<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 January 3, 1997
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 January 3, 1997, there were 6,410,784 shares of common stock
outstanding.
1
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INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of
January 3, 1997 and April 5, 1996 3
Consolidated Statements of Operations for
the three months ended January 3, 1997 and January 5, 1996 4
Consolidated Statements of Operations for
the nine months ended January 3, 1997 and January 5, 1996 5
Consolidated Statements of Cash Flows
the nine months ended January 3, 1997 and January 5, 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's 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
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Computone Corporation
Consolidated Balance Sheets
(in thousands except par value and number of shares)
<TABLE>
<CAPTION>
January 3, 1997 April 5, 1996
---------------- -----------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 375 $ 143
Receivables, net 2,666 1,564
Inventories, net 3,162 2,715
Prepaid expenses and other 79 83
---------------- -----------------
Total current assets 6,282 4,505
Property, equipment and improvements, net 292 523
Intangible assets, net 560 636
Other 102 99
---------------- -----------------
Total assets $ 7,236 $ 5,763
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,885 $ 1,848
Accrued liabilities:
Payroll 113 113
Prepaid sales 12 214
Professional fees 28 69
Other 443 465
Line of credit - - - 599
Notes payable to stockholders 250 - - -
Current maturities of long term debt 606 504
---------------- -----------------
Total current liabilities 3,337 3,812
Notes payable to stockholders 120 20
Long term debt, less current maturities - - - 47
---------------- -----------------
Total liabilities 3,457 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; 6,410,784 and 6,357,184 shares outstanding 67 64
Additional paid in capital 43,027 41,543
Accumulated deficit (39,315) (39,723)
---------------- -----------------
Total stockholders' equity 3,779 1,884
---------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,236 $ 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 Income
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
January 3, 1997 January 5, 1996
------------------ -------------------
<S> <C> <C>
Revenues:
Product sales $ 3,477 $ 3,232
Expenses:
Cost of products sold 1,945 2,157
Selling, general and administrative 1,090 760
Product development 312 241
------------------ -------------------
3,347 3,158
------------------ -------------------
Operating income from continuing
operations 130 74
Non-Operating income (expense):
Other income (expense) 23 10
Interest expense (27) (37)
------------------ -------------------
Income from continuing operations
before taxes 126 47
Income tax expense (benefit):
Current -- --
Deferred -- --
------------------ -------------------
- - - -
------------------ -------------------
Net income 126 47
Preferred stock dividends (32)
------------------ -------------------
Net income applicable to common
stock $ 126 $ 15
================== ===================
Net income per common share
and common share equivalents: $ 0.02 $ 0.01
================== ===================
Weighted average common shares and
common share equivalents
outstanding 6,848 6,502
================== ===================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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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 3, 1997 January 5, 1996
---------------------- -------------------
<S> <C> <C>
Revenues:
Product sales $ 10,006 $ 7,782
Expenses:
Cost of products sold 5,856 5,190
Selling, general and administrative 2,824 2,896
Product development 851 1,028
---------------------- -------------------
9,531 9,114
---------------------- -------------------
Operating income from continuing operations 475 (1,332)
Non-Operating income (expense):
Other income (expense) 28 19
Interest expense (94) (77)
---------------------- -------------------
Income from continuing operations before 409 (1,390)
Income tax expense (benefit):
Current -- --
Deferred -- --
---------------------- -------------------
-- --
---------------------- -------------------
Net income 409 (1,390)
Preferred stock dividends -- (32)
---------------------- -------------------
Net income applicable to common stock $ 409 (1,422)
====================== ===================
Net income per common share
and common share equivalents: $ 0.06 $ (0.21)
====================== ==================
Weighted average common shares and
common share equivalents outstanding 6,848 6,485
====================== ===================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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ITEM 1. Financial Statements (continued)
Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the nine months ended
January 3, 1997 January 5, 1996
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 409 $ (1,390)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by (used in) continuing operations:
Depreciation and amortization 515 815
Provision for possible losses 70 (225)
Changes in current assets and current liabilities:
Accounts receivable (1,064) 902
Inventories (522) (305)
Prepaid expenses and other 4 (9)
