United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarter ended March 31, 1999
[ ] Transition Report Under 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
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
270 Pulaski Road, Greenlawn, New York 11740
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (516) 423-3232
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of May 14, 1998 there were outstanding 1,248,631 shares of Common Stock, $.01
par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
<PAGE>1
TELEBYTE TECHNOLOGY, INC.
INDEX
Part I Financial Information
Item 1. Financial Statements
Balance Sheet
March 31, 1999 (Unaudited)
Statements of Earnings
Three months ended
March 31, 1999 and 1998 (Unaudited)
Statements of Cash Flows
Three months ended
March 31, 1999 and 1998 (Unaudited)
Condensed Notes to Financial
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Part II
Other Information
<PAGE>2
TELEBYTE TECHNOLOGY, INC.
BALANCE SHEET
MARCH 31, 1999
(unaudited)
ASSETS
CURRENT ASSETS
Cash & cash equivalents $ 155,493
Accounts receivable, less
allowance for doubtful accounts 732,907
Inventory 1,591,872
Prepaid expenses 49,490
Deferred income taxes 50,000
-------------
TOTAL CURRENT ASSETS 2,579,762
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 1,062,088
OTHER ASSETS 341,227
--------------
$ 3,983,077
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 525,623
Accrued expenses 225,372
Borrowings under line-of credit 50,415
Current maturities of long-term debt 69,358
---------------
TOTAL CURRENT LIABILITIES 870,768
LONG-TERM BORROWINGS UNDER LINE OF CREDIT 208,630
LONG-TERM DEBT, less current maturities 842,451
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000
shares authorized; 1,666,066 shares issued
and 1,248,631 shares outstanding 16,660
Capital in excess of par value 2,764,821
Retained earnings 308,270
Treasury stock - 417,435 shares at cost (1,028,523)
--------------
2,061,228
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,983,077
==============
The accompanying notes are an integral part of these financial statements.
<PAGE>3
TELEBYTE TECHNOLOGY, INC.
STATEMENTS OF EARNINGS
(Unaudited)
Three Months
Ended March 31,
1999 1998
---------- ----------
NET SALES $1,365,280 $1,220,816
COST OF SALES 678,467 562,306
---------- ----------
GROSS PROFIT 686,813 658,510
---------- ----------
Research and development 129,119 95,852
Selling, general and administrative 430,685 399,651
---------- ----------
559,804 495,503
Operating Income 127,009 163,007
---------- ----------
OTHER INCOME (EXPENSE)
Rental Income 12,049 12,049
Interest Income 4,682 6,470
Interest Expense (30,364) (28,506)
----------- ----------
Earnings before income taxes 113,376 153,020
Provision for income taxes 45,000 2,000
----------- ----------
NET EARNINGS $ 68,376 $ 151,020
=========== ===========
Earnings per common share:
Basic $0.05 $0.10
===== =====
Diluted $0.05 $0.10
===== =====
Shares used in computing earnings per common share:
Basic 1,303,494 1,492,616
========= =========
Diluted 1,310,256 1,543,516
========= =========
The accompanying notes are an integral part of these financial
statements.
<PAGE>4
TELEBYTE TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months
Ended March 31,
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 68,376 $ 151,020
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 37,695 26,283
Decrease (increase) in assets:
Accounts receivable (84,440) 188,045
Inventories (169,898) (176,453)
Prepaid expenses and other 27,844 (27,151)
Increase (decrease) in liabilities:
Accounts payable 173,614 (40,340)
Accrued expenses 88,700 (7,463)
--------- --------
Net cash provided by operating activities 141,891 113,941
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (22,944) (15,797)
Purchase of non-compete agreement (203,124) -
--------- --------
Net cash used in investing activities (226,068) (15,797)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under mortgage obligation (15,525) (10,412)
Purchase of treasury stock (927,430) -
Net borrowings under line-of credit agreement 259,045 -
Proceeds from exercise of stock options 3,950 7,072
---------- --------
Net cash used in financing activities (679,960) (3,340)
---------- --------
Net (decrease) increase in cash (764,137) 94,804
and cash equivalents
Cash and cash equivalents at beginning of period 919,630 730,284
---------- ---------
Cash and cash equivalents at end of period $ 155,493 $ 825,088
========== ==========
The accompanying notes are an integral part of these financial
statements.
<PAGE>5
TELEBYTE TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The balance sheet as of March 31, 1999, the statement of earnings for the three
months then ended and the statements of cash flows for the three month period
then ended have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1999 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's annual report to shareholders for the fiscal year ended
December 31, 1998. The results of operations for the period ended March 31, 1999
are not necessarily indicative of the operating results for the full year.
2. RELATED PARTY TRANSACTIONS
Effective January 20, 1999, then Chairman of the Board, President and Chief
Executive Officer of the Company (the "Former Chairman") resigned his positions
with the Company. However, the Former Chairman will serve as a consultant to the
Company through January 19, 2002 for an aggregate consideration of $165,000 plus
reimbursement for certain expenses. In addition, the Company purchased all of
the shares of common stock of the Company owned by the Former Chairman and the
Former Chairman agreed to cancel options to purchase 10,000 shares of common
stock of the Company for an aggregate consideration of $1,149,455 of which
$927,430 was for such shares, $18,901 was for the cancellation of such options
and $203,124 was for the Former Chairman's restrictive covenant. In addition,
the Former Chairman has agreed not to compete with the business of the Company
until January 19, 2003 and has released the Company from certain potential
claims relative to his previous employment. Further, the Company transferred a
life insurance policy maintained under the Company's deferred compensation plan,
to the Former Chairman, having a cash value of approximately $80,000.
<PAGE>6
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation.
