<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ________________________________
Commission file number 0-11275
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TELTONE CORPORATION
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(Name of small business issuer in its charter)
WASHINGTON 91-0839067
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22121 - 20th Avenue SE, Bothell, WA 98021
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (425) 487-1515
--------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None
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Securities registered pursuant to Section 12(g) of the Act:
Common stock without par value
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(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange Act 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
----
Check if there is no disclosure of delinquent filers in response to Item
405 if Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. $10,360,530
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State the aggregate market value of the voting and non-voting common equity
held by non affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as of
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $3,051,000
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date.
6,096,296 shares of common stock outstanding as of September 7, 1999.
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-KSB into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or information statement; and
(3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act
of 1933. The listed documents should be clearly described for identification
purposes.
(1) PROXY STATEMENT DATED SEPTEMBER 27, 1999 FOR USE IN CONNECTION WITH THE
COMPANY'S ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 4, 1999. (PART
III, ITEM 9, (DIRECTORS ONLY) AND ITEMS 10, 11, AND 12).
Transitional Small Business Disclosure Format (check one): Yes No X
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PART I
ITEM 1. BUSINESS
Teltone Corporation (Teltone or the Company) sells specialized
telecommunications software, equipment and components in the United States
and international markets. Teltone's customers include business end-users,
original equipment manufacturers (OEMs), telephone call centers, and
utilities. Teltone Corporation was incorporated in the state of Washington in
July 1968.
INDUSTRY BACKGROUND
The telecommunications market has been changing dramatically and the rate of
change is accelerating. These changes have been driven by new computer and
telephony technologies, by deregulation, and by the Internet. This dynamic
and competitive environment provides many new opportunities for Teltone's
product lines. The telecommuting and equipment products are sold primarily in
North America to utilities, telecom carriers, and end users, both large and
small. The component products are sold to telecom original equipment
manufacturers (OEMs) throughout the world.
PRODUCTS
TELECOMMUTING SOLUTIONS
The concept of telecommuting or telework is the movement among businesses to
allow employees to work from home or other remote locations, eliminating the
daily round trip from home to workplace. Telecommuting is enjoying increasing
acceptance as businesses are encouraged to share in the reduction of traffic
congestion and energy consumption. Teltone currently offers two solutions,
OfficeLink 2000 and OfficeLink I, for telecommuting, both of which extend the
features and functions of the central-site telephone system to remote
workers, enabling them to work as productively as they do in the office.
The OfficeLink 2000 telecommuting solution is targeted to call center remote
agents and corporate telecommuters. OfficeLink 2000 provides remote workers
with the full functionality of digital phonesets on the Windows-R- PC
Platform, without requiring costly extra hardware at the remote location.
Communications systems manufactured by Lucent, Nortel, and Siemens Business
Communications are now supported by the OfficeLink 2000.
The OfficeLink I is a single-user solution which gives home workers an analog
connection to centrally located phone systems. It enables companies to begin
telecommuting right away with a minimal investment.
TELECOM EQUIPMENT
Teltone is a market leader in telecommunications test and demonstration
products. Our portable Telephone Line Simulators provide extensive PBX and
telephone central office functionality for testing, training, and
demonstration of telecommunications equipment, without installing costly
phone lines. The TLS-5C, introduced in fiscal 1996, incorporates caller
identification in call waiting and several other new product features. The
latest member of this family, the Telephone Line Emulator (TLE), is a
sophisticated emulator that is targeted for product development and product
test applications. The TLE basic unit includes programmable attenuation and
impedance as well as Type 2/3 Caller ID. In addition, software modules are
available that allow users to perform a variety of more advanced test
operations, emulation of international call progress, dial tones, and
international caller ID, and automated testing. The TLE is also CE marked to
enable sales in Europe.
The ISDN digital line service is now widely available in North America.
Teltone provides two simulators for the OEMs that want to test or demonstrate
their ISDN equipment. The ILS-2000 is a fully featured simulator of both
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North American and European (ETSI) switches and includes both the U and S/T
interfaces. The ISDN Demonstrator is a lower cost and lesser featured unit.
Teltone's Line Sharing Products enable multiple devices at remote locations
to share a single telephone line for voice and data transmission. Benefits to
the user include greatly reduced monthly line charges and installation costs,
improved data security, faster connect times, and quick return of the initial
investment. In a typical application, a headquarters office will poll or
exchange data with hundreds of widely dispersed locations.
The Substation Line Sharing Switch (SLSS) is an embodiment of Teltone's line
sharing technology which, along with other complementary products, is
especially suited for line sharing in power utility substations as well as
for utility distribution automation applications.
TELECOM COMPONENTS
Teltone offers the industry a wide selection of tone-based telecom IC
solutions for telecom equipment manufacturers.
