<PAGE>
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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period 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 0-16580
TELENETICS CORPORATION
(Name of small business issuer in its charter)
CALIFORNIA 33-0061894
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26772 VISTA TERRACE DRIVE
LAKE FOREST, CALIFORNIA 92630
(Address of principal executive offices)
Issuer's telephone number: (949) 455-4000
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes No X
--- ---
The number of shares outstanding of the registrant's only class of
Common Stock, no par value per share, was 9,527,165 on April 22, 1999.
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<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS.
TELENETICS CORPORATION
Condensed Balance Sheets
(Unaudited)
-----------
<CAPTION>
ASSETS
------
Pro Forma
March 31, March 31,
Current Assets: 1999 1999 (Note 3)
------------- -------------
<S> <C> <C>
Cash $ 132,056 $ 1,095,556
Accounts receivable, net of allowance for
doubtful accounts of $36,760 826,764 826,764
Receivable from factor 186,209 186,209
Receivable from related parties 141,725 141,725
Inventories 1,744,650 1,744,650
Prepaid expenses 109,824 109,824
------------- -------------
Total current assets 3,141,228 4,104,728
Property, plant and equipment, net 79,346 79,346
Other assets 88,218 74,151
------------- -------------
$ 3,308,792 $ 4,258,225
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
------------------------------------------------
Current Liabilities:
Current portion of related party debt $ 10,553 $ 10,553
Accounts payable 1,089,281 1,089,281
Accrued expenses 278,621 278,621
Advance payments from customers 833,475 833,475
------------- -------------
Total current liabilities 2,211,930 2,211,930
Related party debt, less current portion 250,000 250,000
Subordinated unsecured promissory notes 954,685 954,685
------------- -------------
Total liabilities 3,416,615 3,416,615
------------- -------------
Shareholders' deficiency:
Preferred stock, no par value, Authorized 5,000,000
shares; no shares issued or outstanding (628,571
shares of Series A 7% Convertible Redeemable
Preferred Stock issued and outstanding pro forma) - 949,433
Common stock, no par value. Authorized 25,000,000
shares; issued and outstanding 9,527,165 shares 11,102,382 11,102,382
Accumulated deficit (11,210,205) (11,210,205)
------------- -------------
Total shareholders' equity (deficiency) (107,823) 841,610
------------- -------------
$ 3,308,792 $ 4,258,225
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
1
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<TABLE>
TELENETICS CORPORATION
Condensed Statements of Operations
(Unaudited)
-----------
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 3,838,050 $ 957,090
Costs of sales 2,837,836 439,953
--------------- ---------------
Gross profit 1,000,214 517,137
Selling, general and administrative 391,299 333,947
Engineering and product development 155,178 48,624
--------------- ---------------
Income from operations 453,737 134,566
Interest expense (88,773) (116,864)
Other income 36,298 27,497
--------------- ---------------
Income before income taxes 401,262 45,199
Income taxes 829 --
--------------- ---------------
Net income $ 400,433 $ 45,199
=============== ===============
Earnings per share:
Basic $ .04 $ .01
=============== ===============
Diluted $ .04 $ .01
=============== ===============
Common shares used in computing earnings per share:
Basic 9,527,165 7,849,732
=============== ===============
Diluted 10,468,785 8,949,732
=============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
2
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<TABLE>
TELENETICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
-----------
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 400,433 $ 45,199
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization 24,743 2,591
Stock issued for employee bonuses - 6,350
Changes in operating assets and liabilities:
Accounts receivable 362,692 (260,980)
Inventories 1,194,438 35,000
Prepaid expenses (34,783) --
Other assets 3,424 (13)
Accounts payable (871,683) (179,578)
Accrued expenses (18,491) (1,815)
Advance payment from customers (573,965) (7,875)
--------------- ---------------
Net cash provided by (used in) operating activities 486,808 (361,121)
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (6,435) -
Amounts collected from (advanced to) related parties (35,363) 7,281
--------------- ---------------
Net cash provided by (used in) investing activities (41,798) 7,281
--------------- ---------------
Cash flows from financing activities:
Bank overdraft (18,010) -
Net increase (decrease) in obligations under
factoring agreement (475,836) 382,668
Repayments of convertible notes payable - (7,633)
Repayments of related party debt (30,000) (25,000)
Proceeds from subscription receivable 224,959 -
Costs of private placement (14,067) -
--------------- ---------------
