1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
Commission File Number: 0-24138
UNITED PAYPHONE SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0232816
(State of Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification Number)
1725 West Third Street, Tempe, Arizona 85281
(Address of Principal Executive Offices)
(602) 829-8777
(Registrant's telephone number, including area code)
N/A
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and, (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of October 31, 1996, United Payphone Services, Inc. Registrant had
5,277,099 shares of its $0.001 par value common stock outstanding.
Page 1 of 11 sequentially numbered pages
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FORM 10-Q
FIRST QUARTER 1997
UNITED PAYPHONE SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Balance Sheets - September 30, 1996 and June 30, 1996 ............. 3 - 4
Statements of Operations for the Three Months
Ended September 30, 1996 and 1995 ................................. 5
Statement of Cash Flows - for the Three Months
Ended September 30, 1996 and 1995 ................................. 6 - 7
Notes to Financial Statements...................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 9
PART II. OTHER INFORMATION
Item 3(b) Defaults Upon Senior Securities......................... 10
Item 5 Other Information........................................... 10
Page 2
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UNITED PAYPHONE SERVICES, INC.
Balance Sheets
ASSETS
September 30, June 30,
1996 1996
(Unaudited) (Audited)
CURRENT ASSETS
Cash $ 715,769 $ 694,293
Receivables
Trade accounts, net of allowance
for doubtful accounts of $0 at
September 30, 1996 and June 30, 1996 45,171 29,524
Related party 6,000 -
Prepaid expenses 6,929 5,000
Total Current Assets 773,869 728,817
PROPERTY AND EQUIPMENT 684,981 707,204
OTHER ASSETS
Deposits 2,106 2,106
Total Other Assets 2,106 2,106
TOTAL ASSETS $ 1,460,956 $ 1,438,127
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UNITED PAYPHONE SERVICES, INC.
Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, June 30,
1996 1996
CURRENT LIABILITIES
Accounts payable $ 118,456 $ 106,997
Accrued expenses 35,531 32,212
Accrued preferred dividends 112,231 84,967
Current portion of long term debt 793 770
Total Current Liabilities 267,011 224,946
LONG TERM DEBT
Notes Payable-related party 169,443 169,443
Capital lease obligation 3,551 3,758
Total Liabilities 440,005 398,147
COMMITMENTS AND CONTINGENCIES 132,442 132,442
STOCKHOLDERS' EQUITY
Convertible preferred stock, $.001 par,
6% cumulative, non-voting, class A;
100,000 shares authorized; 727 shares
issued and outstanding 1,817,591 1,817,591
Common stock, $.001 par value;
50,000,000 shares authorized;
5,277,099 shares issued and outstanding 5,277 5,277
Additional paid-in capital 3,039,921 3,039,921
Accumulated deficit (3,974,280) (3,955,251)
Total Stockholders' Equity 888,509 907,538
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,460,956 $ 1,438,127
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UNITED PAYPHONE SERVICES, INC.
Statements of Income
(Unaudited)
For the Three Months Ended
September 30,
1996 1995
Net sales $ 556,011 $ 488,053
Less cost of sales 247,426 230,586
Gross profit 308,585 257,467
Selling, general and
administrative expenses 304,722 342,707
Operating income or (loss) 3,863 (85,240)
Other income and (expenses), net 4,372 562
Gain on sale of assets - -
Net income (loss) before income taxes 8,235 (84,678)
Provision for income taxes - -
Net income or (loss) before preferred
dividends 8,235 (84,678)
Preferred dividends (27,264) (27,264)
Net loss attributed to common stock $ (19,029) $ (111,942)
Net income or (loss) per share $ (.00) $ (.02)
Weighted Average Shares Outstanding 5,277,099 4,666,099
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UNITED PAYPHONE SERVICES, INC.
