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 December 31, 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 N.E., 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 equity
securities, as of January 31, 2000: 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.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION.................................................3
ITEM 1. Financial Statements................................................3
Condensed Balance Sheets (unaudited) as of December 31, 1999 and
June 30, 1999...........................................................3
Condensed Statements of Operations (unaudited) for the three months
and six months ended December 31, 1999 and 1998.........................4
Statement of Shareholders' Equity (unaudited) for the six months
ended December 31, 1999.................................................5
Condensed Statements of Cash Flows (unaudited) for the six months
ended December 31, 1999 and 1998........................................6
Notes to Consolidated Financial Statements..............................7
ITEM 2. Management's Discussion and Analysis or Plan of Operation...........8
PART II OTHER INFORMATION....................................................11
ITEM 4. Submission of Matters to a Vote of Security Holders ...............11
ITEM 6. Exhibits and Reports on Form 8-K ..................................11
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELIDENT, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 954,461 $ 925,785
Restricted cash 314,533 306,734
Trade accounts receivable, net of allowance for doubtful
accounts of $25,000 at both dates 761,101 633,760
Inventories 282,924 261,758
Other 71,229 79,569
------------ ------------
Total current assets 2,384,248 2,207,606
FURNITURE AND EQUIPMENT:
Furniture and equipment 464,969 447,932
Accumulated depreciation (331,875) (288,775)
------------ ------------
Net furniture and equipment 133,094 159,157
INTANGIBLE ASSETS, less accumulated amortization of $140,588
and $97,958, respectively 183,187 198,047
OTHER ASSETS -- 16,855
------------ ------------
$ 2,700,529 $ 2,581,665
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 225,970 $ 48,051
Trade accounts payable 97,829 138,150
Accrued expenses 96,948 127,123
Deferred revenue 26,299 19,835
Current portion of long-term debt 5,441 28,330
------------ ------------
Total current liabilities 452,487 361,489
LONG-TERM DEBT, less current portion -- 2,494
COMMITMENTS 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 lessor 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 (13,517,488) (13,547,848)
------------ ------------
Total shareholders' equity 2,248,042 2,217,682
------------ ------------
$ 2,700,529 $ 2,581,665
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
TELIDENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 783,289 $ 730,393 $ 1,217,116 $ 1,447,896
COST OF SALES 191,714 216,737 307,976 402,274
----------- ----------- ----------- -----------
GROSS PROFIT 591,575 513,656 909,140 1,045,622
OPERATING EXPENSES:
Sales and marketing 119,632 111,240 220,636 253,955
Product development and operations 135,308 106,450 281,664 209,488
General and administrative 220,957 247,245 396,760 477,282
----------- ----------- ----------- -----------
Total operating expenses 475,897 464,935 899,060 940,725
----------- ----------- ----------- -----------
Income from operations 115,678 48,721 10,080 104,897
INTEREST INCOME AND OTHER, NET 14,025 15,746 27,754 26,202
INTEREST EXPENSE (4,848) (7,008) (7,474) (22,301)
----------- ----------- ----------- -----------
NET INCOME 124,855 57,459 30,360 108,798
PREFERRED STOCK DIVIDENDS -- -- -- (275,442)
----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $ 124,855 $ 57,459 $ 30,360 $ (166,644)
=========== =========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE:
Basic $ .04 $ .02 $ .01 $ (.06)
=========== =========== =========== ===========
Diluted $ .03 $ .01 $ .01 $ (.06)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic 3,037,657 2,787,550 3,037,657 2,787,346
=========== =========== =========== ===========
Diluted 4,257,676 3,899,238 4,053,365 2,787,346
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
TELIDENT, INC.
