United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITON REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-11883
TELEBYTE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2510138
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
270 Pulaski Road, Greenlawn, New York 11740
- ---------------------------------------------------------------------
(Address of principal executive offices)
_____________________________(516) 423-3232_______________________________
(Issuer's telephone number)
_____________________________Telebyte Technology, Inc._________________________
(Former name, former address
and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of August 16, 1999 there were outstanding 1,248,631 shares of Common Stock,
$.01 par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
TELEBYTE, INC.
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
INDEX
Part I Financial Information
Item 1. Financial Statements
Balance Sheet
June 30, 1999 (Unaudited)
Statements of Earnings
Three and six months ended
June 30, 1999 and 1998 (Unaudited)
Statements of Cash Flows
Six months ended
June 30, 1999 and 1998 (Unaudited)
Condensed Notes to Financial
Statements (Unaudited)
Item 2. Management's Discussion and
Analysis or Plan of Operation.
Part II Other Information
Part I Financial Information
Item 1. Financial Statements
TELEBYTE, INC.
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
BALANCE SHEET
June 30, 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 119,300
Accounts receivable, less
allowance for doubtful accounts 765,662
Inventory 1,616,187
Prepaid expenses 90,439
Deferred income taxes 50,000
--------------
TOTAL CURRENT ASSETS 2,641,588
PROPERTY, PLANT AND EQUIPMENT, less
accumulated depreciation and amortization 1,056,437
OTHER ASSETS 322,863
--------------
$ 4,020,888
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 397,931
Accrued expenses 233,399
Borrowings under line-of credit 174,234
Current maturities of long-term debt 69,359
--------------
TOTAL CURRENT LIABILITIES 874,923
LONG-TERM BORROWINGS UNDER LINE-OF CREDIT 212,749
LONG-TERM DEBT, less current maturities 827,849
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000 shares
authorized; 1,666,066 shares issued and 1,248,631 shares
outstanding 16,660
Capital in excess of par value 2,764,821
Retained earnings 352,409
Treasury stock - 417,435 shares at cost (1,028,523)
--------------
2,105,367
--------------
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $ 4,020,888
==============
The accompanying notes are an integral part of this financial statement.
TELEBYTE, INC.
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
STATEMENTS OF EARNINGS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
------------- ---------------- --------------- --------------
NET SALES $ 1,362,966 $ 1,406,103 $ 2,728,246 $ 2,626,919
COST OF SALES 620,941 673,450 1,299,408 1,235,756
------------- ---------------- --------------- --------------
GROSS PROFIT 742,025 732,653 1,428,838 1,391,163
------------- ---------------- --------------- --------------
OPERATING EXPENSES
Selling, general and
administrative 504,955 622,437 935,640 1,022,088
Research and development 149,768 132,580 278,887 228,432
------------- --------------- -------------- --------------
654,723 755,017 1,214,527 1,250,520
------------- --------------- -------------- --------------
Operating Income (Loss) 87,302 (22,364) 214,311 140,643
------------- --------------- -------------- --------------
OTHER INCOME (EXPENSE)
Rental Income 12,049 12,049 24,098 24,098
Interest Income 313 5,409 4,995 11,879
Interest Expense (30,525 (24,610) (60,889 (53,116)
------------- --------------- -------------- --------------
Earnings before income taxes 69,139 (29,516) 182,515 123,504
Provision for income taxes 25,000 0 70,000 2,000
------------- --------------- -------------- --------------
NET EARNINGS (LOSS) $ 44,139 $ (29,516) $ 112,515 $ 121,504
============= =============== ============== ==============
Earnings (Loss) per common share:
Basic $ 0.04 $ (0.02) $ 0.09 $ 0.08
============= =============== ============== ==============
Diluted $ 0.03 $ (0.02) $ 0.09 $ 0.08
============= =============== ============== ==============
Shares used in computing earnings per common
share:
Basic 1,248,631 1,504,438 1,275,911 1,498,333
============= =============== ============== ==============
Diluted 1,276,061 1,504,438 1,303,342 1,549,983
============= =============== ============== ==============
The accompanying notes are an integral part of this financial statement
TELEBYTE, INC.
