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 December 31, 1996
|_| 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.
- -------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Minnesota 41-1533060
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization)
One Main Street S.E., Suite 85
Minneapolis, Minnesota 55414
(Address of principal executive offices) (Zip Code)
(612) 623-0911
- -------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____.
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding as of January 31, 1997: 6,156,226 shares
of Common Stock, par value $.02 per share.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TELIDENT, INC.
BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
ASSETS 1996 1996
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash $ 661,448 $ 448,654
Trade accounts receivable, net of allowance for doubtful
accounts of $40,000:
Billed 1,239,885 825,358
Unbilled 132,629 15,196
Inventories, net of reserve for obsolescence of $15,000 646,792 573,086
Other 35,962 37,947
------------ ------------
Total current assets 2,716,716 1,900,241
Furniture and office equipment, less accumulated 305,691 253,242
depreciation of $154,933 and $121,933, respectively
Intangible assets, less accumulated amortization of $300,470
and $225,008, respectively 485,501 443,247
Other assets 143,307 175,070
------------ ------------
$ 3,651,215 $ 2,771,800
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable $ 175,293 $ 258,506
Accrued expenses 182,972 133,457
Deferred revenue -- 11,000
Notes payable - bank 269,594 130,628
Notes payable - others 47,930 1,351,258
Debentures and interest payable - related parties 236,250 11,250
Debentures and interest payable - others 806,400 38,400
------------ ------------
Total current liabilities 1,718,445 1,934,499
Debentures payable - related parties -- 225,000
Debentures payable - others -- 768,000
------------ ------------
Total liabilities 1,718,442 2,927,499
------------ ------------
Commitments
Shareholders' equity (deficit):
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, 175,000 and 187,500 shares outstanding, respectively 3,250 3,750
Common stock, $.02 par value, 10,000,000 shares authorized, 6,151,592 and
4,903,110 shares outstanding, respectively 123,125 98,062
Additional paid-in capital 12,037,283 9,025,640
Accumulated deficit (10,229,885) (9,283,151)
------------ ------------
1,932,773 (155,699)
------------ ------------
$ 3,651,215 $ 2,771,800
============ ============
See accompanying notes to interim financial statements.
</TABLE>
<TABLE>
<CAPTION>
TELIDENT, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
---------------------------- ----------------------------
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 625,418 $ 437,247 $ 1,451,787 $ 1,438,521
Cost of Sales 195,367 128,812 452,683 415,386
----------- ----------- ----------- -----------
Gross profit 430,051 308,435 999,104 1,023,135
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 317,548 210,054 656,980 384,716
Research and development 285,840 202,962 576,719 380,337
General and administrative 301,546 322,969 590,801 575,237
----------- ----------- ----------- -----------
Total operating expenses 910,792 735,985 1,824,500 1,340,290
----------- ----------- ----------- -----------
Loss from operations (480,741) (427,550) (825,396) (317,155)
Interest income 14,110 -- 30,687 --
Interest expense - others (32,076) (72,678) (140,725) (168,133)
Interest expense - related parties (5,650) (26,743) (11,300) (35,484)
----------- ----------- ----------- -----------
Net loss $ (504,357) $ (526,971) $ (946,734) $ (520,772)
=========== =========== =========== ===========
Loss per share, primary and
fully diluted $ (.09) $ (.12) $ (.17) $ (.14)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 6,153,738 4,334,235 5,849,048 4,094,759
=========== =========== =========== ===========
See accompanying notes to interim financial statements.
</TABLE>
<TABLE>
<CAPTION>
TELIDENT, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
UNAUDITED
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, 1996 5,090,610 $ 3,750 $ 98,062 $ 9,025,640 $ (9,283,151)
Common stock issued to directors
for services 7,560 -- 152 21,348 --
Common stock issued in public offering
net of offering expenses of $532,000 1,150,000 -- 23,000 2,894,922 --
Common stock issued from
conversion of debt 95,556 -- 1,911 227,429 --
Preferred stock redemptions (25,000) (500) -- (99,500) --
Preferred stock dividends -- -- -- (33,556) --
Net loss -- -- -- -- (946,734)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 6,318,726 $ 3,250 $ 123,125 $ 12,036,283 $(10,229,885)
============ ============ ============ ============ ============
See accompanying notes to interim financial statements.