Teltone is a market leader in call progress detection, offering this critical
function both as part of industry-standard single-function devices (such as
our new, low-power 3V/5V M-980-02) and integrated with DTMF reception and
generation functions in our industry-standard M-8880 and M-8888 devices. In
addition, Teltone has a new line of 3V/5V precise call progress detection
devices (M-981-02, M-982-02 and M-984-02) that allow customers to rapidly
determine precisely which call progress signal is present without waiting for
several cycles. All these receivers are used in equipment that connects to
the telephone network worldwide, such as computer-telephone equipment,
automatic dialers, voice mail and pay phone systems. The M-991 tone generator
is used extensively by manufacturers of wireless switches, simulators and
test equipment.
Teltone's MF signaling IC product line supports tone-based inter-switch
signaling with proprietary, DSP-based single channel and dual channel CCITT
Region 1 and Region 2 transceivers (the M-986 transceiver product line and
the M-993 generator). These devices enable Central Office, customer premises,
and PBX/Centrex switch manufacturers to build switches compatible with
standards used in the largest and fastest-growing telephone equipment markets
worldwide.
A SOURCE FOR CUSTOM SOLUTIONS
Teltone's engineering expertise and customer-oriented focus allow it to
rapidly respond to its customers' requests for changes to standard products
or for new product designs. Teltone's engineering staff has a thorough
understanding of telephone network interface technology, analog and digital
applications, regulatory requirements, and computer interface technologies.
These skills have often been brought to bear to create a unique solution
customized to precisely match the customer's requirements.
MARKETING, SALES, AND DISTRIBUTION
TELECOM EQUIPMENT AND TELECOMMUTING PRODUCTS
Teltone's products for end user businesses are sold directly, through
specialized distributors, or through value added resellers (VARs). The
OfficeLink 2000 is sold directly, through VARs, and through Lucent
Technologies, Inc.
The power utilities in North America are served primarily through a network
of manufacturers' representatives. The SLSS and other utility products are
usually delivered directly to these customers with no distributors involved.
Starting in fiscal 1998, some international utilities were supplied with SLSS
through specialized distributors.
Products are promoted through magazine articles and advertising, direct mail,
telephone sales, and through the
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website www.teltone.com. Product and sales support are provided from
Teltone's Bothell, WA, facility.
TELECOM COMPONENTS
In the United States and Canada, components are sold direct from Teltone to
high volume users, as well as through a network of manufacturers'
representatives and electronics distributors. Specifications, literature, and
customer support are provided by Teltone from its headquarters. In foreign
countries the Company's OEM products are marketed through stocking
distributors who purchase the products from Teltone and resell them to
telecommunications OEMs in the countries they serve. Teltone currently has 30
international distributors for OEM products.
COMPETITION
Teltone concentrates on applications for which its technology is particularly
well matched and which can be quickly addressed with unique product
solutions. Over the years, Teltone has developed a strong reputation for
delivering high quality products and excellent customer service. This
reputation helps the Company sell its products throughout the
telecommunications industry. Teltone is also known for solving unique
customer problems in specialty niches of the business-user market. Some user
products face significant competition from suppliers which are larger and
more established in their particular market segments. Many of the competitors
have lower overhead costs and are able to sell their products at lower prices
than Teltone. In these situations, Teltone concentrates on selling its
products into applications that require the relatively high performance,
reliability and excellent service that will allow it to command its
relatively high prices.
Teltone's component business to OEMs, though not supported by in-house
manufacturing, has been able to compete successfully in the marketplace
because of the value added by the Company's proprietary products, customer
service and applications support for its component products. Less than 25% of
Teltone's component business is expected to be subject to direct competition.
Digital-Signal-Processing ("DSP") technology offers another form of
competition which allows the customer to implement sophisticated signaling
schemes by programming standard DSP devices. In some cases, depending on the
product and volume, a potential customer can literally replace the older
component function with software when DSP is used. To respond to this
competitive threat, Teltone has developed and is marketing products using DSP
techniques to better serve the customer's needs with competitive products.
RESEARCH AND DEVELOPMENT
The telecommunications industry is subject to continuous technological
changes. Thus, well positioned new products that solve problems for customers
are essential to Teltone's ability to grow. In fiscal 1999 the Company spent
$1,019,000 or approximately 10% of each sales dollar on product development.
In 1998, product development spending was $1,147,000 or approximately 13%.
Management of the Company expects to spend approximately 11% of sales on
product development in fiscal 2000.
CUSTOMER SERVICE AND SUPPORT
Responsive customer service and field support are important in the customer's
decision to buy the Company's products, often at a premium over competitive
products. Field service personnel are located at the Company's facilities in
Bothell, WA.
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BACKLOG
At June 30, 1999, backlog totaled $530,000 compared to $746,000 at June 30,
1998. Teltone's experience is that most customers normally order Company
products on an "as needed" basis.
MANUFACTURING
Teltone assembles its equipment products from standard and specialized
components manufactured by others to Teltone's specifications. The Company
then performs all assembly and test steps in the manufacture of its products
at its Bothell, WA, facility. Component testing takes place upon their
receipt from suppliers, and functional testing is completed after assembly
and burn-in of the subsystems. These tests are primarily performed by
automated equipment.
