<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 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
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 January 5, 1996, there were 6,357,197 shares of common stock
outstanding.
<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 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
<TABLE>
<CAPTION>
Computone Corporation
Interim Consolidated Balance Sheets
(in thousands except par value and shares)
January 5, 1996 April 7, 1995
(unaudited) (audited)
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 113 $ 297
Receivables, net 2,690 3,253
Inventories, net 2,316 2,174
Prepaid expenses and other 119 110
--------------- ---------------
Total current assets 5,238 5,834
Property, equipment and improvements, net 625 897
Intangible assets, net 627 891
Other 97 101
--------------- ---------------
Total assets $ 6,587 $ 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 390 425
Line of credit 665 --
Current maturities of long term debt 212 230
--------------- ---------------
Total current liabilities 3,344 2,942
Notes payable to stockholders 270 270
Long term debt, less current maturities 172 314
--------------- ---------------
Total liabilities 3,786 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 41,543 41,517
Accumulated deficit (38,806) (37,384)
--------------- ---------------
Total stockholders' equity 2,801 4,197
--------------- ---------------
Total liabilities and stockholders' equity $ 6,587 $ 7,723
============== ==============
See accompanying notes to the consolidated financial statements.
</TABLE>
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 $ 3,232 $ 3,408
Expenses:
Cost of products sold 2,157 2,134
Selling, general and administrative 760 1,025
Product development 241 236
------------------ ------------------
3,158 3,395
------------------ ------------------
Operating income from continuing operations 74 13
Non-Operating income (expense):
Other income (expense) 10 30
Interest expense (37) (22)
------------------ ------------------
Income from continuing operations before taxes 47 21
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ ------------------
-- --
------------------ ------------------
Income from continuing operations 47 21
Discontinued operations:
Income on disposal -- 99
------------------ ------------------
Income before extraordinary item 47 120
Extraordinary item:
Debt foregiveness -- 40
------------------ ------------------
Net income (loss) 47 160
Preferred stock dividends (32) --
------------------ ------------------
Net income (loss) applicable to common stock $ 15 $ 160
================= =================
Net income per common share and common
share equivalents:
Income from continuing operations 0.01 --
Income from discontinued operations -- 0.02
Income from extraordinary item -- --
------------------ ------------------
Net income per common share $ 0.01 $ 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 Consolidated Statements of Income
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 5, 1996 January 6, 1995
------------------ ------------------
<S> <C> <C>
Revenues:
Product sales $ 7,782 $ 10,798
Expenses:
Cost of products sold 5,190 6,677
Selling, general and administrative 2,896 3,095
Product development 1,028 812
------------------ ------------------
9,114 10,584
------------------ ------------------
Operating income from continuing operations (1,332) 214
Non-Operating income (expense):
Other income (expense) 19 34
Interest expense (77) (32)
------------------ ------------------
Income from continuing operations before taxes (1,390) 216
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ ------------------
-- --
------------------ ------------------
Income from continuing operations (1,390) 216
Discontinued operations:
Income on disposal -- 184
------------------ ------------------
Income before extraordinary item (1,390) 400
Extraordinary item:
Debt foregiveness -- 242
------------------ ------------------
Net income (loss) (1,390) 642
Preferred stock dividends (32) --
------------------ ------------------
Net income (loss) applicable to common stock $ (1,422) $ 642
================= =================
Net income per common share and common
share equivalents:
Income from continuing operations (0.21) 0.03
Income from discontinued operations -- 0.03
Income from extraordinary item -- 0.03
------------------ ------------------
Net income per common share $ (0.21) $ 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>
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 $ (1,390) $ 458
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 815 688
Provision for possible losses (225) (34)
Forgiveness of debt -- (242)
Changes in current assets and current liabilities:
Accounts receivable 902 (9)
Inventories (305) 890
Prepaid expenses and other (9) (140)
Accounts payable and accrued liabilities (244) (949)
------------- -------------
Net cash provided by (used in) continuing operations (456) 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 (456) 529
------------- -------------
Cash flows from investing activities:
(Increase) decrease in other assets 4 3
Capitalization of software costs (197) (224)
Capital expenditures, net of disposals (65) (68)
------------- -------------
Net cash used in investing activities (258) (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 (161) (350)
Contribution of capital 26
Issuance of common stock for preferred 2 --
Conversion of preferred stock (2)
Exercise of common stock options and warrants -- 12
------------- -------------
Net cash provided by (used in) financing activities 530 (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
<PAGE>
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 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 $ 682 $ 544
Work in progress 568 584
Raw materials 1,066 1,046
------ ------
$2,316 $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.
