-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C6jtosVVYXvOGx5ZOFH9AhV0S7zufY8RZaZAEgfPGkdKEwzWWvnT7OYp3IF42gWu 6msSSFsqoeSaRtnObCTXzA== 0000950128-96-000279.txt : 19960625 0000950128-96-000279.hdr.sgml : 19960625 ACCESSION NUMBER: 0000950128-96-000279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960509 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLLGRADE COMMUNICATIONS INC \PA\ CENTRAL INDEX KEY: 0001002531 STANDARD INDUSTRIAL CLASSIFICATION: 7385 IRS NUMBER: 251537134 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27312 FILM NUMBER: 96558503 BUSINESS ADDRESS: STREET 1: 493 NIXON RD CITY: CHESWICK STATE: PA ZIP: 15024 BUSINESS PHONE: 4122742156 10-Q 1 TOOLGRADE COMMUNICATIONS, INC. 10-Q 1 - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC ---------------------- FORM 10-Q (Mark One) [ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1996 [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to ____________ Commission file number 0-27312 TOLLGRADE COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in its Charter) PENNSYLVANIA 25-1537134 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification Number) 493 NIXON RD. CHESWICK, PA 15024 (Address of Principal Executive Offices, including zip code) 412-274-2156 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (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 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 March 14, 1996, there were 5,443,830 shares of the Registrant's Common Stock, $0.20 par value per share, and no shares of the Registrant's Preferred Stock, $1.00 par value per share, outstanding. - - -------------------------------------------------------------------------------- This report consists of a total of 13 pages. The exhibit index is at page 12. 2 TOLLGRADE COMMUNICATIONS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION PAGE NO. - - ------------------------------ -------- ITEM 1 -- CONSOLIDATED FINANCIAL STATEMENTS: STATEMENTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1995 AND MARCH 31, 1996 . . . . . . . . . . . . . 3 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND MARCH 31, 1996 . . . . . . . . . . . . . . . . . . . . 4 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE QUARTERS ENDED MARCH 31, 1995 AND MARCH 31, 1996 . . . . . . . . . . 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . 6 ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 7 PART II. OTHER INFORMATION - - --------------------------- SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 - - --------- EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 - - ------------- ITEM 6 -- EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . 13 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: - - ------------------------------- TOLLGRADE COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- - ----------------------------------------------------------------------------------------------------- QUARTER ENDED MARCH 31, 1995 1996 - - ----------------------------------------------------------------------------------------------------- REVENUES: Product sales $5,794,961 $6,848,807 Royalty fees 986 580 - - ----------------------------------------------------------------------------------------------------- TOTAL REVENUES 5,795,947 6,849,387 COST OF PRODUCT SALES 3,112,208 3,463,363 - - ----------------------------------------------------------------------------------------------------- GROSS PROFIT 2,683,739 3,386,024 - - ----------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Selling and marketing 621,211 891,970 General and administrative 330,080 479,834 Research, engineering and development 524,016 713,297 - - ----------------------------------------------------------------------------------------------------- Total operating expenses 1,475,307 2,085,101 - - ----------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 1,208,432 1,300,923 Interest income (expense) (36,667) 204,378 - - ----------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,171,765 1,505,301 Provision for income taxes 421,800 548,000 ===================================================================================================== NET INCOME $ 749,965 $ 957,301 ===================================================================================================== EARNINGS PER SHARE INFORMATION: Weighted common and common equivalent shares 4,540,599 5,857,566 - - ----------------------------------------------------------------------------------------------------- Net income per common and common equivalent shares: Primary $ .17 $ .16 Fully Diluted $ .17 $ .16 =====================================================================================================
3 4 TOLLGRADE COMMUNICATIONS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
