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 June 30,1998
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 July 10, 1998, the Registrant had approximately 4,539,056 shares of Common
Stock, $.01 par value per share outstanding.
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997.................................................... 3
Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 1998 and 1997............ 4
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1998 and 1997...................... 5
Notes to Consolidated Financial Statements (unaudited).................. 6
2
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BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------- ------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 617 $ 2,929
Trade accounts receivable, net............................... 13,999 14,395
Income tax refund............................................ 800 800
Inventories.................................................. 14,602 13,682
Deferred income taxes........................................ 1,561 1,561
Prepaid expenses and other current assets.................... 470 711
-------------------- ------------------
Total current assets...................................... 32,049 34,078
Property and equipment, net..................................... 10,512 10,614
Goodwill, net................................................... 7,889 8,428
Other assets.................................................... 918 1,428
-------------------- ------------------
$51,368 $54,548
==================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................ $10,000 $ 7,650
Current portion of long-term debt............................ 8,000 3,250
Accounts payable............................................. 7,855 8,840
Accrued expenses............................................. 5,486 5,378
Deferred revenue............................................. 247 180
------------------- -----------------
Total current liabilities................................. 31,588 25,298
Long-term liabilities:
Long-term debt, less current maturities...................... - 8,000
Deferred income taxes........................................ 1,561 1,561
Other ....................................................... 755 727
------------------ -----------------
Total long-term liabilities............................... 2,316 10,288
------------------ -----------------
Total liabilities......................................... 33,904 35,586
Mandatorily redeemable preferred
stock of subsidiary..................................... 3,555 3,555
Preferred stock............................................. - -
Common stock................................................ 45 51
Additional paid-in capital.................................. 31,100 34,094
Accumulated deficit......................................... (17,236) (18,738)
------------------- -----------------
Total stockholders' equity............................... 13,909 15,407
------------------- -----------------
$ 51,368 $54,548
=================== =================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue...................................... $ 44,794 $ 47,111 $ 21,930 $ 23,186
Cost of revenue.............................. 32,430 36,288 15,827 17,821
-------------- -------------- -------------- ---------------
Gross margin...................... 12,364 10,823 6,103 5,365
Operating expenses:
Sales and marketing....................... 4,285 3,566 2,251 1,783
General and administrative................ 3,023 3,132 1,610 1,504
Research and development.................. 1,638 1,393 770 668
Other charges............................ (462) (109) (532) (104)
-------------- -------------- -------------- ---------------
Total operating expenses............... 8,484 7,982 4,099 3,851
-------------- -------------- -------------- ---------------
Operating income.................. 3,880 2,841 2,004 1,514
Interest expense.......................... 1,347 1,697 676 890
-------------- -------------- -------------- ---------------
Income before income taxes 2,533 1,144 1,328 624
Income tax expense........................... 782 127 323 127
-------------- -------------- -------------- ---------------
Net income................................... 1,751 1,017 1,005 497
Dividend on preferred stock of subsidiary... 249 249 124 125
-------------- -------------- -------------- ---------------
Earnings available for common shareholders.. $ 1,502 $ 768 $ 881 $ 372
============== ============== ============== ===============
Weighted average common shares outstanding 5,024 4,873 4,945 4,890
============== ============== ============== ===============
Basic earnings per common share............. $ 0.30 $ 0.16 $ 0.18 $ 0.08
Weighted average dilutive shares outstanding 5,077 5,009 5,026 5,090
============== ============== ============== ===============
Diluted earnings per common share.......... $ 0.30 $ 0.16 $ 0.18 $ 0.08
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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BOUNDLESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(dollar amounts in thousands)
For the Six Months Ended June 30,
(unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 1,751 $ 1,017
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,624 1,734
Loss from disposal of fixed assets........................ 35 -
Deferred revenues......................................... 66 15
Provision for doubtful accounts........................... 412 118
Provision for excess and obsolete inventory............... 578 618
Changes in assets and liabilities:
Trade accounts receivable................................. (17) 9,499
Inventories............................................... (1,497) 3,171
Other assets.............................................. 159 (1,645)
Accounts payable and accrued expenses..................... (1,098) (8,026)
--------------- --------------
Net cash provided by operating activities....................... 2,013 6,501
--------------- --------------
Cash flows from investing activities:
Capital expenditures......................................... (425) (100)
--------------- --------------
Net cash used in investing activities........................... (425) (100)
--------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock....................... - 2
Proceeds from debt issuance.................................. - 1,513
Purchase of treasury stock................................... (3,000) -
Net change in revolving loan payable......................... - (5,500)
Payments on loans payable.................................... (900) (5,698)
Payments on capital leases................................... - (9)
--------------- --------------
Net cash provided by (used in) financing activities............. (3,900) (9,692)
--------------- --------------
Net increase (decrease) in cash and cash equivalents............ (2,312) (3,291)
Cash and cash equivalents at beginning of period................ 2,929 5,213
--------------- --------------
Cash and cash equivalents at end of period...................... $ 617 $ 1,922
--------------- --------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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BOUNDLESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amount 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 six-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. 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,
1997.
