AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1998
REGISTRATION STATEMENT NO. 333-39859
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------
ESQUIRE COMMUNICATIONS LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
-----------------------------------
Delaware 7338 13-3703760
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction Industrial Identification Number)
of Incorporation or Classification Code
Organization) Number)
750 "B" Street
Suite 2350
San Diego, California 92101
(619) 515-0811
(Address and Telephone Number of Principal Executive Offices)
(Address of Principal Place of Business or Intended Principal Place of Business)
-----------------------------------
David A. White
Chief Executive Officer
Esquire Communications Ltd.
750 "B" Street
Suite 2350
San Diego, California 92101
(619) 515-0811
(Name, Address and Telephone Number of Agent for Service)
-----------------------------------
Copy to:
Martin H. Neidell, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
(212) 806-5836
-----------------------------------
APPROXIMATE DATE SALE TO THE PUBLIC: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|__________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ___________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_| ________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|_________________________
-----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 15, 1998
PROSPECTUS
ESQUIRE COMMUNICATIONS LTD.
1,980,667 SHARES OF COMMON STOCK
264,751 PURCHASE OPTIONS
364,751 WARRANTS
This Prospectus relates to the following securities of Esquire
Communications Ltd., a Delaware corporation (the "Company"): (i) 1,467,648
shares (the "Selling Stockholders Common Stock") of common stock, $.01 par value
(the "Common Stock"); (ii) 513,019 shares of Common Stock underlying warrants
entitling the holder to purchase one share of the Company's Common Stock
exercisable at $4.50, subject to adjustment in certain circumstances (the
"Initial Warrants"); (iii) 100,000 warrants issued to GKN Securities Corp. and
Royce Investment Group (the "Underwriters") exercisable at $4.50, subject to
adjustment in certain circumstances (the "Additional Warrants"); (iv) 100,000
shares of Common Stock underlying the Additional Warrants; (v) options granted
to the Underwriters to purchase 264,751 shares of Common Stock and/or 264,751
warrants entitling the holder to purchase one share of the Company's Common
Stock exercisable at $4.50, subject to adjustment in certain circumstances (the
"Options"); (vi) 264,751 Option Warrants included as part of the Options (the
"Option Warrants" and together with the Initial Warrants and the Additional
Warrants, the "Warrants"); (vii) 264,751 shares of Common Stock underlying the
Option Warrants; and (viii) 264,751 shares of Common Stock included as part of
the Options. The shares of Common Stock underlying the Warrants are referred to
herein as the "Underlying Common Stock." The Common Stock and the Warrants are
referred to herein as the "Securities." The Initial Warrants and the Option
Warrants expire on May 18, 1998 and the Additional Warrants expire on July 23,
1999. See "Description of Securities."
The Warrants, Options and Selling Stockholders Common Stock are being
offered, from time to time, pursuant to this Prospectus, by or for the account
of the holders thereof (the "Selling Securityholders"). See "Selling
Securityholders" and "Plan of Distribution." The Underlying Common Stock is
being offered by the Company upon the exercise of the Warrants. The Company will
receive the proceeds from the exercise of the Warrants and the Options; however,
the Company will not receive any proceeds from sales of the Warrants, Selling
Stockholders Common Stock or Underlying Common Stock by or for the accounts of
the Selling Securityholders. See "Use of Proceeds." The Company expects to incur
approximately $85,000 in expenses in connection with this offering, including
legal fees ($50,000), accounting fees ($25,000) and miscellaneous expenses, such
as registration fee, duplicating costs and other expenses ($10,000).
The Selling Securityholders have advised the Company that sales of the
Warrants, Options, Selling Stockholders Common Stock and Underlying Common Stock
may be made from time to time by or for the account of the Selling
Securityholders in ordinary transactions to or through one or more brokers or
dealers in the over-the-counter market or otherwise at prices and on terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. For information concerning indemnification arrangements
between the Company and the Selling Securityholders, see "Plan of Distribution."
The Selling Securityholders and any brokers, dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Warrants, Options, Selling Stockholders Common Stock or
Underlying Common Stock may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, as amended (the "Securities Act"), in which event
any commission or concessions received by such brokers, dealers, agents or
underwriters and any profit on the resale of the Warrants, Options, Selling
Stockholders Common Stock or Underlying Common Stock purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Information concerning the Selling Securityholders may change from time to
time and will be set forth in supplements to this Prospectus.
SEE "RISK FACTORS" ON PAGES 5 TO 7 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------------
The Company's Common Stock and Warrants are included in the Boston Stock
Exchange and the Nasdaq Small Cap Market (the "Nasdaq Stock Market") under the
symbol "ESQS" and "ESQSW," respectively. The reported closing bid price of the
Common Stock on Nasdaq on January 12, 1998 was $5.88 per share and the closing
bid price of the Warrants was $1.31.
--------------------
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Company's principal executive offices are located at 750 "B" Street,
Suite 2350, San Diego, California 92101, telephone (619) 515-0811. The Company
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, the
Company files proxy statements, reports and other information with the
Securities and Exchange Commission (the "SEC"). This filed material can be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices in Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and in New York, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may also be obtained by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a Web Site address which contains reports,
proxy and information statements and other information regarding the registrants
that file electronically with the SEC. The address of such site is
http://www.sec.gov. Such materials can also be inspected at the office of the
Boston Stock Exchange on which exchange the Common Stock and the Warrants are
listed.
The Company has filed with the SEC a Registration Statement on Form SB-2
(together with any amendments thereto, the "Registration Statement") under the
Securities Act with respect to the registration of the Warrants, Options,
Selling Stockholders Common Stock and Underlying Common Stock. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain portions of which have been omitted as
permitted by the rules and regulations of the SEC. With respect to statements
contained in this Prospectus or in any document incorporated by reference herein
as to the contents of any contract or documents referred to herein or therein,
reference is made to the copy of such documents filed as an exhibit to the
Registration Statement or such other documents, which may be obtained from the
SEC as indicated above upon payment of the fees prescribed by the SEC. Each such
statement is qualified in its entirety by such reference.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS, INCLUDING NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE COMPANY
Esquire Communications Ltd. is a court reporting firm using
state-of-the-art technology to provide printed and computerized transcripts and
video recordings of testimony from depositions to the legal profession in
several large metropolitan areas, including New York City, Southern California,
Atlanta, Chicago, Denver, Philadelphia, South Florida, Texas and Washington,
D.C. The Company's strategy is to become a national court reporting firm by
acquiring court reporting companies in major business communities around the
country. The Company believes that by expanding through the acquisition of
established court reporting companies in major cities, the Company will achieve
a significant national presence in the court reporting industry. In evaluating a
prospective acquisition candidate, management of the Company considers the
following material factors: (i) financial condition and results of operations;
(ii) experience and skill of management and management's availability after the
acquisition; (iii) growth potential; (iv) costs associated with the consummation
of the acquisition; (v) quality and loyalty of court reporting staff; and (vi)
customer base and reputation. The size, nature and geography of the early
acquisitions will determine the pace of the Company's achievement of national
coverage. The Company believes that there are a number of suitable acquisition
candidates in the size range contemplated.
The court reporting industry traditionally has consisted of many small
firms relying on personal relationships and quality service. With the advent of
sophisticated and rapidly changing technologies, aggressive marketing and
professional management, the Company believes that some of these small firms are
unlikely to be able to make the necessary capital investments required to
compete effectively against better capitalized competitors. This environment
creates the acquisition opportunities on which the Company intends to
capitalize.
The Company has completed several recent acquisitions. See
"Business--Acquisition Strategy."
The Initial Warrants were issued by the Company on May 25, 1993 in
connection with the Company's initial public offering.
USE OF PROCEEDS
The Company will receive the proceeds from the exercise of the Warrants and
Options, if any Warrants or Options are exercised. The Company expects to use
these proceeds for repayment of indebtedness. The Company will not receive any
proceeds from the sale by the Selling Securityholders of the Warrants, Selling
Stockholders Common Stock or Underlying Common Stock. All proceeds from the
sales thereof are solely for the account of the Selling Securityholders.
RISK FACTORS
Investment in the securities of the Company involves a high degree of risk,
including, but not limited to, risks resulting from the Company's financial
condition, the current trend toward alternatives to the litigation process,
technological changes in the Company's industry, numerous competing firms in the
Company's industry, and the Company's acquisition and growth strategy. See "Risk
Factors."
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
(Dollars in thousands, except per share and other data)
For the Years Ended For the Nine Months
December 31, Ended September 30,
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 24,583 $ 20,692 $ 12,818 $ 31,385 $ 17,391
Cost and expenses............................. 23,526 18,805 12,427 31,251 16,358
Income from operations........................ 1,057 1,887 391 134 1,033
---------- --------- -------- ---------- ----------
Other income (expense)........................ (1,154) (1,059) (515) (1,641) (818)
---------- --------- -------- ---------- ---------
Net (loss) income applicable to common $ (541) $ 279 $ (183) $ (1,471) $ (66)
stockholders............................... ========== ========= ========== ========== =========
Earnings per common share:
Income (loss) before extraordinary item..... $ (0.09) $ 0.07 $ (0.05) $ (0.33) $ 0.02
Extraordinary item.......................... (0.04) -- -- -- --
------------ ---------- --------- ------------- ----------
Net (loss) income........................... $ (0.13) $ 0.07 $ (0.05) $ (0.33) $ 0.02
============ ========== ========== ============ ==========
Weighted average common shares outstanding... 4,104,680 4,125,348 3,694,420 4,510,291 4,126,823
============ ========== ========== ============ =========
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
1996 1995 1997
---- ---- ----
<S> <C> <C> <C>
Total assets.................................. $30,335 $19,074 $63,848
Working capital............................... 3,415 1,600 3,428
Long-term debt including current portion...... 14,285 10,239 35,569
Total liabilities................................. 17,566 11,674 42,168
Stockholders' equity.............................. $12,769 $ 7,400 $21,680
</TABLE>
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS RELATING TO THE BUSINESS OF THE COMPANY AND THE
SECURITIES OFFERED HEREBY, TOGETHER WITH THE INFORMATION AND FINANCIAL DATA SET
FORTH ELSEWHERE IN THIS PROSPECTUS, BEFORE INVESTING IN THE SECURITIES.
PROSPECTIVE INVESTORS SHOULD NOTE THAT THIS PROSPECTUS CONTAINS CERTAIN
"FORWARD-LOOKING STATEMENTS," AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, INCLUDING, WITHOUT LIMITATION, STATEMENTS
CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," "SHOULD,"
"SEEKS TO," AND SIMILAR WORDS. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING BUT NOT
LIMITED TO, THE RISK FACTORS SET FORTH IN THIS PROSPECTUS. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS PROSPECTUS IDENTIFIES CERTAIN IMPORTANT FACTORS
THAT COULD CAUSE SUCH DIFFERENCES.
1. FUTURE PROFITABILITY; HISTORY OF LOSSES; ACCUMULATED DEFICIT;
STOCKHOLDER'S DEFICIT; NEGATIVE TANGIBLE BOOK VALUE. Although the Company was
profitable in 1995, the Company incurred a net loss of $183,000 for its fiscal
year ended December 31, 1994, a net loss of $541,000 for its fiscal year ended
December 31, 1996 and a net loss of $1,471,000 for the nine months ended
September 30, 1997. There is no assurance that the Company will be profitable in
the future. As of September 30, 1997, the Company had an accumulated deficit of
$2,357,000, a total stockholders' equity of $21,680,000, and a negative tangible
book value (excess of liabilities over tangible assets) of $28,364,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
2. POSSIBLE FLUCTUATIONS IN REVENUES. The Company's revenues can fluctuate
widely from period to period as a result of the absence or presence of
significant non-recurring litigation matters. Large complex litigation cases can
result in bursts of revenues over a relatively short period. The Company's
revenues can also be adversely affected by a general economic recession that
reduces demand for court reporters. A decrease in revenues will adversely affect
the Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
3. LOCATING AND INTEGRATING ACQUISITIONS. The business strategy of the
Company involves growth through acquisitions and internal development. The
Company is subject to various risks associated with its growth strategy,
including the risk that it will be unable to identify and recruit suitable
acquisition candidates in the future or to integrate and manage the acquired
court reporting businesses.
The Company has recently completed acquisitions and is still in the process
of integrating those acquired businesses. While the business plans of these
acquired companies are similar, their histories, geographical locations,
business models and cultures are different in many respects. The directors and
senior management of the Company face a significant challenge in their efforts
to integrate the acquired businesses. While management of the Company believes
that the diverse experience of the Company and the acquired companies will
strengthen the Company, there can be no assurance that management's efforts to
integrate the operations of the companies will be successful or that the
anticipated benefits of these business combinations will be fully realized. The
dedication of management resources to such efforts may detract attention from
the day-to-day business of the Company. There can be no assurance that there
will not be substantial costs associated with such activities or that there will
not be other material adverse effects of these integration efforts, which could
have a material adverse effect on the Company's operating results. The Company's
current and anticipated future expansion has placed, and will continue to place,
significant demands on the management, operational and financial resources of
the Company. The Company will need to continue to augment its management and
operational systems to support growth both within existing and into new
geographic markets. There can be no assurance that the Company will be able to
manage its expanded operations effectively.
Pursuant to Delaware general corporate law, stockholders of the Company
will have the opportunity to evaluate potential acquisition candidates only in
the event that the Company consummates an acquisition through a merger of the
Company. In the likely event that the Company consummates an acquisition through
the purchase of the assets or stock of a business or the merger of a subsidiary
with an acquisition target, the stockholders will not have the right to approve
such acquisition. Therefore, the Company will be able to make an acquisition
which may be perceived by a stockholder as not within the best interests of the
Company. If the Company is successful in consummating any acquisitions, there
can be no assurance that it will be able to successfully integrate such
acquisitions into its existing operations. Furthermore, there can be no
assurance that the Company will consummate a sufficient number of acquisitions
to achieve its ultimate goal of becoming a national court reporting firm.
4. POSSIBLE NEED FOR ADDITIONAL FINANCING. In connection with the Company's
acquisition strategy, the Company anticipates effecting acquisitions with cash
from bank or other debt financing, and/or the issuance of additional equity or
debt securities. The Company is a party to a Credit Agreement which provides the
Company with up to $65 million of borrowings on a secured basis. The Credit
Agreement contains certain restrictive covenants with respect to incurring
additional debt, investments, distributions, acquisitions and capital
expenditures and also requires the maintenance of certain financial ratios and
covenants. In the event that the Company issues additional securities with or
without incurring bank or other debt financing, such issuance will have the
effect of diluting the interests of the stockholders of the Company. See
"Business--Acquisition Strategy."
5. TRENDS IN LITIGATION; ALTERNATIVES TO THE LITIGATION PROCESS. Due to the
large volume, complexity and resulting high cost of litigation in the United
States, corporate litigants, governmental agencies, and legal professional
associations are investigating potential changes to existing litigation
procedures and alternatives to the litigation process. Various proposals are
under consideration to limit the number and length of pretrial depositions, and
to substitute audio- and/or video-tape recording for stenographic transcription
of proceedings which may reduce or eliminate the use of court reporters. In
addition, certain alternatives to litigation, such as mediation and arbitration,
are increasingly being used to avoid the litigation process. These or other
trends that reduce litigation and related pretrial depositions could have a
material adverse impact on the Company's business. See "Business--Competitive
Factors."
6. CHANGING TECHNOLOGY. The Company's business is subject to changes in
technology and new service introductions. Accordingly, the Company's ability to
compete will be dependent upon its ability to adapt to technological changes in
the industry and to develop services based on those changes to satisfy evolving
client requirements. Technological advances may create new products or services
that are competitive with, superior to, or render obsolete the services
currently provided by the Company. There can be no assurance that current
technologies, or technologies yet to emerge, will not in the future compete with
or replace the services provided by the Company. See "Business--Competitive
Factors."
7. SUBSTANTIAL LEVEL OF INDEBTEDNESS. The Company has a substantial amount
of outstanding indebtedness. As of September 30, 1997, the Company had
approximately $35.6 million of debt. The Company's level of indebtedness could
have important consequences to the holders of the Common Stock, including the
following: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of the principal of and interest on its
indebtedness and will not be available for other purposes; (ii) the ability of
the Company to obtain financing in the future for working capital needs, capital
expenditures, acquisitions, investments, general corporate purposes or other
purposes may be materially limited or impaired; and (iii) the Company's level of
indebtedness may reduce the Company's flexibility to respond to changing
business and economic conditions. Subject to certain limitations contained in
its outstanding debt instruments, the Company may incur additional indebtedness
to finance working capital or capital expenditures, investments or acquisitions
or for other purposes. Substantially all of the Company's assets serve as
collateral security for the Company's indebtedness to its lenders.
8. COMPETITIVE INDUSTRY. The Company competes with numerous other companies
offering many of the same services. Competition is based upon factors such as
the existence of personal relationships with clients and other reporting
agencies and price, service and reputation. Some of the Company's competitors
are larger, have greater resources and are more established than the Company.
The Company is not able at this time to accurately evaluate its competitive
position in the industry. There is no assurance that the Company will be able to
compete successfully in the future. See "Business--The Court Reporting Industry"
and "Business--Competitive Factors."
9. CONTROL BY INSIDERS. In connection with the Series A Preferred Stock
Purchase Agreement, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR"),
Antares Leveraged Capital Corp., Malcolm L. Elvey, Chairman of the Board of the
Company, Cary A. Sarnoff, Vice Chairman of the Company, David J. Feldman, former
President of the Company, CMNY Capital L.P. and Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation II
(collectively, "Allied"), entered into a Stockholder's Agreement, dated October
23, 1996, as amended (the "Stockholder's Agreement"), pursuant to which (a) the
parties agreed to vote their shares to elect as directors four representatives
designated by Messrs. Elvey, Sarnoff and Feldman (the "Management
Stockholders"), two representatives designated by GTCR and four representatives
jointly designated by GTCR and the Management Stockholders; provided, however,
that if they are unable to agree on such joint designees within 90 days, then
GTCR may elect the joint designees; (b) the Management Stockholders granted to
the other stockholders rights of first refusal to acquire their shares if they
desire to sell the same, subject to exceptions for public sales and for
transfers to family members; and (c) if the Company's Board of Directors
approves a sale of the Company's assets or capital stock (whether by merger or
otherwise), each stockholder other than Allied and CMNY Capital L.P. agreed to
consent to such transaction. Since the parties to the Stockholder's Agreement
are able to elect a majority of the Company's directors, they are able to
control management of the Company. In addition, since the parties have agreed to
vote in favor of transactions approved by the Board of Directors and have a
majority of the voting power, such transactions may be approved regardless of
the votes of the other stockholders of the Company.
10. AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK. The
Company's Certificate of Incorporation authorizes the issuance of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. The preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company, which could have the effect of discouraging bids for the
Company and, thereby, prevent stockholders from receiving the maximum value for
their shares. See "Business--Recent Events" and "Description of Securities."
11. NO DIVIDENDS CONTEMPLATED ON COMMON STOCK. To date, the Company has not
paid any cash or other dividends on its Common Stock and does not anticipate
paying dividends in the foreseeable future. The Series A Preferred Stock and
Credit Agreement contain restrictions on the Company's ability to pay cash
dividends. See "Dividend Policy."
12. NASDAQ LISTING; TRADING MARKET FOR WARRANTS. Although the Company's
Common Stock is currently listed on the Nasdaq Stock Market and Boston Stock
Exchange, there is no assurance that the Company will continue to meet the
listing requirements of the Nasdaq Stock Market. Accordingly, it is possible
that the Common Stock may be delisted from the Nasdaq Stock Market. The trading
market for, and liquidity of, the Warrants which are outstanding, if any, is
limited.
USE OF PROCEEDS
The Company will receive the proceeds from the exercise of the Warrants and
Options, if any Warrants or Options are exercised. The Company expects to use
these proceeds to repay outstanding indebtedness under the Credit Agreement. The
Company will not receive any proceeds from the sale by the Selling
Securityholders of the Warrants, Selling Stockholders Common Stock or Underlying
Common Stock. All proceeds from the sales thereof are solely for the account of
the Selling Securityholders.
PRICE RANGE OF THE COMPANY'S SECURITIES
Effective May 18, 1993, the Common Stock and Warrants of the Company were
listed on the Boston Stock Exchange and Nasdaq Stock Market under the symbols
"ESQS" and "ESQSW," respectively. The following table sets forth for the
calendar periods indicated the high and low bid prices on the Nasdaq Stock
Market for the Common Stock and Warrants for the period commencing January 1,
1995. The prices set forth below do not include retail mark-ups, mark-downs or
commissions and represent prices between dealers and are not necessarily actual
transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
High Low High Low
1998
<S> <C> <C> <C> <C>
First Quarter (through January 12)............. $5.875 $4.75 $1.3125 $0.4375
1997
First Quarter.................................. $4.625 $2.375 $0.875 $0.3125
Second Quarter ................................ 5.626 3.25 1.375 0.563
Third Quarter.................................. 9.375 4.563 5.25 1.188
Fourth Quarter................................. 8.625 4.625 4.00 0.5625
1996
First Quarter.................................. $3.50 $2.75 $0.9688 $0.625
Second Quarter................................. 3.50 2.75 1.00 0.75
Third Quarter.................................. 3.25 2.00 0.9375 0.3125
Fourth Quarter................................. 3.375 2.125 0.6895 0.375
1995
First Quarter.................................. $3.50 $2.875 $0.7813 $0.5625
Second Quarter................................. 3.50 2.625 0.7813 0.4375
Third Quarter.................................. 3.375 2.375 0.7188 0.375
Fourth Quarter................................. 3.063 2.625 0.75 0.625
</TABLE>
There were approximately 75 shareholders of record of Common Stock as of
January 12, 1998. This number does not include beneficial owners holding shares
through nominee or "street" names. The Company believes that it has more than
2,000 beneficial holders of Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997.
SEPTEMBER 30, 1997
(In thousands)
Long-term debt, including current portion......... $35,569
Stockholders' Equity:
Preferred Stock $.01 par value, 1,000,000
shares authorized; 15,000 shares issued and
outstanding................................... -----
Common Stock, $.01 par value, 25,000,000
shares authorized; 5,365,725 issued and
4,330,829 shares outstanding.................. 55
Additional paid-in capital..................... 25,313
Treasury stock, at cost 183,500 shares......... (550)
Note Receivable................................ (781)
Accumulated deficit............................ (2,357)
------------
Total stockholders' equity..................... 21,680
------------
Total capitalization......................... $63,848
============
DIVIDEND POLICY
The Company has never declared or paid cash or other dividends on its
Common Stock. The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements and financial condition, and other relevant
factors. Pursuant to the Series A Preferred Stock and the Credit Agreement, the
Company is currently prohibited from paying cash dividends. The Company
presently intends to retain all earnings for use in its business and does not
anticipate paying dividends on its Common Stock in the foreseeable future.
SELECTED CONSOLIDATED FINANCIAL DATA
The following statement of selected operating data for each of the three
years in the period ended December 31, 1996 and the balance sheet data as of
December 31, 1995 and 1996 are derived from the Company's financial statements,
which statements have been audited by Freed Maxick Sachs & Murphy, P.C.,
independent certified public accountants, as of December 31, 1995 and for each
of the years in the two-year period ended December 31, 1995, and by KPMG Peat
Marwick LLP, independent certified public accountants, as of and for the year
ended December 31, 1996. The statement of selected operating data for the nine
month periods ended September 30, 1996 and 1997, and the selected balance sheet
data as of September 30, 1997, have been derived from unaudited financial
statements of the Company which have been prepared on the same basis as the
audited financial statements, and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position and results of operations. The
results for the nine month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
The financial information set forth below should be read in conjunction
with, and is qualified in its entirety by, the detailed information in the
financial statements and notes referenced above.