RAW MATERIALS
Most standard components are available from a number of suppliers. Custom
microcircuitry components are normally purchased from single sources but,
because the Company owns the tooling for these components, other electronics
manufacturers could take over if an existing vendor ceased production. In
such a case, the Company's supply of a component might be affected by
start-up delays. The Company enters into contracts for one year or longer
with both its standard and custom component suppliers as a means of insuring
that short-term supplies will be available. To date, the Company has not had
any significant procurement problems. However, future shortages could result
in production delays that could adversely affect the Company's business.
PATENTS AND TRADEMARKS
The Company owns a number of trademarks which are used on its products. It is
the owner of federal registrations for its trademarks TELTONE, stylized
TELTONE, CableLink, CallData, CallPro, Convert-A-Pak, and Teltone OfficeLink.
In addition, its REMOBS and stylized TELTONE trademarks have been registered
in Canada. In Europe, its stylized TELTONE has been registered in France and
Benelux (Belgium-Netherlands-Luxembourg), West Germany and Italy.
The Company owns United States and foreign patents on various features
incorporated into certain equipment it produces. Because of the technological
nature of the telecommunications industry, and the significant number of
patents extant that cover various aspects of such technology, companies
producing products for the telephone industry often find that they have
included patented technology in the design of one or more of their products.
In such an event, the use of such technology may be licensed from the patent
holder and a licensing fee paid by the user, or the patent holder may insist
that use of the patented technology be discontinued. In that event, the user
has the option of either discontinuing use or risking suit. In any such suit,
the issues may include the validity of the patent or the fact of
infringement. Management is not currently aware of any infringements.
EMPLOYEES
As of June 30, 1999, the Company employed 64 persons. On such date, 24
employees were engaged in production, 12 in engineering, 19 in sales,
marketing, and service, and 9 in administrative functions. The Company
believes its relations with its existing employees to be excellent. None of
the Company's employees are represented by a labor union.
SEASONALITY
No material portion of the business of the Company is regarded as seasonal.
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ITEM 2. PROPERTIES
Teltone's corporate headquarters are located approximately fifteen miles
northeast of Seattle in Bothell, WA. The leased headquarters building
provides 47,000 square feet of floor space for the manufacturing, product
development, marketing, sales, quality control, and administrative functions
of the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various contractual and warranty liability cases
and claims which are considered normal to its business. In the opinion of
management, these claims, when concluded, will not have a material adverse
impact on the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Teltone stock is traded on the NASD electronic OTC Bulletin Board
under the symbol TTNC. The Board of Directors has adopted a
policy of retaining all earnings to fund business development and
growth, and as a result does not declare dividends.
Following are the Company's high and low sales prices by quarter for
the fiscal years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Fiscal Year 1999 High Low
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<S> <C> <C>
Quarter ended September 30, 1998 $.63 $.50
Quarter ended December 31, 1998 $.63 $.28
Quarter ended March 31, 1999 $.50 $.28
Quarter ended June 30, 1999 $.56 $.31
Fiscal Year 1998 High Low
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Quarter ended September 30, 1997 $.22 $.18
Quarter ended December 31, 1997 $.63 $.13
Quarter ended March 31, 1998 $.34 $.19
Quarter ended June 30, 1998 $.69 $.32
</TABLE>
There were 869 common shareholders and 133 preferred shareholders as
of September 7, 1999.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this report covering future performance, developments,
expectations or events, including the discussion of the Company's product
development and introduction plans, and resulting expectations for its
growth, constitute forward-looking statements which are subject to a number
of known or unknown risks and uncertainties that might cause actual results
to differ materially from those expressed or implied by such statements. All
forward-looking statements contained in this report reflect the Company's
expectations at the time of this report, and the Company disclaims any
responsibility to revise or update any such forward-looking statement except
as may be required by law.
1999 VS. 1998
For the years ended June 30, 1999 and 1998, net sales were $10,361,000 and
$9,049,000, respectively. Increased sales in all product areas contributed to
the overall increase in net sales of 14%. These increases are due to growing
acceptance of OfficeLink 2000, new applications for the Company's line
sharing products, and increasing sales of the Company's proprietary
semiconductors. Each of these areas had increased gross margins as well as
increased sales, which resulted in an improvement in the Company's overall
gross margin to 50% from 44% in the prior year. Operating expenses increased
17% over the prior year. This reflects an 11% decrease in engineering as the
semiconductor development projects were completed and an increase of 28% in
sales, and general and administrative expenses in support of the introduction
of the new OfficeLink 2000 product to the marketplace. This resulted in a
return to profitability in the current year of $442,000, compared to a loss
in the prior year of $155,000.
At June 30, 1999, approximately $12,230,000 in net operating loss
carryforwards were available to offset future taxable income and will expire
from 2000 through 2013. If substantial changes in the Company's ownership
should occur, there may be annual limitations on the utilization of such
carryforwards. The Company also had investment tax credit as well as research
and development tax credit carryforwards of approximately $290,000 and
$753,000, respectively, available to offset future income tax liabilities
through 2000. Of this amount, approximately $860,000 expired at June 30,
1999. 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 there is uncertainty regarding
future taxable income.
