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 June 30, 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 incorporation (IRS Employer Identification No.)
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
ITEM 1 - FINANCIAL STATEMENTS
AMERICAN TELETRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1996 1995
--------------------- ---------------------
CURRENT ASSETS
Cash $489,375 $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 794,130 302,591
Receivable Under Warehouse Agreements - 82,296
Mortgage Participation Held for Sale - -
Mortgage Loan Receivable 79,141 87,941
Prepaid Expenses 40,987 101,610
Workers' Compensation Insurance Deposit 649,470 813,840
Single Family Residential Real Estate 254,501 271,435
FmHA Loan Fees Receivable - 320,000
--------------------- ---------------------
TOTAL CURRENT ASSETS 2,657,604 2,560,304
--------------------- ---------------------
OFFICE BUILDING, FURNITURE AND EQUIPMENT 977,801 880,071
Less Accumulated Depreciation (259,517) (189,438)
--------------------- ---------------------
NET OFFICE BUILDING, FURNITURE AND EQUIPMENT 718,284 690,633
--------------------- ---------------------
OTHER ASSETS
Mortgage Loan Participation 128,028 268,077
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 $989,725 and $969,836, respectively 533,674 553,563
Noncompete Agreements, net of accumulated amortization
of $37,500 and $30,000, respectively 37,500 45,000
Deposits and Other Assets 65,915 68,586
Investment in American Teletronics, Inc.'s Common Stock 142,793 90,191
Related Party Receivables 298,605 319,403
--------------------- ---------------------
TOTAL OTHER ASSETS 1,867,972 2,006,277
--------------------- ---------------------
TOTAL ASSETS $5,243,860 $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
June 30, December 31,
1996 1995
--------------------- ---------------------
CURRENT LIABILITIES
Notes Payable $1,312,048 $802,426
Current Maturities of Long-Term Debt 137,789 294,744
Accounts Payable 222,688 233,691
Accrued Liabilities 1,557,806 629,387
Payables Under Warehouse Agreements 85,944 -
Deferred FmHA Loan Fees - 320,000
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 3,316,275 2,280,248
LONG-TERM DEBT, Excluding Current Maturities 1,173,928 1,248,380
--------------------- ---------------------
TOTAL LIABILITIES 4,490,203 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) (3,062,318) (1,987,389)
--------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 753,657 1,728,586
--------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,243,860 $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 Ended June 30, Six Months Ended June 30,
--------------------------------------------------------------------------
1996 1995 1996 1995
------------ ----------- ----------- -----------
REVENUES
Employee Leasing $10,241,475 $11,304,529 $20,051,025 $21,770,488
Mortgage Services Income 589,212 295,961 1,577,864 554,385
Mortgage Interest 55,102 14,609 107,192 39,465
FmHA Loan Fee 446,056 - 629,866 -
------------ ------------ ------------ ------------
TOTAL REVENUES 11,331,845 11,615,099 22,365,947 22,364,338
COST OF REVENUES
Leased Employee Cost 10,719,971 10,269,607 20,114,144 20,459,173
Commissions and Other Mortgage Services Costs 359,346 152,993 826,045 308,771
Mortgage Interest 63,485 9,080 128,515 16,306
------------ ------------- ------------ ------------
TOTAL COST OF REVENUES 11,142,802 10,431,680 21,068,704 20,784,250
------------ ------------- ------------ ------------
GROSS PROFIT 189,043 1,183,419 1,297,243 1,580,088
------------ ------------- ------------ ------------
SELLING EXPENSES 56,474 77,706 112,402 160,137
------------ ------------- ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Employee Benefits 579,135 495,705 1,237,873 966,238
Occupancy Expense 118,826 90,415 262,966 186,692
Amortization 15,394 38,752 29,088 76,839
Other 309,446 239,009 631,109 420,277
------------ -------------- ----------- ------------
TOTAL GENERAL AND ADMINISTRATIVE EXPENSES 1,022,801 863,881 2,161,036 1,650,046
------------ ------------- ----------- ------------
OTHER INCOME AND (EXPENSE)
Interest Income 25,138 7,344 39,297 15,143
Other Income (Expense) (3,653) 51,656 (214) 54,089
Interest Expense (109,950) (83,477) (190,419) (147,305)
------------ -------------- ----------- ------------
TOTAL OTHER INCOME AND (EXPENSE) (88,465) (24,477) (151,336) (78,073)
------------ ------------- ----------- ------------
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (978,697) 217,355 (1,127,531) (308,168)
