UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 2, 1998
[ ] 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 (IRS Employer Identification Number)
incorporation or organization)
1060 Windward Ridge Parkway, Suite 100, Alpharetta, GA 30005
- ------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (770) 625 - 0000
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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,255,952 shares of common stock as
of February 9, 1998.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Balance Sheets as of January 2, 1998, As Restated
(Note 2) and April 4, 1997, As Restated (Note 2) 3
Statements of Operations for the three months ended
January 2, 1998, As Restated (Note 2) and January 3,
1997, As Restated (Note 2) 4
Statements of Operations for the nine months ended
January 2, 1998, As Restated (Note 2) and January 3,
1997, As Restated (Note 2) 5
Statements of Cash Flows for the nine months ended
January 2, 1998, As Restated (Note 2) and January 3,
1997, As Restated (Note 2) 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis or Plan of Operations
for the three and nine months ended January 2, 1998 8
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 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBITS INDEX 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Balance Sheets
(in thousands except par value and number of shares)
<TABLE>
<CAPTION>
January 2, 1998 April 4, 1997
--------------- -------------
(unaudited) As Restated
As Restated (Note 2)
(Note 2)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 14 $ 88
Receivables, net 1,847 1,636
Inventories, net 4,429 4,740
Prepaid expenses and other 282 170
-------- --------
Total current assets 6,572 6,634
Property, equipment and improvements, net 466 276
Intangible assets, net 600 655
Other 28 90
-------- --------
TOTAL ASSETS $ 7,666 $ 7,655
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,794 $ 2,647
Accrued liabilities:
Payroll 88 112
Deferred sales -- 9
Professional fees 63 171
Other 397 439
Line of credit 663 --
Notes payable to stockholders 350 250
Current maturities of long-term debt 89 603
-------- --------
Total current liabilities 3,444 4,231
Notes payable to stockholders 120 10
Long-term debt, less current maturities 129 110
-------- --------
Total liabilities 3,693 4,351
Stockholders' Equity
Convertible redeemable preferred stock, $.01 par value;
10,000,000 shares authorized; no shares issued -- --
Common stock, $.01 par value; 25,000,000 shares
authorized; 7,255,633 and 6,712,074 shares outstanding 75 67
Additional paid-in capital 45,043 43,031
Accumulated deficit (41,145) (39,794)
-------- --------
Total stockholders' equity 3,973 3,304
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,666 $ 7,655
======== ========
</TABLE>
See accompanying notes to the financial statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Statements of Operations
(in thousands except per share amounts)
(unaudited)
Three Months Ended
---------------------------------
January 2, 1998 January 3, 1997
--------------- ---------------
As Restated As Restated
(Note 2) (Note 2)
-------- --------
Revenues:
Net sales $ 2,569 $ 3,304
-------- --------
Expenses:
Cost of products sold 2,118 1,864
Selling, general and administrative 1,338 1,090
Product development 304 312
-------- --------
3,760 3,266
-------- --------
Operating income (loss) (1,191) 38
Other income (expense):
Other net (50) 23
Interest expense (41) (27)
-------- --------
Income (loss) before income taxes (1,282) 34
Provision for income taxes -- --
-------- --------
Net income (Loss) $ (1,282) $ 34
======== ========
Earnings (loss) per common share (0.17) 0.00
======== ========
Weighted average common shares and
common share equivalents outstanding 7,672 6,848
======== ========
See accompanying notes to the financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Statements of Operations
(in thousands except per share amounts)
(unaudited)
Nine Months Ended
---------------------------------
January 2, 1998 January 3, 1997
--------------- ---------------
As Restated As Restated
(Note 2) (Note 2)
Revenues:
Net sales $ 8,809 $ 9,833
-------- --------
Expenses:
Cost of products sold 6,043 5,775
Selling, general and administrative 3,377 2,824
Product development 872 851
-------- --------
10,292 9,450
-------- --------
Operating income (loss) (1,483) 383
Other income (expense):
Other net 247 28
Interest expense (115) (94)
-------- --------
Income (loss) before income taxes (1,351) 317
Provision for income taxes -- --
-------- --------
Net income (loss) $ (1,351) $ 317
======== ========
Net income (loss) per share - basic (0.18) 0.05
======== ========
