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, 2002
|_| TRANSITON REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-11883
TELEBYTE, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2510138
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
270 Pulaski Road, Greenlawn, New York 11740
(Address of principal executive offices)
(631) 423-3232
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Yes |X| No |_|
As of August 14, 2002, there were outstanding 1,253,631 shares of Common
Stock, $.01 par value.
Transitional Small Business Disclosure Format (check one);
Yes |_| No |X|
TELEBYTE, INC. & SUBSIDIARY
INDEX
Part I Financial Information
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheet
June 30, 2002 (Unaudited)
Consolidated Statements of Operations
Three and six months ended
June 30, 2002 and 2001 (Unaudited)
Consolidated Statement of Shareholders' Equity
Six months ended
June 30, 2002 (Unaudited)
Consolidated Statements of Cash Flows
Six months ended
June 30, 2002 and 2001 (Unaudited)
Notes to Condensed Consolidated Financial
Statements (Unaudited)
Item 2. Management's Discussion and
Analysis or Plan of Operation
Part II Other Information
Part I Financial Information
Item 1. Financial Statements
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 148,365
Accounts receivable, less
allowance for doubtful accounts of $44,000 681,867
Inventory 2,025,964
Prepaid expenses 152,287
Refundable income taxes 321,590
Deferred income taxes 282,000
----------
TOTAL CURRENT ASSETS 3,612,073
PROPERTY AND EQUIPMENT, less
accumulated depreciation and amortization 1,165,769
OTHER ASSETS, net 120,443
----------
$4,898,285
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 459,051
Accrued expenses 254,200
Borrowings under line-of credit 473,674
Current maturities of long-term debt 92,803
Current maturities of capital lease obligations 11,536
----------
TOTAL CURRENT LIABILITIES 1,291,264
LONG-TERM BORROWINGS UNDER LINE OF CREDIT 487,688
LONG-TERM DEBT, less current maturities 591,405
CAPITAL LEASE OBLIGATIONS, less current maturities 7,206
DEFERRED SERVICE REVENUE 12,548
DEFERRED INCOME TAXES 217,000
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 9,000,000 shares authorized;
1,253,631 shares issued and outstanding 12,536
Capital in excess of par value 1,781,672
Retained earnings 496,966
----------
2,291,174
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,898,285
==========
The accompanying notes are an integral part of this financial statement.
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
ended June 30, ended June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
NET SALES $ 1,325,541 $ 1,368,573 $ 2,608,859 $ 3,047,805
COST OF SALES 758,960 738,216 1,540,024 1,528,242
----------- ----------- ----------- -----------
GROSS PROFIT 566,581 630,357 1,068,835 1,519,563
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 478,000 607,934 1,075,748 1,208,417
Research and development 176,445 188,328 366,573 328,532
----------- ----------- ----------- -----------
654,445 796,262 1,442,321 1,536,949
----------- ----------- ----------- -----------
Operating loss (87,864) (165,905) (373,486) (17,386)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Other income 8,772 -- 8,772 78,800
Rental income 12,049 12,049 24,098 24,098
Interest income 201 370 429 5,427
Interest expense (31,515) (25,664) (54,431) (44,931)
----------- ----------- ----------- -----------
(Loss) earnings before income taxes (98,357) (179,150) (394,618) 46,008
(Benefit) provision for income taxes (4,470) (68,900) (122,970) 18,600
----------- ----------- ----------- -----------
NET (LOSS) EARNINGS $ (93,887) $ (110,250) $ (271,648) $ 27,408
=========== =========== =========== ===========
(Loss) earnings per common share:
Basic $ (0.07) $ (0.09) $ (0.22) $ 0.02
=========== =========== =========== ===========
Diluted $ (0.07) $ (0.09) $ (0.22) $ 0.02
=========== =========== =========== ===========
Shares used in computing earnings per common share:
Basic 1,253,631 1,253,631 1,253,631 1,253,631
=========== =========== =========== ===========
Diluted 1,253,631 1,253,631 1,253,631 1,470,974
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)
Number of Capital in
shares Common excess of Retained
issued stock par value earnings Total
------- ------ ---------- -------- -----
Balance at January 1, 2002 1,253,631 $ 12,536 $ 1,781,672 $ 768,614 $ 2,562,822
Net loss (271,648) (271,648)
--------- -------- ----------- --------- -----------
Balance at June 30, 2002 1,253,631 $ 12,536 $ 1,781,672 $ 496,966 $ 2,291,174
========= ======== =========== ========= ===========
The accompanying notes are an integral part of this financial statement.
