SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 0-20887
TELIDENT, INC.
(Exact name of Registrant as specified in its charter.)
MINNESOTA 41-1533060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Main Street S.E., Suite 85, Minneapolis, Minnesota 55414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 623-0911
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value
Indicate by check mark whether the registrant has: (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 _____.
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. _X_
State registrant's revenues for its most recent fiscal year: $
2,454,807
Aggregate market value of voting stock held by non-affiliates of
registrant as of September 1, 1996: Approximately $ 14.5 million.
Number of shares outstanding as of September 1, 1996: 6,150,614 shares
of Common Stock, par value $.02 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended June 30, 1996 have been incorporated by reference in Part II
of this Form 10-KSB. Portions of the definitive Proxy Statement for the
Registrants Annual Meeting of Shareholders to be held on October 29, 1996 have
been incorporated by reference into part III of this report.
Transitional Small Business Disclosure format: Yes ____ No __X__.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
Telident designs, manufactures and markets proprietary hardware and
software systems which provide the exact location of a 911 telephone call to the
emergency dispatcher who receives the call. The Company's systems provide
information which can speed the response time to a 911 call, reduce the costs
associated with responses to incorrect locations and improve the safety of
individuals within a private branch exchange (PBX) telephone system. In
addition, the Company manufactures and markets network hardware that provides
switching, selective routing and data interfacing capabilities to public and
private telephone networks and city, county and state government agencies.
Telident also provides these customers with a variety of emergency information
processing and management software systems.
The Company's products utilize existing Enhanced 911 (E-911) technology
which automatically transmits both the caller's telephone number and address to
the nearest emergency dispatcher or public safety answering point (PSAP).
Currently over two-thirds of the telephone systems in the U.S. have access to
E-911 service. However, the E-911 service generally does not have the ability to
pinpoint a caller's location within a PBX system without equipment such as that
offered by the Company. Consequently, calls originating within a PBX transmit
only the main PBX telephone number and main address where the PBX is physically
located. Presently five states across the U.S. have adopted legislation
mandating the modification of PBX systems to make them fully compatible with the
E-911 system. Telident's patented systems create and manage a sophisticated
database of information to monitor 911 calls within a PBX system and transmit
the precise location, and generally the caller's name, to the PSAP through the
existing E-911 system.
HISTORY
The development of the emergency response telephone network, 911, began in
the late 1960's under the direction of AT&T in conjunction with Bell Labs. The
911 network was designed using the fundamental theory that each caller could be
identified by the specific pair of wires connecting the caller with the
telephone company. This design theory mirrored the long distance routing network
that AT&T had previously developed. This design theory has created the 911
incompatibility problem that exists with PBX systems today. PBX systems share
multiple connections (pairs of wires), and the ability to pinpoint the caller
behind a business telephone system is lost to the network. The designers of the
Enhanced 911 network may not have envisioned the popularity and deployment of
PBX systems in the United States. Throughout the 1970's, 911 systems were
deployed with voice transmission only. In response to public demand for more
precise information as to the callers location, development of the Enhanced 911
network began in the early 1980's. However, widespread use of PBX systems did
not begin until after the breakup of AT&T in 1983.
STRATEGY
The Company was formed in 1983 to develop and market electronic equipment
for the telephone communications industry. Between 1983-85, Telident developed
the Status Recognition Unit System I (the SRU(1)), a system which permits
operating telephone companies to increase dedicated phone services capabilities.
Based on a review of the market for the SRU(1), Telident determined that there
was a significant market opportunity for products, based on the technology of
the SRU(1), which could expand the capabilities, safety and reliability of
emergency 911 service systems. Since 1989, the Company's goal has been to become
a leading designer of systems which enable precise identification of the
location of 911 callers within a PBX system and state-of-the-art hardware and
software for the 911 public safety market.
To achieve this goal, the Company provides its customers with a total E-911
solution, providing the hardware, software and service components to meet their
emergency 911 information needs. For example, the Company provides PBX users:
(i) equipment (the STS) required to enable the PBX to be compatible with E-911
service; (ii) software and services, ShadowMAX(TM) and the ALI Service Bureau,
which enable PBX users to maintain the required database; and (iii) additional
products, such as the TraxOSN(TM) software which expands the capabilities of a
PBX system utilizing the STS so that it automatically provides the precise
location of the caller within the network to both the appropriate PSAP and to
on-site personnel, such as security guards.
To distribute its products, Telident's strategy is to develop national
distribution capabilities designed to provide sales support for its E-911
products and services and future products as they may be developed or acquired
and to develop distribution relationships with major distributors of PBX
equipment and services and telephone companies. The Company currently has
offices in: Minneapolis, Minnesota; Chicago, Illinois; Dallas, Texas; Atlanta,
Georgia; and San Francisco and Los Angeles, California. Telident has
distribution agreements with Fujitsu Business Communications Systems, Ericsson
GE Mobile Communications, Inc., Siemens-Rolm, Intecom and Sprint/United
Telephone and has joint marketing agreements with Pacific Bell and BellSouth.
PRODUCTS
911 STS (STATION TRANSLATION SYSTEM)
The 911 STS(TM) is a product designed for use with PBX systems. A PBX is a
switching center maintained by an organization, such as an apartment complex,
university, office building or government office complex, where calls to and
from phone locations are routed to their destination. The 911 STS is designed to
provide for the automatic identification for 911 purposes of the location of all
callers within the PBX area. The STS provides automatic identification to the
PSAP of the location of the caller within a PBX system. The Company has
satisfactorily tested the compatibility of the STS with the PBX equipment of
nine manufacturers, who account for over 90% of domestic PBX sales.
The Company has developed a software program to enhance the 911 STS, called
Trax OSN(TM) With Trax OSN, the STS will provide automatic identification to the
PSAP of the location of the caller within a PBX system and simultaneously will
provide on-site notification of the call to a location within the organization,
such as a security desk.
In 1995 Telident, in conjunction with Unimax Systems Corporation,
introduced a new database maintenance product for Windows, called ShadowMAX(TM).
ShadowMAX eases the process of database updates by looking at daily changes and
comparing them to the previous day's database. This process generates a list of
transactions which are packaged and sent to the ALI (Automatic Location
Identification) database and STS database for updates.
9-1-1 NCS (NETWORK CONTROL SYSTEM)
During 1989, Telident began development of the 911 NCS(TM). The NCS is a
microprocessor-based unit that selectively routes a 911 call originated from any
station in the 911 service area to the correct PSAP designated to serve the
originating station. Because NCS units can be distributed throughout the
telephone network, Telident believes trunking costs can be minimized for the
telephone operating company and Enhanced 911 service which is often taken for
granted in large metropolitan areas may more readily be made available to rural
America.
Today, the 911 selective routing function generally is accomplished within
switch equipment which is not dedicated to 911 and which is typically located in
large metropolitan areas. Enhanced 911 service to rural America is difficult to
provide due to the network trunking routes from the rural area to the selective
router (the switch equipment) and back. In rural areas, the Company believes the
lower cost of the NCS compared to the cost of software upgrades for central
switches or installing new digital central office switches, and the ability to
reduce trunking cost by distributing the selective router (the NCS) throughout
the network should enable rural telcos (telephone companies) to expand E-911
services to all of their customers.
The NCS may also be used to enable central office switches to interface
with one another in order to direct 911 calls from one central switch area to
another while maintaining the ability to automatically identify the address or
location of the caller for the PSAP operator. The Telident NCS is compatible
with both the central office switch equipment and the PSAP equipment generally
in place today. The NCS has been designed to accommodate future enhancements
within the 911 network.
The basic NCS system is comprised of 16 input trunk interface circuits and
8 output trunk interface circuits. Equipment prices do not include special
applications software and do not include installation. The system is expandable
through modules of one circuit increments. The Company has expanded the port
capacity of the basic 16 input x 8 output NCS to an optional size of 32 input x
15 output for larger systems.
911 ACS (ANI CONTROL SYSTEM)
The 911 ACS(TM), or ANI Control System, located at the PSAP, will take an
incoming 911 call and deliver the voice portion of the call to the PSAP
operator's telephone and the telephone signaling portion (which contains the
incoming caller's telephone number) to a database where the caller's location
can be obtained and relayed to the PSAP operator.
PUBLIC SAFETY ANSWERING POINT SOFTWARE
The Company designs, develops and provides PSAP systems and solutions for
the 911 environment and Computer Aided Dispatch software to improve the
efficiency of the entire dispatch operation. In addition, the Company has
developed video imaging software and systems.
BACKLOG
The Company currently has a backlog of orders which approximates $500,000
and anticipates these orders to be fulfilled within the first quarter of fiscal
1997.
BUSINESS ACQUISITION
In fiscal 1994, Telident decided to expand its focus from a product company
to a solution company, selling not only hardware, but software and service
components to meet the emergency information needs of its growing customer base.
By offering a total solution approach, Telident has positioned itself as a
leader in providing 911 solutions to the marketplace. To enhance its software
capabilities, Telident acquired Cantus Corporation, a software development
company, during November 1994, and integrated Cantus' 911 software products into
Telident's product lines. At the time of the acquisition, Cactus' assets totaled
$287,000, including approximately $12,000 of cash, $112,000 of accounts
receivable, $60,000 in work in progress, $41,000 in inventory and $47,000 in bid
deposits. Telident also acquired Cantus' proprietary software products. For
additional information regarding the terms of this acquisition, see Note 9 of
the Notes to Financial Statements for the year ended June 30, 1996.
MARKETING; DISTRIBUTION
The Company markets its 911 products through distribution agreements with
major PBX manufacturers; PBX distributors; local, state and national public
safety agencies; service providers, including certain of the regional Bell
operating companies and major independent telcos; major telephone equipment
manufacturers; and manufacturers' representatives. Potential customers for these
products include the PBX manufacturers, public service agencies, colleges and
universities, businesses with multi-story or multi-building facilities, regional
Bell operating companies, the military, computer-aided dispatch manufacturers,
system integrators, independent telcos, telco consulting and engineering firms,
government agencies, and telephone switch manufacturers.
A knowledge of existing telephone system central office switching equipment
and operations is required in the development of applications for the Company's
products. Therefore, the Company's sales persons need technical support from
senior application engineers to properly evaluate customer requirements. As of
the date of this prospectus, the Company employs a Vice President of Sales and
Marketing, and eight sales personnel, all of whom have significant prior
employment experience in the telephone industry.
