<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------------------------------------
or
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from to
--------- ---------------------------------
Commission file number 0-17893
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TELTRONICS, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2937938
- ---------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2150 Whitfield Industrial Way, Sarasota, FL 34243-4046
- --------------------------------------------------------------------------------
(Address or principal executive offices)
Issuer's telephone number (941) 753-5000
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Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 2,610,168
-----------
Exhibit index appears on page 12. Total pages 13.
<PAGE> 2
PART I - FINANCIAL INFORMATION
TELTRONICS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
---------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 29,020 $ 264,379
Accounts receivable, net of allowance for
doubtful accounts of $78,534 at
March 31, 1996 and $65,239 at
December 31, 1995 5,164,686 3,207,556
Inventories 2,795,465 3,239,658
Prepaid expenses and other current assets 386,545 167,948
---------------- ----------------
Total current assets 8,375,716 6,879,541
---------------- ----------------
PROPERTY AND EQUIPMENT, NET 1,825,011 1,636,067
---------------- ----------------
OTHER ASSETS:
Prepaid lease guarantee, net 263,685 270,684
Software development costs, net 44,322 66,822
Other 69,380 60,837
---------------- ----------------
Total other assets 377,387 398,343
---------------- ----------------
TOTAL ASSETS $ 10,578,114 $ 8,913,951
================ ================
</TABLE>
See accompanying notes
2
<PAGE> 3
TELTRONICS, INC.
CONSOLIDATED BALANCE SHEET
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
---------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,722,745 $ 2,565,070
Current portion of capital lease obligations 152,646 152,646
Accounts payable 2,876,259 2,388,231
Accrued expenses 744,646 730,122
Deferred income 111,635 87,169
Other current liabilities 58,352 68,870
---------------- ----------------
Total current liabilities 7,666,283 5,992,108
---------------- ----------------
LONG-TERM LIABILITIES:
Capital lease obligations, less current portion 181,666 218,865
Long-term debt, less current portion 307,131 364,808
---------------- ----------------
Total long-term liabilities 488,797 583,673
---------------- ----------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par, 50,000,000
shares authorized, 2,610,168 issued
and outstanding 2,611 2,611
Additional paid-in capital 10,861,593 10,861,593
Accumulated deficit (8,441,170) (8,526,034)
---------------- ----------------
Total stockholders' equity 2,423,034 2,338,170
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 10,578,114 $ 8,913,951
================ ================
</TABLE>
See accompanying notes
3
<PAGE> 4
TELTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED
-------------------------------------------
March 31, 1996 March 31, 1995
---------------- ----------------
<S> <C> <C>
SALES $ 7,025,071 $ 5,670,705
COST OF GOODS SOLD 4,830,664 3,857,402
---------------- ----------------
GROSS PROFIT 2,194,407 1,813,303
---------------- ----------------
OPERATING EXPENSES
General and administrative 470,561 375,589
Research and development 199,944 418,904
Selling and marketing expenses 1,307,051 899,487
---------------- ----------------
1,977,556 1,693,980
---------------- ----------------
OPERATING INCOME 216,851 119,323
OTHER INCOME (EXPENSES)
Interest (125,794) (87,213)
Gain on sale of investment - -
Miscellaneous (6,193) 2,593
---------------- ----------------
(131,987) (84,620)
INCOME (LOSS) BEFORE INCOME TAXES 84,864 34,703
PROVISION FOR INCOME TAXES - -
---------------- ----------------
NET PROFIT (LOSS) $ 84,864 $ 34,703
================ ================
NET PROFIT (LOSS) PER SHARE $ 0.03 $ 0.04
================ ================
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,610,168 982,440
================ ================
</TABLE>
See accompanying notes
4
<PAGE> 5
TELTRONICS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Retained
COMMON STOCK Additional Earnings
------------------------------- Paid-In (Accumulated
Shares Amount Capital Deficit) Total
------------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT,
December 31, 1995 2,610,168 $ 2,611 $ 10,861,593 $ (8,526,034) $ 2,338,170
Net Profit - - - 84,864 84,864
------------ ------------- -------------- ------------- -------------
BALANCE AT,
March 31, 1996 2,610,168 $ 2,611 $ 10,861,593 $ (8,441,170) $ 2,423,034
</TABLE>
See accompanying notes
5
<PAGE> 6
TELTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED
-------------------------------------------
March 31, 1996 March 31, 1995
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 84,864 $ 34,703
Adjustments to reconcile net income
to net cash:
Depreciation and amortization 150,717 133,266
Changes in assets and liabilities:
Accounts receivable and other assets (2,175,727) (263,922)
Inventories 444,193 (53,081)
Income taxes receivable - (11,492)
Increase in other assets (8,543) 300
Accounts payable and accrued liabilities 516,500 (213,136)
---------------- ----------------
Net cash flows from operating activities (987,996) (373,362)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (310,162) (35,422)
---------------- ----------------
Net cash flows from investing activities (310,162) (35,422)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 5,406,154 5,779,000
Repayment on line of credit (4,248,479) (5,191,537)
Repayment of notes payable and
other long-term debt (94,876) (178,599)
---------------- ----------------
Net cash flows from financing activities 1,062,799 408,864
---------------- ----------------
Net increase (decrease) in cash (235,359) 80
Cash and cash equivalents, beginning of year 264,379 19,824
---------------- ----------------
Cash and cash equivalents, end of year $ 29,020 $ 19,904
================ ================
</TABLE>
See accompanying notes
6
<PAGE> 7
TELTRONICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL
The financial statements as of March 31, 1996 and for the three month period
then ended are unaudited and, in the opinion of the Company, reflect all
adjustments necessary for a fair presentation of such data and have been
prepared on a basis consistent with the December 31, 1995 Audited Financial
Statements. All such adjustments were of a normal recurring nature. The
Company's significant accounting policies are described in the notes to the
December 31, 1995 Audited Financial Statements and there have been no material
changes in significant accounting policies from those described therein.
The year-end condensed balance sheet data included in the condensed financial
statements was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
NOTE B - SUBSEQUENT EVENTS
In April 1996, the Company's wholly owned subsidiary, ISL, Inc. ("ISL"),
acquired certain technology and related assets for a small, self-contained,
voice activated, portable pentium(R) processor driven, multimedia computer
("Technology") in exchange for the assumption of certain indebtedness and
possible issuance of up to 1,000,000 restricted shares of the Company's
non-voting common stock, if authorized by the stockholders ("the NVC Shares"),
upon the satisfaction of certain conditions, including the award of significant
contracts ("Contract") to ISL utilizing the Technology. See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Current Outlook.
In April, 1996, the Company received a commitment from a financing company to
provide the Company with up to $3,000,000 of equity financing in exchange for
the proposed issuance of up to 250,000 restricted shares of the Company's common
stock and up to 2,750,000 restricted shares of the Company's non-voting common
stock, if authorized by the stockholders, convertible on a one for one basis
into restricted shares of the Company's common stock at any time after one year
subsequent to date of issuance. Any non-voting common not converted would be
subject to redemption at the option of the Company at any time commencing
fifteen months subsequent to issuance at redemption prices inclusive of a
premium. The non-voting common shares would also be subject to a right of
first refusal in favor of the Company if the holder offered the shares for sale
to an unaffiliated third party. The common and non-voting common shares, if
issued, would be subject to restrictions under Rule 144 of the Securities Act
of 1933, as amended. There can be no assurance that the shares will be
issued or if issued will be issued upon the terms and conditions presently
proposed.
7
<PAGE> 8
In May, 1996, the Company received a commitment from a lending institution
covering a $1,500,000 term loan ("Loan"), which commitment is subject to
completion of due diligence and negotiation of acceptable loan documentation.
Borrowings, if any, under the Loan would bear interest at 13.5% per annum and be
secured by a second lien position in the Company's assets. See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Current Outlook.
8
<PAGE> 9
TELTRONICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
In the first quarter of 1996, the Company's sales increased to $7,025,000
compared to sales of $5,671,000 for the corresponding quarter of 1995. The
increased sales were attributable to $1,885,000 in additional sales provided by
AT Supply, Inc. ("AT Supply"), an 80% subsidiary located in San Antonio, Texas
and formed in October 1995 to distribute data acquisition equipment. Gross
profit increased to $2,194,000 for the first quarter of 1995 compared to
$1,813,000 for the same period last year. Overall operating expenses increased
approximately $284,000 primarily as a result of AT Supply which recorded
operating expenses of approximately $237,000. As a result of increased sales
and controlled operating expenses the first quarter of 1996 reflected a net
profit of $85,000 compared to $35,000 for the first quarter of 1995.