- - -------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 MARCH 31, 1996 ASSETS - - -------------------------------------------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $15,157,387 $14,984,777 Accounts receivable: Trade 2,571,233 3,478,676 Other 59,887 90,044 Inventories 6,021,466 6,247,244 Prepaid expenses and deposits 151,451 272,743 Deferred tax asset 159,500 159,500 - - -------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 24,120,924 25,232,984 Property and equipment, net 1,457,677 1,874,953 Deferred tax asset 80,100 80,100 Patents and other assets 69,402 118,944 - - -------------------------------------------------------------------------------------------------------- TOTAL ASSETS $25,728,103 $27,306,981 ======================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY ======================================================================================================== CURRENT LIABILITIES: Accounts payable $ 1,967,445 $ 1,765,967 Accrued expenses 347,947 241,215 Royalties payable 561,436 1,046,974 Income taxes payable 84,800 559,600 - - -------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 2,961,628 3,613,756 Deferred tax liability 157,100 157,100 - - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 3,118,728 3,770,856 SHAREHOLDERS' EQUITY: Common stock, $.20 par value; authorized shares, 7,000,000; issued shares, 5,443,830 1,088,766 1,088,766 Additional paid-in capital 22,339,022 22,292,671 Unearned compensation (168,529) (152,729) Retained earnings (accumulated deficit) (649,884) 307,417 - - -------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 22,609,375 23,536,125 - - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $25,728,103 $27,306,981 ========================================================================================================
4 5 TOLLGRADE COMMUNICATIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
- - ------------------------------------------------------------------------------------------------------------ QUARTER ENDED MARCH 31, 1995 1996 - - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 749,965 $ 957,301 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 55,676 120,459 Deferred income taxes 370,800 --- Compensation expense for restricted stock 11,361 15,800 Changes in assets and liabilities: (Increase) decrease in accounts receivable-trade (62,095) (907,443) (Increase) decrease in accounts receivable-other 76,681 (30,157) (Increase) decrease in inventories (118,318) (225,778) (Increase) decrease in prepaid expenses and deposits (19,952) (121,292) (Increase) decrease in other assets --- (51,100) Increase (decrease) in accounts payable 118,881 (201,478) Increase (decrease) in accrued expense and royalties payable (22,076) 378,806 Increase (decrease) in income taxes payable 40,159 474,800 - - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 1,201,082 409,918 ============================================================================================================ CASH FLOWS FROM INVESTING ACTIVITIES: Redemption of short-term investment 1,261 --- Capital expenditures (83,371) (536,178) Patent expenditures (3,225) --- - - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (85,335) (536,178) ============================================================================================================ CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (repayments) under line of credit --- --- Payments on long-term debt (1,800,000) --- Purchase of stock warrants (1,253,708) --- Proceeds from issuance of common stock, net of issuance costs 2,986,384 --- Receipt of stock subscriptions (157,756) --- IPO issuance cost --- (46,350) - - ------------------------------------------------------------------------------------------------------------ Net cash used in financial activities (225,080) (46,350) ============================================================================================================ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 890,667 (172,610) Cash and cash equivalents at beginning of period 740,013 15,157,387 - - ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 1,630,680 $14,984,777 ============================================================================================================
5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements included herein have been prepared by Tollgrade Communications, Inc. (the "Company") in accordance with generally accepted accounting principles. The financial statements as of and for the quarter period ended March 31, 1996 should be read in conjunction with the Company's financial statements (and notes thereto) included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Accordingly, the accompanying statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the quarter financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 2. INVENTORY At December 31, 1995 and March 31, 1996, inventory consisted of the following:
December 31, March 31, 1995 1996 ---- ---- Raw materials . . . . . . . . . . . . . . . . . $2,577,638 $2,874,618 Work in progress. . . . . . . . . . . . . . . . 1,730,364 1,514,925 Finished goods. . . . . . . . . . . . . . . . . 1,713,464 1,857,701 ---------- ---------- $6,021,466 $6,247,244 ========== ==========
