<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 December 31, 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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(Name of small business issuer 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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(Issuer's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year)
Check 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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State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
5,499,096 shares of common stock outstanding as of December 31, 1995.
Transitional small business disclosure format (check one);
Yes No X
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELTONE CORPORATION
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BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
ASSETS (Unaudited)
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<S> <C> <C>
Current assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,228 $ 59,892
Trade accounts receivable (net of allowance for doubtful
accounts of $35,031 and $49,889) . . . . . . . . . . . . 1,440,286 1,471,735
Inventories
Raw materials. . . . . . . . . . . . . . . . . . . . . . 686,952 767,259
Work in process. . . . . . . . . . . . . . . . . . . . . 178,520 181,001
Finished goods . . . . . . . . . . . . . . . . . . . . . 1,009,583 698,440
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Total inventories . . . . . . . . . . . . 1,875,054 1,646,700
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Other current assets. . . . . . . . . . . . . . . . . . . . 73,588 58,536
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Total current assets. . . . . . . . . . . 3,471,156 3,236,863
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Property, plant and equipment - at cost. . . . . . . . . . . . . 4,324,594 4,284,341
Less accumulated depreciation. . . . . . . . . . . . . . (3,982,237) (3,915,123)
----------- -----------
Property, plant and equipment - net . . . 342,357 369,218
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,813,513 $ 3,606,081
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements. 2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
-------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
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<S> <C> <C>
Current liabilities
Accounts payable - trade. . . . . . . . . . . . . . . . . . . . $ 327,074 $ 640,149
Current portion of long-term lease subsidy. . . . . . . . . . . 254,430 367,914
Accrued compensation and benefits . . . . . . . . . . . . . . . 417,359 439,676
Accrued warranty expense. . . . . . . . . . . . . . . . . . . . 37,956 38,015
Note payable to bank. . . . . . . . . . . . . . . . . . . . . . 835,000 400,000
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . 38,686 36,738
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Total current liabilities . . . . . . . . . . 1,910,505 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,112,485) (3,326,503)
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Stockholders' equity. . . . . . . . . . . . . . . . . . . . . 1,903,008 1,683,589
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TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,813,513 $ 3,606,081
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</TABLE>
See Notes to Financial Statements. 3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
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STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31 Ended December 31
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . $2,374,268 $2,296,439 $4,794,777 $4,404,623
Cost of goods sold . . . . . . . . . . . . . . . 1,260,164 1,231,034 2,605,703 2,379,908
---------- ---------- ---------- ----------
Gross margin on sales. . . . . . . . . . . . . . 1,114,104 1,065,405 2,189,074 2,024,715
---------- ---------- ---------- ----------
Operating expenses
Selling, general and administrative . . . . 779,545 705,319 1,540,874 1,381,059
Engineering and development . . . . . . . . 206,176 193,757 397,977 381,672
---------- ---------- ---------- ----------
Total operating expenses . . 985,721 899,076 1,938,851 1,762,731
---------- ---------- ---------- ----------
Income from operations . . . . . . . . . . . . . 128,383 166,329 250,223 261,984
Other expense. . . . . . . . . . . . . . . . . . (18,342) (4,040) (36,204) (9,127)
Income before tax. . . . . . . . . . . . . . . . 110,041 162,289 214,019 252,857
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Income tax provision . . . . . . . . . . . . . . -- -- -- --
---------- ---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . $ 110,041 $ 162,289 $ 214,019 $ 252,857
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common and
common equivalent share . . . . . . . . . . $ .01 $ .03 $ .03 $ .04
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average common and common
equivalent shares outstanding . . . . . . . 7,336,905 6,558,787 7,102,450 6,558,787
</TABLE>
See Notes to Financial Statements. 4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
-------------------
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended December 31
1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $214,019 $252,857
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,114 68,677
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . 31,449 43,262
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . (228,354) 185,961
Accounts payable and accrued items . . . . . . . . . . . . . . . . (333,503) (268,930)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,053) (18,757)
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Cash provided by (used for) operating activities. . (264,328) 263,070
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Cash flows from investing activities:
Investment in property, plant and equipment. . . . . . . . . . . . (40,253) (48,783)
Cash used for investing activities. . . . . . . . . (40,253) (48,783)
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Cash flows from financing activities:
Note payable to bank . . . . . . . . . . . . . . . . . . . . . . . 435,000 55,000
Lease subsidies. . . . . . . . . . . . . . . . . . . . . . . . . . (113,484) (153,484)
Employee stock purchases, net. . . . . . . . . . . . . . . . . . . 5,401 (426)
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Cash provided by (used for) financing activities. . 326,917 (98,910)
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Increase in cash and equivalents . . . . . . . . . . . . . . . . . . . 22,336 115,377
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 59,892 64,367
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Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 82,228 $179,744
-------- --------
-------- --------
</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. Of this total, options to
purchase 574,250 shares of common stock are outstanding, and 225,750 shares
remain available for grant.
2. FEDERAL INCOME TAX
The Company has net operating loss carryforwards of approximately
$11,600,000 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. The Company has adopted the
Statement of Financial Accounting Standards No. 109 Accounting for Income
Taxes, and no tax asset has been 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 fiscal 1996 or 1995 due to an
expected annual effective tax rate of zero.
The unaudited Interim Consolidated 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 December 31, 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
In the second quarter of fiscal 1996, net sales increased 3% over the same
period in the prior year. This was the result of increased sales of end user
products, offset by decreased sales of semiconductor devices. Gross margins
increased to 47% from 46% in the prior year due to changes in product mix offset
by 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 including
the ILS-1000 ISDN (Integrated Services Digital Network) 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. In
addition, management is in the process of introducing two data switches in the
DS-100 family for the utility marketplace as well as several versions of the CIU
cellular interface units with application in both the utility and telephone
company markets.
For the six months ending December 31, 1995, net sales increased 9% over the
same period in the prior year primarily due to increasing sales in the CPE
(Customer Premise Equipment) product line. Gross margins were unchanged at 46%
and operating expenses increased 10% due to the expense of new product
introduction. As a result, net income decreased 15% to $214,000.
At December 31, 1995, approximately 11,600,000 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.
The Company has adopted the Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," and no tax asset has been 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 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 up to $1,500,000 depending upon
collateral levels, renewable in October 1996. 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 December 31, 1995, borrowings under the line of
credit totaled $835,000.
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 period ended December 31,
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 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1995.
8
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TELTONE CORPORATION
(Registrant)
Date January 22, 1996 By /s/ Richard W. Soshea
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Richard W. Soshea
President & Chief Executive Officer
Date January 22, 1996 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 82,228
<SECURITIES> 0
<RECEIVABLES> 1,440,286
<ALLOWANCES> 35,031
<INVENTORY> 1,875,054
<CURRENT-ASSETS> 3,471,156
<PP&E> 4,324,594
<DEPRECIATION> 3,982,237
<TOTAL-ASSETS> 3,813,513
<CURRENT-LIABILITIES> 1,910,505
<BONDS> 0
0
2,063,149
<COMMON> 2,952,344
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,813,513
<SALES> 4,794,777
<TOTAL-REVENUES> 4,794,777
<CGS> 2,605,703
<TOTAL-COSTS> 2,605,703
<OTHER-EXPENSES> 1,938,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,204
<INCOME-PRETAX> 214,019
<INCOME-TAX> 0
<INCOME-CONTINUING> 214,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,019
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
