30
<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 Commission File no.0-8995
COMPUTER DEVICES, INC.
(Name of small business issuer in its charter)
Maryland 04-2446436
------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
34 Linnell Circle, Nutting Lake, Massachusetts 01865
------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (978) 663-4980
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Exchange on which registered
None
------------------- ----------------------------
Securities registered under Section 12(g) of the Exchange Act:
Preference Stock, $.01 Par Value (liquidation preference, convertible)
- ----------------------------------------------------------------------
(Title of class)
Class A Common Stock, $.01 Par Value
------------------------------------
(Title of class)
Class B Common Stock, $.01 Par Value
------------------------------------
(Title of class)
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 ninety days. Yes X No
----- -----
Check if there is no disclosure of delinquent filer in response to
Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for fiscal year ended December 31, 1997 are
$733,000.
Based on average bid and asked prices quoted by registrant's market
makers, the aggregate market value of voting stock held by non-
affiliates of the registrant was approximately $1,150,454 as of
January 30, 1998.
The number of shares outstanding of each of the registrant's
classes of common stock as of January 30, 1998 was 1,924,463 shares
of Class A Common Stock and 2,254,680 shares of Class B Common
Stock.
1
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TABLE OF CONTENTS
ITEM TITLE PAGE
---- ----- ----
1 DESCRIPTION OF BUSINESS 3
2 DESCRIPTION OF PROPERTY 3
3 LEGAL PROCEEDINGS 3
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
5 MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 4
6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 5
7 FINANCIAL STATEMENTS 6
8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 18
9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 18
10 EXECUTIVE COMPENSATION 19
11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 20
12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 21
13 EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
INDEX TO EXHIBITS 24
2
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
- --------------------
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. In addition, the
Company is a non-exclusive distributor of similar products for
several manufacturers.
In 1996, the Company formed VoiSys International Corporation
(VoiSys), a start-up company whose objective is to participate
in the voice activated computer control market.
In 1989, the Company acquired Neuro-Therapeutics, Inc. ("NTI"),
a development stage company whose objective is to commercialize
a novel rehabilitative therapy for stroke victims.
Business of Issuer
- ------------------
The Company's primary peripheral products consist of printers
manufactured by the Company and computer peripherals provided by
other manufacturers. The printer product line includes the
Series 2000 terminal/printer, several video printers and various
related supplies and services. The computer peripheral products
consist mainly of optical storage equipment. All of the
Company's product lines are sold both directly to end-users and
to value-added systems integrators/resellers. In 1997 the
principal suppliers for optical storage equipment products were
Hewlett Packard, Panasonic and Sierra. Although the Company's
customer base is broad, less than twenty companies account for
the bulk of new orders.
During 1997, VoiSys released Voice Power, a voice control
software product that enables the user to completely control the
personal computer by voice. VoiSys distributes this product
primarily through Tech Data, a master distributor, who resells
the product to retail computer chains/stores.
During 1997 and 1996, the Company expended approximately $27,000
and $32,000 respectively, on engineering, research and
development efforts. All of these expenditures for 1997 and
1996 were associated with VoiSys.
As of January 30, 1998, the Company employed four people.
ITEM 2. DESCRIPTION OF PROPERTY
The Company conducts its basic operations from an 11,550 square
foot leased facility in Nutting Lake (Billerica), Massachusetts.
The facility is under lease on a month to month basis.
ITEM 3. LEGAL PROCEEDINGS
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. The Company does
not believe that the ultimate impact of the resolution of any
outstanding matters will have a material effect on the Company's
financial condition or results of operations. However, during
1996 a judgement was rendered against the Company where the
potential liability could exceed $100,000. The judgement has
been appealed and although the Company can give no assurances,
it feels the merits of its appeal are valid and sufficient.
3
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted in the "NQB Non-NASDAQ
Price Report" published by the National Quotation Bureau. The
following table sets forth the range of high and low bid prices
per share of Class B Common Stock for each quarter within the
last two fiscal years. The prices reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not
represent actual transactions:
High Bid Low Bid
1996 First Quarter $ .04 $ .04
1996 Second Quarter .04 .04
1996 Third Quarter .04 .04
1996 Fourth Quarter .41 .01
1997 First Quarter $ .16 $ .13
1997 Second Quarter .17 .09
1997 Third Quarter .78 .13
1997 Fourth Quarter .79 .38
In general, Class A Common Stock automatically converts to Class
B Common Stock upon sale. The approximate number of holders of
record of the Company's common stock as of January 30, 1998 was
1,800. The Company has no intention of paying cash dividends on
its common stock for the foreseeable future.
4
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Except for historical information contained herein, the matters
discussed in Item 6 are forward-looking statements as that term
is defined in the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve risks and
uncertainties that could cause actual results to differ
materially from those anticipated.
