9
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarter Ended: September 30, 1998 Commission File Number: 0-8995
COMPUTER DEVICES, INC.
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(Exact name of registrant as specified in its charter)
Maryland 04-2446436
------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
100 Crescent Road, Needham, MA 02494
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (781) 455-8642
Not Applicable
- ---------------------------------------------------------------------
(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 twelve
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
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Shares Outstanding
Common Class as of September 30, 1998
------------ ------------------------
Class A 1,924,363
Class B 2,256,524
<PAGE>
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements (unaudited): 3
Consolidated statements of operations for the three and nine
months ended September 30, 1998 and September 30, 1997 3
Consolidated balance sheet at September 30 1998 4
Consolidated statements of cash flows for the nine months
ended September 30, 1998 and September 30, 1997 6
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART II. OTHER INFORMATION 10
SIGNATURES 11
2
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
-------------------- -------------------
REVENUES $ 107 $ 290 $ 402 $ 630
COST OF REVENUES 74 127 300 409
------- ------- ------- -------
Gross profit 33 163 102 221
OPERATING EXPENSES:
Engineering, research and development 0 6 7 18
Selling, general and administrative 61 184 230 515
------- ------- ------- -------
Total operating expenses 61 190 237 533
------- ------- ------- -------
Operating loss (28) (27) (135) (312)
Interest income 0 2 0 8
Other income 1 0 8 60
------- ------- ------- -------
Net loss $ (27) $ (25) $ (127) $ (244)
======= ======= ======= =======
Basic and diluted loss
per share (Note 5) $ (.01) $ (.01) $ (.03) $ (.06)
======= ======= ======= =======
Weighted average number of common
shares outstanding (Note 5) 4,181 4,079 4,181 3,766
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except share amounts)
(unaudited)
September 30, 1998
------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18
Accounts receivable 4
Inventories 2
Prepaid expenses 6
-------
Total current assets 30
-------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 43
Accumulated depreciation (43)
-------
0
-------
TOTAL ASSETS $ 30
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
(In thousands except share amounts)
(unaudited)
September 30, 1998
------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4
Deferred revenue 39
Accrued expenses 194
-------
Total current liabilities 237
-------
LONG TERM LIABILITIES:
Non-qualified retirement obligation 396
-------
STOCKHOLDERS' EQUITY:
Preference stock, $.01 par value
Authorized - 64,000 shares
Issued and outstanding - 49,350 shares
Liquidation value - $4935 --
Class A common stock, $.01 par value
Authorized - 49,968,000 shares
Issued and outstanding - 1,924,363 shares 19
Class B common stock, $.01 par value
Authorized - 49,968,000 shares
Issued and outstanding - 2,256,524 shares 23
Capital in excess of par value 2,019
Accumulated deficit (2,664)
-------
Total stockholders' equity (603)
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30
=======
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the Nine Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
Cash flows from operating activities:
Net loss $ (127) $ (244)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 13 13
Changes in non-qualified retirement obligation 0 0
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 112 (132)
Decrease (increase) in inventory 16 (14)
Decrease (increase) in prepaid expenses 0 5
Increase (decrease) in accounts payable (49) (108)
Increase (decrease) in deferred revenue (7) 0
Increase (decrease) in accrued expenses (39) 57
------- -------
Net cash used in operating activities (81) (423)
Cash flows from investing activities:
Purchases of property and equipment -- (10)
------- -------
Net cash provided by investing activities -- (10)
Cash flows from financing activities:
Proceeds from exercise of stock option -- 20
------- -------
Net cash provided by financing activities -- 20
------- -------
Net increase in cash and cash equivalents (81) (413)
Cash and cash equivalents at beginning of year 99 515
------- -------
Cash and cash equivalents at end of nine months $ 18 $ 102
======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
Note 1 - Operations
- -------------------
Incorporated as a Massachusetts corporation in 1968 and
reincorporated in Maryland in 1986, Computer Devices, Inc. (the
"Company") is primarily engaged in the design, manufacture, sale and
service of computer peripheral products. Business is conducted
primarily in the United States.
