SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
( X ) Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1998
( ) 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 0-11883
Telebyte Technology, Inc.
(Exact name of registrant as specified in its charter)
Nevada 11-2510138
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
270 Pulaski Road, Greenlawn, New York 11740
(Address of principal executive offices)
Registrant's telephone number, including area code (516) 423-3232
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
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(Title of class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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.
__X__ Yes_____ No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10- KSB or any
amendment to this Form 10-KSB. ( X )
The registrant's revenues for its most recent fiscal year were $5,568,787
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 9, 1999 was $1,223,201
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares of common stock outstanding at March 9, 1999 was 1,248,631
Transitional Small Business Disclosure Format (check one): Yes _____; No __X__
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DOCUMENTS INCORPORATED BY REFERENCE: None
FORWARD LOOKING STATEMENTS
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.
PART 1
Item 1. Description of Business
Introduction
Telebyte Technology, Inc. (herein either the "Company" or "Telebyte")
designs, manufactures, and markets electronic data communications products that
operate over copper and fiber optic cables. The Company's operations are in a
single business segment and, except for sales to foreign distributors, the
Company does not conduct any foreign operations. The Company was formed as a New
York corporation in 1983 and re-incorporated in Nevada in 1987.
The Company's data communications equipment is designed principally to
provide connectivity solutions and maintain data communications networks.
Telebyte's products effectively link computers to other computers and peripheral
devices in a manner that enables them to operate as a complete system. The
Company's products are used with Local Area Networks (LAN's), Internet access,
data acquisition systems, process control systems, and various peripheral
devices such as computerized time clocks, intelligent scales, and bar code
reading equipment. The Company's six principal data communications product
categories are interface converters, short haul modems, data communications test
equipment, Local Area Network (LAN) products, surge/lightning protectors and
multiplexers. The Company also sells a variety of data communications switching
equipment and accessories.
In the large data communication marketplace, Telebyte focuses on the area
of "premises communication" or local networks. Telebyte addresses the needs of
customers that have computer systems with data communications applications where
distances range from a few feet to a few miles. Accordingly, Telebyte's products
are used in data communication networks in facilities such as industrial plants,
factories, high rise office buildings, or campus like environments. The
transmission media used in these environments are principally, Unshielded
Twisted Pair (UTP) copper cable and/or fiber optic cable.
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The Company's products meet a variety of needs in an overall data
communications network architecture. These products are the "glue" that allow
many different network elements to function together properly. The Company's
prospective market is increasing as the ubiquitous personal computer (PC)
embraces more applications. The Company endeavors to maintain a broad product
line by developing both improved versions of current products and new products.
Fiber optic products have been an increasingly important factor in the Company's
business and future product development will continue to emphasize this area.
Business Developments for 1996, 1997 and 1998
1996 was a year in which the Company took a more aggressive approach to
establishing itself by virtue of increased media attention. This was
accomplished by advertising, catalog mailings and trade show attendance. It was
augmented by the single, largest, order for rack mounted interface converters,
in the Company's history, from a Government subcontractor.
In 1996, due to the poor sales of the neurocomputer and a deterioration of
the relationship between the Company and the owner of the neurocomputer
technology, Telebyte made the decision to terminate the relationship with that
owner and withdrew from the neurocomputer technology market. Consistent with
this decision was the decision to focus on growing the data communications
product line.
The Company's Internet activity began in 1996 with the establishment of a
Telebyte Web site. This Web site is regularly being improved.
This Web site received in excess of 500,000 hits during 1997. This
activity, coupled with increased catalog distribution, news releases and
advertising produced record sales volumes for the Company in 1997. As an adjunct
to these activities management began an aggressive program of customer and
prospect visits. These produced increased opportunities for custom product
design and manufacture. Many of these efforts were in their initial phase with
production orders expected in 1998. Custom programs were initiated for Motorola,
Intel, Foxboro and Hill-Rom.
Product development activities continued in 1997 and the Company introduced
its first T1/E1 fiber optic modem in the fourth quarter. In addition, The
Company began the design of a new fiber optic product management platform for
use by large scale customers.
In 1997 the Company signed a fully paid license agreement with RAD Data
Communications for use of certain patents dealing with powering short haul
modems and interface converters.
During the second half of 1998 the Company began negotiations with Joel A.
Kramer, then the Company's Chairman of the Board, President and Chief Executive
Officer, for the purchase of his equity interest in the Company. Effective
January 20, 1999 Joel A. Kramer, resigned his positions with the Company.
However, Mr. Kramer 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 Mr. Kramer and Mr. Kramer agreed to cancel options
to purchase 10,000 shares of common stock of the Company for an aggregate
consideration of $1,075,190 of which $867,510 was for such shares, $17,680 was
for the cancellation of such options and $190,000 was for Mr. Kramer's
restrictive covenant. In addition, Mr. Kramer 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 and the Company
transferred a life insurance
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policy to Mr. Kramer, previously maintained for Mr. Kramer's benefit and having
a cash value of approximately $80,000. See "Certain Relationships and Related
Transactions."
Products
Telebyte offers products in six different categories. These categories are
interface converters, short haul modems, test equipment, Local Area Network
(LAN) products, lighting/surge protection and multiplexers. The Company also
sells a variety of data communications switching equipment and accessories.
Interface Converters
These transform the characteristics of the electrical interface of one
device to enable it to become compatible with the electrical interface of
another. This conversion may also include modifying the protocol and/or the
physical transmission medium, i.e., copper wire to fiber cable. By employing
interface converters a data communications network can be established or
expanded using heterogeneous equipment types. Without the use of interface
converters such equipments would be unable to communicate. The sale of interface
converters represented 43.5% of Telebyte's revenue in 1998. Because the industry
continues to develop new interface standards, the Company anticipates that the
market may require greater varieties of interface converters. Thereby, it
expects an expansion of the available market for existing products and the
creation of opportunities for new products. Telebyte's line of interface
converters is available in most of the configurations now required by the market
and includes programmable devices. When the appropriate opportunity presents
itself, the Company will manufacture custom interface converters to meet a
particular customer's requirements.
Short Haul Modems
These are often alternatively referred to as either line drivers or limited
distance modems. These are signaling devices generally used to implement a data
communications link in the premises environment. They are used to connect
computers and accessory equipment such as terminals, printers, badge readers,
scales, bar code readers, and other computer controlled machines. Short haul
modems are also used in establishing data communications between personal
computers and mini computers or main frame computers. In some cases, short haul
modems can be used to signal on Telephone Company (Telco) provided lines used
for special services such as Internet access. Short haul modems are often
confused with 'dial-up' modems used for wide area network and/or Internet
communications.
The role of the short haul modem has been expanded from connecting
terminals to a central processing unit to creating extensive computer to
computer/peripheral networks. The Company's short haul modem devices are
designed to provide data communications links ranging from relatively short
distances to several miles. The Company manufactures and sells a variety of
short haul modems designed for particular applications and the electromagnetic
environment of the user. For example, Telebyte has three types of short haul
modems, with transmission capabilities that are suited for (i) factories or
heavy manufacturing operations, (ii) light manufacturing, and (iii) industrial
office areas or general office locations. Due to technological changes and
innovations, the Company must develop new short haul modem products on a
continual basis to meet its customers' technical requirements and to remain
competitive in this market. Short haul modems represented 24.1% of Telebyte's
net sales in 1998.
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Test Equipment
This category consists of two distinctly different product groups, namely
Digital Subscriber Line (DSL) local loop simulators and protocol analyzers. Test
equipment products represented 10% of the Company's net sales in 1998.
The Digital Subscriber Line (DSL) Local Loop simulators manufactured by the
Company are principally used in engineering development and in production
testing. Products in this category simulate the frequency characteristics of a
Telco Local Loop. The Local Loop is the pair of copper cables connecting a
telephone customer to the Telephone Company's central office. The DSL Local Loop
simulator products simulate the amplitude and delay of the Local Loop at various
frequencies and for various Local Loop lengths.
Digital Subscriber Line (DSL) services encompass such new communications
offerings as ISDN (Integrated Services Digital Network), HDSL, ADSL (Asymmetric
Digital Subscriber Line) and T1. These services are key elements in providing
high speed Internet connections. As evidenced by examining industry reports,
these services have created new modem product opportunities that are being
satisfied by many companies. These modem manufacturers either are at present,
customers for Telebyte's Digital Subscriber Line (DSL) Local Loop simulators or
are potential customers. Present customers or potential customers for these
simulators also include the semi- conductor manufacturers that provide special
microprocessor chips sets to these modem manufacturers. These chip sets are key
elements in these modems. Other customers for these Local Loop simulators are
the common carriers that provide the ISDN, HDSL and ADSL services.
The protocol analyzers are used to analyze and test the integrity of data
communications networks. Telebyte's protocol analyzer test equipment product
line includes "plug-in" printed circuit boards and stand alone units for use
with IBM personal computers and compatible clones. These items are supplied with
the software necessary to enable the personal computer user to monitor or
emulate the data line with other devices in the data communications network.
This test equipment product assists in maintenance because it can rapidly
identify open leads, missing signals and other errors, and intermittent problems
can be tracked and stored in memory for later analysis.
LAN Products
There has been significant growth in the deployment of Local Area Networks
(LANs). LANs allow a plethora of computers and computational equipment to share
applications programs. This leads to greater productivity. The Ethernet LAN is
the principal means by which computational equipment shares the applications
programs. Using UTP copper cable this is convenient. But, it puts stringent
conditions on the distances separating the various communicating computational
devices using the LAN. This distance is of the order of 100 meters. By employing
multi-mode fiber optic cable rather than UTP this communicating distance can be
extended to the order of kilometers. For several years the Company has had
converters, called LAN extenders, that allow the extension of Ethernet LAN
distances by using fiber optic cables. These products take Ethernet signals
designed for use on UTP and convert them for use on fiber optic cables and vice
versa. In 1998 the Company developed several new LAN extenders. All of these
operate over single-mode fiber optic cable. All of these operate with both
standard 10BaseT and 100BaseT Ethernet LANs. LAN products represented 10.9% of
Telebyte's net sales in 1998. No other product area had sales that exceeded 10%
of net sales in 1998.
Lightning/Surge Protectors
Telebyte manufactures and sells a number of lightning and surge protectors
which prevent damage
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to data communications equipment that can be caused by high voltage surges and
transients, ground currents, and other lightning induced electrical disturbances
encountered on data communication circuits. Included in this category are
lightning and surge suppression products packaged in the DIN Rail format for
sales to the factory automation market.
Multiplexers
The Company's multiplexers allow data from a number of different devices to
be communicated simultaneously on the same cable based transmission medium.
Basically, a multiplexer allows a single cable to support a multiplicity of data
communications links. Telebyte's multiplexer products allow simultaneous data
transfers over distances of up to 8,000 feet for twisted pair cable or 6,600
feet over fiber optic cable. The multiplexers manufactured by Telebyte
principally employ Time Division Multiplexing (TDM). With TDM multiple terminals
share a single cable. Each terminal uses it on a dedicated basis during only a
limited time period.
