U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000
COMMISSION FILE NO. 1-13830
TELESOFT CORP.
(Name of Registrant as specified in its charter)
ARIZONA 86-0431009
(State of Incorporation) (IRS Employer Identification No.)
3443 NORTH CENTRAL AVENUE #1800
PHOENIX, ARIZONA 85012
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 308-2100
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:
Title of Class Name of each exchange on which registered
---------------- -----------------------------------------------
COMMON STOCK, NO PAR VALUE PACIFIC STOCK EXCHANGE, INC.
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT : NONE
Indicate by check mark whether the Registrant (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 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
-----------
Indicate by check mark if there is no disclosure of delinquent filer in
response to Item 405 of Regulation S-K contained in this form and no
disclosure will be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment of this Form 10-K X
-----
Registrant's revenues from continuing operations for its most recent fiscal
year were $24,613,309.
As of February 20 2001, the number of shares of Common Stock outstanding was
1,285,833 and the aggregate market value of the Common Stock (based on the
closing price on that date) held by non-affiliates of the Registrant was
$1,032,493.
PART I
ITEM 1. BUSINESS.
GENERAL
Telesoft Corp. (the "Company" or "Telesoft") provides billing and
customer care solutions to educational institutions, corporations and
government agencies. The Company offers the following integrated hardware and
proprietary software systems and services: the STS Outsourcing Program,
Customized Billing Outsourcing Services, TelMaster Telemanagement System,
Telesoft Recovery Services (TRS), Distribution Control System and RATEX
Bookstore Solution.
HISTORICAL HIGHLIGHTS
The Company was incorporated in Arizona in May 1982. From 1982 to 1986,
the Company focused primarily on its Distribution Control System product line.
In 1986, the Company began to shift its focus to developing and marketing
proprietary software and integrated systems to serve the long distance
telecommunications and data management and call processing needs of the
university and college market. In April 1996, the Company acquired Telesoft
Acquisition Corp II, d.b.a. GoodNet ("GoodNet"), an Arizona-based internet
service provider, to deploy a nationwide ATM network to sell high-speed
connectivity to high-bandwidth users. In January 1998, the Company sold
GoodNet to Winstar Communications, Inc. ("Winstar"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Discontinued Operations". The Company's executive offices are located at 3443
North Central Avenue, Suite 1800, Phoenix, Arizona 85012, and its telephone
number is (602) 308-2100. The Company's website is located at
www.telesoft.com.
PRODUCTS AND SERVICES
The Company's products and services are broken down as follows:
(1) STS Outsourcing Program
(2) Customized Billing Outsourcing Services ("CBS")
(3) System Sales and Maintenance
(a) TelMaster Telemanagement System ("TMS")
(b) RATEX Bookstore Solution
(c) Distribution Control System ("DCS")
(d) Software and Hardware Recurring Maintenance Revenue
(4) Telesoft Recovery Services ("TRS")
STUDENT TELEPHONE SERVICES (STS) OUTSOURCING PROGRAM
The Company provides an outsourcing program to universities and colleges
to establish long distance resale programs to residence hall students,
off-campus students, administrative staff and faculty. Through its Student
Telephone Services Outsourcing Program ("STS Program"), the Company offers a
complete billing solution which includes the following services: (1)
production and distribution of marketing literature for the program, (2)
on-site solicitation and registration of program participants, (3)
installation of hardware and billing software, (4) collection, costing and
processing of long-distance billing data, (5) production and distribution of
individual bills, (6) on-site or remote customer service center, (7)
management of accounts receivable and collections, (8) clearing-house services
for the various suppliers involved with the program, and (9) financial
reporting services to the university or college on the performance of the
program.
Telesoft markets these programs through alliances developed with RBOCs
and interexchange carriers such as Verizon Communications, MCI WorldCom, Qwest
and AT&T.
Telesoft administers and operates its STS Program on a turnkey basis on
68 university and college campuses of various sizes including Rutgers College,
the University of Southern California, the University of Delaware and
Georgetown University.
Telesoft also has sold the system, software and services required to
administer the STS Program to approximately 75 campuses of various sizes
nationwide, including Yale University, State University of New York at Oswego,
Case Western Reserve University, the University of Oklahoma, Auburn
University, and Fairfield University. Once a sale is consummated, the
Company maintains and services the hardware and software under renewable
one-year maintenance contracts.
CUSTOMIZED BILLING OUTSOURCING SERVICES
The Company provides customized billing outsourcing applications to
Fortune 1000 companies and governmental agencies in conjunction with large
interexchange carriers and RBOCs. The Company also provides customized
billing services for Verizon Data Solutions, Adelphia, and McGraw Hill.
SYSTEM SALES AND MAINTENANCE
The Company offers the following integrated hardware and proprietary
software systems and services: the Telecommunications Management System,
TelMaster, the RATEX Bookstore Solution, and the Distribution Control System.
Telecommunications Management System and TelMaster. The
Telecommunications Management System ("TMS") is a proprietary text-based
software solution used by universities, Fortune 1000 companies and the health
care and governmental agency markets to manage telephony data for billing and
ad-hoc reporting purposes. TMS is comprised of a series of software modules
and is typically sold in a package including hardware, software, installation,
training and on-going hardware and software maintenance.
TelMaster is Telesoft's third generation telemanagement system. Based on
client server technology, this product was released in the fourth quarter of
1996. During 2000, TelMaster implementations were initiated for the State of
Idaho, Texas Tech University, Citizens Bank of Rhode Island, Ameritrade,
several California State Universities and others.
TelMaster Web is Telesoft's fourth generation telemanagement system,
which was released and implemented at a customer site in March 2000.
TelMaster Web is an integrated suite of products, including secured web based
budget center reporting, enterprise directory and administration, trouble
ticketing, change management, and a powerful ad-hoc reporting tool and
scheduler. The products billed encompass all forms of telecommunication
expenditures, including long distance, cellular, pagers and local calls.
In addition to its extensive higher education customer base, the Company
currently services customers such as Compaq, Genuity, Pennsylvania State
Geisinger Health Systems, American General Life, BC Rail, Citizens Bank, DST
Systems, Herman Miller, Utilicorp, Conseco, Mercy Medical, and Placer County.
Telesoft also provides telecommunications data management services and
software for Bell of Pennsylvania and Pacific Bell Corp.
During fiscal 1999, the Company began developing a custom convergence
billing, reporting and support system for Pacific Bell and MCI customer care
services for the State of California's CALNET contract. The production phase
of this contract is estimated to start in the first quarter of 2002. The full
term of this contract is seven years. Revenue under this contract was
$1,295,439 for fiscal 2000. The Company expects fiscal 2001 revenue to be
consistent with fiscal 2000.
RATEX Bookstore Solution. In March 1995, the Company acquired the RATEX
line of software and related assets. RATEX is a software program designed for
university bookstores to track merchandise through the ordering cycle to the
point of sale. The RATEX product line includes software modules for
merchandise and inventory management, buyer information, financial and
accounting, point of sale and scanning for management acceptance of
credit/debit cards, mail order and general merchandise management application.
RATEX systems have been installed in over 70 universities in North America,
including Ohio State University and Stanford University. In 2000,
installations of RATEX systems were initiated at Cornell Business Services and
Portland State University, among others. In December 2000, the Company sold
its RATEX division to the Retail Alliance, a consortium of large university
bookstores. RATEX was not fundamental to the Company's business and
demonstrated significantly lower results year over year.
Distribution Control System. The Company has offered the DCS product
since 1982. DCS is an automated control solution for the wholesale
distribution industry. The Company includes extensive on-site training and
maintenance services as part of its DCS package. The fully integrated
software package has a modular design, which includes applications for sales
order processing, inventory control, accounts receivable and sales analysis.
DCS runs on the IBM RS6000 server family. DCSWEB is a newly introduced Java
based business to business software module. This fully integrated web
offering provides electronic catalog publishing with real time inventory
control and a flexible pricing shopping-cart system.
TELESOFT RECOVERY SERVICES
During the second quarter of fiscal 1999, the Company hired two
executives to run the Company's Recovery Services division headquartered in
New Jersey. These individuals have 21 years of combined industry experience
in two leading companies. The Recovery Services division assists large
organizations in analyzing, recovering, and optimizing their
telecommunications expenditures. Initial marketing efforts for this division
have focused on the East Coast.
COMPETITION
The telecommunications industry is highly competitive and subject to
rapid technological change. Failure to keep pace with technological advances
could adversely affect the Company's competitive position and future
prospects. In order to maintain or improve its position, the Company must
continue to enhance its current products and develop new products and services
in a timely fashion.
In connection with its STS Program, the Company competes with AT&T, which
provides long distance telephone service on a resale basis and offers long
distance billing services to universities. The Company also competes with MCI
WorldCom, Sprint and other long distance providers which market long distance
services to the public and directly to college campuses. The STS product also
competes with calling cards, prepaid cards and cellular/wireless service.
In connection with its telemanagement system division, the Company
competes with Telco Research Corporation, IntegraTRAK Inc., Stonehouse
Technologies, Inc. and ISI Infortext, all of which provide telemanagement
systems and services to the university, health care, government and general
business markets.
In connection with its recovery services, the Company competes with TSL
Services, Inc. and Teldata Control Inc, both of which provide recovery
services to the Fortune 1000 market.
The Company believes that the factors for its success include quality,
technical capability, reliability, price and promptness of performance. While
the Company has competed successfully against the foregoing companies, most,
if not all, of the Company's existing and potential competitors have longer
operating histories and significantly greater financial, technical, sales,
marketing and human and other resources than the Company. Most, if not all,
of these companies have greater name recognition and a larger installed base
than the Company. The Company's competitors could, in the future, introduce
products and services with more features and lower prices than the Company's
product and service offerings. These companies also could fund existing or
new products and services with other products or services to compete with the
Company. While the Company has operated successfully against such competition
in the past, there can be no assurance that it will be able to do so in the
future.
MAJOR CUSTOMERS AND SUPPLIERS
MCI WorldCom Inc. provides a significant portion of the Company's
long-distance telecommunications service. Although the Company is dependent
upon this supplier, management believes comparable suppliers are available.
During the fiscal years ended November 30, 2000, 1999 and 1998, the
Company did not have any customers that accounted for greater than 10% of its
revenues.
SALES AND MARKETING
The Company's sales staff consists of nine people who are responsible for
all of the Company's marketing and sales efforts. Sales personnel are paid on
both a salary and commission basis. The Company's executive officers also
devote a substantial amount of their time to developing and maintaining
personal relationships with the Company's customers and with prospective new
customers.
RESEARCH AND DEVELOPMENT
The Company conducts an active and ongoing research and development
program that focuses on developing new and improved software products, and
particularly those that are compatible with or enhance existing programs.
Research and development costs for the fiscal years ended November 30, 2000,
1999 and 1998 were $1,168,000, $1,424,000 and $622,000, respectively. These
costs have been expensed during their respective fiscal years. Research and
development costs have a current annual run-rate of approximately $566,000.
REGULATION
The Company's business is subject to various federal and state
regulations. Commencement of new services frequently requires licenses from
public utilities commissions. There is no assurance that the Company or its
customers, if required, will be successful in their efforts to obtain
necessary licenses or regulatory approvals. The Company's inability to secure
any necessary licenses or approvals could have a material adverse effect on
its business. In addition to specific regulations, the Company is subject to
all federal, state and local rules and regulations imposed upon businesses
generally. The cost of regulatory compliance is an additional cost of doing
business for the Company. The Company cannot predict the impact, if any, that
future regulation or regulatory changes may have on its business.
WARRANTIES
The Company offers a 90-day warranty on hardware and software and an
extended warranty program in connection with the Company's service and
maintenance programs. The Company has not had any material claims made under
its warranty program.
PATENTS, TRADEMARKS, LICENSES AND COPYRIGHTS
The Company regards its software as proprietary and attempts to protect
it with copyrights, trademarks, and though the use of trade secret laws and
restrictions on disclosure, copying and transferring title. The Company also
attempts to preserve its proprietary rights by contractual non-disclosure
safeguards and restrictions on transferability in its software license
agreements. Additionally, the Company does not provide the source codes for
its products to its customers. The Company's products are not patented and
are not the subject of any current patent application, nor is it anticipated
that any of its products will be patented. Existing copyright laws afford
only limited practical protection for its software. Accordingly, despite
precautions taken by the Company, it may be possible for unauthorized third
parties to copy certain portions of the Company's products and to obtain and
use information that the Company regards as proprietary.
Key officers and employees have assigned to the Company certain technical
and other information and patent rights, if any, acquired by them during their
employment by the Company and after termination of their employment with the
Company, if such information or rights arose out of information obtained by
them during their employment. They also have agreed not to use or disclose
any such information for a period of two years following termination of their
employment.
In spite of these precautions, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as trade secrets. However, the Company believes that due
to the rapid pace of innovation within its industry, factors such as
technological and creative skills of its personnel are more important to
establishing and maintaining a technology leadership position within the
industry than are the various legal protections of its technology. The
Company believes that its products and technology do not infringe on any
proprietary rights of others, although there can be no assurance that third
parties will not assert infringement claims in the future.
The Company has not obtained trademark or trade name registration on the
use of the names "TelMaster," "TRS," "Student Telephone Services," "STS
Service Bureau," "SunDial Program," "RATEX", "DCS" or "Sunbelt Business
Computers." The Company is in the process of investigating the feasibility
and protection that might be afforded by registration of these names, or as
trademarks or trade names on a national, regional or local basis.
SEASONALITY
The Company generally completes the sale of the majority of STS Program
system installations in the university market during the spring and early
summer months. The implementation and installation of these systems and
services typically occurs during the summer months. Revenues derived from STS
Programs begin in the fall and weaken during winter holiday and the summer
months when students are on vacation. As a result, the Company's revenues
have consistently been highest during the second and fourth quarters.
BACKLOG
Backlog is not material to the Company's business since it ships and
installs its software and systems promptly upon receipt of customers' orders.
While the Company does tend to experience higher installation activity on
university campuses during the summer months, it has not historically had
problems installing its products and performing its services in a timely
fashion.
