U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2000
COMMISSION FILE NO. 1-13830
TELESOFT CORP.
(Name of Registrant as specified in its charter)
ARIZONA 86-0431009
(State of Incorporation) (IRS Employer Identification No.)
3443 NORTH CENTRAL AVENUE #1800
PHOENIX, ARIZONA 85012
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 308-2100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
issuer was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
At April 7, 2000, the Registrant had outstanding 1,469,134 shares of common
stock, no par value.
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets as of February 29, 2000 and November 30, 1999 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three month periods ended February 29, 2000 and February 28, 1999 4 - 5
Consolidated Statements of Cash Flows for the three month periods ended February 29, 2000 and February 28, 1999 6 - 7
Notes to the Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. . . . . . . . . 9 - 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOUSRES ABOUT MARKET RISK.. . . . . . . . . . . . . . . . . . . . . . 12
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 29 , 2000 November 30, 1999
(unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $15,817,795 $ 2,157,701
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . - 12,267,370
Accounts receivable, net of allowance for uncollectibles of $519,222 7,320,856 9,484,936
and $452,601 at February 29, 2000 and November 30, 1999,
respectively
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,204 366,794
Income taxes receivable. . . . . . . . . . . . . . . . . . . . . . . 245,887 462,626
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,400 221,100
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 489,161 301,774
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 24,458,303 25,262,301
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . 1,420,804 1,320,246
Computer software costs, net . . . . . . . . . . . . . . . . . . . . 133,667 169,667
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,666 110,723
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,119,440 $26,862,937
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities . . . . . . . . . . . . . . $ 4,727,587 5,880,975
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 991,446 928,997
----------- -----------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . 5,719,033 6,809,972
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,100 62,200
----------- -----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 5,817,133 6,872,172
----------- -----------
Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Stockholders' Equity:
Preferred Stock, no par value, 10,000,000 shares authorized; . . . . - -
none issued and outstanding
Common Stock, no par value, 50,000,000 shares authorized;
3,787,500 issued and 3,711,500 outstanding. . . . . . . . . . . . 6,919,095 6,919,095
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 80,069 80,069
Accumulated other comprehensive income . . . . . . . . . . . . . . . - 66,120
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 13,303,143 12,925,481
----------- -----------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 20,302,307 19,990,765
----------- -----------
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . $26,119,440 $26,862,937
=========== ===========
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The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements.
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TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended February 29, 2000 and February 28, 1999 (unaudited)
2000 1999
----------- -----------
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Sales, net. . . . . . . . . . . . . . . . . . . . . $7,022,543 $7,802,597
Cost of sales . . . . . . . . . . . . . . . . . . . 3,626,409 4,418,477
----------- -----------
Gross profit. . . . . . . . . . . . . . . . . . . . 3,396,134 3,384,120
General and administrative expenses . . . . . . . . 3,172,828 2,446,317
----------- -----------
Operating income. . . . . . . . . . . . . . . . . . 223,306 937,803
----------- -----------
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . 224,767 161,702
Interest expense. . . . . . . . . . . . . . . . . . - (214)
Other income. . . . . . . . . . . . . . . . . . . . 145,189 107
----------- -----------
369,956 161,595
----------- -----------
Income from continuing operations before provision
for income taxes . . . . . . . . . . . . . . . 593,262 1,099,398
Provision for income taxes. . . . . . . . . . . . . 215,600 470,800
----------- -----------
Income from continuing operations . . . . . . . . . 377,662 628,598
Gain on disposal of GoodNet subsidiary (net of
income taxes of $239,500 in 1999)
- 367,509
----------- -----------
Net Income. . . . . . . . . . . . . . . . . . . . . 377,662 996,107
Other comprehensive (loss) income, net of tax
Reclass of holding gains realized during
period and included in income statement. . . (66,120) (84,566)
----------- -----------
Comprehensive income. . . . . . . . . . . . . . . . $ 311,542 $ 911,541
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements.
