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: SEPTEMBER 30, 1997
or
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number: 0-17893
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
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: 3,866,013
<PAGE> 2
PART I - FINANCIAL INFORMATION
TELTRONICS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
ASSETS
<CAPTION>
September 30, December 31,
1997 1996
============= ============
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 625,022 $ 0
Receivable from escrow agent 1,191,500 0
Accounts receivable, net of
allowance for doubtful accounts
of $183,797 at September 30, 1997
and $125,250 at December 31, 1996 5,521,112 5,732,356
Subscription receivable 0 24,125
Inventories 6,890,826 7,642,205
Prepaid expenses and other
current assets 781,019 494,051
----------- -----------
Total current assets 15,009,479 13,892,737
----------- -----------
PROPERTY AND EQUIPMENT, NET 3,325,304 2,723,825
----------- -----------
OTHER ASSETS:
Prepaid lease guarantee, net 221,691 242,688
Software development costs, net 83,280 83,280
Other 218,962 70,555
----------- -----------
Total other assets 523,933 396,523
----------- -----------
TOTAL ASSETS $18,858,716 $17,013,085
=========== ===========
</TABLE>
See accompanying notes
<PAGE> 3
<TABLE>
CONSOLIDATED BALANCE SHEET
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
1997 1996
============= ============
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Cash overdraft $ 0 $ 25,180
Current portion of long-term debt 4,414,987 4,225,407
Current portion of capital lease
obligations 93,696 129,574
Accounts payable 5,333,163 8,321,876
Accrued expenses 1,563,544 1,377,700
Deferred income 108,551 252,356
Other current liabilities 169,187 42,218
----------- -----------
Total current liabilities 11,683,128 14,374,311
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less
current portion 4,632,504 799,986
Capital lease obligations,
less current portion 34,056 121,754
----------- -----------
Total long-term liabilities 4,666,560 921,740
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par,
40,000,000 shares authorized,
3,866,013 issued and outstanding 3,867 3,367
Non-voting common stock, $.001 par,
5,000,000 shares authorized,
0 issued and outstanding 0 0
Preferred stock, $.001 par value,
5,000,000 shares authorized,
100,000 issued and outstanding 100 100
Additional paid-in capital 4,434,772 13,185,272
Accumulated deficit (11,929,711) (11,471,705)
----------- -----------
Total stockholders' equity 2,509,028 1,717,034
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $18,858,716 $17,013,085
=========== ===========
</TABLE>
See accompanying notes
<PAGE> 4
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
============== ==============
SEPTEMBER 30, SEPTEMBER 30,
============== ==============
1997 1996 1997 1996
==== ==== ==== ====
<S> <C> <C> <C> <C>
SALES $10,091,001 $ 7,063,549 $26,677,799 $20,372,810
COST OF GOODS SOLD 6,648,797 4,729,187 17,610,875 13,686,934
----------- ----------- ----------- -----------
GROSS PROFIT 3,442,204 2,334,362 9,066,924 6,685,876
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and
administrative 1,337,895 667,335 3,200,321 1,681,862
Research and
development 567,991 344,823 1,750,680 1,014,145
Selling and
marketing expenses 1,202,751 1,381,532 3,500,321 3,945,159
----------- ----------- ----------- -----------
3,108,637 2,393,690 8,451,322 6,641,166
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 333,567 (59,328) 615,602 44,710
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (353,915) (138,011) (868,137) (397,874)
Finance expense (28,363) 0 (104,726) 0
Litigation expense (1,381) 0 (81,777) 0
Miscellaneous 9,824 (8,931) (18,968) 11,979
----------- ----------- ----------- -----------
(373,835) (146,942) (1,073,608) (385,895)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (40,268) (206,270) (458,006) (341,185)
PROVISION FOR
INCOME TAXES 0 0 0 0
----------- ----------- ----------- -----------
NET PROFIT (LOSS) $ (40,268) $ (206,270) $ (458,006) $ (341,185)
=========== =========== =========== ===========
NET PROFIT (LOSS)
PER SHARE $ (0.01) $ (0.06) $ (0.13) $ (0.10)
=========== =========== =========== ===========
AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 3,866,013 3,366,013 3,618,760 3,366,013
=========== =========== =========== ===========
</TABLE>
See accompanying notes
<PAGE> 5
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
<CAPTION>
COMMON STOCK PREFERRED STOCK
================ ===============
ISSUED AMOUNT ISSUED AMOUNT
====== ====== ====== ======