EMPLOYEES
As of February 20, 2001, the Company had 140 full-time employees, five of
which are in executive positions, nine are engaged in sales and marketing, 35
are in software development and support, 38 are in customer service and the
balance are in various administrative and support positions. The Company's
employees are not covered by a collective bargaining agreement. The Company
considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
In January 1998, the Company signed a ten-year lease for approximately
30,000 square feet of office space in Phoenix, Arizona. The Company's
obligation under the terms of this lease agreement was approximately $421,000,
$392,000 and $346,000 for the fiscal years ended November 30, 2000, 1999 and
1998, respectively.
The Company leases 2,200 square feet of office space in Fort Washington,
Pennsylvania, which houses its RATEX operations. This lease agreement expires
in May 2001. This obligation was relieved upon the sale of RATEX in December
2000. The Company's obligations under the terms of this lease were
approximately $49,000, $47,000 and $43,000 for the fiscal years ended November
30, 2000, 1999 and 1998, respectively.
The Company leases approximately 2,100 square feet of office space in
Cranford, New Jersey, which houses its Telesoft Recovery Services operations.
This lease agreement expires in July 2001. The Company's obligations under
the terms of this lease were approximately $44,000 and $15,000 for fiscal 2000
and 1999, respectively. There were no obligations under this lease agreement
during fiscal 1998.
The Company previously leased 2,000 square feet of office space in Tempe,
Arizona, which was used for GoodNet headquarters prior to its acquisition by
the Company in April 1996. This lease agreement expired in April 2000. The
Company subleased this space under terms similar to the Company's obligation
for this lease, which was $15,000, $37,000 and $33,300 for the fiscal years
ended November 30, 2000, 1999 and 1998, respectively.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved as a party to any legal proceedings other
than various claims and lawsuits arising in the normal course of its business,
none of which, in the opinion of the Company's management, are individually or
collectively material to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to security holders through the solicitation of
proxies or otherwise during the fourth quarter of the fiscal year covered by
this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth, for the fiscal periods shown,
representative high and low bid prices of the Company's Common Stock as
reported by the Nasdaq SmallCap Market. The prices represent inter-dealer
quotations, which do not include retail mark-ups, mark-downs or commissions
and may not necessarily represent actual transactions.
YEAR ENDED NOVEMBER 30, 2000 HIGH LOW
- ---------------------------- -------- -------
First Quarter . . . . . . . $ 7 $ 3 3/4
Second Quarter. . . . . . . 6 3/4 2
Third Quarter . . . . . . . 2 5/8 1 5/16
Fourth Quarter. . . . . . . 1 23/32 3/4
YEAR ENDED NOVEMBER 30, 1999 HIGH LOW
- ---------------------------- -------- -------
First Quarter . . . . . . . $ 6 $ 4 7/8
Second Quarter. . . . . . . 5 4 3/16
Third Quarter . . . . . . . 4 4 3/8
Fourth Quarter. . . . . . . 4 11/16 4 1/16
As of February 20, 2001, there were 426 holders of record of the Common
Stock of the Company. Although the Company has no limitations or restrictions
on declaring dividends, the Company has not declared or paid dividends on its
Common Stock and does not expect to declare or pay dividends in fiscal 2001.
RECENT SALES OF UNREGISTERED SHARES
During the year ended November 30, 2000, the Company made the
following sales of unregistered securities:
Consideration Received If Option
and Description of Warrant or
Underwriting or Other Exemption Convertible
Discounts to Market From Security, Terms
Date of Number Price Afforded to Registration of Exercise or
Sale Title of Security Sold Purchasers Claimed Conversion
- -------- ----------------- ------ ------------------------- ------------ ----------------
5/2/00 Options to 59,157 options granted - no 4(2) 25% become
purchase shares consideration received by exercisable on
of common stock Company until exercise each of 5/2/01,
5/2/02, 5/2/03
and 5/2/04 at an
exercise price of
$ 3.40 per share.
Expire on 5/1/05
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the Financial
Statements of the Company which have been audited by Semple & Cooper, LLP,
independent certified public accountants, for the year ended November 30, 2000
and by BDO Seidman, LLP, independent certified public accountants, for the
years ended November 30, 1999, 1998 and 1997 and Coopers & Lybrand, L.L.P.,
independent certified public accountants, for the fiscal year ended November
30, 1996. Such selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and related notes set forth
in Item 8 herein.
For the years ended November 30,
2000 1999 1998 1997 1996
---------------------------------- ------------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA (1):
Net sales. . . . . . . . . . . $ 24,613,309 $ 29,377,592 $ 28,250,373 $ 22,593,450 20,742,993
Cost of sales. . . . . . . . . (12,826,565) (16,780,838) (18,033,402) (14,330,388) (12,821,582)
---------------------------------- ------------- ------------- ------------- -------------
Gross profit . . . . . . . . . 11,786,744 12,596,754 10,216,971 8,263,062 7,921,411
Income (loss) from operations. (629,250) 1,261,686 1,544,157 561,191 1,297,762
Other income . . . . . . . . . 538,529 567,157 332,012 163,094 305,773
Income (loss) from continuing. (50,121) 1,249,043 1,089,578 402,985 989,335
operations
Diluted earnings per share-. . $ (0.02) $ 0.33 $ 0.28 $ 0.11 $ 0.26
continuing operations
Weighted average number of . . 2,123,879 3,832,067 3,888,033 3,802,874 3,817,130
shares outstanding-diluted
As of November 30,
2000 1999 1998 1997 1996
------------------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash and investments . . . $ 41,434 $14,425,071 $17,677,008 $ 3,821,784 $ 3,722,355
Working capital. . . . . . 710,284 18,452,329 16,970,488 4,080,013 3,248,604
Total assets . . . . . . . 10,222,057 26,862,937 27,620,329 17,640,850 14,652,936
Short-term debt. . . . . . 1,375,000 - - 90,523 6,840
Long-term debt . . . . . . - - - 371,551 -
Total stockholders' equity 2,191,695 19,990,765 18,395,164 8,906,507 9,887,951
<FN>
(1) Figures reflect results from continuing operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALY-SIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD LOOKING INFORMATION
This report contains forward-looking statements within the meaning of
section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements involve certain risks and uncertainties
that could cause actual results to differ materially from those in the
forward-looking statements including uncertainties regarding the effectiveness
of initiatives to sell, introduce and implement the TelMaster product and to
maintain our Student Telephone Services customer base. Certain factors which
may cause such a difference include, but are not limited to, the following:
the impact of increased competition from competitors with significant
financial resources and market share; and the amount and rate of growth in
general and administrative expenses associated with building a strengthened
corporate infrastructure to support operations.
BACKGROUND
The Company began as a value-added reseller in the wholesale distribution
of accounting software (Distribution Control System) in 1982. During the
fiscal year ended November 30, 2000, the Company derived approximately 65% of
its revenues from continuing operations from its STS Outsourcing Program. The
balance of revenues were derived from hardware, software, maintenance and
other services in the university, Fortune 1000, governmental and wholesale
distribution markets.
The Company has adapted to fast-paced market changes by shifting its
resources from providing generic or general system hardware and software to
providing a full range of services in its specialty niches. The Company is
continuously developing new products and services to maintain and expand its
market share.
RESULTS OF OPERATIONS BY PRODUCT LINE FOR THE FISCAL YEARS ENDED NOVEMBER 30, 2000 AND 1999
(in thousands except per share items)
Year ended November 30, 2000 Year ended November 30, 1999
-------------------------------- --------------------------------
System System Network
STS Sales CBS TRS Total STS Sales CBS Services TRS Total
-------- -------- -------- ------ -------- ------- ------ ------ ---------- ------ -------
Sales, net . . . . . $15,991 $ 6,302 $ 960 $1,360 $24,613 $19,816 $7,857 $1,404 $ 165 $ 136 $29,378
Cost of sales. . . . 11,440 1,332 54 - 12,826 14,766 1,980 35 - - 16,781
-------- -------- -------- ------ -------- ------- ------ ------ ---------- ------ -------
Gross profit . . . . 4,551 4,970 906 1,360 11,787 5,050 5,877 1,369 165 136 12,597
-------- -------- -------- ------ -------- ------- ------ ------ ---------- ------ -------
General & administrative
expenses:
General. . . . . . . 3,486 6,048 722 1,027 11,283 3,563 4,901 1,046 285 453 10,248
Depreciation . . . . 161 132 19 3 315 160 137 21 - - 318
Bad debt . . . . . . 230 12 - - 242 215 7 53 - - 275
Corporate
allocations:
General. . . . . . . 151 87 27 6 271 195 52 17 1 1 266
Depreciation . . . . 136 136 33 - 305 101 99 23 5 - 228
-------- -------- -------- ------ -------- ------- ------ ------ ---------- ------ -------
4,164 6,415 801 1,036 12,416 4,234 5,196 1,160 291 454 11,335
-------- -------- -------- ------ -------- ------- ------ ------ ---------- ------ -------
Operating income . . 387 (1,445) 105 324 (629) 816 681 209 (126) (318) 1,262
(loss)
Other income . . . . 538 567
-------- -------
Pretax income. . . . (91) 1,829
Income tax provision 41 (580)
-------- -------
Income (loss) from
continuing operations $ (50) $ 1,249
======== =======
Diluted earnings
(loss) per share-
continuing operations $ (0.02) $ 0.33
======== =======
RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2000 COMPARED TO
THE FISCAL YEAR ENDED NOVEMBER 30, 1999
Revenues decreased to $24,613,309 for the fiscal year ended November 30,
2000, compared to $29,377,592 for the fiscal year ended November 30, 1999.
The Company's revenue is derived from four principal product lines and
services: STS Outsourcing Programs (STS), System Sales and Maintenance,
Customized Billing Outsourcing Services, and TRS. Network Services, which
began operations in December 1998, was discontinued in August 1999 due to
unsatisfactory performance.
STS Program revenues were $15,990,614 for the fiscal year ended
November 30, 2000 compared to $19,815,617 for the fiscal year ended November
30, 1999, a 19.3% decrease. This decrease was primarily a result of market
pressure from competing means of communication including pre-paid cards, other
calling cards, wireless services and the Internet. During fiscal 2000, the
Company adjusted to these market pressures by lowering its retail rates and
renegotiating its wholesale rates with its suppliers. The impact of these new
rates began during the fourth fiscal quarter (September-November), which
represents the first three months of the 2000-2001 academic year. Revenues for
the fourth quarter of fiscal 2000 were 23.2% lower than the fourth quarter of
fiscal 1999. Historically, the calling patterns during September through
November are indicative of calling patterns for the balance of the academic
year. Based on this decline in revenue, the Company has attempted to reduce
selling, general and administrative expenses, including a reduction in staff
to adjust to the reduction in subscribers, traffic, and revenues.
Revenues from System Sales and Maintenance were $6,302,107 for the fiscal
year ended November 30, 2000 compared to $7,856,532 for the fiscal year ended
November 30, 1999, a decrease of 19.8%. TelMaster sales and maintenance
related revenues increased by $241,695, or 6.7%, to $3,894,616 for the year
ended November 30, 2000 compared to $3,652,921 for the year ended November 30,
1999. The increase in TelMaster revenues from fiscal 1999 to fiscal 2000 was
related to a $430,000 increase in revenues from the ongoing development of a
custom convergence billing, reporting and support system for Pacific Bell and
MCI customer care services for the State of California's CALNET contract, and
offset by a $190,000 decrease in other TelMaster system sales.
The DCS product revenues declined 19.9%, or $277,111, to $1,116,506 and
RATEX product revenues declined 54.1% or $1,519,009 to $1,290,985 for the year
ended November 30, 2000 compared to the year ended November 30, 1999. The
decline in revenues in these segments was the result of a decrease in demand
for these text-based software products. In December 2000, the Company
completed the sale of the RATEX division.
For the fiscal years ended November 30, 2000 and 1999, revenues from
Customized Billing Outsourcing Services were $960,124 and $1,404,230,
respectively.
TRS, which began operations in March 1999, had revenues of $1,360,464 and
$135,778 during fiscal 2000 and 1999, respectively.
In December 1998, the Company formed a Network Services division to sell
telecommunication services, including dial tone and data transport services,
via strategic agent relationships with Regional Bell Operating Companies.
This division was discontinued in August 1999 due to unsatisfactory
performance. Network Services had revenues of $165,435 during fiscal 1999.
Fiscal Year Ended November 30,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
REVENUE
Telemanagement. . $ 3,894,616 $ 3,652,921 $ 1,526,959 $ 1,368,985 $ 1,630,932
DCS . . . . . . . 1,116,506 1,393,617 1,606,088 1,684,631 1,892,470
RATEX . . . . . . 1,290,985 2,809,994 2,436,686 1,143,864 1,578,444
----------- ----------- ----------- ----------- -----------
System Sales 6,302,107 7,856,532 5,569,733 4,197,480 5,101,846
STS . . . . . . . 15,990,614 19,815,617 21,460,885 17,430,383 15,092,010
Custom Billing. . 960,124 1,404,230 1,219,755 965,587 549,137
TRS . . . . . . . 1,360,464 135,778 - - -
Network Services. - 165,435 - - -
----------- ----------- ----------- ----------- -----------
$24,613,309 $29,377,592 $28,250,373 $22,593,450 $20,742,993
=========== =========== =========== =========== ===========
Total gross profit decreased 6.4% to $11,786,744 for the fiscal year
ended November 30, 2000 from $12,596,754 for the fiscal year ended November
30, 1999. Cost of goods sold was approximately 71.5% and 74.5% of STS
revenues for the fiscal years ended November 30, 2000 and 1999, respectively.
This decrease was primarily due to continued pressure on the price of long
distance services from the Company's suppliers. Cost of goods sold as a
percentage of system sales and maintenance revenues were 21.1% and 25.2% for
the fiscal years ended November 30, 2000 and 1999, respectively. This
improvement was due to a higher percentage of TelMaster sales, which have a
higher gross profit rate than the RATEX and DCS products.
