FORM 10-QSB - Quarterly Report Under Section 13 or
15(d) of the Securities Exchange Act of 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the period ended MAY 31, 1996
or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the
Securities Exchange act of 1934.
For the transition period from _________________ to _________________
Commission File Number 0-24256
ENHANCED SERVICES COMPANY, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-1075908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
16000 BARKERS POINT LANE, HOUSTON TX 77079
(Address of principal executive offices) (Zip Code)
(713) 566-5051
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicated by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 31, 1996, Registrant had 1,014,174 shares of common stock, $.001 Par
Value, outstanding.
PAGE
NUMBER
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Part I. Financial Information
Item I.Financial Statements
Consolidated Balance Sheets as of May 31,
1996 (Unaudited) and November 30, 1995 2
Consolidated Statements of Operations Three
Months Ended May 31, 1996 and
May 31, 1995 (Unaudited) 3
Consolidated Statements of Operations, Six
Months Ended May 31, 1996 and
May 31, 1995 (Unaudited) 4
Consolidated Statement of Changes in Stock-
holders' Equity from November 30, 1995
through May 31, 1996 (Unaudited) 5
Consolidated Statements of Cash Flows,
Three Months Ended May 31, 1996 and
May 31, 1995 (Unaudited) 6
Consolidated Statements of Cash Flows,
Six Months Ended May 31, 1996 and
May 31, 1995 (Unaudited) 7
Notes to Consolidated Financial Statements 8
Item 2.Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 9
Part II. Other Information 11
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(Unaudited)
May 31 November 30
1996 1995
----------- ----------
Current Assets
Cash in bank .............................. $ 212,223 $ 355,138
Inventory ................................. 596,541 622,165
Income tax refund receivable .............. -- 128,200
Accounts receivable, net of allowance
for doubtful accounts ................... 797,723 685,824
Other current assets ...................... 96,688 53,491
----------- ----------
Total Current Assets .................... 1,703,175 1,844,818
Property and equipment, net of accumulated
depreciation ................................... 1,338,964 1,430,230
Goodwill, net of accumulated amortization ........ 947,076 1,026,001
Other assets ..................................... 103,339 83,213
----------- ----------
Total Assets ..................................... $ 4,092,554 $4,384,262
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses ..... $ 869,222 $1,088,444
Notes payable, current portion ............ 345,498 47,520
Mortgage payable, current portion ......... 82,185 8,490
Other current liabilities ................. 149,806 21,112
----------- ----------
Total Current Liabilities ............... 1,446,711 1,165,566
Notes payable, net of current portion ............ 13,776 67,488
Mortgage payable, net of current portion ......... 534,276 611,807
Other liabilities ................................ 14,719 14,693
----------- ----------
Total Liabilities ....................... 2,009,482 1,859,554
----------- ----------
Stockholders' Equity:
Preferred stock - $.001 par value
5,000,000 shares authorized ............. -- --
Common stock - $.001 par value,
15,000,000 shares authorized;
5,068,928 shares issued and
outstanding at November 30, 1995
and 1,014,174 at May 31, 1996 ........... 1,014 5,069
Additional paid-in capital ................ 2,130,152 2,124,884
Retained earnings ......................... (48,094) 394,755
----------- ----------
Total Stockholders' Equity .............. 2,083,072 2,524,708
----------- ----------
Total Liabilities and Stockholders' Equity ....... $ 4,092,554 $4,384,262
=========== ==========
The accompanying notes are an integral part of the financial statements.