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months
For the Years Ended December 31, Ended September 30,
1996 1995 1994 1997 1996
---- ---- ----- ---- ----
(Dollars in thousands, except per share and other data)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 24,583 $ 20,692 $ 12,818 $ 31,385 $ 17,391
Cost and expenses:
Operating expenses............................. 13,925 11,660 7,277 17,708 9,778
General and administrative expenses............ 8,443 6,120 4,496 11,759 5,769
Depreciation and amortization.................. 1,158 1,025 654 1,784 811
----------- ---------- --------- --------- ----------
23,526 18,805 12,427 31,251 16,358
Income from operations................................ 1,057 1,887 391 134 1,033
----------- ---------- --------- --------- ----------
Other income (expense)................................ (1,154) (1,059) (515) (1,641) (818)
----------- ---------- --------- --------- ---------
(Loss) income before provision for income taxes and
extraordinary item............................... (97) 828 (124) (1,507) 215
Provision for income taxes............................ 212 549 59 (434) 281
----------- ---------- ---------- --------- ----------
(Loss) income before extraordinary item............... (309) 279 (183) (1,073) (66)
Extraordinary item-loss on early extinguishment
of debt, net of tax benefit....................... (157) --- --- --- ---
------------ ----------- ---------- --------- --------
(466) 279 (183) (1,073) (66)
Dividends on preferred stock.......................... (75) -- -- (398) --
Net (loss) income applicable to common
stockholders...................................... $ (541) $ 279 $ (183) $ (1,471) $ (66)
=========== =========== ========= =========== ==========
Earnings per common share:
Income (loss) before extraordinary item........... $ (0.09) $ 0.07 $ (0.05) $ (0.33) $ 0.02
Extraordinary item................................ (0.04) -- -- -- --
Net (loss) income................................. $ (0.13) $ 0.07 $ (0.05) $ (0.33) $ 0.02
============ ========== =========== =========== ===========
Weighted average common shares outstanding........... 4,104,680 4,125,348 3,694,420 4,510,291 4,126,823
============ ========== =========== =========== ===========
December 31,
-----------------------
1996 1995 September 30, 1997
---- ---- ------------------
BALANCE SHEET DATA:
<S> <C> <C> <C>
Total assets......................................... $30,335 $19,074 $63,848
Working capital...................................... 3,415 1,600 3,428
Long-term debt including current portion............. 14,285 10,239 35,569
Total liabilities.................................... 17,566 11,674 42,168
Stockholders' equity................................. $12,769 $ 7,400 $21,680
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The revenues of the Company are primarily derived from service fees for
recording the sworn testimony at depositions. The Company's revenues can
fluctuate widely from period to period as a result of the absence or presence of
significant non-recurring litigation matters. Large complex litigation can
result in large amounts of revenues being recognized over a relatively short
period. The key variable in the Company's operating expenses are the fees paid
to reporters and transcribers engaged by the Company. The different types of
services provided by the Company represent varying profit margins, with
accelerated delivery transcripts, transcript copies and compressed transcripts
yielding the highest margins. In addition, profit margins vary in the different
geographic markets in which the Company operates.
The Company acquired the assets of Nevill & Swinehart and Pelletier & Jones
in January 1997, of Wolfe, Rosenberg & Associates in May 1997, and of Krauss,
Katz & Ackerman and American Network Services in June 1997 (collectively
referred to as "1997 Acquisitions"). 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 & Associates, Inc. ("SRA") in November
1996 (collectively referred to as "1996 Acquisitions"). In January of 1995 the
Company acquired the assets of Coleman Haas Martin & Schwab ("CHMS") and in June
of 1994 the Company acquired Sarnoff Deposition Service, Inc. ("SDS") (see Note
2 to Consolidated Financial Statements).
RESULTS OF OPERATIONS
COMPARISON FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues increased by $14.0 million or 80.5%. Excluding revenues from 1996
and 1997 Acquisitions, the revenues increased by approximately 6.6%. 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 the nine months
ended September 30, 1997.
Operating expenses increased by $8.0 million, from $9.8 million in the nine
month period ended September 30, 1996 to $17.8 million in the nine month period
ended September 30, 1997 in line with the revenue increase. As a percentage of
revenues, operating expenses were 56.4% in the nine month period ended September
30, 1997 and 56.2% in the nine month period ended September 30, 1996. 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 for the nine month period ended
September 30, 1997 include approximately $1,300,000 primarily relating to an
officer's termination agreement and termination expenses relating to certain
marketing activities. The comparable prior year period includes $150,000
relating to a sublease loss. Excluding these items, general and administrative
expenses increased by $4,815,000 for the nine month period as compared to the
prior year. The increases were due to expenses related to the 1996 and 1997
Acquisitions consisting of payroll and occupancy expenses, as well as increased
sales compensation, marketing and promotional expenses and administrative
support expenses due to increased revenue levels. Excluding the special expenses
described above, general and administrative expense as a percentage of revenue
increased from 32.3% to 33.2% for the nine months ended September 30, 1997 as
compared to the prior year period.
Depreciation and amortization increased by $973,000 for the nine month
period ended September 30, 1997 as compared to the prior year period, 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 of its New York operations.
Interest expense increased by $843,000 due to the incurrence of additional
debt to finance acquisitions and fund working capital.
The Company's operations resulted in a net loss of $1,073,000 before
preferred dividends for the nine month period ended September 30, 1997 compared
to a net loss of $66,000 for the comparable period in 1996.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues increased by $3.9 million or 18.8%. Excluding revenues from 1996
Acquisitions, the revenues increased by approximately 11.8% or $2.4 million. 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 1996.
Operating expenses increased by $2.3 million, from $11.6 million in 1995 to
$13.9 million in 1996 in line with the revenue increase. As a percentage of
revenues, operating expenses were 56.6% in 1996 and 56.4% in 1995.
General and administrative expenses increased by $2.3 million to $8.4
million. The increase was in part due to expenses related to 1996 Acquisitions
consisting of payroll and occupancy expenses and increased sales compensation,
marketing and promotional expenses and administrative support expenses due to
increased revenue levels. Expenses incurred by the Company's Corporate Services
Division and additional expenses incurred for planned growth also contributed to
the increase. Corporate Services Division markets court reporting services on a
national basis to large insurance companies and corporations, and the revenues
from such efforts were not significant in 1996. The expenses incurred by
Corporate Services Division consisted of payroll, advertising and promotional
expenses. In addition, general and administrative expenses include approximately
$262,000 relating to the sublease loss (see Note 9 to Consolidated Financial
Statements). As a percentage of revenue, general and administrative expenses
increased from 29.6% to 34.3%. As the increase in general and administrative
expenses was greater than the contribution from increased revenues, overall
operating income declined.
Depreciation and amortization increased by $133,000 due to additional
amortization charges arising from the 1996 Acquisitions and due to additional
depreciation arising from the capital expenditures for the Company's new office
space for its New York operations. A significant component of the amortization
expense relates to the cost in excess of the net tangible assets of the acquired
businesses (goodwill) which is being amortized using the straight-line method
over 25 years. The Company continually reviews the recoverability of the
carrying value of goodwill. In determining whether there is an impairment of
goodwill, the Company compares the sum of the expected future cash flows
(undiscounted and without interest charges) to the carrying amount of the asset.
Management believes that at December 31, 1996, there has been no impairment in
the carrying amount of the assets.
Interest expense increased by $94,000 due to the incurrence of additional
debt to finance acquisitions and fund working capital.
The Company's operations resulted in a net loss of $309,000 before
extraordinary item compared to income of $279,000 in 1995. As the increases of
above-mentioned expenses negated the additional contribution from increased
revenues, operations for the year resulted in a loss compared to a profit in
1995.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues increased by $7.9 million or 61.4% to $20.7 million for the year
ended December 31, 1995 primarily as a result of the SDS and CHMS acquisitions.
On a pro forma basis, as though the acquisitions were made at January 1, 1994,
the revenues increased by 6.0% for the year ended December 31, 1995 due to
several large multiparty projects undertaken in 1995.
Operating expenses increased by $4.4 million, from $7.3 million in 1994 to
$11.7 million in 1995. As a percentage of revenue, operating expenses declined
from 56.8% to 56.4%.
General and administrative expenses increased by $1.6 million to $6.1
million. The increase was due to SDS's and CHMS's general and administrative
expenses consisting of payroll, occupancy, marketing and promotional expenses.
As a percentage of revenue, general and administrative expenses decreased from
35.1% to 29.6%. The decrease in general and administrative expenses as a
percentage of revenues was in part due to the integration of CHMS's operations
with SDS's and the integration of DFA's operations during the latter part of
1994.
Depreciation and amortization increased by $371,000, due to additional
depreciation and amortization charges arising from the SDS and CHMS
acquisitions. A significant component of the amortization expense relates to the
cost in excess of the net tangible assets of the acquired businesses (goodwill)
which is being amortized using the straight-line method over 25 years. The
Company continually reviews the recoverability of the carrying value of
goodwill. In determining whether there is an impairment of goodwill, the Company
compares the sum of the expected future cash flows (undiscounted and without
interest charges) to the carrying amount of the asset. Management believes that
at December 31, 1995, there has been no impairment in the carrying amount of the
asset.
Interest expense increased by $535,000 due to the incurrence of additional
debt to finance acquisitions and fund working capital.
The Company generated a net income of $279,000 compared to a net loss of
$183,000 in 1994 as the additional contributions from increased revenues was
greater than the increases of the above mentioned expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's working capital was approximately $3.4
million, without any material increase from the levels at December 31, 1996. The
increase in the Company's accounts receivable was offset by increases in
accounts payable and accruals. The increase in the Company's accounts receivable
was due to 1996 and 1997 Acquisitions and increased revenue levels. The increase
in accounts payable and accruals was due to the 1996 and 1997 Acquisitions and
certain expenses accrued in connection with an officer's termination agreement
(see Note F).
In December 1996, the Company entered into a three-year revolving loan
agreement ("Loan Agreement") with a financial institution which, as amended in
June and September 1997, provides for borrowings up to $45.0 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 September 30, 1997 was
9.2%. 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 September 30, 1997 under the Loan Agreement were $28.1 million with
additional availability of $0.5 million.
The capital expenditures for 1998, excluding any business acquisition, are
expected to be approximately $1,000,000. The Company believes that the cash
flows from its operations supplemented, if needed, by borrowings under the Loan
Agreement, will be sufficient to support the working capital and capital
expenditure requirements through at least the end of 1998.
<PAGE>
BUSINESS
GENERAL
The Company is a court reporting firm using state-of-the-art technology to
provide printed and computerized transcripts and video recordings of testimony
from depositions to the legal profession in several large metropolitan areas,
including New York City, Atlanta, Chicago, Denver, Philadelphia, Southern
California, South Florida, Texas and Washington, D.C. The Company's strategy is
to become a national court reporting firm by acquiring court reporting companies
in major business communities around the country. The Company believes that by
expanding through the acquisition of established court reporting companies in
major cities, the Company will achieve a significant national presence in the
court reporting industry. In evaluating a prospective acquisition candidate,
management of the Company considers the following material factors: (i)
financial condition and results of operations; (ii) experience and skill of
management and management's availability after the acquisition; (iii) growth
potential; (iv) costs associated with the consummation of the acquisition; (v)
quality and loyalty of court reporting staff; and (vi) customer base and
reputation. The size, nature and geography of the early acquisitions will
determine the pace of the Company's achievement of national coverage. The
Company believes that there are a number of suitable acquisition candidates in
the size range contemplated.
THE COURT REPORTING INDUSTRY
Court reporting is the verbatim transcription of the spoken word into the
written word, generally from sworn legal testimony. The industry is divided into
two distinct sectors-the recording of proceedings in court, or "official" court
reporting, and all other court reporting. Official court reporting is performed
by civil servant court reporters employed by municipal, state, or federal
courts. All other court reporting is performed outside the courtroom by
free-lance court reporters, who may be either self-employed, or employees or
independent contractors affiliated with a court reporting agency. The Company is
a court reporting agency which primarily uses the services of independent
contractors to handle the recording of legal proceedings (typically civil ones)
outside the courtroom and, to a lesser extent, the recording of other events
such as hearings, arbitrations, board meetings, stockholders' meetings,
conferences, conventions and media events.
Court reporting firms range in size from sole practitioners to firms with
more than 100 free-lance court reporters. Although there are no independently
verified statistics with respect to the number of court reporters or the total
revenues of the court reporting industry, there are approximately 22,000 members
of the National Court Reporting Association ("NCRA"), the only national
professional association in the industry, and an additional 12,000 student
members. The Company estimates that there are approximately 50,000 court
reporters in the United States. The Company believes that, based on its size and
reputation, it is one of the leading court reporting companies in the United
States.
The industry's long-time local focus is shifting toward a more national
approach to accommodate law firms and corporations whose cases, in many
instances, extend beyond a single city. Attorneys commonly request such
out-of-town referrals from their local court reporting firm. Professional
associations such as the NCRA and various national networks facilitate both the
development of personal relationships between agency owners and the referral of
business between agencies. Through such networks, a member court reporting firm
is able to schedule depositions in other cities for clients so requesting. One
drawback of the networks to date has been the inability of the referring court
reporting firm to guarantee the quality of service that the client ultimately
receives. The Company believes that by expanding nationally, it will be able to
more effectively serve clients across the country, rather than depending on the
loosely-aligned networks or other strategic relationships.
SERVICES AND TECHNOLOGY
The Company's basic business is the verbatim transcription of EBTs
(examinations before trial) or depositions. Court reporting requires a trained
professional capable of transcribing speech, which generally approximates 200
words per minute, using shorthand symbols. Most of the Company's court reporters
use a computer-aided transcription, or CAT, system for transcribing depositions.
Much like traditional stenotype machines, CAT systems enable a court reporter to
represent what is spoken as phonetic symbols. CAT systems, however, have an
added feature: the phonetic symbols are simultaneously recorded on the
traditional paper tape and on disk. Whether taken on a CAT system or a
traditional stenotype machine, the shorthand notes are translated from the paper
or magnetic medium, then edited to produce a final transcript. CAT systems
enable the computer to interpret the shorthand symbols and translate them into
English, a process that otherwise must be done manually. CAT systems have
speeded the production of the final transcript; in fact, a court reporter can
connect a computer to his stenotype machine, which can perform the translation
during the proceedings and allow him to provide a transcript directly following
the proceeding. As a by-product of CAT technology, specialized software has been
developed enabling court reporters to provide clients with a floppy disk
containing the translation of the shorthand symbols in a computer-readable
format. This software allows the client to search, store, index, annotate, and
manage transcripts. Documents can be searched easily for relevant portions of
testimony, and can be integrated into larger databases containing all of the
other information pertaining to a particular proceeding.
The Company's state-of-the art technologies include:
o REALTIME TRANSCRIPTION. The reporter writes on the stenotype
machine and the written translation of what is said instantaneously
appears on monitors located in the conference rooms where the
deposition is taking place and/or at a remote location.
o INTERACTIVE REALTIME TRANSCRIPTION. Specialized software enables
the user to mark, annotate, search, cut and paste the text instantly
on a computer linked to that of the court reporter.
o FULL-TEXT SEARCH AND RETRIEVAL PROGRAMS. These programs allow the
computer to be used to search, store, index and manage transcripts
and other documents. This enables the user to locate a particular
word or portion of text quickly and easily.
o COMPRESSED TRANSCRIPTS. This format eliminates excess white
space on the page and organizes the text in columns, substantially
reducing transcript bulk. The compressed transcripts contain an index
listing all of the words in the transcript, as well as where and how
often the words appear, simplifying the summarizing of transcripts.
o MULTIMEDIA TECHNOLOGY SYSTEMS. This format allows text and
video images to be shown concurrently on a single screen. The
proceedings are taped on video while the court reporter records the
proceedings on a stenotype machine connected to a computer equipped
with the appropriate software. A videotape or CD ROM can later be
accessed via video cassette recorder or computer, as appropriate.
While the Company believes that the services it provides through these
technologies are high quality, none of these services are unique in the industry
or represent any significant investments that would act as a barrier to entry by
competitors. Rather, the Company believes that its experience and expertise in
the use of such technologies give it a competitive advantage over those court
reporting firms that have not successfully integrated these technologies into
the services they provide on a regular basis.
ACQUISITION STRATEGY
The Company intends to continue expanding geographically by making initial
acquisitions in new geographic markets of one or more court reporting companies
that can operate effectively on a decentralized basis resulting in the creation
of a new "hub." Subsequent to the establishment of a hub, the Company intends to
acquire additional court reporting agencies in that market. The Company believes
that these "tuck-in" acquisitions can be absorbed without significant increases
in administrative costs. The Company's strategy is to become a national court
reporting company by acquiring court reporting companies in both its present
geographic markets and in other major metropolitan areas in the United States.
The Company believes a national court reporting firm will be able to more
effectively serve its clients. The highly fragmented nature of the court
reporting industry provides substantial acquisition opportunities for the
Company. With the advent of sophisticated and rapidly changing technologies,
aggressive marketing and professional management, the Company believes that some
small firms are unlikely to be able to make the necessary capital investments
required to compete effectively against better-capitalized competitors. Through
its utilization of the newest technologies and its ability to provide
professional management, the Company will benefit from certain economies of
scale in its operations and marketing by expanding in its present market places.
Additionally, the Company believes that the efficiencies it has achieved in its
present locations can be duplicated in other locations which may be acquired in
the future. For example, the Company has developed a customized computer system
to handle the scheduling of depositions and billing and accounting matters. This
software will be used in managing the firms acquired by the Company without any
corresponding material increases in operating costs. Additionally, the Company's
training program for managers will enable the Company to efficiently streamline
the operations of acquired businesses by reducing or eliminating administrative
offices and certain staff positions of such acquired businesses.
Pursuant to an Agreement of Merger dated as of September 30, 1993 (the
"Merger Agreement"), by and among the Company, Esquire Communications
Acquisition Corp., a wholly-owned subsidiary of the Company ("Acquisition Sub"),
and David Feldman & Associates (U.S.A.), Ltd. ("DFA"), on September 30, 1993 DFA
was merged into Acquisition Sub. As a result of the merger, DFA became a
wholly-owned subsidiary of the Company. DFA serves the metropolitan New York
City area. The purchase price paid by the Company pursuant to the Merger
Agreement consisted of 549,900 unregistered shares of Common Stock of the
Company, $1,500,000 in cash and a promissory note in the principal amount of
$600,000. The promissory note is payable in 16 equal quarterly installments,
commencing December 30, 1993, together with interest at the rate of 10% per
annum.
On June 22, 1994, the Company acquired all the outstanding stock of Sarnoff
Deposition Service, Inc., a Southern California based court reporting company.
The purchase price paid by the Company for SDS consisted of approximately
$4,331,000 in cash, a promissory note in the principal amount of $1,500,000 and
750,000 unregistered shares of Common Stock of the Company. The promissory note
is payable in 28 equal quarterly installments commencing September 1994,
together with interest at the rate of 10% per annum.
On January 27, 1995, the Company acquired substantially all the assets of
Coleman, Haas, Martin & Schwab, Inc., a California based court reporting
company. The purchase price paid by the Company for CHMS consisted of $400,000
in cash, promissory notes in the aggregate principal amount of $800,000 and
76,923 unregistered shares of Common Stock of the Company. Upon CHMS attaining
specified revenues in 1995, the Company paid an additional $150,000 in cash. The
principal amount of one of the promissory notes is subject to adjustment based
on revenue levels attained by CHMS in 1995 and 1996. As the result, the
principal balance increased by approximately $35,000 for the 1995 fiscal year
and $143,000 for the 1996 fiscal year. The promissory notes are payable in equal
monthly installments over a period of seven years, together with interest at the
rate of 9% per annum.
On July 26, 1996, the Company acquired the assets and liabilities of
Kitlas, Dickman & Associates, a court reporting agency based in San Diego,
California, which has an immaterial effect on the operating results of the
Company.
On October 28, 1996, the Company acquired the assets and liabilities of M&M
Reporting Referral Service, Inc., a Southern California-based court reporting
company. The purchase price consisted of $2,600,000 in cash, subordinated
promissory notes in the aggregate principal amount of $2,712,700 and 132,258
unregistered shares of Common Stock. The principal amount of one of the notes
and the cash portion of the purchase price are subject to revision based on the
revenue derived from M&M's business for the twelve month period commencing
November 1, 1996. The promissory notes are payable in equal quarterly
installments over a period of five years, together with interest at the rate of
9% per annum.
On November 15, 1996, the Company acquired the assets of Sherry Roe &
Associates, Inc., a Washington, D.C. based court reporting company. On January
3, 1997, the Company acquired the assets of Nevill & Swinehart and Pelletier &
Jones, both Southern-California based court reporting companies. The inclusion
of the historical financial statements would not have had a material effect on
the operating results of the Company. The purchase price in such acquisitions
consisted of $2,160,000 in cash, subordinated promissory notes in the aggregate
principal amount of $1,265,000 and 171,748 unregistered shares of Common Stock.
The principal amount of some of the notes and the cash portion of the purchase
price are subject to revision based on the revenue derived from the acquired
businesses subsequent to the closing. The promissory notes are payable over a
period of six years, together with interest at the rate of 8% or 9% per annum.
On May 28, 1997, the Company acquired the assets of Wolfe, Rosenberg &
Associates, Inc. ("WRA"), a court reporting agency based in Chicago, Illinois.
The purchase price, inclusive of associated costs, approximated $6,069,000, paid
in cash. The purchase price is subject to revision based upon the revenue
derived from WRA's business for 24 months commencing June 1997.
On June 13, 1997, the Company acquired the assets of Krauss, Katz &
Ackerman, Inc. ("KKA"), a court reporting agency based in Philadelphia,
Pennsylvania. The purchase price, inclusive of associated costs, consisted of
approximately $9,404,000 in cash. The purchase price is subject to an increase
based upon the revenue derived from KKA's business for the 36 months ending
December 31, 1999. The increase is payable in unregistered shares of the
Company's Common Stock, up to a maximum of 300,000 shares. In November 1997, the
agreement with KKA was amended to delete any increase to the purchase price and
the Company issued 300,000 unregistered shares of Common Stock.
On June 18, 1997, the Company acquired the assets of American Network
Services, Inc. (DepoNet), a court reporting referral network, based in Atlanta,
Georgia. The purchase price, inclusive of associated costs, consisted of
approximately $6,633,000 in cash and 750,000 unregistered shares of the
Company's Common Stock.
On August 29, 1997, the Company acquired substantially all the assets of
Hyatt Court Reporting & Video, Inc., a Denver, Colorado based court reporting
firm. The purchase price paid by the Company consisted of $600,000 in cash and a
promissory note in the principal amount of $100,000. The promissory note is
payable in equal quarterly installments over a period of two years, without
interest.
On October 1, 1997, the Company acquired substantially all the assets of
Kim Tindall & Associates, a San Antonio, Texas court reporting firm. The
purchase price paid by the Company consisted of $1,900,000 in cash and 120,000
unregistered shares of Common Stock.
On October 7, 1997 and effective October 15, 1997, the Company acquired
substantially all of the assets of five court reporting firms in Fort
Lauderdale, Florida, consisting of Associates/Certified Reporting, County
Reporting, Justice Reporting, Lauderdale Reporting and Merit Reporting. The
aggregate purchase price for the five companies consisted of $3,040,000 in cash,
96,000 unregistered shares of Common Stock and a $50,000 promissory note payable
in 16 equal quarterly installments, with interest at the rate of 8% per annum.
On October 9, 1997, the Company acquired substantially all of the assets of
Haynes & Harpster Court Reporters, a southern California court reporting firm.
The purchase price paid by the Company consisted of $400,000 in cash and a
promissory note in the principal amount of $175,000, payable in eight equal
quarterly installments, without interest.
On October 9, 1997, the Company acquired substantially all the assets of
Cynthia Varelli, a Chicago, Illinois court reporting firm. The purchase price
paid consisted of $275,000 in cash and two promissory notes in the aggregate
principal amount of $397,000, payable $297,000 on October 1, 1998, with the
balance payable in eight equal quarterly installments, without interest.
Effective November 17, 1997, the Company acquired by merger Jurist-Begley
Reporting Services, Inc. and related entities, a court reporting agency based in
Philadelphia, Pennsylvania. The purchase price consisted of 854,427 unregistered
shares of the Company's Common Stock.
In December 1997, the Company acquired substantially all the assets of
Henry Jacobs & Associates and Affiliated Reporters (doing business as Certified
Reporting Company), two court reporting agencies based in New York City. The
aggregate purchase price consisted of $3,400,000 in cash, a promissory note in
the principal amount of $450,000 payable in 20 equal quarterly installments,
together with interest at the rate of 8% per annum, and a convertible promissory
note in the principal amount of $500,000 payable in three years, without
interest.
Effective January 5, 1998, the Company acquired substantially all the
assets of A&A Court Reporters, a court reporting agency based in Houston, Texas.
The purchase price paid by the Company consisted of $2,500,000 in cash and
141,000 unregistered shares of the Company's Common Stock.
On January 7, 1998, the Company acquired substantially all the assets of
Brody & Geiser, a court reporting agency based in Northern New Jersey. The
purchase price paid by the Company consisted of $1,650,000 in cash and 227,586
unregistered shares of the Company's Common Stock.
COMPETITIVE FACTORS
Court reporting is an increasingly competitive industry, where firms must
adapt to changing technology. The industry is characterized by low barriers to
entry, resulting in a large number of small firms competing for available
business. Most court reporting firms offer substantially the same type of
services which the Company offers. However, larger firms can compete more
effectively due to the economies of scale which can be achieved as a result of
spreading the high cost of computer and video equipment and marketing efforts
over a larger base. Additionally, large court reporting firms can use their
sophisticated facilities and equipment for ancillary services requested by their
clients. Although no statistics are available, the Company believes that there
are only one or two court reporting firms that are truly national in scope;
perhaps a dozen other firms are regional in scope. These firms may represent
more competition for the Company than smaller, presumably less comprehensive
firms. Competition in the court reporting industry is based on factors such as
the existence of personal relationships with clients and other reporting
agencies, price, service and reputation.
Various proposals are under consideration by the Federal Advisory Committee
on Civil Rules, the Judicial Conference of the U.S. and the U.S. Supreme Court,
among others, which may reduce or eliminate the use of court reporters. Such
proposals include limitations on the number and length of pretrial depositions,
requirements to use alternative dispute resolution methods and the substitution
of audio- and/or video-tape recordings for stenographic transcription of
proceedings. In addition, on an unofficial basis, certain industries have
adopted alternative dispute resolution methods as standard industry practices.