General and administrative expenses increased by 9.5%, or $1,080,926, in
fiscal 2000 to $12,415,994 from $11,335,068 in fiscal 1999. This increase was
primarily due to an increase in human resources in the areas of TelMaster
research and development, implementation, sales, and support services, as well
as the addition TRS division. Research and development costs incurred and
expensed during the fiscal years ended November 30, 2000 and 1999 were
$1,168,000 and $1,424,000, respectively. Sales and support related expenses
increased $1,090,000 from fiscal 1999 to fiscal 2000. TRS had operating
expenses of $1,036,000 and $454,000 during the fiscal years ended November 30,
2000 and 1999, respectively. The Network Services division contributed
$291,000 to operating expenses in fiscal 1999. General and administrative
expenses as a percentage of revenues were 50.4% and 38.6% for fiscal 2000 and
1999, respectively. The Company expects general and administrative expenses
as a percentage of revenues to decrease over time, as revenues for TelMaster
systems increase. During the fourth quarter of fiscal 2000 and into the first
quarter of fiscal 2001, the Company has attempted to reduce selling, general
and administrative expenses, including a reduction in staff. These
adjustments resulted in a decrease in general and administrative expenses of
$303,000 to $3,031,000 for the fourth quarter fiscal 2000 compared to
$3,334,000 in the fourth quarter of fiscal 1999.
Other income increased to $319,406 for fiscal 2000 from $2,623 in fiscal
1999. This increase was attributable to the sale of 7,434 shares of common
stock of Amdocs Ltd. for $296,439, through which the Company realized a
$145,189 gain on the sale. Additionally, the Company realized a $168,782
return of premium on a key-person insurance policy.
There was a $40,600 benefit from income taxes for fiscal 2000 compared to
a provision for income taxes of $579,800 for fiscal 1999.
Fiscal 2000 resulted in a loss from continuing operations of $50,121
compared to income from continuing operations of $1,249,043 in fiscal 1999.
This was primarily attributable to increased investments made during fiscal
2000 in human resources supporting the TelMaster product line, coupled with
decreased revenues for the DCS, RATEX and STS product lines. These declines
were offset by growth in the TRS division, resulting in $324,000 of operating
income from this division in fiscal 2000 compared to a $318,000 operating loss
in fiscal 1999.
RESULTS OF OPERATIONS BY PRODUCT LINE FOR THE FISCAL YEARS ENDED NOVEMBER 30, 1999 AND 1998
(in thousands except per share items)
Year ended November 30, 1999 Year ended November 30, 1998
-------------------------------- --------------------------------
System Network System
STS Sales CBS Services TRS Total STS Sales CBS Total
-------- ------- -------- ---------- ---------- ------- ------- ------ -------- --------
Sales, net. . . . . . $19,816 $ 7,857 $ 1,404 $ 165 $ 136 $29,378 $21,461 $5,570 $ 1,219 $28,250
Cost of sales . . . . 14,766 1,980 35 - - 16,781 16,504 1,529 - 18,033
-------- ------- -------- ---------- ---------- ------- ------- ------ -------- --------
Gross profit. . . . . 5,050 5,877 1,369 165 136 12,597 4,957 4,041 1,219 10,217
-------- ------- -------- ---------- ---------- ------- ------- ------ -------- --------
General & administrative
expenses:
General . . . . . . . 3,563 4,901 1,046 285 453 10,248 3,366 3,455 696 7,517
Depreciation. . . . . 160 137 21 - - 318 190 109 - 299
Amortization. . . . . - - - - - - - 2 - 2
Bad debt. . . . . . . 215 7 53 - - 275 332 94 3 429
Corporate
allocations:
General . . . . . . . 195 52 17 1 1 266 177 47 16 240
Depreciation. . . . . 101 99 23 5 - 228 137 37 12 186
-------- ------- -------- ---------- ---------- ------- ------- ------ -------- --------
4,234 5,196 1,160 291 454 11,335 4,202 3,744 727 8,673
-------- ------- -------- ---------- ---------- ------- ------- ------ -------- --------
Operating income. . . 816 681 209 (126) (318) 1,262 755 297 492 1,544
(loss)
Other income. . . . . 567 332
-------- --------
Pretax income . . . . 1,829 1,876
-------- --------
Income tax provision. (580) (786)
-------- --------
Income from
continuing operations $ 1,249 $ 1,090
======== ========
Diluted earnings per
share-continuing
operations. . . . . $ 0.33 $ 0.28
======== ========
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED NOVEMBER 30, 1999 COMPARED TO
THE FISCAL YEAR ENDED 1998
The results of operations of the Company do not include the results of
operations GoodNet, its former 71% owned subsidiary which was sold in January
1998 and which is treated as a discontinued operation in the Company's
financial statements.
Revenues increased by 4.0% to $29,377,592 for the fiscal year ended
November 30, 1999, compared to $28,250,373 for the fiscal year ended November
30, 1998. The Company's revenue is derived from four principal product lines
and services: STS Outsourcing Programs (STS), System Sales and Maintenance,
Customized Billing Outsourcing Services, and Recovery Services. Network
Services, which began operations in December 1998, was discontinued in August
1999 due to unsatisfactory performance.
STS Program revenues were $19,815,617 for the fiscal year ended
November 30, 1999 compared to $21,461,885 for the fiscal year ended November
30, 1998, a decrease of 7.7%. This decrease resulted from a 22% decline in
STS Program revenues in the fourth quarter of 1999 compared to the fourth
quarter 1998. This decrease was primarily due to market pressure on both the
retail and wholesale sides, including increased competition from calling card
and wireless services. The Company is adjusting to market pressures both on
the retail and wholesale sides and is attempting to rebuild subscriber counts
by lowering rates. The Company expects this trend to stabilize at an
approximately 22% decline in revenues.
Revenues from System Sales and Maintenance were $7,856,532 for the fiscal
year ended November 30, 1999 compared to $5,569,733 for the fiscal year ended
November 30, 1998, an increase of 41.1%. Revenues from the TelMaster and
RATEX products increased by 139% and 15% respectively, for the year ended
November 30, 1999, compared to the year ended November 30, 1998. This reflects
an increase in excess of 200% in both the TelMaster and Ratex products from
the fourth quarter 1998 to the fourth quarter 1999 and a 50% increase in
TelMaster revenues from the third quarter 1999 to the fourth quarter 1999.
Approximately $1,044,000, or 49%, of the fiscal year increase in TelMaster
revenues is related to ongoing development of a custom convergence billing,
reporting and support system for Pacific Bell and MCI customer care services
for the State of California's CALNET contract. Revenue from the DCS product
declined by 13% during the year ended November 30, 1999. This decrease was
primarily due to a significant decline in demand for this text-based product.
The Company expects DCS revenue to continue to decline in the future.
For the fiscal years ended November 30, 1999 and 1998, revenues from
Customized Billing Outsourcing Services were approximately $1,404,000 and
$1,219,000, respectively. Recovery Services, which began operations in March
1999, had revenues of approximately $135,000 during fiscal 1999. Network
Services, which began operations in December 1998 and ceased operations in
August 1999, had revenues of approximately $165,000 during fiscal 1999.
Total gross profit increased by 23.3% to $12,596,754 for the fiscal year
ended November 30, 1999, compared to $10,216,971 for the fiscal year ended
November 30, 1998. Cost of goods sold was approximately 74.5% of STS revenues
for the fiscal year ended November 30, 1999, compared with 76.9% for the
fiscal year ended November 30, 1998. This decrease was primarily due to the
decreased cost of long distance services from the Company's suppliers. Cost
of goods sold as a percentage of system sales and maintenance revenues was
25.2% for the fiscal year ended November 30, 1999 compared with 27.5% for the
fiscal year ended November 30, 1998. This improvement was due to a higher
percentage of TelMaster sales during fiscal 1999, which have a higher gross
profit rate than the RATEX and DCS products.
General and administrative expenses increased by 30.7%, or $2,662,254, in
fiscal 1999 to $11,335,068 from $8,672,814 in fiscal 1998. This increase was
primarily due to an increase in human resources in the areas of TelMaster
research and development, implementation, sales, and support services, as well
as the addition of the Network Services and Recovery Services divisions.
Research and development costs incurred and expensed during the fiscal years
ended November 30, 1999 and 1998 were $1,424,000 and $622,000, respectively.
Sales and support related expenses increased $267,000 and $238,000,
respectively from fiscal 1998 to fiscal 1999. Increased effort in the
Customized Billing division, primarily as a result of the Qwest project, also
contributed approximately $130,000 in increased customer service related
expenses. Recovery Services and Network Services divisions had operating
expenses of approximately $454,000 and $291,000, respectively, during the
fiscal year ended November 30, 1999. General and administrative expenses as a
percentage of revenues increased to 38.6% for the fiscal 1999, compared to
30.7% for the fiscal 1998. The Company expects to continue to experience
increases in TelMaster research and development, sales and professional
service expenses as part of its effort to increase TelMaster product sales.
The provision for income taxes was $579,800 and $786,591 for the fiscal
years ended November 30, 1999 and 1998, respectively. This represents 32% and
42% of income before provision for income taxes for fiscal 1999 and 1998,
respectively. This percentage decrease is primarily attributable to increased
interest from tax-free investments.
Income from continuing operations increased to $1,249,043 in fiscal 1999
from $1,089,578 in fiscal 1998. This was attributable to an approximate
$384,000 and $61,000 increase in operating income from the System Sales and
STS product lines, offset by operating losses of approximately $126,000 and
$318,000 from the Network Services and Recovery Services divisions,
respectively. The increase was also attributable to an approximate $250,000
increase in interest income.
For the year ended November 30, 1999, gain on the sale of GoodNet
represents additional gain realized as a result of the sale of 79,387 shares
of Winstar common stock received in the sale of GoodNet to Winstar. See
"Investment Securities - Winstar Shares" in the notes to the consolidated
financial statements. It also represents the reversal of accrued lease
termination fees in the amount of $300,000. The Company no longer believes
that it will need to terminate any portion of its lease, as it will be used
for future expansion of the Company.
DISCONTINUED OPERATIONS
Effective January 12, 1998, the Company, together with the minority
shareholders of GoodNet, entered into an agreement with Winstar to sell the
Company's Internet services subsidiary for approximately $22.0 million,
consisting of $3.5 million cash and shares of common stock of Winstar having
an aggregate market value of approximately $18.5 million.
Under the terms of the agreement, the Company received approximately
$3,500,000 in cash plus 479,387 shares of Winstar restricted common stock,
which had an aggregate fair market value of approximately $13.9 million as of
the close of business on January 12, 1998. After commissions and related
legal expenses, the Company realized an approximate $13.2 million pretax gain
on the sale in the first quarter of fiscal 1998. Additionally, the Company
received $235,000 in cash to offset GoodNet's net cash disbursements from
December 12, 1997 through the date of the sale.
MATERIAL CHANGES IN FINANCIAL POSITION
Cash and cash equivalents decreased to $41,434 at November 30, 2000 from
$2,157,701 at November 30, 1999. Investment securities decreased to $0 at
November 30, 2000 from $12,267,370 at November 30, 1999. The Company's cash
and investment holdings combined decreased by approximately $14,384,000. This
decline reflects approximately $17,385,000 used in connection with a
redemption of the Company's stock in March 2000 as described below under
"Liquidity and Capital Resources". This use of cash was offset by $1,375,000
in net cash advances from the Company's lines of credit with certain officers
of the Company. During fiscal 2000, net cash from operating activities of
continuing operations provided $2,381,248, compared with a use of cash of
$2,563,489 in fiscal 1999. The Company used approximately $598,000 in cash to
purchase property and equipment for its continuing operations. Additionally,
the Company used approximately $298,000 in cash to purchase treasury stock.
Accounts receivable decreased to $8,160,650 as of November 30, 2000 from
$9,937,537 as of November 30, 1999 ($7,737,213 and $9,484,936, net of
allowance for uncollectibles as of November 30, 2000 and 1999, respectively).
This $1,776,887 decrease was due to a $720,876 decrease in overall revenues
for the month of November 2000 versus November 1999, as well as reduced
collection times from TelMaster customers due to improved implementation
cycles and customer satisfaction.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2000, the Company's balance sheet reflected cash of
$41,434. On March 24, 2000, the Company completed a self-tender offer by
repurchasing 2.3 million shares of its common stock pursuant to a modified
"dutch auction" tender offer. The tender offer, which carried an offer price
of $7.25 per share, combined with the repurchase of all 293,750 shares of
common stock owned by Joseph Zerbib, resulted in the payment of approximately
$17,385,000 to tendering option and stockholders. As a result of this tender,
the Company has established a 12-month line of credit with three officers of
the Company in order to satisfy the terms of the tender offer. While the
Company believes that it will be able to maintain, extend or replace the
current line of credit, there can be no assurance that this will happen. The
Company believes that anticipated cash flows from its business will be
adequate to supply currently anticipated operating requirements for the
Company for the next 12 months. However, there can be no assurance that the
Company will not require additional funding within this time frame. The
Company may be required to raise additional funds through public or private
financing, strategic relationships, or other arrangements. There can be no
assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to existing stockholders.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board Issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires companies to recognize all derivative contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition as the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to
the hedged risk or (ii) the earnings effect of the hedged forecasted
transaction. For a derivative not designated as a hedging instrument, the gain
or loss is recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal years beginning after June 15, 2000. Historically,
the Company has not entered into derivative contracts either to hedge existing
risks or for speculative purposes. The Company has not yet evaluated the
financial statement impact of adopting this new standard.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of November 30, 2000, the Company has no derivative financial
instruments, other financial instruments, or long-term debt obligations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information are
included herewith commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On February 14, 2001, the Company, acting on the direction and approval
of its Board of Directors, informed BDO Seidman, L.L.P., that it was selecting
another independent accountant in order to reduce costs.
BDO Seidman, L.L.P.'s reports on the Company's financial statements for
the years ended November 30, 1998 and 1999, did not contain an adverse opinion
or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or principles. There were no disagreements with BDO
Seidman, L.L.P. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure through BDO Seidman,
L.L.P.'s issuance of their report in connection with their audit of the
Registrant's financial statements for the years ended November 30, 1998 and
1999 and for any subsequent period.