6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report. OVERVIEW Tollgrade Communications, Inc. (the"Company") was organized in 1986 and began operations in 1988. The Company designs, engineers, markets and supports proprietary products which enable telephone companies to use their existing line test systems to remotely diagnose problems in POTS lines containing both copper and fiber optics. The Company's MCU(R) product line, which includes POTS line testing as well as alarm-related products, represented more than 77% of the Company's revenue for the first quarter ended March 31, 1996 and will continue to account for a majority of Tollgrade's revenues for the foreseeable future. The Company's product sales are primarily to the seven Regional Bell Operating Companies ("RBOCs"). For the first quarter ended March 31, 1996, 73% of revenues was from the seven RBOCs, the two largest of which comprised 48% of revenues. The Company's operating results have fluctuated and may continue to fluctuate as a result of various factors, including the timing of orders from and shipments to the RBOCs. Although international sales to date have not been significant, the Company believes the international markets offer sales opportunities. The Company intends to focus additional sales, marketing and development resources on increasing its international presence; however, there can be no assurance that these efforts will be successful or that the Company will achieve significant international sales. Tollgrade believes that continued growth will depend on its ability to design and engineer new products and, therefore, spends a significant amount on research, engineering and development. Research, engineering and development expenses as a percent of revenues were approximately 10% for the first quarter ended March 31, 1996. The Company expects its research, engineering and development expenses to continue at significant levels. RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995 REVENUES Revenue for the first quarter of 1996 increased 18.2%, or $1,053,440, to $6,849,387 from $5,795,947 in the first quarter of 1995. The sales increase in the first quarter was primarily due to completion of a one-time project for a major customer. This project, which was not related to the Company's core MCU(R) line testing product line, added $1,344,200 in revenue for this quarter. During the past year, the Company has continued to develop and sell variations of its MCU(R) product line, which contributed $646,478 to first quarter 1996 sales. The MCU(R) alarm-related product revenue decreased $1,347,494 in the first quarter of 1996 from the first quarter of 1995. The decrease in the three months ended March 31, 1996 was due to a customer deferring deployment and installation of this alarm-related product, which is used to transport alarm services over fiber-optic lines. MCU(R) line testing and synchronization product revenue increased 10.2%, or $410,256, in the first quarter of 1996 compared to the first quarter of 1995. 7 8 GROSS PROFIT Gross profit increased 26.2% from $2,683,739 in the first quarter of 1995, to $3,386,024 in the first quarter of 1996. Gross profit, as a percentage of sales, increased to 49.4% in the three months ended March 31, 1996 from 46.3% in the three months ended March 31, 1995. While the $702,285 increase in gross profit was primarily attributable to the increase in revenues, the increase in gross profit margin was due primarily to product sales mix and the ability to spread fixed overhead costs over a larger revenue base which included the shipments of four new variations of the MCU(R) product line that had higher gross profit margins. SELLING & MARKETING EXPENSE Selling and marketing expense in the first quarter of 1996 increased 43.6%, or $270,759, to $891,970 from $621,211 in the first quarter of 1995. As a percentage of revenues, selling and marketing expenses increased to 13.0% in the first quarter of 1996 from 10.7% in the first quarter of 1995. The increase was due primarily to increased sales commissions resulting from higher sales and the Company's investment in development and expansion into international markets. GENERAL & ADMINISTRATIVE EXPENSE General and administrative expense in the first quarter of 1996 increased 45.4%, or $149,754, to $479,834 from $330,080 in the first quarter of 1995. As a percentage of revenues, general and administrative expenses increased to 7.0% in the first quarter of 1996 from 5.7% in the first quarter of 1995. The increase was due primarily to additional expenses incurred as a result of becoming a publicly-owned company. RESEARCH, ENGINEERING & DEVELOPMENT EXPENSE Research, engineering and development expense in the first quarter of 1996 increased 36.1%, or $189,281, to $713,297 from $524,016 in the first quarter of 1995. As a percentage of revenues, research, engineering and development expenses increased to 10.4% in the first quarter of 1996 from 9.0% in the first quarter of 1995. The increase was due primarily to increased personnel costs as a result of expansion of the engineering department for new product development. OTHER INCOME AND EXPENSE Other income and expense consists primarily of interest income and interest expense. Other income was $204,378 for the quarter ended March 31, 1996 compared to other expense of $36,667 for the quarter ended March 31, 1995. The decrease in other expense was the result of reduced interest expense from the elimination of outstanding debt. Increase in other income resulted from the investment of the net proceeds of $15.8 million from the Company's initial public offering in December 1995. (See Liquidity and Capital Resources.) NET INCOME As a result of the above factors, net income increased 27.6% from $749,965 in the three months ended March 31, 1995 to $957,301 in the three months ended March 31, 1996. As a percentage of sales, net income increased from 12.9% in the three months ended March 31, 1995 to 14.0% in the three months ended March 31, 1996. 