-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, S9IIhol9deI009iPHlRGOgYSq7n0MDzV+Qv0S6xOgcupKNmjOJddvobYFM+oG0dI ckJcIHwXcAJ6UR0LzpskHQ== 0000771993-94-000013.txt : 19940701 0000771993-94-000013.hdr.sgml : 19940701 ACCESSION NUMBER: 0000771993-94-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940430 FILED AS OF DATE: 19940614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELOGIC TRACE INC CENTRAL INDEX KEY: 0000771993 STANDARD INDUSTRIAL CLASSIFICATION: 7370 IRS NUMBER: 742368260 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08948 FILM NUMBER: 94534219 BUSINESS ADDRESS: STREET 1: TURTLE CREEK TWR I STREET 2: PO BOX 400044 CITY: SAN ANTONIO STATE: TX ZIP: 78229-8415 BUSINESS PHONE: 2105935700 10-Q 1 10Q THIRD QUARTER 1994 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________ FORM 10-Q ____________ ( x ) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 1994 or ( ) 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 1-8948 INTELOGIC TRACE, INC. (Exact name of registrant as specified in its charter) New York 74-2368260 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) Turtle Creek Tower I P. 0. Box 400044, San Antonio, TX 78229-8415 (Address of principal executive offices) (Zip Code) 210-593-5700 (Registrant's telephone number, including area code) 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. Yes (x) No ( ) The number of shares outstanding of registrant's common stock, par value $.01 per share, as of June 1, 1994 was 12,488,188 shares. PART I - FINANCIAL INFORMATION Item 1 - Financial Statements
INTELOGIC TRACE, INC. CONSOLIDATED BALANCE SHEETS (In thousands) April 30, July 31, 1994 1993 (Unaudited) ASSETS Current Assets: Cash and temporary investments $ 312 $ 1,626 Accounts receivable, net 5,822 8,728 Net assets of discontinued operations 832 320 Prepaid expenses and other current assets 2,143 2,070 TOTAL CURRENT ASSETS 9,109 12,744 Leasehold Improvements and Equipment, net 1,505 2,076 Field Support Spares, net 22,281 26,788 Intangible Assets, net 1,878 2,213 Other Assets 468 640 $ 35,241 $ 44,461 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 3,851 $ 3,689 Accrued expenses 4,095 5,651 Accrued interest 1,746 249 Short-term borrowings 7,312 4,377 Deferred revenue 10,114 12,170 Other current liabilities 10 254 TOTAL CURRENT LIABILITIES 27,128 26,390 11.99% Subordinated Debentures Due 1996 49,924 49,924 Deferred Income Taxes and Other Liabilities 589 1,632 Deferred Pension Liability 1,703 1,861 $10.00 Redeemable Preferred Stock; 65,000 Shares Authorized, 46,299 Shares Issued and Outstanding; $100 Mandatory Redemption 4,488 3,903 Value Shareholders' Equity (Deficit) (48,591) (39,249) $ 35,241 $ 44,461
See accompanying notes to consolidated financial statements
INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended April 30, April 30, 1994 1993 Revenue: Service $16,743 $20,408 Sales 241 330 TOTAL REVENUE 16,984 20,738 Cost of Revenue: Service 16,376 15,332 Sales 247 102 TOTAL COST OF REVENUE 16,623 15,434 GROSS PROFIT 361 5,304 Selling, General and Administrative Expenses 4,513 3,977 EARNINGS (LOSS) FROM OPERATIONS (4,152) 1,327 Other Income (Expense): Interest expense (1,757) (1,581) Investment income (loss) - 15 Other, net (121) ( 208) LOSS FROM CONTINUING OPERATIONS BEFORE (6,030) ( 447) Income Tax - - NET LOSS (6,030) (447) Net Loss, Less Preferred Stock Dividends $(6,244) $ (611) Earnings (Loss) Per Common Share: Loss from continuing operations $ (.50) $ (.04) Preferred stock dividends (.02) NET LOSS PER COMMON SHARE $ (.52) Weighted Average Common Shares Outstanding 12,074 12,062
See accompanying notes to consolidated financial statements
INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Nine Months Ended April 30, April 30, 1994 1993 Revenue: Service $55,074 $65,954 Sales 810 1,010 TOTAL REVENUE 55,884 66,964 Cost of Revenue: Service 47,515 50,148 Sales 447 491 TOTAL COST OF REVENUE 47,962 50,639 GROSS PROFIT 7,922 16,325 Operating Expenses: Selling, general and administrative expenses 13,571 13,652 EARNINGS (LOSS) FROM OPERATIONS (5,649) 2,673 Other Income (Expense): Interest expense (5,076) (5,194) Investment income 54 60 Equity in loss of affiliate - - Other, net (438) (446) LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (11,109) (2,907) Income Taxes (Benefit) (1,193) 141 LOSS FROM CONTINUING OPERATIONS (9,916) (3,048) Earnings From Discontinued Operations 828 - LOSS BEFORE EXTRAORDINARY ITEMS (9,088) (3,048) Extraordinary gains from purchases of subordinated debentures, net of taxes - 2,547 Extraordinary gain from net operating loss carry forward - 141 NET LOSS $(9,088) $ (360) Net Loss, Less Preferred Stock Dividends $(9,673) $ (832) Earnings (Loss) Per Common Share: Loss from continuing operations $ (.82) $ (.24) Earnings from discontinued operations .07 - Extraordinary items - .21 Preferred stock dividends (.05) (.04) NET LOSS PER COMMON SHARE $ (.80) $ (.07) Weighted Average Common Shares Outstanding 12,074 11,983