<PAGE>
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
For the three months ended February 29, 2000 and February 28, 1999 (unaudited)
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2000 1999
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Basic earnings per share
Continuing operations . . . . . $ 0.10 $ 0.17
Sale of discontinued operations - 0.10
---------- ----------
Net income. . . . . . . . . . . $ 0.10 $ 0.27
========== ==========
Diluted earnings per share
Continuing operations . . . . . $ 0.10 $ 0.16
Sale of discontinued operations - 0.10
---------- ----------
Net income. . . . . . . . . . . $ 0.10 $ 0.26
========== ==========
Weighted average number
of shares outstanding
- - - basic . . . . . . . . . . . . 3,711,500 3,720,022
- - - diluted . . . . . . . . . . . 3,829,204 3,867,837
========== ==========
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TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended February 29, 2000 and February 28, 1999 (unaudited)
2000 1999
------------ ------------
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Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . $ 9,180,539 $ 8,324,505
Cash paid to suppliers and employees . . . . . . . . (7,715,316) (9,980,603)
Interest paid. . . . . . . . . . . . . . . . . . . . - (214)
Interest received. . . . . . . . . . . . . . . . . . 386,137 83,261
Income taxes paid. . . . . . . . . . . . . . . . . . (6,261) (507,725)
------------ ------------
Net cash provided (used) by operating
activities of continuing operations. . . . . . . . 1,845,099 (2,080,776)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . (231,444) (60,733)
Disbursements for notes receivable from related
parties . . . . . . . . . . . . . . . . . . . . (450,000) -
Collection of notes receivable from related
parties . . . . . . . . . . . . . . . . . . . . 150,000 -
Collection of notes receivable . . . . . . . . . . . - 373,153
Cash received from sale of investment securities . . 13,846,439 3,409,232
Purchase of investment securities. . . . . . . . . . (1,500,000) (5,966,334)
----------- ------------
Net cash provided (used) by investing
activities of continuing operations . . . . . . . 11,814,995 (2,244,682)
------------ ------------
Cash flows from financing activities:
Purchases of treasury stock. . . . . . . . . . . . . - (184,305)
------------ ------------
Net cash used in financing activities of
continuing operations . . . . . . . . . . . . . . - (184,305)
------------ ------------
Cash provided (used) by continuing operations. . . . 13,660,094 (4,509,763)
Cash used by discontinued operations, including
income taxes paid in the amount of $365,400 for
1999 . . . . . . . . . . . . . . . . . . . . . . - (365,400)
------------ ------------
Net increase (decrease) in cash and cash equivalents 13,660,094 (4,875,163)
Cash and cash equivalents at beginning of period 2,157,701 7,740,219
------------ ------------
Cash and cash equivalents at end of fiscal period. . $15,817,795 $ 2,865,056
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
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TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended February 29, 2000 and February 28, 1999 (unaudited)
2000 1999
------------ ------------
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Reconciliation of net income to net cash
provided (used) by operating activities from
continuing operations:
Net income . . . . . . . . . . . . . . . . . . . $ 377,662 $ 996,107
------------ ------------
Adjustments to reconcile net income to net
cash provided (used) by operating activities
from continuing operations:
Gain on sale of discontinued operations. . . . . - (367,509)
Income taxes payable and deferred taxes
related to sale of discontinued operations. . - 125,900
Depreciation and amortization. . . . . . . . . . 166,886 125,666
Gain on sale of investment securities. . . . . . (145,189)
Gain on sale of fixed assets . . . . . . . . . . - -
Interest income included with note receivable. . - (2,294)
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . 2,164,080 584,060
Inventory. . . . . . . . . . . . . . . . . . . . 46,590 (46,984)
Other current assets . . . . . . . . . . . . . . 112,613 (28,589)
Deferred taxes, net. . . . . . . . . . . . . . . (7,400) (566,700)
Other assets . . . . . . . . . . . . . . . . . . 4,057 1,522
Accounts payable and accrued liabilities . . . . (1,153,388) (3,299,719)
Deferred revenue . . . . . . . . . . . . . . . . 62,449 (6,111)
Income taxes payable . . . . . . . . . . . . . . - 403,875
Income taxes receivable. . . . . . . . . . . . . 216,739 -
1,467,437 (3,076,883)
------------ ------------
Net cash provided (used) by operating activities $ 1,845,099 $(2,080,776)
from continuing operations ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of
the Consolidated Financial Statements
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TELESOFT CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three month periods ended February 29, 2000 and February 28, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for audited year-end financial
statements. In the opinion of management, all adjustments for normal
recurring accruals considered necessary for a fair presentation have been
included. Operating results for the three months ended February 29, 2000 are
not necessarily indicative of the results that may be expected for the year
ending November 30, 2000. The unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
November 30, 1999.
Principles of Consolidation
The consolidated financial statements include the accounts of Telesoft Corp.,
together with its wholly owned subsidiaries, Telesoft Acquisition Corp and
Telesoft Recovery Corp.
All significant intercompany accounts and transactions have been eliminated.
