<PAGE>
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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>
Delaware 23-2472952
- ------------------------------------------------------------- -----------------------------------------
<S> <C>
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number)
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 September 14, 1995, there were 6,207,188 shares of common stock
outstanding.
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INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements:
<S> <C>
Interim Consolidated Balance Sheets as of
July 7, 1995 and April 7, 1995 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
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
</TABLE>
2
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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)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39 $ 297
Receivables, net 1,947 3,253
Inventories, net 3,242 2,174
Prepaid expenses and other 91 110
--------------- ---------------
Total current assets 5,319 5,834
Property, equipment and improvements, net 803 897
Intangible assets, net 613 891
Other 99 101
--------------- ---------------
Total assets $ 6,834 $ 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 (38,637) (37,384)
--------------- ---------------
Total stockholders' equity 2,944 4,197
--------------- ---------------
Total liabilities and stockholders' equity $ 6,834 $ 7,723
============== ==============
</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
July 7, 1995 July 1, 1994
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<S> <C> <C>
Revenues:
Product sales $ 1,856 $ 3,405
Expenses:
Cost of products sold 1,275 2,091
Selling, general and administrative 1,273 980
Product development 556 293
------------------ ------------------
3,104 3,364
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Operating income from continuing operations (1,248) 41
Non-Operating income (expense):
Other income (expense) 10 5
Interest expense (15) (4)
------------------ ------------------
Income from continuing operations before taxes (1,253) 42
Income tax expense (benefit):
Current - - - -
Deferred - - - -
------------------ ------------------
- - - -
------------------ ------------------
Income from continuing operations (1,253) 42
Discontinued operations:
Income on disposal - - 85
------------------ ------------------
Income before extraordinary item (1,253) 127
Extraordinary item:
Debt foregiveness - - - -
------------------ ------------------
Net income $ (1,253) $ 127
================== ==================
Net income per common share and common
share equivalents:
Income from continuing operations (0.20) 0.01
Income from discontinued operations - - 0.01
Income from extraordinary item - - - -
------------------ ------------------
Net income per common share $ (0.20) $ 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
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Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the three months ended
July 7, 1995 July 1, 1994
(unaudited) (unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ (1,253) $ 42
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 468 208
Provision for possible losses 119 92
Changes in current assets and current liabilities:
Accounts receivables 1,188 97
Inventories (1,068) (62)
Prepaid expenses and other 18 (43)
Accounts payable and accrued liabilities 406 (123)
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Net cash provided by (used in) continuing operations (122) 211
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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)
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Net cash used in discontinued operations - - - (104)
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Net cash provided by (used in) operating activities (122) 107
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Cash flows from investing activities:
(Increase) decrease in other assets (2) - - -
Capitalization of software costs (80) (40)
Capital expenditures (12) (85)
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Net cash used in investing activities (94) (125)
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Cash flows from financing activities:
Repayment of debt - net (42) (64)
Exercise of common stock options and warrants - - - 12
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Net cash (used in) provided by financing activities (42) (52)
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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
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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\A 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 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
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<S> <C> <C>
Finished goods $ 1,244 $ 544
Work in progress 489 584
Raw materials 1,509 1,046
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$ 3,242 $ 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
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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.
6. RESTATEMENT
-----------
The Company made adjustments to these interim financial statements, as
originally filed, to correct certain errors which increased the loss from
continuing operations by $611,795 or $.10 per share. These adjustments were
primarily comprised of two components: 1) the reversal of a $544,000 Bill and
Hold order, and 2) the increase of the inventory and receivable reserves. With
respect to the $544,000 order that was a Bill & Hold order, at the time the
sale was recorded, the Company did not adequately identify certain contingencies
regarding the ultimate delivery of product. These contingencies related in part
to funding that was to be received by the customer from the federal government
which has not been funded to date.
7
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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 $114,000 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 and resulting $1,253,000
loss from continuing operations. This loss was partially offset by the effects
of $468,000 in non-cash depreciation and amortization. Accounts receivable
decreased by $1,166,000 and inventories increased by $1,100,000. Accounts
payable increased by $406,000.
Cash used in investing activities amounted to $102,000 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. The company
capitalized $80,000 in software development costs during the period versus
$40,000 during the same period of the prior fiscal year. This increase was
offset by a reduction in capital expenditures form $85,000 in fiscal 1995 versus
$24,000 in fiscal 1996.
Cash used in financing activities during the three months ended July
7, 1995 decreased from $52,000 during fiscal 1995 to $42,000 during fiscal 1996.
This reduction can be primarily attributed to a reduction in repayments of debt.
Working capital amounted to $1,971,000 at July 7, 1995, a decrease of
$921,000, since April 7, 1995. The ratio of current assets to current
liabilities at July 7, 1995 was 1.59 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 resulting from the loss of a major international OEM
and the Company's decision to strategically reduce its number of domestic
distributors and increase its sales directly to VAR's and major accounts.
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.
8
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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
- ---------------------
The Company reported a loss from continuing operations for the quarter
ended July 7, 1995 of $1,253,000 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 decrease in product sales of $1,549,000 along with the one-
time charges for accelerated product development amortization, $277,000, a
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 $700,000.
Product sales revenue from continuing operations for the quarter ended
July 7, 1995 totaled approximately $1,856,000 compared to $3,405,000 for the
comparable quarter of the prior fiscal year, a decrease of 45%. 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 combined with the
Company's decision to strategically reduce its number of domestic distributors
and increase its sales directly to VAR's and major accounts.
Cost of products sold for the quarter amounted to $1,275,000 or 69% of
product sales revenues versus $2,091,000 or 61% for the comparable quarter of
the prior year. This increase in cost of products sold as a percentage of
product sales revenues can be attributed to the fact that the Company was unable
to reduce its fixed manufacturing costs while there was a significant decrease
in product sales. Also, the Company's efforts to move into the direct VAR and
major account sales channels caused the Company to reduce its selling price on
certain products and which subsequently increased the cost of products sold as a
percentage of product revenues.
Selling, general and administrative expenses amounted to $1,273,000 or
69% 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 Company, while experiencing a significant reduction in
net product sales, maintained an administrative support infrastructure that was
required while the Company had a higher level of monthly sales. As a result, the
Company was forced to implemented a reduction in staff of approximately 20%.
During the three months ended July 7, 1995, the Company aggressively promoted
its highly successful and recently released products- the IntelliServer and PCI
bus multi-port adapters. 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.
9
<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)
- ---------------------------------
Product development expenses amounted to $556,000 or 30% 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.
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.
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
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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: August 23, 1996 By: /s/Thomas J. Anderson
---------------------
Thomas J. Anderson
President & Chief Executive Officer
(duly authorized officer and
Principal Executive Officer)
By: /s/ Gregory B 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-05-1996
<PERIOD-START> APR-08-1995
<PERIOD-END> JUL-07-1995
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 2,824
<ALLOWANCES> 877
<INVENTORY> 3,242
<CURRENT-ASSETS> 5,319
<PP&E> 3,610
<DEPRECIATION> 2,807
<TOTAL-ASSETS> 6,834
<CURRENT-LIABILITIES> 3,348
<BONDS> 0
0
2
<COMMON> 62
<OTHER-SE> 2,880
<TOTAL-LIABILITY-AND-EQUITY> 6,834
<SALES> 1,856
<TOTAL-REVENUES> 1,856
<CGS> 1,275
<TOTAL-COSTS> 3,104
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<INCOME-PRETAX> (1,253)
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<EPS-PRIMARY> (0.20)
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