<PAGE>
FORM 10-QSB
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 October 4, 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)
<TABLE>
<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)
</TABLE>
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 October 4, 1996, there were 6,371,684 shares of common stock
outstanding.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of
October 4, 1996 and April 5, 1996 3
Consolidated Statements of Operations for
the three months ended October 4, 1996 and October 6, 1995 4
Consolidated Statements of Operations for
the six months ended October 4, 1996 and October 6, 1995 5
Consolidated Statements of Cash Flows
the six months ended October 4, 1996 and October 6, 1995 6
Notes to Consolidated Financial Statements 7
ITEM 2. Discussion and Analysis or Plan of Operations 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
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<TABLE>
<CAPTION>
Computone Corporation
Consolidated Balance Sheets
(in thousands except par value and number of shares)
October 4, 1996 April 5, 1996
--------------- ---------------
<S> <C> <C>
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 21 $ 143
Receivables, net 2,303 1,564
Inventories, net 2,868 2,715
Prepaid expenses and other 108 83
------------ ------------
Total current assets 5,300 4,505
Property, equipment and improvements, net 339 523
Intangible assets, net 586 636
Other 104 99
------------ ------------
Total assets $ 6,329 $ 5,763
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,060 $ 1,848
Accrued liabilities:
Payroll 106 113
Prepaid sales 17 214
Professional fees 24 69
Other 484 465
Line of credit 749 599
Notes payable to stockholders 250 - -
Current maturities of long term debt 421 504
------------ ------------
Total current liabilities 4,111 3,812
Notes payable to stockholders 20 20
Long term debt, less current maturities 15 47
------------ ------------
Total liabilities 4,146 3,879
Stockholders' Equity
Convertible redeemable preferred stock, $.01 par value;
10,000,000 shares authorized; 0 shares issued - - - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 6,371,684 and 6,357,184 shares outstanding 64 64
Additional paid in capital 41,559 41,543
Accumulated deficit (39,440) (39,723)
------------ ------------
Total stockholders' equity 2,183 1,884
------------ ------------
Total liabilities and stockholders' equity $ 6,329 $ 5,763
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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ITEM 1. Financial Statements (continued)
Computone Corporation
Interim Consolidated Statements of Operations
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 4, 1996 October 6, 1995
--------------- ---------------
<S> <C> <C>
Revenues:
Product sales $ 3,504 $ 2,694
Expenses:
Cost of products sold 2,058 1,758
Selling, general and administrative 930 863
Product development 265 231
------------- -------------
3,253 2,852
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Operating income from continuing operations 251 (158)
Non-Operating income (expense):
Other income (expense) 3 (1)
Interest expense (36) (25)
------------- -------------
Income from continuing operations before taxes 215 (184)
Income tax expense (benefit):
Current - - - -
Deferred - - - -
------------- -------------
- - - -
------------- -------------
Income from continuing operations 215 (184)
------------- -------------
Net income $ 215 $ (184)
============= =============
Net income per common share and common
share equivalents:
Income from continuing operations 0.03 (0.03)
------------- -------------
Net income per common share $ 0.03 $ (0.03)
============= =============
Weighted average common shares and
common share equivalents outstanding 6,843 6,412
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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ITEM 1. Financial Statements (continued)
Computone Corporation
Interim Condensed Consolidated Statements of Income
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
October 4, 1996 October 6,1995
--------------- --------------
<S> <C> <C>
Revenues:
Product sales $ 6,529 $ 4,550
Expenses:
Cost of products sold 3,910 3,033
Selling, general and administrative 1,734 2,136
Product development 539 787
------------ ------------
6,183 5,956
------------ ------------
Operating income from continuing operations 346 (1,406)
Non-Operating income (expense):
Other income 3 9
Interest expense (66) (40)
------------ ------------
Income from continuing operations before taxes 283 (1,437)
Income tax expense (benefit):
Current - - - -
Deferred - - - -
------------ ------------
- - - -
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Income from continuing operations 283 (1,437)
------------ ------------
Net income $ 283 $ (1,437)
============ ============
Net income per common share and common
share equivalents:
Income from continuing operations 0.04 (0.23)
------------ ------------
Net income per common share $ 0.04 $ (0.23)
============ ============
Weighted average common shares and
common share equivalents outstanding 6,843 6,383
============ ============
</TABLE>
5
See accompanying notes to the consolidated financial statements.