Net cash provided by (used in) financing activities (312,954) 350,035
--------------- ---------------
Net increase (decrease) in cash 132,056 (3,805)
Cash, beginning of period - 13,205
--------------- ---------------
Cash, end of period $ 132,056 $ 9,400
=============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
3
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<TABLE>
TELENETICS CORPORATION
Condensed Statements of Cash Flows (Continued)
(Unaudited)
-----------
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 60,609 $ 91,108
=============== ===============
Income taxes - -
=============== ===============
Supplemental disclosures of non-cash investing
and financing activities:
Issuance of common stock upon conversion of debt - 167,525
=============== ===============
Issuance of note payable to related party in
exchange for decrease in accounts payable - 257,035
=============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
TELENETICS CORPORATION
Notes to Condensed Financial Statements
1. Basis of Presentation
---------------------
The condensed financial statements included herein have been prepared by
Telenetics Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with the Company's financial statements for the nine month
transition period ended December 31, 1998. The financial information presented
reflects all adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full year ended December 31, 1999.
2. Income Per Common Share
-----------------------
Basic earnings per share are computed by dividing earnings available to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflect per share amounts that
would have resulted from the dilutive potential effect of common stock
instruments.
3. Subsequent Events
-----------------
Private Equity Offering
On April 9 and 15, 1999, the Company sold an aggregate of 628,571 shares of
Series A 7% Convertible Redeemable Preferred Stock ("Series A Preferred Stock")
at $1.75 per share and five year warrants to purchase up to 628,571 shares of
common stock at an exercise price of $1.875 per share, subject to certain
adjustments, in a private equity offering. The cash proceeds of this offering,
net of commissions and estimated offering costs, were $949,433.
The Series A Preferred Stock has a liquidation preference of $1.75 per
share, aggregating $1,100,000. In addition, each share of the Series A Preferred
Stock is initially convertible into one share of common stock, subject to
certain adjustments. The holders of Series A Preferred Stock are entitled to
receive cumulative dividends at the rate of $0.1225 per share per year, payable
quarterly, which dividends are subject to certain increases.
The unaudited pro forma March 31, 1999 balance sheet information has been
presented to reflect the Company's financial position, assuming that the
aforementioned private equity offering had occurred on March 31, 1999.
Revolving Line of Credit
On April 2, 1999, the Company entered into a revolving line of credit
agreement for borrowings of up to $3,000,000, which is collateralized by
substantially all assets of the Company. Borrowings under this revolving line of
credit are based on 80% of eligible accounts receivable. Interest is payable
monthly at the greater of the bank's prime rate plus 3% or 10.75%, with
principal and accrued interest due October 2, 2000.
Asset Purchase Agreement
On April 5, 1999, the Company entered into an agreement with Greenland
Corporation to purchase its AirLink(TM) wireless technology and related
intellectual property rights, as well as assume certain contracts in exchange
for 128,571 shares of the Company's Series B Convertible Preferred Stock. The
Series B Convertible Preferred Stock has a liquidation preference of $7.00 per
share, aggregating $900,000, which is subordinated to the liquidation preference
of the Company's Series A Convertible Redeemable Preferred Stock. In addition,
each share of the Series B Convertible Preferred Stock is initially convertible
into one share of common stock, subject to certain adjustments.
Lease
On April 12, 1999, the Company entered into an agreement with an unrelated
party to lease a new corporate and manufacturing facility. The lease has an
initial term of five years and one five-year option to extend. The initial
monthly base rent is $23,871 and the lease includes an annual 3% rent escalation
provision. The lease also provides for certain options for the Company to
purchase the building.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
the Company's Condensed Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-QSB. Except for the historical
information contained herein, the following discussion contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Quarterly Report on Form 10-QSB should be
read as being applicable to all related forward- looking statements wherever
they appear herein. See "Forward Looking Statements; Cautionary Statement." The
Company's actual results may differ materially from the results discussed in the
forward-looking statements.