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1999 1998
--------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 112,515 $ 121,504
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 75,388 52,565
Decrease (increase) in assets:
Accounts receivable (117,195) 106,790
Inventories (194,213) (263,381)
Prepaid expenses and other (7,436) (64,381)
Increase (decrease) in liabilities:
Accounts payable 45,922 (18,121)
Accrued expenses 96,728 1,512
--------------------- ---------------------
Net cash provided by (used in) operating activities 11,709 (63,512)
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (42,292) (25,846)
Purchase of non-compete agreement (203,124)
--------------------- ---------------------
Net cash used in investing activities (245,416) (25,846)
--------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under mortgage obligation (30,126) (24,686)
Purchase of treasury stock (927,430)
Net borrowings under line-of credit agreement 386,983
Proceeds from exercise of stock options 3,950 8,322
--------------------- ---------------------
Net cash used in financing activities (566,623) (16,364)
--------------------- ---------------------
Net decrease in cash and cash equivalents (800,330) (105,722)
Cash and cash equivalents at beginning of period 919,630 730,284
--------------------- ---------------------
Cash and cash equivalents at end of period $ 119,300 $ 624,562
===================== =====================
The accompanying notes are an integral part of this financial statement.
TELEBYTE, INC.
(FORMERLY TELEBYTE TECHNOLOGY, INC.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED FINANCIAL STATEMENTS
The balance sheet as of June 30, 1999, the statement of earnings for the three
and six months then ended and the statements of cash flows for the six month
period then ended have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
accrual adjustments) necessary to present fairly the financial position, results
of operations and cash flows at June 30, 1999 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
are read in conjunction with the financial statements and notes thereto included
in the Company's annual report to shareholders for the fiscal year ended
December 31, 1998. The results of operations for the period ended June 30, 1999
are not necessarily indicative of the operating results for the full year.
2. RELATED PARTY TRANSACTIONS
Effective January 20, 1999, then Chairman of the Board, President and Chief
Executive Officer of the Company (the "Former Chairman") resigned his positions
with the Company. However, the Former Chairman will serve as a consultant to the
Company through January 19, 2002 for an aggregate consideration of $165,000 plus
reimbursement for certain expenses. In addition, the Company purchased all of
the shares of common stock of the Company owned by the Former Chairman and the
Former Chairman agreed to cancel options to purchase 10,000 shares of common
stock of the Company for an aggregate consideration of $1,149,455 of which
$927,430 was for such shares, $18,901 was for the cancellation of such options
and $203,124 was for the Former Chairman's restrictive covenant. In addition,
the Former Chairman has agreed not to compete with the business of the Company
until January 19, 2003 and has released the Company from certain potential
claims relative to his previous employment. Further, the Company transferred a
life insurance policy maintained under the Company's deferred compensation plan,
to the Former Chairman, having a cash value of approximately $80,000.
Item 2. Management's Discussion and Analysis or Plan of Operation.
When used herein, the words "believe," "anticipate," "think," "intend," "will
be," "expect" and similar expressions identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are not guarantees of future performance and involve certain risks
and uncertainties discussed herein, which could cause actual results to differ
materially from those in the forward-looking statements. Readers are cautioned
not to place undue reliance on the forward-looking statements, which speak only
as of the date hereof. Readers are also urged carefully to review and consider
the various disclosures made by the Company which attempt to advise interested
parties of the factors which affect the Company's business, including, without
limitation, the disclosures made under the caption "Management's Discussion and
Analysis or Plan of Operation." All references to a fiscal year are to the
Company's fiscal year, which ends December 31.
RESULTS OF OPERATIONS
Sales during the second quarter ended June 30, 1999 decreased 3% to $1,362,966
compared to sales of $1,406,103 for the same period in 1998. Sales during the
six months ended June 30, 1999 increased 4% to $2,728,246 compared to sales of
$2,626,919 for the same period in 1998.
