United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
[ ] TRANSITON REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
Commission File Number: 0-11883
-------
TELEBYTE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2510138
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
270 Pulaski Road, Greenlawn, New York 11740
(Address of principal executive offices)
(516) 423-3232
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of November 15, 1999 there were outstanding 1,248,631 shares of Common Stock,
$.01 par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
<PAGE>
TELEBYTE, INC. & SUBSIDIARY
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
INDEX
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet
September 30, 1999 (Unaudited)
Consolidated Statements of Earnings
Three and nine months ended
September 30, 1999 and 1999 (Unaudited)
Consolidated Statements of Cash Flows
Nine months ended
September 30, 1999 and 1998 (Unaudited)
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Item 2. Management's Discussion and
Analysis or Plan of Operation
Part II Other Information
<PAGE>
TELEBYTE, INC. & SUBSIDIARY
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalent $ 214,479
Accounts receivable, less
allowance for doubtful accounts 672,079
Inventory 1,593,908
Prepaid expenses 60,401
Deferred income taxes 50,000
------
TOTAL CURRENT ASSETS 2,590,867
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 1,055,645
OTHER ASSETS 304,497
-------
3,951,009
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABLITIES
Accounts payable $ 290,051
Accrued expenses 180,774
Accrued taxes payable 148,767
Current maturities of long-term debt 68,909
------
TOTAL CURRENT LIABILITIES 688,501
LONG-TERM BORROWOINGS UNDER LINE-OF CREDIT 217,178
LONG-TERM DEBT, less current maturities 811,650
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000 shares
authorized; 1,248,631 shares issued and outstanding 12,486
Capital in excess of par value 1,740,472
Retained earnings 480,722
-------
2,233,680
=========
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,951,009
The accompanying notes are an integral part of these financial statements
<PAGE>
TELEBYTE, INC. & SUBSIDIARY
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF EARNINGS
SEPTEMBER 30,1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
NET SALES $ 1,415,555 $ 1,551,228 $ 4,143,801 $ 4,178,147
COST OF SALES 665,086 731,736 1,964,494 1,967,492
------- ------- --------- ---------
GROSS PROFIT 750,469 819,492 2,179,307 2,210,655
------- ------- --------- ---------
OPERATING EXPENSES
Selling, general administrative 406,062 519,301 1,341,702 1,541,389
Research and development 124,652 131,849 403,539 360,281
------- ------- ------- -------
530,714 651,150 1,745,241 1,901,670
------- ------- --------- ---------
Operating Income 219,755 168,342 434,066 308,985
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Rental Income 12,048 12,048 36,146 36,146
Interest Income 873 5,663 5,868 17,542
Interest Expense (26,761) (23,537) (87,650) (76,653)
------- ------- ------- -------
Earnings before income taxes 205,915 162,516 388,430 286,020
Provision for income taxes 77,602 2,500 147,602 4,500
------ ----- ------- -----
NET EARNINGS $ 128,313 $ 160,016 $ 240,828 $ 281,520
============= ============ ============= ============
Earnings per common share:
Basic $ 0.10 $ 0.11 $ 0.19 $ 0.19
============= ============ ============= ============
Diluted $ 0.10 $ 0.10 $ 0.19 $ 0.18
============= ============ ============= ============
Shares used in computing earnings per
common share:
Basic $ 1,248,631 $ 1,505,016 $ 1,248,631 $ 1,500,673
============= ============ ============= ============
Diluted $ 1,264,035 $ 1,543,316 $ 1,282,122 $ 1,552,216
============= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEBYTE, INC. & SUBSIDIARY
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
<S> <C> <C>
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 240,828 $ 281,520
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 113,082 78,848
Decrease (increase) in assets:
Accounts receivable (23,612) (10,082)
Inventories (171,934) (142,774)
Prepaid expenses and other 28,274 15,845
Increase (decrease) in liabilities:
Accounts pyaable (61,958) (126,330)
Accrued expenses and taxes 192,869 (5,580)
------- ------
Net cash provided by operating activities 317,549 91,447
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (66,499) (38,441)
Cost of non-compete agreement (203,124)
-------- -------
Net cash used in investing activities (269,623) (38,441)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under mortgage obligation (46,775) (34,332)
Purchase of treasury stock (927,430)
Net borrowings under line-of credit agreement 217,178
Proceeds from exercise of stock options 3,950 8,322
----- -----
Net cash used in financing activities (753,077) (26,010)
-------- -------
Net (decrease) increase in cash and cash equivalents (705,151) 26,996
Cash and cash equivalents at beginning of period 919,630 730,284
Cash and cash equivalents at end of period $ 214,479 $ 757,280
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
TELEBYTE, INC. & SUBSIDIARY
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of September 30, 1999, the consolidated
statement of earnings for the three and nine months then ended and the
consolidated statements of cash flows for the nine-month period then ended have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring accrual adjustments) necessary
to present fairly the financial position, results of operations and cash flows
at September 30, 1999 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
are read in conjunction with the financial statements and notes thereto included
in the Company's annual report to shareholders for the fiscal year ended
December 31, 1998. The results of operations for the period ended September 30,
1999 are not necessarily indicative of the operating results for the full year.
