UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the quarterly period ended: March 30, 1996
OR
[ ] 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 0-18374
Telebit Corporation
(Exact name of registrant as specified in its charter)
California 77-0007049
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Executive Drive, Chelmsford, Massachusetts 01824
(Address of principal executive offices)
(Zip Code)
(508) 441-2181
(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, no par value 13,680,313 shares
-------------------------- ---------------------
(Class) (Outstanding at May 7, 1996)
Page 1 of 14
<PAGE>
TELEBIT CORPORATION
FORM 10-Q
For the Three Months Ended March 30, 1996
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of
March 30, 1996 and December 31, 1995......... 3
Consolidated Statements of
Operations for the Three Months Ended
March 30, 1996 and April 1, 1995............. 4
Consolidated Statements of Cash Flows
for the Three Months Ended
March 30, 1996 and April 1, 1995............. 5
Notes to Consolidated Financial
Statements................................... 6
ITEM 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................. 8
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings..............................15
ITEMS 2-6 - (Not applicable)............................15
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEBIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
March 30, Dec. 31,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $924 $2,371
Short-term investments 8,030 10,055
Accounts receivable, less allowance for
doubtful accounts and sales returns of
$2,966 in 1996 and $2,972 in 1995 6,743 5,343
Inventories 7,343 8,161
Prepaid expenses and other current assets 859 1,048
---------- ----------
Total current assets 23,899 26,978
Property and equipment, net 3,231 3,295
Other assets 271 309
---------- ----------
$27,401 $30,582
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $29 $29
Accounts payable 4,050 4,443
Accrued liabilities 6,514 9,172
---------- ----------
Total current liabilities 10,593 13,644
Long-term obligations, net of current portion 127 134
---------- ----------
Total liabilities 10,720 13,778
---------- ----------
Shareholders' equity:
Preferred stock, no par value: 5,000,000
shares authorized; none outstanding -- --
Common stock, no par value: 40,000,000 shares
authorized; 13,570,862 and 13,549,159 issued
and outstanding in 1996 and 1995, respectively 57,678 57,576
Net unrealized gain on securities available
for sale 12 43
Cumulative translation adjustment (19) (14)
Accumulated deficit (40,990) (40,801)
---------- ----------
Total shareholders equity 16,681 16,804
---------- ----------
$27,401 $30,582
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TELEBIT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 30, April 1,
1996 1995
--------- ---------
<S> <C> <C>
Revenue $12,748 $18,095
Cost of revenue 7,540 10,068
--------- ---------
Gross margin 5,208 8,027
--------- ---------
Operating expenses:
Product development, net 1,858 2,331
Sales and marketing 2,891 4,379
General and administrative 791 1,043
--------- ---------
Total operating expenses 5,540 7,753
--------- ---------
Income (loss) from operations (332) 274
Interest income 118 197
Interest expense (1) (5)
Other income, net 63 14
--------- ---------
Income (loss) before income taxes (152) 480
Income tax expense 37 68
--------- ---------
Net income (loss) $(189) $412
========= =========
Net income (loss) per common share $(0.01) $0.03
========= =========
Weighted average common and common
equivalent shares outstanding 13,571 13,826
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
TELEBIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 30, April 1,
1996 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(189) $412
Adjustments to reconcile net income (loss) to net
cash used for operating activities -
Depreciation and amortization 342 548
Provision for doubtful accounts and sales returns -- 30
Changes in assets and liabilities -
Accounts receivable (1,400) (2,630)
Inventories 818 2,467
Prepaid expenses and other assets 183 (155)
Accounts payable (389) (201)
Accrued liabilities (2,647) (1,387)
-------- ---------
Net cash used for operating activities (3,282) (916)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in short-term investments 1,994 636
Acquisitions of property and equipment (251) (272)
-------- ---------
Net cash provided by investing activities 1,743 364
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations (7) (60)
Proceeds from issuance of common stock 102 104
-------- ---------
Net cash provided by financing activities 95 44
-------- ---------
Effect of exchange rate changes on cash (3) 1
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,447) (507)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,371 6,471
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $924 $5,964
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $1 $5
Cash paid for income taxes 4 2
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
TELEBIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Telebit Corporation (the "Company" or "Telebit") and the Company's
wholly-owned subsidiaries, after elimination of intercompany accounts and
transactions.
The accompanying consolidated financial statements are unaudited; however,
in the opinion of management, such financial statements contain all
necessary adjustments to fairly present the financial position, results of
operations and cash flows of the Company for the interim periods
presented. These statements do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements, although the Company believes that the
disclosures made are adequate to make the information presented not
misleading. Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and related notes
thereto included in the Form 10-K.