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Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the six months ended
October 4, 1996 October 6, 1995
(unaudited) (unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 283 $ (1,437)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 340 646
Provision for possible losses 78 (400)
Changes in current assets and current liabilities:
Accounts receivables (747) 1,917
Inventories (224) (549)
Prepaid expenses and other (26) 23
Accounts payable and accrued liabilities (18) (719)
--------- ---------
Net cash provided by (used in) continuing operations (314) (519)
--------- ---------
Net cash provided by (used in) operating activities (314) (519)
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Cash flows from investing activities:
(Increase) decrease in other assets (4) 3
Capitalization of software costs (75) (158)
Capital expenditures (30) (71)
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Net cash used in investing activities (109) (226)
--------- ---------
Cash flows from financing activities:
Repayment of debt - net (115) (85)
Net borrowings under lines of credit 150 665
Net borrowings from affiliates 250 - -
Exercise of common stock options and warrants 16 - -
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Net cash (used in) provided by financing activities 301 580
--------- ---------
Net decrease in cash and cash equivalents (122) (165)
Cash and cash equivalents, beginning of period 143 297
--------- ---------
Cash and cash equivalents, end of period $ 21 $ 132
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 66 $ 40
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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COMPUTONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The financial statements included in this Form 10-QSB 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 1996 Form 10-K.
The financial statements presented herein, as of October 4, 1996 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 October 4, 1996 and April 5, 1996 (in thousands):
<TABLE>
<CAPTION>
October 4, 1996 April 5, 1996
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<S> <C> <C>
Finished goods $ 457 $ 830
Work in progress 865 516
Raw materials 1,546 1,369
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$2,868 $2,715
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</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
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COMPUTONE CORPORATION
NOTES TO 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 October 4, 1996.
The Company estimates that no current provision for income taxes is
required for the three months ended October 4, 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
Company has a line of credit facility with the bank which provides for $750,000
in advances at a rate of prime plus 1% and matured in August 1996. In November
1996, the Company paid $410,000 toward the consolidated debt and reached an
agreement to extend its maturity date to May 1997. The consolidated note bears
interest at a rate of prime plus 2% with interest only monthly payments in the
amount of approximately $5,000. The principal balance of the consolidated debt
will be due at maturity.
On September 10, 1996, the Company secured financing from a shareholder in
the form of a $250,000 note payable. The note bears interest at a rate of 10%
and matures on December 31, 1996.
6. FINANCING
---------
On October 9 and October 11, 1996, the Company raised a total of
approximately $1,400,000 through an offshore private placement. A total of
300,000 shares were sold at an offering price of $5.25 per share.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED OCTOBER 4, 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.
RESULTS OF OPERATIONS
- ---------------------
Product sales revenue for the quarter ended October 4, 1996 totaled
approximately $3,504,000 compared to $2,694,000 for the comparable quarter of
the prior fiscal year, an increase of 30%. Product sales revenue for the six
month period ended October 4, 1996 totaled approximately $6,529,000 compared to
$4,550,000 for the comparable period of the prior fiscal year, an increase of
44%. These increases in product sales revenue can be attributed to the Company's
sales of remote access products increasing approximately $658,000 for the
quarter and approximately $1,237,000 for the six month period.
Cost of products sold for the quarter amounted to $2,058,000 or 72% of
product sales revenues versus $1,758,000 or 65% for the comparable quarter of
the prior year. Cost of products sold for the six month period amounted to
$3,910,000 or 60% of product sales revenues versus $3,033,000 or 67% for the
comparable period of the prior year. The increase cost of products sold can be
attributed to the Company's increased sales of Remote Access products.
Selling, general and administrative expenses amounted to $930,000 or 27% of
product sales revenue for the quarter versus $863,000 or 32% of product sales
revenue for the comparable quarter of the prior fiscal year. Selling, general
and administrative expenses amounted to $1,734,000 or 27% of product sales
revenue for the six month period versus $2,136,000 or 47% of product sales
revenue for the comparable period of the prior fiscal year. The decrease in
expenses as a percentage of product sales revenue 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'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 $265,000 or 8% of product sales
revenue for the quarter versus $231,000 or 9% of product sales revenue for the
comparable quarter of the prior fiscal year. Product development expenses
amounted to $539,000 or 9% of product sales revenue for the six month period
quarter versus $787,000 or 18% of product sales revenue for the comparable
period of the prior fiscal year. The increase in expenses for the quarter ended
October 4, 1996 is due to a slightly higher headcount in the product development
area. The decrease in expenses for the six month period can be attributed to a
decision made in the prior fiscal year to take a one-time charge to accelerate
the amortization of product development expenses associated with costs
capitalized prior to April 1, 1994.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED OCTOBER 4, 1996 (CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
The Company reported income from continuing operations for the quarter
ended October 4, 1996 of $215,000 compared to loss from continuing operations of
$184,000 for the comparable quarter of the prior fiscal year. The Company
reported income from continuing operations for the six month period of $283,000
compared to loss from continuing operations of $1,437,000 for the comparable
period of the prior fiscal year. The increase in income is due primarily to
increased product sales revenue.