Statements of Cash Flows
(Unaudited)
For the Three Months Ended
September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (19,029) $ (111,942)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Depreciation and amortization 52,848 105,091
Changes in operating assets and
liabilities (Increase) decrease in
Receivables - trade and other (15,647) 9,194
Prepaid expenses and other (1,929) 3,784
Increase (decrease) in
Accounts payable 11,459 15,101
Accrued liabilities 30,583 21,198
Net Cash Provided by/(Used in)
Operating Activities 58,285 42,426
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (30,625) (40,186)
Cash paid for notes receivable (6,000) (21,000)
Net Cash Provided by/(Used in)
Investing Activities $ (36,625) $ (61,186)
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UNITED PAYPHONE SERVICES, INC.
Statements of Cash Flows (Continued)
(Unaudited)
For the Three Months Ended
September 30,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ (184) $ (15,000)
Net Cash Provided by/ (Used in)
Financing Activities (184) (15,000)
INCREASE (DECREASE) IN CASH 21,476 (33,760)
CASH, BEGINNING OF PERIOD 694,293 184,999
CASH, END OF PERIOD $ 715,769 $ 151,239
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ -
Cash paid for interest $ 134 $ -
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UNITED PAYPHONE SERVICES, INC.
September 30, 1996
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
United Payphone Services, Inc. (the "Company") has elected to omit
substantially all footnotes to the financial statements for the three months
ended September 30, 1996, since there have been no material changes (other
than indicated in other footnotes) to the information previously reported
by the Company in their Annual Report filed on Form 10-KSB for the Fiscal
year ended June 30, 1996.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without an audit. However, such information reflects all adjustments
which are, in the opinion of management, necessary to properly reflect the
results of the interim period presented. The information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
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UNITED PAYPHONE SERVICES, INC.
September 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources of the Company
Cash and cash equivalents totaled $715,769 at September 30, 1996 compared to
$694,293 at June 30, 1996. The increase in cash was due primarily to cash
generated from operations ($58,285). This increase was partially offset by
cash used to purchase additional payphone equipment ($30,625).
Long term cash requirements, other than normal operating expenses, are
anticipated for the expansion of the payphone base. As discussed in our
previous 10-KSB, the Company has received approximately $450,000 from a
public offering, designated for use in building the current phone base or
acquiring an existing phone base, provided the Company does not sell the
assets as explained below in Other Information. The Company believes that
its existing cash and anticipated cash generated from operations will be
sufficient to satisfy its currently anticipated cash requirements for fiscal
year 1997.
The Company's principal commitments at September 30, 1996 consisted of
obligations under operating leases for facilities.
Results of Operations
Revenues of $556,011 for the first quarter of 1997 increased $67,958 from the
same period last year. The gross profit margin increased from 52% in fiscal
96 to 55% for fiscal 97, resulting in an increase in profit margin of $51,118.
Management believes that the increase in revenues and increase in profit
margin is a result of expanding the telephone base in the Phoenix and Tucson,
Arizona, areas. The Company also services another telephone base owned by
Amtel Communications for a fee. The fees increased revenues and gross profit
margin due to minimal costs associated therewith.
Selling, general and administrative expenses were $304,722 for the first
quarter 1997 a decrease of $37,985 over the same period last year. The
decrease is primarily due to a decrease in depreciation expenses because of
fully depreciated assets. Management was successful in holding other general
and administrative costs constant. Management believes that gross revenues
will increase during fiscal year 1997 due to the increased number of pay
telephones being placed in service. The Company has a current inventory of
phones that could be placed in service, bringing the total phones in service
to over 1,000.
Management anticipates that general selling and administrative expenses will
continue to remain constant or slightly increase through the remaining three
quarters of the fiscal year while gross revenues will increase by 5% to 10%
in the same time periods.
United incurred a loss of $(19,029) for the first quarter 1997 compared to a
loss of $(111,942) for the same timely period a year ago. The Company had
net income before preferred dividends of $8,235 for the first quarter 1997
compared to a net loss of ($84,678) a year ago.
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UNITED PAYPHONE SERVICES, INC.
September 30, 1996
There are no seasonal aspects of United's business which had, or are expected to
have, a material effect on the financial conditions or results of operations
of United.
Plan of Operations
United's goal for 1997 is to find high grossing phone locations for its
existing phone inventory currently not in service, and to increase it's
payphone base to over 1,000, using the funds received from the recent public
offering of the Company's common stock. Management has also been searching
for an existing phone base to acquire to increase revenues, gross margin and
net income, in order to obtain net income attributable to common shareholders.