These or other trends could have a material adverse impact on the court
reporting industry.
Future technological innovations in the court reporting industry may create
new services or products that are competitive with, superior to or render
obsolete the services currently provided by the Company and other court
reporting companies. There can be no assurance that the Company would not be
adversely affected in the event of such technological innovation. In an attempt
to keep abreast of the changing technology, representatives of the Company
attend trade shows and serve on various industry group committees.
CLIENTS AND MARKETING
The Company's professional sales team helps create and implement its
marketing efforts. Representatives of the Company attend and perform
demonstrations at industry trade shows. The Company highlights its technological
resources through advertisements in trade magazines and legal periodicals, and
engages in direct mail advertising to lawyers. The Company attracts business
through telemarketing, cold calling, recommendations and referrals, and
participates in competitive bidding.
The Company also attracts new business through contacts made as a result of
its membership in the National Network Reporting Company ("NNRC"), a national
network of approximately 53 large, reputable court reporting agencies set up to
facilitate the exchange of ideas among agency owners. Membership in NNRC is
limited to one court reporting firm in each major metropolitan area in the
United States, Canada and the United Kingdom. The Company is the NNRC
representative for each of New York City, New York, Long Island, New York, Los
Angeles, California and San Diego, California. The Company also has contractual
relationships with deposition-setting services that refer work to the Company.
The Company's client base is composed primarily of law firms. Since the
Company provides verbatim transcriptions of sworn legal testimony, it is
unlikely that customers which are not law firms or others involved in legal
proceedings would be interested in the Company's services. Thus, the Company's
future is dependent upon the continued use of legal proceedings and the need for
transcriptions thereof by interested parties.
HUMAN RESOURCES
At September 30, 1997, the Company had 247 full-time employees and
approximately 700 free-lance court reporters. The Company's court reporters are
primarily independent contractors, each of whom owns a stenotype machine and
many of whom own personal computers. The Company's ability to utilize the
services of independent contractors has significant favorable consequences to
the Company. As a result, the Company is able to minimize its fixed operating
costs, while avoiding certain capital expenditures. Although the Company does
not have the same amount of control over an independent contractor as it does
over an employee of the Company, the Company does not believe that this has had
a negative impact on its business since the Company has been able to attract
highly qualified professionals. The Company provides comprehensive training to
its managers and has an internship program for its court reporters. The
Company's employees and independent contractors are not represented by any
union. The Company considers its relations with its employees and free-lance
court reporters to be good.
PROPERTIES
The Company's three principal leases relate to its corporate headquarters
in San Diego, California and its office leases in New York City and Santa Ana,
California. The Company leases approximately 4,600 square feet of office space
in San Diego, California for a term ending June 30, 2000, at an annual rent of
$86,400. The Company leases approximately 19,870 square feet of office space in
Santa Ana, California for a term ending January 1, 2002 at an annual rent of
$425,724. The Company leases approximately 11,500 square feet of office space in
New York, New York for a term ending December 31, 2005, at an annual rent of
$147,829.
The Company also leases office space in several locations where the Company
has court reporting agencies. The leases generally run for a term of five years
and expire at various dates from time to time. In addition, the Company owns an
office condominium of approximately 1,100 square feet of office space at 230
Hilton Avenue, Hempstead, New York.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
RECENT FINANCINGS
On October 23, 1996, the Company entered into a Purchase Agreement, as
amended in June 1997 and January 1998 (the "Purchase Agreement") pursuant to
which the Company sold to Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR")
and Antares Leveraged Capital Corp. (collectively with GTCR, the "Investors")
15,697.5 and 402.5 shares of Series A Preferred Stock, respectively, for an
aggregate purchase price of $16,100,000. In addition, the Investors have the
right from time to time on or prior to (a) December 17, 1998 to acquire up to an
additional 6,400 shares of Series A Preferred Stock at a price of $1,000 per
share and (b) July 9, 1999 to acquire up to 5,000 shares of Series B Preferred
Stock at a price of $1,000 per share.
The Series A Preferred Stock is convertible into Common Stock of the
Company at a conversion price of $3.00 per share (subject to anti-dilution
adjustments) and bears cumulative annual dividends at the rate of 6% ($60.00)
per annum. The holders of Series A Preferred Stock have a liquidation preference
of $1,000 per share, plus accrued dividends. Holders of Series A Preferred Stock
have the right to vote together with the holders of Common Stock and are
entitled to one vote for each whole share of Common Stock into which the Series
A Preferred Stock is convertible (presently 333 1/3 votes per share). GTCR was
granted various rights to ask for registration under the Securities Act of 1933
of any shares of Common Stock acquired by it upon conversion of the Series A
Preferred Stock. Without the consent of the holders of a majority of the Series
A Preferred Stock, the Company may not take various actions, including paying
dividends on capital stock if there are any accrued but unpaid dividends on the
Series A Preferred Stock, issuing any equity securities which are senior to or
on a parity with the Series A Preferred Stock, merging with another entity,
selling or otherwise disposing of all or substantially all its assets, or
acquiring other entities. In addition, the Company may not issue in a private
offering any equity securities without first offering the holders of Series A
Preferred Stock the right to acquire their pro rata share.
The Series B Preferred Stock is identical to the Series A Preferred Stock
except that it is junior to the Series A Preferred Stock, has a conversion price
of $6.00 per share and has 166 2/3 votes per share.
In connection with the Purchase Agreement, the Investors and Malcolm L.
Elvey, Chairman of the Board of the Company, Cary A. Sarnoff, Vice Chairman of
the Company, David J. Feldman, former President of the Company, CMNY Capital
L.P. and Allied entered into the Stockholder's Agreement pursuant to which (a)
the parties agreed to vote their shares to elect as directors four
representatives designated by the Management Stockholders, two representatives
designated by GTCR and four representatives jointly designated by GTCR and the
Management Stockholders; provided, however, that if they are unable to agree on
such joint designees within 90 days, then GTCR may elect the joint designees;
(b) the Management Stockholders granted to the other stockholders rights of
first refusal to acquire their shares if they desire to sell the same, subject
to exceptions for public sales and for transfers to family members; and (c) if
the Company's Board of Directors approves a sale of the Company's assets or
capital stock (whether by merger or otherwise), each stockholder other than
Allied and CMNY Capital L.P. agreed to consent to such transaction. Subject to
specified conditions, the Management Stockholders have agreed to designate David
Feldman and John Durham as directors. The Stockholder's Agreement dated June
22, 1994 among the Company and the Management Stockholders was terminated. In
addition, GKN Securities Corp. and Allied terminated their rights to designate
directors of the Company.
Effective October 23, 1996, Messrs. Howard Davidoff and Robert Wunder
resigned as directors of the Company and Messrs. Bruce V. Rauner and Joseph P.
Nolan, representatives of GTCR, were elected as directors of the Company.
Messrs. Andrew Garvin and Mortimer Feinberg, directors of the Company, agreed to
resign as directors at any time upon the request of GTCR.
Effective October 23, 1996, the Company engaged KPMG Peat Marwick, LLP
as its independent accountants to audit its financial statements in place of
Freed Maxick Sachs & Murphy, P.C. (the "Former Accountant"). The decision to
change accountants was approved by the Board of Directors and the Audit
Committee of the Company and was the result of the Company's belief that due to
its increasing size and nationwide scope of operations, it needed a "Big 6"
accounting firm with nationwide operations to audit its financial statements.
The Former Accountant's report on the financial statements of the Company for
each of the past two years did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements of the type described in
paragraph (a)(1)(iv) of Item 304 of Regulation S-K promulgated under the
Securities Act ("Item 304 of Regulation S-K"), or any reportable event as
described in paragraph (a)(1)(v), paragraph (a)(2) or paragraph (b) of Item 304
of Regulation S-K.
On December 24, 1996, the Company entered into a Credit Agreement, as
subsequently amended, with Antares Leveraged Capital Corp. pursuant to which the
Company may borrow from time to time under a revolving credit facility up to an
aggregate amount of $65 million. The Credit 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 the maintenance of certain financial ratios and
covenants. The initial borrowings under the Credit Agreement were used to repay
all amounts outstanding under the Company's credit agreement with The Chase
Manhattan Bank and $4.5 million of subordinated debentures due June 2001 and
held by Allied.
In April 1997, David A. White was appointed Chief Executive Officer of the
Company. Mr. White and Fir Geenen have been elected as directors of the Company.
Messrs. White and Geenen have agreed to resign as directors at any time upon the
request of GTCR.
In May 1997, David A. Higson was appointed Senior Vice President, Chief
Financial Officer and Secretary of the Company.
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION WITH COMPANY DIRECTOR
OR OFFICER
SINCE
Malcolm L. Elvey..... 56 Chairman of the Board, and Director 1993
Cary A. Sarnoff...... 50 Vice Chairman and Director 1994
David A. White....... 45 Chief Executive Officer and Director 1997
David A. Higson...... 50 Senior Vice President, Chief 1997
Financial Officer and Secretary
Gregory J. Mazares... 42 Senior Vice President, Marketing, 1997
Sales and Strategic Planning
Steven L. Wolkenstein. 38 Vice President and Treasurer 1997
John C. Durham........ 44 Director 1997
Mortimer R. Feinberg(1) 74 Director 1993
David J. Feldman..... 58 Director 1993
Andrew P.Garvin(1)(2) 51 Director 1993
Fir M. Geenen......... 43 Director 1997
Joseph P.Nolan(1)(2).. 33 Director 1996
Bruce V. Rauner....... 41 Director 1996
- --------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
--------------------------
MALCOLM L. ELVEY has served as Chairman of the Board of Directors of the
Company, Pepper and ERC since their respective incorporations. Mr. Elvey also
served as Chief Executive Officer of these entities from the time of their
respective incorporations until 1997. Mr. Elvey is a Chartered Accountant and
has a Master of Business Administration from the University of Cape Town. From
1985 through 1987, Mr. Elvey served as President and Chief Executive Officer of
Pritchard Services, Ltd. where he was responsible for the home health care,
hospital and building maintenance, security and food services subsidiaries, and
served as a director of ADT Ltd. (formerly, the Hawley Group Ltd.), an
international service company.
CARY A. SARNOFF has served as Vice Chairman of the Company since November
1994. Mr. Sarnoff was President of Sarnoff Deposition Service, Inc. for more
than five years prior thereto. Mr. Sarnoff formed in 1982 and owns CAT-Links, a
litigation support software development company. Mr. Sarnoff has more than 25
years experience in the court reporting industry. He was a founding member of
the NNRC and served as a member of the Board of Directors of the California
Court Reporters Association.
DAVID A. WHITE has been an officer of Harlingwood & Company LLC
("Harlingwood") since 1997. From 1992 to December 1996, Mr. White was employed
by MedTrans, a division of Laidlaw, Inc., as President. From 1991 to 1992, Mr.
White was Vice President, Financial Operations for a division of Laidlaw, Inc.
DAVID A. HIGSON was appointed Senior Vice President, Chief Financial
Officer and Secretary of the Company in May 1997. From June 1993 to April 1997,
he was Senior Vice President-Administration and Financial Operations of
MedTrans. For more than five years prior thereto he was regional director for
financial operations of Laidlaw Inc.
GREGORY J. MAZARES was appointed Senior Vice President, Marketing, Sales
and Strategic Planning of the Company in September 1997. For nine years prior
thereto, he was a senior executive in the litigation support field, including
the past four years as President of Litigation Sciences Inc. Prior thereto, he
was regional vice president and general manager for First Interstate Bank of
California.
STEVEN L. WOLKENSTEIN was appointed Vice President and Treasurer of the
Company in September 1997. From April 1993 to August 1997, he was tax and
treasury/international finance manager for the Upper Deck Company, and for 5
years prior thereto he was with KPMG Peat Marwick LLP, with his last position
being senior tax manager.
JOHN C. DURHAM, MD, became a director of the Company as of June 18, 1997.
Dr. Durham was a founder of American Network Services, Inc., the nation's
largest network of court reporting, process serving and legal videography
providers, a company acquired by the Company on June 18, 1997. From 1993 to
1997, Dr. Durham served as chief executive officer and subsequently chief
executive officer and president of American Network Services. From 1985 to 1993,
Dr. Durham was a partner in the practice of DuVall and Durham Internal Medicine
Associates of Cordele, Georgia.
MORTIMER R. FEINBERG, PH.D., has served as a director of the Company since
its incorporation. He is the co-founder of BFS Psychological Associates, Inc., a
human resources consulting firm, and has served as Chairman of its Board of
Directors since 1960. Dr. Feinberg is Professor Emeritus, Baruch College, City
University of New York and is a frequent contributor to the Wall Street Journal
on human resources and other business topics.
DAVID J. FELDMAN served as President, Chief Operating Officer and a
director of the Company from September 1993 to May 1, 1997, when he resigned as
President and Chief Operating Officer. Mr. Feldman was President of David
Feldman & Associates (U.S.A.) Ltd. for more than five years prior thereto. Mr.
Feldman has more than thirty years experience in the court reporting industry,
including serving as a court reporter for the Knapp Commission Hearings and the
Nelson Rockefeller Commission on Critical Choices for America.
ANDREW P. GARVIN has served as a director of the Company since its
incorporation. Mr. Garvin is the co-founder of FIND/SVP, a consulting, research
and information gathering company, and has served as its Chief Executive Officer
since 1969.
FIR M. GEENEN has been an officer of Harlingwood Corp., an affiliate of
Harlingwood since 1988. Harlingwood provides advisory services to growing
companies. From 1993 to September 1996, Mr. Geenen served as Executive Vice
President of Medical Transport, Inc., a division of Laidlaw Inc. ("MedTrans").
JOSEPH P. NOLAN has served as director of the Company since October 1996.
Mr. Nolan is a principal and has been with Golder, Thoma, Cressey, Rauner, Inc.,
an affiliate of GTCR, since February 1994. From May 1990 to January 1994, Mr.
Nolan was Vice President Corporate Finance at Dean Witter Reynolds Inc. Mr.
Nolan is also a director of Lason Inc., Principal Hospital, Inc., UllO
International and Excaliber Tubular Corporation.
BRUCE V. RAUNER has served as director of the Company since October 1996.
Mr. Rauner is a principal and has been with Golder, Thoma, Cressey, Rauner, Inc.
since 1981. Mr. Rauner is also a director of ERO, Inc., COREStaff, Inc.,
Coinmach Laundry Corporation, Lason Inc., Polymer Group, Inc., Cherrydale Farms,
Inc., International Computer Graphics, Principal Hospital, Inc. and U.S.
Aggregates.
Messrs. Garvin, Geenen, Feinberg and White have agreed to resign as
directors at any time upon the request of GTCR. All other directors will hold
office until the next annual meeting of stockholders and until the election and
qualification of their successors, or until death, resignation or removal.
Compensation for directors who are not officers of the Company is $1,250 per
meeting. Officers serve at the discretion of the Board of Directors and under
the terms of any employment agreement which may exist.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Company's common
stock to file reports of ownership and changes in ownership with the SEC.
Executive officers, directors and holders of more than ten percent are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the year ended December 31, 1996,
its executive officers, directors and holders of more than ten percent complied
with all applicable Section 16(a) filing requirements.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company or accrued for services rendered in all capacities during
the fiscal year ended December 31, 1996, to the Company's Chief Executive
Officer and to each of the other most highly compensated executive officers of
the Company whose aggregate cash compensation exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
------------------- ------ -------
All
Other Restricted Options/ LTIP Other
Name and Principal Position Year Salary Bonus Annual Stock SARs Payments Compensation
Compensation Awards (#) (#)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey............ 1996 $194,595 $115,000 --- --- 50,000 --- ---
Chairman & 1995 166,431 --- --- --- --- --- ---
Chief Executive Officer 1994 185,175 --- --- --- --- --- ---
David J. Feldman.......... 1996 188,927 358,665 --- --- 50,000 --- ---
President 1995 161,335 238,543 --- --- --- --- ---
1994 180,000 188,575 --- --- 75,000 --- ---
Cary A. Sarnoff............ 1996 190,436 --- --- --- 50,000 --- ---
Vice Chairman 1995 160,629 --- --- --- --- --- ---
1994(1) 90,000 --- --- --- --- --- ---
Debra Neiderfer............ 1996 115,967 48,666 --- --- 5,000 --- ---
Vice President 1995 82,660 18,650 --- --- ---- --- ---
1994 80,000 7,448 --- --- 25,000 --- ---
Paul Strohfus.............. 1996 155,764 --- --- --- 50,000 --- ---
Vice President 1995(2) 42,577 --- --- --- --- --- ---
- -------------------
(1) Represents compensation for the partial year from June 22, 1994.
(2) Represents compensation for the partial year.
</TABLE>
EMPLOYMENT AND RELATED AGREEMENTS
Malcolm L. Elvey is employed under an employment agreement which expires
May 1998 and is automatically renewable on a year-by-year basis unless
terminated by either party upon at least 60 days notice prior to the renewal
date. Mr. Elvey receives an annual salary of $194,595, which is subject to cost
of living increases. Mr. Elvey is also entitled to an annual bonus ranging from
3% based on pre-tax earnings of the Company in excess of $750,000 to 15% based
on pre-tax earnings of the Company in excess of $2,500,000; provided, however,
that the bonus will not exceed 100% of Mr. Elvey's annual salary. In the event
the Company consummates any acquisitions, these pre-tax earnings levels are
increased by 70% of the net income before taxes of the acquired business,
excluding any extraordinary items of gain or loss (which amount is prorated for
the portion of any year in which the acquired business operations are
consolidated with the Company's). The employment agreement terminates upon the
death or permanent disability of Mr. Elvey or for cause. Cause is defined as a
material breach of the employment agreement by Mr. Elvey, his gross negligence
or willful misconduct in the performance of his duties, his dishonesty to the
Company, conviction of a felony or excessive absenteeism unrelated to a
disability. In addition, Mr. Elvey has agreed not to compete with the Company
for a period of two years following the termination of his employment with the
Company. The Company maintains and is the beneficiary of key-man life insurance
in the amount of $1,000,000 on the life of Mr. Elvey.
In connection with the acquisition of SDS, on June 22, 1994, the Company
entered into an employment agreement with Cary A. Sarnoff pursuant to which Mr.
Sarnoff is employed as Vice Chairman of the Company. The agreement expires four
years from the date thereof and is automatically renewed on a year-by-year basis
unless terminated by either party upon at least 60 days prior notice. Mr.
Sarnoff receives an annual salary at the rate of $186,455, which is subject to
cost of living increases. Mr. Sarnoff's employment agreement contains
termination provisions which are substantially the same as those of Mr. Elvey's
employment agreement. Mr. Sarnoff has agreed not to compete with the Company for
a period of two years following the termination of his employment with the
Company.
In connection with the acquisition of the DFA, on September 30, 1993, the
Company entered into an employment agreement with David J. Feldman pursuant to
which Mr. Feldman was employed as President and Chief Operating Officer of the
Company. The agreement was to expire four years from the date thereof and was to
be automatically renewed on a year-by-year basis unless terminated by either
party upon at least 60 days notice prior to the renewal date. Mr. Feldman
received an annual salary at the rate of $188,927. Mr. Feldman was also entitled
to an annual bonus of 4.25% of total annual revenues of the Company in excess of
$4,200,000 and 5% of total annual revenues of the Company in excess of
$9,000,000, as adjusted for subsequent acquisitions by the Company. During the
first two years, Mr. Feldman was entitled to a minimum bonus of $175,000 per
year and during the third and fourth years was entitled to a minimum bonus of
$225,000 per year.
Effective May 1, 1997, Mr. Feldman resigned as an officer and employee of
the Company, but remains as a Director of the Company. In connection with the
resignation, the Company agreed to pay to Mr. Feldman the aggregate amount of
$641,035, payable as follows: (a) from May 1, 1997 through March 31, 1998, the
amount of $22,185 per month; (b) for the period April 1, 1998 through September
30, 1998, the amount of $6,000 per month; (c) on August 15, 1997, the amount of
$161,000; (d) on November 15, 1997, the amount of $150,000; and (e) on May 1,
1997 through September 30, 1997, the amount of $100,000 per month. On May 1,
1997 through September 30, 1998, Mr. Feldman will be paid the amount of $1,500
per month in connection with conducting monthly sales meetings. Mr. Feldman has
also agreed to make himself available to the Company through September 30, 1998
for consulting services for which he will be entitled to additional compensation
at the rate of $2,000 per day (or portion thereof). All options to purchase
Common Stock held by Mr. Feldman will become vested on September 30, 1998 and
will continue to be exercisable until the first to occur of two years from his
ceasing to be a director of the Company or ten years from the respective dates
the options were granted. Mr. Feldman has agreed not to compete with the Company
through September 30, 1998. The Company has agreed to use its best efforts to
cause Mr. Feldman to be elected as a director for as long as he desires through
the later of September 30, 1998 and the date he ceases to own at least 400,000
shares of Common Stock of the Company.
Effective February 13, 1997, the Company entered into a management
agreement with Harlingwood pursuant to which Harlingwood has been engaged to
provide management services to the Company for a one year period of time.
Pursuant to this agreement, Harlingwood agreed to assign Mr. White to fulfill
its duties and to act as Chief Executive Officer of the Company. Harlingwood
will be paid an annual fee at the rate of $175,000 per annum. In connection with
such agreement, the Company granted options to Harlingwood to purchase 150,000
shares of Common Stock at an exercise price of $9.00 per share and sold to
Harlingwood 250,000 shares of Common Stock at a price of $3.125 per share, which
purchase price was paid by Harlingwood issuing to the Company a promissory note
in the principal amount of $781,250, bearing interest at the rate of 7% per
annum. The note is secured by a pledge of the shares and is payable in full on
April 15, 2001. The shares and options vest 25% on February 13, 1998 and ratably
over a three year period of time subsequent thereto. The Company has agreed to
loan to Harlingwood any funds needed to pay the exercise price in connection
with the exercise of the options.
STOCK OPTION PLAN
In February, 1993, the Board of Directors of the Company adopted the 1993
Stock Option Plan (the "Plan"), which was approved by all stockholders of the
Company. The Plan was amended to increase the number of options which may be
granted thereunder to 2,000,000 shares of Common Stock. Incentive stock options,
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified stock options may be granted under the Plan.
The Plan is administered by the compensation committee of the Board of
Directors, which may grant options to key employees, directors, consultants and
independent contractors to the Company. The term of each option may not exceed
ten years from the date of grant. The exercise price of an option may not be
less than 100% of the fair market value of a share of Common Stock. The options
vest over a three-year period, commencing one year following their issuance.
The table below sets forth information regarding the grant of stock options
made to the executive officers named in the Summary Compensation Table during
the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/SARS GRANTED OR EXPIRATION
NAME GRANTED(#) TO BASE DATE
EMPLOYEES PRICE
IN ($/SH)
FISCAL
YEAR
<S> <C> <C> <C> <C>
Malcolm L. Elvey......................... 50,000 29.41% $ 3.00 12/2006
David J. Feldman......................... 50,000 29.41% $ 3.00 12/2006
Cary A. Sarnoff.......................... 50,000 29.41% $ 3.00 12/2006
Debra Neiderfer.......................... 5,000 2.94% $ 2.875 2/2006
Paul Strohfus............................ 0 --- --- ---
</TABLE>
The table below sets forth information for the executive officers named in
the Summary Compensation Table concerning option exercises during 1996 and
outstanding options at December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND DECEMBER 31, 1996
OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
SHARES OPTIONS/SARS AT DECEMBER 31, 1996
ACQUIRED DECEMBER 31, 1996
NAME ON VALUE
EXERCISE(a) REALIZED (a) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey 0 --- 125,000 50,000 0 0
David J. Feldman 0 --- 37,500 87,500 0 0
Cary A. Sarnoff 0 --- 0 50,000 0 0
Debra Neiderfer 0 --- 41,667 13,333 0 0
Paul Strohfus.............. 0 --- 16,667 33,333 0 0
- ----------------
(a) There were no exercises of options by the Company's executives during 1996.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its Santa Ana, California office from an affiliate of
Cary A. Sarnoff. The lease expires in June 1999 and grants to the Company an
option to renew for five years. The Company believes the terms of the lease are
comparable to market terms.
For as long as The Sarnoff Trust owns 20% or more of the Common Stock
issued in connection with the acquisition of SDS, the Company has agreed to
nominate, recommend and use its best efforts to have Mr. Sarnoff elected as a
director of the Company. As long as Messrs. Elvey, Feldman and Sarnoff continue
as directors of the Company, the Company has agreed that they shall be the sole
members of the Executive Committee and that all decisions to be made by the
Executive Committee shall require unanimous approval.
On October 23, 1996, the Company entered into the Purchase Agreement
pursuant to which the Company sold to GTCR and Antares Leveraged Capital Corp.
