SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 25, 1998
Commission file number 1-8048
TII INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
State of incorporation: Delaware IRS Employer Identification No: 66-0328885
1385 Akron Street, Copiague, New York 11726
(Address and zip code of principal executive office)
(516) 789-5000
(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 of the registrant's Common Stock, $.01 par value,
outstanding as of January 29, 1999 was 8,303,580.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 25, June 26,
1998 1998
----------- --------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 491 $ 377
Receivables - trade 5,412 8,110
Insurance claim receivable 6,675 -
Inventories 15,319 18,619
Prepaid expenses 296 375
--------- ---------
Total current assets 28,193 27,481
--------- ---------
Fixed Assets
Property, plant and equipment 44,469 43,430
Less: Accumulated depreciation and amortization (26,498) (25,398)
--------- ---------
Net fixed assets 17,971 18,032
--------- ---------
Other Assets 1,891 2,051
--------- ---------
TOTAL ASSETS $ 48,055 $ 47,564
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligation
under capital leases $ 2,680 $ 3,363
Accounts payable 6,436 6,528
Accrued liabilities 3,714 1,596
--------- ---------
Total current liabilities 12,830 11,487
--------- ---------
Long-Term Debt 2,435 1,855
Long-Term Obligation Under Capital Leases 231 511
--------- ---------
2,666 2,366
--------- ---------
Series C Convertible Redeemable Preferred Stock, 5,000 shares authorized;
4,200 shares issued at December 25, 1998 and 5,000 shares issued
at June 26, 1998, respectively; liquidation preference of $1,150
per share 4,200 4,738
--------- ---------
Stockholders' Investment
Preferred Stock, par value $1.00 per share; 1,000,000 authorized and
issuable in series; Series C Convertible Redeemable, 5,000
shares authorized; 4,200 shares issued at December 25, 1998 and
5,000 shares issued at June 26, 1998 - -
Series D Junior Participating, 30,000 shares authorized;
no shares issued - -
Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 8,095,147 and 7,631,801 shares issued at
December 25, 1998 and June 26, 1998, respectively. 81 76
Warrants outstanding 20 159
Capital in excess of par value 31,268 30,162
Accumulated deficit (2,729) (1,143)
--------- ---------
28,640 29,254
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
--------- ---------
Total stockholders' investment 28,359 28,973
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 48,055 $ 47,564
========= =========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December
25, 1998 26, 1997 25, 1998 26, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 8,600 $ 10,103 $ 23,246 $ 23,606
Cost of sales 7,055 9,610 19,200 20,663
Gross profit 1,545 493 4,046 2,943
Operating expenses
Selling, general and administrative 2,261 2,115 4,449 3,969
Research and development 832 792 1,721 1,568
Total operating expenses 3,093 2,907 6,170 5,537
Operating loss (1,548) (2,414) (2,124) (2,594)
Insurance proceeds, net of hurricane loss 969 - 969 -
Interest expense (107) (53) (220) (107)
Interest income 1 30 2 89
Other income (expense) 37 (55) 49 (40)
Net loss (648) (2,492) (1,324) (2,652)
Preferred stock embedded dividend - - (262) -
Net loss applicable to common stockholders ($648) ($2,492) ($1,586) ($2,652)
Net loss per share - basic and diluted ($0.08) ($0.33) ($0.20) ($0.35)
Weighted average shares outstanding -
basic and diluted 7,962 7,595 7,805 7,535
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE SIX MONTHS ENDED DECEMBER 25, 1998 (unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Capital
in excess
Common Warrants of par Accumulated Treasury
Stock Outstanding value Deficit Stock
------ ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 26, 1998 $76 $159 $30,162 $(1,143) $(281)
Exercise of stock options 1 - 109 - -
Exercise of warrants - (19) 81 - -
Conversion of Series C
Preferred Stock 4 - 796 - -
Expiration of warrants - (120) 120 - -
Embedded dividend on Series
C Preferred Stock - - - (262) -
Net loss for the six months
ended December 25, 1998 - - - (1,324) -
-------- --------- --------- ---------- ---------
BALANCE, DECEMBER 25, 1998 $81 $20 $31,268 $(2,729) $(281)
========= ========= ========= ========== =========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 25, 1998 AND DECEMBER 26, 1997 (unaudited)
(Dollars in Thousands)
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,324) $ (2,652)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,100 835
Provision for inventory allowance, net 5,199 199
Amortization of other assets, net 98 118
Changes in assets and liabilities
Decrease in receivables - trade 2,698 1,194