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 3,366,013 $3,367 100,000 $ 100
Shares issued pursuant to
the Employee Stock Payment
Plan at an average price
of $2.50 Per share 500,000 500 0 0
Net loss 0 0 0 0
--------- ------ ------- -----
Balance at
September 30, 1997 3,866,013 $3,867 100,000 $ 100
========= ====== ======= =====
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
PAID-IN (ACCUMULATED
CAPITAL DEFICIT) TOTAL
========== =========== =======
<S> <C> <C> <C>
Balance at
December 31, 1996 $13,185,272 $(11,471,705) $1,717,034
Shares issued pursuant to
the Employee Stock Payment
Plan at an average price
of $2.50 Per share 1,249,500 0 1,250,000
Net loss 0 (458,006) (458,006)
----------- ------------ ----------
Balance at
September 30, 1997 $14,434,772 $(11,929,711) $2,509,028
=========== ============ ==========
</TABLE>
See accompanying notes
<PAGE> 6
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<CAPTION>
9 MONTHS ENDED
SEPTEMBER 30,
===================
1997 1996
====== ======
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (458,006) $ (341,185)
Adjustments to reconcile net
income (loss)to net cash:
Depreciation and amortization 646,423 471,040
Changes in assets and liabilities:
Accounts receivable and prepaid expenses (75,724) (2,214,947)
Inventories 751,379 (784,174)
Accounts payable and accrued liabilities (2,675,900) 1,717,300
Deferred income (143,805) 36,209
Increase in other assets (127,410) 87,819
---------- ----------
Net cash flows from operating activities (2,083,043) (1,027,938)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,247,902) (792,401)
Capitalized software development costs 0 (209,914)
---------- ----------
Net cash flows from investing activities (1,247,902) (1,002,315)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit 189,580 1,866,227
Proceeds from Debenture issuance 4,250,000 0
Repayment of notes payable and
other long-term debt (541,058) (254,957)
Cash received from Escrow Agent 58,500 0
Cash received from stock issuance 24,125 12,035
Proceeds from notes/leases payable 0 267,882
---------- ----------
Net cash flows from financing activities 3,981,147 1,891,187
---------- ----------
Net increase (decrease) in cash 650,202 (139,066)
Cash received in acquisition of Shared
Resource Exchange, Inc. 0 204,696
Cash and cash equivalents, beginning of period (25,180) 264,379
---------- ----------
Cash and cash equivalents, end of period $ 625,022 $ 330,009
========== ==========
SUPPLEMENTAL NON-CASH FINANCING
AND INVESTING ACTIVITIES:
Issuance of shares pursuant to the Employee
Stock Payment Plan at an average price of
$2.50 per share $1,191,500 $ 0
========== ==========
</TABLE>
See accompanying notes
<PAGE> 7
TELTRONICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL
The financial statements as of September 30, 1997 and for the nine 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, 1996
Audited Financial Statements. All such adjustments were of a normal
recurring nature. The unaudited results of operations for the interim
periods reported are not necessarily indicative of expected results for
the year.
The year-end condensed balance sheet data included in the condensed
financial statements were derived from audited financial statements,
but does not include all disclosures required by generally accepted
accounting principles. The statements should be read in conjunction
with the financial statements and related notes included in the
Company's Form 10-KSB for the year ended December 31, 1996.
NOTE B - COMMON STOCK
During the three (3) month period ended June 30, 1997, the Company
issued 500,000 shares of its Common Stock registered on Form S-8 to its
employees for future services under the Company's Employee Stock Payment
Plan in an aggregate amount of $1,250,000. The shares are held under an
Escrow Agreement. As the shares are sold, proceeds are placed in an
escrow account and used to fund the Company's payroll. As of September
30, 1997, $58,500 was received from the Escrow Agent. The Company has
recorded $1,191,500 as a receivable from the Escrow Agent as of
September 30, 1997. The shares were issued at $2.50 per share and no
expense was recorded under this arrangement.
During the quarter, the Company issued an additional 150,000 shares of
its Common Stock registered on Form S-8 under the Employee Stock Payment
Plan to employees for future services.
NOTE C - SUBSEQUENT EVENTS
Subsequent to September 30, 1997, the additional 150,000 shares of the
Company's Common Stock registered on Form S-8 under the Employee Stock
Payment Plan were cancelled.