Revenues declined by 21% in 1997 from the previous year. Below
is a table listing revenues related to the following product
lines:
Year Ended
December 31, 1997 December 31, 1996
Computer peripherals $ 564,000 $ 931,000
VoiSys products 169,000 0
--------- ---------
Total $ 733,000 $ 931,000
========= =========
Revenues related to Computer Devices declined in 1997 by 39%
when compared with 1996 primarily as a result of the Company's
decision to de-emphasize the distribution of low margin OEM
products and to concentrate on the development and sale of
proprietary software products for the voice activated computer
control market.
VoiSys produced revenues in 1997 of $169,000. These new
revenues are primarily associated with Voice Power, a voice
control software product released in July 1997, that enables the
user to completely control the personal computer by voice.
VoiSys distributes this product primarily through Tech Data, a
master distributor, who resells the product to retail computer
chains/stores.
Total gross profit increased by 11% in 1997 as the gross profit
margin grew to 29% from 21% in the prior year. The growth in
profit margin is principally due to VoiSys, which added gross
profit at a rate of 57% in 1997, while Computer Devices
continued to contribute at a 21% margin.
Total selling, general and administrative expenses decreased in
1997 by $407,000 (37%) when compared with the previous year.
The decrease is linked to the 1996 expense ($408,000) connected
with the establishment of a non-qualified retirement obligation.
Expenses related to engineering, research and development were
$27,000 in 1997 compared to $32,000 in 1996 of which all were
associated with VoiSys.
In 1989 the Company acquired Neuro-Therapeutics, Inc., with the
intent of commercializing its novel rehabilitative therapy for
stroke victims. In addition to completing the development of
the system, the Company must complete tests to validate the
efficacy of the therapy and achieve technological acceptance in
the medical community. It is not clear how many years these
tasks will take, whether sufficient funding will be available,
or whether the results will be successful.
The Company beleives its products and systems are year 2000
compliant.
The Company has no intentions of paying cash dividends on Class
A or Class B common stock for the foreseeable future.
During 1997, cash from the beginning of the year ($515,000) was
responsible for the Company's liquidity. By yearend, the cash
balance was $99,000, a decline of 81%. In the future, however,
financing may be necessary to support internal and/or external
growth.
5
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Report of independent public accountants 7
Consolidated financial statements of Computer Devices,Inc.
and Subsidiaries:
Consolidated statements of operations for the years ended
December 31, 1997 and December 31, 1996 8
Consolidated balance sheet at December 31, 1997 9
Consolidated statements of stockholders' equity (deficit) for
the years ended December 31, 1997 and December 31, 1996 11
Consolidated statements of cash flows for the years ended
December 31, 1997 and December 31, 1996 12
Notes to consolidated financial statements 13
6
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computer Devices, Inc.:
We have audited the accompanying consolidated balance sheet of
Computer Devices, Inc. (a Maryland corporation) and subsidiaries
as of December 31, 1997, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for
each of the two years in the period ended December 31, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Computer Devices, Inc. and subsidiaries as of December 31,
1997, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The Company has suffered recurring losses from
operations over the last several years. In addition, the
Company's business plan is predicated on achieving sales
forecasts for new products for which the market acceptance
is uncertain. These and other factors raise substantial doubt
about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 10, 1998
7
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
For the Years Ended
December 31,
1997 1996
------------------
REVENUES $ 733 $ 931
COST OF REVENUES 518 737
------------------
Gross profit 215 194
------------------
OPERATING EXPENSES:
Engineering, research and development 27 32
Selling, general and administrative 689 1,096
------------------
Total operating expenses 716 1,128
------------------
Operating loss (501) (934)
Interest income 9 28
Other income, net 64 -
------------------
Net loss $(428) $(906)
==================
Basic and diluted loss per share (Note 10) $(.11) $(.25)
==================
Weighted average number of common shares
outstanding (Note 10) 3,859 3,579
==================
The accompanying notes are an integral part of
these consolidated financial statements.
8
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands except share amounts)
December 31, 1997
-----------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 99
Accounts receivable, less reserve of $46 116
Inventories 18
Prepaid expenses 6
-------
Total current assets 239
-------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost 167
Accumulated depreciation (154)
-------
13
-------
TOTAL ASSETS $ 252
=======
The accompanying notes are an integral part of
these consolidated financial statements.
9
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
(In thousands except share amounts)
December 31, 1997
-----------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 53
Deferred revenue 46
Accrued expenses 233
-------
Total current liabilities 332
-------
LONG-TERM LIABILITIES:
Non-qualified retirement obligation 396
-------
COMMITMENTS AND CONTINGENCIES
(Notes 7 and 8)
STOCKHOLDERS' DEFICIT:
Preference stock, $.01 par value
Authorized - 64,000 shares
Issued and outstanding - 49,406 shares
Liquidation value - $4,941 --
Class A common stock, $.01 par value
Authorized - 49,968,000 shares
Issued and outstanding - 1,934,813 shares 19
Class B common stock, $.01 par value
Authorized - 49,968,000 shares
Issued and outstanding - 2,244,330 shares 23
Capital in excess of par value 2,019
Accumulated deficit (2,537)
-------
Total stockholders' deficit (476)
-------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 252
=======
The accompanying notes are an integral part of
these consolidated financial statements.