On February 14, 2001, the Company selected Semple & Cooper, L.L.P. as its
new independent accountants. The Company did not consult with Semple &
Cooper, L.L.P. on any accounting matter prior to its appointment as auditors
of the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the
Company's directors and executive officers.
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------------
Michael F. Zerbib (2) .. 34 President, Chief Executive Officer, Chief Financial
Officer, Treasurer and Director
Joseph W. Zerbib . . . . 65 Chairman of the Board of Directors
Thierry E. Zerbib. . . . 39 Vice President-Technologies, Secretary and Director
Brian H. Loeb. . . . . . 39 Vice President-Marketing, Sales and Operations and
Director
Cecile Silverman(1)(2) . 76 Director
Kalvan Swanky (1 )(2) .. 37 Director
______________________________________
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Michael F. Zerbib has been President and Chief Executive Officer of the
Company since February 2000 and Chief Financial Officer, Treasurer and a
director of the Company since 1990. He holds a Bachelor of Science degree in
finance and a Master's degree in taxation and financial accounting from
Arizona State University. Mr. Zerbib also holds a certification from the
Arizona State Board of Accountancy.
Joseph W. Zerbib has been Chairman of the Board of Directors since 1982.
From 1982 to February 2000, he served as President and Chief Executive Officer
of the Company.
Thierry E. Zerbib has been Vice President-Technologies, Secretary and a
director of the Company since 1982. He holds dual degrees in computer science
and math from Tel Aviv University, Israel.
Brian H. Loeb has been Vice President-Marketing, Sales and Operations
since 1982 and a director of the Company since 1992.
Cecile Silverman has been a director of the Company since June 1995. Ms.
Silverman is a certified public accountant and has been self-employed since
1989. From 1975 to 1989, she was a partner at the firm of Schwartz, Cohen &
Co. Ms. Silverman specializes in tax planning for corporations and
individuals, as well as representing clients before various governmental
agencies. She graduated from Syracuse University with a degree in accounting.
Kalvan Swanky has been a director of the Company since June 1995. Since
1986, he has been employed by Storage Technology Corporation ("STC"), which
develops, manufactures and distributes computer memory devices. Mr. Swanky
has held a number of positions with STC, most recently as Direct Sales Manager
for Arizona and Nevada. He received a Bachelor of Science degree from the
University of Colorado.
Joseph W. Zerbib is the father of Thierry E. Zerbib and Michael F. Zerbib
and the father-in-law of Brian H. Loeb. Accordingly, Thierry E. Zerbib and
Michael F. Zerbib are brothers and Brian H. Loeb is the brother-in-law of
Thierry E. Zerbib and Michael F. Zerbib.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended November 30, 2000, the Board of Directors
held five meetings. All directors attended these meetings.
Audit Committee. The Board of Directors maintains an Audit Committee,
which currently is composed of Cecile Silverman and Kalvan Swanky. The
responsibilities of the Audit Committee include, in addition to such other
duties as the Board of Directors may specify, (i) receiving reports with
respect to loss contingencies, the public disclosure or financial statement
notation of which may be legally required, (ii) annually reviewing and
examining those matters that relate to a financial and performance audit of
the Company's stock option plans, (iii) recommending to the Board of Directors
the selection, retention and termination of the Company's independent
accountants, (iv) reviewing the professional services, proposed fees and
independence of such accountants, and (v) providing for the periodic review
and examination of management performance in selected aspects of corporate
responsibility. The Audit Committee held three meetings during the fiscal
year ended November 30, 2000.
Compensation Committee. The Board of Directors maintains a Compensation
Committee, which currently is composed of Cecile Silverman, Kalvan Swanky, and
Michael Zerbib. The responsibilities of the Compensation Committee include,
in addition to such other duties as the Board of Directors may specify, (i)
reviewing and recommending to the Board of Directors the salaries,
compensation and benefits of the Company's executive officers and key
employees, (ii) reviewing any related party transactions on an ongoing basis
for potential conflicts of interest, and (iii) administering the Company's
stock plans. The Compensation Committee held two meetings during the fiscal
year ended November 30, 2000.
COMPENSATION OF DIRECTORS
The members of the Board of Directors do not receive any cash
compensation for serving as directors. However, the Company may reimburse the
independent directors for their reasonable out-of-pocket expenses in
connection with their attendance at meetings. In April 1996, the Company
granted immediately exercisable options to purchase 1,000 shares of Common
Stock to each of Ms. Silverman and Mr. Swanky. The options are exercisable at
a price of $4.75 per share through April 2001. In October 1996, the Company
granted each of Ms. Silverman and Mr. Swanky immediately exercisable options
to purchase 1,000 shares of Common Stock at a price of $3.00 per share through
October 2001. In October 1997, the Company granted each of Ms. Silverman and
Mr. Swanky immediately exercisable options to purchase 1,000 shares of Common
Stock at a price of $2-15/16 per share through October 2002. None of the
options granted were pursuant to any stock option plan. During the year ended
November 30, 2000, both Ms. Silverman and Mr. Swanky exercised 1,792 options,
including 1,000 and 792 options with an exercise price $2.9375 and $3.00,
respectively, in connection with the Company's self-tender offer. They each
received $7,679 of net proceeds.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who beneficially own
more than ten percent of the Company's Common Stock to file reports of
ownership and changes in ownership with the Commission. These reporting
persons also are required to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on its review
of the copies of such forms furnished to it and representations that no other
reports were required, the Company believes that all Section 16(a) reporting
requirements were complied with during the fiscal year ended November 30,
2000.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation received by the
chief executive officer and each additional executive officer whose
compensation exceeded $100,000, paid to the named individuals for services
rendered in all capacities to the Company and its subsidiaries for the fiscal
years ended November 30, 2000, 1999, and 1998.
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
-------------------------------- ---------------------- ----------------
Other Securities All
Annual Restricted Underlying Other
Name and . . . . . . . . Compen- Stock Options/ LTIP Compen-
Principal Position . . . Year Salary Bonus sation Awards SARs Payouts sation
- ------------------------ ------ ----------- ----------- ------ ------- ---------- ------- -------
Michael F. Zerbib (1). . 2000 $ 123,000 -0- -0- -0- -0- -0- -0-
President, Chief 1999 $ 144,000 -0- -0- -0- -0- -0- -0-
Executive Officer, 1998 $ 144,000 $ 150,000 -0- -0- -0- -0- -0-
Chief Financial Officer
and Treasurer
------ ----------- ----------- ------ ---------- ---------- ------- -------
Thierry E. Zerbib. . . . 2000 $ 182,000 -0- -0- -0- -0- -0- -0-
Vice President - 1999 $ 154,000 -0- -0- -0- -0- -0- -0-
Technologies and 1998 $ 144,000 $ 150,000 -0- -0- -0- -0- -0-
Secretary
------ ----------- ----------- ------ ---------- ---------- ------- -------
Brian H. Loeb. . . . . . 2000 $ 129,000 -0- -0- -0- -0- -0- -0-
Vice President - 1999 $ 144,000 -0- -0- -0- -0- -0- -0-
Marketing, Sales and 1998 $ 144,000 $ 150,000 -0- -0- -0- -0- -0-
Operations
------ ----------- ----------- ------ ---------- ---------- ------- -------
Joseph W. Zerbib (2) 2000 $ 129,000 -0- -0- -0- -0- -0- -0-
Chairman of the Board 1999 $ 144,000 -0- -0- -0- -0- -0- -0-
1998 $ 144,000 $ 150,000 -0- -0- -0- -0- -0-
------ ----------- ----------- ------ ---------- ---------- ------- -------
<FN>
(1) Michael Zerbib acted as Chief Financial Officer and Treasurer until February 1, 2000. Since February 1,
2000, he has served as President, Chief Executive Officer, Chief Financial Officer and Treasurer.
(2) Joseph Zerbib acted as President and Chairman of the Board until February 1, 2000. Since February 1,
2000, he has served as Chairman of the Board.
The executive officers of the Company named above routinely receive other
benefits from the Company, the amounts of which are customary in the industry.
The Company has concluded, after reasonable inquiry, that the aggregate
amounts of such benefits during the years ended November 30, 2000, 1999 and
1998 did not exceed the lesser of $50,000 or 10% of the compensation set forth
above as to any named individual.
OPTION GRANTS IN FISCAL 2000
No options were granted to the Company's executive officers during fiscal
2000.
OPTION FORFEITURES IN FISCAL 2000
During the year ended November 30, 2000, Michael Zerbib and Joseph Zerbib
forfeited 50,210 and 49,106 common stock options, respectively, and Thierry
Zerbib and Brian Loeb each forfeited 46,345 common stock options. These
forfeitures were completed in connection with the self-tender offer in March
2000.
OPTION EXERCISES IN FISCAL 2000
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at FY-End at FY-end(3)
Acquired on Value Exercisable / Exercisable /
Name Exercise (1) Realized (2) Unexercisable Unexercisable
- -------------------------------------
Michael F. Zerbib . . . . . . . . . . 44,790 $ 119,107 - -
President, Chief Executive Officer,
Chief Financial Officer and Treasurer
- -------------------------------------
Thierry E. Zerbib . . . . . . . . . . 41,655 $ 99,745 - -
Vice President -Technologies and
Secretary
- -------------------------------------
Brian H. Loeb . . . . . . . . . . . . 41,655 $ 99,745 - -
Vice President - Marketing, Sales
and Operations
- -------------------------------------
Joseph W. Zerbib. . . . . . . . . . . 43,894 $ 113,575 - -
Chairman of the Board
- -------------------------------------
(1) These common stock options were exercised in connection with the
self-tender offer in March 2000.
(2) Represents the difference between the purchase price ($7.25 per share)
and the exercise price of the options.
(3) Represents the difference between the aggregate market value at
November 30, 2000 of the common stock underlying the options (based on the
last sale price of $1.00 on that date) and the options' aggregate exercise
price.
STOCK OPTION PLANS
1995 and 1996 Incentive Stock Option Plans. The Board of Directors
adopted the 1995 Incentive Stock Option Plan ("1995 ISO Plan") on February 1,
1995 and the 1996 Incentive Stock Option Plan ("1996 ISO Plan") and, together
with the 1995 ISO Plan, the ("Plans") on April 15, 1996. The Plans
subsequently were approved by the shareholders. The terms and conditions of
the Plans are substantively similar.
There are 264,000 shares authorized for grant under the 1995 ISO Plan.
As of November 30, 2000, there were no common stock options outstanding under
the 1995 ISO Plan.
There are 260,000 shares authorized for grant under the 1996 ISO Plan.
As of November 30, 2000, options to purchase 31,457 shares of Common Stock
were outstanding under the 1996 ISO Plan, These options are held by certain
employees of the Company at exercise prices ranging from $3.00 to $4.75 per
share.
Each of the Plans authorizes the Company to grant to key employees both
nonqualified options and options intended to qualify as incentive options
under Section 422 of the Internal Revenue Code. The objectives of the Plans
are to provide incentives to key employees to achieve financial results aimed
at increasing stockholder value and attracting talented individuals to the
Company. Persons eligible to participate in the Plans will be those employees
of the Company whose performance, in the judgment of the Compensation
Committee, can have significant effect on the success of the Company.
The Plans are administered by the Compensation Committee, which has the
authority to interpret their provisions, to establish and amend rules for
their administration, to determine the types and amounts of awards to be made
pursuant to the Plans, subject to the Plans' limitations, and to approve
recommendations made by management of the Company as to who should receive
awards.
Incentive stock options may be granted under the Plans for terms of up to
ten years and at an exercise price at least equal to 100% of the fair market
value of the Common Stock as of the date of grant, and 85% of the fair market
value in the case of non-statutory options, except that incentive options
granted to any person who owns stock possessing more than 10% of the combined
voting power of all classes of the Company's stock or of any parent or
subsidiary corporation must have an exercise price at least equal to 110% of
the fair market value of the Common Stock on the date of grant. The aggregate
fair market value, determined as of the time an incentive stock option is
granted, of the Common Stock with respect to which incentive stock options are
exercisable by an employee for the first time during any calendar year shall
not exceed $100,000. There is no aggregate dollar limitation on the amount of
non-statutory stock options which may be exercisable for the first time by an
employee during any calendar year. Payment of the exercise price is to be in
cash, although the Compensation Committee may, in its discretion, allow
payment in the form of shares of the Common Stock under certain circumstances.
Any option granted under the Plans will expire at the time fixed by the
Committee, which will not be more than ten years after the date it is granted.
Any employee receiving a grant must remain continuously employed by the
Company for a period of twelve months after the date of the grant, as a
condition to the exercise of the option. The Compensation Committee may also
specify when all or part of an option becomes exercisable, but in the absence
of such specification, the option will ordinarily be exercisable in whole or
part at any time during its term. In addition, optionees who are directors or
executive officers of the Company may not exercise any portion of an option
within six months of the date of grant. Subject to the foregoing, the
Compensation Committee may accelerate the exercisability of any option in its
discretion.
Options granted under the Plans are not assignable. Options may be
exercised only while the optionee is employed by the Company or within twelve
months after termination by reason of death, within twelve months after the
date of disability, or within ten days after termination for any other reason.
The Company may assist optionees in paying the exercise price of
options granted under the Plans by either the extension of a loan by the
Company for payment by the optionee of the exercise price in installments, or
a guarantee by the Company of a loan obtained by the optionee from a third
party. The terms of any loan, installment payments or guarantees, including
the interest rate and terms of repayment and collateral requirements, if
any, shall be determined by the Board of Directors in its sole discretion.
1997 Performance Equity Plan ("1997 Plan"). On October 2, 1997, the
Board of Directors adopted the 1997 Plan. On May 15, 1998, the Board of
Directors amended the 1997 Plan. The 1997 Plan was subsequently approved by
the shareholders. The Board of Directors has authorized 1,000,000 shares for
grant under the 1997 Plan. Awards consist of stock options (both nonqualified
options and options intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended), restricted
stock awards, deferred stock awards, stock appreciation rights and other
stock-based awards, as described in the 1997 Plan. The 1997 Plan is
administered by the Compensation Committee, which determines the persons to
whom awards will be granted, the number of awards to be granted and the
specific terms of each grant, including the vesting thereof, subject to the
provisions of the 1997 Plan.