1998 VS. 1997
Net sales for 1998 were $9,049,000 reflecting a 10% decrease when compared to
$10,053,000 for 1997. This decrease was due to a 31% reduction in sales of
lower margin integrated circuits, partially offset by a 3% increase in higher
gross margin telephone line simulator and emulator products. Gross margin
increased to 44% of net sales in 1998 compared to 39% in 1997. Operating
expenses increased 5% in 1998 due to increased investment in engineering and
development projects to pursue the computer-telephony integration market
(CTI) as well as the cost reduction of certain integrated circuits. Interest
expense was reduced 70% to $18,000 due to the paydown of the line of credit.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has a line of credit agreement for $1,500,000, renewable in July
2000. 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 June 30, 1999, there were no borrowings outstanding under
this line. The Company had cash on hand at June 30, 1999, of $781,000.
Management has renewed its lease agreement on its headquarters facility in
Bothell, Washington, through February 2004. The lease renewal provided for
the elimination of excess square footage in the factory and resulted in lower
rent expense beginning February 1999.
The Company invested $260,000 in capital equipment in 1999 compared to
$103,000 in 1998. This increase was due to investments made in the Company's
internal communications systems as well as leasehold improvements associated
with the new building lease. The Company does not anticipate any significant
change in the level of capital expenditures from 1999 to 2000.
In August 1998, options to purchase 400,000 shares of common stock were
exercised at $.51 per share, which provided the Company with $204,000 in cash
for use in its operations.
Cash on hand, and cash generated from operations, sale of common shares, as
well as the line of credit should enable the Company to meet its operating
and working capital needs during the next twelve months.
The Company has implemented a Year 2000 project to address potential problems
which may arise from the use of two digits rather than four to define the
year in some computer programs. This is an issue which substantially all
users of automated data processing and information systems face. Management
has completed its review of the Company's products and has determined them to
be Year 2000 ready. In addition, Management has completed the evaluation and
testing of the Company's internal systems and is in the process of making the
necessary adjustments to become Year 2000 ready. Management does not expect
that the cost of its Year 2000 project will be material to its financial
condition or results of operations or that its business will be adversely
affected in any material respect. Nevertheless, becoming Year 2000 ready is
dependent upon many factors, some of which are not completely within the
Company's control. Should either the Company's internal systems or the
systems of one or more significant suppliers fail, the Company's business and
its results of operations could be adversely affected and, as a result, a
contingency plan is in place which includes the purchase of certain safety
stock of inventory should production delays be experienced.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company adopted SFAS No.
131 on July 1, 1998. The Company has determined that it does not have any
separately reportable business or geographic segments.
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ITEM 7. FINANCIAL STATEMENTS AND SUPPORTING DATA
SELECTED FINANCIAL DATA
For the five years ended June 30, 1999
<TABLE>
<CAPTION>
In thousands except share and per share data 1999 1998 1997 1996 1995
- -------------------------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net sales .............................. $ 10,361 $ 9,049 $ 10,053 $ 9,471 $ 9,176
Gross margin ........................... 5,198 3,940 3,950 4,202 4,261
Net income (loss) ...................... 442 (155) (42) 377 405
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PER SHARE DATA
Basic net income (loss) per common
share outstanding ................... $ .06 $ (.02) $ (.01) $ .06 $ .06
Average common shares (including
preferred) outstanding .............. 7,036,383 6,682,437 6,666,937 6,651,437 6,562,230
Diluted net income (loss) per common and
common equivalent share outstanding . $ .06 $ (.02) $ (.01) $ .05 $ .06
Average common and common equivalent
shares outstanding .................. 7,119,825 6,682,437 6,666,937 7,201,784 6,679,253
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OTHER FINANCIAL INFORMATION
Cash and short-term cash investments ... $ 781 $ 305 $ 530 $ 148 $ 60
Working capital ........................ 2,216 1,665 1,777 1,805 1,314
Property, plant, and equipment - net ... 383 251 294 297 369
Total assets ........................... 3,729 3,010 3,523 3,652 3,606
Long-term liabilities .................. 37 - - - -
Stockholders' equity ................... 2,562 1,916 2,071 2,102 1,684
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OTHER STATISTICS
Current ratio .......................... 3.0 to 1 2.5 to 1 2.2 to 1 2.2 to 1 1.7 to 1
Number of employees at end of year ...... 64 58 62 65 60
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Teltone Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity, and of cash flows present fairly, in all
material respects, the financial position of Teltone Corporation at June 30,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
July 23, 1999
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STATEMENTS OF OPERATIONS
For the two years ended June 30, 1999
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Net sales ............................................. $ 10,360,530 $ 9,049,191
Cost of goods sold .................................... 5,163,012 5,109,301
------------ ------------
Gross margin .......................................... 5,197,518 3,939,890
Operating expenses:
Selling, general, and administrative ............ 3,748,132 2,922,122
Engineering and development ..................... 1,018,986 1,147,461
------------ ------------
4,767,118 4,069,583
------------ ------------
Income (loss) from operations ......................... 430,400 (129,693)
------------ ------------
Other expense:
Interest income (expense) - net ...................... 1,290 (18,455)
Other income (expense) - net .......................... 10,024 (6,747)
------------ ------------
11,314 (25,202)
Income tax provision .................................. - -
------------ ------------
Net income (loss) ..................................... $ 441,714 $ (154,895)
============ ============
Basic net income (loss) per common share outstanding .. $ .06 $ (.02)
============ ============
Average common shares (including preferred) outstanding 7,036,383 6,682,437
------------ ------------
Diluted net income (loss) per common and common
equivalent shares outstanding ................... $ .06 $ (.02)
============ ============
Average common and common equivalent
shares outstanding .............................. 7,119,825 6,682,437
------------ ------------
</TABLE>
See accompanying Notes to Financial Statements.