Statements in this Form 10-QSB that are not descriptions of historical fact are
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those currently anticipated due to a number
of factors, including risks relating to competition; and other factors impacting
the data communications industry.
RESULTS OF OPERATIONS
Sales during the first quarter ended March 31, 1999 increased 11.8% to
$1,365,280 compared to sales of $1,220,816 for the same period in 1998.
Management believes that the increased sales can be primarily attributed to
aggressive marketing over the Internet using the Company's Web page and greater
acceptance and penetration of the Company's products in the data communications
marketplace.
Cost of sales for the first quarter of $678,467 or 49.6% of sales increased
compared to the $562,306 or 46.1% of sales during the same period in 1998. The
decreased profit margin during the first quarter of 1999 is due primarily to a
higher percent of lower profit margin products dominating sales in the first
quarter of 1999 as compared with the first quarter of 1998.
Selling, general and administrative costs of $430,685 increased as compared to
$399,651 during the first quarter of 1998. The increase of $31,034 during the
first quarter was due primarily to costs incurred in connection with the stock
repurchase and consulting agreements dated January 20, 1999 with Joel A. Kramer.
These costs included consulting fees, other compensation and amortization of
non-compete costs. Expenditures related to the enhancement of the Company's
Internet presence were significantly increased during the first quarter of 1999
as compared to the first quarter of 1998. The planned enhancements are expected
to be implemented during the third quarter of 1999.
Research and development expenses of $129,119 increased 34.7%, compared to
$95,852 during the same quarter in 1998. This was due to an increase in the
staffing level of the Company's Engineering Department in the first quarter of
1999 as compared with the same quarter in 1998. It was also due to increased
expenditures in order to accelerate the development of several products, which
had begun in 1998. During the first quarter, the Company continued the
development of its new Digital Subscriber Line test equipment. The first product
is expected to be introduced in the marketplace during the second quarter of
1999. Others are expected to be introduced in the third quarter of 1999.
Interest income decreased to $4,682 during the first quarter of 1999 compared to
$6,470 for the same period in 1998. The decrease in interest income was due
primarily to lower levels of cash on deposit at Merrill Lynch. During the first
quarter of 1999 the Company had rental income of $12,049 which was in line with
the comparable quarter of 1998.
The effective tax rate in first quarter of 1999 was 40 percent, compared with
1.3 percent in same quarter in 1998. The increase in the effective tax rate is
primarily due to the Company's utilization of its net operating loss
carryforward.
The net income of $68,376 or $.05 per share for the first quarter of 1999
decreased compared to the net income of $151,020 or $.10 per share in the same
quarter in 1998. The decrease in profitability is due primarily to the increased
selling expenditures and research and development as discussed above.
<PAGE>7
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $141,891 for the first quarter of
1999 compared to $113,941 in the same period of 1998. This change is primarily
due to the increases in accounts payable and accrued expenses during the first
quarter of 1999.
Working capital decreased as of March 31, 1999 by $848,886 to $1,708,994
compared with $2,557,880 from December 31, 1998. The current ratio at March 31,
1999 decreased to 3:1 compared to 5.6:1 at December 31, 1998. These decreases
reflect the use of working capital by the company in the purchase of treasury
stock and related non-compete agreement with the former Chairman and Chief
Executive Officer.
The Company has an agreement with a financial institution, expiring 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%. The
balance against this line at March 31, 1999 was $50,415.
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%. Net borrowings under this line of credit totaled $208,630 at March 31,
1999.
The Company believes that cash generated by the Company's operations, current
cash and cash equivalents, and the line of credit should supply the cash
resources to meet its cash needs for the next twelve months.
Preparation for Year 2000 Problems
The Year 2000 ("Y2K") problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000, which could result in
miscalculations or system failures. The Company has instituted a Y2K compliance
program, the objective of which is to determine and assess the risks of the Y2K
issue, and plan and institute mitigating actions to minimize those risks. The
Company's standard for compliance requires that for a computer system or
business process to be Y2K compliant, it must be designed to operate without
error in date and date-related data prior to, on and after January 1, 2000. The
Company expects to be fully Y2K compliant with respect to all significant
business systems prior to December 31, 1999.
<PAGE>8
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 60% 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, electronic door locks, telephones, etc.) is being
undertaken. The majority of these non-IT systems are not believed to be
potential sources of significant disruption, although the contingency plans
(described below) will address non-IT Y2K failure as well as IT systems failure.
Products
The Company has evaluated its currently available products and believes that
they are Year 2000 compliant. The Company's currently available products are
generally not date sensitive, although the environment in which they operate may
have Year 2000 issues not associated with the Company's products. The inability
of any of the Company's products to operate properly in the Year 2000 could
result in increased warranty costs, customer satisfaction issues, litigation, or
other material costs and liabilities, which could have a material adverse affect
on the Company, its results of operations and financial condition.
<PAGE>9
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 permit. 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.
<PAGE>10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 27 - Financial Data Schedule
(b) Event dated January 20, 1999--Item 5.
<PAGE>11
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELEBYTE TECHNOLOGY, INC.
By: __________\s\_________________
Kenneth S. Schneider
Chairman of the Board
(Principal Executive Officer)
By: ___________\s\________________
Michael Breneisen, President
(Principal Financial and Accounting Officer)
Date: May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 155,493
<SECURITIES> 0
<RECEIVABLES> 750,907
<ALLOWANCES> 18,000
<INVENTORY> 1,591,872
<CURRENT-ASSETS> 2,579,762
<PP&E> 1,943,105
<DEPRECIATION> 881,017
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<CURRENT-LIABILITIES> 870,768
<BONDS> 0
0
0
<COMMON> 16,660
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<TOTAL-COSTS> 678,467
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<INCOME-TAX> 45,000
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