United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
|_| TRANSITON REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-11883
TELEBYTE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2510138
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
270 Pulaski Road, Greenlawn, New York 11740
(Address of principal executive offices)
(631) 423-3232
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
As of May 20, 2002, there were outstanding 1,253,631 shares of Common Stock,
$.01 par value.
Transitional Small Business Disclosure Format (check one);
Yes |_| No |X|
TELEBYTE, INC. & SUBSIDIARY
INDEX
Part I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet
March 31, 2002 (Unaudited)
Consolidated Statements of Operations
Three months ended
March 31, 2002 and 2001 (Unaudited)
Consolidated Statement of Shareholders' Equity
Three months ended
March 31, 2002 (Unaudited)
Consolidated Statements of Cash Flows
Three months ended
March 31, 2002 and 2001 (Unaudited)
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Item 2. Management's Discussion and
Analysis or Plan of Operation
Part II Other Information
Part I Financial Information
Item 1. Financial Statements
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 79,337
Accounts receivable, less
allowance for doubtful accounts of $41,000 494,283
Inventory 2,069,609
Prepaid expenses 94,303
Refundable income taxes 317,120
Deferred income taxes 282,000
----------
TOTAL CURRENT ASSETS 3,336,652
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 1,204,418
OTHER ASSETS 129,113
----------
$4,670,183
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 342,610
Accrued expenses 225,834
Borrowings under line-of credit 351,208
Current maturities of long-term debt 90,018
Current maturities of capital lease obligations 11,288
----------
TOTAL CURRENT LIABILITIES 1,020,958
LONG-TERM BORROWINGS UNDER LINE OF CREDIT 407,581
LONG-TERM DEBT, less current maturities 622,011
CAPITAL LEASE OBLIGATIONS, less current maturities 10,184
DEFERRED SERVICE REVENUE 7,388
DEFERRED INCOME TAXES 217,000
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000 shares authorized;
1,253,631 shares issued and outstanding 12,536
Capital in excess of par value 1,781,672
Retained earnings 590,853
----------
2,385,061
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,670,183
==========
The accompanying notes are an integral part of this financial statement.
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended March 31,
2002 2001
----------- -----------
NET SALES $ 1,283,318 $ 1,679,232
COST OF SALES 781,064 790,025
----------- -----------
GROSS PROFIT 502,254 889,207
----------- -----------
OPERATING EXPENSES
Selling, general and administrative 597,748 600,483
Research and development 190,128 140,204
----------- -----------
787,876 740,687
----------- -----------
Operating Income (Loss) (285,622) 148,520
----------- -----------
OTHER INCOME (EXPENSE)
Other income -- 78,800
Rental income 12,049 12,049
Interest income 228 5,057
Interest expense (22,916) (19,268)
----------- -----------
Earnings (Loss) before income taxes (296,261) 225,158
Income tax provision (benefit) (118,500) 87,500
----------- -----------
NET EARNINGS (LOSS) $ (177,761) $ 137,658
=========== ===========
Earnings (loss) per common share:
Basic $ (0.14) $ 0.11
=========== ===========
Diluted $ (0.14) $ 0.09
=========== ===========
Weighted-average shares:
Basic 1,253,631 1,253,631
=========== ===========
Diluted 1,253,631 1,515,531
=========== ===========
The accompanying notes are an integral part of these financial statements.
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Number of Capital in
shares Common excess of Retained
issued stock par value earnings Total
---------- ---------- ---------- ---------- ----------
Balance at January 1, 2002 1,253,631 $ 12,536 $1,781,672 $ 768,614 $2,562,822
Net loss (177,761) (177,761)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2002 1,253,631 $ 12,536 $1,781,672 $ 590,853 $2,385,061
========== ========== ========== ========== ==========
The accompanying notes are an integral part of this financial statement.
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months ended March 31,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings $(177,761) $ 137,658
Adjustments to reconcile net (loss) earnings to
net cash used in operating activities:
Provision for bad debt expense 3,000 1,500
Depreciation and amortization 41,447 57,669
Provision for inventory obsolescence 9,999 24,999
Decrease (increase) in operating assets:
Accounts receivable 64,440 (4,118)
Inventories 9,625 (757,673)
Prepaid expenses, taxes and other (24,459) 16,975
Increase (decrease) in operating liabilities:
Accounts payable (121,806) 122,839
Accrued expenses and taxes payable (52,895) 185
Deferred service revenue 7,388 --
Net cash used in operating activities (241,022) (399,966)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (5,673) (59,827)
--------- ---------
Net cash used in investing activities (5,673) (59,827)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (18,591) (22,990)
Principal payments on capital lease obligations (2,674) --
Net (payments) borrowings under line of credit agreement (48,192) 93,165
Net borrowings under long-term line of credit agreement 150,432 --
--------- ---------
Net cash provided by financing activities 80,975 70,175
--------- ---------
Net decrease in cash and cash equivalents (165,720) (389,618)
Cash and cash equivalents at beginning of period 245,057 433,703
--------- ---------
Cash and cash equivalents at end of period $ 79,337 $ 44,085
========= =========
The accompanying notes are an integral part of these financial statements.