15,697.5 and 402.5 shares of Series A Preferred Stock, respectively, for an
aggregate purchase price of $16,100,000. In addition, the Investors have the
right on or prior to December 17, 1998 to acquire up to an additional 6,400
shares of Series A Preferred Stock at a price of $1,000 per share. The Investors
have the further right on or prior to July 9, 1999 to acquire up to 5,000 shares
of Series B Preferred Stock at a price of $1,000 per share.
The Series A Preferred Stock is convertible into Common Stock of the
Company at a conversion price of $3.00 per share (subject to anti-dilution
adjustments) and bears cumulative annual dividends at the rate of 6% ($60.00)
per annum. The holders of Series A Preferred Stock have a liquidation preference
of $1,000 per share, plus accrued dividends. Holders of Series A Preferred Stock
have the right to vote together with the holders of Common Stock and are
entitled to one vote for each whole share of Common Stock into which the Series
A Preferred Stock is convertible (presently 333 1/3 votes per share). GTCR was
granted various rights to ask for registration under the Securities Act of 1933
of any shares of Common Stock acquired by it upon conversion of the Series A
Preferred Stock. Without the consent of the holders of a majority of the Series
A Preferred Stock, the Company may not take various actions, including paying
dividends on capital stock if there are any accrued but unpaid dividends on the
Series A Preferred Stock, issuing any equity securities which are senior to or
on a parity with the Series A Preferred Stock, merging with another entity,
selling or otherwise disposing of all or substantially all its assets, or
acquiring other entities. In addition, the Company may not issue in a private
offering any equity securities without first offering the holders of Series A
Preferred Stock the right to acquire their pro rata share. In connection with
the Purchase Agreement, the Investors and Malcolm L. Elvey, Chairman of the
Board of the Company, Cary A. Sarnoff, Vice Chairman of the Company, David J.
Feldman, President of the Company, CMNY Capital L.P. and Allied entered into the
Stockholder's Agreement pursuant to which (a) the parties agreed to vote their
shares to elect as directors four representatives designated by the Management
Stockholders, two representatives designated by GTCR and four representatives
jointly designated by GTCR and the Management Stockholders; provided, however,
that if they are unable to agree on such joint designees within 90 days, then
GTCR may elect the joint designees; (b) the Management Stockholders granted to
the other stockholders rights of first refusal to acquire their shares if they
desire to sell the same, subject to exceptions for public sales and for
transfers to family members; and (c) if the Company's Board of Directors
approves a sale of the Company's assets or capital stock (whether by merger or
otherwise), each stockholder other than Allied and CMNY Capital L.P. agreed to
consent to such transaction. The Stockholder's Agreement dated June 22, 1994
among the Company and the Management Stockholders was terminated. In addition,
GKN Securities Corp. and Allied terminated their rights to designate directors
of the Company.
The Series B Preferred Stock is identical to the Series A Preferred Stock
except that it is junior to the Series A Preferred Stock, has a conversion
price of $6.00 per share and has 166 2/3 votes per share.
Effective October 23, 1996, Messrs. Howard Davidoff and Robert Wunder
resigned as directors of the Company and Messrs. Bruce V. Rauner and Joseph P.
Nolan, representatives of GTCR, were elected as directors of the Company.
Messrs. Andrew Garvin, Mortimer Feinberg, David White and Fir Geenen, directors
of the Company, agreed to resign as directors at any time upon the request of
GTCR.
SDS was a party to an agreement with Edward Sarnoff, the father of Cary
Sarnoff, pursuant to which SDS agreed to pay to Edward Sarnoff, in the event of
the sale of SDS, the amount of $1,000,000 payable in equal monthly installments
over a period of five years. In connection with the Company's acquisition of
SDS, the Company assumed the obligations of SDS under this agreement.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 31, 1997, certain
information with respect to the beneficial ownership of the Common Stock by: (i)
each of the Company's Directors, (ii) each officer named in the Summary
Compensation Table, (iii) all directors and executive officers of the Company as
a group, and (iii) each other person (including any "group," as that term is
used in Section 13(d)(3) of the Exchange Act) who is known by the Company to own
beneficially 5% or more of the Common Stock. The Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares, except as noted below. The address of each person listed below is
750 "B" Street, Suite 2350, San Diego, California 92101, unless otherwise
indicated.
Percent
NAME AND ADDRESS OF BENEFICIAL OWNER Number of of Class
Shares
Malcolm L. Elvey (1)............. 841,000 12.0%
216 East 45th Street
New York, NY 10017
The Sarnoff Trust (2)............ 750,000 11.1%
2100 Broadway
Santa Ana, CA 92706
Allied Investment Corporation (3).. 625,000 8.5%
Allied Investment Corporation II
Allied Capital Corporation II
1666 K Street
Washington, DC 20006
CMNY Capital, L.P. (4)............. 472,500 7.0%
135 East 57th Street
New York, NY 10022
Mortimer R. Feinberg.............. __ __
David J. Feldman (5).............. 620,900 9.0%
216 East 45th Street
New York, NY 10017
Andrew P. Garvin................. 400 (7) *
Golder, Thoma, Cressey, Rauner Fund IV, 4,874,950 41.9%
L.P. (6)...............................
Debra Neiderfer (8).................... 63,667 *
Joseph P. Nolan (6).................... __ __
Bruce V. Rauner (6).................... __ __
Cary A. Sarnoff (9).................... 882,600 12.8%
Paul M. Strohfus (10).................. 19,167 *
John C. Durham......................... 284,775 4.2%
Harlingwood & Company LLC (11) ........ 500,000 7.1%
Fir M. Geenen (11) .................... 500,000 7.1%
David A. White (11) ................... 500,000 7.1%
All directors and executive officers as
a group (12) (13 persons).............. 3,374,675 44.0%
- ----------------
* Less than 1%
(1) Includes options to purchase 275,000 shares of the Company's Common Stock
granted to Mr. Elvey under the Plan.
(2) The Sarnoff Trust is a revocable trust of which Cary A. Sarnoff and his
wife, Michelle A. Sarnoff, are settlors, trustees and beneficiaries.
(3) These entities in the aggregate own warrants to purchase an aggregate of
625,000 shares of Common Stock at an exercise price of $2.90 per share,
subject to adjustment.
(4) Robert Davidoff and Edwin Marks are the general partners of CMNY Capital,
L.P. and may be deemed to control it.
(5) Includes options to purchase 125,000 shares of the Company's Common Stock
granted to Mr. Feldman under the Plan.
(6) GTCR is the direct owner of 14,625 shares of Series A Convertible
Preferred Stock which is convertible into 4,874,950 shares of Common Stock.
GTCR IV, L.P., a limited partnership , is the general partner of GTCR and
Golder, Thoma, Cressey, Rauner, Inc. ("GTCR Inc.") is the general
partner of GTCR IV, L.P. As such, they may be deemed to be
the indirect beneficial owner of such securities. Messrs. Nolan and
Rauner are principals of GTCR Inc.
(7) Includes warrants to purchase 200 shares of Common Stock.
(8) Includes options to purchase 41,667 shares of the Company's Common Stock
granted to Ms. Neiderfer under the Plan.
(9) Includes shares owned by The Sarnoff Trust, warrants to purchase 7,600
shares of Common Stock owned by Mr. Sarnoff and options to purchase 125,000
shares of the Company's Common Stock granted to Mr. Sarnoff under the Plan.
See Note (2).
(10) Includes options to purchase 16,667 shares of the Company's Common Stock
granted to Mr. Strohfus under the Plan.
(11) Messrs. White and Geenen are officers of Harlingwood. Includes 350,000
shares owned by Harlingwood and options to purchase 150,000 shares of
Common Stock owned by Harlingwood.
(12) Includes warrants to purchase 7,800 shares of Common Stock and options to
purchase 920,000 shares of Common Stock granted under the Plan.
<PAGE>
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, par value $.01 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). The following
descriptions of the capital stock are qualified in all respects by reference to
the Certificate of Incorporation and By-laws of the Company.
COMMON STOCK
The holders of Common stock elect all directors and are entitled to one
vote for each share held of record. All holders of shares of Common Stock will
participate equally in dividends, when, as and if declared by the Board of
Directors, and in net assets on liquidation. All shares of Common Stock
presently outstanding are, and the shares of Common Stock issuable upon exchange
of the Warrants will be, duly authorized, validly issued, fully paid and
non-assessable. The shares of Common Stock have no preference, conversion,
exchange, preemptive or cumulative voting rights.
WARRANTS
INITIAL WARRANTS AND OPTION WARRANTS
The Initial Warrants and Option Warrants were issued in registered form
pursuant to an agreement, dated May 18, 1993 (the "Warrant Agreement"), between
the Company and Continental Stock Transfer & Trust Company ("Warrant Agent").
The following discussion of certain terms and provisions of the Initial Warrants
and Option Warrants is qualified in its entirety by reference to the detailed
provisions of the Warrant Agreement. A copy of the Warrant Agreement, which is
incorporated in its entirety herein by reference, is available upon request from
the Company.
One warrant represents the right of the registered holder to purchase one
share of Common Stock at an exercise price of $4.50 per share, subject to
adjustment ("Purchase Price"), from May 18, 1994 until May 18, 1998 ("Expiration
Date"). The Company has the right to reduce the Purchase Price, extend the
Expiration Date or increase the number of shares of Common Stock issuable upon
the exercise of the Initial Warrants and Option Warrants. The Initial Warrants
and Option Warrants will be entitled to the benefit of adjustments in the
Purchase Price and in the number of shares of Common Stock and/or other
securities deliverable upon the exercise thereof in the event of a stock
dividend, stock split, reclassification, reorganization, consolidation or
merger.
At any time commencing one year from May 18, 1993 and prior to the close of
business on the Expiration Date (on which date the Initial Warrants and Option
Warrants become wholly void and of no value), the Warrants, unless previously
redeemed, may be exercised at the office of the Warrant Agent. No holder, as
such, of Initial Warrants and Option Warrants shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purpose whatsoever until such Initial Warrants and Option Warrants have been
duly exercised and the Purchase Price has been paid in full.
Under the provisions of the Warrant Agreement, the Company has the right at
any time after May 18, 1994, to redeem the Initial Warrants in whole or in part
at a price of $.01 each, by written notice mailed not less than 30 days prior to
the redemption date to each Warrant holder at his address as it appears on the
books of the Warrant Agent. Such notice shall be given only within three days
following any period of 20 consecutive trading days during which the last sale
price for the shares of Common Stock exceeds 150% of the then-effective exercise
price of the Initial Warrants to be redeemed. If the Initial Warrants are called
for redemption, they must be exercised prior to the close of business on the
date of any such redemption or the right to purchase the applicable share of
Common Stock is forfeited. In September 1997, the Company gave notice of
redemption of the Warrants, such redemption to be effective February 5, 1998,
unless extended.
ADDITIONAL WARRANTS
The Additional Warrants are identical to the Initial Warrants except that
they expire July 23, 1999, are not redeemable by the Company and were not issued
pursuant to the Warrant Agreement.
The Company is required to file a new registration statement or a
post-effective amendment to the Registration Statement of which this Prospectus
is a part with the SEC with respect to the securities underlying the Warrants
prior to the exercise of the Warrants and to deliver a prospectus with respect
to such securities to all warrantholders.
PREFERRED STOCK
The Company is authorized to issue shares of Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue shares of Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the shares of Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Between October 1996 and January 1998, the
Company issued an aggregate of 16,100 shares of Series A Preferred Stock. See
"Business--Recent Events."
OPTIONS
In connection with the Company's initial public offering, the Company
issued to GKN Securities Corp. and Royce Investment Group, Inc. the right to
purchase up to an aggregate of 264,751 shares of Common Stock and/or 264,751
Option Warrants. The securities issuable upon exercise of the Options (the
"Option Securities") are identical to the Company's Common Stock and Initial
Warrants except that the Option Warrants contained therein cannot be redeemed.
The Options are exercisable at $2.64 per share of Common Stock and $.06 per
Warrant for a period ending May 18, 1998. The Warrants are exercisable at a
price of $4.50 per share. The Option contains anti-dilution provisions providing
for adjustment of these exercise prices upon the occurrence of certain events,
including the issuance of shares of Common Stock at a price per share less than
the exercise price or the market price of the Common Stock, or in the event of
any recapitalization, reclassification, stock dividend, stock split, stock
combination, or similar transaction. The Options grant to the holders thereof
certain "piggyback" and demand rights for periods of seven and five years,
respectively, from May 18, 1993 with respect to the registration under the
Securities Act of the Option Securities.
TRANSFER AND WARRANT AGENT
The Company's transfer and warrant agent is Continental Stock Transfer &
Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Warrants, Options, Selling Stockholders Common Stock or Underlying
Common Stock may be sold from time to time to purchasers directly by any of the
Selling Securityholders, or, alternatively, any of the Selling Securityholders
may from time to time offer the Warrants, Options, Selling Stockholders Common
Stock or Underlying Common Stock through underwriters, brokers, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Securityholders and/or purchasers of
the Warrants, Options, Selling Stockholders Common Stock or Underlying Common
Stock for whom they may act as agent. Selling Securityholders may from time to
time sell or distribute the Warrants, Options, Selling Stockholders Common Stock
or Underlying Common Stock through privately negotiated transactions, including
in distributions to stockholders, partners or other persons affiliated with one
or more Selling Securityholder.
The distribution of Underlying Common Stock may be effected from time to
time in one or more transactions (which may involve crosses or block
transactions) (i) in the over-the-counter market, or (ii) in transactions
otherwise than on the over-the-counter market. Sales will be made at prices and
on terms then prevailing or at prices related to the current market price, or in
negotiated transactions.
A Selling Securityholder and any brokers, dealers or agents that
participate in the distribution of the Warrants, Options, Selling Stockholders
Common Stock or Underlying Common Stock pursuant to the Registration Statement
of which this Prospectus is a part will be required to deliver such Prospectus
to purchasers and might be deemed to be underwriters. Any profit on the sale of
the Warrants, Options, Selling Stockholders Common Stock or Underlying Common
Stock received by a Selling Securityholder or by any broker, dealer or agent
might be deemed to be underwriting discounts and commissions under the
Securities Act. The Company will receive proceeds from the exercise of the
Warrants and Options. The Company will not receive any proceeds from the sale of
the Warrants, Selling Stockholders Common Stock or Underlying Common Stock.
Under the securities laws of certain states, the Warrants, Options, Selling
Stockholders Common Stock and Underlying Common Stock may be sold in such states
only through registered or licensed brokers or dealers. In addition, in certain
states the Warrants, Options, Selling Stockholders Common Stock or Underlying
Common Stock may not be sold unless the Warrants, Selling Stockholders Common
Stock or Underlying Common Stock have been registered or qualify for sale in
such state or an exemption from registration or qualification is available and
is complied with. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities under the Securities Act.
The Company shall use its best efforts to maintain the effectiveness of the
Registration Statement for a period of nine months through the preparation and
filing with the SEC of such amendments and post-effective amendments to the
Registration Statement, and such supplements to the Prospectus, as may be
required by the rules, regulations or instructions applicable to the use of Form
SB-2 by the Securities Act or rules and regulations thereunder or otherwise
necessary to keep the Registration Statement effective and will cause the
Prospectus as so supplemented to be filed pursuant to Rule 424 under the
Securities Act.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock, Options and/or Warrants of each Selling Stockholder
and as adjusted to give effect to the sale of the securities offered hereby.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERING(2)
NUMBER OF NUMBER OF NUMBER OF
WARRANTS OPTIONS NUMBER OF SHARES SECURITIES NUMBER OF
BENEFICIALLY BENEFICIALLY OF COMMON STOCK TO BE NUMBER OF SHARES OF
SELLING SECURITY HOLDER OWNED OWNED BENEFICIALLY OWNED OFFERED(1) WARRANTS COMMON STOCK
- ----------------------- ------------- ------- ------------------ ---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
David J. Feldman................. -- -- 495,900 -- 0
John C. Durham................... -- -- 284,775 -- 0
David Rainwater.................. -- -- 183,000 -- 0
William Q. Bird.................. -- -- 197,225 -- 0
Jeff Johnson..................... -- -- 135,000 -- 0
Michael Swinehart................ -- -- 100,000 -- 0
Sherry Brice..................... -- -- 71,748 -- 0
GKN Securities Corp.............. 20,000 51,626 -- -- 0
Royce Investment Group, Inc...... 25,000 132,375 -- -- 0
Lester Rosenkrantz............... 10,000 -- -- -- 0
David Nussbaum................... 3,333 23,828 -- -- 0
Roger Gladstone.................. 3,333 23,828 -- -- 0
Robert Gladstone................. 3,334 23,828 -- -- 0
Deborah Novick................... 2,500 2,118 -- -- 0
Brian Coventry................... 1,500 -- -- -- 0
Andrea Goldman................... 1,000 529 -- -- 0
Anthony Cioffari................. 1,000 529 -- -- 0
Larry Weinberg................... 1,000 -- -- -- 0
Harry Datys...................... 1,500 -- -- -- 0
Ray Jansen....................... 1,000 -- -- -- 0
Michelle Spence.................. 500 -- -- -- 0
Ira Greenspan.................... -- 3,442 -- -- 0
Richard Buonocore................ -- 2,648 -- -- 0
John Higgins..................... 25,000 -- 45,600 -- 45,600
- ------------
(1) All securities listed in this table will be offered except for the shares
of Common Stock owned by Mr. Higgins.
(2) After the offering, each holder will own less than 1% of the Company's
outstanding shares of Common Stock.
</TABLE>
Messrs. Durham, Rainwater, Bird and Johnson were all stockholders of
American Network Services, Inc. who received their shares in connection with the
acquisition of such entity by the Company. See "Business-Acquisition Strategy."
Mr. Feldman was the former President of the Company. See
"Management--Employment and Related Agreements."
GKN Securities Corp. and Royal Investment Group, Inc. acted as underwriters
in connection with the Company's initial public offering. The Company paid to
each of them fees in connection with the exchange offer by the Company to
exchange shares of Common Stock for outstanding warrants. In addition, GKN
Securities is entitled, under certain circumstances, to a commission equal to 5%
of the exercise price for each Warrant exercised, payable upon exercise of the
Warrants.
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the shares
of Common Stock and the Warrants, are being passed upon for the Company by
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The
consolidated financial statements of the Company as of December 31, 1995 and for
each of the years in the two-year period ended December 31, 1995, have been
included herein and in the registration statement in reliance upon the report of
Freed Maxick Sachs & Murphy, P.C., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The combined financial statements of Wolfe, Rosenberg & Associates, Inc.
and M&M Computrans as of December 31, 1996 and 1995 and for the years then ended
and the combined financial statements of Krauss, Katz & Ackerman, Inc. and
Affiliate as of December 31, 1996 and 1995 and for the years then ended, have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of American Network Services, Inc. as of December
31, 1996 and for each of the years in the two-year period ended December 31,
1996, have been included herein and in the registration statement in reliance
upon the report of Freed Maxick Sachs & Murphy, P.C., independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORTS THEREIN)
INDEPENDENT AUDITORS' REPORT
The Board of Directors ESQUIRE COMMUNICATIONS LTD.:
We have audited the accompanying consolidated balance sheet of Esquire
Communications Ltd. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying consolidated financial
statements of Esquire Communications Ltd. and subsidiaries as of December 31,
1995 and for the years ended December 31, 1995 and 1994 were audited by other
auditors whose report, dated January 27, 1996, on those statements expressed an
unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Esquire Communications Ltd. and subsidiaries as of December 31,
1996, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
February 12, 1997
Short Hills, New Jersey
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of ESQUIRE COMMUNICATIONS LTD.
We have audited the accompanying consolidated balance sheets of Esquire
Communications Ltd. as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Esquire
Communications Ltd. as of December 31, 1995, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
January 27, 1996
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash....................................................................... $ 165 95
Accounts receivable, less allowance for doubtful accounts of $380 in
1996 and $245 in 1995................................................... 6,764 4,263
Prepaid expenses........................................................... 792 247
Deferred tax asset......................................................... 102 --
------ ------
Total current assets.............................................. 7,823 4,605
Property and equipment, net....................................... 1,946 1,026
Cost in excess of fair value of net identifiable assets of acquired
businesses, less 19,681 12,752
accumulated amortization of $1,516 in 1996 and $1,710 in 1995
Deferred tax asset.............................................................. 38 21
Other assets, net...............................................................
847 670
------- --------
30,335 19,074
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... 1,708 577
Accrued expenses........................................................... 1,306 413
Income taxes payable....................................................... -- 361
Deferred tax liability..................................................... -- 49
Current portion of long-term debt, including related parties
1,394 1,605
------ -----
Total current liabilities......................................... 4,408 3,005
Long-term debt, including related parties........................ 12,891 8,634
Other liabilities................................................. 267 35
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 in 1996 (none in 1995)
aggregate liquidation preference
$7,500,000 .............................................................. -- --
Common stock, $.01 par value, 25,000,000 shares authorized,
4,330,829 and 4,126,823 shares issued in 1996 and 1995, respectively,
3,897,329 and 4,126,823 shares outstanding in 1996 and 1995,
respectively ............................................................ 43 41
Additional paid-in capital................................................. 14,911 7,703
Treasury stock, at cost--433,500 shares in 1996 (none in 1995)............. (1,300) --
Accumulated deficit........................................................ (885) (344)
-------- --------
Total stockholders' equity........................................ 12,769 7,400
Commitments and contingencies..................................... -------- --------
$30,335 19,074
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues........................................................................ $ 24,583 20,692 12,818
-------- ------ ------
Costs and expenses:
Operating expenses......................................................... 13,925 11,660 7,277
General and administrative expenses........................................ 8,443 6,120 4,496
Depreciation and amortization.............................................. 1,158 1,025 654
-------- ------- ------
23,526 18,805 12,427
-------- ------- ------
Income from operations................................................. 1,057 1,887 391
Other income (expense):
Interest expense........................................................... (1,163) (1,069) (534)
Interest income............................................................ 6 9 9
Other...................................................................... 3 1 10
-------- -------- --------
(1,154) (1,059) (515)
-------- -------- --------
(Loss) income before provision for income taxes and (97) 828 (124)
extraordinary item...................................................
Provision for income taxes...................................................... 212 549 59
-------- -------- --------
(Loss) income before extraordinary item (309) 279 (183)
Extraordinary item--loss on early extinguishment of debt, net of tax
benefit of $104.......................................................... (157) -- --
----- -------- -------- --------
Net (loss) income..................................................... (466) 279 (183)
Dividends on preferred stock.................................................... (75) -- --
-------- -------- --------
Net (loss) income applicable to common stockholders................... $ (541) 279 (183)
========= ======== =========
(Loss) earnings per common share:
(Loss) income before extraordinary item.................................... $ (.09) .07 (.05)
Extraordinary item......................................................... (.04) -- --
-------- -------- ---------
Net (loss) income..................................................... $ (.13) .07 (.05)
========= ======== =========
Weighted average common shares outstanding...................................... 4,104,680 4,125,348 3,694,420
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSAND)
COMMON STOCK
SERIES A ADDITIONAL TOTAL
PREFERRED PAID-IN ACCUMULATED TREASURY STOCKHOLDERS
STOCK SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
--------- ------ ------ ------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993................... $-- 3,299,900 $ 33 5,242 (440) -- 4,835
Issuance of common stock and stock purchase
warrants in connection with financing and
acquisition of subsidiary................... -- 750,000 7 2,249 -- -- 2,256
Net loss...................................... -- -- -- -- (183) -- (183)
------ --------- ----- ------ ------ ------- -------
Balance, December 31, 1994.................... -- 4,049,900 40 7,491 (623) -- 6,908
Issuance of common stock in connection with
acquisition of business.................... -- 76,923 1 212 -- -- 213
Net income.................................... -- -- -- -- 279 -- 279
------ --------- ----- ------ ------ ------- -------
Balance, December 31, 1995.................... -- 4,126,823 41 7,703 (344) -- 7,400
Issuance of common stock in connection with
acquisition of businesses.................. -- 204,006 2 508 -- -- 510
Purchase of treasury stock.................... -- (433,500) -- -- -- (1,300) (1,300)
Dividends on preferred stock................. -- -- -- -- (75) -- (75)
Issuance of 7,500 shares of Series A
convertible preferred stock, net of
issuance costs of $800.................... -- -- -- 6,700 -- -- 6,700
Net loss..................................... -- -- -- -- (466) -- (466)
------ --------- ----- ------ ------ ------- -------
Balance, December 31, 1996................... $-- 3,897,329 $ 43 14,911 (885) (1,300) 12,769
====== ========= ===== ====== ====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.......................................................... $ (466) 279 (183)
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
Depreciation and amortization............................................ 1,158 1,025 655
Deferred income taxes.................................................... (168) 23 (141)
Extraordinary item....................................................... 157 -- --
(Increase) decrease in assets:
Accounts receivable.................................................. (1,284) (501) (178)
Prepaid expenses..................................................... (427) 7 (13)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses................................ 873 (156) (145)
Deferred rent obligation and other long-term liabilities............. 37 (6) (2)
------- ------ ------
Net cash (used in) provided by operating activities.................. (120) 671 (7)
------- ------ -------
Cash flows from investing activities:
Acquisitions of businesses................................................ (3,958) (642) (4,331)
Certificate of deposit redemption......................................... 110
Increase in other assets.................................................. (314) (104) (50)
Purchases of property and equipment....................................... (952) (161) (159)
------- ------- -------
Net cash used in investing activities..................................... (5,224) (907) (4,430)
------ ------- ------
Cash flows from financing activities:
Proceeds from long-term debt............................................. 8,218 -- 4,994
Principal payments on long-term debt..................................... (6,317) (783) (633)
Repayment under bank line of credit, net................................. (1,600) 1,100 160
Deferred financing costs................................................. (287) -- (365)
Proceeds from issuance of common stock warrants.......................... -- -- 6
Purchase of treasury stock............................................... (1,300) -- -
Proceeds from issuance of Series A preferred stock, net.................. 6,700 -- --
-----
Net cash provided by financing activities................... 5,414 317 4,162
----- --- -----
Net increase (decrease) in cash............................. 70 81 (275)
Cash--beginning of year...................................................... 95 14 289
-- -- ---
Cash--end of year............................................................ $ 165 95 14
========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the financial
statements of Esquire Communications Ltd. and its subsidiaries, all of which are
wholly owned (collectively, the Company). All significant intercompany accounts
and transactions have been eliminated.
