SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 1O-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission File Number 0-17977
BOUNDLESS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other Jurisdiction of Incorporation or Organization)
13-3469637
(I.R.S. Employer Identification No.)
100 Marcus Blvd.
Hauppauge, NY
(Address of principal executive offices)
11788
(Zip Code)
(516) 342-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
As of October 29, 1997, the Registrant had 51,364,796 shares of Common Stock,
$.01 par value per share outstanding.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September
30, 1997 (unaudited) and December 31, 1996.............. 3
Consolidated Statements of Operations
(unaudited)for the three and nine months ended
September 30, 1997 and 1996............................. 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1997
and 1996................................................ 5
Notes to Consolidated Financial Statements
(unaudited)............................................. 6
2
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
September 30, December 31,
1997 1996
---------------- ---------------
Current assets: (unaudited)
Cash and cash equivalents................. $ 1,889 $ 5,213
Trade accounts receivable, net............ 14,479 22,046
Inventories............................... 13,258 18,525
Deferred income taxes..................... - -
Prepaid expenses and other current assets. 859 256
---------------- ----------------
Total current assets................... 30,485 46,040
Property and equipment, net.................. 10,812 11,474
Goodwill, net................................ 8,697 9,505
Other assets................................. 1,948 2,506
---------------- -----------------
$ 51,942 $ 69,525
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................ $ 7,950 $ 13,950
Current portion of long-term debt........ 5,432 8,009
Accounts payable......................... 8,297 10,892
Accrued expenses......................... 5,822 6,345
Deferred revenue......................... 296 180
Net liabilities of discontinued operation 145 3,492
--------- ----------------
Total current liabilities............. 27,942 42,868
Long-term liabilities:
Long-term debt, less current maturities.. 8,000 13,382
Deferred income taxes.................... - -
Other ................................... 746 918
--------- ----------------
Total long-term liabilities........... 8,746 14,300
--------- ----------------
Total liabilities..................... 36,688 57,168
Commitments and contingencies
Mandatorily redeemable preferred stock of subsidiary 3,555 3,555
Stockholders' equity:
Preferred stock.......................... - -
Common stock............................. 508 486
Additional paid-in capital............... 33,006 31,440
Accumulated deficit...................... (21,815) (23,124)
--------- ----------------
Total stockholders' equity............ 11,699 8,802
--------- ----------------
$ 51,942 $ 69,525
========= ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue..................................... $ 71,373 $ 99,656 $ 24,262 $ 29,066
Cost of revenue............................. 54,297 77,778 18,009 21,858
-------------- -------------- -------------- --------------
Gross margin................................ 17,076 21,878 6,253 7,208
Operating expenses:
Sales and marketing...................... 5,575 8,430 2,009 3,432
General and administrative............... 4,631 5,339 1,499 1,788
Research and development................. 2,004 3,326 610 1,013
-------------- -------------- -------------- --------------
Total operating expenses.............. 12,210 17,095 4,118 6,233
-------------- -------------- -------------- --------------
Operating income................. 4,866 4,783 2,135 975
Other (income) expense:
Interest expense, net.................... 2,675 3,154 978 1,016
Other.................................... 71 (12) 180 (69)
-------------- -------------- -------------- --------------
Total other expense................... 2,746 3,142 1,158 947
-------------- -------------- -------------- --------------
Income before income taxes
and discontinued operations........... 2,120 1,641 977 28
Income tax expense.......................... 439 643 313 13
-------------- -------------- -------------- --------------
Income before discontinued operations....... 1,681 998 664 15
Loss from discontinued operations........... - (2,541) - (1,055)
-------------- -------------- -------------- --------------
Net income (loss)........................... 1,681 (1,543) 664 (1,040)
Dividend on preferred stock of subsidiary... 373 373 124 124
-------------- -------------- -------------- --------------
Earnings available for common shareholders.. $ 1,308 $ (1,916) $ 540 $ (1,164)
============== ============== ============== ==============
Weighted average common shares outstanding.. 48,931 46,703 49,797 47,598
============== ============== ============== ==============
Earnings per common share:
Continuing operations.................... $ 0.03 $.0.01 $ 0.01 $ 0.00
Discontinued operations.................. $ 0.00 $ (0.05) $ 0.00 $ (0.02)
-------------- -------------- -------------- --------------
Earnings per common share................... $ 0.03 $ (0.04) $ 0.01 $ (0.02)