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BALANCE SHEETS
For the two years ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash ..................................................... $ 780,590 $ 304,875
Trade accounts receivable (net of allowance for
doubtful accounts of $35,260 and $34,289) ............. 1,583,099 1,391,004
Inventories (net of allowance for obsolescence of
$183,946 and $269,000)
Raw materials ......................................... 413,326 489,133
Work in process ....................................... 61,818 157,168
Finished goods ........................................ 430,054 402,060
----------- -----------
Total inventories ............................ 905,198 1,048,361
Other current assets ..................................... 76,873 14,574
----------- -----------
Total current assets ......................... 3,345,760 2,758,814
Property, plant, and equipment - at cost ....................... 2,702,764 2,448,646
Less accumulated depreciation ............................ (2,319,958) (2,197,586)
----------- -----------
Property, plant, and equipment - net ......... 382,806 251,060
----------- -----------
TOTAL .......................................................... $ 3,728,566 $ 3,009,874
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------
Current liabilities
Accounts payable - trade ................................. $ 420,313 $ 587,199
Accrued compensation and benefits ........................ 562,682 369,696
Accrued warranty expense ................................. 52,483 35,510
Other accrued expenses ................................... 64,830 101,620
Note payable - current portion ........................... 29,384
----------- ----------
Total current liabilities ............................. 1,129,692 1,094,025
Note payable - long-term portion ............................... 37,311
Commitments: Notes 2
Stockholders' equity
Convertible preferred stock - no par value, authorized
6,000,000 shares; 1,072,641 and 1,075,641 shares
issued and outstanding in 1999 and 1998, respectively
($2,145,282 and $2,151,282 liquidation
preference; or $2 per share) ............................ 2,057,149 2,063,149
Common stock - no par value; authorized 20,000,000 shares;
6,009,796 and 5,606,796 shares issued and outstanding
in 1999 and 1998 ...................................... 3,208,685 2,998,685
Accumulated deficit ...................................... (2,704,271) (3,145,985)
----------- -----------
Stockholders' equity ..................................... 2,561,563 1,915,849
----------- -----------
TOTAL .......................................................... $ 3,728,566 $ 3,009,874
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
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STATEMENTS OF CASH FLOWS
For the two years ended June 30, 1999
<TABLE>
<CAPTION>
1999 1998
---------------------------
<S> <C> <C>
Operating activities:
Net income (loss) ...................................... $ 441,714 $(154,895)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation .................................. 123,471 145,660
Loss on disposal of property .................. 4,539
Change in:
Trade accounts receivable ..................... (192,095) (75,185)
Inventories ................................... 143,163 300,732
Accounts payable and accrued liabilities ...... 6,283 41,759
Other current assets .......................... (62,299) 19,348
--------- ---------
Cash provided by operating activities ............ 464,776 277,419
Investing activities:
Investment in property, plant, and equipment .. (259,756) (102,618)
--------- ---------
Cash used by investing activities ................ (259,756) (102,618)
Financing activities:
Gross borrowings on note payable .............. 66,695
Net repayments of notes payable to bank ....... (400,000)
Employee stock sales, net ..................... 204,000
--------- ---------
Cash provided by (used by) financing activities .. 270,695 (400,000)
---------
Increase (decrease) in cash ............................ 475,715 (225,199)
Cash, beginning of year ................................ 304,875 530,074
--------- ---------
Cash, end of year ...................................... $ 780,590 $ 304,875
========= =========
</TABLE>
Supplemental Disclosure of Cash Flow Information
Interest paid during 1999 and 1998 was $4,066 and $18,503, respectively.
See accompanying Notes to Financial Statements.