E-911 regulatory issues, such as the actions of the Federal Communications
Commission (FCC), and the Public Utilities Commission (PUC) in the 50 states and
other various state legislatures affect potential markets for the Company's
products, particularly its NCS and STS products. For example, Colorado, Texas,
Illinois, Washington and Mississippi have passed state laws or enacted
regulations mandating (to various degrees) the modification of PBX systems to
make them fully compatible with the E-911 system. These actions favorably impact
the market for the STS product. Similarly, in September 1994, the FCC issued a
Notice of Proposed Rule Making (the publication for comment of a rule the FCC
intends to promulgate), the original comment period for which ended in March
1995, which, if implemented, could mandate that every new PBX sold nationwide
and certain existing PBX's comply with E-911 system requirements.
The market for the NCS product is sensitive to the structure of telephone
company tariffs (rates approved by state agencies) for E-911 services, which
vary from state to state. It is also sensitive to various state funding
mechanisms for E-911 services. There are 15 states where payment for E-911
network services are at the county level. Counties usually experience a
significant financial advantage by purchasing the NCS. Therefore, NCS marketing
will continue to concentrate on those states where the tariff and funding
mechanisms are more favorable.
The Company has made significant efforts to develop marketing relationships
with, and is selling products to, major telephone companies as well as the
principal PBX manufacturers. The Company has currently signed distribution
agreements with Nortel (Northern Telecom), Fujitsu Business Communications
Systems, Ericsson GE Mobile Communications, Inc., Siemens-Rolm, Intecom, and
Sprint/United Telephone. The Company also has joint marketing agreements with
Pacific Bell and BellSouth. The Company's distributors generally provide service
for the Company's equipment which they sell. The Company intends to continue to
further develop these and other distribution relationships.
Fujitsu Business Communications Systems of Anaheim, California, a leading
supplier of private business telephone systems throughout the world, with sales
offices in most major cities in the United States, has an agreement with the
Company that provides for the purchase of 600 STS units for approximately
$2,400,000 between April 1995 and June 1998 (approximately $650,000 of which had
been purchased as of June 30, 1996). The Nortel, Ericsson GE Mobile
Communication, Inc., Siemens-Rolm, Intecom and Sprint Local Telecommunication
Division agreements do not require any minimum purchases.
The Company provides product sales and service literature, conducts direct
mailings and engages in an active public relations campaign to generate public
and buyer awareness of its products, in order to help pull sales through the PBX
suppliers. A network of sales branch offices is being developed in high
potential markets where PBX suppliers have a strong presence. The Company
currently has offices in Minneapolis, Minnesota, Chicago, Illinois, Dallas,
Texas, Atlanta, Georgia and San Francisco and Los Angeles, California and has an
agreement with an independent manufacturers' representative whose territory
covers Oregon and Washington.
Net sales to Fujitsu Business Communications accounted for 18% of total
sales in fiscal 1996. Net sales in fiscal 1995 to Digital Techniques, Inc. and
Fujitsu Business Communications amounted to 25% and 20%, respectively, of total
product sales.
PRODUCT DEVELOPMENT
The Company maintains an engineering department to design and develop
new products for the telephone industry and to support developments of new
application software to broaden applications of its products. As of the date of
this prospectus, the Company employs Vice Presidents of Advanced Engineering,
Wireless communications and Operations, a materials manager, two electrical
engineers, three manufacturing technicians and two software programmers. During
fiscal 1996 and 1995, the Company spent $1,015,321 and $479,475, respectively,
on Company sponsored research and product development. As applications are
developed for the product lines, new operating specifications for these
applications will require the Company to design new interface boards and
computer software. Portions of these programs are expected to form a library
which can be used in a number of applications.
MANUFACTURING
Telident conducts final assembly and testing along with receiving and
shipping of its products. The Company subcontracts all of its equipment
subassembly fabrication to local manufacturers and assembly houses who are
equipped and qualified to perform this work and produce high quality printed
circuit board assembly products. The Company is not dependent on any one of its
subcontractors. The component electronic parts required for assembly of the
Company's products are available from a number of different sources. Due to the
anticipated future growth, the Company is currently considering a turnkey
assembly for cost-effective and efficient deliveries of product.
COMPETITION
The Company is aware of two competitors, which market a product which
competes with the Company's STS product. The competitive products are more
expensive than the STS product and the Company believes they are only compatible
with AT&T and Northern Telecom PBX equipment. The Company's STS product is
compatible with over 90% of the equipment for PBX vendors in the United States.
The Company's NCS and ACS products are designed to be competitive with more
costly solutions offered by other manufacturers. There are many equipment
companies serving the telecommunication industry, such as AT&T and Nortel, which
are well-established in the marketplace and have substantially greater access to
financial, technical and personnel resources than the Company, which are
potential competitors of the Company. In addition, the telecommunications
industry is subject to rapid technological change and there can be no assurance
that the Company will be able to react and adapt to these changes, or that
developments by competitors will not render the Company's products obsolete.
The Company competes on the basis of product features and cost. The
attractiveness of the Company's products to end users depends, to some extent,
on the tariffs filed by local or regional telcos. In addition, Telident and its
customers depend upon the good faith cooperation of local telcos in the
installation and operation of Telident's products. If the local tariff
environment is not favorable to the Company's products or the local telcos are
uncooperative, sale of the Company's products will be impaired.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained United States patents on its STS, and SRU(1)
designs which expire on August 10, 2010 and December 12, 2005, respectively. The
Company has applied for international patents with respect to the STS design.
However, there can be no assurance as to the degree of protection which the
patents will afford the Company. The Company intends to continue to seek patents
on its products when appropriate. In addition, the Company protects its trade
secrets by, among other things, maintaining nondisclosure and confidentiality
agreements with its employees.
REGULATION
The United States Federal Communications Commission (FCC) requires that
certain communication devices be tested by a certified facility prior to
receiving FCC approval. Testing is designed to demonstrate that devices will not
cause harmful interference to telephone communications. In addition, certain
jurisdictions may require that the Company's products meet Underwriters'
Laboratory (UL) requirements. The Company's equipment meets both FCC and UL
requirements.
EMPLOYEES
At June 30, 1996, the Company had 32 full-time employees, including six
administrative, ten sales and marketing, nine operations, and seven research and
development personnel.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company leases 12,000 square feet of office and final assembly space at
a monthly rental of approximately $13,000. The leases expire at various dates
through September 1999. The Company considers these offices suitable for its
needs for the duration of the lease term.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference to page
16 of the Company's 1996 Annual Report to Shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information required by this item is incorporated by reference to pages
4 through 6 of the Company's 1996 Annual Report to Shareholders.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is incorporated by reference to pages
7 through 15 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information concerning the directors of the Registrant is incorporated
by reference to pages 2 through 3 of the definitive Proxy Statement for the
Registrant's 1996 Annual Meeting of Shareholders.
EXECUTIVE OFFICERS
The executive officers of the Company, who are elected by and serve at the
discretion of the Company's Board of Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Mark W. Sheffert 49 Chairman of the Board of Directors
Michael J. Miller 46 President, Chief Executive Officer, and Director
John F. Kromer 34 Vice President Finance and Chief Financial Officer
Kevin B. Erdman 41 Vice President of Business Development and Marketing
David L. Hopmann 44 Vice President Operations
Thomas P. Jensen 44 Vice President of Wireless and Public Safety
Martin D. Moody 48 Vice President Advanced Engineering
</TABLE>
Mark W. Sheffert - Mr. Sheffert has been Chairman of the Board of Directors
of the Company since May 1994. He is President of Manchester Companies, Inc., a
private investment and management consulting firm formed in 1993. From 1990 to
1993, he served as managing partner of Sheffert & Wein, Inc., a management
consulting firm. From September, 1982, to October, 1989, Mr. Sheffert served in
various executive positions with First Bank System, Minneapolis, Minnesota,
including Chairman and CEO, First Trust Company, FBS Mortgage Company, FBS Card
Services, Inc., and FBS Insurance. Mr. Sheffert currently is serving on the
board of directors of Kahler Corporation, Periscope Communications, Inc.,
Combined Financial Group, Inc., Triad Financial Services, Inc., and Children's
Heartlink.
Michael J. Miller - Mr. Miller became President and Chief Executive Officer
of Telident on September 1, 1993. Prior to that time, he served for five years
as President and CEO of Information and Communications Services, Inc. (ICSI), a
wholly owned subsidiary of Hickory Tech Corporation based in Mankato, Minnesota.
ICSI is a multifaceted telecommunications holding company which has business
telecommunications systems distribution, software development, and
telecommunication product manufacturing. Mr. Miller has a bachelor's degree in
finance and accounting, a master's degree in business administration, and is a
certified public accountant. He was invited to sit as a Visiting Fellow with the
Aspen Institute, a long-range planning and strategy consortium in the
communications industry. In addition, Mr. Miller is active in many civic and
charitable organizations.
John F. Kromer - Mr. Kromer was named Vice-President Finance and Chief
Financial Officer of Telident in October of 1994. He was the Controller of the
Company from June 1992, to October 1994. From August 1988, to June 1992, he was
employed at Transport Corporation of America, Inc., a transportation company
with revenues of approximately $100 Million. He was responsible for overseeing
the accounting functions and management reporting of the Company. He is a
licensed CPA in the state of Minnesota and is a member of both the American
Institute of Certified Public Accountants and the Minnesota Society of CPA's.
Kevin B. Erdman - Mr. Erdman was named Vice President of Business
Development and Marketing in March 1995. He joined Telident in July 1994 as
National Director of STS Sales, responsible for marketing and selling the STS
solution into the public and private PBX markets. From 1991 to 1993, Mr. Erdman
was responsible for business development and strategic planning for Dataserv,
Inc., a $150 million computer network services and software development
subsidiary of Bell South. After leaving Dataserv, and prior to joining the
Company, Mr. Erdman was self-employed. From 1988 until 1991, Mr. Erdman was
employed by the Clifton Group, a financial services company.
David L. Hopmann - Mr. Hopmann was named Vice President of Operations in
September 1995. From 1994 to 1995, Mr. Hopmann worked as an independent
consultant. Mr. Hopmann has over twenty years of experience in the engineering
and operations field while serving various positions at Rosemount, Inc., Control
Data Corporation and from 1990 to 1994, he was employed at Digi International
and served as the Vice President of Manufacturing Operations from 1993 to 1994.