2. Background
Boundless Corporation (the "Company") is engaged, through its subsidiary,
Boundless Technologies, Inc. ("Boundless"), in designing and manufacturing
computer terminals 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) Windows(R)-based
Terminals ("WBTs"), sometimes referred to as "thin clients", and (iii) other
terminal products that are used in multi-user, personal computer and
mini-computer-based environments. The Company is a party to a royalty agreement
with 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:
June 30, December 31,
1998 1997
--------------- ---------------
Raw materials and purchased components... $ 11,704 $ 10,723
Finished goods........................... 2,484 2,477
Demonstration equipment.................. 79 135
Service parts............................ 335 347
--------------- ---------------
$ 14,602 $ 13,682
--------------- ---------------
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4. Equity
At June 30, 1998 and December 31, 1997 stockholders' equity consisted of the
following:
June 30, December 31,
1998 1997
Preferred stock, $0.01 par value, --------------- ---------------
1,000,000 shares authorized,
none issued........................... $ - $ -
Common stock, $0.01 par value,
25,000,000 shares authorized,
4,539,056 and 5,139,228 shares
issued at June 30, 1998 and
December 31, 1997, respectively....... 45 51
Additional paid-in capital.............. 31,100 34,094
Accumulated deficit..................... (17,236) (18,738)
--------------- ---------------
Total stockholders' equity............ $ 13,909 $ 15,407
5. Major Customers =============== ===============
The Company markets its terminal products through original equipment
manufacturers ("OEMs") and reseller distribution channels. Customers can buy
Boundless' products from an international network of value-added resellers
(VARs) and regional distributors. Through its sales force, the Company sells
directly to large VARs and regional distributors and also sells to major
national and international distributors. For the second quarter ended June 30,
1998 and 1997, sales to two major OEMs as a percentage of total revenues were
22% and 26%, respectively.
6
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6. Business Segments
The Company's business is concentrated almost entirely in one product area-
computer terminals- which are sold throughout many diverse markets. It is not
possible, therefore, to divide the Company's business into meaningful industry
segments.
The Company's operations are worldwide and can be grouped into several
geographic segments. The Company's manufacturing is conducted at its New York
facility and its sales force operates from six geographically dispersed
locations in the United States and a European office in the Netherlands. During
1997, the Company expanded its marketing efforts to include South America,
Asia-Pacific, Australia and New Zealand.
Pertinent financial data by major geographic segments for the second quarter
ended June 30, 1998 and 1997 are:
June 30, December 31,
1998 1997
--------------- ---------------
Net sales to unaffiliated customers:
United States............................ $ 14,968 $ 15,829
Europe................................... 5,772 6,643
Other foreign areas...................... 1,190 714
--------------- ---------------
Net sales as reported in the accompanying
income statement $ 21,930 $ 23,186
--------------- ---------------
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 Six Month Period Ending June 30, 1998
- -------------------------------------------------------
Revenue - Revenue for the quarter ended June 30, 1998 was $21,930 as compared to
$23,186 for the quarter ended June 30, 1997. Revenue for the six months ended
June 30 was $44,794 for 1998 versus $47,111 for 1997.