10
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COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands except share amounts)
For the Years Ended December 31, 1997 and 1996
Capital in Total S/H
Preference Stock Common Stock Excess of Accum. Equity
# Shares Par Val # Shares Par Val Par Value Deficit (Deficit)
-------- ------- -------- ------- --------- ------- ---------
At 12/31/95 49,406 $ -- 3,579,143 $ 36 $2,001 $(1,203) $ 834
Net loss -- -- -- -- -- (906) (906)
-----------------------------------------------------------------
At 12/31/96 49,406 -- 3,579,143 36 2,001 (2,109) (72)
Net loss -- -- -- -- -- (428) (428)
Exercise of
stock options -- -- 600,000 6 18 -- 24
-----------------------------------------------------------------
At 12/31/97 49,406 $ -- 4,179,143 $ 42 $2,019 $(2,537) $(476)
=================================================================
The accompanying notes are an integral part of
these consolidated financial statements.
11
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COMPUTER DEVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended
December 31,
1997 1996
----------------
Cash flows from operating activities:
Net loss $(428) $(906)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 22 18
Changes in non-qualified retirement obligation (12) 408
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (40) 36
Decrease (increase) in inventory (6) 34
Decrease (increase) in prepaid expenses 18 (8)
Increase (decrease) in accounts payable (74) 96
Increase (decrease) in deferred revenue 46 (1)
Increase (decrease) in accrued expenses 44 110
----------------
Net cash used in operating activities: (430) (213)
Cash flows from investing activities:
Purchases of property and equipment (10) (10)
Proceeds from sale of marketable securities -- 470
----------------
Net cash (used in) provided by investing activities (10) 460
----------------
Cash flows from financing activities:
Proceeds from exercise of stock options 24 --
----------------
Net cash provided by financing activities 24 --
----------------
Net increase (decrease) in cash and cash equivalents (416) 247
Cash and cash equivalents at beginning of year 515 268
----------------
Cash and cash equivalents at end of year $ 99 $ 515
================
The accompanying notes are an integral part of
these consolidated financial statements.
12
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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.
The Company believes, based on its strategic plan, that
operating cash flows will be sufficient to enable the Company to
sustain operations through fiscal 1998. However, if the Company
is unable to substantially achieve its sales forecasts for voice
control products or is unable to secure additional financing,
for which it does not currently have any commitment, it is not
certain that the Company will have the ability to continue as a
going concern.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
(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. Included in cash equivalents at December
31, 1997 is approximately $13,000 of money market funds.
(d) Inventories
- ---------------
Inventories are stated at the lower of cost (first-in, first-
out) or market and consist primarily of purchased finished
goods.
13
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COMPUTER DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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) 91-1,
Software Revenue Recognition. Software license fees are
recognized upon shipment to the customer if collection is
probable and remaining Company obligations are insignificant.
The Company provides for potential product returns and
allowances at the time of shipment. Historically, product
returns and allowances have been immaterial. Unrecognized
amounts are recorded as deferred revenue in the accompanying
consolidated balance sheet.
(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.
(g) Engineering, Research and Development Costs
- -----------------------------------------------
Engineering, research and development costs are charged to
operations as incurred.
(h) Stock-Based Compensation
- ----------------------------
The Company accounts for its stock-based compensation plans
under APB Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1996, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard
(SFAS) No. 123, Accounting for Stock-Based Compensation, which
is effective for fiscal years beginning after December 15, 1996.
SFAS No. 123 establishes a fair-value based method of accounting
for stock-based compensation plans. The Company has adopted the
disclosure-only alternative for grants to employees, which
requires the disclosure of the pro forma effects on earnings and
earnings per share as if SFAS No. 123 had been adopted, as well
as certain other information.
Note 3 - Non-Qualified Retirement Obligation
- --------------------------------------------
The Company has established a non-qualified joint and survivor
retirement annuity for Mr. Robert J. Moore, its president,
effective at his retirement or other separation from paid
service of the Company, where by the Company will be required to
pay him a monthly non-qualified retirement cash benefit of
$3,400. The present value of these payments has been recorded
as a non-qualified retirement obligation in the accompanying
consolidated balance sheet at December 31, 1997. Effective
January 1, 1998, Mr. Moore retired and payments commenced.