2. RELATED PARTY TRANSACTIONS
Effective January 20, 1999, then Chairman of the Board, President and Chief
Executive Officer of the Company (the "Former Chairman") resigned his positions
with the Company. However, the Former Chairman will serve as a consultant to the
Company through January 19, 2002 for an aggregate consideration of $165,000 plus
reimbursement for certain expenses. In addition, the Company purchased all of
the shares of common stock of the Company owned by the Former Chairman and the
Former Chairman agreed to cancel options to purchase 10,000 shares of common
stock of the Company for an aggregate consideration of $1,149,455 of which
$927,430 was for such shares, $18,901 was for the cancellation of such options
and $203,124 was for the Former Chairman's restrictive covenant. In addition,
the Former Chairman has agreed not to compete with the business of the Company
until January 19, 2003 and has released the Company from certain potential
claims relative to his previous employment. Further, the Company transferred a
life insurance policy maintained under the Company's deferred compensation plan,
to the Former Chairman, having a cash value of approximately $80,000.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
When used herein, the words "believe," "anticipate," "think," "intend," "will
be," "expect" and similar expressions identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are not guarantees of future performance and involve certain risks
and uncertainties discussed herein, which could cause actual results to differ
materially from those in the forward-looking statements. Readers are cautioned
not to place undue reliance on the forward looking statements, which speak only
as of the date hereof. Readers are also urged carefully to review and consider
the various disclosures made by the Company which attempt to advise interested
parties of the factors which affect the Company's business, including, without
limitation, the disclosures made under the caption "Management's Discussion and
Analysis or Plan of Operation." All references to a fiscal year are to the
Company's fiscal year, which ends December 31.
RESULTS OF OPERATIONS
Sales during the third quarter ended September 30, 1999 decreased 9% to
$1,415,555 compared to sales of $1,551,228 for the same period in 1998. Sales
during the nine months ended September 30, 1999 decreased 1% to $4,143,801
compared to sales of $4,178,147 for the same period in 1998. Management believes
that the decrease in sales was primarily due to the decline in sales of the
Company's existing Digital Subscriber Line Test Equipment products and the
delayed development and introduction of the Company new Digital Subscriber Line
Test Equipment products.
Cost of sales for the third quarter of $665,086 or 47% of sales decreased
compared to the $731,736 or 47.1% of sales during the same period in 1998. Cost
of sales for the nine months ended September 30, 1999 of $1,964,494 or 47.4% of
sales increased compared to the $1,967,492 or 47% of sales during the same
period in 1998. The profit margin percentage for the three and nine months ended
September 30, 1999 was in line with the same periods in 1998.
Selling, general and administrative costs for the third quarter of $406,062
decreased as compared to $519,301 during the third quarter of 1998. Selling,
general and administrative costs of $ 1,341,702 during the nine months ended
September 30, 1999 decreased as compared to $1,541,389 for the same period in
1998. The decrease of $113,239 during the third quarter and the decrease of
$199,687 for the nine months ended September 30, 1999 were due primarily to a
reduction in the Company's sales staff and other cost cutting measures that
began earlier this year. These decreases reflect management's commitment to
moving the Company from selling on a telephone basis to a combination of
telephone and automated, Internet based, Electronic Commerce. These decreases
helped to enable the Company to invest the necessary financial resources in the
development of an Electronic Commerce order fulfillment system. The Company
believes this Electronic Commerce system will enhance its future growth. During
the end of the third quarter of 1999 the Company began operations of a separate,
wholly owned, subsidiary, DeliverNextDay.com, Inc., to focus on generating sales
through Electronic Commerce. DeliverNextDay.com, Inc. will be selling products
manufactured by the Company and it will be reselling products manufactured by
other suppliers.