7
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Sales of the Company's General Display Terminals declined 10% to $18,282 for the
quarter ended June 30, 1998 from $20,334 for the quarter ended June 30, 1997.
$3,583 in sales to VT and Dorio distributors, offset by increased sales of
$1,087 to Digital Equipment Corporation ("Digital") and $1,184 to customers of
Boundless' ADDS(R)-branded products. 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. Demand for General Display
Terminals continues to decline as competing technologies, including WBTs, are
gaining market share. For these reasons, sales of General Display Terminals for
1998 are not expected to reach the levels achieved in 1997.
Sales of the Company's WBT hardware and software, marketed under the trade names
Viewpoint(R) TC and Viewpoint(R) Administrator, respectively, amounted to $2,417
and $416 for the quarters ended June 30, 1998 and 1997, respectively. The
Company is targeting the approximately 35 million users of General Display
Terminals and Network Graphics Displays 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 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 thin client marketplace.
Revenues from the Company's WBTs are expected to increase during the third and
fourth quarters of 1998 with the availability of new Viewpoint TC models and
Viewpoint Administrator software and on the basis of the maturing of the market
for thin client devices in the third quarter of 1998, the versatility of the
Company's new Viewpoint TC thin client product line, the significant number of
end-user trials of the new products now in progress and the Company's strong OEM
relationships.
Sales of Network Graphics Displays declined $333 to $213 for the quarter ended
June 30, 1998, from $546 for the quarter ended June 30, 1997. Sales of the
Company's Network Graphics Displays have generally been limited to a few large
telecommunications customers. Due to the small customer base, the low margins
associated with Network Graphics Displays, and the emergence of WBTs, the
Company announced a discontinuation of this product family in the first quarter
of 1998. As a result, during the first quarter the Company recorded an inventory
reserve of $252 against a portion of the remaining Network Graphics Displays
inventory.
Net revenue from the Company's repairs and spare parts business decreased 31%,
or $265, to $590 for the quarter ended June 30, 1998, from $855 for the quarter
ended June 30, 1997. The decline was due to reduced spare parts sales to
Digital, resulting from the overall decline in unit sales to Digital during
1997. For the six months ended June 30, 1998, repairs and spare parts sales were
$1,305 versus $1,911 for the comparable period in 1997. 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.
The GAI Partnership agreement provides for the payment of royalties to the
Company as a percentage of partnership revenues, since 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%. GAI Partnership royalties received for the quarter ending June
30, 1997, were $197. At June 30, 1998 the Company was owed an estimated $1,467
and had not received required payments since June 1997. Discussions regarding
payment of the past due amount are ongoing. During the fourth quarter of 1997,
the Company began to record GAI Partnership revenue only to the extent of cash
received.
IBM was the most significant customer for the Company's products, accounting for
16% of revenue for the quarter ended June 30, 1998. 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 1997
levels which were 6% and 3%, respectively. The loss of IBM, Digital, or NCR 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.
8
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Gross Margin - Gross margin for the three and six months ended June 30, 1998
were $6,103 (28% of revenue) and $12,364 (28% of revenue) respectively, as
compared to gross margins of $5,365 (23% of revenue) and $10,823 (23% of
revenue) for the comparable periods in 1997. The increase in gross margin is
attributable to cost reductions achieved in the Company's General Display
Terminals and WBTs product lines. The increase in gross margin as a percent of
revenue stems primarily from cost reductions and a more favorable revenue mix
between the Company's spare and repair business as compared to the prior year.
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
WBTs, which carry margins greater than its General Display Terminals, are
expected to positively impact the Company's gross margins. However, there can be
no assurance, given the recent introduction of this new technology, that sales
of the Company's WBTs will improve overall gross margins.