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollar amounts in thousands)
For the Nine Months Ended September 30,
1997 1996
--------------- --------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 1,681 $ 998
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss from discontinued operations......................... - (2,541)
Depreciation and amortization............................. 2,629 2,277
Deferred revenues......................................... 116 (739)
Provision for doubtful accounts........................... 148 32
Provision for excess and obsolete inventory............... 486 1,028
Estimated value of compensatory warrants.................. - 161
Changes in assets and liabilities:
Trade accounts receivable................................. 7,420 2,318
Inventories............................................... 4,781 (2,337)
Other assets.............................................. (977) 491
Accounts payable and accrued expenses..................... (7,001) (4,697)
--------------- --------------
Net cash provided by (used in) operating activities............. 9,283 (3,009)
--------------- --------------
Cash flows from investing activities:
Capital expenditures......................................... (164) (1,286)
--------------- --------------
Net cash used in investing activities........................... (164) (1,286)
--------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock....................... 2 4,469
Decrease in short-term debt, net............................. - (30)
Proceeds from debt issuance.................................. 1,514 1,626
Purchase of treasury stock................................... - (1,305)
Net change in revolving loan payable......................... (6,000) 5,200
Payment on term loan......................................... (7,950) (5,285)
Payments on capital leases................................... (9) (9)
--------------- --------------
Net cash provided by (used in) financing activities............. (12,443) 4,666
--------------- --------------
Net increase (decrease) in cash and cash equivalents............ (3,324) 371
Cash and cash equivalents at beginning of period................ 5,213 369
--------------- --------------
Cash and cash equivalents at end of period...................... $ 1,889 $ 740
=============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in thousands)
(Unaudited)
1. Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
occurring accruals) considered necessary for a fair presentation have been
included. Certain prior period amounts in these financial statements have been
reclassified to conform to current period presentation. Operating results for
the three-month period ended September 30, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997. For
further information refer to the consolidated financial statements and footnotes
thereto in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
2. Background
Boundless Corporation (the Company) is engaged, through its subsidiary,
Boundless Technologies, Inc. (Boundless), in designing and manufacturing
computer terminals and thin client devices for business use. The Company's
general strategy is to provide access to corporate computing environments,
including mainframes, LANs, WANs, intranets and the Internet. Boundless
principally designs, assembles, sells and supports (i) General Display
Terminals, (ii) Thin Clients and (iii) other terminal products that are used in
multi-user, personal computer and mini-computer-based environments. The Company
receives a royalty from a partnership (the GAI Partnership) formed by Boundless
and General Automation, Inc. (GAI) and managed by GAI. The GAI Partnership
designs, integrates, sells and supports multi-user computer systems that can
manage large volumes of data running Boundless' and GAI's versions of a
data-based system licensed from Pick Systems.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in first-out basis. The major components of inventories are as follows:
September 30, December 31,
1997 1996
------------- -----------
Raw materials and purchased components $ 9,550 $ 12,845
Finished goods 3,213 4,942
Demonstration equipment 150 396
Service parts 345 342
------------ ----------
$ 13,258 $ 18,525
6
<PAGE>
4. Equity
At September 30, 1997 and December 31, 1996, stockholders' equity consisted of
the following:
September 30, December 31,
1997 1996
------------- ------------
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued $ - $ -
Common stock, $0.01 par value, 100,000,000 shares
authorized, 50,754,850 and 48,572,000 shares
issued at September 30, 1997 and December
31, 1996, respectively 508 486
Additional paid-in capital 33,006 31,440
Accumulated deficit (21,815) (23,124)
--------- ---------
Total stockholders' equity $ 11,699 $ 8,802
========= =========
5. Financings
Regulation S Offerings
The company completed two offerings of securities under Regulation S of the
Securities Act of 1933 (a "Regulation S Offering") subsequent to December 31,
1996 described below:
In February 1997, the Company received gross proceeds of $1,000 by selling
convertible notes, bearing interest at 8%, convertible until December 31,
1998 into common stock. As of September 30, 1997, $1,000 had been converted
into 1,273,603 common shares.