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
May 31 May 31
1996 1995
----------- ----------
Revenue:
Sales ................................... $ 1,278,246 $1,272,314
Cost of sales (exclusive
of depreciation and salaries
shown separately below) ............... 401,647 457,119
----------- ----------
Gross Profit ......................... 876,599 815,195
----------- ----------
Operating Expenses
Salaries ................................ 441,696 291,633
Advertising and promotion ............... 41,566 43,941
Contract services ....................... 46,542 5,080
Rent .................................... 79,978 28,557
Travel and entertainment ................ 14,363 9,516
Depreciation ............................ 66,371 9,000
Other operating expenses ................ 291,398 184,768
----------- ----------
Total Operating Expenses .............. 981,914 572,495
----------- ----------
Net Operating Income (Loss) .................. (105,315) 242,700
Other Income ................................. 7,932 9,990
----------- ----------
Net income (loss), before provision
for income taxes ........................... (97,383) 252,690
Provision for income taxes ................... -- 95,101
----------- ----------
Net Income (Loss) ............................ $ (97,383) $ 157,589
=========== ==========
Net Income (Loss) per Share .................. $ (.10) $ .20
=========== ==========
Weighted Average Shares Outstanding .......... 1,013,883 804,599
=========== ==========
The accompanying notes are an integral part of the financial statements.
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Six Months
Ended Ended
May 31 May 31
1996 1995
----------- ----------
Revenue:
Sales ................................... $ 2,550,741 $2,491,402
Cost of sales (exclusive
of depreciation and salaries
shown separately below) ............... 947,788 962,957
----------- ----------
Gross Profit ......................... 1,602,953 1,528,445
----------- ----------
Operating Expenses
Salaries ................................ 975,511 500,761
Advertising and promotion ............... 110,491 88,679
Contract services ....................... 88,069 18,218
Rent .................................... 160,314 46,967
Travel and entertainment ................ 36,677 18,076
Depreciation ............................ 140,217 14,900
Other operating expenses ................ 583,053 315,051
----------- ----------
Total Operating Expenses .............. 2,094,332 1,002,652
----------- ----------
Net Operating Income (Loss) .................. (491,379) 525,793
Other Income ................................. 48,530 6,410
----------- ----------
Net income (loss), before provision
for income taxes ........................... (442,849) 532,203
Provision for income taxes ................... -- 189,207
----------- ----------
Net Income (Loss) ............................ $ (442,849) $ 342,996
=========== ==========
Net Income (Loss) per Share .................. $ (.44) $ .43
=========== ==========
Weighted Average Shares Outstanding .......... 1,013,980 795,900
=========== ==========
The accompanying notes are an integral part of the financial statements.
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From November 30, 1995 through May 31, 1996
(Unaudited)
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
NO./SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------- ---------- --------- -----------
Balance at November 30, 1995 ... 5,068,928 $ 5,069 $2,124,884 $ 394,755 $ 2,524,708
Stock issued ................... 1,940 2 1,211 -- 1,213
One for five reverse stock split (4,056,694) (4,057) 4,057 -- --
Net (loss) for the six month
period ended May 31, 1996 ... -- -- -- (442,849) (442,849)
---------- ------- ---------- --------- -----------
Balance at May 31, 1996 ........ 1,014,174 $ 1,014 $2,130,152 $ (48,094) $ 2,083,072
========== ======= ========== ========= ===========
The accompanying notes are an integral part of the financial
statements.
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
May 31 May 31
1996 1995
--------- ---------
Cash Flows from Operating Activities:
Net income (loss) ......................... $ (97,413) $ 157,589
Adjustments to reconcile net
income to net cash used
in operating activities
Depreciation and amortization .......... 105,834 9,000
Increase (decrease) in accounts
payable and accrued expenses .......... (932) 132,385
Decrease in accounts receivable ........ 18,554 39,295
(Increase) in inventory ................ (76,525) (178,321)
(Decrease) in income taxes
payable ............................... -- (33,099)
Decrease in income tax refund
receivable ............................ 128,200 --
Other, net ............................. 38,032 42,303
--------- ---------
Net Cash Provided by Operating
Activities ............................... 115,750 169,152
--------- ---------
Cash Flows from Investing Activities:
(Purchases) of property and
equipment ................................ (12,260) (735,484)
(Acquisition) of investments .............. -- 3,623
--------- ---------
Net Cash (Used in) Investing
Activities ............................... (12,260) (731,861)
--------- ---------
Cash Flows from Financing Activities:
(Repayment) from notes and
mortgages payable ........................ (28,549) 622,000
Common stock issued ....................... 1,213 293,750
--------- ---------
Net Cash Provided by (Used in)
Financing Activities ..................... (27,336) 915,750
--------- ---------
Increase in cash ............................... 76,154 353,041
Cash, Beginning of Period ...................... 136,069 299,445
--------- ---------
Cash, End of Period ............................ $ 212,223 $ 652,486
========= =========
Interest Paid .................................. $ 33,807 $ --
========= =========
Income Taxes Paid .............................. $ -- $ 107,021
========= =========
The accompanying notes are an integral part of the financial statements.