The Company generally manufactures and maintains an inventory of products
based upon historical levels of demand and sales forecasts. Most of its products
are standard or catalog items. On occasion, the Company produces custom products
manufactured to a customer's specifications or for a specific application.
The Company has not experienced a shortage of manufacturing materials or
components, and it purchases raw materials and supplies from domestic and
foreign sources. During 1998, the Company purchased approximately 16% and 10% of
its products from two suppliers. If required, raw material and supplies are
readily available from various sources.
The research and new product development budget for 1999 is $550,000
compared to approximately $469,000 and $320,000 spent in 1998 and 1997,
respectively. The cost of research and development is not borne directly by the
Company's customers.
Federal, state, and local environmental laws and regulations have no
material impact on Telebyte or its business. The Company is subject to the
governmental regulations that apply to businesses generally.
Sales and Marketing
The Company markets its data communications products by promotional
activities such as the Internet, telephone sales, paid advertising, press
releases, post card decks, direct mail campaigns, and participating in trade
shows. Currently, the Company conducts its sales and marketing efforts through
an in-house sales staff and a network of distributors.
Using a statistical analysis of its sales-to-lead tracking system the
Company believes that the most effective way to increase its end user business
is to follow a strategy that employs two approaches concurrently.
The first approach is to continue the circulation of its catalog. This
catalog will be sent to the Company's lead/customer database, which in 1998
contains more than 80,000 entries. Activities aimed at increasing the database
and the catalog circulation will continue.
The second approach is to continue and increase its promotional and sales
activities on the Internet. During 1996 the Company established a Web site on
the Internet that contains the Company's complete catalog. The Company continued
to make improvements to its Web site in 1997 and 1998. In particular, during
1998 the Company expanded its Web site by the placing of
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application articles on it for all of the Company's products. The Company also
placed product manuals on the Web site. This allowed customers to use the Web
site for technical support. In 1998 the Company also followed a strategy of the
judicious placement of key words in search engines. These keywords were
associated with the Company's products and technical activities. These keywords
allowed customers to be pulled into the Company's Web site. As a result of all
of these activities this Web site produced an increasing number of inquiries.
These added a large number of qualified leads to the Company's database. In 1998
the Web site had in excess of 76,000 unique visitors compared to 55,000 unique
visitors in 1997. The Company's Web address is www.Telebyteusa.com. The Company
plans regular improvement of the Company's Web site. It plans to take out banner
advertisements on the Internet to attract customers to its Web site.
Domestic sales generated by all of these promotional activities are
primarily to end-users rather than resellers. Such end-users include OEMs
(Original Equipment Manufacturer), system integrators or installers and
customers who may be employing the product for their own specific use.
The Company also uses distributors as resellers. At the end of 1998 the
Company had 8 domestic distributors of record. Domestic distributors do not have
any territorial exclusivity. In the domestic marketplace, the Company's sales to
end-users dominate its sales to distributors. The ratio of these sales were
9.15, 3.72 and 3.13 to 1 in 1998, 1997 and 1996, respectively. Internationally,
the Company uses 64 distributors. Some products are marketed through other
catalog distributors. Foreign sales represented approximately 14% in 1998, 14%
in 1997, and 10.6% in 1996 of net sales.
Domestic sales to end-users and domestic distributors are serviced by
internal sales representatives. These sales representatives are compensated with
a combination of a base salary and commissions. At the end of 1998 the Company
had 5 such representatives on its staff. Through 1998 foreign sales were under
the direction of the President of the Company. Principally, these sales are
carried out by a network of international distributors. For the most part, these
distributors are given territorial exclusivity. In some countries new laws make
exclusive sales arrangements illegal and additional distributors are being
added.
The Company does not depend upon sales to any single customer or a limited
group of customers. There have been no sales to a single customer during the
last three years that exceeded 10% of net sales. Sales of products to the U.S.
government are not subject to renegotiations of profits or termination of
contracts at the U.S. government's election. For the most part such sales are
covered by the Company's General Service Administration (GSA) contract. The
Company's sales are not materially affected by seasonal factors.
Competition
There are a significant number of companies engaged in manufacturing and
selling data communications equipment in the same markets as the Company. Since
Telebyte's product line is diverse, it is difficult to define and enumerate its
competition. Several competitors are larger and more established than Telebyte.
Such competitors have greater technical and capital resources than does the
Company. These competitors also have greater sales and marketing resources than
does the Company.
The Company's principal competitors are RAD Data Communications, Ltd.
(which is based in Israel with local offices in New Jersey), Black Box (with
headquarters based in Pennsylvania), Patton Electronics (based in Maryland), B &
B Electronics (based in Illinois), Dataforth (based in Arizona) and a number of
small companies. Telebyte competes with these companies on the basis of
availability, price, quality, breadth of product line, technical support
innovation and its willingness to accommodate requests for modifications and
customization.
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Of these factors the Company relies principally upon the price/performance
ratio of its many products. However, Telebyte also attracts market share by its
ability to fill orders quickly and provide technical support to its customers.
The Company does not have a significant market presence with its serial data
communications test equipment and data communications accessories. However, the
Company's capacity for innovation has made it a significant force in the market
for Digital Subscriber Line (DSL) Local Loop simulators.
Historically, the Company has not relied upon patents, registered
trademarks or licenses to give it a competitive advantage.
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 50% 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 by the end of the second 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 elevators, electronic door locks, telephones, etc.) is
being undertaken. The majority of these
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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.
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 own 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 an 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.
Employees
As of December 31, 1998, the Company had 39 employees. Of these employees,
five are executives, eight are in sales, six in research and engineering, three
in administration, and the balance in manufacturing, shipping, and related
activities. In addition, the Company uses subcontractors and part-time help to
support its current operations. None of the employees are represented by a labor
union, and the Company considers its employee relations to be good.
Backlog
At December 31, 1998, the Company's backlog was $388,690 all of which the
Company expects to fill in fiscal 1999. Comparable backlog at December 31, 1997
was $390,363.
Item 2. Properties
Telebyte's executive office, plant, and manufacturing facility are located
in a 20,000 square foot
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building on 3.2 acres, at 270 Pulaski Road, Greenlawn, New York 11740. The
Company purchased the land and building in September 1985. The Company
refinanced the existing mortgage in March 1998 and the property now secures a
mortgage loan payable on a fully self- amortizing basis over 10 years. Under the
Mortgage Modification Agreement interest is payable at 9% through June 1, 2000.
At that time and every three years thereafter, the interest rate will be
adjusted to the three year weekly average US Treasury Constant Maturity rate
plus 3%. The outstanding principal balance of the mortgage loan, as of December
31, 1998, was $927,334. Management believes that all of its properties, plant,
and equipment are well maintained and adequate for its requirements.
Of the 20,000 square feet the Company has leased 5,300 square feet to a
tenant. Management believes that Telebyte's existing manufacturing facilities
are sufficient to support its present needs and anticipated growth, and the
Company does not foresee any significant capital expansion of its plant in
Greenlawn.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party or by which its properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
Until September 2, 1992, the Company's common stock was listed on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the symbol "TBTI." After that date the stock was moved to the Over The
Counter Bulletin Board since it no longer met the requirements of NASDAQ's
minimum bid price.
The following table sets forth the high and low bid prices for the common
stock for each fiscal quarter during 1998 and 1997 as reported by the National
Association of Securities Dealers, Inc. The bid and ask prices for the common
stock on March 9, 1999 were $ 1.125 and $ 1.5 respectively.
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1998 1997
---- ----
High Low High Low
---- --- ---- ---
First Quarter 5 2 1 5/16 13/16
Second Quarter 4 3/4 3 15/16 3/8
Third Quarter 4 1/2 1 1/4 1 1/2 7/16
Fourth Quarter 2 1/8 1 1/8 1 1/8 1 3/16
The above quotations reflect inter-dealer prices, and may not include
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
At March 9, 1999, there were approximately 268 holders of record of the
Company's common stock. Most of the shares of the common stock are held in
street name for a larger number of beneficial owners.
To date, Telebyte has not paid a cash dividend. The payment and amount of
any future dividends will necessarily depend upon conditions then existing,
including the Company's earnings, financial condition, working capital
requirements, and other factors. The Company does not anticipate paying any
dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Sales for the year ended December 31, 1998 increased by 1.6% to $5,568,787.
The sales increase was primarily a result of the increased sales and marketing
efforts begun by the Company in 1996.
An analysis of the gross margin for 1998 reveals that it was 52.8% as
compared to 53.9% for 1997. This was primarily a function of product mix. Cost
of sales increased by $104,128 and is primarily attributed to the level of
sales.
Selling, general, and administrative costs decreased by $29,907 to
$2,076,973 in 1998, compared to $2,106,880 in 1997. Selling expenses during 1998
included the distribution of approximately 180,000 product catalogs as compared
to approximately 300,000 in 1997. Also, during 1998 the Company strengthened its
advertising campaign for fiber optic products, and overhauled the Company's Web
site.
Research and development increased in 1998 to $469,415, or 8.4% of sales,
from $319,996, or 5.8% of sales in 1997. The increase illustrates the Company's
continued commitment to new product development. The increase was due to
significant activity by the Company in the development of new test equipment
products for the Digital Subscriber Line (DSL) market, specifically, Local Loop
simulators. The Company made improvements in the frequency characteristics of
existing simulator products. The Company began the development of units having
mechanical packaging more attractive for rack mounting. The Company began the
development of units that can be controlled remotely by computer. The Company
continued the development of a noise/interference simulator that can be used as
a companion product to the Digital Subscriber Line (DSL) Local Loop simulator.
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Interest expense of $97,352 in 1998 decreased to 1.7% of sales as compared
to $114,909, or 2.1% in 1997.
Interest income increased by $12,574. The increase in 1998 was due to
higher average levels of cash on hand during 1998. In 1998 the Company had
rental income of $48,195, equal to the 1997 rental income. For 1999 the Company
expects rental income of approximately $48,000.
The Company generated net income of $333,500 or $.22 per share, 5.9% of
sales, compared to $466,825 or $.32 per share, 8.5% of sales, for 1997. The
decrease is primarily attributed to the increase in research and development as
described above.
The effective tax rate in 1998 was 9.7 percent, compared with 1.5 percent
in 1997. The increase in the effective tax rate is primarily due to the
Company's utilization of its net operating loss carryforward. The Company
expects its effective tax rate for 1999 to be approximately 40%.
Liquidity and Capital Resources
In 1998, the Company invested $43,356 in property and equipment, which was
financed through internally generated funds. The statements of cash flows
indicate that the Company generated $274,302 in 1998 compared to $254,507 in
1997 in cash from operations.
Working capital increased as of December 31, 1998 by $347,680 to $2,557,880
compared with $2,210,200 at December 31, 1997. The current ratio increased to
5.6 to 1 at December 31, 1998, compared to 4.6 to 1 at December 31, 1997.
The Company has an agreement with a financial institution, expiring July
1999, which provides the Company with a line of credit facility of up to
$1,000,000 ("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 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% (8.50% at December 31, 1998). There was no outstanding balance against this
line at December 31, 1998.