TELEBYTE, INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 2002, the consolidated statements
of operations, stockholders' equity and cash flows, for the three-months in the
period ended March 31, 2002 and 2001, have been prepared by us without audit. In
the opinion of management, all adjustments (which include only normal recurring
accrual adjustments) necessary to present, fairly, the financial position,
results of operations and cash flows have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto included in our Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001. The results of operations for the
periods ended March 31, 2002 and 2001 are not necessarily indicative of the
operating results for the full year.
2. EARNINGS PER SHARE
The number of shares used in the Company's basic and diluted earnings per share
computations are as follows:
Three Months
ended March 31,
2002 2001
--------- ---------
Weighted average common shares outstanding
for basic earnings per share 1,253,631 1,253,631
Common stock equivalents from stock options -- 261,900
--------- ---------
Weighted average common shares outstanding
for diluted earnings per share 1,253,631 1,515,531
========= =========
Excluded from the calculation of diluted earnings per share are 524,000 and
28,500 options to purchase the Company's common stock at March 31,2001 and 2002,
respectively, as their inclusion would be anti-dilutive.
3. BUSINESS SEGMENTS
The Company has two reportable segments: Telebyte is a manufacturer of
technology products and Nextday.com distributes Telebyte and other
manufacturer's products through e-commerce.
The Company's chief operating decision maker utilizes net sales and net earnings
(loss) information in assessing performance and making overall operating
decisions and resource allocations. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies as set forth in the December 31, 2001 Annual Report on Form
10-KSB. Information about the Company's segments for periods ended March 31,
2002 and 2001 are as follows:
Three Months ended March 31,
2002 2001
----------- -----------
Net sales from external customers
Telebyte $ 1,144,285 $ 1,664,325
Nextday.com 139,033 14,907
----------- -----------
$ 1,283,318 $ 1,679,232
=========== ===========
Intersegment net sales
Telebyte $ 1,221 $ 294,173
Nextday.com -- --
----------- -----------
$ 1,221 $ 294,173
=========== ===========
Operating (loss) profit
Telebyte $ (272,155) $ 220,108
Nextday.com (13,467) (71,588)
----------- -----------
$ (285,622) $ 148,520
=========== ===========
Earnings (loss) before income taxes
Telebyte $ (282,907) $ 217,381
Nextday.com (13,354) 7,777
----------- -----------
$ (296,261) $ 225,158
=========== ===========
Identifiable assets
Telebyte $ 4,492,766 $ 4,591,343
Nextday.com 177,417 355,098
----------- -----------
$ 4,670,183 $ 4,946,441
=========== ===========
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"), which is effective for years beginning after June 15,
2002. SFAS 143 addresses legal obligations associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development or normal operation of a long-lived asset. The standard requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. Any associated asset retirement costs are to be
capitalized as part of the carrying amount of the long-lived asset and expensed
over the life of the asset. The Company has elected to adopt SFAS 143 for the
year beginning January 1, 2002. The impact of adopting SFAS 143 was not material
to the consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal years
beginning after December 15, 2001. SFAS 144 clarifies accounting and reporting
for assets held for sale, scheduled for abandonment or other disposal, and
recognition of impairment loss related to the carrying value of long-lived
assets. The Company has adopted SFAS 144 for the year beginning January 1, 2002.
The impact of adopting SFAS 144 was not material to the consolidated financial
statements.
Item 2. Management's Discussion and Analysis or Plan of Operation.
When used herein, the words "believe," "anticipate," "think," "intend," "will
be," "expect" and similar expressions identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are not guarantees of future performance and involve certain risks
and uncertainties discussed herein and under the caption "Risk Factors" in our
Annual Report on Form 10-KSB for the year ended December 31, 2001, which could
cause actual results to differ materially from those in the forward-looking
statements. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by law. Readers are also urged carefully to review and
consider the various disclosures made by us which attempt to advise interested
parties of the factors which affect our business, including, without limitation,
the disclosures made under the caption "Management's Discussion and Analysis or
Plan of Operation." All references to a fiscal year are to our fiscal year,
which ends December 31.
RESULTS OF OPERATIONS
Net sales during the first quarter ended March 31, 2002 decreased 23.6% to
$1,283,318 compared to sales of $1,679,232 for the same period in 2001. We
believe that the decrease in sales was primarily due to the general downturn in
the economy. Specifically, Datacom product sales decreased 41.6% to $699,000,
compared to sales of $1,196,000 for the first quarter of 2001.
