U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2002
COMMISSION FILE NO. 1-13830
TELESOFT CORP.
(Name of Small Business Issuer 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)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 308-2100
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such report), and (2) has been subject to such filing requirements for
the past 90 days.
Yes (X) No ( )
At June 28, 2002, the Issuer had outstanding 1,412,883 shares of common stock,
no par value.
Transitional Small Business Disclosure Format Yes ( ) No (X)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets as of May 31, 2002 (unaudited) and
November 30, 2001 3
Consolidated Statements of Operations and Consolidated Operations for
the three and six month periods ended May 31, 2002 (unaudited)
and 2001 (unaudited) 4
Consolidated Statements of Cash Flows for the six month periods ended
May 31, 2002 (unaudited) and 2001 (unaudited) 5-6
Notes to the Consolidated Financial Statements 7
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 8-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 14
ITEM 3. DEFAULTS ON SENIOR SECURITIES. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 14
ITEM 5. OTHER INFORMATION. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 15
TELESOFT CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
May 31, 2002 November 30, 2001
(unaudited)
ASSETS
Cash and cash equivalents $ 1,190,348 $ 540,726
Restricted cash 19,390 19,390
Accounts receivable, net of allowance for uncollectibles of $678,286
and $385,272 at May 31, 2002 and November 30, 2001,
respectively 2,772,594 4,567,380
Inventory 80,559 83,542
Income taxes receivable 176,215 112,305
Deferred taxes 305,200 173,400
Other 80,825 101,589
-----------------------------------
Total current assets 4,625,131 5,598,332
Property and equipment, net 877,007 1,032,860
Other 94,888 94,049
-----------------------------------
Total assets $ 5,597,026 $ 6,725,241
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,745,919 $ 2,696,839
Accrued compensation 260,215 307,291
Customer deposits 608,027 473,255
Income taxes payable 130,725 127,519
Deferred revenue 684,475 639,785
-----------------------------------
Total current liabilities 3,429,361 4,244,689
Deferred taxes 89,400 116,400
-----------------------------------
Total liabilities 3,518,761 4,361,089
-----------------------------------
Commitments - -
Stockholders' Equity:
Preferred stock, no par value, 10,000,000 shares authorized;
none issued and outstanding - -
Common stock, no par value, 50,000,000 shares authorized;
1,684,934 issued and 1,412,883 and 1,415,833 outstanding,
respectively 956,731 956,731
Retained earnings 1,938,389 2,219,121
-----------------------------------
2,895,120 3,175,852
Less: Treasury stock, 272,051 and 269,101 shares, at cost (816,855) (811,700)
-----------------------------------
Total stockholders' equity 2,078,265 2,364,152
-----------------------------------
Total liabilities and stockholders' equity $ 5,597,026 $ 6,725,241
===================================
The Accompanying Notes are a Part of
The Consolidated Financial Statements.
3
TELESOFT CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the three and six months ended May 31, 2002 (unaudited) and 2001 (unaudited)
Three Months Ended May 31, Six Months Ended May 31,
2002 2001(1) 2002 2001(1)
----------- ----------- ----------- ------------
Sales, net $3,599,871 $6,399,724 $7,095,803 $12,518,743
Cost of sales 1,383,041 3,379,857 2,436,158 6,266,085
------------------------ --------------------------
Gross profit 2,216,830 3,019,867 4,659,645 6,252,658
General and administrative expenses 2,451,241 2,709,910 5,102,640 5,395,242
------------------------ --------------------------
Operating income (loss) (234,411) 309,957 (442,995) 857,416
------------------------ --------------------------
Other income (expense):
Interest income 5,911 9,997 11,424 21,611
Interest expense (232) (10,725) (1,457) (28,750)
Other income 236 2,227 236 1,185
------------------------ --------------------------
5,915 1,499 10,203 (5,954)
------------------------ --------------------------
Income (loss) before provision for income taxes (228,496) 311,456 (432,792) 851,462
Benefit (provision) for income taxes 60,350 (132,000) 152,060 (362,500)
------------------------ --------------------------
Net and comprehensive income (loss) $ (168,146) $ 179,456 $ (280,732) $ 488,962
======================== ==========================
Earnings (loss) per share
Basic $ (0.12) $ 0.13 $ (0.20) $ 0.35
======================== ==========================
Diluted $ (0.12) $ 0.13 $ (0.20) $ 0.35
======================== ==========================
Weighted average number of shares outstanding
Basic 1,415,328 1,415,833 1,415,578 1,381,095
======================== ==========================
Diluted 1,415,328 1,425,512 1,415,578 1,387,796
======================== ==========================
(1) As restated for comparative purposes only.
