U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1999
|_| 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.)
10 Second Street NE, Suite 212
Minneapolis, Minnesota 55413
- -------------------------------------------------- -------------------------
(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 common
equity, as of October 31, 1999: i) 3,037,657 shares of Common Stock, par value
$.08 per share and ii) 400,000 shares of Series III Convertible Preferred Stock,
par value $.08 per share.
1
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION.................................................3
ITEM 1. Financial Statements................................................3
Condensed Balance Sheets (unaudited) as of September 30, 1999
and June 30, 1999........................................................3
Condensed Statements of Operations (unaudited) for the three months
ended September 30, 1999 and 1998........................................4
Statements of Shareholders' Equity (unaudited) for the three months
ended September 30, 1999.................................................5
Condensed Statements of Cash Flows (unaudited) for the three months
ended September 30, 1999 and 1998........................................6
Notes to Consolidated Financial Statements...............................7
ITEM 2. Management Discussion and Analysis or Plan of Operation.............8
PART II OTHER INFORMATION....................................................13
ITEM 6. Exhibits and Reports on Form 8-K...................................13
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TELIDENT, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 936,373 $ 925,785
Restricted cash 310,462 306,734
Trade accounts receivable, net of allowance for doubtful
accounts of $25,000 at both dates 411,454 633,760
Inventories 259,710 261,758
Other 87,260 79,569
------------- -------------
Total current assets 2,005,259 2,207,606
FURNITURE AND EQUIPMENT:
Furniture and equipment 451,041 447,932
Accumulated depreciation (309,825) (288,775)
------------- -------------
Net furniture and equipment 141,216 159,157
INTANGIBLE ASSETS, less accumulated amortization of $119,273
and $97,958, respectively 195,352 198,047
OTHER ASSETS 8,605 16,855
------------- -------------
$ 2,350,432 $ 2,581,665
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 40,852 $ 48,051
Trade accounts payable 89,035 138,150
Accrued expenses 57,492 127,123
Deferred revenue 23,054 19,835
Current portion of long-term debt 15,810 28,330
------------- -------------
Total current liabilities 226,243 361,489
LONG-TERM DEBT, less current portion 1,002 2,494
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.08 par value, 2,500,000 shares authorized
Series III, convertible into common stock equal to the quotient of
$2.50 divided by the lesser of $2.50 or 80% of the average of the
closing bid price for the shares of common stock on the ten trading
days prior to notice of conversion, except for 200,000 shares for which
80% of the average price shall not be more than $.785 until the closing
bid price is greater than $1.75 on any ten consecutive trading days,
400,000 shares outstanding 32,000 32,000
Common stock, $.08 par value, 10,000,000 shares authorized,
3,037,657 shares outstanding 243,013 243,013
Additional paid-in capital 15,490,517 15,490,517
Accumulated deficit (13,642,343) (13,547,848)
------------- -------------
Total shareholders' equity 2,123,187 2,217,682
------------- -------------
$ 2,350,432 $ 2,581,665
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
3
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TELIDENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
NET SALES $ 433,827 $ 717,503
COST OF SALES 116,262 185,537
------------ ------------
GROSS PROFIT 317,565 531,966
OPERATING EXPENSES:
Sales and marketing 101,004 142,715
Product development and operations 146,356 103,038
General and administrative 175,803 230,037
------------ ------------
Total operating expenses 423,163 475,790
------------ ------------
(Loss) income from operations (105,598) 56,176
INTEREST INCOME AND OTHER, NET 13,729 10,456
INTEREST EXPENSE (2,626) (15,293)
------------ ------------
NET (LOSS) INCOME (94,495) 51,339
PREFERRED STOCK DEEMED DIVIDENDS -- (275,442)
------------ ------------
NET LOSS APPLICABLE TO COMMON STOCK $ (94,495) $ (224,103)
============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.03) $ (0.08)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC AND DILUTED 3,037,657 2,787,142
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
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TELIDENT, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Number of Amount of Number of Amount of Additional
Preferred Preferred Common Common Paid-in Accumulated
Shares Issued Stock Shares Issued Stock Capital Deficit
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1999 400,000 $ 32,000 3,037,657 $ 243,013 $ 15,490,517 $ (13,547,848)
Net loss -- -- -- -- -- (94,495)