<PAGE> 8
TELTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The first nine months of 1997 reflected sales of $26,678,000 compared to
$20,373,000 for the first nine months of 1996. This sales variance was
due to increased sales by AT Supply, Inc. ("AT Supply"), Teltronics/SRX,
Inc. ("SRX") and Interactive Solutions, Inc. ("ISI"), a majority owned
subsidiary of the Company. The SRX business was purchased in September,
1996. Gross profit increased to $9,067,000 from $6,686,000 for the
first nine months of 1996, primarily as a result of the increased sales
and improved margins. Total operating expenses increased to $8,451,000
from $6,641,000 for the first nine months of 1996. The increased
operating expenses related to SRX and ISI. The first nine months of
1997 reflected a net loss of $(458,000) compared to a net loss of
$(341,000) for the first nine months of 1996. The loss for the first
nine months is the direct result of the Company's continued funding of
ISI development expenses.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Total sales for the three months ended September 30, 1997 increased by
approximately $3,027,000 over the same period of 1996. This variance
was due to increased sales by AT Supply and SRX and initial sales by ISI.
Gross profit for the three months ended September 30, 1997 increased to
$3,442,000 from $2,334,000 for the same quarter of 1996. The increase
in gross profit was the result of increased sales and improved margins.
The gross profit percentage of sales increased to 34.1% from 33.0% for
the same quarter of 1996. This increase was due to product mix, with
increased sales of Teltronics' Remote Maintenance and Vision PBX (SRX)
products.
Total operating expenses for the three months ended September 30, 1997
were $3,109,000 as compared to $2,394,000 for the same quarter of 1996.
General and administrative expenses were $1,338,000 for the quarter
compared to $667,000 for the same quarter of 1996. This increase is due
to expenditures related to SRX, ISI and increased benefit plan costs.
Research and development expenses were $568,000 for the quarter compared
to $345,000 for the same quarter of 1996. This increase is the result
of the Company's continuing development funding in ISI and SRX. Selling
and marketing expenses were $1,203,000 for the quarter compared to
$1,382,000 for the same quarter of 1996. This decrease related to
personnel reductions.
Operating income was $334,000 for the quarter compared to $(59,000) for
the same quarter of 1996. This increase relates to improved sales and
margins, offset by increased operating expenses. Interest expense for
the quarter was $354,000 compared to $138,000 for the same period of
1996. This increase resulted from the Debentures issued to Sirrom
Capital Corporation.
Net loss was $(40,000) compared to $(206,000) for the same period of
1996. The loss was primarily the result of the Company's continued
funding of ISI development expenses.
<PAGE> 9
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Total sales for the nine months ended September 30, 1997 increased by
approximately $6,305,000 over the same period of 1996. This variance
was due to increased sales by AT Supply and SRX and initial sales by ISI.
Gross profit for the nine months ended September 30, 1997 increased to
$9,067,000 from $6,686,000 for the same quarter of 1996. The increase
in gross profit was the result of increased sales and improved margins.
The gross profit percentage of sales increased to 34.0% from 32.8% for
the same period of 1996. This increase was due to product mix, with
increased Vision PBX sales.
Total operating expenses for the nine months ended September 30, 1997
were $8,451,000 as compared to $6,641,000 for the same period of 1996.
General and administrative expenses were $3,200,000 for the nine months
compared to $1,682,000 for the same period of 1996. This increase is
due to expenditures related to SRX, ISI and increased employee benefit
costs. Research and development expenses were $1,751,000 for the nine
months compared to $1,014,000 for the same quarter of 1996. This
increase is the result of the Company's continuing development funding
in ISI and SRX. Selling and marketing expenses were $3,500,000 for the
nine months compared to $3,945,000 for the same period of 1996. This
decrease relates to personnel reductions.
Operating income was $616,000 for the nine months compared to $45,000
for the same period of 1996. This increase related to improved sales
and margins, offset by increased operating expenses. Interest expense
was $868,000 for the nine months compared to $398,000 for the same
period of 1996. This increase resulted from the Debentures issued to
Sirrom Capital Corporation.
Net loss for the nine months was $(458,000) compared to $(341,000) for
the same period of 1996. The loss was primarily the result of the
Company's continued funding of ISI development expenses.
FINANCIAL CONDITION
Total assets at September 30, 1997 were $18,858,716 compared to
$17,013,085 at December 31, 1996. The Company's current ratio at
September 30, 1997 was 1.28:1, compared to .966:1 at December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements were met with cash provided primarily by borrowings
from CIT and the Debentures discussed below. On August 1, 1997, the
Company's principal lender, The CIT Group/Credit Finance ("CIT") entered
into a Ninth Amendment to the Company's Line of Credit Facility and Term
Loan. The Amendment reduced the interest rate from 2.5% to 2.0% above
prime rate, increased maximum availability from $4,950,000 to
$7,000,000, increased the prepayment penalty for any payment prior to
October 28, 1998 from 1% to 1.5%, extended the Initial Term by one year,
and added ISI as a co-borrower on the line of Credit Facility and Term Loan.
