<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 January 5, 1996
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)
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)
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 January 5, 1996, there were 6,357,197 shares of common stock
outstanding.
1
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Interim Consolidated Balance Sheets as of
January 5, 1996 and April 7, 1995 3
Interim Consolidated Statements of Operations for
the three months ended January 5, 1996 and January 6, 1995 4
Interim Consolidated Statements of Operations for the nine
months ended January 5, 1996 and January 6, 1995 5
Interim Consolidated Statements of Cash Flows the nine months
ended January 5, 1996 and January 6, 1995 6
Notes to Interim Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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>
January 5, 1996 April 7, 1995
(unaudited) (audited)
----------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 113 $ 297
Receivables, net 3,588 3,253
Inventories, net 2,306 2,174
Prepaid expenses and other 119 110
----------------- ---------------
Total current assets 6,126 5,834
Property, equipment and improvements, net 636 897
Intangible assets, net 627 891
Other 97 101
----------------- ---------------
Total assets $ 7,486 $ 7,723
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,868 $ 1,797
Accrued liabilities:
Payroll 109 164
Disputed matter 39 230
Professional fees 61 96
Other 359 425
Line of credit 665 --
Current maturities of long term debt 212 230
----------------- ---------------
Total current liabilities 3,313 2,942
Notes payable to stockholders 270 270
Long term debt, less current maturities 172 314
----------------- ---------------
Total liabilities 3,755 3,526
Stockholders' Equity
Convertible redeemable preferred stock, $.01 par value;
10,000,000 shares authorized; 0 shares issued 0 2
Common stock, $.01 par value; 50,000,000 shares
authorized; 6,357,197 and 6,207,184 shares outstanding 64 62
Additional paid in capital 41,486 41,517
Accumulated deficit (37,819) (37,384)
----------------- ---------------
Total stockholders' equity 3,731 4,197
----------------- ---------------
Total liabilities and stockholders' equity $ 7,486 $ 7,723
================= ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
ITEM 1. Financial Statements (continued)
Computone Corporation
Interim Consolidated Statements of Income
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 5, 1996 January 6, 1995
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales $ 3,310 $ 3,408
Expenses:
Cost of products sold 2,113 2,134
Selling, general and administrative 729 1,025
Product development 244 236
------------------ ------------------
3,086 3,395
------------------ ------------------
Operating income from continuing operations 224 13
Non-Operating income (expense):
Other income (expense) 10 30
Interest expense (35) (22)
------------------ ------------------
Income from continuing operations before taxes 199 21
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ ------------------
-- --
------------------ ------------------
Income from continuing operations 199 21
Discontinued operations:
Income on disposal -- 99
------------------ ------------------
Income before extraordinary item 199 120
Extraordinary item:
Debt foregiveness -- 40
------------------ ------------------
Net income $ 199 $ 160
================== ==================
Net income per common share and common
share equivalents:
Income from continuing operations 0.03 --
Income from discontinued operations -- 0.02
Income from extraordinary item -- --
------------------ ------------------
Net income per common share $ 0.03 $ 0.02
================== ==================
Weighted average common shares and
common share equivalents outstanding 6,502 6,412
================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
ITEM 1. Financial Statements (continued)
Computone Corporation
Interim Condensed Consolidated Statements of Operations
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 5, 1996 January 6, 1995
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales $ 8,638 $ 10,798
Expenses:
Cost of products sold 5,158 6,677
Selling, general and administrative 2,825 3,095
Product development 1,034 812
------------------ ------------------
9,017 10,584
------------------ ------------------
Operating income from continuing operations (379) 214
Non-Operating income (expense):
Other income (expense) 20 34
Interest expense (75) (32)
------------------ ------------------
Income from continuing operations before taxes (434) 216
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ ------------------
-- --
------------------ ------------------
Income from continuing operations (434) 216
Discontinued operations:
Income on disposal -- 184
------------------ ------------------
Income from discontinued operations -- 184
------------------ ------------------
Income before extraordinary item (434) 400
Extraordinary item:
Debt foregiveness -- 242
------------------ ------------------
Net income $ (434) $ 642
================== ==================
Net income per common share and common
share equivalents:
Income from continuing operations (0.07) 0.03
Income from discontinued operations -- 0.03
Income from extraordinary item -- 0.03
------------------ ------------------
Net income per common share $ (0.07) $ 0.09
================== ==================
Weighted average common shares and
common share equivalents outstanding 6,485 6,205
================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
ITEM 1. Financial Statements (continued)
Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the nine months ended
January 5, 1996 January 6, 1995
(unaudited) (unaudited)
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ (434) $ 458
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 768 688
Provision for possible losses (385) (34)
Forgiveness of debt -- (242)
Changes in current assets and current liabilities:
Accounts receivable 71 (9)
Inventories (153) 890
Prepaid expenses and other (9) (140)
Accounts payable and accrued liabilities (295) (949)
----------------- ----------------