The Company is a court reporting firm providing printed and computerized
transcripts, and video recordings of testimony from depositions to the legal
profession, primarily in the New York City Metropolitan, Washington, D.C. and
Southern California areas.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues and the related direct costs of court reporters and transcribers
are recognized when services rendered are billable, which generally occurs at
the time the final documents are transcribed and completed.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
both accelerated and straight-line methods over the estimated useful lives of
the assets. Leasehold improvements are amortized over the shorter of the
estimated useful lives of the assets or lease terms. Maintenance and repairs are
charged to expenses as incurred while improvements are capitalized.
GOODWILL AND OTHER INTANGIBLE ASSETS
The cost in excess of the fair values of net identifiable tangible and
intangible assets of acquired businesses (goodwill) is amortized using the
straight-line method over 25 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
Other intangible assets consisting of customer lists, covenants not to
compete, and deferred financing costs, are amortized using the straight-line
method over the assets' respective estimated lives or terms, typically no more
than ten years.
Amortization expense for fiscal years 1996, 1995 and 1994 related to
intangible assets was $824, $699 and $476, respectively.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are computed on the basis of weighted
average number of common shares outstanding. No effect has been given to
outstanding warrants and options or convertible preferred stock since their
assumed exercise would be antidilutive or not have a material effect on
dilution.
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR STOCK-BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation expense
would be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. On January
1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
which permits entities to recognize as expense, over the vesting
period, the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the
pro forma disclosure provisions of SFAS No. 123. See note 6.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF
The Company adopted the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," on January 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or change in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future cash flows (undiscounted and
without interest charges) expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
selling costs. Adoption of this statement did not have a material
impact on the Company's financial position or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, the current maturities of
long-term debt, and accounts payable approximate their fair value because of the
short-term maturity of these instruments. The carrying value of debt
approximates its fair value as such amounts bear rates of interest which
approximate the Company's current borrowing rate for instruments with similar
terms.
(2) BUSINESS COMBINATIONS
Effective June 22, 1994, the Company acquired 100% of the outstanding stock
of Sarnoff Deposition Service, Inc. (SDS), a Southern California-based court
reporting company. The purchase price, inclusive of associated costs, consisted
of approximately $4,331 in cash, a $1,500 promissory note payable over seven
years with interest at 10%, and 750,000 unregistered shares of the Company's
common stock valued at $2,250. The acquisition, accounted for under the purchase
method of accounting, resulted in the inclusion of the results of operations of
SDS from the date of acquisition. The excess of the cost of the Company's
investment over the fair values of the assets acquired and liabilities assumed
at the date of acquisition amounted to approximately $8,031.
Effective January 27, 1995, the Company acquired the assets and liabilities
of Coleman, Haas, Martin & Schwab (CHMS), Inc., a California-based court
reporting company, and entered into consulting and noncompetition agreements for
the total consideration of $1,413 consisting of cash in the amount of $400,
promissory notes in the aggregate of $800 with interest at 9% payable monthly
over seven years, and 76,923 unregistered shares of the Company's common stock
valued at $213. In addition, the purchase agreement provided for an additional
$150 payment based upon the attainment of certain revenues in 1995. The
principal amount payable under one of the promissory notes is subject to
adjustment based upon revenue levels attained in 1995 and 1996. As a result, the
principal balance increased by approximately $143 in 1996 and $35 in 1995. The
acquisition, accounted for under the purchase method of accounting, has resulted
in the inclusion of the results of operations of CHMS from the date of
acquisition. The excess of the cost of the Company's investment over the fair
values of the assets acquired and liabilities assumed amounted to approximately
$1,900.
On July 26, 1996, the Company acquired the assets and liabilities of
Kitlas, Dickman & Associates (KDA), a court reporting agency based in San Diego,
California. The acquisition, accounted for under the purchase method of
accounting, has resulted in the inclusion of the results of operations of KDA
from the date of acquisition which has had an immaterial effect on the operating
results of the Company. The total purchase price, inclusive of associated costs,
consisted of $305 in cash, $315 estimated earn out and assumption of net
liabilities of $221. The excess of the cost of the Company's investment over the
fair values of the assets acquired and liabilities assumed, including the
estimated earn out, approximated $841.
On October 28, 1996, the Company acquired the assets and liabilities of M&M
Reporting Referral Services, Inc. (M&M), a Southern California-based court
reporting company. The purchase price, inclusive of associated costs, consisted
of approximately $2,991 of cash, subordinated promissory notes in the aggregate
amount of $2,713, and 132,258 unregistered shares of the Company's common stock
valued at $309. The principal amount of one of the notes and cash portion of the
purchase price are subject to revision based on the revenue derived from M&M's
business for 12 months commencing November 1, 1996. The Company will account for
any such revisions as an adjustment to goodwill, when such contingencies are
resolved. The subordinated promissory notes are payable in equal quarterly
installments over a period of five years, together with interest at the rate of
9% per annum. The excess of the cost of the Company's investment over the fair
values of the assets acquired and liabilities assumed approximated $5,418.
On November 15, 1996, the Company acquired the assets and liabilities of
Sherry Roe & Associates, Inc. (SRA), a Washington, D.C.-based court reporting
company. The purchase price, inclusive of associated costs, consisted of
approximately $656 of cash, subordinated promissory notes in the aggregate
amount of $530, and 71,748 unregistered shares of the Company's common stock
valued at $200. The principal amount of one of the notes and cash portion of the
purchase price are subject to revision based on the revenue derived from SRA's
business for 24 months commencing December 1, 1996. The Company will account for
any such revisions, as an adjustment to goodwill, when such contingencies are
resolved. The subordinated promissory notes are payable in equal quarterly
installments over a period of six years, together with interest at the rate of
8% per annum. The excess of the cost of the Company's investment over the fair
values of the assets acquired and liabilities assumed approximated $1,155.
The following unaudited pro forma information assumes the M&M and SRA
acquisitions, the private placement of Series A convertible preferred stock, the
Company's repurchase of its common stock and the revolving loan credit agreement
and related repayment of certain existing debt occurred on January 1, 1995.
These results are not necessarily indicative of future operations nor of results
that would have occurred had the acquisitions and other transactions been
consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Revenues........................................................ $30,275 $27,683
Net (loss) income applicable to common stockholders............ (211) 97
========= =========
(Loss) earning per common share................................. $ (.05) $ .03
========== =========
</TABLE>
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 noncompetition agreements
for an aggregate consideration of $2,560 consisting of cash in the amount of
$1,550, subordinated promissory notes and installment payments in the aggregate
amount of $735 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. The business combinations are to be accounted for under the purchase
method, the excess of cost over the fair value of assets acquired and
liabilities assumed is expected to be approximately $1,950, and other intangible
assets of approximately $425 are expected to be recognized. The Company borrowed
approximately $1,500 under its revolving credit agreement to finance the
acquisition.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1996
and 1995:
<TABLE>
<CAPTION>
DEPRECIABLE
1996 1995 LIVES
---- ---- -----
<S> <C> <C> <C>
Office condominium...................... $ 203 203 31 years
Equipment............................... 2,365 1,590 5 to 7 years
Leasehold improvements. 820 283 5 to 10 years
---------- ---------- =============
3,388 2,076
Less accumulated depreciation........... 1,442 1,050
---------- ----------
$1,946 1,026
========== ==========
</TABLE>
Depreciation expense amounted to $392, $327, $178 for the years ended
December 31, 1996, 1995 and 1994, respectively.
(4) LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1996 and 1995:
1996 1995
---- ----
Revolving loan agreement(A). $ 8,218 $ --
Subordinated debentures(D). -- 5,440
Promissory notes(B)......................... 5,181 2,367
Revolving credit note(E).................... -- 1,600
Contract obligation(C)...................... 496 609
Other notes and obligations(F).............. 390 223
-------- -------
14,285 10,239
Less current portions....................... 1,394 1,605
---------- --------
$ 12,891 8,634
========== ========
(A) In December 1996, the Company entered into a three-year revolving
loan agreement (Loan Agreement) with a financial institution which
provides for borrowings up to $20,000 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 applicable margin rate. The applicable margin
varies on the basis of operating cash flows and overall leverage ratio
as defined in the Loan Agreement. The effective rate at December 31,
1996 was 9%. 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 the maintenance of certain financial ratios and
covenants. In addition, substantially all other lenders to the Company
have entered into a subordination agreement with this financial
institution. The initial borrowings under the Loan Agreement were used
to repay all amounts outstanding under the Company's credit agreement
with a bank and approximately $4.5 million of its subordinated
debentures due June 2001.
(B) Promissory notes with former stockholders of acquired businesses are
generally payable in quarterly installments plus interest at rates
ranging from 8% to 10% through November 2002.
(C) Contract obligation-an agreement with a former employee of an
acquired company, who is related to an officer/director of the Company,
provides for monthly payments of $9 through June 2002. The obligation
is carried net of imputed interest, at 8%, of $47 and $91 at December
31, 1996 and 1995, respectively.
(D) Debentures-in June 1994, the Company completed a private placement
of subordinated debentures (the Debentures) in the aggregate principal
amount of $5,000 to fund the cash portion of the purchase price of the
SDS acquisition and entered into an agreement with the debentureholders
(the Investment Agreement). The Debentures provided for quarterly
principal payments commencing in January 1996 in the amount of $125
through June 2001. The Debentures were repaid in 1996.
(E) Revolving credit note-in September 1994, the Company entered into a
three-year revolving credit agreement (the Credit Agreement) with a
bank which provided for borrowings up to $3,000 based on eligible
accounts receivables as defined therein. The borrowings under the
Credit Agreement bore interest at prime plus 1% and interest payments
were required monthly. The Company repaid the outstanding balance under
the Credit Agreement from borrowings under the Loan Agreement. In
conjunction with the repayment and termination of the Credit Agreement
and Investment Agreement, the Company recognized an extraordinary loss
of $157, net of a $104 tax benefit, relating to unamortized deferred
financing costs.
(F) Other notes and obligations-outstanding amounts relate to various
equipment capital leases and are payable in aggregate monthly
installments with interest at 9% to 19% maturing through 1999.
Scheduled annual principal payments of long-term debt subsequent to
December 31, 1996 are as follows:
1997................................... $ 1,394
1998................................... 1,183
1999................................... 9,413
2000................................... 1,135
2001................................... 1,005
Thereafter............................. 155
-------
$14,285
=======
(5) STOCKHOLDERS' EQUITY
In May 1993, the Company completed an initial public offering of its
securities comprised of 1,250,000 shares of common stock at a price of $4.00 per
share and 1,250,000 warrants to purchase common stock at $.10 per warrant.
The warrants are exercisable until May 18, 1998 at an exercise price of
$4.50 per share. The exercise price and the number of shares of common stock
issuable upon the exercise of the warrants are subject to adjustment in certain
circumstances, as defined. The Company may call the warrants for redemption at a
price of $.01 per warrant, provided the sales price of the common stock has been
at least 150% of the then effective exercise price of the warrants over a
specified period of time. If the warrants are called for redemption, they must
be exercised prior to such redemption or the right to purchase the applicable
shares of common stock is forfeited. As part of the Initial Public Offering, the
underwriters exercised an "overallotment" and acquired an additional 187,500 of
warrants at $.09 per warrant, net of discount. In addition, they received a
purchase option (subject to certain antidilutive provisions) to acquire, until
May 18, 1998, 264,751 shares and warrants at a price of $2.64 and $.06,
respectively. The warrants are exercisable at an exercise price of $4.50 per
share.
In connection with the private placement of Debentures in 1994, the Company
issued warrants to the holders to acquire an aggregate of 625,000 shares of
common stock. The exercise price of the warrants is $2.90, subject to revision
under specified circumstances. The warrants expire upon the earlier of (a) six
years from the date of the final payment on the Debentures, or (b) the tenth
anniversary of the date of issuance.
In connection with the acquisition of SDS in June 1994, the Company issued
750,000 shares of common stock at a recorded share price of $3.00. The Company
granted warrants to acquire 100,000 shares of its common stock at $4.50 per
share to its investment bankers in connection with the SDS acquisition in
addition to cash compensation. The warrants are exercisable at any time prior to
June 1999.
In connection with the acquisition of CHMS in January 1995, the Company
issued 76,923 shares of common stock at a recorded share price of $2.76.
On October 23, 1996, the Company completed a private placement of 7,500
shares of Series A convertible preferred stock (the Preferred Stock) for an
aggregate purchase price of $7,500 and entered into an agreement (the Agreement)
with the Preferred Stockholders. Under the Agreement, the Preferred Stockholders
have the right within 21 months to acquire up to an additional 7,500 shares of
Preferred Stock at a price of $1,000 per share. The Preferred Stock is
convertible into common stock of the Company at a conversion price of $3.00 per
share (subject to antidilution adjustments) and bears cumulative annual
dividends at the rate of 6% per annum. The holders of Preferred Stock have a
liquidation preference of $1,000 per share, plus accrued dividends. The
Preferred Stockholders have the right to vote with the holders of common stock
and are entitled to one vote for each whole share of common stock into which the
Preferred Stock is convertible (presently 333-1/3 votes per share). The
Agreement restricts future dividend payments on common stock, issuance of
certain equity securities, mergers, acquisitions and sale of assets. In
connection with the private placement, the Company granted the placement agent
warrants to acquire 187,500 of common stock of the Company at an exercise price
of $3.00 per share in addition to cash compensation. The warrants are
exercisable at any time prior to October 2001.
In connection with the acquisitions of M&M on October 28, 1996 and SRA on
November 15, 1996, the Company issued 204,006 shares of common stock valued at
approximately $509.
In November 1996, the Company purchased 433,500 shares of its outstanding
common stock at $3.00 per share.
(6) STOCK OPTION PLAN
In 1993, the Company adopted a stock option plan (the Plan) pursuant to
which the Company's Board of Directors may grant stock options to officers,
employees, directors, consultants and independent contractors to the Company.
The Plan authorizes grants of options to purchase up to 1,400,000 shares of
authorized but unissued common stock subject to stockholder approval. Stock
options are granted with an exercise price equal to the stock's fair market
value at the date of grant. All stock options have ten-year terms and generally
vest and become fully exercisable over a three-year period, commencing one year
from date of grant.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $1.03 and $1.35 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
1996--expected volatility 25%, expected dividend yield 0%, risk-free interest
rate of 6%, and an expected life of five years, 1995--expected volatility 20%,
expected dividend yield 0%, risk-free interest rate of 7%, and an expected life
of five years. The Company applies APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net (loss) income applicable to common stockholders:
As reported................................. $(541) 279
Pro forma................................... (587) 265
Net (loss) income per common share:
As reported................................. (.13) .07
Pro forma................................... (.14) .06
====== =====
</TABLE>
Pro forma net (loss) income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net (loss) income amounts
presented above because compensation cost is reflected over the options' vesting
period of three years and compensation cost for options granted prior to January
1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Balance at December 31, 1993................ 227,100 $4.00
Granted..................................... 320,650 4.00
Exercised................................... -- --
Forfeited................................... (48,933) 4.00
Expired..................................... -- --
-------- -------
Balance at December 31, 1994 514,817 4.00
Granted..................................... 105,000 4.00
Exercised................................... -- --
Forfeited................................... (41,217) 4.00
Expired..................................... -- --
-------- -------
Balance at December 31, 1995................ 578,600 4.00
Granted..................................... 170,000 2.99
Exercised................................... -- --
-------- -------
Forfeited................................... (20,100) 4.00
Expired..................................... -- --
-------- -------
Balance at December 31, 1996................ 728,500 3.76
========= ========
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.77--$4.00 and 8.5
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was
395,569 and 216,877, respectively, and the weighted-average exercise price of
those options was $4.00 in each year.
(7) PROFIT SHARING PLAN
In September 1995, the Company adopted a 401(k) savings plan covering all
eligible employees. The plan allows employees to voluntarily contribute up to
15% of compensation. The Company may make matching contributions as may be
determined prior to the end of each plan year. The current matching percentage
is 10%. The Company may also make discretionary additional contributions to the
plan. The Company's total contributions to the plan for 1996 and 1995 amounted
to $12 and $8, respectively.
(8) INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 1996,
1995 and 1994, excluding the income tax benefit of $104 attributed to the
extraordinary loss in 1996, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current tax expense:
Federal................................ $ 284 363 130
State and city......................... 96 163 70
------ ----- -----
Total current...................... 380 526 200
------ ----- -----
Deferred tax (benefit) expense:
Federal................................ (135) 16 (92)
State and city......................... ( 33) 7 (49)
------- ----- -----
Total deferred..................... (168) 23 (141)
------- ----- -----
$ 212 549 59
===== ===== ====
</TABLE>
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to income before income taxes for
the years ended December 31, 1996, 1995 and 1994 due to nondeductible expenses,
primarily goodwill amortization, amounting to approximately $230, $227 and $128,
respectively.
Significant components of the Company's net deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Contract obligation.................................... $199 269
Allowances and accrued expenses........................ 317 115
Net operating loss carryforwards -- 1
Tax credits............................................ 21 22
---- ----
Total deferred tax assets............................ 537 407
---- ----
Deferred tax liabilities:
Depreciation and amortization.......................... 282 149
Cash versus accrual accounting
differences, net....................................... 115 286
---- ----
Total deferred tax liabilities 397 435
---- ----
Net deferred tax asset (liability)................... $ 140 (28)
===== ====
</TABLE>
The Company has state minimum tax credit carryforwards of approximately $22
which may be carried forward to reduce future year tax liabilities through the
year 2004.
Based upon recoverable taxes paid, historical taxable income and
projections of future taxable income over the periods which the deferred tax
assets are deductible, management believes that it is more likely than not that
the Company will realize the benefits of deductible temporary differences.
(9) COMMITMENTS
EMPLOYMENT AGREEMENTS
The chairman of the board entered into an employment agreement with a
five-year term through May 1998 which is renewable on a year to year basis
thereafter. The agreement provides for a base salary of $180 plus cost of living
increases, and an annual bonus based on a percentage of the pretax earnings of
the Company in excess of specified levels. No bonus was earned under the
agreement in each of the years ended December 31, 1996, 1995 and 1994
In connection with the acquisition of David Feldman & Associates (USA) Ltd.
(DFA) in September 1993 and SDS in 1994, the Company entered into employment and
noncompetition agreements with the former stockholders of each of the companies,
which expire in September 1997 and June 1998, respectively. The agreements
provide for an annual base salary of $180 plus cost of living increases for each
individual. The DFA agreement also provides for an annual bonus based on
percentages of consolidated revenues in excess of specified levels. Total bonus
amounts earned under the DFA employment agreement amounted to $359 and $239 for
the respective years ended December 31, 1996 and 1995.
LEASE COMMITMENTS
The Company is obligated under operating leases for office facilities which
expire through December 2005. The leases provide, among other things, that the
Company is responsible for its share of increases in certain utilities,
maintenance and property taxes over a base amount. In addition, the Company is
also obligated under various equipment and vehicle leases which expire through
September 1999. Total lease expense for 1996, 1995 and 1994 under the above
leases amounted to approximately $720, $375 and $337, respectively.
During 1996, the Company relocated its headquarters and recognized a $262
expense related to the net present value of future rental payments, net of
sublease income, pertaining to the vacated premises.
The Company leases its Santa Ana, California office from an affiliate of an
officer/director which expires in June 1999 with an option to renew for five
years. Management believes that the terms of the lease agreement are comparable
to market rates. Total lease expense for 1996 and 1995 amounted to $265 in each
year.
The anticipated future annual lease payments under operating leases at
December 31, 1996, inclusive of the base utility, maintenance and property tax
charges for the office facilities, are as follows:
1997........................................ $868
1998........................................ 773
1999........................................ 546
2000........................................ 291
2001........................................ 251
Thereafter.................................. 815
=====
Future annual rental income under remaining noncancelable subleases is as
follows: 1997--$63, 1998--$79, 1999--$79 and 2000--$13.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the years ended December 31, 1996, 1995 and 1994 have
included:
1996 1995 1994
---- ---- ----
Interest................................ $1,140 1,074 528
====== ===== ===
Income taxes............................ $1,007 200 12
====== ===== ====
During 1996, $75 in preferred stock dividends were accrued and unpaid.
In connection with the acquisitions of M&M and SRA, during 1996, the
Company issued 204,006 shares of common stock valued at $509.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
(Dollars in Thousands, Except Share Data)
September 30, December 31,
1997 1996 (1)
============= =============
(Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash $251 $165
Accounts receivable, less allowance
for doubtful accounts 9,604 6,764
Prepaid expenses and other current assets 1,497 894
---------- ----------
Total current assets 11,352 7,823
Property and equipment, net 2,452 1,946
Other assets:
Costs in excess of fair value of net identifiable
assets of acquired businesses, net 48,493 19,681
Other assets, net 1,551 885
----------- ------------
50,044 20,566
Total assets $63,848 $30,335
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $2,053 $1,708
Accrued expenses and other current liabilities 4,190 1,307
Current portion of long-term debt 1,681 1,394
---------- -----------
Total current liabilities 7,924 4,409
Long-term debt 33,888 12,891
Other liabilities 356 267
Stockholder's equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized in series:
Series A convertible preferred stock,
authorized 22,500 and 15,000 shares,
15,000 and 7,500 shares issued and
outstanding, aggregate liquidation
preference $15,000,000 and $7,500,000 in
1997 and 1996, respectively - -
Common stock, $.01 par value, 25,000,000 authorized,
5,365,725 and 4,330,829 shares issued, respectively,
5,182,225 and 3,897,329 shares
outstanding in 1997 and 1996 respectively 55 43
Additional paid-in capital 25,313 14,911
Treasury stock, at cost -183,500 and 433,500 shares
in 1997 and 1996, respectively (550) (1,300)
Note receivable (781) -
Accumulated deficit (2,357) (886)
---------- ----------
Total stockholders' equity 21,680 12,768
---------- ----------
Total liabilities and stockholders' equity $63,848 $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>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(Dollars in Thousands, Except Share Data)
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
============ ============= ============= =============
<S> <C> <C> <C> <C>
Revenues $12,431 $5,645 $31,385 $17,391
Costs and expenses:
Operating expenses 6,655 3,244 17,708 9,778
General and administrative expenses 4,402 1,949 11,759 5,769
Depreciation and amortization 801 292 1,784 811
---------- --------- -------- --------
11,858 5,485 31,251 16,358
Income from operations 573 160 134 1,033
Other income (expense):
Interest expense (774) (286) (1,667) (824)
Interest income 15 1 26 4
Other income 0 2 0 2
----------- ----------- --------- ---------
(759) (283) (1,641) (818)
(Loss) income before provision
for income taxes (186) (123) (1,507) 215
Income Taxes - Provision (benefit) (10) 12 (434) 281
------------ ------------ ----------- --------
Net (loss) income (176) (135) (1,073) (66)
Dividends on preferred stock (159) 0 (398) 0
------------ ----------- ----------- --------
Net (loss) income applicable to
common stockholders ($335) ($135) ($1,471) ($66)
=========== ============ =========== ===========
(Loss) earnings per common share:
Net (loss) income ($0.06) $0.03 ($0.33) $0.02
============ ============== ============== ============
Weighted average common
shares outstanding 5,182,225 4,126,823 4,510,291 4,126,823
============ ============== ============= ============
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollars in Thousands)
For the Nine Months Ended
September 30 September 30
1997 1996
============ ============
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income ($1,471) ($66)
Adjustments to reconcile net (loss)
income to net cash
provided by operating activities:
Depreciation and amortization 1,784 811
Deferred income tax expense (benefit) 25 (56)
(Increase) decrease in assets:
Accounts receivable (205) (324)
Prepaid expenses and other current assets (406) 27
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,456 146
Other long-term liabilities (32) 65
----------- ---------
Net cash provided by operating activities 1,151 603
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (465) (747)
Increase in other assets (322) (477)
Acquisition of businesses (25,981) (291)
------------ ----------
Net cash used in investing activities (26,768) (1,515)
------------ ----------
Cash flows from financing activities:
Borrowing under line of credit net 19,947 1,864
Principal payments on long-term debt (1,169) (1,025)
Proceeds from private placement of stock net 7100
Warrant exchange related cost (175)
------------ ----------
Net cash provided by financing activities 25,703 839
------------ ----------
Net increase (decrease) in cash 86 (73)
Cash - beginning of period 165 95
Cash - end of period $251 $22
============ ============
Supplemental information:
Approximate interest paid during the period $1,653 $839
============ ============
Approximate income taxes paid during the period $52 $696
============ ============
Approximate preferred stock dividends
accrued and unpaid $398 -
============ ============
The Company incurred capital lease obligations of approximately
$176,000 during the nine month period ended September 30 1996.