During his previous employment, Mr. Hopmann has implemented MRP II, JIT, and TQM
programs as well as achieved ISO 9000 certification.
Thomas P. Jensen - Mr. Jensen was named Vice President of Wireless and
Public Safety Sales in July 1996. From March 1993 to June 1996, he has served
numerous positions in both sales and product management. Mr. Jensen has twenty
years of experience in telecommunications, including working for an equipment
manufacturer, ADC Telecommunications, MCI, and Fujitsu Business Communication
Systems (1992 to March 1993). He received a bachelor's degree in Engineering
from the University of Minnesota and a master's degree in Business
Administration - Finance and Marketing, from the University of St. Thomas. In
addition, he is on the Board of Directors for the Minnesota Telecommunications
Association, Board of Advisors for Dakota County Technical College, Technology
Council for Minnesota School Districts, and is an adjunct lecturer at the
University of St. Thomas.
Martin D. Moody - Mr. Moody has been a Vice President of Telident since
August 1989. He was the Director of Engineering of the Company from November
1988, to August 1989. Prior to November 1988, Mr. Moody was Vice President of
Operations of Aetrium, Inc., a manufacturer of integrated circuit handling
equipment. Mr. Moody was responsible for Aetrium's operations and new product
introductions. Mr. Moody developed a system of concurrent engineering, which
allowed all divisions to interface during product development and
implementation, as well as implementing a Quality Assurance Program. Prior to
that he was engineer in charge of telecommunications for Control Data at the
NASA/Langley site in Virginia.
The term of office for each executive officer is from one annual meeting of
stockholders until the next annual meeting of stockholders or until a successor
for each is elected by the Board of Directors.
ITEM 10. EXECUTIVE COMPENSATION
The required information is incorporated by reference to pages 4 through 5
of the definitive Proxy Statement for the Registrant's 1996 Annual Meeting of
Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information is incorporated by reference to page 6 of the
definitive Proxy Statement for the Registrant's 1996 Annual Meeting of
Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is incorporated by reference to pages 7 through 8
of the definitive Proxy Statement for the Registrant's 1996 Annual Meeting of
Shareholders.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
3.1 Articles of Incorporation, as amended, of the Company (6)
3.2 Bylaws, as amended, of the Company (6)
4.1 Specimen form of the Company's Common Stock certificate (6)
4.2 Form of Warrant issued pursuant to October, 1992 Unit offering
(2)
4.2 Form of Debenture issued pursuant to October, 1992 Unit offering
(2)
4.3 Form of Warrant issued pursuant to May, 1993 Unit offering (2)
4.4 Form of Debenture issued pursuant to May, 1993 Unit offering (2)
4.5 Subscription and Purchase Agreement dated as of August 23, 1993
between Registrant and Okabena Partnership K (2)
4.6 Conversion, Exercise, Subscription and Purchase Agreement dated
as of October 13, 1995 between Registrant and Okabena
Partnership K (5)
4.7 Form of Warrant issued pursuant to October 1995 Unit offering
(5)
4.8 Certificate of Designation of Series I Convertible Preferred
Stock (2)
4.9 Promissory Note and Security Agreement dated January 11, 1993
between Registrant and Willis K. Drake (2)
4.10 Promissory Note and Security Agreement dated February 3, 1995
between Registrant and Norwest Credit, Inc.(3)
4.11 Form of May 1996 Bridge Loan Agreement, including form of
Promissory Note and Warrant Agreement (6)
4.12 * Telident, Inc. Stock Option Plan of 1988, Form of Incentive
Stock Option Agreement and Form of Nonstatutory Stock Option
Agreement (1)
4.13 Form of Warrant Issued pursuant to May 1996 Debenture Extension
(6)
4.14 Form of Underwriter's Warrant issued on August 16, 1996 (6)
10.1 Fujitsu Business Communications Distributor Agreement (3)
10.2 Cantus Corporation Acquisition Agreement (4)
10.3 * 1996/1997 Short Term Incentive Plan
10.4 * Stock Based Long Term Incentive Plan
13.1 Annual Report to Shareholders
23.1 Consent of McGladrey & Pullen, LLP.
27 Financial Data Schedule
* Indicates Management contracts or compensation plans required to be filed as
exhibits.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-18 Reg. No. 33-25922C.
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1994.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1995.
(4) Incorporated herein by reference to the Company's Current Report on Form
8-K dated December 6, 1994.
(5) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2 Reg. No. 33-99054.
(6) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2 Reg. No. 333-04311.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the last quarter of
the period ended June 30, 1996
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TELIDENT, INC.
September 27, 1996 By /S/ MICHAEL J. MILLER
Michael J. Miller, President and CEO
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael J. Miller and John F. Kromer, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-KSB, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securtities and Exchange Commission, hereby ratifying and confirming
all that said attorney-in-fact or his substitute or substitutes, may do or cause
to be done by virtue hereof.
In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/S/ MICHAEL J. MILLER
Michael J. Miller, President, CEO and Director September 27, 1996
(Principal Executive Officer)
/S/ JOHN F. KROMER
John F. Kromer, Chief Financial Officer September 27, 1996
(Principal Financial and Accounting Officer)
/S/ SCOTT R. ANDERSON
Scott R. Anderson, Director September 27, 1996
/S/ WILLIS K. DRAKE
Willis K. Drake, Director September 27, 1996
/S/ RICHARD L. HENCLEY
Richard L. Hencley, Director September 27, 1996
/S/ JOHN SAGAN
John Sagan, Director September 27, 1996
/S/ MARK W. SHEFFERT
Mark W. Sheffert, Chairman of the Board of Directors September 27, 1996
/S/ WARREN S. TYLER
Warren S. Tyler, Director September 27, 1996
EXHIBIT 10.3
1996/1997 SHORT TERM INCENTIVE PLAN
- PLAN ADMINISTRATION SECTION -
1. GENERAL
The TELIDENT INC. (the Company) Short Term Incentive Plan is designed
to make awards in both cash and restricted stock. It is recognized that
the Company's current stock plan provides only for the grant of
Incentive and Nonqualified Stock Option stock. This plan would have to
be amended or a new plan drafted to allow the use of restricted stock.
The Company wishes to incorporate the use of restricted stock in the
plan design to offer a full value award to executives while still
conserving cash.
2. PURPOSE
The purpose of the Company's Short Term Incentive Plan is to reward the
senior executives for the attainment of Corporate objectives. The Plan
is also intended to motivate, reward, and retain key executives.
3. DEFINITIONS
Base Salary - means the plan participant's salary in effect at the end
of the plan year.
Committee - means the Compensation Committee of the Board.
Goal - means the level of performance that reflects 100% attainment of
the budget for revenue and pretax profit approved by the Board. This
level of performance triggers a target (or 100%) award.
Individual Objectives - are non financial goals set by the President
and agreed upon with each executive.
Maximum - means the level of performance that results in the maximum
award available under the plan being granted. Performance at maximum is
120% of the goal. Performance beyond maximum will not increase the
award.
President - means the Chief Executive Officer of TELIDENT INC.
Pretax Profit - means the profit before taxes as reported in the
Company's audited financial statements. The Threshold goal and Maximum
for this performance measure is the net after bonuses have been paid.
Restricted Stock - means common shares of the Company subject to the
restrictions of the vesting schedule.
Revenue - means the revenue as reported in the Company's audited
financial statements.
Threshold - means the minimum level of performance that must be
attained before any awards can be made under the plan. Threshold is 75%
of the performance goal. Performance below Threshold will result in no
awards being made.
4. PLAN ADMINISTRATOR
The Plan Administrator will be the President of the Company whose
actions will be subject to the approval of the Compensation Committee
in material matters.
5. PLAN ADMINISTRATION
The Plan Administrator is charged with the effective administration of
the Plan including the interpretation of the Plan in instances where
the Plan is silent. Material mailers such as award recommendations are
subject to the approval of the Committee.
6. PARTICIPATION
Participation in the Plan will be recommended by the President and
approved by the Compensation Committee of the Board. Participation in
any one year does not guarantee participation in future years or at the
same award level.
7. AWARD LEVEL
Award Levels under the Plan are specified under the Plan Design
Section.
8. EFFECTIVE DATE
The effective date of the Plan is July 1, 1996.
9. PLAN YEAR
The Plan Year is the Company's fiscal year.
10. TERMINATION OF EMPLOYMENT
If a plan participant terminates their employment or if the Company
terminates their employment, all rights under the Plan are forfeited.
11. AMENDMENT / TERMINATION OF THE PLAN
The Plan may be amended or terminated at any time as the Board may
approve. Plan participants will be notified as soon as possible in the
event that this section of the Plan would be implemented.
12. EMPLOYMENT
The Plan is not intended as an employment agreement. If does not
restrict the rights of the Company to terminate the employment of a
Plan participant at any time and without any obligation under the Plan.
13. LEGAL REQUIREMENTS
The Plan will be administered in accordance with all Federal, State and
local statutory requirements.
1996/1997 SHORT TERM INCENTIVE PLAN
- PLAN DESIGN SECTION -
1. PERFORMANCE MEASURES
- Revenues
- Pretax Profit
- Individual Objectives
2. TIERS OF PARTICIPATION
Tier I - President
Tier II - Vice President
3. PERFORMANCE MEASURE WEIGHTING
Tier I
------
- Revenue 60%*
- Profit 40%
Tier II
------
- Revenue 55%
- Profit 35%
- Objective 10%
*Percentage is of Base Salary
4. PLAN TRIGGERS
Both the Threshold for Revenue and Profit must be met to
activate the Plan.
5. AWARD LEVELS
Tier I
------
Threshold 12.5%
Goal 25.0%
Maximum 50.0%
Tier II
------
Threshold 7.5%
Goal 15.0%
Maximum 30.0%
6. AWARDS/VESTING
The awards under the plan would be paid as follows:
* Cash 50%
* Restricted Stock 50%
The Company can elect to make the awards in the typical manner
which would be 100% in cash. Vesting of the Restricted Stock
would be as follows:
* 50% after one year
* 100% after two years
7. PLAN SCHEMATICS
Tier I
------
Threshold Goal Maximum
Revenue
I-------------------I-----------------I
Award 7.5% 15% 30%
Threshold Goal Maximum
--------- ---- -------
Pretax Profit
I-------------------I-----------------I
Award 5% 10% 20%
Tier II
Threshold Goal Maximum
--------- ---- -------
Revenue
I--------------------I-----------------I
Award 4.125% 8.25% 16.5%
Threshold Goal Maximum
--------- ---- -------
Pretax Profit
I--------------------I-----------------I
Award 2.625% 5.25% 10.5%
Objectives - Level of performance determined by President, but
intent is a go or no go.