Note 4 - Stockholders' Equity
- -----------------------------
(a) Class A Common Stock ($.01 par value)
- -----------------------------------------
Class A common stock has normal base equity characteristics
except that (a) it is convertible at the holder's option at any
time into Class B common stock, share for share, and (b) on
transfer of a beneficial interest (other than by gift or other
transaction not at arm's length or as part of the transfer of a
business) it converts automatically into Class B common stock,
share for share.
(b) Class B Common Stock ($.01 par value)
- -----------------------------------------
Class B common stock has the same characteristics as Class A
common stock except that (a) it has no reciprocal conversion
feature, (b) it votes at a multiple of 10% of the Class A common
stock rate, and (c) it pays 110% of any normal dividend of Class
A common stock.
14
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COMPUTER DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(continued)
(c) Preference Stock ($.01 par value, $100 nominal value)
- ---------------------------------------------------------
Preference Stock (a) carries no dividend, (b) has a liquidation
preference senior to common stock, at nominal value
($4,940,600), (c) has no sinking fund or mandatory redemption
rights, (d) is callable at any time, at nominal value, subject
to conversion rights (i.e., a call can be defeated by
conversion), (e) is convertible at the holder's option at any
time, at $2.925 per share, into either (i) Class B common stock
or (ii) Class A common stock until transfer of a beneficial
interest (other than by gift or other transaction not at arm's
length or as part of the transfer of a business), (f) is subject
to the issuer's right of repurchase for cash at the market price
for the common stock equivalent should the holder wish to
convert, (g) has standard convertible antidilution provisions
(i.e., the conversion price will be adjusted appropriately in
the event - but only in such event - of a stock dividend, split
or similar capital change involving the common stock and not,
for example, for new equity being introduced below the
conversion price), (h) votes only to protect its preferential
liquidation position (i.e., the Preference Stock does not carry
general voting rights), and (i) has the benefit of no protective
covenants (i.e., the issuer is free - within applicable legal
limits - to operate and dispose of the business without
restriction).
Note 5 - Income Taxes
- ---------------------
The Company accounts for income taxes, as set forth in SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns.
Deferred tax assets are recognized, net of any valuation
allowance, for deductible temporary differences and operating
loss and credit carryforwards.
At December 31, 1997, the Company has estimated net operating
loss carryforwards of approximately $19,796,000 which expire in
the years 1998 through 2012. Certain substantial changes in the
Company's ownership may result in an annual limitation on the
amount of net operating loss carryforwards that could be
utilized. In addition, the Company has tax credit carryforwards
of $123,000 expiring in 1998 and 1999. The components of the
deferred tax amounts, carryforwards and the valuation allowance
as of December 31, 1997 are approximately as follows:
Net operating loss carryforwards $ 6,731,000
Tax credit carryforwards 123,000
Temporary differences 115,000
------------
6,969,000
Valuation allowance (6,969,000)
------------
$ --
============
A valuation allowance is provided as it is uncertain the Company
will realize the deferred tax asset. In 1997, the valuation
allowance decreased by $245,000 primarily as a result of
expiring tax credits.
15
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(continued)
Note 6 - Stock Options
- ----------------------
Under the provisions of the Company's Stock Incentive Plan,
Class A and Class B common stock have been made available by
option to Company employees. The number of shares authorized
under this plan is 2,051,282. Options on Class A common stock
have also been granted to non-employee directors of the Company.
In all cases, the option exercise price for the shares covered
by options is 100% of the market value on the date such options
are granted. The term of each option is five years.
Information with respect to options is as follows:
Weighted
Shares Price Range Avg. Price
------ ----------- ----------
Outstanding at December 31, 1995 800,000 $.04 to .15 $.11
Granted 650,000 .04 .04
Forfeited or cancelled (165,000) .06 to .15 .14
----------
Outstanding at December 31, 1996 1,285,000 .04 to .15 .07
Granted 100,000 .14 .14
Exercised (600,000) .04 .04
Forfeited or cancelled (105,000) .04 .04
----------
Outstanding at December 31, 1997 680,000 .04 to .15 .10
==========
Exercisable at December 31, 1997 360,000 $.04 to .15 $.13
==========
The Company has computed the pro forma disclosures required
under SFAS No. 123 for stock options granted in 1997 and 1996
using the Black Scholes option pricing model prescribed by SFAS
No. 123 using the following assumptions:
1997 1996
---- ----
Risk-free interest rate 7.00% 6.37%
Expected dividend yield -- --
Expected lives 5 years 5 years
Expected volatility 72% 72%
Weighted average value of grants $.03 $.09
Weighted average remaining contractual
life of options outstanding 3 years 4 years
Had compensation cost for the Company's stock option plan been
determined consistent with SFAS No. 123, pro forma net loss and
loss per share would have been as follows:
Net loss Net loss per share
---------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
As reported $(428,000) $(906,000) $(.11) $(.25)
Pro forma (434,000) (926,000) $(.11) $(.26)
16
<PAGE>
COMPUTER DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(continued)
Note 7 - Commitments
- --------------------
At December 31, 1997, the Company had no operating leases with
terms of more than one year. Rental expense was $25,000 in 1997
and 1996.