Cost of sales for the first quarter ended March 31, 2002 was $781,064 as
compared to $790,025 during the same period in 2001. Cost of sales as a
percentage of net sales was 60.8% for the first quarter ended March 31, 2002 as
compared to 47.0% of net sales during the same period in 2001. The decrease in
our profit margin percentage was primarily due to a lower than normal profit
margins and product mix. In an attempt to stimulate sales, the Company reduced
the price of specific products for many sales opportunities. Such sales were
heavily discounted. The result of all of these actions was a decrease to overall
gross profit for the first quarter of 2002.
Selling, general and administrative expenses for the first quarter of 2002 of
$597,748 decreased slightly compared to $600,483 during the first quarter of
2001. During the first quarter of 2002, the Company continued to enhance its web
presence. Specifically, the company redesigned its broadband website which is
located at http://www.telebytebroadband.com. During the first quarter of 2002,
the Company exhibited its broadband products at Supernet 2002 in San Jose
California. At the exhibition, the Company introduced several new products
including the model 460-V and 458-2SL. The model 460-V is the industries first
multi-line production VDSL local loop simulator.
Research and development expenses for the first quarter of $190,128 increased
compared to $140,204 during the same quarter in 2001. During the first quarter
of 2002, Telebyte continued work on several key engineering projects.
Development of the 458-2SL continued, and several prototypes were delivered to
the marketplace. The 458-2SL allows a customer to use the same highly accurate
line modules in a one or two line-module chassis as well as 458 16 slot chassis.
This avoids correlation issues that may come up when different wire line
simulators are used for the two different applications. The 458-2SL features a
backlit LCD display of the line lengths and remote-control parameters, as well
as manual adjustment of the line lengths using rotary encoders. The control
module in the 458-2SL has other features, such as retention of the last
configuration when powered down, and the selection of feet or meters from the
front panel. During the first quarter the Company began the development of a
VDSL line module for the model 458 which will implement the standard test loops
found in the T1E1.4 specification as well as standard straight loop lengths from
0 feet to 6000 feet in 500-foot increments. The Company expects to introduce
this product during the second half of 2002.
Interest income decreased to $228 during the first quarter of 2002 from $5,057
for the same period in 2001. During the first quarter of 2002, the Company had
rental income of $12,049, which was comparable with the first quarter of 20001.
During the first quarter of 2001, the Company had other income totaling $78,800,
which represented a settlement the Company received from a service provider that
breached an agreement.
The effective tax rate in first quarter of 2002 was 40%, compared with 38.9% in
the same quarter of 2001.
The net loss of $(177,761), or $(.14) diluted per share, for the first quarter
of 2002 compared to net earnings of $137,658, or $.09 diluted per share, in the
same quarter of 2001. The decrease in profitability is due primarily to the
decrease in sales, the increase in the cost of sales percentage, and the
increase in research and development expenses during the first quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the three months ended March 31, 2002
was $241,022 compared to net cash of $399,966 in the same period of 2001.
Working capital of $2,315,694 at March 31, 2002 remained essentially unchanged
as compared with $2,317,098 at December 31, 2001. The current ratio as of March
31, 2002 increased to 3.27:1 compared to 2.9:1 as of December 31, 2001.
We have an agreement with a financial institution (the "Agreement"), expiring
June 30, 2002, which provides us with a line of credit of up to $500,000 based
on our eligible accounts receivable, purchased components and materials and
finished goods inventories, as defined in the Agreement. Further, the Agreement
contains certain financial covenants, which require us to maintain a minimum
level of tangible net worth and places limitations on the ratio of our total
debt to our tangible net worth, as defined in the Agreement. Borrowings under
the line of credit bear interest at the bank's specified prime rate plus .75%.
Net borrowings under this line of credit totaled $351,208 at March 31, 2002.
While the Company believes that the Agreement will be renewed upon its
expiration on June 30, 2002, the Company has no guarantee of a renewal and,
accordingly, there is risk that the corresponding line of credit could be
eliminated as a resource on June 30, 2002. If the line of credit is not renewed,
the Company believes it can obtain alternative financing; however there can be
no assurances that alternative financing will be available.
In January 1999, we secured an additional reducing revolving line of credit from
the same institution that provides for initial borrowings up to a maximum of
$1,000,000. Availability under the reducing revolving line of credit decreases
by approximately $11,900 per month and the line expires January 2006.
Availability under this line at March 31, 2002 was approximately $548,000.
Borrowings under this loan agreement bear interest at the 30-Day Commercial
Paper Rate plus 2.90%. Net borrowings under this line of credit totaled $407,581
at March 31, 2002.
We believe that cash generated by our future operations, current cash and cash
equivalents, existing lines of credit and additional contemplated financing
should supply the cash resources to meet our cash needs for at least the next 12
months. However, this expectation is not at all guaranteed and it may be that
these cash resources fall short of the Company's cash needs over the next 12
months.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
None
SIGNATURES
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.
TELEBYTE, INC.
By: \s\
--------------------------------------------
Kenneth S. Schneider
Chairman of the Board
(Principal Executive Officer)
By: \s\
--------------------------------------------
Michael Breneisen, President
(Principal Financial and Accounting Officer)
Date: May 20, 200 2