UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): June 28, 2000
Computone Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-16172 23-2472952
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1060 Windward Ridge Parkway, Suite 100, Alpharetta, Georgia 30005
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 625-0000
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n/a
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(Former name or former address if changed since last report)
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<PAGE>
EXPLANATORY NOTE: On July 13, 2000, the Computone Corporation (the "Company")
filed with the Securities and Exchange Commission (the "Commission") a Report on
Form 8-K (the "Initial 8-K Report") with respect to the Company's June 28, 2000
acquisition of all of the common stock of Multi-User Solutions, Ltd.
("Multi-User"). In accordance with Item 7(a)(4) of Form 8-K, the Initial 8-K
Report did not include the historical Multi-User financial statements or the
unaudited pro forma combined financial information of the Company (collectively,
the "Financial Information"). In the Initial 8-K Report, the Company indicated
its intent to file the Financial Information with the Commission no later than
September 11, 2000. This amendment includes the Financial Information and should
be read in conjunction with the Initial 8-K Report.
Item 7. Financial Statements and Exhibits.
------ ---------------------------------
(a) Financial statements of business acquired:
Pursuant to Item 7(a)(4) of Form 8-K, the following audited financial
statements of Multi-User, prepared in accordance with Regulation S-X
are included herein.
o Report of Deloitte & Touche LLP
o Balance Sheets as of December 31, 1999 and 1998
o Statements of Operations for the Years Ended December 31, 1999
and 1998
o Statements of Stockholder's Deficit for the Years Ended December
31, 1999 and 1998
o Statements of Cash Flows for the Years Ended December 31, 1999
and 1998
o Notes to the Financial Statements
The remainder of this page intentionally left blank
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Multi-User Solutions, Ltd.
Norcross, Georgia
We have audited the accompanying balance sheets of Multi-User Solutions, Ltd. as
of December 31, 1999 and 1998, and the related statements of operations,
stockholder's deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements referred to above present fairly, in
all material respects, the financial position of the Company at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 1 to the financial statements, on June 28, 2000, all of the
Company's outstanding common stock was acquired by Computone Corporation.
Deloitte & Touche LLP
Atlanta, Georgia
June 28, 2000
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MULTI-USER SOLUTIONS, LTD.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
---------- ----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 19 $ 6
Accounts receivable 922 561
Inventories 145 185
Prepaid expenses and other assets 43 43
---------- ----------
Total current assets 1,129 795
Property and equipment, net 114 94
Other assets 10 9
---------- ----------
TOTAL ASSETS $ 1,253 $ 898
========== ==========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable, trade $ 526 $ 462
Deferred maintenance revenue 1,011 720
Line of credit 96 --
Other liabilities 109 95
---------- ----------
Total current liabilities 1,742 1,277
---------- ----------
Stockholder's deficit:
Common stock, no par value; 10,000 shares
authorized, 1,000 shares issued and outstanding 1 1
Accumulated deficit (490) (380)
---------- ----------
Total stockholder's deficit (489) (379)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 1,253 $ 898
========== ==========
</TABLE>
See accompanying notes to the financial statements.
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MULTI-USER SOLUTIONS, LTD.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
YEAR ENDED
-------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Revenues:
Product revenue $ 5,486 $ 3,340
Contract and other service revenue 3,896 3,189
---------- ----------
9,382 6,529
Cost of goods sold 7,117 4,708
---------- ----------
Gross profit 2,265 1,821
Selling, general and administrative expenses 2,069 1,543
---------- ----------
Operating income 196 278
Other (expense) income:
Interest expense (11) (1)
Other income 9 21
---------- ----------
Other (expense) income, net (2) 20
---------- ----------
Net income $ 194 $ 298
========== ==========
See accompanying notes to the financial statements.
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MULTI-USER SOLUTIONS, LTD.
