<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 7, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-16172
COMPUTONE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 23-2472952
------------------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1100 Northmeadow Parkway, Suite 150, Roswell, GA 30076
--------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770)475-2725
N/A
---
(Former name, former address and former fiscal year, if changed since last report)
</TABLE>
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
--- ---.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes X No
--- ---.
As of September 14, 1995, there were 6,207,188 shares of common stock
outstanding.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1. Financial Statements:
Interim Consolidated Balance Sheets as of
July 7, 1995 and April 1, 1994 3
Interim Consolidated Statements of Operations for
the three months ended July 7, 1995 and July 1, 1994 4
Interim Consolidated Statements of Cash Flows
for the three months ended July 7, 1995 and July 1, 1994 5
Notes to Interim Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II - OTHER INFORMATION
<S> <C> <C>
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Computone Corporation
Interim Consolidated Balance Sheets
(in thousands except par value and shares)
<TABLE>
<CAPTION>
July 7, 1995 April 7, 1995
(unaudited) (audited)
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39 $ 297
Receivables, net 2,514 3,253
Inventories, net 3,273 2,174
Prepaid expenses and other 91 110
------------- -------------
Total current assets 5,917 5,834
Property, equipment and improvements, net 817 897
Intangible assets, net 613 891
Other 99 101
------------- ------------
Total assets $ 7,446 $ 7,723
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,189 $ 1,797
Accrued liabilities:
Payroll 135 164
Disputed matter 230 230
Professional fees 80 96
Other 497 425
Current maturities of long term debt 217 230
------------ ------------
Total current liabilities 3,348 2,942
Notes payable to stockholders 270 270
Long term debt, less current maturities 272 314
------------ ------------
Total liabilities 3,890 3,526
Stockholders' Equity
Convertible redeemable preferred stock, $.01 par value;
10,000,000 shares authorized; 200,000 share issued 2 2
Common stock, $.01 par value; 50,000,000 shares
authorized; 6,207,184 and 6,207,184 shares outstanding 62 62
Additional paid in capital 41,517 41,517
------------ ------------
Accumulated deficit (38,025) (37,384)
------------ ------------
Total stockholders' equity 3,556 4,197
------------ ------------
Total liabilities and stockholders' equity $ 7,446 $ 7,723
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
ITEM 1. Financial Statements (continued)
Computone Corporation
Interim Consolidated Statements of Operations
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 7, 1995 July 1, 1994
------------ ------------
<S> <C> <C>
Revenues:
Product sales $ 2,401 $ 3,405
------------ ------------
Expenses:
Cost of products sold 1,230 2,091
Selling, general and administrative 1,251 980
Product development 556 293
------------ ------------
3,037 3,364
------------ ------------
Operating income from continuing operations (636) 41
Non-Operating income (expense):
Other income (expense) 10 5
Interest expense (15) (4)
------------ ------------
Income from continuing operations before taxes (641) 42
Income tax expense (benefit):
Current - - - -
Deferred - - - -
------------ ------------
- - - -
------------ ------------
Income from continuing operations (641) 42
Discontinued operations:
Income on disposal - - 85
------------ ------------
Income before extraordinary item (641) 127
Extraordinary item:
Debt foregiveness - - - -
------------ ------------
Net income $ (641) $ 127
============ ============
Net income per common share and common
share equivalents:
Income from continuing operations (0.10) 0.01
Income from discontinued operations - - 0.01
Income from extraordinary item - - - -
------------ ------------
Net income per common s $ (0.10) $ 0.02
============ ============
Weighted average common shares and
common share equivalents outstanding 6,383 6,420
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
July 7, 1995 July 1, 1994
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ (641) $ 42
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 454 208
Provision for possible losses 119 92
Changes in current assets and current liabilities:
Accounts receivables 621 97
Inventories (1,099) (62)
Prepaid expenses and other 18 (43)
Accounts payable and accrued liabilities 406 (123)
--------- ---------
Net cash provided by (used in) continuing operations (122) 211
--------- ---------
Income (loss) from discontinued operations - - - 85
Adjustments to reconcile income from discontinued operations
to net cash used in discontinued operations:
(Income) loss on disposal - - - (85)
Change in net assets of discontinued operations - - - (104)
--------- ---------
Net cash used in discontinued operations - - - (104)
--------- ---------
Net cash provided by (used in) operating activities (122) 107
--------- ---------
Cash flows from investing activities:
(Increase) decrease in other assets (2) - - -
Capitalization of software costs (80) (40)
Capital expenditures (12) (85)
--------- ---------
Net cash used in investing activities (94) (125)
--------- ---------
Cash flows from financing activities:
Repayment of debt - net (42) (64)
Exercise of common stock options and warrants - - - 12
--------- ---------
Net cash (used in) provided by financing activities (42) (52)
--------- ---------
Net decrease in cash and cash equivalents (258) (70)
Cash and cash equivalents, beginning of period 297 215
--------- ---------
Cash and cash equivalents, end of period $ 39 $ 145
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 15 $ 1
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
COMPUTONE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The financial statements included in this Form 10-Q have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been
condensed, or omitted, pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Fiscal 1995
Form 10-K.