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.
7
<PAGE>
COMPUTONE CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INCOME TAXES (CONTINUED)
------------------------
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.
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 the period ended October 6, 1995, 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.
The Company made adjustments to these interim financial statements, as
originally filed, to correct certain errors which reduced income from
continuing operations by approximately $183,000 or $.03 per share to
approximately $16,000 or $.00 per share. These adjustments were comprised of
reversal of revenue of $59,000 for a sale that was recorded under a Bill and
Hold agreement; increases to the accounts receivable and inventory reserves
of approximately $31,000 and $22,000, respectively; the reclassification to
expense from additional paid in capital of approximately $32,000 in preferred
dividends that were declared and the recording of approximately $25,000 in
legal fees paid by outside directors on behalf on 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 operating activities amounted to $456,000 for the nine
months ended January 5, 1996 compared to cash provided by operating
activities of $529,000 for the comparable nine months ended January 6, 1995.
The reduction in cash provided by operating activities as compared to the
prior year fiscal period primarily reflects the decrease in product sales of
almost $3,000,000 and the resulting loss from continuing operations of
$1,390,000. The 1996 changes in working capital items include a reduction in
accounts receivable of $902,000 while inventories increased by $305,000.
Accounts payable and other accrued liabilities decreased by $244,000.
Cash used in investing activities amounted to $258,000 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 $530,000 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 $530,000 change can be attributed to the
Company borrowing against its revolving credit agreement to fund operations.
Working capital amounted to $1,894,000 at January 5, 1996 compared
to $2,892,000 at April 7, 1995, an decrease of $998,000, since April 7, 1995.
The ratio of current assets to current liabilities at January 5, 1996 was
1.57 to 1.00 compared to 1.98 to 1.00 at April 7, 1995. The decrease in
working capital is primarily attributable to the current maturity of the
balance due on the Company's revolving credit agreement.
RESULTS OF OPERATIONS
---------------------
The Company reported income from continuing operations for the quarter
ended January 5, 1996 of $47,000 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. Management
believes that its strategic decision to promote the direct sale of remote
access
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)
---------------------------------
products and to reduce its reliance on sales to domestic distributors by
increasing its number of VAR's and major customers has had a favorable impact
on the profitability of the Company as evidenced by this quarter's operating
profit which was the first of the fiscal year. As for the nine month period
ended January 5, 1996, the increase in direct sales has not yet exceeded the
decrease in sales to domestic distributors and as a result, net product sales
were $7,782,000 versus $10,798,000 during the same nine month period of the
prior fiscal year resulting in a decrease of approximately $3,000,000.
Product sales revenue from continuing operations for the quarter ended
January 5, 1996 totaled approximately $3,232,000 compared to $3,408,000 for
the comparable quarter of the prior fiscal year, a decrease of $176,000 or
5%. For the nine months ended January 5, 1996, product sales revenues
decreased 28% from $10,798,000 to $7,782,000 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 products from an indirect channel to a direct channel.
Cost of products sold for the quarter amounted to $2,157,000 or 67% 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 $5,190,000 or 67% of product sales revenues versus $6,677,000 or
62% during the same nine month period of the prior fiscal 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 its margins and increased the cost of
products sold as a percentage of product revenues.
Selling, general and administrative expenses amounted to $760,000 or 24%
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 $2,896,000 or 37% 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 $241,000 or 7% of product
sales revenues 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
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)
---------------------------------
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.
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.
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.
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> OCT-07-1995
<PERIOD-END> JAN-05-1996
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 3,089
<ALLOWANCES> 399
<INVENTORY> 2,316
<CURRENT-ASSETS> 5,238
<PP&E> 3,652
<DEPRECIATION> 3,027
<TOTAL-ASSETS> 6,587
<CURRENT-LIABILITIES> 3,444
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 2,737
<TOTAL-LIABILITY-AND-EQUITY> 6,587
<SALES> 3,232
<TOTAL-REVENUES> 3,232
<CGS> 2,157
<TOTAL-COSTS> 3,158
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> 47
<INCOME-TAX> 0
<INCOME-CONTINUING> 47
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (32)
<NET-INCOME> 15
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