Increase in insurance claim receivable (6,675) -
(Increase) in inventories (1,899) (3,019)
Decrease (increase) in prepaid expenses and other assets 141 (413)
Increase in accounts payable and accrued liabilities 2,026 2,542
------- -------
Net cash provided by (used in) operating activities 1,364 (1,196)
------- -------
Cash Flows from Investing Activities:
Capital expenditures (1,039) (1,983)
Purchases of marketable securities available for sale - (2,108)
Proceeds from sales and maturities of marketable securities
available for sale - 5,660
------- -------
Net cash (used in) provided by investing activities (1,039) 1,569
------- -------
Cash Flows from Financing Activities:
Proceeds from exercise of options and warrants 172 797
Borrowings of long-term debt 580 -
Net repayment of short-term borrowings (683) -
Payment of long-term obligations under capital leases (280) (205)
------- -------
Net cash (used in) provided by financing activities (211) 592
------- -------
Net increase in cash and cash equivalents 114 965
Cash and Cash Equivalents, at beginning of period 377 247
------ ------
Cash and Cash Equivalents, at end of period $ 491 $ 1,212
====== ======
Supplemental disclosure of non-cash transactions:
Embedded dividend on Series C Preferred Stock $ 262 $ -
====== ======
Supplemental disclosure of cash transactions:
Cash paid during the period for income taxes $ - $ 112
====== ======
Cash paid during the period for interest $ 220 $ 106
====== ======
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
TII INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Interim financial statements
The unaudited interim financial statements presented herein have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Regulation S-X
pertaining to interim financial statements. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements reflect all
adjustments, consisting of normal recurring adjustments and accruals which, in
the opinion of management, are considered necessary for a fair presentation of
the Company's consolidated financial position at December 25, 1998 and results
of operations and cash flows for the six months ended December 25, 1998 and
December 26, 1997. The financial statements should be read in conjunction with
the summary of significant accounting policies and notes to consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended June 26, 1998. Results of operations for interim periods are not
necessarily indicative of the results that may be expected for the full fiscal
year.
Note 2 - Hurricane Georges
On September 21 and 22, 1998, the Company's principal operating facilities in
Toa Alta, Puerto Rico and San Pedro De Macoris, Dominican Republic,
respectively, sustained significant inventory, equipment and facility damages as
a result of Hurricane Georges. In addition, as a result of the storm, the
Company experienced production stoppages throughout the second quarter of fiscal
1999, during which period, both facilities gradually began to ramp up
production. Both facilities are currently almost fully operational and the
Company expects to have both facilities fully operational before the end of its
third fiscal quarter. During the second quarter of fiscal 1999, the Company
received insurance prepayments of $4.0 million and accrued an additional
insurance claim receivable of $6.7 million for the receipt of insurance proceeds
due to losses experienced from Hurricane Georges. The Company has retained
insurance advisors to process these insurance claims. Management, after
discussions with the Company's insurance advisors, believes the total settlement
will exceed the amount recorded during the second quarter of fiscal 1999. An
allowance for damaged inventory, business interruption losses, an accrual for
the estimated fee payable to the Company's insurance advisors and other expenses
and losses incurred totaled $9.7 million. Accordingly, insurance proceeds, net
of hurricane losses, resulted in a gain of $1.0 million which has been reflected
in the Consolidated Statement of Operations.
Note 3 - Net loss per common share
The Company utilizes Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") which requires the reporting of basic and
diluted earnings per share. Because the Company incurred losses in all reported
periods, shares issuable upon the exercise of stock options and warrants and
upon conversion of the Company's Series C Preferred Stock were not included in
the calculation of diluted earnings per share as their effect would have been
anti-
6
<PAGE>
dilutive. However, the embedded dividend related to such Preferred Shares (which
were issued in January 1998) increased the net loss applicable to common
shareholders during the first quarter of fiscal 1999 by $262,000 or $.03 per
share.