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. In
conjunction with obtaining this additional line of credit financing the Company
reduced availability under its Original Facility to $500,000. Borrowings under
this loan agreement bear interest at the 30 Day Commercial Paper Rate plus 2.90%
(8.45% at December 31, 1998).
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.
11
<PAGE>
Effect of Inflation
During the five-year period ending December 31, 1998, the Company was able
to decrease its costs of sales of its products to compensate for the effect of
inflation on the cost of components. This was accomplished by changes in
manufacturing methodology, namely, increasing the amount of product manufactured
on a sub-contractor basis.
Item 7. Financial Statements
The audited financial statements of the Company as of December 31, 1998 and
1997 and for the years then ended are included in this Annual Report on Form
10-KSB following Item 13 hereof.
Item 8. Changes in and Disagreements with Accountants in Accounting and
Financial Disclosures
None
12
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table sets forth certain information concerning the Company's
officers and directors as of December 31, 1998. Telebyte's directors are elected
to serve until the next annual meeting of shareholders or until their successors
are elected and qualified. The executive officers are appointed annually by, and
serve at the pleasure of, the Board of Directors.
<TABLE>
<CAPTION>
Name, age, and positions Business experience during past Director
held with the Company five years and principal occupation since
- --------------------- ----------------------------------- -----
<S> <C> <C>
Joel A. Kramer, age 61, (1) Mr. Kramer has served as President 1983
President, CEO and Chairman of of the Company since August 1983,
the Board of Directors and Chairman of the Board since February 1989.
Kenneth S. Schneider, Ph.D., Dr. Schneider has served as Treasurer 1983
age 53, Sr. Vice President, and Vice President of the Company
Treasurer, Secretary, and since August 1983; and he was elected
Director Secretary in March 1991. Dr. Schneider
is a Senior Member of the Institute of
Electrical and Electronic Engineers.
Jamil Sopher, age 55 (2) Mr. Sopher is a Principal Financial 1996
Director Analyst with the World Bank where
he has been employed for 19 years.
Robert M. Kramer, age 58 (3) Mr. Kramer is a private investor and has 1996
Director been since 1987. Prior thereto he held the
position of Vice President at Drexel Burnham
Lambert and Shearson-Lehman.
Michael Breneisen, age 34, Mr. Breneisen has served as Controller
Vice President, of the Company since July 1992 and
Chief Financial Officer Vice President and CFO since January 1997.
</TABLE>
(1) Mr. Robert M. Kramer is the brother of Mr. Joel A. Kramer, the President
and Chairman of the Board of Directors of the Company. Mr. Joel A. Kramer
resigned from all of his Company positions effective January 20, 1999. See
"Certain Relationships and Related Transactions."
(2) Mr. Sopher received a Bachelor of Science and M.Eng. (Elect.) from Cornell
University and an MBA from Harvard University.
(3) Mr. Robert M. Kramer received a BSME from Polytechnic Institute of
Brooklyn, an MSME from City College of NY and an MBA from the Wharton
Graduate School of the University of Pennsylvania. Mr. Robert M. Kramer
resigned as a director of the Company effective January 20, 1999. See
"Certain Relationships and Related Transactions."
13
<PAGE>
Section 16 Compliance
Based upon a review of copies of the forms required to be filed under
Section 16(a) of the Securities Exchange Act of 1934 or written representations
from officers and directors, the Company believes all officers and directors,
and greater than ten percent owners of the Company's common stock have complied
with Section 16(a.)
Item 10. Executive Compensation
The following table provides summary information concerning the cash and
certain other compensation paid or accrued by the Company to Joel A. Kramer, the
Company's Chairman of the Board, President and Chief Executive Officer until
1999 during the last three fiscal years and to the executive officers of the
Company whose cash compensation exceeded $100,000. The table includes Company
contributions on the officer's behalf to the Company's 401(k) Plan.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Annual Restricted Stock Long-Term All Other
Principal Position Year Salary Bonus Compensation Stock Options/SARs Incentive Payout Compensation
------------------ ---- ------ ----- ------------ Awards ------------ ---------------- ------------
-----
($) ($) ($) (No.) (No.) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel A. Kramer 1998 $124,306 $25,000 $20,130(1) 0 0 $ 5,747(2) $8,040
President, CEO 1997 $111,631 $2,000 $16,629(1) 0 0 $12,662(2) $4,116
& Director 1996 $107,100 $4,300 $11,481(1) 0 0 $11,281(2) $3,203
Kenneth S. Schneider 1998 $112,534 $22,000 $10,170(1) 0 0 $4,080(2) $7,104
Sr. V.P., Sec. 1997 $100,686 $2,000 $8,804(1) 0 0 $4,080(2) $2,819
Treas.& Director 1996 $95,599 $3,150 $7,256(1) 0 0 $4,080(2) $2,819
</TABLE>
(1) Commissions - Mr. Kramer received a 2.5% commission of net sales to
customers not located within the United States. Mr. Schneider received a
0.2% commission of net sales to customers located within the United States.
The amounts paid are set forth above under the caption entitled "Other
Annual Compensation".
(2) Deferred Compensation - see Long-Term Incentive Plans Table below.
<TABLE>
<CAPTION>
Long-Term Incentive Plans - Awards in Last Fiscal Year
Estimated Future Payouts under Non-Stock Price-Based Plans
Number of Shares, Performance or Other
Units or Other Period Until Maturation Threshold Target Maximum
Name Rights (#) Or Payout ($ or #) ($ or #) ($ or #)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joel A. Kramer June 11, 2002 $26,667(1) $26,667(1) $26,667(1)
Pres.,CEO &
Director
Kenneth S. Schneider April 16, 2010 $26,667(1) $26,667(1) $26,667(1)
Sr.V.P. Sales, Sec.,
Treas. & Director
</TABLE>
14
<PAGE>
(1) In 1990 the Company entered into deferred compensation agreements with key
officers, pursuant to which the officers will receive a defined amount,
approximately 30% of their 1990 base salary, each year for a period 10
years after reaching age 65. The deferred compensation plans are funded
through life insurance and are being provided for currently. The expense
charged to operations in 1998 for such future obligations was $9,827
($5,747 and $4,080, for Joel A. Kramer and Kenneth S. Schneider,
respectively).
<TABLE>
<CAPTION>
Aggregate Option Grants in Last Fiscal Year
% of Total Options Exercise or
Number of Options Granted to Employees Base Price Expiration
Name Granted in Fiscal Year 1998 ($/Share) Date
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joel A. Kramer 0 0 - -
Kenneth S. Schneider 0 0 - -
</TABLE>
The following table sets forth information concerning each exercise of
stock options during fiscal 1998 by each of the named executive officers and
fiscal year-end value of unexercised options:
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Value of Unexercised
Number of Shares Value Unexercised Options at In-the-Money Options
Name Acquired on Exercise Realized ($) December 31, 1998 at December 31, 1998
(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joel A. Kramer 0 0 10,000 (2) $4,550
Kenneth S. Schneider 0 0 10,000 (2) $4,550
</TABLE>
(1) Calculation based upon the average of the high and low bid prices of the
Company's Common Stock from the National Quotation Bureau on December 31,
1998.
(2) All such options are currently exercisable.
Compensation Plans and Other Compensation
The Company adopted a Stock Option Plan (the "1993 Plan") under which
100,000 shares of the Company's common stock, par value $.01 per share have been
reserved. As of December 31, 1998, there were 32,500 shares available for grants
under the 1993 Plan. Pursuant to the 1993 Plan, the Company is permitted to
issue incentive stock options ("Incentive Stock Options") and non-qualified
stock options. Incentive Stock Options under the 1993 Plan are intended to
qualify for the tax treatment accorded under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code.") All directors, officers or other key
employees of the Company are eligible to participate in the 1993 Plan. The 1993
Plan is administered by the Board of Directors of the Company, which, to the
extent it shall determine, may delegate its power with respect to the
administration of the 1993 Plan to a committee consisting of not less than three
directors. Under the 1993 Plan, Incentive Stock Options to purchase shares of
the Company's common stock shall not be granted for less than 100 percent of the
fair market value of the common stock on the date the Incentive Stock Option is
granted; provided, however, that in the case of an Incentive Stock Option
granted to any person then owning at least 10 percent of the voting power of all
classes of the Company's stock, the purchase price per share subject to the
Incentive Stock Option may not be less than 110 percent of the fair market value
of the stock on the date of the grant of the option. Nonqualified stock options
to purchase the Company's common stock are granted at prices determined by the
Company's Board of Directors. Options under the 1993 Plan may not have a term of
more than 10 years; provided, however, that an Incentive Stock Option granted to
a person then owning more than 10 percent of
15
<PAGE>
the voting power of all classes of the Company's stock may not be
exercisable more than 5 years after the date such option is granted. In
addition, the aggregate fair market value, determined at the time the option is
granted, of the stock with respect to which Incentive Stock Options are
exercisable for the first time by an employee in any calendar year under the
1993 Plan may not exceed $100,000. The Company's 1983 Stock Option Plan
terminated in 1994. No executive officers or directors have any outstanding
options under the 1983 Stock Option Plan. The Company has an informal bonus plan
in which officers and other key personnel participate. The bonus award, if any,
is fixed annually by the Board of Directors. Bonuses were allocated and paid to
executive officers under this plan during fiscal 1998 and shown on the foregoing
Summary Compensation Table. The Company maintains a deferred compensation plan
under Internal Revenue Code Section 401(k). All employees are eligible to
participate; the Company contributes 50% of the first 2% deferred by the
employee. Each employee may voluntarily contribute up to 15% of annual
compensation, or the maximum allowed as determined by the Internal Revenue Code.
Benefits are 100% vested and are payable upon the employee's death, disability,
retirement, termination, and under certain financial circumstances. At December
31, 1998, $2,368 was contributed to the plan for officers. All contributions are
reflected in all other compensation columns in the Summary Compensation Table.
During 1997, the Company entered into employee agreements with Mr. Joel A.
Kramer and Kenneth S. Schneider pursuant to which Mr. Kramer will serve as
President and Mr. Schneider will serve as Vice President. The employment
agreements provide that Mr. Kramer will receive a minimum salary of $117,810 and
Mr. Schneider $105,155. During the employment period each of Mr. Kramer and Mr.
Schneider will be entitled upon termination, expiration of the agreement, or
under certain circumstances (including a change of control) to certain severance
benefits. The initial term of the agreements is three years. The respective
agreements are affixed as exhibits hereto.
Except for life and medical insurance benefit programs, which are available
to all employees, the Company has no other compensation plans. Outside directors
receive a per meeting fee of $500, in addition to reimbursement of expenses for
attending each meeting. According to World Bank policy, Mr. Sopher cannot accept
the meeting fee.
Effective January 20, 1999 Mr. Joel A. Kramer resigned his positions with
the Company. See 'Certain Relationships and Related Transactions.'
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 1998 information
concerning (i) the shares held by each person or group known to own beneficially
more than 5% of the outstanding shares of common stock, (ii) shares owned by
directors and (iii) the shares owned by all directors and officers as a group.