The Accompanying Notes are a Part of
The Consolidated Financial Statements.
4
TELESOFT CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended May 31, 2002(unaudited) and 2001 (unaudited)
2002 2001
------------ -------------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Cash received from customers $ 8,786,363 $ 13,936,497
Cash paid to suppliers and employees (8,038,891) (12,070,055)
Interest paid (1,457) (28,750)
Interest received 11,424 21,611
Income tax refund 33,037 216,391
Income taxes paid (100,481) (143,693)
------------ -------------
Net cash provided by operating activities 689,995 1,932,001
------------ -------------
Cash flows from investing activities:
Purchase of property and equipment (35,307) (34,768)
Cash received from sale of fixed assets 89 45,242
------------ -------------
Net cash (used) provided by investing activities (35,218) 10,474
------------ -------------
Cash flows from financing activities:
Purchases of treasury stock (5,155) (146,575)
Proceeds from debt - related parties - 300,000
Stock redemption - (1,375,000)
------------ -------------
Net cash used in financing activities (5,155) (1,221,575)
------------ -------------
Net increase in cash and cash equivalents 649,622 720,900
------------ -------------
Cash and cash equivalents at beginning of period 540,726 41,434
------------ -------------
Cash and cash equivalents at end of period $ 1,190,348 $ 762,334
============ =============
Supplemental disclosure of non-cash investing and financing activities:
During the six months ended May 31, 2001, the Company issued 130,000 shares of
its common stock to Telesoft Recovery Corp. executives. This stock issuance was
made in connection with their employment agreements in lieu of cash compensation
in the amount of $145,031.
The Accompanying Notes are a Part of
The Consolidated Financial Statements.
5
TELESOFT CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the six months ended May 31, 2002(unaudited) and 2001 (unaudited)
2002 2001
----------- ------------
Reconciliation of net income (loss) to net cash
provided by operating activities:
Net income (loss) $ (280,732) $ 488,962
----------- ------------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 191,071 231,832
Gain on sale of fixed assets - (2,227)
Stock compensation - 145,031
Changes in assets and liabilities:
Accounts receivable, net 1,794,786 2,137,570
Inventory 2,983 65,726
Other current assets 20,764 (9,575)
Deferred taxes, net (158,800) (65,100)
Other assets (839) 18,642
Accounts payable and accrued liabilities (950,920) (1,418,834)
Customer deposits 134,772 92,389
Accrued compensation (47,076) 268,672
Deferred revenue 44,690 (521,385)
Income taxes payable 3,206 160,860
Income taxes receivable (63,910) 339,438
----------- ------------
970,727 1,443,039
----------- ------------
Net cash provided by operating activities $ 689,995 $ 1,932,001
=========== ============
The Accompanying Notes are a Part of
The Consolidated Financial Statements.
6
TELESOFT CORP. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six month periods ended May 31, 2002 and 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America
for audited year-end financial statements. In the opinion of management,
all adjustments consisting of recurring accruals considered necessary for a
fair presentation have been included. Operating results for the three and
six months ended May 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending November 30, 2002. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended November 30, 2001.
Principles of Consolidation
The consolidated financial statements include the accounts of Telesoft
Corp., together with its wholly owned subsidiary, Telesoft Recovery Corp.
All significant intercompany accounts and transactions have been
eliminated.
2. STOCKHOLDERS' EQUITY
Treasury Stock
During the six months ended May 31, 2002 and 2001, the Company repurchased
2,950 and 90,995 shares of its common stock for $5,155 and $146,575,
respectively.
Common Stock
During the six months ended May 31, 2001, the Company issued 130,000 shares
of its common stock to TRC executives. This stock issuance was made in
connection with their employment agreements in lieu of cash compensation in
the amount of $145,031. The Company has expensed the total amount of the
stock issuance.
3. RELATED PARTY DEBT:
In April 2000, the Company entered into an agreement with three executive
officers, pursuant to which each of them agreed to make available to the
Company up to $1,000,000 at the Company's request. In May 2000, their
agreements were amended to increase the amount to $1,350,000. Draw downs
were payable on May 31, 2001 and had an annual interest rate of 10%. Each
loan was secured by the Company's assets. Pursuant to a second amendment to
their agreements in April 2001, each of the officers agreed to extend
$350,000 of their loans until August 31, 2001. A third amendment to their
agreements in July 2001 extended their loans until November 30, 2001.