TELEBYTE, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
ended June 30,
-------------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) earnings $(271,648) $ 27,408
Adjustments to reconcile net (loss) earnings to
net cash used in operating activities:
Provision for bad debts 6,000 11,752
Depreciation and amortization 82,343 117,522
Provision for inventory obsolescence 24,998 9,999
Loss from disposal of property and equipment 3,923 --
Decrease (increase) in operating assets:
Accounts receivable (126,144) 7,786
Inventories 38,271 (738,559)
Prepaid expenses, taxes and other (81,243) (4,379)
Increase (decrease) in operating liabilities:
Accounts payable (5,365) 97,189
Accrued expenses and taxes (24,529) (142,294)
Deferred service revenue 12,548 --
--------- ---------
Net cash used in operating activities (340,846) (613,576)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (8,843) (87,409)
--------- ---------
Net cash used in investing activities (8,843) (87,409)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (46,413) (41,965)
Principal payments on capital lease obligations (5,403) (3,302)
Net borrowings under line of credit agreement 74,274 --
Net borrowings under long-term line of credit agreement 230,539 422,563
--------- ---------
Net cash provided by financing activities 252,997 377,296
--------- ---------
Net decrease increase in cash and cash equivalents (96,692) (323,689)
Cash and cash equivalents at beginning of period 245,057 433,703
--------- ---------
Cash and cash equivalents at end of period $ 148,365 $ 110,014
========= =========
Non cash financing activities
Equipment acquired under capital lease obligation -- $ 33,460
The accompanying notes are an integral part of these financial statements.
TELEBYTE, INC. & SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 30, 2002, the consolidated statements
of operations, shareholders' equity and cash flows, for the three-months and
six-months in the periods ended June 30, 2002 and 2001, have been prepared by
us, without audit. In the opinion of management, all adjustments (which include
only normal recurring accrual adjustments) necessary to present, fairly, the
financial position, results of operations and cash flows have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these financial statements be read in conjunction with the financial
statements and notes thereto included in our Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2001. The results of operations for the
periods ended June 30, 2002 and 2001 are not necessarily indicative of the
operating results for the full year.
2. EARNINGS PER SHARE
The number of shares used, in the Company's basic and diluted earnings per share
computations are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------------------------
2002 2001 2002 2001
------------------------------------------------------
Weighted average common shares outstanding
for basic earnings per share 1,253,631 1,253,631 1,253,631 1,253,631
Common stock equivalents for stock options -- -- -- 217,343
--------- --------- --------- ---------
Weighted average common shares outstanding
for diluted earnings per share 1,253,631 1,253,631 1,253,631 1,470,974
========= ========= ========= =========
Excluded from the calculation of diluted earnings per share are 524,000 and
533,000 options to purchase the Company's common stock for the three and six
months ended June 30, 2002 and 539,000 and 46,500 options, for the three and six
months ended June 30, 2001, as their inclusion would be anti-dilutive.
3. BUSINESS SEGMENTS
The Company has two reportable segments: Telebyte is a manufacturer of
technology products and Nextday.com distributes Telebyte's and other
manufacturers' products through e-commerce.
The Company's chief operating decision maker utilizes net sales and net earnings
(loss) information in assessing performance and making overall operating
decisions and resource allocations. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies as set forth in the December 31, 2001 Annual Report on Form
10-KSB. Information about the Company's segments for the three months and six
months ended June 30, 2002 and 2001 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------
Net sales from external customers
Telebyte $ 1,294,601 $ 1,315,098 $ 2,438,886 $ 2,979,423
Nextday.com 30,940 53,475 169,973 68,382
----------- ----------- ----------- -----------
$ 1,325,541 $ 1,368,573 $ 2,608,859 $ 3,047,805
=========== =========== =========== ===========
Intersegment net sales
Telebyte $ (9,428) $ (76,640) $ (8,207) $ 217,532
Nextday.com -- -- -- --
----------- ----------- ----------- -----------
$ (9,428) $ (76,640) $ (8,207) $ 217,532
=========== =========== =========== ===========
Operating profit (loss)
Telebyte $ (84,069) $ (127,546) $ (356,224) $ 92,561
Nextday.com (3,795) (38,359) (17,262) (109,947)
----------- ----------- ----------- -----------
$ (87,864) $ (165,905) $ (373,486) $ (17,386)
=========== =========== =========== ===========
Earnings (loss) before income taxes
Telebyte $ (94,659) $ (140,967) $ (377,566) $ 76,414
Nextday.com (3,698) (38,183) (17,052) (30,406)
----------- ----------- ----------- -----------
$ (98,357) $ (179,150) $ (394,618) $ 46,008
=========== =========== =========== ===========
Identifiable assets
Telebyte $ 4,781,777 $ 4,728,571
Nextday.com 116,508 280,072
----------- -----------
$ 4,898,285 $ 5,008,643
=========== ===========
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS 143"), which is effective for years beginning after June 15,
2002. SFAS 143 addresses legal obligations associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development or normal operation of a long-lived asset. The standard requires
that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. Any associated asset retirement costs are to be
capitalized as part of the
carrying amount of the long-lived asset and expensed over the life of the asset.