STATEMENT 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 income -- -- -- -- -- 30,360
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 400,000 $ 32,000 3,037,657 $ 243,013 $ 15,490,517 $(13,517,488)
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
TELIDENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 31,
------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,360 $ 108,798
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization expense 85,730 95,000
Common stock warrant issued for services -- 5,000
Common stock issued for services -- 2,500
Changes in assets and liabilities:
Trade accounts receivable (127,341) (282,126)
Inventories (21,166) 6,686
Other assets 25,195 52,309
Trade accounts payable (40,321) 2,471
Accrued expenses and deferred revenue (23,711) 35,127
------------ ------------
Net cash (used in) provided by operating activities (71,254) 25,765
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash (7,799) --
Payments of patent and capitalized software costs (27,770) --
Purchase of equipment (17,037) (18,554)
------------ ------------
Net cash used in investing activities (52,606) (18,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 177,919 109,320
Payments of long-term debt (25,383) (75,897)
Proceeds from issuance of preferred stock, net -- 964,854
------------ ------------
Net cash provided by financing activities 152,536 998,277
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 28,676 1,005,488
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 925,785 258,875
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 954,461 $ 1,264,363
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE>
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 and six-month periods ended
December 31, 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
consolidated 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:
December 31, June 30,
1999 1999
---- ----
Raw materials $ 238,829 $ 217,868
Work in progress 7,003 335
Finished goods 37,092 43,555
------------ ------------
$ 282,924 $ 261,758
============ ============
3. NET INCOME (LOSS) PER COMMON SHARE
The increase in the weighted average number of shares outstanding for the
diluted earnings per share calculation was due to the requirement to assume
conversion of all of the Series III preferred stock into common stock as of the
beginning of the periods presented for which the Company had net income.
4. PROPOSED SALE OF COMPANY
The Company entered into a definitive agreement on December 31, 1999
pursuant to which Teltronics, Inc. plans to acquire substantially all of the
Company's assets in exchange for 637,500 shares of Teltronics, Inc. common
stock. Completion of the transaction is subject to customary closing conditions
and the approval of the Company's shareholders of the dissolution of the
Company.
5. 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
<PAGE>
PART I - FINANCIAL INFORMATION
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 vary. Among the factors that could cause actual results to
differ materially are (a) the consummation of Telidents' sale of assets to
Teltronics, Inc., and (b) the success of third party service providers in
achieving Year 2000 compliance. In the event one or more of these risks or
uncertainties materializes, or the underlying assumptions prove incorrect,
actual results could differ materially from those expressed in the
forward-looking statements. Potential purchasers of Telident, Inc.'s (the
"Company") 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.
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.
RESULTS OF OPERATIONS
For the three month and six month periods ended December 31, 1999, the
Company recorded net income of $124,855 and $30,360 compared to net income of
$57,459 and $108,798 for the same periods in fiscal year 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 month and six month periods ended December 31, 1999
were $783,289 and $1,217,116 compared to $730,393 and $1,447,896 for the same
periods in fiscal year 1999, an increase of 7% for the three month period and a
decrease of 16% for the six month period. The decline in year to date sales
compared to the same period last year may have been due to customers deciding
not to order new systems until they had addressed their internal Year 2000
issues. The delay in the Illinois state law mandating enhanced 911 capability on
existing PBX's from June 30, 1999 to June 30, 2000 may also have negatively
impacted sales in the current fiscal year.
GROSS MARGIN
Gross margin for the three month and six month periods ended December 31,
1999 increased to 75.5% and 74.7% compared to 70.3% and 72.2% for the same
periods in fiscal year 1999. These increases resulted from changes in product
mix due to increased sales of packages of hardware, software and services and
decreased sales of single STS units and improved cost controls of resold
products and installation services.
SALES AND MARKETING
Sales and marketing expenses for the three month period ended December 31,
1999 increased to $119,632 from $111,240 for the same period in fiscal year
1999. This increase resulted from increased commission expense due to the higher
level of sales in the current period. For the six months ended December 31, 1999
sales and marketing expenses decreased to $220,636 compared
8
<PAGE>
to $253,955 for the same period in fiscal year 1999. This decrease was due to
lower commission expenses due to the lower level of sales in the six month
period ended December 31, 1999 and lower consulting expenses.
PRODUCT DEVELOPMENT AND OPERATIONS
Product development and operations expenses for the three month and six
month periods ended December 31, 1999 increased to $135,308 and $281,664 from
$106,450 and $209,488 during the same periods in fiscal year 1999. These
increases were 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 month and six month
periods ended December 31, 1999 decreased to $220,957 and $396,760 from $247,245
and $477,282 during the same periods in fiscal year 1999. The decrease was due
to lower salary expense.
INTEREST INCOME AND OTHER, NET
Interest income and other income and expense for the three month and six
month periods ended December 31, 1999 was $14,025 and $27,754 compared to
$15,746 and $26,202 for the same periods in fiscal 1999.