Note 4 - Inventories
Inventories, net of allowances, consisted of the following components:
December 25, June 26,
1998 1998
-------------------- -------------------
Raw material $8,725,000 $9,244,000
Work in process 4,682,000 5,586,000
Finished goods 1,912,000 3,789,000
-------------------- -------------------
$15,319,000 $18,619,000
==================== ===================
Note 5 - Subsequent event
On December 31, 1998, the Company entered into a Stock Purchase Agreement
("Agreement") to acquire all of the outstanding shares of capital stock of PRC
Leasing, Inc. ("PRC"), a corporation wholly-owned by Alfred J. Roach, Chairman
of the Board of the Company, for $2.2 million of the Company's Common Stock. The
only activity of PRC is leasing equipment to the Company. The existing lease,
which was entered into in July of 1991, requires annual rental payments of
$200,000 and expires in July 2001. In November 1998, the Company obtained an
appraisal of the equipment from a certified appraiser who calculated the fair
market value of the equipment to be $2.2 million. The closing price of the
Company's Common Stock on December 31, 1998 was $1.875 per share and the Company
agreed to issue 1,176,213 shares of its Common Stock in exchange for all of the
outstanding capital stock of PRC, subject to completion of the transaction which
requires, among other things, approval by the Company's stockholders. Rental
payments ceased effective December 31, 1998, subject to completion of the
transaction. If the transaction is not completed, the original terms of the
lease shall again govern, including the requirement to pay all rent that would
otherwise have been paid for periods after December 31, 1998.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations:
The following discussion and analysis should be read in conjunction with the
foregoing consolidated financial statements and notes thereto.
General
7
<PAGE>
As discussed in Note 2 to the consolidated financial statements, the Company's
principal operating facilities in Toa Alta, Puerto Rico and San Pedro De
Macoris, Dominican Republic, respectively, sustained significant inventory,
equipment and facility damages as a result of Hurricane Georges. In addition, as
a result of the storm, the Company experienced production stoppages throughout
the second quarter of fiscal 1999, during which period, both facilities
gradually began to ramp up production. Both facilities are currently almost
fully operational and the Company expects to have both facilities fully
operational before the end of its third fiscal quarter. Accordingly, the
consolidated financial statements reflect a reduced sales level in the second
quarter of fiscal 1999, the receipt and accrual of insurance proceeds,
inventory, equipment and business interruption losses and additional
expenditures incurred due to Hurricane Georges.
Results of Operations
Net sales for the second quarter of fiscal 1999 decreased $1.5 million or 14.9%
to $8.6 million from $10.1 million for the second quarter of fiscal 1998. The
decline in sales relates to the Company's shortfall in production due to
production stoppages and damages to the Company's facilities in Puerto Rico and
the Dominican Republic caused by Hurricane Georges. The Company continues to
expend all efforts to reach full production levels as early as possible in the
third quarter of fiscal 1999. Net sales for the six months ended December 1998
decreased only $360,000 or 1.5% to $23.2 million from $23.6 million for the six
months ended December 1997 principally as a result of an increase in sales in
the first quarter of fiscal 1999 over the first quarter of fiscal 1998 due to
gains in sales of the Company's network interface device and fiber optic
enclosure product lines.
Gross profit for the second quarter and first six months of fiscal 1999
increased by $1.1 million to $1.5 million and by $1.1 million to $4.0 million,
respectively. Gross profit as a percentage of sales increased for the second
quarter and first six months of fiscal 1999 to 18.0% and 17.4% from 4.9% and
12.5% for the second quarter and first six months of fiscal 1998, respectively.
Gross profit in the second quarter and first six months of fiscal 1998 was
adversely affected by production problems encountered ramping up production of
the Company's broadband network interface device product line. Gross profit as a
percentage of sales in the second quarter of fiscal 1999 increased to 18.0% from
17.1% in the first quarter of fiscal 1999, as the Company realized a reduction
in material costs. Furthermore, manufacturing overheads incurred while the
Puerto Rico and Dominican Republic facilities were idle or producing
significantly less than normal were aggregated and reclassified to the line item
insurance proceeds, net of hurricane losses on the Consolidated Statement of
Operations.
