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 MARCH 26, 1999
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 April 30, 1999 was 8,375,132.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
March 26, June 26,
1999 1998
---------------- ----------------
ASSETS (unaudited)
<S>
Current Assets <C>
Cash and cash equivalents $ 3,177 $ 377
Receivables - trade 6,061 8,110
Insurance claim receivable 8,694 -
Inventories 11,878 18,619
Prepaid expenses 211 375
---------------- ----------------
Total current assets 30,021 27,481
---------------- ----------------
Fixed Assets
Property, plant and equipment 43,069 43,430
Less: Accumulated depreciation and amortization (26,800) (25,398)
---------------- ----------------
Net fixed assets 16,269 18,032
---------------- ----------------
Other Assets 1,704 2,051
---------------- ----------------
TOTAL ASSETS $ 47,994 $ 47,564
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt and obligation under capital leases $ 424 $ 3,363
Accounts payable 5,926 6,528
Accrued liabilities 5,519 1,596
----------------
----------------
Total current liabilities 11,869 11,487
---------------- ----------------
Long-Term Debt 1,772 1,855
Long-Term Obligation Under Capital Leases 190 511
---------------- ----------------
1,962 2,366
---------------- ----------------
Series C Convertible Redeemable Preferred Stock, 5,000 shares authorized; 3,650
shares issued at March 26, 1999 and 5,000 shares issued at June 26, 1998,
respectively; liquidation preference of $1,150 per share 3,650 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; 3,650 shares issued at
March 26, 1999 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; 8,392,769
and 7,631,801 shares issued at March 26, 1999 and June 26, 1998, respectively. 84 76
Warrants outstanding 20 159
Capital in excess of par value 31,815 30,162
Accumulated deficit (1,125) (1,143)
---------------- ----------------
30,794 29,254
Less - Treasury stock, at cost; 17,637 common shares (281) (281)
---------------- ----------------
Total stockholders' investment 30,513 28,973
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 47,994 $ 47,564
================ ================
</TABLE>
See notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(Dollars in Thousands, except per share data)
Three Months Ended Nine Months Ended
March March
26, 1999 27, 1998 26, 1999 27, 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 12,589 $ 12,332 $ 35,835 $ 35,938
Cost of sales 10,355 10,571 29,555 31,234
------------ ------------ ------------ -----------
Gross profit 2,234 1,761 6,280 4,704
------------ ------------ ------------ -----------
Operating expenses
Selling, general and administrative 2,091 2,005 6,540 5,974
Research and development 843 826 2,564 2,394
------------ ------------ ------------ -----------
Total operating expenses 2,934 2,831 9,104 8,368
------------ ------------ ------------ -----------
Operating loss (700) (1,070) (2,824) (3,664)
Insurance proceeds, net of hurricane loss 439 - 1,408 -
Interest expense (105) (50) (325) (157)
Interest income - 28 2 117
Other income 1,970 79 2,019 39
------------ ------------ ------------ -----------
Net income (loss) 1,604 (1,013) 280 (3,665)
Preferred stock embedded dividend - (175) (262) (175)
------------ ------------ ------------ -----------
Net income (loss) applicable to common stockholders $1,604 ($1,188) $18 ($3,840)
============ ============ ============ ===========
Net income (loss) per share - basic $0.19 ($0.16) $0.00 ($0.51)
============ ============ ============ ===========
Weighted average shares outstanding - basic 8,283 7,604 7,964 7,558
============ ============ ============ ===========
Net income (loss) per share - diluted $0.15 ($0.16) $0.00 ($0.51)
============ ============ ============ ===========
Weighted average shares outstanding - diluted 10,773 7,604 10,265 7,558
============ ============ ============ ===========
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
FOR THE NINE MONTHS ENDED MARCH 26, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
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 7 - 1,343 - -
Expiration of warrants - (120) 120 - -
Embedded dividend on Series
C Preferred Stock - - - (262) -
Net income for the nine months
ended March 26, 1999 - - - 280 -
----------- --------------- ----------- ---------------- -----------
BALANCE, March 26, 1999 $ 84 $ 20 $ 31,815 $ (1,125) $ (281)
=========== =============== =========== ================ ===========
</TABLE>
See notes to consolidated financial statements
4
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<TABLE>
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TII INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 26, 1999 AND MARCH 27, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 280 $ (3,665)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,573 1,242
Provision for inventory allowance, net 9,329 297
Amortization of other assets, net 148 177
Reserve for impaired fixed assets 750
Gain on sale of subsidiary assets (2,168)
Changes in assets and liabilities excluding effect
of sale of subsidiary assets
Decrease (increase) in receivables - trade 1,238 (319)
Increase in insurance claim receivable (8,694) -
Increase in inventories (3,749) (2,860)
Decrease (increase) in prepaid expenses and other assets 237 (771)
Increase in accounts payable and accrued liabilities 3,656 884