In March 1997, the Company received gross proceeds of $400 by selling
convertible notes, bearing interest at 8%, convertible until December 31,
1998 into common stock. As of September 30, 1997, $400 had been converted
into 588,490 common shares. In connection with this offering, the Company
issued warrants to a financial advisor to purchase 50,454 shares of common
stock at an exercise price of $1.375 per share, exercisable through
February 28, 2000. These options were valued at approximately $19.
7
<PAGE>
6. Employee Stock Options Granted and Warrants Granted
Options to purchase 2,732,500 shares of common stock of the Company (of which
1,252,500 replaced existing options) were granted under the Company's stock
option plans with an exercise price of $0.66. The options vest either
immediately, or over the two year period following the date of grant, and are
exercisable through the year 2002.
During the third quarter the Board of Directors approved the increase in the
number of shares available to be granted under the Company's 1995 Incentive Plan
from 6 million to 10 million shares of common stock.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
The numbers and percentages contained in this Item 2 are approximate. Dollar
amounts are stated in thousands.
For the Three and Nine Month Period Ending September 30, 1997
Revenue - Revenue for the quarter ended September 30, 1997 was $24,262, as
compared to $29,066 for the quarter ended September 30, 1996. Year-to-date
revenue was $71,373 for 1997 versus $99,656 in 1996.
Sales of the Company's General Display Terminals declined from $23,138 for the
quarter ended September 30, 1996 to $19,721 for the quarter ended September 30,
1997; and for the nine month period revenue declined to $59,281 from $80,624.
The decline for the latest quarter is principally attributable to declines of
$1,738 and $2,513 in sales to VT and Dorio distributors and Digital Equipment
Corporation (Digital), respectively, offset by increased sales of $2,440 to IBM.
Under the terms of the Digital Acquisition agreement Digital was required to
purchase 80,000 units in the first year. As a result, the Company believes that
the significant purchases by Digital during the fourth quarter of 1996 to meet
this volume commitment leaves Digital with inventory levels sufficient to meet
its terminal needs for the remainder of 1997. Therefore, 1997 sales of the
Company's text terminals are not expected to reach the levels achieved in 1996.
The VT and Dorio terminals are based on a proprietary architecture and, as a
result, its users requiring flexibility are prone to more quickly move to
alternative platforms. Finally, demand for the General Display Terminals
continues to decline as competing technologies, including Thin Client devices,
are gaining market share. For these reasons, sales of General Display Terminals
for 1997 are not expected to reach the levels achieved in 1996.
8
<PAGE>
Based on independent research results, the Company's share of the 1996 text
terminal market worldwide, in the U.S., and in Europe regions increased to 36%,
34% and 43%, respectively. As a result, the Company has the second largest
market share worldwide and in the U.S., and the largest market share in Europe.
However, this research projects continued decline in the text terminal market.
Sales of X Windows-based Network Graphics Displays declined $509 to $948 for the
quarter ended September 30, 1997, from $1,457 for the quarter ended September
30, 1996. This decline was anticipated and relates to specific projects
undertaken by NCR during 1995, and completed during 1996. Year-to-date 1997
revenue declined 47% to $3,650 from $6,920 for the comparable period in 1996.
The Company believes that sales of Network Graphics Displays will continue to
decline as demand is satisfied by the more capable Thin Client devices.
On May 12, 1997, the Company launched a new line of advanced Thin Client devices
along with network administration software marketed under the trade names
Viewpoint(R) TC and Viewpoint(R) Administrator(TM), respectively. The company is
targeting the approximately 35 million users of Text Terminals and X terminals
many of whom are currently transitioning or intending to transition to graphical
applications that include Windows, the Intranet and Java. In addition, the
Company is targeting the task-oriented users of older, less capable PCs that are
unable to run the latest Windows applications, including those users in business
and education.
The Company believes its unique ability to customize its Viewpoint(R) TC
products to meet specific end-customer needs will give it a sustainable
competitive advantage. Historically, this ability has been of great value to the
Company's terminal customers and the Company believes that this strategy will be
equally advantageous in the corporate Network Computer marketplace.
During the third quarter NCR Corporation selected Boundless as an OEM to support
NCR's entrance into thin client computing. In addition, Boundless continued to
witness significant customer support for its Windows Based Terminals with new
customer wins in a number of important markets including education and retail.
The Company is working with Microsoft to promote Windows Based Terminals- a
concept now embraced by Microsoft.