Selling, general and administrative expenses for the second quarter of fiscal
1999 increased by $146,000 or 6.9% to $2.3 million from $2.1 million for the
second quarter of fiscal 1998. Selling, general and administrative expenses for
the first six months of fiscal 1999 increased by $480,000 or 12.1% to $4.5
million from $4.0 million for the first six months of fiscal 1998. The increases
during these periods resulted primarily from increased personnel, promotion and
other costs associated with the Company's efforts to promote certain new
products, including its new Coaxial Cable Surge Protector product line and from
higher legal fees associated with protecting the Company's intellectual property
rights.
8
<PAGE>
Research and development expenses for the second quarter of fiscal 1999
increased $40,000 or 5.1% to $832,000 from $792,000 for the second quarter of
fiscal 1998. Research and development expenses for the first six months of
fiscal 1999 increased $153,000 or 9.8% to $1.7 million from $1.6 million for the
first six months of fiscal 1998. The increases relate primarily to a greater
number of personnel and other costs associated with product development for
expansion of the Company's product lines, including its new Coaxial Cable Surge
Protector.
During the second quarter of fiscal 1999, the Company received insurance
prepayments of $4.0 million and accrued an additional insurance claim receivable
of $6.7 million for the receipt of insurance proceeds due to losses experienced
from Hurricane Georges. The Company has retained insurance advisors to process
these insurance claims. Management, after discussions with the Company's
insurance advisors, believes the total settlement will exceed the amount
recorded during the second quarter of fiscal 1999. An allowance for damaged
inventory, business interruption losses, an accrual for the estimated fee
payable to the Company's insurance advisors and other expenses and losses
incurred totaled $9.7 million. Accordingly, insurance proceeds, net of hurricane
losses resulted in a gain of $1.0 million which has been reflected in the
Consolidated Statement of Operations.
Interest expense for the second quarter and first six months of fiscal 1999
increased by $54,000 to $107,000 and by $113,000 to $220,000 from $53,000 and
$107,000 in the second quarter and first six months of fiscal 1998,
respectively. The increases are due to increased borrowings under the Company's
credit facilities.
Interest income for the second quarter and first six months of fiscal 1999
decreased by $29,000 to $1,000 and by $87,000 to $2,000 from $30,000 and $89,000
in the second quarter and first six months of fiscal 1998, respectively, due to
reduced cash and marketable securities balances.
Liquidity and Capital Resources
The Company's working capital balance decreased $631,000 to $15.4 million at the
end of the second quarter of fiscal 1999 from the year ended June 1998 balance.
During the first six months of fiscal 1999, $1.4 million of cash was provided by
operations. While the Company had a net loss of $1.3 million for the first six
months of fiscal 1999, the loss included non-cash charges of $1.2 million for
depreciation and amortization and a $5.2 million provision for inventory.
Accounts payable and accrued liabilities increased $2.0 million and accounts
receivable-trade decreased $2.7 million providing $4.7 million of cash. These
sources of cash were partially offset by the insurance claim receivable of $6.7
million and inventory increasing $1.9 million, before deducting the $5.2 million
provision for inventory.
During the first six months of fiscal 1999, cash of $1.0 million was used in
investing activities for capital expenditures. Financing activities used
$211,000, with a net repayment of debt and obligations under capital leases of
$383,000 being partially offset by $172,000 realized from the exercise of stock
options and warrants.
9
<PAGE>
The Company has credit facilities with BNY Financial Corporation, an affiliate
of The Bank of New York, in an aggregate principal amount of $12.5 million (the
"Credit Facilities") which was, by its terms, adjusted on December 31, 1998 to
$7.7 million. The Credit Facilities enable the Company to have up to $6.0
million of revolving credit loans outstanding at any one time, limited by a
borrowing base equal to 85% of eligible accounts receivable and 50% of eligible
inventory, subject to certain reserves. At December 25, 1998 $2.5 million was
outstanding under this facility. In addition, the Company was also entitled to
borrow until December 31, 1998 up to $6.5 million, limited by a borrowing base
not exceeding 75% of the purchase price of new equipment or the orderly
liquidation value of eligible equipment already owned. At December 25, 1998 and
December 31, 1998 $1.7 million was outstanding under this facility. Subject to
extension in certain instances, the scheduled maturity date of revolving credit
loans is April 30, 2003, while capital expenditure loans are to be repaid
through March 31, 2003, subject to mandatory repayments from disposition
proceeds and insurance proceeds in certain circumstances.