1.5%
*Performance along the scale between Threshold and Goal and Goal
to Maximum will be interpolated.
EXHIBIT 10.4
STOCK BASED LONG TERM INCENTIVE PROGRAM
1. PURPOSE
The purpose of the TELIDENT INC. (the Company) Stock Based Long Term
Incentive Plan (the Plan) is to reward senior managers, to retain those
managers, and to provide a capital accumulation opportunity that links
their interests to those of the shareholders.
The intent is that the Plan will operate within the parameters of the
Company's existing Stock Option Plan and within the number of
authorized shares remaining for grant, unless the Compensation
Committee (the Committee) deems to amend the Stock Option Plan.
Grants of stock options under this Plan are predicated on meeting
performance goals for the prior year as established by the Committee.
2. PARTICIPATION
Participation is at the discretion of the Committee each year.
3. TIERS OF PARTICIPANTS
Tier I - President
Tier II- Vice President
4. AWARD WEIGHTING
Incentive Stock Option Non Qualified Stock Option
---------------------- --------------------------
100% 0
5. VESTING SCHEDULE
Vesting will be according to the existing Stock Option Plan.
6. PERFORMANCE MEASURE
The Committee has established earnings per shares as the performance
measure for plan years 1996/1997. The Committee may alter the
performance measure or the levels of performance each year.
For this plan year there will be four levels of performance that will
determine the size of the stock options granted at the end of the year.
Performance between levels will revert to the lower level. For example,
performance between Level A and B will trigger a Level A award.
EARNINGS PER SHARE
Level A Level B Level C Level D
$ per share $ per share $ per share $ per share
----------- ----------- ----------- -----------
Tier I 50%* 100% 150% 200%
Tier II 37.5% 75% 100% 125%
* Percentage of the base salary of the executive at the end of the year.
CONTENTS
Letter to Shareholders..............................1
Highlights for Fiscal Year 1996.....................2
Management's Discussion and Analysis................4
Independent Auditor's Report........................7
Financial Statements................................8
Quarterly Stock Price Comparison...................16
COMPANY PROFILE
Telident designs, manufactures and market proprietary hardware and software
systems which provide the exact location of a 911 telephone call to the
emergency dispatcher who receives the call. The Company's systems provide
information which can shorten the response time to a 911 call, reduce the costs
associated with responses to incorrect locations and improve the safety of
individuals within a private branch exchange ("PBX") telephone system. In
addition, the Company manufactures and markets network hardware that provides
switching, selective routing and data interfacing capabilities to public and
private telephone networks and city, county and state government agencies.
Telident also provides these customers with a variety of emergency processing
and management software systems.
ON THE COVER:
CRITICAL MOMENTS
There are many critical moments in our lives when we reach out and depend on the
911 system for help - fires, crime, accidents, and medical situations. It is in
these moments, filled with confusion, fright and anxiety, that we rely on the
ability of the 911 system to bring the appropriate help to the right place.
Unfortunately, the very technology which we use to get this help - our phone
system - may be the one thing which turns these critical moments into deadly
ones.
Telident's 911 solutions are designed to address the needs of callers in
situations such as this - times when fast and accurate response to a 911 call is
critical. By providing a means to accurately pinpoint the location of a caller,
Telident creates a vital link in the 911 calling process.
Critical moments do occur and people do call 911 for help. With Telident's
solutions, their calls for help will be answered!
LETTER TO SHAREHOLDERS
TO OUR SHAREHOLDERS, EMPLOYEES, AND FRIENDS:
During the past year, the Company continued implementation of its marketing
strategy which positions Telident as the vendor of choice and recognized
industry expert in the PBX/911 market. A primary goal of our marketing strategy
is to attract major business telephone system manufacturers in order to realize
consistent revenue and profitability. Our marketing efforts this year culminated
in securing Northern Telecom as a distributor for our products. We continue to
be optimistic about our distribution strategy that targets end user sales
through our distributor's sales forces.
The measure of success of our distribution strategy will be the consistency of
sales coupled with sales growth rates. Without consistent distribution channel
"pull through", our sales will continue to be somewhat erratic and
unpredictable. We certainly want to improve on this performance. With the broad
range of distribution relationships supported by our five field sales offices,
we have potential to "smooth out" some of the revenue fluctuations we have
experienced in the past.
The need for national awareness of the incompatibility of PBX's with the
Enhanced 911 network continues to be an important focus for Telident. When the
awareness level becomes critical to the end user, there is a call to action to
fix the problem and Telident enjoys another successful sale. We are truly
selling safety and security to our customers, not a box to put on the wall. As
they begin to understand and embrace this concept, our job of selling them a
total solution becomes easier and more widely accepted. For this reason we
continue to emphasize support of the "education" process involved in increasing
national awareness.
Our efforts will continue to focus on the Federal Communications Commission,
assisting them with understanding the issues and providing our expertise for a
solution.
The combination of our expanding distribution channels, determined pursuit of
the PBX/911 issue at the national level, and successful secondary public stock
offering continue to position Telident for the future. These initiatives, as
well as having the right people in place to "make things happen," set the stage
for successful achievement of Telident's mission and goals.
Thank you for your continued confidence and support of Telident. We will work
diligently every day to fulfill your expectations of the Company.
/s/ MARK W. SHEFFERT /s/ MICHAEL J. MILLER
MARK W. SHEFFERT MICHAEL J. MILLER
CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF
EXECUTIVE OFFICER
HIGHLIGHTS FOR FISCAL YEAR 1996
A YEAR OF CHANGE, A YEAR OF GROWTH
NEW BOARD MEMBER ELECTED (JULY 1995)
In the beginning of FY `96, Telident announced the election of Scott R. Anderson
to serve as a Director. Mr. Anderson has been President and Chief Executive
Officer with North Memorial Health Care since 1981. Mr. Anderson has been
recognized for his leadership in the Minnesota healthcare marketplace, and
specifically recognized for his involvement in the managed care movement.
GREAT LAKES REGIONAL SALES OFFICE OPENED (OCTOBER 1995)
Telident opened the Great Lakes Regional Sales Office to sell PBX/911 systems in
Illinois, Eastern Wisconsin, Indiana, Michigan, Ohio, Kentucky, and Eastern
Missouri.
RECORD SALES ANNOUNCED AND RESTRUCTURE OF BALANCE SHEET (NOVEMBER 1995)
Telident announced first quarter results for the period ended September 30, 1995
of $1,001,000 in unaudited revenues. This was an increase of 112% over the
comparable period last year. Telident also strengthened its balance sheet and
net worth, through the conversion of $400,000 of debentures into common stock,
the exercise of $400,000 of warrants, and a $600,000 private placement.
TELIDENT SIGNED JOINT MARKETING AGREEMENT WITH PACIFIC BELL (JANUARY 1996)
Telident signed a joint marketing agreement with Pacific Bell to sell Enhanced
911 (E911) systems to owners of private telephone systems throughout California.
Telident will sell its E911 hardware and systems, and Pacific Bell will sell the
network connection between Telident's equipment and Pacific Bell's E911 system.
TELIDENT OPENED SOUTHEAST REGIONAL SALES OFFICE (JANUARY 1996)
Telident opened the Southeast Regional Sales Office to sell PBX/911 systems in
Georgia, Alabama, Tennessee, North Carolina, South Carolina, and Florida.
TELIDENT REPORTED 92% GROWTH IN FIRST HALF SALES; SUCCESSFUL WARRANT REDEMPTION
NETS OVER $900,000 (FEBRUARY 1996)
Telident reported net sales of $1,438,521 for the six months ended December 31,
1995, an increase of 92% over sales for the comparable period last year.
Subsequent to December 31, 1995, the company called 476,808 warrants, of which
122,808 were warrants issued in conjunction with the Cantus acquisition and had
a cashless exercise feature. A total of 212,877 warrants were exercised,
resulting in $854,387 of cash proceeds and the elimination of a $50,000 note to
a director.
SALES
[BAR GRAPH]
1993 $ 772,923
1994 $1,191,661
1995 $2,283,959
1996 $2,454,807
TELIDENT HAS HAD RECORD ANNUAL SALES EACH YEAR SINCE IT BEGAN GENERATING
REVENUES IN 1991.
TELIDENT OPENED NORTHERN CALIFORNIA AND SOUTHERN CALIFORNIA REGIONAL
SALES OFFICES (MARCH 1996)
Telident opened the Northern California Regional Sales Office to sell PBX/911
systems in Northern California, Nevada (except Las Vegas), Utah, and Hawaii, and
the Southern California Regional Sales Office to cover Southern California,
Arizona, and Las Vegas.
AGREEMENT SIGNED WITH SIEMENS-ROLM (MARCH 1996)
Telident announced a distribution agreement under which Siemens-Rolm will offer
Telident's Enhanced 911 products and services that integrate with the
Siemens-Rolm line of PBX systems.
TELIDENT ANNOUNCED AGREEMENTS WITH INTECOM AND BELLSOUTH (MAY 1996)
Telident announced a new distribution agreement with Intecom under which they
will offer Telident's ShadowMAX database maintenance software as part of their
call-center solutions. Intecom is a maker of large, sophisticated PBX systems,
such as those found on college campuses. In addition, Telident and BellSouth
Telecommunications, the Southeast's leading telecommunications company,
announced the signing of a co-marketing agreement under which BellSouth will
refer its customers seeking E911 solutions for their PBX equipment to Telident.
ONE-FOR-TWO REVERSE STOCK SPLIT, SECONDARY COMMON STOCK OFFERING & NASDAQ
APPLICATION (MAY 1996)
Telident announced that its board of directors approved a one-for-two reverse
stock split, effective June 4, 1996 and filed a registration statement with the
SEC for a secondary offering of 1,150,000 shares of common stock on a post-split
basis. In connection with this offering, the company applied for listing on the
REVENUE PER EMPLOYEE
[BAR GRAPH]
REVENUE EMPLOYEE REVENUE PER EMPLOYEE
1993 $ 772,923 21 $ 36,806
1994 $1,191,661 20 $ 59,583
1995 $2,283,959 22 $103,816
1996 $2,454,807 30 $ 81,827
TELIDENT'S REVENUE PER EMPLOYEE DECREASED DUE TO THE INVESTMENT IN FIVE NEW
SALES PERSONNEL AND ADDITIONAL ENGINEERING RESOURCES.