9
<PAGE>
Revenues from the Company's Thin Clients amounted to $1,332 for the quarter
ended September 30, 1997; and are $1,889 year-to-date. Despite the substantial
increase in sales during the third quarter, the revenue levels are below the
Company's expectations due to slower than anticipated market acceptance of this
new technology. However, the Company believes that Microsoft's recent support of
the thin-client computing concept for accessing Windows applications, as
employed by the Company in its Viewpoint(R) TC, and the recent abandonment of
the "Net PC" as a competing technology by some large computer manufacturers will
greatly increase market acceptance for its products.
Net revenue from the Company's repairs and spare parts business decreased 52%,
or $1,067, from $2,047 for the quarter ended September 30, 1996 to $980 for the
quarter ended September 30, 1997. The decline was due to reduced spares sales to
NCR and Digital, resulting from a change in NCR's field support strategy and
inventory purchasing habits and the overall decline in unit sales to Digital.
For the nine months ended September 30, 1997, repairs and spare parts sales were
$2,916 versus $6,226 in 1996. Due to new designs and engineering changes
resulting in fewer components and increased reliability, the Company does not
anticipate that repair and spare parts revenue will meet prior period levels.
GAI Partnership royalties for the quarter ending September 30, 1997, were $456
versus $572 in 1996. The GAI Partnership agreement provides for the payment of
royalties to the Company as a percentage of partnership revenues, commencing May
1995, as follows: months 1-12, 12%; months 13-24, 10%; months 25-36, 9%; months
37-48, 8%; and months 49-60, 7%. Year-to-date royalties were $1,419 for 1997
versus $2,302 in 1996. Royalties have declined versus prior periods due to the
decline in the royalty rate.
As of September 30, 1997, the Company was owed $825 under the GAI Partnership
agreement; of which $600 was past due. The Company is currently negotiating the
paydown of this amount; and believes a settlement can be reached.
IBM was the most significant customer for the Company's products, accounting for
14% of revenue for the quarter ended September 30, 1997. Although both Digital
and NCR are expected to remain significant customers for the Company's products,
neither is expected to account for revenues of the Company comparable to 1996.
The loss of IBM, NCR or Digital as a customer, and as a distribution channel for
the Company's products, would have a material adverse effect on the Company's
results of operations and liquidity.
Gross Margin - Gross margin for the three and nine months ended September 30,
1997 were $6,253 (26% of revenue) and $17,076 (24% of revenue) respectively, as
compared to gross margin of $7,208 (25% of revenue) and $21,878 (22% of revenue)
for 1996. The decline in gross margin is wholly attributable to the decline in
revenue. The increase in gross margin as a percent of revenue stems primarily
from cost reductions and reduced warranty expense for the VT and Dorio products;
offsetting declines in spare parts margin resulting from the sale of spares to
Digital under a parts purchase agreement contained within the Digital
Acquisition.
In a continuing effort to maintain and improve margins in an industry otherwise
characterized by commodity pricing, management has focused on quality,
flexibility, and product cost reductions. In addition, sales of the Company's
Thin Clients, which carry margins greater than its General Display Terminals,
are expected to positively impact the Company's gross margin. However, there can
be no assurance, given the recent introduction of this new technology, that the
Company's Thin Clients will improve gross margin.
10
<PAGE>
From time-to-time margins are adversely affected by industry shortages of key
components. The Company emphasizes product cost reductions in its research and
development activities and frequently reviews its supplier relationships with
the view to obtaining the best component prices available.
Total Operating Expenses - For the quarter ended September 30, 1997, operating
expenses were $4,118 (17% of revenue), compared to expenses for 1996 of $6,233
(21% of revenue). For the nine months ended September 30, 1997, operating
expenses were $12,210 (17% of revenue), compared to expenses for 1996 of $17,095
(17% of revenue). As a result of a reorganization of the Company, including a
reduction-in-force affecting 130 employees at Boundless and the discontinuation
of operations at OTW (previously named TradeWave, a former subsidiary of the
Company), management expects that operating expenses will decline in 1997.
Sales and Marketing Expenses - Sales and marketing expenses decreased 41% from
$3,432 (12% of revenue) for the quarter ended September 30, 1996 to $2,009 (8%
of revenue) for the quarter ended September 30, 1997. Expenses for the
nine-month period were $5,575 in 1997 versus $8,430 in 1996. The decline stems
from reductions in corporate advertising, marketing consulting, bad debt expense
and expenses related to the integration of the VT and Dorio product line into
Boundless.