14
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
For the two years ended June 30, 1999
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
-------------------- -------------------- Accumulated
Shares Amount Shares Amount Deficit Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1997............... 1,075,641 $2,063,149 5,606,796 $2,998,685 $(2,991,090) $2,070,744
Net loss ........................... (154,895) (154,895)
--------- ---------- --------- ---------- ----------- ----------
Balance June 30, 1998............... 1,075,641 2,063,149 5,606,796 2,998,685 (3,145,985) 1,915,849
Issuance of common stock
under employee stock
option plan................... 400,000 204,000 204,000
Conversion of preferred
stock into common stock....... (3,000) (6,000) 3,000 6,000
Net income.......................... 441,714 441,714
--------- ---------- --------- ---------- ----------- ----------
Balance June 30, 1999............... 1,072,641 $2,057,149 6,009,796 $3,208,685 $(2,704,271) $2,561,563
========= ========== ========= ========== =========== ==========
</TABLE>
See accompanying Notes to Financial Statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Teltone Corporation designs, manufactures, and sells specialty electronic
telecommunications equipment, software, and components to a variety of business
end users and original equipment manufacturers internationally. Customers are
primarily located in North America, Asia, and Western Europe.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment. Estimated
sales returns are netted against sales to obtain net sales and are not material.
In accordance with Statement of Position 97-2, "Software Revenue Recognition,"
revenue from software sales is recognized when earned, after any right of return
clauses expire. Payments received in advance of revenue recognition are recorded
as a deferred revenue liability until earned.
INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization which is calculated on a straight-line basis over their estimated
useful lives of 2-7 years. Property and equipment consist primarily of
manufacturing and engineering equipment, and furniture and fixtures.
ENGINEERING AND DEVELOPMENT COSTS
Engineering and development costs are charged to expense as incurred.
WARRANTY COSTS
Estimated warranty costs are accrued at the time products are sold.
INCOME TAX
Income taxes are calculated using the asset and liability approach under which
deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amount and the tax basis of assets and
liabilities using the enacted tax rates in effect in the years in which the
differences are expected to reverse.
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock is convertible one-for-one into common stock at the
stockholder's option.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per common share is based on the weighted average number
of common shares and convertible preferred shares outstanding during the year.
Common equivalent shares, including warrants and stock options, are included in
the calculation of diluted earnings per common and common equivalent shares to
the extent that they are dilutive and are excluded to the extent they are
antidilutive. During the year ended June 30, 1998, the Company had stock options
and warrants which were not included in the computation of net loss per share
because the impact would have been antidilutive.
A reconciliation of the number of average common shares outstanding to the
number of average common and common equivalent shares outstanding is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Average common shares (including preferred) outstanding 7,036,383 6,682,437
Dilutive effect of warrants and stock options 83,442
--------- ---------
Average common and common equivalent shares outstanding 7,119,825 6,682,437
</TABLE>
16
<PAGE>
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily accounts receivable. None of the Company's customers
account for more than 10% of accounts receivable or net sales as of June 30,
1999 and 1998, and for the years then ended. The Company maintains an allowance
for doubtful accounts based upon its historical experience and the expected
collectibility of all accounts receivable. Credit losses to date have been
within the Company's estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, trade accounts receivable, accounts payable trade,
accrued compensation and benefits, and other accrued expenses approximate their
fair value because of the short-term maturity of these instruments. The carrying
amount of the note payable approximates its fair value based on interest rates
currently available to the Company.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company adopted SFAS No. 131 on July 1, 1998. The
Company has determined that it does not have any separately reportable business
or geographic segments.
2. LEASE COMMITMENTS
The Company leases its headquarters facility under an operating lease agreement.
Future minimum lease payments for the years ending June 30 are as follows:
<TABLE>
<S> <C>
2000 $577,838
2001 614,768
2002 628,338
2003 647,336
2004 377,613
-----------
$2,845,893
===========
</TABLE>
Operating lease expenses were $564,314 in 1999 and $608,405 in 1998.
3. LINE OF CREDIT
The Company has a line of credit agreement with a bank for the lesser of
$1,500,000 or an amount calculated based on 75% of eligible domestic and 60% of
eligible foreign accounts receivable. The line is renewable in July 2000, 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. The line of credit
bears interest at prime + 1/2%. As of June 30, 1999, there were no borrowings
under this line of credit.
4. PROPERTY, PLANT AND EQUIPMENT
17
<PAGE>
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
-------------- -------------
<S> <C> <C>
Manufacturing and engineering equipment $2,612,297 $2,372,024
Furniture and fixtures 85,768 71,923
Other 4,699 4,699
------------- ------------
2,702,764 2,448,646
Less accumulated depreciation (2,319,958) (2,197,586)
----------- -----------
$ 382,806 $ 251,060
============ ===========
</TABLE>
5. NOTE PAYABLE
In November 1998, the Company entered into a note payable with Imperial Premium
Finance, Inc. for $82,800 at 7.86% to finance an insurance policy. The note is
payable in monthly installments of principal and interest through August 2001.
6. INCOME TAX
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Net operating loss carryforwards $4,158,000 $4,300,000
Depreciation and amortization 231,000 251,000
Tax credits 183,000 1,043,000
Inventory reserves 63,000 91,000
Accrued liabilities 83,000 61,000
Other 33,000 39,000
------------- ------------
Deferred tax assets 4,751,000 5,785,000
Valuation allowance (4,751,000) (5,785,000)
------------- ------------
$ - $ -
================ ===============
</TABLE>
Due to the Company's loss history and therefore uncertainty regarding future
taxable income, the Company has established a valuation allowance of $4,751,000
against deferred tax assets. At June 30, 1999, the Company had net operating
loss carryforwards of approximately $12,230,000. The carryforwards expire from
2000 through 2013. 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 $183,000 available to offset future income tax
liabilities through 2000.