INTEREST EXPENSE
Total interest expense for the three month and six month periods ended
December 31, 1999 was $4,848 and $7,474 compared to $7,008 and $22,301 for the
same periods in fiscal year 1999. The decreases were due to decreased average
outstanding borrowings.
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 six months ended December 31, 1999, and currently the Company
has no intention to pay any such dividend. The Company 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 December 31, 1999, the Company had cash, cash equivalents and restricted
cash of $1,268,994 and accounts receivable of $761,101. During the six month
period ended December 31, 1999, net cash used by the Company's operating
activities was $71,254. The Company used $27,770 of cash for payment of
capitalized software and $17,037 of cash to purchase capital equipment. The
Company received $177,919 of cash due to net borrowings on its bank line of
credit and used $25,383 to make payments on debt.
9
<PAGE>
Based on the projected revenues and expenses, the Company believes that
cash generated from operations and existing cash balances will be adequate to
fund the Company's working capital requirements at least through December 31,
2000. The Company had no material commitments for capital expenditures at
December 31, 1999. The Company had shareholders equity of $2,248,042 at December
31, 1999.
The Company, as previously disclosed, signed a definitive agreement on
December 31, 1999 pursuant to which Teltronics, Inc. plans to acquire
substantially all of the Company's assets. Completion of the transaction is
subject to customary closing conditions and the approval of the Company's
shareholders of the Company's dissolution.
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. 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 DISCLOSURE
Before the rollover of the year from 1999 to 2000, many installed computer
systems and software products were coded to accept only two digit date entries
and were unable 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 prior to the rollover date required upgrading or replacement
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.
As of February 1, 2000, the Company has not experienced and does not
anticipate any material adverse effects on the Company's systems and operations
as a result of Year 2000 issues. Business is continuing as usual, and internal
systems will continue to be monitored for any unlikely disruptions. Further, as
of February 1, 2000, the Company has not experienced any operation problems or
product failures as a result of Year 2000 issues with its vendors, service
providers, or customers.
Although the transition to the Year 2000 did not have any significant
impact on the Company or its systems and operations, the Company will continue
to monitor the impact of the year 2000 on its systems and those of third-party
service providers. The contingency plans that were developed for use in the
event of Year 2000-related failures will be maintained and generalized for
ongoing business use.
In the aggregate, we have spent an estimated $35,000 to address Year 2000
issues and do not anticipate spending any additional material amounts relating
to Year 2000 issues.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on November 2, 1999.
There were 3,037,657 shares of common stock outstanding and entitled to
vote, and a total of 2,652,688 shares (87.3%) 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 7 directors, each for a one-year term.
FOR WITHHOLD
--- --------
Scott R. Anderson 2,625,652 27,016
Willis K. Drake 2,627,652 25,016
David F. Durenberger 2,625,580 27,088
John D. Wunsch 2,627,652 25,016
W. Edward McConaghay 2,623,777 28,891
Mark W. Sheffert 2,627,652 25,016
Mack V. Traynor 2,627,152 25,516
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, 2000.
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
2,637,382 12,499 2,787 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Current Reports on Form 8-K
The Company filed a Current Report on Form 8-K (File No. 0-20887)
on December 7, 1999 to report:
* The Nasdaq Stock Market has notified the Company that it
does not meet the minimum bid price requirement for
continued listing on the Nasdaq SmallCap Market.
* The proposed acquisition of the Company's assets by
Teltronics, Inc.
11
<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)
February 11, 2000 /s/ Bruce H. Senske
- ---------------------------- -----------------------------------------
Date Bruce H. Senske, Interim Chief Executive
Officer
(Principal Executive, Financial and
Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,269
<SECURITIES> 0
<RECEIVABLES> 786
<ALLOWANCES> 25
<INVENTORY> 283
<CURRENT-ASSETS> 2,384
<PP&E> 465
<DEPRECIATION> 332
<TOTAL-ASSETS> 2,701
<CURRENT-LIABILITIES> 452
<BONDS> 0
0
32
<COMMON> 243
<OTHER-SE> 2,248
<TOTAL-LIABILITY-AND-EQUITY> 2,701
<SALES> 1,217
<TOTAL-REVENUES> 1,217
<CGS> 308
<TOTAL-COSTS> 899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 30
<INCOME-TAX> 0
<INCOME-CONTINUING> 30
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
