<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1997
[ ] 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
incorporation or organization) (IRS Employer Identification Number)
1100 Northmeadow Parkway, Suite 150, Roswell, GA 30076
- ------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 475-2725
N/A
---
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Check mark whether the registrant has filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,712,948 shares of common stock
Transitional Small Business Disclosure Format (check one): Yes No X
------ -----
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of
July 4, 1997 and April 4, 1997 3
Consolidated Statements of Operations for
the three months ended July 4, 1997 and July 5, 1996 4
Consolidated Statements of Cash Flows
the three months ended July 4, 1997 and July 5, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Consolidated Balance Sheets
(in thousands except par value and number of shares)
<TABLE>
<CAPTION>
July 4, 1997 April 4, 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 154 $ 88
Receivables, net 2,669 1,896
Inventories, net 4,460 4,600
Prepaid expenses and other 221 170
-------- --------
Total current assets 7,504 6,754
Property, equipment and improvements, net 213 276
Intangible assets, net 647 655
Other 102 90
-------- --------
Total assets $ 8,466 $ 7,775
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,084 $ 2,647
Accrued liabilities:
Payroll 99 112
Prepaid sales 6 9
Professional fees 105 171
Other 399 439
Line of credit 971 - - -
Notes payable to stockholders 350 250
Current maturities of long term debt 156 603
-------- --------
Total current liabilities 4,170 4,231
Notes payable to stockholders 120 120
Long term debt, less current maturities 197 - - -
-------- --------
Total liabilities 4,487 4,351
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; 6,712,948 and
6,712,074 shares outstanding 68 67
Additional paid in capital 43,475 43,031
Accumulated deficit (39,564) (39,674)
-------- --------
Total stockholders' equity 3,979 3,424
-------- --------
Total liabilities and stockholders' equity $ 8,466 $ 7,775
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Consolidated Statements of Operations
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
July 4, 1997 July 5, 1996
------------ ------------
<S> <C> <C>
Revenues:
Product sales $3,494 $3,025
Expenses:
Cost of products sold 2,121 1,852
Selling, general and administrative 959 805
Product development 275 274
------ ------
3,355 2,931
------ ------
Operating income 139 94
Other income (expense):
Other, net (2) 4
Interest expense - affiliates (6) (10)
Interest expense - other (20) (20)
------ ------
Income before income taxes 111 68
Provision for income taxes - - - - - -
------ ------
Net income $ 111 $ 68
====== ======
Earnings per common share and common equivalents $ 0.02 $ 0.01
====== ======
Weighted average common shares and
common equivalents outstanding 7,145 6,482
====== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------
July 4, 1997 July 5, 1996
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income from operations $ 111 $ 68
Adjustments to reconcile income (loss) from operations
to net cash provided by (used in) operations:
Depreciation and amortization 123 168
Provision for uncollectible accounts (17) 51
Provision for inventory reserve (39) 0
Changes in current assets and current liabilities:
Accounts receivable (756) (123)
Inventories 179 (149)
Prepaid expenses and other (50) (9)
Accounts payable and accrued liabilities (604) (108)
----------- ----------
Net cash (used in) operations (1,053) (102)
----------- ----------
Cash flows from investing activities:
(Increase) decrease in other assets (12) (5)
Capitalization of software costs (73) (45)
Capital expenditures 29 (18)
----------- ----------
Net cash used in investing activities (56) (68)
----------- ----------
Cash flows from financing activities:
Borrowings from affiliates 100 - - -
Repayment to affiliates - - - - - -
Repayment of debt - net (447) (60)
Net borrowings under term loan - others 250 - - -
Net borrowings under lines of credit - others 1,271 150
Exercise of common stock options and warrants 1 16
Contribution of capital - - - - - -
Issuance of common stock - - - - - -
Conversion of preferred stock - - - - - -
----------- ----------
Net cash provided by financing activities 1,175 106
----------- ----------
Net increase (decrease) in cash and cash equivalents 66 (64)
Cash and cash equivalents, beginning of period 88 143
----------- ----------
Cash and cash equivalents, end of period $ 154 $ 79
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 27 $ 30
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
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 1997 Form 10-KSB.