The reconciliation of taxes on income at the federal statutory rate to the
actual tax expense of $0 is:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Tax at statutory rate $150,183 $(52,664)
Tax credits 860,000
Nondeductible items 23,817 13,664
Change in valuation allowance (1,034,000) 39,000
------------- ------------
$ - $ -
============= =============
</TABLE>
18
<PAGE>
7. STOCK OPTIONS
The Company has two active stock option plans. The Nonemployee Directors' 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.
The Employees Stock Option Plan provides for the grant of options to purchase up
to 1,050,000 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.
The Company accounts for common stock options of the Nonemployee Directors'
Stock Option Plan and the Employees Stock Option Plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123"), requires companies who elect to adopt its
provisions to utilize a fair value approach for accounting for stock
compensation. Had compensation cost for the Company's two stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the fair value method of FAS 123,
the Company's net income (loss) and net income (loss) per share would have been
reduced to the amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C> <C>
Net income (loss) As reported $441,714 $(154,895)
Pro forma 348,989 (213,579)
Basic net income (loss)
per common share outstanding As reported $.06 $(.02)
Pro forma .05 (.03)
Diluted net income (loss) per
common and common equivalent
shares outstanding As reported $.06 $(.02)
Pro forma .05 (.03)
</TABLE>
The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: expected
volatility of 126.8% and 127.8% for the years ended June 30, 1999 and 1998,
respectively; an expected life of six years in both years, risk-free interest
rate ranging from 4.1% to 5.9% for fiscal 1999 and 6.10% to 6.70% for fiscal
1998; no expected dividend payments in either year; and assumed forfeiture rate
of 0% in both years. The weighted average fair value of options granted during
fiscal 1999 and fiscal 1998 was $.41 and $.24, respectively.
The proforma effect on net income (loss) and net income (loss) per share
resulting from the compensation expense attributed to stock options as
calculated under FAS 123 may not be representative of the effects on future
years as options vest over several years and additional awards may be granted in
the future.
19
<PAGE>
The Company's stock option plans are summarized below:
<TABLE>
<CAPTION>
Employee Stock Nonemployee Directors
Option Plan Stock Option Plan
------------------------------------ ------------------------------------
Weighted Average Weighted Average
Shares under option: Shares Exercise Price Shares Exercise Price
------------- -------------------- ----------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1997 988,000 $.47 240,000 $.50
Options granted 285,000 .51
Options exercised
Options lapsed (191,000) .47 (40,000) .50
--------- --- ------- ---
Outstanding at June 30, 1998 1,082,000 .48 200,000 .50
Options granted 319,000 .57
Options exercised (400,000) .51
Options lapsed (86,000) .50
------- ---
Balance, June 30, 1999 915,000 .49 200,000 .50
======== =======
Available to grant at June 30, 1999 27,750 120,000
Options exercisable:
June 30, 1999 333,750 .42 162,500 .50
June 30, 1998 632,125 .47 112,500 .50
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ -----------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Exercise Outstanding at Remaining Average Exercisable at Average
Prices 6/30/99 Contractual Life Exercise Price 6/30/99 Exercise Price
------- -------
<S> <C> <C> <C> <C> <C>
Employee Plan
$.28 to $.45 231,000 2 years $.36 197,000 $.36
$.47 to $.51 380,000 4 years $.50 136,750 $.50
$.53 to $.72 304,000 6 years $.58
Director Plan
$.50 200,000 4 years $.50 162,500 $.50
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company offers its employees a 401(k) savings plan which is designed to
allow participating employees to accumulate savings for retirement and other
purposes. Under the 401(k) plan, all Company employees are eligible to
participate following the first day of the month following their hire date.
Employees may elect to contribute up to 15% of their annual compensation to the
plan. In addition, the Company provides for discretionary employer
contributions.
20
<PAGE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AND BUSINESS EXPERIENCE AGE POSITION
-----------------------------------------------------------------------------------------
<S> <C> <C>
Richard W. Soshea 67 President and Chief
M/A-COM, Inc., 1988-1991 Executive Officer
Harris Corp. & Litton Systems, Inc., 1980-1988 Effective August 1, 1991
Hewlett Packard, 1962-1980
Richard G. Johnson 55 Vice President, Operations
Director of Manufacturing, 1983-1987 Effective February 25, 1987
Senior Operations Manager, 1982-1983
Manufacturing Manager, 1977-1982
Ray Ma 53 Vice President Engineering
Director of Engineering, 1989-1995 Effective March 1, 1995
Engineering Manager, 1976-1989
Design Engineer, 1972-1976
Debra L. Griffith 40 Vice President Finance and
Carver Corporation, 1996-1998 Chief Financial Officer
Teltone Corporation, 1983-1996 Effective July 20, 1998
Deloitte Haskins & Sells, 1980-1983
Mark Blazek 35 Vice President Sales & Marketing
Market Group Manager, 1994-1997 Effective June 17, 1997
GN Netcom, 1988-1994
Industrial Servo, Inc., 1986-1988
Peter C. Spratt 44 Secretary & General Counsel
Secretary 1991-1995 Effective June 12, 1995
Preston Gates & Ellis, 1990-1995
Touche Ross & Co., 1985-1987
Shidler McBroom Gates & Lucas, 1982-1985
</TABLE>
The remaining information required by this item is incorporated by
reference to pages 2 through 4 of the Company's definitive Proxy
Statement to be used in connection with the Annual Meeting of
Shareholders to be held on November 4, 1999 (the "Proxy
Statement"), which the Company will file with the Commission within
120 days after the end of its 1999 fiscal year. Information
regarding executive officers of the Company is included at the end
of Part III of this Form 10-KSB.
