U.S. 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 quarterly period ended March 31, 1996
|_| Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from ______________ to ______________
Commission file number 33-25922C
TELIDENT, INC.
(Name of Small Business Issuer in Its Charter)
Minnesota 41-1533060
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Main Street S.E., Suite 85
Minneapolis, Minnesota 55414
(Address of principal executive offices) (Zip Code)
(612) 623-0911
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____.
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding as of March 31, 1996: 9,454,177 shares of
Common Stock, par value $.01 per share, and 400,000 shares of Preferred Stock,
par value $.01 per share.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TELIDENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash $ 150,765 $ 181,744
Trade accounts receivable, net of allowance for doubtful
accounts of $40,000:
Billed 556,331 1,050,998
Unbilled 13,798 189,695
Inventories, net of reserve for obsolescence of $15,000 643,391 446,476
Other 65,500 54,170
----------- -----------
Total current assets 1,429,785 1,923,083
Furniture and office equipment, less accumulated 259,837 113,067
depreciation of $111,047 and $73,103, respectively
Patents, less accumulated amortization of $50,015
and $41,015, respectively 51,703 51,002
Other assets 85,742 64,113
Goodwill, net of accumulated amortization of
$142,049 and $67,016, respectively 360,223 435,616
----------- -----------
$ 2,187,290 $ 2,586,881
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 347,803 $ 602,425
Accrued expenses 144,189 227,739
Deferred revenue 14,757 61,167
Notes payable - bank 63,708 652,135
Notes payable - related parties 4,223 178,050
Notes payable - others 45,697 340,841
Debentures and interest payable - related parties 117,160 246,770
Debentures and interest payable - others 891,624 1,882,630
----------- -----------
Total current liabilities 1,629,161 4,191,757
Debentures payable - related parties 125,000
Debentures payable - others 460,000
----------- -----------
Total liabilities 2,214,161 4,191,757
----------- -----------
Commitments
Shareholders' deficit:
Preferred stock, $.01 par value, convertible into
common stock at the rate of one common share for each
preferred share, 5,000,000 shares authorized, 400,000
and 475,000 shares outstanding, respectively 4,000 4,750
Common stock, $.01 par value, 20,000,000 shares authorized,
9,454,177 and 7,626,900 shares outstanding, respectively 94,542 76,269
Additional paid-in capital 8,508,307 5,804,629
Accumulated deficit (8,633,720) (7,490,524)
----------- -----------
(26,871) (1,604,876)
----------- -----------
$ 2,187,290 $ 2,586,881
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
TELIDENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 348,437 $ 452,349 $ 1,786,958 $ 1,203,398
Cost of Sales 115,789 113,980 531,175 376,061
----------- ----------- ----------- -----------
Gross profit 232,648 338,369 1,255,783 827,337
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 246,948 173,693 631,664 517,476
Research and development 295,411 107,022 765,527 391,812
General and administrative 236,517 236,544 721,975 650,907
----------- ----------- ----------- -----------
Total operating expenses 778,876 517,259 2,119,166 1,560,195
----------- ----------- ----------- -----------
Loss from operations (546,228) (178,890) (863,383) (732,858)
Interest expense - others (71,823) (110,410) (239,956) (233,871)
Interest expense - related parties (4,373) (8,680) (39,857) (27,167)
----------- ----------- ----------- -----------
Net loss $ (622,424) $ (297,980) $(1,143,196) $ (993,896)
=========== =========== =========== ===========
Loss per share, primary and
fully diluted $ (.07) $ (.04) $ (.14) $ (.14)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 9,164,132 7,459,411 8,513,204 7,157,020
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
TELIDENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Number Amount of Amount of Additional
Price per of shares Preferred Common paid-in Accumulated
share issued Stock Stock capital deficit
----------- ------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1995 8,101,900 $ 4,750 $ 76,269 $ 5,804,629 $ (7,490,524)
Jul, 1995 - exercise of options $1.44 18,000 180 25,740
Jul, 1995 - exercise of warrants $2.00 15,000 150 29,850
Aug, 1995 - conversion of debt $2.00 70,333 703 123,296
Aug, 1995 - exercise of options $1.75 77,500 775 134,850
Sep, 1995 - exercise of warrants $2.00 21,500 215 42,785
Sep, 1995 - exercise of options $0.50 47,500 475 23,275
Sep, 1995 - preferred stock redemption $2.00 (25,000) (250) (49,750)
Oct, 1995 - common stock issued in
connection with notes payable $1.25-2.00 19,750 198 28,052
Oct, 1995 - exercise of options $0.50 29,336 293 14,375
Oct, 1995 - conversion of debt $1.50-2.00 282,500 2,825 427,175
Oct, 1995 - issuance of common stock $1.50 400,000 4,000 596,000
Oct, 1995 - exercise of warrants $2.00 212,500 2,125 422,875
Nov, 1995 - preferred stock redemption $2.00 (25,000) (250) (49,750)
Common stock issued to directors for
services $2.00-2.50 9,982 100 16,150
Jan, 1996 - conversion of debt $1.98-2.00 65,302 653 129,347
Jan, 1996 - exercise of warrants, net of
expenses of $45,139 $2.00-$2.66 522,588 5,226 854,022