2. INVESTMENT SECURITIES
Winstar Communications, Inc. "Winstar"
The Company accounted for its investment in Winstar as an available-for-sale
equity security, which accordingly was carried at market value. During the
three months ended February 28, 1999, the Company sold the last of its Winstar
shares, or 79,387 shares, resulting in net proceeds before taxes of
$2,909,232.
Amdocs Ltd. ("DOX")
The Company accounted for its investment in DOX, which traded on the NYSE
under the symbol DOX, as an available-for-sale equity security, which
accordingly was carried at market value. During the three months ended
February 29, 2000, the Company sold all 7,434 DOX shares that it had held for
$296,439. These shares were previously held as 20,000 shares of International
Telecommunication Data Systems Inc. (ITDS).
3. STOCKHOLDERS' EQUITY
Self-Tender Offer
On February 3, 2000, the Company commenced an offer to repurchase up to 2.3
million shares of its common stock pursuant to a "Dutch auction" self-tender
offer. On March 24, 2000, the tender expired. The Company repurchased,
pursuant to the tender offer, a total of 2.3 million shares of its common
stock. The purchase price for the shares of common stock was $7.25 per share
and the proration factor was 59.72 percent.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
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RESULTS OF OPERATIONS BY PRODUCT LINE FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 (in thousands except
per share items)
Three months ended February 29, 2000 Three months ended February 28, 1999
----------------------------------------- -----------------------------------------
System Sales Custom Recovery System Custom Network
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STS Billing Services Total STS Sales Billing Services Total
Sales, net. . . . . . . . $ 4,792 $ 1,818 $ 253 $ 159 $ 7,022 $ 5,818 $ 1,388 $ 545 51 $7,802
Cost of sales . . . . . . 3,287 333 6 - 3,626 4,201 217 - - 4,418
-------------- --------- --------- -------- ------- -------- -------- --------- ------- ------
Gross profit. . . . . . . 1,505 1,485 247 159 3,396 1,617 1,171 545 51 3,384
-------------- --------- --------- -------- ------- -------- -------- --------- ------- ------
General & administrative
expenses:
General . . . . . . . . . 950 1,472 224 233 2,879 866 990 278 70 2,204
Depreciation. . . . . . . 47 39 5 - 91 37 33 5 - 75
Bad debt. . . . . . . . . 69 9 - - 78 54 2 - - 56
Corporate allocations:
General . . . . . . . . . 32 19 6 1 58 45 12 4 - 61
Depreciation. . . . . . . 31 29 6 - 66 22 22 5 1 50
-------------- --------- --------- -------- ------- -------- -------- --------- ------- ------
1,129 1,568 241 234 3,172 1,024 1,059 292 71 2,446
-------------- --------- --------- -------- ------- -------- -------- --------- ------- ------
Operating income (loss) . 376 (83) 6 (75) 224 593 112 253 (20) 938
Other income. . . . . . . 370 161
------- ------
Pretax income . . . . . . 594 1,099
Income tax provision. . . (216) (471)
------- ------
Income from continuing
operations. . . . . . . $ 378 $ 628
======= ======
Diluted earnings per
share-continuing
operations. . . . . . . . $ 0.10 $ 0.16
====== =======
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND
FEBRUARY 28, 1999
Revenues decreased by 10% to $7,022,543 for the three months ended
February 29, 2000 compared to $7,802,597 for the three months ended February
28, 1999. The Company's revenue is derived from four principal product lines
and services: STS Outsourcing Programs (STS), System Sales and Maintenance,
Customized Billing Outsourcing Services and Recovery Services. Network
Services, which began operations in December 1998, was discontinued in August
1999 due to unsatisfactory performance.
STS revenues were $4,791,533 for the three months ended February 29, 2000
compared to $5,817,928 for the three months ended February 28, 1999, a
decrease of 17.6%. This decrease was a slight improvement over the 22%
decline to the fourth quarter 1999 from the fourth quarter 1998. This
decrease was primarily due to market pressure from competing long-distance
calling products including pre-paid cards, other calling cards, wireless
services and the Internet. The Company is adjusting to these market pressures
by lowering its retail rates and renegotiating its wholesale rates with its
suppliers.
<PAGE>
Revenues from System Sales and Maintenance were $1,818,220 for the three
months ended February 29, 2000 compared to $1,388,196 for the three months
ended February 28, 1999, an increase of 31%. TelMaster sales and maintenance
related revenues increased 54.5% to $1,108,955 for the three months ended
February 29, 2000 compared to $717,672 for the three months ended February 28,
1999. Approximately $189,000, or 44%, of this increase in TelMaster revenues
was related to increased efforts and revenues related to the ongoing
development of a custom convergence billing, reporting and support system for
Pacific Bell and MCI customer care services for the State of California's
CALNET contract.