In October 1997, the Company granted options under the 1997 Plan to
purchase an aggregate of 233,500 shares of Common Stock, 129,500 shares of
which were granted to certain employees of the Company at an exercise price
of $2.9375 per share and 104,000 shares of which were granted to the Company's
executive officers at an exercise price of $3.23 per share. As of November
30, 2000, 34,934 of the options issued to employees were outstanding and
none of the executive officer options were outstanding. The exercise price of
the options granted to the executive officers exceeded the fair market value
of the Common Stock on the date of grant. In February 1998, the Company
granted 14,600 options to employees at an exercise price of $4.25 per share,
the fair market value of the underlying shares at the date of grant. As of
November 30, 2000, 4,611 of these options were outstanding. In December 1998,
the Company granted 25,000 options to employees at an exercise price of $4.875,
the fair market value at the date of grant. 20,070 of these options were
outstanding at November 30, 2000. In May 2000, the Company granted 59,157
options to an employee of the Company at an exercise price of $3.40, the
average fair value for 30 days preceding the grant date. The exercise price
exceeded the fair market value of the common stock on the date of grant. All
of these options were outstanding at November 30, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of February 20,
2001, with respect to (i) those persons or groups known to the Company to
beneficially own more than 5% of the Company's Common Stock, (ii) each
director, (iii) each executive officer whose compensation exceeded $100,000 in
the fiscal year ended November 30, 2000, and (iv) all directors and executive
officers as a group. The information is determined in accordance with Rule
13d-3 promulgated under the Securities Exchange Act of 1934 ("Exchange Act")
based upon information furnished by the persons listed or contained in filings
made by them with the Securities and Exchange Commission ("Commission").
Except as indicated below, the shareholders listed possess sole voting and
investment power with respect to their shares.
Name and Address of Beneficial Owner(1) Amount and Nature of Percent
Beneficial Ownership(2) of Class
- --------------------------------------- ----------------------- ---------
Michael F. Zerbib 230,603 17.9%
Thierry E. Zerbib 232,617 18.1%
Brian H. Loeb 232,617 18.1%
Joseph W. Zerbib - -
Cecile Silverman 1,208(3) *
Kalvan Swanky. 1,208(3) *
Nicholas Zerbib 118,322 9.2%
All executive officers and directors
as a group (six persons) 698,253(4) 54.2%
<FN>
______________________________
* Less than 1%.
(1) The address of each of the persons listed is c/o Telesoft Corp., 3443
North Central Avenue, Suite 1800, Phoenix, Arizona 85012.
(2) A person is deemed to be the beneficial owner of voting securities
that can be acquired by such person within 60 days from February 20, 2001 upon
the exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that options, warrants
or convertible securities that are held by such person (but not those held by
any other person) and which are exercisable within 60 days of February 20,
2001, have been exercised.
(3) Represents 1,208 shares of Common Stock issuable upon exercise of
currently exercisable options.
(4) Includes those shares of Common Stock deemed to be included in the
respective beneficial ownership of Michael F. Zerbib, Thierry E. Zerbib, Brian
H. Loeb, Joseph W. Zerbib, Kalvan Swanky and Ms. Cecile Silverman.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company leased 13,500 square feet of office space from Joseph W.
Zerbib, an officer, director and principal shareholder of the Company. The
Company leased this office in fiscal 1996 and 1997 on a month-to-month basis
for $6,978 per month. The Company vacated this space in January 1998, but
continued to pay rent through July 1998.
In March 2000, in connection with his retirement as the Company's
President and Chief Executive Officer, Joseph Zerbib, who currently serves as
the Company's Chairman of the Board, sold all of his 293,750 shares of the
Company's common stock back to the Company at a price of $7.25 per share, for
an aggregate of $2,129,688.
On April 3, 2000, the Company entered into three $1,350,000 lines of
credit (total of $4,050,000), payable on demand, bearing a term of one year
and an annual interest rate of 10%, with each of Michael Zerbib, President,
Chief Executive Officer, Chief Financial Officer and Treasurer, Thierry
Zerbib, Vice President-Technologies and Secretary and Brian Loeb, Vice
President-Marketing, Sales and Operations. Each line of credit is secured by
the assets of the Company. The interest rate on this debt is at least as
favorable as the Company could receive from third-party lenders. The Company
has obtained several proposals from third-party lenders bearing effective
rates in excess of 12%. During the year ended November 30, 2000, interest
expense in connection with these notes was $115,754. As of November 30, 2000,
borrowings outstanding on the line of were $1,375,000 and no interest was due
on the notes.
The Board of Directors has adopted a policy that all future material
transactions and loans between the Company and its executive officers,
directors, employees and affiliates will be subject to the approval of the
majority of independent and disinterested directors and that such transactions
and loans, and any forgiveness of loans, will be on terms that are no less
favorable to the Company than those that are generally available from
unaffiliated third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits
NO. DESCRIPTION REFERENCE
- ----- ---------------------------------------------------------------------------------- ----------
3.1 . Amended and Restated Articles of Incorporation of the Company dated April 13, 1995 (1)
4.1 . Form of Common Stock Certificate (1)
10.1. 1995 Incentive Stock Option Plan (1)
10.2. 1995 Restricted Stock Plan (1)
10.3. Asset Purchase Agreement between Telesoft Acquisition Corp., Uniquest (1)
Incorporated and CSI Acquisition Corp. dated March 13, 1995
10.8. Contract between the Company and the University of Delaware (1)
10.9. 1996 Incentive Stock Option Plan (2)
10.10 1996 Restricted Stock Plan (2)
10.11 1997 Performance Equity Plan (3)
21. . Subsidiaries of Registrant *
<FN>
* Filed herewith
(1) Filed with Registration Statement No. 33-91234-LA, dated June 30, 1995.
(2) Filed with Form 10-KSB/A for the fiscal year ended November 30, 1996
(3) Filed with Definitive Proxy Statement dated June 16, 1998
(b) Financial Statement Schedules
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS.
Years ended November 30, 2000, 1999 and 1998
BALANCE AT CHARGED TO WRITE-OFFS BALANCE AT
BEGINNING OF COSTS AND NET OF END OF THE
THE YEAR EXPENSES RECOVERIES YEAR
------------- ---------- ----------- -----------
Allowance for doubtful accounts:
2000 . . . . . . . . . . . . . . $ 452,601 242,359 (271,523) $ 423,437
1999 . . . . . . . . . . . . . . 502,095 275,194 (324,688) 452,601
1998 . . . . . . . . . . . . . . 640,982 429,290 (568,177) 502,095
(c) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter ended
November 30, 2000. On February 26, 2001, the Company filed a Current Report
on Form 8-K, dated February 14, 2001, to report a change in the Company's
independent accountants.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELESOFT CORP.
Dated: February 28, 2001 By /s/ Michael F. Zerbib
---------------------------------
Michael F. Zerbib,
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signature and Title Date
- --------------------- ----
/s/ Michael F. Zerbib . . . . . . . . . . . . . . . . . February 28,2001
- -------------------------------------------------------
Michael F. Zerbib, President, Chief Executive Officer,
Chief Financial Officer, Treasurer and Director (and
principal accounting officer)
/s/ Joseph W. Zerbib. . . . . . . . . . . . . . . . . . February 28,2001
- -------------------------------------------------------
Joseph W. Zerbib,
Chairman of the Board of Directors
/s/ Thierry E. Zerbib . . . . . . . . . . . . . . . . . February 28,2001
- -------------------------------------------------------
Thierry E. Zerbib, Vice President - Technologies,
Secretary and Director
/s/ Brian H. Loeb . . . . . . . . . . . . . . . . . . . February 28,2001
- -------------------------------------------------------
Brian H. Loeb, Vice President - Marketing,
Sales and Operations and Director
/s/ Cecile Silverman. . . . . . . . . . . . . . . . . . February 28,2001
- -------------------------------------------------------
Cecile Silverman, Director
/s/ Kalvan Swanky . . . . . . . . . . . . . . . . . . . February 28,2001
- -------------------------------------------------------
Kalvan Swanky, Director
TELESOFT CORP. AND SUBSIDIARIES
INDEX TO THE FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants. . . . F-2 - F-3
Consolidated Balance Sheets as of November 30, 2000 and
1999 . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Operations for the years ended
November 30, 2000, 1999 and 1998 . . . . . . . . . F-5 - F-6
Consolidated Statements of Changes in Stockholders'
Equity for the years ended November 30, 2000,
1999 and 1998. . . . . . . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows for the years ended
November 30, 2000, 1999 and 1998 . . . . . . . . . F-8 - F-9
Notes to the Consolidated Financial Statements. . . . . . F-10 - F-30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Telesoft Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Telesoft Corp.
and Subsidiaries as of November 30, 2000 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Telesoft
Corp. and Subsidiaries at November 30, 2000 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Semple & Cooper, L.L.P.
Phoenix, Arizona
February 7, 2001
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Telesoft Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Telesoft Corp.
and Subsidiaries as of November 30, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Telesoft
Corp. and Subsidiaries at November 30, 1999 and 1998 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Los Angeles, California
January 14, 2000
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2000 AND 1999
2000 1999
---------- ----------
ASSETS
Cash and cash equivalents (Note 2). . . . . . . . . . . . . . . . . . . . . $ 41,434 $ 2,157,701
Investment securities (Notes 3 and 17). . . . . . . . . . . . . . . . . . . - 12,267,370
Accounts receivable, net of allowance for uncollectibles of $423,437 and
$452,601, respectively (Notes 2 and 4) . . . . . . . . . . . . . . . . . 7,737,213 9,484,936
Inventory (Note 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,325 366,794
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 349,364 462,626
Deferred taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . 188,400 221,100
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,010 301,774
---------- -----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,618,746 25,262,301
Property and equipment, net (Note 6). . . . . . . . . . . . . . . . . . . . 1,407,118 1,320,246
Computer software costs, net (Note 7) . . . . . . . . . . . . . . . . . . . 54,484 169,667
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,709 110,723
------------ -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,222,057 $26,862,937
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Related party debt (Note 12). . . . . . . . . . . . . . . . . . . . . . . . $ 1,375,000 $ -
Accounts payable and accrued liabilities (Note 2) . . . . . . . . . . . . . 5,199,187 5,880,975
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,900 -
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,130,375 928,997
------------ -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 7,908,462 6,809,972
Deferred taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . 121,900 62,200
------------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,030,362 6,872,172
------------ -----------
Commitments and contingencies (Notes 11, 13 and 14)
Stockholders' equity: (Notes 10 and 12)
Preferred stock, no par value, 10,000,000 shares authorized; none
issued and outstanding. . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, no par value, 50,000,000 shares authorized;
3,787,500 issued and 1,376,828 and 3,711,500 outstanding, respectively
665,125 6,919,095
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . - 80,069
Accumulated other comprehensive income (Note 3) . . . . . . . . . . . . . . - 66,120
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,191,695 12,925,481
------------ -----------
2,856,820 19,990,765
Less: Treasury stock, 178,106 shares, at cost. . . . . . . . . . . . . . . (665,125) -
------------ -----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . 2,191,695 19,990,765
------------ -----------
Total liabilities and stockholders' equity. . . . . . . . . . . . . . . . . $10,222,057 $26,862,937
============ ===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
Sales, net. . . . . . . . . . . . . . . . . . . . . . . $24,613,309 $29,377,592 $28,250,373
Cost of sales (Note 2). . . . . . . . . . . . . . . . . 12,826,565 16,780,838 18,033,402
------------ ------------ ------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . 11,786,744 12,596,754 10,216,971
General and administrative expenses (Note 16) . . . . . 12,415,994 11,335,068 8,672,814
------------ ------------ ------------
Operating (loss) income . . . . . . . . . . . . . . . . (629,250) 1,261,686 1,544,157
------------ ------------ ------------
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . 347,361 564,804 292,295
Interest expense. . . . . . . . . . . . . . . . . . . . (128,238) (270) (1,277)
Other income (expense). . . . . . . . . . . . . . . . . 319,406 2,623 40,994
------------ ------------ ------------
538,529 567,157 332,012
------------ ------------ ------------
(Loss) income from continuing operations before . . . . (90,721) 1,828,843 1,876,169
provision for income taxes
Provision for income taxes (Note 9) . . . . . . . . . . 40,600 (579,800) (786,591)
------------ ------------ ------------
(Loss) income from continuing operations. . . . . . . . (50,121) 1,249,043 1,089,578
Discontinued operations (Note 17):
Loss from operations of GoodNet subsidiary (net of. - - (68,428)
income tax of $2,173 in 1998)
Gain on disposal of GoodNet subsidiary (net of
income taxes of $357,700 in 1999 and
$4,611,099 in 1998). . . . . . . . . . . . . . - 549,309 8,565,700
------------ ------------ ------------
Net (loss) income . . . . . . . . . . . . . . . . . . . (50,121) 1,798,352 9,586,850
Other comprehensive (loss) income, net of tax
Unrealized holding (losses) gains arising during . . (66,120) (18,446) 84,566
period ------------ ------------ ------------
Comprehensive (loss) income . . . . . . . . . . . . . . $ (116,241) $ 1,779,906 $ 9,671,416
============ ============ ============
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
----------- ---------- -----------
Basic earnings (loss) per share
Continuing operations. . . . . . . $ (0.02) $ 0.33 $ 0.29
Discontinued operations. . . . . . - - (0.02)
Sale of discontinued operations. . - 0.15 2.26
----------- ---------- -----------
Net income (loss). . . . . . . . . $ (0.02) $ 0.48 $ 2.53
=========== ========== ===========
Diluted earnings (loss) per share
Continuing operations. . . . . . . $ (0.02) $ 0.33 $ 0.28
Discontinued operations. . . . . . - - (0.02)
Sale of discontinued operations. . - 0.14 2.20
----------- ---------- -----------
Net income (loss). . . . . . . . . $ (0.02) $ 0.47 $ 2.46
=========== ========== ===========
Weighted average number
of shares outstanding
- - basic. . . . . . . . . . . . . . 2,123,879 3,713,601 3,784,793
- - diluted. . . . . . . . . . . . . 2,123,879 3,832,067 3,888,033
=========== ========== ===========
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
Common Stock
-------------
Accumulated
Number of Additional other Total
shares Treasury paid-in comprehensive Retained stockholders'
outstanding Amount stock capital income earnings equity
