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 31,1997
-------------
or
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________________
Commission file number 0-17893
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TELTRONICS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 59-2937938
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2150 Whitfield Industrial Way, Sarasota, FL 34243-4046
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(Address or principal executive offices)
Issuer's telephone number (941) 753-5000
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Not Applicable
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(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: 3,366,013
---------------------
Exhibit index appears on page 11. Total pages - 13.
Page 1
PART I - FINANCIAL INFORMATION
TELTRONICS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,109,211 $ 0
Accounts receivable, net of
allowance for doubtful accounts
of $151,747 at March 31, 1997
and $125,250 at December 31, 1996 5,418,041 5,732,356
Subscription receivable 0 24,125
Inventories 7,443,998 7,642,205
Prepaid expenses and other
current assets 652,018 494,051
------------ ------------
Total current assets 14,623,268 13,892,737
------------ ------------
PROPERTY AND EQUIPMENT, NET 2,752,615 2,723,825
------------ ------------
OTHER ASSETS:
Prepaid lease guarantee, net 235,689 242,688
Software development costs, net 83,280 83,280
Other 229,380 70,555
------------ ------------
Total other assets 548,349 396,523
------------ ------------
TOTAL ASSETS $ 17,924,232 $ 17,013,085
============ ============
</TABLE>
See accompanying notes
Page 2
CONSOLIDATED BALANCE SHEET
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Cash overdraft $ 0 $ 25,180
Current portion of long-term debt 4,342,791 4,225,407
Current portion of capital
lease obligations 129,574 129,574
Accounts payable 5,378,258 8,321,876
Accrued expenses 1,436,487 1,377,700
Deferred income 194,701 252,356
Other current liabilities 68,147 42,218
------------ ------------
Total current liabilities 11,549,958 14,374,311
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current portion 4,800,451 799,986
Capital lease obligations,
less current portion 78,744 121,754
------------ ------------
Total long-term liabilities 4,879,195 921,740
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par, 40,000,000
shares authorized, 3,366,013
issued and outstanding 3,367 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 13,185,272 13,185,272
Accumulated deficit (11,693,660) (11,471,705)
------------ ------------
Total stockholders' equity 1,495,079 1,717,034
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 17,924,232 $ 17,013,085
============ ============
</TABLE>
See accompanying notes
Page 3
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED
---------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
SALES $ 8,098,372 $ 7,025,071
COST OF GOODS SOLD 5,618,759 4,830,664
------------ ------------
GROSS PROFIT 2,479,613 2,194,407
------------ ------------
OPERATING EXPENSES
General and administrative 727,699 470,561
Research and development 466,927 199,944
Selling and marketing expenses 1,127,498 1,307,051
------------ ------------
2,322,124 1,977,556
------------ ------------
OPERATING INCOME 157,489 216,851
------------ ------------
OTHER INCOME (EXPENSES)
Interest expense (219,467) (125,794)
Finance expense (46,388) 0
Litigation expense (76,724) 0
Miscellaneous (36,865) (6,193)
------------ ------------
(379,444) (131,987)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (221,955) 84,864
PROVISION FOR INCOME TAXES 0 0
------------ ------------
NET PROFIT (LOSS) $ (221,955) $ 84,864
============ ============
NET PROFIT (LOSS) PER SHARE $ (0.07) $ 0.03
============ ============
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,366,013 2,610,168
============ ============
</TABLE>
See accompanying notes
Page 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK PREFERRED STOCK ADDITIONAL EARNINGS
----------------- --------------- PAID-IN (ACCUMULATED
ISSUED AMOUNT ISSUED AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ------ ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 3,366,013 $ 3,367 100,000 $ 100 $13,185,272 $(11,471,705) $1,717,034
Net loss 0 0 0 0 0 (221,955) (221,955)
--------- -------- ------- ----- ----------- ------------ ----------
Balance at
March 31, 1997 3,366,013 $ 3,367 100,000 $ 100 $13,185,272 $(11,693,660) $1,495,079