LIQUIDITY
- ---------
Cash used in continuing operations amounted to $314,000 for the six months
ended October 4, 1996 compared to cash used in continuing operations of $519,000
for the comparable six months ended October 6, 1995. The decrease in cash used
in continuing operations as compared to the prior year fiscal period primarily
reflects the net income generated during the current period versus the loss over
the same period over the prior fiscal year.
Cash used in investing activities amounted to $109,000 for the six months
ended October 4, 1996 compared with $226,000 used in financing activities for
the comparable six 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 and a lesser amount of capital
expenditures.
Cash provided by financing activities during the six months ended October
4, 1996 was $301,000 versus $580,000 of cash provided by financing activities
for the same six months of the prior fiscal year. This change can be attributed
to the Company borrowing a lesser amount from its line of credit and its
affiliates to fund its working capital needs.
Working capital amounted to $1,189,000 at October 4, 1996, an increase of
$496,000, since April 5, 1996. The ratio of current assets to current
liabilities at October 4, 1996 was 1.28 to 1.00 compared to 1.18 to 1.00 at
April 5, 1996.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED OCTOBER 4, 1996 (CONTINUED).
OUTLOOK FOR REMAINDER OF FISCAL YEAR 1997
- -----------------------------------------
SALES BY PRODUCT LINE
The Company has decided to concentrate is selling efforts in the Remote
Access market versus the Input/Output device market. The sales information for
the quarter and the six months ended October 4, 1996 are listed below.
Management believes that the level of sales of Remote Access products as a
percentage of total net revenue will continue to increase over the remainder of
fiscal year and reach approximately 40% of total revenues by the fiscal
yearend.
<TABLE>
<CAPTION>
Remote Access Servers Input/Output Devices Total
Sales $ (000's) % of Total Sales $ (000's) % of Total Sales $ (000's) % of Total
-------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Qtrly Info: 97 1,033 30% 2,471 70% 3,504 100%
96 375 14% 2,319 86% 2,694 100%
YTD Info: 97 2,039 32% 4,490 68% 6,529 100%
96 802 18% 3,748 82% 4,550 100%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash from operations is expected to enable the Company to meet its
obligations with respect to its lender and trade vendors throughout fiscal year
1997. The Company is in negotiations with its affiliates in an effort to extend
the debt due to them beyond its current maturity date.
RESULTS OF OPERATIONS
The Company expects continued growth in its Remote Access products and is
currently negotiating with a number of major accounts with respect to large
purchases for the remainder of the fiscal year. Management is fairly confident
that these purchase orders will be obtained and shipped prior to the fiscal
yearend. There are no guarantees that the orders will be received in time to
ensure shipment prior to the fiscal yearend.
11
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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 5, 1996.
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.
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: November 18, 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
Vice President of Finance & Administration
and Chief Financial Officer
(Principal Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> APR-04-1997 APR-04-1997
<PERIOD-START> JUL-06-1996 APR-06-1996
<PERIOD-END> OCT-04-1996 OCT-04-1996
<CASH> 21 21
<SECURITIES> 0 0
<RECEIVABLES> 2,565 2,565
<ALLOWANCES> 262 262
<INVENTORY> 2,868 2,868
<CURRENT-ASSETS> 5,300 5,300
<PP&E> 2,980 2,980
<DEPRECIATION> 2,641 2,641
<TOTAL-ASSETS> 6,329 6,329
<CURRENT-LIABILITIES> 4,111 4,111
<BONDS> 0 0
0 0
0 0
<COMMON> 64 64
<OTHER-SE> 2,119 2,119
<TOTAL-LIABILITY-AND-EQUITY> 6,329 6,329
<SALES> 3,504 6,529
<TOTAL-REVENUES> 3,504 6,529
<CGS> 2,058 3,910
<TOTAL-COSTS> 3,253 6,183
<OTHER-EXPENSES> (3) (3)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 36 66
<INCOME-PRETAX> 215 283
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 215 283
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 215 283
<EPS-PRIMARY> 0.03 0.04
<EPS-DILUTED> 0 0
</TABLE>