Net cash provided by (used in) continuing operations (437) 662
----------------- ----------------
Income (loss) from discontinued operations -- 184
Adjustments to reconcile income from discontinued operations
to net cash used in discontinued operations:
(Income) loss on disposal -- (184)
Change in net assets of discontinued operations -- (133)
----------------- ----------------
Net cash used in discontinued operations -- (133)
----------------- ----------------
Net cash provided by (used in) operating activities (437) 529
----------------- ----------------
Cash flows from investing activities:
(Increase) decrease in other assets 1 3
Capitalization of software costs (197) (224)
Capital expenditures, net of disposals (44) (68)
----------------- ----------------
Net cash used in investing activities (240) (289)
----------------- ----------------
Cash flows from financing activities:
Borrowings under long term debt agreements -- 300
Net borrowings (repayments) under line of credit 665 --
Repayment of debt - net (142) (350)
Issuance of common stock for preferred 2 --
Dividends paid (32)
Exercise of common stock options and warrants -- 12
----------------- ----------------
Net cash provided by (used in) financing activities 493 (38)
----------------- ----------------
Net decrease in cash and cash equivalents (184) 202
Cash and cash equivalents, beginning of period 297 215
----------------- ----------------
Cash and cash equivalents, end of period $ 113 $ 417
================= ================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 75 $ 7
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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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 January 5, 1996 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 January 5, 1996 and April 7, 1995 (in thousands):
<TABLE>
<CAPTION>
January 5, 1996 April 7, 1995
--------------- -------------
<S> <C> <C>
Finished goods $ 581 $ 544
Work in progress 567 584
Raw materials 1,158 1,046
------ ------
$2,306 $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.
7
<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 January 5, 1996.
The Company estimates that no current provision for income taxes is
required for the nine months ended January 5, 1996.
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"). On April 7, 1995, the Company refinanced the note in the amount
of $402,823 and reduced the monthly payments from $16,666.67 to $13,427.44. The
note bears interest at a rate of floating prime plus 2%. On July 31, 1995, the
Agreement was extended to $750,000 and it bears interest at a rate of floating
prime plus 1% on any proceeds and .50% on any unused portion of the line. The
prime rate was 8.50% at January 5, 1996. The Agreement also calls for
collateral consisting of accounts receivable, inventory and equipment and is
guaranteed by an officer of the Company.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition for the Three and Nine Months Ended January 5, 1996.
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 $437,000 for the nine months
ended January 5, 1996 compared to cash provided by continuing operations of
$662,000 for the comparable nine months ended January 6, 1995. 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 investing activities amounted to $240,000 for the nine months
ended January 5, 1996 compared with $289,000 used in financing activities for
the comparable nine months of the prior fiscal year. This decrease from the
same period of the prior fiscal year can be attributable to the Company
capitalizing a lesser amount of software development costs as a result of a
smaller development headcount and a lesser amount of expenditures related to
capital purchases.
Cash provided by financing activities during the nine months ended January
5, 1996 was $493,000 from the nine months ended January 5, 1996 versus $38,000
of cash used in financing activities for the same nine months of the prior
fiscal year. This $531,000 change can be attributed to the Company borrowing
against its revolving credit agreement.
Working capital amounted to $2,903,000 at January 5, 1996, an increase of
$11,000, since April 7, 1995. The ratio of current assets to current
liabilities at January 5, 1996 was 1.85 to 1.00 compared to 1.98 to 1.00 at
April 7, 1995. The increase in working capital is primarily attributable to the
increase in receivables resulting from strong period end sales.
Results of operations
- ---------------------
Product sales revenue from continuing operations for the quarter ended
January 5, 1996 totaled approximately $3,310,000 compared to $3,408,000 for the
comparable quarter of the prior fiscal year, a decrease of 3%. For the nine
months ended January 5, 1996, product sales revenues decreased 20% from
$10,798,000 to $8,638,000 when compared to the same period of the prior fiscal
year. These decreases in product sales revenue can be attributed to the
Company's reduction in sales to a major international OEM and a domestic
distributor.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition for the Three and Nine months ended January 5, 1996
(continued).
Results of operations (continued)
- ---------------------------------
Cost of products sold for the quarter amounted to $2,113,000 or 64% of
product sales revenues versus $2,134,000 or 63% for the comparable quarter of
the prior year. For the nine months ended January 5, 1996, cost of sales
amounted to $5,158,000 or 60% of product sales revenues versus $6,677,000 or 62%
during the same nine month period of the prior fiscal year. The increase in cost
of products sold as a percentage of product sales revenues during the three
months ended January 5, 1996, when compared to the same period of the prior
fiscal year, can be attributed to a one-time sale to a division of a major
customer. Previous and subsequent sales to this major customer have been and
are at greater margins. The decrease in cost of products sold as a percentage of
product sales revenues for the nine months ended January 5, 1996 can be
attributed to the Company's decision, in the third quarter of last fiscal year,
to begin outsourcing the production of a majority of its products.
