U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to ______________
Commission file number 0-20887
TELIDENT, INC.
(Exact Name of Small Business Issuer 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)
(612) 623-0911
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes_X_ No___.
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each of the issuer's classes of equity
securities, as of September 30, 1997: 6,938,185 shares of Common Stock, par
value $.02 per share, and 150,000 Series I and 1,111,111 Series II shares of
Class A Convertible Preferred Stock, par value $.02 per share.
806875.4
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
TELIDENT, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 893,184 $ 22,319
Trade accounts receivable, net of allowance for doubtful
accounts of $37,160 and $40,000, respectively 598,189 432,111
Inventories 370,636 430,506
Other 47,215 37,710
---------- ----------
Total current assets 1,909,224 922,646
FURNITURE AND OFFICE EQUIPMENT, less accumulated
depreciation of $219,555 and $198,355, respectively 259,297 264,051
INTANGIBLE ASSETS, less accumulated amortization of $119,468
and $108,868, respectively 113,269 99,429
OTHER ASSETS 5,855 30,855
---------- ----------
$2,287,645 $1,316,981
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 327,560 $ 299,684
Accrued expenses 96,191 113,229
Deferred revenue 5,156 1,950
Current portion of capital lease 13,506 15,913
Notes payable - bank 191,166 101,716
Debentures and interest payable 53,750 77,875
---------- ----------
Total current liabilities 687,329 610,367
LONG TERM PORTION OF CAPITAL LEASE 17,948 20,903
DEBENTURES PAYABLE -- 87,500
---------- ----------
Total liabilities 705,277 718,770
---------- ----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, $.02 par value, 10,000,000 and 2,500,000 shares
authorized respectively
Series I, convertible into common stock at the rate of one common share
for each preferred share, 150,000 shares outstanding at
both dates 3,000 3,000
Series II, convertible into common stock for a period of one year at
i) one common share for each preferred share or ii) if the Average
Price, as defined, is less than $1.125, then each share of preferred
shall be convertible into the number of shares of common stock equal
to $1.125 divided by 80% of the Average
Price, 1,111,111 shares outstanding at September 30, 1997 22,222
Common stock, $.02 par value, 40,000,000 shares authorized,
6,938,185 and 6,948,526 shares outstanding, respectively 138,764 138,971
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Additional paid-in capital 14,677,603 13,517,626
Accumulated deficit (13,259,221) (13,061,386)
Total Shareholder's equity 1,582,368 598,211
---------- ----------
$2,287,645 $1,316,981
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
TELIDENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30,
-----------------------------
1997 1996
----------- -----------
Net sales $ 504,798 $ 826,369
Cost of sales 163,830 257,316
----------- -----------
Gross profit 340,968 569,053
----------- -----------
Operating expenses:
Sales and marketing 178,572 336,074
Research and development 121,230 288,380
General and administrative 236,099 289,254
----------- -----------
Total operating expenses 535,901 913,708
----------- -----------
Loss from operations (194,933) (344,655)
Interest income 9,167 14,793
Interest expense (12,069) (112,515)
----------- -----------
Net loss $ (197,835) $ (442,377)
=========== ===========
Perferred stock dividends including $36,337
of undeclared and unpaid cumulative stock
as of September 30, 1997 (36,337) (11,948)
----------- -----------
Net loss applicable to
Common Stock (197,835) (454,325)
Net Loss Per Common Share $ (.03) $ (.08)
=========== ===========
Weighted average number of shares outstanding 6,941,669 5,541,034
=========== ===========
See accompanying notes to condensed financial statements.