GROSS MARGIN
[BAR GRAPH]
1993 59.0%
1994 65.1%
1995 70.4%
1996 67.8%
THE COMPANY'S PRODUCTS CONTINUE TO HAVE STRONG MARGINS.
STS UNITS SOLD
[BAR GRAPH]
1993 28
1994 54
1995 325
1996 249
WHILE TELIDENT'S REVENUES INCREASED, THE NUMBER OF STS UNITS DECREASED COMPARED
TO THE PRIOR YEAR. THIS WAS ATTRIBUTABLE TO THE DECREASE IN DISTRIBUTION SALES
AND AN INCREASE IN DIRECT SALES.
LOOKING AHEAD FOR
FISCAL YEAR 1997
FCC RULED ON WIRELESS 911 (JULY 1996)
The FCC's ruling on wireless 911, which includes timeframes in which cellular
providers must provide location and call-back numbers, places Telident in a
unique position to deliver solutions to these new challenges. Utilizing a
corporate focus on 911 and years of experience in all aspects of the 911 call
architecture, Telident can provide expertise gained from designing, installing
and maintaining hundreds of complex systems.
NORTHERN TELECOM CONTRACT ANNOUNCED (SEPTEMBER 1996)
Telident announced that it has signed a three-year contract with Northern
Telecom under which Telident will serve as the manufacturer of 911 products for
Northern Telecom's Meridian-1 multimedia communication systems. Telident will
build these products under the Nortel trade name and trademark.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items in the statements of operations
expressed as (i) percentages of net sales for the years indicated and (ii)
percentage changes from the prior year:
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
FISCAL YEAR (DECREASE)
1996 1995
1996 1995 1994 OVER 1995 OVER 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 7.5% 91.7%
Cost of sales 32.2 29.7 34.9 16.8 62.9
Gross profit 67.8 70.3 65.1 3.5 107.1
Sales and marketing 39.8 32.3 59.7 32.1 3.9
Research and development 41.4 21.0 54.0 111.8 (25.5)
General and administrative expenses 41.6 40.7 58.5 9.9 33.2
Operating expenses 122.8 94.0 172.2 40.3 4.7
Operating loss (55.0) (23.7) (107.1) 149.2 (57.5)
Interest expense, net 18.0 16.5 29.8 17.1 6.2
Net loss (73.0)% (40.2)% (136.9)% 95.0 (43.7)
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
The Company had net sales in 1996 of $2,454,807 compared with $2,283,959 for
1995, an increase of 7.5%. Station Translation System ("STS") product sales
accounted for 80% of the sales in the 1996 period compared to 73% in the 1995
period. The Company acquired Cantus Corporation in November 1994. Revenues
attributable to this acquisition during the 1996 period amounted to 12% of sales
compared to 18% in the 1995 period. The Company's other products, including the
ANI Control System ("ACS") and the Network Control System ("NCS"), collectively
accounted for 8% of sales in the 1996 period compared to 9% of sales in the 1995
period. The increase in total revenues for the 1996 period was attributable to
the increase in unit sales of the STS products through direct sales, Private
Branch Exchange ("PBX") manufacturers and value-added resellers.
Gross profit increased from $1,606,270 in fiscal 1995 to $1,663,274 during
fiscal 1996, or a 3.5% increase, resulting from higher sales in 1996. Gross
margin decreased to 67.8% of sales in fiscal 1996 from 70.3% in 1995, due to the
increase in hardware sales in the public safety markets which have lower margins
than do the software sales.
Operating expenses increased from $2,148,358 in fiscal 1995 to $3,014,005 during
fiscal 1996, an increase of $865,647 or 40.3%. Sales and marketing expenses
increased $237,347 in fiscal 1996, a 32.1% increase. The Company steadily
increased its advertising expenses, as well as the size of its sales and
marketing staff, adding four sales offices in Atlanta, Chicago, San Francisco
and Los Angeles to assist in the pull-through of the Company's distributors.
Research and development expenses increased $535,846 or 111.8% in the 1996
period compared to the 1995 period, due to the addition of a Vice President of
Operations, three software programmers (two as a result of the Cantus
acquisition), three engineers and the increased use of software consultants.
General and administrative expenses increased from $929,919 in fiscal 1995 to
$1,022,418 during fiscal 1996, an increase of $92,499, or 9.9%, due to increased
rent, the amortization of goodwill related to the Cantus acquisition, and the
addition of an administrative person.
Interest expense, net of interest income, increased $64,652 in the 1996 period
compared to the 1995 period, reflecting the interest charge of approximately
$63,000 in the fourth quarter of fiscal 1996 in connection with the conversion
of debentures at a reduced conversion price. The Company anticipates a decrease
in interest expense for fiscal 1997 as a result of a public offering of
1,150,000 shares of the Company's common stock in August of 1996 which generated
net proceeds of $2,895,000, and the conversion of $1,298,000 of debt into the
Company's common stock during the fiscal year ended June 30, 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company generated net sales in fiscal 1995 of $2,283,959 compared with
$1,191,661 for fiscal 1994, an increase of 91.7%. The increase in sales was
attributable to an increase in the volume of units sold, primarily through PBX
manufacturers and value added resellers and the Cantus acquisition. The STS
products accounted for 73% of revenue in 1995 and 49% of revenues in 1994.
Fiscal 1995 revenues attributable to the acquisition of Cantus Corporation in
November of 1994 amounted to $414,288, or 18% of revenue for the 1995 period.
The Company's other products, including the ACS and NCS accounted for 9% of
revenue in fiscal 1995 compared to 51% in fiscal 1994.
Cost of sales increased from $416,029 in fiscal 1994 to $677,689 during fiscal
1995, or a 62.9% increase. This was primarily attributable to the increase in
sales. Gross profit increased to 70.3% of sales in fiscal 1995 from 65.1% in
1994 due to the higher percentage of sales of the STS product, which has a
higher profit margin than ACS and NCS products. In addition, the Company has
been able to lower costs through increased volume purchasing.
Operating expenses increased from $2,051,957 in fiscal 1994 to $2,148,313 during
fiscal 1995, an increase of $96,356 or 4.7%. Sales and marketing expenses
increased $28,064 in fiscal 1995, a 3.9% increase, due primarily to additional
commission expenses and the opening of a regional sales office in Texas.
Research and development expenses decreased by $163,777 in fiscal 1995, a 25.5%
decrease, due to a reduction in the use of engineering consultants. General and
administrative expenses for fiscal 1995 increased $232,072 compared to fiscal
1994, a 33.2% increase. The increase in administrative expenses is comprised
primarily of goodwill amortization from the Cantus acquisition ($73,000),
miscellaneous ($40,000), legal and accounting fees ($28,000), increases in
administrative salaries ($34,000), board of director fees ($20,000), additional
depreciation from new purchases ($15,000), increased rent ($8,000) and increased
insurance premiums ($14,000).
Net interest expense increased in 1995 by $21,862 due to higher average
borrowings required to fund operations, as a result of continuing operating
losses.
VARIABILITY OF QUARTERLY RESULTS
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the future. Management believes that the factors influencing quarterly
variability include: (i) the Company participates in a highly dynamic industry;
(ii) length of sales cycle; and (iii) new product introductions by the Company
or its competitors. Due to the factors noted above, as well as due to general
economic conditions, the Company's revenues and earnings may be subject to
significant variability, particularly on a quarterly basis.
INFLATION
Management believes inflation has not had a material effect on the Company's
operations or on its financial condition.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had cash of approximately $449,000 and accounts
receivable of approximately $841,000. For the period ended June 30, 1996, net
cash used in the Company's operating activities was approximately $1,869,000,
consisting primarily of the Company's loss from operations of $1,793,000, a
reduction of trade accounts payable and accrued expenses of $565,000, offset by
a decrease in accounts receivable of $400,000. The Company invested
approximately $191,000 in additional office equipment and computers for the
period ended June 30, 1996 in anticipation of the expansion of both its sales
offices and its operational facilities. Funds required to finance the Company's
operations, investments and payment of debt during fiscal 1996, were provided by
the issuance of common stock, resulting in net proceeds of $2,137,000 and the
issuance of notes payable of $1,263,000. In addition, $1,298,000 of notes
payable (including $75,000 held by directors of the Company) were converted into
Common Stock at $3.00 to $4.00 per share. The Company has relied on debt and
equity capital to fund its operating losses during fiscal 1996 and prior
periods. As of June 30, 1996, the Company had net operating loss carryforwards
totaling $8,792,000 available to reduce future taxable income, subject to
certain annual limitations. To the extent the Company generates taxable income
during the periods in which this net operating loss carryforward is available,
the Company's cash requirements for payment of income tax will be reduced.
Based on projected revenues and expenses, the Company believes that the net
proceeds of $2,895,000 of the stock offering completed subsequent to June 30,
1996, together with cash from operations will be adequate to fund the Company's
working capital requirements through June 30, 1997. However, current working
capital levels are not adequate to enable the Company to fund its operations or
pay outstanding obligations for periods beyond fiscal 1997, in the event that
the Company's sales are less than anticipated. There can be no assurance that
additional funds will be available, or, if available, available on terms
acceptable to the Company. At June 30, 1996, the Company had an accumulated
deficit of $9,283,151 and a shareholder's deficit of $195,699. The Company has
no material commitments for capital expenditures for fiscal 1997.
FORWARD LOOKING INFORMATION
Except for the historical information contained herein, the matters discussed in
this report are forward looking statements that involve risks and uncertainties,
including the timely availability and acceptance of new products, the impact of
competitive products and pricing, the management of growth, and the other risks
detailed from time to time in the Company's SEC reports.
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 statement
is effective for the Company's year ending June 30, 1997. 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 fiscal 1997. In addition, the
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,
1997. 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.
INDEPENDENT
AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Telident, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Telident, Inc., as of June
30, 1996 and 1995, and the related statements of operations, shareholders'
deficit, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telident, Inc., as of June 30,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
ST. PAUL, MINNESOTA
AUGUST 26, 1996 (SEPTEMBER 1, 1996
AS TO NOTE 11)
<TABLE>
<CAPTION>
TELIDENT, INC.
