares outstanding 4,126,823 4,123,848
=========== =========
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Six Months Ended
June 30, June 30,
1996 1995
========== =====
<S> <C> <C>
Cash flows from operating activities:
Net income $69,768 $155,301
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 518,864 511,268
Deferred income tax (benefit) (17,000) 2,000
(Increase) in assets:
Accounts receivable (537,411) (193,802)
Prepaid expenses and other current assets (45,157) (35,640)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 428,621 (4,605)
Deferred rent obligation 105,000 (3,323)
--------- ----------
Net cash provided by operating activities 522,685 431,199
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (618,482) (79,447)
Increase in other assets (409,295) (66,416)
Business acquired, and related expenses (550,000)
------------ ----------
Net cash used in investing activities (1,027,777) (695,863)
------------ ----------
Cash flows from financing activities:
Borrowings under bank line of credit 1,100,000 800,000
Principal payments on long-term debt (650,951) (404,003)
------------ -----------
Net cash provided by financing activities 449,049 395,997
------------ ----------
Net (decrease) increase in cash (56,043) 131,333
Cash - beginning of period 95,339 13,958
Cash - end of period $39,296 $145,291
=========== ===========
Supplemental information:
Approximate interest paid during the period $533,000 $523,000
=========== ===========
Approximate income taxes paid during the period $286,000 $230,000
=========== ===========
The Company incurred capital lease obligations of approximately $176,000 during
the six months ended June 30, 1996.
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Article 10 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 the management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. The results of operations for the interim
periods are not necessarily indicative of the results that may be attained for
an entire year. For further information, refer to the Financial Statements and
footnotes thereto in the Company's annual report on Form 10-KSB for the fiscal
year ended December 31, 1995.
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
NOTE B--EARNINGS PER COMMON SHARE
Earnings per common share are computed on the basis of weighted average
number of shares outstanding. No effect has been given to outstanding warrants
and options since they are not considered common stock equivalents because their
assumed exercise would be antidilutive.
NOTE C--SUBLEASE LOSS
In May 1996, the Company moved into a new office space for its New York
operations and, based on its current space requirements, plans are to sublease
its old office space which lease expires in February 2000. It is expected that
the future rental obligation pursuant to the lease would exceed the anticipated
sublease rental income. Accordingly, an estimated discounted loss of
approximately $150,000 resulting from the excess of the lease obligation over
the expected sublease income during the remaining term of the lease has been
charged to operations during the three months ended June 30, 1996. The non
current portion of the liability is included in the financial statements under
the caption " deferred rent obligation".
NOTE D-- STOCKHOLDERS' EQUITY
In June 1996, the Company's stockholders approved an amendment to the
Certificate of Incorporation of the Company increasing the number of authorized
shares of Common Stock to 25,000,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Results of Operations
Comparison of the three and six months ended June 30, 1996 and 1995
Revenues increased for the three and six month periods ended June 30,
1996 by $888,178 or 16.7% and by $1,596,103 or 15.7%, respectively, over the
same periods of the prior year. The Company believes that the increase in
revenues were in part due to its marketing efforts and several large multi-party
projects undertaken in the three and six month periods ended June 30, 1996.
For the three month period ended June 30, 1996, operating expenses
increased by $416,330 from $3,040,847 to $3,457,177, in line with the revenue
increase, but declined as a percentage of revenues from 57.1% to 55.6%. For the
six month period ended June 30, 1996, operating expenses increased by $853,817,
from $5,680,848 to $6,534,665, in line with the revenue increase, but declined
as a percentage of revenues from 56.0% to 55.6%.
General and administrative expenses for the three and six month periods
ended June 30,1996 includes approximately $150,000 relating to the sublease loss
( see Note C). For the three month period ended June 30, 1996, general and
administrative expenses excluding the sublease loss increased by $406,727 to
$1,895,438 or 30.5% of revenues. For the six month period ended June 30, 1996
general and administrative expenses excluding the sublease loss increased by
$699,409 to $3,669,556 or 31.2% of revenues. The increase was in part due to
additional expenses incurred as a result of the Company's recently formed
Corporate Services Division and due to additional marketing and promotional
costs resulting from increased revenue levels. The Corporate Services Division
markets court reporting services on a national basis to large insurance
companies and corporations. The Company believes that the efforts of the
Corporate Services Division will result in revenue increases over the long term
and general and administrative expenses as a percentage of revenues will
decrease. However, there is no assurance that such revenue increase and related
benefits will in fact materialize.