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, September 30, 1999 400,000 $ 32,000 3,037,657 $ 243,013 $ 15,490,517 $ (13,642,343)
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
5
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TELIDENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (94,495) $ 51,339
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization expense 42,365 43,700
Common stock issued for services -- 1,600
Changes in assets and liabilities:
Trade accounts receivable 222,306 (135,109)
Inventories 2,048 (5,887)
Other assets 559 56,797
Trade accounts payable (49,115) (22,299)
Accrued expenses and deferred revenue (66,412) 18,146
------------ ------------
Net cash provided by operating activities 57,256 8,287
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash (3,728) --
Payments of patent and capitalized software costs (18,620) --
Purchase of furniture and equipment (3,109) (15,115)
------------ ------------
Net cash used in investing activities (25,457) (15,115)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (payments) borrowings on notes payable (7,199) 94,471
Payments of long-term debt (14,012) (62,784)
Proceeds from issuance of preferred stock, net -- 969,822
------------ ------------
Net cash (used in) provided by financing activities (21,211) 1,001,509
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,588 994,681
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 925,785 258,875
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 936,373 $ 1,253,556
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
6
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TELIDENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed financial statements included in this Form 10-QSB are
unaudited. However, in the opinion of Telident, Inc., (the "Company"), the
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of the results of operations
and financial position for the interim periods.
The results of operations for the three month period ended September 30,
1999 do not necessarily indicate the results to be expected for 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, 1999.
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,
1999 1999
---- ----
Raw materials $ 214,773 $ 217,868
Work in progress 798 335
Finished goods 44,139 43,555
------------- -------------
$ 259,710 $ 261,758
============= =============
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133) "Accounting for
Derivative Instruments and Hedging Activities." SFAS No.133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. In July 1999, the FASB issued SFAS No. 137 delaying the effective
date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000.
The Company has not yet determined the effect SFAS No. 133 will have on its
financial position or the results of its operations.
7
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS AND 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. 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.
RESULTS OF OPERATIONS
For the three months ended September 30, 1999, Telident recorded a net loss
of $94,495 compared to net income of $51,339 for the same period in fiscal 1999.
REVENUES
Revenues consist of equipment sales of the Company's hardware and software
systems for enhanced 911 service, mainly from Telident's Station Translation
System (STS) for PBX systems and packages of hardware and software applications
providing "total PBX 9-1-1 solutions." The Company also generates revenues from
services and extended warranty contracts.
Revenues for the three months ended September 30, 1999 were $433,827
compared to $717,503 for the same period in fiscal year 1999. The delay in the
Illinois state law mandating enhanced 911 capability on existing PBX's from June
30, 1999 to June 30, 2000 may have negatively impacted sales in the quarter. The
revenue decrease may also be due to customers deciding not to order new systems
until after January 1, 2000 due to concerns over Year 2000 issues.
GROSS MARGIN
Gross margin for the three months ended September 30, 1999 decreased to
73.2% compared to 74.1% for the same period in fiscal year 1999. This decrease
was due to product mix fluctuations.
SALES AND MARKETING
Sales and marketing expenses for the three months ended September 30, 1999
decreased to $101,004 from $142,715 for the same period in fiscal year 1999.
This decrease resulted from lower commission expense due to lower sales during
the quarter and decreased consulting expenses.
8
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PRODUCT DEVELOPMENT AND OPERATIONS
Product development and operations expenses for the three months ended
September 30, 1999 increased to $146,356 from $103,038 during the same period in
fiscal year 1999. This increase was due to increased use of consultants for
development and the hiring of an additional project manager.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September
30, 1999 decreased to $175,803 from $230,037 during the same period in fiscal
year 1999. This decrease was due to lower salary expense and lower consulting
expenses.