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 June 30, 1998, operating
expenses were $4,099 (19% of revenue), compared to expenses for the second
quarter of 1997 of $3,851 (17% of revenue). For the six months ended June 30,
1998, operating expenses were $8,484 (19% of revenue) compared to expenses in
the comparable period in 1997 of $7,982 (17% of revenue).
Sales and Marketing Expenses - Sales and marketing expenses increased 14% to
$2,251 (10% of revenue) for the quarter ended June 30, 1998 from $1,783(8% of
revenue) for the quarter ended June 30, 1997. Expenses for the first six months
were $4,285 in 1998 versus $3,566 in 1997. The increase stems from an additional
reserve for doubtful accounts on an international customer receivable as well as
participation in a number of important tradeshows during the second quarter of
1998 and increases in marketing expenses associated with the Company's WBTs.
The Company promotes its products using media advertising, direct mail,
telemarketing, public relations and cooperative channel marketing programs. The
Company's installed base of over five million units of General Display Terminals
is the primary target market for its new line of Viewpoint TC WBTs. The
Company's 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
several key trade shows during the remainder of 1998.
General and Administrative Expenses - General and administrative expenses
increased to $1,610 (7% of revenue), from $1,504 (6% of revenue) for the three
months ended June 30, 1998 and 1997, respectively. Expenses for the six-month
period were $3,023 in 1998 versus $3,132 in 1997.
Research and Development Expenses - Research and development expenses for the
second quarter increased 20% to $770 in 1998 from $668 in 1997. Expenses for the
six-month period ended June 30, 1998 were $1,638, compared to $1,393 in the
comparable period in 1997. The increase is related to development expenses
associated with the Company's Viewpoint product family. Research and development
expenses are expected to exceed 1997 spending levels due to investment in
software for the Company's WBTs.
Other Charges - During the second quarter of 1998 the Company released Digital
warranty reserves amounting to $325 due to the expiration of the warranty
period. As a result of the decline in unit shipments to Digital the Company does
not expect future releases of reserves to be comparable in size.
9
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Interest Expense - Interest expense for the quarter ended June 30, 1998 was $676
compared to $890 for the comparable period in 1997. Interest expense for the
first six months were $1,347 in 1998 versus $1,697 in 1997. The decline is
related to the reduction in the amount of debt outstanding under the Company's
revolving credit facility and a decline in interest rates.
Income Tax Expense - Income tax expense for the quarter ended June 30, 1998 was
$323 (24% of income before tax) compared to $127 (20% of income before tax) for
the comparable period in 1997. For the six months ended 1998 and 1997 income tax
expense was $782 and $127 respectively.
Net Income - For the quarter ended June 30, 1998, net income was $1005 (5% of
revenue), compared to $497 (2% of revenue) for the comparable period in 1997.
Net income for the six months ended June 30 was $1,751 (4% of revenue) and
$1,017 (2% of revenue) in 1998 and 1997, respectively.
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.
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 June 30, 1998, the Company had working capital of $461 as compared to
$8,780 at December 31, 1997. The decline stems from the reclassification of an
$8,000 note, due January 31, 1999, from long-term debt to short-term debt as
well as $3,000 in additional short-term borrowing used to purchase shares of the
Company's common stock. 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 reduced its outstanding borrowings under its revolving
credit agreement by $17,332 since December 1996.
The Company is highly leveraged. As of June 30, 1998, the Company had tangible
net worth of $5,284 and total liabilities of $33,904. The Company's cash
requirements at June 30, 1998, included repayment of a revolving loan of
$10,000, plus interest, due December 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, until
such put option is exercised or canceled, of $498 in cash or the Company's
Common Stock.
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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
of further declines in the Company's sales and increases in orders may not be
able to be financed under the Company's revolving credit line.