------------- ------------ ---------- --------------- ------------- --------------- ------------
Balance,
November 30, 1997 . . 3,787,500 $ 7,286,159 $ - $ 80,069 $ - $ 1,540,279 $ 8,906,507
Treasury stock acquired
(Note 10). . . . . . (39,000) - (182,759) - - - (182,759)
Unrealized gain on
investment securities. - - - - 84,566 - 84,566
Net income . . . . . . . - - - - - 9,586,850 9,586,850
------------- ------------ ---------- --------------- ------------- --------------- ------------
Balance,
November 30, 1998 . . 3,748,500 7,286,159 (182,759) 80,069 84,566 11,127,129 18,395,164
Treasury stock acquired
(Note 10). . . . . . (37,000) - (184,305) - - - (184,305)
Change in unrealized
gain on investment . . - - - - (18,446) - (18,446)
securities
Net income . . . . . . . - - - - - 1,798,352 1,798,352
------------- ------------ ---------- --------------- ------------- --------------- ------------
Balance,
November 30, 1999 . . 3,711,500 7,286,159 (367,064) 80,069 66,120 12,925,481 19,990,765
Treasury stock acquired
(Note 10) . . . . . . (102,106) - (298,061) - - - (298,061)
Common stock acquired. . (2,232,566) (6,621,034) - (80,069) - (10,683,665) (17,384,768)
from stock redeemed
(Note 10)
Change in unrealized
gain on investment. . - - - - (66,120) - (66,120)
securities
-
Net loss . . . . . . . . - - - - - (50,121) (50,121)
------------- ------------ ---------- --------------- ------------- --------------- ------------
Balance,
November 30, 2000 . . 1,376,828 $ 665,125 $(665,125) $ - $ - $ 2,191,695 $ 2,191,695
============= ============ ========== =============== ============= =============== ============
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . $ 26,489,044 $ 26,737,413 $ 26,498,226
Cash paid to suppliers and employees . . . . . . . . . (24,938,451) (28,989,264) (23,120,762)
Interest paid. . . . . . . . . . . . . . . . . . . . . (128,238) (270) (1,277)
Interest received. . . . . . . . . . . . . . . . . . . 508,731 506,597 208,311
Income tax refund. . . . . . . . . . . . . . . . . . . 598,947 - -
Income taxes paid. . . . . . . . . . . . . . . . . . . (148,785) (817,965) (900,165)
------------- ------------- -------------
Net cash provided (used) by operating activities
of continuing operations. . . . . . . . . . . . . 2,381,248 (2,563,489) 2,684,333
------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . (597,558) (578,912) (617,037)
Cash received from sale of equipment . . . . . . . . . 11,433 7,653 27,951
Disbursements for notes receivable from related
parties . . . . . . . . . . . . . . . . . . . . . . (450,000) (50,000) (2,000)
Collection of notes receivable . . . . . . . . . . . . 500,000 373,153 -
Purchase of investment securities. . . . . . . . . . . (1,500,000) (6,616,250) (7,350,000)
Sale of investment securities. . . . . . . . . . . . . 13,846,439 4,874,232 13,971,131
------------- ------------- -------------
Net cash provided (used) by investing activities
of continuing operations. . . . . . . . . . . . . 11,810,314 (1,990,124) 6,030,045
------------- ------------- -------------
Cash flows from financing activities:
Purchases of treasury stock. . . . . . . . . . . . . . (298,061) (184,305) (182,759)
Proceeds from debt - related parties . . . . . . . . . 2,825,000 - -
Repayment of debt - related parties. . . . . . . . . . (1,450,000) - -
Stock redemption . . . . . . . . . . . . . . . . . . . (17,384,768) - -
------------- ------------- -------------
Net cash used in financing activities of . . . . . . .
continuing operations . . . . . . . . . . . . . . (16,307,829) (184,305) (182,759)
------------- ------------- -------------
Cash (used) provided by continuing operations. . . . . (2,116,267) (4,737,918) 8,531,619
Cash used in discontinued operations, including income
taxes paid in the amount of $844,600 in 1999 and
$3,866,100 in 1998. . . . . . . . . . . . . . . . . - (844,600) (2,413,184)
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents . (2,116,267) (5,582,518) 6,118,435
Cash and cash equivalents at beginning of fiscal year. 2,157,701 7,740,219 1,621,784
------------- ------------- -------------
Cash and cash equivalents at end of fiscal year. . . . $ 41,434 $ 2,157,701 $ 7,740,219
============= ============= =============
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
TELESOFT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
Reconciliation of net (loss) income to net cash
provided (used) by operating activities from
continuing operations:
Net (loss) income . . . . . . . . . . . . . . . . $ (50,121) $ 1,798,352 $ 9,586,850
------------ ------------ ------------
Adjustments to reconcile net (loss) income to net
cash provided (used) by operating activities
from continuing operations:
Loss from discontinued operations . . . . . . . . - - 68,428
Gain on sale of discontinued operations . . . . . - (549,309) (8,565,700)
Income taxes payable and deferred taxes
Related to sale of discontinued operations . . - 486,900 (744,999)
Depreciation and amortization . . . . . . . . . . 619,660 545,590 486,481
Gain on sale of fixed assets. . . . . . . . . . . (5,224) (2,516) (20,659)
Gain on sale of investment securities . . . . . . (145,189) -
Interest income included with note receivable . . - (2,294) (21,525)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . 1,747,723 (2,551,847) (1,424,169)
Inventory . . . . . . . . . . . . . . . . . . . . 158,469 259,376 (269,574)
Other current assets. . . . . . . . . . . . . . . 157,764 38,853 (85,871)
Deferred taxes. . . . . . . . . . . . . . . . . . 92,400 (115,200) 534,500
Other assets. . . . . . . . . . . . . . . . . . . (30,986) (20,675) 5,227
Accounts payable and accrued liabilities. . . . . (681,788) (2,027,609) 2,957,442
Deferred revenue. . . . . . . . . . . . . . . . . 201,378 186,755 80,977
Income taxes payable. . . . . . . . . . . . . . . 203,900 (147,239) (139,056)
Income taxes receivable . . . . . . . . . . . . . 113,262 (462,626) 235,981
------------ ------------ ------------
2,431,369 (4,361,841) (6,902,517)
------------ ------------ ------------
Net cash provided (used) by operating activities
from continuing operations. . . . . . . . . . . $ 2,381,248 $(2,563,489) $ 2,684,333
============ ============ ============
<FN>
Supplemental disclosure of investing and financing activities:
- --------------------------------------------------------------------
During the year ended November 30, 1998, the Company sold its 71% owned subsidiary,
Telesoft Acquisition Corp. II, for $3,500,000 in cash and 479,387 shares of Winstar common
stock valued at $13,902,223 on the date of sale. Expenses paid and accrued relating to the
sale were $2,094,205.
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Telesoft Corp. (the "Company" or "Telesoft"), an Arizona corporation, was
incorporated on May 4, 1982. The Company provides four principal continuing
product lines and services: long distance and telecommunications division,
d.b.a. Student Telephone Services (STS); Customized Billing Outsourcing
Services; computer software and hardware sales, d.b.a. Sunbelt Business
Computers (SBC); and its telecommunications audit subsidiary, Telesoft
Recovery Corp (TRC). The long distance and telecommunications division is
primarily involved in long distance and telecommunication services to higher
education institutions. The software and hardware division is primarily
involved in the design, distribution, installation, and maintenance of
computer hardware and software systems.
The Company originally operated as B.P. & J Investors, Ltd., d.b.a. Sunbelt
Business Computers. Effective April 12, 1995, the Company changed its name to
Telesoft Corp.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Telesoft Corp.,
together with its wholly owned subsidiaries, Telesoft Acquisition Corp and
Telesoft Recovery Corp., and its former 71% owned subsidiary, Telesoft
Acquisition Corp II, d.b.a. GoodNet ("GoodNet"). (See Note 17)
All significant intercompany accounts and transactions have been eliminated.
USE OF 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.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash and cash equivalents for the
purposes of reporting cash flows.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INVESTMENTS
The Company has classified its entire investment portfolio as
available-for-sale in accordance with the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Available-for-sale securities are stated at fair value with unrealized gains
and losses included in shareholders' equity. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income. Realized
gains and losses are included in other income (expense). The cost of
securities sold is based on the specific identification method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has cash and cash equivalents, receivables, accounts payable and
accrued liabilities for which the carrying value approximates the fair value
due to the short-term nature of these instruments.
LONG-LIVED ASSETS
Statement of Financial Accounting Standards No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121") issued by the Financial Accounting Standards Board ("FASB") is
effective for financial statements for fiscal years beginning after December
15, 1995. The standard establishes guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company adopted SFAS 121 during the year ended
November 30, 1997. The Company does not believe any assets are impaired as of
November 30, 2000.
INVENTORY
Inventory is stated at the lower of cost, first-in, first-out (FIFO) method,
or market. Inventory quantities are reviewed periodically for obsolescence.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
for on the straight-line method over the estimated useful lives of the assets.
The average lives range from three to seven years. The gain or loss on
disposal of assets is reflected in earnings, and the cost and related
accumulated depreciation are removed from the accounts. Maintenance and
repairs that neither materially add to the value of the property nor
appreciably prolong its life are charged to expense as incurred. Betterments
or renewals are capitalized when incurred. Leasehold improvements are
recorded at cost and amortized over the shorter of the lives of the leases or
estimated useful lives.
COMPUTER SOFTWARE COSTS
The Company capitalizes software development costs in accordance with
Financial Accounting Standards Board Statement No. 86 ("FASB 86"). FASB 86
requires software development costs to be capitalized when technological
feasibility is reached and discontinued when the product is ready for sale.
Software development costs not qualifying for capitalization are expensed as
research and development costs. Capitalized costs are amortized on
product-by-product basis using the greater of the straight line method over
the product's remaining estimated economic life or the ratio of the current
year's gross revenues to the total of a product's current year and anticipated
revenues. The Company evaluates the estimated net realizable value of each
software product at each balance sheet date and records write-downs for any
products for which net book value is in excess of net realizable value.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DEFERRED REVENUE
Deferred revenue represents deferred income from maintenance contracts. The
income is recognized ratably over the applicable lives of the respective
contracts.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities.
REVENUE RECOGNITION
The Company recognizes revenues as follows: System sales and software
revenues are recognized when the equipment and software have been delivered
and installed in accordance with AICPA Statement of Position 97-2 "Software
Revenue Recognition" ("SOP 97-2"). Revenues from collection of long-distance
charges are recognized as the charges are incurred. The Company accrues
revenues from customers based upon actual usage as reported on billings
received from long-distance carriers and estimates the amount of unbilled
revenues based upon the number of days in the billing cycle and past usage by
customers.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123"), which became effective during the year ended November 30,
1997. The Company has adopted the disclosure-only provisions of SFAS No. 123.
WARRANTIES
The Company offers a warranty of 90 days on hardware and software and an
extended warranty program in connection with the Company's service and
maintenance programs. The Company has not had any material claims made under
its warranty program to date.
EARNINGS (LOSS) PER SHARE
Basic earnings per share of common stock were computed by dividing net
earnings by the weighted average number of common shares.
Diluted earnings per share are computed based on the weighted average
number of shares of common stock and dilutive securities outstanding during
the period. Dilutive securities are options that are freely exercisable into
common stock at less than market exercise prices. Dilutive securities are not
included in the weighted average number of shares when inclusion would
increase the earnings per share or decrease the loss per share.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board Issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge,
the objective of which is to match the timing of gain or loss recognition as
the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged
risk or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for
all fiscal years beginning after June 15, 2000. Historically, the Company has
not entered into derivative contracts either to hedge existing risks or for
speculative purposes. The Company has not yet evaluated the financial
statement impact of adopting this new standard.
2. CONCENTRATION OF CREDIT RISK:
The Company maintains cash balances at various financial institutions.
The Federal Deposit Insurance Corporation insures deposits not in excess of
$100,000 on deposit at each institution. At November 30, 2000, the Company
had uninsured cash and cash equivalent bank balances of approximately
$335,000.
SUPPLIERS
One telecommunications company provides the Company with a significant
portion of its long distance telecommunications services. Although the
Company is dependent upon this supplier, management believes comparable
suppliers are available. For the fiscal years ended November 30, 1999 and
1998, fees paid to this company totaled approximately $2,323,000 and
$2,640,000, respectively. As of November 30, 2000, the outstanding amount due
to the service provider was approximately $252,000.
CUSTOMERS
During the years ended November 30, 2000, 1999 and 1998, the Company did
not have any customers that accounted for greater than 10% of its revenues.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
3. INVESTMENT SECURITIES:
As of November 30, 2000, the Company had no investment securities. The
Following is a summary of investment securities as of November 30, 1999:
Cost Gross Estimated
unrealized gains Fair Value
Available-for-sale securities:
U.S. Corporate Equity Securities $ 151,250 $ 66,120 $ 217,370
Municipal bonds. . . . . . . . . 12,050,000 - 12,050,000
----------------- ----------- -----------
$ 12,201,250 $ 66,120 $12,267,370
================= =========== ===========
Investment income for the years ended November 30, 2000, 1999 and 1998:
2000 1999 1998
Interest income. . . . . . . . . . . . . . . . . $347,361 $ 564,804 $292,295
Gross realized gains, included with continuing . 145,189 107 92
operations
Gross realized gains, included with discontinued - 607,009 371,130
operations
-------- ---------- --------
$492,550 $1,171,920 $663,517
======== ========== ========
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
4. ACCOUNTS RECEIVABLE:
At November 30, 2000 and 1999, accounts receivable include billed and unbilled
amounts, as follows:
2000 1999
----------- -----------
Billed. . . . . . . . . . . . . . . $6,183,294 $8,275,609
Unbilled. . . . . . . . . . . . . . 1,977,356 1,661,928
----------- -----------
8,160,650 9,937,537
Less: allowance for uncollectibles (423,437) (452,601)
----------- -----------
$7,737,213 $9,484,936
=========== ===========
Unbilled accounts receivable represent amounts earned but not billed for long
distance telephone service.