----------- -----------
Net cash provided by (used in) operating activities 2,600 (5,015)
----------- -----------
CASH FLOWS FROM INVESTIGATING ACTIVITIES:
Capital expenditures (1,147) (3,275)
Purchases of marketable securities available for sale - (3,276)
Proceeds from sales and maturities of marketable securities
available for sale - 6,828
Net proceeds from sale of subsidiary assets 4,757
----------- -----------
Net cash provided by investing activities 3,610 277
----------- -----------
Proceeds from exercise of options and warrants 172 816
Borrowings of long-term debt 580 1,500
Repayments of long-term debt (3,841) 4,550
Payment of long-term obligations under capital leases (321) (528)
----------- -----------
Net cash (used in) provided by financing activities (3,410) 6,338
----------- -----------
Net increase in cash and cash equivalents 2,800 1,600
377 247
----------- -----------
$ 3,177 $ 1,847
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Capital leases entered into $ - $ 729
=========== ===========
Embedded dividend on Series C Preferred Stock $ 262 $ 175
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH TRANSACTIONS
Cash paid during the period for income taxes $ - $ 112
=========== ===========
Cash paid during the period for interest $ 312 $ 177
=========== ===========
</TABLE>
See notes to consolidated financial statements
5
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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 March 26, 1999 and results of
operations and cash flows for the nine month periods ended March 26, 1999 and
March 27, 1998. 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 fiscal
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 and periods of less than full production during the beginning of the fiscal
1999 third quarter. Both facilities became fully operational during the third
fiscal quarter. During the second and third quarters of fiscal 1999, the Company
received insurance prepayments of $10.6 million. During the fourth quarter of
fiscal 1999, the Company received additional insurance payments of $8.7 million
for a total of $19.3 million. An allowance for damaged inventory, business
interruption losses, an accrual for the fee payable to the Company's insurance
advisors, losses to plant and equipment and other expenses incurred totaled
$17.9 million. Accordingly, insurance proceeds, net of hurricane losses and
expenses, resulted in a gain of $1.4 million which has been reflected in the
Consolidated Statement of Operations.
NOTE 3 - NET INCOME (LOSS) PER COMMON SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding during the period. Diluted earnings per common share is
computed using the weighted average number of shares outstanding adjusted for
the dilutive incremental shares attributed to outstanding options and warrants
to purchase common stock and preferred stock and subordinated debt convertible
into common stock. Diluted loss per share is based only on the weighted average
number of shares outstanding during the period. Incremental common stock
equivalent shares of 2.5 million and 2.3 million were used in the calculation of
diluted earnings per common share for the quarter and nine month period ended
March 26, 1999. Incremental
6
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common stock equivalent shares of 1.6 million and 1.1 million were not used in
the calculation of diluted loss per common share in the quarter and nine month
period ended March 27, 1998, since their inclusion would have been antidilutive
due to the net loss for the periods. Stock options to purchase 1.5 million
shares and 1.0 million shares of common stock for the quarters, and 1.8 million
shares and 0.5 million shares of common stock for the nine-month periods ended
March 26, 1999 and March 27, 1998, respectively, were outstanding but not
included in the computation of diluted earnings per common share because the
option exercise price was greater than the average market price of the common
shares, and therefore, the effect would be antidilutive.
NOTE 4 - INVENTORIES
Inventories, net of allowances, consisted of the following components:
March 26, June 26,
1999 1998
-------------------- -------------------
Raw material $5,760,000 $9,244,000
Work in process 3,599,000 5,586,000
Finished goods 2,519,000 3,789,000
-------------------- -------------------
$11,878,000 $18,619,000
==================== ===================
NOTE 5 - SALE OF FIBER OPTIC PRODUCT LINE
On March 1, 1999, the Company sold substantially all of the assets of its fiber
optic subsidiary, TII-Ditel, Inc. for approximately $5.3 million. Sales of
TII-Ditel, Inc. represented approximately 8% of the Company's consolidated sales
for the fiscal year, ended June 26, 1998. Gross proceeds of $5.3 million, less
the book value of the net assets sold, the estimated post closing purchase price
adjustments, and the costs associated with the sale was approximately $2.2
million, which is reflected as a gain on sale of assets and included in other
income on the Consolidated Statement of Operations.
NOTE 6 - LEGAL PROCEEDINGS
On April 7, 1999, a Memorandum of Understanding was entered into containing an
agreement in principle to settle a purported class action lawsuit instituted
against the Company and its eight directors in the Delaware Court of Chancery.