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class
---------------- ------------------ -----
Kenneth S. Schneider 293,038 (1) 19.0%
270 Pulaski Road
Greenlawn, NY 11740
16
<PAGE>
Joel A. Kramer 272,635 (1) 17.7%
270 Pulaski Road
Greenlawn, NY 11740
Jamil Sopher 6,730 (2) (4)
270 Pulaski Road
Greenlawn, NY 11740
Robert M. Kramer 5,000 (2) (4)
270 Pulaski Road
Greenlawn, NY 11740
Michael Breneisen 41,900 (3) 2.7%
270 Pulaski Road
Greenlawn, NY 11740
All officers and directors 619,303 40.2%
As a group (5 in number)
(1) Includes 10,000 shares issuable upon the exercise of stock options granted
under the Company's 1993 Stock Option Plan. Effective January 20, 1999 the
Company purchased all of the shares of common stock of the Company owned by
Mr. Joel A. Kramer and Mr. Kramer agreed to cancel options to purchase
10,000 shares of common stock.. See "Certain Relationships and Related
Transactions."
(2) Includes 5,000 shares that can be issued upon exercise of stock options
granted under the Company's 1993 Stock Option Plan.
(3) Includes 5,000 shares that can be issued upon exercise of stock options
granted under the Company's 1987 Stock Option Plan.
(4) Less than 1%.
Item 12. Certain Relationships and Related TransactionsEffective January 20,
1999, Joel A. Kramer, Chairman of the Board, President and Chief Executive
Officer of Telebyte Technology, Inc. (the "Company") resigned his positions with
the Company. However, Mr. Kramer 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 Mr. Kramer and Mr. Kramer
agreed to cancel options to purchase 10,000 shares of common stock of the
Company for an aggregate consideration of $1,075,190 of which $867,510 was for
such shares, $17,680 was for the cancellation of such options and $190,000 was
for Mr. Kramer's restrictive covenant. In addition, Mr. Kramer 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
and the Company transferred a life insurance policy to Mr. Kramer, previously
maintained for Mr. Kramer's benefit and having a cash value of approximately
$80,000.
Effective January 20, 1999 Dr. Kenneth S. Schneider was elected as Chairman
of the Board and Chief Executive Office and Michael Breneisen as President and
Chief Operating Officer of the Company. Dr. Schneider was a co-founder of the
Company and has served as a Senior Vice President, Secretary, Treasurer and
Director. Mr. Breneisen has served as Vice President and Chief Financial
Officer, he will also continue to serve as Chief Financial Officer.
Item 13. Exhibits and Reports on Form 8-K(a) Exhibits
3(a) The Company's Certificate of Incorporation under the State of Nevada
was filed as an Exhibit with the Proxy Statement filed in June 1987
(File No. 0-11883) and is incorporated by reference herein.
3(b) The By-laws of the
17
<PAGE>
Company as a Nevada corporation were filed as an Exhibit on Form 8-K
in third quarter of 1987 (File No. 0-11883) and are incorporated by
reference herein.
10(a) The Company's 1993 Stock Option Plan was filed as an Exhibit to the
Company's definitive 1994 proxy statement filed in May 1994 (File No.
0-11883), and is incorporated by reference herein.
10(b) Commercial mortgage and consolidation agreement dated May 25, 1988
between Home Federal Savings Bank and Telebyte Technology, Inc., filed
as an Exhibit to the Company's 1988 Annual Report on Form 10-K (File
No. 0-11883) and is incorporated by reference herein.
10(c) Deferred compensation agreements dated December 12, 1990 between
Telebyte Technology, Inc. and Joel A. Kramer and Kenneth S. Schneider,
filed as an Exhibit to the Company's 1990 Annual Report on Form 10-K
(File No. 0- 11883) and is incorporated by reference herein.
10(e) $1,000,000 Revolving Line of Credit agreement dated June 23, 1994
between Merrill Lynch and Telebyte Technology, Inc. and was filed as
an exhibit on Form 10-KSB for the year ended December 31, 1994 (File
No. 0-11883) and is incorporated by reference herein.
10(f) Employment agreements between Mr. Joel A. Kramer and Kenneth S.
Schneider dated August 1, 1997 and was filed as an exhibit on Form
10-KSB for the year ended December 31, 1997 (File No. 0-11883) and is
incorporated by reference herein.
10(g) Mortgage Loan Modification Agreement dated March 18, 1998 between the
Company and Home Federal Savings Bank ("Home").
10(h) Promissory Note and Security Agreement dated March 18, 1998 made
payable to the Company to the order of Home.
10(i) Assignment of Leases and rights dated March 18, 1998 between the
Company and Home.
10(j) Stock Purchase Agreement dated January 20, 1999 between the Company
and Joel A. Kramer and was filed as an exhibit to the Company's
current report on Form 8K filed on January 27, 1999.
10(k) Consulting Agreement dated January 20, 1999 between the Company and
Joel A. Kramer and was filed as an exhibit to the Company's current
report on Form 8K filed on January 27, 1999.
10(l) Termination Agreement dated January 20, 1999 between the Company and
Joel A. Kramer and was filed as an exhibit to the Company's current
report on Form 8K filed on January 27, 1999.
10(m) Agreement and Release dated January 20, 1999 between the Company and
Joel A. Kramer and was filed as an exhibit to the Company's current
report on Form 8K filed on January 27, 1999.
(23) Consent of Grant Thornton LLP, independent certified public
accountants.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter for the
fiscal year ended December 31, 1998.
18
Telebyte Technology, Inc.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 1998 and 1997 F-3
Statements of Earnings for the years ended
December 31, 1998 and 1997 F-5
Statement of Shareholders' Equity for the years
ended December 31, 1998 and 1997 F-6
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 F-7
Notes to Financial Statements F-8 - F-19
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Telebyte Technology, Inc.
We have audited the accompanying balance sheets of Telebyte Technology, Inc. as
of December 31, 1998 and 1997, and the related statements of earnings,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telebyte Technology, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Melville, New York
March 10, 1999
F-2
<PAGE>
Telebyte Technology, Inc.
BALANCE SHEETS
December 31,
ASSETS 1998 1997
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 919,630 $ 730,284
Accounts receivable, net of allowance of
$15,000 648,467 752,141
Inventories 1,421,974 1,221,768
Prepaid expenses and other 70,977 39,204
Deferred income taxes 50,000 80,000
------ ------
Total current assets 3,111,048 2,823,397
PROPERTY AND EQUIPMENT - AT COST,
less accumulated depreciation 1,064,143 1,120,435
OTHER ASSETS 157,156 169,632
------- --------
$4,332,347 $4,113,464
========= =========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Telebyte Technology, Inc.
BALANCE SHEETS (continued)
December 31,
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 352,009 $ 415,120
Accrued expenses 136,671 146,577
Current maturities of long-term debt 64,488 51,500
----------- ---------
Total current liabilities 553,168 613,197
LONG-TERM DEBT, less current maturities 862,846 926,612
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000
shares authorized; 1,661,066 and
1,636,566 shares issued in 1998 and 1997,
respectively; 1,506,266 and 1,481,766
shares outstanding in
1998 and 1997, respectively 16,611 16,366
Capital in excess of par value 2,760,921 2,751,988
Retained earnings (deficit) 239,894 (93,606)
Treasury stock - 154,800 shares at cost,
in 1998 and 1997 (101,093) (101,093)
---------- ----------
2,916,333 2,573,655
--------- ----------
$4,332,347 $4,113,464
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Telebyte Technology, Inc.
STATEMENTS OF EARNINGS
Year ended December 31,
1998 1997
---- ----
<S> <C> <C>
Net sales $5,568,787 $5,479,603
Cost of sales 2,630,486 2,526,358
--------- ---------
Gross profit 2,938,301 2,953,245
--------- ---------
Operating expenses
Selling, general and administrative 2,076,973 2,106,880
Research and development 469,415 319,996
---------- ---------
2,546,388 2,426,876
--------- ----------
Operating profit 391,913 526,369
---------- -------
Other income (expense)
Interest income 26,744 14,170
Rental income 48,195 48,195
Interest expense (97,352) (114,909)
----------- ----------
(22,413) (52,544)
----------- -----------
Earnings before income taxes 369,500 473,825
Income tax provision 36,000 7,000
-----------
NET EARNINGS $ 333,500 $ 466,825
========== ==========
Earnings per common share:
Basic $.22 $.32
=== ===
Diluted $.22 $.31
=== ===
Weighted average shares:
Basic 1,501,783 1,481,766
========= =========
Diluted 1,524,233 1,503,154
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Telebyte Technology, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
Number of Capital in Retained
shares Common excess of earnings Treasury
issued stock par value (deficit) stock Total
------ ----- --------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,636,566 $16,366 $2,751,988 $(560,431) $(101,093) $2,106,830
Net earnings 466,825 466,825
------------ --------- ---------- -------- --------- ---------
Balance at December 31, 1997 1,636,566 16,366 2,751,988 (93,606) (101,093) 2,573,655
Common stock issued upon
exercise of options 24,500 245 8,933 9,178
Net earnings 333,500 333,500
------------- ---------- ------------ -------- --------- --------
Balance at December 31, 1998 1,661,066 $16,611 $2,760,921 $ 239,894 $(101,093) $2,916,333
========= ====== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
<TABLE>
<CAPTION>
Telebyte Technology, Inc.
STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 333,500 $ 466,825
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization 99,648 96,517
Deferred income taxes 30,000
Decrease (increase) in operating assets
Accounts receivable 103,674 (338,188)
Inventories (200,206) (143,657)
Prepaid expenses and other (19,297) (95,921)
(Decrease) increase in operating liabilities
Accounts payable (63,111) 217,097
Accrued expenses (9,906) 51,834
--------- ---------
Net cash provided by operating activities 274,302 254,507
--------
Cash flows from investing activities
Additions to property and equipment (43,356) (37,397)
--------- ---------
Net cash used in investing activities (43,356) (37,397)
--------- ---------
Cash flows from financing activities
Principal payments of long-term debt (50,778) (70,547)
Proceeds from exercise of stock options 9,178 -
---------
Net cash used in financing activities (41,600) (70,547)
--------- ---------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 189,346 146,563
Cash and cash equivalents at beginning of year 730,284 583,721
-------- -------
Cash and cash equivalents at end of year $ 919,630 $ 730,284
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Telebyte Technology, Inc. (the "Company") designs, manufactures and markets
electronic data communications products. The Company's products are primarily
sold to end-users, domestic dealers and distributors, foreign dealers and
distributors and original equipment manufacturers. The Company does not depend
upon sales to a single customer or a limited group of customers and there were
no sales to a single customer during the last two years exceeding 10% of net
sales. The Company operates in a single business segment and has no foreign
operations. Export sales were $770,000 and $778,000 in 1998 and 1997,
respectively.
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
2. Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed on the straight-line basis over the estimated useful
lives of the assets, which are 35 years for building and improvements and 5
years for equipment.
3. Income Taxes
Deferred income taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and loss carryforwards
for which income tax benefits are expected to be realized in future years. A
valuation allowance had been established to reduce the deferred tax assets as it
was more likely than not that all, or some portion, of such deferred tax assets
would not be realized. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
4. Advertising
Advertising costs are expensed as incurred and totaled $69,000 and $65,000 in
1998 and 1997, respectively.