8 9 LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $21.6 million at March 31, 1996 compared to working capital of $4.1 million at March 31, 1995. The improvement in working capital position was due primarily to the net proceeds of $15.8 million received from the Company's initial public offering on December 14, 1995. The Company has used and expects to continue to use the remaining proceeds of the initial public offering for working capital and new product development activities. Cash provided by operations was $409,918 and $1,201,082 for the first quarter ended March 31, 1996 and 1995, respectively. Increased net income was the primary source of cash provided by operations for the first quarter ended March 31, 1996. Increases in accounts receivable and inventories due to increased sales were the primary uses of cash in operations for the first quarter ended March 31, 1996. At March 31, 1996, the Company had no amounts outstanding under its $2,500,000 available bank line of credit. Capital expenditures were $536,178 for the quarter ended March 31, 1996 and were primarily related to test fixtures and development systems, computer and office equipment for increased staff, as well as leasehold improvements made to the Company's facilities. Capital expenditures were $83,371 for the first quarter of 1995, and were primarily related to office equipment, test fixtures and development systems, tooling and leasehold improvements. The Company has no material capital expenditure commitments. The Company anticipates capital expenditures to continue to increase in 1996 to support future growth. 9 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - - -------------------------- None. ITEM 2. CHANGES IN SECURITIES - - ------------------------------ None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES - - ---------------------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------ None. ITEM 5. OTHER INFORMATION - - -------------------------- None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - - ----------------------------------------- (a) Exhibits: The following exhibits are being filed with this report: Exhibit Number Description ------- ----------- 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule (b) Reports on Form 8-K: The Company did not file any Current Report on Form 8-K during the quarter ended March 31, 1996. 10 11 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOLLGRADE COMMUNICATIONS, INC. (REGISTRANT) Dated: May 3, 1996 /s/ CHRISTIAN L. ALLISON ---------------------------------- CHRISTIAN L. ALLISON CHIEF EXECUTIVE OFFICER, TREASURER & DIRECTOR Dated: May 3, 1996 /s/ DOUGLAS T. HALLIDAY ---------------------------------- DOUGLAS T. HALLIDAY CHIEF FINANCIAL OFFICER 11 12 EXHIBIT INDEX (Pursuant to Item 601 of Regulation S-K) Exhibit Number Description ------- ----------- 11.1 Statement re Computation of Per Share Earnings 27 Financial Data Schedule 12 EX-11.1 2 TOOLGRADE COMMUNICATIONS, INC. 10-Q 1 EXHIBIT 11.1 CALCULATION OF EARNINGS PER SHARE FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
- - ------------------------------------------------------------------------------------------------------------ MARCH 31, 1995 1996 - - ------------------------------------------------------------------------------------------------------------ Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 749,965 $ 957,301 ========== ========== Common and common equivalent shares: Weighted average number of common shares outstanding during the period . . . . . . . . . . . . . . . . . 3,199,141 5,443,830 Common shares issuable upon conversion of convertible preferred stock Primary . . . . . . . . . . . . . . . . . . . . . . . . 951,721 --- Fully diluted . . . . . . . . . . . . . . . . . . . . . 951,721 --- Common shares issuable upon conversion of redeemable warrants Primary . . . . . . . . . . . . . . . . . . . . . . . . 146,266 --- Fully diluted . . . . . . . . . . . . . . . . . . . . . 146,266 --- Common shares issuable upon exercise of outstanding stock options Primary . . . . . . . . . . . . . . . . . . . . . . . . 243,471 413,736 Fully diluted . . . . . . . . . . . . . . . . . . . . . 243,471 422,306 ---------- ---------- Common and common equivalent shares outstanding during the period Primary . . . . . . . . . . . . . . . . . . . . . . . . 4,540,599 5,857,566 ========== ========== Fully diluted . . . . . . . . . . . . . . . . . . . . . 4,540,599 5,866,136 ========== ========== Earnings per share data Net income per common and common equivalent shares Primary . . . . . . . . . . . . . . . . . . . . . . . . $ .17 $ .16 Fully diluted . . . . . . . . . . . . . . . . . . . . . $ .17 $ .16
13 EX-27 3 TOOLGRADE COMMUNICATIONS, INC. 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001002531 TOLLGRADE COMMUNICATIONS, INC. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 14,984,777 0 3,478,676 0 6,247,244 25,232,984 2,785,429 910,476 27,306,981 3,613,756 0 1,088,766 0 0 22,447,359 27,306,981 6,848,807 6,849,387 3,463,363 3,463,363 0 0 0 1,505,301 548,000 957,301 0 0 0 957,301 0.16 0.16
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