The financial statements presented herein, as of July 4, 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 July 4, 1997 and April 4, 1997 (in thousands):
<TABLE>
<CAPTION>
July 4, 1997 April 4, 1997
------------ -------------
<S> <C> <C>
Finished goods $1,484 $1,740
Work in progress 761 725
Raw materials 2,215 2,135
------ ------
$4,460 $4,600
====== ======
</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
------------
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No.109 (SFAS 109), "Accounting for
Income Taxes". Management provides a valuation allowance against its deferred
tax assets to the extent that management concludes that it is more likely than
not that the Company will not benefit from the utilization of such deferred tax
assets.
5. Debt
----
On June 20, 1997, the Company entered into a financing arrangement with
Heller Financial to provide a term loan in the amount of $254,000 which is
collateralized by the Company's inventory and a line of credit of up to
$2,500,000, based on the available borrowing base, collateralized by the
Company's accounts receivable. The term loan bears interest at a rate of prime
plus 1.50% and is payable in monthly installments of $4,233.00 plus accrued
interest for the first thirty-five months with a final monthly payment in the
amount of the entire then outstanding principal plus accrued interest. The line
of credit bears interest at a rate of prime plus 1.25%. At July 4, 1997, the
balance outstanding of the term loan was approximately $247,000 and the Company
borrowed approximately $971,000 under the terms of the line of credit. The
Company also paid in full its outstanding balance to NationsBank in the amount
of $400,000.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operations for the
Three Months Ended July 4, 1997.
Results of operations
- ---------------------
The Company reported income from continuing operations for the quarter
ended July 4, 1997 of $111,000 compared to income from continuing operations of
$94,000 for the comparable quarter of the prior fiscal year. The increase in
income is due primarily to the increase in product sales revenue to VAR's and
major accounts.
Product sales revenue from continuing operations for the quarter ended July
4, 1997 totaled approximately $3,494,000 compared to $3,025,000 for the
comparable quarter of the prior fiscal year, an increase of 15%. This increase
in product sales revenue can be attributed to the increase in sales to VAR's and
major accounts.
Cost of products sold for the quarter amounted to $2,121,000 or 61% of
product sales revenues versus $1,852,000 or 61% for the comparable quarter of
the prior year. The increase in cost of products sold can be attributed to the
increase in product sales revenue.
Selling, general and administrative expenses amounted to $959,000 or 27% of
product sales revenue for the three months ended July 4, 1997 versus $805,000 or
27% of product sales revenue for the comparable three months of the prior fiscal
year. The increase in expenses during the quarter ended July 4, 1997 versus the
same period of the prior fiscal year can be attributed to an increase in
headcount in the areas of sales and customer service.
Product development expenses amounted to $275,000 or 8% of product sales
revenue for the three months ended July 4, 1997 versus $274,000 or 9% of product
sales revenue for the comparable three month period of the prior fiscal year.
Liquidity
- ---------
In response to the Company's liquidity needs, the Company entered into a
financing arrangement with Heller Financial, on June 20,1997, to provide a term
loan in the amount of $254,000 which is collateralized by the Company's
inventory and a line of credit of up to $2,500,000, based on the available
borrowing base, collateralized by the Company's accounts receivable. As of
June 20, 1997, $1,400,000 was available for borrowing under the term loan and
line of credit, of which, $400,000 was used to payoff the then remaining balance
on the existing note payable to bank with the remaining $1,000,000 available to
the Company for the working capital purposes. As of July 4, 1997, $1,150,000
was available for borrowing under the line of credit. The Company believes that
the working capital provided by Heller Financial, together with anticipated
funds expected to be generated by operating activities, should be reasonably
sufficient to cover operating expenses to be incurred during fiscal 1998. Cash
commitments for non-cancelable long-term operating real and personal property
leases during fiscal 1998 is approximately $262,000. The Company has no plans
for any major capital improvements. Relationships with major vendors are
satisfactory although the Company is on a "Cash On Delivery" status with a
significant number of raw materials vendors.
Cash used in continuing operations amounted to $1,053,000 for the three
months ended July 4, 1997 compared to cash used in continuing operations of
$102,000 for the comparable three months ended July 5, 1996. The increase in
cash used in continuing operations as compared to the prior year fiscal period
primarily reflects the decrease in accounts payable and accrued liabilities
resulting from the funding which was made available by the line of credit and
accounts receivable increased by approximately $756,000 as a result of the
increase in product sales.