The Company promotes its products by means of a balanced mix of media
advertising, direct mail, telemarketing, trade shows, public relations and
cooperative channel marketing programs. The Company's installed base of over
five million units is the primary target market for its new line of Viewpoint(R)
TC Thin Clients. The Company plan to reach this market is based on direct mail,
telemarketing and advertising and an aggressive public relations campaign,
including several domestic and international press tours. The Company will also
participate in key trade shows during the fourth quarter.
General and Administrative Expenses - General and administrative expenses
decreased from $1,788 (6% of revenue), to $1,499 (6% of revenue) for the three
months ended September 30, 1996 and 1997, respectively. Year-to-date expenses
for 1997 were $4,631 as compared to 1996 expenses of $5,339. The decline is a
result of the reduction-in-force, previously discussed, as well as reductions in
depreciation and legal expenses.
Research and Development Expenses - Research and development expenses for the
third quarter decreased 40% from $1,013 in 1996 to $610 in 1997. Research and
development expenses for the nine months ended September 30, 1997 were $2,004
compared to $3,326 for 1996. The decline stems from the reduction-in-force,
including the shutdown of the Company's Orlando, Florida, facility, as well as
expenses incurred during 1996 to integrate the VT and Dorio product into
Boundless.
11
<PAGE>
Other Charges - Other expenses for the quarter ended September 30, 1997 were
$1,158 compared to $947 for the comparable period in 1996. Other charges for the
nine months ended September 30, 1997 were $2,746 versus $3,142 in 1996. Interest
expense (net of interest income) amounted to $978 for the quarter ended
September 30, 1997 compared to $1,016 for 1996. Despite higher interest rates,
interest expense declined due to the reduction in outstanding debt.
In the third quarter the Company paid $77 to Morgan Kent Group, Inc., a majority
shareholder, in consideration for the pledge of its holdings of the Company's
common stock as collateral against the Company's outstanding debt under the
Company's existing bank relationship. In addition, the Company has agreed to pay
Morgan Kent Group, Inc. a monthly financial consulting fee for services which
the Company believes are critical to its success. Consulting fees for the
quarter amounted to $80.
Income Tax Expense - There is no provision for federal income tax expense for
the quarter ended September 30, 1997 due to net operating loss carryforwards
available resulting from the discontinuation of operations at OTW. State income
tax expense for the quarter and year-to-date periods ending September 30, 1997
were $313 and $439, respectively.
Loss From Discontinued Operations - The Company recorded a loss relating to the
discontinuation of OTW of $1,055 and $2,541 for the three and nine months ended
September 30, 1996, respectively. Since commencing business in 1995 OTW incurred
net losses; and consumed significant amounts of cash. The discontinuation of OTW
was a material component of the Company's restructuring program and is intended
to allow the Company to focus on its core businesses conducted by Boundless.
Net Income - For the quarter ended September 30, 1997, net income was $540 (2%
of revenue), compared to net loss of $1,164 for the quarter ended September 30,
1996. 1997 year-to-date net income was $1,308 (2% of revenue) as compared to a
net loss of $1,916 in 1996. Despite an anticipated decline in revenues in 1997,
the Company believes that it will be profitable in 1997 as a result of its
restructuring programs and introduction of its Network Computers.
Impact of Inflation - The Company has not been adversely affected by inflation
because technological advances and competition within the microcomputer industry
have generally caused prices of products sold by the Company to decline. The
Company has flexibility in its pricing and could, if necessary, pass along price
changes to most of its customers.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The discussion below regarding liquidity and capital resources should be read
together with the information included in the Notes to Consolidated Financial
Statements.
As of September 30, 1997, the Company had working capital of $2,543.
Historically, the Company has relied on cashflow from operations, bank
borrowings and sales of its common stock to finance its working capital, capital
expenditures and acquisitions. As a result of positive cash flows, the Company
has not borrowed under its revolving credit facility since the fourth quarter of
1996.