BALANCE SHEETS
JUNE 30,
<S> <C> <C>
ASSETS (NOTE 4) 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 448,654 $ 181,744
Trade accounts receivable, net of allowance for doubtful
accounts of $40,000 (Note 8):
Billed 825,358 1,050,998
Unbilled 15,196 189,695
Inventories 573,086 446,476
Other 37,947 54,170
Total current assets 1,900,241 1,923,083
Furniture and office equipment, less accumulated
depreciation of $121,933 and $73,103, respectively 253,242 113,067
Intangible assets, less accumulated amortization of $225,008
and $108,031, respectively (Note 9) 443,247 486,618
Other assets 175,070 64,113
$ 2,771,800 $ 2,586,881
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Trade accounts payable $ 258,506 $ 602,425
Accrued expenses 133,457 227,739
Deferred revenue 11,000 61,167
Notes payable - bank (Note 4) 130,628 652,135
Notes payable - related parties (Note 2) -- 178,050
Notes payable - others (Note 4) 1,351,258 340,841
Debentures and interest payable - related parties (Note 2) 11,250 246,770
Debentures and interest payable - others (Notes 5 and 7) 38,400 1,882,630
Total current liabilities 1,934,499 4,191,757
Debentures payable - related parties (Notes 2 and 5) 225,000 --
Debentures payable - others (Notes 5 and 7) 768,000 --
Total liabilities 2,927,499 4,191,757
Commitments (Note 3)
SHAREHOLDERS' DEFICIT (Notes 2 and 7):
Preferred stock, $.02 par value, convertible into common stock at the rate of
one common share for each preferred share, 2,500,000 shares
authorized, 187,500 and 237,500 shares outstanding , respectively 3,750 4,750
Common stock, $.02 par value, 10,000,000 shares authorized,
4,903,110 and 3,813,450 shares outstanding, respectively 98,062 76,269
Additional paid-in capital 9,025,640 5,804,629
Accumulated deficit (9,283,151) (7,490,524)
(155,699) (1,604,876)
$ 2,771,800 $ 2,586,881
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
TELIDENT, INC
STATEMENTS OF OPERATIONS
Years ended June 30,
1996 1995
NET SALES (Note 8) $ 2,454,807 $ 2,283,959
COST OF SALES 791,533 677,689
Gross profit 1,663,274 1,606,270
OPERATING EXPENSES:
Sales and marketing 976,266 738,919
Research and development 1,015,321 479,475
General and administrative 1,022,418 929,919
Total operating expenses 3,014,005 2,148,313
Loss from operations (1,350,731) (542,043)
INTEREST EXPENSE - related parties (46,297) (41,933)
INTEREST EXPENSE - others (395,599) (335,356)
Net loss $(1,792,627) $ (919,332)
NET LOSS PER COMMON SHARE $ (.43) $ (.28)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 4,401,981 3,630,442
<TABLE>
<CAPTION>
STATEMENTS OF SHAREHOLDERS' DEFICIT
NUMBER AMOUNT OF AMOUNT OF ADDITIONAL
OF SHARES PREFERRED COMMON PAID-IN ACCUMULATED
ISSUED STOCK STOCK CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1994 (Note 7) 3,594,748 $ 5,000 $ 66,895 $ 4,931,833 $(6,571,192)
Common stock issued to directors for services 13,594 -- 272 33,728 --
Common stock issued for services 5,000 -- 100 9,900 --
Exercise of warrants 16,666 -- 333 19,667 --
Exercise of warrants (including conversion of
$158,334 of related party debt to
exercise warrants for 39,584 shares of
common stock) net of expenses of $50,000 149,835 -- 2,997 546,341 --
Common stock issued in business acquisition 210,525 -- 4,211 311,577 --
Common stock issued in connection with notes payable 30,000 -- 600 35,400 --
Common stock issued from conversion of debt 16,250 -- 325 35,536 --
Exercise of options 26,832 -- 536 26,296 --
Preferred stock redemption (12,500) (250) -- (49,750) --
Preferred stock dividends -- -- -- (95,899) --
Net loss -- -- -- -- (919,332)
BALANCE, June 30, 1995 4,050,950 $ 4,750 $ 76,269 $ 5,804,629 $(7,490,524)
Common stock issued to directors for services 6,774 -- 135 36,115 --
Common stock issued for services 5,000 -- 100 13,900 --
Exercise of warrants (including conversion of
$50,000 of related party debt to
exercise warrants for 12,500 shares of
common stock) net of expenses of $45,139 385,794 -- 7,716 1,389,532 --
Common stock issued in connection with notes payable 9,875 -- 198 28,052 --
Common stock issued from conversion of debt, net of
expenses of $49,144 375,734 -- 7,515 1,190,674 --
Common stock issued in private placement 207,243 -- 4,145 618,533 --
Exercise of options (including conversion
of $22,500 of related party debt to exercise
options for 22,250 shares of stock) 99,268 -- 1,985 226,826 --
Stock redeemed due to fractional shares
from reverse split (28) -- (1) (114) --
Preferred stock redemptions (50,000) (1,000) -- (199,000) --
Preferred stock dividends -- -- -- (83,507) --
Net loss -- -- -- -- (1,792,627)
BALANCE, June 30, 1996 5,090,610 $ 3,750 $ 98,062 $ 9,025,640 $(9,283,151)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
TELIDENT, INC
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,792,627) $ (919,332)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 50,737 32,419
Amortization expense 215,213 150,447
Common stock issued for services 50,250 44,000
Common stock issued in connection with notes payable
and recorded as interest expense 91,583 36,000
Changes in assets and liabilities, net of effects of
Cantus acquisition:
Trade accounts receivable 400,139 (401,170)
Inventories (126,610) (12,021)
Other assets (192,970) (2,998)
Trade accounts payable (343,919) (47,392)
Accrued expenses and deferred revenue (221,186) 83,091
Net cash used in operating activities (1,869,390) (1,036,956)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments of patent and capitalized software costs (73,606) (7,304)
Purchases of furniture and office equipment (190,912) (46,634)
Acquisition of Cantus (cash acquired) (Note 9) -- 11,321
Net cash used in investing activities (264,518) (42,617)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from related party debt -- 120,000
Payments of related party borrowing (29,166) (60,000)
Borrowings from others 1,263,460 223,074
Payments of borrowings from others (155,440) (5,936)
Preferred stock redemption (200,000) (50,000)
Preferred stock dividends (83,507) (95,899)
Proceeds from issuance of common stock 2,176,978 437,836
Issuance of debentures -- 33,000
Payments of debentures (50,000) --
Net borrowings (payments) on bank line of credit (521,507) 652,135
Net cash provided by financing activities 2,400,818 1,254,210
Net increase in cash for the year 266,910 174,637
Cash and cash equivalents, beginning of year 181,744 7,107
Cash and cash equivalents, end of year $ 448,654 $ 181,744
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 440,031 $ 324,738
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued for services $ 50,250 $ 44,000
Conversion of notes payable and related expenses to common stock 1,225,583 35,861
Conversion of notes payable to common stock through warrants 50,000 158,334
Conversion of notes payable to common stock through options 22,500 --
Common stock issued in connection with Cantus Acquisition -- 315,788
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
TELIDENT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS ACTIVITIES AND
ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS ACTIVITIES
Telident, Inc. (the Company) was organized in July 1983. The Company is a
designer and manufacturer of hardware and software for the Enhanced 911 (E 911)
marketplace. The Company provides enhancements to telephone systems (PBX's), as
well as providing Public Safety Answering Point systems and alternative
selective routing equipment for the 911 marketplace throughout the United
States. In addition, the Company provides ongoing support services to its
customers under separate hardware and software maintenance agreements.
BASIS OF PRESENTATION
During fiscal 1996, the Company liquidated its previous subsidiaries and
transferred the assets and liabilities into the Company. This transfer had no
impact on the reporting entity.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company maintains cash and cash equivalents in bank accounts which at times
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 1996, the Company adopted Financial Accounting Standards Board
Statement No. 107, Disclosures About Fair Value of Financial Instruments, which
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. Statement No. 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements. The aggregate
fair values of the financial instruments would not represent the underlying
value of the Company. The financial statements include the following financial
instruments: cash and cash equivalents; accounts receivable; accounts payable;
and notes and debentures payable. At June 30, 1996, no separate comparison of
fair values versus carrying values is presented for the aforementioned financial
instruments since their fair values are not significantly different than their
balance sheet carrying amounts.
INVENTORIES
Inventories are stated at the lower of cost (first in, first out method), or
market, and consisted of the following:
JUNE 30,
1996 1995
Raw materials $ 360,465 $ 236,014
Work in progress 156,762 136,529
Finished goods 70,859 88,933
Reserve for inventory
obsolescence (15,000) (15,000)
$ 573,086 $ 446,476
FURNITURE AND OFFICE EQUIPMENT
Furniture and office equipment are stated at cost. Depreciation is provided
using the straight-line method over estimated useful lives of five or seven
years.
OTHER ASSETS
Other assets consisted of the following:
JUNE 30,
1996 1995
Deferred costs related to
public offering $ 90,961 $ --
Deferred financing costs, net 55,784 62,713
Other, net 28,325 1,400
$175,070 $ 64,113
Deferred costs consist of fees related to a public offering, which will be
netted against the proceeds of the offering in fiscal 1997 (See note 11).
Financing costs consist of unamortized fees related to debt offerings. The
Company amortizes financing costs over the terms of the related debt
instruments.
INTANGIBLE ASSETS
Intangible assets consisted of the following:
JUNE 30,
1996 1995
Goodwill (Note 9) $502,632 $502,632
Patents 99,711 92,017
Software development 65,912 --
Sub-total 668,255 594,649
Less accumulated amortization 225,008 108,031
$443,247 $486,618
Goodwill and patents are being amortized over their estimated lives of five
years using the straight line method.
Software development costs are expensed until the point that technological
feasibility and proven marketability of the product are established. Development
of the software after such point will result in capitalized software costs which
are amortized over their estimated life of three years using the straight line
method.
The Company reviews its intangibles periodically to determine potential
impairment by comparing the carrying value of the intangibles with expected
future net cash flows provided by operating activities of the business or
related products. Should the sum of the expected future net cash flows (the
estimated fair value) be less than the carrying value, the Company would
determine whether an impairment loss should be recognized. An impairment loss
would be measured by comparing the amount by which the carrying value exceeds
the fair value of the intangible based on market value. To date, management has
determined that no impairment of intangibles exists.