During the six months ended May 31, 2001, interest expense in connection
with these notes was $28,750. These loans were paid in full prior to
November 30, 2001.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS BY PRODUCT LINE FOR THE SIX MONTHS ENDED MAY 31, 2002 AND 2001
(in thousands except per share items)
Six months ended May 31, 2002 Six months ended May 31, 2001
----------------------------- -----------------------------
System System
Sales TRS STS CBS Total Sales TRS STS CBS Total
----------------------------------------------------------------------------------
Sales, net $ 1,943 1,452 3,452 249 $7,096 $ 3,203 $1,167 $7,702 $447 $12,519
Cost of sales 380 145 1,911 - 2,436 828 99 5,337 2 6,266
-------- ------- ------- --- ------- -------- ------ ------ ---- --------
Gross profit 1,563 1,307 1,541 249 4,660 2,375 1,068 2,365 445 6,253
-------- ------- ------- --- ------- -------- ------ ------ ---- --------
General & administrative
expenses:
General 2,244 1,061 994 156 4,455 2,429 717 1,408 244 4,798
Depreciation - 5 46 - 51 20 2 56 6 84
Bad debt - 21 263 - 284 - - 197 - 197
Corporate allocations:
General 90 31 49 7 177 84 2 79 3 168
Depreciation 80 5 40 11 136 88 4 45 11 148
-------- ------- ------- --- ------- -------- ------ ------ ---- --------
2,414 1,123 1,392 174 5,103 2,621 725 1,785 264 5,395
-------- ------- ------- --- ------- -------- ------ ------ ---- --------
Operating income (loss) (851) 184 149 75 (443) (246) 343 580 181 858
Other income (expense) 10 (6)
------- --------
Pretax (loss) income (433) 852
Income tax provision 152 (363)
------- --------
Net (loss) income $ (281) $ 489
======= ========
Diluted (loss) earnings per share $(0.20) $ 0.35
======= =======
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED MAY 31, 2002 AND 2001
Revenues decreased by 43.3% to $7,095,803 for the six months ended May 31,
2002 compared to $12,518,743 for the six months ended May 31, 2001. The
Company's revenue is derived from four principal product lines and services:
System Sales and Maintenance, Telesoft Recovery Services (TRS), STS Outsourcing
Programs (STS) and Customized Billing Outsourcing Services (CBS).
Revenues from System Sales and Maintenance were $1,942,644 for the six
months ended May 31, 2002 compared to $3,202,147 for the six months ended May
31, 2001, a decrease of 39.3%. TelMaster sales and maintenance related revenues
decreased by $1,224,941, or 45.0%, to $1,499,512 for the six months ended May
31, 2002 compared to $2,724,453 for the six months ended May 31, 2001. During
the first half of 2001, TelMaster revenues included $1,076,900 in revenues from
the 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. This contract was terminated in April 2001.
The DCS product revenues were $443,132 and $441,322 during the first half
of 2002 and 2001, respectively. The Company expects declining revenues from
this product. In December 2000, the Company completed the sale of the RATEX
division. RATEX revenues were $36,372 for the six months ended May 31, 2001.
8
Revenues from TRS, which are generated through the Company's wholly-owned
subsidiary, Telesoft Recovery Corp., increased 24.5%, or $285,449, to $1,452,287
for the six months ended May 31, 2002 from $1,166,838, for the six months ended
May 31, 2001.
STS Program revenues were $3,452,385 for the six months ended May 31, 2002
compared to $7,702,411 for the six months ended May 31, 2001, a (55.2%)
decrease. This decrease was primarily due to market pressure from competing
long-distance communications products, including calling cards, wireless
services and the Internet. The Company continues to reduce its selling, general
and administrative expenses to adjust to the reduction in subscribers, traffic
and revenues. The Company expects STS Program revenues to continue to decrease
in the 2002-2003 academic year, based on decreases in long distance usage and
its customer base.
For the six months ended May 31, 2002 and 2001, revenues from CBS were
$248,487 and $447,347, respectively. This $198,860 decrease was due to the
cancellation of two contracts, which contributed combined revenues of $149,000
during the first half of 2001 and an approximate $41,000 decrease in recurring
revenues from Qwest Communications.