United intends to aggressively market its payphones in the Arizona market and
greatly expand its telephone base in spite of the increased competition from
other private pay phone companies. The Company has also been approached by a
communications company interested in acquiring our phone base. If a reasonable
sum can be reached it is possible that the phone base will be sold and a new
line of business will be determined.
PART II OTHER INFORMATION
Item 3(b) Defaults Upon Senior Securities
The Company is 13 months in arrears ($121,318) as of November 14, 1996, in the
payment of dividends to the shareholders of the Class A 6% Preferred Stock.
Item 5 Other Information
Pursuant to an Asset Purchase Agreement dated November 15, 1996, the Company
will be selling substantially all of its' fixed assets (which constitutes 49%
of total assets) to Tru-Tel Communications, LLC., a Nevada limited liability
company ("Tru-Tel"). All of the Company's right, title and interest these
fixed assets will be transferred to Tru-Tel upon closing. In return, the
Company will receive cash payments in the amount of $1,711,250 and a secured
promissory note form Try-Tel in the original principal amount of $811,250
(the "Tru-Tel Note"). The Tru-Tel Note will accrue interest at the rate of
8% per annum. Under the terms of the Tru-Tel Note, monthly principal and
interest payments, in the aggregate amount of $14,000 per month, are payable
to the Company commencing on February 15, 1997, with a final payment of all
accrued and unpaid interest and outstanding principal is due January 5, 2002.
The Tru-Tel Note will be secured by a lien on all of the purchased assets
and will be personally guaranteed by the principals of Tru-Tel. On November
14, 1996, wire transfer instructions were originated by Tru-Tel for payment of
the cash consideration. The Company received the cash payment on November 15,
1996.
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UNITED PAYPHONE SERVICES, INC.
September30, 1996
Item 5 Other Information (Continued)
The Asset Purchase Agreement prohibits the Company from engaging in, either
directly or indirectly, in any business of any kind or nature whatsover which
operates public or private pay phones within the state of Arizona. In
addition, the Company may not install or maintain any pay phone equipment, or
provide related services, for any party to its existing contracts, which are
to be sold to Tru-Tel. As a result, upon completion of the asset sale, the
Company will have no business operations. The Company currently plans to
seek out merger or acquisition candidates in another line of business.
However, at this time, the Company does not have any plans for any particular
business activity and has not located or negotiated with any potential merger
or acquisition candidates.
Indictments of Former Directors, Officers and Accountant
On November 6, 1996, a true bill was returned by the Grand Jury in the United
States District Court in Nevada against Michael G. Swan and Claudia Higgins.
By indictment number CR-S-96-288, Mr. Swan and Ms. Higgins are accused of
violating several provisions of the United States criminal code, including
charges of racketeering, RICO conspiracy, securities fraud and wire fraud. All
of the charges arise out of the alleged activites of Mr. Swan and Ms. Higgins
while serving as directors and officers of the Company. Also named in the
indictment was Kevin Orton, the Company's former accountant. Mr. Swan and Ms.
Higgins were also named as "other relevant persons and entities" but were not
charged, in two other indictments, alleging, among other things, securities
fraud violations, filed respectively on October 30, 1996 and November 6, 1996.
Mr. Swan served as president and director of the Company from February 1992
through April 1995. From April 1995 through September 1996, Mr. Swan served
as a consultant to the Company. From November 1991 through April 1995, Ms.
Higgins served as a director and secretary/treasurer of the Company.
The Company was not named as a defendant in the indictments. However, given
that the indictments relate to activities alleged to have been perpetrated by
then officers and directors of the Company, there can be no assurance that the
indictments will not have a material adverse affect on the Company.
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UNITED PAYPHONE SERVICES, INC.
September 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1996
UNITED PAYPHONE SERVICES, INC.
By: /s/ David Westfere
David Westfere, CEO and
Principal Financial Officer
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UNITED PAYPHONE SERVICES, INC.
September 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1996
UNITED PAYPHONE SERVICES, INC.
By: /s/ David Westfere
David Westfere, CEO and
Principal Financial Officer