STATEMENTS OF STOCKHOLDER'S DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT DEFICIT DEFICIT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 1 $ 1 $ (404) $ (403)
Net income -- -- 298 298
Dividends paid -- -- (274) (274)
---------- ---------- ---------- ----------
Balance, December 31, 1998 1 $ 1 $ (380) $ (379)
Net income -- -- 194 194
Dividends paid -- -- (304) (304)
---------- ---------- ---------- ----------
Balance, December 31, 1999 1 $ 1 $ (490) $ (489)
========== ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
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MULTI-USER SOLUTIONS, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 194 $ 298
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 52 58
Provision for uncollectible accounts (49) (4)
Gain on asset disposition -- (38)
Changes in current assets and current liabilities:
Accounts receivable (312) 380
Inventories 40 (70)
Prepaid expenses and other (1) --
Accounts payable 64 (188)
Deferred maintenance revenue 291 (284)
Accrued liabilities 53 54
---------- ----------
Net cash provided by operating activities 332 206
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from asset disposition -- 54
Capital expenditures (72) (50)
---------- ----------
Net cash (used in) provided by investing activities (72) 4
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable (24) --
Repayment of note payable to shareholder (15) (30)
Borrowings under line of credit agreement 96 --
Dividends paid (304) (274)
---------- ----------
Net cash used in financing activities (247) (304)
---------- ----------
Net increase (decrease) in cash and cash equivalents 13 (94)
Cash and cash equivalents, beginning of period 6 100
---------- ----------
Cash and cash equivalents, end of period $ 19 $ 6
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 11 $ 1
========== ==========
</TABLE>
See accompanying notes to the financial statements.
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MULTI-USER SOLUTIONS, LTD.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND SALE OF THE COMPANY
Multi-User Solutions, Ltd. (the "Company"), founded in 1991, provides
operating system support, systems integration and on-site hardware maintenance
for turnkey system providers in North America, which represents one business
segment. The Company markets its products and services through a network of
sales personnel. On June 28, 2000, the Company merged with a wholly-owned
subsidiary of Computone Corporation ("Computone") and the shareholders of the
Company received $4.0 million in cash and 800,000 shares of Computone common
stock. The Company's shareholders could receive additional consideration of up
to $750,000 in cash and 150,000 shares of Computone common stock through June
2003 depending upon the satisfaction of specified performance objectives.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped and when services
are performed. At this point, persuasive evidence of a sale arrangement exists,
delivery/performance has occurred, the Company's price to the buyer is fixed and
collectibility of the associated receivable is reasonably assured. Product
returns and allowances have been provided based on estimated returns. The
Company receives non-refundable advance payments for maintenance service
contracts for varying periods of no more than one year. The Company defers these
payments and recognizes revenue on these contracts on a straight-line basis over
the term of the related contract.
INVENTORIES
Inventories are stated at the lower of average cost or market and consist
entirely of raw materials at December 31, 1999 and 1998.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using both
accelerated and straight line methods over the estimated useful lives of the
assets as follows:
Furniture, Equipment and Vehicles 3 years
Machinery and Computer Equipment 7 years
Leasehold Improvements shorter of asset life or
lease term
Expenditures for maintenance and repairs are charged to operations as
incurred, while renewals and betterments are capitalized.
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MULTI-USER SOLUTIONS, LTD.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED.
IMPAIRMENT
The Company reviews long-lived assets for impairment when events or changes
in circumstances indicate that the carrying amount of these assets may not be
recoverable. Any impairment losses are reported in the period in which the
recognition criteria are first applied based on the fair value of the assets.
Assets held for sale are carrie at the lower of carrying amount or fair value,
less estimated costs to sell such assets. The Company discontinues depreciating
assets held for sale at the time the decision to sell the assets is made.
INCOME TAXES
The Company has elected to be treated as an S-Corporation under the
Internal Revenue Code. Accordingly, income for federal and state income tax
purposes is passed on to the Company's sole shareholder. No provision for
federal or state income taxes has been recorded in the accompanying financial
statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could be different from those estimates.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. The Company charged a
total of $44,000 and $38,000 to advertising expense in 1999 and 1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. ("SFAS") 133, "Accounting For Derivative
Instruments And Hedging Activities". This statement (as amended by SFAS 137 and
138) is effective January 2001. This statement establishes accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet measured at fair value. The Company will adopt SFAS 133 on January
1, 2001. Management has not determined how SFAS 133 will impact the Company's
results of operations or financial position.
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MULTI-USER SOLUTIONS, LTD.
NOTES TO THE FINANCIAL STATEMENTS
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999 and
1998 (in thousands):
1999 1998
---------- ----------
Furniture and equipment $ 175 $ 143
Machinery and computer equipment 82 53
Vehicles 38 38
Leasehold improvements 11 --
---------- ----------
306 234
Less accumulated depreciation 192 140
---------- ----------
$ 114 $ 94
========== ==========
3. LINE OF CREDIT AND NOTES PAYABLE
On December 9, 1998, the Company entered into a $100,000 line of credit
agreement with a bank (the "Line") which is payable on demand. Outstanding
borrowings under the Line bear interest, payable monthly commencing December 9,
1999, at the prime rate plus 2% (10.5% at December 31, 1999), but in no event
will the interest rate be less than 9.75% or greater than 12.00%. Outstanding
borrowings under the Line were $96,000 and $0 at December 31, 1999 and 1998,
respectively. The Line is collateralized by substantially all the assets of the
Company, a life insurance policy and the personal residence of the Company's
sole shareholder and is guaranteed by the Company's sole shareholder. The Line
matures in December 2001.