Revenue for the six-month period ended May 31,
2002 2001 2000 1999 1998
---------- ----------- ----------- ----------- -----------
Telemanagement $1,499,512 $ 2,724,453 $ 1,673,692 $ 1,311,235 $ 854,140
DCS 443,132 441,322 611,366 661,226 906,641
RATEX - 36,372 577,385 725,775 890,466
--------------------------------------------------------------
System Sales 1,942,644 3,202,147 2,862,443 2,698,236 2,651,247
TRS 1,452,287 1,166,838 431,741 241 -
STS 3,452,385 7,702,411 9,728,487 11,390,479 11,011,644
CBS 248,487 447,347 484,425 808,474 462,595
Network Services - - - 129,556 -
--------------------------------------------------------------
$7,095,803 $12,518,743 $13,507,096 $15,026,986 $14,125,486
==============================================================
9
Total gross profit decreased 25.5% or $1,593,013, to $4,659,645 for the six
months ended May 31, 2002 compared to $6,252,658 for the six months ended May
31, 2001. Cost of goods sold was approximately 55.3% of STS revenues for the
six months ended May 31, 2002, compared with 69.3% for the six months ended May
31, 2001. The increased emphasis on fixed fee structures resulted in a more
moderate decrease in gross profits of 35.5% compared to the 55.2% decrease in
revenues from this division. Cost of goods sold as a percentage of System Sales
and Maintenance revenues were approximately 20% and 26% for the six months ended
May 31, 2002 and 2001, respectively. This decrease was due to a lower
proportion of professional services-related revenue.
General and administrative expenses decreased by 5.4%, or $292,602, for the
six months ended May 31, 2002 to $5,102,640 from $5,395,242 for the six months
ended May 31, 2001. While the Company has cut many costs, it did realize an
approximate $86,000 increase in bad debt expense as well as an increase in TRS
operating expenses. TRS had operating expenses of $1,123,000 and $725,000
during the first half of fiscal 2002 and 2001, respectively. General and
administrative expenses as a percentage of gross profit were 109.5% and 86.3%
for the first half of fiscal 2002 and 2001, respectively. The Company expects
general and administrative expenses as a percentage of gross profit to decrease
over time as revenues for TelMaster systems increase.
There was a $152,060 benefit from income taxes for the first half of fiscal
2002 compared to a $362,500 provision for income taxes for the first half of
fiscal 2001.
The first half of fiscal 2002 resulted in a net loss of $280,732 compared
to net income of $488,962 in the first half of fiscal 2001.
10
RESULTS OF OPERATIONS BY PRODUCT LINE FOR THE THREE MONTHS ENDED MAY 31, 2002 AND 2001
(in thousands except per share items)
Three months ended May 31, 2002 Three months ended May 31, 2001
------------------------------- -------------------------------
System System
Sales TRS STS CBS Total Sales TRS STS CBS Total
-------- ---- ------ ---- ------- ------- ---- ------ ---- -------
Sales, net $ 908 $815 $1,755 $122 $3,600 $ 1,798 $598 $3,820 $184 $6,400
Cost of sales 175 81 1,127 - 1,383 461 51 2,868 - 3,380
-------- ---- ------ ---- ------- ------- ---- ------ ---- -------
Gross profit 733 734 628 122 2,217 1,337 547 952 184 3,020
-------- ---- ------ ---- ------- ------- ---- ------ ---- -------
General &
administrative
expenses:
General 1,067 588 435 72 2,162 1,165 381 715 126 2,387
Depreciation - 3 23 - 26 8 1 28 3 40
Bad debt - 13 100 - 113 - - 120 - 120
Corporate allocations:
General 42 16 22 4 84 44 1 41 1 87
Depreciation 39 3 20 5 67 44 2 23 6 75
-------- ---- ------ ---- ------- ------- ---- ------ ---- -------
1,148 623 600 81 2,452 1,261 385 927 136 2,709
-------- ---- ------ ---- ------- ------- ---- ------ ---- -------
Operating (loss) income (415) 111 28 41 (235) 76 162 25 48 311
Other income 6 1
------- -------
Pretax (loss) income (229) 312
Income tax provision 60 (133)
------- -------
Net (loss) income $ (169) $ 179
======= =======
Diluted earnings (loss) per share $(0.12) $ 0.13
======= =======
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2002 AND 2001
Revenues decreased by 43.7% to $3,599,871 for the three months ended May
31, 2002 compared to $6,399,724 for the three months ended May 31, 2001. The
Company's revenue is derived from four principal product lines and services:
System Sales and Maintenance, Telesoft Recovery Services (TRS), STS Outsourcing
Programs (STS) and Customized Billing Outsourcing Services (CBS).
Revenues from System Sales and Maintenance were $908,056 for the three
months ended May 31, 2002 compared to $1,797,642 for the three months ended May
31, 2001, a decrease of 49.5%. TelMaster sales and maintenance related revenues
decreased by $847,413, or 55.3%, to $685,740 for the three months ended May 31,
2002 compared to $1,533,153 for the three months ended May 31, 2001. During the
second quarter of 2001, TelMaster revenues included $597,956 in revenues from
the 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. This contract was terminated in April 2001. The DCS product
revenues decreased 16.0%, or $42,173, to $222,316.