See notes to condensed consolidated financial statements.
</TABLE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 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 to 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.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1997
FASB Statement No. 130 "Reporting Comprehensive Income"
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. Under SFAS 130,
comprehensive income is divided into net income and other comprehensive income.
Other comprehensive income includes items previously recorded directly in
equity. SFAS 130 is effective for interim and annual periods beginning after
December 15, 1997. Comparative financial statements provided for earlier periods
are required to be reclassified to reflect application of the provisions of the
Statement.
FASB Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information"
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected financial
information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997.
NOTE D-- BUSINESS COMBINATIONS
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.
On May 28,1997, the Company acquired the assets and liabilities of Wolfe,
Rosenberg & Associates, Inc. (WRA), a court reporting agency based in Chicago,
Illinois. The acquisition, accounted for under the purchase method of
accounting, resulted in the inclusion of the results of operations of WRA from
the date of acquisition. The purchase price, inclusive of associated costs,
approximated $6,069,000, paid in cash. The purchase price is subject to revision
based upon the revenue derived from WRA's business for 24 months commencing June
1997. The Company will account for any such revisions as an adjustment to
goodwill, when such contingencies are resolved. The excess of the cost of the
Company's investment over the fair values of the assets acquired and liabilities
assumed approximated $6,207,000.
On June 13, 1997, the Company acquired the assets and liabilities of
Krauss, Katz & Ackerman, Inc. (KKA), a court reporting agency based in
Philadelphia, Pennsylvania. The acquisition, accounted for under the purchase
method of accounting, resulted in the inclusion of the results of operations of
KKA from the date of acquisition. The purchase price, inclusive of associated
costs, consisted of approximately $9,404,000 in cash. The purchase price is
subject to an increase based upon the revenue derived from KKA's business for
the 36 months ending December 31, 1999. The increase is payable in unregistered
shares of the Company's common stock, up to a maximum of 300,000 shares. The
Company will account for any such revisions as an adjustment to goodwill, when
such contingencies are resolved. The excess of the cost of the Company's
investment over the fair values of the assets acquired and liabilities assumed
approximated $9,059,000.
On June 18, 1997, the Company acquired the assets and liabilities of
American Network Services, Inc. (DepoNet), a court reporting referral network,
based in Atlanta, Georgia. The acquisition, accounted for under the purchase
method of accounting, resulted in the inclusion of the results of DepoNet's
operations from the date of acquisition. The purchase price, inclusive of
associated costs, consisted of approximately $6,633,000 in cash and 750,000
unregistered shares of the Company's common stock valued at $3,000,000. The
preliminary estimate of the excess of the cost of the Company's investment over
the fair values of the tangible assets acquired and liabilities assumed
approximated $10,000,000.
The cash portion of the WRA, KKA and DepoNet acquisitions was financed by
the proceeds from the sale of Series A convertible Preferred Stock (see Note E)
and from borrowings under its revolving loan agreement.
On September 5, 1997, the Company acquired the assets and liabilities of
Hyatt Court Reporting and Video, Inc. (Hyatt), a court reporting agency based in
Denver, Colorado. The acquisition, accounted for under the purchase method of
accounting, resulted in the inclusion of the results of Hyatt's operations from
the date of acquisition. The purchase price, inclusive of associated costs,
consisted of approximately $600,000 in cash and a promissory note of $100,000,
payable in equal quarterly installments over a period of two years. The excess
cost over the fair value of acquired assets and liabilities assumed approximated
$447,000, and other intangible assets of approximately $300,000 were recognized.
The Company borrowed approximately $600,000 under its revolving loan agreement
to finance the acquisition.
NOTE E-- STOCKHOLDERS' EQUITY
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 out of its
Treasury Stock 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 that generally would vest ratably over four years.
On June 12, 1997 the Company completed an exchange offering pursuant to
which 924,481 warrants were exchanged for 184,896 common shares of the Company.
After the exchange, 513,019 warrants remain outstanding. The warrants are
exercisable until May 18, 1998 at an exercise price of $4.50 per share. The
exercise price and the number of shares of common stock issuable upon the
exercise of the warrants are subject to adjustment in certain circumstances, as
defined. The Company may call the warrants for redemption at a price of $.01 per
warrant, provided the sales price of the common stock has been at least 150% of
the then effective exercise price of the warrants over a specified period of
time. On September 12, 1997, the Company announced that it would redeem all of
the foregoing warrants. Costs of approximately $175,000 incurred in connection
with the exchange were charged against Stockholders' Equity.
Pursuant to an agreement (Agreement) dated October 23, 1996 with certain
investors, in June 1997 the Company sold 7,500 additional shares of Series A
convertible preferred stock (the Preferred Stock) for an aggregate sales price
of $7,500,000 and amended the Agreement with the Preferred Stockholders. The
Preferred Stock is convertible to common stock of the Company at a conversion
price of $3.00 per share (subject to antidilution adjustments) and bears
cumulative annual dividends at the rate of 6% per annum. The holders of
Preferred Stock have liquidation preference of $1,000 per share, plus accrued
dividends. Pursuant to the amendment of the Agreement, Preferred Stockholders
will have the right from time to time, on or prior to December 17, 1998, to
acquire an additional 7,500 shares of Series A Convertible Preferred Stock at a
price of $1,000 per share, which shares shall have the same terms as the
existing Series A Convertible Preferred Stock.
In connection with the acquisition of DepoNet in June 1997, the Company
issued 750,000 shares of common stock at a recorded share price of $4.00.
NOTE F--OTHER MATTERS
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 cost of the buyout
including associated cost was approximately $1.0 million on a pre-tax basis and
was charged to operations in the fiscal quarter ended June 30, 1997.
NOTE G - SUBSEQUENT EVENTS
Subsequent to September 30, 1997, the Company has acquired substantially
all of the assets of five court reporting firms in Fort Lauderdale, Florida,
consisting of Associates/Certified Reporting, County Reporting, Justice
Reporting, Lauderdale Reporting and Merit Reporting, with an aggregate purchase
price of approximately $4,050,000. The Company also acquired substantially all
of the assets of Haynes & Harpster Court Reporters, a southern California court
reporting firm, and Cynthia Varelli, a Chicago, Illinois court reporting firm,
and Kim Tindall & Associates, a San Antonio, Texas court reporting firm, with an
aggregate purchase price of approximately $3,987,000. The Company acquired the
common stock of Jurist-Begley Reporting Services, Inc., Jurist, Inc., and Aarons
& Associates, Inc., Philadelphia, Pennsylvania based court reporting firms, for
an aggregate purchase price of approximately $6,195,000.
<PAGE>
WOLFE, ROSENBERG & ASSOCIATES
AND M&M COMPUTRANS
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wolfe, Rosenberg & Associates, Inc.
and M&M Computrans:
We have audited the accompanying combined balance sheets of the Court Reporter
Business of Wolfe, Rosenberg & Associates, Inc. and M&M Computrans (the
Business) as of December 31, 1996 and 1995 and the related combined statements
of operations and business equity and cash flows for the years then ended. These
combined financial statements are the responsibility of management of the
Business. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Court Reporter
Business of Wolfe, Rosenberg & Associates, Inc. and M&M Computrans as of
December 31, 1996 and 1995, and the results of their operations and business
equity and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 29, 1997
<PAGE>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES
AND M&M COMPUTRANS
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Combined Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
Current assets:
<S> <C> <C>
Accounts receivable, net of allowance for
doubtful accounts of $106,695 in 1996
and $54,881 in 1995 $ 758,492 623,809
Other 329 25,145
------------ ----------
Total current assets 758,821 648,954
------------ -----------
Fixed assets 1,106,002 1,052,040
Less accumulated depreciation (950,927) (887,191)
------------- -------------
Fixed assets, net 155,075 164,849
------------- -------------
Total assets $ 913,896 813,803
============= ==============
Liabilities and Business Equity
Current liabilities:
Accounts payable to court reporters 169,308 166,174
Other accounts payable and accrued liabilities 65,000 65,000
Capital leases - current 13,200 -
------------- --------------
Total current liabilities 247,508 231,174
Notes payable to principals 111,313 37,968
Capital leases - noncurrent 27,092 -
------------- -------------
Total liabilities 385,913 269,142
------------- -------------
Business equity 527,983 544,661
------------- -------------
Total liabilities and business equity $ 913,896 813,803
============= ==============
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Combined Statements of Operations and Business Equity
Years ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Revenues $ 5,184,439 5,506,516
Less refunds and discounts (4,735) (17,726)
------------- ----------
Net revenues 5,179,704 5,488,790
Costs and expenses related to revenues:
Transcribers and reporters (2,658,248) (2,913,340)
Other operating expenses (2,710,135) (2,889,747)
--------------- -------------
Operating deficit (188,679) (314,297)
--------------- -------------
Other income (expense):
Rental income (loss) (4,736) 14,076
Interest and dividends, net 32,089 15,441
Gain (loss) on sale of asset (6,815) (1,014)
Miscellaneous 8,883 29,846
--------------- ------------
Total other income 29,421 58,349
--------------- ------------
Net loss (159,258) (255,948)
Business equity at beginning of year 544,661 715,437
Contributions from Parent, net 142,580 85,172
--------------- ------------
Business equity at end of year $ 527,983 544,661
=============== =============
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Combined Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (159,258) (255,948)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation 63,736 50,555
Provision for doubtful accounts 51,814 54,881
Change in assets and liabilities:
Other assets 24,816 (21,775)
Accounts receivable (186,497) 146,271
Accounts payable 3,134 (1,567)
Accrued expenses - 18,332
Capital leases 40,292 -
-------------- ----------
Net cash provided by operating activities (161,963) (9,251)
Cash flows from investing activities -
capital expenditures (53,962) (113,889)
--------------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable to principals 73,345 37,968
Contributions from Parent, net 142,580 85,172
--------------- ------------
Net cash provided by (used in) financing activities 215,925 123,140
--------------- ------------
Cash at beginning and end of year $ - -
=============== ============
See accompanying notes to combined financial statements.
</TABLE>
<PAGE>
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Wolfe, Rosenberg & Associates, Inc. (WRA) was formed during 1972 by
its principals, Seymour Wolfe and Fred Rosenberg. WRA provides court
reporting services for the legal and business communities. WRA has two
offices in the Chicagoland area: one in Chicago and the other in
Wheaton. WRA provides a variance of reporting services to its clients,
including depositions, trials, hearings and arbitrations, conventions
and meetings, and referrals.
WRA's clients include approximately 2,000 service requesters of which
over 1,400 are from the city of Chicago, 200 from the Midwest region
outside of Chicago, and the remaining 400 from outside the Midwest,
with California, New York and Washington, DC representing the largest
shares. WRA's service requesters include mainly attorneys, court
officials, public entities, businesses and community groups.
The combined financial statements of the Business, as defined below,
also include the operations of M&M Computrans, a company formed in
1982 that provides computer consulting services solely to WRA.
(b) BASIS OF PRESENTATION
The accompanying combined financial statements reflect the activity of
Wolfe, Rosenberg & Associates (WRA) which exist as of December 31,
1996 and for which ownership interests are to be transferred to a
third party under an agreement in principle described in note 5. The
assets and liabilities of WRA to be acquired by the purchaser relate
to the operations of its court reporting business including accounts
receivable, property, plant and equipment, accounts payable, notes and
interest payable in an amount not to exceed $122,899 due by the
Business to the principals, certain accruals in an amount not to
exceed $65,000, licenses, and lease obligations. Assets and
liabilities excluded from WRA's assets and liabilities include cash
and cash equivalents, bonds and marketable securities and borrowings
under line of credit. The assets and liabilities of M&M Computrans to
be acquired by the purchaser, which are also included in the
accompanying combined financial statements, include property, plant,
and equipment and current liabilities in relation to its computer
consulting business. The statements of operations include the revenues
derived and costs related to both the WRA and M&M Computrans
businesses to be acquired by the purchaser (collectively, the
Business). Transactions between WRA and M&M Computrans have been
eliminated in the combined financial statements.
The Business does not maintain its own cash receipts and
disbursements. Cash activities are managed by the principals, who
represent the WRA parent organization (Parent), and are reflected as a
change in the business equity account.
(c) REVENUE RECOGNITION
Revenues and the related direct costs of court reporters and
transcribers are recognized when services rendered are billed, which
generally occurs at the time the final documents are transcribed and
completed.
<PAGE>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Notes to Combined Financial Statements
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed
using both accelerated and straight-line methods over the estimated
useful lives of the assets as noted below. Leasehold improvements are
amortized over the shorter of the estimated useful lives of the assets
or the lease terms. Maintenance and repairs are charged to expense as
incurred, improvements are capitalized.
Equipment 5 - 7 Years
Office furniture 7 Years
Leasehold improvements 7 Years
(e) INCOME TAXES
Wolfe, Rosenberg & Associates, Inc., a Sub-S corporation and M&M
Computrans, an Illinois general partnership, have elected S
corporation status under the Internal Revenue Code. All income,
deductions, and credits are passed through to the principals of these
companies for Federal income tax purposes. Certain state and local tax
jurisdictions do not uniformly recognize a company's S corporation
status. Accordingly, the companies will continue to be liable for
state and local income taxes in these jurisdictions and such taxes are
provided for in the accompanying consolidated financial statements.
(f) CREDIT CONCENTRATIONS AND FINANCIAL INSTRUMENTS
Financial instruments which potentially expose the Business to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," consist primarily of
trade accounts receivable and other assets. The Business' customers
are mostly law firms within the Midwest region.
(g) USE OF ESTIMATES
Management of the Business has made certain estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue
and expenses during the period. Actual results could differ from those
estimates.
(Continued)
<PAGE>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Notes to Combined Financial Statements
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December
31, 1996 and 1995:
1996 1995
Equipment $ 1,050,574 996,612
Office furniture 22,153 22,153
Leasehold improvements 33,275 33,275
Total property, plant and equipment 1,106,002 1,052,040
Less accumulated depreciation 950,927 887,191
$ 155,075 164,849
(3) PENSION BENEFIT
The Business had a defined benefit plan (the Plan) that covered
substantially all employees who met defined age and length of service
requirements. Benefits were based on years of service and compensation
levels.
The Plan was terminated in 1995, and assets were distributed in May
1996.
No assets reversed back to the Business as a result of the termination
of the Plan.
(4) COMMITMENTS
(a) LEASE COMMITMENTS
The Business entered into a capital lease for video equipment during
1996. Leased equipment capitalized and included on the combined
balance sheet at December 31, 1996 was $43,411.
The Business is obligated under an operating lease for its office
facility which expires on May 31, 2000. The lease provides, among
other things, that the Business is responsible for its share of
increases in certain utilities, maintenance, and property taxes over a
base amount. The Business is also obligated under various equipment
and vehicle leases which expire through January 31, 2000. Total lease
expense for 1996 and 1995 is $261,857 and $264,141, respectively.
(Continued)
<PAGE>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Notes to Combined Financial Statements
The anticipated future annual lease payments under capital and
operating leases as December 31, 1996, inclusive of the base utility,
maintenance and property tax charges for the office facilities, to be
purchased by the third party as described in note 5, are as follows:
Year ending December 31 Capital Operating
1997 $ 17,175 243,593
1998 17,175 232,712
1999 12,881 210,725
2000 - 81,249
2001 and thereafter - -
47,231 768,279
Less amount representing interest 6,939
Present value of minimum lease payments 40,292
Less current maturities 13,200
$27,092
(5) ASSET SALE AGREEMENT
In May 1997, WRA and M&M Computrans entered into an agreement in
principle with Esquire Communications Ltd. (Esquire) to transfer
ownership of certain assets and liabilities related to the court
reporting operations of the Business, in exchange for a monetary
consideration.
The assets to be purchased by Esquire of the Business include: all
accounts receivable, all office supplies, office machines, office
furniture, machinery, equipment, fixtures, inventory, leasehold
improvements (to the extent owned) and computer hardware and software
systems. The liabilities to be assumed by Esquire include: accounts
payable and accruals (not to exceed $65,000, exclusive of court
reporter liabilities), up to $122,899 of outstanding principal and
interest due by the Business to the principals, office lease,
equipment leases, automobile leases, and computer software licenses,
accrued vacation and sick pay, and all liabilities relating to the
work in process of the Business.
The assets to be excluded from the purchase include: cash and cash
equivalents, bonds and marketable securities, stock certificates,
partnership certificates, minute books, any notes of indebtedness of
the Business to any principal to the extent in excess of the maximum
amount ($122,899) to be assumed, specific items of personal property
and WRA's existing line of credit with American National Bank.
(Continued)
<PAGE>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M&M COMPUTRANS
Notes to Combined Financial Statements
(6) RELATED PARTY TRANSACTIONS
The Business has outstanding notes payable as of December 31, 1996 and
1995 in relation to loans granted by its principals to the Business.
Interest expense in relation to the notes is also included within the
Business's consolidated financial statements. All notes outstanding
are to be paid back to the principals on a monthly basis based upon a
13% effective interest rate. All notes outstanding are due to the
principals on or before July 31, 1998.
During 1996, the Business sold three vehicles to its principals and
incurred a loss of $39,761. The vehicles had an original basis of
$103,560 and accumulated depreciation of $35,799. The Business
received $28,000 in cash as proceeds from the sale of the vehicles.
<PAGE>
<TABLE>
<CAPTION>
THE COURT REPORTER BUSINESS OF
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND M & M COMPUTRANS
Combined Statement Of Operations and Business Equity
Years ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Revenues $ 5,184,439 5,506,516
Less refunds and discounts (4,735) (17,726)
-------------- -----------
Net revenues 5,179,704 5,488,790
Costs and expenses related to revenues:
Transcribers and reporters (2,658,248) (2,913,340)
Other operating expenses (2,710,135) (2,889,747)
-------------- -----------
Operating deficit (188,679) (314,297)
-------------- -----------
Other income (expense):
Rental income (loss) (4,736) 14,076
Interest and dividends, net 32,089 15,441
Gain (loss) on sale of assets (6,815) (1,014)
Miscellaneous 8,883 29,846
------------- ------------
Total other income 29,421 58,349
------------- ------------
Net loss (159,258) (255,948)
Business equity at beginning of year 544,661 715,437
Contributions from Parent, net 142,580 85,172
-------------- -----------
Business equity at end of year $ 527,983 544,661
============== ===========
See accompanying notes to combined financial statements.
</TABLE>
WOLFE, ROSENBERG & ASSOCIATES, INC. AND SUBSIDIARY
UNAUDITED FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
<TABLE>
<CAPTION>
WOLFE, ROSENBERG & ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
April 30, April 30,
1997 1996
========= =========
ASSETS
Current assets:
<S> <C> <C>
Accounts receivable, less allowance $627,684 $652,859
--------- ---------
Total current assets 627,684 652,859
Property and equipment, net 183,241 207,016
--------- ----------
$810,925 $859,875
========= ==========
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable and accrued expenses $304,177 $282,623
Current portion of capital leases 13,200 0
---------- -----------
Total current liabilities 317,377 282,623
Notes payable to principals 111,313 37,968
Capital leases - noncurrent 22,859 0
Business equity 359,376 539,284
---------- -----------
$810,925 $859,875
========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
WOLFE, ROSENBERG & ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the Four Months Ended
April 30, April 30,
1997 1996
========= ==========
<S> <C> <C>
Fees income $1,562,123 $1,726,037
Costs and expenses:
Direct costs 833,017 885,320
General and administrative expenses 804,766 911,201
Depreciation and amortization 18,066 20,488
------------ -----------
1,655,849 1,817,009
Income from operations (93,726) (90,972)
Other income:
Interest and other income 11,096 41,051
------------- ------------
Net loss ($82,630) ($49,921)
============= ============
See notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
WOLFE, ROSENBERG & ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Four Months Ended
April 30, April 30,
1997 1996
=========== ===========
Cash flows from operating activities
<S> <C> <C>
Net loss ($82,630) ($49,921)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 18,066 20,488
Provision for doubtful accounts 15,621 17,260
(Increase) decrease in assets:
Accounts receivable 115,187 (46,310)
Other current assets 329 25,145
(Decrease) increase in liabilities:
Accounts payable and accrued expenses 69,869 51,449
Capital leases (4,233) 0
------------- -----------
Net cash provided by operating activities 132,209 18,111
------------- -----------
Cash flows from investing activities
Purchase of property and equipment (46,232) (62,655)
------------- -----------
Cash flows from financing activities
Contributions from (distributions to)
parent, net (85,977) 44,544
------------- ----------
Net change in cash 0 0
============= ==========
Cash at beginning and end of period $0 $0
============== ===========
See notes to condensed consolidated financial statements.
</TABLE>
WOLFE, ROSENBERG & ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 1997
NOTE A-- BASIS OF PRESENTATION
The accompanying unaudited condensed combined 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) to 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 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 Company's Financial
Statements and footnotes for the fiscal year ended December 31, 1996 filed with
Esquire Communications Ltd.'s Form 8-K/A.
The condensed combined financial statements include the accounts of the
Company and a subsidiary under common control. All significant intercompany
transactions and accounts have been eliminated.
NOTE B-- SUBSEQUENT EVENTS
Subsequent to April 30, 1997 the Company sold substantially all of its
assets and operations, subject to assumptions of certain liabilities, to a
publicly traded court reporting company. The Company ceased operations effective
May 28, 1997 with operations being conducted by the successor corporation.
<PAGE>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
COMBINED FINANCIAL STATEMENTS
December 31, 1996 and 1995
PEAT MARWICK LLP
1600 Market Street
Philadelphia, PA 19103-7212
INDEPENDENT AUDITORS' REPORT
The Stockholders
Krauss, Katz & Ackerman, Inc.:
We have audited the accompanying combined balance sheets of Krauss, Katz &
Ackerman, Inc. and affiliate as of December 31, 1996 and 1995, and the related
combined statements of operations, stockholders' equity and cash flows for the
years then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Krauss, Katz &
Ackerman, Inc. and affiliate at December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG Marwick LLP
Philadelphia, Pennsylvania
May 16, 1997
<PAGE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Combined Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
<S> <C> <C>
Cash $ 95,467 23,882
Accounts receivable, net of allowance for doubtful accounts
of $83,455 in 1996 and $43,176 in 1995 1,493,781 1,275,398
Other 100 100
- -----------------------------------------------------------------------------------------------
Total current assets 1,589,348 1,299,380
- -----------------------------------------------------------------------------------------------
Property and equipment:
Furniture and equipment 662,330 634,487
Less accumulated depreciation and amortization 592,270 557,788
- -----------------------------------------------------------------------------------------------
Net property and equipment 70,060 76,699
- -----------------------------------------------------------------------------------------------
Security deposits 9,789 12,719
Intangible assets, net of accumulated amortization of
$53,818 in 1996 and $37,871 in 1995 185,372 201,319
- -----------------------------------------------------------------------------------------------
Total assets $ 1,854,569 1,590,117
===============================================================================================
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Combined Balance Sheets
December 31, 1996 and 1995
Liabilities and Stockholders' Equity 1996 1995
<S> <C> <C>
Current liabilities:
Due to stockholders, net $ 163,233 117,755
Current portion of long term debt 16,189 16,846
Accounts payable 686,721 505,380
Accrued expenses 546,319 421,839
- ----------------------------------------------------------------------------------------------
Total current liabilities 1,412,462 1,061,820
- ----------------------------------------------------------------------------------------------
Security deposits 1,775 1,775
Long term debt less current portion 129,621 145,810
- ----------------------------------------------------------------------------------------------
Total liabilities 1,543,858 1,209,405
- ----------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock of no par value, 1,000 shares authorized
300 shares issued and outstanding 3,300 3,300
Additional paid-in capital 424,506 424,506
Retained earnings (117,095) (47,094)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity 310,711 380,712
- -----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,854,569 1,590,117
===============================================================================================
</TABLE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Combined Statements of Operations
Years ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Income:
Fees $ 6,793,259 6,231,543
Rent reimbursement 18,565 21,483
Equipment rental 5,047 7,696
- ----------------------------------------------------------------------------------------
Total income 6,816,871 6,260,722
Direct costs 3,219,541 2,956,341
- ----------------------------------------------------------------------------------------
Gross profit 3,597,330 3,304,381
- ----------------------------------------------------------------------------------------
Depreciation and amortization 50,428 73,585
Officers' salaries 1,223,279 1,266,696
Other operating expenses 2,251,282 2,038,505
- ----------------------------------------------------------------------------------------
Operating income (loss) 72,341 (74,405)
- ----------------------------------------------------------------------------------------
Interest expense (30,015) (36,756)
Interest income 1,673 1,800
- ----------------------------------------------------------------------------------------
Net income (loss) $ 43,999 (109,361)
========================================================================================
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Combined Statements of Stockholders' Equity
Years ended December 31, 1996 and 1995
Additional Total
Common paid-in Retained stockholders'
stock capital earnings equity
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ 3,300 424,506 62,267 490,073
Net loss - - (109,361) (109,361)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 3,300 424,506 (47,094) 380,712
- ------------------------------------------------------------------------------------------------------------------------
Net income - - 43,999 43,999
Dividends - - (114,000) (114,000)
- ------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 3,300 424,506 (117,095) 310,711
========================================================================================================================
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Combined Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 43,999 (109,361)
- -------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 50,428 73,585
Changes in assets and liabilities:
Increase in accounts receivable (218,383) (79,403)
Increase in accounts payable 181,341 88,841
Increase in accrued expenses 124,480 91,313
- -------------------------------------------------------------------------------------------------------
Total adjustments 137,866 174,336
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 181,865 64,975
Cash flows from investing activities:
Purchase of property and equipment (27,842) (35,673)
Payments on note receivable - 28,126
(Increase) decrease in security deposits 2,930 (748)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (24,912) (8,295)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on long term debt (16,846) (82,243)
Payments to stockholders (114,000) (18,997)
Repayments of advances to stockholders 45,478 -
Other - 290
- -------------------------------------------------------------------------------------------------------
Net cash used in financing activities (85,368) (100,950)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 71,585 (44,270)
Cash at beginning of year 23,882 68,152
- -------------------------------------------------------------------------------------------------------
Cash at end of year $ 95,467 23,882
=======================================================================================================
Cash paid for interest $ 30,015 36,756
=======================================================================================================
</TABLE>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Notes to Combined Financial Statements
December 31, 1996 and 1995
(1) Business Activity
Krauss, Katz & Ackerman, Inc. (the Company) and affiliate provide court
reporting and other litigation support services.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The accompanying combined financial statements have been prepared on the accrual
basis of accounting in which revenue and gains are recognized when earned and
expenses and losses are recognized when incurred.