At November 30, 2000, accounts receivable by product line is as follows:
STS Custom System Sales/ Recovery Network Total
Outsourcing Billing Maintenance Services Services
------------- --------- --------------- --------- --------- -----------
Billed . . $ 3,380,226 $161,058 $ 2,433,330 $ 206,848 $ 1,832 $6,183,294
Unbilled . 1,967,706 9,650 - - - 1,977,356
Allowance. (333,262) (40,571) (49,604) - - (423,437)
------------- --------- --------------- --------- --------- -----------
Total, Net $ 5,014,670 $130,137 $ 2,383,726 $ 206,848 $ 1,832 $7,737,213
============= ========= =============== ========= ========= ===========
At November 30, 1999, accounts receivable by product line is as follows:
STS Custom System Sales/ Recovery Network Total
Outsourcing Billing Maintenance Services Services
------------- --------- --------------- --------- --------- -----------
Billed . . $ 3,472,295 $366,156 $ 4,380,521 $ 28,629 $ 28,008 $8,275,609
Unbilled . 1,630,428 31,500 - - - 1,661,928
Allowance. (336,691) (54,800) (61,110) - - (452,601)
------------- --------- --------------- --------- --------- -----------
Total, Net $ 4,766,032 $342,856 $ 4,319,411 $ 28,629 $ 28,008 $9,484,936
============= ========= =============== ========= ========= ===========
5. INVENTORY:
At November 30, 2000, inventory consists primarily of finished products. November 30, 1999, inventory
consists of:
Parts and equipment. . . . . . . $183,918
Finished products. . . . . . . . 182,876
--------
$366,794
========
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
6. PROPERTY AND EQUIPMENT:
At November 30, 2000 and 1999, property and equipment consists of:
2000 1999
------------ ------------
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,620,034 $ 2,229,851
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,458 28,458
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . 560,834 402,638
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . 84,028 71,513
Property leased to others. . . . . . . . . . . . . . . . . . . . . 351,518 351,518
------------ ------------
3,644,872 3,083,978
Accumulated depreciation and amortization. . . . . . . . . . . . . (2,237,754) (1,763,732)
------------ ------------
$ 1,407,118 $ 1,320,246
============ ============
Depreciation and amortization expense from continuing operations was
$504,477, $400,295 and $338,917 for the fiscal years ended November 30, 2000,
1999 and 1998, respectively. Depreciation expense, included with the net loss
from discontinued operations was $113,846 for the fiscal year ended November
30, 1998.
7. COMPUTER SOFTWARE COSTS:
At November 30, 2000 and 1999, computer software costs capitalized are:
2000 1999
---------- ----------
Computer software . . . . . . . . . $ 987,885 $ 987,885
Accumulated amortization. . . . . . (933,401) (818,218)
---------- ----------
$ 54,484 $ 169,667
========== ==========
Amortization expense from continuing operations related to computer
software cost during the years ended November 30, 2000, 1999 and 1998 was
$115,183, $145,295, and $145,480, respectively. There was no amortization
expense attributable to discontinued operations for the years ended November
30, 2000, 1999 and 1998.
8. INTANGIBLES:
At November 30, 2000 and 1999, intangibles consist of:
Covenant not-to-compete-RATEX. . . . . . . . . . . . . $ 25,000
Accumulated amortization . . . . . . . . . . . . . . . (25,000)
---------
$ -
=========
There was no amortization expense during the years ended November 30,
2000 and 1999. Amortization expense for continuing operations was $2,084
during the year ended November 30, 1998. Amortization expense from
discontinued operations was $35,294 during the year ended November 30, 1998.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
9. INCOME TAXES:
The components of the provision for (benefit from) income taxes for the years
ended November 30, 2000, 1999 and 1998 consist of:
2000 1999 1998
---------- -------- -----------
Current. . . . . . . . . . . . $(133,000) $764,718 $5,347,917
Deferred . . . . . . . . . . . 92,400 172,782 47,600
---------- -------- -----------
Provision for (benefit from) . $ (40,600) $937,500 $5,395,517
income taxes
========== ======== ===========
Provision for (benefit from) . $ (40,600) $579,800 $ 786,591
income taxes attributable
to continuing operations
Income tax benefit . . . . . . - - (2,173)
attributable to loss from
operations of GoodNet
subsidiary
Provision for income taxes . . - 357,700 4,611,099
attributable to Gain on
disposal of GoodNet
subsidiary
---------- -------- -----------
Provision for (benefit from) . $ (40,600) $937,500 $5,395,517
income taxes
========== ======== ===========
The Company's tax expense differs from the expense calculated using the
statutory federal income tax rate for the following reasons:
2000 1999 1998
--------- ---------- ---------
Expected . . . . . . . . . . . . . . $(30,800) $ 621,800 $637,891
Tax exempt interest income . . . . . (31,100) (148,400) (55,000)
Non deductible portion of
meals and entertainment . . . . 9,300 10,200 9,600
State taxes, net of federal benefit. 12,000 96,200 194,100
--------- ---------- ---------
Provision for (benefit from)
income taxes attributable to
continuing operations. . . . . . . $(40,600) $ 579,800 $786,591
========= ========== =========
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
9. INCOME TAXES: (CONTINUED)
The income tax effect of temporary differences between financial and tax
reporting gives rise to the deferred income tax assets and liabilities as
follows:
2000 1999
---------- ---------
Current asset
Allowance for uncollectibles. . . $ 177,800 $153,900
Deferred revenue. . . . . . . . . - 19,000
Inventory allowance . . . . . . . 10,400 23,000
Timing differences from IRS audit 200 25,200
---------- ---------
188,400 221,100
---------- ---------
Non-current liability
Accumulated depreciation. . . . . (129,500) (68,000)
Accumulated amortization. . . . . 5,400 5,800
Timing differences from IRS audit 2,200 -
---------- ---------
(121,900) (62,200)
---------- ---------
Net deferred tax asset $ 66,500 $158,900
========== =========
The Company believes that it is likely to realize the net deferred tax asset
subject to the Company's ability to generate profits in the future.
Accordingly, no valuation allowance has been provided.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
10. STOCKHOLDERS' EQUITY:
SERIAL PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of serial preferred
stock, no par value. As of November 30, 2000 and 1999, there were no shares
issued or outstanding.
COMMON STOCK WARRANTS
During the year ended November 30, 1995, the Company issued 125,000 common
stock warrants to the underwriters of the Company's initial public offering in
exchange for $100. The warrants were exercisable at $7.20 per warrant for a
period of four years beginning July 1, 1996. As of November 30, 1999, 125,000
common stock warrants were outstanding. As of November 30, 2000, these common
stock warrants expired.
DIVIDEND POLICY
The Company has no limitations or restrictions for declaring dividends. As of
November 30, 2000, no dividends have been declared.
TREASURY STOCK
The Board of Directors has authorized the repurchase of up to 10% of the
Company's outstanding stock. During the years ended November 30, 2000, 1999
and 1998, the Company repurchased 102,106, 37,000 and 39,000 shares of its
common stock on the open market for $298,061, $184,305 and $182,759,
respectively.
SELF-TENDER OFFER
On February 3, 2000, the Company commenced an offer to repurchase up to 2.3
million shares of its common stock pursuant to a "Dutch auction" self-tender
offer. On March 24, 2000, the tender offer expired. Pursuant to the tender
offer, the Company repurchased a total of 2.3 million shares of its common
stock. The purchase price for the shares of common stock was $7.25 per share
and the proration factor was 60.22 percent. The Company redeemed 1,938,816
common shares for $14,056,416 and 351,352 common stock options for
$1,112,674. Included in the common shares redeemed were 1,031,663 shares of
the Company's common stock redeemed from affiliates of the Company for an
aggregate of approximately $7,480,000.
Additionally, the Company repurchased all 293,750 shares of common stock owned
by Joseph Zerbib for $2,129,688. As of November 30, 2000, affiliates of the
Company owned 695,837 shares or 50.5% of the outstanding common stock of the
Company.
Expenses incurred related to the tender offer were $85,991.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
11. STOCK PLANS:
INCENTIVE STOCK OPTION PLANS
Effective February 1, 1995, the Board of Directors adopted the 1995 Incentive
Stock Option Plan (ISOP). Under the 1995 ISOP, a total of 264,000 shares are
reserved for issuance at the discretion of the compensation committee.
Effective April 15, 1996, the Board of Directors adopted an additional stock
plan, the 1996 ISOP. This plan was approved by the shareholders on August 7,
1996. Under the 1996 Plan, a total of 260,000 shares are reserved for
issuance at the discretion of the compensation committee.
On October 2, 1997, the Board of Directors adopted the 1997 Plan. On May 15,
1998, the Board of Directors amended the 1997 Plan. The 1997 Plan was
subsequently approved by the shareholders. The Board of Directors has
authorized 1,000,000 shares for grant under the 1997 Plan. Awards consist of
stock options (both nonqualified options and options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended), restricted stock awards, deferred stock awards, stock
appreciation rights and other stock-based awards, as described in the 1997
Plan. The 1997 Plan is administered by the Compensation Committee, which
determines the persons to whom awards will be granted, the number of awards to
be granted and the specific terms of each grant, including the vesting
thereof, subject to the provisions of the 1997 Plan.
In October 1997, the Company granted options under the 1997 Plan to purchase
an aggregate of 233,500 shares of Common Stock, 129,500 shares of which were
granted to certain employees of the Company at an exercise price of $2.9375
per share and 104,000 shares of which were granted to the Company's executive
officers at an exercise price of $3.23 per share. As of November 30, 2000,
34,934 of the options issued to employees were outstanding and none of the
executive officer options were outstanding. The exercise price of the options
granted to the executive officers exceeded the fair market value of the Common
Stock on the date of grant. In February 1998, the Company granted 14,600
options to employees at an exercise price of $4.25 per share, the fair market
value of the underlying shares at the date of grant. As of November 30, 2000,
4,611 of these options were outstanding. In December 1998, the Company
granted 25,000 options to employees at an exercise price of $4.875, the fair
market value at the date of grant. 20,070 of these options were outstanding
at November 30, 2000. In May 2000, the Company granted 59,157 options to an
employee of the Company at an exercise price of $3.40, the average fair value
for 30 days preceding the grant date. The exercise price exceeded the fair
market value of the common stock on the date of grant. All of these options
were still outstanding at November 30, 2000.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
11. STOCK PLANS: (CONTINUED)
1995, 1996, AND 1997 RESTRICTED STOCK PLANS
The Board of Directors adopted the 1995 Restricted Stock Plan on February 1,
1995, the 1996 Restricted Stock Plan on April 15, 1996 and the 1997 Restricted
Stock Plan on April 10, 1997. The 1995 Restricted Stock Plan was approved by
the stockholders at a Special Meeting of Stockholders, which was held on
February 1, 1995. The 1996 Restricted Stock Plan was approved by the
stockholders at the 1996 Annual Meeting held on August 7, 1996. No shares
were granted under any of the Restricted Stock Plans. On May 15, 1998, in
connection with the amendments to the 1997 Plan (which permits grants of
restricted stock awards), the Board of Directors determined that it was in the
best interests of the Company to terminate the 1995, 1996 and 1997 Restricted
Stock Plans. Any restricted stock awards that the Company may wish to make in
the future may be made pursuant to the 1997 Plan.
The Company's stock plans, approved by the shareholders, provide for grants of
nonqualified or incentive stock options and restricted stock awards. All
plans are administered by the Company and the Compensation Committee of the
Board of Directors ("Committee") comprised of outside directors. Incentive
stock options may be granted under the 1995, 1996, and 1997 ISOP for terms of
up to ten years at an exercise price at least equal to 100% of the fair market
value of the common stock as of the date of grant, and 85% of the fair market
value in the case of nonstatutory options, except that incentive options
granted to any person who owns stock possessing more than 10% of the combined
voting power of all classes of the Company's stock or of any parent or
subsidiary corporations, must have an exercise price at least equal to 110% of
the fair market value of the Company's common stock on the date of grant.
Options granted become exercisable in installments of 25% per year commencing
one year from the date of grant or over a vesting period determined by the
Committee.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
11. STOCK PLANS: (CONTINUED)
The following table summarizes stock option activity:
Number of Weighted Average
Shares Exercise Price
---------- -----------------
Outstanding at December 1, 1998 . . . . . . . . . . . 726,800 $ 4.61
25,000 4.875
Granted
Exercised . . . . . . . . . . . . . . . . . . . . . . -
Forfeited . . . . . . . . . . . . . . . . . . . . . . (2,900) 3.04
----------
Outstanding at November 30, 1999. . . . . . . . . . . 748,900 4.62
Granted . . . . . . . . . . . . . . . . . . . . . . . 59,157 3.40
Exercised . . . . . . . . . . . . . . . . . . . . . . (338,810) 4.1974
Forfeited . . . . . . . . . . . . . . . . . . . . . . (319,018) 5.2639
----------
Outstanding at November 30, 2000 150,229 $ 3.7301
==========
Options exercisable at November 30, 2000. . . . . . . 70,147 $ 4.1811
Available for grant at: (a)
November 30, 1999 775,100
November 30, 2000 1,373,771
(a) Available for grant includes shares that may be granted as either
stock options or restricted stock, as determined by the Committee.