<PAGE>
TELIDENT, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Number of Number of Amount of Amount of Additional
common preferred preferred common paid-in Accumulated
shares issued shares issued stock stock capital deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1997 6,948,526 150,000 $ 3,000 $ 138,971 $ 13,517,626 $(13,061,386)
Preferred stock issued in private
placement, net of offering
expenses of $56,373 -- 1,111,111 22,222 -- 1,171,405 --
Common stock offset against
note receivable (10,341) -- -- (207) (11,428) --
Net loss -- -- -- -- -- (197,835)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 1997 6,938,185 1,261,111 $ 25,222 $ 138,764 $ 14,677,603 $(13,259,221)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
TELIDENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (197,835) $ (442,377)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 31,800 54,321
Common stock issued for services -- 10,500
Changes in assets and liabilities:
Trade accounts receivable (166,078) (204,933)
Inventories 59,870 (126,101)
Other assets 3,860 260,429
Trade accounts payable 27,876 162,513
Other liabilities (19,194) 32,713
----------- -----------
Net cash used in operating activities (259,701) (253,025)
----------- -----------
Cash flows from investing activities:
Payments for intangible assets (24,440) (79,084)
Purchase of furniture and office equipment (16,446) (24,353)
----------- -----------
Net cash used in investing activities (40,886) (103,437)
----------- -----------
Cash flows from financing activities:
Payments on notes payable-bank (350,510) (1,335,050)
Borrowings from notes payable-bank 439,960 325,000
Payments on borrowings from others (111,625) (443,090)
Proceeds from issuance of preferred stock 1,193,627 --
Proceeds from issuance of common stock -- 2,898,619
Preferred stock dividends -- (11,948)
Preferred stock redemption -- (50,000)
----------- -----------
Net cash provided by financing activities 1,171,452 1,383,531
----------- -----------
Net increase in cash for the period 870,865 1,027,069
Cash, beginning of period 22,319 448,654
----------- -----------
Cash, end of period $ 893,184 $ 1,475,723
=========== ===========
Supplemental schedule of non-cash financing
activities:
Common stock offset against note receivable $ 11,635 $
----------- -----------
Conversion of notes payable to common stock $ -- $ 229,340
=========== ===========
Common stock issued for services $ -- $ 10,500
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
TELIDENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 and 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed financial statements included in this Form 10-QSB are
unaudited. However, in the opinion of the Company, the financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for the fair presentation of the results and balances for the interim periods.
The results of operations for the three-month period ended September 30,
1997 do not necessarily indicate the results to be expected from the full year.
These statements should be read in conjunction with the Company's financial
statements and notes thereto, contained in the Company's Annual Report on Form
10-KSB for the year ended June 30, 1997.
2. INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first out method, and consisted of the following:
September 30, June 30,
1997 1997
--------- ---------
Raw materials $ 386,962 $ 416,735
Work in progress 1,733 336
Finished goods 71,941 103,435
Inventory reserve (90,000) (90,000)
--------- ---------
$ 370,636 $ 430,506
========= =========
3. ISSUANCE OF CLASS A CONVERTIBLE PREFERRED STOCK
On July 27, 1997, FAMCO II LLC ("FAMCO"), a Minnesota limited liability
corporation, purchased 1,111,111 shares of the Company's Class A Convertible
Preferred Stock for $1,250,000 ($1.125 per share). FAMCO is managed by Family
Financial Strategies, Inc.
4. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which
is effective for periods ending after December 15, 1997. SFAS 128 revises the
standards for computing and presenting earnings per share (EPS). The Company
will continue to apply APB Opinion No. 15 to compute the EPS through the
effective date. EPS for the three months ended September 30, 1997 computed under
SFAS 128 is not expected to be materially different than EPS computed under APB
Opinion No. 15.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This discussion and analysis contains forward-looking terminology such as
"believes," "anticipates," "expects" and "intends," or comparable terminology.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Potential purchasers
of the Company's securities are cautioned not to place undue reliance on such
forward-looking statements which are qualified in their entirety by the cautions
and risks described herein.
Telident, Inc. (the "Company") 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 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. The Company also provides these customers with a variety of
emergency information processing and management software systems.
RESULTS OF OPERATIONS
- ---------------------
For the three-month period ended September 30, 1997, the Company recorded a
net loss of $197,835 compared to a net loss of $442,377 for the same period in
fiscal year 1997.
REVENUES
Revenues consist of equipment sales of the Company's hardware and software
systems for enhanced 911 service, mainly from its Station Translation System
("STS") for PBX systems. The Company also generates revenues from services and
extended warranty contracts.
Revenues for the three-month period ended September 30, 1997 were $504,798
compared to $826,369 for the same period in fiscal year 1997, a decrease of
38.9%. The decrease in revenues was primarily due to reduced shipments of the
Company's STS. The shipments were affected by senior management's adjustment in
the shipping policies so that shipment of hardware does not occur until shortly
before installation of such equipment is scheduled. This adjustment allows for
better project control. Consistent with past practices, hardware revenue is
recognized on shipment, and revenue from installations and other services is
recognized as the installations or services are completed.
GROSS MARGIN
Gross margin for the three-month period ended September 30, 1997 decreased
to 67.5% compared to 68.9% for the same period in fiscal year 1997. This
decrease was due to the increase in business received from a major distributor,
and to a change in accounting practices which reallocated direct expenses from
operations into cost of sales.