REVENUE RECOGNITION
The Company recognizes product revenue upon shipment or, when applicable,
installation. Unbilled receivables represent amounts due to the Company for
equipment shipped, which due to billing terms, has not been invoiced to the
customer.
DEFERRED REVENUE
Deferred revenue primarily represents payments received for ongoing customer
support to be provided by the Company. These revenues are recognized over the
period for which the related services are provided.
RESEARCH AND DEVELOPMENT
The costs of Company-sponsored research and development related to both present
and future products are expensed as incurred.
INCOME TAXES
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences, and operating
loss or tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the variances between
the amounts of assets and liabilities recorded for income tax and financial
reporting purposes. Deferred tax assets are reduced by a valuation allowance to
reflect the possibility that some portion or all of the deferred tax assets may
not be realized.
NET LOSS PER COMMON SHARE AND SUPPLEMENTARY NET LOSS PER 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 this calculation as their effect on amounts
reported would be antidilutive.
Assuming the October, 1995 and May, 1996 conversion of debt had taken place at
the beginning of fiscal 1996, the Company would have had a primary loss per
share of $(.41) for the year ended June 30, 1996.
Assuming the conversion of debt in January, 1995 had taken place at the
beginning of fiscal 1995, the Company's primary loss per share would have
remained unchanged for the year ended June 30, 1995.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. 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. SFAS 121 is effective for the Company's year ending
June 30, 1997. Management does not believe that the adoption of SFAS 121 will
have a material impact on the Company's financial position or results of
operations for fiscal 1997.
The 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,
1997. 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 proforma amounts are expected to reflect
higher amounts of expenses than amounts reported in the financial statements.
NOTE 2 - RELATED PARTY TRANSACTIONS:
During fiscal 1994 and 1993, certain board members purchased $110,000 and
$125,000, respectively, of the 10% convertible debentures through a private
offering. During fiscal 1996, these debentures were extended until July 15,
1997. In consideration for extending the debentures, the board members received
warrants to purchase 28,125 shares of common stock at $4.00 per share until July
15, 1997 of which 15,625 warrants were exercised as of June 30, 1996. At June
30, 1996 and 1995, these debentures, and the associated accrued interest were
$236,250 and $246,770, respectively.
During fiscal 1994 and 1995, certain board members loaned the Company $498,500
and $120,000, respectively. During fiscal 1995 and 1996, $506,834 of the loans
were converted into common stock at $4.00 per share, resulting in the issuance
of 126,708 shares. In addition, a board member exercised a stock option for
22,500 shares of common stock by converting a $22,500 loan. The remaining
$89,166 was repaid during fiscal 1995 and 1996. These loans were secured by all
of the Company's assets and subordinated to the bank's security interest. The
loans paid interest at 10% per annum. At June 30, 1995, the balance of notes
payable and related accrued interest was $178,050.
During fiscal 1996 and 1995, certain members of the Company's Board of Directors
received shares of the Company's common stock in lieu of cash remuneration for
Director services, resulting in the issuance of 6,774 and 13,595 shares,
respectively. The fair market values assigned to these shares at issuance were
$36,250 and $34,000, respectively, and were charged to expense in the respective
years.
During fiscal 1995, the Company paid $31,780 for office rent and office expenses
for certain of its directors. The Company was directly reimbursed for these
amounts by the directors.
On June 30, 1994, three of the Company's directors were issued 250,000 voting
shares of Series I convertible cumulative preferred stock at $4.00 per share,
resulting in proceeds to the Company of $1,000,000, which was utilized to pay
off the bank line of credit. These shares pay a yearly dividend at 1% over the
prime rate and are redeemable at the Company's option at $4.00 per share. During
fiscal 1996, and 1995, the Company redeemed 50,000 and 12,500 shares,
respectively. In addition, these directors received dividend payments in the
aggregate of $83,507 and $95,899, for the fiscal years ended 1996 and 1995,
respectively.
NOTE 3 - LEASE COMMITMENTS:
The Company leases its office space. The following is a schedule of the minimum
lease payments under the lease for the years ending June 30:
1997 $ 158,000
1998 143,000
1999 99,000
2000 25,000
Rent expense incurred was $132,900 and $73,800 during the years ended June 30,
1996 and 1995, respectively.
NOTE 4 - NOTES PAYABLE:
NOTES PAYABLE - BANK
In February, 1995, the Company obtained a revolving line of credit with a bank
providing advances up to $750,000. Advances under the agreement are limited to
75% of eligible receivables ($561,000 at June 30, 1996). The loan agreement also
contains provisions requiring compliance with certain financial covenants. The
line of credit agreement expires on February 3, 1997, when all outstanding
amounts are due and payable. Borrowings under this agreement were $130,628 as of
June 30, 1996. The agreement bears interest at the bank's base rate plus 7.5%.
The note is secured by all of the Company's assets.
NOTES PAYABLE - OTHERS
In May 1996, the Company completed a bridge financing arrangement consisting of
$1,250,000 in notes payable and warrants to purchase 125,000 shares of Common
Stock at $2.40 per share. The unsecured notes bear interest from the date of
issue at 10% annually, payable at maturity. The notes are payable in full on
September 1, 1996. A maximum of $625,000, representing 50% of the notes, are
convertible at the option of the holders, into the Company's Common Stock at
$2.40 per share.
During fiscal 1995, the Company generated $195,000 from the issuance of notes
payable. The unsecured notes had a maturity of six months and an interest rate
of 10% annually. During fiscal 1996, $124,000 of the debt was converted into
35,167 shares of common stock and $71,000 was repaid. In November 1994, the
Company assumed $187,666 of notes payable related to a business acquisition. The
notes bear interest at the rate of 9% annually and are due in fiscal 1997.
At June 30, 1996, and 1995, notes payable-others which include accrued interest
were $1,351,258 and $340,841, respectively.
NOTE 5 - DEBENTURES PAYABLE:
Debentures payable including accrued interest consisted of the following:
JUNE 30,
1996 1995
10% debentures:
Principal payable $ 993,000 $2,028,000
Accrued interest payable 49,650 101,400
$1,042,650 $2,129,400
Less current maturities 49,650 2,129,400
Long-term maturities $ 993,000 $ --
The debentures mature in July, 1997.
As of June 30, 1996, holders of $985,000 principal amount of the Company's 10%
convertible debentures elected to convert their Debentures into 321,818 shares
of the Company's Common Stock, holders of $50,000 principal amount of such
Debentures were repaid, and holders of the remaining $993,000 elected to extend
the due date of their Debentures until July 15, 1997. As an incentive to cause
the debentures to be converted, the Company temporarily reduced the conversion
price of the Debentures from $3.96 to $3.00 per share. The Company recorded
additional interest expense of $63,333 relating to the conversion of these
Debentures. As an incentive to extend the due date of the Debentures, the
Company issued a warrant representing the right to acquire one share of Common
Stock at a warrant price of $4.00 per share for every $8.00 principal amount of
Debenture. The warrants may be redeemed by the Company at $.10 per warrant at
the Company's option, anytime after the market value of the Company's stock
exceeds $7.00 per share.
NOTE 6 - INCOME TAXES AND CARRYFORWARDS:
Deferred taxes consist of the following components at June 30, 1996 and 1995.
1996 1995
Deferred tax assets
Loss carryforwards $ 3,697,000 $ 3,030,000
Intangible assets 47,000 20,000
Other 56,000 50,000
3,800,000 3,100,000
Valuation allowance for
deferred tax assets (3,800,000) (3,100,000)
$ -- $ --
Upon achieving profitability and demonstrating that the realization of existing
loss carryforwards and deferred tax assets are more likely than not, an asset
equal to all or a portion of the estimated tax benefits of existing loss
carryforwards and other temporary differences may be recognized on the Company's
balance sheet. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment. No income tax expense
was incurred in the fiscal years ending June 30, 1996 or 1995.
At June 30, 1996, the Company has available net operating loss (NOL) and
research and development tax credit carryforwards. Realization of these
carryforwards may be subject to provisions of IRC Section 382, which limits the
utilization of net operating losses if more than 50 percent of the Company's
ownership changes within a three year period. These NOL's and tax credits expire
as follows:
EXPIRATION DATES NET OPERATING LOSS TAX CREDIT
1999-2005 $ 1,049,500 $ 26,800
2006 1,065,000 37,000
2007 954,500 35,000
2008 1,629,500 46,000
2009 1,623,800 47,000
2010 900,000 25,000
2011 1,570,000 --
$ 8,792,300 $ 235,800
NOTE 7 - STOCK ISSUANCE ARRANGEMENTS:
In May 1996, the Company's Board of Directors approved a 1 for 2 reverse stock
split for all Common and Preferred shares, effective June 4, 1996. The effect of
this reverse split has been retroactively reflected in the financial statements
and notes for all periods presented. Amounts restated included shares, prices
and net loss per share amounts.
During fiscal 1996 and 1995, an officer and director of the Company earned 5,000
shares of common stock in each year as a bonus for services performed during
fiscal 1996 and 1995. The estimated fair value of common stock at the date of
the award was $14,000 and $10,000, respectively, and was recorded as an expense
and an increase to common stock and additional paid-in capital. In fiscal 1996,
and 1995, $75,000 and $158,334 of notes payable to related parties were
converted into common stock at $4.00 per share, resulting in the issuance of
18,750 and 39,584 shares, respectively.
During fiscal 1995, the Company generated $240,000 from the issuance of notes
payable. The notes have a maturity of six months and pay interest at the rate of
10% annually. As additional consideration, recorded as interest expense in
fiscal 1995, the Company issued 30,000 shares of common stock to the note
holders. In addition, a director participated in the note issuance and also
received 5,625 shares of common stock.
On October 13, 1995, a debenture holder converted a $400,000 debenture into
common stock resulting in the issuance of 133,333 shares of common stock. In
addition, the debenture holder exercised 100,000 warrants at $4.00 per share
resulting in $400,000 of proceeds to the Company, and purchased a unit
consisting of 200,000 shares of Common stock and 150,000 warrants, resulting in
$600,000 of proceeds to the Company. The warrants are exercisable at $4.00 per
share from April 12, 1997 until April 12, 2000.