Feb, 1996 - exercise of preemptive rights $1.50-$2.00 14,486 145 22,533
Feb, 1996 - exercise of options $1.00-$2.19 21,000 210 27,790
Feb, 1996 - preferred stock redemption $2.00 (25,000) (250) (49,750)
Preferred stock dividends (65,187)
Net loss (1,143,196)
---------- --------- --------- ----------- ------------
Balance March 31, 1996 9,854,177 $ 4,000 $ 94,542 $ 8,508,307 $ (8,633,720)
========== ========= ========= =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
TELIDENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months ended
March 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,143,196) $ (993,896)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 38,166 19,275
Amortization expense 141,756 93,251
Common stock issued for services 16,250 44,000
Common stock issued in connection with notes
payable and recorded as interest expense -- 36,000
Changes in assets and liabilities, net of acquisition:
Decrease in receivables 670,564 5,014
(Increase) decrease in inventories (196,915) 96,091
(Increase) in other assets (90,322) (3,873)
(Decrease) in trade accounts payable (254,622) (13,542)
Increase (decrease) in accrued expenses (180,576) 68,965
----------- -----------
Net cash used by operating activities (998,895) (648,715)
----------- -----------
Cash flows from investing activities:
Payments for patent costs (9,701) (7,304)
Purchase of furniture and office equipment (184,936) (47,592)
Acquisition of Cantus (cash acquired) 11,321
----------- -----------
Net cash used by investing activities (194,637) (43,575)
----------- -----------
Cash flows from financing activities:
Payments on related party borrowing (98,827) (66,281)
Borrowings from related party borrowing -- 95,000
Payments on notes payable-bank (2,287,143) (264,773)
Borrowings from notes payable-bank 1,698,716 350,427
Payments on borrowings from others (171,145) (3,276)
Borrowings from others -- 201,000
Proceeds from issuance of common stock 2,236,139 406,504
Preferred stock dividends (65,187) (62,425)
Preferred stock redemption (150,000) --
Issuance of debentures - others 33,000
----------- -----------
Net cash provided by financing activities 1,162,553 689,176
----------- -----------
Net decrease in cash for the period (30,979) (3,114)
Cash, beginning of period 181,744 7,107
----------- -----------
Cash, end of period $ 150,765 $ 3,993
=========== ===========
Supplemental schedule of non-cash financing
activities
Conversion of notes payable to common stock $ 684,000 $ 194,195
=========== ===========
Common stock issued for services $ 16,250 $ 44,000
=========== ===========
Common stock issued for Business acquisition $ $ 315,788
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
TELIDENT, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996
INTERIM REPORTING
The interim consolidated financial statements are unaudited; however, in
the opinion of the Company, the interim statements include all adjustments,
consisting of normal recurring adjustments, necessary for the fair statement of
the results and balances for the interim periods.
The consolidated results of operations for the three month and nine month
periods ended March 31, 1996 do not necessarily indicate the results to be
expected from the full year. These statements should be read in conjunction with
the Company's consolidated financial statements and notes thereto, contained in
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995.
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued Statement No. 121 (SFAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This statemene is effective for the Company's year ending June 30, 1996. SFAS
121 requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. The Company does not expect the application of SFAS
121 to have a material affect on its financial statements for the year ending
June 30, 1996.
In addition, FASB has issued Statement No. 123 (SFAS 123), Accounting for
Stock-Based Compensation. This statement is effective for the Company's year
ending June 30, 1996. SFAS 123 establishes a fair value-based method of
accounting for stock-based compensation plans and encourages, but does not
require, entities to adopt that method in place of APB Opinion No. 25,
Accounting for Stock Issued to Employees, which uses an intrinsic value-based
accounting method. The Company does not intend to adopt SFAS 123 in measuring
expenses. However, the Company must present pro forma net income (loss) and
related per share amounts as if SFAS 123 had been adopted, and such pro forma
amounts are expected to reflect higher amounts of expenses than amounts reported
in the financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first out method, and consisted of the following:
March 31, June 30,
1996 1995
Raw materials $ 391,913 $ 236,014
Work in progress 169,440 136,529
Finished goods 97,038 88,933
Inventory reserve (15,000) (15,000)
----------- -----------
$ 643,391 $ 446,476
========== ==========
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss (plus the
preferred stock dividend) by the weighted average number of shares of common
stock outstanding during the year. Common stock equivalents such as options or
warrants were not included in the calculation as their effect on amounts
reported would be antidilutive.