RESULTS OF OPERATIONS
Total sales for the first quarter of 1996 increased by approximately $1,354,000
over the same period of 1995. The increase was attributable to sales provided
by AT Supply.
Gross profit for the first quarter of 1996 increased to $2,194,000 from
$1,813,000 for the same quarter of 1995. The increase in gross profit was the
result of $305,000 in gross profit contributed by AT Supply. The gross profit
percentage of sales declined slightly from 32.0% to 31.2% as a result of AT
Supply whose margins are typically in the 16% range. The gross profit on sales
of the Company excluding AT Supply increased from 32.0% to 36.8%.
Total operating expenses for the quarter ended March 31, 1996 were $1,977,000
as compared to $1,694,000. Administrative expenses increased by approximately
$95,000 compared to the first quarter of 1995. This increase was the result of
increased accounting department expense of $28,000 and increased general
expenses of approximately $67,000, related to cost of administrating the
Company's additional facilities.
Research and development expense were $200,000 for the quarter compared to
$419,000 for the first quarter of 1995. The decline in research and
development expense is the result of the Company actively eliminating
non-profitable products in its core business.
Selling and marketing expense increased by $408,000 to $1,307,000, compared to
$899,000 for the first quarter of 1995. Approximately $237,000 of this
increase was the result of added selling and marketing expenses of AT Supply
while the balance of the
9
<PAGE> 10
increase can be attributed to the additional marketing collateral and sales
promotion and enhancements of ORBi-TEL for WINDOWS.
Operating income for the quarter increased by $98,000 to $217,000 compared to
operating income for the first quarter of 1995 of $119,000.
Interest expense for the quarter increased to $126,000 compared to $87,000 for
the same period of 1995 primarily as a result of increased borrowings related
to AT Supply and additional borrowings related to existing core business.
Net profit for the quarter was $85,000, an increase of approximately $50,000
above the same period of 1995. The increase was primarily the result of the
addition of AT Supply.
FINANCIAL CONDITION
Total assets at March 31, 1996 were $10,578,114 compared to $8,913,951 at
December 31, 1995. The Company's current ratio at March 31, 1996 was 1.09:1,
compared to 1.14:1 at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements were met with cash provided by borrowings from The CIT
Group/Credit Finance ("CIT"). The CIT facility provides for borrowing up to
$3,500,000. $296,700 of this was a term loan secured by fixed assets at an
interest rate of 3% above the prime rate to be repaid monthly until fully paid
on October 28, 1999. The remaining line facility is a revolving loan secured
by inventory and receivables at an interest rate of prime plus 3%. The
Company is currently negotiating to increase the line to approximately
$4,900,000.
The Company's working capital ratio at March 31, 1996 was 1.09:1. Net working
capital was $709,433 at March 31, 1996. Short term requirements are expected
to be met through cash flows from operations augmented by the credit line
facility.
In addition, the Company is exploring the possibility of other equity or debt
financing.
CURRENT OUTLOOK
The Company anticipates continued positive results from its subsidiary, AT
Supply, which contributed $1,885,000 of additional sales in the first quarter.
The Company anticipates an upswing in both its Remote Maintenance and
Telemanagement business during the remainder of 1996 and continues to look for
suitable distributors in the European marketplace for its Remote Maintenance
product line.
10
<PAGE> 11
In April 1996, the Company's wholly owned subsidiary, ISL, Inc. ("ISL"),
acquired certain technology and related assets for a small, self-contained,
voice activated, portable pentium(R) processor driven, multimedia computer
("Technology") in exchange for the assumption of certain indebtedness and
possible issuance of up to 1,000,000 restricted shares of the Company's
non-voting common stock, if authorized by the stockholders ("the NVC Shares"),
upon the satisfaction of certain conditions, including the award of
significant contracts ("Contract") to ISL utilizing the Technology. The NVC
Shares, if issued, would be subject to several conditions, including an escrow
to secure certain indemnification obligations. There can be no assurance that
a Contract will be awarded or, if awarded, that the Contract will contain the
terms and conditions required to obligate ISL to deliver any or all of the NVC
Shares.
At March 31, 1996 the Company has advanced funds of approximately $60,000 on
behalf of ISL pursuant to Line Notes dated March 15, 1996, bearing interest at
prime plus three percent (3%) and payable on demand.
