U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________________ to ______________ Commission file number 0-9352 American Teletronics, Inc. (Exact name of small business issuer as specified in its charter) Colorado 76-1675704 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 15400 Knoll Trail, Suite 205, Dallas, TX 75248 (Address of principal executive offices) (Zip Code) (214) 661-2345 (Registrant's telephone number) ____________________________________________ __________________________________ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes X No ____ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 52,639,056 PART I - FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN TELETRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS March 31, December 31, 1996 1995 CURRENT ASSETS Cash $327,426 $230,591 Certificates of Deposit, pledged to secure notes payable 350,000 350,000 Accounts Receivable, net of allowance for doubtful accounts of $62,422 and $67,985 in 1996 and 1995, respectively 343,302 302,591 Receivable Under Warehouse Agreements 52,100 82,296 Mortgage Participation Held for Sale 590,000 - Mortgage Loan Receivable 87,941 87,941 Prepaid Expenses 79,490 101,610 Workers' Compensation Insurance Deposit 755,557 813,840 Single Family Residential Real Estate 416,588 271,435 FmHA Loan Fees Receivable 177,300 320,000 TOTAL CURRENT ASSETS 3,179,704 2,560,304 OFFICE BUILDING, FURNITURE AND EQUIPMENT 968,302 880,071 Less Accumulated Depreciation (232,008) (189,438) NET OFFICE BUILDING, FURNITURE AND EQUIPMENT 736,294 690,633 OTHER ASSETS Mortgage Loan Participation 267,320 268,077 Investment in Bank Stock 91,500 91,500 Investment in Preferred Stock 204,000 204,000 Land Held for Sale 365,957 365,957 Goodwill, net of accumulated amortization of $979,780 and $969,836, respectively 543,619 553,563 Noncompete Agreements, net of accumulated amortization of $33,750 and $30,000, respectively 41,250 45,000 Deposits and Other Assets 67,444 68,586 Investment in American Teletronics, Inc.'s Common Stock 142,793 90,191 Related Party Receivables 315,260 319,403 TOTAL OTHER ASSETS 2,039,143 2,006,277 TOTAL ASSETS $5,955,141 $5,257,214 (Continued) The accompanying notes are an integral part of these consolidated financial statements. F-1 AMERICAN TELETRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, 1996 1995 CURRENT LIABILITIES Notes Payable $1,226,746 $802,426 Current Maturities of Long-Term Debt 295,528 294,744 Accounts Payable 201,843 233,691 Accrued Liabilities 736,632 629,387 Deferred FmHA Loan Fees 276,800 320,000 TOTAL CURRENT LIABILITIES 2,737,549 2,280,248 LONG-TERM DEBT, Excluding Current Maturities 1,485,238 1,248,380 TOTAL LIABILITIES 4,222,787 3,528,628 STOCKHOLDERS' EQUITY Common Stock, no par value; Authorized 100,000,000 shares; issued and outstanding 52,639,056 and 52,139,056 shares, respectively 3,815,975 3,715,975 Retained (Deficit) (2,083,621 (1,987,389) TOTAL STOCKHOLDERS' EQUITY 1,732,354 1,728,586 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,955,141 $5,257,214 The Accompanying notes are an integral part of these consolidated financial statements. F-2 AMERICAN TELETRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 REVENUES Employee Leasing $9,809,550 $10,465,959 Mortgage Services Income 988,652 258,424 Mortgage Interest 52,090 24,856 FmHA Loan Fee 183,810 - TOTAL REVENUES 11,034,102 10,749,239 COST OF REVENUES Leased Employee Cost 9,394,173 10,189,566 Commissions and Other Mortgage Services Costs 466,699 155,778 Mortgage Interest 65,030 7,226 TOTAL COST OF REVENUES 9,925,902 10,352,570 GROSS PROFIT 1,108,200 396,669 SELLING EXPENSES 55,928 82,431 GENERAL AND ADMINISTRATIVE EXPENSES Salaries and Employee Benefits 658,738 470,533 Occupancy Expense 144,140 96,277 Amortization 13,694 38,087 Other 321,663 181,268 TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,138,235 786,165 OTHER INCOME AND (EXPENSE) Interest Income 14,159 7,797 Other Income 3,439 2,433 Interest Expense (80,469) (63,828) TOTAL OTHER INCOME AND (EXPENSE) (62,871) (53,598) (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (148,834) (525,525) INCOME TAX EXPENSE - - (LOSS) FROM CONTINUING OPERATIONS ($148,834) ($525,525) DISCONTINUED OPERATIONS Income on Disposal of Subsidiaries 52,602 - NET (LOSS) ($96,232) ($525,525) WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 52,139,056 51,668,153 (LOSS) PER SHARE Continuing Operations $ - $ (.01) Discontinued Operations - - $ - $ (.01) The accompanying notes are an integral part of these consolidated financial statements. F-3 AMERICAN TELETRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) Retained COMMON STOCK Earnings Shares Amount (Deficit) TOTAL BALANCE DECEMBER 31, 1994 51,668,153 $3,598,249 ($1,180,041) $2,418,208 Sale of Common Stock August, 1995 470,903 117,726 - 117,726 Net Loss 1995 - - (807,348) (807,348) BALANCE DECEMBER 31, 1995 52,139,056 $3,715,975 ($1,987,389) $1,728,586 Sale of Common Stock March, 1996 500,000 100,000 100,000 Net Loss 1996 - - (96,232) (96,232) BALANCE MARCH 31, 1996 52,639,056 3,815,975 (2,083,621) 1,732,354 The accompanying notes are an integral part of these consolidated financial statements. F-4 AMERICAN TELETRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net (Loss) ($96,232) ($525,525) Adjustments to Reconcile Net (Loss) to Net Cash Used by Operations Income From Discontinued Operations (52,602) - Depreciation 42,570 21,763 Amortization 13,694 38,087 Changes in Current Assets and Liabilities (Increase) Decrease in Accounts Receivable (40,711) 65,551 (Increase) Decrease in Receivable Under Warehouse Agreements 30,196 (14,892) (Increase) Mortgage Participation Held for Sale (590,000) - Decrease in Prepaid Expenses 22,120 15,393 Decrease in Workers' Compensation Insurance Deposit 58,283 51,030 Purchase Single Family Residential Real Estate (145,153) - Change in Cash Overdraft - (53,517) Increase (Decrease) in Accounts Payable (31,848) 58,804 Increase (Decrease) in Accrued Liabilities 107,245 225,592 Increase in Deferred Revenue 99,500 - NET CASH (USED) BY OPERATING ACTIVITIES (582,938) (117,714) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Office Furniture and Equipment (88,231) (18,647) Mortgage Loan Participation Collections 757 (4,720) Deposits and Other 1,142 (525) NET CASH (USED) BY INVESTING ACTIVITIES (86,332) (23,892) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in Related Party Receivable/Payable 4,143 72,219 Note Borrowings 762,837 74,000 Note Payments (100,875) (14,027) Sale of Common Stock 100,000 - NET CASH PROVIDED BY FINANCING ACTIVITIES 766,105 132,192 NET INCREASE (DECREASE) IN CASH AND CERTIFICATES OF DEPOSITS 96,835 (9,414) CASH AND CERTIFICATES OF DEPOSITS AT THE BEGINNING OF THE PERIOD 580,591 210,737 CASH AND CERTIFICATES OF DEPOSITS AT THE END OF THE PERIOD $677,426 $201,323 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year as: Interest Expense $135,621 $36,054 (Continued) The accompanying notes are an integral part of these consolidated financial statements. F-5 AMERICAN TELETRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) Three Months Three Months Ended Ended March 31, 1996 March 31, 1995 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Change in Related Party Receivable/Payable $ - ($103,000) Assumption of Long-Term Debt - 103,000 Decrease in FmHA Loan Fee Receivable 142,700 - Decrease in Deferred Revenue (142,700) - TOTAL $ - $ - The accompanying notes are an integral part of these consolidated financial statements. F-6 AMERICAN TELETRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulations S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the Annual Report on Form 10-K of American Teletronics, Inc. and Subsidiaries for the year ended December 31, 1995. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996, are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation Financial Comparisons: For the first quarter ending March 31, 1996 the Company had a 2.7% increase in total revenues of $11,034,102 as compared to $10,749,239 in the same period last year. Revenues from employee leasing declined 6.3% to $9,809,550 in 1996 as compared to $10,465,959 in the first quarter of 1995. This decline was planned and expected and is the result of management's implementation of a business plan to eliminate high risk or unprofitable business. Revenues from mortgage activities in the quarter ended March 31, 1996 increased 367% to $1,040,805 as compared to $283,280 in the first quarter of 1995. This increase was the result of the Company's acquisition of a mortgage operation in Maryland in the fourth quarter of 1995 and lower interest rates during most of the first quarter of 1996 as compared to 1995. The Company also generated $183,810 in FmHA loan premium fees in the first quarter ended March 31, 1996 as compared of none in