For the three months ended February 29, 2000 and February 28, 1999,
revenues from Customized Billing Services were approximately $254,000 and
$545,000, respectively. Approximately $130,000 of this decline was due to the
loss of the MDU contract with Bell Atlantic in March 1999. Approximately
$276,000 of the decline was due to set up fees generated in the first quarter
of fiscal 1999, which decline was offset by approximately $182,000 in
recurring revenues from those projects.
Recovery Services, which began operations in March 1999, had revenues of
approximately $159,000 during the first quarter of fiscal 2000, an 85%
increase over the fourth quarter of fiscal 1999. Network Services, which
began operations in December 1998 and ceased operations in August 1999, had
revenues of approximately $50,000 during the first quarter of fiscal 1999.
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Revenue for the three month period ended
February 29, 2000 February 28, 1999 February 28, 1998 February 28, 1997 February 29, 1996
------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Telemanagement. . $ 1,108,955 $ 717,672 $ 444,788 $ 212,236 $ 389,944
DCS . . . . . . . 372,156 338,942 388,228 250,264 378,084
RATEX . . . . . . 337,109 331,582 495,448 158,215 294,061
------------------ ------------------ ------------------ ------------------ ------------------
System Sales 1,818,220 1,388,196 1,328,464 620,715 1,062,089
STS . . . . . . . 4,791,533 5,817,928 5,455,812 4,067,982 4,031,694
Custom Billing. . 253,685 545,005 242,502 167,894 141,229
Network Services. - 51,468 - - -
Recovery Services 159,105 - - - -
------------------ ------------------ ------------------ ------------------ ------------------
$ 7,022,543 $ 7,802,597 $ 7,026,778 $ 4,856,591 $ 5,235,012
================== ================== ================== ================== ==================
</TABLE>
Total gross profit was relatively unchanged at $3,396,134 for the three
months ended February 29, 2000 compared to $3,384,120 for the three months
ended February 28, 1999. Cost of goods sold was approximately 68.6% of STS
revenues for the three months ended February 29, 2000, compared with 72.2% for
the three months ended February 28, 1999. This decrease was primarily due to
the decreased cost of long distance services provided by the Company's
suppliers. Cost of goods sold as a percentage of System Sales and Maintenance
revenues was approximately 18% for the three months ended February 29, 2000
compared with 17% for three months ended February 28, 1999.
<PAGE>
Overall operating expenses increased by 29.7%, or $726,511, for the three
months ended February 29, 2000 to $3,172,828 from $2,446,317, for the three
months ended February 28, 1999. This increase was primarily due to an
increase in human resources in the areas of TelMaster research and
development, implementation, sales, and support services, as well as the
addition of the Network Services and the Recovery Services divisions.
Research and development costs incurred and expensed during the first quarters
of fiscal 2000 and 1999 were $426,000 and $234,000, respectively. Sales and
support related expenses increased by approximately $65,000 and $116,000,
respectively from the first quarter of fiscal 1999 to the first quarter of
fiscal 2000. The Recovery Services division had operating expenses of
approximately $234,000 during the first quarter of fiscal 2000. Network
Services, which was discontinued in August 1999, contributed approximately
$71,000 to operating expenses in the quarter ended February 28, 1999. General
and administrative expenses as a percentage of revenues increased to 45.2% for
the first quarter of fiscal 2000, compared to 31.4% for the first quarter of
fiscal 1999. The Company expects to continue to experience increases in
TelMaster research and development, sales and professional service expenses as
part of its effort to increase TelMaster product sales.
The provision for income taxes was $215,600 and $470,800 for the three
months ended February 29, 2000 and February 28, 1999, respectively. This
represents 36.3% and 42.8% of income before provision for income taxes for
2000 and 1999, respectively. This percentage decrease was partially
attributable to increased interest from tax-free investments as well as a
higher percentage of tax-free interest included in pretax income.
Income from continuing operations decreased to $377,662 for the first
quarter of fiscal 2000 from $628,598 in the first quarter of fiscal 1999.
This was attributable to an approximate $217,000 decrease in operating income
from the STS product lines, an operating loss of approximately $83,000 versus
a $112,000 profit from the system sales division, and an operating loss of
$75,000 from the Recovery Services division. These decreases were offset by a
$63,000 increase in interest income and a $145,000 pretax gain on the sale of
investment securities.