In April, 1996, the Company received a commitment from a financing company to
provide the Company with up to $3,000,000 of equity financing in exchange for
the proposed issuance of up to 250,000 restricted shares of the Company's
common stock and up to 2,750,000 restricted shares of the Company's non-voting
common stock, if authorized by the stockholders, convertible on a one for one
basis into restricted shares of the Company's common stock at any time after
one year subsequent to date of issuance. Any non-voting common not converted
would be subject to redemption at the option of the Company at any time
commencing fifteen months subsequent to issuance at redemption prices inclusive
of a premium. The non-voting shares would also be subject to a right of first
refusal in favor of the Company if the holder offered the shares for sale to an
unaffiliated third party. The common and non-voting common shares, if issued,
would be subject to restrictions under Rule 144 of the Securities Act of 1933,
as amended. There can be no assurance that the shares will be issued or if
issued will be issued upon the terms and conditions presently proposed.
In May, 1996, the Company received a commitment from a lending institution
covering a $1,500,000 term loan ("Loan"), which commitment is subject to
completion of due diligence and negotiation of acceptable loan documentation.
Borrowings, if any, under the Loan would bear interest at 13.5% per annum and be
secured by a second lien position in the Company's assets. As currently
proposed, the Loan would allow the Company to prepay the Loan at any time during
the Loan's five year term without penalty. Other terms of the Loan as proposed
would entail the Company paying to the lender a 2% processing fee, and issuing
warrants entitling the lender to purchase up to 400,000 shares of the Company's
common stock, subject to adjustment. There can be no assurance that the Company
will be able to negotiate acceptable documentation to close the Loan, or that if
closed, it will be closed upon the terms and conditions presently proposed.
The Company is continuing to explore the possibility of developing or acquiring
new products, product lines or businesses.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about September 12, 1995, Commstar, Ltd., a Canadian
corporation, commenced an action in the Circuit Court of the
Thirteenth Judicial District, Hillsborough County, Florida,
against the Company, a director of the Company, and ComCentral
Corp. ("ComCentral"), seeking damages in connection with a sale
of shares of ComCentral in 1993. The complaint seeks
rescission, damages in excess of $15,000, as well as costs and
attorneys fees. The Company and its director moved to dismiss
the complaint on numerous grounds, which was granted on
February 9, 1996 without prejudice. The complaint was refiled
in early April, 1996 and discovery has commenced. The Company
believes that it has meritorious defenses to the allegations
and will vigorously defend the refiled complaint.
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 6A. EXHIBITS
10.1 Agreement of Sale dated as of March 27, 1996
among ISL, Inc., Interactive Solutions, LLC,
Bruce W. Hanks, Kevin Rogers and Michael Jonas . . . (a)
10.2 Amendment to Agreement of Sale dated April
18, 1996 among ISL, Inc., Interactive
Solutions, LLC, Bruce W. Hanks, Kevin Rogers
and Michael Jonas . . . . . . . . . . . . . . . . . . (b)
27 Financial Data Schedule (for SEC purposes only) . . . (c)
ITEM 6B. REPORTS ON FORM 8-K - None
- -------------------
(a) Filed as an Exhibit to the Company's Form 8-K filed April 5, 1996.
(b) Filed as an Exhibit to the Company's Amendment to Form 8-K filed April 25,
1996.
(c) Filed as an Exhibit to this Report on Form 10-QSB.
12
<PAGE> 13
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELTRONICS, INC.
May 14, 1996 /s/ Ewen Cameron
-------------------------------------
Ewen Cameron
President and Chief Executive Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10QSB FOR QUARTERLY PERIOD ENDED MARCH
31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 29,020
<SECURITIES> 0
<RECEIVABLES> 5,164,686
<ALLOWANCES> 0
<INVENTORY> 2,795,465
<CURRENT-ASSETS> 8,375,716
<PP&E> 1,825,011
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,578,114
<CURRENT-LIABILITIES> 7,666,283
<BONDS> 0
0
0
<COMMON> 2,611
<OTHER-SE> 2,420,423
<TOTAL-LIABILITY-AND-EQUITY> 10,578,114
<SALES> 7,025,071
<TOTAL-REVENUES> 7,025,071
<CGS> 4,830,664
<TOTAL-COSTS> 1,977,556
<OTHER-EXPENSES> 6,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,794
<INCOME-PRETAX> 84,864
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,864
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,864
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