The Credit Facilities require that the Company maintain tangible net worth (as
defined) of $30.0 million. As of December 25, 1998, the Company's tangible net
worth (as defined) was approximately $31.5 million. The Company believes it will
reduce the operating loss during the quarters ended March 26 and June 25, 1999
compared to the September and December 1998 quarters. However, if the operating
losses were to continue or increase, or events occurred causing additional
losses, the Company may cease to be in compliance with this covenant. If the
Company is unable to obtain a waiver or amendment of this provision, it may be
unable to borrow under, and the lender would be able to accelerate payment of
outstanding borrowings under, the Credit Facilities. In connection with the
damages suffered as a result of Hurricane Georges, the Company has asserted
claims under its insurance policies to cover losses sustained from the
hurricane, including business interruption and has already received several
advance payments from its insurance carriers. To the extent expected final
payments are delayed, the Company may find it necessary to further borrow under
the Credit Facilities, subject to the borrowing limits thereof. There can be no
assurance that such credit limits will be sufficient and, if the lender does not
permit borrowings in excess thereof, the Company may require temporary financing
from other sources. Management believes, however, that should the Company
require additional or replacement financing, the Company would be able to secure
alternate sources of financing. The Company's ability to obtain such financing
will be affected by such factors as its results of operations, financial
condition and business prospects. There can be no assurances that the Company
will be able to, or the terms on which it may be able to, obtain any such
financing.
Year 2000
In fiscal 1997 the Company commenced, and during fiscal 1998 and fiscal 1999 has
continued, a program to assess and address in a timely manner all its
information systems, including customer service, production, distribution and
financial systems to assure that they will properly record and recognize the
year 2000 and beyond. A significant portion of the Company's year 2000 program
has been implemented as part of its program to upgrade its information systems,
which the Company had committed to do regardless of the year 2000 issue. In
addition, the Company has
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assessed the impact of the year 2000 on non-information technology systems. The
Company has spent approximately $850,000 on computer hardware, software and
related support for this information systems upgrade program and expects to
spend approximately $200,000 more to complete its year 2000 compliance program.
If it becomes necessary to dedicate additional financial and other resources to
complete the Company's information systems upgrade program and to complete the
conversion of non-information technology equipment for year 2000 compliance by
the end of fiscal year 1999 (the Company's estimated year 2000 program
completion date), or shortly thereafter, the Company intends to do so.
The Company is also communicating with its suppliers, customers, distributors,
and others with whom it conducts business to coordinate year 2000 compliance and
to identify alternative sources of supply for materials, if necessary. The
implementation of these plans is not expected to have a material adverse effect
on the results of operations or the financial condition of the Company. The
Company presently believes alternative sources of supply will be available in
the event of unforeseen year 2000 compliance issues that affect suppliers'
abilities to fulfill requirements. If production and other plans need to be
modified because of unforeseen year 2000 issues at vendors, distributors and
others with whom the Company conducts business, the Company intends to do so
when the need for such modification becomes apparent.
If the Company or its suppliers, distributors or others with whom it conducts
business are unable to identify and address the system issues related to the
year 2000 risk on a timely basis, there could be a material adverse effect on
its results of operations, liquidity and financial condition.
Forward-looking Statements
In order to keep the Company's stockholders and investors informed of the
Company's future plans, this Report contains (and, from time to time, other
reports and oral or written statements issued by the Company or on its behalf by
its officers contain) forward-looking statements concerning, among other things,
the Company's future plans and objectives. The Company's ability to do this has
been fostered by the Private Securities Litigation Reform Act of 1995 which
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information so long as those statements are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those discussed in the statement.