Research and development expenses for the third quarter of $124,652 decreased
5%, compared to $131,849 during the same quarter in 1998. During the third
quarter, the Company continued development of several advanced data
communications products. Products under development during the third quarter
included an advanced fiber optic modem, the Company's first USB based product
and several improvements to the Company's DSL test equipment product line.
Interest income decreased to $873 during the third quarter of 1999 compared to
$5,663 for the same period in 1998. The decrease in interest income was due
primarily to lower levels of cash on deposit at Merrill Lynch. During the third
quarter of 1999 the Company had rental income of $12,048, which was in line with
the comparable quarter of 1998.
The effective tax rate in third quarter of 1999 was 37.6 percent, compared with
1.5 percent in the same quarter in 1998. The increase in the effective tax rate
is primarily due to the Company's utilization of its net operating loss carry
forward.
The net earnings of $128,313 or $.10 per share for the third quarter of 1999
decreased compared to the net earnings of $160,016 or $.10 per share in the same
quarter in 1998. The decrease in profitability is due primarily to the increase
in the Company's effective tax rate during 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the nine months ended September
30, 1999 was $317,549 compared to net cash provided of $91,447 in the same
period of 1998. This change is due primarily to an increase in accounts payable
and accrued expenses.
Working capital decreased as of September 30, 1999 by $655,514 to $1,902,366
compared with $2,557,880 from December 31, 1998. The current ratio at September
30, 1999 decreased to 3.8:1 compared to 5.6:1 at December 31, 1998. These
decreases reflect the use of working capital by the company in the purchase of
treasury stock and related non-compete agreement with the former Chairman and
Chief Executive Officer.
The Company has an agreement with a financial institution, expiring June 30,
2000, which provides the Company with a line of credit facility of up to
$500,000 ("Original Facility") based on eligible accounts receivable and
purchased components and materials and finished goods inventories of the
Company, as defined in the agreement. Further, the agreement contains certain
financial covenants which require the Company to maintain a minimum level of
tangible net worth and places limitations on the ratio of the Company's total
debt to the Company's tangible net worth, as defined in the agreement.
Borrowings under the line of credit bear interest at the bank's specified prime
rate plus .75%. The Company has no amount outstanding under the line of credit
as of September 30, 1999.
In January 1999, the Company secured an additional Reducing Revolving line of
credit from this institution that provides for initial borrowings up to a
maximum of $1,000,000. Availability under the Reducing Revolving line of credit
will decrease approximately $11,900 per month and will expire January 2006.
Borrowings under this loan agreement bear interest at the 30-Day Commercial
Paper Rate plus 2.90%. Net borrowings under this line of credit totaled $217,178
at September 30, 1999.
The Company believes that cash generated by the Company's operations, current
cash and cash equivalents, and the line of credit should supply the cash
resources to meet its cash needs for the next twelve months.
Preparation for Year 2000 Problems
The Year 2000 ("Y2K") problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000, which could result in
miscalculations or system failures. The Company has instituted a Y2K compliance
program, the objective of which is to determine and assess the risks of the Y2K
issue, and plan and institute mitigating actions to minimize those risks. The
Company's standard for compliance requires that for a computer system or
business process to be Y2K compliant, it must be designed to operate without
error in date and date-related data prior to, on and after January 1, 2000. The
Company expects to be fully Y2K compliant with respect to all significant
business systems prior to December 31, 1999.
The Company's Y2K plan consists of four phases: (1) assessment and analysis of
"mission critical" systems and equipment; (2) correction of systems and
equipment, through strategies that include the enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems; (3) testing of systems and equipment; and
(4) contingency planning which will address possible adverse scenarios and the
potential financial impact to the Company's results of operations, liquidity or
financial position.
Information Technology (IT) Systems
Information technology systems ("IT Systems") account for much of the Year 2000
work and include all computer systems and technology used by the Company. All
core systems have been assessed, plans are in place, and work is being
undertaken to implement changes where required. The appropriate vendors and
suppliers have been contacted as to their Year 2000 compliance. Management
believes that all of the Company's IT systems and equipment have been
identified, and that approximately 80% of the work necessary to make such
systems and equipment Y2K-compliant has been finished.
