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<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 July 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
incorporation or organization) Number)
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 July 5, 1996, there were 6,371,247 shares of common stock
outstanding.
1
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Interim Consolidated Balance Sheets as of
July 5, 1996 and April 5, 1996 3
Interim Consolidated Statements of Operations for
the three months ended July 5, 1996 and July 7, 1995 4
Interim Consolidated Statements of Cash Flows
the three months ended July 5, 1996 and July 7, 1995 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan
of Operations 8
PART II - OTHER INFORMATION
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
Signatures 11
2
<PAGE>
Computone Corporation
Consolidated Balance Sheets
(in thousands except par value and number of shares)
<TABLE>
<CAPTION>
July 5, 1996 April 5, 1996
------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 79 $ 143
Receivables, net 1,637 1,564
Inventories, net 2,864 2,715
Prepaid expenses and other 91 83
---------- -----------
Total current assets 4,671 4,505
Property, equipment and improvements, net 434 523
Intangible assets, net 619 636
Other 105 99
---------- -----------
Total assets $ 5,829 $ 5,763
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,873 $ 1,848
Accrued liabilities:
Payroll 125 113
Prepaid sales 66 214
Professional fees 38 69
Other 499 465
Line of credit 749 599
Current maturities of long term debt 461 504
---------- -----------
Total current liabilities 3,811 3,812
Notes payable to stockholders 20 20
Long term debt, less current maturities 30 47
---------- -----------
Total liabilities 3,861 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; 6,371,247 and 6,357,184 shares outstanding 64 64
Additional paid in capital 41,559 41,543
Accumulated deficit (39,655) (39,723)
---------- -----------
Total stockholders' equity 1,968 1,884
---------- -----------
Total liabilities and stockholders' equity $ 5,829 $ 5,763
=========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
Computone Corporation
Interim Consolidated Statements of Operations
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 5, 1996 July 7, 1995
------------ ------------
<S> <C> <C>
Revenues:
Product sales $ 3,025 $ 1,856
Expenses:
Cost of products sold 1,852 1,275
Selling, general and administrative 805 1,273
Product development 274 556
------------ ------------
2,931 3,104
------------ ------------
Operating income (loss) from continuing
operations 94 (1,248)
Non-Operating income (expense):
Other income (expense) 4 10
Interest expense (30) (15)
------------ ------------
Income (loss) from continuing operations
before taxes 68 (1,253)
Income tax expense (benefit):
Current - - - -
Deferred - - - -
------------ ------------
- - - -
------------ ------------
Income (loss) from continuing operations 68 (1,253)
Discontinued operations:
Income on disposal - - - -
------------ ------------
Income (loss) before extraordinary item 68 (1,253)
------------ ------------
Extraordinary item:
Debt foregiveness - - - -
------------ ------------
Net income (loss) $ 68 $ (1,253)
============ ============
Net income (loss) per common share and
common share equivalents:
Income from continuing operations 0.01 (0.20)
Income from discontinued operations - - - -
Income from extraordinary item - - - -
------------ ------------
Net income (loss) per common share $ 0.01 $ (0.20)
============ ============
Weighted average common shares and
common share equivalents outstanding 6,482 6,383
============ ============
</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 5, 1996 July 7, 1995
(unaudited) (unaudited)
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 68 $ (1,253)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 168 476
Provision for possible losses 51 172
Changes in current assets and current liabilities:
Accounts receivables (123) 1,166
Inventories (149) (1,100)
Prepaid expenses and other (9) 19
Accounts payable and accrued liabilities (108) 406
-------- ---------
Net cash provided by (used in) continuing operations (102) (114)
-------- ---------
Income (loss) from discontinued operations - - - - - -
Adjustments to reconcile income from discontinued operations
to net cash used in discontinued operations:
(Income) loss on disposal - - - - - -
Change in net assets of discontinued operations - - - - - -
-------- ---------
Net cash used in discontinued operations - - - - - -
-------- ---------
Net cash provided by (used in) operating activities (102) (114)
-------- ---------
Cash flows from investing activities:
(Increase) decrease in other assets (5) 2
Capitalization of software costs (45) (80)
Capital expenditures (18) (24)
-------- ---------
Net cash used in investing activities (68) (102)
-------- ---------
Cash flows from financing activities:
Repayment of debt - net (60) (42)
Net borrowings under lines of credit 150
Exercise of common stock options and warrants 16 - - -
-------- ---------
Net cash (used in) provided by financing activities 106 (42)
-------- ---------
Net decrease in cash and cash equivalents (64) (258)
Cash and cash equivalents, beginning of period 143 297
-------- ---------
Cash and cash equivalents, end of period $ 79 $ 39
======== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 30 $ 15
</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-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 July 5, 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 July 5, 1996 and April 5, 1996 (in thousands):
July 5, 1996 April 5, 1996
------------ -------------
Finished goods $ 563 $ 830
Work in progress 595 516
Raw materials 1,706 1,369
------ ------
$2,864 $2,715
------ ------
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 5, 1996.