Note 8 - 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. The Company does
not believe that the ultimate impact of the resolution of any
outstanding matters will have a material effect on the Company's
financial condition or results of operations. However, during
1996 a judgement was rendered against the Company where the
potential liability could exceed $100,000. The judgement has
been appealed and although the Company can give no assurances,
it feels the merits of its appeal are valid and sufficient.
Note 9 - Significant Customers
- ------------------------------
In 1997, two customers accounted for 81% of revenues. In 1996,
one customer accounted for 65% of revenues.
Note 10 - Net Loss Per Common Share
- -----------------------------------
In February 1997, the FASB issued SFAS No. 128, Earnings per
Share. These financial statements have been prepared and
presented based on the new standard. Prior period amounts have
been restated to conform to current year presentation. Per
common share amounts are computed based on the weighted average
number of outstanding common shares during the period. Common
share equivalents are not reflected in the computation due to
their antidilutive nature.
Note 11 - Employee Benefit Plan
- -------------------------------
In June 1997, the Company adopted a qualified SIMPLE-IRA plan
under Section 408(p) of the Internal Revenue Code. The Plan
covers substantially all employees. Participants may defer up
to $6,000 per calendar year under the Plan. The Company will
match the employee's elective deferral on a dollar-for dollar
basis, not to exceed the lesser of 3% of the employee's
compensation or $6,000. Total contributions made by the Company
for the year ended December 31, 1997 included in the
accompanying statement of operations was approximately $8,000.
17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No disclosure required by this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following information relates to the directors and executive
officers of the Company:
Age
(at 1/1/98) Company Position and Business Experience
----------- ----------------------------------------
M.E. Goulder 76 Director of the Company since
1970. President of M.E. Goulder
Enterprises Inc., a technical
consulting and investment counseling
firm, since 1973. Member of board of
directors of Bank of New Hampshire.
R.J. Moore 69 Director and Chairman of the Company
since 1983.
R.J. Moore, Jr. (1) 37 Vice President of the Company since
1990. President of VoiSys since 1996.
E.W. Rau 35 Treasurer of the Company since 1995.
R.L. Warren, Jr. 79 Director of the Company since 1972.
Private investor. Member board of directors
of Radio Frequency Company, Inc.
(1) R. J. Moore, Jr. is the son of R. J. Moore.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
No disclosure required by this item.
18
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid for 1997 to
the Company's "named executive officers" as defined in Item 402
of SEC Regulation S-B.
Annual Compensation ($)
------------------------
Name and
Principal Other Annual All Other
Position Year Salary Bonus Compensation Compensation ($)
- ----------------------------------------------------------------------------
R.J. Moore 1995 133,000 - - 8,470 (1)
CEO 1996 133,000 - - 8,501 (1)
1997 133,000 (2) - - 9,445 (1)
(1)Represent insurance premiums paid by the Company with respect to
term life insurance for the benefit of the named executive officer.
(2)Includes a deferred amount of $36,021.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information on option
exercises during 1997 by the named executive officers and
the number and value of their unexercised options at year
end.
Number of Value of
Securities Underlying Unexercised
Unexercised In-the Money
Options at Options at
Year End 1997 (#) Year End 1997 ($)
Shares
Acquired on Exercisable * Exercisable *
Name Exercise (#) Unexercisable ** Unexercisable **
- ---------------------------------------------------------------------------
R.J. Moore - 150,000 * 38,438 *(1)
50,000 ** 12,813 **(1)
(1) The amount given is based on the bid price ($.40625) of
the Company's Class B common stock as quoted by the National
Quotation Bureau on December 31, 1997.
Retirement Obligation
- ---------------------
The Company has established a non-qualified joint and survivor
retirement annuity for Mr. Moore, effective at his retirement or
other separation from paid service of the Company, where the
Company will be required to pay him for his lifetime a monthly
non-qualified retirement cash benefit of $3,400. Effective
January 1, 1998, Mr. Moore retired and payments commenced.
19
<PAGE>
Compensation of Directors
- -------------------------
Non-employee directors of the Company receive $500 per board or
board committee meeting attended.
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table presents certain information relating to the
ownership of the Company's Class A Common Stock as of January
30, 1998 by (a) any person known to the Company to be the
beneficial owner of more than 5% of the class, (b) each director
of the Company, (c) each of the named executive officers as
defined in Item 402 of SEC Regulation S-B, and (d) all directors
and executive officers of the Company as a group.