The Company remains highly leveraged, although substantial improvement has been
made since December 31, 1996. As of September 30, 1997, the Company had tangible
net worth of $1,054 and total liabilities of $40,243. The Company's cash
requirements at September 30, 1997 included repayment of the remaining balance
of $5,432, plus interest, of the term loan in five quarterly installments;
repayment of a revolving loan of $7,950, plus interest, due September 1998;
payment of an $8,000 note, plus interest, payable to NCR on January 31, 1999;
payment of $3,555 to NCR if it exercises a put option at any time in 1999; and
annual payments to NCR of $498 in cash or the Company's Common Stock.
Borrowing under the revolving loan is based on a borrowing base formula of up to
80% of eligible receivables, plus 50% of delineated eligible inventory, plus 30%
of non-delineated eligible inventory. Up to $7,500 is available under the
revolving loan for letters of credit. As a result of the borrowing-base formula,
the credit available to the Company could be adversely restricted in the event
the Company's sales decline.
With the exception that the Company will be required to refinance the NCR Note,
which is secured by a mortgage on the Company's Hauppauge facility, by its
January 31, 1999 due date, the Company believes that cash generated from
operations and available under the Chase Credit Line will be sufficient to pay
its other obligations as they become due. In the event there is a decline in the
Company's sales and earnings and/or a decrease in availability under the Chase
Credit Line, the Company's cash flow would be adversely affected. Accordingly,
the Company may not have the necessary cash to fund all of its obligations.
Net cash provided by operating activities for the nine months ended September
30, 1997 was $9,283; due principally to reductions in receivables of $7,420 and
inventory of $4,781. These reductions were partially offset by a decrease in
payables and accrued expenses of $7,001. Net cash used in investing activities
was comprised of capital expenditures of $164. Net cash used in financing
activities was $12,443, including payments of $7,950 and $6,000 made to reduce
the balance of the Company's term and revolving loans, respectively; offset by
proceeds of $1,514 from the issuance of convertible debt.
13
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FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate," "believe," "estimate," and "expect," and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
Company's current views with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the specific risk factors
described in the Company's Form 10-K for the year ended December 31, 1996.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated or expected. The Company does not intend
to update these forward-looking statements and information.
New Accounting Standards
In March 1997, the FASB issued Statement 128, "Earnings Per Share" ("Statement
128"), which requires a calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share include no dilution. The Company does not expect
Statement 128 to have a significant impact on its calculation of earnings per
share.
PART II - OTHER INFORMATION
Item 5. Other Information
Effective October 31, 1997, Mr. Wayne Schroeder resigned as Vice President -
Finance and Chief Financial Officer.
Joseph Gardner was appointed Vice President-Finance and Chief Financial Officer
effective October 31, 1997. Mr. Gardner has been employed by Boundless
Technologies, Inc. since April of 1990 and had served as the Controller and Vice
President-Quality Assurance. Prior to 1990, Mr. Gardner was employed by NCR
Corporation where he held positions in the financial planning and treasurers
departments.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11: Statement Concerning Computation of Per Share Earnings is hereby
incorporated by reference to "Condensed Consolidated Statements of Operations"
of Part I- Financial Information, Item 1- Financial Statements, contained in
this Form 10-Q.
Exhibit 27: Financial Data Schedule for the nine months ended September 30,
1997.
(b) Reports on Form 8-K - None
14
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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 thereunto duly authorized.
Dated: November 12, 1997
Boundless Corporation
By:/s/Joseph Gardner
----------------------------------------
Joseph Gardner
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-TYPE> 9-MOS
<PERIOD-END> SEP-30-1997
<CASH> 1,889
<SECURITIES> 0
<RECEIVABLES> 14,969
<ALLOWANCES> 490
<INVENTORY> 13,258
<CURRENT-ASSETS> 30,485
<PP&E> 14,965
<DEPRECIATION> 4,153
<TOTAL-ASSETS> 51,942
<CURRENT-LIABILITIES> 27,942
<BONDS> 8,000
3,555
0
<COMMON> 508
<OTHER-SE> 11,191
<TOTAL-LIABILITY-AND-EQUITY> 51,942
<SALES> 71,373
<TOTAL-REVENUES> 71,373
<CGS> 54,297
<TOTAL-COSTS> 54,297
<OTHER-EXPENSES> 14,956
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 2,675
<INCOME-PRETAX> 2,120
<INCOME-TAX> 439
<INCOME-CONTINUING> 1,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,681
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