</TABLE>
<TABLE>
<CAPTION>
TELIDENT, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
-----------------------------
December 31,
1996 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (946,734) $ (520,772)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation expense 33,000 24,666
Amortization expense 75,462 56,262
Common stock issued for services 21,500 16,250
Common stock issued in connection with notes payable 229,340 554,000
Changes in assets and liabilities:
(Increase) decrease in receivables (531,960) 337,695
Increase in inventory (73,706) (63,456)
(Increase) decrease in other assets 33,749 (29,832)
Increase (decrease) in trade accounts payable (83,213) (258,095)
Decrease in accrued expenses 38,518 (135,731)
----------- -----------
Net cash used in operating activities (1,204,044) (19,013)
----------- -----------
Cash flows from investing activities:
Payments for intangible asset (117,716) (213)
Purchase of furniture and office equipment (85,449) (100,343)
----------- -----------
Net cash used in investing activities (203,165) (100,561)
----------- -----------
Cash flows from financing activities:
Payments on related party borrowing -- (52,421)
Payments on borrowings from others (1,340,161) (140,970)
Borrowings from notes payable-bank 852,500 385,645
Payments on notes payable-bank (713,534) (768,752)
Proceeds from issuance of common stock 2,917,922 772,213
Preferred stock redemption (100,000) (100,000)
Preferred stock dividends (33,557) (38,450)
----------- -----------
Net cash provided by financing activities 1,620,003 57,265
----------- -----------
Net increase (decrease) in cash for the period 212,794 (62,309)
Cash, beginning of period 448,654 181,744
----------- -----------
Cash, end of period $ 661,448 $ 119,435
=========== ===========
Supplemental schedule of non-cash financing activities:
Common stock issued for services $ 21,500 $ 16,250
=========== ===========
Conversion of notes payable to common stock $ 229,340 $ 554,000
=========== ===========
See accompanying notes to interim financial statements.
</TABLE>
TELIDENT, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1996
INTERIM REPORTING
The interim financial statements included in this Form 10-QSB are
unaudited. However, in the opinion of the Company, the interim statements
include all adjustments, consisting of normal recurring adjustments, necessary
for the fair statement of the results and balances for the interim periods.
The results of operations for the three-month and six-month periods ended
December 31, 1996, do not necessarily indicate the results to be expected from
the full year. These statements should be read in conjunction with the Company's
financial statements and notes thereto, contained in the Company's Annual Report
on Form 10-KSB for the year ended June 30, 1996.
INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first out method, and consisted of the following:
December 31, June 30,
1996 1996
Raw materials $ 432,559 $ 360,465
Work in progress 148,463 156,762
Finished goods 80,770 70,859
Inventory reserve (15,000) (15,000)
---------- ----------
$ 646,792 $ 573,086
========= =========
EARNINGS (LOSS) PER SHARE
The loss per common share is computed by dividing the net loss (less the
preferred stock dividend) by the weighted average number of shares of common
stock reported for that period. Common stock equivalents, such as options,
warrants and convertible securities were not included in the calculation as
their effect on amounts reported would be antidilutive.
MAJOR CUSTOMERS
Sales during the first six months of fiscal 1997 to Fujitsu Business
Communication Systems (FBCS) amounted to 10.5% of total product sales and
accounted for 8.5% of accounts receivable as of December 31, 1996. Sales during
the first six months of fiscal 1996 to FBCS amounted to 23.9% of total product
sales and accounted for 7.5% of accounts receivable as of December 31, 1995.
PART I - FINANCIAL INFORMATION
ITEM 2 - MD & A
TELIDENT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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.
Telident also provides these customers with a variety of emergency information
processing and management software systems.
RESULTS OF OPERATIONS
Three and Six month periods of fiscal 1996 compared to fiscal 1997. The Company
had revenues for the three and six month periods of fiscal 1997 of $625,418 and
$1,451,787, respectively, compared with $437,247 and $1,438,521 for the similar
1996 periods, an increase of 43.0% and 0.9%, respectively. The Station
Translation System (STS) product sales accounted for 86.5% and 89.3% of the
sales in the three and six month periods of fiscal 1997, compared to 77.1% in
the comparable fiscal 1996 periods. The increase in revenues during fiscal 1997
was attributable to the increase in "end-user" direct sales of the Company's STS
products versus distributor sales. Public safety product sales have declined as
a result of the Company's strategic decision to focus on the STS market.