F-8
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
5. Earnings Per Share
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
per Share," replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and, where appropriate,
restated to conform to the SFAS No. 128 requirements.
6. Stock-Based Compensation Plans
The Company maintains two fixed stock option plans, as more fully described in
Note G to the financial statements, accounted for using the "intrinsic value"
method pursuant to the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, recognizes no
compensation expenses. Therefore, the Company has elected the disclosure
provisions only of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
7. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers highly
liquid cash investments with an original maturity of three months or less to be
cash equivalents. The Company paid interest of $94,302 and $114,289 and income
taxes of $1,562 and $200 in 1998 and 1997, respectively.
8. Revenue Recognition
Revenue is recognized from sales when a product is shipped. Service fees are
recognized upon the completion of the related service.
F-9
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
9. Use of Estimates and Fair Value of Financial Instruments
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The Company has estimated the fair value of financial instruments using
available market information and other valuation methodologies in accordance
with Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." Management of the Company believes that the fair value
of financial instruments, consisting of cash, accounts receivable and debt,
approximate carrying value due to the immediate or short-term maturity
associated with its cash and accounts receivable and the interest rates
associated with its debt.
NOTE B - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following at December 31:
1998 1997
---- ----
<S> <C> <C>
Purchased components and materials $ 596,171 $ 581,912
Work in process 275,073 256,916
Finished goods 550,730 382,940
--------- -------
$1,421,974 $1,221,768
========= =========
</TABLE>
F-10
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
1998 1997
---- ----
<S> <C> <C>
Land $ 300,000 $ 300,000
Building and improvements 1,024,583 1,024,583
Equipment 595,578 552,222
---------- -------
1,920,161 1,876,805
Less accumulated depreciation 856,018 756,370
---------- --------
$1,064,143 $1,120,435
========= =========
</TABLE>
NOTE D - DEBT
1. Line of Credit Facility
The Company has an agreement with a financial institution, expiring July 1999,
which provides the Company with a line of credit facility of up to $1,000,000
("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
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% (8.50%
at December 31, 1998). There was no outstanding balance against this line at
December 31, 1998.
In January 1999, the Company secured an additional Reducing Revolving line of
credit from this institution which 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. In
conjunction with obtaining this additional line of credit financing, the Company
reduced availability under its Original Facility to $500,000. Borrowings under
this loan agreement bear interest at the 30 Day Commercial Paper Rate plus
2.90%. (8.45% at December 31, 1998).
F-11
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE D (continued)
2. Long-Term Debt
The Company's first mortgage note is collateralized by land and building. The
remaining unpaid mortgage note balance at December 31, 1998 is payable in equal
monthly installments of $12,111 (inclusive of interest at 9%) with a maturity
date of June 2008. In March 1998, the Company modified the mortgage note
agreement, reducing the existing interest rate to 9% through June 1, 2000. At
that time, and every three years thereafter, the interest rate will be adjusted
to the three-year weekly average U.S. Treasury Constant Maturity Rate plus 3%.
Financing and other costs aggregating $95,122 incurred in connection with the
acquisition of real property and the refinancing of mortgage debt are stated at
cost, net of accumulated amortization of $53,222 and $48,247 at December 31,
1998 and 1997, respectively, and are included in "Other assets" in the
accompanying balance sheets. Amortization is provided on a straight-line basis
over the life of the mortgage note of 20 years.
Long-term debt is summarized as follows at December 31:
1998 1997
---- ----
First mortgage note payable to bank in
equal monthly installments, including
interest, through June 2008 $927,334 $978,112
Less current maturities 64,488 51,500
-------- --------
$862,846 $926,612
======= =======
Aggregate maturities of long-term debt as of December 31, 1998 are as follows:
1999 $ 64,488
2000 70,537
2001 77,154
2002 84,392
2003 92,309
Thereafter 538,454
$927,334
========
F-12
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE E - EMPLOYEE BENEFIT PLANS
The Company sponsors an employee investment savings 401(k) plan to which both
the Company and employees contribute. All employees are eligible to participate;
the Company contributes 50% of the first 2% deferred by the employee. Each
employee may voluntarily contribute up to 15% of annual compensation, or the
maximum allowed as determined by the Internal Revenue Code. Benefits are 100%
vested and are payable upon the employee's death, disability, retirement,
termination and under certain financial circumstances. Employer contributions of
$8,285 and $7,417 were made to the plan in 1998 and 1997, respectively.
The Company maintains deferred compensation agreements with several key
officers, whereby the officers will receive a defined amount approximating 30%
of their 1990 base salary for a period of 10 years after reaching age 65. The
deferred compensation plans are funded through life insurance and are being
provided for currently. The expense charged to operations for such future
obligations was approximately $9,800 and $16,700 in 1998 and 1997, respectively.
NOTE F - INCOME TAXES
The provision for income taxes is summarized as follows:
1998 1997
---- ----
Current
Federal $ 2,000 $2,000
State 4,000 5,000
------ ------
6,000 7,000
Deferred tax expense 30,000 -----
$36,000 $7,000
====== =====
F-13
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
NOTE F (continued)
The actual income tax expense differs from the Federal statutory rate as
follows:
1998 1997
---- ----
Amount % Amount %
<S> <C> <C> <C> <C>
Federal statutory rate $ 126,000 34.0% $ 161,000 34.0%
State income taxes, net of
Federal income tax benefit 3,000 .8 3,000 .6
Officers' life insurance 7,000 1.9 7,000 1.5
Other 1,000 .3 2,000 .4
Benefit of net operating loss
carryforward (101,000) (27.3) (166,000) (35.0)
-------- ----- --------- ------
$ 36,000 9.7% $ 7,000 1.5%
========= === ========= ===
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards and
General Business Tax Credits expiring from 1999 through 2007 of approximately
$176,000 and $66,000, respectively, available to reduce Federal and state income
taxes resulting from future operations.
The tax effects of temporary differences which give rise to deferred tax assets
(liabilities) at December 31, 1998 and 1997, are summarized as follows:
1998 1997
---- ----
Deferred tax assets
Net operating loss carryforwards $ 70,000 $ 213,000
Investment and other tax credit carryforwards 66,000 66,000
Deferred compensation 46,000
Inventory valuation 8,000 10,000
Allowance for doubtful accounts 6,000 6,000
Other 6,000 5,000
---------- ------
Gross deferred tax assets (carried forward) 202,000 300,000
F-14
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE F (continued)
1998 1997
---- ----
Gross deferred tax assets (brought forward) $ 202,000 $ 300,000
Deferred tax liabilities
Excess tax over book depreciation (152,000) (152,000)
-------- --------
Net deferred tax assets before
valuation allowance 50,000 148,000
Valuation allowance -------- 68,000
Net deferred tax assets $ 50,000 $ 80,000
========= =========
NOTE G - STOCK OPTION PLANS
In 1987, the Company adopted a plan which provided for the granting to officers
and key employees of the Company of incentive stock options, as defined in the
Internal Revenue Code, for the purchase of a maximum of 250,000 shares of the
Company's common stock. Under the terms of the plan, the options, which expire
ten years after grant, are exercisable at a price equal to the fair market value
of the stock at the date of the grant. The options become exercisable in four
annual installments, the first installment occurring within one year after the
date of grant.
In 1994, the Company adopted the 1993 Stock Option Plan (the "1993 Plan"), which
provides for the granting to directors and key employees of the Company of
incentive stock options and nonqualified stock options for the purchase of a
maximum of 100,000 shares of the Company's common stock. Under the terms of the
1993 Plan, the options, which expire ten years after grant, are exercisable at a
price equal to the fair market value of the stock at the date of the grant for
incentive stock options and at prices determined by the Board of Directors for
nonqualified stock options, and become exercisable in accordance with terms
established at the time of the grant. At December 31, 1998, the Company had
reserved 32,500 shares under the 1993 Plan.
F-15
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE G (continued)
The following is a summary of activity with respect to stock options under the
plans:
<TABLE>
<CAPTION>
Weighted average
Shares Price per share price per share
------ --------------- ---------------
<S> <C> <C> <C>
Outstanding at January 1, 1997 71,750 $.3125 to 2.04 $.86
Granted 5,000 .685 .685
Expired (15,000) .3125 to .90 .71
-------
Outstanding at December 31, 1997 61,750 .3125 to 2.04 .88
Granted 27,500 1.25 to 3.80 3.25
Exercised (24,500) .3125 to .6850 .37
Expired (200) .75 .75
---------
Outstanding at December 31, 1998 64,550 .3125 to 3.80 2.08
-------
Balance exercisable at December 31, 1998 45,675 .3125 to 3.80 1.50
=======
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------- -------------------
Weighted Weighted Weighted
average average average
Ranges of remaining exercise exercise
exercise prices Shares life in years price Shares price
--------------- ------ ------------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Under $1.00 17,050 5.5 $ .82 15,800 $ .84
$1.01 to $2.04 25,000 7 1.48 25,000 1.48
$2.05 to $3.80 22,500 9 3.69 4,875 3.80
The weighted-average option fair value on the grant date was $2.63 and $.53 for
options issued during the years ended December 31, 1998 and 1997, respectively.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"); it applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the Plans and does not
recognize compensation expense for such Plans. If the Company had elected to
recognize compensation expense based upon the fair value at the grant dates for
awards under these plans consistent with the methodology prescribed by SFAS No.
123, the Company's reported net
</TABLE>
F-16
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE G (continued)
earnings and earnings per share would be reduced to the pro forma amount
indicated below for the years ended December 31:
1998 1997
---- ----
Net earnings
As reported $333,500 $466,825
Pro forma 311,862 466,273
Basic earnings per common share
As reported $.22 $.32
Pro forma .21 .31
Diluted earnings per common share
As reported $.22 $.31
Pro forma .20 .31
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1997. The fair value of these options was estimated at the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the years ended December 31, 1998 and 1997,
respectively: expected volatility of 95% and 80%; risk-free interest rates of
5.602% and 6.820% and expected term of seven years for both years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the use of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
NOTE H - COMMITMENTS
Lease Commitments
The Company leases certain equipment used in its operations pursuant to
noncancellable operating leases expiring through July, 2002. Rental expense for
such equipment was $17,247 and $13,774
F-17
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H (continued)
in 1998 and 1997, respectively. The minimum rental commitments under these
noncancellable operating leases, at December 31, 1998, are summarized as
follows:
1999 $21,000
2000 12,000
2001 4,000
2002 2,000
-------
$39,000
=======
Employment Contracts
The Company has employment contracts with various officers with remaining terms
of approximately two years at amounts approximating their current levels of
compensation. The Company's remaining aggregate commitment at December 31, 1998
under such contracts is approximately $353,000.
NOTE I - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
December 31,
1998 1997
---- ----
Numerator
Net income $ 333,500 $466,825
========= =======
Denominator
Denominator for basic earnings per share
(weighted-average shares) 1,501,783 1,481,766
Effect of dilutive securities
(employee stock options) 22,450 21,388
----------- ---------
Denominator for diluted earnings per share
(adjusted weighted-average shares and
assumed conversions) 1,524,233 1,503,154
========= =========
Basic earnings per share $.22 $.32
=== ===
Diluted earnings per share $.22 $.31
=== ===
F-18
<PAGE>
Telebyte Technology, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE J - MAJOR SUPPLIERS
The Company purchased approximately 16% and 10% of its raw materials from two
suppliers during the year ended December 31, 1998. If required, the Company
believes that similar products could be purchased from other sources.