The Company believes that it is in the best interests of its stockholders and
potential investors to take advantage of the "safe harbor" provisions of that
Act. The forward-looking statements contained in this report (and in other
reports filed by the Company, and oral statements made by Management of the
Company, from time to time) are subject to a number of known and unknown risks
and uncertainties that could cause the Company's actual results, performance or
achievements to differ materially from those described or implied in the
forward-looking statements. These factors include, but are not limited to, the
timing and the amount of insurance proceeds to be received on the Company's
claim for losses incurred due to Hurricane Georges; the Company's ability to
maintain compliance with it Credit Facilities; general economic and business
conditions, including the regulatory environment applicable to the
telecommunications industry; weather and similar conditions (including the
effects of hurricanes in the Caribbean where the Company's principal
manufacturing facilities are
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located); competition; potential technological changes, including the Company's
ability to timely develop new products and adapt its existing products to
technological changes; potential changes in customer spending and purchasing
policies and practices, as well as the Company's ability to market its existing,
recently developed and new products; the risks inherent in new product
introductions, such as start-up delays and uncertainty of customer acceptance;
the Company's dependence on third parties for product components; the Company's
ability to attract and retain technologically qualified personnel; the retention
of the tax benefits provided by its Puerto Rico and Dominican Republic
operations; the Company's ability to fulfill its growth strategies; the
availability of financing on satisfactory terms to support the Company's growth
plans; the Company's ability to timely and successfully complete its year 2000
compliance program and its suppliers and customers to timely and successfully
complete their year 2000 compliance programs in a manner compatible to the
Company's systems: and other factors discussed elsewhere in this Report and in
other Company reports hereafter filed with the Securities and Exchange
Commission.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the three months ended December 25, 1998, holders of 700 shares of the
Company's Series C Convertible Redeemable Preferred Stock converted such
Preferred Stock into 410,241 shares of the Company's Common Stock. The Company
believes that the exemption from registration afforded by Section 3(a)(9) of the
Securities Act of 1933, as amended (the "Securities Act"), is applicable to the
issuance of such shares, as such issuance involved a security exchanged by the
Company with existing security holders exclusively, where no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchanges.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on December 8, 1998, the
Company's stockholders:
(a) Elected the following to serve as Class I directors of the Company
until the Company's Annual Meeting of Stockholders to be held in the
year 2001 and until their respective successors are elected and
qualified, by the following votes:
For Withheld
--- --------
C. Bruce Barksdale. 6,393,528 391,337
Dr. Joseph C. Hogan 6,393,388 391,477
William G. Sharwell 6,393,476 391,389
(b) Approved the Company's 1998 Stock Option Plan:
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For Against Abstain Non-Votes
--- ------- ------- ---------
2,548,105 735,454 54,105 3,447,201
(c) Approved the issuance, in addition to the 1,520,000 shares of Common
Stock which the Company has agreed to issue, of up to all shares of
Common Stock which the Company would be entitled to issue upon
conversion of the Company's Series C Convertible Preferred Stock, by
the following votes:
For Against Abstain Non-Votes
--- ------- ------- ---------
2,791,905 490,416 55,343 3,447,201
(d) Ratified the selection by the Board of Directors of Arthur Andersen
LLP as the Company's independent public accountants for the Company's
fiscal year ending June 25, 1999, by the following votes:
For Against Abstain
--- ------- -------
6,604,922 146,348 33,595
Item 5. Other Events
On December 31, 1998, the Company entered into a Stock Purchase Agreement
("Agreement") to acquire all of the outstanding shares of capital stock of PRC
Leasing, Inc. ("PRC"), a corporation wholly-owned by Alfred J. Roach, Chairman
of the Board of the Company, for $2.2 million of the Company's Common Stock. The
only activity of PRC is leasing equipment to the Company. The existing lease,
which was entered into in July of 1991, requires annual rental payments of
$200,000 and expires in July 2001. In November 1998, the Company obtained an
appraisal of the equipment from a certified appraiser who calculated the fair
market value of the equipment to be $2.2 million. The closing price of the
Company's Common Stock on December 31, 1998 was $1.875 per share and the Company
agreed to issue 1,176,213 shares of its Common Stock in exchange for all of the
outstanding capital stock of PRC, subject to completion of the transaction which
requires, among other things, approval by the Company's stockholders. Rental
payments ceased effective December 31, 1998, subject to completion of the
transaction. If the transaction is not completed, the original terms of the
lease shall again govern, including the requirement to pay all rent that would
otherwise have been paid for periods after December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2. Stock Purchase Agreement dated as of December 31, 1998 between the
Company and Alfred J. Roach
27. EDGAR financial data schedule.
13
<PAGE>
(b) Reports on Form 8-K
No Reports of Form 8-K were filed during the quarter for which this Report
is filed.
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.
TII INDUSTRIES, INC.
Date: February 5, 1999 /s/ Paul G. Sebetic
----------------------------------
Paul G. Sebetic
Vice President-Finance and Chief
Financial Officer
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