MAJOR CUSTOMERS
Sales during the first nine months of fiscal 1996, to one of the Company's
customers amounted to 19.7% of total product sales and accounted for 5.2% of the
accounts receivable as of March 31, 1996.
SUBSEQUENT EVENTS
The Company had $963,000 of convertible debentures that were due and
payable on May 1, 1996. As of May 5, 1996, $413,000 of debenture holders have
extended the maturity date to July 15, 1997, with all terms of the debenture
agreement remaining the same. As an additional incentive to extend the
debentures, 103,250 warrants exercisable at $2.00 per share were issued to the
debenture holders. These warrants have an expiration date of July 15, 1997. Two
directors extended their $75,000 and $25,000 debentures and received an
additional 18,750 and 6,250 warrants, respectively.
Additionally, as of May 1, 1996, $500,000 of the debenture holders have
requested conversion of their debentures into common stock of the Company at
$1.50 per share, resulting in 333,333 additional shares. As an incentive to
convert the debentures, the Company reduced the debenture conversion price from
$1.98 per share down to $1.50 per share. The remaining $50,000 of debentures
outstanding were redeemed at the request of the debenture holder. The Company
expects to incur an interest charge of approximately $65,000 in the fourth
quarter of fiscal 1996 in connection with the conversion of the Debentures at a
reduced conversion price.
PART I - FINANCIAL INFORMATION
ITEM 2 - MD & A
TELIDENT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Telident, Inc. (the Company) is dedicated to developing cost-effective
enhancements to telephone switching systems and communications traffic routing,
most notably in the Enhanced 9-1-1 marketplace.
RESULTS OF OPERATIONS
Revenues for the three and nine month periods of fiscal 1996 were $348,437
and $1,786,958, respectively, compared to $452,349 and $1,203,398 for the
similar 1995 periods, a decrease of 23.0% and an increase of 48.5% for the
fiscal 1996 three and nine month periods, respectively. Station Translation
System (STS) product sales accounted for 53.6% and 72.5% of the sales in the
three and nine month periods, respectively, compared to 78.3% and 77.2% in the
respective 1995 periods. The Company acquired Cantus Corporation in November of
1994. Revenues attributable to this acquisition during the three and nine month
periods of fiscal 1996 amounted to 36.2% and 16.9% of sales, respectively,
compared to 16.5% and 13.8% in the respective 1995 periods. The Company's other
products, including the ANI Control System (ACS), and the Network Control System
(NCS), accounted for 10.2% and 10.6% of the sales in the respective 1996 periods
compared to 5.2% and 9.0% of the sales in the respective 1995 periods. While
there has been an overall increase in unit sales of the STS products through
Private Branch Exchange (PBX) manufacturers and value-added resellers, the
decrease in revenues for the three month period was the result of a slowdown in
STS sales by PBX manufacturers and value-added resellers. The increase in
revenues for the nine month period was also attributable to the contribution
from the Cantus acquisition. At March 31, 1996, the Company had a backlog of
orders of 2 ACS units and 37 STS units (approximately $478,000 of revenues),
which will be shipped in the fourth quarter of fiscal 1996.
Cost of sales, as a percentage of product revenues, were 33.2% and 29.7%
for the fiscal 1996 three and nine month periods, respectively, compared to
25.2% and 31.2% for the similar 1995 periods. Gross margin decreased to 66.8%
and increased to 70.3% for the three and nine month periods of fiscal 1996,
respectively, compared to 74.8% and 68.8%, respectively, for the similar 1995
periods. The decrease in gross margin for the 1996 three month period, is due to
the reduced level of STS product sales, which have higher profit margins than do
the public safety products. The increase in gross margin for the 1996 nine month
period is due to the lower costs associated with higher volume purchasing.
Total operating expenses increased by $261,617 and $558,971 in the 1996
three and nine month periods, respectively, compared to the similar 1995
periods. Sales and marketing expenses increased $73,255 and $114,188 in the 1996
three and nine month periods, respectively, compared to the similar 1995
periods. The increase for the three months ended was due to the addition of
three sales offices in Atlanta, San Francisco, and Los Angeles, three sales
personnel, and increased marketing materials. The increase for the nine months
ended was due to the addition of a sales office in Chicago, two additional sales
personnel, and increased marketing material.
Research and development expenses increased $188,389 and $373,715 in the
1996 three and nine month periods, respectively, compared to the similar 1995
periods, due to the addition of three software programmers (two as a result of
the Cantus acquisition), three engineers, a Director of Operations and the use
of software consultants.