<PAGE>
SELLING
Selling expenses for the three-month period ended September 30, 1997
decreased 46.9% to $178,572 from $336,074 for the same period in fiscal year
1997. This decrease resulted from the closing of several under-producing sales
offices, a reduction in sales personnel and marketing expenses, and an overall
reduction in operating expenses as part of the Company's cost containment and
restructuring measures which were implemented in the second half of fiscal year
1997. Continued investment in sales personnel and selling efforts are being made
in distribution support.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three-month period ended
September 30, 1997 decreased 58.0% to $121,230 from $288,380 during the same
period in fiscal year 1997. This decrease was due to a reduction in personnel,
decreased use of consultants, and a concentrated focus on research and
development efforts for the Company's existing PBX 911 product line. In
addition, new research and development programs were initiated in the fourth
quarter of fiscal year 1997. The Company believes that these programs will
result in improved product capabilities and new product introductions in future
periods.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the period ended September 30, 1997
decreased 18.4% to $236,099 from $289,254 during the same period in fiscal year
1997. This decrease was caused by the Company's cost containment and
restructuring measures implemented in the second half of fiscal year 1997,
including reductions in personnel and decreased use of consultants.
INTEREST INCOME/EXPENSE
Total interest income for the three-month period ended September 30, 1997
was $9,167 compared to $14,793 for the same period in fiscal year 1997, while
total interest expense was $12,069 compared to $112,515 for the same period in
fiscal year 1997. The decrease in interest expense was primarily due to a
decrease in outstanding borrowings. The outstanding debt from the Company's June
1996 bridge financing was fully paid using the proceeds from the Company's
common stock offering completed in August 1996. In addition, the Company
converted a substantial portion of its debentures to common stock during July of
1997.
DIVIDENDS
The Company has never paid a cash dividend on its common stock. The Company did
pay a dividend on its preferred stock for the quarter ending September 30, 1997
in the aggregate amount of $11,948. 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 earning, if any, capital requirements and
financial condition. No such dividend was paid for the three-month period ended
September 30,1997, and currently the Company has no intention to pay such
dividend. The Company instead plans to retain all earnings to further the
development of the business.
INFLATION
- ---------
Inflation has not had a material impact on the Company's net sales or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1997, the Company had cash of $893,184 and accounts
receivable of $598,189. During the three-months ended September 30, 1997 net
cash used in the Company's operating activities was $259,701, consisting
primarily of the Company's loss from operations of $197,835. The Company
invested $24,440 in intangible assets related to the development of Company
manufactured computer software, and $16,446 for a new financial accounting
system designed to streamline and to improve the
<PAGE>
efficiency of the Company's accounting activities. Funds required to finance the
Company's operations and investments during the first quarter of fiscal 1998
were provided by the July 1997 private placement investment of 1,111,111 shares
of Class A Convertible Preferred Stock, resulting in net proceeds of
approximately $1.2 million. The Company has relied on debt and equity capital to
fund its operating losses during the first quarter of fiscal year 1998 and
during prior periods.
Based on the projected revenues and expenses, the Company believes that
cash and cash equivalents, the proceeds from an existing line of credit and its
collections from accounts receivable, will be adequate to fund the Company's
working capital requirements through June 30, 1998.
At September 30, 1997, the Company had an accumulated deficit of
$13,259,221 and shareholders' equity of $1,582,368. The Company currently has no
agreements which would provide it with additional debt or equity capital, and
there can be no assurance that if additional funds are required, that they will
be available on terms acceptable to the Company, or at all. The failure to
obtain additional funds if required would have a material adverse effect upon
the Company's business, operating results and financial condition. The Company
has no material commitments for capital expenditures for fiscal year 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING. Not applicable.
ITEM 2. CHANGES IN SECURITIES.
On July 27, 1997, FAMCO II LLC ("FAMCO"), a Minnesota limited liability
corporation, purchased 1,111,111 shares of the Company's Class A Convertible
Preferred Stock for $1,250,000 in cash. FAMCO is managed by Family Financial
Strategies, Inc. Based upon investment representations provided to the Company
by FAMCO, the Company believes that the foregoing transaction was exempt under
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on September 11,
1997. There were 6,168,726 shares of common stock outstanding and
entitled to vote, and a total of 5,476,140 shares (88.7%) were
represented at the meeting in person or by proxy. The following
summarizes vote results of proposals submitted to the Company's
shareholders.
<PAGE>
1. Proposal to elect seven directors, each for a one-year term.
FOR WITHHOLD
--------- --------
Scott Anderson 4,904,446 283,504
Willis Drake 4,907,946 280,004
David F. Durenberger 4,890,200 297,750
John D. Wunsch 4,910,738 277,212
W. Edward McConaghay 4,911,300 277,650
John Sagan 4,907,846 280,104
Mark W. Sheffert 4,907,446 280,504
2. Proposal to ratify and approve the appointment of Deloitte & Touche LLP
as the Company's independent public accountants for the fiscal year
ending June 30, 1998.