Revenues from the Company's sale and service of computer
peripheral products have declined over the past decade due to
increased competition from lower-cost providers combined with the
erosion of the thermal printer marketplace due to the growth in
alternative devices. In 1997, the Company dedicated, through its
wholly owned subsidiary VoiSys International Corporation,
significant resources to develop its voice control software
product line. The future success of the Company is dependent on
the viability of its new voice control products. During fiscal
1997, the Company introduced its voice control product through the
retail distribution channel, but has not yet achieved significant
sales. The Company plans to continue further development of the
voice control product line with the exploration of alternative
voice control applications and alternative distribution methods.
The financial condition of the Company, including its ability to
seek additional capital for operations, is contingent on the
Company's ability to achieve projections for its voice control
product line.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
The accompanying consolidated financial statements have been prepared
by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission, and reflect all
adjustments which, in the opinion of management, are necessary for a
fair statement of the results of the interim periods presented.
These financial statements do not include all disclosures associated
with annual financial statements, and accordingly should be read in
conjunction with footnotes contained in the Company's Form 10-KSB
report for the year ended December 31, 1997.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
Computer Devices, Inc., and its wholly-owned subsidiaries, VoiSys
International Corporation and Neuro-Therapeutics, Inc. All material
intercompany accounts and transactions have been eliminated in
consolidation.
(b) Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities
of three months or less at the time of acquisition to be cash
equivalents.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist primarily of purchased finished goods.
7
<PAGE>
COMPUTER DEVICES, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
(continued)
(e) Revenue Recognition
The Company recognizes computer peripheral revenue upon the shipment
of its product to a customer. The Company recognizes license revenue
in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 97-2, Software Revenue
Recognition. Adoption of this pronouncement, on January 1, 1998, did
not have a material affect on the revenue recognition practices of
the Company.
(f) Depreciation and Amortization
Property and equipment are depreciated using the straight-line method
for financial reporting purposes over their estimated useful lives of
three to five years.
Note 3 - Stockholders' Equity
- -----------------------------
For information regarding the terms of the Class A Common Stock,
Class B Common Stock and Preference Stock refer to the Company's Form
10-KSB report for the year ended December 31, 1997.
Note 4 - Contingencies
Federal and state authorities, together with other private parties,
have sought to hold the Company responsible, along with a number of
other parties, for various environmental cleanup costs and related
penalties. In addition, from time to time, the Company is involved
in disputes and/or litigation encountered in its normal course of
business. With the exception noted below, the Company does not
believe that any outstanding matters will have a material effect on
the Company's financial condition or results of operations. Recently
an appellate court upheld a judgement against the Company where the
liability is approximately $100,000. That court decision did not
effect the Company's current financial statements, as the loss had
been accrued for in prior periods. However, the Company cannot pay
the judgement and will seek to negotiate a non-cash settlement.
Failure to achieve such a settlement could force the Company to
discontinue operations entirely.
Note 5 - Net Loss Per Common Share
- ----------------------------------
For 1997 and 1998, net loss per common share was computed based upon
the weighted average number of outstanding common shares during the
period. Common share equivalents are not reflected in the
computation due to their anti-dilutive nature.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 2 contains forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. These forward-
looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those anticipated.
Revenues for the third quarter of 1998 decreased by 63% to $107,000
compared to $290,000 for the same period in the previous year. This
decline can be traced to the failure of the VOICE POWER marketing
program.
Operating expenses in the third quarter of 1998 decreased by 68% from
those in the third quarter of 1997. This reduction is attributed to
the Company's commitment to cut overhead.
On September 4, 1998 Literal Corporation brought suit against the
Company to collect a judgement totaling approximately $100,000. That
action, coupled with the failure of the VOICE POWER marketing program
and the resignation of key employees, has forced the Company to
suspend internal operations and to seek other firms to market its
products. This strategy is expected to produce sufficient income to
support a limited ongoing effort to refinance the Company's
subsidiaries. At the same time, the company will seek to settle with
Literal Corporation.
During 1998, cash from beginning of year was responsible for the
Company's liquidity. In the future, however, if the Company is
unable to secure additional financing or is not successful in
negotiating a viable settlement with Literal Corporation, it is
unlikely that it will be able to continue operations.
9
<PAGE>
PART II - OTHER INFORMATION
NONE
10
<PAGE>
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.
COMPUTER DEVICES, INC.
----------------------
(Registrant)
Date: November 12, 1998 /S/ EBERHARD W. RAU
- ----------------------- -------------------
Eberhard W. Rau
Treasurer
Principal Accounting Officer
11
<PAGE>
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