Weighted average common shares and
common share equivalents outstanding 7,362 6,848
======== ========
See accompanying notes to the financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Computone Corporation
Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
January 2, 1998 January 3, 1997
--------------- ---------------
As Restated As Restated
(Note 2) (Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss from operations $ (1,351) $ 317
Adjustments to reconcile loss from operations
to net cash provided by (used in) operations:
Depreciation and amortization 389 515
Provision for uncollectible accounts 154 70
Provision for inventory reserve -- --
Changes in current assets and current liabilities:
Accounts receivable (304) (891)
Inventories 250 (603)
Prepaid expenses and other (112) 4
Accounts payable and accrued liabilities (1,035) (229)
-------- --------
Net cash provided by (used in) operations (2,009) (817)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (Decrease) in other assets 63 (3)
Capitalization of software costs (185) (105)
Capital expenditures (88) (86)
-------- --------
Net cash used in investing activities (210) (194)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from affiliates 35 250
Repayment of debt - net (500) (429)
Net borrowings under term loan 180 --
Net (repayments) borrowings under lines of credit 663 --
Exercise of common stock options and warrants 25 4
Issuance of common stock 1,742 1,418
-------- --------
Net cash provided by financing activities 2,145 1,243
-------- --------
Net decrease in cash and cash equivalents (74) 232
Cash and cash equivalents, beginning of period 88 143
-------- --------
Cash and cash equivalents, end of period $ 14 $ 375
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 115 $ 94
</TABLE>
See accompanying notes to the financial statements.
6
<PAGE>
COMPUTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The consolidated financial statements included in this Form 10-QSB/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 consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Form 10-KSB for the year
ended April 4, 1997.
The consolidated financial statements presented herein, as of January 2,
1998 reflect in the opinion of management, all adjustments, consisting only of
normal recurring accruals, 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. RESTATEMENT OF FINANCIAL DATA
-----------------------------
The Company has restated its financial statements for the fiscal quarter(s)
ended January 2, 1998 and Janaury 3, 1997 (as presented herein) as a result of
the ongoing investigation by the Securities and Exchange Commission (SEC) in
matters focused principally on the Company's revenue recognition policies and
internal accounting controls. Since March 1996, the Company has been the subject
of an investigation by the SEC pursuant to a Formal Order of Private
Investigation relating to the Company. Since that date, certain former and
current officers of the Company have testified in the investigation. On June 22,
1998, the Company was advised by the Staff of the SEC of the Staff's intention
to recommend an enforcement action against the Company for alleged violations of
the federal securities laws and to recommend the filing of a complaint in
federal court seeking a permanent injunction against the Company for violations
arising from the Company's reporting of certain revenues in violation of
generally accepted accounting principles in periodic filings made during certain
of the quarterly and annual filings by the Company in the five year period
ending April 3, 1998. As a result of the foregoing, the Company is required,
among other things, to restate certain previously issued financial information.
The Company has advised the Staff of the Company's intention to negotiate a
mutually acceptable settlement of this matter.
In response to the forgoing, the Company has taken a number of steps
including (a) changing the application of its revenue recognition policy,
effective with the fourth quarter of the fiscal year ended April 3, 1998, to
defer recognition of revenue to customers who are not the end users of the
Company's product until such time as the product has been sold through to the
end user; (b) improving its quarterly and fiscal year end cut-off procedures;
(c) accepting the resignation of the Company's previous president and chief
executive officer subsequent to April 3, 1998; and (d) accepting the resignation
of the Company's previous chief financial officer subsequent to April 3, 1998.
The Company believes that these steps will provide reasonable assurance that the
aforementioned accounting errors do not recur.