For the quarter ended February 28, 1999, gain on disposal of GoodNet
subsidiary represents additional gain realized as a result of the sale of
79,387 shares of Winstar common stock received in the sale of GoodNet to
Winstar. See "Investment Securities - Winstar Shares" in the notes to the
consolidated financial statements.
MATERIAL CHANGES IN FINANCIAL POSITION
Cash and cash equivalents increased to $15,817,795 at February 29, 2000
from $2,157,701 at November 30, 1999. During the three months ended February
29, 2000, investment securities decreased by $12,267,370. This transition was
made in preparation of the Company's "dutch auction" tender offer of its
common stock. The Company's combined cash and investment holdings increased
by approximately $1,393,000. During the first quarter of 2000, activities
from continuing operations provided approximately $1,845,000, compared to the
use of approximately $2,081,000 in the first quarter of 1999.
Accounts receivable decreased to $7,840,078 from $9,937,537 as of
November 30, 1999 ($7,320,856 and $9,484,936, net of allowance for
uncollectibles as of February 29, 2000 and November 30, 1999, respectively).
This decrease was primarily due to normal seasonal decline in STS revenues.
STS revenues were approximately $4,790,000 and $7,100,000 for the first
quarter of 2000 and the fourth quarter of 1999, respectively. This 32%
decline was a slight improvement over the 37% decline from the fourth quarter
of 1998 to the first quarter of fiscal 1999.
Accounts payable and accrued liabilities decreased to $4,727,587 as of
February 29, 2000 from $5,880,975 as of November 30, 1999. As of February 28,
1999, there was approximately $4,908,864 in accounts payable and accrued
liabilities. This slight decrease is attributable to the decline in STS
revenue, offset by increasing gross profit margins.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had cash and cash equivalents of
$15,817,795. On March 24, 2000, the Company completed a self-tender offer by
repurchasing 2.3 million shares of its common stock pursuant to a modified
"dutch auction" tender offer. The tender, which carried an offer price of
$7.25 per share, combined with the repurchase of all 293,750 shares of common
stock owned by Joseph Zerbib, resulted in the payment of approximately
$17,300,000 to tendering option and stockholders. As a result of this tender,
the Company has established a 12-month line of credit with three officers of
the Company in order to satisfy the terms of the tender offer. While the
Company believes that it will be able to extend or replace the current line of
credit, there can be no assurance that this will happen. The Company believes
that cash flows from its business will allow it to service the interest
payments the Company will incur on this facility. However, there can be no
assurance that the Company will not require additional funding within this
time frame. The Company may be required to raise additional funds through
public or private financing, strategic relationships, or other arrangements.
There can be no assurance that such additional funding, if needed, will be
available on terms attractive to the Company, or at all. Furthermore, any
additional equity financing may be dilutive to existing stockholders.
SEASONALITY
The Company generally completes the sale of the majority of STS Program
system installations in the university market during the spring and early
summer months. The implementation and installation of these systems and
services typically occurs during the summer months. Revenues derived from STS
Programs begin in the fall and weaken during winter holiday and the summer
months when students are on vacation. As a result, the Company's revenues
have consistently been highest during the second and fourth quarters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cost Gross Estimated
unrealized Fair Value
gains
November 30, 1999
- - --------------------------------
Available-for-sale securities:
U.S. Corporate Equity Securities $ 151,250 $ 66,120 $ 217,370
Municipal bonds. . . . . . . . . 12,050,000 -0- 12,050,000
----------------- ----------- -----------
$ 12,201,250 $ 66,120 $12,267,370
</TABLE>
The following is a summary of investment securities as of November 30, 1999:
At February 29, 2000, the Company had no investment securities.
<PAGE>
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
LINE OF CREDIT-RELATED PARTIES
In March 2000, the Company entered into three $1,000,000 lines of credit
(total of $3,000,000), bearing a term of one year and an annual interest rate
of 10%, with three officers of the Company. The lines of credit, including
accrued interest, are due April 30, 2001. This financing was completed in
order to satisfy the terms of the tender offer. See "Liquidity and Capital
Resources" under "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations".
SELF-TENDER OFFER
On February 3, 2000, the Company commenced an offer to repurchase up to
2.3 million shares of its common stock pursuant to a "Dutch auction"
self-tender offer. On March 24, 2000, the tender offer expired. Pursuant to
the tender offer the Company repurchased a total of 2.3 million shares of its
common stock. The purchase price for the shares of common stock was $7.25 per
share and the proration factor was 59.72 percent.