The Company's new office in New York is substantially larger in size
compared to its old office without commensurate increase in the rent. The
Company believes that a larger and better-equipped facility will enable it to
provide better service to its clients.
Depreciation and amortization increased by $9,870 and $7,596 for the
three and six month periods, respectively. Interest expense decreased by $2,416
and increased by $3,199 for the three and six month periods, respectively.
The Company generated a net income for the three and six month periods
ended June 30, 1996 of approximately $37,000 and $70,000 compared to a net
income of approximately $105,000 and $155,000 over the same periods of the prior
year. For the three month period, earnings before interest, taxes, depreciation
and amortization ("EBITDA") decreased by $84,879 from $799,628 to $714,749. For
the six month period, EBITDA decreased by $107,123 from $1,499,210 to
$1,392,087. If the non- recurring sublease loss of $150,000 were excluded,
EBITDA for the three and six months ended June 30, 1996 approximated $865,000
and $1,542,000 and the net income, adjusted for taxes, approximated $124,000 and
$157,000, respectively. Net income for six months adjusted for non-cash items
provided cash flows of approximately $589,000 compared to $667,000 in 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
At June 30, 1996, the Company's working capital increased by
approximately $248,000 from December 31, 1995 to approximately $1,849,000. The
increase was due to positive cash flows from operations. EBITDA for the six
month period approximated $1,392,000 and net income adjusted for non-cash items
provided cash flows of approximately $589,000.
In September 1994, the Company entered into a revolving credit
agreement with a bank which provides for borrowing up to $3,000,000 through
September 1997 based upon eligible accounts receivable and is secured by
substantially all of the assets of the Company. The agreement, as amended in
April 1996, provides for borrowing up to $2,450,000 for working capital and
$550,000 as a term loan for capital expenditures related to the company's new
office space for its New York operations. The term loan is payable in 54 equal
monthly installments commencing in October 1996. In addition, the agreements
under which the Company has borrowed money contain certain restrictive covenants
with respect to incurring additional debt, investments, distributions,
acquisitions and capital expenditures and also require maintenance of certain
financial ratios. Available borrowings and amounts outstanding under the
agreement at June 30, 1996 approximated $3,000,000 and $2,700,000, respectively.
The Company has agreements with certain of its lenders to defer approximately
$237,000 of the amounts due in 1996 in the event it does not complete additional
financing.
The capital expenditures, excluding any business acquisition, for 1996
are expected to range between $180,000 and $200,000. In addition, the capital
expenditures for the Company's new office space for its New York operations is
approximately $650,000, substantially all of which was incurred in the six
months ended June 30, 1996. The Company believes that the cash flows from its
operations supplemented, if needed, by additional borrowing capacity from the
revolving credit line and deferral of scheduled debt repayment will be
sufficient to support the working capital and capital expenditure requirements
through at least the end of 1996.
Other matters
In July 1996, the Company acquired the assets and liabilities of Kitlas
Dickman & Associates, a court reporting agency based in San Diego, California.
In addition, the Company has executed definitive agreements and/ or letters of
intent to acquire six other court reporting companies. The transactions are
subject to a number of conditions including negotiation of definitive agreements
in certain instances, necessary approvals, due diligence and financing. The
Company anticipates consummating the transactions before September 30, 1996
subject to obtaining the necessary financing. The Company has received a letter
of interest from a third party to provide financing for these acquisitions and
working capital. The financing is subject to a number of significant conditions
including negotiation of a definitive agreement, necessary approvals and due
diligence. There is no assurance that the Company will be successful in
completing the financing and closing the acquisitions.
PART II.
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held an annual meeting of stockholders on June 4, 1996, at which the
following matters were voted upon:
1. Election of seven directors.
2. Amendment to the Company's Certificate of Incorporation
to increase number of authorized shares of common stock.
3. Approval of appointment of Freed Maxick Sachs & Murphy, P.C. as
independent auditors for the fiscal year ending December 31,
1996.
