<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, 1996
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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 ____________________
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.
5,576,796 shares of common stock outstanding as of October 20, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELTONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1996 1996
ASSET (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170,625 $ 147,896
Trade accounts receivable (net of allowance for
doubtful accounts of $34,529 and $40,851) . . . . . . . . 1,783,485 1,394,902
Inventories
Raw materials . . . . . . . . . . . . . . . . . . . . . . 725,606 662,177
Work in process . . . . . . . . . . . . . . . . . . . . . 176,260 122,510
Finished goods. . . . . . . . . . . . . . . . . . . . . . 817,721 985,735
----------- -------------
Total inventories . . . . . . . . . . . . 1,719,587 1,770,422
----------- -------------
Other current assets . . . . . . . . . . . . . . . . . . . . 77,849 42,692
----------- -------------
Total current assets. . . . . . . . . . . 3,751,546 3,355,912
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Property, plant and equipment - at cost. . . . . . . . . . . . . 4,360,752 4,340,345
Less accumulated depreciation. . . . . . . . . . . . . . . . (4,074,816) (4,043,827)
----------- -------------
Property, plant and equipment - net. . . . . . . . . . . 285,936 296,518
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,037,482 $ 3,652,430
----------- -------------
----------- -------------
</TABLE>
See Notes to Financial Statements. 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1996 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <S> <C>
Current liabilities
Accounts payable - trade . . . . . . . . . . . . . . . . . . $ 549,441 $ 249,537
Accrued compensation and benefits. . . . . . . . . . . . . . 386,418 445,224
Accrued warranty expense . . . . . . . . . . . . . . . . . . 31,815 32,842
Notes payable to bank. . . . . . . . . . . . . . . . . . . . 800,000 800,000
Other accrued expenses . . . . . . . . . . . . . . . . . . . 126,096 22,933
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Total current liabilities . . . . . . . . 1,893,770 1,550,536
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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 5,576,796 and 5,575,796 shares . . 2,988,785 2,988,275
Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . (2,908,222) (2,949,530)
----------- ------------
Stockholders' equity . . . . . . . . . . . . . . . . . . . 2,143,712 2,101,894
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TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,037,482 $ 3,652,430
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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
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,385,284 $ 2,420,509
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 1,382,860 1,345,539
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Gross margin on sales. . . . . . . . . . . . . . . . . . . . . . 1,002,424 1,074,970
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Operating expenses
Selling, general and administrative. . . . . . . . . . . . . 725,836 767,601
Engineering and development. . . . . . . . . . . . . . . . . 204,577 191,801
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Total operating expenses. . . . . . . . . . . . . 930,413 959,402
----------- ------------
Income from operations . . . . . . . . . . . . . . . . . . . . . 72,011 115,568
Other expense - net. . . . . . . . . . . . . . . . . . . . . . . 30,703 11,591
----------- ------------
Income before tax. . . . . . . . . . . . . . . . . . . . . . . . 41,308 103,977
Income tax provision . . . . . . . . . . . . . . . . . . . . . . - -
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Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,308 $ 103,977
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----------- ------------
Net income per common share. . . . . . . . . . . . . . . . . . . $ .01 $ .01
----------- ------------
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Average common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . 6,717,854 7,365,907
</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
1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,308 $ 103,977
Adjustments to reconcile net income to net cash provided by
( used for) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,989 33,144
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . (388,583) (127,278)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,835 (127,298)
Accounts payable and accrued items . . . . . . . . . . . . . . . . . . 343,234 (206,437)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35,157) (28,830)
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Cash provided by (used for) operating activities . . . . 42,626 (352,722)
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Cash flows from investing activities:
Investment in property, plant and equipment . . . . . . . . . . . . . (20,407) (18,875)
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Cash used for investing activities . . . . . . . . . . (20,407) (18,875)
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Cash flows from financing activities:
Note payable to bank. . . . . . . . . . . . . . . . . . . . . . . . . - 400,000
Lease subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . - (64,848)
Employee stock purchases, net . . . . . . . . . . . . . . . . . . . . 510 5,401
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Cash provided by financing activities. . . . . . . . . 510 340,553
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Increase (decrease) in cash and equivalents. . . . . . . . . . . . . . . . 22,729 (31,044)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . 147,896 59,892
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Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . $ 170,625 $ 28,848
------------ -----------
------------ -----------
</TABLE>
See Notes to Financial Statements. 5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. STOCKHOLDERS' EQUITY
The Company has two active stock option plans, both of which have been
approved by the Board of Directors. The Nonemployee Directors' Stock
Option Plan, pending shareholder approval, provides for the grant of
options to purchase up to 320,000 common shares to outside directors of the
Company. Options are granted at the fair market value of the stock on the
date of grant and vest over a four year period. The maximum term of an
option may not exceed six years.
