<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, 1997
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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.
5,606,796 shares of common stock outstanding as of September 30, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELTONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
ASSET (Unaudited)
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<S> <C> <C>
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 346,648 $ 530,074
Trade accounts receivable (net of allowance for
doubtful accounts of ($35,006 and $35,024). . . . . . . . 1,385,419 1,315,819
Inventories
Raw materials . . . . . . . . . . . . . . . . . . . . . . 549,796 699,414
Work in process . . . . . . . . . . . . . . . . . . . . . 122,617 74,405
Finished goods. . . . . . . . . . . . . . . . . . . . . . 438,990 575,274
----------- -----------
Total inventories . . . . . . . . . . . . . . . 1,111,403 1,349,093
----------- -----------
Other current assets . . . . . . . . . . . . . . . . . . . . . 46,017 33,922
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Total current assets. . . . . . . . . . . . . . 2,889,487 3,228,908
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Property, plant and equipment - at cost. . . . . . . . . . . . . . 2,363,488 2,346,028
Less accumulated depreciation. . . . . . . . . . . . . . . . . (2,086,779) (2,051,926)
----------- -----------
Property, plant and equipment - net . . . . . . 276,709 294,102
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,166,196 $ 3,523,010
----------- -----------
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</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 580,860 $ 548,599
Accrued compensation and benefits. . . . . . . . . . . . . . . 404,103 406,714
Accrued warranty expense . . . . . . . . . . . . . . . . . . . 32,631 33,373
Notes payable to bank. . . . . . . . . . . . . . . . . . . . . 200,000 400,000
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 66,227 63,580
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Total current liabilities . . . . . . . . . . . . . . . . 1,283,821 1,452,266
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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 5,606,796 and 5,606,796 shares . . 2,998,685 2,988,685
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,179,459) (2,991,090)
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Stockholders' equity . . . . . . . . . . . . . . . . . . . 1,882,375 2,070,744
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TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,166,196 $3,523,010
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</TABLE>
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30
1997 1996
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<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,239,469 $ 2,385,284
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 1,291,165 1,382,860
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Gross margin on sales. . . . . . . . . . . . . . . . . . . . . . . 948,304 1,002,424
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Operating expenses
Selling, general and administrative. . . . . . . . . . . . . . 691,711 725,836
Engineering and development. . . . . . . . . . . . . . . . . . 426,016 204,577
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Total operating expenses. . . . . . . . . . . . . . . . . 1,117,727 930,413
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(Loss) income from operations. . . . . . . . . . . . . . . . . . . (169,423) 72,011
Other expense - net . . . . . . . . 18,946 30,703
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(Loss) income before tax . . . . . . . . . . . . . . . . . . . . . (188,369) 41,308
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . - -
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Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . $ (188,369) $ 41,308
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Net (loss) income per common share . . . . . . . . . . . . . . . . $ (.03) $ .01
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Average common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . 6,682,437 6,717,854
</TABLE>
4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . $(188,369) $ 41,308
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 34,853 30,989
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . (69,600) (388,583)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 237,690 50,835
Accounts payable and accrued items . . . . . . . . . . . . . . 31,555 343,234
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,095) (35,157)
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Cash provided by operating activities . . . . 34,034 42,626
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Cash flows from investing activities:
Investment in property, plant and equipment . . . . . . . . . (17,460) (20,407)
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Cash used for investing activities . . . . . . (17,460) (20,407)
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Cash flows from financing activities:
Note payable to bank . . . . . . . . . . . . . . . . . . . . . (200,000) -
Employee stock purchases, net. . . . . . . . . . . . . . . . . - 510
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Cash (used for) provided by
financing activities . . . . . . . . . . . . . (200,000) 510
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Increase (decrease) in cash and equivalents. . . . . . . . . . . . (183,426) 22,729
Cash and cash equivalents, beginning of period . . . . . . . . . . 530,074 147,896
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Cash and cash equivalents, end of period . . . . . . . . . . . . . $ 346,648 $170,625
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</TABLE>
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (continued)
TELTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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1. STOCKHOLDERS' EQUITY
The Company has two active stock option plans. The Nonemployee Directors
Stock Option Plan 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. Of this total, options to purchase 240,000 shares of common stock
are outstanding and 80,000 shares remain available for grant.