This restatement of financial data for the periods reported on herein
results from the improper recognition of revenue on certain sales, which had the
effects on the results of operations as follows:
Three Month Period Ended January 2, 1998
----------------------------------------
As Reported As Restated
----------- -----------
(In thousands except per share amounts)
Revenues $ 1,863 $ 2,569
Operating Income (Loss) $ (1,603) $ (1,191)
Net Income (Loss) $ (1,694) $ (1,282)
Basic and Diluted Earnings (Loss) Per Share $ ( 0.22) $ ( 0.17)
8
<PAGE>
COMPUTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
2. RESTATEMENT OF FINANCIAL DATA, CONTINUED
----------------------------------------
Nine Month Period Ended January 2, 1998
---------------------------------------
As Reported As Restated
----------- -----------
(In thousands except per share amounts)
Revenues $ 8,868 $ 8,809
Operating Income (Loss) $ (1,435) $ (1,483)
Net Income (Loss) $ (1,303) $ (1,351)
Basic and Diluted Earnings (Loss) Per Share $ ( 0.18) $ ( 0.18)
Three Month Period Ended January 3, 1997
----------------------------------------
As Reported As Restated
----------- -----------
(In thousands except per share amounts)
Revenues $ 3,477 $ 3,304
Operating Income $ 130 $ 38
Net Income $ 126 $ 34
Basic and Diluted Earnings Per Share $ 0.02 $ 0.00
Nine Month Period Ended January 3, 1997
---------------------------------------
As Reported As Restated
----------- -----------
(In thousands except per share amounts)
Revenues $ 10,006 $ 9,833
Operating Income $ 475 $ 383
Net Income $ 409 $ 317
Basic and Diluted Earnings Per Share $ 0.06 $ 0.05
3. INVENTORIES
-----------
Inventories, net of a reserve for obsolete, excess and non-salable items,
consisted of the following at January 2, 1998 and April 4, 1997 (in thousands):
January 2, 1998 April 4, 1997
--------------- -------------
As Restated As Restated
(Note 2) (Note 2)
Finished goods $ 1,526 $ 1,880
Work in progress 687 725
Raw materials 2,216 2,135
-------- --------
$ 4,429 $ 4,740
======== ========
4. INCOME PER SHARE
----------------
"Earnings per share ("EPS") is computed based on the weighted average
number of common shares, and common stock options and warrants (unless
conversion would have an antidilutive effect on EPS) (using the treasury
method), in accordance with the requirements of FASB Statement of Standards No.
128 Earnings per Share. For purposes of computing EPS, for all periods presented
the numerator is represented by net income or net loss for each respective
period; the denominator for computing basic EPS is represented by the weighted
average number of shares outstanding for each respective period; the denominator
for computing diluted EPS for fiscal 1998 periods presented is the same number
as used in computing basic EPS as the effects of conversion would be
antidilutive.
9
<PAGE>
COMPUTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
5. 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.
6. 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 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 January 2, 1998, the
balance outstanding on the term loan was approximately $179,562 and the balance
under the line of credit was approximately $662,894. The available borrowings
under the line of credit at January 2, 1998 were $102,356. The Company also paid
in full, on June 20, 1997, its outstanding balance to NationsBank, N.A. in the
amount of $447,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
SEE NOTE 2 IN ITEM 1 - RESTATEMENT OF FINANCIAL DATA
RESULTS OF OPERATIONS
- ---------------------
For the Three Months Ended January 2, 1998 Compared to the Three Months Ended
- --------------------------------------------------------------------------------
January 3, 1997
- ---------------
The Company reported an operating loss of $1,191,000 and net loss of
$1,282,000 for the three months ended January 2, 1998 compared to operating
income of $38,000 and net income of $34,000 for the comparable three months of
the prior fiscal year. The decrease in income is due primarily to working
capital shortages and subsequent payment delays to the Company's major
outsourcing vendors during the first quarter of the fiscal year which resulted
in the Company's accounts being placed on credit hold with these vendors. After
the Company's accounts were again in good standing, one of these vendors was
unable to procure certain long lead time components in a timely enough manner to
provide the Company with sufficient products to meet its open orders during the
second quarter. The current period's decrease in income is due primarily to the
continued effects of the product mix shortages, the lingering effects of the
lost sales opportunities during the second quarter resulting from the product
shortages and numerous one-time or non-recurring expenses amounting to
approximately $600,000.