========= ======== ======= ===== =========== ============ ==========
</TABLE>
See accompanying notes
Page 5
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED
-------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (221,955) $ 84,864
Adjustments to reconcile net income
to net cash:
Depreciation and amortization 197,447 150,717
Changes in assets and liabilities:
Accounts receivable and prepaid
expenses 156,348 (2,175,727)
Inventories 198,207 444,193
Accounts payable and accrued
liabilities (2,858,902) 516,500
Deferred income (57,655) 0
Increase in other assets (151,826) (8,543)
------------ ------------
Net cash flows from operating
activities (2,738,336) (987,996)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (226,237) (310,162)
------------ ------------
Net cash flows from investing
activities (226,237) (310,162)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 5,743,581 5,406,154
Repayment on line of credit (5,626,197) (4,248,479)
Proceeds from Debenture issuance 4,250,000 0
Repayment of notes payable and
other long-term debt (292,545) (94,876)
Cash received from stock issuance 24,125 0
------------ ------------
Net cash flows from financing
activities 4,098,964 1,062,799
------------ ------------
Net increase (decrease) in cash 1,134,391 (235,359)
Cash and cash equivalents,
beginning of period (25,180) 264,379
------------ ------------
Cash and cash equivalents,
end of period $ 1,109,211 $ 29,020
============ ============
</TABLE>
See accompanying notes
Page 6
TELTRONICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL
The financial statements as of March 31, 1997 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, 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.
Page 7
TELTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The first quarter of 1997 reflected sales of $8,098,000 compared
to $7,025,000 for the first quarter of 1996. This sales variance
was due to increased sales by AT Supply, Inc. ("AT Supply") and
additional sales by Teltronics/SRX, Inc. ("SRX"). The SRX
business was purchased in September, 1996. Gross profit
increased to $2,480,000 from $2,194,000 for the first quarter of
1996, primarily as a result of the increased sales. Total
operating expenses increased to $2,322,000 from $1,978,000 for
the first quarter of 1996. The increased operating expenses
related to SRX and research and development and general expenses
recorded by the Company's majority owned subsidiary, Interactive
Solutions, Inc. ("ISI"). The first quarter of 1997 reflected a
net loss of $(222,000) compared to a net profit of $85,000 for
the first quarter of 1996. The loss for the first quarter is the
direct result of the research and general expenses incurred by
ISI, litigation expenses at AT Supply and severance paid due to
personnel reductions at Teltronics.
RESULTS OF OPERATIONS
Total sales for the first quarter of 1997 increased by
approximately $1,073,000 over the same period of 1996. This
variance was due to increased sales by AT Supply and additional
sales by SRX.
Gross profit for the first quarter of 1997 increased to
$2,480,000 from $2,194,000 for the same quarter of 1996. The
increase in gross profit was the result of increased sales. The
gross profit percentage of sales decreased from 31.2% for the
first quarter of 1996 to 30.6% as a result of increased low
margin sales at AT Supply.
Total operating expenses for the quarter ended March 31, 1997
were $2,322,000 as compared to $1,978,000. This included
severance expenses of $129,000 related to personnel reductions
implemented at Teltronics in the first quarter of 1997. General
and administrative expenses increased by approximately $257,000
compared to the first quarter of 1996. This increase is due to
expenditures related to SRX.
Research and development expenses were $467,000 for the quarter
compared to $200,000 for the first quarter of 1996. This
increase is the result of the Company's continuing research
funding in ISI.
Selling and marketing expenses were $1,127,000 for the quarter
compared to $1,307,000 for the first quarter of 1996.
Operating income for the quarter decreased to $157,000 as
compared to operating income for the first quarter of 1996 of
$217,000. The decrease relates to the Company's continuing
research funding in ISI.
Page 8
Interest expense for the quarter increased to $219,000 as
compared to $126,000 for the same period of 1996. This increase
resulted from increased borrowings related to AT Supply and
borrowings for SRX and ISI.