Certain matters discussed in, or incorporated by reference into, this Form
10-Q are forward looking statements which involve risks and uncertainties.
The forward looking statements in, or incorporated by reference into, this
Form 10-Q are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Actual results may differ
materially due to a variety of factors, including, without limitation, the
risks, uncertainties and other information discussed under the heading
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Certain Factors that May Affect Future Results" in this
Form 10-Q and elsewhere in this Form 10-Q, as well as in the Company's
other filings with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended December 31, 1995
(the "Form 10-K").
The operating results for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed based on the weighted
average number of common and common equivalent shares outstanding during
the period. Common equivalent shares are excluded from quarterly earnings
per share calculations when their effect would be anti-dilutive.
Fully-diluted per share amounts are the same as the reported per share
amounts.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Cost includes material, labor and manufacturing overhead.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 30, Dec. 31,
1996 1995
--------- ---------
<S> <C> <C>
Raw materials $4,847 $5,986
Work-in-process 1,800 791
Finished goods 696 1,384
--------- ---------
$7,343 $8,161
========= =========
</TABLE>
<PAGE>
4. RESTRUCTURING RESERVES
Amounts charged against the restructuring reserve during the three months
ended March 30, 1996 and the composition of the remaining reserve balance
at March 30, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
First First
Balance Quarter Quarter Balance
Dec. 31, Accruals Charges March 31,
1995 1996 1996 1996
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Provisions for severance
payments to terminated
employees $1,839 $ - $(1,564) $275
Provisions related to
closure of facilities 50 - (50) -
--------- --------- --------- ----------
$1,889 $ - $(1,614) $275
========= ========= ========= ==========
</TABLE>
The balance at March 30, 1996 relates to the Company's 1995 Restructuring,
as discussed below.
1995 Restructuring
In June 1995, the Company commenced a plan to consolidate its operations
and reduce operating expenses (the "1995 Restructuring"). Under this plan,
the Company recorded expenses totaling approximately $3.2 million during
1995. These charges were comprised primarily of (i) provisions for
severance and retention bonus-related payments for terminated employees;
(ii) provisions relating to the closure of its Sunnyvale, California
facility; and (iii) provisions associated with the disposal of certain
property and equipment.
Amounts paid in the first quarter of 1996 under the "1995 Restructuring"
totaled $1.6 million, which represents severance and retention
bonus-related payments for terminated employees and payments related to
the closure of the Sunnyvale facility.
5. LEGAL PROCEEDINGS
In August 1995, two class action lawsuits were filed in the United States
District Court for the District of Massachusetts in which the Company was
named as a defendant, along with certain of its officers and directors.
The plaintiffs in the two suits filed a consolidated amended complaint on
November 9, 1995. The suits relate to disclosures made by the Company,
including in its public filings and press releases, and asserts violations
of federal securities laws. The defendants moved to dismiss the complaint
on December 8, 1995. On February 1, 1996, the Court denied defendants'
motion to dismiss. No class has yet been certified in the litigation.
Although the Company denies all material allegations of the complaint and
intends to vigorously defend against all claims brought against it, the
ultimate outcome, including amount of possible loss, if any, of the
litigation cannot be determined at this time. No provision for any
liability that may result from this litigation has been made in the
accompanying Consolidated Financial Statements. There can be no assurance
that the ultimate outcome of this matter will not have a material adverse
affect on the Company's business and results of operations.
The Company may be contingently liable with respect to certain unasserted
claims that may arise during the normal course of business. There can be
no assurance that the outcome of these matters will not have a material
adverse effect on the Company's consolidated financial statements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, included elsewhere herein.
The success of the Company is subject to a number of risks and uncertainties,
including, without limitation, the Company's ability to develop, manufacture and
market products that incorporate new technology, including the Company's Modem
ISDN Channel Aggregation ("MICA") technology on a timely basis, that are priced
competitively and achieve significant market acceptance; changes in product mix;
risks of dependence on third-party component suppliers; inventory risks due to
shifts in market demand; the presence of competitors with broader product lines
and greater financial resources; intellectual property rights and litigation;
needs for liquidity, including completion of a bank line of credit currently
under negotiation; and the other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission, including this
Form 10-Q.
Certain matters discussed in, or incorporated by reference into, this Form 10-Q
are forward looking statements which involve risks and uncertainties. The
forward looking statements in, or incorporated by reference into, this Form 10-Q
are made pursuant of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially due to a
variety of factors, including, without limitation, the risks, uncertainties or
other information discussed under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Certain Factors that
May Affect Future Results" and elsewhere in this Form 10-Q, as well as in the
Company's other filings with the Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (the "Form 10-K").