the first quarter of 1995. Gross profit for the quarter ended March 31, 1996was $1,108,200 as compared to $396,669 in the same quarter last year, an increase of $711,531 or 179.4%. The gross margin increase was the result of improved margins in both the employee leasing division and in the mortgage division combined with the favorable impact of the FmHA loan premium fees recognized in the first quarter. Selling expenses decreased from $82,431 in the first quarter of 1995 to $55,928 in the first quarter of 1996, a net decrease of $26,503 or 32.3%, as a result of changes in the commission program in the employee leasing operation. Total general and administrative expenses increased from $786,165 in the first quarter of 1995 to $1,138,235 in the first quarter of 1996, an increaseof $352,070. This increase was primarily due to increases in personnel costs and professional fees associated with a planned spin-out of Crest. Total other income and expense increased by $9,273 in 1996 over 1995 due to increased interest expense. Losses from continuing operations were reduced from $525,525 in the first quarter of 1995 to $148,834 in the quarter inded March 31, 1996, a net reduction of $376,691 or 71.7%. The Net Loss for the first quarter of 1995 was $525,525 as compared to a Net Loss for the quarter ended March 31, 1996 of $96,232. The additional reduction in Net Loss is attributed to the recovery of $52,602 worth of shares previously issued which have been returned to the Company. Total assets increased to $5,955,141 at March 31, 1996 as compared to $5,257,214 at December 31, 1995. The current ratio of the Company increased to 1:16 to 1:00 at March 31, 1996 as compared to 1:12 to 1:00 at December 31, 1996. Total liabilities increased to $4,222,787 at March 31, 1996 as compared to $3,528,628 at December 31, 1995. Total stockholders' equity increased to $1,732,354 at March 31, 1996 as compared to $1,728,586 at December 31, 1995. Marketing: The Company has been successful in its target and nitch marketing efforts in both the employee leasing and mortgage divisions as is reflected above in the improved gross margin from both divisions. The Company is continuing its efforts to develop new products and programs with higher gross margins and to improve margins on existing products and programs. Mergers and Acquisitions: On April 4, 1996, the Company entered into a letter of intent for a merger with Evins Personnel Consultants, Inc. and its related entities. The letter of intent includes the provision that 5,000,000 shares of the Company's common stock and warrants for an additional 9,000,000 shares, subject to performance and profitability, will be exchanged for all of the outstanding shares of Evins Personnel Consultants, Inc. and its related entities. Evins, located in Austin, Texas, provides a variety of personnel services including employee leasing, temporary placement services, contract employment services, recruiting, testing and training. PART II - OTHER INFORMATION Item 5 - Other Information The Company's Board of Directors has approved a spin-out and initial public offering ("IPO") of its employee leasing or professional employer organization ("PEO"), Crest Outsourcing, Inc. At the Board's direction, management has begun preliminary underwriter discussions and plans a partial stock dividend of Crest shares to ATI shareholders subsequent to the initial public offering. Terms of the offering have not yet been determined, and any offering will be made only by means of a prospectus. The Company seeks to complete the offering before year end. The Company's Board of Directors also approved the filing of a registration statement with the SEC to hold a Special Shareholders' meeting to approve the redomestication of the legal domicile of American Teletronics, Inc. from Colorado to Texas and to ratify an incentive compensation agreement with two executive officers of the Company. The date of the Special meeting will not be determined until the prospectus through which the offering will be made has been declared effective by the SEC. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K The registrant filed a report on Form 8-K on April 16, 1996, reporting under "Item 5. Other material events." 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. American Teletronics, Inc. May 2, 1996 /s/ John N. Stogner By: John N. Stogner, President and Principal Financial Officer