21
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The section entitled "Executive Officer Compensation" on pages 5
through 7 of the Proxy Statement and the section entitled "Director
Compensation" on page 4 of the Proxy Statement are incorporated herein
by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The sections entitled "Election of Directors and Management
Information" to the extent of the disclosures on pages 1 through 4 of
the Proxy Statement are incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
22
<PAGE>
PART IV
ITEM 13. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. Exhibits filed herewith:
3 Articles of Incorporation and Bylaws(3)
10.1 Teltone Corporation 1983 Stock Option Plan, as amended(1)
10.2 Teltone Corporation 1989 Employees' Stock Purchase Plan(2)
10.3 Sales agreement covering Kirkland, Washington, property(4)
10.4 Building sublease covering Kirkland, Washington, property(5)
10.5 Building lease covering Bothell, Washington, property(6)
10.6 Teltone Corporation 1992 Stock Option Plan(7)
21 List of subsidiaries(4)
23 Consent of Independent Accountants
27 Financial Data Schedules
28 Building lease covering Bothell, Washington, property(8)
(1) Incorporated herein by reference to the Corporation's Registration
Statement on Form S-8, Commission file 33-29304.
(2) Incorporated herein by reference to the Corporation's Registration
Statement on Form S-8, Commission file No. 33-28779.
(3) Incorporated herein by reference to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 30, 1983, Commission file
No. 0-11275.
(4) Incorporated herein by reference to the Corporation's Registration
Statement on Form S-1, Commission file No. 33-1703.
(5) Incorporated herein by reference to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 30, 1987, Commission file
No. 0-11275.
(6) Incorporated herein by reference to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 30, 1991, Commission file
No. 0-11275.
(7) Incorporated herein by reference to the Corporation's Annual Report on Form
10-K for the fiscal year ended June 30, 1992, Commission file
No. 0-11275.
(8) Incorporated herein by reference to the Corporation's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1998, Commission file
No. 0-11275.
B. Reports on Form 8-K:
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of Bothell,
State of Washington, on September 24, 1999.
TELTONE CORPORATION
By /s/ Richard W. Soshea
----------------------
Richard W. Soshea
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the pursuing persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Charles L. Anderson Chairman and Director September 24, 1999
- --------------------------------
Charles L. Anderson
(a) Principal Executive Officer:
/s/ Richard W. Soshea President and Chief September 24, 1999
- --------------------------------- Executive Officer and
Richard W. Soshea Director
(b) Principal Financial and Accounting Officer:
/s/ Debra L. Griffith Vice President of Finance and September 24, 1999
- --------------------------------------- Chief Financial Officer
Debra L. Griffith
(c) Other Directors:
/s/ Tracy S. Storer Director September 24, 1999
- ----------------------------------
Tracy S. Storer
/s/ Charles P. Waite Director September 24, 1999
- -----------------------------------
Charles P. Waite
/s/ Don C. Wilson Director September 24, 1999
- -----------------------------------
Don C. Wilson
/s/ Paul M. Wythes Director September 24, 1999
- ----------------------------------
Paul M. Wythes
</TABLE>
24
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-28779 and No. 33-29304) of Teltone Corporation of
our report dated July 23, 1999, relating to the financial statements appearing
in this Form 10-KSB.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
September 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 780,590
<SECURITIES> 0
<RECEIVABLES> 1,583,099
<ALLOWANCES> 35,260
<INVENTORY> 905,198
<CURRENT-ASSETS> 3,345,760
<PP&E> 2,702,764
<DEPRECIATION> 2,319,958
<TOTAL-ASSETS> 3,728,566
<CURRENT-LIABILITIES> 1,129,692
<BONDS> 0
0
2,057,149
<COMMON> 3,208,685
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,728,566
<SALES> 10,360,530
<TOTAL-REVENUES> 10,360,530
<CGS> 5,163,012
<TOTAL-COSTS> 5,163,012
<OTHER-EXPENSES> 4,767,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,290
<INCOME-PRETAX> 441,714
<INCOME-TAX> 0
<INCOME-CONTINUING> 441,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 441,714
<EPS-BASIC> .06
<EPS-DILUTED> .06
</TABLE>
