<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q-SB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
For the transition period from to
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Commission file number 0-11275
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TELTONE CORPORATION
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-0839067
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
22121 - 20th Avenue SE, Bothell, Washington 98021
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(Address of principal executive offices) (Zip Code)
(206) 487-1515
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
5,499,096 shares of common stock outstanding as of October 10, 1995.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELTONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1995 1995
ASSETS (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,848 $ 59,892
Trade accounts receivable (net of allowance for
doubtful accounts of $19,288 and $49,889). . . . . . . . . . . . . 1,599,013 1,471,735
Inventories
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . 738,133 767,259
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . 245,368 181,001
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 790,497 698,440
--------- -----------
Total inventories. . . . . . . . . . . . . . . . 1,773,998 1,646,700
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Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . 87,366 58,536
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Total current assets . . . . . . . . . . . . . . 3,489,225 3,236,863
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Property, plant and equipment - at cost. . . . . . . . . . . . . . . . . . 4,303,216 4,284,341
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . (3,948,267) (3,915,123)
---------- -----------
Property, plant and equipment - net. . . . . . . 354,949 369,218
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,844,174 $ 3,606,081
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----------- -----------
</TABLE>
See Notes to Financial Statements. 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities
Accounts payable - trade. . . . . . . . . . . . . . . . . . . . . . . $504,811 $ 640,149
Current portion of long-term lease liabilities. . . . . . . . . . . . 303,066 367,914
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . 369,752 439,676
Accrued warranty expense. . . . . . . . . . . . . . . . . . . . . . . 37,611 38,015
Notes payable to bank . . . . . . . . . . . . . . . . . . . . . . . . 800,000 400,000
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . 35,967 36,738
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Total current liabilities . . . . . . . . . . . . 2,051,207 1,922,492
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Stockholders' equity
Convertible preferred stock - no par value; authorized
6,000,000 shares; 1,075,641 shares issued and outstanding . . . . . 2,063,149 2,063,149
Common stock - no par value; authorized 20,000,000 shares;
issued and outstanding 5,499,096 shares . . . . . . . . . . . . . . 2,952,344 2,946,943
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,222,526) (3,326,503)
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Stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . 1,792,967 1,683,589
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TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,844,174 $ 3,606,081
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</TABLE>
See Notes to Financial Statements. 3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30
1995 1994
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<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,420,509 $2,108,184
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345,539 1,148,874
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Gross margin on sales. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,074,970 959,310
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Operating expenses
Selling, general and administrative . . . . . . . . . . . . . . . . . 767,601 675,741
Engineering and development. . . . . . . . . . . . . . . . . . . . 191,801 187,914
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Total operating expenses . . . . . . . . . . . . . . . . . . . . . 959,402 868,655
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Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . 115,568 95,655
Other expense - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,591 5,087
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Income before tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,977 90,568
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Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,977 $ 90,568
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Net income per common share. . . . . . . . . . . . . . . . . . . . . . . . $ .01 $ .01
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Average common and common
equivalent shares outstanding. . . . . . . . . . . . . . . . . . . . . . 7,365,907 6,561,723
</TABLE>
See Notes to Financial Statements. 4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30
1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 103,977 $ 90,568
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,144 34,493
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . (127,278) (4,800)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (127,298) (39,055)
Accounts payable and accrued items. . . . . . . . . . . . . . . . . . (206,437) (83,310)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,830) (11,612)
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Cash provided by (used for) operating activities. . . . . . . . . . . (352,722) 13,716
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Cash flows from investing activities:
Investment in property, plant and equipment . . . . . . . . . . . . . (18,875) (9,438)
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Cash used for investing activities . . . . . . . . . . . . . . . . . . . . (18,875) (9,438)
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Cash flows from financing activities:
Note payable to bank. . . . . . . . . . . . . . . . . . . . . . . . . 400,000 30,000
Lease subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,848) (63,636)
Employee stock purchases, net . . . . . . . . . . . . . . . . . . . . 5,401 (1,690)
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Cash used for financing activities. . . . . . . . . . . . . . . . . . 340,553 (35,326)
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Decrease in cash and equivalents . . . . . . . . . . . . . . . . . . . . . (31,044) (58,480)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . 59,892 64,367
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Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . $ 28,848 $ 5,887
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</TABLE>
See Notes to Financial Statements. 5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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1. STOCKHOLDERS' EQUITY
The Company's 1992 Employee Stock Option Plan (the "1992 Plan") has 800,000
shares of common stock reserved for issuance upon the exercise of stock
options granted pursuant to the 1992 Plan, 300,000 of which were authorized
by the Board of Directors in March 1995 and are pending final shareholder
approval. Of this total, options to purchase 574,250 shares of common
stock are outstanding, and 225,750 shares remain available for grant. In
addition, options to purchase 544,750 shares of common stock are
outstanding under certain of the Company's predecessor stock option plans.