Cost of sales for the second quarter of $620,941 or 45.6% of sales decreased
compared to the $673,450 or 47.9% of sales during the same period in 1998. The
increased profit margin during the second quarter of 1999 is due primarily to a
higher percent of higher profit margin products dominating sales in the second
quarter of 1999 as compared with the second quarter of 1998.
Selling, general and administrative costs for the second quarter of $504,955
decreased as compared to $622,437 during the second quarter of 1998. The
decrease of $117,482 during the second quarter was due primarily to a reduction
in the distribution of the Company's catalog to approximately 75,000 catalogs
during the second quarter of 1999 compared to approximately 200,000 during the
same period in 1998. The Company continued its program to enhance the Company's
Internet presence during the second quarter and expects to implement the planned
enhancements during the third quarter of 1999. The decrease was also affected by
a decrease in the Company's sales staff which was implemented at the end of
January. This decrease reflects management's commitment toward moving the
Company from selling on a telephone basis to an automated Internet basis.
Research and development expenses for the second quarter of $149,768 increased
13%, compared to $132,580 during the same quarter in 1998. The increase was due
to the completion of the development of the Company's Digital Subscriber Line
(DSL) wireline and loop interference simulators and fiber optic signaling
products.
Interest income decreased to $313 during the second quarter of 1999 compared to
$5,409 for the same period in 1998. The decrease in interest income was due
primarily to lower levels of cash on deposit at Merrill Lynch. During the second
quarter of 1999 the Company had rental income of $12,049 which was in line with
the comparable quarter of 1998.
The effective tax rate in second quarter of 1999 was 36 percent, compared with
1.6 percent in same quarter in 1998. The increase in the effective tax rate is
primarily due to the Company's utilization of its net operating loss
carryforward.
The net income of $44,139 or $.03 per share for the second quarter of 1999
increased compared to the net loss of $29,516 or $.02 per share in the same
quarter in 1998. The increase in profitability is due primarily to the decreased
selling, general and administrative expenditures.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities for the six months ended June 30, 1999
was $11,709 compared to net cash used of $63,512 in the same period of 1998.
This change is due primarily to an increase in accounts payable and accrued
expenses.
Working capital decreased as of June 30, 1999 by $791,215 to $1,766,665 compared
with $2,557,880 from December 31, 1998. The current ratio at June 30, 1999
decreased to 3:1 compared to 5.6:1 at December 31, 1998. These decreases reflect
the use of working capital by the Company in the purchase of treasury stock and
related non-compete agreement with the former Chairman and Chief Executive
Officer.
The Company has an agreement with a financial institution, expiring June 30,
2000, which provides the Company with a line of credit facility of up to
$500,000 ("Original Facility") based on eligible accounts receivable and
purchased components and materials and finished goods inventories of the
Company, as defined in the agreement. Further, the agreement contains certain
financial covenants which require the Company to maintain a minimum level of
tangible net worth and places limitations on the ratio of the Company's total
debt to Company's tangible net worth, as defined in the agreement. Borrowings
under the line of credit bear interest at the bank's specified prime rate plus
.75%. The balance against this line at June 30, 1999 was $174,234.
In January 1999, the Company secured an additional Reducing Revolving line of
credit from this institution that provides for initial borrowings up to a
maximum of $1,000,000. Availability under the Reducing Revolving line of credit
will decrease approximately $11,900 per month and will expire January 2006.
Borrowings under this loan agreement bear interest at the 30 Day Commercial
Paper Rate plus 2.90%. Net borrowings under this line of credit totaled $212,749
at June 30, 1999.
The Company believes that cash generated by the Company's operations, current
cash and cash equivalents, and the line of credit should supply the cash
resources to meet its cash needs for the next twelve months.
Preparation for Year 2000 Problems
The Year 2000 ("Y2K") problem is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any of the
Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000, which could result in miscalculations or system failures.
The Company has instituted a Y2K compliance program, the objective of which is
to determine and assess the risks of the Y2K issue, and plan and institute
mitigating actions to minimize those risks. The Company's standard for
compliance requires that for a computer system or business process to be Y2K
compliant, it must be designed to operate without error in date and date-related
data prior to, on and after January 1, 2000. The Company expects to be fully Y2K
compliant with respect to all significant business systems prior to December 31,
1999.