INCOME TAX EXPENSE - - - -
------------ ------------- ----------- ------------
(LOSS) INCOME FROM CONTINUING OPERATIONS ($978,697) $217,355 ($1,127,531) ($308,168)
DISCONTINUED OPERATIONS
Income on Disposal of Subsidiaries - - 52,602 -
------------ ------------- ----------- ------------
NET (LOSS) INCOME ($978,697) $217,355 ($1,074,929) ($308,168)
============ ============= =========== ============
52,639,056 51,688,153 52,353,342 51,668,153
============ ============= =========== ============
(LOSS) PER SHARE
Continuing Operations $ (.02) $ - $ (.02) $ (.01)
Discontinued Operations - - - -
------------ -------------- ----------- ------------
$ (.02) $ - $ (.02) $ (.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 - - (1,074,929) (1,074,929)
-------------------- ------------------- ------------------- --------------------
BALANCE JUNE 30, 1996 52,639,056 $3,815,975 ($3,062,318) $753,657
==================== =================== =================== ====================
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 Ended June 30, Six Months Ended June 30,
---------------------------- -------------------------
1996 1995 1996 1995
----------- ------------- ------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income ($978,697) $217,355 ($1,074,929) ($308,168)
Adjustments to Reconcile Net (Loss) to Net Cash Used by Operation
Income From Discontinued Operations - - (52,602) -
Depreciation 27,509 17,076 70,079 38,839
Amortization 15,394 38,752 29,088 76,839
Changes in Current Assets and Liabilities
(Increase) Decrease in Accounts Receivable 139,172 (26,967) 98,461 38,584
Decrease in Receivable Under Warehouse Agreements 138,044 37,361 168,240 22,469
(Increase) Mortgage Participation Held for Sale - - (590,000) -
Decrease in Prepaid Expenses 38,503 - 60,623 15,393
(Increase) Decrease in Workers' Compensation Ins. Deposit 106,087 (452,167) 164,370 (401,137)
Change in Single Family Residential Real Estate 170,887 - 25,734 -
Change in Cash Overdraft - - - (53,517)
Increase (Decrease) in Accounts Payable 20,845 (6,409) (11,003) 52,395
Increase in Accrued Liabilities 821,174 180,904 928,419 406,496
Decrease in Deferred Revenue (99,500) - - -
----------- ---------------- ---------- ----------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES 399,418 5,905 (183,520) (111,807)
----------- ---------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Office Furniture and Equipment (9,499) (32,945) (97,730) (51,592)
Mortgage Loan Participation Collections 139,292 448 140,049 (4,272)
Deposits and Other (170) (10,261) 972 (10,786)
----------- ---------------- ---------- ----------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES 129,623 (42,758) 43,291 (66,650)
----------- ---------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Related Party Receivable/Payable 16,655 73,292 20,798 146,229
Note Borrowings - - 762,837 74,000
Note Payments (383,747) (17,466) (484,622) (31,493)
Sale of Common Stock - - 100,000 -
----------- ---------------- ---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (367,092) 55,826 399,013 188,736
----------- ---------------- ---------- ----------
NET INCREASE IN CASH AND CERTIFICATES
OF DEPOSIT 161,949 18,973 258,784 10,279
CASH AND CERTIFICATES OF DEPOSITS AT THE BEGINNING
OF THE PERIOD 677,426 202,043 580,591 210,737
----------- ---------------- ---------- ----------
CASH AND CERTIFICATES OF DEPOSITS AT THE END
OF THE PERIOD $839,375 $221,016 $839,375 $221,016
=========== ================ ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the
Year as:
Interest Expense $64,421 $39,477 $105,507 $75,531
=========== ================ ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Change in Related Party Receivable/Payable - - - ($103,000)
Assumption of Long-Term Debt - - - 103,000
Receivable from Insurance Company - (420,000) - (420,000)
Increase in Workers' Comp Claim Liability - 570,000 - 570,000
Decrease in Workers' Comp Insurance Deposit - (150,000) - (150,000)
----------- ---------------- ---------- ----------
TOTAL $ - $ - $ - $ -
=========== ================ ========== ==========
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
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 six month period
ended June 30, 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:
First Six Months of 1996: For the six months ending June 30, 1996, ATI had
consolidated revenues of $22,365,947. This compares to $22,364,338 for a like