At December 31, 1998, the Company had a $24,000 9% note payable to a bank
collateralized by one of the Company's vehicles, and a $15,000 non-interest
bearing note payable to the Company's sole shareholder. These notes are included
in other current liabilities at December 31, 1998 and were repaid in 1999.
4. COMMITMENTS AND CONTINGENCIES
The Company leases its corporate office and warehouse facility under a
noncancelable operating lease expiring in 2002. Future minimum lease payments
under this lease as of December 31, 1999 are as follows (in thousands):
2000 $ 95
2001 96
2002 40
--------
$ 231
========
Rent expense was $83,000 and $68,000 for 1999 and 1998, respectively.
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MULTI-USER SOLUTIONS, LTD.
NOTES TO THE FINANCIAL STATEMENTS
5. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to credit risk are
primarily trade accounts receivable. During 1999, three customers accounted for
24.4%, 19.5% and 10.7% of the Company's revenues. At December 31, 1999, accounts
receivable from such customers were $458,000, $224,000 and $51,000,
respectively. During 1998, three customers accounted for 19.8%, 19.8% and 17.1%
of the Company's revenues. At December 31, 1998, accounts receivable from such
customers were $275,000, $1,000 and $247,000, respectively. Substantially all of
the accounts receivable were collected from such customers subsequent to each
respective year-end. Management believes the risk associated with trade accounts
receivable is adequately provided for in the allowance for doubtful accounts.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable and accrued liabilities approximate fair
value due to the short maturities of these instruments. The carrying amount of
notes payable approximates fair value based on interest rates that are believed
to be available to the Company for debt with similar provisions provided for in
the existing debt agreements.
7. DIVIDENDS
The Company paid $304,000 and $274,000 in dividends to its sole shareholder
in 1999 and 1998, respectively.
8. 401(K) PLAN
The Company maintains a 401(k) plan (the "Plan") whereby eligible employees
may contribute up to 15% of their earnings, not to exceed amounts allowed under
the Internal Revenue Code. Employees are eligible to participate in the Plan
after one year of service and their contributions are fully vested. The Company
matches 50% of employee contributions up to 6% of the employee's salary. The
Company may also make additional contributions at its discretion based on the
Company's profitability. During 1999 and 1998, the Company contributed $54,000
and $46,000, respectively, to the Plan.
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(b) Pro forma financial information:
Pursuant to Item 7(b)(2) of Form 8-K, the pro forma financial
information of the Company required by Article 11 of Regulation S-X
with respect to the acquisition of Multi-User are included herein.
o Unaudited Pro Forma Combined Statement of Operations for the
Three Months Ended June 30, 2000
o Unaudited Pro Forma Combined Statement of Operations for the Year
Ended March 31, 2000
o Notes to Unaudited Pro Forma Combined Statement of Operations
The following unaudited pro forma combined statements of operations for the
Company for the three months ended June 30, 2000 and the year ended March 31,
2000, give effect to the June 28, 2000 acquisition of Multi-User as if such
acquisition had occurred on April 3, 1999. The unaudited pro forma combined
statement of operations for the year ended March 31, 2000 combines Multi-User's
statement of operations for the year ended December 31, 1999 as Multi-User's
year ended on December 31, 1999. The pro forma combined statements of operations
of the Company and Multi-User are derived from, and should be read in
conjunction with, the audited financial statements of Multi-User filed herewith,
the audited financial statements of the Company as previously filed on Form
10-KSB and the unaudited interim financial statements of the Company as
previously filed on Form 10-QSB with the Commission. The pro forma combined
statements of operations do not purport to be indicative of the results of
operations which would have actually been reported had the acquisition been
consummated on the date indicated, or which may be reported in the future.
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Computone Corporation and Multi-User Solutions, Ltd.