Principles of Combination
The combined financial statements include the accounts of the Company and an
affiliate under common control. All significant intercompany transactions and
accounts have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
Intangible Assets
Intangible assets consist primarily of goodwill which represents the excess of
cost over the net assets of a business acquired. These assets are being
amortized using the straight-line method over their estimated lives of 15 years.
The Company assesses the recoverability of these intangible assets by
determining whether amortization of the balances over their remaining life can
be recovered through undiscounted future operating cash flows of the acquired
operation.
Property and Equipment
Property and equipment are recorded at cost. Depreciation on assets is provided
using the double declining balance method over lives ranging from 5 to 7 years.
Income Taxes
No provision for income taxes is reflected in the accompanying financial
statements since the stockholders of the Company have elected to be taxed
individually on the profits of the Company.
(2) Continued
Retirement Plans
The Company has established a profit sharing plan covering those employees
meeting certain eligibility requirements. Profit sharing expense under this plan
amounted to $115,000 and $153,245 in 1996 and 1995, respectively.
(3) Long Term Debt
Long-term debt at December 31 consisted of:
1996 1995
Installment note, secured by equipment,
payable in 48 monthly installments of $284
including interest at 13% through July 1996 $- 1,903
Installment note, payable in 40 quarterly
installments of $6,875 including interest at 8%
through October 2003 145,810 160,753
- -------------------------------------------------------------------------------
145,810 162,656
Less: current portion 16,189 16,846
- -------------------------------------------------------------------------------
Total $129,621 145,810
- -------------------------------------------------------------------------------
The long-term debt maturing during the next five years is:
1997 $16,189
1998 17,538
1999 19,001
2000 20,585
2001 22,301
Thereafter 50,196
------------------------------------------------------
(4) Related Party Transactions
The stockholders of the Company obtained a $250,000 line of credit which is
guaranteed by the Company. Proceeds from advances under the line were loaned to
the Company. The loan from the stockholders bears interest at 1/2% over prime
(8.75% at December 31, 1996). The outstanding balance under the line of credit
agreement was $209,000 and $220,000 at December 31, 1996 and 1995, respectively.
(5) Commitments and Contingencies
In September 1993, the Company entered into a lease agreement with an unrelated
party for its premises. The term of the lease is for a period of ten years. In
February 1995, the Company opened an additional office and entered into a lease
agreement with an unrelated party. The term of the lease is for a period of two
years with the option to renew for another one year period. The Company is also
obligated under various auto and equipment leases over periods ranging from 2 to
5 years. Lease expense for the period ended December 31, 1996 and 1995 was
$210,969 and $207,793, respectively.
The future minimum lease payments as of December 31 are:
1997 $322,668
1998 256,703
1999 253,537
2000 257,745
2001 247,116
Later years 258,636
--------------------------------------------
Total minimum payments required $1,596,405
---------------------------------------------
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
Unaudited Financial Statements
April 30, 1997 and 1996
<PAGE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
CONDENSED COMBINED BALANCE SHEETS
UNAUDITED
April 30, April 30,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash $164,569 $98,475
Accounts receivable, less allowance 1,305,155 1,340,698
Other 64,856 100
----------- -----------
Total current assets 1,534,580 1,439,273
Property and equipment, net 70,999 74,486
Other assets, net 189,603 205,792
----------- -----------
$1,795,182 $1,719,551
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,164,846 $1,157,929
Due to stockholders - 132,914
Current portion of long-term debt 16,850 16,404
----------- ----------
Total current liabilities 1,181,696 1,307,247
Long-term debt 121,028 137,795
Other liabilities 1,775 1,775
Stockholders' equity:
Common stock of no par value, 1000 shares
authorized, 300 shares issued and outstanding 3,300 3,300
Additional paid in capital 424,506 424,506
Retained earnings ( accumulated deficit) 62,877 (155,072)
--------- ----------
Total stockholders' equity 490,683 272,734
------------ -------------
$1,795,182 $1,719,551
============ =============
See notes to condensed combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
CONDENSED COMBINED STATEMENTS OF OPERATIONS
UNAUDITED
For the Four Months Ended
April 30, April 30,
1997 1996
<S> <C> <C>
Fees income $2,498,680 $2,031,285
Costs and expenses:
Direct costs 1,156,644 962,691
General and administrative expenses 1,135,170 1,150,316
Depreciation and amortization 15,613 16,809
---------- ----------
2,307,427 2,129,816
Income (loss) from operations 191,253 (98,531)
Other income ( expense):
Interest expense (11,803) (10,005)
Interest income 522 558
----------- -----------
(11,281) (9,447)
----------- -----------
Net income (loss) 179,972 (107,978)
=========== ===========
See notes to condensed combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
UNAUDITED
For the Four Months Ended
April 30, April 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income ( loss) $179,972 ($107,978)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 15,613 16,809
(Increase) decrease in assets:
Accounts receivable 188,626 (65,300)
Other current assets (19,340)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses (68,194) 230,710
------------ ----------
Net cash provided by operating activities 296,677 74,241
------------ -----------
Cash flows from investing activities
Purchase of property and equipment (10,624) (9,281)
Decrease (increase) in other assets (380) 2,931
------------ ----------
Net cash used in investing activities (11,004) (6,350)
Cash flows from financing activities
Payments on long-term debt (7,932) (8,457)
(Repayments to) advances by stockholders (208,639) 15,159
------------- ----------
Net cash (used in) provided by financing activities (216,571) 6,702
------------- ----------
Net increase in cash 69,102 74,593
Cash-beginning of period 95,467 23,882
------------- ----------
Cash-end of period $164,569 $98,475
============= ==========
Supplemental information:
Approximate interest paid during the period $12,000 $10,000
============= ==========
See notes to condensed combined financial statements.
</TABLE>
KRAUSS, KATZ & ACKERMAN, INC. AND AFFILIATE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 1997
NOTE A-- BASIS OF PRESENTATION
The accompanying unaudited condensed combined 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) to 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 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 Company's Financial
Statements and footnotes for the fiscal year ended December 31, 1996 filed with
Esquire Communications Ltd.'s Form 8-K.
The condensed combined financial statements include the accounts of the
Company and an affiliate under common control. All significant intercompany
transactions and accounts have been eliminated.
NOTE B-- SUBSEQUENT EVENTS
Subsequent to April 30, 1997 the Company sold substantially all of its
assets and operations, subject to assumptions of certain liabilities, to a
publicly traded court reporting company. The Company ceased operations effective
June 13, 1997 with operations being conducted by the successor corporation.
<PAGE>
AMERICAN NETWORK SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
American Network Services, Inc.
We have audited the accompanying balance sheets of American Network
Services, Inc. as of December 31, 1995 and 1996, and the related statements of
income, stockholders' equity (deficit), and cash flows for the years ended
December 31, 1995 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Network Services,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
August 7, 1997
Buffalo, New York
<PAGE>
AMERICAN NETWORK SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 164,533 $ 244,867
Trade receivables, net of allowance for doubtful
accounts of $30,693 ($18,549 - 1995) 80,738 82,037
Prepaid expenses 36,817 139,299
Note receivable - 117,188
-------- ---------
Total current assets 282,088 583,391
Equipment:
Furniture and equipment 75,762 104,006
Computers and software 102,544 186,266
--------- --------
178,306 290,272
Less accumulated depreciation and amortization 78,718 120,318
--------- --------
99,588 169,954
Other assets:
Deposits 2,901 2,901
Intangibles, net 7,823 73,089
--------- --------
10,724 75,990
--------- --------
$ 392,400 $ 829,335
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable $ - $ 351,563
Accounts payable and accrued expenses 124,892 243,593
Unearned revenue and prepaid fees 196,270 257,320
Current portion of long term debt - 78,125
Customer deposits 27,963 30,266
--------- --------
Total current liabilities 349,125 960,867
Long-term debt - 156,250
Stockholders' equity (deficit):
Common stock, no par, $.01 stated value, authorized
100,000 shares; issued 76,653 shares - 1996
(8,328 - 1995) 831 767
Additional paid-in capital 159,505 159,571
Accumulated deficit (117,061) (555)
--------- --------
43,275 159,783
Less: Treasury stock, 8,125 shares at cost - (447,565)
--------- --------
Total stockholders' equity (deficit) 43,275 (287,782)
--------- --------
$ 392,400 $ 829,335
========= =========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Sales $ 2,837,417 $ 3,010,984
Operating expenses:
Executive compensation 579,348 717,608
Marketing 574,365 704,118
General and administrative expenses 405,350 603,087
Member relations 305,494 339,783
Quality assurance 38,128 32,822
----------- -----------
Total operating expenses 1,902,685 2,397,418
----------- -----------
Income from operations 934,732 613,566
Other expense:
Interest expense - (32,043)
----------- -----------
Net income $ 934,732 $ 581,523
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
Additional
Common Stock Treasury Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
---------------------- --------------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 8,327.550 $ 831 - $ - $ 159,505 $ (285,178)
Net income - - - - - 934,732
Dividends - - - - - (766,615)
----------- ----------- ------------ ---------- -------------- -----------
Balance, December 31, 1995 8,327.550 831 - - 159,505 (117,061)
Redemption of shares - - (812.500) (447,565) - -
Retirement of shares (662.225) (64) - - 66 -
10 for 1 stock split,
October 21, 1996 68,987.925 - (7,312.500) - - -
Net income - - - - - 581,523
Dividends - - - - - (465,017)
----------- ----------- ------------ ---------- -------------- -----------
Balance, December 31, 1996 76,653.250 $ 767 (8,125.000) $ (447,565) $ 159,571 $ (555)
========== =========== =========== =========== ============== ===========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 934,732 $ 581,523
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26,648 66,401
Decrease in assets:
Accounts receivable (33,608) (1,299)
Prepaid expenses (9,406) (102,482)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (9,429) 118,701
Unearned revenue (84,690) 61,050
Customer deposits 1,898 2,303
----------- -----------
Net cash provided by operating activities 826,145 726,197
Cash flows from investing activities:
Purchases of equipment (25,741) (111,966)
Issuance of note receivable - (117,188)
Purchase of intangibles (6,000) (90,067)
----------- -----------
Net cash used in investing activities (31,741) (319,221)
Cash flows from financing activities:
Proceeds from note payable - 351,563
Redemption of common stock (7,537) (213,188)
Distributions to stockholders (766,615) (465,017)
----------- -----------
Net cash used in financing activities (774,152) (326,642)
Net increase in cash and cash equivalents 20,252 80,334
Cash and cash equivalents - beginning of year 144,281 164,533
----------- -----------
Cash and cash equivalents - end of year $ 164,533 $ 244,867
=========== ===========
Supplemental cash flow information:
Income taxes paid $ - $ -
=========== ===========
Interest paid $ - $ 25,632
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - American Network Services, Inc. (the Company) is a
referral network which connects legal professionals to providers of legal
support services such as court reporting and process serving. Network firms are
located throughout North America and the United Kingdom. Credit is granted to
substantially all customers.
ACCOUNTING ESTIMATES - The process of preparing financial statements in
conformity with generally accepted accounting principles requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled transactions
and events as of the date of the financial statements. Accordingly, actual
results may differ from estimated amounts.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially
subject the Company to concentration of credit risk consists principally of cash
and cash equivalent accounts in financial institutions. Although the cash
accounts exceed the federally insured deposit amount, management does not
anticipate nonperformance by the financial institutions. Management reviews the
financial viability of these institutions on a periodic basis.
REVENUE RECOGNITION - Court reporting and process service contract revenue
is recognized over the term of the agreement, which is one year. Agent of choice
contract revenue is recognized monthly as earned. Customer payments received or
billed prior to the service period are recorded as customer deposits and
unearned revenue and recognized as income when earned.
EQUIPMENT - Equipment is stated at cost. Depreciation is computed over the
estimated useful lives using the straight-line method. Maintenance and minor
repairs are expensed as incurred. Depreciation expense for the years ended
December 31, 1995 and 1996 was $26,398 and $41,600, respectively.
INTANGIBLES - Intangibles which consist of trademarks, a noncompete
agreement, and the establishment of an Internet site are being amortized over a
period of 10, 2, and 5 years, respectively (see Note 3).
INCOME TAXES - The Company has elected to be treated as an S corporation.
The federal and state tax regulations provide that, in lieu of corporation
income taxes, the stockholders are taxed on their proportionate share of the
Company's taxable income; consequently, income taxes are not provided for in the
accompanying financial statements.
CASH AND CASH EQUIVALENT - For purposes of reporting cash flows, the
Company includes all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments purchased with
a maturity of three months or less as cash and cash equivalents. The cash
equivalent consists of a money market account.
<PAGE>
AMERICAN NETWORK SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable, and accrued liabilities are
reasonable estimates of their fair value due to their short maturity. Based on
the borrowing rates currently available to the Company for loans similar to its
bank notes payable, the fair value approximates its carrying amount.
ADVERTISING - The Company prepays certain advertising costs and expenses
them as utilized. Included in prepaid expenses is $29,914 and $74,584 of
advertising costs at December 31, 1995 and 1996, respectively. Advertising
expense was $417,503 and $429,110 for years ended December 31, 1995 and 1996,
respectively.
NOTE 2. - NOTE RECEIVABLE
In May 1996, the Company received a note receivable from a stockholder in
the amount of $117,188 for the purchase of another stockholder's shares. The
note bears interest at prime plus 1% (9.5%). This note was repaid in full by the
stockholder in May 1997 and has therefore been classified as current in the
accompanying financial statements. Included in accounts receivable at December
31, 1996 is $1,355 of accrued interest from this note.
NOTE 3. - INTANGIBLES
Intangibles consist of the following:
December 31,
---------------------------------------------
1995 1996
------------------- ----------------------
Trademarks $ 8,500 $ 8,500
Noncompete agreement - 75,000
Internet site - 15,067
--------- ---------
8,500 98,567
Accumulated amortization 677 25,478
--------- ---------
$ 7,823 $ 73,089
========= =========
Total amortization expense for the years ended December 31, 1995 and 1996
was $250 and $24,801, respectively.
<PAGE>
AMERICAN NETWORK SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4. - NOTE PAYABLE
The Company has a note payable to a bank which bears interest at prime plus
1% (9.5%). The outstanding principal balance as of December 31, 1995 and 1996
was $-0- and $351,563, respectively. The note matured on May 9, 1997 and was
renewed in the principal amount of $281,250 which is due May 9, 1998. The note
was secured by 5,546 shares of Company stock and the personal guarantees from
the stockholders. This note was repaid in June of 1997 as part of the sale of
the Company assets (see Note 10).
NOTE 5. - LONG TERM DEBT
The Company's long term debt consists of a note payable to a former
stockholder in connection with a stock redemption (see Note 7). The note is
payable in three annual installments of $78,125 plus quarterly payments of
interest at 8% per annum. The note is secured by a stock pledge, personal
guarantees of certain stockholders, and a stock escrow agreement. Scheduled
annual maturities on this note were $78,125 for 1997, 1998 and 1999. The note
was repaid in June of 1997 as part of the sale of the Company assets (see Note
10).
NOTE 6. - EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan for all eligible employees. Employees
may defer up to 15% of their compensation and employers may make a matching
contribution not to exceed 6% of the employees compensation. The Company may
also make a qualified non-elective contribution as well as a discretionary
contribution. The Company has not contributed to the plan for the years ended
December 31, 1995 and 1996.
NOTE 7. - EQUITY TRANSACTIONS
In May 1996, the Company entered into a purchase and redemption agreement
with a former stockholder. The terms of the agreement required the Company to
repurchase 1,301 shares prior to a stocksplit for an aggregate consideration of
$393,750, of which $159,375 was paid in cash at closing, and the remainder of
$234,375 was in the form of a promissory note payable (see Note 5). The note is
secured by a stock pledge and escrow agreement along with certain personal
guarantees. As additional consideration for obtaining a 2 year non-compete
agreement, the stockholder was compensated $75,000 by the Company. The Company
also repurchased 174 shares prior to a stocksplit from another former
stockholder in the amount of $53,815. The Company retired a total of 662 shares
from the repurchase of shares from these stockholders.
In October 1996, the Company had a 10 for 1 stock split for all issued
shares.
<PAGE>
AMERICAN NETWORK SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8. - COMMITMENTS AND CONTINGENCIES
In 1996, the Company adopted an incentive compensation plan for the benefit
of two of its officers which provided for bonus and profit participation based
on predetermined formulas. Total compensation expense was $179,216 for the year
ended December 31, 1996. These contracts were terminated as part of the sale of
the Company in June 1997.
NOTE 9. - OPERATING LEASE OBLIGATION
The Company leases its office space located in Norcross, Georgia. The lease
expires April 30, 2000. Future minimum lease payments excluding common area
maintenance charges are as follows:
Year ending April 30,
1998 $ 75,473
1999 78,075
2000 80,678
----------
$ 234,226
----------
The lease provides for a terminating option at the end of the twentieth
month. The Company must provide 90 days written notice and pay a lease
termination penalty of $5,000.
NOTE 10. - SUBSEQUENT EVENT
In June of 1997, the Company entered into the sale of substantially all of
its assets and operations, subject to assumption of certain liabilities, to a
publicly traded court reporting company. The purchase price was approximately
$6,440,000 in cash and 750,000 shares of restricted common stock of the
acquiring company which were trading at $4-7/16 per share in June of 1997. The
transaction also included certain terms, conditions, covenants and
representations of the Company and its principal stockholders. The Company
ceased operations effective June 18, 1997 with operations being conducted by the
successor corporation.
In July of 1997, the Company became party to an arbitration action pursuant
to which a customer is seeking to prevent the termination of its agreement and
seeking damages for alleged wrongful termination from its referral base. The
Company was issued a temporary restraining order prohibiting it from terminating
the customer until the court rules on a motion for a preliminary injunction. The
Company intends to defend its position.
<PAGE>
AMERICAN NETWORK SERVICES, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11. - SUMMARY OF NON-CASH FINANCING TRANSACTION
The Company, in connection with the redemption of a former stockholder's
shares, issued a note payable to the stockholder for a portion of the purchase
agreement in the amount of $234,375 (see Note 5 and 7).
<PAGE>
AMERICAN NETWORK SERVICES, INC.
Unaudited Financial Statements
April 30, 1997 and 1996
<PAGE>
AMERICAN NETWORK SERVICES, INC.
CONDENSED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
April 30, April 30,
1997 1996
============ ============
<S> <C> <C>
ASSETS
Current assets:
Cash $210,958 $295,630
Accounts receivable, less allowance 99,636 100,015
Prepaid expenses 114,239 48,564
Note receivable 117,188
------------ -----------
Total current assets 542,021 444,209
Property and equipment, net 236,559 160,240
Other assets, net 65,877 17,933
------------ -----------
$844,457 $622,382
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable $351,563
Accounts payable and accrued expenses 268,659 184,435
Unearned revenue and prepaid fees 248,734 226,169
Customer deposits 31,216 28,166
Current portion of long-term debt 78,125 -
----------- -----------
Total current liabilities 978,297 438,770
Long-term debt 156,250
Stockholders' equity deficit:
Common stock of no par value, 100,000 shares
authorized, 76,653 and 83,276 shares issued,
respectively 767 833
Additional paid in capital 159,571 159,505
Retained earnings (accumulated deficit) (2,863) 23,274
Less: Treasury stock, 8,125 shares at cost (447,565)
------------ -----------
Total stockholders' equity (deficit) (290,090) 183,612
------------ -----------
$844,457 $622,382
============ ============
See notes to condensed financial statements.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED (DEFICIT) EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
For the Four Months Ended
April 30, April 30,
1997 1996
<S> <C> <C>
============ ===========
Sales $1,015,536 $1,009,624
Operating expenses:
Executive compensation 256,371 204,523
Marketing 394,717 256,503
General and administrative expenses 203,286 189,443
Members relations 136,393 99,223
Quality assurance 12,549 9,597
------------ -----------
1,003,316 759,289
Income from operations 12,220 250,335
Other income ( expense):
Interest expense (17,163) -
Interest income 40,635 -
------------ -----------
23,472 -
------------ -----------
Net income 35,692 250,335
Accumulated deficit- beginning of period (555) (117,061)
Less distribution to stockholders (38,000) (110,000)
Retained earnings ( accumulated deficit) - end of period ($2,863) $23,274
============ ============
See notes to condensed financial statements.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the Four Months Ended
April 30, April 30,
1997 1996
=========== ===========
<S> <C> <C>
Cash flows from operating activities
Net income $85,532 $250,335
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 31,256 12,782
(Increase) in assets:
Accounts receivable (17,599) (19,277)
Other current assets (5,445) (11,747)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses 12,100 59,543
Unearned revenue (14,956) 29,899
Customer deposits 950 203
----------- -----------
Net cash provided by operating activities 91,838 321,738
----------- -----------
Cash flows from investing activities
Purchase of property and equipment (83,947) (73,252)
Decrease (increase) in other assets (3,800) (7,389)
----------- -----------
Net cash used in investing activities (87,747) (80,641)
----------- -----------
Cash flows from financing activities
Distributions to stockholders (38,000) (110,000)
------------ -----------
Net cash used in financing activities (38,000) (110,000)
------------ -----------
Net increase ( decrease) in cash (33,909) 131,097
Cash- beginning of period 244,867 164,533
----------- -----------
Cash- end of period $210,958 $295,630
=========== ===========
Retained earnings (accumulated deficit)
Approximate interest paid during the period $17,000 -
=========== ===========
See notes to condensed financial statements.
</TABLE>
<PAGE>
AMERICAN NETWORK SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 30, 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) to 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 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 Company's Financial
Statements and footnotes for the fiscal year ended December 31, 1996 filed with
Esquire Communications Ltd.'s Form 8-K.
NOTE B-- EQUITY TRANSACTIONS
In October 1996, the Company had a 10 for 1 stock split of all issued
shares, and the accompanying financial statements give retroactive effect to the
split.
NOTE C-- SUBSEQUENT EVENTS
Subsequent to April 30, 1997 the Company sold substantially all of its
assets and operations, subject to assumptions of certain liabilities, to a
publicly traded court reporting company. The Company ceased operations effective
June 18, 1997 with operations being conducted by the successor corporation.
<PAGE>
FINANCIAL STATEMENTS, PRO FORMA INFORMATION AND EXHIBITS
ESQUIRE COMMUNICATIONS LTD.
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND
KRAUSS, KATZ & ACKERMAN, INC.
AND
AMERICAN NETWORK SERVICES, INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
BASIS OF COMBINATION-PRO FORMA
The accompanying pro forma combined statements of operations have been
derived from Esquire Communications Ltd.'s ("ESQ.COM") statements of operations
for year ended December 31, 1996 and the nine-month period ended September 30,
1997. Adjustments have been made to such information to give effect to the
following transactions and events as if each had occurred as of the beginning of
the period covered by these pro forma combined statements of operations:
A. ESQ.COM's acquisition of Wolfe, Rosenberg & Associates, Inc. and its wholly
owned subsidiary M&M Computrans ("WRA") on May 28, 1997.
