<PAGE>
FORM 10-Q\A
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 6, 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)
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 November 6, 1995, there were 6,207,194 shares of common stock
outstanding.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Interim Consolidated Balance Sheets as of
October 6, 1995 and April 7, 1995 3
Interim Consolidated Statements of Operations for
the three months ended October 6, 1995 and October 4, 1994 4
Interim Consolidated Statements of Operations for
the six months ended October 6, 1995 and October 4, 1994 5
Interim Consolidated Statements of Cash Flows
the six months ended October 6, 1995 and October 4, 1994 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 11
ITEM 2. Changes in Securities 11
ITEM 3. Defaults Upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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>
October 6, 1995 April 7, 1995
(unaudited) (audited)
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 65 $ 297
Receivables, net 1,724 3,253
Inventories, net 2,802 2,174
Prepaid expenses and other 87 110
--------------- ---------------
Total current assets 4,678 5,834
Property, equipment and improvements, net 729 897
Intangible assets, net 642 891
Other 98 101
--------------- ---------------
Total assets $ 6,147 $ 7,723
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,216 $ 1,797
Accrued liabilities:
Payroll 121 164
Disputed matter 96 230
Professional fees 88 96
Other 486 425
Line of credit 665 -
Current maturities of long term debt 216 230
--------------- ---------------
Total current liabilities 2,888 2,942
Notes payable to stockholders 270 270
Long term debt, less current maturities 229 314
--------------- ---------------
Total liabilities 3,387 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; 6,207,190 and 6,207,184 shares
outstanding 62 62
Additional paid in capital 41,517 41,517
Accumulated deficit (38,821) (37,384)
--------------- ---------------
Total stockholders' equity 2,760 4,197
--------------- ---------------
Total liabilities and stockholders' equity $ 6,147 $ 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
October 6, 1995 October 7, 1994
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales $ 2,694 $ 3,985
Expenses:
Cost of products sold 1,758 2,452
Selling, general and administrative 863 1,090
Product development 231 283
------------------ ------------------
2,852 3,825
------------------ ------------------
Operating income from continuing operations (158) 160
Non-Operating income (expense):
Other income (expense) (1) (1)
Interest expense (25) (6)
------------------ ------------------
Income from continuing operations before taxes (184) 153
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ ------------------
-- --
------------------ ------------------
Income from continuing operations (184) 153
Discontinued operations:
Income on disposal -- --
------------------ ------------------
Income before extraordinary item (184) 153
Extraordinary item:
Debt foregiveness -- 202
------------------ ------------------
Net income $ (184) $ 355
================= =================
Net income per common share and common
share equivalents:
Income from continuing operations (0.03) 0.02
Income from discontinued operations -- --
Income from extraordinary item -- 0.04
------------------ ------------------
Net income per common share $ (0.03) $ 0.06
================= =================
Weighted average common shares and
common share equivalents outstanding 6,383 6,412
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
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 6, 1995 October 7, 1994
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales $ 4,550 $ 7,390
Expenses:
Cost of products sold 3,033 4,544
Selling, general and administrative 2,136 2,071
Product development 787 575
------------------ ------------------
5,956 7,190
------------------ ------------------
Operating income from continuing operations (1,406) 200
Non-Operating income (expense):
Other income (expense) 9 1
Interest expense (40) (7)
------------------ ------------------
Income from continuing operations before taxes (1,437) 194
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ ------------------
-- --
------------------ ------------------
Income from continuing operations (1,437) 194
Discontinued operations:
Income on disposal -- 86
------------------ ------------------
Income from discontinued operations -- 86
------------------ ------------------
Income before extraordinary item (1,437) 280
Extraordinary item:
Debt foregiveness -- 202
------------------ ------------------
Net income $ (1,437) $ 482
================= =================
Net income per common share and common
share equivalents:
Income from continuing operations (0.23) 0.03
Income from discontinued operations -- 0.01
Income from extraordinary item -- 0.04
------------------ ------------------
Net income per common share $ (0.23) $ 0.08
================= =================
Weighted average common shares and
common share equivalents outstanding 6,383 6,205
================= =================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the six months ended
October 6, 1995 October 7, 1994
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ (1,437) $ 396
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 647 438
Provision for possible losses (247) (28)
Forgiveness of debt -- (202)
Changes in current assets and current liabilities:
Accounts receivables 1,839 (389)
Inventories (691) 859
Prepaid expenses and other 23 (7)
Accounts payable and accrued liabilities (704) (682)
------------- -------------
Net cash provided by (used in) continuing operations (570) 385
------------- -------------
Income (loss) from discontinued operations -- 86
Adjustments to reconcile income from discontinued operations
to net cash used in discontinued operations:
(Income) loss on disposal -- (86)
Change in net assets of discontinued operations -- (104)
------------- -------------
Net cash used in discontinued operations -- (104)
------------- -------------
Net cash provided by (used in) operating activities (570) 281
------------- -------------
Cash flows from investing activities:
(Increase) decrease in other assets 3 (54)
Capitalization of software costs (158) (123)
Capital expenditures (71) (40)
------------- -------------
Net cash used in investing activities (226) (217)
------------- -------------
Cash flows from financing activities:
Borrowings under long term debt agreements -- 300
Net borrowings (repayments) under line of credit 665
Repayment of debt - net (101) (270)
Exercise of common stock options and warrants -- 12
------------- -------------
Net cash provided by financing activities 564 42
------------- -------------
Net decrease in cash and cash equivalents (232) 106
Cash and cash equivalents, beginning of period 297 215
------------- -------------
Cash and cash equivalents, end of period $ 65 $ 321
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 40 $ 7
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
COMPUTONE CORPORATION
NOTES TO THE 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 October 6, 1995 and for
the three and six 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 October 6, 1995 and April 7, 1995 (in thousands):
<TABLE>
<CAPTION>
October 6, 1995 April 7, 1995
--------------- -------------
<S> <C> <C>
Finished goods $ 852 $ 544
Work in progress 627 584
Raw materials 1,323 1,046
------ ------
$2,802 $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.
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.
7
<PAGE>
COMPUTONE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INCOME TAXES (CONTINUED)
------------------------
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 6, 1995.
The Company estimates that no current provision for income taxes is
required for the three months ended October 6, 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"). 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 8.75% at October 6, 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 the interim financial statements for the
first quarter ended July 7, 1995, 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.
The Company made adjustments to these interim financial statements, as
originally filed, to correct certain errors which result in a loss from
continuing operations of approximately $184,000, or $.03 per share versus
previously reported income from continuing operations of approximately $8,000.
These adjustments were primarily comprised of credit memos for product returns
received during the second quarter that were not properly recorded during the
quarter.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE AND SIX MONTHS ENDED OCTOBER 6, 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 $570,000 for the six months
ended October 6, 1995 compared to cash provided by continuing operations of
$385,000 for the comparable six months ended October 7, 1994. The reduction in
cash provided by continuing operations as compared to the prior year fiscal
period primarily reflects the decrease in product sales. This loss was partially
offset by the effects of $647,000 in non-cash depreciation and amortization.
Accounts receivable and accounts payable decreased by $1,839,000 and $704,000,
respectively. Inventories increased by $691,000.
Cash used in financing activities amounted to $226,000 for the six months
ended October 6, 1995 compared with $217,000 used in financing activities for
the comparable six months of the prior fiscal year. The Company capitalized
$158,000 in software development costs during the period versus $123,000 during
the same period of the prior fiscal year. Capital expenditures of $71,000 were
made during the six months ended October 6, 1995 versus $40,000 during the same
period of the prior fiscal year.
Cash provided by financing activities during the six months ended October
6, 1995 amounted to $564,000 as compared to $42,000 for the same six months of
the prior fiscal year. This increase can be attributed to the Company
borrowing against its revolving credit agreement to fund operations as a result
of the Company's year to date loss from continuing operations of $1,437,000.
Working capital amounted to $1,790,000 at October 6, 1995, a decrease of
$1,103,000, since April 7, 1995. The ratio of current assets to current
liabilities at October 6, 1995 was 1.62 to 1.00 compared to 1.98 to 1.00 at
April 7, 1995. 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.
RESULTS OF OPERATIONS
- ---------------------
The Company reported a loss from continuing operations for the quarter
ended October 6, 1995 of $184,000 compared to income from continuing operations
of $153,000 for the comparable quarter of the prior fiscal year. This loss has
been reduced significantly from the loss of approximately $700,000, excluding
the one-time charges, reported during the first quarter of this fiscal year.
