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 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 (IRS Employer Identification Number)
incorporation or organization)
1060 Windward Ridge Parkway, Suite 100, Alpharetta, GA 30005
------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (770) 625-0000
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: 6,825,696 shares of common stock
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Balance Sheets as of July 4, 1997 and April 4, 1997
As Restated (Note 2) 3
Statements of Operations for the three months ended
July 4, 1997 and July 5, 1996 4
Statements of Cash Flows the three months ended
July 4, 1997 and July 5, 1996 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations 8
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 10
ITEM 2. Changes in Securities 10
ITEM 3. Defaults Upon Senior Securities 10
ITEM 4. Submission of Matters to a Vote of Security Holders 10
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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>
July 4, 1997 April 4, 1997
------------ -------------
(unaudited)
As Restated As Restated
ASSETS (Note 2) (Note 2)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 154 $ 88
Receivables, net 2,409 1,636
Inventories, net 4,600 4,740
Prepaid expenses and other 221 170
-------- --------
Total current assets 7,384 6,634
Property, equipment and improvements, net 213 276
Intangible assets, net 647 655
Other 102 90
-------- --------
TOTAL ASSETS $ 8,346 $ 7,655
======== ========
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; 6,825,696 and 6,712,074 shares outstanding 68 67
Additional paid in capital 43,475 43,031
Accumulated deficit (39,684) (39,794)
-------- --------
Total stockholders' equity 3,859 3,304
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,346 $ 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 data)
Three Months Ended
----------------------------
July 4, 1997 July 5, 1996
------------ ------------
(unaudited)
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 income (expense) (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
======= =======
Income per common share:
Basic $ 0.02 $ 0.01
======= =======
Weighted average common shares and
common equivalents outstanding 7,145 6,482
======= =======
See accompanying notes to the financial statements.
4
<PAGE>
Item 1. Financial Statements
Computone Corporation
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
July 4, 1997 July 5, 1996
------------ ------------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) 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) provided by 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 0
Repayment to affiliates 0 0
Repayment of debt - net (447) (60)
Net borrowings under term loan - others 250 0
Net borrowings under lines of credit - others 1,271 150
Exercise of common stock options and warrants 1 16
-------- --------
Net cash (used in) 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 financial statements.
5
<PAGE>
COMPUTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The 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 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. RESTATEMENT OF FINANCIAL DATA
-----------------------------
The Company has restated its financial statements for the fiscal quarter
ended July 4, 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 statements results does not effect the
statement of operations, statement of cash flows or earnings per common share in
the periods presented herein. The effects on receivables, inventory, accumulated
deficit is reflected on the statement of shareholders' equity.
6
<PAGE>
COMPUTONE CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
3. 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):
July 4, 1997 April 4, 1997
------------ -------------
As Restated As Restated
(Note 2) (Note 2)
Finished goods $ 1,624 $ 1,880
Work in progress 761 725
Raw materials 2,215 2,135
-------- --------
$ 4,600 $ 4,740
======== ========
4 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.
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 $4,233.00 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
THREE MONTHS ENDED JULY 4, 1997.
SEE NOTE 2 IN ITEM 1 - RESTATEMENT OF FINANCIAL DATA
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
$68,000 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 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.
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.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS FOR THE
THREE MONTHS ENDED JULY 4, 1997, CONTINUED.
LIQUIDITY (CONTINUED)
- ---------------------
Working capital amounted to $3,214,000 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 1.77 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 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.
9
<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.
10
<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 Pickerign
-------------------
Perry Pickerign
President and Chief Executive Officer
(Principal Operating Officer)
By: \s\ Keith Daniel
----------------
Keith Daniel
Chief Financial Officer
(Principal Financial and Accounting Officer)
<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> JUL-04-1997
<CASH> 154
<SECURITIES> 2,923
<RECEIVABLES> 2,923
<ALLOWANCES> (514)
<INVENTORY> 4,600
<CURRENT-ASSETS> 7,384
<PP&E> 3,802
<DEPRECIATION> 3,589
<TOTAL-ASSETS> 8,346
<CURRENT-LIABILITIES> 4,170
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 3,791
<TOTAL-LIABILITY-AND-EQUITY> 8,346
<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> 0
<INCOME-CONTINUING> 111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