Percentage of
Number of Shares Outstanding
Name Owned Beneficially Shares so Owned
- ---- ------------------ ---------------
Morton E. Goulder 86,549 (1) 4.45%
Robert J. Moore 630,000 (2) 30.37
Robert J. Moore, Jr. 520,810 (3) 26.24
Robert L. Warren, Jr . 86,687 (1) 4.46
All directors and executive
officers as a group
(five persons) 1,361,017 (4) 61.63
(1)Includes 18,750 shares available within sixty days by
exercise of options.
(2)Includes 150,000 shares held by Mr. Moore's wife and
150,000 shares available within sixty days by exercise
of option.
(3)Includes 60,000 shares available within sixty days by
exercise of options.
(4)Includes 283,750 shares available within sixty days by
exercise of options and 150,000 shares held by Mr.
Moore's wife.
20
<PAGE>
The following table presents certain information relating to the
ownership of the Company's Class B Common Stock as of January
30, 1998 by (a) any person know to the Company to be the
beneficial owner of more than 5% of the class, (b) each director
of the Company, (c) each of the named executive officers as
defined in Item 402 of SEC Regulation S-B, and (d) all directors
and executive officers of the Company as a group.
Percentage of
Number of Shares Outstanding
Name Owned Beneficially Shares so Owned
- ---- ------------------ ---------------
Morton E. Goulder 120,549 (1) 5.15%
Harvey Houtkin 206,000 9.14
Walter P. Kroll 186,667 8.28
Robert J. Moore 630,000 (2) 21.84
Robert J. Moore, Jr. 520,810 (3) 18.76
Robert L. Warren, Jr. 86,687 (4) 3.70
Berkun group 259,000 (5) 11.49
All directors and executive
officers as a group
(five persons) 1,426,267 (6) 38.58
(1) Includes 67,799 shares available within sixty days by
conversion of shares of Class A Common Stock and 18,750
shares available within sixty days by exercise of options.
(2) Consists of (a) 330,000 shares available within sixty days
by conversion of shares of Class A Common Stock, (b)
150,000 shares available within sixty days by conversion of
shares of Class A Common Stock held by Mr. Moore's wife,
and (c) 150,000 shares available within sixty days by
exercise of option.
(3) Includes 460,810 shares available within sixty days by
conversion of shares of Class A Common Stock and 60,000
shares available within sixty days by exercise of options.
(4) Includes 67,937 shares available within sixty days by
conversion of shares of Class A Common Stock and 18,750
shares available within sixty days by exercise of options.
(5) The Berkun group consists of Joseph Christie, Estee Levine,
Judy Levine, Miriam Moncyzk, Benny Moncyzk, Wijac Co., Bill
Vilner, Bruce George, Michael Chesler, Dave Moskin, Spencer
Lehman, Bill Krunchick, and Wen Inv. Inc..
(6) Includes (a) 927,267 shares available within sixty days by
conversion of shares of Class A Common Stock, (b) 150,000
shares available within sixty days by conversion of shares
of Class A Common Stock held by Mr. Moore's wife, and (c)
283,750 shares available within sixty days by exercise of
options.
No director or executive officer of the Company owned
beneficially any shares of the Company's Preference Stock as of
January 30, 1998.
21
<PAGE>
ITEM. 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No disclosure is required by this item.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
Documents Filed as Part of This Report
- --------------------------------------
The following documents are filed as part of this report:
- The following financial statement items included in Item 7:
Report of independent public accountants
Consolidated financial statements of Computer Devices, Inc.
and Subsidiaries:
Consolidated statements of operations for the years ended
December 31, 1997, and December 31, 1996
Consolidated balance sheet at December 31, 1997
Consolidated statements of stockholders' equity (deficit) for
the years ended December 31, 1997 and December 31, 1996
Consolidated statements of cash flows for the years ended
December 31, 1997 and December 31, 1996
Notes to consolidated financial statements
- The exhibits listed in the accompanying Index to Exhibits.
Reports of Form 8-K
- -------------------
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1997.
22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPUTER DEVICES, INC.
By: S/ROBERT J. MOORE, JR. Date: FEBRUARY 24, 1998
------------------------------ -----------------
Robert J. Moore, Jr., Vice President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of registrant and in
the capacities and on the dates indicated.
S/ROBERT J. MOORE, JR. Date: FEBRUARY 24, 1998
------------------------------ -----------------
Robert J. Moore, Jr., Vice President
(Principal Executive Officer)
S/EBERHARD W. RAU Date: FEBRUARY 24, 1998
------------------------------ -----------------
Eberhard W. Rau, Treasurer
(Principal Financial and Accounting
Officer)
* * * * *
S/MORTON E. GOULDER Date: FEBRUARY 24, 1998
------------------------------ -----------------
Morton E. Goulder, Director
S/ROBERT J. MOORE Date: FEBRUARY 24, 1998
------------------------------ -----------------
Robert J. Moore, Director
S/ROBERT L. WARREN, JR. Date: FEBRUARY 24, 1998
------------------------------ -----------------
Robert L. Warren, Jr., Director
23
<PAGE>
INDEX TO EXHIBITS
Page
3 - Articles of incorporation and bylaws
3.01 - Charter, as amended, of the registrant (1)
3.01 - Bylaws of the registrant (1)
4 - Instruments defining the rights of security holders,
including indentures n.a.