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended Ended
May 31 May 31
1996 1995
--------- ---------
Cash Flows from Operating Activities:
Net income (loss) ......................... $(442,849) $ 342,996
Adjustments to reconcile net
income to net cash used
in operating activities
Depreciation and amortization .......... 219,142 14,900
Increase (decrease) in accounts
payable and accrued expenses .......... (219,222) 48,213
(Increase) in accounts
receivable ............................ (111,899) (25,160)
(Increase) decrease in
inventory ............................. 25,624 (168,533)
(Decrease) in income taxes
payable ............................... -- (113,262)
Decrease in income tax refund
receivable ............................ 128,200 --
Other, net ............................. 65,397 3,982
--------- ---------
Net Cash Provided by (Used in)
Operating Activities .......................... (335,607) 103,136
--------- ---------
Cash Flows from Investing Activities:
Purchases of property and
Equipment and other ...................... (48,951) (744,892)
Disposition of investments ............... -- 5,783
--------- ---------
Net Cash (Used in) Investing
Activities ............................... (48,951) (739,109)
--------- ---------
Cash Flows from Financing Activities:
(Repayment of notes payable ............... (9,570) --
Proceeds from notes and mortgage
payables ................................. 250,000 622,000
Common stock issued ....................... 1,213 293,750
--------- ---------
Net Cash Provided by Financing
Activities ............................... 241,643 915,750
--------- ---------
Increase (decrease) in cash .................... (142,915) 279,777
Cash, Beginning of Period ...................... 355,138 372,709
--------- ---------
Cash, End of Period ............................ $ 212,223 $ 652,486
========= =========
Interest Paid .................................. $ 52,660 $ --
========= =========
Income Taxes Paid .............................. $ -- $ 281,290
========= =========
The accompanying notes are an integral part of the financial statements.
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1996 and 1995
(1) ORGANIZATION
Enhanced Services Company, Inc. (ESC) a Colorado corporation, was
incorporated in 1987.
Laptop Solutions, Inc. (LSI), a Texas corporation was incorporated in
1991. LSI is in the business of internal hard drive, processor and RAM
upgrades for laptop and notebook computers and has selected November 30
as its fiscal year end. LSI is a wholly-owned subsidiary of ESC.
Effective May 31, 1995, NB Engineering, Inc. (NBE), a wholly-owned
subsidiary of ESC, incorporated in Delaware, acquired substantially all
of the assets and assumed certain liabilities of NB Engineering, Inc.
(NB) a privately held Maryland corporation. NBE provides applications
development and digital video compression services and selling related
video and networking products.
The consolidated financial statements include the accounts of ESC and
subsidiaries since acquisition or formation. All intercompany accounts
and transactions have been eliminated.
(2) UNAUDITED STATEMENTS
The balance sheet as of May 31, 1996, the statements of income and the
statements of cash flows for the three and six month periods ended May
31, 1996 and May 31, 1995 and the statement of changes in stockholders'
equity for the six month period ended May 31, 1996 have been prepared by
the Registrant without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at May 31, 1996, and for all periods presented, have been made.