Accounts payable and accrued liabilities (229) (244)
------------- -------------
Net cash provided by (used in) continuing operations (817) (456)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in other assets (3) 4
Capitalization of software costs (105) (197)
Capital expenditures, net of disposals (86) (65)
------------- -------------
Net cash used in investing activities (194) (258)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from shareholders 250 ---
Net borrowings (repayments) under line of credit --- 665
Repayment of debt - net (429) (161)
Contribution of capital --- 26
Issuance of common stock from private placement 1,418
Issuance of common stock for preferred stock --- 2
Conversion of preferred stock --- (2)
Exercise of common stock options and warrants 4 ---
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Net cash provided by financing activities 1,243 530
------------- -------------
Net decrease in cash and cash equivalents 232 (184)
Cash and cash equivalents, beginning of period 143 297
------------- -------------
Cash and cash equivalents, end of period $ 375 $ 113
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 94 $ 75
</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 January 3, 1997 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 3, 1997 and April 5, 1996 (in thousands):
<TABLE>
<CAPTION>
January 3, 1997 April 5, 1996
--------------- -------------
<S> <C> <C>
Finished goods $ 693 $ 830
Work in progress 841 516
Raw materials 1,628 1,369
------ ------
$3,162 $2,715
====== ======
</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 January 3, 1997.
The Company estimates that no current provision for income taxes is
required for the nine months ended January 3, 1997.
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 bore interest at a rate of floating prime plus 2%. On July 31, 1995, the
Company had a line of credit facility with the bank which provided 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 the maturity date of the remaining $500,000 of debt to May
1997. The consolidated note bears interest at a rate of prime plus 2% with
interest only monthly payments 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 the maturity date has been extended to March 31, 1997.
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. Proceeds of
the financing were used to pay down the consolidated bank debt and fund current
working capital needs.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED JANUARY 3, 1997.
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 January 3, 1997 totaled
approximately $3,477,000 compared to $3,232,000 for the comparable quarter of
the prior fiscal year, an increase of $245,000 or 7.58%. Product sales revenue
for the nine month period ended January 3, 1997 totaled approximately
$10,006,000 compared to $7,782,000 for the comparable period of the prior fiscal
year, an increase of $2,224,000 or 28.58%. These increases in product sales
revenue can be attributed to the Company's sales of remote access products
increasing approximately $190,000, or 16% for the quarter and approximately
$1,379,000, or 67% for the nine month period while sales of Input\Output devices
increased $55,000, or 3% versus the same three month period of the prior fiscal
year and have increased approximately $845,000, or 15% during the nine month
period compared to the prior fiscal year.
Cost of products sold for the quarter amounted to $1,945,000 or 56% of
product sales revenues versus $2,157,000 or 67% of product sales revenues for
the comparable quarter of the prior year. Cost of products sold for the nine
month period amounted to $5,856,000 or 59% of product sales revenues versus
$5,190,000 or 67% of product sales revenues for the comparable period of the
prior year. The decrease in cost of products sold can be attributed to the
Company's increased level of direct sales.
Selling, general and administrative expenses amounted to $1,090,000 or 31%
of product sales revenue for the quarter versus $760,000 or 24% of product sales
revenue for the comparable quarter of the prior fiscal year. Selling, general
and administrative expenses amounted to $2,824,000 or 28% of product sales
revenue for the nine month period versus $2,896,000 or 37% of product sales
revenue for the comparable period of the prior fiscal year. The increase in
expenses as a percentage of product sales revenue for the three months ended
January 3, 1997 can be attributed to an increase in marketing\advertising
expenses along with travel related expenses incurred to address identified
interests in the Company's products.
Product development expenses amounted to $312,000 or 9% of product sales
revenue for the quarter versus $241,000 or 7% of product sales revenue for the
comparable quarter of the prior fiscal year. Product development expenses
amounted to $851,000 or 9% of product sales revenue for the nine month period
quarter versus $1,028,000 or 13% of product sales revenue for the comparable
period of the prior fiscal year. The increase in expenses for the quarter ended
January 3, 1997 is due to a slightly higher headcount in the product development
area along with an increase in period costs associated with soon to be released
products. The decrease in expenses for the nine 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 NINE MONTHS ENDED JANUARY 3, 1997 (CONTINUED).