The lawsuit relates to (i) a Stock Purchase Agreement under which the Company
was to acquire (subject to stockholder approval) from Alfred J. Roach, Chairman
of the Board of Directors and a director of the Company, all of the outstanding
shares of capital stock of PRC Leasing, Inc., which leases certain equipment to
the Company, (ii) the Company's authority to issue more than 1,520,000 shares of
Common Stock upon conversion of its Series C Convertible Redeemable Preferred
Stock and (iii) options amended under the Company's 1995 Stock Option Plan and
options granted pursuant to the
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Company's 1998 Stock Option Plan in substitution for other options. The
plaintiffs seek various equitable relief, damages and reasonable costs.
Under the Memorandum of Understanding (i) the Company and Mr. Roach are
to rescind the Stock Purchase Agreement and the issuance of the shares of the
Company's Common Stock pursuant thereto is not to occur, (ii) the Company agreed
to cancel a Special Meeting of Stockholders to consider the Stock Purchase
Agreement, (iii) the plaintiffs acknowledged that the Company's issuance of
additional shares of Common Stock upon conversion of the Preferred Stock would
not violate the Certificate of Designation related to the Preferred Stock and
(iv) options with respect to 10,000 and 50,000 shares of the Company's Common
Stock of Alfred J. Roach and Timothy J. Roach under the Company's 1995 Stock
Option Plan would be repriced on the date the Memorandum of Understanding was
entered into but other modified or exchanged options would not be affected and
(v) the action would be dismissed with prejudice, on the merits and, except for
attorneys' fees as may be awarded by the Court to Plaintiffs' counsel, without
costs to either party. The defendants have agreed to pay any amount awarded by
the Court for attorneys' fees and expenses up to a maximum of $300,000. The
Company has been advised that most, if not all, of such maximum amount is
covered by insurance. The consummation of the settlement is subject to, among
other things, (i) the entering into of a Stipulation of Settlement and other
documentation and (ii) final Court approval of the settlement and dismissal of
the action with prejudice, on the merits and, except as set forth above, without
costs.
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
As discussed in Note 2 to the consolidated financial statements, 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 and periods of
less than full production during the beginning of the fiscal 1999 third quarter.
Both facilities became fully operational during the third fiscal quarter. During
the second and third quarters of fiscal 1999, the Company received insurance
prepayments of $10.6 million. During the fourth quarter of fiscal 1999, the
Company received additional insurance payments of $8.7 million for a total of
$19.3 million. An allowance for damaged inventory, business interruption losses,
an accrual for the fee payable to the Company's insurance advisors, losses to
plant and equipment and other expenses incurred totaled $17.9 million.
Accordingly, insurance proceeds, net of hurricane losses and expenses, resulted
in a gain of $1.4 million which has been reflected in the Consolidated Statement
of Operations.
8
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On March 1, 1999, the Company sold substantially all of the assets of its fiber
optic products subsidiary, TII-Ditel, Inc. for $5.3 million. The sales of
TII-Ditel, Inc. were approximately 8% of the Company's consolidated sales for
the fiscal year ended June 1998. Gross proceeds of $5.3 million, less the book
value of the net assets sold, the estimated post closing purchase price
adjustments, and costs associated with the sale was approximately $2.2 million,
which is reflected as a gain on sale of assets and included in other income on
the Consolidated Statement of Operations.
RESULTS OF OPERATIONS
Net sales for the third quarter of fiscal 1999 increased $257,000 or 2.1% to
$12.6 million from $12.3 million for the third quarter of fiscal 1998. The
increase is due to higher sales of network interface devices, partially offset
by the absence of sales of fiber optic products following the sale of this
product line on March 1, 1999. Net sales for the nine months ended March 1999
decreased $103,000 or 0.3% to $35.8 million from $35.9 million for the nine
months ended March 1998. The decrease is principally a result of a decline in
sales in the second quarter of fiscal 1999 versus the second quarter of fiscal
1998 caused by the interruption of operations resulting from Hurricane George,
partially offset by higher sales of network interface devices.
Gross profit for the third quarter of fiscal 1999 increased $473,000 to $2.2
million from $1.8 million in the prior year. Gross profit as a percentage of
sales for the third quarter of fiscal 1999 increased to 17.8% from 14.3% in the
prior year. The improvement in gross profit was due to lower material, overtime
and freight costs incurred in the fiscal 1999 third quarter as a result of the
Company's efforts to reduce production costs. Gross profit for the first nine
months of fiscal 1999 increased $1.6 million to $6.3 million, or 17.5% of sales,
from $4.7 million, or 13.1% of sales, in the prior year. The improvement was due
to the Company's cost containment efforts and comparability was also effected by
the abnormally low gross profit margins in the fiscal 1998 second quarter due to
production problems experienced in that quarter.
Selling, general and administrative expenses for the third quarter of fiscal
1999 increased by $86,000 or 4.3% to $2.1 million from $2.0 million for the
third quarter of fiscal 1998. Selling, general and administrative expenses for
the first nine months of fiscal 1999 increased by $566,000 or 9.5% to $6.5
million from $6.0 million for the first nine 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.