The Company has elected to adopt SFAS 143 for the year beginning January 1,
2002. The impact of adopting SFAS 143 was not material to the consolidated
financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which is effective for fiscal years
beginning after December 15, 2001. SFAS 144 clarifies accounting and reporting
for assets held for sale, scheduled for abandonment or other disposal, and
recognition of impairment loss related to the carrying value of long-lived
assets. The Company has adopted SFAS 144 for the year beginning January 1, 2002.
The impact of adopting SFAS 144 was not material to the consolidated financial
statements.
Item 2. Management's Discussion and Analysis or Plan of Operation.
When used herein, the words "believe," "anticipate," "think," "intend," "will
be," "expect" and similar expressions identify forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are not guarantees of future performance and involve certain risks
and uncertainties discussed herein and under the caption "Risk Factors" in our
Annual Report on Form 10-KSB for the year ended December 31, 2001, which could
cause actual results to differ materially from those in the forward-looking
statements. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by law. Readers are also urged to carefully review and
consider the various disclosures made by us which attempt to advise interested
parties of the factors which affect our business, including, without limitation,
the disclosures made under the caption "Management's Discussion and Analysis or
Plan of Operation." All references to a fiscal year are to our fiscal year,
which ends December 31.
RESULTS OF OPERATIONS
Net sales during the second quarter ended June 30, 2002 decreased 3.1% to
$1,325,541 compared with net sales of $1,368,573 for the same period in 2001.
Net sales for the six months ended June 30, 2002 decreased 14.4% to $2,608,859
compared with net sales of $3,047,805 for the same period in 2001. Net sales of
the Company's datacom products declined 29% during the second quarter 2002,
compared with the same period in 2001 and declined 42% for the first six months
of 2002 compared with the same period in 2001.
Cost of sales for the second quarter ended June 30, 2002 of $758,960 increased
slightly compared with $738,216 during the second quarter of 2001. Cost of sales
as a percentage of net sales was 57.3% for the second quarter ended June 30,
2002 as compared with 53.9% of net sales during the same period in 2001. Cost of
sales for the six months ended June 30, 2002 of $1,540,024 also increased
slightly compared with $1,528,242 during the same period in 2001. Cost of sales
as a percentage of net sales was 59.0% for the six months ended June 30, 2002 as
compared with 50.1% of net sales for the same period in 2001. The decrease in
our profit margin percentage was primarily due to product mix.
Selling, general and administrative expenses for the second quarter ended June
30, 2002 of $478,000 decreased by $129,934 from $607,934 during the same period
in of 2001. Selling, general and administrative expenses for the six months
ended June 30, 2002 of $1,075,748 decreased by $132,669 from $1,208,417 during
the same period in of 2001. The decrease was due primarily to a cost reduction
program started by the Company in the second half of 2001, which included the
closing of our sales and marketing office for the Broadband products, located in
Duluth, Georgia, reductions in staff, and wage reductions of key personnel.
Research and development expenses, for the second quarter of 2002, of $176,445
decreased by $11,883, compared with $188,328 during the second quarter of 2001.
Research and development expenses for the six months ended June 30, 2002 of
$366,573 increased by $38,041, compared with $328,532 during the same period in
2001. During the second quarter of 2002 the Company continued the development of
the VDSL line module for its model 458-CC and 458-2SL, which conforms to
T1E1.4R3. The Company began development of a VDSL line module for the Japanese
market, which conforms to G.993.1 (G.vdsl.f) Annex F. The Company expects to
introduce these two new products during the second half of 2002.