(3) REVERSE STOCK SPLIT
During May, 1996 the Company effected a one for five reverse stock
split. Per share information in the financial statements has been
retroactively adjusted.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Enhanced Services Company, Inc. (the "Company" or "ESC") provides upgrade,
repair and maintenance and asset management services for portable computers
(hardware services) as well as multimedia presentation development, processing
and deployment for sales, marketing, training, industrial and promotional
applications (customized software). The following significant events occurred in
the Company's fiscal year ended November 30, 1995, and affected the
comparability of the second fiscal quarter of 1996 with the prior year's
quarter:
a. LSICA - Laptop Solutions, Inc. of California was formed during the
second quarter of 1995
b. Office building in Houston, Texas was acquired on May 25, 1995
c. NBE - NB Engineering, Inc. was acquired on May 31, 1995
CONSOLIDATED RESULTS OF OPERATIONS
The following is a summary of the consolidated results of operations for
the second fiscal quarters of 1996 and 1995:
1996 1995 CHANGE (%)
----------- ---------- ----------
Sales .......................... $ 1,278,246 $1,272,314 .5%
Cost of sales (exclusive
of depreciation and
salaries) ...................... $ 401,142 $ 457,119 (12.3)%
----------- ----------
Gross Profit ................... 876,599 815,195 7.5%
Operating Expenses ............. 981,914 572,495 71.5%
Other Income ................... 7,932 9,990 (20.6)%
----------- ----------
Net Income,
before income taxes ............ (97,380) 252,690 (138.5)%
Income taxes ................... -0- 95,101 (100)%
----------- ----------
Net Income ..................... $ (97,383) $ 157,589 (161.8)%
=========== ==========
During The three months ended May 31, 1996, the Company, on a consolidated
basis, incurred a net loss of $97,383 as compared to a net income of $157,589
for three months ended May 31, 1995, a negative change in profitability of
$254,972. Overall, consolidated sales increased from $1,272,314 to $1,278,246,
an increase of $5,932, or .5%. Cost of sales, exclusive of depreciation and
salaries, decreased from $457,119 to $401,647, a decrease of $55,472 or 12.3%.
Gross profit margins increased from $815,195 to $876,599, an increase of 7.5%.
Operating expenses increased from $572,495 in second quarter 1995 to $981,914
in second quarter 1996, an increase of $409,419 or 71.5%. Salaries and contract
employees increased from $299,485 in second quarter 1995 to $488,238, an
increase of $188,753, or 63%. Depreciation increased from $9,000 in 1995 to
$66,371, an increase of $57,371, or 537%. Contract Services increased from
$7,852 in 1995 to $46,542, an increase of $38,690, or 493%. Professional Fees
increased from $47,507 in 1995 to $75,308 in 1996, an increase of $27,801 or
58.5%. Rent increased from $28,557 in 1995 to $79,978 in 1995, an increase of
$51,421, or 64.3%. Amortization of goodwill during 1996 was $39,462 related to
the acquisition of NB Engineering, Inc. which was effective as of May 31, 1995.
Since this acquisition was consummated on May 31,1995, as discussed below, there
was no amortization of goodwill in the second quarter of 1995. All other
operating expenses increased from $190,143 in 1995 to $232,557 (excluding
amortization of goodwill) in 1996, an increase of $190,143, or 22%%. Several
factors as described below, contributed to the significant changes from the
second quarter of 1995 to 1996.