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following table
sets forth certain items from the Company's Consolidated Statements of
Operations as a percentage of revenue for the fiscal periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
1996 1995
--------- ---------
<S> <C> <C>
Revenue 100% 100%
Cost of revenue 59% 56%
--------- ---------
Gross margin 41% 44%
--------- ---------
Operating expenses:
Product development, net 15% 13%
Sales and marketing 23% 24%
General and administrative 6% 6%
--------- ---------
Total operating expenses 44% 43%
--------- ---------
Income (loss) from operations (3%) 1%
--------- ---------
Interest income, net 1% 1%
--------- ---------
Net income (loss) (2%) 2%
========= =========
</TABLE>
<PAGE>
Revenue
The Company derives its revenue from the sale of remote network access products,
consisting of dial-up access routers and modem products. Total revenue for the
first quarter of 1996 was approximately $12.7 million, a decrease of 30% from
revenue of $18.1 million for the same period last year. The decrease in revenue
was due primarily to lower product unit sales, particularly of the Company's
modem products. The decrease in revenue was attributed, but to a lesser extent,
to price erosion for both modem and dial up access router products.
Sales of the Company's products outside North America ("Export Sales") totaled
$6.1 million, or 48% of revenue for the first quarter of 1996, as compared with
$8.0 million, or 44% of revenue for the same period last year.
Gross Margin
Gross margin for the first quarter of 1996 was 41%, as compared with 44% for the
same period last year. Gross margin in the first quarter of 1996 continued to be
adversely affected by continued price competition for both the modem products
and dial up access router products.
Due to continued competitive pricing pressure, the Company experienced erosion
of both modem and dial up access router sell prices during the first quarter of
1996, and anticipates such erosion in the future. In order to mitigate the
effect of this erosion on gross margin, the Company is attempting to (i) reduce
material costs and maximize manufacturing efficiencies; (ii) increase the sales
of other products which generally offer higher margins; and (iii) introduce new
products and technologies. There can be no assurance that these measures will
successfully mitigate the effects of such competitive pricing pressure on the
Company's gross margin and the failure to mitigate such competitive pricing
pressures would have a material adverse effect on the Company's business and
results of operations.
Product Development
Net product development expense was $1.9 million in the first quarter of 1996,
or 15% of revenue, as compared with $2.3 million, or 13% of revenue, for the
same period last year. The reduction in absolute dollars was due primarily to
lower personnel and facility-related costs resulting from the 1995
Restructuring.
The Company intends to develop additional new products and technology, including
its MICA technology, and improve product functionality, cost and performance of
certain existing products. Accordingly, the Company expects that product
development expenses may increase. There can be no assurances that the Company
will not experience difficulties that could delay the successful development,
introduction and marketing of the MICA technology or MICA products, or that
products or technologies developed by others will not render the MICA technology
or MICA products uncompetitive or obsolete. In addition, there can be no
assurance that the Company's MICA technology will achieve market acceptance, or
result in cost effective, commercially successful new technology or products in
the future. Any such failure would have a material adverse impact on the
Company's business and results of operations. Furthermore, as the Company enters
new markets, distribution channels, technical requirements and basis of
competition may be different than those in the Company's current markets and
there can be no assurance that the Company will be able to compete successfully.
Sales and Marketing
Sales and marketing expenses were $2.9 million in the first quarter of 1996, or
23% of revenue, as compared with $4.4 million, or 24% of revenue, for the same
period last year. The reduction in absolute dollars was due primarily to lower
promotional expenditures, and, to a lesser extent, lower personnel-related costs
in connection with the 1995 Restructuring. The Company expects that sales and
marketing expenses may increase in subsequent quarters as a result of
promotional expenditures, including such costs relating to its MICA technology
and MICA products.
<PAGE>
General and Administrative
General and administrative expenses were $0.8 million in the first quarter of
1996, or 6% of revenue, as compared with $1.0 million, or 6% of revenue, for the
same period last year. The reduction in absolute dollars was due primarily to
lower personnel-related costs. The Company expects that general and
administrative expenses may increase in subsequent quarters as a result of
continued costs incurred in connection with the shareholder litigation. See Item
1 - Legal Proceedings.
Interest Income and Expense
Interest income totaled $118,000 and $197,000 for the first quarter of 1996 and
1995, respectively. The decrease was due primarily to lower cash, cash
equivalents and short-term investment balances during the first quarter of 1996
when compared to the first quarter of 1995.