INTEREST INCOME AND OTHER, NET
Interest income and other income and expense for the three months ended
September 30,1999 was $13,729 compared to $10,456 in the same period in fiscal
year 1999. This increase was due to the higher level of investment balances for
the entire quarter due to the sale of preferred stock completed in August 1998.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1999 was $2,626
compared to $15,293 for the same period in fiscal 1999. The decrease was due to
decreased average outstanding borrowings and lower interest rates.
DIVIDENDS
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, if any, capital requirements and financial condition. The Company has
paid a cash dividend on its preferred stock in the past. No such dividend was
paid during the three months ended September 30, 1999, and currently the Company
has no intention to pay any such dividend. The Company instead plans to retain
all earnings, if any, 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, 1999, Telident had cash, cash equivalents and restricted
cash of $1,246,835 and accounts receivable of $411,454. During the three months
ended September 30, 1999, net cash provided by the Company's operating
activities was $57,256, primarily due to the $222,306 reduction in accounts
receivable for the three months ended September 30, 1999. Accounts receivable
declined due to the reduced level of sales during the quarter. The Company used
$3,109 of cash to purchase capital equipment and $18,620 of cash for payments of
capitalized
9
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software. The Company reduced its line of credit by $7,199 and used $14,012 to
make payments on debt.
Based on projected revenues and expenses the Company believes that cash
generated from operations and existing cash balances will be adequate to fund
its working capital requirements at least through September 30, 2000. The
Company had no material commitments for capital expenditures at September 30,
1999. At September 30, 1999, Telident had shareholders' equity of $2,123,187.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. In July
1999, the FASB issued SFAS No. 137 delaying the effective date of SFAS No. 133
for one year to fiscal years beginning after June 15, 2000, with earlier
adoption encouraged. The Company has not yet determined the effects SFAS No. 133
will have on its financial position or the result of its operations.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products, which are
currently coded to accept only two digit date entries, will need to accept four
digit date entries to distinguish 21st century dates from 20th century dates. As
a result, computer systems and software used by many companies may need to be
upgraded to comply with such "Year 2000" requirements. The failure of our
products, our vendors or our customers to achieve Year 2000 compliance on a
timely basis could materially adversely affect our business, operating results,
financial condition and cash flows.
State of readiness. We have completed the assessment of our Year 2000
readiness for operations, focusing on critical operating and applications
systems, particularly the Year 2000 compliance of:
* our hardware and software products
* our internal administrative systems, and
* the compliance of our key software/hardware vendors.
We believe that all Telident products currently manufactured and marketed
are Year 2000 compliant. None of our current products rely on a date to function
properly. To the extent that our products process dates, they use four digit
years and are not subject to the effects of Year 2000. We communicate these
facts, and specific product compliance, non-compliance and upgrade options, to
our customers through our Internet web page and routine sales and marketing
communications activities.
As a part of our Year 2000 assessment, we simulated the event by inserting
key dates leading up to and beyond the Year 2000 in an orchestrated manner for
our key infrastructure components,
10
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critical business processes and key applications systems. We have addressed all
compliance issues identified to date.
We have completed the conversion of our accounting operations to utililize
new Year 2000 compliant software. In addition, our internal telecommunications
and data processing systems have also been brought into compliance.
We have completed a compliance survey of our critical vendors. Our key
computer and software application suppliers have indicated they are Year 2000
compliant. We have requested and will review our building operator's and utility
vendors' plans for becoming Year 2000 compliant.
Costs to address Year 2000 issues. We intend to complete our Year 2000
remediation efforts primarily with in-house resources. In the aggregate, we have
spent an estimated $35,000 to address Year 2000 issues.
Risks of Year 2000 issues. We recognize that issues related to Year 2000
constitute a material known uncertainty. We also recognize the importance of
ensuring that Year 2000 issues will not adversely affect our operations. We
believe that the processes described above will be effective to manage the risks
associated with the problem. However, there can be no assurance that the
processes can be completed on the timetable described above or that remediation
will be fully effective. The failure to identify and remediate Year 2000 issues,
or the failure of customers, key vendors or other critical third parties who do
business with us to timely remediate their Year 2000 issues could cause system
failures or errors, business interruptions and, in a worst case scenario, the
inability to engage in normal business practices for an unknown length of time.