A. OPERATIONS OF LSI
The following is a summary of LSI's results of operations for the first fiscal
quarters of 1996 and 1995:
1996 1995 CHANGE (%)
-------- ---------- ---------
Sales ............................ $864,053 $1,243,993 (30.5)%
Cost of sales
exclusive of depreciation
and salaries) .................. 324,929 454,616 (28.5)%
-------- ----------
Gross Profit ..................... 539,124 789,377 (31.7)%
Operating Expenses ............... 455,889 480,242 (5.1)%
Other Income ..................... 19,009 9,990 90.3%
-------- ----------
Net Income,
before income taxes ............ $102,244 $ 319,125 (68)%
======== ==========
In comparing the results of operations for second quarter 1996 to 1995, it is
important to note the change in sources of LSI's revenue. LSI received a
contract from an international computer manufacturer to provide integration
services, storage, receiving, shipment and asset management for certain portable
computers, as directed by the manufacturer, for a fixed monthly fee that
amounted to $34,500 in the second quarter of 1996. The Company, during the
second quarter of 1996, announced that it had formed a Solutions Engineering
Division to provide custom products for specific customers and a peripheral
device product line. The Company expects to begin shipping a removable hard
drive line during the third quarter of 1996 for use in a popular laptop
computer. Management believes this to be the first in a line of products
developed by the new division and anticipates that it will generate operating
profits by the fourth quarter of 1996, but there can be no assurances that
profitability will be achieved. LSI continues to encounter significantly more
competition in providing enhancement and upgrade services to several computer
manufacturers' units than in 1995, when it was a more significant supplier of
such services to such customers. During the second quarter of 1996, while
margins remained relatively stable in LSI's enhancement and upgrade services,
the average revenue and related cost of sales decreased substantially due to a
rapid drop in industry pricing of the primary component. Additionally, increased
competition for enhancement and upgrade services contributed to decrease
revenues from such services in second quarter 1996 compared with 1995, while
revenues from repair and warranty services increased. In second quarter 1996,
there were significantly more transactions requiring more management and
administrative staff to support the increased warranty and repair services than
in 1995.
Cost of goods sold decreased in 1996 to $324,929 from $454,616 primarily as a
result of the lower number of enhancement and upgrade units serviced. Salaries
and contract employees in 1996 amounted to $226,342 as compared to $247,303 in
second quarter 1995, a decrease of 20,961, or 8.5%. Personnel and related cost
decreases were partly due to management restructuring and increased efficiency.
Rent increased from $17,519 in 1995 to $44,443 in 1996, an increase of $26,932,
or 154%. Other operating expenses contributing to decreased operating costs
included decreases in payroll taxes, insurance costs, travel, telephone and
other general and administrative expenses.
Management believes that to achieve profits similar to prior periods will
require greater volume than was required in the past, and there can be no
assurance that LSI will be able to achieve such volume.
B. FORMATION AND OPERATIONS OF LAPTOP SOLUTIONS, INC. OF CALIFORNIA
During the second fiscal quarter of 1995, the Company formed Laptop Solutions,
Inc. ("LSICA"), a wholly-owned subsidiary, to perform upgrade and repair
services for portable computers on the west coast. This entity was formed to
provide similar services as LSI, also a wholly-owned subsidiary. LSI's
headquarters are in Houston, and it also has a branch located in New Jersey.
LSICA's results of operations for second quarter 1996 are summarized as
follows:
1996 1995 CHANGE (%)
-------- -------- ----------
Sales ............................... $ 40,990 $ 27,669 48.1%
Cost of sales
(exclusive of depreciation
and salaries) ..................... 24,492 2,513 874.6%
-------- --------
Gross Profit ........................ 16,498 25,156 (34.4)%
Operating Expenses .................. 89,010 84,976 4.7%
-------- --------
Net Income,
before income taxes ............... $(72,512) $(59,820) (21.2)%
======== ========
The factors relating to LSI's business in 1995 discussed above generally also
apply to LSICA. Management continues to believe that a presence in the west
coast market is a prudent investment in the future of the Company.
Administrative personnel for the Solutions Engineering Division are located at
the Irvine, California facility and are included in LSICA's operating expenses.
The Company is currently in the process of replacing management at LSICA and
believes that new management, better controls and better marketing efforts
should lead to future profitability of LSICA, although there can be no assurance
that it will be attained.