2. FEDERAL INCOME TAX
The Company has net operating loss carryforwards of approximately
$11,708,000 available to offset future taxable income through 2002 to 2009,
as well as $290,000 and $752,000 in investment tax and research and
development tax credits, respectively. Although the Company has adopted
the Statement of Financial Accounting Standards No. 109 Accounting for
Income Taxes, there is no tax asset recognized for the net operating loss
carryforwards and tax credits due to the Company's loss history. The
Company recognized no income tax expense in the first quarter of fiscal
1996 or 1995 due to an expected annual effective tax rate of zero.
The unaudited Interim Financial Statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the results for the
interim periods presented. The results of operations for the period ending
September 30, 1995, are not necessarily indicative of operating results to be
expected for the full year. These interim consolidated condensed financial
statements should be read in conjunction with the June 30, 1995, consolidated
financial statements.
6
<PAGE>
TELTONE CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In the first quarter of fiscal 1996, net sales increased 15% over the same
period in the prior year. This was the result of increased sales of end user
products which increased 130% over the same period in the prior year, offset by
decreased sales of central office enhancement products. Gross margins decreased
to 44% from 46% in the prior year due to price erosion in the semiconductor
products.
Operating expenses increased 10% over the same period in the prior year as a
result of expenses associated with the introduction of new products. Management
is in the process of introducing the ILS-1000 ISDN line simulator, the most
recent addition to the Company's line of telephone line simulators. The ILS-
1000 eliminates the need to obtain ISDN service for testing, demonstrating, or
developing ISDN products. These simulators can be used for trade shows, sales
demonstrations, application development, production testing, and training.
At September 30, 1995, approximately $11,708,000 in net operating loss
carryforwards were available to offset future taxable income at varying amounts
with expiration from 2002 to 2009, as well as $290,000 and $752,000 in
investment tax and research and development tax credits, respectively.
Although the Company has adopted the Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes," there is no tax asset recognized for the
net operating loss carryforwards and tax credits due to the Company's loss
history. The Company recognized no income tax expense in the first quarter of
fiscal 1996 or 1995 due to an expected annual effective tax rate of zero.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a line of credit agreement for $1,000,000 renewable in October
1995. The agreement is collateralized by accounts receivable, inventory, and
other tangible and intangible assets and contains financial covenants including
working capital and debt ratios, as well as maximum loss provisions. At
September 30, 1995, borrowings under the line of credit totaled $800,000.
The Company is in the process of introducing several new products to the
marketplace. As a result, the working capital requirements to support inventory
and accounts receivable have increased during the quarter ended
September 30, 1995, resulting in increased usage of the available line of
credit.
Cash on hand, as well as the line of credit should enable the Company to meet
its operating and working capital needs during the next twelve months.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
None
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELTONE CORPORATION
(Registrant)
Date October 17, 1995 By /s/ RICHARD W. SOSHEA
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Richard W. Soshea
President & Chief Executive Officer
Date October 17, 1995 By /s/ DEBRA L. GRIFFITH
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Debra L. Griffith
Vice President Finance &
Administration
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 28,848
<SECURITIES> 0
<RECEIVABLES> 1,559,013
<ALLOWANCES> 19,288
<INVENTORY> 1,773,998
<CURRENT-ASSETS> 3,489,225
<PP&E> 4,303,216
<DEPRECIATION> 3,948,267
<TOTAL-ASSETS> 3,844,174
<CURRENT-LIABILITIES> 2,051,207
<BONDS> 0
<COMMON> 2,952,344
0
2,063,149
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,844,174
<SALES> 2,420,509
<TOTAL-REVENUES> 2,420,509
<CGS> 1,345,539
<TOTAL-COSTS> 1,345,539
<OTHER-EXPENSES> 959,402
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,591
<INCOME-PRETAX> 103,977
<INCOME-TAX> 0
<INCOME-CONTINUING> 103,977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,977
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