OVERVIEW
Telenetics Corporation designs and manufactures high quality, industrial
grade modems, fiber optic drivers and radio modems within the industrial
automation industry. The Company is also active in the design and manufacture of
customized modem products for manufacturers of utility meters, remote terminal
units, electric relays, flow measurement devices, traffic controllers and for
companies within the oil and gas industry. In addition to the Company's primary
focus on the industrial automation market, the Company plans to expand into
several other markets that have similar requirements for the type of specialized
modems the Company designs, such as transportation, lottery and gaming, vending
machine automation, security, point of sales and automated teller machines,
telemedicine and military applications.
The Company's results of operations have been and may continue to be
subject to significant fluctuations. The results for a particular period may
vary due to a number of factors, many of which are beyond the Company's control,
including the timing and nature of revenues from product sales that are
recognized during any particular quarter, the impact of price competition upon
the Company's average selling prices, the availability and pricing of components
for the Company's products, market acceptance of new product introductions by
the Company and its competitors, the timing of expenditures in anticipation of
future sales, product returns, the financial health of the Company's customers,
the overall state of the modem and data communications industry and economic
conditions generally. In addition, the volume and timing of orders received
during a quarter are difficult to forecast. The Company expects that its
quarterly operating results will continue to fluctuate in the future as a result
of these and other factors.
The Company continually seeks to improve its product designs and
manufacturing and assembly approach in order to reduce its costs. The Company
pursues a strategy of outsourcing rather than internally developing its modem
chipsets, which are application-specific integrated circuits that form the
technology base for its modems. By outsourcing the chipset technology, the
Company is able to concentrate its research and development capabilities on
modem system design, leverage the extensive research and development
capabilities of its chipset suppliers, and reduce its development time and
associated costs and risks. This approach enables the Company to quickly develop
new and innovative products while maintaining a relatively low level of research
and development efforts and expenses. The Company also outsources aspects of its
manufacturing to contract assemblers as a means of reducing its fixed labor
costs and capital expenditures and providing the Company with greater
flexibility in its capacity planning.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months ended March 31,
----------------------------
1999 1998
------ ------
<S> <C> <C>
Net sales......................................................... 100.0% 100.0%
Cost of sales..................................................... 73.9 46.0
------ ------
Gross profit...................................................... 26.1 54.0
Selling, general and administrative............................... 10.2 34.9
Engineering and product development............................... 4.1 5.1
------ ------
Operating income.................................................. 11.8 14.0
Interest expense.................................................. (2.3) (12.2)
Other income...................................................... .9 2.9
------ ------
Net income (loss)................................................. 10.4% 4.7%
====== =====
</TABLE>
The following discussion and analysis addresses the results of the
Company's operations for the three months ended March 31, 1999, as compared to
the Company's results of operations for the three months ended March 31, 1998.
NET SALES. Net sales for the three months ended March 31, 1999 were $3.8
million as compared to $1.0 million for the three months ended March 31, 1998,
an increase of $2.8 million or approximately 301%. This increase in revenues was
a result of the Company's increased volumes of sales, primarily due to increased
purchases of the Company's products by Duquesne Light Company ("Duquesne"),
ITRON and Bailey Network Systems.
GROSS PROFIT. Gross profit decreased as a percentage of net sales by 27.9%
to 26.1% for the three months ended March 31, 1999 as compared to 54.0% for the
same period in 1998. This decrease was primarily attributable to higher material
costs as a percentage of sales in the Company's new products and unusually large
discounts given to two major customers to secure large contracts. Cost of sales
increased by $2.4 million, or approximately 545% to $2.8 million during the
three months ended March 31, 1999 from $0.4 million during the three months
ended March 31, 1998. The increase in cost of sales resulted from a significant
increase in the volume of sales as well as the higher material costs and large
discounts described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $57,000 or approximately 17%, to $391,000
during the three months ended March 31, 1999 from $334,000 during the three
months ended March 31, 1998 but decreased as a percentage of net sales from
34.9% during the three months ended March 31, 1998 to 10.2% during the three
months ended March 31, 1999. The increase in expenses resulted primarily from
the increase in sales and marketing expenses, an increase in audit expenses and
an increase in expenses related to the preparation of reports required under the
Securities and Exchange Act of 1934. The decrease in selling, general and
administrative expenses as a percentage of net sales was due primarily to higher
sales volume and the fact that many of the expenses required to establish the
infrastructure necessary to support higher revenues had been incurred in prior
periods.