Interest expense totaled $1,000 and $5,000 for the first quarter of 1996 and
1995, respectively. This decrease between the periods was due primarily to the
repayment of capital lease obligations.
Income Taxes
The Company's tax provisions of $37,000 and $68,000 for the first quarter of
1996 and 1995, respectively, represent primarily taxes on foreign operations. No
provision for federal income taxes was made during either period, as the Company
had significant tax net operating loss and credit carryforwards available for
utilization.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1996, the Company's primary sources of liquidity included cash,
cash equivalents and short-term investments, aggregating $9.0 million and an
unsecured $7.5 million bank line of credit expiring in April 1996, under which
there were no borrowings outstanding. As of March 30, 1996, the Company was not
in compliance with certain of the financial covenants contained in the bank line
of credit, as amended, and, accordingly, was unable to borrow under the bank
line of credit. The Company and the bank are currently negotiating the terms and
conditions of a new bank line of credit. The Company has sought and received
periodic funding from capital lease arrangements and equipment loans to finance
portions of its property and equipment additions. The Company did not have any
material committed capital expenditures at March 30, 1996.
The Company's cash and cash equivalents decreased by $1.4 million during the
first quarter of 1996 to $0.9 million. Net cash used for operating activities
during the first quarter of 1996 was $3.3 million, as compared with $0.9 million
for the same period last year. The difference was primarily due to payments
totaling $1.6 million during the first quarter of 1996, for severance and
retention bonus-related payments made by the Company in connection with the 1995
Restructuring. Net cash provided by investing activities for the first quarter
of 1996 was $1.7 million, as compared with $0.4 million for the same period last
year. The difference was due primarily to a $2.0 million reduction in short-term
investments during the first quarter of 1996. Net cash provided by financing
activities for the first quarter of 1996 was $95,000, as compared with $44,000
for the same period last year.
Except with respect to issuances of common stock (i) under employee benefit
plans; (ii) in connection with the Company's buyout of a joint venture partner
in 1991; and (iii) in connection with the Company's merger with Octocom, the
Company has not issued any common stock since its initial public offering
completed in April 1990, which raised approximately $20.2 million, net of
issuance costs.
<PAGE>
The Company's ability to meet its future liquidity requirements is dependent in
part upon its ability to operate profitably, or in the absence thereof, to
obtain additional financings. The Company recently has undergone several
restructurings intended to decrease future operating expenses, however there can
be no assurance that the Company will be profitable in the future or will not
have to undertake further restructurings. Should the Company need to secure
additional financing to meet its future liquidity requirements, there can be no
assurance that the Company will be able to secure such financing, or that such
financing, if available, will be on terms favorable to the Company. The Company
believes that, with its current levels of cash, cash equivalents, short-term
investments, and bank line of credit facility, it has adequate sources of cash
to meet its operations and capital expenditure requirements through at least
March 30, 1997.
To date, inflation has not had a significant impact on the Company's operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information provided by the Company from time to time including statements
contained in, or incorporated by reference into, this Form 10-Q which are not
historical facts, are so-called "forward-looking statements," and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. In particular, statements contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
(including, but not limited to, the percentage of revenues attributable to sales
to distributors and VARs, the portion of revenues from Export Sales, increases
in expenses and need for liquidity, including completion of a bank line of
credit currently under negotiation), and "Legal Proceedings" which are not
historical facts may be "forward-looking" statements. The Company's actual
future results may differ significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed below and elsewhere within this Form 10-Q, as well as
from time to time in the Company's other filings with the Commission, including
the Company's Form 10-K.
The Company's future results are subject to substantial risks and uncertainties.
The Company's business and results of operations have been, and future results
may be, affected by various industry trends and factors which are beyond the
Company's control. The markets for the Company's products are increasingly
competitive, and the Company's results of operations have been, and may in the
future be, adversely affected by factors, including, but not limited to, the
presence of existing or future competitors, many of which have broader product
lines and greater financial resources; the development of new technologies and
the introduction of new products by the Company and others; the assertion by
third parties of patent or similar intellectual property rights and the
reduction of prices by competitors to gain or retain market share. The Company
has in the past, and may in the future, reduce product prices or increase
spending in response to competition or to pursue new market opportunities.
The markets for the Company's products are characterized by evolving industry
standards, rapidly changing technologies and frequent new product introductions.