B. ESQ.COM's acquisition of Krauss, Katz & Ackerman, Inc. ("KKA") on June 13,
1997.
C. ESQ.COM's acquisition of American Network Services, Inc. ("DepoNet") on
June 18, 1997.
D. ESQ.COM's private sale of Series A Convertible Preferred Stock which closed
on or about June 18, 1997. The net proceeds from the private sale of $7.1
million (Gross $7.5 million and estimated related cost of $.4 million)
were used for the above acquisitions.
E. ESQ.COM's assumed borrowing of $15.0 million under it's revolving loan
agreement with Antares Leveraged Capital Corp. used for the above
acquisitions.
The pro forma combined statements of operations have been adjusted on a
pro forma basis for the above transactions and assumptions (pro forma
adjustments) discussed in the accompanying notes.
The accompanying pro forma financial information does not purport to
represent what ESQ.COM's results of operations or financial condition would have
been had such transactions in fact occurred at the beginning of the periods
presented or to project ESQ.COM's results of operations or financial position
in or for any future periods.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND
KRAUSS, KATZ & ACKERMAN, INC.
AND
AMERICAN NETWORK SERVICES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the Year Ended December 31, 1996
BASIS OF COMBINATION OF HISTORICAL FINANCIAL INFORMATION
ESQ.COM's operating results represent historical results of operations for
the year ended December 31, 1996. See ESQ.COM's 1996 financial statements
included herein. WRA, KKA and DepoNet include historical results of operations
for the year ended December 31, 1996. See the 1996 financial statements of WRA,
KKA and DepoNet included herein.
PRO FORMA ADJUSTMENTS
(1) EXPENSES
OPERATING EXPENSES:
To record $204,000 as the estimated cost of court reporting work performed
by the principals of KKA. The principals of KKA were paid salaries which
had no relation to the amount of court reporting work performed by them.
Such salaries were part of general and administrative expenses. Secondly,
to record the elimination of $94,000 of computer costs of WRA that were
unrelated to the business acquired by ESQ.COM.
GENERAL AND ADMINISTRATIVE:
To record the estimated salary reduction to be realized with respect to
the negotiated employment agreements entered into with the principals of
WRA, KKA and DepoNet ($2,558,000) and to eliminate profit sharing,
professional fees and other expenses of WRA, KKA and DepoNet that were
unrelated to the business acquired by ESQ.COM. ($498,000).
DEPRECIATION AND AMORTIZATION:
To record the amortization of goodwill arising from the WRA, KKA and
DepoNet acquisitions. The excess of purchase price over fair value of
assets acquired from these transactions amounted to $25,690,000, such
amount being amortized over 25 years.
INTEREST EXPENSE:
To record the additional interest cost as a result of the assumed debt
increase with the proceeds of the revolving loan agreement to finance the
acquisitions of WRA, KKA and DepoNet.
OTHER INCOME:
To adjust WRA and KKA's income from assets that were not acquired by
ESQ.COM.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND
KRAUSS, KATZ & ACKERMAN, INC.
AND
AMERICAN NETWORK SERVICES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the Year Ended December 31, 1996
PROVISION FOR TAXES:
To record income tax on the pro forma income at effective statutory rates with
assumed termination of Subchapter S Corporation status of WRA, KKA and DepoNet.
PREFERRED DIVIDEND REQUIREMENTS:
To record the dividend payable on the Series A Convertible Preferred Stock sold
in June 1997 to finance the KKA and DepoNet acquisitions.
PRO FORMA PER SHARE COMPUTATION:
The computation of pro forma net income per share of common share amounts for
the year ended December 31, 1996 has, in determining the average number of
common shares outstanding, given retroactive effect for 750,000 shares of common
stock of ESQ.COM assumed to be issued in the acquisition of DepoNet.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED STATEMENT OF
OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------- ---------------------------
ESQ.COM WRA KKA ANS ADJUSTMENTS COMBINED
------- ---- --- --- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $24,583 $5,180 $6,793 $3,011 $39,567
Costs and expenses:
Operating expenses 13,925 2,658 3,220 (1) 110 19,913
General and administrative expenses 8,443 2,646 3,451 2,331 (1) (3,056) 13,815
Depreciation and amortization 1,158 64 50 66 (1) 1,028 2,366
------ ----- ----- ----- ------ ------
23,526 5,368 6,721 2,397 (1,918) 36,094
------ ----- ----- ----- ------ ------
Income from operations 1,057 (188) 72 614 1,918 3,473
Other income (expense)
Interest expense (1,163) 0 (30) (32) (1) (1,363) (2,588)
Interest and other income 9 29 2 (1) (23) 17
------ ------ ------ ------ ------ ------
(1,154) 29 (28) (32) (1,386) (2,571)
------ ------ ------ ------ ------ ------
(Loss) income before provision for
income taxes and extraordinary item (97) (159) 44 582 532 902
Income Taxes provision 212 (1) 420 632
------ ------ ------ ------ ------ ------
(Loss) income before extraordinary item (309) (159) 44 582 113 271
Extraordinary item-loss on early
extinguishment of debt, net of tax
benefit of $104 (157) (157)
------ ------ ------ ------ ------ ------
Net (loss) income (466) (159) 44 582 113 114
Dividends on preferred stock (75) (1) (450) (525)
Net (loss) income applicable to
common stockholders ($541) ($159) $44 $582 ($337) ($411)
====== ====== ====== ===== ======= ======
Pro forma loss per share:
Loss before extraordinary item ($0.05)
Extraordinary item (0.03)
=======
Net loss ($0.08)
Pro forma weighted average common
shares outstanding 4,854,680
=========
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND
KRAUSS, KATZ & ACKERMAN, INC.
AND
AMERICAN NETWORK SERVICES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, 1997
BASIS OF COMBINATION OF HISTORICAL FINANCIAL INFORMATION
ESQ.COM's operating results represent historical results of operations for
the nine months ended September 30, 1997. See ESQ.COM's September 30, 1997
financial statements included herein. WRA, KKA and DepoNet include historical
results of operations for the period January 1, 1997 to the date of acquisition
by ESQ.COM.
PRO FORMA ADJUSTMENTS
(1) EXPENSES
OPERATING EXPENSES:
To record $102,000 as the estimated cost of court reporting work performed
by the principals of KKA. The principals of KKA were paid salaries which
had no relation to the amount of court reporting work performed by them.
Such salaries were part of general and administrative expenses. Secondly,
to record the elimination of $39,000 of computer costs of WRA that were
unrelated to the business acquired by ESQ.COM.
GENERAL AND ADMINISTRATIVE:
To record the estimated salary reduction to be realized with respect to the
negotiated employment agreements entered into with the principals of WRA,
KKA and DepoNet ($999,000) and to eliminate professional fees and other
expenses of WRA, KKA and DepoNet that were unrelated to the business
acquired by ESQ.COM. ($313,000).
DEPRECIATION AND AMORTIZATION:
To record the amortization of goodwill arising from the WRA, KKA and
DepoNet acquisitions. The excess of purchase price over fair value of
assets acquired from these transactions amounted to $25,690,000, such
amount being amortized over 25 years.
INTEREST EXPENSE:
To record the additional interest cost as a result of the assumed debt
increase with the proceeds of the revolving loan agreement to finance the
acquisitions of WRA, KKA and DepoNet.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
WOLFE, ROSENBERG & ASSOCIATES, INC.
AND
KRAUSS, KATZ & ACKERMAN, INC.
AND
AMERICAN NETWORK SERVICES, INC.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, 1997
OTHER INCOME:
To adjust WRA and KKA's income from assets that were not acquired by ESQ.COM.
PROVISION FOR TAXES:
To record income tax on the pro forma income at effective statutory rates with
assumed termination of Subchapter S Corporation status of WRA, KKA and DepoNet.
PREFERRED DIVIDEND REQUIREMENTS:
To record the dividend payable on the Series A Convertible Preferred Stock sold
in June 1997 to finance the KKA and DepoNet acquisitions.
PRO FORMA PER SHARE COMPUTATION:
The computation of pro forma net income per share of common share amounts for
the nine months ended September 30, 1997 has, in determining the average number
of common shares outstanding, given retroactive effect for 750,000 shares of
common stock of ESQ.COM assumed to be issued in the acquisition of DepoNet.
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------- ---------------------------
ESQ.COM WRA KKA ANS ADJUSTMENTS COMBINED
------- ---- --- --- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $31,385 $1,924 $3,437 $1,469 $38,215
Costs and expenses:
Operating expenses 17,708 1,020 1,591 (1) $63 20,382
General and administrative expenses 11,759 1,001 1,552 1,258 (1) (1,312) 14,258
Depreciation and amortization 1,784 25 21 58 (1) 460 2,348
------ ------ ------ ------ ------ ------
31,251 2,046 3,164 1,316 (789) 36,988
------ ------ ------ ------ ------ ------
Income from operations 134 (122) 273 153 789 1,227
Other income (expense)
Interest expense (1,667) 0 (16) (23) (1) (590) (2,296)
Interest and other income 26 18 1 (1) (10) 35
------ ------ ------ ------ ------ ------
(1,641) 18 (15) (23) (600) (2,261)
(Loss) income before provision for (1,507) (104) 258 130 189 (1,034)
income taxes
Income Taxes (benefit) provision (434) (1) 199 (235)
Net (loss) income ------ ------ ------ ------ ------ ------
(1,073) (104) 258 130 (10) (799)
Dividends on preferred stock (398) (1) (206) (604)
------ ------ ------ ------ ------ ------
Net (loss) income applicable to
common stockholders ($1,471) ($104) $258 $130 ($216) ($1,403)
====== ====== ====== ====== ====== =======
Pro forma loss per share:
Net loss ($0.28)
========
Pro forma weighted average common
shares outstanding 4,974,577
=========
</TABLE>
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporate Law ("DGCL") provides that a
business corporation may indemnify directors and officers against liabilities
they may incur in such capacities provided certain standards are met, including
good faith and the reasonable belief that the particular action was in, or not
opposed to, the best interest of the corporation. Subsection (a) of Section 145
of the DGCL empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth above, except that no indemnification
may be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that, among other things, to the
extent that a director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to in Subsections (a) and (b)
of Section 145 of the DGCL, or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that a corporation is empowered to purchase and maintain insurance on behalf
of a director or officer of the corporation against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
against such liability under Section 145 of the DGCL.
The Bylaws of the Company provide for the mandatory indemnification of
directors and officers to the fullest extent permitted by law.
Section 102(b)(7) of the DGCL permits the Certificate of Incorporation of a
corporation to provide that a director shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (dealing with
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
The Certificate of Incorporation of the Company provides that the liability
of the Company's directors to the Company or to its stockholders shall be
eliminated to the fullest extent permitted by law.
<PAGE>
The Company has a directors' and officers' liability insurance policy which
affords directors and officers insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee................................. $ 4,774
Legal fees and expenses.............................. 50,000
Accountants' fees and expenses 25,000
Miscellaneous........................................ 5,226
-----------
Total....................................... $85,000
===========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with acquisitions, the Company has issued 2,569,942 shares of
Common Stock pursuant to exemption from registration claimed under Section 4(2)
of the Securities Act of 1933, as amended.
ITEM 27. EXHIBITS
(a) Financial Statements:
None.
(b) Exhibits:
EXHIBIT NO.
3.1 -- Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 to the Current Report on 8-K reporting
on an event which occurred on October 28, 1996 ("October 1996
8-K").
3.2 -- By-laws of the Company. Incorporated by reference to Exhibit 3.2
to October 1996 8-K.
4.1 -- Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company. Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form SB-2 (File No.
33-48814).
5.1 -- Opinion of Stroock & Stroock & Lavan LLP with respect to the
securities being registered.
10.1 -- Employment Agreement dated as of March 1, 1993, between the
Company and Malcolm L. Elvey. Incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form SB-2 (File
No. 33-48814).
10.2 -- Agreement of Merger dated as of September 30, 1993 by and
among the Company, Esquire Communications Acquisition Corp. and
David Feldman & Associates (U.S.A.), Ltd. Incorporated by
reference to Exhibit 1 to Current Report on Form 8-K reporting
on an event which occurred on September 10, 1993 ("1993 8-K").
10.3 -- Employment Agreement dated as of September 30, 1993 by and
between the Company and David Feldman. Incorporated by reference
to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1993.
10.4 -- Registration Rights Agreement dated as of September 30, 1993
by and between the Company and David Feldman. Incorporated by
reference to Exhibit 3 to 1993 8-K.
10.5 -- Stock Purchase Agreement dated June 22, 1994 by and between
the Company and Sarnoff Deposition Service, Inc. Incorporated by
reference to Exhibit 1 to Current Report on Form 8-K reporting
on an event which occurred on June 22, 1994 ("1994 8-K").
10.6 -- Registration Rights Agreement dated June 22, 1994 by and
between the Company and The Sarnoff Trust. Incorporated by
reference to Exhibit 2 to 1994 8-K.
10.7 -- Employment Agreement dated June 22, 1994 by and between the
Company and Cary A. Sarnoff. Incorporated by reference to
Exhibit 4 to 1994 8-K.
10.8 -- Confidentiality and Non-Competition Agreement dated as of
June 22, 1994 by and between Edward L. Sarnoff and Sarnoff
Deposition Service, Inc. Incorporated by reference to Exhibit 6
to 1994 8-K.
10.9 -- Investment Agreement dated June 22, 1994 by and among the
Company, Allied Investment Corporation, Allied Investment
Corporation II and Allied Capital Corporation II. Incorporated
by reference to Exhibit 12 to 1994 8-K.
10.10 -- Asset Purchase Agreement dated January 27, 1995 by and between
the Company and Coleman, Haas, Martin & Schwab, Inc.
Incorporated by reference to Exhibit 10.15 to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1995 ("1995
10-KSB").
10.11 -- Registration Rights Agreement dated January 27, 1995 by and
between the Company and Coleman, Haas, Martin & Schwab, Inc.
Incorporated by reference to Exhibit 10.16 to 1995 10-KSB.
10.12 -- Asset Purchase Agreement dated May 22, 1996, as amended, among
the Company, M&M Reporting Referral Service, Inc. and the
stockholders of M&M Reporting Referral Service, Inc.
Incorporated by reference to Exhibit 10.1 to October 1996 8-K.
10.13 -- Registration Rights Agreement dated as of October 28, 1996
between the Company and M&M Reporting Referral Service, Inc.
Incorporated by reference to Exhibit 10.3 to October 1996 8-K.
10.14 -- Purchase Agreement dated October 23, 1996 by and between the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR")
and Antares Leveraged Capital Corp. (collectively with GTCR, the
"Investors"). Incorporated by reference to Exhibit 10.4 to
October 1996 8-K.
10.15 -- Stockholders Agreement dated October 23, 1996 by and between
the Investors, Malcolm L. Elvey, Cary A. Sarnoff, David J.
Feldman, CMNY Capital L.P. and Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation
II. Incorporated by reference to Exhibit 10.5 to October 1996
8-K.
10.16 -- Registration Agreement dated October 23, 1996 among the Company
and the Investors. Incorporated by reference to Exhibit 10.6 to
October 1996 8-K.
10.17 -- Agreement dated October 23, 1996 among the Company, GTCR, David
J. Feldman, The Sarnoff Trust, Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation
II relating to registration rights. Incorporated by reference to
Exhibit 10.7 to October 1996 8-K.
10.18 -- Credit Agreement dated as of December 24, 1996, by and among
the Company, Antares Leveraged Capital Corp., as Agent, and
other lenders. Incorporated by reference to Exhibit 10.18 to
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996.
16.1 -- Letter from Freed Maxick Sachs & Murphy, P.C. Incorporated by
reference to Exhibit 16 to Current Report on Form 8-K reporting
an event which occurred October 23, 1996.
21.1 -- Subsidiaries of the Registrant. Incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included as part of
Exhibit 5.1).
* 23.2 -- Consent of Freed Maxick Sachs & Murphy, P.C.
* 23.3 -- Consents of KPMG Peat Marwick LLP.
24.1 -- Powers of Attorney of Directors and Officers of Registrant
(previously filed).
- -----------------
* Filed herewith.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from
the law or high end of the estimate maximum offering range may
be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement;
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that (1) for the purpose of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed pursuant to Rules
424(b)(1), and 42(b)(4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement at the time it was declared effective, and
(2) for the purpose of determining any liability under the Securities Act, each
post-effective amendment, if any, that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on January 14, 1998.
ESQUIRE COMMUNICATIONS LTD.
By: /S/ MALCOLM L. ELVEY
Malcolm L. Elvey
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
-------- ----- -----
/S/ MALCOLM L. ELVEY Chairman of the January 14, 1998
- --------------------------- Board and Director
(MALCOLM L. ELVEY)
* Chief Executive Officer January 14, 1998
- --------------------------- and Director
(DAVID A. WHITE)
* Chief Financial Officer January 14, 1998
- --------------------------- and Chief Accounting
(DAVID HIGSON) Officer
* Vice Chairman and January 14, 1998
- --------------------------- Director
(CARY A. SARNOFF)
* Director January 14, 1998
- ---------------------------
(JOHN C. DURHAM)
* Director January 14, 1998
- ----------------------------
(MORTIMER R. FEINBERG)
* Director January 14, 1998
- ---------------------------
(DAVID J. FELDMAN)
* Director January 14, 1998
- ---------------------------
(ANDREW P. GARVIN)
* Director January 14, 1998
- ---------------------------
(FIR M. GEENEN)
* Director January 14, 1998
- ---------------------------
(JOSEPH P. NOLAN)
* Director January 14, 1998
- ---------------------------
(BRUCE V. RAUNER)
*By: /S/ MALCOLM L. ELVEY
- ---------------------------
Malcolm L. Elvey
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
LOCATION OF EXHIBIT
IN SEQUENTIAL
NUMBERING SYSTEM
EXHIBIT NO. DESCRIPTION OF DOCUMENT
3.1 -- Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 to the Current Report on 8-K reporting on
an event which occurred on October 28, 1996 ("October 1996 8-K").
3.2 -- By-Laws of the Company. Incorporated by reference to Exhibit 3.2
to October 1996 8-K.
4.1 -- Warrant Agreement between the Company and Continental Stock
Transfer & Trust Company. Incorporated by reference to Exhibit 4.1
to the Registration Statement on Form SB-2 (File No. 33-48814).
5.1 -- Opinion of Stroock & Stroock & Lavan LLP with respect to the
securities being registered.
8.1 -- Opinion of Stroock & Stroock & Lavan LLP with respect to tax
matters (included as part of Exhibit 5.1).
10.1 -- Employment Agreement dated as of March 1, 1993, between the
Company and Malcolm L. Elvey. Incorporated by reference to Exhibit
10.1 to the Registration Statement on Form SB-2 (File No.
33-48814).
10.2 -- Agreement of Merger dated as of September 30, 1993 by and among
the Company, Esquire Communications Acquisition Corp. and David
Feldman & Associates (U.S.A.), Ltd. Incorporated by reference to
Exhibit 1 to Current Report on Form 8-K reporting on an event
which occurred on September 10, 1993 ("1993 8-K").
10.3 -- Employment Agreement dated as of September 30, 1993 by and
between the Company and David Feldman. Incorporated by reference
to Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1993.
10.4 -- Registration Rights Agreement dated as of September 30, 1993 by
and between the Company and David Feldman. Incorporated by
reference to Exhibit 3 to 1993 8-K.
10.5 -- Stock Purchase Agreement dated June 22, 1994 by and between the
Company and Sarnoff Deposition Service, Inc. Incorporated by
reference to Exhibit 1 to Current Report on Form 8-K reporting on
an event which occurred on June 22, 1994 ("1994 8-K").
10.6 -- Registration Rights Agreement dated June 22, 1994 by and
between the Company and The Sarnoff Trust. Incorporated by
reference to Exhibit 2 to 1994 8-K.
10.7 -- Employment Agreement dated June 22, 1994 by and between the
Company and Cary A. Sarnoff. Incorporated by reference to Exhibit
4 to 1994 8-K.
10.8 -- Confidentiality and Non-Competition Agreement dated as of June
22, 1994 by and between Edward L. Sarnoff and Sarnoff Deposition
Service, Inc. Incorporated by reference to Exhibit 6 to 1994 8-K.
10.9 -- Investment Agreement dated June 22, 1994 by and among the
Company, Allied Investment Corporation, Allied Investment
Corporation II and Allied Capital Corporation II. Incorporated by
reference to Exhibit 12 to 1994 8-K.
10.10 -- Asset Purchase Agreement dated January 27, 1995 by and between
the Company and Coleman, Haas, Martin & Schwab, Inc. Incorporated
by reference to Exhibit 10.15 to Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995 ("1995 10-KSB").
10.11 -- Registration Rights Agreement dated January 27, 1995 by and
between the Company and Coleman, Haas, Martin & Schwab, Inc.
Incorporated by reference to Exhibit 10.16 to 1995 10-KSB.
10.12 -- Asset Purchase Agreement dated May 22, 1996, as amended, among
the Company, M&M Reporting Referral Service, Inc. and the
stockholders of M&M Reporting Referral Service, Inc. Incorporated
by reference to Exhibit 10.1 to October 1996 8-K.
10.13 -- Registration Rights Agreement dated as of October 28, 1996
between the Company and M&M Reporting Referral Service, Inc.
Incorporated by reference to Exhibit 10.3 to October 1996 8-K.
10.14 -- Purchase Agreement dated October 23, 1996 by and between the
Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR") and
Antares Leveraged Capital Corp. (collectively with GTCR, the
"Investors"). Incorporated by reference to Exhibit 10.4 to October
1996 8-K.
10.15 -- Stockholders Agreement dated October 23, 1996 by and between
the Investors, Malcolm L. Elvey, Cary A. Sarnoff, David J.
Feldman, CMNY Capital L.P. and Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation
II. Incorporated by reference to Exhibit 10.5 to October 1996 8-K.
10.16 -- Registration Agreement dated October 23, 1996 among the Company
and the Investors. Incorporated by reference to Exhibit 10.6 to
October 1996 8-K.
10.17 -- Agreement dated October 23, 1996 among the Company, GTCR, David
J. Feldman, The Sarnoff Trust, Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation II
relating to registration rights. Incorporated by reference to
Exhibit 10.7 to October 1996 8-K.
10.18 -- Credit Agreement dated as of December 24, 1996, by and among
the Company, Antares Leveraged Capital Corp., as Agent, and other
lenders. Incorporated by reference to Exhibit 10.18 to Annual
Report in Form 10-KSB for the fiscal year ended December 31, 1996.
16.1 -- Letter from Freed Maxick Sachs & Murphy, P.C. Incorporated by
reference to Exhibit 16 to Current Report on Form 8-K reporting an
event which occurred October 23, 1996.
21.1 -- Subsidiaries of the Registrant. Incorporated by reference to
Exhibit 21 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included as part of
Exhibit 5.1).
*23.2 -- Consent of Freed Maxick Sachs & Murphy, P.C.
*23.3 -- Consents of KPMG Peat Marwick LLP.
24.1 -- Powers of Attorney of Directors and Officers of Registrant
(previously filed).
- ------------------
*Filed herewith.
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in the Registration
Statement on Form SB-2 (Registration Statement No. 333-39859) of our
report dated January 27, 1996, which appears on page F-1 of the annual report on
Form 10-K of Esquire Communications LTD., for the years ended December 31, 1995
and 1994. We hereby consent to the inclusion of our report dated August 7,
1997, with respect to the financial statements of American Network Services,
Inc., as of December 31, 1996 and for each of the years in the two-year period
ended December 31, 1996, which report appears in the registration
statement/prospectus of Esquire Communications Ltd., and the references to our
firm under the headings "Experts" in the registration statement/prospectus.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
January 14, 1998
Exhibit 23.3
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Esquire Communications Ltd.:
We consent to inclusion of our report dated May 16, 1997 with respect to the
combined balance sheets of Krauss, Katz & Ackerman, Inc. and affiliate as of
December 31, 1996 and 1995 and the related combined statements of operations,
stockholders' equity, and cash flows for the years then ended and to the
reference to our firm under the heading "Experts" in the registration statement.
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
January 14, 1998
<PAGE>
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Esquire Communications Ltd.:
We consent to inclusion of our report dated August 29, 1997 with respect to the
combined balance sheets of The Court Reporter Business of Wolfe, Rosenberg &
Associates, Inc. as of December 31, 1996 and 1995 and the related combined
statements of operations and business equity, and cash flows for the years then
ended and to the reference to our firm under the heading "Experts" in the
registration statement.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 14, 1998
<PAGE>
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Esquire Communications Ltd.:
We consent to inclusion of our report dated February 12, 1997, with respect to
the consolidated balance sheet of Esquire Communications, Ltd. and subsidiaries
as of December 31, 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended and to the
references to our firm under the headings "Selected Consolidated Financial Data"
and "Experts" in the registration statement.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
January 14, 1998