Cost of sales as a percentage of product revenues was 31.2% in the
respective periods for fiscal 1997, compared to 29.5% and 28.9%, respectively,
for the similar 1996 periods. Gross margin decreased to 68.8% for the three and
six month periods of fiscal 1997, respectively, compared to 70.5% and 71.1% for
the similar 1996 periods. The decrease in gross margin was due to the discounted
pricing offered to distributors and resellers.
Total operating expenses increased by $174,807 and $484,210 in the 1997
three and six month periods, respectively, compared to the similar 1996 periods.
Sales and marketing expense increased $110,852 and $272,264 in the 1997 three
and six month periods, respectively, compared to the similar 1996 periods, as a
result of the increase in the Company's sales and marketing staff, as well as
the addition of sales offices in Atlanta, Chicago, San Francisco and Los
Angeles. The Company also hired a director of sales in the first quarter of
fiscal 1997.
Research and development expenses increased $85,378 and $196,382 in the
1997 three and six month periods, respectively, compared to the similar 1996
periods, due to the addition of a Director of Operations in September 1995, the
addition of two software programmers, two hardware engineers and the increased
use of consultants for product development which were added subsequent to the
fiscal 1996 period.
General and administrative expenses for the 1997 three and six month
periods decreased $21,423 and increased $15,564, respectively, compared to the
similar 1996 periods. The increase was primarily due to the additional travel
expense incurred and expenses associated with the Company's public offering in
August 1996.
Interest expense, net of interest income, decreased $75,805 and $82,279 in
the 1997 three and six month periods, respectively, as a result of the public
offering of 1,150,000 shares of the Company's common stock in August of 1996
which generated net proceeds of $2.89 million, and the conversion of debt into
the Company's common stock during fiscal 1996.
INFLATION
Inflation has not had a material impact on the Company's net sales or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company had cash of $661,448 and accounts
receivable of approximately $1,240,000. In the first six months of fiscal 1997,
net cash used in the Company's operating activities was approximately
$1,204,000, consisting primarily of the Company's loss from operations
($947,000), and the increase in accounts receivable ($532,000). The Company
invested approximately $118,000 related to intangible assets, and another
$85,000 for additional office equipment and computers. Funds required to finance
the Company's operations and investments during fiscal 1997 were provided by the
August 1996 public offering of common stock, resulting in net proceeds of
approximately $2.89 million. Upon completion of this stock offering, the Company
repaid $1,020,000 of bridge notes. The Company has relied on debt and equity
capital to fund its operating losses during fiscal 1997 and prior periods.
Based on projected revenues and expenses, the Company believes that the net
proceeds of the recently completed public offering together with cash from
operations will be adequate to fund the Company's working capital requirements
through June 30, 1997. However, current cash resources are not adequate to
enable the Company to retire $993,000 of convertible debentures that mature on
July 15, 1997, or to cover a decrease in projected revenues in the event that
the Company's sales are less than anticipated. The Company is currently seeking
to refinance or restructure its indebtedness to debenture holders and has also
undertaken a plan of personnel and expense reduction. While the Company's plan
has been to invest heavily in market development, as well as a continuous
program of research and development, the Company intends to focus on retaining
only those personnel and making those expenditures that are essential to the
maintenance of core products. This plan could affect or delay new product entry
strategies, but the Company is firmly committed to funding operations through
its operational cash flow.
The Company is exploring certain funding possibilities, but has no
agreements which would provide the Company with additional debt or equity
capital and there can be no assurance that if additional funds are required,
that they will be available, or if available, available on terms acceptable to
the Company. Any restructuring or extension of debt may have a possible dilutive
effect on the Company's shareholders as a result of the issuance of additional
securities. If the Company is unable to obtain additional capital and the
debenture holders are unwilling or unable to convert or extend the debentures,
the Company would be in default on the debentures. Failure to refinance the
debentures could result in the reduction or cesstation of the Company's business
operations. At December 31, 1996, the Company had an accumulated deficit of
$10,229,885 and shareholders' equity of $1,932,773. The Company has no material
commitments for capital expenditures for fiscal 1997.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is the subject of a counterclaim in a suit the Company filed in
Federal District Court for the District of Minnesota, File No. 3-96-1107,
against GE Capital-ResCom, L.P. ("GE"). The Company commenced this action
against GE on November 27, 1996 to recover approximately $300,000 for GE's
failure to purchase certain 911 telecommunication systems, GE's failure to pay
full price for certain 911 systems, and GE's failure to reimburse the Company
for the costs incurred developing related products pursuant to the terms and
conditions of a contract between GE and the Company.