ENGINEERING AND PRODUCT DEVELOPMENT. Engineering and product development
expense increased by $106,000 or approximately 219% to $155,000 during the three
months ended March 31, 1999 from $49,000 during the three months ended March 31,
1998 but decreased as a percentage of net sales from 5.1% during the three
months ended March 31, 1998 to 4.1% during the three months ended March 31,
1999. This increase in engineering and product development expense was primarily
attributable to increased engineering salaries associated with the Company's
efforts to bring all aspects of product design, other than modem chipsets,
in-house. The decrease in spending as a percentage of net sales was due to
certain expenses growing less rapidly than revenue.
7
<PAGE>
OTHER INCOME. Other income increased by $9,000 to $36,000 during the three
months ended March 31, 1999 from $27,000 during the three months ended March 31,
1998. Other income in both periods was primarily attributable to the resolution
of litigation matters for amounts less than the carrying value of those
obligations.
INTEREST EXPENSE. Interest expense during the three months ended March 31,
1997 decreased by $28,000 or approximately 24% to $89,000 or 2.3% of net sales,
from $117,000 or 12.2% of net sales in the three months ended March 31, 1998.
This decrease in interest expense is attributable to the Company repaying
certain lenders and terminating its factoring arrangement in February 1999.
NET INCOME. Net income for the three months ended March 31, 1999 was
$400,000 or approximately 10.4% of net sales as compared to net income of
$45,000 or 4.7% of net sales in the three months ended March 31, 1998. The
increase in net income was primarily due to increased sales volume.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company financed its
operations and capital expenditures primarily through working capital and
collection of a subscription receivable in connection with the Company's private
placement of subordinated promissory notes. As of March 31, 1999, the Company
had approximately $4 million in backlog orders for its products.
As of March 31, 1999, the Company had a working capital of $929,000 and an
accumulated deficit of $11,210,000. As of that date, the Company had $132,000 in
cash, a receivable from the Company's prior factor in the amount of $186,000 and
$827,000 in accounts receivable. The Company also had convertible and other
promissory notes outstanding in the aggregate amount of approximately $1,215,000
as of March 31, 1999. While the Company intends to repay some or all of the
amounts of such indebtedness out of future cash flow from operations,
management's internal cash projections estimate that such borrowings may remain
outstanding until their maturity.
On April 2, 1999, the Company secured a revolving line of credit with
Celtic Capital Corporation, a division of Foothill Capital Corporation. The line
of credit bears interest, at the greater of prime rate plus 3% or 10.75% per
annum, is collateralized by substantially all of the assets of the Company and
expires on October 2, 2000. The borrowing base under the line of credit is 80%
of eligible accounts receivable up to a maximum borrowing of $3,000,000.
In April 1999, the Company sold an aggregate of 628,571 shares of its
Series A 7.0% Convertible Redeemable Preferred Stock at $1.75 per share and five
year warrants to purchase an aggregate of 628,571 shares of the Company's Common
Stock with an exercise price of $1.875 per share in a private equity offering to
six accredited investors. The cash proceeds of the offering, net of commissions
and estimated offering costs, were $949,433.
The cash proceeds from the private equity offering of Series A 7.0%
Convertible Redeemable Preferred Stock, together with anticipated borrowings
under the Company's line of credit with Celtic Capital Corporation, will be used
as working capital to fund research and development costs associated with the
Company's products, costs associated with manufacturing and marketing the
Company's products and costs associated with the continued growth and expansion
of the Company.