9 - Voting trust agreement n.a.
10 - Material contracts
10.01 - Lease to the registrant's Nutting Lake facilities
dated as of February 22, 1988 (2)
10.02 - Amendment to item 10.01 dated October 1, 1992 (4)
10.03 - Stock Incentive Plan of the registrant as amended
November 10, 1992 (4)
10.04 - Form of stock option granted to Morton E. Goulder
and Robert L. Warren, Jr. as of November 23, 1994 (5)
10.05 - Employment agreement with Robert J. Moore dated
as of October 1, 1985 (3)
10.06 - Non-qualified defined benefit retirement payment
agreement with Robert J. Moore dated May 22, 1997 26
11 - Statement re computation of per share earnings 29
13 - Annual report to security holders, Form 10-Q or quarterly
report to security holders n.a.
16 - Letter on change in certifying accountant n.a.
18 - Letter on change in accounting principles n.a.
19 - Previously unfiled documents n.a.
22 - Subsidiaries of the registrant 30
23 - Published report regarding matters submitted to vote of
security holders n.a.
24 - Consent of experts and counsel n.a.
25 - Power of attorney n.a.
28 - Additional exhibits n.a.
24
<PAGE>
29 - Information from reports furnished to State Insurance
authorities n.a.
- -----------------------------------------------------------------------------
(1) Previously filed as an exhibit under the indicated exhibit
number to the Form 8-B registration statement of the
registrant dated September 30, 1986 and incorporated herein
by this reference:
Exhibit Number Corresponding
Above Exhibit Number
-------------- --------------
3.01 3.1
3.02 3.2
(2) Previously filed as an exhibit under the indicated exhibit
number to the Form 10-K report of the registrant filed April
14, 1988 and incorporated herein by this reference:
Exhibit Number Corresponding
Above Exhibit Number
-------------- --------------
10.01 10.04
(3) Previously filed as an exhibit under the indicated exhibit
number to the Form 10-K report of the registrant's predecessor
filed April 11, 1986 and incorporated herein by this
reference:
Exhibit Number Corresponding
Above Exhibit Number
-------------- --------------
10.05 10.13
(4) Previously filed as an exhibit under the indicated exhibit
number of Form 10-KSB report of the registrant's predecessor
filed April 16, 1993 and incorporated herein by this
reference:
Exhibit Number Corresponding
Above Exhibit Number
-------------- --------------
10.02 10.04
10.03 10.06
(5) Previously filed as an exhibit under the indicated exhibit
number to the Form 10-KSB report of the registrant's
predecessor filed March 31, 1996 and incorporated herein by
this reference:
Exhibit Number Corresponding
Above Exhibit Number
-------------- --------------
10.04 10.05
25
<PAGE>
NON-QUALIFIED DEFINED BENEFIT
RETIREMENT PAYMENT AGREEMENT
This is an agreement between COMPUTER DEVICES, INC. ("Company") and
ROBERT J. MOORE ("Moore') relating to the payment by Company to
Moore of a non-qualified, defined benefit retirement annuity
pursuant to Company board action of October 18, 1996.
1.Payment of Monthly Retirement Benefit. Company shall pay to
Moore, effective at Moore's retirement of other separation from
paid service of Company, voluntary or otherwise ("Retirement"),
and continuing for Moore's lifetime, a monthly non-qualified
retirement cash benefit of $4,000. Company acknowledges (a) the
receipt of adequate consideration for this obligation, (b) that
Company has induced Moore to rely thereon, and (c) that Moore
has changed his position accordingly. Payment shall be made at
Moore's last known address or as otherwise designated by Moore
to Company in writing.
2.Election to Convert to Joint and Survivor Annuity. At Moore's
election, exercisable by written notice to Company given at any
time before the effective date of Retirement, Moore may convert
the benefit payment provided for in 1 to a monthly cash joint
and survivor annuity for Moore and his spouse of $3,400.
3.Option to Secure by Rabbi Trust. At Moore's option, exercisable
by written notice to Company given at any time after Moore
ceases to be a "controlling" person (as that term is defined in
Securities and Exchange Commission Rule 405) in respect of
Company, Company shall secure its payment obligations hereunder
by means of an irrevocable "rabbi trust" - in form and substance
satisfactory to Moore and funded at a level and in a manner
determined from time to time in the exercise of reasonable
discretion by Moore to be adequate for the purpose - that meets
the requirements of Rev. Proc. 92-64 or its successor.