Research and development expenses for the third quarter of fiscal 1999 increased
$17,000 or 2.1% to $843,000 from $826,000 for the third quarter of fiscal 1998.
Research and development expenses for the first nine months of fiscal 1999
increased $170,000 or 7.1% to $2.6 million from $2.4 million for the first nine
months of fiscal 1998. The increases related primarily to a greater number of
personnel and other costs associated with product development for expansion of
the Company's product lines, including its broadband surge protectors, and other
costs associated with product development for the Company.
9
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Interest expense for the third quarter and first nine months of fiscal 1999
increased by $55,000 to $105,000 and by $168,000 to $325,000 from $50,000 and
$157,000 in the third quarter and first nine months of fiscal 1998,
respectively. The increases were due to increased borrowings under the Company's
credit facilities while the Company was awaiting receipt of insurance proceeds
as a result of Hurricane Georges. With the receipt of these proceeds, interest
expense is expected to be substantially lower in the fourth quarter of fiscal
1999.
Interest income for the third quarter and first nine months of fiscal 1999
decreased by $28,000 and by $115,000 from $28,000 and $117,000 in the third
quarter and first nine months of fiscal 1998, respectively, due to reduced cash
and marketable securities balances. With the receipt of insurance proceeds from
claims as a result of Hurricane Georges, cash balances have risen and interest
income is expected to be higher in the fourth quarter of fiscal 1999.
Other income for the third quarter and first nine months of fiscal 1999
increased by $1.9 million and $2.0 million versus the same periods in the prior
year due to the gain on the sale of the Company's fiber optic product line.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital balance increased $2.2 million to $18.2 million at
the end of the third quarter of fiscal 1999 from the year ended June 1998
balance. During the first nine months of fiscal 1999, $2.6 million of cash was
provided by operations. Cash from operations was provided by net income of
$280,000, non-cash charges of $1.7 million for depreciation and amortization,
and a $9.3 million provision for an inventory allowance related to Hurricane
Georges. This allowance was offset, in part, by a related insurance claim
receivable of $8.7 million. An increase in accounts payable and accrued
liabilities of $3.7 million and a decrease in accounts receivable-trade of $1.2
million provided $4.9 million of cash, while an increase in inventory not
subject to the allowance used $3.7 million of cash.
During the first nine months of fiscal 1999 investing activities provided $3.6
million. Cash of $1.1 million was used for capital expenditures and the Company
received $4.8 million in net proceeds from the sale of TII-Ditel, Inc.'s assets.
Financing activities used $3.4 million, with a net repayment of debt and
obligations under capital leases of $3.6 million.
The Company has credit facilities with BNY Financial Corporation, an affiliate
of The Bank of New York, in an aggregate principal amount of $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. The Credit Facilities include term loans, of which there were
$1.7 million outstanding as of March 26, 1999. Subject to extension in certain
instances, the scheduled maturity date of revolving credit loans is April 30,
2003, while term loans are to be repaid through March 31, 2003, subject to
mandatory repayments from disposition proceeds and insurance proceeds in certain
circumstances.
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The Credit Facilities require that the Company maintain tangible net worth (as
defined) of $30.0 million. As of March 26, 1999, the Company's tangible net
worth (as defined) was approximately $33.2 million. The Company believes it will
reduce the operating loss during the quarters ending June 25 and September 24,
1999 compared to the March 1999 quarter. 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, and the lender would be able to accelerate payment of outstanding
borrowings, under the Credit Facilities. 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 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 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.
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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,
general economic and business conditions, including the regulatory environment
applicable to the telecommunications industry; 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 Company's ability to maintain compliance with
its Credit Facilities; the availability of financing on satisfactory terms to
support the Company's growth plans; weather and similar conditions (including
the effects of hurricanes in the Caribbean where the Company's principal
manufacturing facilities are located); 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 March 26, 1999, holders of 550 shares of the
Company's Series C Convertible Redeemable Preferred Stock converted such
Preferred Stock into 297,622 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
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Company with existing security holders exclusively, where no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchanges.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27. EDGAR financial data schedule.
(b) Reports on Form 8-K
--------------------
The Company filed a Current Report on Form 8-K dated February 26, 1999
(date of earliest event reported) reporting under Item 2 - Acquisition or
Disposition of Assets and Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits. Subsequent to the end of the third
fiscal 1999 quarter, the Company filed a Current Report on Form 8-K dated
March 19, 1999 (date of earliest event reported) reporting under Item 5 -
Other 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.
TII INDUSTRIES, INC.
Date: May 6, 1999 /s/ Paul G. Sebetic
-----------------------------------------
Paul G. Sebetic
Vice President-Finance and Chief
Financial Officer
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