Product sales revenue for the quarter ended January 2, 1998 total
approximately $2,569,000 compared to $3,304,000 for the comparable quarter of
the prior fiscal year, a decrease of 22%. This change in product sales revenue
is attributable to the continued effects of the product mix shortages and the
lingering effects of lost sales opportunities during the second quarter
resulting from the product shortages. A significant increase in sales to major
accounts was offset by decreases in sales to North American distributors, OEM's,
VAR's and international customers.
Cost of products sold for the quarter ended January 2, 1998 amounted to
$2,118,000 or 82% of product sales revenues compared to $1,864,000 or 56% for
the comparable quarter of the prior year. The decrease in cost of products sold
is attributable to the decrease in product sales revenue. However, the increase
in cost of goods sold as a percentage of revenues is attributable to the
Company's sales of remote access products with a higher cost and the reduction
of capitalized overhead costs resulting from the Company's move toward greater
outsourcing of its product assembly.
Selling, general and administrative expenses amounted to $1,338,000 or 52%
of product sales revenue for the three months ended January 2, 1998 compared to
$1,090,000 or 33% of product sales revenue for the comparable three months of
the prior fiscal year. The increase in expenses during the quarter ended January
2, 1998 compared to the same
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS, CONTINUED
- --------------------------------
period of the prior fiscal year is attributable to the Company's relocation to
its new facility, an increase in professional fees and the Company's annual
shareholders' meeting and related open house. The Company experienced an
increase in selling related costs associated with the Company's efforts to sell
the remote access products that were shipped to a major customer during last
fiscal year (and accounted for as a consignment) and returned to the Company
during the second quarter of this fiscal year. The Company implemented
additional sales promotions in an effort to sell the remaining products
associated with this transaction along with other products that were not
affected by delivery delays.
Product development expenses amounted to $304,000 or 12% of product sales
revenue for the three months ended January 2, 1998 compared to $312,000 or 9% of
product sales revenue for the comparable three month period of the prior fiscal
year.
For the Nine Months Ended January 2, 1998 Compared to the Nine Months Ended
- --------------------------------------------------------------------------------
January 3, 1997
- ---------------
The Company reported an operating loss of $1,483,000 and net loss of
$1,351,000 for the nine months ended January 2, 1998 compared to operating
income of $383,000 and net income of $317,000 for the comparable nine months of
the prior fiscal year. The decrease in income is due primarily to working
capital shortages and subsequent payment delays to the Company's major
outsourcing vendors during the first quarter of this fiscal year which resulted
in the Company's accounts being placed on credit hold with these vendors. After
the Company's accounts were again in good standing, one of these vendors was
unable to procure certain long lead time components in a timely enough manner to
provide the Company with sufficient products to meet its open orders during the
second quarter. The current period's decrease in income is due primarily to the
continued effects of the product mix shortages, the lingering effects of lost
sales opportunities during the second quarter resulting from the product
shortages an numerous one-time or non-recurring expenses amounting to
approximately $600,000.
Product sales revenue for the nine months ended January 2, 1998 totaled
approximately $8,809,000 compared to $9,833,000 for the comparable nine months
of the prior fiscal year, a decrease of 10%. This decrease in product sales
revenue is attributable to the continued effects of the product mix shortages
and the lingering effects of lost sales opportunities during the second quarter
resulting from the product shortages. Significant increases in sales to major
accounts and OEM's were offset by decreases in sales to North American
distributors, VAR's and international customers.
Cost of products sold for the nine months January 2, 1998 amounted to
$6,043,000 or 69% of product sales revenues compared to $5,775,000 or 59% for
the comparable nine months of the prior year. The increase in cost of products
sold is attributable to the reduction of capitalized overhead costs, resulting
from the Company's move toward greater outsourcing of its product assembly,
along with an increase in fixed manufacturing overhead expenses.