4.Default.
4.1 In the event of a default by Company in respect of any
obligation hereunder not cured within ten days after notice
thereof is mailed to Company at its principal place of business,
Company's executory payment obligations hereunder shall be
discounted to present value, determined by reference to the 1983
SACA Group Annuity Mortality Tables (or commonly recognized
successor) at a rate equal to the lower of (a) the Federal
Reserve Bank Discount Rate then in effect, of (b) the most
recent closing yield on three-month T-bills (per Prebon Yamane
or comparable recognized source). The amount so determined,
together with interest thereon compounded at one and one-half
percent per month, shall at Moore's option be due and payable
immediately, without further action, notice or demand of any
kind, all of which are expressly waived by Company.
4.2 Company shall on demand pay all costs and expensed
incurred by Moore in the protection or enforcement of his rights
hereunder, including reasonable attorney's fees and
disbursements.
4.3 Notwithstanding any contrary designation by Company, each
payment hereunder shall be applied first to accrued interest,
next to costs and expenses and then in reduction of principal.
4.4 No action or course of dealing by Moore, and not failure
or delay by Moore to exercise any right, power or remedy, shall
operate as a waiver of or otherwise prejudice Moore's right,
powers or remedies hereunder.
4.5 Company's obligations hereunder shall not be subject to
any counterclaim, setoff, recoupment or other defense of any
kind by or in the right of Company, all of which are expressly
waived by Company.
26
<PAGE>
4.6 Company irrevocable authorizes any attorney of any court
of record to (a) appear from time to time for Company in such
court, (b) waive the issuance and service of process, (c) aver
or declare default hereunder, (d) confess judgment against
Company in favor of Moore for any or all amounts due hereunder,
(e) file a cognovit for the amount thereof, (f) release all
errors, (g) waive all rights of appeal, (h) consent to immediate
execution thereon, (I) agree that no bill in equity shall be
filed to interfere with the operation of such judgment of any
execution issued thereon, and (j) take such other action as such
attorney shall consider necessary or appropriate to the
protection or enforcement of Moore's rights hereunder.
5.Withholding. The parties shall comply with all applicable
withholding requirements relating to the payments contemplated
hereunder.
6.Miscellaneous. This agreement shall bind the successors and
assigns of Company, but no assignment or other transaction shall
relieve Company of its obligations hereunder. Moore's rights to
payment hereunder shall not be subject to voluntary or
involuntary anticipation, assignment, encumbrance, disposition,
attachment, garnishment or other alienation of any kind. This
agreement may be modified or varied only in writing signed by
the party south to be bound.
COMPUTER DEVICES, INC.
By S/EBERHARD W. RAU
-----------------
S/ROBERT J. MOORE
- -----------------
Robert J. Moore
Dated: May 22 , 1997
-------------
27
<PAGE>
May 22, 1997
Computer Devices, Inc.
34 Linnell Circle
Nutting Lake, MA 01865
People:
In accordance with 2 of my non-qualified defined benefit
retirement payment agreement with you dated today's date. I
exercise my election to convert my benefit payment to a monthly
cash joint and survivor annuity for my spouse and me of $3,400.
Very truly your,
S/ROBERT J. MOORE
- -----------------
Robert J. Moore
28
<PAGE>
EXHIBIT 11
Statement Regarding Computation of Per Share Earnings
Weighted
Average Net Loss Loss
Period Shares Per Share
- -----------------------------------------------------------
First Quarter 3,579,143 $(115,000) $(.03)
Second Quarter 3,634,088 (104,000) (.03)
Third Quarter 4,079,143 (25,000) (.01)
Fourth Quarter 4,135,665 (184,000) (.04)
Fiscal 1997 3,859,143 $(428,000) (.11)
29
<PAGE>
EXHIBIT 22
Subsidiaries of the registrant
Jurisdiction of Name Under Which
Name of Subsidiary Incorporation Doing Business
------------------ ------------- --------------
Neuro-Therapeutics, Inc. Massachusetts Neuro-Therapeutics, Inc.
VoiSys International Corp. Maryland VoiSys International Corp.
30
<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 99
<SECURITIES> 0
<RECEIVABLES> 162
<ALLOWANCES> 46
<INVENTORY> 18
<CURRENT-ASSETS> 6
<PP&E> 167
<DEPRECIATION> 154
<TOTAL-ASSETS> 252
<CURRENT-LIABILITIES> 332
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> (518)
<TOTAL-LIABILITY-AND-EQUITY> 252
<SALES> 733
<TOTAL-REVENUES> 733
<CGS> 518
<TOTAL-COSTS> 518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (428)
<INCOME-TAX> (428)
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<EPS-PRIMARY> (.11)
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