See accompanying notes to consolidated financial statements
INTELOGIC TRACE,. INC. CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY (DEFICIT) (In thousands) (Unaudited) Foreign Retire- Addl. Retained Currency ment Common Paid-in Earnings Translat Treas. Valuation Stock Capital (Deficit) Adjust Stock Reserve Total Balance at July 31, $199 $55,003 $(35,024) $54 $(56,919) $(2,562) $(39,249) 1993 Redeemable preferred stock dividends (585) (585) (in kind) Foreign currency translation 59 59 adjustment Shares issued - 401(k) Plan (17) 105 88 Employee Stock 184 184 Option Plan Net loss (9,088) (9,088) Balance at April 30, $199 $55,170 $(44,697) $113 $(56,814) $(2,562) $(48,591) 1994
See accompanying notes to consolidated financial statements
INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended April 30, April 30, 1994 1993 Operating Activities: Net earnings (loss) $(9,088) $ (360) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 9,504 10,720 Gain on repurchase of subordinated - (2,547) debentures Adjustments to net assets of discontinued (828) - operations Other 1,650 1,150 Changes in operating working capital, net (795) (2,322) NET CASH PROVIDED BY OPERATING ACTIVITIES 443 6,641 Investing Activities: Purchase of spares and other fixed assets (4,798) (6,298) Proceeds from sale of discontinued - 5,857 NET CASH (USED) IN INVESTING ACTIVITIES (4,798) (441) Financing Activities: Short-term borrowings (repayments), net 2,935 (3,347) Repurchase of subordinated debentures - (4,459) Other - (19) NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 2,935 (7,825) Effect of Exchange Rate Changes on Cash 106 (46) NET DECREASE IN CASH AND TEMPORARY INVESTMENTS $ (1,314) $ (1,671) Interest Paid $ 3,521 $ 3,531 Income Taxes Paid, net $ 10 $ (21)
See accompanying notes to consolidated financial statements INTELOGIC TRACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1994 (Dollars in thousands, except share data) 1. BASIS OF PRESENTATION The consolidated financial statements of Intelogic Trace, Inc. (the "Company") include the financial statements of the parent and its wholly-owned subsidiaries. The interim consolidated financial statements and notes are unaudited. Investments in affiliated companies owned 20% or more are accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included and such adjustments consist only of normal recurring items. 2. DISCONTINUED OPERATIONS In 1992, the Company sold substantially all of the assets of its computer hardware sales and leasing and application software businesses. These businesses represented the entire operations of Intelogic Trace Systems Group. During the first quarter of fiscal 1994, the Company received lease payments on certain lease receivables not transferred to the buyer and reduced certain remaining unclaimed liabilities which resulted in a combined $828 reduction to the previously recorded loss from discontinued operations. The net amount due at April 30, 1994 includes a $750 note receivable due July 25, 1994 bearing interest at 8%. 3. INVESTMENT IN AFFILIATE For the fiscal year 1992, the Company's share of Datapoint Corporation's ("Datapoint") losses exceeded its recorded investment. No earnings were recorded for the 1993 fiscal year. The Company's pro rata share of Datapoint's third quarter results for fiscal 1994 are shown for information purposes only. The carrying value of the Company's investment in Datapoint at April 30, 1994 remains at zero. The Company's share of Datapoint's future earnings will have to exceed $4,267 before the Company can reflect income on this investment. The Company's pro rata share of Datapoint's third quarter results, applicable to common stockholders, are as follows:
Three Months Ended Nine Months Ended April 30, April 30, April 30, April 30, 1994 1993 1994 1993 Income (loss) before extraordinary items $(1,478) $(762) $(1,667) $(410) Extraordinary items - (116) 263 120 Net earnings (loss) $(1,478) $(878) $(1,667) $(290) from affiliate Datapoint's results of operations are summarized below: Three Months Ended Nine Months Ended April 30, April 30, April 30, April 30, 1994 1993 1994 1993 Total revenue $42,802 $48,584 $129,236 $163,423 Gross profit 14,618 19,055 50,961 70,684 Earnings (Loss) (7,961) $(4,311) (9,755) (3,455) before extraordinary item Net earnings (7,961) (4,904) (8,415) (2,853) (loss)