FOR WITHHOLD ABSTENTIONS
--------- -------- -----------
4,959,661 216,239 12,050
3. Proposal to amend Article III of the Company's Restated Articles of
Incorporation which (a) increases the number of authorized shares of
the Company's common stock to 40,000,000 shares, and (b) increases the
number of authorized shares of the Company's preferred stock to
10,000,000 shares.
BROKER
FOR WITHHOLD ABSTENTIONS NON-VOTES
--------- --------- ----------- ----------
1,992,160 613,359 167,680 2,414,751
ITEM 5. OTHER INFORMATION. Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit 27, Financial Data Schedule.
The Company filed the following Correct Reports on Form 8-K
during the quarter ended September 30, 1997.
(a) Exhibit 3(i) ARTICLES OF INCORPORATION
Exhibit 27 FINANCIAL DATA SCHEDULE
(b) The Company filed the following documents with the
Commission (File No. 0-20887) during the quarter for
which this report is filed:
(1) The Company's Current Report on Form 8-K
filed on July 9, 1997 (File No. 0-20887),
relating to the Company's dismissal of
McGladrey & Pullen, LLP as its independent
accountant.
(2) The Company's Current Report on Form 8-K
filed on August 5, 1997 (File No. 0-20887),
relating to the $1.25 million equity
investment made in the Company by Family
Financial
<PAGE>
Strategies, Inc.
(3) The Company's Current Report on Form 8-K/A
filed on August 6, 1997 (File No. 0-20887),
relating to the Company engaging Deloitte &
Touche LLP as its new independent
accountant.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELIDENT, INC.
-------------------------------------
(Registrant)
November 11, 1997 /s/ W. Edward McConaghay
- ---------------------------------------- -------------------------------------
Date W. Edward McConaghay, President
(Principal Executive Officer)
November 11, 1997 /s/ Carolyn L. Wright
- ---------------------------------------- -------------------------------------
Date Carolyn L. Wright, Controller
(Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3 Articles of Incorporation
27 Financial Data Schedule
EXHIBIT 3
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
TELIDENT, INC.
THE UNDERSIGNED, W. Edward McConaghay, the President of Telident, Inc.,
a Minnesota corporation (the "Corporation"), for the purposes of amending the
Corporation's Restated Articles of Incorporation under the provisions of
Minnesota Statutes, Section 302A.135, hereby states that:
FIRST: The name of the corporation is Telident, Inc.
SECOND: The first paragraph of Article III of the Restated Articles of
Incorporation is hereby amended to read in its entirety as follows:
ARTICLE III
The total number of shares of all classes of stock
that the corporation shall be authorized to issue is FIFTY
MILLION (50,000,000) shares, divided into the following: (i)
TEN MILLION (10,000,000) shares of Preferred Stock, of the par
value of $.02 per share; and FORTY MILLION (40,000,000) shares
of Common Stock, of the par value of $.02 per share. A
description of the respective classes of stock and a statement
of the designations, preferences, limitations and relative
rights of such classes and the limitations on or denial of the
voting rights of the shares of such classes of stock are as
described in Sections A and B of this Article III.
THIRD: This amendment to the Restated Articles of Incorporation of the
Corporation was approved by the Directors and the Shareholders of the
Corporation at meetings held on September 11, 1997.
FOURTH: In addition to the foregoing, the Amendments set forth herein
have been adopted pursuant to Minnesota Statutes, Chapter 302A.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment to the Restated Articles of Incorporation at Minneapolis, Minnesota on
November 5, 1997.
/s/ W. Edward McConaghay
----------------------------
W. Edward McConaghay
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 893,184
<SECURITIES> 0
<RECEIVABLES> 598,189
<ALLOWANCES> 37,160
<INVENTORY> 370,636
<CURRENT-ASSETS> 1,909,224
<PP&E> 259,297
<DEPRECIATION> 21,200
<TOTAL-ASSETS> 2,287,645
<CURRENT-LIABILITIES> 687,329
<BONDS> 0
0
25,222
<COMMON> 138,764
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,287,645
<SALES> 504,798
<TOTAL-REVENUES> 504,798
<CGS> 163,830
<TOTAL-COSTS> 163,830
<OTHER-EXPENSES> 535,901
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,902)
<INCOME-PRETAX> (197,835)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,835)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