General and administrative expenses for the 1996 three and nine month
periods decreased $27 and increased $71,068, respectively, compared to the
similar 1995 periods, due primarily to the amortization of goodwill related to
the Cantus acquisition in November of 1994.
Interest expense, net of interest income, decreased $42,894 and increased
$18,775 in the 1996 three and nine month periods, respectively, compared to the
similar 1995 periods. The decrease is due to the $684,000 of notes payable
converted into common stock during the second quarter of fiscal 1996. The
increase is due to the additional borrowings required to fund the Company's
operations compared to the respective 1995 period.
INFLATION
Inflation has not had a material impact on the Company's net sales or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash of $150,765 and accounts receivable
of approximately $570,000. In the first nine months of fiscal 1996, net cash
used in the Company's operating activities was approximately $999,000,
consisting primarily of the Company's loss from operations ($1,143,000), a
reduction in receivables (+$670,000), an increase in inventories ($197,000) and
a decrease in accounts payable and accrued expenses ($435,000). The company
invested approximately $185,000 in additional office equipment and computers in
anticipation of the expansion of both its sales offices and its operational
facilities. Funds required to finance the Company's operations, investments, and
payments of debt during the first nine months of fiscal 1996 were provided by
the sale of 1,379,410 shares of its common stock, resulting in net proceeds of
$2,236,139. In addition, $634,000 of notes payable were converted into common
stock at $1.50 to $2.00 per share, resulting in the issuance of 368,135 shares.
A Director converted $50,000 of notes payable into common stock at $2.00 per
share, resulting in 25,000 shares of common stock. The Company has relied on
debt and equity capital to fund its operating losses during the first six months
of fiscal 1996 and prior periods.
Based on funds available at March 31, 1996, and the availability of the
bank line of credit, the Company believes it has sufficient funds to sustain
operations into the first quarter of fiscal 1997. The Company had $963,000 of
convertible debentures that were due and payable on May 1, 1996. As of May 1,
1996, $413,000 of debenture holders have extended the maturity date to July 15,
1997, with all terms of the debenture agreement remaining the same. As an
additional incentive to extend the debentures, 103,250 warrants exercisable at
$2.00 per share were issued to the debenture holders. These warrants have an
expiration date of July 15, 1997. Two directors extended their $75,000 and
$25,000 debentures and received an additional 18,750 and 6,250 warrants,
respectively. Additionally, as of May 1, 1996, $500,000 of the debenture holders
have requested conversion of their debentures into common stock of the Company
at $1.50 per share, resulting in 333,333 additional shares. As an incentive to
convert the debentures, the Company reduced the debenture conversion price from
$1.98 per share down to $1.50 per share. The remaining $50,000 of debentures
outstanding were redeemed at the request of the debenture holder. In the event
the Company's sales are less than anticipated, the Company would be required to
obtain additional debt or equity capital. While the Company is exploring certain
funding possibilities, it has no agreements to provide additional debt or equity
capital and there can be no assurance that additional funds will be available,
or, if available, available on terms acceptable to the Company. The Company has
relied on debt and equity capital to fund its operating losses during the third
quarter of fiscal 1996 and prior periods. At March 31, 1996, the Company had an
accumulated deficit of $8,633,720 and a shareholders' deficit of $26,871.
The Company has no material commitments for capital expenditures for fiscal
1996 or fiscal 1997.
PART II - OTHER INFORMATION
ITEM 1-5. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27
(b) The Company was not required to file any reports on Form 8-K during the
quarter ended March 31, 1996.
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.
TELIDENT, INC.
(Registrant)
May 10, 1996 /s/ Michael J. Miller
Date Michael J. Miller, President and CEO
May 10, 1996 /s/ John F. Kromer
Date John F. Kromer, Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 150,765
<SECURITIES> 0
<RECEIVABLES> 610,129
<ALLOWANCES> (40,000)
<INVENTORY> 643,391
<CURRENT-ASSETS> 1,429,785
<PP&E> 370,884
<DEPRECIATION> (111,047)
<TOTAL-ASSETS> 2,187,290
<CURRENT-LIABILITIES> 1,629,161
<BONDS> 585,000
0
4,000
<COMMON> 94,542
<OTHER-SE> 8,508,307
<TOTAL-LIABILITY-AND-EQUITY> 2,187,290
<SALES> 1,786,958
<TOTAL-REVENUES> 1,786,958
<CGS> 531,175
<TOTAL-COSTS> 531,175
<OTHER-EXPENSES> 2,119,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,813
<INCOME-PRETAX> (1,143,196)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,143,196)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,143,196)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