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
The Company reported income from continuing operations for the quarter
ended January 3, 1997 of $126,000 compared to income from continuing operations
of $15,000 for the comparable quarter of the prior fiscal year. The Company
reported income from continuing operations for the nine month period of $409,000
compared to loss from continuing operations of $1,422,000 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 $817,000 for the nine months
ended January 3, 1997 compared to cash used in continuing operations of $456,000
for the comparable nine months ended October 6, 1995. The increase in cash used
in continuing operations as compared to the prior year fiscal period primarily
reflects an increase in accounts receivable resulting from the increase in
product sales revenues along with an increase in inventories.
Cash used in investing activities amounted to $194,000 for the nine months
ended January 3, 1997 compared with $258,000 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.
Cash provided by financing activities during the nine months ended January
3, 1997 was $1,243,000 versus $530,000 of cash provided by financing activities
for the same nine months of the prior fiscal year. This change can be attributed
to the funding of $1,418,000 provided by the offshore private placement, a
shareholder loan of $250,000 and the re-payment of $429,000 in debt.
Working capital amounted to $2,945,000 at January 3, 1997, an increase of
$2,252,000, since April 5, 1996. The ratio of current assets to current
liabilities at January 3, 1997 was 1.88 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 NINE MONTHS ENDED JANUARY 3, 1997 (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 nine months ended January 3, 1997 is 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 1,344 39% 2,133 61% 3,477 100%
96 1,154 36% 2,078 64% 3,232 100%
YTD Info: 97 3,426 34% 6,580 66% 10,006 100%
96 2,048 26% 5,734 74% 7,782 100%
</TABLE>
The Company received on January 7, 1997, from a new major customer, a non-
cancelable purchase order for the delivery of a specified number of the
Company's IntelliServer PowerRack during the three months ended March 31, 1997
and the three months ended June 30, 1997. The total value of the order is in
excess of $3,300,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash from operations is expected to enable the Company to meet its working
capital needs throughout the remainder of fiscal year 1997. The Company
renegotiated the maturity of two of its $250,000 shareholder loans. One loan
maturity was extended to March 31, 1997 from December 31, 1996 while the other
loan was restructured, following a payment of $50,000, to call for a $100,000
payment on December 31, 1997 and another $100,000 payment on December 31, 1998.
RESULTS OF OPERATIONS
The Company expects continued growth in its Remote Access products and is
currently awaiting the final testing of its product(s) at customer facilities
prior to receiving a purchase order for these products. 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: February 14, 1997 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 9-MOS
<FISCAL-YEAR-END> APR-04-1997 APR-04-1997
<PERIOD-START> OCT-05-1996 APR-06-1997
<PERIOD-END> JAN-03-1997 JAN-03-1997
<CASH> 375 375
<SECURITIES> 0 0
<RECEIVABLES> 3,188 3,188
<ALLOWANCES> 522 522
<INVENTORY> 3,162 3,162
<CURRENT-ASSETS> 6,282 6,282
<PP&E> 3,750 3,750
<DEPRECIATION> 3,458 3,458
<TOTAL-ASSETS> 7,236 7,236
<CURRENT-LIABILITIES> 3,337 3,337
<BONDS> 0 0
0 0
0 0
<COMMON> 67 67
<OTHER-SE> 3,712 3,712
<TOTAL-LIABILITY-AND-EQUITY> 7,236 7,236
<SALES> 3,477 10,006
<TOTAL-REVENUES> 3,477 10,006
<CGS> 1,945 5,856
<TOTAL-COSTS> 1,945 5,856
<OTHER-EXPENSES> 1,402 3,675
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 27 94
<INCOME-PRETAX> 126 409
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 126 409
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 126 409
<EPS-PRIMARY> .02 .06
<EPS-DILUTED> .02 .06
</TABLE>