Unaudited Pro Forma Combined Statement of Operations
For the Three Months Ended June 30, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Computone Multi-User Pro Forma Pro Forma
Corporation Solutions, Ltd. Adjustments (a) Combined
---------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 1,178 $ 1,705 $ $ 2,883
---------- ---------- ---------- ----------
Expenses:
Cost of products sold 889 1,071 1,960
Selling, general and administrative 785 646 (114)(b) 1,317
Product development 357 -- 357
Amortization of goodwill -- -- 216(c) 216
---------- ---------- ---------- ----------
2,031 1,717 102 3,850
---------- ---------- ---------- ----------
Operating loss (853) (12) (102) (967)
Other income (expense):
Other income (expense) (2) 21 19
Interest expense - affiliates (19) -- (19)
Interest expense - other (54) -- (274)(d) (328)
---------- ---------- ---------- ----------
Income (loss) before income taxes (928) 9 (376) (1,295)
Provision for income taxes -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) $ (928) $ 9 $ (376) $ (1,295)
========== ========== ========== ==========
Loss per common share - basic and
diluted $ (0.09) $ (0.11)
========== ==========
Weighted average shares outstanding -
basic and diluted 10,024 12,028
========== ==========
</TABLE>
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Computone Corporation and Multi-User Solutions, Ltd.
Unaudited Pro Forma Combined Statement of Operations
For the Year Ended March 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Computone Multi-User Pro Forma Pro Forma
Corporation Solutions, Ltd.(e) Adjustments(a) Combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 11,198 $ 9,382 $ $ 20,580
---------- ---------- ---------- ----------
Expenses:
Cost of products sold 7,070 7,117 14,187
Selling, general and administrative 3,434 2,069 (444)(b) 5,059
Product development 1,749 -- 1,749
Amortization of goodwill -- -- 863(c) 863
---------- ---------- ---------- ----------
12,253 9,186 419 21,858
---------- ---------- ---------- ----------
Operating income (loss) (1,055) 196 (419) (1,278)
Other income (expense):
Other income (expense) (11) 9 (2)
Interest expense - affiliates (76) -- (76)
Interest expense - other (109) (11) (1,131)(d) (1,251)
---------- ---------- ---------- ----------
Income (loss) before income taxes (1,251) 194 (1,550) (2,607)
Provision for income taxes -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) $ (1,251) $ 194 $ (1,550) $ (2,607)
========== ========== ========== ==========
Loss per common share - basic and
diluted $ (0.14) $ (0.24)
========== ==========
Weighted average shares outstanding -
basic and diluted 8,787 10,837
========== ==========
</TABLE>
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Computone Corporation and Multi-User Solutions, Ltd.
Notes to Unaudited Pro Forma Combined Statement of Operations
(a) On June 28, 2000, the Company acquired 100% of the stock common of
Multi-User Solutions, Ltd. ("Multi-User"), a Georgia-based company
providing operating system support, systems integration and on-site
hardware maintenance for turnkey system providers, for $7,945,000,
including $145,000 in expenses, consisting of $4,145,000 in cash and
800,000 shares of the Company's $.01 par value common stock valued at
$3,800,000. The acquisition was financed through the issuance of 1,249,671
shares of the Company's $.01 par value common stock for proceeds of
$3,737,000 net of $325,000 in issuance costs, and the issuance of a
$2,500,000 11% note payable due on December 28, 2001 with a detachable
warrant to purchase 392,577 shares of the Company's $.01 par value common
stock exercisable at $3.25 per share. The warrant expires in June 2003. In
accordance with Accounting Principles Board No. ("APB") 14, Accounting for
Convertible Debt and Debt Issued With Stock Purchase Warrants, the Company
has recorded the fair value of the warrant of $1,328,000 as a credit to
additional paid-in capital and the fair value of the note payable of
$1,172,000 in the Company's financial statements. The resulting $1,328,000
note payable discount is being amortized over the life of the note payable
using the interest method. The acquisition has been accounted for using the
purchase method of accounting. Goodwill arising from the acquisition of
$8,625,000 is being amortized using the straight-line method over 10 years.
(b) Reflects the reduction in compensation expenses associated with new
compensation contracts entered into in conjunction with the acquisition.
(c) To record the amortization expense related to goodwill acquired in
connection with the acquisition of Multi-User.
(d) To record interest expense on the note payable including the amortization
of the note payable discount.
(e) Reflects the historical operating results of Multi-User for the year ended
December 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPUTONE CORPORATION
By:__________________________________
Perry J. Pickerign,
President and Chief Executive Officer
Date: September 11, 2000