The results of the meeting were as follows:
Broker
DIRECTORS FOR WITHHELD NON-VOTES
Malcolm L. Elvey 4,029,045 11,230 0
Cary A. Sarnoff 4,030,545 9,730 0
David J. Feldman 4,029,545 10,730 0
Howard M. Davidoff 4,028,045 12,230 0
Mortimer R. Feinberg 4,026,545 13,730 0
Andrew P. Garvin 4,029,345 10,930 0
Robert S. Wunder 4,028,045 12,230 0
Broker
FOR AGAINST ABSTAIN NON-VOTES
Proposal 2 3,974,520 31,275 34,400 0
Proposal 3 4,023,545 4,450 12,280 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation, as amended.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
August 13, 1996
By:/S/ MALCOLM L. ELVEY
Malcolm L. Elvey
Chairman of the Board and
Chief Executive Officer
By:/S/ VASAN THATHAM
Vasan Thatham
Principal Accounting Officer
Exhibit Index
EXHIBIT PAGE
3.1 Certificate of Incorporation, as amended. 11
27 Financial Data Schedule (for SEC use only). 13
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS, LTD.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware") hereby
certifies that:
FIRST: The name of this Corporation (hereinafter called the "Corporation")
is Esquire Communications, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle 19801; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Corporation Trust Company.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation are to conduct any lawful business, to promote
any lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 11,000,000 shares, of which 10,000,000 shares shall be
designated Common Stock, $.01 par value per share, and 1,000,000 shares shall be
designated Preferred Stock, $.01 par value per share.
A. The Board of Directors of the Corporation is hereby expressly
granted the authority by resolution or resolutions to issue one or more series
of Preferred Stock with such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and with such qualifications, limitations or
restrictions thereon, as shall be stated and expressed by the Board of Directors
in such resolution or resolutions.
B. Each holder of Common Stock shall be entitled to vote and shall have one
vote for each share thereof held.
FIFTH: The name and mailing address of the incorporator are as
follows:
Martin H. Neidell, Esq.
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders, of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH: The original By-Laws of the Corporation shall be adopted by the
incorporator. Thereafter, the power to make, alter, or repeal the By-Laws, and
to adopt any new By-Law, shall be vested in the Board of Directors.
EIGHTH: To the fullest extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or as it may hereafter be
amended, permits the limitation or elimination of the liability of directors, no
director of this Corporation shall be personally liable to this Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Notwithstanding the foregoing, a director shall be liable to the
extent provided by applicable law (1) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the General Corporation Law of the State of
Delaware, or (4) for any transaction from which the director derived any
improper personal benefit. Neither the amendment or repeal of this Article, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article shall adversely affect any right or protection of a director
of the Corporation existing at the time of such amendment or repeal.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, or by any successor thereto, indemnify any and
all persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section. The Corporation shall advance expenses to the
fullest extent permitted by said section. Such right to indemnification and
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The indemnification and
advancement of expenses provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise.
Executed at New York, New York on February 9, 1993
/s/ Martin H. Neidell
-------------------------------
Martin H. Neidell, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS LTD.
---------------------------------
Under Section 242 of the
Delaware General Corporation Law
---------------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Esquire Communications Ltd.
2. The Certificate of Incorporation of the Corporation is hereby
amended to amend the first paragraph of Article FOURTH to increase the number of
shares of Common Stock which the Corporation is authorized to issue. The first
paragraph of Article FOURTH is hereby amended to read as follows:
"FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 26,000,000 shares, of which 25,000,000 shares shall be
designated Common Stock, $.01 par value per share, and 1,000,000 shares shall be
designated Preferred Stock, $.01 par value per share."
3. This Certificate of Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to this 4th day of June, 1996.
/s/ Malcolm L. Elvey
-------------------------------
Name: Malcolm L. Elvey
Title: Chairman of the Board
Attest:
/s/ Vasan Thatham
- -------------------------------
Name: Vasan Thatham
Title: Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 39
<SECURITIES> 0
<RECEIVABLES> 5,031
<ALLOWANCES> 245
<INVENTORY> 0
<CURRENT-ASSETS> 5,172
<PP&E> 2,870
<DEPRECIATION> 1,211
<TOTAL-ASSETS> 20,295
<CURRENT-LIABILITIES> 3,323
<BONDS> 9,320
0
0
<COMMON> 41
<OTHER-SE> 7,703
<TOTAL-LIABILITY-AND-EQUITY> 20,295
<SALES> 0
<TOTAL-REVENUES> 11,746
<CGS> 0
<TOTAL-COSTS> 6,535
<OTHER-EXPENSES> 4,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 538
<INCOME-PRETAX> 339
<INCOME-TAX> 269
<INCOME-CONTINUING> 70
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