In connection with the tender offer, affiliates of the Company sold an
aggregate of 1,031,663 shares of the Company's common stock for approximately
$7,480,000. Additionally, the Company repurchased all 293,750 shares of
common stock owned by Joseph Zerbib for $2,129,688. Subsequent to the
completion of the tender, affiliates of the Company owned 695,837 shares or
47.4% of the outstanding common stock of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NO. DESCRIPTION REFERENCE
--- ----------- ---------
11 Earnings per common and common equivalent shares filed herewith
27 Financial Data Schedule filed herewith
(b) There were no reports on Form 8-K filed during the quarter ended
February 29, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Issuer has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELESOFT CORP.
BY: /s/ Michael F. Zerbib
---------------------------
Michael F. Zerbib
Chief Financial Officer
DATED: April 10, 2000
<PAGE>
<TABLE>
<CAPTION>
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share:
<CAPTION>
Three months ended
February February
29, 2000 28, 1999
BASIC EARNINGS PER COMMON SHARE:
- - ---------------------------------------------
NUMERATOR
<S> <C> <C>
Income from continuing operations 377,662 628,598
Gain on disposal of GoodNet - 367,509
--------- ---------
Net earnings available to common shareholders 377,662 996,107
========= =========
DENOMINATOR
<S> <C> <C>
Weighted average number of shares outstanding 3,711,500 3,720,022
--------- ---------
PER SHARE AMOUNTS
Income from continuing operations . . . . . . .10 .17
Gain on disposal of GoodNet . . . . . . . . . - .10
--------- ---------
Net earnings available to common shareholders .10 .27
========= =========
<CAPTION>
<S> <C> <C>
DILUTED EARNINGS PER SHARE
- - ---------------------------------------------
NUMERATOR
Income from continuing operations . . . . . . 377,662 628,598
Gain on disposal of GoodNet . . . . . . . . . - 367,509
---------- ----------
Net earnings available to common shareholders 377,662 996,107
========== ==========
DENOMINATOR
Weighted average number of shares outstanding 3,711,500 3,720,022
Effect of dilutive securities:
Options and warrants. . . . . . . . . . . . . 418,100 482,100
Stock acquired with proceeds. . . . . . . . . (300,396) (334,285)
---------- ----------
Weighted average common shares and assumed. . 3,829,204 3,867,837
conversions outstanding ========== ==========
PER SHARE AMOUNTS
Income from continuing operations . . . . . . .10 .16
Gain on disposal of GoodNet . . . . . . . . . - .10
---------- ----------
Net earnings available to common shareholders .10 .26
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-2000 NOV-30-1999
<PERIOD-END> FEB-28-2000 FEB-28-1999
<CASH> 15,817,795 2,865,056
<SECURITIES> 0 13,016,334
<RECEIVABLES> 7,840,078 6,911,422
<ALLOWANCES> (519,222) (562,393)
<INVENTORY> 320,204 673,154
<CURRENT-ASSETS> 24,458,303 24,002,688
<PP&E> 3,294,393 2,740,562
<DEPRECIATION> (1,873,589) (1,622,396)
<TOTAL-ASSETS> 26,119,440 25,488,009
<CURRENT-LIABILITIES> 5,719,033 6,196,109
<BONDS> 0 0
0 0
0 0
<COMMON> 6,919,095 7,286,159
<OTHER-SE> 13,383,212 11,836,241
<TOTAL-LIABILITY-AND-EQUITY> 26,119,440 25,488,009
<SALES> 7,022,543 7,802,597
<TOTAL-REVENUES> 7,022,543 7,802,597
<CGS> 3,626,409 4,418,477
<TOTAL-COSTS> 6,799,237 6,864,794
<OTHER-EXPENSES> 0 (107)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 214
<INCOME-PRETAX> 593,262 1,099,398
<INCOME-TAX> 215,600 470,800
<INCOME-CONTINUING> 377,662 628,598
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 367,509
<CHANGES> 0 0
<NET-INCOME> 377,662 996,107
<EPS-BASIC> 0.10 0.27
<EPS-DILUTED> 0.10 0.26
<FN>
EPS do not reflect effect reduced shares outstanding as a result of tender offer
completed in March 2000.
For 1999, EPS represent EPS - Net Income. EPS from continuing operations
- - -diluted and - basic were $0.16 and $0.17, respectively.
</TABLE>