NOTE K - SUBSEQUENT EVENTS
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 $1,075,190 of which
$867,510 was for such shares, $17,680 was for the cancellation of such options
and $190,000 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.
F-19
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant had duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TELEBYTE TECHNOLOGY, INC.
By: __________\s\_________________
Kenneth S. Schneider
Chairman of the Board
(Chief Executive Officer)
By: ___________\s\________________
Michael Breneisen
President
(Chief Operating Officer and Principal
Financial and Accounting Officer)
Date: March 31, 1999
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant, and in
the capacities and on the dates indicated.
March 31, 1999 __________\s\_____________
Kenneth S. Schneider, Director
March 31, 1999 ___________\s\____________
Jamil Sopher, Director
March 31, 1999 ___________\s\____________
Michael Breneisen, Director
HOME FEDERAL SAVINGS BANK
PROMISSORY NOTE AND SECURITY AGREEMENT
Riverhead, New York
Dated: March 18 1998
Loan No.: 192486
FOR VALUE RECEIVED, the undersigned, TELEBYTE TECHNOLOGY, INC., having a
place of business at 207 Pulaski Road, Greenlawn, New York 11740 ("Obligor")
hereby promises to pay to the order of HOME FEDERAL SAVINGS BANK, (the "Bank")
as successor in interest to The Union Savings Bank, at its offices at 62 South
Ocean Avenue, Patchogue, New York 11772, in lawful money of the United States,
the principal sum of Nine Hundred Sixty-five Thousand Eight Hundred Twenty-seven
and 88/100 ($965,827.88) DOLLARS, together with interest payable as hereinafter
described.
INTEREST RATE: The rate of interest applicable hereunder until June 1,
2000, shall be at the rate of Nine percent (9.00%) per annum and the principal
shall be amortized over a 10-year payout schedule. on the 1st day of June, 2000,
the interest rate shall be adjusted so as to equal the three (3) year weekly
average US Treasury Constant Maturity rate in effect on May 1, 2000, plus 3.00%
and the principal shall be amortized over an 8year payout schedule. Thereafter,
on the lst day of June, 2003, the interest rate shall again be adjusted so as to
equal the three (3) year weekly average US Treasury Constant Maturity rate in
effect on May 1, 2003, plus 3.00% and the principal shall be amortized over a
5-year payout schedule. Thereafter, on the lst day of June, 2006, the interest
rate shall again be adjusted so as to equal the three (3) year weekly average US
Treasury Constant Maturity rate in effect on May 1, 2006, plus 3.00% and the
principal shall be amortized over a 2- year payout schedule. The interest on
this Promissory Note and Security Agreement shall be paid monthly in arrears,
computed on the basis of a 360-day year of twelve 30-day months. All payments
under this Note shall be made to the Bank in immediately available funds as the
Bank shall direct in writing. It is not intended by any provision of this Note
to charge Obligor interest at a rate in excess of the maximum legal rate of
interest permitted to be charged to Obligor under applicable law, but if
nevertheless, interest in excess of said maximum legal rate shall be paid on the
obligation, the excess amount shall be deemed to have been paid in error and
shall be automatically applied in reduction of the principal balance of the
Obligation.
PREPAYMENT PRIVILEGE: During the term of this Obligation, the Party of the
Second Part may prepay this obligation, at any time, without penalty.
PAYMENT: The principal amount of the indebtedness hereunder shall be due
and payable in full on June 1, 2008. During the term of this Promissory Note and
Security Agreement, the undersigned shall pay to the Bank monthly payments of
principal and interest as follows: Commencing on the lst day of May, 1998, the
sum of Twelve Thousand One Hundred Ten and 92/100 ($12,110.92) DOLLARS shall be
due and payable. Thereafter, a similar sum of Twelve Thousand One Hundred Ten
and 92/100 ($12,110.92) DOLLARS shall be due and payable on the Ist day of each
and every month thereafter until the lst day of June, 2000, at which time the
interest rate shall be adjusted as set forth herein. At that time,, the monthly
payment of principal and interest shall also be adjusted so as to determine the
new monthly payment amount based on the
<PAGE>
new adjusted interest rate and the then principal balance of this obligation
amortized over the next ensuing three (3) years of the term hereof based on an
8-year pay-out schedule. Thereafter, the new monthly payment of interest and
principal shall be due and payable on the lst day of July, 2000, and on the lst
day of each and every month thereafter until June 1, 2003, at which time
the-interest rate shall again be adjusted as set forth herein. At that time, the
monthly payment of principal and interest shall also be adjusted so as to
determine the new monthly payment amount based on the new adjusted interest rate
and the then principal balance of this obligation amortized over the next
ensuing three (3) years of the term hereof based on a 5-year payout schedule.
Thereafter, the new monthly payment of interest and principal shall be due and
payable on the lst day of July, 2003, and on the lst day of each and every month
thereafter until June 1, 2006, at which time the interest rate shall again be
adjusted as set forth herein. At that time, the monthly payment of principal and
interest shall also be adjusted so as to determine the new monthly payment
amount based on the new adjusted interest rate and the then principal balance of
this obligation amortized over the remaining two (2) years of the term hereof
based on a 2-year payout schedule. Thereafter, the new monthly payment of
interest and principal shall be due and payable on the ist day of July, 2006,
and on the ist day of each and every month thereafter until June l, 2008, when
the entire unpaid principal balance shall be due and payable. Each of said
payments shall be applied first when received by the Bank to the payment of
interest at the rate in effect at the time of the due date of said payment, to
be computed from the date hereof on the unpaid balance of the principal sum
hereof to the date of payment, and secondly towards the reduction of the
principal sum hereof.
BALANCE DUE: Notwithstanding the foregoing, the unpaid principal balance,
together with accrued and unpaid interest, if any, shall be due and payable on
June 1, 2008, herein called the "Maturity Date".
LATE CHARGE: The undersigned agrees to pay to the Bank a late charge of
five percent (5%) of each monthly payment not received by the Bank by the
fifteenth (15th) day following the due day of such payment.
SECURITY: As security for the due and punctual payment and performance of
this Promissory Note and Security Agreement and of every other obligation,
indebtedness or liability of the undersigned, including, without limitation, the
obligation to reimburse the Bank for all reasonable costs, attorneys' fees and
legal expenses incurred by it in exercising any of the remedies hereunder,
joint, several or independent, direct or indirect, absolute or contingent,
contractual or tortious, liquidated or unliquidated, arising by law or otherwise
due or to become due, now or hereafter arising (hereinafter referred to as the
"Obligations"), the undersigned hereby grants, assigns, pledges, mortgages and
sets over a security interest in and a general lien upon, and/or right of
set-off to the Bank in the following described property (herein the
"Collateral"):
Mortgage made by Telebyte Technology, Inc. to The Union Savings Bank
in the original principal amount of $850,000.00 dated the 30th day of
September, 1985, and recorded in the Office of the Clerk of the county
of Suffolk on the 10th day of October, 1985, in Liber 11085 mp 597;
and
Mortgage made by Telebyte Technology, Inc. to The Union Savings Bank
in the original principal amount of $454,300.00 dated the 25th day of
May, 1988, and recorded in the Office of the Clerk of the County of
Suffolk on the 9th day of June,
<PAGE>
1988, in Liber 14143 mp 444, which mortgage was consolidated with
mortgage recorded in Liber 11085 mp 597 by a certain Consolidation
Agreement dated May 25, 1988, recorded in the Suffolk County Clerk's
Office on June 9, 1988, in Liber 14143 mp 449, to form a single lien
in the amount of $1,275,000.00, and which mortgages, as consolidated,
have a current unpaid principal balance of $965,827.88.
ACCELERATION OF DEBT: If any monthly installment of principal and interest
is not paid when due and remains unpaid for fifteen (15) days, the entire unpaid
principal amount plus accrued interest may, at the option of the Bank, become
immediately due and payable. The Bank may exercise this option to accelerate
during any default by the Obligor, regardless of any-prior forbearance. The
Obligor agrees to indemnify the Bank for, and to hold the Bank harmless from,
any loss or expense which the Bank may sustain or incur as a consequence of any
default by the Obligor in the payment of any of the Obligations. The Bank shall
be entitled to collect all reasonable costs and expenses of any suit which may
be brought in connection herewith, including, but not limited to, attorneys'
fees and costs.
DEFAULT INTEREST: Upon the acceleration of the indebtedness after the
occurrence of an event of default or upon the failure to pay the indebtedness in
full on maturity, the Obligor shall pay interest on the entire unpaid principal
balance at the rate of five percent (5%) above the Interest Rate to be paid by
the Obligor as hereinabove set forth, or at the maximum rate of interest which
the Obligor may be required to pay by law, whichever is lower, to be computed
from the occurrence of the event of default until the actual receipt and
collection of the debt. This charge shall be added to the debt and shall be
deemed secured by this Promissory Note and Security Agreement. Payment of the
loan following an acceleration of the loan due to obligor's default hereunder
shall be deemed to be a voluntary prepayment, and the Obligor shall pay, in
addition to all other amounts due and payable under this Promissory Note and
Security Agreement, the prepayment considerations specified herein. This clause,
however, shall not be construed as an agreement or privilege to extend the date
of the payment of the indebtedness nor as a waiver of any other right or remedy
accruing to the Bank by reason of the occurrence of any event of default.
DEFAULT REMEDIES: (A) Upon the (i) failure to pay any of the Obligations
when the same shall become or shall be declared due and payable; (ii) occurrence
of an event of default in the payment when due or in the performance of any of
the terms, covenants or conditions hereof or of any loan, security or other
agreement in favor of the Bank; (iii) failure to pay any pecuniary obligation
(other than this Note) or the occurrence of a default in performance of any
agreement under which any such obligation is created if the effect of such
default is to cause such obligation to become due or to permit holders of such
obligation or a trustee in their behalf to declare such obligation due prior to
its normal maturity; (iv) filing by or against the Obligor of any petition for
an order of relief under the Bankruptcy Code or proceeding for receivership or
under any insolvency, dissolution or conservatorship statute; (v) suspension of
business, commencement of liquidation, assignment for the benefit of creditors,
making of any offer of settlement, extension or composition, appointment of a
committee of creditors or a liquidating agency, by, or for the Obligor; or (vi)
issuance of an attachment, injunction or execution or tax lien or filing of a
judgment or other lien against the Obligor; or (B) if the Obligor or any
obligor, maker, endorser, acceptor, surety or guarantor of, or any other party
(the "Obligors") to any of the obligations shall
<PAGE>
default in respect of any of the obligations, or any other obligation of any of
them to the Bank, or any obligations with respect to the Collateral; or (C) if
any of the obligors shall die (if individuals) or dissolve (if partnerships
and/or corporations); or (D) if the undersigned or any other obligor shall be
unable to pay its, his, her or their debts as they mature in the regular course
of business; or (E) should the Bank for any reason deem the Collateral is
inadequate to secure the Obligations; or (F) should the Bank, in its sole
discretion, determine there has occurred a material adverse change in the
business or affairs of the Obligor, then, and in any such event, the Bank shall
have the right to declare this Promissory Note and Security Agreement and any
such other Obligations and liabilities above mentioned immediately due and
payable, whereupon the maturity of the then unpaid balance of this Promissory
Note and Security Agreement and all other Obligations shall be accelerated and
the same, and all interest accrued thereon, shall forthwith become due and
payable without presentment, protest, notice or demand of any kind, all of which
are hereby expressly waived, at the option of the Bank. In addition, the Bank
shall have the right to enter upon the premises where any Collateral may be
located, obtain immediate possession thereof, foreclose upon the right, title
and interest of the Obligor therein, and sell, lease, temporarily hold idle,
assign, deliver and otherwise dispose of the whole of the Collateral or any part
thereof, or any substitutes thereof, or additions thereto, or any other security
or property subject to the lien hereinabove given, at any exchange, broker's
board or at public or private sale, at the option of the Bank, without demand,
advertisement or notice of any kind, all of which are hereby expressly waived.