Net loss for the quarter was $(222,000), as compared to the
$85,000 profit for the same period of 1996. The increase was
primarily the result of the Company's decision to pursue
opportunities associated with research and development of ISI,
litigation expenses at AT Supply and severance paid due to
personnel reductions at Teltronics.
FINANCIAL CONDITION
Total assets at March 31, 1997 were $17,924,232 compared to
$17,013,085 at December 31, 1996. The Company's current ratio at
March 31, 1997 was 1.266:1, 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. The CIT
facility provides for borrowings up to $4,900,000, which includes
$1,500,000 allocated to AT Supply. $612,000 of this total 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 2.5%. The Company is currently negotiating to increase this
line of credit.
The Company's current ratio at March 31, 1997 was 1.266:1. Net
working capital was $3,073,310 at March 31, 1997. Short term
requirements are expected to be met through cash flows from
operations and by the credit line facility.
On February 13, 1997, the Company entered into a Debenture
Purchase Agreement and sold $4,250,000 aggregate principal
amount of its 11% 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 $106,250.
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.
Page 9
CURRENT OUTLOOK
The Company has successfully integrated the business of SRX,
transferring the majority of manufacturing from an outside
contractor to the Company's own facility. Sales of the SRX
Vision PBX have continued to increase monthly as the Company re-
establishes the distributor network. The majority of the loss
during the first quarter is due to the continued funding of ISI,
litigation expenses at AT Supply and severance paid due to
personnel reductions at Teltronics. The Company is now in the
process of producing the first hundred, pre-production run of the
ISI product which should be available for sale at the end of the
second quarter.
Teltronics continues to evaluate its businesses in order to focus
on the higher margin areas. Generally, the Company should be
better positioned in a number of different markets to improve its
profitability later in the year. In addition, Teltronics
implemented a personnel reduction plan in the first quarter of
1997 which will reduce annual expenses by approximately $575,000.
Page 10
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 will
vigorously defend 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 June, 1997.
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
<TABLE>
<CAPTION>
ITEM 6A. EXHIBITS
<S> <C>
10.156 Debenture Purchase Agreement of Sirrom Capital
Corporation and Teltronics, Inc.
dated February 11, 1997. . . . . . . . . . . . . . . . .(b)
10.157 11% Subordinated Convertible Debenture
Due February 13, 2002, issued by Teltronics,
Inc. to Sirrom Capital Corporation . . . . . . . . . . .(b)
27 Financial Data Schedule (for SEC purposes only). . . . .(a)
Page 11
ITEM 6B. REPORTS ON FORM 8-K
Report filed on February 27, 1997 to report the
issuance of $4,250,000 of 11% Subordinated Convertible
Debentures Due February 13, 2002 to Sirrom Capital
Corporation.
________________________
(a) Filed as an Exhibit to this Quarterly Report on Form 10-QSB
for the three month period ended March 31, 1997.
(b) Filed as an Exhibit to Form 8-K filed February 27, 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.
May 14, 1997 Ewen Cameron
President and Chief Executive Officer
Page 13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (A)
financial statements for the three month period ended March 31, 1997 and is
qualified in its entirety by reference to such (B) Form 10-QSB for quarterly
period ended March 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,109,211
<SECURITIES> 0
<RECEIVABLES> 5,418,041
<ALLOWANCES> 0
<INVENTORY> 7,443,998
<CURRENT-ASSETS> 14,623,268
<PP&E> 5,656,837
<DEPRECIATION> 2,904,222
<TOTAL-ASSETS> 17,924,232
<CURRENT-LIABILITIES> 11,549,958
<BONDS> 4,879,195
0
100
<COMMON> 3,367
<OTHER-SE> 1,491,612
<TOTAL-LIABILITY-AND-EQUITY> 17,924,232
<SALES> 8,098,372
<TOTAL-REVENUES> 8,098,372
<CGS> 5,618,759
<TOTAL-COSTS> 2,322,124
<OTHER-EXPENSES> 159,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219,467
<INCOME-PRETAX> (221,955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (221,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221,955)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