The Company is moving forward with its strategic decision to promote the direct
sale of remote access products and has continued to reduce its number of
domestic distributors while increasing its number of VAR's and major customers.
As
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE AND SIX MONTHS ENDED OCTOBER 6, 1995
(CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
of the six month period ended October 6, 1995, the level of direct sales had
not yet exceeded the decrease in sales to domestic distributors and as a result,
net product sales for the six months ended October 6, 1995 were down by
approximately $2,800,000 versus the same six month period of the prior fiscal
year.
Product sales revenue from continuing operations for the quarter ended
October 6, 1995 totaled approximately $2,694,000 compared to $3,985,000 for the
comparable quarter of the prior fiscal year, a decrease of $1,291,000 or 32%.
For the six months ended October 6, 1995, product sales revenues decreased 38%
from $7,390,000 to $4,550,000 versus 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
combined with its strategic decision to transition the sale of its remote access
products from an indirect channel to a direct channel.
Cost of products sold for the quarter amounted to $1,758,000 or 65% of
product sales revenues versus $2,452,000 or 62% for the comparable quarter of
the prior year. For the six months ended October 6, 1995, cost of sales
amounted to $3,033,000 or 67% of product sales revenues versus $4,544,000 or 61%
during the same six month period of the prior fiscal year. The increase in cost
of products sold as a percentage of product sales revenues for the six months
ended October 6, 1995 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, as a result, its margins decreased and the cost of
products sold as a percentage of product revenues increased.
Selling, general and administrative expenses amounted to $863,000 or 32% of
product sales revenue for the three months ended October 6, 1995 versus
$1,090,000 or 27% of product sales revenue for the comparable three months of
the prior fiscal year. For the six months ended October 6, 1995, selling,
general and administrative expenses were $2,136,000 or 47% of product sales
revenues versus $2,071,000 or 28% of product sales revenues for the same six
month period of the prior fiscal year. The decrease in expenses during the
quarter ended October 6, 1995 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 along with the Company's
successful efforts in reducing its day-to-day operating expenses. Also, the
Company is in the process of reviewing 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 $231,000 or 9% of product sales
revenue for the three months ended October 6, 1995 versus $283,000 or 7% of
product sales revenue for the comparable three month period of the prior fiscal
year. For the six month period ended October 6, 1995, product development
expenses were $787,000, or 17% or product sales revenues as compared to $575,000
or 8% of product sales revenues during the six month period ended October 7,
1994. The decrease during the three months ended October 6, 1995 can be
attributed a reduction in amortization expense as a result of accelerating the
expense for certain products during the first quarter of this fiscal year. The
increase in
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION FOR THE THREE AND SIX MONTHS ENDED OCTOBER 6, 1995
(CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
product development expenses during the six months ended October 6, 1995 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.
Income from discontinued operations totaled $86,000 for the six months
ended October 7, 1994 whereas the Company recorded no income from discontinued
operations for the three months ended October 6, 1995. The $86,000 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. Also, the Company recorded extraordinary income of $202,00 for the six
months ended October 7, 1994 related to the settlement of outstanding balances
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.
11
<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 30, 1996 By: \s\ Gregory A. Alba
-------------------
Gregory A. Alba
Vice President of Finance & Administration
and Chief Financial Officer
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-05-1996
<PERIOD-START> JUL-08-1995
<PERIOD-END> OCT-06-1995
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 2,151
<ALLOWANCES> 428
<INVENTORY> 2,802
<CURRENT-ASSETS> 4,677
<PP&E> 3,658
<DEPRECIATION> 2,928
<TOTAL-ASSETS> 6,147
<CURRENT-LIABILITIES> 2,888
<BONDS> 0
0
2
<COMMON> 62
<OTHER-SE> 2,696
<TOTAL-LIABILITY-AND-EQUITY> 6,147
<SALES> 2,694
<TOTAL-REVENUES> 2,694
<CGS> 1,758
<TOTAL-COSTS> 2,852
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (25)
<INCOME-PRETAX> (184)
<INCOME-TAX> 0
<INCOME-CONTINUING> (184)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (184)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