period in 1995 for a net increase of $1,609. Revenues from employee leasing
decreased from $21,770,488 in 1995 to $20,051,025 for 1996 or $1,719,463 for the
first six months of 1996, a decrease of 7.7%. This reduction is a result of
management's decision to eliminate unprofitable and/or high risk business during
the last two quarters of 1995 and by requiring that all new business meet
heightened standards for credit, safety and profitability. Mortgage fee revenues
increased from $593,850 during the first six months of 1995 to $2,314,922, an
increase of $1,721,072 or 289.8% for the comparable period. This increase is a
result of revenues of $839,623 from the Timonium, Maryland branch which was not
in existence in 1995, $629,866 from the FmHA government guaranteed loan program
and increased revenues from the Dallas, Texas branch from mortgage products
which have been in development and are now starting to be implemented.
For the six months ending June 30, 1996, ATI had a consolidated loss from all
operations of $1,074,929 compared to a comparable loss of $308,168 for the six
months ending June 30, 1995. This increase in loss of $766,761 is primarily a
result of a determination on the part of management to recognize the total
amount of the future costs of workers compensation claims as estimated by its
insurance carrier in the period of occurrence rather than as the claims are
paid. The net effect of this change from previous recognition is an adjustment
in workers compensation expense of approximately $800,000. Two large claims
which occurred in the first six months of 1996 and which may amount to
approximately $480,000 which could be paid over the next four (4) years was a
principal reason to cause management to focus on the expense treatment.
Management believes this recognition treatment is more conservative than the
previous method and as such eliminates the requirement to adjust previous
insurance policy years. In the event that the claims incurred do not mature into
requirements for paid claims in the amount recognized then a recovery will be
recognized as reduced expenses in subsequent periods. Since it is anticipated
that Crest Outsourcing, Inc. ("Crest"), ATI's professional employer organization
("PEO"), will be involved in a "Spin Out" in the near future, this more
conservative recognition of expenses will assist in the disclosure of the risk
associated with the PEO industry. This risk can be eliminated by Crest obtaining
a fully insured workers compensation program.
Additional losses of $159,226 were incurred in the Timonium branch during the
six month period as a result of the increase in interest rates causing delays in
closing residential loans that have been fully processed and from the change in
policy from the Veterans Administration limiting refinancing of loans which
would have been approved previously. The delay in these closings and the policy
change caused a reduction in the Timonium revenues from $625,928 in the first
quarter of 1996 to $213,695 in the second quarter of 1996. At the beginning of
the third quarter, 1996, Timonium adopted the wider menu of services which were
developed in the Dallas branch and
1
which are not as interest rate sensitive and accordingly anticipates that
revenues will increase by the end of the year. The Dallas branch experienced
increased mortgage operation revenue of $632,465 for the first six months of
1996 as compared to $593,850 for the same period in 1995, an increase of 6.5%.
The remaining revenue increase of $629,866 is attributed to the government
guaranteed loan program. Net income from the combined mortgage division was
$225,485 before income tax considerations as compared to a loss of $359,593 for
the same period 1995. This is an improvement of $585,078 which is primarily
attributed to the earnings from the government guaranteed loan program and
increased revenues.
Second Quarter of 1996: For the second quarter ending June 30, 1996, ATI had
consolidated revenues of $11,331,845. This compares to $11,615,099 for a like
period in 1995 for a net decrease of $283,254. Revenues from employee leasing
decreased from $11,304,529 in the second quarter of 1995 to $10,241,475 for the
same period in 1996 or $1,063,054, a decrease of 9.1%. This reduction is a
result of management's decision to eliminate unprofitable and/or high risk
business during the last two quarters of 1995 and by requiring that all new
business meet heightened standards for credit, safety and profitability.
