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 March 31, 1997
[ ] 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
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-----------------------------------------------------------------------------
(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 to
such filing requirements for the past 90 days.
Yes X No
At May 7, 1997 there were outstanding 4,247,329 shares of Common Stock,
$.01 par value.
<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 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other information 8
Signatures 9
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996(1)
========== ===========
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $20 $165
Accounts receivable, less allowance 8,380 6,764
Prepaid expenses and other current assets 1,207 894
------ ------
Total current assets 9,607 7,823
Property and equipment, net 2,094 1,946
Other assets:
Cost in excess of fair value of net identifiable
assets of acquired businesses, net 21,640 19,681
Other assets, net 1,115 885
------ ------
22,755 20,566
------ ------
$34,456 $30,335
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,326 $1,708
Accrued expenses and other current liabilities 1,516 1,306
Current portion of long-term debt 1,399 1,394
------ ------
Total current liabilities 5,241 4,408
Long-term debt 16,256 12,891
Other liabilities 197 267
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized in series:
Series A convertible preferred stock, authorized
15,000 shares, 7,500 shares issued and outstanding
aggregate liquidation preference $7,500,000
Common Stock, $.01 par value, 25,000,000 authorized,
4,430,829 and 4,330,829 shares issued, respectively,
3,997,329 and 3,897,329 shares outstanding, respectively 44 43
Additional paid-in capital 15,185 14,911
Treasury stock, at cost-433,500 shares (1,300) (1,300)
Accumulated deficit (1,167) (885)
------ ------
Total stockholders' equity 12,762 12,769
------ ------
$34,456 $30,335
======= =======
(1) The balance sheet at December 31, 1996 is derived from audited financial statements at that date.
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(Dollars In Thousands, Except Share Data)
<TABLE>
<CAPTION>
For the Three months Ended
March 31, March 31,
1997 1996
========= ===========
<S> <C> <C>
Revenues $8,753 $5,529
Costs and expenses:
Operating expenses 5,180 3,078
General and administrative expenses 2,952 1,774
Depreciation and amortization 430 253
-------- --------
8,562 5,105
Income from operations 191 424
Other income (expense):
Interest expense (370) (263)
Interest income 1 2
-------- --------
(369) (261)
(Loss) income before provision for income taxes (178) 163
Income Taxes (benefit) provision (9) 130
-------- --------
Net (loss) income (169) 33
Dividends on preferred stock (113) -
Net (loss) income applicable to common stockholders ($282) $33
========= =========
(Loss) earnings per common share:
Net (loss) income ($0.07) $0.01
Weighted average common shares outstanding 3,997,329 4,126,823
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Three months Ended
March 31, March 31,
1997 1996
========= ===========
Cash flows from operating activities
<S> <C> <C>
Net (loss) income ($169) $33
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 430 253
Deferred income taxes 23 (9)
(Increase) decrease in assets:
Accounts receivable (1,020) (162)
Prepaid expenses and other current assets (265) (132)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 146 353
Other long-term liabilities (70)
------------------------
Net cash (used in) provided by operating activities (925) 336
Cash flows from investing activities:
Purchase of property and equipment (219) (215)
Increase in other assets (160) (142)
Acquisition of businesses (1,472)
-------- --------
Net cash used in investing activities (1,851) (357)
Cash flows from financing activities:
Borrowing under line of credit 3,024 400
Principal payments on long-term debt (393) (411)
-------- --------
Net cash provided by (used in) financing activities 2,631 (11)
-------- --------
Net (decrease) in cash (145) (32)
Cash-beginning of period 165 95
Cash-end of period $20 $63
======== =======
Supplemental information:
Approximate interest paid during the period $358 $261
======== =======
Approximate income taxes paid during the period $16 $30
======== =======
Approximate preferred stock dividends accrued and unpaid $113 -
======== =======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997.
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 Item
310(b) of Regulation S-B. 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, 1996.
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 their assumed exercise would be antidilutive.