At any such sale, the Bank may itself purchase all or any part of the Collateral
sold, free from any right of redemption ont he part of the Obligor, which is
hereby waived and released to the extent permitted by applicable law. The Bank
may require the Obligor to assemble the Collateral and make it available to the
Bank at a place designed by the Bank which is mutually and reasonably
convenient. The Bank may apply the proceeds of any such sale or sales or other
disposition, after deducting all costs and expenses of recovery, collection,
storing, sale and delivery, to pay either this Promissory Note and Security
Agreement or any such other obligation or liability above mentioned, whether
same be then due or not. The Bank may, at its option at any time, appropriate
and apply to the payment of this Promissory Note and Security Agreement or any
such other obligation or liability above mentioned, any such Collateral or other
property, money or account affected by the lien hereinbefore given. In addition
to the above remedies, the Bank shall have the right to (a) take any action at
law or in equity to collect the payments due under this Promissory Note and
Security Agreement or to enforce performance of the obligations of any Obligor
or recover damages for breach thereof and (b) exercise any and all rights and
remedies conferred upon secured parties by the Uniform Commercial Code or
otherwise possessed by the Bank. If any action or proceeding be commenced to
collect this Promissory Note and Security Agreement or enforce any of its
provisions, the obligor further agrees to pay all costs and expenses of such
action or proceeding (including attorneys' fees), which the obligor agrees to be
reasonable, and the Obligor does hereby expressly waive any and every right to
have the reasonableness of such costs and expenses determined by any court judge
thereof and does further expressly waive any and every right to interpose any
counterclaim in any such action or proceeding.
DUE ON SALE: The Bank shall have the right to declare this Promissory Note
and Security Agreement immediately due and payable in the event of a sale,
conveyance, transfer or net leasing or disposition, directly or indirectly, of
the property or interest therein, including the further encumbrance of the
property to secure an obligation of the Obligor, or the sale or transfer of a
<PAGE>
majority interest of the Obligor (either of record or beneficially).
TAX ESCROW: The Obligor shall pay to the Bank all amounts necessary to pay
for taxes, assessments, water and sewer charges, if any, assessed upon the
property, unless the Bank notifies the Obligor, in writing, to the contrary, or
unless the law requires otherwise. Said payments shall be made on the same day
that the monthly payments of principal and interest are due pursuant to this
Note. Each of said payments pursuant to this provision shall be one-twelfth
(1/12) of the estimated yearly taxes, assessments, water and sewer charges, if
any, assessed in connection with the mortgaged premises.
ATTORNEYS' FEES: In the event that this Promissory Note and Security
Agreement is placed in the hands of an attorney for the collection of any
payment hereunder or for the enforcement of any of the terms, covenants and
conditions thereof, the Obligor agrees to pay all costs of collection, including
'reasonable attorneys' fees incurred by the Bank, either with or without the
institution of an action or proceeding, and in addition, all other costs,
disbursements and allowances provided by law. All such costs so incurred shall
be deemed to be secured by this Promissory Note and Security Agreement and
collectable out of the mortgaged premises in any manner permitted by law or by
this Obligation.
PRIOR NOTES: This Promissory Note and Security Agreement supersedes Note
dated September 30, 1985, in the original principal amount of $850,000.00, and
the Note dated May 25, 1988, in the original principal amount of $454,300.00.
JURISDICTION: The Obligor hereby submits to the jurisdiction of the Supreme
Court of the State of New York and agrees with the Bank that personal
jurisdiction over the.Obligor shall rest with the Supreme Court of the State of
New York for purposes of any action on or related to this Promissory Note and
Security Agreement, the obligations, or the enforcement of either or all of the
same. The Obligor hereby waives personal service by manual delivery and agrees
that service of process may be made by post-paid certified mail directed to the
obligor's address set forth above, or at such other address as may be designated
in writing by the obligor to the Bank, and that upon mailing of such process,
such service shall be effective with the same effect as though personally
served, whether or not the obligor, in fact, receives and accepts such certified
mail. The Obligor hereby expressly waives any and every right to a trial by jury
in any action on or related to this Promissory Note and Security Agreement, the
Obligations or the enforcement of either or all of the same.
MODIFICATION AND WAIVER: No modification or waiver of any of the provisions
of this Promissory Note and Security Agreement shall be effective unless in
writing, signed by the Bank and only to the extent therein set forth; nor shall
any action or omission by the Bank constitute a waiver of any right or remedy of
the Bank hereunder. Such rights or remedies are cumulative and not exclusive of
any rights or remedies provided by law. The failure of any holder of this
Promissory Note and Security Agreement to insist upon strict performance of each
and/or all of the terms and conditions hereof, shall not be construed or deemed
to be a waiver of any such term or condition. Payment of principal and interest
on this Promissory Note and Security Agreement shall not discharge the obligor's
obligations with respect to any other amount payable hereunder.
WAIVER: The Obligor and all endorsers and guarantors hereof waive
presentment and demand for payment, notice of non-payment, protest and notice of
protest.
<PAGE>
GOVERNING LAW: The provisions of this Promissory Note and Security
Agreement shall be construed and interpreted and all rights and obligations
hereunder determined in accordance with the laws of the State of New York.
TELEBYTE TECHNOLOGY, INC.
By:/s/ Michael Breneisen
Michael Breneisen
Vice President
STATE OF NEW YORK, COUNTY OF SUFFOLK : SS.:
On this 18 day of March 1998, before me personally came Michael Breneisen, to me
known, who, being duly sworn by me, did depose and say that he resides at 12
Olympia Pace E. Northport, NY;
That he is the Vice President of TELEBYTE TECHNOLOGY, INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name by order of the Board of Directors of said corporation.
Notary Public
<PAGE>
TO: NEW YORK STATE TAX COMMISSION
CLERK OF SUFFOLK COUNTY, NEW YORK
STATE OF NEW YORK,
COUNTY OF SUFFOLK : ss.:
MARCIA Z. HEFTER, being duly sworn, deposes and says:
That she is an attorney at law with offices at 108 East Main Street,
Riverhead, New York, and that she is a partner of the law firm of Esseks, Hefter
& Angel, the attorneys for Home Federal Savings Bank, the mortgagee herein.
That she is personally familiar with the facts hereinafter set forth:
That on the 18th day of March 1998, an Assignment of Leases and Rents was
given by TELEBYTE TECHNOLOGY, INC. to Home Federal Savings Bank as additional
collateral security for an indebtedness as evidenced by an assignment of rents
and leases being executed simultaneously herewith.
That said Assignment of Leases and Rents presented herewith secures no new
or further indebtedness.
That this Affidavit is made to induce the NEW YORK STATE TAX COMMISSION and
the CLERK OF SUFFOLK COUNTY to accept said Assignment of Leases and Rents
presented herewith, together with the payment of $ -0- mortgage tax thereon and
to record the within instrument without requiring any mortgage tax other than
the aforesaid sum, under the provisions of the Tax Law relating to exemptions of
mortgage tax.
Marcia Z Hefter
sworn to before me this
18th day of March 1998
Notary Public
<PAGE>
ASSIGNMENT OF LEASES AND RENTS
Loan No. 192486
ASSIGNMENT AGREEMENT made this 18 day of MARCH , 1998, between TELEBYTE
TECHNOLOGY, INC., a domestic corporation, conducting business at 270 Pulaski
Road, Greenlawn, New York 11740, hereinafter referred to as the mortgagor, and
HOME FEDERAL SAVINGS BANK, as successor in interest to The Union Savings Bank,
having a principal office at 62 South Ocean Avenue, Patchogue, New York 11772,
hereinafter referred to as mortgagee.
WHEREAS, the mortgagor is the owner of certain premises in the State of New
York, more particularly described in Schedule "All which is attached hereto and
made a part thereof, hereinafter referred to as the mortgaged premises; and
WHEREAS, the premises described in Schedule "All are the same premises
described in a certain Modification Agreement made by the mortgagor to the
mortgagee dated the . 18TH - day of MARCH ' 1998, and to be recorded in the
office of the Clerk of the County of Suffolk; and
WHEREAS, it is a condition to the granting of this Modification Agreement
that all leases now or hereinafter in force or effect con cerning any part of
the mortgaged premises as described in Schedule "All be assigned and transferred
to the mortgagee as additional security for the said loan, together with all the
rents which may become due and payable under the leases or any extension or
renewal thereof.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereby agree as follows:
1. The mortgagor does grant, bargain, sell, assign, transfer and set over unto
the mortgagee, its successors and assigns, all the rights and privileges of the
mortgagor under all leases including the rents to accrue therefrom together with
any and all rents which may become due and payable under or by virtue of any
other lease, written or oral, or under or by virtue of any agreement for the use
or occupancy of any part of said mortgaged premises.
<PAGE>
2. Until such time as the mortgagor may default in the payment of principal and
interest or other indebtedness secured by the note and mortgage herein referred
to or in performance of any other obligations hereunder, the mortgagor may
collect all rents arising under the aforementioned leases from the mortgaged
premises when the same are due payable and retain the same. In the event the
mortgagor defaults herein, the mortgagee may at its option, without notice or
regard to the adequacy of the security, by its agents, take possession of the
above described mortgaged premises and hold, lease and manage the same on such
terms and for such a period of time as the mortgagee deems proper and, with or
without taking possession of the premises, make demand and sue for all rents of
the premises, with power to make from time to time, such alterations, repairs
and renovations that may seem proper to the mortgagee, and apply such rents to
the payment of all expenses of operating, managing and maintaining the mortgaged
premises, and the principal and interest and other indebtedness secured by the
note and mortgage, together with the costs and attorney's fees, in such priority
as the mortgagee in its sole discretion may determine. not be obligated to
perform or discharge any obligation or duty under the lease or under this
assignment, and mortgagor agrees to indemnify the mortgagee for any liability,
loss or damage which may be incurred under the lease or by reason of this
assignment in the event the mortgagee incurs any such liability above referred
to or in defense of any such claims or demands, the amount thereof, including
costs and reasonable attorney's fees shall be secured by this assignment and the
mortgagor shall reimburse the mortgagee immediately therefor upon the demand of
the mortgagee. Further, this assignment shall not make the mortgagee responsible
for any waste committed on the property by the tenants or any other parties, or
for any dangerous or defective condition of this premises, or for the negligence
in the management, repair and control of the premises.