The Company believes that current and future available capital resources,
cash flow from operations, and other existing sources of liquidity, including
the Company's revolving line of credit with Celtic Capital Corporation and the
proceeds of the recent private placement of the Company's Series A 7.0%
Convertible Redeemable Preferred Stock, will be adequate to fund its operations
for the remainder of the current fiscal year. However, there can be no assurance
that sufficient funds will be available or that future events will not cause the
Company to seek additional capital sooner, including, but not limited to, the
failure by the Company to timely collect outstanding accounts receivable. To the
extent the Company is in need of any additional financing, there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. The inability to obtain such financing could have a
material adverse effect on the Company's business, financial condition and
results of operation. If additional funds are raised by issuing equity or
convertible debt securities, options or warrants, further dilution to the
existing shareholders of the Company may result.
8
<PAGE>
If adequate funds are not available, the Company may also be required to
delay, scale back or eliminate its product development efforts or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of its
proprietary technology and other important Company assets and could also
adversely affect the Company's ability to continue its product development
efforts, which the Company believes contributes significantly to its competitive
advantage. If any of such circumstances were to arise, the Company's business,
financial condition and results of operations could be materially and adversely
affected.
YEAR 2000 COMPLIANCE
The Company has identified substantially all of its major hardware and
software platforms in use and is continually modifying and upgrading its
software and information technology ("IT") and non-IT systems. The Company has
modified its current financial software to be Year 2000 ("Y2K") compliant. The
Company does not believe that, with upgrades of existing software and/or
conversion to new software, the Y2K issue will pose significant operational
problems for its internal computer systems. The Company expects all systems to
by Y2K compliant by September 30, 1999 through the use of internal and external
resources. The Company has incurred insignificant costs to date associated with
Y2K compliance and the Company presently believes estimated future costs will
not be material. However, the systems of other companies on which the Company
may rely also may not be timely converted, and failure to convert by another
company could have an adverse effect on the Company's systems. The Company
presently believes the Y2K problem will not pose significant operational
problems and is not anticipated to have a material effect on its financial
position or results of operations in any given year. However, actual results
could differ materially from the Company's expectations due to unanticipated
technology difficulties or project delays by the Company or its suppliers. If
the Company and third parties upon which it relies are unable to address the
issue in a timely manner, it could result in a material financial risk to the
Company. In order to assure that this does not occur, the Company is in the
process of developing a contingency plan and plans to devote all resources
required to attempt to resolve any significant Y2K issues in a timely manner.
LOOKING AHEAD
Set forth below are major highlights of the Company's business plan for
1999. Management believes that the significant upward trend in sales and
bookings as well as greater cost effectiveness that began in the latter part of
1998 will continue through 1999.
During 1999 a significant portion of revenues will be realized from those
opportunities that were uncovered and developed during the nine month transition
period ended December 31, 1998. Some of these developments are as follows:
o STRATEGIC RELATIONSHIP WITH DUQUESNE. The Company anticipates that it
will continue to derive revenues from sales of its products to Duquesne
and to expand overall sales through the Company's Strategic Agreement
with Duquesne.
o INCREASE IN AUTOMATED METER READING MARKET. The Company anticipates
that a significant portion of its business in 1999 will be derived from
an international trend in increased meter reading automation. By
pursuing major utilities with similar requirements as Duquesne, and
promotion of system solutions such as the Company's Omega(TM) AMR
Communication Interface Cabinets, the Company anticipates a significant
increase in revenues from this market.
o GROWTH THROUGH ACQUISITIONS. To expand its markets, the Company's
business strategy includes growth through acquisitions. The Company
anticipates that some portion of its growth during 1999 will be the
result of strategic acquisitions.
o EXISTING MAJOR CUSTOMERS. The Company anticipates that its general
business with its major customers will continue to grow in 1999. During
the quarter ended March 31, 1999, the Company's top ten customers were
accounted for $3,565,459 or approximately 93% of total net sales,
while its largest customer was responsible for $2,518,835 or
approximately 66% of total net sales. The Company anticipates this
trend will continue in the future.
o TRANSPORTATION INDUSTRY. The Company anticipates that its significant
activities within the transportation industry and close work with
several departments of transportation such as CALTRANS, Wyoming
Department of Transportation, Pennsylvania Department of
Transportation and several other departments of transportation that
are currently customers of the Company, will result in a significant
increase in the Company's business during 1999.