The financial statements presented herein, as of July 7, 1995 and for
the three and nine months then ended, reflect in the opinion of management,
all adjustments necessary for a fair presentation of financial position and
the results of operations for the periods presented. The results of
operations for any interim period are not necessarily indicative of the
results for the full year.
2. INVENTORIES
-----------
Inventories, net of a reserve for obsolete, excess and non-salable
items, consisted of the following at July 7, 1995 and April 7, 1995 (in
thousands):
<TABLE>
<CAPTION>
July 7, 1995 April 7, 1995
------------ ------------
<S> <C> <C>
Finished goods $1,244 $ 544
Work in progress 489 584
Raw materials 1,540 1,046
------ ------
$3,273 $2,174
====== ======
</TABLE>
3. INCOME PER SHARE
----------------
Income per common share is computed by dividing net income applicable to
common stock by the weighted average number of shares of common stock and
common share equivalents outstanding during each period.
6
<PAGE>
COMPUTONE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INCOME TAXES
------------
On April 3, 1993, the Company adopted the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Such adoption
had no cumulative effect on the Company's consolidated financial
statements. Prior years' financial statements have not been restated.
The Company has available net operating and capital loss carryforwards,
including preacquisition operating loss carryforwards which relate to a
predecessor company, which expire during the period 2003-2008. The
Company's possible use of the loss carryforwards will be limited as a
result of several different changes in ownership which have occurred since
the carryforwards started to accumulate. The use of the net operating loss
carryforwards are limited due to statutory provisions which apply after
certain changes in control occur.
For financial reporting purposes, a valuation allowance has been
established to reflect a net deferred tax balance of $0 as of the date of
adoption of FAS 109 as well as at July 7, 1995.
The Company estimates that no current provision for income taxes is
required for the three months ended July 7, 1995.
5. DEBT
----
On August 12, 1994, the Company secured financing from a bank in the
form of a $300,000 note payable and a $500,000 revolving credit agreement
("Agreement"). The note bears interest at a rate of floating prime plus 2%
and is due in monthly installments of $16,666.67 plus accrued interest.
The Agreement also bears interest at a rate of floating prime plus 2% on
any proceeds and .25% on any unused portion of the line. The prime rate
was 8.75% at July 7, 1995. The Agreement also calls for collateral
consisting of accounts receivable, inventory and equipment and is
guaranteed by an officer of the Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE ENDED JULY 7, 1995.
INTRODUCTION
------------
The comparative information contained herein includes results of
operations for the Company's continuing businesses. Certain previous
components of the Company are presented as discontinued operations in the
accompanying Consolidated Financial Statements.
LIQUIDITY
---------
Cash used in continuing operations amounted to $122,000 for the three
months ended July 7, 1995 compared to cash provided by continuing
operations of $211,000 for the comparable three months ended July 1, 1994.
The reduction in cash provided by continuing operations as compared to the
prior year fiscal period primarily reflects the decrease in product sales.
Cash used in financing activities amounted to $94,000 for the three
months ended July 7, 1995 compared with $125,000 used in financing
activities for the comparable three months of the prior fiscal year. This
decrease from the same period of the prior fiscal year is a result of the
Company making fewer capital expenditures during the three months ended
July 1, 1994.
Cash used in financing activities during the three months ended July 7,
1995 decreased by $10,000 from the same three months of the prior fiscal
year as a result of the Company having less long term debt.
Working capital amounted to $2,569,000 at July 7, 1995, a decrease of
$323,000, since April 7, 1995. The ratio of current assets to current
liabilities at July 7, 1995 was 1.77 to 1.00 compared to 1.98 to 1.00 at
April 1, 1994. The decrease in working capital is primarily attributable
to the decrease in product sales.