The third phase of the plan, testing of the Company's IT systems, is expected to
be completed during the fourth quarter of 1999. Testing will consist largely of
the purchase and use of Y2K compliance test software. All aspects of the
Company's Y2K compliance plan have been and will be performed by the Company's
staff, at a cost that is not believed by the Company's management to be
material. Management estimates that Y2K costs incurred to date, plus Y2K costs
yet to be incurred, will total approximately $15,000. Y2K costs are expensed as
incurred.
Non-IT Systems
An inventory and assessment of all non-IT systems (items containing embedded
chips, such as electronic door locks, telephones, etc.) is being undertaken. The
majority of these non-IT systems are not believed to be potential sources of
significant disruption, although the contingency plans (described below) will
address non-IT Y2K failure as well as IT systems failure.
Products
The Company has evaluated its currently available products and believes that
they are Year 2000 compliant. The Company's currently available products are
generally not date sensitive, although the environment in which they operate may
have Year 2000 issues not associated with the Company's products. The inability
of any of the Company's products to operate properly in the Year 2000 could
result in increased warranty costs, customer satisfaction issues, litigation, or
other material costs and liabilities, which could have a material adverse affect
on the Company, its results of operations and financial condition.
Contingency Plans
The Company's management is in the process of developing a "worst-case scenario"
with respect to Y2K non-compliance and to develop contingency plans designed to
minimize the effects of such scenario. Although management believes that it is
very unlikely that the worst-case scenario will occur, contingency plans will be
developed and will address both IT system and non-IT system failure.
In the event of Y2K- related IT system failure, the Company would be unable to
ship orders because its power system would not be functioning. In such event,
the Company plans to use its generators as a back-up power source.
In terms of non-IT and third-party Y2K non-compliance, the worst-case scenario
for the Company would involve the loss of supply of component parts or other
materials from one or more of its major suppliers. The Company has made plans to
have a 100-day supply of finished goods available if such contingency arises.
There is still uncertainty about the broader scope of the Year 2000 issue as it
may affect the Company and third parties that are critical to our operations.
For example, lack of readiness by electrical and water utilities, financial
institutions, governmental agencies or other providers of general infrastructure
could pose significant impediments to our ability to carry on our normal
operations. The Company intends to request assurances of Y2K readiness from its
telephone and utilities suppliers. However, management has been informed that
some suppliers have either declined to provide the requested assurances, or have
limited the scope of assurances to which they are willing to commit. If
suppliers of services that are critical to the Company's operations were to
experience business disruptions as a result of their lack of Y2K readiness,
their problems could have a material adverse affect on the financial position
and results of operations of the Company. The impact of a failure of readiness
by critical suppliers cannot be estimated with confidence, and the effectiveness
of contingency plans to mitigate the effect of any such failure is largely
untested. Management cannot provide any assurance that there will be no material
adverse effects to the financial condition or results of operations of the
Company as a result of Y2K issues.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6.
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELEBYTE, INC.
By: \s\ Kenneth S. Schneider
------------------------
Kenneth S. Schneider
Chairman of the Board
(Principal Executive Officer)
By: \s\ Michael Breneisen
---------------------
Michael Breneisen, President
(Principal Financial and Accounting Officer)
Date: November 15, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000726451
<NAME> Telebyte, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 214,479
<SECURITIES> 0
<RECEIVABLES> 687,079
<ALLOWANCES> 15,000
<INVENTORY> 1,593,908
<CURRENT-ASSETS> 2,590,867
<PP&E> 1,986,660
<DEPRECIATION> 931,015
<TOTAL-ASSETS> 3,951,009
<CURRENT-LIABILITIES> 688,501
<BONDS> 0
0
0
<COMMON> 12,486
<OTHER-SE> 2,221,194
<TOTAL-LIABILITY-AND-EQUITY> 3,951,009
<SALES> 1,415,555
<TOTAL-REVENUES> 1,415,555
<CGS> 665,086
<TOTAL-COSTS> 665,086
<OTHER-EXPENSES> 530,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,761
<INCOME-PRETAX> 205,915
<INCOME-TAX> 77,602
<INCOME-CONTINUING> 128,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,313
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