The Company has from time to time experienced delays in introducing new products
and product enhancements and there can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products or technologies, including the MICA
technology and products, or product enhancements. In addition, there can be no
assurance that such new products or product enhancements will meet the
requirements of the marketplace and achieve market acceptance. Any such failure
could have a material adverse effect on the Company's business and results of
operations. In addition, from time to time, the Company or others may announce
products, features or technologies which have the potential to shorten the life
cycle of or replace the Company's then existing products. Such announcements
could cause customers to defer the decision to buy or determine not to buy the
Company's products or cause the Company's distributors to seek to return
products to the Company, any of which would have a material adverse effect on
<PAGE>
the Company's business and results of operations. In addition, there can be no
assurance that products or technologies developed by others will not render the
Company's products or technologies uncompetitive or obsolete.
The Company derives a significant percentage of its revenue from sales to
distributors and VARs. The Company provides most of its distributors and VARs
with "stock balancing" and "price protection" rights. Stock balancing rights
permit these distributors and VARs to return current products to the Company for
credit, within specified limits (generally not to exceed 10% of the previous
quarter's purchases) and subject to purchasing an equal amount of other products
of the Company. Price protection rights may require that, in certain cases, the
Company grant retroactive price adjustments for inventories of the Company's
products held by distributors if the Company lowers the price of those products.
While the Company believes that it has adequate reserves to cover its stock
balancing and price protection obligations, there can be no assurance that the
Company will not experience significant returns or price protection adjustments
in the future.
The Company derives a substantial amount of its revenue from Export Sales and
expects that Export Sales will continue to account for a significant portion of
its revenue in the future. Export Sales are subject to a number of risks,
including the following: agreements may be difficult to enforce and receivables
difficult to collect through a foreign country's legal system; foreign customers
may have longer payment cycles; foreign countries could impose additional
withholding taxes or otherwise tax the Company's foreign income, impose tariffs
or adopt other restrictions on foreign trade; fluctuations in exchange rates
could affect product demand; and the protection of intellectual property in
foreign countries may be more difficult to enforce.
The market price of the Company's common stock has been, and may continue to be,
extremely volatile. Factors such as new product announcements by the Company or
its competitors, quarterly fluctuations in the Company's operating results and
general conditions in the remote network access market may have a significant
impact on the market price of the Company's common stock. These conditions, as
well as factors which generally affect the market for stock of high technology
companies, could cause the price of the Company's stock to fluctuate
substantially.
The Company's revenue is typically derived from orders booked within the same
fiscal quarter. The Company has also historically experienced significant
volatility in revenue. The Company's future success will depend in substantial
part on sustained profitability on a quarterly and annual basis. Additionally,
shipment quantities and delivery schedules, under cancelable customer purchase
orders outstanding from time to time, frequently are revised to reflect changes
in customer needs. Because the Company's operating expenses are based on
anticipated revenue levels and a high percentage of the Company's expenses are
relatively fixed in the short term, variations in the timing of recognition of
revenue could cause significant fluctuations in operating results from quarter
to quarter and may result in unanticipated quarterly earnings shortfalls or
losses. In addition, the Company's operating results may fluctuate as a result
of a number of other factors, including demand for the Company's products,
product mix, production or quality problems, changes in material or labor costs,
customer discounts, the timing of orders from and shipments to major customers,
general economic conditions, government regulation or intervention affecting the
remote network access market. There can be no assurance that the Company will be
successful in maintaining or improving its profitability or avoiding losses in
any future period.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In August 1995, two class action lawsuits were filed in the United States
District Court for the District of Massachusetts in which the Company was named
as a defendant, along with certain of its officers and directors. The plaintiffs
in the two suits filed a consolidated amended complaint on November 9, 1995. The
suits relate to disclosures made by the Company, including in its public filings
and press releases, and assert violations of federal securities laws. The
defendants moved to dismiss the complaint on December 8, 1995. On February 1,
1996, the Court denied defendants' motion to dismiss. No class has yet been
certified in the litigation. Although the Company denies all material
allegations of the complaint and intends to vigorously defend against all claims
brought against it, the ultimate outcome, including amount of possible loss, if
any, of the litigation cannot be determined at this time. No provision for any
liability that may result from this litigation has been made in the accompanying
Consolidated Financial Statements. There can be no assurance that the ultimate
outcome of this matter will not have a material adverse affect on the Company's
business and results of operations.
ITEMS 2-6 - Not applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELEBIT CORPORATION
/s/ Brian D. Cohen
Date: May 13, 1996 Brian D. Cohen
Chief Financial Officer
(signing as duly authorized
signatory on behalf of the
Registrant and in his capacity
as Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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