NOTE C--RECENT ACCOUNTING PRONOUNCEMENTS
FASB STATEMENT NO.128 "EARNINGS PER SHARE"
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(Statement 128). Statement 128 supersedes APB Opinion No. 15, "Earnings Per
Share", and specifies the computation, presentation, and disclosure requirements
for earnings per share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 replaces Primary EPS and Fully Diluted EPS
with Basic EPS and Diluted EPS, respectively. Statement 128 also requires dual
presentation of Basic and Diluted EPS on the face of the income statement for
entities with complex capital structures and reconciliation of the information
utilized to calculate Basic EPS to that used to calculate Diluted EPS.
Statement 128 is effective for financial statements periods ending after
December 15, 1997. Earlier application is not permitted. After adoption, all
prior period EPS is required to be restated to conform with the Statement 128.
The Company expects that the adoption of Statement 128 would not have resulted
in Basic EPS being different from Primary EPS.
FASB STATEMENT NO. 129 "DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE"
Statement of Financial Accounting Standards No.129, "Disclosure of
Information about Capital Structure" ( Statement 129) was issued in February
1997. Statement 129 is effective for periods ending after December 15, 1997.
Statement 129 lists required disclosures about capital structure that had been
included in a number of separate statements and opinions of authoritative
accounting literature. As such, the adoption of Statement 129 is not expected to
have a significant impact on the disclosures in financial statements of the
Company.
NOTE D-- BUSINESS COMBINATION
On January 3, 1997, the Company acquired the assets and liabilities of
Nevill & Swinehart and Pelletier & Jones, both Southern California-based court
reporting companies, and entered into consulting and non competition agreements
for an aggregate consideration of $2,710,000 consisting of cash in the amount of
$1,550,000, subordinated promissory notes and installment payments in the
aggregate amount of $885,000 payable in equal quarterly installments over a
period of six years and 100,000 unregistered shares of the Company's common
stock valued at $275,000. The business combinations are accounted for under the
purchase method of accounting, and accordingly the results of the acquisitions
have been included from the date of acquisition. The excess cost over the fair
value of acquired assets and liabilities assumed approximated $2,050,000 and
other intangible assets of approximately $375,000 were recognized. The Company
borrowed approximately $1,500,000 under its revolving credit agreement to
finance the acquisitions.
NOTE E-- SUBSEQUENT EVENTS
In April 1997, the Company entered into an agreement with an entity ( the
"Manager") affiliated with two of its directors. In accordance with the
agreement, the Manager has agreed to provide the services of one of its officers
to serve as the Chief Executive Officer of the Company. Under the terms of the
agreement, 250,000 shares of the Company's common stock were issued to the
Manager. In connection with the issuance, the Company received a note for
$781,250 from the Manager. The note is secured by the common stock issued which
generally would vest ratably over four years.
In May 1997, the Company entered into an agreement ( the "Buyout
Agreement") with one of its officers pursuant to which the Company terminated
the officer's employment and the related employment agreement. The anticipated
cost of the buyout including associated cost approximates $1.0 million on a
pre-tax basis, and these costs will be charged to operations in the fiscal
quarter ending June 30, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company acquired the assets of Kitlas, Dickman & Associates ("KDA") in
July 1996, M&M Reporting Referral Services, Inc. ("M&M" ) in October 1996 and
Sherry Roe and Associates, Inc. ("SRA") in November 1996 collectively referred
to as 1996 Acquisitions. In January of 1997 the Company acquired the assets of
Nevill & Swinehart and Pelletier & Jones collectively referred to as 1997
Acquisitions.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenues increased by $3.2 million or 58.3%. Excluding revenues from 1996
and 1997 Acquisitions, the revenues increased by approximately 9.0% or by
approximately $496,000. The Company believes that the increase in revenues was
due to its marketing efforts and partly due to several large multi-party
projects undertaken in 1997.