Cash used in investing activities amounted to $56,000 for the three months
ended July 4, 1997 compared with $68,000 used in financing activities for the
comparable three months of the prior fiscal year. This decrease from the same
period of the prior fiscal year can be attributable to the write-off a certain
computer equipment that was replaced during the fourth quarter of the Company's
prior fiscal year.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis or Plan of Operations for the
Three Months Ended July 4, 1997 (continued).
Liquidity (continued)
- ---------------------
Cash provided by financing activities during the three months ended July 4,
1997 was $1,175,000 versus $106,000 of cash provided by financing activities for
the months ended July 5, 1996. This change can be attributed to the Company's
aforementioned new financing arrangement with Heller Financial.
Working capital amounted to $3,334,000 at July 4, 1997, an increase of
$811,000, since April 4, 1997. The ratio of current assets to current
liabilities at July 4, 1997 was 1.80 to 1.00 compared to 1.60 to 1.00 at April
4, 1997.
Outlook for Remainder of Fiscal Year 1998
- -----------------------------------------
Sales by Product Line
- ---------------------
The Company continues to experience growth in its sales of remote access
products following its decision to strategically aligned its sales focus towards
this marketplace versus sales of input\output devices. The sales information
for the first quarter of fiscal 1998 ended July 4, 1997 is listed below.
Management is fairly optimistic that the level of sales of remote access
products as a percentage of net revenue will continue to increase over the
remainder of the current fiscal year and should approach the 50% of net revenues
level.
<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: 98 1,610 46% 1,884 54% 3,494 100%
97 1,030 34% 1,995 66% 3,025 100%
</TABLE>
Liquidity and Capital Resources
- -------------------------------
The Company believes that the working capital provided by Heller Financial,
together with anticipated funds expected to be generated by operating
activities, should be reasonably sufficient to cover operating expenses to be
incurred during fiscal 1998. Cash commitments for non-cancelable long-term
operating real and personal property leases during fiscal 1998 is approximately
$262,000. The Company has no plans for any major capital improvements.
Relationships with major vendors are satisfactory although the Company is on a
"Cash On Delivery" status with a significant number of raw materials vendors.
Results of Operations
- ---------------------
The Company expects continued growth in the sales of its remote access
products. At July 4, 1997, the Company had open orders of approximately $320,000
and had not yet shipped orders totaling $1,509,200 for April, May and June on
the non-cancelable, non-returnable purchase order that was received from a major
customer in January 1997. The revenue and costs associated with the shipment of
approximately $1,287,000 in fourth quarter shipments to this customer have not
yet been recognized as of July 21, 1997 because this customer had not yet paid
for, or sold through, the products received during the fourth quarter of fiscal
1997. The Company will recognize revenue on these fourth quarter shipments as
the customer pays for the products that they sell. The Company and its customer
are continuing to monitor the best methods possible for the sale and "pull
through" of the inventory that the customer has on hand.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None, other than those matters described in Item 3 to the Company's
Annual Report on Form 10-KSB for the year ended April 4, 1997.
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.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMPUTONE CORPORATION
Date: July 21, 1997 By: \s\ Thomas J. Anderson
-------------------------------------
President and Chief Executive Officer
(Principal Operating Officer)
By: \s\ Gregory A. Alba
--------------------------------------
Gregory A. Alba
Vice President of Finance &
Administration and Chief
Financial Officer
(Principal Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-03-1998
<PERIOD-START> APR-05-1997
<PERIOD-END> JUL-04-1997
<CASH> 154
<SECURITIES> 0
<RECEIVABLES> 3,184
<ALLOWANCES> (514)
<INVENTORY> 4,460
<CURRENT-ASSETS> 7,504
<PP&E> 3,802
<DEPRECIATION> 3,589
<TOTAL-ASSETS> 8,466
<CURRENT-LIABILITIES> 4,170
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 3,911
<TOTAL-LIABILITY-AND-EQUITY> 8,466
<SALES> 3,494
<TOTAL-REVENUES> 3,494
<CGS> 2,121
<TOTAL-COSTS> 3,355
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 111
<INCOME-TAX> 111
<INCOME-CONTINUING> 111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