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 593,500 shares of
common stock are outstanding and 99,250 shares remain available for grant.
In addition, options to purchase 400,000 shares of common stock are
outstanding under certain of the Company's predecessor stock option plans.
2. FEDERAL INCOME TAX
At of September 30, 1997, the Company had net operating loss carryforwards
of approximately $12,470,000. The carryforwards expire from 2000 to 2012.
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 1998 or 1997.
3. RECENT ACCOUNTING ANNOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" (FAS 128). The
pronouncement impacts the way the Company calculates its earnings per share
and is effective for the year ended June 30, 1998. Management does not
expect FAS 128 to have a material effect on the Company.
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, 1997, 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, 1997, 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
This Quarterly Report on Form 10-QSB may contain forward-looking statements that
involve risks and uncertainties. These statements may differ materially from
actual future events or results which could cause actual results to differ from
those forward looking statements contained in this Form 10-QSB.
RESULTS OF OPERATIONS
Net sales for the quarters ended September 30, 1997 and 1996, were $2,239,000
and 2,385,000, respectively. This decrease was shared equally between the
Company's integrated circuit and customer premise equipment product groups.
Gross margins remained constant at 42% for each of the periods.
The most significant change between the first fiscal quarter of 1996 and 1997
was in the Company's engineering and development efforts. Engineering and
development costs increased 108% to $426,000 for the quarter ended September 30,
1997. This increase reflects increased contract development and design work on
the recently introduced OfficeLink 2000 product and on new, lower cost IC chip
families planned to be introduced later in fiscal 1998. The Company does not
expect this level of engineering and development efforts to continue throughout
the year.
The decrease in sales, combined with the significant increase in engineering and
development costs, resulted in a loss of $188,000 for the quarter ended
September 30, 1997, as compared to a gain of $41,000 for the same quarter last
year.
During the prior year the Company instituted new policies regarding the
manufacturing and assembly process and its payment of trade payables. These
changes have resulted in lower inventory levels and an increase in trade
accounts payable, thus mitigating the effects of the loss for the current
quarter on cash flow.
At September 30, 1997, approximately $12,470,000 in net operating loss
carryforwards were available to offset future taxable income and expire from
2000 through 2012. If substantial changes in the Company's ownership should
occur, there may be annual limitations on the utilization of such carryforwards.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a line of credit agreement for $1,500,000, renewable in
September of 1998. The agreement is collateralized by eligible 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. As of September 30, 1997, borrowings under this line
totaled $200,000.
The Company anticipates increased spending on the development of new products
and thus expects to continue to utilize its lines of credit. Cash on hand, cash
generated from operations, 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 27, 1997 By /s/ RICHARD W. SOSHEA
------------------------- ----------------------------------------
Richard W. Soshea
President & Chief Executive Officer
Date October 27, 1997 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-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 346,648
<SECURITIES> 0
<RECEIVABLES> 1,385,419
<ALLOWANCES> 35,006
<INVENTORY> 1,111,403
<CURRENT-ASSETS> 2,889,487
<PP&E> 2,363,488
<DEPRECIATION> 2,086,779
<TOTAL-ASSETS> 3,166,196
<CURRENT-LIABILITIES> 1,283,821
<BONDS> 0
0
2,063,149
<COMMON> 2,998,685
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,166,196
<SALES> 2,239,469
<TOTAL-REVENUES> 2,239,469
<CGS> 1,291,165
<TOTAL-COSTS> 1,291,165
<OTHER-EXPENSES> 1,117,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,946
<INCOME-PRETAX> (188,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (188,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (188,369)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