The Company estimates that no current provision for income taxes is
required for the three months ended July 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 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 matures in August 1996.
As of July 31, 1996, the Company has borrowed the full amount
available under its line of credit and, further, is not in compliance
with certain financial covenants under the credit agreeement. The
Company is engaged in negotiations with its lender with respect to the
note payable and line of credit to (i) extend the maturity date of the
line of credit, (ii) restructure the payment terms of both the note
payable and the line of credit and, (iii) obtain waivers with respect to
the loan covenant violations. The Company has classified all borrowings
due to this lender as current obligations, pending the satisfactory
resolution of these matters. However, there can be no assurances that
the Company will be able to satisfactorily resolve these matters.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 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 $102,000 for the
three months ended July 5, 1996 compared to cash used in continuing
operations of $114,000 for the comparable three months ended July 7,
1995. The increase in cash used continuing operations as compared to
the prior year fiscal period primarily reflects the increase in product
sales.
Cash used in investing activities amounted to $68,000 for the three
months ended July 5, 1996 compared with $102,000 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 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 three months
ended July 5, 1996 was $106,000 from the three months ended July 5, 1996
versus $42,000 of cash used in financing activities for the same three
months of the prior fiscal year. This change can be attributed to the
Company borrowing against its revolving credit agreement.
Working capital amounted to $860,000 at July 5, 1996, an increase
of $167,000, since April 5, 1996. The ratio of current assets to
current liabilities at July 5, 1996 was 1.23 to 1.00 compared to 1.18 to
1.00 at April 5, 1996.
RESULTS OF OPERATIONS
- ---------------------
Product sales revenue from continuing operations for the quarter
ended July 5, 1996 totaled approximately $3,025,000 compared to
$1,856,000 for the comparable quarter of the prior fiscal year, an
increase of 63%. This increase in product sales revenue can be
attributed to the Company's decision to increase its sales directly to
VAR's and major accounts.
Cost of products sold for the quarter amounted to $1,852,000 or 61%
of product sales revenues versus $1,275,000 or 69% for the comparable
quarter of the prior year. The decrease in cost of products sold as a
percentage of product sales revenues during the three months ended July
5, 1996, when compared to the same period of the prior fiscal year, can
be attributed to the Company's inability to reduce its fixed
manufacturing costs during a period of decreased sales in the prior year
as well as the continuing reduction of its cost of products sold through
outsourcing in the current year.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 5, 1996 (CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
Selling, general and administrative expenses amounted to $805,000
or 27% of product sales revenue for the three months ended July 5, 1996
versus $1,273,000 or 69% of product sales revenue for the comparable
three months of the prior fiscal year. The decrease in expenses during
the quarter ended July 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'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 $274,000 or 9% of product
sales revenue for the three months ended July 5, 1996 versus $556,000 or
30% of product sales revenue for the comparable three month period of
the prior fiscal year. The decrease during the three months ended July
5, 1996, as compared to the same three month period of the prior fiscal
year 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 related to costs capitalized prior to April 1,
1994.
The Company reported income from continuing operations for the
quarter ended July 5, 1996 of $94,000 compared to loss from continuing
operations of $1,248,000 for the comparable quarter of the prior fiscal
year. The increase in income is due primarly to increased product
sales revenue. The Company also continues to benefit from the major
reductions in day-to-day operating expenses and the continuing reduction
of its cost of products sold through outsourcing.
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
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.
10
<PAGE>
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: August 26, 1996 By: /s/Gregory A. Alba
---------------------------------------
Gregory A. Alba
Vice President of Finance & Administration
and Chief Financial Officer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-04-1997
<PERIOD-START> APR-06-1996
<PERIOD-END> JUL-05-1996
<CASH> 79
<SECURITIES> 0
<RECEIVABLES> 2,164
<ALLOWANCES> 527
<INVENTORY> 2,864
<CURRENT-ASSETS> 4,671
<PP&E> 3,681
<DEPRECIATION> 3,247
<TOTAL-ASSETS> 5,829
<CURRENT-LIABILITIES> 3,811
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 1,904
<TOTAL-LIABILITY-AND-EQUITY> 5,829
<SALES> 3,025
<TOTAL-REVENUES> 3,025
<CGS> 1,852
<TOTAL-COSTS> 2,931
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30
<INCOME-PRETAX> 68
<INCOME-TAX> 0
<INCOME-CONTINUING> 68
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
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