Interest income decreased to $201 during the second quarter of 2002 from $370
for the same period in 2001. Interest income decreased to $429 during the six
months ended June 30, 2002 from $5,427 for the same period in 2001. The decrease
in interest income is primarily due to lower levels of cash on deposit during
2002 compared to 2001.
Interest expense increased to $31,515 during the second quarter of 2002 from
$25,664 for the same period in 2001. Interest expense increased to $54,431
during the six months ended June 30, 2002 from $44,931 for the same period in
2001. The increase in interest expenses is primarily due to higher outstanding
balances on the Company's credit facilities during 2002 compared to 2001.
During the second quarter of 2002, the Company had rental income of $12,049,
which was comparable with the second quarter of 2001. During the six months
ending June 30, 2002, the Company had rental income of $24,098, which was
comparable with the same period in 2001. During the first quarter of 2001, the
Company had other income totaling $78,800, which represented a settlement the
Company received from a service provider that breached an agreement.
The effective tax rate in second quarter of 2002 was (4.5)%, compared with
(38.4)% in the same quarter of 2001. The effective tax rate for the six months
ended June 30, 2002 was (31.1)%, compared with 38.4% in the same period in 2001.
The increase in the effective tax rate in 2002 is primarily due to the over
accrual of a tax benefit for federal income taxes and an under accrual for the
provision for state taxes in 2001.
The Company had a net loss of $(93,887), or $(0.07) diluted per share, for the
second quarter of 2002 as compared with a net loss of $(110,250), or $(0.09)
diluted per share, in the same quarter of 2001. The Company had a net loss of
$(271,648), or $(0.22) diluted per share, for the six months ended June 30, 2002
as compared with net earnings of $27,408, or $0.02 diluted per share, in the
same six month period of 2001. The net loss during 2002 is due primarily to the
decrease in net sales as described above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities for the six months ended June 30, 2002 was
$344,769 compared with net cash used of $613,576 in the same period of 2001.
This change is due primarily to the investment made in inventory during the six
months ended June 30, 2001.
Working capital of $2,320,809 at June 30, 2002 remained essentially unchanged as
compared with $2,317,098 at December 31, 2001. The current ratio as of June 30,
2002 decreased to 2.8:1 compared to 2.9:1 as of December 31, 2001.
We have an agreement with a financial institution (the "Agreement"), expiring
December 31, 2002, which provides us with a line of credit of up to $500,000
based on our eligible accounts receivable, purchased components and materials
and finished goods inventories, as defined in the Agreement. Further, the
Agreement contains certain financial covenants, which require us to maintain a
minimum level of tangible net worth and places limitations on the ratio of our
total debt to our tangible net worth, as defined in the Agreement. Borrowings
under the line of credit bear interest at the bank's specified prime rate plus
1%. Net borrowings under this line of credit totaled $473,674 at June 30, 2002.
While the Company believes that the Agreement will be renewed upon its
expiration on December 31, 2002, the Company has no guarantee of a renewal and,
accordingly, there is a risk that the corresponding line of credit could be
eliminated as a resource on December 31, 2002. If the line of credit is not
renewed, the Company believes it can obtain alternative financing; however,
there can be no assurances that alternative financing will be available.
In January 1999, we secured an additional reducing revolving line of credit from
the same institution that provides for initial borrowings up to a maximum of
$1,000,000. Availability under the reducing revolving line of credit decreases
by approximately $11,900 per month and the line expires January 2006.
Availability under this line at June 30, 2002 was approximately $511,895.
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 $487,688
at June 30, 2002.
We believe that cash generated by our future operations, current cash and cash
equivalents, and the existing lines of credit should supply the cash resources
to meet our cash needs for at least the next 12 months. However, this
expectation is not at all guaranteed and it may be that these cash resources
fall short of the Company's cash needs over the next 12 months.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
On July 22, 2002, the Company filed a Current Report on Form 8-K to report
the change of its independent public accountants to Holtz Rubenstein &
Co., LLP from Grant Thornton LLP.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELEBYTE, INC.
By: \s\
--------------------------------------------
Kenneth S. Schneider
Chairman of the Board
(Principal Executive Officer)
By: \s\
--------------------------------------------
Michael Breneisen, President
(Principal Financial and Accounting Officer)
Date: August 14, 2002