4. Upon payment in full of principal, interest and other indebtedness secured by
this assignment or other instruments referred to herein, this assignment shall
cease, but the affidavit of statement of the mortgagee or any agent, officer, or
attorney of the mortgagee showing any part of principal, interest or other
indebtedness remaining unpaid shall constitute conclusive evidence of the
effectiveness and force of this assignment and any person is authorized to rely
thereon.
5. The mortgagor hereby agrees to notify all the lessees of the mortgaged
premises of this assignment and covenants and agrees that up to the date of this
assignment the mortgagor has
<PAGE>
faithfully performed and fulfilled all covenants of said leases and during the
term of the leases, and so long as the mortgage herein referred to shall be in
effect the mortgagor will continue to faithfully perform and fulfill all
covenants under any lease to be performed as lessor, and the mortgagor will not
by failure or fault at any time during the term of this lease give any lessee
cause to terminate their lease. The mortgagor further covenants and agrees that
all lessees have, up to the date of this agreement, fully paid all the rentals
and other payments due as required under the leases, the mortgagor has not
assigned any interest thereunder and has in all other respects faithfully
performed the covenants thereof, and is not in default under any of the
respective leases.
6. The mortgagor further agrees that if any breach of covenant or other default
in the terms of any lease occurs, whether caused or claimed to be caused by it
or the mortgagor or by the lessee, the mortgagor will promptly notify the
mortgagee thereof in writing, and will give the mortgagee reasonable opportunity
to investigate, and if possible to correct the default or other breach and
otherwise to protect its rights under this assignment.
7. Nothing contained in this assignment nor in any act done or omitted by the
mortgagee pursuant to the terms of the assignment shall be deemed a waiver by
the mortgagee of any of the rights or remedies under the note and mortgage
hereinbefore mentioned, and this assignment is executed without prejudice to any
rights or remedies possessed by the mortgagee under the terms of any other
instruments referred to herein. The right of the mortgagee to collect the
secured principal, interest and other indebtedness, and to enforce any other
security, may be exercised by the mortgagee prior or subsequent to any action
taken under this assignment.
It is further understood that no security deposited by any lessee with the
mortgagor under the terms of any lease hereby assigned has been transferred to
the mortgagee who assumes no Schedule "All herein whether said lease has been
made prior hereto or is entered into in the future.
10. The mortgagor hereby appoints the mortgagee, its attorney in fact to demand,
receive and enforce payment and to give receipts, releases and satisfactions and
to sue for all sums payable
<PAGE>
either in the name of the mortgagor or in the name of the mortgagee, with the
same force and effect as if the mortgagor had done if this agreement had not
been made.
11. This assignment together with all the agreements, covenants and
warranties contained herein shall inure to the benefit of the mortgagee and
subsequent holder of the note and mortgage and shall be binding upon the
mortgagor and any subsequent owner of the premises.
IN WITNESS WHEREOF, the parties hereto execute this agreement the day and
year first above written.
HOME FEDERAL BANK TELEBYTE TECHNOLOGY, INC.
By /s/Tom B. Ford By: /s/ Michael Breneisen
Michael Breneisen
Title: Vice President Title: Vice President
STATE OF NEW YORK, COUNTY OF SUFFOLK SS.:
On the 18TH day of MARCH 1998, before me personally came Michael Breneisen
, to me known, who being by me duly sworn, did depose and say that he resides at
That he is Vice President of TELTBYTE TECHNOLOGY, INC., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of said Corporation.
Notary Public
STATE OF NEW YORK, COUNTY OF SUFFOLK : SS.:
On the 16 day of MARCH 1998, before me personally came Mark E. Sheridan, to me
known, who being by me duly sworn, did depose and say that he resides at 10
Wellington Road, Garden City, New York ; that he is the Vice President of HOME
FEDERAL SAVINGS BANK, the corporation
<PAGE>
described in and which executed the foregoing instru- ment; and that he signed
his name thereto by order of the Board of Directors of said corporation
Notary Public
<PAGE>
MORTGAGE MODIFICATION AGREEMENT
THIS AGREEMENT is entered into on the 18th day of MARCH, 1998, between
TELEBYTE TECHNOLOGY, INC., a New York corporation with is principal place of
business at 207 Pulaski Road, Greenlawn, New York 11740, hereinafter referred to
as "MORTGAGOR", and HOME FEDERAL SAVINGS BANK, a National Banking corporation
with an office at 62 South Ocean Avenue, Patchogue, New York 11772, as successor
in interest to UNION SAVINGS BANK, hereinafter referred to as "MORTGAGEE";
W I T N E S S E T H:
WHEREAS, the Mortgagee is the holder and owner of the following of the
following mortgages and/or agreements:
(a) Mortgage made by Telebyte Technology, Inc. to The Union Savings Bank dated
09/30/85, in the original principal amount of $850,000.00, recorded in the
Suffolk County Clerk's Office on 10/10/85 in Liber 11085 mp 597; and
(b) Mortgage made by Telebyte Technology, Inc. to The Union Savings Bank dated
05/25/88, in the original principal amount of $454,300.00, recorded in the
Suffolk County Clerk's office on 06/09/88 in Liber 14143 mp 444, which Mortgage
was consolidated with Mortgage recorded in Liber 11085 mp 597 by a certain
Consolidation Agreement dated 05/25/88, recorded in the Suffolk County Clerk's
office on 06/09/88 in Liber 14143 mp 449 to form a single lien in the amount of
$1,275,000.00; and
WHEREAS, the unpaid principal balance of said Mortgages, as consolidated and
extended, as of the date of the execution of 'this Agreement is $965,827.88.
NOW, THEREFORE, the parties covenant and agree as follows:
1. Modification of Interest Rate: Commencing as of the
date hereof and continuing until the first (lst) day of June, 2000, the unpaid
principal sum secured by the Mortgages as consolidated and extended, shall bear
interest at the rate of Nine percent (9.00%) per annum and the principal shall
be amortized over a 10year payment schedule. On the lst day of June, 2000, the
interest rate will be adjusted for the next ensuing three (3) years of the term
hereunder to the three (3) year weekly average US Treasury Constant Maturity
rate in effect on May 1, 2000, plus 3.00%. At such time, the monthly
amortization payment due pursuant to the Promissory Note and Security Agreement
executed simultaneously herewith shall be adjusted using the new interest rate
and amortizing the then principal balance over an 8-year payment schedule.
Thereafter, on the 1st day of June, 2003, the interest rate shall again be
adjusted for the next ensuing three (3) years of the term hereunder to the three
(3) year weekly average US Treasury Constant Maturity rate in effect on May
1,.,2003, plus 3.00%. At such time, the monthly amortization payment due
pursuant to the Promissory Note and Security Agreement executed simultaneously
herewith shall be adjusted using the new interest rate and amortizing the then
principal balance over a 5-year payment schedule. Thereafter, on the lst day of
June, 2006, the
interest rate shall again be adjusted for the remaining two (2) years of the
term hereunder to the three (3) year weekly average US Treasury Constant
Maturity rate in effect on May 1, 2006, plus 3.00%. At such time, the monthly
amortization payment due pursuant to the Promissory Note and Security Agreement
executed simultaneously herewith shall be adjusted using the new interest rate
and amortizing the then principal balance over a 2-year payment schedule. The
entire unpaid principal balance shall be due and payable on the lst day of June,
2008. Each of the said payments shall be applied first when received by the Bank
to the payment of interest at the rate in effect at the time of the due date of
the said payment, to be computed from the date hereof on the unpaid balance of
the principal sum hereof to the date of payment; and, secondly, towards the
reduction of the principal sum hereof.
II. RESERVATION OF RIGHTS AGAINST THIRD PARTIES: This Agreement is made on the
express condition that it shall not be construed as precluding Mortgagee, or the
successors or assigns of Mortgagee, from enforcing any rights against any person
liable on the obligation secured as maker, endorser, guarantor, or
<PAGE>
otherwise, whose written consent hereto has not been obtained., If or which
purpose the debt may be treated as overdue and collected immediately in
accordance with the terms of the Mortgage Note as if this Agreement had not been
made.
III. OPERATION AS MODIFICATION ONLY: The parties to this Agreement intend this
instrument to operate only as a
SCHEDULE A
THE PREMISES IN WHICH THE INSURED HAS THE ESTATE OR INTERBST
COVERED BY THIS POLICY
All that certain plot, piece, or parcel of land, situate, lying and being near
Greenlawn, Town of Huntington, County of Suffolk and State of Now York, bounded
and described an follows:
BEGINNING at a point on the northerly aide of East Pulaski Road distant 392.54
feet easterly from the southeasterly end of a line connecting the said northerly
side of Bast Pulaski Road, and the easterly aide of Park Avenues
THENCE North 20 degrees 02 minutes 10 seconds West 7.03 feet to the true point
or place of beginning, and from said point or place of beginning
RUNNING THENCE 14orth-20 degrees 02 minutes 10 seconds West 559.37 feet to lands
now or formerly of N. Racanelli,
THENCE North 75 degrees 00 minutes 20 seconds East 260.72 feet to lands now or
formerly of Stanford B. Taylor;
THENCE South 20 degrees 02 minutes 10 seconds East 525.96 feet-to the said
northerly aide of East Pulaski Road as widened, and
THENCE along the said northerly aide of East Pulaski Road an widened along the
arc of a curve bearing to the left having a radius of 2904.93 feet a distance of
259.99 feet to the point or place of BEGINNING.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 10, 1999, accompanying the financial
statements included in the Annual Report of Telebyte Technology, Inc. on Form
10-KSB for the year ended December 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statement of
Telebyte Technology, Inc. on Form S-8 (File No. 0-11883), effective March 29,
1996.
GRANT THORNTON LLP
Melville, New York
March 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 919,630
<SECURITIES> 0
<RECEIVABLES> 663,467
<ALLOWANCES> 15,000
<INVENTORY> 1,421,974
<CURRENT-ASSETS> 3,111,048
<PP&E> 1,920,161
<DEPRECIATION> 856,018
<TOTAL-ASSETS> 4,332,347
<CURRENT-LIABILITIES> 553,168
<BONDS> 0
0
0
<COMMON> 16,611
<OTHER-SE> 2,899,722
<TOTAL-LIABILITY-AND-EQUITY> 4,332,347
<SALES> 5,568,787
<TOTAL-REVENUES> 5,568,787
<CGS> 2,630,486
<TOTAL-COSTS> 2,630,486
<OTHER-EXPENSES> 2,546,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,352
<INCOME-PRETAX> 369,500
<INCOME-TAX> 36,000
<INCOME-CONTINUING> 333,500
<DISCONTINUED> 0
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<NET-INCOME> 333,500
<EPS-PRIMARY> .22
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