Selling, general and administrative expenses amounted to $3,377,00 or 38%
of product sales revenue for the nine months ended January 2, 1998 compared to
$2,824,000 or 29% of product sales revenue for the comparable nine months of the
prior fiscal year. The increase in expenses during the nine months ended January
2, 1998 compared to the same period of the prior fiscal year is attributable to
the Company's relocation to its new facility, an increase in professional fees
and the Company's annual shareholders' meeting and related open house. The
Company experienced an increase in selling related costs associated with the
Company's effort to sell the remote access products that were shipped to a major
customer during last fiscal year (and accounted for as a consignment) and
returned to the Company during the second quarter of this fiscal year. The
Company implemented additional sales promotions in an effort to sell the
remaining products associated with this transaction along with other products
that were not affected by delivery delays.
Product development expenses amounted to $872,000 or 10% of product sales
revenue for the nine months ended January 2, 1998 compared to $851,000 or 9% of
product sales revenue for the comparable nine month period of the prior fiscal
year.
The Company recorded $132,000 in net non-operating income for the nine
months ended January 2, 1998. This non-operating income was the net of $313,000
in investment income resulting from the Company's sales of shares in another
company's initial public offering, $115,000 in interest expense, the write-off
of $46,000 in prepaid license fees and $15,000 in one-time late charges. This
total compares to $66,000 in net non-operating expenses, predominately interest
expense, during the same nine month period fiscal year.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS, CONTINUED
LIQUIDITY
In response to the Company's working capital needs, on June 20, 1997, the
Company entered into a funding 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. As of
January 2, 1998, $102,356 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 the remainder of fiscal 1998. Cash commitments for
non-cancelable long-term operating real and personal property leases during
fiscal 1998 are 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 $2,009,000 for the nine
months ended January 2, 1998 compared to cash used in continuing operations of
$817,000 for the comparable nine months ended January 3, 1997. The increase in
cash used in continuing operations compared to the prior year fiscal period
reflects primarily the loss from continuing operations. Accounts payable and
accrued liabilities decreased by $1,035,000 as a result of the working capital
that was made available by the line of credit and private placement proceeds.
On October 11, 1997, the Company completed the relocation to its new
headquarters in Alpharetta, Georgia. The new facility is located in a new office
park in the suburbs of Atlanta. The Company has a ten-year lease on 22,000
square feet of a new 40,000 square foot one-story brick building and expects to
save approximately $170,000 per year in total occupancy costs compared to the
Company's prior lease arrangement.
Cash used in investing activities amounted to $210,000 for the nine month
ended January 2, 1998 compared with $194,000 used in financing activities for
the comparable nine months of the prior fiscal year. This increase from the same
period of the prior fiscal year can be attributable to the decrease in other
assets along with an increase in capitalized software development costs.
Cash provided by financing activities during the nine months ended January
2, 1998 was $2,145,000 compared to $1,243,000 of cash provided by financing
activities for the nine months ended January 3, 1997. This change is
attributable to the Company's aforementioned new financing arrangement with
Heller Financial along with the proceeds from the private placement that was
completed in mid-October.
Working capital amounted to $3,128,000 at January 2, 1998 an increase of
$725,000, since April 4, 1997. The ratio of current assets to current
liabilities at January 2, 1998 was 1.91 to 1.00 compared to 1.57 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 second quarter of fiscal 1998 ended January 2, 1998 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 remain at the level of 50% of
net revenues.
<TABLE>
<CAPTION>
Remote Access Servers Input\Output Devices Total
Sales $ (000's) % of Total Sales $ (000's) % of Total Sales $ (000's) % of Total
--------------- ----------- --------------- ---------- --------------- ----------
Third Quarter:
<S> <C> <C> <C> <C> <C> <C> <C>
98 $1,273 50% $1,296 50% $2,569 100%
97 1,290 39 2,014 61 3,304 100
First Nine Months:
98 $4,142 47% $4,667 53% $8,809 100%
97 3,372 34 6,461 66 9,833 100
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS, CONTINUED
OUTLOOK FOR REMAINDER OF FISCAL YEAR 1998
- -----------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the three months ended January 2, 1998, the Company initiated a
private placement of 500,000 shares of Common Stock. As of January 2, 1998, the
Company raised $934,400 and an additional $724,800 through October 16, 1997. The
proceeds from this private placement are to be used to fund new product
development and provide additional working capital. The proceeds from the
private placement along with the working capital provided by Heller Financial,
and the 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 are approximately $262,000. The Company has
no plans for any major capital improvements.