With the exception of the $3,555 put option and $8,000 NCR note, which is
secured by a mortgage on the Company's Hauppauge facility, and which the Company
believes will have to be refinanced before its January 31, 1999 due date, the
Company believes that cash generated from operations and available under the
Company's revolving credit line will be sufficient to pay its obligations as
they become due. The Company anticipates that it will negotiate an extension of
its current revolving credit line which expires in December 1998. In the event
there is a decline in the Company's sales and earnings and/or a decrease in
availability under the 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 six months ended June 30, 1998
was $2,013, due principally to net income of $1,751 and non-cash expenses
(principally depreciation) of $2,716. These increases in cash provided by
operating activities were partially offset by an increase in inventories of
$1,499 and a decrease in payables and accrued expenses of $1,098. Net cash used
in investing activities was comprised of capital expenditures of $425. Net cash
used in financing activities was comprised of $3,000 used to purchase treasury
stock and $900 to reduce the balance of the Company's term and revolving loans.
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," "expect," and, depending on the context,
"will," 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, 1997. 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.
COMPLIANCE WITH YEAR 2000 ISSUE
Management has initiated a Company wide program to prepare the Company's
computer systems and applications for Year 2000 compliance. The Company expects
to incur internal staff costs as well as other expenses necessary to prepare its
systems for the year 2000. The Company expects to both replace some systems and
upgrade others. Maintenance or modification costs will be expensed as incurred.
The total cost of this effort is still being evaluated, but is not expected to
be material to the Company.
11
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NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS No. 129") is effective for financial statements
ending after December 15, 1997. The new standard reinstates various securities
disclosure requirements previously in effect under Accounting Principles Board
Opinion No. 15, which has been superseded by SFAS No. 128. The Company does not
expect adoption of SFAS No. 129 to have a material effect, if any, on its
consolidated financial position or results of operations.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is permitted. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
Company does not expect adoption of SFAS No. 130 to have a material effect, if
any, on its consolidated financial position or results of operations.
Statement of Financial Accounting Standard No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS No. 131") is effective for
financial statements beginning after December 15, 1997. The new standard
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to stockholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The Company will include information required by SFAS
No. 131 in the Notes to Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None.
12
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PART II - OTHER INFORMATION
Item 5. Other Information
On May 18, 1998, the Board of Directors of the Company approved the repurchase
of 600,000 shares of the Company's then outstanding Common Stock from Morgan
Kent Group, Inc., its majority shareholder. The repurchase at $5 per share, or
approximately 14% below the closing market price on May 15, 1998 as reported on
the Nasdaq SmallCap Market, was authorized to accomplish the following
objectives:
- Reduce the voting power of Morgan Kent Group, Inc. from approximately
51% to approximately 45%; and
- Set aside treasury shares enabling the Company to issue up to 600,000
shares of its Common Stock in acquisitive transactions without
diluting the public shareholders.
As an inducement to the repurchase transaction, the Company issued a warrant to
Morgan Kent Group, Inc. to purchase 150,000 shares of the Company's Common Stock
at an exercise price of $5.80 per common share. The warrant is exercisable
immediately and has a term of seven years.
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 six months ended June 30, 1998.
(b) Reports on Form 8-K - None
13
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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: August 6, 1998
Boundless Corporation
By: /s/Joseph Gardner
- ----------------------------------------
Joseph Gardner
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMRATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 617
<SECURITIES> 0
<RECEIVABLES> 14,443
<ALLOWANCES> 444
<INVENTORY> 14,602
<CURRENT-ASSETS> 32,049
<PP&E> 15,363
<DEPRECIATION> 4,851
<TOTAL-ASSETS> 51,368
<CURRENT-LIABILITIES> 31,588
<BONDS> 8,000
3,555
0
<COMMON> 45
<OTHER-SE> 13,864
<TOTAL-LIABILITY-AND-EQUITY> 51,368
<SALES> 44,794
<TOTAL-REVENUES> 44,794
<CGS> 32,430
<TOTAL-COSTS> 32,430
<OTHER-EXPENSES> 9,831
<LOSS-PROVISION> 412
<INTEREST-EXPENSE> 1,347
<INCOME-PRETAX> 2,533
<INCOME-TAX> 782
<INCOME-CONTINUING> 1,751
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,751
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