4. DEBT During the third quarter of fiscal 1992 the amount of borrowings available under the Company's revolving financing agreement was increased to $12,000. Under a subsequent amendment to the agreement, the Company's borrowings under this facility are limited to the lesser of: (1) fifteen percent of annualized service maintenance revenue, (2) cash collections for the prior 50-day period, or (3) an amount equal to the sum of 70% of eligible gross accounts receivable and 20% of net field support spares. Commencing in November 1993, eligible borrowings related to field spares began to be phased out ratably over the following 5-month period. As of April 1994, eligible borrowings are determined exclusive of net field support spares. The borrowing base at April 30, 1994 was approximately $8,321. On May 25, 1994 the Company was granted an overadvance facility in which the amount outstanding could exceed the eligible borrowing base by $1,000. This facility is to be phased out ratably over the following 8-week period. The Company has been granted occasional overadvances in the past and has repaid those overadvances within the guidelines established by the lender. The Company is not currently in compliance with certain financial covenants relating to the ratio of current assets to current liabilities and net capital funds. The Company has requested a waiver of such noncompliances and adjustments to the covenants, but no assurance can be provided that the lender will respond favorably to the request. In the event the noncompliances are not waived, the lender may call an event of default which could accelerate maturity of the loan, $7,312 at April 30, 1994. It is possible that future events of noncompliance could occur, in which case the Company will request waivers of any such defaults. 5. TAXES Based on further discussions with taxing authorities during the first quarter of fiscal 1994, the Company has recorded a tax benefit of $1,193 related to a tax refund received in a prior year. Recognition was deferred previously based, in part, upon ongoing Federal income tax examinations. See also the discussion in Note 6, Contingencies. 6. CONTINGENCIES Two shareholders of the Company have filed lawsuits against the Company and its Board of Directors demanding that the Company seek damages from its Board of Directors with respect to the Company's 1990 purchases of the stock of the Company and Datapoint Corporation. A committee of the Board of Directors was appointed to consider the demands raised in each case. The committee retained independent counsel to review the matters raised in the lawsuits. The committee determined that it was not in the best interest of either the Company or its shareholders to accept either demand and, accordingly, instructed counsel to seek the dismissal of both lawsuits. In January 1992 a motion for summary judgment on behalf of the Company and its Board of Directors was denied in the lawsuit pending in the New York State Court and is currently on appeal. A similar motion, involving only the Company's purchase of its own stock, was denied, with leave to renew after the appeal in the New York State Court action is decided. The second case is pending in the United States District Court for the Southern District of New York. This action charges a violation of the proxy laws and breach of fiduciary duties with respect to several actions by the Board, including the purchase of the Company's own stock. In June 1993, another shareholder commenced a derivative action against certain members of the Company's Board of Directors and Datapoint Corporation. Because this latest action is substantially similar to one of the previously filed suits, the plaintiffs in the latest action have filed a motion to dismiss their complaint without prejudice. On May 13, 1994 the Company announced that although the defendants expressly disclaim and deny any liability or wrongdoing with respect to the allegations, a settlement had been reached in order to avoid the additional expense, burden, inconvenience and distraction of continued litigation. Pursuant to the settlement agreement, which is subject to Court approval, the Company will receive $2,400 less attorneys' fees and expenses (not to exceed $800) awarded by the Court. The cash portion of the settlement is fully covered by the Company's director and officer liability insurance and will be offset by future director and officer liability insurance premium increases. The Company does not expect to receive any net cash from this settlement. In addition, within six months of the time that the settlement becomes final, the Company's Board of Directors has agreed to (a) form a committee to investigate all ways to maximize the value of the Company's investment in Datapoint Corporation and (b) adopt a resolution requiring approval of the Board of Directors for all investments of the Company's funds in excess of $5,000. The Internal Revenue Service ("IRS") has issued assessment letters relating to the consolidated Federal Income Tax Returns of the Company for the years 1986 through 1992. The IRS letters propose assessments of approximately $31,000 in additional taxes plus interest. The assessments primarily involve the industry-wide issue of the appropriate method for cost recovery of spare parts. A recent case on the same issue was decided in the taxpayer's favor by the U. S. Tax Court, but is being appealed by the IRS. If the decision was followed by courts with jurisdiction over the Company, the remaining proposed assessment would be approximately $2,500 in additional taxes plus interest. The Company strongly disagrees with the proposed adjustments and has filed a protest, appealing each of the adjustments in the IRS report. The Company believes that these issues will ultimately be resolved in its favor; however, the ultimate outcome cannot presently be determined. No provision has been made for any possible liability. Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition (Years referred to are fiscal years) (In thousands) Results of Operations Three Months Ended April 30, 1994 versus Three Months Ended April 30, 1993: Revenue Service revenue in the third quarter of 1994, $16,743, declined $3,665 (18.0%) from the year-ago period as domestic revenue from servicing Datapoint-manufactured products decreased $1,323 while domestic revenue from servicing all other products decreased $2,342. New sales activity exceeded cancellations and expirations of service contracts to provide services in the third quarter by $1,668. Revenue from a new service offering, the installation of telephony devices, in the third quarter was $1,655, or 9.7% of total revenue. Service revenue from Datapoint products totaled $1,635 for the quarter, or 9.6% of total revenue. In the third quarter of 1993, domestic revenue from servicing Datapoint products totaled $2,958, or 14.3% of the revenue total. The decline in Datapoint service can be principally attributed to customers who are converting to new platforms. Canadian service revenues also declined in 1994 as compared to 1993, decreasing $409 (49.4%) to a 1994 third quarter total of $419. The Company previously announced a Canadian service alliance with DataTech Systems, Ltd. ("DataTech"), effective March 1, 1994, which provides for expanded service coverage and technical resources. Provided that DataTech continues to fulfill its obligations under the contract, a substantial portion of the Company's Canadian business will be assumed by DataTech. Gross Profit Gross profit of $361 (2.1%) for the third quarter compared to $5,304 (25.6%) for the same period one year ago. This decline is due primarily to the revenue decrease as opposed to increases in costs of service. Costs of service, exclusive of costs related to the installation of telephony devices, have remained substantially unchanged over the costs in the same quarter one year ago. Selling, General and Administrative Expenses Selling, General and Administrative (SG&A) expenses of $4,513 for the third quarter increased $536 (13.5%) from the year-ago period. Of that, approximately $503 is attributable to SG&A expenses related to the new telephony offering. All other SG&A costs have remained substantially unchanged. Interest Expense Third quarter interest expense increased $176 from the same period in 1993 due to an increase of $3,746 from the April 30, 1994 balance to the April 30, 1993 balance in the outstanding credit facility with Foothill Capital Corporation. Federal and State Income Taxes Effective August 1, 1993, the Company changed its method of accounting for income taxes in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes" ("FAS 109"). As permitted under the new rules, prior years' financial statements have not been restated. FAS 109 provides for recognition of deferred tax assets when realization of the deferred tax assets is more likely than not. Because of continued losses, no tax benefit has been recorded in the period with respect to the loss carry forwards. Nine Months Ended April 30, 1994 versus Nine Months Ended April 30, 1993: Revenue Service revenue in the first nine months of 1994, $55,074, declined $10,880 (16.5%) from the year-ago period. Domestic revenue from servicing Datapoint-manufactured products decreased $4,754 while domestic revenue from servicing all other products decreased $6,126. Cancellations exceeded new sales activity for the first nine months of 1994. Revenue from a new service offering, the installation of telephony devices, in the first nine months was $1,667, or 3.0% of total revenue. Service revenue from Datapoint products totaled $5,569 for the first nine months, or 10.1% of total revenue. In the first nine months of 1993, domestic revenue from servicing Datapoint products totaled $10,323, or 15.4% of the revenue total. Datapoint products continue to be replaced with new platforms. Gross Profit Gross profit of $7,922 (14.2%) for the first nine months of 1994 compared to $16,325 (24.4%) for the same period one year ago. This decline resulted directly from the decrease in revenue as costs of service have declined $2,677 (5.3%) from the same period one year ago. Selling, General and Administrative Expenses Selling, General and Administrative (SG&A) expenses of $13,571 for the first nine months were substantially unchanged from the year-ago period, despite a substantial increase in the Company's sales force and the implementation of