Mortgage fee revenues increased from $310,570 during the second quarter of 1995
to $1,090,370 for the second quarter of 1996, an increase of $779,800. This
increase is a result of revenues of $213,695 from the Timonium, Maryland branch
which was not in existence in 1995, $446,056 from the government guaranteed loan
program and increased revenues from the Dallas, Texas branch from mortgage
products which have been in development and are now starting to be implemented.
For the second quarter ending June 30, 1996, ATI had a consolidated loss from
all operations of $978,697 compared to a consolidated profit of $217,355 for the
second quarter ending June 30, 1995. This increase in loss of $1,196,052 is
primarily a result of a determination on the part of management to recognize the
total amount of the future costs of workers compensation claims as estimated by
its insurance carrier in the period of occurrence rather than as the claims are
paid. The net effect of this change from previous recognition is an adjustment
in workers compensation expense of approximately $800,000 in the second quarter
of 1996. Two claims, mentioned above, which occurred in the first six months of
1996 and which may amount to approximately $480,000 and which could be paid over
the next four (4) years was a principal reason to cause management to focus on
the expense treatment. Management believes this recognition treatment is more
conservative than the previous method and as such eliminates the requirement to
adjust previous insurance policy years.
Losses of $183,545 were incurred in the Timonium branch in the second quarter as
a result of the increase in interest rates causing delays in closing residential
loans that have been fully processed and from the change in policy from the
Veterans Administration limiting refinancing of loans which would have been
approved previously. The delay in these closings and the policy change caused a
reduction in the Timonium revenues from $625,928 in the first quarter of 1996 to
$213,695 in the second quarter of 1996. At the beginning of the third quarter,
1996, Timonium adopted the wider menu of services which were developed in the
Dallas branch and which are not as interest rate sensitive and accordingly
anticipates that revenues will increase by the end of the
2
year. The Dallas branch experienced mortgage operation revenue of $312,904 for
the second quarter of 1996 as compared to $310,570 for the same period in 1995.
The remaining revenue increase of $446,056 is attributed to the government
guaranteed loan program. Net income from the combined mortgage division was
$136,659 before income tax considerations as compared to a loss of $171,310 for
the same period 1995. This is an improvement of $307,969 which is primarily
attributed to the earnings from the government guaranteed loan program and
increased revenues during the second quarter.
With the recognition of the additional expenses associated with the workers
compensation claims the Company's Stockholder Equity will decrease to $753,657
as compared to $2,110,040 at June 30, 1995.
Cash and Temporary Cash Investments increased during the second quarter by
$161,949. This change is attributed to $399,418 from operations and $129,623
from investing activities less $367,092 in financing (debt repayment)
activities.
Marketing
ATI continues to develop new marketing programs for both the PEO operation and
the mortgage division. Marketing in the PEO operation is being developed through
increased Agent/Broker activities and is directed towards geographic expansion
and specific niche markets as opposed to the prior broad approach to all
markets. The Agent/Broker network that is being developed is adding additional
geographic areas and now includes Texas through the merger with Exceptional
Resource Services, Inc., a company that is part of the acquisition of the Evins
Group. This merger was reported earlier and is scheduled to close before the end
of August, 1996. New marketing activities are also commencing in Oklahoma,
Tennessee, Louisiana and Kansas through the Agent/Broker network.
Marketing developments in the mortgage division continue in the Home-A-Loan,
Alternative Finance and Manufactured Housing areas. Management anticipates that
increases in revenues and margins from all areas will continue as more
relationships and markets develop.
Joint Ventures, Mergers and Acquisitions
The execution of a definitive agreement to merge the Evins Group of Austin,
Texas, was executed the 29th day of July, 1996. Since that date two of the
entities being merged have begun joint efforts with Crest. The closing date for
the remaining entities has been extended by agreement of all parties to allow
for the completion of financing for future growth.
3
Item 6. Exhibits and Reports on Form 8-k
(a) Exhibit 27 - Financial Data Schedule
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.
August 21, 1996 /s/John N. Stogner
By: John N. Stogner, President and Principal
Financial Officer