Our business, operating results, financial condition and cash flows could be
materially adversely affected. At this time, however, Telident does not possess
information necessary to estimate the overall potential financial impact of Year
2000 compliance issues. Specific risks we face with regard to Year 2000 issues
include the following:
1. Decreased sales. Although we have tested and believe that our current
products are Year 2000 compliant, we believe that the purchasing patterns of
customers and potential customers may be affected as they direct a significant
portion of their scarce information technology resources to complete their Year
2000 compliance programs. These expenditures may result in reduced funds
available to purchase 911 hardware and software products such as ours. This
could result in a material adverse effect on our business, operating results,
financial condition and cash flows.
2. Customer litigation. We have developed a program to advise our customers
of the Year 2000 compliance status of our products and we have identified
upgrade and replacement products for our customers potentially affected by Year
2000 issues. Although we believe that our efforts will ensure no disruption in
the business or operations of our customers, the possibility exists that some
customers may experience problems that may motivate them to sue us for
restitution and damages that may be related to such problems.
3. Disruption of supply materials. During 1999, we began an ongoing process
of surveying our vendors with regard to their Year 2000 readiness and we have
completed the process of assessing and cataloging the vendors' responses to the
survey. Our key computer and software application suppliers have indicated they
are Year 2000 compliant. In reviewing our vendors we
11
<PAGE>
have determined that we are not dependent on any one vendor for materials. We
have alternate sources of supply for the major components of our products which
are printed circuit boards and related electronic components.
4. Disruption of internal computer systems. We have simulated the Year 2000
event by inserting key dates leading up to and beyond the Year 2000 in an
orchestrated manner for our key infrastructure components, critical business
processes and key applications systems. We believe that disruption of our
internal computer systems is unlikely and we believe we have addressed all
identified compliance issues.
5. Disruption of non-computer systems. We have completed an assessment of
all non-computer systems, including telecommunications, delivery and other
services. Although we intend to work with any third party providers of such
services to ensure that there will be no disruption in our operations, we
believe that if any disruptions do occur, such will be dealt with promptly and
will be no more severe with respect to correction or impact than would be an
unexpected breakdown of such services and related equipment.
Contingency plans. We recognize the need for Year 2000 contingency plans in
the event that remediation is not fully successful or that the remediation
efforts of our vendors, suppliers and governmental/regulatory agencies are not
timely completed. We intend to finalize contingency planning during the fourth
quarter of 1999.
As part of our existing contingency plan we have identified alternative
supply sources that will meet our business and operations requirements. Due to
our remediation efforts to date and our identification of alternative supply
sources, we no longer believe it is necessary for us to create a reserve of
finished goods inventory prior to the changeover date.
12
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule.
(b) Current Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K during the
quarter Ended September 30, 1999.
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 12, 1999 /s/ Bruce H. Senske
- --------------------------------- -----------------------------------------
Date Bruce H. Senske, Interim Chief Executive
Officer
(Principal Executive Officer, Financial
and Accounting Officer)
13
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EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 1,247
<SECURITIES> 0
<RECEIVABLES> 436
<ALLOWANCES> 25
<INVENTORY> 260
<CURRENT-ASSETS> 2,005
<PP&E> 451
<DEPRECIATION> 310
<TOTAL-ASSETS> 2,350
<CURRENT-LIABILITIES> 226
<BONDS> 1
0
32
<COMMON> 243
<OTHER-SE> 1,848
<TOTAL-LIABILITY-AND-EQUITY> 2,350
<SALES> 434
<TOTAL-REVENUES> 434
<CGS> 116
<TOTAL-COSTS> 423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (94)
<INCOME-TAX> 0
<INCOME-CONTINUING> (94)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