9
<PAGE>
o DISTRIBUTION. The Company believes that its on-going aggressive plan in
identifying and hiring distributors, value added resellers and system
integrators will result in additional revenues in this sector in 1999
and beyond.
o INTERNATIONAL BUSINESS. The Company anticipates a significant increase
in international business. Current opportunities in China, Mexico,
India, Spain and several other countries that the Company has been
involved with may result in approximately $2 million of additional
revenues during the next 18 months.
FORWARD-LOOKING STATEMENTS; CAUTIONARY STATEMENT
Certain of the statements contained in this report, including those under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and especially those contained under "Liquidity and Capital
Resources" and "Looking Ahead," are "forward-looking statements" that involve
risks and uncertainties. The actual future results of the Company could differ
materially from those statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this Quarterly
Report on Form 10-QSB and risks associated with managing the Company's growth.
While the Company believes that these statements are accurate, the Company's
business is dependent upon general economic conditions and various conditions
specific to the modem and data communications industry, and future trends and
results cannot be predicted with certainty. In particular:
o Given the significant backlog of orders at March 31, 1999, there can be
no assurance that there will be no delays in procuring, manufacturing,
testing and shipping such a large volume of products.
o Although the Company's business strategy includes growth through
acquisitions, identifying and pursuing acquisition opportunities and
integrating acquired products and businesses requires a significant
amount of management time and skill. There can be no assurance that the
Company will be able to identify suitable acquisition candidates,
consummate any acquisition on acceptable terms or successfully
integrate any acquired business into the Company's operations. There
also can be no assurance that any future acquisition will not have an
adverse effect upon the Company's operating results, particularly in
the fiscal quarters immediately following consummation of the
acquisition while the acquired business is being integrated into the
Company's operations.
o The Company continues to experience problems associated with
under-capitalization. This may adversely affect the ability of the
Company to ship its products in a timely manner, causing customers such
as Duquesne and others to cancel a portion or all of their orders.
o The Company has experienced significant growth during the last 18
months. As a result of this rapid growth, the Company has had to raise
equity capital to fund its liquidity needs. The timing of which has, on
occasions, resulted in the Company being required to purchase product
components at less than optimal price points. As a result, the
Company's gross margins on many of its product lines may fluctuate on a
quarterly basis.
o The Company has limited experience in marketing and selling its
products in international markets. International customs, standards,
approvals and political and economical uncertainties may adversely
affect the Company's ability to ship its products internationally in a
timely and profitable manner.
o The trading price of the Company's Common Stock, like other technology
stocks, is subject to significant volatility due to factors impacting
the overall market which are unrelated to the Company's performance.
The historical results of operations and financial position of the
Company are not necessarily indicative of future financial performance.
If revenues or earnings fail to meet securities analysts' expectations,
there could be an immediate and significant adverse impact on the
trading price of the Company's Common Stock.
The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact. However, no assurance can
be given that such risks and uncertainties will not affect the Company's future
results of operations or its financial position.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELENETICS CORPORATION
Dated: April 28, 1999 By: /S/ DAVID L. STONE
----------------------------------------
David L. Stone
Chief Financial Officer
(principal financial and accounting
officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
replace this with text
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 132,056
<SECURITIES> 0
<RECEIVABLES> 826,764
<ALLOWANCES> 36,760
<INVENTORY> 1,744,650
<CURRENT-ASSETS> 3,141,228
<PP&E> 79,346
<DEPRECIATION> 197,312
<TOTAL-ASSETS> 3,308,792
<CURRENT-LIABILITIES> 2,211,930
<BONDS> 0
0
0
<COMMON> 11,102,382
<OTHER-SE> (11,210,205)
<TOTAL-LIABILITY-AND-EQUITY> 3,308,792
<SALES> 3,838,050
<TOTAL-REVENUES> 3,838,050
<CGS> 2,837,836
<TOTAL-COSTS> 2,837,836
<OTHER-EXPENSES> 546,477
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,773
<INCOME-PRETAX> 401,262
<INCOME-TAX> 829
<INCOME-CONTINUING> 400,433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 400,433
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