The Company expects continued growth in the sales of its remote access
products. At January 2, 1998, the Company had open orders of approximately
$89,000. Management believes that the additional funding raised through the
private placement along with the funding available from the Heller Financial
relationship should provide the Company with the working capital required to
grow the Company through new product development and marketing activities.
The Company's management believes that the financial results for the third
quarter that ended on January 2, 1998 was not indicative of the anticipated
financial results for the fourth quarter of this fiscal year. The Company has
resolved the problems that it had with its major outsourcing vendor and has
subsequently entered into a relationship directly with a manufacturer of the
products that the outsourcing vendor had manufactured. As of February 12, 1998,
the Company is in receipt of purchase orders from a major customer totaling in
excess of $2,000,000 for products that the Company believes it will be able to
ship during the fourth quarter of this fiscal year. Management believes that
sales to VAR's and international customers are on-track to exceed sales to these
customers during the third quarter. The Company has sufficient inventory
available to meet these anticipated increases in sales.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
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
The Company held, on November 25, 1997, its Annual Meeting of
Stockholders at which the following actions were taken:
1. Four directors were elected to serve until the 1998 Annual
Meeting of Stockholders and until their successors are elected:
Name For Withheld
---- --- --------
Thomas J. Anderson 3,765,267 1,000
Richard A. Hansen 3,765,267 1,000
John D. Freitag 3,765,267 1,000
William C. Lovely 3,765,267 1,000
2. A proposal to adopt the Company's Equity Incentive Plan for
officers, directors, employees and consultants was approved:
For Against Abstain
--- ------- -------
3,757,487 7,280 1,500
3. A proposal to amend the Company's Certificate of Incorporation to
reduce the number of shares of Common Stock the Company is
authorized to issue from 50,000,000 shares to 25,000,000 was
approved:
For Against Abstain
--- ------- -------
3,764,054 1,214 1,000
4. BDO Seidman, LLP was elected as independent public accountants
for the Company for its 1998 fiscal year:
For Against Abstain
--- ------- -------
3,752,085 1,172 13,010
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit Number Description of Exhibit
3.1(i) Restated Certificate of Incorporation
of Registrant as amended
27 Financial Data Schedule
b. On November 12, 1997, the filed Form 8-K reporting that on October
16, 1997, the Company sold an aggregate of 187,500 shares of common
stock, par value $.01, for an aggregate purchase price of $600,000.
The shares were placed through Pennsylvania Merchant Group Ltd., which
received a commission in the aggregate amount of $37,500.
The Company sold the shares to one investor, The Tailwind Fund Ltd.
Pursuant to the exemption from registration afforded by Regulation S
under the Securities Act of 1933, as amended.
15
<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: June 28, 1999 By: \s\ Perry J. Pickerign
----------------------
Perry J. Pickerign
President and Chief Executive Officer
(Principal Operating Officer)
By: \s\ Keith H. Daniel
-------------------
Keith H. Daniel
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
3.1 (i) Restated Certificate of Incorporate of Registrant as amended
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000819479
<NAME> COMPUTONE
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-03-1998
<PERIOD-START> APR-05-1997
<PERIOD-END> JAN-01-1998
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 2,470
<ALLOWANCES> 623
<INVENTORY> 4,429
<CURRENT-ASSETS> 6,572
<PP&E> 3,919
<DEPRECIATION> 3,453
<TOTAL-ASSETS> 7,666
<CURRENT-LIABILITIES> 3,444
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 3,898
<TOTAL-LIABILITY-AND-EQUITY> 7,666
<SALES> 2,569
<TOTAL-REVENUES> 2,569
<CGS> 2,118
<TOTAL-COSTS> 3,760
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (1,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,282)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