Following is a summary of the status of options outstanding at November 30, 2000:
Outstanding Options Exercisable Options
------------------- -------------------
Weighted Weighted
average Weighted Average
Exercise price. remaining Average Exercise
Range Number contractual life Exercise price Number price
- --------------- ---------------- ---------------- -------------- ------ ---------
3.00-$5.88 . . 30,353 6 years 4.44 30,353 4.44
2.94-$3.23 . . 34,934 7 years 2.94 17,509 3.05
4.00 . . . . . 1,104 7 years 4.00 604 4.00
4.25 . . . . . 4,611 8 years 4.25 1,611 4.25
4.88 . . . . . 20,070 9 years 4.88 20,070 4.88
3.40 . . . . . 59,157 10 years 3.40 - -
- --------------- ---------------- ---------------- -------------- ------ ---------
2.94 - $5.88 . 150,229 8 years $ 3.73 70,147 $ 4.18
=============== ================ ================ ============== ====== =========
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
11. STOCK PLANS: (CONTINUED)
OTHER OPTIONS
No other options were granted during the years ended November 30, 2000, 1999
and 1998.
STOCK BASED COMPENSATION
All stock options issued to employees have an exercise price not less than the
fair market value of the Company's common stock on the date of grant. In
accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements for the fiscal years ended November 30, 2000, 1999 and
1998. Had compensation cost for stock-based compensation been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS 123, the Company's net income and diluted earnings per share
for the fiscal years ended November 30, 2000, 1999 and 1998 would have been
reduced to the pro-forma amounts presented below:
2000 1999 1998
--------- ---------- ----------
Net (loss) income as reported . . . . . $(50,121) $1,798,353 $9,586,850
Pro-forma . . . . . . . . . . . . . . . $(67,453) $1,636,018 $9,572,002
Net (loss) income per share as reported $ (0.02) $ 0.47 $ 2.46
Pro-forma . . . . . . . . . . . . . . . $ (0.03) $ 0.43 $ 2.46
The fair value of the option grants is estimated as of the date of grant
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 2000, 1999 and 1998; expected life of
options of one to three years, expected volatility of 64% in 2000, 24% in 1999
and 37% in 1998, risk-free interest rates of 8%, and a 0% dividend yield. The
weighted average fair value at date of grant for options granted during 2000,
1999 and 1998 approximated $1.08, $1.03 and $1.16, respectively.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
12. RELATED PARTY TRANSACTIONS:
LEASE COMMITMENT
The Company leased its office facilities under a month-to-month operating
lease agreement from the former President of the Company. Rent paid was
$55,824 for the fiscal year ended November 30, 1998. In addition, the Company
paid all utilities, insurance and property taxes. During January 1998 the
Company vacated this space, however, based upon the agreement with the former
President, the Company paid rent through July 1998.
LINE OF CREDIT
At November 30, 1999, the Company has an outstanding a 7%, $500,000 line of
credit from an officer. The line of credit was secured by 572,500 shares of
the Company's common stock held by the officer. The line of credit, including
accrued interest, was repaid in full in April 2000. As of November 30, 1999,
the outstanding balance on the line of credit was $50,000. There is no
outstanding balance on this line of credit as of November 30, 2000.
RELATED PARTY DEBT
On April 3, 2000, the Company entered into three $1,350,000 lines of credit
(total of $4,050,000), payable on demand, bearing a term of one year and an
annual interest rate of 10%, with three officers of the Company. Each line of
credit is secured by the assets of the Company. The interest rate on this
debt is at least as favorable as the Company could receive from third-party
lenders. The Company has obtained several proposals from third-party lenders
bearing effective rates in excess of 12%.
During the year ended November 30, 2000, interest expense in connection with
these notes was $115,754. As of November 30, 2000, borrowings outstanding on
the line of were $1,375,000 and no interest was due on the notes.
13. EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) profit sharing plan covering substantially
all full-time employees. Under the terms of the plan, the employees may elect
to contribute a portion of their salary to the plan. The Company has agreed
to make matching contributions equal to fifty percent of the first $500 in
deferred compensation plus twenty-five percent of deferrals in excess of
$1,000. In addition, the Company may make discretionary contributions to the
plan. For the fiscal years ended November 30, 2000, 1999 and 1998,
contributions were $62,982, $46,878 and $37,085, respectively.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
14. COMMITMENTS:
OFFICE LEASE COMMITMENTS
The Company is obligated under long-term operating leases for office
facilities through the year 2007.
As of November 30, 2000, future minimum lease payments due under the
non-cancelable operating lease agreements are as follows:
FISCAL YEAR ENDING
NOVEMBER 30, AMOUNT
------------------- ------------
2001 $ 489,481
2002 465,609
2003 478,809
2004 492,009
2005 505,209
Thereafter 1,066,820
------------
Total $ 3,497,937
============
Rent expense under all operating leases, including the related party lease,
amounted to approximately $386,224, $335,000 and $304,000 for the years ended
November 30, 2000, 1999 and 1998, respectively.
15. OPERATING LEASES:
The Company was the lessor of equipment under operating lease agreements which
expired in June 2000. The equipment had an original cost basis of $351,518.
Accumulated depreciation was $351,518 and $330,131 as of November 30, 2000 and
1999, respectively. During the fiscal years ended November 30, 2000 and 1999,
the Company received rental income of $47,587. During the fiscal year ended
November 30, 1998, the Company received rental income of $90,787 under these
agreements.
The Company was also the sublessor of office space in Tempe, Arizona. The
lease agreement expired in March 2000. During the fiscal year ended November
30, 2000, 1999 and 1998, the Company received $37,065 and $33,288,
respectively under this agreement.
16. RESEARCH AND DEVELOPMENT:
Research and development costs included in general and administrative expenses
for the fiscal years ended November 30, 2000, 1999 and 1998 were $1,168,000,
$1,424,000 and $622,000, respectively. These costs have been expensed during
their respective fiscal years.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
17. DISCONTINUED OPERATIONS/SALE OF GOODNET
Effective January 12, 1998, the Company together with the minority
shareholders of GoodNet, entered into an agreement with Winstar
Communications, Inc. ("Winstar") to sell the Company's Internet services
subsidiary, GoodNet, for approximately $22.0 million, consisting of $3.5
million cash and shares of common stock of Winstar having an aggregate market
value of approximately $18.5 million.
Under the terms of the agreement, the Company received approximately
$3,500,000 in cash plus 479,387 shares of Winstar restricted common stock,
which had an aggregate fair market value of approximately $13.9 million as of
the close of business on January 12, 1998. After commissions and related
legal expenses, the Company realized an approximate $13.2 million pretax gain
on the sale in the first quarter of fiscal 1998. Additionally, the Company
received $235,000 in cash to offset GoodNet's net cash disbursements from
December 12, 1997 through the date of the sale.
The results of operations of GoodNet have been shown as discontinued
operations in the accompanying financial statements.
TELESOFT CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. EARNINGS PER SHARE
The following table reconciles the numerators and denominators of the basic
and diluted earnings per share:
FOR THE YEAR ENDED NOVEMBER 30,
-------------------------------
2000 1999 1998
----------- ---------- -----------
BASIC EARNINGS PER COMMON SHARE:
- ----------------------------------------------------
NUMERATOR
(Loss) income from continuing operations $(50,121) $1,249,043 $1,089,578
Loss from operations of GoodNet subsidiary - - (68,428)
Gain on disposal of GoodNet - 549,309 8,565,700
----------- ---------- -----------
Net earnings (loss) available to common shareholders $(50,121) $1,798,352 $9,586,850
=========== ========== ===========
DENOMINATOR
Weighted average number of shares outstanding 2,123,879 3,713,601 3,784,793
=========== ========== ===========
PER SHARE AMOUNTS
(Loss) income from continuing operations $(0.02) $.33 $.29
Loss from operations of GoodNet subsidiary - - (.02)
Gain on disposal of GoodNet - .15 2.26
----------- ---------- -----------
Net earnings (loss) available to common shareholders $(0.02) $.48 $2.53
=========== ========== ===========
DILUTED EARNINGS PER SHARE
- ----------------------------------------------------
NUMERATOR
(Loss) income from continuing operations . . . . . . $ (50,121) $1,249,043 $1,089,578
Loss from operations of GoodNet subsidiary . . . . . - - (68,428)
Gain on disposal of GoodNet. . . . . . . . . . . . . - 549,309 8,565,700
----------- ----------- -----------
Net earnings (loss) available to common shareholders $ (50,121) $1,798,352 $9,586,850
=========== =========== ===========
DENOMINATOR
Weighted average number of shares outstanding. . . . 2,123,879 3,713,601 3,784,793
Effect of dilutive securities: . . . . . . . . . . . - 339,700 342,500
Options and warrants
Stock acquired with proceeds . . . . . . . . . . . . - (221,234) (239,260)
----------- ----------- -----------
Weighted average common shares and assumed . . . . . 2,123,879 3,832,067 3,888,033
conversions outstanding
=========== =========== ===========
PER SHARE AMOUNTS
(Loss) income from continuing operations . . . . . . $ (0.02) $ .33 $ .28
Loss from operations of GoodNet subsidiary . . . . . - - (.02)
Gain on disposal of GoodNet. . . . . . . . . . . . . - .14 2.20
----------- ----------- -----------
Net earnings (loss) available to common shareholders $ (0.02) $ .47 $ 2.46
=========== =========== ===========
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
18. EARNINGS PER SHARE: (CONTINUED)
At November 30, 2000, warrants and options to acquire 150,229 shares of common
stock, at various prices per share, were not included in the computation of
diluted EPS because the options had an anti-dilutive effect.
At November 30, 1999, warrants and options to acquire 535,200 shares of common
stock, at various prices per share, were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
At November 30, 1998, warrants and options to acquire 510,300 shares of common
stock, at various prices per share, were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
19. SEGMENT INFORMATION
The Company's products and services are broken down as follows:
(1) STS Outsourcing Program
(2) Customized Billing Outsourcing Services
(3) System Sales and Maintenance
(a) TelMaster and Telecommunications Management System ("TMS")
(b) RATEX Bookstore Solution
(c) Distribution Control System ("DCS")
(d) Software and Hardware Recurring Maintenance Revenue
(4) Telesoft Recovery Services ("TRS")
(5) Network Services
Following is selected segment information. (in thousands except per share items)
Year ended November 30, 2000 Year ended November 30, 1999
-------------------------------- --------------------------------
System System Network
STS Sales CBS TRS Total STS Sales CBS Services TRS Total
------- ------- -------- ------ ------- ------- ------ ------ --------- ---- -------
Sales, net. . $15,991 $ 6,302 $ 960 $1,360 $24,613 $19,816 $7,857 $1,404 $ 165 $136 $29,378
Cost of sales 11,440 1,332 54 - 12,826 14,766 1,980 35 - - 16,781
------- ------- -------- ------ ------- ------- ------ ------ --------- ---- -------
Gross profit. 4,551 4,970 906 1,360 11,787 5,050 5,877 1,369 165 136 12,597
------- ------- -------- ------ ------- ------- ------ ------ --------- ---- -------
General &
administrative
expenses:
General . . . . 3,486 6,048 722 1,027 11,283 3,563 4,901 1,046 285 453 10,248
Depreciation. . 161 132 19 3 315 160 137 21 - - 318
Bad debt. . . . 230 12 - - 242 215 7 53 - - 275
Corporate
allocations:
General . . . . 151 87 27 6 271 195 52 17 1 1 266
Depreciation. . 136 136 33 - 305 101 99 23 5 - 228
------- ------- --- ------ ------- ------- ------ ------ --------- ---- -------
4,164 6,415 801 1,036 12,416 4,234 5,196 1,160 291 454 11,335
------- ------- --- ------ ------- ------- ------ ------ --------- ---- -------
Operating income. . 387 (1,445) 105 324 (629) 816 681 209 (126) (318) 1,262
(loss)
Other income. . . . 538 567
------- --------
Pretax income . . . . (91) 1,829
Income tax provision. 41 (580)
------- --------
Income (loss) from
continuing operations $ (50) $ 1,249
======== ========
Diluted earnings
(loss) per share-
continuing operations $ (0.02) $ 0.33
======== ========
Telesoft Corp. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
20. QUARTERLY FINANCIAL DATA
(unaudited)/(in thousands except per share amounts)
QUARTER ENDED
--------------------------------------------------------
FEBRUARY 29 (28) MAY 31 AUGUST 31 NOVEMBER 30
----------------- ---------- ----------- ------------
2000
- ----
Net revenues . . . . . . . . . . . . . . . . . 7,022 6,485 3,116 7,990
Gross profit . . . . . . . . . . . . . . . . . 3,396 2,677 2,061 3,653
Income (loss) from continuing operations . . . 378 (223) (553) 348
Income (loss) per share - continuing . . . . . $ 0.10 ($0.11) ($0.40) $ 0.25
operations, diluted
Income (loss) per share - continuing . . . . . $ 0.10 ($0.11) ($0.40) $ 0.25
operations, basic
Shares used in per share calculation - diluted 3,829,204 2,030,721 1,377,728 1,377,085
Shares used in per share calculation - basic . 3,711,500 2,030,721 1,377,728 1,377,085
1999
- ----
Net revenues . . . . . . . . . . . . . . . . . 7,802 7,224 3,966 10,386
Gross profit . . . . . . . . . . . . . . . . . 3,384 2,892 2,298 4,023
Income (loss) from continuing operations . . . 628 280 (241) 582
Income (loss) per share - continuing . . . . . $ 0.07 ($0.06) $ 0.16
operations, diluted. . . . . . . . . . . $ 0.16
Income (loss) per share - continuing . . . . . $ 0.08 ($0.06) $ 0.15
operations, basic. . . . . . . . . . . . $ 0.17
Shares used in per share calculation - diluted 3,867,837 3,711,500 3,711,500 3,711,500
Shares used in per share calculation - basic . 3,720,022 3,834,538 3,711,500 3,805,073
Exhibit 21: Subsidiaries of Registrant
Name of Subsidiary Date of Incorporation State of Incorporation
- -------------------------- --------------------- ----------------------
Telesoft Acquisition Corp. March 24, 1992 Arizona
Telesoft Recovery Corp. April 13, 1999 Arizona