the new telephony offering during this year. Interest Expense Interest expense for the first nine months of 1994 decreased $118 from the same period in 1993 due to debenture repurchases which took place during the first six months of 1993. Federal and State Income Taxes During the first nine months of 1994 tax benefits of $1,193 were recorded related to a tax refund received in 1993. Recognition was deferred previously based in part upon ongoing Federal income tax examinations. Although a final resolution has not been reached with respect to the Company's Federal income tax contingency, management believes its current estimate of tax liabilities is appropriate, given continuing discussions with taxing authorities which took place during the first nine months. During the first nine months of 1993 the Company recorded $141 of taxes related to book/tax timing differences. This tax was offset by utilization of net operating loss carry forwards. Capital Resources and Liquidity Through the first nine months of 1994, cash and temporary investments decreased $1,314, as compared to a decrease of $1,671 from the same period one year ago. Net cash provided by operating activities was lower than in the prior year by $6,198; however, investments in spares and other fixed assets decreased by $1,500 as the Company continued to shorten the necessary parts pipeline. Short-term borrowings under the Foothill facility were $2,935. Financing activities in the first nine months of 1993 consisted of $3,347 in repayments of short-term borrowings and disbursements of $4,459 for subordinated debenture repurchases. At April 30, 1994, the Company's current liabilities exceeded current assets by $18,019 as compared to $13,680 at April 30, 1993. Current liabilities include $7,312 of borrowings under the Company's revolving financing agreement. The losses incurred to date in 1994, and especially the losses incurred in the third quarter of 1994, have increased the company's reliance on borrowed funds to satisfy the Company's working capital requirements. At April 30, 1994 the Company had $2,250 in trade payables in excess of 45 days. The Company is actively working with its principal vendors in seeking to avoid any adverse effect on customer service resulting from delays in deliveries; however, no assurance can be given that the current level of trade payables will soon decrease or that the Company's purchasing ability will not be limited in the future. Under the terms of the applicable indenture, the Company is required to make an interest payment at July 15, 1994 in the amount of $2,993 related to its outstanding subordinated debentures. If the interest payment is not made on, or within thirty days after, the due date, an event of default could be declared which could result in acceleration of the payment of the principal and accrued interest which presently consists of $49,924 in principal and $2,993 in interest due July 15, 1994. No assurance can be provided that the interest payment will be made. The Company has engaged Buccino & Associates, Inc., a nationally-recognized company which specializes in consulting with financially troubled businesses, to review cash flows, financial needs, liquidity concerns and provide recommendations to establish both immediate and long-term improvements in cash flow, profitability, asset management and capital structure. The Company has been in contact with its lender and is seeking continued lender assistance; however, no assurance can be given that the lender will continue to cooperate in a manner which will provide the Company with sufficient cash resources to meet its ongoing trade obligations, capital equipment investments and debt servicing obligations. To enhance the Company's cash resources for operations, capital needs and debt servicing, the Company is undertaking measures to strictly control costs, improve labor productivity and implement effective revenue generation programs. The Company reduced its workforce on June 4, 1994, which is anticipated to reduce personnel expenses by approximately $3,000 annually; is consolidating its facilities nationwide; is implementing measures to increase productivity, for example, by revising work schedules and has experienced success in booking new business which is reflected by positive net bookings during the third quarter. PART II - OTHER INFORMATION Item 8. Exhibits and Reports on Form 8-K B. Reports on Form 8-K: 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. INTELOGIC TRACE, INC. (Registrant) Date: June 14, 1994 By Connie B. Moore Corporate Treasurer and Acting Chief Financial Officer PART II - OTHER INFORMATION Item 8. Exhibits and Reports on Form 8-K B. Reports on Form 8-K: 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. INTELOGIC TRACE, INC. (Registrant) Date: June 14, 1994 By /Connie B. Moore Connie B. Moore Corporate Treasurer and Acting Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----