GE filed an Answer and Counterclaim against the Company on December 31, 1996,
alleging the Company was liable for fraud, misrepresentation and breach of
warranty for failing to provide GE with telecommunications products capable of
performing the tasks GE required. GE seeks rescission and/or cancellation of the
contract and damages in excess of $50,000. The Company filed a Reply to GE's
counterclaim on January 24, 1997, denying all liability thereon. Discovery has
not yet commenced. The Company continues to seek a resolution to this matter and
pursue its claims against GE and defend against the counterclaims. The Company
believes that it has sound defenses to GE's counterclaim.
ITEM 2. CHANGES IN SECURITIES.
(c) During the quarter ended December 31, 1996, the Company sold the
following securities that were not registered under the Securities
Act:
(1) On October 29 and December 18, 1996, the Company directly issued
4,634 shares of Common Stock, par value $.02 per share, to four
of its outside directors in lieu of directors' fees equaling
$2,500 per director. No public offering of the shares was
involved.
(2) The issuance of the foregoing shares is claimed to be exempt
pursuant to Section 4(2) and 4(6) of the Securities Act and
Regulation D thereunder, as a sale not involving a public
offering. Each recipient of the shares executed a letter of
investment intent and a stop transfer order has been placed
against such shares, which contain restrictive legends to prevent
resale thereof, unless registered under the Securities Act or
exempt thereunder. Each of the recipients is an accredited
investor within the meaning of Section (2)(15) of the Securities
Act and Rule 501(a)(4) thereunder.
ITEM 3. NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on October 29,
1996. There were 5,802,445 shares of common stock outstanding and
entitled to vote, and a total of 5,476,140 shares (94.4%) were
represented at the meeting in person or by proxy. The following
summarizes vote results of proposals submitted to the Company's
shareholders.
1. Proposal to elect eight directors, each for a one-year term.
For Withheld
--- --------
Scott R. Anderson 5,463,885 12,255
Willis K. Drake 5,464,885 11,255
David F. Durenberger 5,343,104 133,036
Richard L. Hencley 5,464,685 11,455
Michael J. Miller 5,349,467 126,673
John Sagan 5,464,485 11,655
Mark W. Sheffert 5,463,935 12,205
Warren S. Tyler 5,464,685 11,455
2. Proposal to ratify the appointment of McGladrey & Pullen, LLP as
the Company's independent auditors for the fiscal year ending
June 30, 1997.
For Against Abstain
--- ------- -------
5,449,015 4,900 22,225
ITEM 5. NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELIDENT, INC.
------------------------------------------
(Registrant)
February 14, 1997 /s/ Michael J. Miller
- --------------------------- ------------------------------------------
Date Michael J. Miller, President and CEO
(Principal Executive Officer)
February 14, 1997 /s/ John F. Kromer
- --------------------------- ------------------------------------------
Date John F. Kromer, Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000845047
<NAME> TELIDENT, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 661,448
<SECURITIES> 0
<RECEIVABLES> 1,412,514
<ALLOWANCES> (40,000)
<INVENTORY> 646,792
<CURRENT-ASSETS> 2,716,716
<PP&E> 305,691
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,651,215
<CURRENT-LIABILITIES> 1,718,445
<BONDS> 0
0
3,250
<COMMON> 123,125
<OTHER-SE> 12,037,283
<TOTAL-LIABILITY-AND-EQUITY> 3,651,215
<SALES> 625,418
<TOTAL-REVENUES> 625,418
<CGS> 195,367
<TOTAL-COSTS> 195,367
<OTHER-EXPENSES> 910,792
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,616
<INCOME-PRETAX> (504,357)
<INCOME-TAX> 0
<INCOME-CONTINUING> (504,357)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (504,357)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