Operating expenses increased by $2.1 million, from $3.1 million in 1996 to
$5.2 million in 1997 in line with the revenue increase. As a percentage of
revenues, operating expenses increased from 55.7% to 59.2%. The increase in the
operating expenses as a percentage of revenues is in part due to a greater share
of revenues generated in geographic areas with a lower profit margin in 1997.
General and administrative expenses increased by $1.2 million to $3.0
million. The increase was in part due to expenses related to 1996 and 1997
Acquisitions consisting of payroll and occupancy expenses and increased sales
compensation, marketing and promotional expenses and administrative support
expenses due to increased revenue levels. As a percentage of revenue, general
and administrative expenses increased from 32.1% to 33.7%. As the increase in
general and administrative expenses was greater than the contribution from
increased revenues, the overall operating income declined.
Depreciation and amortization increased by $177,000 due to additional
amortization charges arising from the 1996 and 1997 Acquisitions and due to
additional depreciation arising from the capital expenditures for the Company's
new office space for its New York operations.
Interest expense increased by $107,000 due to incurrence of additional debt
to finance acquisitions and fund working capital.
The Company's operations resulted in a net loss of $169,000 before
preferred dividends compared to an income of $33,000 in 1996. Increases in
expenses negated the additional contribution from increased revenues and
operations for the three months ended March 31, 1997 resulting in a loss
compared to a profit in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's working capital was approximately $4.4
million, which was approximately $1.0 million more than at December 31, 1996.
The increase was mainly due to the increase in the Company's accounts
receivable, net of accounts payable and accruals. The increase in the Company's
accounts receivable net of accruals was in part due to 1996 and 1997
Acquisitions and increased revenue levels.
In December 1996, the Company entered into a three-year revolving loan
agreement ("Loan Agreement") with a financial institution which provides for
borrowing up to $20.0 million based on operating cash flows as defined therein.
Borrowings under the Loan Agreement bear interest at either prime rate or London
Interbank Offered Rate (LIBOR), at the Company's election, plus the applicable
margin rate. The applicable margin varies on the basis of operating cash flows
and the overall leverage ratio as defined in the Loan Agreement. The effective
rate at March 31, 1997 was 9.5%. The Loan Agreement, which is secured by
substantially all the assets of the Company, restricts future indebtedness,
investments, distributions, acquisitions or sale of assets and capital
expenditures and also requires maintenance of certain financial ratios and
covenants. The aggregate borrowings at March 31, 1997 were $11.2 million with
additional availability of $2.8 million.
The capital expenditures for 1997, excluding any business acquisition, are
expected to range between $575,000 and $625,000. The Company believes that the
cash flows from its operations supplemented, if needed, by additional borrowing
capacity from the Loan Agreement will be sufficient to support the working
capital and capital expenditure requirements through at least the end of 1997.
OTHER MATTERS
The Company has executed letters of intent to acquire two court reporting
companies. The Company anticipates consummating the transactions by June 30,
1997. The transactions are subject to a number of conditions including
negotiation of definitive agreements, necessary approvals, due diligence and
financing. There is no assurance that the Company will be successful in
completing the financing and closing the acquisitions.
<PAGE>
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits-- None
(b) Reports on Form 8-K-- None
<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.
May 14, 1997
By:/s/
---------------------
Malcolm L. Elvey
Chairman of the Board
By:/s/
---------------------
Vasan Thatham
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 8,859
<ALLOWANCES> 479
<INVENTORY> 0
<CURRENT-ASSETS> 9,607
<PP&E> 3,686
<DEPRECIATION> 1,592
<TOTAL-ASSETS> 34,456
<CURRENT-LIABILITIES> 5,241
<BONDS> 16,256
0
0
<COMMON> 44
<OTHER-SE> 12,718
<TOTAL-LIABILITY-AND-EQUITY> 34,456
<SALES> 0
<TOTAL-REVENUES> 8,753
<CGS> 0
<TOTAL-COSTS> 5,180
<OTHER-EXPENSES> 2,952
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370
<INCOME-PRETAX> (178)
<INCOME-TAX> (9)
<INCOME-CONTINUING> (282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (282)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