The Company is currently negotiating with a lending institution to
increase its current revolving credit agreement to better assist it in
meeting the demand for its intelligent controller and server products.
RESULTS OF OPERATIONS
---------------------
Product sales revenue from continuing operations for the quarter ended
July 7, 1995 totaled approximately $2,401,000 compared to $3,405,000 for
the comparable quarter of the prior fiscal year, a decrease of 29%. The
decrease in product sales revenue can be attributed to the Company's
reduction in sales to a major international OEM and the carryforward
resulting from large sales to the domestic distributors at the end of the
prior fiscal year.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE MONTHS ENDED JULY 7, 1995
(CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
Cost of products sold for the quarter amounted to $1,230,000 or 51% of
product sales revenues versus $2,091,000 or 61% for the comparable quarter
of the prior year. This decrease in cost of products sold as a percentage
of product sales revenues can be attributed to the sales product mix that
consisted of a greater than normal percentage of higher margin software
sales versus hardware sales.
Selling, general and administrative expenses amounted to $1,251,000 or
52% of product sales revenue for the three months ended July 7, 1995
versus $980,000 or 29% of product sales revenue for the comparable three
months of the prior fiscal year. The increase in expenses when compared to
the same period of the prior fiscal year can be attributed to the Company's
continuing efforts to aggressively promote the Company's highly successful
and recently released products- the IntelliServer and PCI bus multi-port
adapters. Also, the Company is in the process of negotiating to relocate
to a new facility in the same general area which will result in a
significant reduction in the Company's overall monthly occupancy costs. As
a result, the Company recorded an expense accrual related to the relocation
of approximately $75,000 during the quarter which will eliminate the
requirement to record, in future quarters, any additional expenses related
to the relocation.
Product development expenses amounted to $556,000 or 23% of product
sales revenue for the three months ended July 7, 1995. This compares to
$293,000 or 9% of product sales revenue for the comparable three period of
the prior fiscal year. This increase can be attributed to the accelerated
amortization of $277,000 in product development expenses related to costs
capitalized prior to April 1, 1994. This one-time charge will result in an
annual savings of over $100,000 during this fiscal year and $144,000 during
the next fiscal year.
The Company reported a loss from continuing operations for the quarter
ended July 7, 1995 of $636,000 compared to income from continuing
operations of $42,000 for the comparable quarter of the prior fiscal year.
This loss can be attributed to the decreased levels of product sales along
with the one-time charges for accelerated product development amortization,
$277,000, the moving expense accrual, $75,000 and a $200,000 accrual for
potential product returns. Excluding these one-time charges, the loss from
continuing operations would have been approximately $120,000.
Income from discontinued operations totaled $85,000 for the three months
ended July 1, 1994 whereas the Company recorded no income from discontinued
operations for the three months ended July 7, 1995. The $85,000 related to
the fact that the loss on disposal of Princeton and Denison was less than
originally provided for and, therefore, the estimated disposal costs were
reduced.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None, other than those matters described in Item 3 to
the Company's Annual Report on Form 10-K for the year ended April
7, 1995.
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
Not Applicable.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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 .
COMPUTONE CORPORATION
Date: September 14, 1995 By: /s/ Thomas J. Anderson
---------------------------------
Thomas J. Anderson
President & Chief Operating Officer
(duly authorized officer and
Principal Executive Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> APR-05-1996 APR-07-1995
<PERIOD-START> APR-08-1995 APR-02-1994
<PERIOD-END> JUL-07-1995 JUL-01-1994
<CASH> 39 145
<SECURITIES> 0 0
<RECEIVABLES> 3,823 3,761
<ALLOWANCES> 569 1,046
<INVENTORY> 3,273 2,683
<CURRENT-ASSETS> 5,834 5,634
<PP&E> 3,588 3,511
<DEPRECIATION> 2,691 2,353
<TOTAL-ASSETS> 7,723 7,907
<CURRENT-LIABILITIES> 2,942 3,466
<BONDS> 0 0
<COMMON> 62 62
0 0
2 2
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 7,723 7,907
<SALES> 2,401 3,405
<TOTAL-REVENUES> 2,401 3,405
<CGS> 1,230 2,091
<TOTAL-COSTS> 1,230 2,091
<OTHER-EXPENSES> 1,807 1,273
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15 4
<INCOME-PRETAX> (641) 42
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (641) 42
<DISCONTINUED> 0 85
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (641) 127
<EPS-PRIMARY> (.10) .01
<EPS-DILUTED> (.10) .01
</TABLE>