The Company's Y2K plan consists of four phases: (1) assessment and analysis of
"mission critical" systems and equipment; (2) correction of systems and
equipment, through strategies that include the enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems; (3) testing of systems and equipment; and
(4) contingency planning which will address possible adverse scenarios and the
potential financial impact to the Company's results of operations, liquidity or
financial position.
Information Technology (IT) Systems
Information technology systems ("IT Systems") account for much of the Year 2000
work and include all computer systems and technology used by the Company. All
core systems have been assessed, plans are in place, and work is being
undertaken to implement changes where required. The appropriate vendors and
suppliers have been contacted as to their Year 2000 compliance. Management
believes that all of the Company's IT systems and equipment have been
identified, and that approximately 80% of the work necessary to make such
systems and equipment Y2K- compliant has been finished.
The third phase of the plan, testing of the Company's IT systems, is expected to
be completed by the end of the third quarter of 1999. Testing will consist
largely of the purchase and use of Y2K compliance test software. All aspects of
the Company's Y2K compliance plan have been and will be performed by the
Company's staff, at a cost that is not believed by the Company's management to
be material. Management estimates that Y2K costs incurred to date, plus Y2K
costs yet to be incurred, will total approximately $15,000. Y2K costs are
expensed as incurred.
Non-IT Systems
An inventory and assessment of all non-IT systems (items containing embedded
chips, such as electronic door locks, telephones, etc.) is being undertaken. The
majority of these non-IT systems are not believed to be potential sources of
significant disruption, although the contingency plans (described below) will
address non-IT Y2K failure as well as IT systems failure.
Products
The Company has evaluated its currently available products and believes that
they are Year 2000
compliant. The Company's currently available products are generally not date
sensitive, although the environment in which they operate may have Year 2000
issues not associated with the Company's products. The inability of any of the
Company's products to operate properly in the Year 2000 could result in
increased warranty costs, customer satisfaction issues, litigation, or other
material costs and liabilities, which could have a material adverse affect on
the Company, its results of operations and financial condition.
Contingency Plans
The Company's management is in the process of developing a "worst-case scenario"
with respect to Y2K non-compliance and to develop contingency plans designed to
minimize the effects of such scenario. Although management believes that it is
very unlikely that the worst-case scenario will occur, contingency plans will be
developed and will address both IT system and non-IT system failure.
In the event of Y2K- related IT system failure, the Company would be unable to
ship orders because its power system would not be functioning. In such event,
the Company plans to use its own generators as a back-up power source.
In terms of non-IT and third-party Y2K non-compliance, the worst-case scenario
for the Company would involve the loss of supply of component parts or other
materials from one or more of its major suppliers. The Company has made plans to
have a 100-day supply of finished goods available if such contingency arises.
There is still uncertainty about the broader scope of the Year 2000 issue as it
may affect the Company and third parties that are critical to our operations.
For example, lack of readiness by electrical and water utilities, financial
institutions, governmental agencies or other providers of general infrastructure
could pose significant impediments to our ability to carry on our normal
operations. The Company intends to request assurances of Y2K readiness from its
telephone and utilities suppliers. However, management has been informed that
some suppliers have either declined to provide the requested assurances, or have
limited the scope of assurances to which they are willing to permit. If
suppliers of services that are critical to the Company's operations were to
experience business disruptions as a result of their lack of Y2K readiness,
their problems could have a material adverse affect on the financial position
and results of operations of the Company. The impact of a failure of readiness
by critical suppliers cannot be estimated with confidence, and the effectiveness
of contingency plans to mitigate the effect of any such failure is largely
untested. Management cannot provide an assurance that there will be no material
adverse effects to the financial condition or results of operations of the
Company as a result of Y2K issues.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELEBYTE, INC.
By: \s\Kenneth S. Schneider
-----------------------
Kenneth S. Schneider
Chairman of the Board
(Principal Executive Officer)
By: \s\Michael Breneisen
--------------------
Michael Breneisen, President
(Principal Financial and Accounting Officer)
Date: August 16, 1999