C. ACQUISITION AND OPERATIONS OF NB ENGINEERING, INC.
The Company entered into the custom digital video compression and engineering
services businesses through the acquisition of NB Engineering, Inc. ("NBE") on
May 31, 1995. The Company's consolidated results of operations for the second
quarter 1996 include the results of operations of NBE:
Sales ................................................... $ 373,203
Cost of sales (exclusive of
depreciation and salaries) .............................. 50,814
---------
Gross Profit ............................................ 322,389
Operating expenses ...................................... 394,496
Amortization of Goodwill ................................ 39,462
Other Income ............................................ 3,629
---------
Net Loss ............................................ $(107,940)
=========
Of the $188,753 increase in salaries in the consolidated financial statements
described above, LSI and LCA decreased by $10,516 while an increase of $199,269
was attributable to the NBE acquisition.
While management believes that certain steps now being taken with the
operations and direction of NBE should result in a turn around in NBE's
profitability, there can be no assurance that results will improve. It believes
that NBE may improve during the fourth quarter of 1996 due to existing
commitments However, there can be no assurance that NBE will become profitable
D. ENHANCED SERVICES COMPANY, INC., ACQUISITION OF OFFICE BUILDING IN HOUSTON,
TEXAS
Rental Income ............................................ $ 49,661
Cost of Building Operations .............................. 64,412
--------
Net Loss ................................................. (14,751)
Other Expenses ........................................... 25,120
--------
Net Loss ................................................. $(39,871)
========
During 1995, the Company acquired an office building in Houston, Texas. ESC
and LSI use a portion of the building for their offices and as warehouse
facilities. Certain additional office space is leased to other tenants. As of
the end of the second fiscal quarter of 1996, the vacancy rate was approximately
35%. Leases have been signed that reduced the vacancy to 19% during the third
quarter of 1996. Management believes that, taking into account a market rental
rate paid by LSI, the building will break-even at that level of occupancy.
Management believes that the Company was able to acquire this property and its
improvements at less than its market value, and it believes that it will prove
to be a good long-term investment. Had the Company not acquired this building
and continued renting facilities in Texas, it is estimated that the rental costs
would not be materially different than the net operating costs of the building
during the second quarter of 1996, and at the current level of occupancy, it
will result in a savings to the Company as well as the opportunity for possible
appreciation in the value of the property. While management believes that this
is likely to continue over a period of time, there can be no assurance that it
will.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1996, the Company had stockholders' equity totaling $2,083,072 as
compared to $2,524,708 at November 30, 1995, a decrease of $441,636. This
decrease resulted from a net loss of $442,,849 and the issuance of 1,940 shares
of stock valued at $1,213 during the three month period ended May 31, 1996. The
Company's working capital was $256,464 at May 31, 1996 as compared to $679,252
at November 30, 1995, a decrease of $422,788. This decrease was primarily the
result of the net loss for the period.
The Company executed a working capital loan in the amount of $500,000 on January
19, 1996 (amended as of June 1, 1996). The loan is due May 31, 1997 with
interest paid monthly at 2% above the prime rate quoted by the Wall Street
Journal and is secured by certain accounts receivable and inventory. The Company
had borrowed $250,000 as of May 31, 1996 ($350,000 at June 30, 1996). While
management plans that income generated from the Company's LSI operations should
be sufficient to finance it's existing LSI operations. NBE's operations may
require that additional funds be drawn on the working capital loan. However,
there can be no assurances that LSI's operations will become profitable, or that
the availability under the Company's working capital loan will be sufficient, or
that other sources to finance operations will be available, or, if available, on
attractive terms.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
During May, 1996 the Company effected a one for five reverse stock
split. Per share information in the financial statements has been
retroactively adjusted.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Loan Agreement dated January 19, 1996 between the Company and FCA
Investment Co., as amended by First Amendment dated June 1, 1996
and Promissory Note dated June 1, 1996 (to be filed by an
amendment hereto).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENHANCED SERVICES COMPANY, INC.
By /s/ R. C. SMITH Date 7/23/96
Treasurer