In January 1996, the Company gave notice of redemption for 476,808 outstanding
common stock warrants. In connection therewith, 200,377 warrants were exercised
resulting in $854,387 in proceeds to the Company. In addition, a director
exercised 12,500 warrants through $50,000 of debt reduction. The 122,808 common
stock warrants associated with the Cantus acquisition had a cashless exercise
feature which was utilized by the Cantus shareholders resulting in the issuance
of 60,920 shares of common stock based on the fair market value of the Company's
stock price during the redemption period, and the cancellation of 61,692
warrants.
A summary of the Company's outstanding common stock warrants as of June 30, 1996
is as follows:
<TABLE>
<CAPTION>
COMMON STOCK NUMBER OF PRICE PER EXPIRATION
WARRANTS SHARES SHARE DATE
<S> <C> <C> <C> <C>
Outstanding at June 30, 1994 697,585 1.00-6.00 July, 1997
Warrants issued in July, 1994 private placement 330(1) 8,250 6.00 May, 1996
Warrants exercised (166,501) 1.00-1.20
Warrants canceled (84,334) (84,334) 1.00
Warrants issued for November, 1994 Acquisition 122,808 122,808 4.00 Jan, 1997
Outstanding at June 30, 1995 577,808 1.00-6.00
Warrants issued for debenture extension 124,750 124,750 4.00 Jul, 1997
Warrants issued in private placement 156,920 156,920 4.00 Apr, 2000
Warrants issued for bridge financing 125,000 125,000 2.40 May, 2001
Warrants exercised (398,294) (398,294) 4.00-5.22
Warrants canceled (205,513) (205,513) 4.00-6.00
Outstanding at June 30, 1996 380,671 2.00-4.00
Exercisable at June 30, 1996 230,671 2.00-4.00
</TABLE>
(1) EACH WARRANT IN DEBENTURE OFFERING ENTITLES HOLDER TO PURCHASE 25 SHARES OF
COMMON STOCK.
The Company has a stock option plan, which provides for the granting of options
to certain employees, officers and directors of the Company to purchase up to a
maximum of 675,000 shares of common stock. The options vest over a five year
period and expire seven years after being granted, except in the case of
directors who vest 50% on the date of grant and the remainder over a two year
period. Canceled options are available for future grant under the plan.
A summary of the changes in shares under option is as follows:
<TABLE>
<CAPTION>
OPTION PRICE
PER SHARE OPTIONS
<S> <C> <C>
Outstanding at June 30, 1994 $1.00 - 5.00 415,500
Granted 2.00 - 4.38 97,250
Canceled 1.00 - 4.76 (59,500)
Exercised 1.00 (26,832)
Outstanding at June 30, 1995 $1.00 - 5.00 426,418
Granted 3.50 - 6.62 152,052
Canceled 2.00 - 4.75 (68,500)
Exercised 1.00 - 4.38 (99,268)
Outstanding at June 30, 1996 $1.00 - 6.62 410,702
Exercisable at June 30, 1996 $1.00 - 4.75 66,575
</TABLE>
NOTE 8 - MAJOR CUSTOMERS:
Sales in fiscal 1996 to one of the Company's customers amounted to 18.4% of
total product sales and accounted for 3.4% of accounts receivable as of June 30,
1996.
Sales in fiscal 1995 to two of the Company's customers amounted to 24.6% and
19.6% of total product sales and accounted for 23.7% and 19.0%, respectively, of
accounts receivable as of June 30, 1995.
NOTE 9 - BUSINESS ACQUISITION:
On November 22, 1994, pursuant to an acquisition agreement, the Company acquired
all of the outstanding shares of common stock of Cantus Corporation. The Cantus
stockholders, in exchange for all the outstanding stock of Cantus, received
210,525 shares of Telident common stock and warrants representing the right to
acquire 122,808 shares of Telident common stock at an exercise price of $4 per
share. The acquisition has been accounted for as a purchase, and the results of
Cantus' operations since the date of acquisition are included in the financial
statements.
The purchase price of the Cantus common stock exceeded the net Cantus
liabilities assumed by $502,632, which has been treated as excess cost
(goodwill). A summary of the net assets acquired and liabilities assumed in
connection with the acquisition is as follows:
Fair value of assets acquired:
Current assets $ 278,483
Furniture and equipment 8,959
Fair value of assets acquired 287,442
Less liabilities assumed:
Accounts payable and accruals (170,378)
Deferred revenue (116,242)
Long-term debt (187,666)
Net liabilities assumed at fair value (186,844)
Excess of cost over net liabilities assumed (goodwill) 502,632
Total net acquisition cost - value assigned to Telident
common stock issued $ 315,788
NOTE 11- SUBSEQUENT EVENTS
In August 1996, the Company completed a secondary public offering for 1,150,000
shares of common stock at $3.00 per share, resulting in proceeds to the Company
of $2,895,000 after related expenses. The Company's underwriter received 115,000
common stock warrants as part of its compensation. The warrants are exercisable
at $3.60 per share, are fully exercisable after one year from the date of this
offering, and expire on August 15, 2001.
On September 3, 1996, bridge notes payable were repaid in the amount of
$1,020,660. The remaining $229,340 of bridge notes payable were converted into
common stock at $2.40 per share, resulting in the issuance of 95,556 shares of
common stock.
QUARTERLY STOCK PRICE COMPARISON
The high and low bid prices for the Company's Common Stock as reported by the
National Quotation Bureau for the period from July 1, 1994, to August 12, 1996
and as reported by the NASDAQ SmallCap Market under the symbol TDLT thereafter,
are shown in the table below. All prices have been adjusted to reflect a one-for
two reverse stock split of the Common Stock effective June 4, 1996. These
quotations represent prices between dealers, and do not include retail markups,
markdowns or commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
High Low
Bid Asked Bid Asked
<S> <C> <C> <C> <C>
Fiscal 1995
Quarter ended September 30 4 1/2 4 3/4 2 3/4 3 1/4
Quarter ended December 31 2 5/8 3 1/2 2 1/8 3
Quarter ended March 31 2 2 5/8 1 5/8 2
Quarter ended June 30 4 1/2 5 1/4 3 1/2 4
Fiscal 1996
Quarter ended September 30 4 1/2 5 1/2 3 1/2 4
Quarter ended December 31 9 9 3/4 3 7/8 4 1/8
Quarter ended March 31 7 1/2 8 4 1/2 4 3/4
Quarter ended June 30 5 7/8 6 3/8 3 7/8 4 1/8
Fiscal 1997
July 1-- September 1 4 4 1/8 3 3 1/8
</TABLE>
The Company has never paid a cash dividend on its common stock. The payments of
dividends, if any, in the future rest with the discretion of the Board of
Directors and will depend, among other things, upon the Company's earnings,
capital requirements, and financial condition.
At June 30, 1996, the number of holders of the Company's Common Stock was
approximately 1,000, consisting of 310 record holders and approximately 690
stockholders whose stock is held by a bank, broker or other nominee.
Telident is traded on the NASDAQ SmallCap market under the symbol TLDT.
BOARD OF DIRECTORS
Mark W. Sheffert
CHAIRMAN OF THE BOARD
PRESIDENT & CHIEF EXECUTIVE OFFICER
MANCHESTER COMPANIES
Michael J. Miller
DIRECTOR
PRESIDENT & CHIEF EXECUTIVE OFFICER
TELIDENT, INC.
Scott R. Anderson
DIRECTOR
PRESIDENT & CHIEF EXECUTIVE OFFICER
NORTH MEMORIAL HEALTH CARE
Willis K. Drake
DIRECTOR - PRIVATE INVESTOR
Richard L. Hencley
DIRECTOR - PRIVATE INVESTOR
Robert N. Kisch
DIRECTOR - PRIVATE INVESTOR
John Sagan
DIRECTOR - PRIVATE INVESTOR
Warren S. Tyler
DIRECTOR - PRIVATE INVESTOR
TELIDENT OFFICERS
Michael J. Miller
PRESIDENT & CHIEF EXECUTIVE OFFICER
John F. Kromer
VICE PRESIDENT OF FINANCE
& CHIEF FINANCIAL OFFICER
Kevin B. Erdman
VICE PRESIDENT OF BUSINESS DEVELOPMENT
& MARKETING
David T. Hopmann
VICE PRESIDENT OF OPERATIONS
Thomas P. Jensen
VICE PRESIDENT OF WIRELESS & PUBLIC SAFETY
Martin D. Moody
VICE PRESIDENT OF ADVANCED ENGINEERING
FORM 10-KSB REPORT AVAILABLE
Telident's Form 10-KSB Report, filed with the Securities and Exchange
Commission, can be obtained without charge by writing to: Telident, Inc., One
Main Street SE, Suite 85, Minneapolis, MN 55414; or by calling: (612) 623-0911.
TRANSFER AGENT & REGISTRAR
Norwest Bank Minnesota, N.A.
Stock Transfer Department
P.O. Box 738
South St. Paul, MN 55075-0738
INDEPENDENT PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
445 Minnesota Street, Suite 1800
St. Paul, MN 55101-2170
LEGAL COUNSEL
Gray, Plant, Mooty, Mooty, and Bennett
3400 Multifoods Tower
Minneapolis, MN 55402
ANNUAL MEETING NOTICE
The annual meeting of Telident's stockholders will be held at 4:00 pm, October
29, 1996 at the Minneapolis Athletic Club, 615 Second Avenue South, Minneapolis,
MN 55402.
CONSENT OF INDEPENDENT AUDITORS
As independent auditors for Telident, Inc. (the Company), we hereby consent to
the incorporation of our report dated August 26, 1996, included in this form
10-KSB into the company's previously filed Registration Statement on Form S-8,
No. 33-25922C.
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
September 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 448,654
<SECURITIES> 0
<RECEIVABLES> 880,555
<ALLOWANCES> 40,000
<INVENTORY> 573,086
<CURRENT-ASSETS> 1,900,241
<PP&E> 375,175
<DEPRECIATION> 121,933
<TOTAL-ASSETS> 2,771,800
<CURRENT-LIABILITIES> 1,934,499
<BONDS> 0
0
3,750
<COMMON> 98,062
<OTHER-SE> 9,025,640
<TOTAL-LIABILITY-AND-EQUITY> 2,771,800
<SALES> 2,454,807
<TOTAL-REVENUES> 2,454,807
<CGS> 791,533
<TOTAL-COSTS> 791,533
<OTHER-EXPENSES> 3,014,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 441,896
<INCOME-PRETAX> (1,792,627)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,792,627)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