The Company's current ratio at September 30, 1997 was 1:28.1. Net
working capital was $3,326,351 at September 30, 1997. Short term
requirements are expected to be met through cash flows from operations,
from the credit line facility and from the Employee Stock Payment Plan.
<PAGE> 10
On February 13, 1997, the Company entered into a Debenture Purchase
Agreement and sold $4,250,000 aggregate principal amount of its
Subordinated Convertible Debentures Due on February 13, 2002 to Sirrom
Capital Corporation. The Debentures bear interest at the rate of 11%
per annum, payable quarterly commencing May 1, 1997. Fees in connection
with the Debentures totaled $187,055.
The Debentures are subordinated to certain other indebtedness of the
Company. Subject to and upon compliance with certain provisions of the
Agreement, the holder of the Debentures has the right, at its option, at
anytime, to convert the principal amount of the Debenture, or any
portion thereof, into shares of the Company's Voting Common Stock, par
value $.001 per share at a conversion price (subject to adjustment under
certain conditions) of $4.00 per share.
In addition, the Company is exploring the possibility of other equity or
debt financing.
CURRENT OUTLOOK
Sales in the Vision PBX and Remote Maintenance product lines produced
record results during the third quarter. The demand for Vision PBX
continues to increase as more distributors are added and as customers
confidence in the continuation of this product line by the Company
improves. The re-writing of the Remote Maintenance Software package of
IRIS converting into Window NT as IRIS nGen should produce new
opportunities for 1998.
Although ISI successfully built 100 pre-production Mentis computers,
sales are still slow due to not having production units. These pre-
production units have been sold to customers under a proof of concept,
enabling a number of different organizations to prove how they would use
the product. Full production units should be available by the end of
this year and available in quantity during the first quarter of next year.
The Mentis development has been funded through cash flow from the
Company's other product lines. The Company is exploring other equity or
debt financing to complete the Mentis development and provide funding
for increased marketing of all of the Company's products.
<PAGE> 11
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 a former
majority owned subsidiary of the Company, seeking damages in
connection with a sale of shares of the former subsidiary in
1993. The complaint, which seeks rescission, damages in
excess of $15,000, as well as costs and attorneys fees, was
dismissed on February 9, 1996 without prejudice. The
complaint was subsequently refiled and discovery in the action
has commenced. Although the complaint does not set forth
precisely the damages sought by Commstar, the complaint
alleges that Commstar agreed to pay $600,000 for the shares of
the former subsidiary and that Commstar owed the Company
approximately $98,700. The Company believes that it has
meritorious defenses to the allegations and is vigorously
defending the refiled complaint.
In November, 1995, C&L Communications commenced an action in
the District Court, 37th Judicial District Bexar County, Texas
against AT Supply, two AT Supply officers and a former
employee. In April, 1997, the Company was named as an
additional Defendant. The claims against AT Supply are for
misappropriation/conversion of C&L's trade secrets,
conspiracy, and acceptance of the benefits of an alleged
breach of fiduciary duty by the individual defendants. The
Complaint seeks damages equal to profits allegedly lost as a
result of disclosure of the confidential information allegedly
diverted to the Defendants and for exemplary damages. All
Defendants have denied liability and are vigorously defending
the allegations. Trial is scheduled for January, 1998.
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
27 Financial Data Schedule (for SEC purposes only)........(a)
ITEM 6B. REPORTS ON FORM 8-K
1. Report filed August 28, 1997, Item 4, Changes in
Registrant's Certifying Accountant.
2. Report filed September 5, 1997, Item 5, Other Events.
Engagement letter among the Company, Frederick L. Morris
and Dougherty Funding LLC to assist in the structure and
funding of future acquisitions.
________________________
(a) Filed as an Exhibit to this Quarterly Report on Form 10-QSB for the
nine month period ended September 30, 1997.
<PAGE> 12
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.
November 11, 1997 Ewen Cameron
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE 9 MONTH PERIOD ENDING SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB FOR QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 625,022
<SECURITIES> 0
<RECEIVABLES> 5,521,112
<ALLOWANCES> 0
<INVENTORY> 6,890,826
<CURRENT-ASSETS> 15,009,479
<PP&E> 3,325,304
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,858,716
<CURRENT-LIABILITIES> 11,683,128
<BONDS> 4,666,560
0
100
<COMMON> 3,867
<OTHER-SE> 2,505,061
<TOTAL-LIABILITY-AND-EQUITY> 18,858,716
<SALES> 26,677,799
<TOTAL-REVENUES> 26,677,799
<CGS> 17,610,875
<TOTAL-COSTS> 8,451,322
<OTHER-EXPENSES> 205,471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 868,137
<INCOME-PRETAX> (458,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (458,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458,006)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