Selling, general and administrative expenses amounted to $729,000 or 22% of
product sales revenue for the three months ended January 5, 1996 versus
$1,025,000 or 30% of product sales revenue for the comparable three months of
the prior fiscal year. For the nine months ended January 5, 1996, selling,
general and administrative expenses were $2,825,000 or 33% of product sales
revenues versus $3,095,000 or 29% of product sales revenues for the same nine
month period of the prior fiscal year. The decrease in expenses during the
quarter ended January 5, 1996 versus the same period of the prior fiscal year
can be attributed to the Company's ability to reduce its headcount while
providing a greater level of service to its customers, a reduction in
professional fees resulting from the settlement of various lawsuits and the
Company becoming re-listed on the NASDAQ stock market and the Company's
successful efforts in reducing its day-to-day operating expenses. Also, the
Company continues to review its alternatives with respect to relocating to a new
facility in the same general area which will result in a significant reduction
in the Company's overall monthly occupancy costs.
Product development expenses amounted to $244,000 or 7% of product sales
revenue for the three months ended January 5, 1996 versus $236,000 or 7% of
product sales revenue for the comparable three month period of the prior fiscal
year. For the nine month period ended January 5, 1996, product development
expenses were $1,034,000, or 12% or product sales revenues as compared to
$812,000 or 8% of product sales revenues during the nine month period ended
January 6, 1995. The marginal increase during the three months ended January 5,
1996, as compared to the same three month period of the prior fiscal year, can
be attributed to normal operating expenses. The increase in product development
expenses during the nine months ended January 5, 1996 versus the same period of
the prior fiscal year can be attributed to a one-time charge to accelerate the
amortization of product development expenses related to costs capitalized prior
to April 1, 1994. This one-time charge of $277,000 in the first quarter of this
fiscal year will result in an annual savings of over $100,000 during this fiscal
year and $144,000 during the next fiscal year.
10
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition for the Three and Nine months ended January 5, 1996
(continued).
Results of operations (continued)
- ---------------------------------
The Company reported income from continuing operations for the quarter
ended January 5, 1996 of $199,000 compared to income from continuing operations
of $21,000 for the comparable quarter of the prior fiscal year. The Company
continues to benefit from the first quarter implementation of major reductions
in day-to-day operating expenses and the continuing reduction of its cost of
products sold through outsourcing. For the nine months ended January 5, 1996,
the Company had an operating loss of $434,000 versus operating income of
$216,000 during the same period of the prior fiscal year. This decrease in
operating income can be attributed to the $2,160,000 decrease in product sales
along with the one-time charges in the first quarter for $277,000 of accelerated
product development amortization expense.
Income from discontinued operations totaled $184,000 for the nine months
ended January 6, 1995 whereas the Company recorded no income from discontinued
operations for the nine months ended January 5, 1996. The $184,000 related to
the fact that the loss on the disposal of Princeton and Denison was less than
originally provided for and, therefore, the estimated disposal costs were
reduced. Also, the Company recorded extraordinary income of $242,00 for the
nine months ended January 6, 1995 related to the settlement of outstanding trade
payables balances.
11
<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
The Company reported on Form 8-K, filed on January 18, 1996,
that Richard A. Hansen and Thomas J. Anderson have acquired control of
the Company by reason of their ownership of voting securities of the
Company.
12
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SIGNATURES
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: February 16, 1996 By: /s/Thomas J. Anderson
---------------------
Thomas J. Anderson
President & Chief Operating Officer
(duly authorized officer and
Principal Executive Officer)
By: /s/ Gregory A. Alba
-------------------
Gregory A. Alba
Controller
Principal Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> APR-05-1996 APR-05-1996
<PERIOD-START> OCT-07-1995 APR-08-1995
<PERIOD-END> JAN-05-1996 JAN-05-1996
<CASH> 113 113
<SECURITIES> 0 0
<RECEIVABLES> 3,920 3,920
<ALLOWANCES> 331 331
<INVENTORY> 2,306 2,306
<CURRENT-ASSETS> 6,126 6,126
<PP&E> 3,616 3,616
<DEPRECIATION> 2,980 2,980
<TOTAL-ASSETS> 7,486 7,486
<CURRENT-LIABILITIES> 3,313 3,313
<BONDS> 0 0
64 64
0 0
<COMMON> 0 0
<OTHER-SE> 3,667 3,667
<TOTAL-LIABILITY-AND-EQUITY> 7,486 7,486
<SALES> 3,310 8,638
<TOTAL-REVENUES> 3,310 8,638
<CGS> 2,113 5,168
<TOTAL-COSTS> 3,086 9,017
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 35 75
<INCOME-PRETAX> 199 (434)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 199 (434)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 199 (434)
<EPS-PRIMARY> .03 (.07)
<EPS-DILUTED> .03 (.07)
</TABLE>