Revenues from TRS, which are generated through the Company's wholly-owned
subsidiary, Telesoft Recovery Corp., increased 36.3%, or $216,705, to $814,841
for the three months ended May 31, 2002 from $598,136 for the three months ended
May 31, 2001.
STS Program revenues were $1,755,524 for the three months ended May 31,
2002 compared to $3,819,844 for the three months ended May 31, 2001, a 54.0%
decrease.
11
For the three months ended May 31, 2002 and 2001, revenues from CBS were
approximately $121,000 and $184,000, respectively. This approximate $63,000
decrease was due to the cancellation of two contracts, which contributed
combined revenues of $44,000 during the second quarter of 2001 and an
approximate $19,000 decrease in recurring revenues from Qwest Communications.
Revenue for the three-month period ended May 31,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Telemanagement $ 685,740 $1,533,153 $ 564,737 $ 593,563 $ 409,352
DCS 222,316 264,489 239,210 322,284 518,413
RATEX - - 240,276 394,193 395,018
----------------------------------------------------------
System Sales 908,056 1,797,642 1,044,223 1,310,040 1,322,783
TRS 814,841 598,136 272,636 241 -
STS 1,755,524 3,819,844 4,936,954 5,572,551 5,555,832
CBS 121,450 184,102 230,740 263,469 220,093
Network Services - - - 78,088 -
----------------------------------------------------------
$3,599,871 $6,399,724 $6,484,553 $7,224,389 $7,098,708
==========================================================
Total gross profit decreased 26.6%, or $803,037, to $2,216,830 for the
three months ended May 31, 2002 compared to $3,019,867 for the three months
ended May 31, 2001. Cost of goods sold was approximately 64% of STS revenues for
the second quarter of 2002, compared with 75% for the second quarter of 2001.
Cost of goods sold as a percentage of System Sales and Maintenance revenues were
approximately 19% and 26% for the three months ended May 31, 2002 and 2001,
respectively. This decrease was due to a lower proportion of professional
services-related revenue.
General and administrative expenses decreased by 9.6%, or $258,669, for the
three months ended May 31, 2002 to $2,451,241 from $2,709,910, for the three
months ended May 31, 2001. While the Company has cut many costs, it did realize
an increase in TRS operating expenses. TRS had operating expenses of
approximately $623,000 and $385,000 during the second quarter of fiscal 2002 and
2001, respectively. General and administrative expenses as a percentage of gross
profit were 110.6% and 89.7% for the second quarter of fiscal 2002 and 2001,
respectively. The Company expects general and administrative expenses as a
percentage of gross profit to decrease over time as revenues for TelMaster
systems increase.
There was a $60,350 benefit from income taxes for the second quarter of
fiscal 2002 compared to a $132,000 provision for income taxes for the second
quarter of fiscal 2001.
The second quarter of fiscal 2002 resulted in a net loss of $168,146
compared to net income of $179,456 in the second quarter of fiscal 2001.
12
MATERIAL CHANGES IN FINANCIAL POSITION
Accounts receivable decreased to $3,450,880 as of May 31, 2002 from
$4,952,652 as of November 30, 2001 ($2,772,594 and $4,567,380, net of allowance
for uncollectibles as of May 31, 2002 and November 30, 2001, respectively). This
decrease was primarily due to normal seasonal decline in STS revenues. STS
revenues were approximately $1,755,000 and $2,635,000 for the second quarter of
2002 and the fourth quarter of 2001, respectively.
Accounts payable and accrued liabilities decreased to $1,745,919 as of May
31, 2002 from $2,696,839 as of November 30, 2001. This decrease was attributable
to the decline in STS cost of sales.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2002, the Company had cash and cash equivalents of $1,190,348.
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.
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.
13
PART II
OTHER INFORMATION
ITEM 1. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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 second quarter of fiscal 2002.
ITEM 5. OTHER INFORMATION
Not applicable.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) NO. DESCRIPTION REFERENCE
--- ----------- ---------
11 Earnings per common and Filed herewith
common equivalent shares
(b) There were no reports on Form 8-K filed during the quarter ended
May 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Issuer has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TELESOFT CORP.
BY: /s/ Michael F. Zerbib
-------------------------------------
Michael F. Zerbib
President, Chief Executive Officer,
Chief Financial Officer,
Treasurer and Director
(and principal accounting officer)
DATED: July 8, 2002
15