The 1992 Employees Stock Option Plan provides for the grant of options to
purchase up to 800,000 common shares to key employees of the Company.
Options are granted at the fair market value of the stock on the date of
grant and vest over a four year period. The maximum term of an option may
not exceed six years. Of this total, options to purchase 497,500 shares of
common stock are outstanding and 225,250 shares remain available for grant.
In addition, options to purchase 500,000 shares of common stock are
outstanding under certain of the Company's predecessor stock option plans.
2. FEDERAL INCOME TAX
At of September 30, 1996, the Company had net operating loss carryforwards
of approximately $12,285,000. The carryforwards expire from 2001 to 2011.
The Company also has investment tax credit as well as research and
development tax credit carryforwards of $290,000 and $752,000,
respectively, available to offset future income tax liabilities through
2001. 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 and therefore uncertainty regarding
future taxable income. Due to an expected annual effective tax rate of
zero, the Company recognized no income tax expense in the first quarter of
fiscal 1997 or 1996
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, 1996, are not necessarily indicative of operating results to be
expected for the full year. These interim condensed financial statements should
be read in conjunction with the June 30, 1996, audited 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
Sales for the first quarter of fiscal 1997 were approximately $2.4 million,
approximately the same as the first quarter of last year. Gross margins
decreased to 42% from 44% in the prior year, reflective of a less favorable
product mix. This dip in margin, combined with an increase in research and
development expenses from 7.9% last year to 8.6% this year, resulted in net
income of $41,000 as compared to $104,000 for the first quarter last year.
Favorably impacting this net income was a decrease of 3% in operating expenses
over the same period in the prior year.
As of September 30, 1996, approximately $12,285,000 in net operation loss
carryforwards were available to offset future taxable income at varying amounts
with expiration from 2001 to 2011, 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 operation loss carryforwards and tax credits due to the Company's loss
history and therefore uncertainty regarding future taxable income. The Company
recognized no income tax expense in the first quarter of fiscal 1997 or 1996 due
to an expected annual effective tax rate of zero.
LIQUIDITY AND CAPITAL RESOURCES
The Company has line of credit agreements with a bank renewable in September of
1997. The first is for the lesser of an amount calculated based on 75% of
eligible accounts receivable or $1.5 million. This line is collateralized by
domestic 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, 1996, borrowings under this
line of credit totaled $800,000.
The second line of credit is for the lesser of an amount calculated based on 90%
of eligible foreign accounts receivable and 70% of related inventory or
$500,000. This line is collateralized by foreign accounts receivable and
inventory and contains financial covenants including working capital and debt
ratios, as well as maximum loss provisions. At September 30, 1996, there were
no borrowings under this line of credit.
The Company anticipates increased spending on the development of several new
products and thus expects to continue to utilize these lines of credit. Cash on
hand, as well as the lines 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 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
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 25, 1996 By /s/ RICHARD W. SOSHEA
------------------------------ ------------------------------------
Richard W. Soshea
President & Chief Executive Officer
Date October 25, 1996 By /s/ JEFFREY B. deCILLIA
------------------------------ ------------------------------------
Jeffrey B. deCillia
Vice President Finance & Chief
Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 170,625
<SECURITIES> 0
<RECEIVABLES> 1,783,485
<ALLOWANCES> 34,529
<INVENTORY> 1,719,587
<CURRENT-ASSETS> 3,751,546
<PP&E> 4,360,752
<DEPRECIATION> (4,074,816)
<TOTAL-ASSETS> 4,037,482
<CURRENT-LIABILITIES> 1,893,770
<BONDS> 0
0
2,063,149
<COMMON> 2,988,785
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,037,482
<SALES> 2,385,284
<TOTAL-REVENUES> 2,385,284
<CGS> 1,382,860
<TOTAL-COSTS> 1,382,860
<OTHER-EXPENSES> 930,413
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,703
<INCOME-PRETAX> 41,308
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,308
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
